Assignment-no.-2-audit-of-receivables.doc

Assignment No. 1 – Audit of Receivables Instruction: Write your solution in a piece of paper and write your name on top of it. Double rule your answer. We will check your assignment on Friday, November 20, 2020. 1. You were engaged to audit the books of account of A. Bonifacio Contractors which had a 3-year construction contract in 2017 for P900,000. A. Bonifacio uses the percentage cost of completion method for financial statement purposes. Income to be recognized each year is based on the ratio of cost incurred to total estimated cost to complete the contract. Data on this contract follows: Accounts receivable construction contact billings Construction in progress Less: Amount billed 10% retention Net income recognized in 2017 (before tax)

P 30,000 93,750 84,375 9,375 15,000

A. Bonifacio Contractors maintains a separate bank account for each construction contract. Bank deposits to this contract amounted to P50,000. A. How much cash collected on the contract was not deposited at December 31, 2017? (5 points) B. What was the estimated total income before tax on the contract. (5 points) 2. The following T accounts were made for the transactions given, affecting the accounts receivable of Charry Company for 2019. Jan. 1 balance after deducting credit balance of P 3,000 Charge Sales Charge for goods out on consignment Shareholders subscription Accounts written off but recovered Cash paid on customer for Jan. 1 credit balance Deposit on contract Claim against common carrier for shipping damages IOUS from employees Cash advance to affiliate Advance to supplier

Accounts Receivable Collections from customers, 53,000.00 including overpayment of P5,000 625,000.00

620,000.00

Write offs

3,500.00 2,500.00

30,000.00

Merchandise Returns Allowance to customers for shipping damages

1,000.00

Collections on carrier claims

1,000.00

2,500.00 15,000.00

Collection on subscription  

15,000.00

1,500.00 500.00 10,000.00 5,000.00

       

5,000.00

1,500.00

Determine the correct Accounts Receivable balance. (5 points) Prepare adjusting journal entries. (20 points) 3. You are examining the financial statements of Demo, Inc., for the year ended December 31, 2019. During the audit of the accounts receivable and other related accounts, certain information was obtained. The December 31, 2019 debit balance in the Accounts Receivable control account is P 197,000. The only entries in the Bad Debts expense account were: A credit for P324 on December 1, 2017, because company A remitted in full for the accounts charged off October 31, 2017, and a debit on December 31 for the amount of the credit to the Allowance for Doubtful Accounts. The Allowance for Doubtful Accounts schedule is presented below: Debit Credit Jan. 1, 2019 October 21, 2019, Uncollectible; Co. A, P324; Co. B, P820; Co. C P564 P1,508 December 31, 2019, 5% of P197,000 P9,850

Balance P3,658 2,150 P12,000

An aging schedule of the accounts receivable as of December 31, 2019 and the decision are shown in the table below. Age

Net Debit Balance

Amount to which the Allowance is to be adjusted after Adjustments and Corrections have been made

0.1 Month

P 93,240

1 percent

1-3 months

P 76,820

2 percent

3-6 months

P 22,180

3 percent

Over 6 months

P 6,000

Definitely uncollectible, P1,000; P2,000 is considered 50% uncollectible; the remainder is estimated to be 80% collectible.

There is a credit balance in one account receivable (0-1 month) of P2,000; it represents an advance on a sales contract. Also, there is a credit balance in one of the 1-2 months account receivable of P500 for which merchandise will be accepted by the customer.

The ledger accounts have not been closed as of December 31, 2019. The Accounts Receivable control account is not in agreement with the subsidiary ledger. The difference cannot be located, and the auditor decides to adjust the control to the sum of the subsidiaries after corrections are made. A. Prepare audit work papers for the accounts receivable and compute the following: (15 points) a. Adjusted balance of Allowance for Doubtful Accounts as of December 31, 2019. (5 points) b. Adjusted balance of Accounts Receivable as of December 31, 2019. (5 points) Sample Working paper Account Receivable Balance Per General Legder

Per Subsidiary

Aging Distribution 0 -1 month

Months Outstanding

1-3 months

3-6 months

Over 6 months

Unadjusted Balances Add (Deduct) Adjustments Adjusted Balance

4. Ling. Inc. had the following long term receivable account balances at December 31, 2016: Note receivable from sale of division Note receivable from officer

P 1,500,000 400,000

Transactions during 2019 and other information relating to Ling’s long-term receivables were as follows: A. The P1,500,000 note receivable is dated May 1, 2016, bears interest at 9%, and represents the balance of the consideration received from the sale of Ling’s electronics division to Ally Company. Principal payments of P500,000 plus appropriate interest are due on May 1, 2017, 2018, and 2019. The first principal and interest payment was made on May 1, 2017. Collection of the note instalments is reasonably assured. B. The P400,000 note receivable is dated December 21, 2014, bears and interest at 8%, and is due on December 31, 2019. The note is ude from Richard Cage, president of Ling, Inc., and is collaterized by 10,000 shares of Ling’s ordinary shares. Interest is payable annually on December 31, and all interest payments were paid on their due dates through December 31,

2017. The quoted market price of Ling’s ordinary share was P45 per share on December 31, 2017. C. On April 1, 2017 Ling sold a patent to Nell Company in exchange for a P100,000 non-interest bearing note due on April 1, 2019. There was no established exchange price for the patent, and the note had no ready market. The prevailing interest rate for a note of this type at April 1, 2017 was 15%. The present value of P1 for two periods at 15% is 0.756. The patent had a carrying value of P40,000 at January 1, 2017, and the amortization for the year ended December 31, 2017 would have been P8,000. The collection of the note receivable from Nell is reasonably assured. D. On July 1, 2017 Ling sold a parcel of land to Elaine Company for P200,000 under an installment sale contract. Ellaine made a P60,000 cash down payment on July 1, 2017 and signed a 4-year, 16% note for the P140,000 balance. The equal annual payments of principal and interest on the note will be P50,000, payable on July 1, 2018 through July 1, 2021. The land could have been sold at an established cash price of P200,000. The cost of the land to Ling was P150,000. Circumstances are such that the collection of the installments on the note is reasonably assured. Compute the following: a. b. c. d.

Long term portion of the 9% Note Receivable at December 31, 2107. (5 points) Interest income from Note receivable, Officer for 2017. (5 points) Non-interest-bearing Note, Net of imputed interest at December 31, 2017. (5 points) Long-term portion of Installment Contract Receivable at December 31, 2017. (5 points)

5. The December 31, 2018 statement of financial position of Help Company included the following information: Notes Receivable

P598,000

Less: NR Discounted

(380,000)

Accounts Receivable

P2,240,000

Less: Allowance for D.A

(141,000)

Total receivables

P218,000

2,099,000 2,317,000

The following transactions occurred during 2019: A. Sales on account

- P 8,812,000

B. Collections on accounts

- P 8,410,000

C. Accounts Receivable written off as uncollectible

- P 138,000

D. Notes receivable collected - P 290,000 E. Customer notes received in payment of accounts receivable - P 740,000 F. Notes receivable discounted paid at maturity

- P 360,000

G. Notes receivable discounted but defaulted, including interest of P200 and a P100 fee. This amount is expected to be collected in 2020. – P20,300 H. Proceeds from customer notes discounted (face value P450,000 accrued interest income, P2,000) – P 448,500 I.

Collections on accounts previously written off – P 5,000

J.

Sales returns and allowances – P 20,000

K. Required allowance for doubtful accounts based on impairment assessment at year end – P 12,000 Based on the above and the result of your audit, compute the following: a. b. c. d.

How much is the loss from discounting of notes receivable? (5 points) Adjusted balance of Accounts Receivable as of Dec. 31, 2019. (5 points) Adjusted balance of Notes Receivable as of Dec. 31, 2019. (5 points) How much is the amount to be reported as trade and Other Receivables in the entity’s statement of financial position as of December 31, 2019. (5 points)