PROBLEM NO.

1 Composition of trade and other receivables

On December 31, 2015 the accounts receivable control account of Ipil-ipil Co. had a
balance of P181,000. An analysis of the accounts receivable account showed the
following:

Accounts known to be worthless P 2,500

Advance payments to creditors on purchase orders 10,000
Advances to affiliated companies 25,000
Customers accounts reporting credit balance arising
from sales return (15,000)
Interest receivable on bonds 10,000
Other trade accounts receivable unassigned 50,000
Subscriptions receivable for ordinary share capital due
in 30 days 55,000
Trade accounts receivable assigned 15,000
Trade installment receivable due 1 18 months,
(including unearned finance charges, P2,000) 22,000
Trade receivables from officers, due currently 1,500
Trade accounts on which post-dated checks are held
(no entries were made on receipts of checks) 5,000
Total P 181,000

REQUIRED:

Determine the trade and other receivables to be reported on the entitys December 31,
2015 statement of financial position.

PROBLEM NO. 2 Computation of adjusted accounts receivable

In the audit of Beatles Company, the auditor had an appreciation of the following schedule
and noted some comments for possible adjustments:

Beatles Company
Accounts Receivable Schedule
December 31, 2015

Customer Balance Current Past Due

Love M. Do P92,000 P - P92,000
Strawberry Fields 420,000 248,000 172,000
This Boy Company 350,000 92,000 258,000
Girl Corporation 374,000 212,000 162,000
Ticket To Ride Transport Corp. 160,000 - 160,000
Let It Be Corp. 124,000 60,000 64,000
Hey Jude 4,000 4,000 -
Get Back Company 256,000 80,000 176,000
Yesterday Corp. 240,000 240,000 -
Totals P2,020,000 P936,000 P1,084,000

The Accounts Receivable control account balance was determined to be P2,020,000.

The external auditor submitted the following audit comments for possible adjustments:

Love M. Do Merchandise found defective; returned by customer on

October 31, 2015 for credit, but the credit memo was issued
by Beatles only on January 15, 2016.

Strawberry Fields Account is good but usually pays late.

This Boy Company Merchandise worth P160,000 was destroyed while in transit
on May 31, 201, terms FOB Destination. The carrier was
billed on June 15, 2015. (See Ticket To Ride Corp. and
Yesterday Corp.)

Girl Corporation Customer billed twice in error for P40,000. Balance is

collectible.

Ticket To Ride Corp. Collected in full on January 31, 2016

Let It Be Corp. Paid in full on December 30, 2015 but not recorded.
Collections were deposited on January 2, 2016.

Hey Jude Received account confirmation from customer for P44,000.

Investigation revealed an erroneous credit for P40,000.
(See Get Back Company)

Get Back Company Neglected to post P40,000 credit to customers account.

Yesterday Corp. Customer wants to know reason for receipt of P160,000

credit memo as their accounts payable balance was
P400,000.

REQUIRED:
1. Adjusting entries as of December 31, 2015.
2. Adjusted balance of Accounts Receivable Trade as of December 31, 2015.

PROBLEM NO. 3 Audit of accounts receivable and related accounts

In connection with the audit of the financial statements of Praktis Corporation, your audit
senior instructed you to examine the companys accounts receivable.

Prior to any adjustments you were able to extract the following balances from Praktis trial
balance as of December 31, 2015:

Accounts receivable P442,500

Allowance for doubtful accounts 15,000

From the schedule of accounts receivable as of December 31, 2015, you determined that
this account includes the following:

Accounts with debit balance:

60 days old and above P 238,500
61 to 90 days 117,200
Over 90 days 85,400 P 441,100
Advances to officers 16,400
Accounts with credit balance ( 15,000)
Accounts receivable per GL P 442,500

The credit balance in customers account represents collection from a customer whose
account had been written-off as uncollectible in 2014.

Accounts receivable for more than a year totaling, P21,000 should be written off.

Confirmation replies received directly from customers disclosed the following exceptions:

Customer Customers Comments Audit Findings

Jessie The goods sold on December 1 were
returned on December 16, 2015
The client failed to record
credit memo no. 23 for
P12,000. The merchandise
was included in the ending
inventory at cost.

Robert We do not owe this amount *%#@ (bad Investigation revealed that
word). We did not receive any merchandise goods sold for P16,000
 from your company. were shipped to Robert on
December 29, 2015, terms
FOB shipping point. The
goods were lost in transit
and the shipping company
has acknowledged its
responsibility for the lost of
the merchandise.

Anne I am entitled to a 10% employee discount. Annie is an employer of

Your bill should be reduced by P1,200. Praktis. Starting November
2015, all company
employees were entitled to
a special discount.

Jay-ar We have not yet sold the goods. We will
remit the proceeds as soon as the goods
are sold.
Merchandise billed for
P18,000 were consigned to
Jay-ar on December 30,
2015. The goods cost
P13,000.

Roy We do not owe you P20,000. We already The sale of merchandise

paid our accounts as evidenced by OR # on December 18, 2015 was
1234. paid by Roy on January 6,
2016.

Carla Reduce your bill by P1,500. This amount represents

freight paid by the
customers for the
merchandise shipped on
December 17, 2015, terms
FOB destination-collect.

Based on your discussion with Praktis Credit Manager, you both agreed that an
allowance for doubtful accounts should be maintained using the following rates:
60 days old and below 1%
61 to 90 days 2%
Over 90 days 5%

REQUIRED:

1. Compute for the adjusted balances of following:

a. Accounts receivable
 b. Allowance for doubtful accounts

2. Adjusting entries as of December 31, 2015

PROBLEM NO. 4 Audit of allowance for doubtful accounts

Professional Company produces paints and related products for sale to the construction
industry throughout Metro Manila. While sales have remained relatively stable despite a
decline in the amount of new construction, there has been a noticeable change in the
timeliness with which the companys customers are paying their bills.

The company sells its products on payment terms of 2/10, n/30. In the past, over 75
percent of the credit customers have taken advantage of the discount by paying within 10
days of the invoice date. During the year ended December 31, 2015, the number of
customers taking the full 30 days to pay has increased. Current indications are that less
than 60% of the customers are now taking the discount. Uncollectible account as a
percentage of total credit sales have risen from the 1.5% provided the past years to 4%
in the current year.

In response to your request for more information on the deterioration accounts receivable
collections, the companys controller has prepare the following report:

Professional Company
Accounts Receivable Collections
December 31, 2015

The fact that some credit accounts will provide uncollectible is normal, and annual bad
debt written-offs had been 1.5% of total credit sales for many years. However, during the
year 2015, this percentage increased to 4%. The accounts receivable balance is
P1,500,000, and the condition of this balance in terms of age and probability of collections
is shown below:

Proportion of total Age of accounts Probability of collection

64% 1 10 days 99.0%
18% 11 30 days 97.5%
8% Past due 31 60 days 95.0%
5% Past due 61 120 days 80.0%
3% Past due 121 180 days 65.0%
2% Past due over 180 days 20.0%
At the beginning of the year, the Allowance for Doubtful Accounts had a credit balance of
P27,300. The company has provided for a monthly bad debts expense accrual during the
year based on the assumption that 4% of total credit sales will be uncollectible. Total
credit sales for the year 2015 amounted to P8,000,000, and written-offs of uncollectible
accounts during the year totaled P292,500.

REQUIRED:
1. Adjusted balance of the allowance for doubtful accounts as of December 31, 2015.

2. The necessary adjusting journal entry to adjust the allowance for doubtful accounts as
of December 31, 2015.

PROBLEM NO. 5 Analysis of account receivable and related accounts

The Poster Co. sells direct to retail customers and also to wholesalers. Accounts
receivable and an allowance for bad debts are maintained separately for each division.
On January 1, 2015 the balance of the retail accounts receivable was P209,000 while the
bad debts with respect to retail customers was a credit of P7,600.

The following summary pertains only to retail sales since 2012:

Credit Sales Bad Debts Bad Debts

Written Off Recoveries
2012 P1,110,000 P26,000 P2,150
2013 1,225,000 29,500 3,750
2014 1,465,000 30,000 3,600
2015 1,500,000 31,000 4,200

Bad debts are provided for as a percentage of credit sales. The accountant calculates the
percentage annually by using the experience of the three years prior to the current year.
The formula is bad debts written off less recoveries expressed as a percentage of the
credit sales for the same period. cash receipts in 2015 from credit sales to retail customers
was P1,380,200.

REQUIRED:

Determine the following:

1. Adjusted accounts receivable as of December 31, 2015

2. Adjusted allowance for doubtful accounts as of December 31, 2015
PROBLEM NO. 6 Audit of accounts receivable and related accounts

In connection with your examination of the financial statements of Ringo Inc. for the year
ended December 31, 2015, you were able to obtain certain information during your audit
of the accounts receivable and related accounts.

The December 31, 2015 balance in the Accounts Receivable control accounts is
P837,900.

An aging schedule of the accounts receivable as of December 31, 2015 is presented

below:
Net debit Percentage to be applied after
Age balance corrections have been made
60 days & under P387,800 1 percent
61 to 90 days 307,100 2 percent
91 to 120 days 89,800 5 percent
Over 120 days 53,200 Definitely uncollectible, P9,000;
the remainder is estimated to be
P837,900 25% uncollectible.

The Allowance for Doubtful Accounts schedule is presented below:

Debit Credit Balance

January 1, 2015 P19,700
November 30, 2015 P6,100 13,600
December 31, 2015 (P837,900 x 5%) P41,895 P55,495

Entries made to Doubtful Accounts Expense account were:

1. A debit on December 31 for the amount of the credit to the Allowance for Doubtful
Accounts.
2. A credit for P6,100 on November 30, 2015, and a debit to Allowance for Doubtful
Accounts because of a bankruptcy. The related sales took place on October 1,
2015.

There is a credit balance in one account receivable (61 to 90 days) of P11,000; it

represents an advance on a sales contract.

REQUIRED:

1. Determine the following as of and for the year ended December 31, 2015:
a. Accounts receivable
b. Allowance for doubtful accounts
c. Doubtful accounts expense
2. Adjusting entries as of December 31, 2015

PROBLEM NO. 7 Analysis of notes receivable and related accounts

The balance sheet of Yoko Corporation reported the following long-term receivables as
of December 31, 2014:

Note receivable from sale of plant P6,000,000

Note receivable from officer 1,600,000

In connection with your audit, you were able to gather the following transactions during
2015 and other information pertaining to the companys long-term receivables:

a. The note receivable from sale of plant bears interest at 12% per annum. The note is
payable in 3 annual installments of P2,000,000 plus interest on the unpaid balance
every April 1. The initial principal and interest payment was made on April 1, 2015.

b. The note receivable from officer is dated December 31, 2014, earns interest at 10%
per annum, and is due on December 31, 2017. The 2015 interest was received on
December 31, 2015.

c. The corporation sold a piece of equipment to Yes, Inc. on April 1, 2015, in exchange
for an P800,000 non-interest bearing note due on April 1, 2017. The note had no
ready market, and there was no established exchange price for the equipment. The
prevailing interest rate for a note of this type at April 1, 2015, was 12%. The present
value factor of 1 for two periods at 12% is 0.797.

d. A tract of land was sold by the corporation to No Co. on July 1, 2015, for P4,000,000
under an installment sale contract. No Co. signed a 4-year 11% note for P2,800,000
on July 1, 2015, in addition to the down payment of P1,200,000. The equal annual
payments of principal and interest on the note will be P902,500 payable on July 1,
2016, 2017, 2018, and 2019. The land had an established cash price of P4,000,000,
and its cost to the corporation was P3,000,000. The collection of the installments on
this note is reasonably assured.

REQUIRED:

Determine the following as of and for the year ended December 31, 2015:

1. Noncurrent receivables
2. Current portion of long-term receivables
3. Accrued interest receivable
4. Interest income

PROBLEM NO. 8 Audit of notes receivable and related accounts

On January 1, 2015, Pedro Company sold land that originally cost P400,000 to Buyer
Company. As payment, Buyer gave Pedro Company a P600,000 note. The note bears of
4% and is to be repaid in three annual installments of P200,000 (plus interest on the
outstanding balance). The first payment is due on December 31, 2015. The market price
of the land is not reliably determinable. The prevailing rate of interest for notes of this type
is 14% on January 1, 2015 and is 15% on December 31, 2015.

Pedro made the following journal entries in relation of the sale of land and the related
note receivable:

January 1, 2015

Notes receivable P600,000

Land P400,000
Gain on sale of land 200,000

December 31, 2015

Cash P224,000
Notes receivable P200,000
Interest income 24,000

Pedro reported the notes receivable in its statement of financial position at December 31,
2015 as part of trade and other receivables.

REQUIRED:

1. Determine the following as of and for the year ended December 31, 2015:
a. Correct gain on sale of land
b. Correct interest income
c. Overstatement of profit
d. Correct carrying amount of note receivable
e. Overstatement of working capital

2. Adjusting entries as of December 31, 2015

PROBLEM NO. 9 Audit of notes receivable and related accounts

My Love Corporation is a local company engaged in buying and selling manufacturing

equipment. On 1 January 2014, My Love Corporation sold equipment, with a cash price
of P1,500,000, to Silly Love Company. The cost of the equipment is P750,000. Silly Love
signed a deferred payment contract that provides for a down payment of P300,000 and a
5-year note for P1,705,900. The note is to be paid in 5 equal annual payments of
P341,180. The payments include interest and are made on December 31 of each year,
beginning on December 31, 2014.

My Love Corporation made the following entries in relation to the sale of the equipment
and the related note receivable:

January 1, 2014

Cash P 300,000
Notes receivable 1,705,900
Cost of goods sold 750,000
Sales P2,005,900
Inventory 750,000

December 31, 2014

Cash P 341,180
Notes receivable P 341,180

December 31, 2015

Cash P 341,180
Notes receivable P 341,180

My Love Corporation reported the notes receivable in its statement of financial position
at December 31, 2014 and 2015 as part of trade and other receivables.

REQUIRED:

Determine the following:

1. The effective interest rate

2. Overstatement of profit for 2014
3. Overstatement of retained earnings as of December 31, 2015
4. Overstatement of working capital as of December 31, 2015
PROBLEM NO. 10 Analysis of notes receivable and related accounts

You are examining the financial statements of Merlyn, Inc. for the year ended December
31, 2015. Your analysis of the 2015 entries in the Notes Receivable account follows:

Merlyn, Inc.
Analysis of Notes Receivable
For the Year Ended December 31, 2015

Date
2015 Debit Credit
Jan. 1 Balance Forwarded P118,000
Received P25,000 6% note due
10/29/15 from Anna whose trade
Account was past due

Feb. 28 Discounted Anna note P24,960

Mar. 31 Received non-interest-bearing

demand note from Julia, the 6,200
corporations treasurer for a loan

Aug. 30 Received principal and interest due

from Robinson in accordance with
agreement, two principal payments 34,200
in advance

Sept. 4 Paid protest fee on note dishonored

by Pepper 500

Nov. 1 Received check dated 2/1/16 in settlement

of Tripper note. The check was included in 8,120
cash on hand 12/31/15

Nov. 4 Paid protest fee and maturity value of Anna

note to bank. Note discounted 2/28/15 was 26,031
dishonored

Dec. 27 Accepted equipment with a fair market value

of P24,000 in full settlement from Anna 24,000

Dec. 31 Received check dated 1/2/16 from Julia in

 payment of 3/31/15 note. (The cash was
included in petty cash fund 1/2/16 when it
was returned to Julia in exchange for new 6,200
demand note for the same amount.)

Dec. 31 Received principal and interest on Pepper note 42,437

Dec. 31 Accrued interest on Robinson note 1,200

P151,931 P139,917
The following information is available:

(1) Balances at January 1, 2015, were a debit of P1,400 in the Accrued Interest
Receivable account and a credit of P400 in the Unearned Interest Income account.
The P118,000 debit in the Note Receivable account consisted the following three
notes:

Robinson note of 8/31/08 payable in annual installments of

P10,000 principal plus accrued interest at 6% each August 31 P70,000
Tripper note discounted to Merlyn, Inc, at 6% 11/1/14 due
11/1/15 8,000
Pepper note for P40,000 plus 6% interest dated 12/31/14 due
on 9/1/15 40,000

(2) No entries were made during 2015 to the Accrued Interest Receivable or the
Unearned Interest Income account and only one entry for a credit of P1,200 on
December 31, appeared in the Interest Income account.

(3) All notes were from the trade customers unless otherwise indicated.

(4) Debits and credits affecting Notes Receivable were correctly recorded unless facts
indicated otherwise.

REQUIRED:

1. Determined the following as of and for the year ended December 31, 2015:
a. Notes receivable-trade
b. Interest income
2. Adjusting entries as of December 31, 2015
PROBLEM NO. 11 Loan impairment

Bahrain Bank granted a loan to a borrower in the amount of P10,000,000 on January 1,

2014. The interest rate on the loan is 10% payable annually starting December 31, 2014.
The loan matures in five years on December 31, 2018. Bahrain Bank incurs P130,900 of
direct loan origination cost and P50,000 of indirect loan origination cost. In addition,
Bahrain Bank charges the borrower a 5-point nonrefundable loan origination fee.

The borrower paid the interest due on December 31, 2014. However, during 2015 the
borrower began to experience financial difficulties, requiring the bank to reassess the
collectability of the loan. As of December 31, 2015, the bank expects that only P8,000,000
of the principal will be recovered. The P8,000,000 principal amount is expected to be
collected in two equal installments on December 31, 2017 and December 31, 2019. The
prevailing interest rates for similar type of notes as of December 31, 2014 and 2015 are
15% and 16% respectively.

REQUIRED:

Determine the following:

1. Interest income to be recognized in 2014
2. Carrying amount of the loan as of December 31, 2014
3. Loan impairment loss to be recognized in 2015

PROBLEM N0. 12 Theory

Select the best answer for each of the following:

1. In the audit of which of the following general ledger accounts will tests of controls be
particularly appropriate?
a. Equipment
b. Bank charges
c. Bonds payable
d. Sales
.
2. The purpose of test of controls over shipping is to determine whether
a. Billed goods have been shipped.
b. Shipments are billed.
 c. Shipping department personnel are competent.
d. Credit is approved before goods are shipped.

3. The purpose of tests of controls over billing is to determine whether

a. Billed goods have been shipped.
b. Shipments are billed.
c. Billing department personnel are competent.
d. Credit is approved before goods are billed.

4. An auditor most likely would review an entitys periodic accounting for the numerical
sequence of shipping documents and invoices to support managements financial
statement assertion of
a. Existence or occurrence
b. Rights and obligations
c. Valuation
d. Completeness

5. Which of the following might be detected by an auditors review of the clients cut-off?
a. Excessive goods returned for credit
b. Unrecorded sales discounts
c. Lapping of year-end accounts receivable
d. Inflated sales for the year

6. An auditor who has confirmed accounts receivable may discover that the sales
journal was held open past year-end if
a. Positive confirmations sent to debtors are not returned
b. Negative confirmations sent to debtors are not retuned
c. Most of the returned negative confirmations indicate that the debtors owes a
ledger balance that the amount being confirmed.
d. Most of the returned positive confirmations indicate that the debtor owes a smaller
balance than the amount being confirmed.

7. The auditor finds situation in which one person has the ability to collect receivables,
make deposits, issue credit memos and record receipt 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 customers.
c. Perform a detailed review of debits to customer discounts, sales returns, or other
debit accounts, excluding cash posted to the cash receipts journal.
 d. Take a sample of bank deposits and trace the detail in each bank deposit back to
the entry in the cash receipts journal.

8. All of the following are examples of substantive tests to verify valuation of net accounts
receivable except the
a. Re-computation of the allowance for bad debts.
b. Inspection of accounts for current versus non-current status in the statement of
financial position.
c. Inspection of the aging schedule and credit records of past due accounts
d. Comparison of the allowance for bad debts with past records.

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 provides primary
evidence are
a. Completeness and valuation
b. Rights and obligations and existence
c. Valuation and rights and obligations
d. Existence and completeness

10. The negative request form of accounts receivable confirmation may be used when the
Combined Assessed Number of Consideration by
Level Of Inherent and Small Balances the Recipient is
Control Risk is is
a. Low Many Likely
b. Low Few Unlikely
c. High Few Likely
d. High Many Likely

11. Which of the following procedures would an auditor most likely perform for year-end
accounts receivable confirmations when the auditor did not receive replies to second
requests?
a. Review the cash receipts journal for the month prior to year-end.
b. Intensify the study of internal control concerning the revenue cycle.
c. Increase the assessed level of detection risk for the existence assertion.
d. Inspect the shipping records documenting the merchandise sold to the debtors.
12. Which of the following is the greatest drawback of using subsequent collections
evidenced only by a deposit slip as an alternative procedure when responses to
positive accounts receivable confirmations are not received?
a. Checking of subsequent collections can never be used as an alternative auditing
procedure.
b. By examining a deposit slip only, the auditor does not know whether the payment
is for the receivable at the balance sheet date or a subsequent transaction.
c. A deposit slip is not received directly by the auditor.
d. A customer may not have made a payment on a timely basis.
.