Audit of Receivable

AUDIT OF RECEIVABLE (CPAR OCT 2013 AP-7407) PROBLEM NO.1 In connection with your examination of the financial statements of john inc for the year ended dec 31 2013 you were able to obtain certain information during your audit of the accounts receivable and related accounts. a. The dec 31 2013 balance of accounts receivable control account is 558,600 b. The aging schedule of the accounts receivables of dec 31 2013 is presented below: Net debit percentage to be applied after Age balance corrections have been made 60days under 258,513 1% 61-90 days 204,735 3% 91-120 days 59,886 6% Over 120 days 35,466 definitely uncollectible,6,300; the remainder is estimated to be 25% uncollectible 558,600 c. The only entries made by the doubtful accounts were 1. A debit on dec 31 for the amount of credit to allowance for doubtful accounts 2. A credit for 4,110 on nov 30 2013 and a debit to allowance for doubtful accounts because of a bankruptcy. The related sales took place on oct 1 2013 d. The allowance for doubtful accounts schedule is presented below: Debit credit balance Jan 1 2013 13,125 Nov 30 2013 4,110 9,015 Dec 31 2013 27,930 36,945 e. There is s credit balance in one account receivable (61 to 90 days) of 7,260; it represents an advance on a sales contract Required Based on the above and the result of your audit, answer the following 1. How much is the adjusted balance of accounts receivable as of dec 31 2013 a. 555,450 b.559,560 c.540,930 d.548,190 2. How much is the adjusted balance of the allowance for doubtful accounts as of dec 31 2013 a. 19,706 b. 19,583 c.19,830 d.19,147 3. How much is the doubtful accounts expense for the year 2013 a. 16,991 b.16,868 c.17,115 d.27,930 4. How much is the net adjustment to the doubtful accounts expense account ? a.6,952 credit b.6,705 credit c.6,829 credit d.4,110debit PROBLEM 2 DOK inc had the following long-term receivable account balances at dec 31 2012 note receivable from sale of division 1,500,000 note receivable from officer 400,000 transaction during 2013 and other information relating to doks long-term receivables were as follows 1. The 1,500,000 note receivable is dated on may 1 2012 bears interest at 9% and represent the balance of the consideration received from the sale of doks electronics division to york company. Principal payments of 500,000 plus appropriate interest are due on may 1 2013,2014 and 2015. The first principal and interest payment was made on may 1 2013. Collection of the note installments is reasonably assured 2. The 400,000 note receivable is dated dec 31 2012, bears interest at 8% and is due on dec

31 2015.the note is due from may rox president of dok inc and is collateralized by 10,000 shares of doks ordinary shares. Interest is payable annually on dec 31, and all interest payments were paid on their due dates through dec 31 2013. The quoted market price of doks ordinary share was P45 per share ok dec 31 2013 3. On april 1 2013, dok sold a patent to pen company in exchange for 100,000 zero-interestbearing note due on april 1 2015. There was no established exchange price for the patent, and the note had no ready market. The prevailing rate of interest for a note of this type at 멕 1 2013 was 12%. The present value of P1 two periods at 12% is 0.797 (use this factor). The patend had a carrying value of 40,000 at jan 1 2013 and the amortization for the year ended dec 31 2013 , would have been 8,000. The collection of the note receivable from pen is reasonably assured 4. On july 1 2013 dok sold a parcel of land to sprinter company for 200,000 under an installment sale contract. Sprinter made a 60,000 cash down payment on july 1 2013, and signed a 4-year 11% note for the 140,000 balance. The equal annual payments of principal and interest on the note will be 45,125 payable on july 31 2014, through july 1 2017. The land could have been sold at an established cash price of 200,000. The cost of the land to dok was 150,000. Circumstances are such that the collection of the installment on the note is reasonably assured. Based on the preceding information, calculate the following: 1. Accrued interest receivable on dec 31 2013 .a.75,400 b.99,700 c.67,700 d.97,700 2. Carrying value on dec 31 2013 of the zero interest bearing note from the sale of patent a. 79,700 b. 72,527 c.92,827 d.86,873 3. Interest income for the year ended dec 31 2013 a.151,873 b.72,527 c.92,827 d.86,873 4. current portion of long-term receivable on dec 31 2013 a.537,425 b.529,725 c.545,125 d.640,000 5. total long-term receivables on dec 31 2013 a.1,103,102 b. 1,097,148 c. 1,081,748 d.1,087,702 PROBLEM 4 Yoke bank loaned 16,500,000 to bargain company on jan 1 2012. The initial loan repayment terms include 10% interest rate plus annual principal payments of 3,300,000 on jan 1 each year. Bargain made the required interest payment in 2012 but did not made the 3,300,000 principal payment nor the 1,650,000 interest payment for 2013. Yoke is preparing its annual financial statements on dec 31 2013. Bargain is having financial difficulty, and yoke has concluded that the loan in impaired. Analysis of bargains financial condition on dec 31 2013, indicated the principal payments will be collected but the collection of the interest in unlikely. Yoke did not accrue the interest on dec 31 2013 The projected cash flows are: Dec 31 2014 5,250,000 Dec 31 2015 6,000,000 Dec 31 2016 5,250,000 16,500,000 1. What is the loan impairment loss on dec 31 2013 a. 2,824,500 b.1,650,000 c. 0 d.16,500,000 2. What is the interest income to be reported buy yoke bank in 2014? a. 1,504,305 b.979,305 c.1,367,550 d.1,650,000 3. What is the carrying value of the loan receivable on dec 31 2015?

a. 4,772,355 b.5,250,000 c.9,793,050 4. What is the interest income in 2015 a. 477,237 b.1,650,000 c.1,367,550 5. What is the interest income in 2016 a. 477,645 b.1,650,000 c.979,305

d.13,675,500 d.979,305 d.1,367,550

THEORY 1. In the audit of which of the following general ledger accounts will tests of controls be particularly appropriate? a. Equipment b.bonds payable c.bank charges d.sales 2. The auditor most likely review an entity’s periodic accounting for the numerical sequence of shipping documents and invoices to support managements financial assertion of? a. Existence b.rights and obligation c.valuation d.completeness 3. Which of the following might detected by an auditors review of clients sales cut-off a. Excessive goods returned for credit c.lapping of year-end accounts receivable b. Unrecorded sales discount d.inflated sales for the year 4. Cut-off test designed to detect credit sales made before the end of the year that have been recorded in the subsequent year provide assurance about managements assertion of? a. presentation and disclosure c.rights and obligation b. completeness d.exestence 5. the auditor finds the situation in which one person has the ability to collect receivables, make deposit, issue credit memos, and record receipts of payments. The auditor suspects the individual may be stealing from cash receipts. Which of the following audit procedures would be most effective in discovering fraud in this scenario? a. send positive confirmations to a random selection of customers b. send negative confirmations to all outstanding accounts receivable customer’s. c. performed a detailed review of debits to customer discounts, sales returns , or other debit accounts, excluding cash posted to cash receipts journal. 6. Which of the following most likely would give the most assurance concerning the valuation assertion of accounts receivable? A. vouching the amounts in the subsidiary ledger to details on shipping documents b. comparing receivable turnover ratios with industry statistics for reasonableness c. inquiring about receivables pledged under load agreements d. assessing the allowance for uncollectible accounts for reasonableness 7. in confirming accounts receivable, an auditor decided to confirm customers’ account balances rather than individual invoices. Which of the following most likely would be included with the client’s confirmation letter? a. an auditor-prepared letter explaining that a non-response may cause inference that the account balance is correct b. a client-prepared letter reminding a customer that a non-response will cause a secont request to be sent c. an auditor-prepared letter requesting the customer to supply missing and incorrect information directly to the auditor. d. a client-prepared statement of account showing the details of the customer’s account balance. 8. which of the following statement would an auditor most likely add to the negative form of confirmations of accounts receivable to encourage timely consideration by the recipients? a. “this is not a request for payment; remittances should not be sent to our auditors in the

enclosed envelopes” b. “report any differences on the enclosed statement directly to our auditors; no reply is necessary if this amount agrees with your records” c. “if you do not report any differences within fifteen days, it will be assumed that this statement is correct” d. “the following invoices have been selected of confirmation and represent amounts that are overdue” 9. confirmation, which is a specific type of inquiry, is the process of obtaining a representation of information or of an existing condition directly from a third party. Two assertions for which confirmation of accounts receivable balances primary evidence are. a. completeness and valuation c. rights and obligation and existence b. valuation and rights and obligation d. existence and completeness 10 auditors may use positive or negative forms of confirmation request for accounts receivable. An auditor most likely use

a. the positive form to confirm all balances regardless of size b. the combination of two forms, with the positive form used for large balances and the negative form for the small balances c. a combination of two forms, with the positive form used for trade receivables and the negative form for other receivables. d. the positive form when the combined assessed level of inherent and control risk for assertions related to receivables is acceptably low, and the negative form when it is unacceptably high.