Pamantasan ng Cabuyao
Katapatan Subd., Banay Banay, City of Cabuyao
Task No. 1
Name: _________________________________
Score: ___________
Auditing and Assurance: Concepts and Principles, Part I
Mr.W. E. Peralta
INSTRUCTION: Solve the following problems. Show your solutions in good form.
Problem I
You are given the following data of cash account of XXX Company for the year 2021:
Reconciling items:
Deposit in transit
Outstanding checks
NSF checks
Customer’s note collected by bank
Bank service charges
Erroneous bank debits
Erroneous bank credits
Book balances
Bank balances
December transactions:
Receipts
Disbursement
November 30
P10,400
16,014
1,052
3,000
100
1,200
2,000
December 31
?
?
P1,400
8,554
130
1,800
6,000
?
261,120
332,472
?
Books
P302,460
222,846
Bank
P299,902
220,196
REQUIRED:
Prepare the following:
1. A four – column reconciliation that would end at adjusted balances.
2. Adjusting journal entries as of December 31, 2021.
Problem II
You were given the following data by CC Company and ask you to prepare a four-column reconciliation of receipts,
disbursements, and balances using the adjusted balance method and to submit adjusting journal entries as of September
30, 2021.
August 31
September 30
a) Balances per bank
P14,010
P19,630
b) Balances per books
13,290
18,195
c) Deposits in transit
2,740
3,110
d) Outstanding checks
4,260
3,870
e) Bank collections not in books
1,200
1,600
f) Bank charges not in books
950
640
g) Of the outstanding checks on September 30, one check for P700 was certified at the request of the payee.
h) Receipts for September, per bank statement – P281,070.
i) September disbursement per cash journals – P274,635.
j) NSF check from customer was charged by the bank on September 28 and has not been recorded – P800.
k) NSF check returned in August and recorded in September – P1,050.
l) NSF check returned and recorded in September – P900.
m) Check of BB Corporation charged by the bank in error – P2,010.
n) Receipts on September 6 paid out in cash for travel expenses – P750.
o) Error in recording customer’s check on September 20 – P165 instead of P465.
p) Error in disbursements journal for September – P3,250 instead of P325.
You noted in your audit that the NSF checks returned by the bank are recorded as a reduction in the cash receipts journal
instead of recording them in the cash disbursements journals; redeposit are recorded as regular cash receipts.
Problem III
You obtained the following information on the current account of AB Company during your examination of its financial
statements for the year ended December 31, 2021.
The bank statement on November 30, 2021 showed a balance of P76,500. Among the bank credits in November was a
customer’s note for P25,000 collected for the account of the company which the company recognized in December among
its receipts. Included in the bank debits were cost of checkbooks amounting to P300 and P10,000 check which was charged
by the bank in error against AB Company’s account. Also, in November, you were able to ascertained that there were
deposits in transits amounting to P20,000 and outstanding checks totaling P42,500.
The bank statement for the month of December showed total credits of P104,000 and total charges of P51,000. The
company’s books for December showed total receipts of P183,900, disbursements of P101,800, and a balance of
P121,400. Bank debit memos for December were: No. 144 for service charges, P400 and No. 146 on a customer’s returned
check marked “DAIF” for P6,000.
On December 31, 2021, the company placed with the bank a customer’s promissory note with a face value of P30,000 for
collection. The company treated this note as part of its receipts although the bank was able to collect on the note only in
January 2022.
A check for P990 was recorded in the company cash payments books in December as P9,900.
1. How much is the total undeposited collections as of December 31, 2021?
A. P84,900
B. P54,900
C. P44,900
D. P34,900
2. How much is the total outstanding checks as of December 31, 2021?
A. P47,900
B. P90,490
C. P99,400
D. P90,790
3. How much is the adjusted cash balance as of November 30, 2021?
A. P54,000
B. P64,000
C. P44,000
D. P39,300
4. How much is the adjusted bank receipts for December?
A. P158,900
B. P128,900
C. P118,900
D. P108,900
5. How much is the adjusted book disbursements for December?
A. P56,490
B. P98,990
C. P107,900
D. P99,290
Problem IV
In connection with your preparation of the financial statements of ABC Company for the year ended December 31, 2021, you
were able to obtain certain information about accounts receivable and related accounts as follows:
1.
The December 31, 2021 balance in the Accounts Receivable control account is P558,600.
2.
The aging schedule of the account receivable as of December 31, 2021 is presented below:
Net Debit
Percentage To Be Applied
Age
Balance
Corrections Have Been Made
60 days and under
P258,513
1 percent
61 to 90 days
204,735
3 percent
91 to 120 days
59,886
6 percent
Over 120 days
35,466
Definitely uncollectible, P6,300;
The remainder is estimated to be
25% uncollectible.
3.
The only entries made in the Doubtful Expense account were:
a. A debit on December 31, for the amount of the credit to the Allowance for Doubtful Accounts.
b. A credit for P4,110 on November 30, 2021, and a debit to Allowance for Doubtful Accounts because of
bankruptcy. The related sales took place on October 1, 2021.
4.
The Allowance for Doubtful Accounts schedule is presented below:
Debit
January 1, 2021
November 30, 2021
P4,110
December 31, 2021 (P558,600 x 5%)
5.
Credit
P27,930
Balance
P13,125
9,015
36,945
There is a credit balance in one account receivable (61 to 90 days) of P7,260; it represents on an advance on sales
contract.
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 December 31, 2021?
A. P555,450
B. P559,560
C. P540,930
D. P548,190
2. How much is the adjusted balance of the Allowance for Doubtful Accounts as of December 31, 2021?
A. P19,706
B. P19,583
C. P19,830
D. P19,147
3. How much is the doubtful accounts expense for the year 2021?
A. P16,991
B. P16,868
C. P17,115
D. P27,930
4. How much is the net adjustment to the Doubtful Accounts Expense account?
A. P6,952 credit
B. P6,705 credit
C. P6,829 credit
D. P4,110 debit
Problem V
Hi-Low Corp. had the following long-term receivable account balances at December 31, 2020:
Note receivable from sale of division
P4,500,000
Note receivable from officer
1,200,000
Transactions during 2021 and other information relating to Hi-Low’s long-term receivable were as follows:
1.
The P4,500,000 note receivable is dated May 1, 2020, bears interest at 9%, and represents the balance of consideration
received from the sale of Hi-Lows beer division to Beer-Hug Co. Principal payments of P1,500,000 plus appropriate
interest are due on May 1, 2021, 2022, and 2023. The first principal and interest payment was made on May 1, 2021.
Collection of the note installments is reasonably assured.
2.
The P1,200,000 note receivable is dated December 31, 2020, bears interest at 8%, and is due on December 31, 2023.
The note is due from Pacifica Palaspas, president of Hi-Low Co. Interest is payable annually on December 31 and
interest payments were made on due dates through December 31, 2021.
3.
On April 1, 2021, Hi-Low sold a patent to Tigbak, Inc. in exchange for a P400,000 non-interest bearing note due on April
1, 2020. There was no established exchange price for the patent, and the note has no ready market. The prevailing rate
of interest for a note of this type at April 1, 2021, was 12%. The present value of 1 for two periods at 12% is 0.797. The
patent had a carrying value of P80,000 at January 1, 2021, and the amortization for the year ended December 31, 2021
would had been P16,000. The collection of the note is reasonably assured.
4.
On July 1, 2021, Hi-Low sold a parcel of land to Bay-High Company for P400,000 under an installment sales contract.
Bay-High made a P120,000 cash down payment on July 1, 2021, and signed a 4-year 11% note for the P280,000
balance. The equal annual payments of the principal and interest on the note will be P90,950 payable on July 1, 2022
through July 1, 2025. The land could had been sold at an established cash price of P400,000. The cost of the land to HiLow was P300,000. It reasonably assured that the note will be collected.
Based on the preceding information, answer the following:
1. The long-term receivables at December 31, 2021
A. P4,768,042
B. P3,268,042
C. P3,237,242
D. P3,239,350
Total current portion of the long-term receivables at December 31, 2021
A. P1,570,000
B. P1,500,000
C. P1,590,250
D. P1,559,450
3.
Accrued interest receivable at December 31, 2021
A. P195,400
B. P105,400
C. P210,800
D. P224,092
4.
Total interest income for the year ended December 31, 2021
A. P455,092
B. P320,092
C. P426,400
D. P470,092
5.
Unamortized discount at December 31, 2021 on note receivable from sale of patent
A. P81,200
B. P28,692
C. P10,809
D. P52,508
2.
--END-wep/ACP103/cashreceivables/task1