Question

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(1) Trade notes and accounts receivable as of December 31, 2014 and 2013, consist of the following: In millions of Korean Won December 31, 2014 December 31, 2013 Current Description Trade notes and accounts receivable Allowance for doubtful accounts W (?) (58,706) Current W 3,531,279 (45,934) Present value discount accounts W 3,750,092 W 3,485,345 (2) Aging analysis of trade notes and accounts receivables As of December 31, 2014 and 2013, total trade notes and accounts receivable that are past due, amount to W311,979 million and W310.984 million, respectively, of which W282,969 million and W264.159 million, respectively, are past due less than 90 days. Required: A. Compute the total trade notes and accounts receivable gross as of Dec 31 2014. (1 points) B. Compute the current trade notes and accounts receivable gross as of Dec 31 2014. (2 points) C. Historically, the company has experienced credit losses as follows: 7% of balance past due less than 90 days, 13.5% of balance past due more than 90 days. Compute the historical loss rate for current receivable. (4 points) D. Bad debt expense in 2014 amounted to $21,322. What are the write offs in 2014? (3 points) E. What are factors that affect the historical loss rete for each age category? (2 points)

Answer 1

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Answer A	Dec 31. 2014	Note
Total trade notes and accounts receivable- net	3,750,092.00
Add: allowance for doubtful accounts	58,706.00
Total trade notes and accounts receivable- gross	3,808,798.00	A
Answer B	Dec 31. 2014
Total trade notes and accounts receivable- gross	3,808,798.00	See A
Less: trade notes and accounts receivable- past due	311,979.00
Current trade notes and accounts receivable- gross	3,496,819.00	B
Answer C
Trade notes and accounts receivable- past due	311,979.00
Less: trade notes and accounts receivable- past due for less than 90 days	282,969.00
Trade notes and accounts receivable- past due for less more 90 days	29,010.00	C
	D	E	F=D*E
Calculation of allowance for doubtful accounts on debts past due	Amount	Rate	Allowance Amount
Trade notes and accounts receivable- past due for less than 90 days	282,969.00	7.00%	19,807.83
Trade notes and accounts receivable- past due for more than 90 days	29,010.00	13.50%	3,916.35
			23,724.18	G
	Amount
Total allowance for doubtful accounts	58,706.00
Less: allowance for doubtful accounts on debts past due	23,724.18	See G
Allowance for doubtful accounts on current receivable	34,981.82
Current trade notes and accounts receivable- gross	3,496,819.00	See B
Historical loss rate for current accounts receivable	1.00%	H= G/B
Answer D
Closing allowance for doubtful accounts	58,706.00
Add: Bad debt expense during 2014	21,322.00
Less: Openings allowance for doubtful accounts	45,934.00
Write offs in 2014	34,094.00
Answer E
Factors affecting historical loss rate are:
Age of the receivables: The older the receivable is the more is the chance that it will not be recovered. So for these accounts high loss rate should be assumed.
History of collections: If it is noticed before that collection of certain accounts receivable are difficult and some customers don't pay in time regularly. Then loss rate for them automatically become high.
Financial Status of customers: If there is news in the market that a certain customer is going out of business or becoming bankrupt then loss rate on those receivables will have to be high.