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Receivables
Accountancy (STI College)
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CHAPTER 4 – 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 claim for damages
Due from consignee at billed price – cost price
being P22,500
Investment in and advances to affiliated company
Loans to officers and employees
Deposits with municipalities – bids for contracts
Unpaid capital stock subscriptions
Advances to creditors for merchandise purchased
but not received
Cash advanced to salesmen for traveling expenses
Allowance for doubtful accounts
P 1,125,000
22,500
30,000
150,000
13,500
67,500
60,000
24,000
4,500
( 30,000)
P1,467,000
The amount of P1,125,000 due from 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 customers’
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 – 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
Solution
(1) Claims Receivable
22,500
Accounts receivable
22,500
(2) Sales
30,000
Accounts receivable
30,000
(3) Advances to affiliates
150,000
Accounts receivable
150,000
(4) Receivables - officers/employee
13,500
Accounts receivable
13,500
(5) Deposits for contracts bidding
67,500
Accounts receivable
67,500
(6) Subscription receivable
60,000
Accounts receivable
60,000
(7) Advances to suppliers
24,000
Accounts receivable
24,000
(8) Advances to officers/employee
4,500
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Accounts receivable
4,500
(9) Accounts receivable
30,000
Allowance for bad debts
30,000
(10) Accounts receivable
6,000
Customers with credit balance
6,000
(11)
OE: Cash
237,000
Notes payable
237,000
CE: Cash
237,000
Commission expense
3,000
Notes payable
300,000
Adj: Commission expense
3,000
Notes payable
3,000
Unadjusted AR
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
Adjusted balance
Current non-trade AR
Claims receivable
Advances to off/empl
( 13,500 + 4,500)
Advances to suppliers
Total
Answer:
1. D
2. A
1,467,000
( 22,500)
( 30,000)
( 150,000)
( 13,500)
( 67,500)
( 60,000)
( 24,000)
( 4,500)
30,000
6,000
1,131,000
Non-trade AR
Claims receivable
Advances to affiliates
Advances to off/empl
( 13,500 + 4,500)
Deposit for contracts
Subscription
receivable
Advances to suppliers
Total
22,500
150,000
18,000
67,500
60,000
24,000
__________
342,000
22,500
18,000
24,000
64,500
3. B
4. A
Problem 2
In your audit of MENDOZA COMPANY for the past calendar year, you find the following accounts:
ACCOUNTS RECEIVABLES
Jan. 1, 2002
P 800,000
Jan. – Dec. 1992 collections P 5,900,000
Jan. – Dec. Sales
6,300,000
Jan. – Dec. write-off
100,000
Jan. – Dec. Write-off of
last year’s receivables P
Write-off of this year’s
Receivables
ALLOWANCE FOR BAD DEBTS
Jan. 1, 2002
P
85,000
Dec. 31 provisions
95,000
315,000
15,000
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 for 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.
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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
Solution
Accounts Receivable
80,000
Customers’ credit balance
80,000
Allowance for bad debts
50,000
Accounts receivable
50,000
Bad debts expense
40,000
Allowance for bad debts
40,000
Computation:
Provision per records
315,000
* Provision per audit
355,000
Adjustment
40,000
* Beg. balance
+ Provisions
- Write-off per book
- Additional write-off
Ending balance
Answer:
1. C
2. B
3. D
95,000
355,000 squeezed figure
100,000
50,000
300,000
4. C
Problem 3
The following selected transactions occurred during the year ended December 31, 2006 of DOMINGO
COMPANY:
Gross sales (cash and credit)
Collections from credit customers, net of 2% cash discount
Cash sales
Uncollectible accounts written off
Credit memos issued to credit customers for sales ret./allow.
Cash refunds given to cash customers for sales ret./allow.
Recoveries on accounts receivable written-off in prior years
(not included in cash received stated above)
P 900,736.80
294,000.00
180,000.00
19,200.00
10,080.00
15,168.00
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, 2006 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?
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a.
4.
a.
P 900,736.80
b. P 720,736.80
c. P 704,656.80
d. P 689,488.80
The Bad Debts Expense of DOMINGO COMPANY at December 31, 2006 is:
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, 2006 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, 2006 is:
a. P 20,725.54
b. P 14,093.14
c. P 8,030.74
d. P7,829.14
Solution
Credit Sales
720,736.80
Recoveries
Accounts Receivable
Collection
294,000.00
6,505.20 Sales discount
from credit cust.
6,000.00
Write-off
19,200.00
Sales returns from
credit customer
10,080.00
__________
Recoveries
6,505.20
727,242.00
335,785.20
Ending bal.
391,456.80
Net credit sales:
Credit sales
720,736.80
- Sales discounts from credit sales
( 6,000.00)
- Sales returns from credit sales
(10,080.00)
Net credit sales
704,656.80
Bad debts:
Net credit sales
x % of uncollectible
Bad debts
Allowance for bad debts:
Beg. balance
Provision for bad debts
Recoveries
Less: Write-off
Allowance ending balance
Answer:
1. A
2. B
3. C
704,656.80
2%
14,093.136
19,327.20
14,093.14
6,505.20
( 19,200.00)
20,725.54
4. B
5. D
6. A
Problem 4
Presented below are unaudited balances of selected accounts of MARJORIE COMPANY as of December 31,
2006:
Unaudited Balances, 12/31/06
Selected Accounts
Debit
Credit
Cash
P 500,000
Accounts receivable
1,300,000
Allowance for doubtful accounts
8,000
Net sales
P 6,750,000
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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, 2006.
b. The bank returned on December 29, 2006, 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
2006.
Questions
1. What is the adjusted balance of Accounts Receivable on December 31, 2006?
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, 2006?
a. P 36,325
b. P 28,325
c. P 20,325
d. P 8,000
3. What is the adjusted amount of 2006 Bad Debts Expense?
a. P 12,325
b. P 20,325
c. P 28,325
d. P 36,325
Solution
(1)
A
1,300,000 + 50,000 + 5,000
P1,355,000
(2)
C
P1,355,000 x 1 ½%
P20,325
(3)
C
P20,325 + P8,000 debit balance
P28,325
Problem 5
During December, 2006, 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 2006. 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 any credit balances in
customers’ accounts reduced during December.
Questions
1. The Accounts Receivable beginning balance (unadjusted) of FERNANDEZ COMPANY at December 31,
2006 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, 2006
is:
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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, 2006 is:
a. P 50,400
b. P 68,400
c. P 252,000
d. P 270,000
Solution
Computation for unadjusted AR beginning balance:
* Beg. bal.
50,400
Sales
780,000
Accounts Receivable
Collections
470,400
Allow. for BD
830,400
End bal.
270,000
* squeezed figure
560,400
Ending balance of AR control account
Add: Credits during December
Less: Debits during December
Balance of AR control account – Dec. 1
Add: 2006 Est. allowance for BD
Adjusted AR control account – Dec. 1
Less: AR subsidiary account – Dec. 1
Credit balance of AR account – Dec. 1
Answer:
1. A
2. B
90,000
3. C
270,000
560,400
( 780,000)
50,400
18,000
68,400
177,000
108,600
4. D
Problem 6
You are examining the financial statements of MATIAS CORPORATION for the year ended December 31,
2006. During the audit of the accounts receivable and other related accounts, certain information was
obtained.
The December 31, 2006 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, 2006,
because Marlisa Company remitted in full for the accounts charged off October 31, 2006, 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
Balance
January 1, 2006
P 3,658
October 21, 2006, Uncollectible;
Marlisa Co., - P324; Abonales Co.,
- P 820; Cherryl Co., - P564
P 1,508
2,150
December 31, 2006, 5% of P197,000
P 9,850
12,000
An aging schedule of the accounts receivable as of December 31, 2006 and the decision are shown in the
table below:
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Age
____________
Net Debit Balance
Amount to which the Allow.
is to be adjusted after adjust.
and corrections have been made
_________________
0 – 1 month
1 – 3 months
3 – 6 months
over 6 months
P
93,240
76,820
22,180
6,000
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, 2006. 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, 2006 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, 2006
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, 2006 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, 2006 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, 2006 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
Allow. for BD
324
Bad debts
b. Bad debts
324
d. Accounts receiv.
Accounts receivable
324
Bad debts
324
324
324
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, 2006 is:
a. P 194,975.80
b. P 194,775.80
c. P 193,335.80
d.P193,319.40
Solution
Per
PER SUBSIDIARY LEDGERS
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Bal. before
adjustments
Adjustments:
Add(Deduct)
(2)
Correction
to
10.31.02 entry to
write-off
uncollectible accts.
(3) Write-off of acct.
considered definitely
uncollectible
(4) Reclassification
of credit balances
(5) To adjust the
control
acct.
to
agree with SL
Adjusted balance
Control
Acct.
P 197,000
0-1 mo.
P 93,240
1-3 mos
P 76,820
3-6 mos.
P 22,180
Over
6 mos.
P 6,000
Total
P 198,240
(1,000)
(1,000)
P 5,000
2,500
P 199,740
(200)
( 1,000)
2,500
P 198,300
2,000
P 95,240
500
P 77,320
P 22,180
1,440
P 199,740
Audit adjustments as of 12.31.06
(1)
(2)
(3)
(4)
(5)
(6)
Bad Debts expense
Allowance for doubtful accounts
324
Allowance for doubtful accounts
Accounts Receivable
200
Allowance for doubtful accounts
Accounts Receivable
1,000
Accounts Receivable
Customer’s Accounts with Credit Balances
2,500
Accounts Receivable
Miscellaneous Revenue
1,440
Allowance for Doubtful Accounts
Bad Debts Expense
6,359.80
324
200
1,000
1,440
6,359.80
Required allowance on 12.31.06
0-1 mo.
P 95,240 x 1%
1-3 mos.
77,320 x 2 %
3-6 mos.
22,180 x 3%
Over 6 mos.
3,000 x 20%
2,000 x 50%
Beg. balance
+
Provision
per
audit
(squeezed
figure)
- Write-off
Ending balance
2,500
P
952.40
1,546.40
665.40
600.00
1,000.00
P 4,764.20
3,658.00
3,490.20
2,384.00
4,764.20
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Provision per book
Provision per audit
Adjustment
Answer:
1. A
6. A
2. C
7. C
9,850.00
3,490.20
6,359.80
3. D
8. A
4. A
5. C
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 20,000
48,000
( 16,000)
P 52,000
Summary of Aging Schedule
The summary of the subsidiary ledger as of December 31, 2006, was totaled as follows:
Debit balances:
Under on month
One to six months
Over six months
Credit balances:
Almario
Peter
Bituin
P 360,000
368,000
152,000
P 880,000
P
8,000 - OK; additional billing in
January 2004
14,000 – Should have been credited
To Manuel Co. - 1-6 mos.
classification.
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 48,000
24,000
80,000
P152,000
Questions
1. The entry to adjust the account of Almario is:
a. Accounts receivable 8,000
c. Accounts receivable
8,000
Sales
8,000
Cust. with Cr. bal.
8,000
b. Sales
8,000
d. No adjustment
Accounts receivable
8,000
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2.
The entry to adjust the account of Peter is:
a. Accounts receivable 14,000
c. Accounts receivable
14,000
Sales
14,000
Cust. with Cr. bal.
14,000
b. Sales
14,000
d. No adjustment
Accounts receivable
14,000
3. The entry to adjust the account of Bituin is:
a. Accounts receivable 18,000
Sales
18,000
b. Sales
18,000
Accounts receivable
18,000
c. Accounts receivable
18,000
Cust. with Cr. bal.
18,000
d. No adjustment
4. The entry to reconcile the control ledger to the subsidiary ledger is:
a. Miscellaneous loss
8,000
c. Accounts receivable 8,000
Accounts receivable
8,000
Sales
8,000
b. Accounts receivable 8,000
d. Sales
8,000
Miscellaneous gain
8,000
Accounts receivable
8,000
5. The entry to adjust the Bad Debts Expense is:
a. Bad Debts Expense 74,680
c. Bad Debts Expense 30,680
Allow. for BD
74,680
Allow. for BD
b. Bad Debts Expense 26,680
d. No adjustment
Allow. for BD
26,680
30,680
6. The Accounts Receivable balance at December 31, 2006 is:
a. P 840,000
b. P 826,000
c. P 818,000
d. P 786,000
7. The Allowance for Bad Debts at December 31, 2006 is:
a. P 74,680
b. P 48,000
c. P 30,680
d. P 26,680
8. The Bad Debts Expense at December 31, 2006 is:
a. P 74,680
b. P 48,000
c. P 30,680
d. P 26,680
Solution
* (1) Accounts receivable
Sales
8,000
8,000
(2) Accounts receivable
14,000
Accounts receivable
14,000
* (3) Accounts receivable
Customers’ deposit
18,000
18,000
(4) Allowance for bad debts 48,000
Accounts receivable
48,000
* (5) Miscellaneous losses
8,000
Accounts receivable
8,000
To reconcile control account with subsidiary ledger.
(6) Bad debts
26,680
Allowance for bad debts
26,680
* ignored in the aging of AR
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Control
Account
Unadjusted balance 848,000
(1)
8,000
(2)
(3)
18,000
(4)
(48,000)
(5)
( 8,000)
Adjusted balance
818,000
Under 1 mo.
1 to 6 mos.
Over 6 mos.
Aging of AR
Under 1 to 6
Over 6
1 mo.
mos. mos.
360,000 368,000 152,000
(14,000)
(48,000)
______ _______ _______
360,000 354,000 104,000
360,000 x 1% = 3,600
354,000 x 2% = 7,080
24,000 x 50%
80,000 x 10%
Required allowance for bad debts
Provision for bad debts per audit:
Beginning balance
+ Provision – squeezed figure
- Write-off per book
- Additional Write-off
Ending balance
Provision per book
Provision per audit
Adjustment
Answer:
1. A
6. C
2. D
7. C
= 12,000
= 8,000
30,680
20,000
74,680
16,000
48,000
30,680
48,000
74,680
26,680
3. C
8. A
4. A
5. B
Problem 8
KAREN COMPANY’s accounts receivable subsidiary ledger shows the following information:
Invoice
Customer
Account Balance – 12/31/06
Date
Amount
Penas
P 70,360
12/06/06
P 28,000
11/29/06
42,360
Jefferson
41,840
09/27/06
08/20/06
24,000
17,840
Junsay
61,200
12/08/06
10/25/06
40,000
21,200
Cherryl
90,280
11/17/06
10/09/06
46,280
44,000
Baron
63,200
12/12/06
12/02/06
38,400
24,800
Riza
34,800
09/12/06
34,800
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The estimated bad debt rates below are based on Karen
Age of Accounts
0 – 30 days
31 – 60 days
61 – 90 days
91 – 120 days
10%
Over 120 days
Company’s receivable collection experience.
Rate
1%
1.5%
3%
50%
The allowance for bad debts account had a credit balance of P7,000 on December 31, 2006, before
adjustment.
Questions
1. The adjusted Accounts Receivable balance of KAREN COMPANY at December 31, 2006 is:
a. P 317,680
b. P 319,320
c. P 326,880
d. P 361,680
2. The adjusted balance of Allowance for Bad Debts of KAREN COMPANY at December 31, 2006 is:
a. P 9,698.80
b. P 10,188.80
c. P 12,397.60
d. P 19,397.60
3. The adjusted balance of Bad Debts Expense of KAREN COMPANY at December 31, 2006 is:
a. P 9,698.80
b. P 10,188.80
c. P 12,397.60
d. P 19,397.60
4. The net realizable value of Accounts Receivable of KAREN COMPANY at December 31, 2006 is:
a. P 342,282.40
b. P 349,282.40
c. P 307,482.40
d. P 314,482.40
Solution
Aging of AR
Balance
12/31/06
0-30
Days
31-60
Days
61-90 91-120
Days
Days
Over 120
Days
Penas
P 70,360
28,000 42,360
Jefferson
41,840
24,000 17,840
Junsay
61,200
40,000
21,200
Cherryl
90,280
46,280
44,000
Baron
63,200
63,200
Riza
34,800
______ ______ ______
34,800
_____
Total
P361,680
131,200
88,640 65,200
58,800
17,840
x % of uncollectibility
1%
1.5%
3%
10%
50%
Required Allowance
1,312 1,329.60 1,956
5,880
8,920 = P 19,397.60
Bad debts expense
12,397.60
Allowance for bad debts
(P19,397.60 – P7,000)
Answer:
1. D
2. D
3. C
12,397.60
4. A
Problem 9
You are assigned to audit KENT COMPANY for the year ending December 31, 2006. The accounts
receivable were circularized as at December 31, 2006 and the following exceptions/replies have not been
disposed of at the date of your examination.
Customer
Balance
Duque
P 30,000
Comments
Balance was paid Dec.
Audit Findings
Kent received mailed
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29, 2006.
January 2, 2007.
Odessa
74,000
Balance was offset by our
Kent credited accounts
Dec. 10 shipment of goods. payable for P74,000 to
record purchase of goods
Solejon
16,200
The above balance has
been paid.
Rubin
23,700
Jamea
150,000
Ocsio
Dela Cruz
Ronel
The payment was
Credited to Dairen – cust.
We do not owe Kent anyThe shipment costing
thing as the goods were
P16,300 was made on
received January, 2007,
Dec. 29, 2006 and the
FOB Destination
goods were not included
in recording the year-end
inventory.
Our deposit of P200,000
should cover this balance
Kent had previously
credited the deposit to
sales.
We never received these
goods.
The shipment was erroneously made to another
customer and the goods
worth P51,000 are now
on its way to Ocsio. The
shipment, FOB Shipping
Point, was made on Dec.
30, 2006.
100,000
We are rejecting the price,
which is too much
Kent’s clerk erroneously
computed the unit price
at P2,000. The correct
pricing should have been
at P1,200 per unit.
18,000
Amount is okay. Since
this is on consignment, we
will remit payment upon
selling the goods.
Goods cost P12,000 and
were appropriately included in Kent’s inventory
54,000
KENT COMPANY has not recorded yet its 2006 inventory. The balance of inventory and Accounts
Receivable at December 31, 2006 (per trial balance) is P 456,000 and P345,900, respectively.
Questions
1. The entry to adjust the finding made in the account of Duque is:
a. Cash
30,000
c. Accounts receivable 30,000
Accounts receivable
30,000
Cash
30,000
b. Cash
30,000
d. No adjustment
Sales
30,000
2. The entry to adjust the finding made in the account of Odessa is:
a. Purchases
74,000
c. Accounts payable 74,000
Accounts receivable
74,000
Accounts receivable 74,000
b. Sales
74,000
d. No adjustment
Purchases
74,000
3. The entry to adjust the finding made in the account of Solejon is:
a. Accounts receivable 16,200
c. Accounts receivable 16,200
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Accounts receivable
16,200
Accounts payable
b. Accounts payable
16,200
d. No adjustment
Accounts receivable
16,200
16,200
4. The entry to adjust the finding made in the account of Rubin is (for sales):
a. Sales
23,700
c. Accounts receivable 23,700
Accounts receivable
23,700
Sales
23,700
b. Accounts payable
23,700
d. No adjustment
Purchases
23,700
5. Entry to adjust the finding made in the account of Rubin is (for cost of sales):
a. Cost of sales
16,300
c. Retained earnings 16,300
Inventory
16,300
Inventory
16,300
b. Inventory
16,300
d. No adjustment
Cost of sales
16,300
6. The entry to adjust the finding made in the account of Jamea is:
a. Customers’ advances 150,000
c. Sales
200,000
Sales
150,000 Customers’ advances
50,000
Accounts receivable
150,000
b. Customers’ advances150,000
d. Sales
150,000
Accounts receivable
150,000
Customers’ advances 150,000
7. The entry to adjust the finding made in the account of Ocsio is:
a. No adjustment
c. Sales
54,000
Accounts receivable
54,000
b. Accounts receivable 51,000
d. Sales
3,000
Sales
51,000
Accounts receivable
3,000
8. The entry to adjust the finding made in the account of Dela Cruz is:
a. Accounts receivable 40,000
c. Sales
60,000
Sales
40,000
Accounts receivable
60,000
b. Sales
40,000
d. No adjustment
Accounts receivable
40,000
9. The adjusted balance of Kent Company’s inventory at December 31, 2006 is:
a. 451,700
b. P 460,300
c. P 472,300
d. P 484,300
10. The adjusted balance of Kent Company’s accounts receivable at December 31, 2006 is:
a. P 37,200
b. P 55,200
c. P 187,200
d. P 205,200
Solution
For Doque
For Odessa
For
For
For
For
For
No adjustment
Accounts payable
74,000
Accounts receivable
74,000
Solejon
Accounts receivable
16,200
Accounts receivable
16,200
Rubin
Sales
23,700
Accounts receivable
23,700
Inventory
16,300
Cost of sales
16,300
Jamea
Sales
200,000
Customers’ advances
50,000
Accounts receivable
150,000
Ocsio.
Sales
3,000
Accounts receivable
3,000
dela Cruz Sales
40,000
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Accounts receivable
For Ronel
Sales
40,000
18,000
Accounts receivable
Unadjusted
Inventory
Adjustment - Rubin
Adjusted balance
Answer:
1. D
6. C
2. C
7. D
456,000
16,300
_________
472,300
3. A
8. B
18,000
Unadjusted AR
345,900
Adjustment - Odessa
- Solejon
- Rubin
- Jamea
- Ocsio
- dela Cruz
- Ronel
Adjusted balance
4. A
9. C
( 74,000)
( 23,700)
(150,000)
( 3,000)
( 40,000)
( 18,000)
37,200
5. B
10. A
Problem 10
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, 2006 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, 2006, 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, 2006. Your verification disclosed that said collection was credited to net
sales account.
3. Collection of P12,950 on November 5, 2006 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, 2006, 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, 2006?
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, 2006?
a. P 27,570.00
b. P 26,850.60
c. P 26,475.60
d. P 25,756.20
Solution
Sales
36,480
Accounts receivable
Sales
23,980
Accounts receivable
36,480
23,980
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Answer:
1. D
2. D
Problem 11
You audit of APAS COMPANY for the year 2006 disclosed the following:
1.
2.
3.
4.
5.
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
The 2006 ledger shows a sales balance of P20,000,000.
The company sells a mark-up of 20% based on sales.
The company recognizes sales upon passage of title to the customers.
All customers are within a four-day delivery area.
The sales register for December, 2006 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
FOB Terms
Destination
Shipping point
Destination
Shipping point
Shipping point
Date Shipped
12/29
12/29
01/02
01/04
12/27
P
Amount
50,000
62,500
47,500
82,500
56,000
90,000
January Register
Invoice No.
306
307
308
309
310
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
b. P 36,000 over
c. P 106,000 under
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, 2006 is:
a. P 1,645,412
b. P 1,635,600
c. P 1,218,400
4. The adjusted sales at December 31, 2006 is:
a. P 20,106,000
b. P 20,036,000
c. P 19,964,000
d. P 1,164,400
d. P 19,894,000
5. How much sales for the month of December 2006 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 2006?
a. P 228,500
b. P 188,500
c. P 180,500
d. P 106,000
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Solution
(1) Sales
50,000
Accounts receivable 50,000
Invoice # 300
(2) Cost of sales
50,000
Inventory
50,000
(62,500 x 80%)
Invoice # 301
(3) Sales
56,000
Accounts receivable 56,000
Invoice # 304
(4) Cost of sales
72,000
Inventory
72,000
(90,000 x 80%)
Invoice # 305
(5) Accounts receiv. 74,500
Sales
74,500
Invoice # 307
(6) Cost of sales
59,600
Inventory
59,600
(74,500 x 80%)
(7) Accounts receiv. 67,500
Sales
67,500
Invoice # 310
Unadjusted Sales
(1)
(3)
(5)
(7)
Adjusted Sales
20,000,00
0
( 50,000)
( 56,000)
74,500
67,500
20,036,00
0
Unadjusted inventory
1,400,000
(2)
(4)
(6)
( 50,000)
( 72,000)
( 59,600)
_________
1,218,400
Adjusted inventory
Sales for the month of December that 2003
were erroneously recorded in January 2004:
Invoice # 307
74,500
Invoice # 310
67,500
Total
142,000
Sales for the month of January 2004
were erroneously recorded in December 2003:
Invoice # 300
50,000
Invoice # 304
56,000
Total
106,000
Answer:
1. A
2. D
3. C
4. B
5. D
6. D
Problem 12
You are engaged to perform an audit of the accounts of the JELLER CORPORATION for the year ended
December 31, 2006, and have observed the taking of the physical inventory of the company on December
27, 2006. Only merchandise shipped by the Durian Corporation to customers up to and including
December 27, 2006 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.
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The following lists of sales invoices are entered in the sales books for the months of December 2006 and
January 2007, respectively.
Sales Invoices
Date
Amount
Date Shipped
December 2006 (a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
12/23/06
12/27/06
12/30/06
12/22/06
12/28/06
12/03/06
12/31/06
12/31/06
P 25,000
18,000
30,000
12,000
16,000
8,000
20,000
14,000
12/31/06
12/27/06
01/05/07
01/08/07
12/29/06
12/05/06
01/07/07
12/31/06
January 2007
12/31/06
12/27/06
01/08/07
01/10/07
7,500
11,000
9,000
5,000
12/29/06
01/04/07
01/09/07
12/31/06
(i)
(j)
(k)
(l)
Questions
1. How much sales for month of December 2006 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 2006?
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, 2006?
a. P 143,000
b. P 155,500
c. P 93,500
d. P 81,000
Solution
(1)
B
Item (I)P7,500 and Item (l), P5,000
P12,500
(2)
D
Items c, d, g
P62,000
(3)
C
Recorded sales for December
December sales recorded in January
January sales recorded in December
Adjusted sales for December
P143,000
12,500
(62,000)
P 93,500
Problem 13
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
Solution
(1)
A
P625,000 – (2% x P750,000)
P610,000
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(2)
B
P260,000 – P3,500 + (P625,000 x 12% x 1/12)
P262,750
Problem 14
On April 1, 2006, 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 journal entry of VAILOCES CORPORATION in the assignment of accounts receivable on April 1, 2006
is:
a. Cash
294,000
c. Cash
294,000
Finance charges
6,000
Finance charges
6,000
Accounts receivable
300,000
Notes payable
300,000
b. Cash
294,000
d. Cash
294,000
Finance charges
6,000
Commission exp.
6,000
AR – assigned
300,000
AR – assigned
300,000
2. The journal entry of VAILOCES CORPORATION in the assignment of accounts receivable on April 1, 2006
assuming the assignment is on notification basis:
a. Cash
294,000
c. Cash
294,000
Finance charges
6,000
Finance charges
6,000
Accounts receivable
300,000
Notes payable
300,000
b. Cash
294,000
d. Cash
294,000
Finance charges
6,000
Commission exp.
6,000
AR – assigned
300,000
AR – assigned
300,000
3. The entry of VAILOCES CORPORATION on April collection of the assigned account is:
a. Cash
191,100
c. Cash
191,100
Sales discounts
3,900
Sales discounts
3,900
AR – assigned
195,000
Accounts receivable 195,000
b. Cash
191,100
d No journal entry
Accounts receivable
191,100
4. If the assignment is on notification basis, who should collect the assigned accounts receivable?
a. Vailoces Corporation
c. A third party
b. Racel Bank
d. It is the option of the customer to
whom he/she will pay the account
5. Using the assumption in number 4 above, what will be the entry of VAILOCES CORPORATION on the
April collection of the assigned accounts receivable?
a. Cash
191,100
c. Cash
191,100
Sales discounts
3,900
Sales discounts
3,900
AR – assigned
195,000
Accounts receivable 195,000
b. Cash
191,100
d No journal entry
Accounts receivable
191,100
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6. The journal entry of VAILOCES CORPORATION on the on May 1, 2006 is:
a. Notes payable
187,100
c. Notes payable
188,500
Interest expense
4,000
Interest expense
2,600
Cash
191,100
Cash
191,100
b. Notes payable
195,000
d. Notes payable
195,000
Interest expense
5,333
Interest expense
4,000
Cash
200,333
Cash
199,000
7. Using the same information in number 6 (May 1 transaction) except that the assignment is done on a
notification basis, the entry should be:
a. Notes payable
187,100
c. Notes payable
188,500
Interest expense
4,000
Interest expense
2,600
Accounts receivable
191,100
AR –assigned
191,100
b. Notes payable
195,000
d. No journal entry
Interest expense
4,000
AR - assigned
199,000
8. 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
Solution
April 1
1
(1)
(2)
(3)
(4)
Answer:
1. C
6. D
Accounts receivable – assigned
400,000
Accounts receivable
400,000
Cash
294,000
Finance charges (300,000 x 2%)
6,000
Notes payable
300,000
Cash
191,100
Sales discounts
3,900
AR – assigned (191,100/98%)
195,000
Notes payable
195,000
Interest expense
4,000
(300,000 x 16% x 1/12)
Cash
199,000
Cash
203,000
Allowance for bad debts
2,000
AR – assigned
205,000
(400,000 – 195,000)
Notes payable (300,000 – 195,000)105,000
Interest expense
1,400
(105,000 x 16% x 1/12)
Cash
106,400
2. C
7. B
3. A
8. A
4. B
5. D
Problem 15
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.
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On January 3, 2003, 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 from 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, 2003 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, 2003 is:
a. P 50,000
b. P 40,000
c. P 20,000
d. P 0
Solution
UY FINANCE CORPORATION’S BOOKS
Jan.
3
31
31
31
Accounts receivable factored
1,000,000
Commission income (P1 M x 15%)
150,000
Client Retainer (P1 M x 10%)
100,000
Cash
750,000
Cash
800,000
Accounts receivable factored
800,000
Client Retainer
80,000
Cash (100,000 – [10% x 200,000])
80,000
Bad debts expense
50,000
Allowance for bad debts (P1 M x 5%)
50,000
JANETTEE COMPANY’S BOOKS
Jan.
3
31
Answer:
1. A
Cash
750,000
Receivable from factor
100,000
Commission
150,000
Accounts receivable
1,000,000
Cash
80,000
Receivable from factor
80,000
2. D
3. B
4. A
Problem 16
During your audit of the LEILANI COMPANY for the calendar year 2006, you find the following accounts:
NOTES RECEIVABLE
Sept. 1
Samson, 12%, due in 3 mos.
36,000
36,000
Nov. 1
Hazel, 15%, due in 6 mos.
90,000
126,000
Nov. 1
Salazar, no interest, due in one
year
75,000
201,000
Nov. 30
Rosa, Co. 12%, due in 13 mos.
15,000
216,000
Dec. 1
Rona, 15%, due in 15 mos.
36,000
252,000
Dec. 2
Anito, President, 18%, due in 3
mos.
18,000
270,000
NOTES RECEIVABLE DISCOUNTED
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Sept. 1
Nov. 1
Samson note, discounted at
15%
Salazar note, discounted at 15%
Sept. 1
Nov. 1
Samson note
Salazar note
36,000
36,000
75,000
111,000
INTEREST EXPENSE
310.50
11,250.00
310.50
11,560.50
All notes are trade notes receivable unless otherwise specified. The Samson note was paid December31,
2006. Interest income is credited only upon receipt of cash.
Questions
1. The accrued interest income at December 31, 2006 is:
a. P 2,748
b. P 3,018
c. P 3,120
d. P 4,200
2. The interest expense at December 31, 2006 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, 2006 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, 2006 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
Solution
1.
C
Hazel
90,000 x 15% x 2/12 = P 2,250
Rosa
15,000 x 12% x 1/12 =
150
Rona
36,000 x 15% x 1/12 =
450
Anito
18,000 x 18% x 1/12 =
270
Total accrued interest
P 3,120
2.
B
Samson
= P 310.50
Salazar
11,250 x 2/12
= 1,875.00
Total interest expense
= P2,185.50
3. A
Hazel
90,000
Rosa
15,000
Rona
36,000
Total
141,000
4. C
Salazar
75,000
5. A
Samson P 36,000 – P 310.50 = P 35,689.50
Salazar
P 75,000 – P11,250 =
63,750.00
Total proceeds
= P 99,439.50
Problem 17
On January 1, 2006, TUQUIB COMPANY sells its equipment with a carrying value of P160,000. The
company receives a non-interest-bearing note due in 3 years with a face amount of P200,000. There is no
established market value for the equipment. The prevailing interest rate for a note of this type is 12%.
The following are the present value factors of 1 at 12%:
Present value of 1 for 3 periods
Present value of an ordinary annuity of 1 for 3 periods
0.71178
2.40183
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Questions
1. The gain or loss on the sale of equipment is:
a. P 40,000
b. P
122
c. P 0
d. (P 17,644)
2. The discount on notes receivable is:
a. P 57,644
b. P 40,000
c. P 39,878
d. P 0
3. The entry to record the sale of equipment is:
a. Notes receivable
200,000
Equipment
200,000
b. Notes receivable
Equipment
Gain on sale
200,000
160,000
40,000
c. Notes receivable 200,000
Loss on sale
17,644
Equipment
160,000
Discount on NR
57,644
d. Notes receivable 200,000
Equipment
160,000
Gain on sale
122
Discount on NR
39,878
4. The discount amortization at the end of the second year using the effective-interest amortization is:
a. P 17,083
b. P 19,133
c. P 21,428
d. P 36,216
5. The entry to record the discount amortization is:
a. Discount on NR
c. Interest income
Interest income
Discount on NR
b. Discount on NR
d. Interest expense
Interest expense
Discount on NR
Solution
1. D
Sales price – present value of note (P200,000 x 0.71178)
142,356
Book value of equipment
160,000
Loss on sale of equipment
(17,644)
2. A
Face value of note
200,000
Present value of note
142,356
Discount on notes receivable
57,644
3. C
Notes receivable
200,000
Loss on sale of equipment
17,644
Equipment
160,000
Discount on notes receivable
57,644
4. B
Present value of note, 1/1/03
142,356
Add: Interest earned in 2003
(142,356 x 12%)
17,083
Present value of note, 1/1/04
159,439
Add: interest earned in 2004
(159,439 x 12%)
19,133
Present value of note, 1/1/05
178,572
5.
A
Problem 18
On January 2, 2006, a tract of land that originally cost P800,000 was sold by MAYLENE CORPORATION. The
company received a P1,200,000 note as payment. It bears interest rate of 4% and is payable in 3 annual
installments of P400,000 plus interest on the outstanding balance. The prevailing rate of interest for a
note of this type is 10%. The present value table shows the following present value factors of 1 at 10%:
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Present
Present
Present
Present
value
value
value
value
factor of 1 for 3 periods
factor of 1 for 2 periods
factor of 1 for 1 period
of an ordinary annuity of 1 for 3 periods
0.75132
0.82645
0.90909
2.48685
Questions
1. The gain on sale of land on January 2, 2006 is:
a. P 194,740
b. P 276,847
c. P 290,740
d. P 400,000
2. The interest income on the note receivable for the year ended December 31, 2006 using effective
interest method is:
a. P 120,000
b. P 109,074
c. P 107,685
d. P 99,474
3. How much cash will MYLENE CORPORATION received from notes receivable?
a. P 1,076,847
b. P 1,200,000
c. P 1,296,000
d. P 1,476,847
Solution
Amount of cash to be received:
Interest
2003
48,000 *
2004
32,000 **
2005
16,000 ***
Total
* 1,200,000 x 4%
** 800,000 x 4%
*** 400,000 x 4%
2003
2004
2005
Total
Present value
Cost of land
Gain on sale
Cash received
448,000
432,000
416,000
of note
Principal
Total
400,000
448,000
400,000
432,000
400,000
416,000
1,296,000
PV Factor
Present Value
0.90909
0.82645
0.75132
1,076,847
1,076,847
800,000
276,847
407,272
357,026
312,549
Interest income for 2006 – P1,076,847 x 10% = P107,685
Answer:
1. B
2. C
3. C
Problem 19
The balance sheet of PERSEVERANCE CORPORATION on December 31, 2005, includes the following cash
and receivable balances:
Cash – Davao Bank
Currency and coins
Petty cash fund
Cash in bond sinking fund
Notes receivable (including discounted with
recourse, P15,500)
Accounts receivable
P 85,600
Less: Allow. for bad debts
(4,150)
Interest receivable
P 45,000
16,000
1,000
15,000
36,500
81,450
525
Current liability reported in the December 31, 2005, balance sheet included:
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Obligation on discounted notes receivable
15,500
Transactions during 2006 included the following:
1.
2.
3.
Sales on account were P767,000.
Cash collected on accounts totaled P576,500, including accounts of P93,000 with cash discounts of
2%.
Notes received in settlement of accounts totaled P82,500.
4.
Notes receivable discounted as of December 31, 2005, were paid at maturity with the exception of
one P3,000 note on which the company had to pay the bank P3,090, that included interest and protest
fees. It is expected that recovery will be made on this note early in 2004.
5.
Customer notes of P60,000 were discounted with recourse during the year, proceeds from their
transfer being P58,500. Of this total, P48,000 matured during the year without notice of protest.
6.
7.
Customer accounts of P8,720 were written-off in prior year as worthless.
Recoveries of doubtful accounts written-off in prior years were P2,020. (not included in the
collection in number 2)
8.
Notes receivable collected during the year totaled P27,000 and interest collected was P2,450.
9.
On December 31, accrued interest on notes receivable was P630.
10.
Uncollectible accounts are estimated to be 5% of the December 31, 2006, accounts receivable
balance.
11.
Cash of P35,000 was borrowed from Davao Bank, accounts receivable of P50,000 being pledged on
the loan. Collections of P19,500 had been made on these receivables included in the total given in
transaction (2) and this amount was applied on December 31, 2006, to payment of accrued interest on
the loan of P600, and the balance to partial payment of the loan.
12.
Petty cash fund was reimbursed based on the following analysis of expenditure vouchers:
Travel expenses
P 112
Entertainment expenses
78
Postage
93
Office supplies
173
Cash over
6
13.
P3,000 cash was added to the bond sinking fund.
14.
Currency on hand at December 31, 2006 was P12,000.
15.
Total cash payment for all expenses during the year were P468,000. Charge to General Expense
Based on the information above and some other analysis, answer the following questions:
Questions
1. PERSEVERANCE CORPORATION’s Cash balance at December 31, 2006 is:
a. P 269,430
b. P 265,430
c. P 252,430
d. P 219,930
2. PERSEVERANCE CORPORATION’s Accounts Receivable balance at December 31, 2006 is:
a. P178,8787.00
b. P 178,824.50
c. P176,804.50
d. P174,254.50
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3. PERSEVERANCE CORPORATION’s Other Cash Item (Currency and coins & Petty Cash Fund) at December
31, 2006 is:
a. P 16,000
b. P 13,000
c. P 12,550
d. P 12,000
4. PERSEVERANCE CORPORATION’s Notes Receivable at December 31, 2006 is:
a. P 46,500
b. P 31,000
c. P 30,910
d. P 28,500
5. PERSEVERANCE CORPORATION’s Obligation of Discounted of Note Receivable at December 31, 2006 is:
a. P 15,500
b. P 12,000
c. P 11,910
d. P 3,500
6. PERSEVERANCE CORPORATION’s Interest Receivable at December 31, 2006 is:
a. P 2,555
b. P 1,155
c. P 630
d. P 525
7. PERSEVERANCE CORPORATION’s Bad debts at December 31, 2006 is:
a. P 16,005.20
b. P 13,875.50
c. P 11,855.50
d. P 11,825.50
8. PERSEVERANCE CORPORATION’s Allowance for bad debts at December 31, 2006 is:
a. P 9,406.50
b. P 9,305.50
c. P 9,252.00
d. P 4,150.00
9. PERSEVERANCE CORPORATION’s Sales balance at December 31, 2006 is:
a. P 767,000
b. P 765,140
c. P 765,102
d. P 757,330
10. PERSEVERANCE CORPORATION’s Interest income balance at December 31, 2006 is:
a. P 3,086
b. P 3,080
c. P 2,561
d. P 2,555
Solution
(1)
Accounts receivable
767,000
Sales
767,000
(2)
Cash
576,500
Sales discounts
1,860
Accounts receivable
576,360
(3)
Notes receivable
82,500
Accounts receivable
82,500
(4)
Obligation on discounted note 12,500
Notes receivable
12,500
Accounts receivable
3,090
Cash
3,090
Obligation on discounted note
3,000
Notes receivable
3,000
(5)
Cash
58,500
Interest expense
1,500
Obligation on discounted note
60,000
Obligation on discounted note
48,000
Notes receivable
48,000
(6)
Allowance for bad debts
8,720
Accounts receivable
8,720
(7)
Accounts receivable
2,020
Allowance for bad debts
2,020
Cash
2,020
Accounts receivable
2,020
(8)
Cash
27,000
Notes receivable
27,000
Cash
2,450
Interest receivable
525
Interest income
1,925
(9)
Interest receivable
630
Interest income
630
(10)
Bad debts
11,855.50
Allowance for bad debts
11,855.50
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(11)
(12)
(13)
(14)
(15)
Cash
35,000
Notes payable
Interest expense
Notes payable
Cash
Operating expenses
Cash
Cash
Other income
Sinking fund
Cash
No entry
General expenses
Cash
Answer:
1. A
6. C
2. C
7. C
35,000
600
18,900
19,500
456
456
6
6
3,000
3,000
468,000
468,000
3. B
8. B
4. D
9. B
5. B
10. D
Problem 20
You are engaged in your fifth annual examination of the financial statements of NAVAL CORPORATION. Your
examination is for the year ended December 31, 2006. The client prepared the following schedule of Trade
Notes Receivable and Interest Receivable for you at December 31, 2006. You have agreed the opening
balances to your prior year’s audit workpapers.
Maker
Rubin
Co.
Cardoza
NAVAL CORPORATION
TRADE NOTES RECEIVABLE AND RELATED INTEREST RECEIVABLE
Trade-Notes Receivable
Date
Terms
Int.
Bal.
2006
2006
Bal.
Rate 12/31/05
debits
credit
12/31/06
04/01/05
1-year
12%
P 60,000
P 60,000
05/01/06
Pancho
07/01/06
Betque
Gabuter
o
Noval
08/03/06
10/02/06
Gan
11/01/06
Due from
Rubin Co.
Pancho
Betque
Gabutero
Noval
Gan
Totals
11/01/06
90 days
after date
60 days
after date
Demand
60 days
after date
90 days
after date
90 days
after date
Balance
P 5,400
___________
P 5,400
-
P 30,000
29,375
P
625
12%
6,000
12%
12%
15,000
50,000
50,000
15,000
-
8%
42,000
35,000
7,000
12%
32,000
6,000
32,000
INTEREST RECEIVABLE
2006 debit
2006 credit
Balance
12/31/06
P 1,800
P 7,200
120
P 120
400
400
1,000
660
340
560
560
640
___________
640
P 4,520
P 7,860
P 2,060
Your examination reveals this information:
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1. Interest is computed on a 360-day basis. In computing interest, it is the corporation’s practice to
exclude the first day of the note’s term and to include the due date.
2. The Cardoza’s 90-day non-interest bearing note was discounted on May 15 at 10%, and the proceeds
were credited to the Trade Notes Receivable account. The note was paid at maturity.
3. Pancho became bankrupt on August 31, and the corporation will recover 75 cents on the peso. All of
Naval Corporation’s notes receivable provide for interest at a rate of 12% on the maturity value of a
dishonored note.
4. Betque, president of Naval Corporation, confirmed that she owed Naval Corporation P15,000 and that
she expected to pay the note within six months. You are satisfied that the note is collectible.
5. Gabutero’s 60-day note was discounted on November 1 at 8%, and the proceeds were credited to the
Trade Notes Receivable and Interest Receivable accounts. On December 2, Naval Corporation received
notice from the bank that GAbutero’s note was not paid at maturity and that it had been charged
against Naval’s checking account by the bank. Upon receiving the notice from the bank, the
bookkeeper recorded the note and the accrued interest in the Trade Notes Receivable and Interest
Receivable account. Gabutero paid Naval Corporation the full amount due in January 2003.
6. Noval, 90-day note was pledged as collateral for P35,000, 60-day 10% loan from the Davao National
Bank on December 1.
7. On November 1, the corporation received four, P8,000, 90-day notes from Gan. On December 1, the
corporation received payment from Gan for one of the P8,000 notes with accrued interest. Prepayment
of the notes is allowed without penalty. The bookkeeper credited the Gan’s Accounts Receivable
account for the cash received.
Questions
1. At December 31, 2006, the note receivable from Cardoza has a balance of:
a. P 30,000
b. P 29,375
c. P 625
d. P 0
2. The interest income from Cardoza’s note at December 31, 2006 is:
a. P 750
b. P 625
c. P 500
d. P 0
3. At December 31, 2006, the note receivable from Pancho has a balance of:
a. P 6,370.92
b. P 6,366.00
c. P 6,120
d. P 0
4. The interest income from Pancho’s note at December 31, 2006 is:
a. P 370.92
b. P 250.92
c. P 246
d. P 0
5. At December 31, 2006, the note receivable from Betque has a balance of:
a. P 15,350
b. P 15,000
c. P 14,650
d. P 0
6. At December 31, 2006 the note receivable from Gabutero has a balance of:
a. P 150,000
b. P 100,000
c. P 50,000
d. P 0
7. At December 31, 2006 the note receivable from Noval has a balance of:
a. P 42,000
b. P 35,000
c. P 7,000
d. P 0
8. At December 31, 2006 the note receivable from Gan has a balance of:
a. P 32,480
b. P 32,000
c. P 24,000
d. P 23,950
9. The total Note Receivable – Trade at December 31, 2006 is:
a. P 89,000
b. P 81,000
c. P 72,366
d. P 66,000
10. The total Interest Receivable at December 31, 2006 is:
a. P 2,300
b. P 2,060
c. P 1,950
d. P 1,790
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Solution
(2)
(3)
Cardoza
Pancho
Adjusting Entries as of Dec. 31, 2006
(a) Interest Expense
625.00
Trade Notes receivable
Maturity Value = Face Value
P30,000
Discount (30,000 x 10% x 75/360)
625
Proceeds
P29,375
(b) Accounts Receivable
Trade Notes Receivable
Interest Receivable
Interest Revenue
Face Value
625.00
6,370.92
6,000.00
120.00
250.92
P6,000.0
0
Interest (6000 x 12% x60/360)
120.00
P6,120.0
0
Maturity value
Add.’l interest from due date ,
8.30.06 to 12.31.06 (6,120 x 12% x
123/360)
Total amount due, 12.31.06
(4)
(5)
Betque
Gabutero
250.92
P6,370.9
2
© Notes receivable- Officers
Interest Receivable
Interest Revenue
Trade Notes
Receivable
Accrued Interest as of 12.31.06
(15,000 x 12% x 150/360) =
P750
15,000
350
OE: Cash
50,660
350
15,000
Notes Receivable
Interest Receivable
50,000
660
50,660
CE: Cash
NR – Discounted
Interest income
(d)
Adj: Notes Receivable
Interest Receivable
Interest income
NR – discounted
-----------------------------------------
50,000
660
50,000
660
-----------
OE: Notes Receivable
Interest Receivable
Cash
50,000
1,000
CE: Accounts Receivable
Cash
51,000
660
50,000
----------
51,000
51,000
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NR – discounted
Notes Receivable
50,000
50,000
(e)
Accounts Receivable
51,000
NR – discounted
50,000
Trade Notes
Receivable
Interest Receivable
Face Value
P50,000
Interest (50,000 x 12% x 60/360)
1,000
Maturity Value
P51,000
340
Discount (50,000 x 8% x 30/360)
Proceeds
P50,660
(6)
(7)
Noval
Gan
ANSWER:
1. D
6. D
2. D
7. A
(f) Accounts Receivable
Interest Revenue
(51,000 x 12% x 30/360)
510
(g) Trade Notes Receivable
Notes Payable- bank
35,000
(h) Accounts Receivable
Trade Notes Receivable
Interest Revenue
(8,000 x 12% x 30/360) = P80
(I) Interest revenue
Interest Receivable
(Accrued Interest as of 12.31.06
24,000 x 12% x 60/360) =
P480
8,080
3. D
8. C
4. A
9. D
100,000
1,000
510
35,000
8,000
80
160
5. B
10. D
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160