Ap-receivables.docx

AUDIT OF RECEIVABLES AND SALES CHAPTER 3-EXERCISE 1: In the course of your audit of DKNY Company's "Receivables" account as of December 31, 2014, you found out that the account comprised the following items: Trade accounts receivable PI,550,000 Trade accounts receivable, assigned (proceeds from assignment 750,000 amounted to P650,000) Trade accounts receivable, factored (proceeds from factoring done on a without-recourse basis amounted to P250,000 300,000 12% Trade-notes receivable 200,000 20% Trade notes receivable: discounted at 40% upon receipt of the 180-day note on a without recourse basis 300,000 Trade receivables rendered worthless 50,000 Installments receivable, normally due 1 year to two years 600,000 Customers' accounts reporting credit balances arising from sales returns 60,000 Advance payments for purchase of merchandise 300,000 Customers' accounts reporting credit balances arising from advance payments 40,000 Cash advances to subsidiary 800,000 Claim from insurance company 30,000 Subscription receivable due in 60 days, 600,000 Accrued interest receivable 20,000 Deposit on contract bids 50,000 Advances to stockholders (collectible in 2017) 2,000,000 Requirements: 1. How much is the total trade receivables? a. 3,650,000 b. 3,100,000

c. 3,000,000 d. 2,950,000

2.How much is the amount to be presented as "trade and other receivables" under current assets? a. 7,350,000 c. 4,850,000 b. 5,350,000 d. 4,050,000 3. How much loss from receivable financing should be recognized in the income statements? a. 36,000 c. 86,000 b. 50,000 d. 105,000

CHAPTER 3-EXERCISE 2: In your audit of Morgan Inc. for the year 2014, you concluded that the allowance for doubtful accounts should be adjusted to equal the estimated amount required based on aging of the accounts as of December 31. During your audit, you were able to gather the following data: Allowance for doubtful accounts, Jan 1, 2014 P600,000 Provision for doubtful accounts during 2014 (3% of 10M Sales) 300,000 Bad debts written-off in 2014 375,000+ Recovery of bad debts written-off during 2014 100,000Estimated doubtful accounts per aging of accounts 700,000+ on December 31, 2014 Accounts receivable, December 31 2014 2,375,600 1. Based on the result of your audit, what is the correct doubtful accounts expenses for the year 2014? a. 375,000 c.175,000 b. 300,000 d. 75,000 2. What is the correct net book value of the receivables as of December 31, 2014? a. 2,375,000 c. 2,000,000 b. 1,675,000 d. 1,975,000 CHAPTER 3-EXERCISE 3: In relation to your audit of Inuyasha Inc.'s accounts receivable you ascertained the following information: a. The general ledger balances of the client's receivable and related accounts were: Accounts receivables P3,225, 300 Allowance for bad debts (169,000) Amortized cost P3.056,300 b. Inuyasha Inc. estimates its bad debt losses by aging its accounts receivable, the aging schedule of accounts receivable at December 31, 2014, Is presented below: Age of accounts Amount Current P1,686,400 1 to 30 days past due 922,000 31 to 60 days past due 384,800 61 to 90 days past due 153,300 Over 90 days past due 78,800 c. The company normally sells n/30.

d. Furthermore, the company's uncollectible accounts experience for the past 5 years are summarized in the schedule that follows: Year Current 1-30 days 31-60 days 1-90 days More than 90 PD PD PD days PD 2013 1% 6% 9% 23% 55% 2012 2% 8% 10% 18% 60% 2011 1% 4% 11% 16% 45% 2010 3% 5% 12% 22% 45% 2009 3% 2% 8% 21% 45%

Requirements: 1. What are the corresponding percentages to be used per age category in computing for the client's required allowance for bad debts? Current 1-30 31-60 1-90 >90 a 1% 3% 10% 20% 45% b. 1.5% 5% 10% 25% 50% c. 2% 5% 10% 20% 50% d. 2% 3% 10% 25% 45% 2. The required allowance for bad debt expense is: a. 173,653 b. 185,415

c. 188,368 d. 220,842 88

3. The net realizable value of the company's accounts receivable on December 31, 2014, should be: a. 3,036,932 c. 2,986,345 b. 3,004,458 d. 2,976,540 CHAPTER 3-EXERCISE 4: The Mexican Corp. grants its customers 30 days credit. The company uses the allowance method for its uncollectible accounts receivable. During the year, a monthly bad debt accrual is made by multiplying 2% by the amount of credit sales for the month only. At the fiscal year-end of December 31, an aging of accounts receivable schedule is prepared and the allowance for uncollectible accounts is adjusted accordingly. At the end of 2014 before any audit adjustments, the general ledger accounts showed balances of account receivable at P1,230,000 and the allowance for bad debt at P106,000. Accounts receivable activity for 2014 included the following: Credit sales P12,800,000 Write offs, 82,000

The company's controller prepared the following aging summary of year-end accounts receivable: Age Group Amount Percent Collectible 0-60 days P825,000 98% 61-90 days 220,000 90% 91 120 days 50,000 70% Over 120 days 128,000 60% P1.223,000 1t was ascertained that P40,000 from the over 120 days accounts are absolutely worthless. Requirements: 1. How much is the unreconciled difference between the general ledger and the subsidiary ledger balance of accounts receivable and how should it be accounted for: a. P7,000; GL prevailing over SL, with the difference being charged against sales b. P10,000; GL prevailing over SL, with the difference being charged to bad debt expense. c. P7,000; SL prevailing over GL, with the difference being charged against sales. d. P10,000; SL prevailing over GL, with the difference being charged to bad debt expense 2. How much is the total bad debt expense for 2014? a. 304,700. c. 280,700 b. 278,700. d. 294,700 3. How much is the net realizable value of accounts receivable at December 31, 2014? a. 1,123,000 c. 1,094,300 b. 1,118,300 d. 1,223,000 CHAPTER 3-EXERCISE 5: You are auditing the Accounts Receivable of Rovers Inc, as of December 31, 2014. You found the following information in the general journal: Accounts receivable P1,466,720 Less: Allowance for doubtful accounts (46,720) Accounts receivable net P1,420,000 The accounts receivable subsidiary ledger had the following details: Customer Invoice date Amount Balance Gudang 9/12/2014 P139,200 Tisoy 12/12/2014 153,600 12/02/2014 99,200 Gusoy 11/17/2014 185,120 10/08/2014 176,000

Balance P139,200 252,800 361,120

Naning

Nanong Balong Peejong Total

12/08/2014 10/25/2014 8/20/2014 9/27/2014 8/20/2014 12/06/2014 11/29/2014

160,000 44,800 40,000 96,000 71,360 112,000 169,440

244,800 96,000 71,360 281,440 P1,446,720

Additional information: a. You discovered based on your review of subsequent events that Balong recently went bankrupt, thus your suggested that the amount receivable from the same shall be written off. b. You also discovered that the invoice dated 12/02/2014 has already been settled by Tisoy per OR number 34675. This amount however has been erroneously posted against Gusoy's subsidiary ledger as a settlement for an invoice dated 11/05/2014 for the same amount c. The estimated bad debt rates below are based on the company's receivable collection experience: Age of accounts % of Collectibility 0 30 days 98% 31 -60 days 95% 61-90 days 90% 91-120 days 80% Over 120 days 50% Required: 1. Assuming that there were no other entries to the allowance for doubtful accounts, what is the correct bad debt expense for the year? a. 95,680 c.141,984 b. 92,704 d. 144,960 2. What is the correct allowance for bad debt expense for the year ended December 31, 2014? a. 156,000 c. 120,320 b. 153,024 d. 117,344 3. What is the net adjustment to the Accounts receivable in the general ledger? a. 172,560 c. 91,360 b. 119,200 d. 71,360 4. What it the carrying value of the company's accounts receivable as of December 31, 2014? a. 1,255,040 c. 1,275,040

b. 1,258,016

d. 1,295,040

5. What is the necessary adjusting entry to adjust any unlocated difference between the SL and GL? a. Bad debt expense 20,000 Accounts receivable 20,000 b. Sales 20,000 Accounts receivable 20,000 c. Accounts receivable 20,000 Other Income 20,000 d. No necessary entry CHAPTER 3-EXERCISE 6: You were assigned to audit Natasha Inc.'s accounts receivable which had an unadjusted balance per books of (P755,142, net of an allowance for bad debts amounting to P32,858. Your inquiries and investigations revealed the following information: a. The only entries in the Bad debt expense account were:  A credit for P1,296 on December 1, 2014, because a customer remitted in full account charged off on October 31, 2014.  A debit on December 31, for the amount of the credit to Allowance for bad debt on the same date b. The allowance for bad debt accounts had the following details: Jan. 1, balance P15,250 June. 30, write off of accounts (1,296) Aug. 31, write off of accounts (3,280) Oct. 31, write off of accounts (2,256) Dec. 31, Bad debt expense (3%*788,000) 23,640 Dec. 31, balance P32,858 Records revealed that the December 31, 2014 bad debt expense was debited to the bad debt expense account and credited to allowance for bad debt for the amount shown above, while the write offs credited to accounts receivable amounted only to P6,032, Further investigation revealed that the correct amounts to be written off were shown in the analysis above. c. An aging schedule of the accounts receivable as of December 31, 2014, and the decisions are as shown in the table below: Amount to which the allowance is to be adjusted after adjustments and corrections have been made Age Net debit bal. 0-1 Month P372,960 1% 1 - 3 months 307,280 2% 3-6 months 88,720 3%

Over 6 months

24,000 Definitely uncollectible, P4,000; P8,000 is considered to be 50% uncollectible; the remainder is estimated to be750% collectible

d. There is a credit balance in one accounts receivable (0 1 months) of P8,000; it represents an advance on a sales contract; also there is a e in one of the 1-3 months accounts receivable of P2,000 for which merchandise will be accepted by the customer. e. The accounts receivable control account is not in agreement with the subsidiary ledger The differences cannot be located, and the company's accountant decides to adjust the control to the sum of the subsidiaries after corrections are made. Requirements: 1. What is the correct bad debt expense for the year? a. 10,296 c. 13,343 b. 10,640 d. 14,640 2. What is the adjusting journal entry to record the remaining unlocated difference between e general ledger and the subsidiary ledger after consideration of all adjustments? a. Accounts receivable Bad debt expense

P5,760

b. Accounts receivable Sales

P5,760

c. Accounts receivable Sales

P4,960

d. Accounts receivable Bad debt expense

P9,760

P5,760

P5,760

P4,960

P9,760

3. What is the accounts receivable balance on December 31, 2014? a. 793,200 c. 798,960 b. 798,160 d. 808,960 4. What is the required allowance for bad debt expense on December 31, 2014? a. 19,057 c. 29,357 b. 19,857 d. 32,857 5. What is the accounts receivable net of allowance for bad debts? a. 774,143 c. 779,503 b. 779,103 d. 779,903

CHAPTER 3-EXERCISE 7: You are auditing the accounts receivable and the related allowance for bad debts account of Sayote Inc. The control account of the aforementioned accounts had the following balances: Accounts Receivable P1,270,000 Less: Allowance for bad debt (78,000) Net Book Value P1,192,000 Upon your investigation, you found out the following information: a. The company's normal sales term is n/30. b. The allowance for bad debt account had the following details in the general ledger:

July 31 write off

Allowance for Bad Debts 24,000 Jan. 31 Balance Dec. 31 Provision

30,000 72,000

c. The subsidiary ledger balances of the company's accounts receivable as of December 31, 2014 contained the following information: Debit balances Under one month One to six months Over six months

P540,000 552,000 228,000 P1,320,000

Credit balances Kamote Co. Kutchay Corp. Kalachuchi Inc.

P12,000 21,000 27,000 P60,000

Additional information  The credit balance with Kamote Co. was for an overpayment from the customer The company delivered additional merchandise to Kamote Co. on January 3, 2015 to cover such overstatement.  The credit balance of Kutchay Corp. was due to a posting error, the amount should have been credited to Kutchara Corp for a 60 day outstanding receivable.  The credit balance from Kalachuchi was a cash advance for a delivery to be made on January 15, 2015. d. It was estimated that 1 percent of accounts under one month is doubtful of collection while 2 percent of accounts one to six months are expected to require an allowance for doubtful of collection. The account over six months are analyzed as follows: Definitely uncollectible P72,000 Doubtful (estimated to be 50% collectible) 36,000 Apparently good, but slow (estimated to be 90% collectible) 120,000 P228,000

Required: Based on your audit, answer the following: 1. What is the entry to adjust any unlocated difference between the control account and the subsidiary ledger? a. Sales 10,000 Accounts Receivable 10,000 b. Accounts Receivable 10,000 Sales 10,000 c. Sales 14,000 Accounts Receivable 14,000 d. No Unlocated Difference 2. The adjusted accounts receivable balance on December 31, 2014, should be a. 1,212,000 c. 1,239,000 b. 1,227,000 d. 1,260,000 3. The required balance of the allowance for bad debts account on December 31, 2014 is a. 46,020 c. 64,020 b. 46,440 d. 142,020 4. The entry to adjust the allowance for bad debts account is a. Bad debts expense 46,020 Allowance for bad debts 46,020 b. Bad debts expense 52,020 Allowance for bad debts 52,020 c. Allowance for bad debts 6,000 Bad debts Expense 6,000 d. Bad debts expense 40,000 Allowance for bad debts 40,000

CHAPTER 3-EXERCISE 8: The substantiate the existence of the accounts receivable balances as at December 31, 2014 of Lucrative Company, you have decided to send confirmation requests to customers. Below is a summary of the confirmation requests to customers. Below is a summary of the confirmation replies together with the exceptions and audit findings. Gross profit on sales is 20%. The company is under the perpetual inventory method.

Name of Customer

Balance Per Books

Cruz

P50,000

Frias

P10,000

Lazo

P48,000

Sia

P37,500

Yao

P45,000

Comments from Customers P30,000 was returned on January 2, 2015. Correct balance is P20,000. Your CM representing price adjustment dated December 29,2014 cancels this. You have overpriced us by P50. Correct price should be P100. We received the gods only on January 5, 2015. Balance was offset by our December shipment of your raw materials.

Audit Findings Returned goods were received January 5, 2015. The CM was taken up by Lucrative in 2015.

The complaint is valid.

Term is shipping point. Shipped in 2014. Lucrative credited accounts payable for P45,000 to record purchases. Yao is a supplier.

Requirements: 1. If the necessary adjusting journal entry is made regarding the case of Mr. Cruz, the income will: a. increase by P6,000 b. decrease by P30,000

c. decrease by P6,000 d. increase by P30,000 2. The effect on 2014 net income of Lucrative Company of its failure to record CM involving transaction with Mr. Frias: a. P10,000 over c. P2,000 over b. P10,000 under d. P2,000 under 3. The actual number of units sold to Mr. Lazo is: a. 960 c. 480 b. 320 d. 1,920 4. The overstatement of receivable from Mr. Lazo is: a. 32,000 c. 24,000 b. 8,000 d. 16,000 5. The accounts receivable from Mr. Sia is: a. correctly stated c. 37,500 under b. 37,500 over d. 75,000 over 6. The adjusting journal entry to correct the receivable from Mr. Yao is: a. Purchases 45,000 Accounts Payable 45,000 b. Accounts payable 45,000 Purchases 45,000 c. Accounts receivable 45,000 Accounts Payable 45,000 d. Accounts payable 45,000 Accounts receivable 45,000

CHAPTER 3-EXERCISE 9: Milk Corp.'s general ledger showed the following information: Accounts receivable P550,000 Allowance for doubtful accounts (debit) 16,500 Milk Corp.'s accounts receivable subsidiary ledger on the other hand shows the following composition: Customer Zulu Inc.

Invoice Date 12/0614 11/29/14

Invoice Amount P42,000 63.540

Balance P105,540

Yankee Co.

Xylon Inc.

Whiskey Co.

Victory Corp.

Uniform Inc.

09/27/14 08/20/14

36,000 26,760

62,760

12/30/14 12/08/14 10/25/14

20,000 40,000 31,800

91,800

11/17/14 10/09/14

69,420 66,000

135,420

12/12/14 8/20/14

57,600 37,200

94,800

9/12/14

52,200

52,200

Audit Notes: a. The accounts receivables balance were confirmed with the customers. You have noted the following exceptions: Customer Balance Remarks per reply Yankee P36,000 Invoice dated 08/20/14 was already settled. Investigation revealed that Yankee's payment was erroneously posted against Victory Corp.'s account for an invoice dated 12/20/14 for the same amount. Xylon Inc. 71,800 The difference was due to the invoice dated 12/30/14 Goods have not been received by Xylon Inc. yet as of 12/31/14. Term of sale is FOB Destination. Victory Corp. 121,560 "Amount per our records appear to be higher, please check.” Uniform Inc. No reply Uniform Inc is under liquidation and the amount receivable from the company is deemed definitely uncollectible. b.

The company's policy with regard uncollectible accounts are summarized below: Age % uncollectible 0-30 days 1% 31-60 days 2% 61-90 days 5% 91-120 days 10% Over 120 days 50%

Required: 1. What is the correct allowance for bad debts as of December 31, 2014? a. 31,413 c. 31,613 b. 44,525 d. 44,725 2. What is the correct amortized cost of the accounts receivable as of December 31, 2014? a. 470,320 b. 425,795

c. 458,707 d. 438,907

3. What is the correct bad debt expense for the year? a. 100,113 c. 113,225 b. 67,113 d. 100,313 4. What is the entry to record the unlocated difference between the general ledger and the subsidiary ledger? a.

Dr: Bad debt expense Cr: Accounts receivable

7,480

b. Dr: Sales Cr: Accounts receivable

7,480

c. Dr: Alowance for bad debts Cr: Accounts receivables d.

No entry.

7,480

7,480 7,480 7,480