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PROBLEM NO. 1
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, 2005
Customer Balance Current Past Due
1. Love M. Do P92,000 P- P92,000
2. Strawberry Fields 420,000 248,000 172,000
3. This Boy Company 350,000 92,000 258,000
4. Girl Corporation 374,000 212,000 162,000
5. Ticket To Ride Transport Corp. 160,000 - 160,000
6. Let It Be Corporation 124,000 60,000 64,000
7. Hey Jude 4,000 4,000 -
8. Get Back Company 256,000 80,000 176,000
9. Yesterday Corporation 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:
1. Love M. Do Merchandise found defective; returned by customer
on October 31, 2005 for credit, but the credit memo
was issued by Beatles only on January 15, 2006.
2. Strawberry Fields Account is good but usually pays late.
3. This Boy Company Merchandise worth P160,000 was destroyed while
in transit on May 31, 2005, terms FOB Destination.
The carrier was billed on June 15, 2005. (See
Ticket To Ride Corp. and Yesterday Corp.)
4. Girl Corporation Customer billed twice in error for P40,000. Balance
is collectible.
5. Ticket To Ride Transport Corp. Collected in full on January 31, 2006.
6. Let It Be Corporation Paid in full on December 30, 2005 but not recorded.
Collections were deposited on January 2, 2006.
7. Hey Jude Received account confirmation from customer for
P44,000. Investigation revealed an erroneous
credit for P40,000. (See Get Back Company)
8. Get Back Company Neglected to post P40,000 credit to customers
account.
9. Yesterday Corporation Customer wants to know reason for receipt of
P160,000 credit memo as their accounts payable
balance was P400,000.
REQUIRED:
a. Adjusting entries as of December 31, 2005.
b. Adjusted balance of Accounts Receivable - Trade as of December 31, 2005.

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PROBLEM NO. 2
The following information is based on the first audit of Paul Company.
The client has not prepared financial statements for 2003, 2004, or 2005. During these
years, no accounts have been written off as uncollectible, and the rate of gross profit on
sales has remained constant for each of the three years.
Prior to January 1, 2003, the client used the accrual method of accounting. From January
1, 2003 to December 31, 2005, only cash receipts and disbursements records were
maintained. When sales on account were made, they were entered in the subsidiary
accounts receivable ledger. No general ledger postings have been made since December
31, 2003.
As a result of your examination, the correct data shown below are available:
12/31/2002 12/31/2005
Accounts receivable balances:
Less than one year old P61,600 P112,800
One to two years old 4,800 7,200
Two to three years old - 3,200
Over three years old - 8,800
P66,400 P132,000
Inventories 146,400 124,160
Accounts payable for inventory purchased 20,000 44,000
Cash received on accounts receivable in: 2003 2004 2005
Applied to:
Current year sales P595,200 P647,200 P835,200
Accounts of the prior year 53,600 60,000 67,200
Accounts of two year prior 2,400 1,600 8,000
Total P651,200 P708,800 P910,400
Cash sales 68,000 104,000 124,800
Cash disbursements for inventory purchased 750,000 728,400 581,600
REQUIRED:
Based on the above and the result of your audit, compute for the gross profit for the years
ended December 31, 2003, 2004 and 2005.

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PROBLEM NO. 3
In your audit of the books of George Company for the year 2005, you concluded that the
allowance for doubtful accounts should be adjusted to equal the estimated amount
required based on aging of the accounts as of December 31. During your audit, you were
able to gather the following data:
Allowance for doubtful accounts, Jan. 1, 2005 P300,000
Provision for doubtful accounts during 2005 (3% of P5,000,000 sales) 150,000
Bad debts written off in 2005 187,500
Recovery of bad debts written off during 2005 50,000
Estimated doubtful accounts per aging of accounts on Dec. 31, 2005 200,000
Accounts receivable, December 31, 2005 2,375,000
REQUIRED:
1. Based on the result of your audit, determine the following:
a. Doubtful accounts expense for 2005.
b. Net realizable value of Accounts Receivable as of December 31, 2005.
c. The increase(decrease) in the recorded Allowance for doubtful accounts.
d. Adjusting journal entry.
2. Assuming there was no aging of accounts, determine the following:
a. Doubtful accounts expense for 2005.
b. Allowance for doubtful accounts as of December 31, 2005.
3. Assuming there was no aging of accounts and the company used 8% percent of
accounts receivable method, determine the following:
a. Doubtful accounts expense for 2005.
b. Allowance for doubtful accounts as of December 31, 2005.

PROBLEM NO. 4

The John Corporation started its business on January 1, 2005. After considering the
collections experience of other companies in the industry, John Corporation established an
allowance for bad debts estimated to be 5% of credit sales. Outstanding receivables
recorded in the books of accounts on December 31, 2005 totaled P575,000, while the
allowance for bad debts account had a credit balance of P62,500 after recording estimated
doubtful account expense for December and after writing off P12,500 of uncollectible
accounts.

Further analysis of the companys accounts showed that merchandise purchased in 2005
amounted to P2,250,000 and ending merchandise inventory was P375,000. Goods were
sold at 40% above cost.

80% of total sales were on account. Total collections from customers, on the other hand,
excluding proceeds from cash sales, amounted to P1,500,000.

QUESTIONS:
Based on the above and the result of your audit, answer the following:
1. The recorded accounts receivable as of December 31, 2005 is understated by
a. P12,500 b. P412,500 c. P537,500 d. P0
2. The doubtful accounts expense for the year ended December 31, 2005 should be
a. P105,000 b. P75,000 c. P131,250 d. P125,000
3. The recorded allowance for doubtful accounts receivable as of December 31, 2005 is
understated by
a. P50,000 b. P30,000 c. P56,250 d. P0
4. The net realizable value of accounts receivable as of December 31, 2005 is
a. P495,000 b. P512,500 c. P993,750 d. P875,000

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PROBLEM NO. 5
The accounts receivable subsidiary ledger of Ringo Corporation shows the following
information:
Dec. 31, 2005 Invoice
Customer Account balance Date Amount
Maybe, Inc. P140,720 12/06/05 P56,000
11/29/05 84,720
Perhaps Co. 83,680 09/27/05 48,000
08/20/05 35,680
Pwede Corp. 122,400 12/08/05 80,000
10/25/05 42,400
Perchance Co. 180,560 11/17/05 92,560
10/09/05 88,000
Possibly Co. 126,400 12/12/05 76,800
12/02/05 49,600
Luck, Inc. 69,600 09/12/05 69,600
Total P723,360 P723,360
The estimated bad debt rates below are based on the Corporations receivable collection experience.
Age of accounts Rate
0 30 days 1%
31 60 days 1.5%
61 90 days 3%
91 120 days 10%
Over 120 days 50%

The Allowance for Doubtful Accounts had a credit balance of P14,000 on December 31,
2005, before adjustment.
QUESTIONS:
Based on the foregoing, answer the following:
1. How much is the adjusted balance of the allowance for doubtful accounts as of
December 31, 2005?
a. P52,795 b. P24,795 c. P38,795 d. P14,000
2. The necessary adjusting journal entry to adjust the allowance for doubtful accounts
as of December 31, 2005 would include:
a. No adjusting journal entry is necessary.
b. A debit to retained earnings of P24,795.
c. A debit to doubtful accounts expense P38,795.
d. A credit to allowance for doubtful accounts of P24,795.

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PROBLEM NO. 6
The balance sheet of Yoko Corporation reported the following long-term receivables as of
December 31, 2004:
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
2005 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, 2005.
b. The note receivable from officer is dated December 31, 2004, earns interest at 10%
per annum, and is due on December 31, 2007. The 2005 interest was received on
December 31, 2005.
c. The corporation sold a piece of equipment to Yes, Inc. on April 1, 2005, in exchange
for an P800,000 non-interest bearing note due on April 1, 2007. 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, 2005, 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, 2005, for P4,000,000
under an installment sale contract. No Co. signed a 4-year 11% note for P2,800,000
on July 1, 2005, 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,
2006, 2007, 2008,and 2009. 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.
QUESTIONS:
Based on the above and the result of your audit, determine the following:
1. Noncurrent receivables as of December 31, 2005
a. P9,037,600 b. P6,500,484 c. P7,037,600 d. P6,443,100
2. Current portion of long-term receivables as of December 31, 2005
a. P2,000,000 b. P2,594,500 c. P2,902,500 d. P0
3. Accrued interest receivable as of December 31, 2005
a. P360,000 b. P514,000 c. P571,384 d. P674,000
4. Interest income for the year 2005
a. P854,000 b. P911,384 c. P1,091,384 d. P1,008,000

PROBLEM NO. 7
On December 31, 2004, Ono Company finished consultation services and accepted in
exchange a promissory note with a face value of P300,000, a due date of December 31,
2007, and a stated rate of 5%, with interest receivable at the end of each year. The fair
value of the services is not readily determinable and the note is not readily marketable.
Under the circumstances, the note is considered to have an appropriate imputed rate of
interest of 10%. (Round-off present value factors to four decimal places)

REQUIRED:
1. Consultation service fee revenue to be recognized
2. Carrying amount of the Note Receivable on December 31, 2005
3. Interest income for the year 2005

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