Audit of Receivables

APPLIED AUDITING Audit of Receivables Problem 1

The accounts receivable of FRANCO COMPANY were stated at P1,467,000 in a balance sheet submitted to a banker for credit. You are called upon to audit the report and, upon analysis, the asset was found to consist of the following items: Due from customers on open account  Acknowledged  Acknowledged claim for damages damages Due from consignee at billed price – price  – cost  cost price being P22,500 Investment in and advances to affiliated company Loans to officers and employees Deposits with municipalities – municipalities – bids for contracts Unpaid capital stock subscriptions  Advances to to creditors for merchandise merchandise purchased purchased but not received Cash advanced to salesmen for traveling expenses  Allowance for doubtful doubtful accounts

P

1,125,000 22,500 30,000 150,000 13,500 67,500 60,000

P

24,000 4,500 (30,000) 1,467,000

The amount of P1,125,000 due from f rom customers was the remaining balance after deducting accounts with credit balances of P6,000. During your examination, you noted that on December 31, the company assigned P300,000 of cus tomers’ accounts to secure a 17%, P240,000 note payable. A 1% commission based on the accounts assigned was charged and deducted from the cash received. The client recorded this transaction by a debit to cash and a credit to notes payable. Questions 1. How much is the Accounts Receivable (gross) balance at December 31? a. P 759,000 b. P 789,000 c. P 1,101,000 d. P 1,131,000

2. The total current non-trade receivable balance at December 31 is: a. P 64,500 b. P 96,000 c. P 120,000 d. P 192,000 3. The liability for the accounts receivable – receivable – assigned  assigned is: a. P 237,000 b. P 240,000 c. P 243,000 d. P 300,000 4. The total non-trade receivable balance at December 31 is: a. P 342,000 b. P 318,000 c. P 313,500 d. P 245,000 Problem 2

In your audit of MENDOZA COMPANY for the past calendar year, you find the following accounts:  ACCOUNTS RECEIVABLES RECEIVABLES Jan. 1, 2012 P 800,000 Jan. – Jan. – Dec. Sales 6,300,000

Jan. – Jan. – Dec.  Dec. 2002 collections P 5,900,000 Jan. – Jan. – Dec.  Dec. write-off 100,000

 ALLOWANCE FOR FOR BAD DEBTS DEBTS Jan. – Jan. – Dec.  Dec. Write-off of last year’s receivables P 85,000 Write-off Write-off of this year’s Receivables 15,000

Jan. 1, 2012 P 95,000 Dec. 31 provisions 315,000

In your examination, you find that the balance of Accounts Receivable represents sales of the current audit year only; that credit balances in the subsidiary ledger for accounts receivable totaled P80,000; and that the current year’s provision f or or bad

debts expense was 5% of sales (as compared with 4½% last year, 4% of the year before, and 3½% the next previous year). Sequential to aging the accounts receivable, you and the company’s treasurer agree on an additional write-off of P50,000, and P300,000 as the probable loss to be sustained on collection of the accounts receivable balance. Questions 1. The adjusted Accounts Receivable balance is: a. P 830,000 b. P 1,100,000 c. P 1,130,000 d. P 1,180,000

2. The adjusted Allowance for Bad Debts is: a. P 260,000 b. P 300,000 c. P 315,000 d. P 355,000 3. The adjusted Bad Debts account is: a. P 260,000 b. P 300,000 c. P 315,000 d. P 355,000 4. The provision per record at December 31 is: a. P 260,000 b. P 300,000 c. P 315,000 d. P 355,000 Problem 3

The following selected transactions occurred during the year ended December 31, 2016 of DOMINGO COMPANY: Gross sales (cash and credit) P 900,736.80 Collections from credit customers, net of 2% cash discount 294,000.00 Cash sales 180,000.00 Uncollectible accounts written off 19,200.00 Credit memos issued to credit customers for sales ret./allow. 10,080.00 Cash refunds given to cash customers for sales ret./allow. 15,168.00 Recoveries on accounts receivable written-off in prior years (not included in cash received stated above) 6,505.20  At year-end, the company provides for estimated bad debts losses by crediting the Allowance for Bad Debts account for 2% of its net credit sales for the year. The allowance for bad debts at the beginning of the year is P19,327.20. Questions 1. How much is the DOMINGO COMPANY’s gross sales? a. P 900,736.80 b. P 720,736.80 c. P 704,656.80 d. P 689,488.80

2. DOMINGO COMPANY’s credit sales at December 31, 2016 is: a. P 900,736.80 b. P 720,736.80 c. P 704,656.80 d. P 689,488.80 3. How much is the DOMINGO COMPANY’s net credit sales? a. P 900,736.80 b. P 720,736.80 c. P 704,656.80 d. P 689,488.80 4. The Bad Debts Expense of DOMINGO COMPANY at December 31, 2016 is: a. P 20,725.54 b. P 14,093.14 c. P 8,030.74 d. P7,829.14 5. The Accounts Receivable of DOMINGO COMPANY at December31, 2016 is: a. P 408.042.00 b. P 407,536.80 c. P 401,536.80 d. P 391,456.80 6. The Allowance for Bad Debts of DOMINGO COMPANY at December 31, 2016 is: a. P 20,725.54 b. P 14,093.14 c. P 8,030.74 d. P7,829.14 Problem 4

Presented below are unaudited balances of selected accounts of MARJORIE COMPANY as of December 31, 2016:

Selected Accounts Cash  Accounts receivable  Allowance for doubtful accounts Net sales

P

Unaudited Balances, 12/31/16 Debit Credit 500,000 1,300,000 8,000 P 6,750,000

 Additional information are as follows: a. Goods amounting to P50,000 were invoiced for the accounts of Joy Store & Co., recorded on January 2, 2007 with terms of net, 60 days, FOB shipping point. The goods were shipped to Variety Store on December 30, 2016. b. The bank returned on December 29, 2016, a customer’s check for P5,000 marked “DAIF”, but no entry was made. c. MARJORIE COMPANY estimates that allowance for uncollectible accounts should be one and one-half percent (1½%) of the accounts receivable balance as of year-end. No provision has yet been made for 2016. Questions 1. What is the adjusted balance of Accounts Receivable on December 31, 2016? a. P 1,355,000 b. P 1,350,000 c. P 1,305,000 d. P 1,300,000

2. What is the adjusted balance of Allowance for doubtful accounts on December 31, 2016? a. P 36,325 b. P 28,325 c. P 20,325 d. P 8,000 3. What is the adjusted amount of 2016 Bad Debts Expense? a. P 12,325 b. P 20,325 c. P 28,325 d. P 36,325 Problem 5

During December, 2016, the Accounts Receivable controlling account on the books of FERNANDEZ COMPANY showed one debit posting and two credit postings. The debit represents receivables from December sales, P780,000. One credit was for P470,400, made a result of cash collections on November and December receivables; the second credit was an adjustment for estimated uncollectibles, P90,000. The December 31 balance was P270,000. When receivables were collected, the bookkeeper credited Accounts Receivables for the cash collected. All customers who paid their accounts during December took advantage of the 2% cash discount. As of December 1, debit balance in customers’ subsidiary accounts totaled P177,000. An adjustment for estimated doubtful accounts of P18,000 had been posted to the  Accounts Receivable controlling account at the end of 2002, and no write-offs were recorded during 2016. In addition, a number of customers had overpaid their accounts, and as a result, some of the customers’ subsidiary accounts had credit balances on December 1. No overpayments were made during December nor were an y credit balances in customers’ accounts reduced during December. Questions 1. The Accounts Receivable beginning balance (unadjusted) of FERNANDEZ COMPANY at December 31, 2016 is: a. P 50,400 b. P 68,400 c. P 252,000 d. P 270,000 2. The Accounts Receivable beginning balance (adjusted) of FERNANDEZ COMPANY at December 31, 2016 is: a. P 50,400 b. P 68,400 c. P 252,000 d. P 270,000

3. The Credit Balance of Accounts Receivable at the beginning of the year of FERNANDEZ COMPANY is: a. P 48,600 b. P 66,600 c. P 108,600 d. P 126,600 4. The Accounts Receivable balance of FERNANDEZ COMPANY at December 31, 2016 is: a. P 50,400 b. P 68,400 c. P 252,000 d. P 270,000 Problem 6

You are examining the financial statements of MATIAS CORPORATION for the year ended December 31, 2016. During the audit of the accounts receivable and other related accounts, certain information was obtained. The December 31, 2016 debit balance in the Accounts Receivable control account is P197,000. The only entries in the Bad Debts Expense account were: a credit for P324 on December 31, 2016, because Marlisa Company remitted in full for the accounts charged off October 31, 2016, 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 January 1, 2016 October 21, 2016, Uncollectible; Marlisa Co., - P324; Abonales Co., - P 820; Cherryl Co., - P564 P 1,508 December 31, 2016, 5% of P197,000

Credit

P 9,850

Balance P 3,658

2,150 12,000

 An aging schedule of the accounts receivable as of December 31, 2016 and the decision are shown in the table below:  Age  ____________ 0 – 1 month P 1 – 3 months 3 – 6 months over 6 months

Net Debit Balance ________________ 93,240 76,820 22,180 6,000

Amount to which the Allow. is to be adjusted after adjust. and corrections have been made 1 percent 2 percent 3 percent 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 1-3 months accounts receivable of P500 for which merchandise will be accepted by the customer. The ledger accounts have not been closed as of December 31, 2016. 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. Questions 1. The adjusted balance of accounts receivable of MATIAS CORPORATION at December 31, 2016 is: a. P 199,740 b. P 199,540 c. P 198,300 d. P 198,100 2. The adjusted write-off of accounts receivable balance of MATIAS CORPORATION at December 31, 2016 is: a. P 2,708.00 b. P 2,508.00 c. P 2,384.00 d. P 1,708.00

3. The adjusted allowance of bad debts account of MATIAS CORPORATION at December 31, 2016 is: a. P 4,980.60 b. P 4,964.20 c. P 4,780.60 d. P 4,764.20 4. The bad debts expense per book of MATIAS CORPORATION at December 31, 2016 is: a. P 9,850.00 c. P 4,764.20 b. P 6,359.80 d. Cannot be determined 5. The adjusted bad debts expense of MATIAS CORPORATION at December 31, 2016 is: a. P 3,814.20 b. P 3,614.20 c. P 3,490.20 d. P 2,814.20 6. The entry to adjust the account of Marlisa Company is: a. Bad debts 324 c. Allow. for BD 324  Allow. for BD 324 Bad debts 324 b. Bad debts 324 d. Accounts receiv. 324

 Accounts receivable 324

Bad debts 324

7. The entry to reconcile the accounts receivable control ledger to subsidiary ledger is: a. Accounts receivable 1,440 c. Accounts receiv. 1,440  Allow. for BD 1,440 Misc. income 1,440 b. Allow. for BD 1,440 d. No adjustment  Accounts receivable 1,440 8. The net realizable value of accounts receivable of MATIAS CORPORATION at December 31, 2016 is: a. P 194,975.80 b. P 194,775.80 c. P 193,335.80 d.P193,319.40 Problem 7

You are auditing the Accounts Receivable and the related Allowance for Bad Debts account of ROY COMPANY. The following data are available:  Accounts Receivable, general ledger balance P 848,000  Allowance for bad debts: Beginning balance Provision per general ledger Write-offs Balance, end

P

P

20,000 48,000 (16,000) 52,000

Summary of Aging Schedule The summary of the subsidiary ledger as of December 31, 2016, was totaled as follows: Debit balances: Under on month P 360,000 One to six months 368,000 Over six months 152,000 P 880,000 Credit balances:  Almario P 8,000 - OK; additional billing in January 2004 Peter 14,000 – Should have been credited To Manuel Co. - 1-6 mos. classification. Bituin 18,000 - Advance on a sales contract P 40,000 The customers’ ledger is not in agreement with the accounts receivable control. The client instructs the auditor to adjust the control to the subsidiary ledger after corrections are made.  ALLOWANCE FOR DOUBTFUL ACCOUNTS It is agreed that 1 percent is adequate for accounts under one month. Accounts one to six months are expected to require a reserve of 2 percent. Accounts over six months are analyzed as follows: Definitely bad Doubtful (estimated to be 50% collectible)  Apparently good, but slow (90% collectible) Total

P

P

Questions 1. The Accounts Receivable balance at December 31, 2016 is: a. P 840,000 b. P 826,000 c. P 818,000 d. P 786,000

2. The Allowance for Bad Debts at December 31, 2016 is:

48,000 24,000 80,000 152,000

a. P 74,680 b. P 48,000 c. P 30,680 d. P 26,680 3. The Bad Debts Expense at December 31, 2016 is: a. P 74,680 b. P 48,000 c. P 30,680 d. P 26,680 Problem 8

You have been assigned to audit the financial statement MALAQUI INCORPORATED. The company is a distributor of a variety of electronic appliances and parts. The company uses the calendar year for reporting purposes. Information regarding balances of MALAQUI INCORPORATED’S Accounts Receivable and the related Allowance for Doubtful Accounts as of December 31, 2016 and the related audit finding, is given below. The schedule of accounts receivable furnished you by the accountant reflects some errors. The total figure in the schedule does not tally with the balance per subsidiary ledger of P919,000. Based on your review of sales invoices, purchase orders and other related documents, you noted the following information: 1. Sales on account of various electronics totaling P36,480 were returned by the customer on December 28, 2016, but no entry was made in the books. The goods were included in the year-end physical count. 2. Based on the findings per confirmation reply from a customer, he indicated that he has already paid his account of P23,980 in October, 2016. Your verification disclosed that said collection was credited to net sales account. 3. Collection of P12,950 on November 5, 2016 from Diana Corporation was credited to the account of DNA Corporation. The allowance for doubtful accounts is set at 3% of the outstanding accounts receivable at the end of the period. As of December 31, 2016, the Allowance for Doubtful Accounts has a balance of P32,400 before adjustment. Questions 1. What is the adjusted balance of Accounts Receivable as of December 31, 2016? a. P 919,000 b. P 895,020 c. P 882,520 d. P 858,540 2. What is the adjusted balance of Allowance for Doubtful Accounts as of December 31, 2016? a. P 27,570.00 b. P 26,850.60 c. P 26,475.60 d. P 25,756.20 Problem 9

You audit of APAS COMPANY for the year 2016 disclosed the following: 1. The December 31 inventory was determined by a physical count on December 28 and based on such count, the inventory was recorded by: Inventory 1,400,000 Cost of sales 1,400,000 2. The 2016 ledger shows a sales balance of P20,000,000. 3. The company sells a mark-up of 20% based on sales. 4. The company recognizes sales upon passage of title to the customers. 5. All customers are within a four-day delivery area. The sales register for December, 2016 and January, 2007, showed the following details: December Register Invoice No. 300

301 302 303 304 305

FOB Terms Destination Shipping point Destination Destination Shipping point Shipping point

Date Shipped 12/30 12/30 12/23 12/24 01/02 12/29

Amount P 50,000 62,500 47,500 82,500 56,000 90,000

January Register Invoice No. 306 307 308 309 310

FOB Terms Destination Shipping point Destination Shipping point Shipping point

Date Shipped 12/29 12/29 01/02 01/04 12/27

Amount 67,500 74,500 140,000 73,000 67,500

Questions 1. The Sales for December is over/(under) by: a. P 36,000 under c. P 106,000 under b. P 36,000 over d. P 106,000 over

2. The Inventory for December is over/(under) by: a. P 235,600 under c. P 181,600 under b. P 235,600 over d. P 181,600 over 3. The adjusted inventory at December 31, 2016 is: a. P 1,645,412 b. P 1,635,600 c. P 1,218,400 d. P 1,164,400 4. The adjusted sales at December 31, 2016 is: a. P 20,106,000 b. P 20,036,000 c. P 19,964,000 d. P 19,894,000 5. How much sales for the month of December 2016 were erroneously recorded in January 2007? a. P 282,000 b. P 272,500 c. P 198,000 d. P 142,000 6. How much sales for the month of January 2007 were erroneously recorded in December 2016? a. P 228,500 b. P 188,500 c. P 180,500 d. P 106,000

Problem 10

You are engaged to perform an audit of the accounts of the JELLER CORPORATION for the year ended December 31, 2016, and have observed the taking of the physical inventory of the company on December 27, 2016. Only merchandise shipped by the Durian Corporation to customers up to and including December 27, 2016 have been removed or excluded from inventory. The inventory as determined by physical inventory count has been recorded on the books by the company’s controller. No perpetual inventory records are maintained. All sales are made on an FOB shipping point basis. The following lists of sales invoices are entered in the sales books for the months of December 2016 and January 2007, respectively. Sales Invoices Date Amount Date Shipped December 2016 (a) 12/23/16 P 25,000 12/31/16 (b) 12/27/16 18,000 12/27/16 (c) 12/30/16 30,000 01/05/07 (d) 12/22/16 12,000 01/08/07 (e) 12/28/16 16,000 12/29/16 (f) 12/03/16 8,000 12/05/16 (g) 12/31/16 20,000 01/07/07 (h) 12/31/16 14,000 12/31/16 January 2017 (i) 12/31/16 7,500 12/29/16 (j) 12/27/16 11,000 01/04/07 (k) 01/08/07 9,000 01/09/07 (l) 01/10/07 5,000 12/31/16

Questions 1. How much sales for month of December 2016 were erroneously recorded in January 2007? a. P 7,500 b. P 12,500 c. P 18,500 d. P 20,000

2. How much sales for the month of January 2007 were erroneously recorded in December 2016? a. Zero b. P 12,500 c. P 20,000 d. P 62,000 3. How much is the correct amount of sales for the month ended December 31, 2016? a. P 143,000 b. P 155,500 c. P 93,500 d. P 81,000 Problem 11

On September 1, DY COMPANY assigns specific receivables totaling P750,000 to Davao Bank as collateral on a P625,000, 12% note. DY COMPANY will continue to collect the assigned accounts receivable. Davao Bank also assesses a 2% service charge on the total accounts receivable assigned. DY COMPANY is to make monthly payments to Davao Bank with cash collected on assigned accounts receivable. Collections of assigned accounts during September totaled P260,000 less cash discounts of P3,500. Questions 1. What were the proceeds from the assignment of DY COMPANYs’ accounts receivable on  September 1? a. P 610,000 b. P 612,500 c. P 625,000 d. P 735,000 2. What amount is owed to Davao Bank by DY COMPANY for September collections plus accrued interest on the note to September 30? a. P 260,000 b. P 262,750 c. P 264,000 d. P 266,250

Problem 12

On April 1, 2016, VAILOCES CORPORATION assigned accounts receivable totaling P400,000 as collateral on a P300,000, 16% note from Racel Bank. The assignment was done on a nonnotification basis. In addition to the interest on the note, the bank also receives a 2% service fee, deducted in advance on the P300,000 value of the note. Additional information is as follows: 1. Collections of assigned accounts in April totaled P191,100, net of a 2% sales discount. 2. On May 1, VAILOCES CORPORATION paid the bank the amount owed for April collections plus accrued interest on note to May 1. 3. The remaining accounts were collected by VAILOCES CORPORATION during May except for P2,000 accounts written-off as worthless. 4. On June 1, VAILOCES CORPORATION paid the bank the remaining balance of the note plus accrued interest. Questions 1. The total interest expense of VAILOCES CORPORATION on the assigned accounts receivable is: a. P 5,400 b. P 8,066 d. P 10,000 c. P 11,400 Problem 13

UY FINANCE CORPORATION purchases the accounts receivable of other companies on a without recourse, notification basis. At the time the receivables are factored, 15% of the amount factored is charged to the client as commission and recognized as revenue in UY’S books. Also, 10% of the receivables factored is withheld by Uy as protection against sales returns or other adjustments. This amount credited by Uy to the client Retainer account. At the end of each month, payments are made by Uy to its clients so that the balance in the Client Retainer account is equal to 10% of unpaid factored receivables. Based on Uy’s bad debt loss experience, an allowance for bad debts of 5% of all factored receivables is to be established, Uy makes adjusting entries at the end of each month. On January 3, 2013, Jannette Company factored its accounts receivable totaling P1,000,000. By January 31, P800,000 on these receivables had been collected by Uy.

Questions 1. The commission earned of Uy Finance Corporation f rom Jannette Company’s accounts receivable factored is: a. P 150,000 b. P 120,000 c. P 135,000 d. P 90,000 2. The proceeds received by Jannette Company on the accounts factored is: a. P 810,000 b. P 780,000 c. P 765,000 d. P 750,000 3. How much is the Client Retainer account of Uy Finance Corporation at January 31, 2013 is: a. P 0 b. P 20,000 c. P 60,000 d. P 80,000 4. How much is the bad debts expense of Uy Finance Corporation at January 31, 2013 is: a. P 50,000 b. P 40,000 c. P 20,000 d. P 0 Problem 14

During your audit of the LEILANI COMPANY for the calendar year 2016, you find the following accounts: NOTES RECEIVABLE Sept. 1 Samson, 12%, due in 3 mos. Nov. 1 Hazel, 15%, due in 6 mos. Nov. 1 Salazar, no interest, due in one year Nov. 30 Rosa, Co. 12%, due in 13 mos. Dec. 1 Rona, 15%, due in 15 mos. Dec. 2 Anito, President, 18%, due in 3mos.

36,000 90,000 75,000 15,000 36,000 18,000

36,000 126,000 201,000 216,000 252,000 270,000

NOTES RECEIVABLE DISCOUNTED Sept. 1 Samson note, discounted at 15% 36,000 Nov. 1 Salazar note, discounted at 15% 75,000

36,000 111,000

INTEREST EXPENSE Sept. 1 Samson note Nov. 1 Salazar note

310.50 11,560.50

310.50 11,250.00

 All notes are trade notes receivable unless otherwise specified. The Samson note was paid December31, 2016. Interest income is credited only upon receipt of cash. Questions 1. The accrued interest income at December 31, 2016 is: a. P 2,748 b. P 3,018 c. P 3,120 d. P 4,200 2. The interest expense at December 31, 2016 is: a. P 1,875.00 b. P 2,185.50 c. P 4,060.50 d. P 11,560.50 3. The Notes Receivable at December 31, 2016 is: a. P 141,000 b. P 159,000 c. P 216,000 d. P 252,000 4. The Notes Receivable – discounted at December 31, 2016 is: a. P 63,750 b. P 73,125 c. P 75,000 d. P 111,000 5. How much is the proceeds in the discounting of notes receivable for the year? a. P 99,439.50 b. P 100,060.50 c. P 111,000.00 d. P 111,310.50 END

“It does not matter how slowly you go as long as you do not stop.”