II – AUDIT OF RECEIVABLES SUMMARY OF PROBLEMS PROBLEM NO. 1 –
Composition of trade and other receivables
Computation of adjusted accounts receivable (including preparation of adjusting entries)
PROBLEM NO. 2 –
PROBLEM NO. 3 – Audit
of accounts receivable receivable and related accounts (including preparation of adjusting entries)
PROBLEM NO. 4 – Audit
of allowance for doubtful accounts (including preparation of adjusting entries)
PROBLEM NO. 5 – Analysis
of accounts receivable receivable and related accounts
PROBLEM NO. 6 – Audit
of accounts receivable receivable and related accounts (including preparation of adjusting entries)
PROBLEM NO. 7 – Analysis
of notes receivable receivable and related accounts
PROBLEM NO. 8 – Audit
of notes receivable receivable and related accounts (including preparation of adjusting entries)
PROBLEM NO. 9 – Audit
of notes receivable receivable and related accounts
PROBLEM NO. 10 – Analysis
of notes receivable receivable and related accounts (including preparation of adjusting entries)
PROBLEM NO. 11 –
Loan impairment
PROBLEM NO. 12 –
Theory
PROBLEM NO. 1 %
Ipil%Ipil -ompany
Items included: Trade accounts receivable (see computation below) Advance payments to creditors on purchase orders Interest receivable on bonds Subscriptions receivable due in 0 days Trade and other receivables Composition of trade accounts receivable: "ther trade accounts receivable # unassi$ned Trade accounts receivable % assi$ned Trade installment receivable due 1 # 1& months, net o' unearned 'inance char$es o' ,000 Trade receivables 'rom o''icers due currently Trade accounts on which post%dated chec*s are held (no entries were made on receipts o' chec*s) Trade accounts receivable Items not included: Accounts *nown to be worthless Advances to a''iliated companies -ustomers. account with credit balance
91,500 10,000 10,000 55,000 1!!,500
50,000 15,000 0,000 1,500 5,000 91,500
,500 +rite o'' 5,000 oncurrent investment (15,000) Trade and other payables
PROBLEM NO. 2
% 8eatles -ompany
e!uirement "o# $ 1) Love %# &o Sales returns Accounts receivable
9,000 9,000
) 'trawberry ields one ) This oy Company one, this is mispostin$ only in the S/ owever, the customers. led$er should be ad2usted 3) *irl Corporation Sales Accounts receivable
30,000 30,000
5) Tic+et To ide Corp# Accounts receivable%ontrade Accounts receivable
1!0,000
!) Let It e Corp -ash Accounts receivable
13,000
1!0,000
13,000
4) ,ey -ude one, this is mispostin$ only in the S/ owever, the customers. led$er should be ad2usted &) *et ac+ Company one, this is mispostin$ only in the S/ owever, the customers. led$er should be ad2usted 9) .esterday Corp one, this is mispostin$ only in the S/ owever, the customers. led$er should be ad2usted
e!uirement "o# / nad2usted balance Add (6educt) ad2ustments7 o 1 o 3 o 5 o ! Ad2usted balance
,00,000 (9,000) (30,000) (1!0,000) (13,000) 1,!03,000
PROBLEM NO. 3 %
ra*tis -ompany
Accounts receivable
er 8oo*s 33,500
er Audit &4,300
7
Ad2ustments (1!,300) 15,000 (1,000) (1,000) (1,00) (1&,000) (1,500)
4 5 6 7
($/4111) ($4/11) ($34111) ($4511)
/154311
1 2 3 4 5 6
01 days old and below
/234511
0$ to 61 days 8ver 61 days
$$74/11 354911
3
(/$4111)
15,000
2
15,000 (1,000) (1,4&)
Allowance 'or doubt'ul accounts
3 8
Adjusting Journal Entries to o''icers and employees Accounts receivable
1 Advances
2 Accounts
receivable Allowance 'or doubt'ul accounts rroneous recording of recovery from written off account
3 Allowance
4
5
6
7
1!,300 1!,300 15,000 15,000
'or doubt'ul accounts Accounts receivable (90 days) Accounts that should be written off
1,000
et sales Accounts receivable (:!0 days) ;nrecorded credit memo
1,000
et sales Accounts receivable (:!0 days) ;nrecorded employee discount
1,00
et sales Accounts receivable (:!0 days)
1&,000
Inventory -ost o' sales *oods out on consignment erroneously billed
1,000
;rei$ht out Accounts receivable (:!0 days) ;nrecorded freight
8 Allowance
'or doubt'ul accounts 6oubt'ul accounts e
1,000
1,000
1,00
1&,000 1,000
1,500 1,500
1,4&
!0 days old and below 05,&00 1= !1 to 90 days 114,00 = "ver 90 days !3,300 5= >e?uired allowance 8alance per boo*s be'ore this ad2ustment (15,000@15,000%1,000)
1,4& ,05& ,33 ,0 4,! 9,000
$$74/11 094911 4,!
Ad2ustment
1,4&
PROBLEM NO. 4 %
ro'essional -ompany
e!uirement "o# $ -ate$ory 1 # 10 days 11 # 0 days 1 # !0 days !1 # 10 days
A$in$ ratio !3= 1&= &=
A> 8alance 9!0,000 40,000 10,000
>ate Allowance 100= 9,!00 50= !,450 500= !,000
5=
45,000
000=
15,000
11 # 1&0 days
=
35,000
500=
15,450
over 1&0 days
= 100=
0,000 1,500,000
&000=
3,000 44,100
e!uirement "o# / 6oubt'ul accounts e
,00
Allowance 'or doubt'ul accounts, 1B1 Add provisions (&,000,000 < 3=) Total /ess accounts written%o'' 8alance be'ore ad2ustment >e?uired allowance (see no 1) Additional re?uired allowance 'or doubt'ul accounts
,00 4,00 0,000 34,00 9,500 53,&00 44,100 ,00
PROBLEM NO. 5 oster
-orporation
e!uirement "o# $ Accounts receivable, 1B1B1 -redit sales 'or 01 -ollections durin$ 01 Accounts written o'' % 01 Accounts receivable, 1B1B1
09,000 1,500,000 (1,&0,00) (1,000) 94,&00
e!uirement "o# / Allowance 'or doubt'ul accounts, 1B1B1 6oubt'ul accounts e
ecovery o' accounts written o'' % 01 Allowance 'or doubt'ul accounts, 1B1B1
4,!00 0,000 (1,000) 3,00 10,&00
Computation of doubtful accounts e=pense < /1$/: 6oubt'ul accounts e
A> writen%o'' !,000 9,500 0,000 &5,500
et accounts written o'' (009 to 011) 6ivide by credit sales (009 to 011) ercenta$e o' uncollectible accounts to char$e sales
>ecoveries ,150 ,450 ,!00 9,500
0,000
et ,&50 5,450 !,300 4!,000 4!,000 ,&00,000 00=
PROBLEM NO. 6 %
>in$o, Inc
e!uirement "o# $#a nad2usted balances Add (deduct) ad2ustments7 AEF o 1 AEF o AEF o Ad2usted balances
D/BS/ &4,900
!0 &4,&00
(9,000) (!,100) 11,000 &,&00
!1 to 90 04,100
(9,000) (!,100) &4,&00
11,000 1&,100
e!uirement "o# $#b A$e o' accounts !0 !1 to 90 91 to 10 over 10
balance &4,&00 1&,100 &,400 33,00 &,&00
>ate 1= = 5= 5=
Allowance ,&4& !,! 3,1&5 11,050 5,345
e!uirement "o# $#c nad2usted allowance 'or doubt'ul accounts Add (deduct) ad2ustments7 AEF no 1 (9,000) AEF no 3 (s?ueeGe) (1,00) >e?uired allowance (see no 1b) 8alance per boo*s (31,&95 % !,100) Add (deduct) ad2ustments7 AEF no AEF no 3 6oubt'ul accounts e
55,395
(0,00) 5,345 5,495
!,100 (1,00)
(13,90) 0,&45
e!uirement "o# / Adjusting journal entries:
1) Allowance 'or doubt'ul accounts Accounts receivable % over 10 days To write off definitely uncollectible accounts
91 to 10 over 10 &9,&00 5,00
9,000 9,000
) 6oubt'ul account e
11,000
3) Allowance 'or doubt'ul accounts 6oubt'ul account e
1,00
!,100
11,000
1,00
&,400
33,00
PROBLEM NO. 7
Co*o -orporation
e!uirement "o# $ ote receivable 'rom sale o' plant 8alance, 1B1B1 (!,000,000 % ,000,000) /ess installment due on April 1, 01 ote receivable 'rom o''icer, due 1B1B13 ote receivable 'rom sale o' e?uipment resent value o' note, 3B1B1 (&00,000 < 0494) 6iscount amortiGation%01 (!4,!00 < 1= < 9B1) ote receivable 'rom sale o' land 8alance, 1B1B1 /ess principal installment due on 4B1B1 Total amount to be received 90,500 /ess interest (,&00,000 < 11=) 0&,000 Total noncurrent receivables, 1B1B1 e!uirement "o# / ote receivable 'rom sale o' plant due on 3B1B1 ote receivable 'rom sale o' land (see no 1) -urrent portion o' lon$%term receivables e!uirement "o# 2 ote receivable 'rom sale o' plant (3,000,000 < 1= < 9B1) ote receivable 'rom sale o' land (,&00,000 < 11= < !B1) Accrued interest receivable, 1B1B1 e!uirement "o# 9 ote receivable 'rom sale o' plant7 !,000,000 < 1= < B1 1&0,000 3,000,000 < 1= < 9B1 !0,000 ote receivable 'rom o''icer (1,!00,000 < 10=) ote receivable 'rom sale o' e?uipment (!4,!00 < 1= < 9B1) ote receivable 'rom sale o' land (,&00,000 < 11= < !B1) Total interest income 'or 01
3,000,000 ,000,000
!4,!00 54,&3
,000,000 1,!00,000
!93,9&3
,&00,000
593,500
,000,000 593,500 ,593,500
!0,000 153,000 513,000
530,000 1!0,000 54,&3 153,000 911,&3
,05,500 !,500,3&3
PROBLEM NO. 8 %
edro -ompany
e!uirement "o# $#a H o' consideration receivable (see computation -arryin$ amount o' land -orrect $ain on sale o' land
50,105 (300,000) 10,105
>resent value of cash flows to determine initial CA:
6ate 1B1B1 1B1B1 1B1B13
rincipal Interest (3=) 00,000 3,000 00,000 1!,000 00,000 &,000 !00,000
Total H; (13=) 3,000 0&44 1!,000 04!95 0&,000 0!450
H, 1B1B1 H, 1B1B1 19!,39 1!!,1 1&9,345 130,300 1!0,05! 50,105 39,51
e!uirement "o# $#b Amorti?ation schedule using effective interest method:
6ate 1B1B1 1B1B1 1B1B1 1B1B13
FI (13=)
I (3=)
6isc Amort >epayment
40,35 3,000 3&,9! 1!,000 5,53 &,000 /2 Interest income % 01 (50,105 < 1
3!,35 ,9! 14,53
00,000 00,000 00,000
40,35
e!uirement "o# $#c Dain on sale o' land % overstated (00,000 % 10 Interest income 'or 01 % understated (40,35 % et overstatement o' 01 pro'it
9!,&95 (3!,35) 50,3!0
e!uirement "o# $#d -arryin$ amount, 1B1B1 (see schedule)
39,530
e!uirement "o# $#e Amount reported as notes receivable 300,000 -orrect current portion o' > (39,530 % 1&,3 1!4,0!3 "verstatement o' -ABwor*in$ capital ,9!
e!uirement "o# /
A50,105 39,530 1&,34! %
PROBLEM NO. 9
% y /ove -orporation
e!uirement "o# $ H; used to calculate the annual payment (1B31,1&0) "rdinary annuity 'actor at 1= 'or 5 periods e!uirement "o# /
ro'it over (under)
Sales % over >eported Should be Interest income % under >eported Should be (refer to amorti?ation schedule) et misstatement
,005,900 1,500,000
011 pro'it overstated (see no ) 01 pro'it understated (interest income under) >eported Should be (refer to amorti?ation schedule) et misstatement
0 11,94
31,1&0 31,1&0 31,1&0 31,1&0 31,1&0 1,405,900
15!,000 11,94 103,43 4,9&3 9,!5
rincipal 1&5,1&0 09,5 !,35! !4,19! 01,915
(11,94) 14,94
1B1B11 1B1B1 1B1B1 1B1B13 1B1B15
(15!,000) 39,900 >F, 1B1B1 over (under) 39,900
e!uirement "o# 9 Amount reported under current assets J1,405,900 % (31,1&0 < )K Should be (refer to amorti?ation schedule) et misstatement o' +-, 1B1B1 % over (under)
Interest (1=)
505,900
0 15!,000
e!uirement "o# 2
Amorti?ation schedule: 6ate ayment
514 514
-A 1,00,000 1,013,&0 &05,5!4 5!9,111 01,915 %
1,0,530 !,35! 4&4,0&3
PROBLEM NO. 10
% erlyn, Inc
e!uirement "o# / 1B1
B&
B9
&B0
9B3
11B1
11B3
otes receivable Accounts receivable
5,000
otes receivable /oss on discountin$ (5,50 % 3,9!0) otes receivable % discounted Interest income (5,000 < 0! < B1)
3,9!0 90
5,000
5,000 50
otes receivable % "''icers otes receivable
!,00
otes receivable Interest receivable Interest income
3,00
!,00
1,300 ,&00
otes receivable dishonored otes receivable
500
otes receivable dishonored otes receivable
30,000
otes receivable -ash
500
30,000 &,10 &,10
otes receivable dishonored otes receivable
!,01
otes receivable discounted otes receivable
5,000
1B4 otes receivable /oss on settlement o' > otes receivable dishonored 1B1 otes receivable etty cash 'und 1B1 otes receivable otes receivable dishonored Interest income
!,01
5,000 3,000 ,01 !,01 !,00 !,00 3,34 30,500 1,94
1B1 Interest receivable (30,000 < != < 3B1) Interest income otes receivable
&00 300
1B1 Interest receivable (&,000 < != < B1) Interest income
&0
1B1 nearned interest income Interest income
1,00
&0 300 300
e!uirement "o# $#a nad2usted trade > Add (6educt) ad2ustments7
1,013 1B1 B& B9 &B0 9B3 11B1 11B3
1B4 1B1 1B1 1B1 Ad2usted trade >, 1B1B1
5,000 3,9!0 (!,00) 3,00 (30,500) &,10 (!,01) (5,000) 3,000 !,00 3,34 (1,00) 3&,000
Composition: >obinson (40,000 % 0,000) Tripper (received 6- on 11B1) Ad2usted notes receivable%trade, 1B1B1
30,000 &,000 3&,000
"otes: $) " from >epper < collected on $/@2$@$/ /) " from Anna < accepted e!uipment in full settlement on $/@/7@$/ 2) " from -ulia < non
e!uirement "o# $#b >obinson7 Ean to Au$ (40,000 < 0! < &B1) Sept to 6ec (30,000 < 0! < 3B1) Tripper (&,000 < 0! < 1B1) epper (3,34 % 30,500) Anna (5,000 < 0! < B1) Eulia (non%interest bearin$) Total interest income % 01
,&00 &00
,!00 3&0 1,94 50 % !,!4
PROBLEM NO. 11 %
8ahrain 8an*
e!uirement "o#s $ / rincipal 6irect ori$ination cost "ri$ination 'ee received 'rom borrower (10 < 05) -arryin$ amount, 1B1B1
10,000,000 10,900 (500,000) 9,!0,900
AmortiGation schedule 6ate 1B1B11 1B1B11 1B1B1 1B1B1 1B1B13 1B1B15
FI (11=) 1,059,99 1,0!5,9 1,04,1&! 1,0&1,! 1,0&9,3! 3/0
e!uirement "o# 2 -arryin$ amount, 1B1B1 (see schedule) /ess H o' e
I (10=)
6isc Amort
1,000,000 1,000,000 1,000,000 1,000,000 1,000,000
59,99 !5,9 4,1&! &1,! &9,3!
9,45!, ,3!,300 ,!3,&00
5,&&1,00 ,&45,0
-A 9,!0,900 9,!90,99 9,45!, 9,&9,31& 9,910,!53 10,000,000
PROBLEM NO. 12 %
1 3 5 ! 4 & 9 10 11 1
6 8 A 6 6 6 8 8 A 6 8
Theory
A
1 3 5 ! 4 & 9 10 11 1 1 13 15 1! 14 1& 19 0 1 3 5 ! 4 & 9 0 1 3 5
-ash on hand and in ban* otes receivable Accounts receivable Allow 'or doubt'ul accounts Accounts receivable%net Accounts receivable%others Advances to o''icers and employees ar*etable securities Allow 'or decline in H o' mar*etable sec Inventories repayments Total curent assets roperty, plant and e?uipment Accumulated depreciation F%net Total assets Accounts payable Accrued eetained earnin$s, end et sales -ost o' sales Dross ro'it "peratin$ e
&,400 3,000 !,000 1,&00 30,100 ,450 ,&30 1,000 1,45 15,300 100 111,903 990,000 3!,000 5!!,000 !44,903 !00 ,&00 ,&00 94,000 4,000 300,000 11,10 15,103 933,000 !!9,!00 &0,300 40,49& ,!0 5,000 !,500 1!,5 1,000 1,000 1,000
B
5,00 3,500 30,000 ,000 &,000 % 1,000 10,450 50 0,000 500 11,0 1,910,000 33,000 1,5!!,000 41,950 3,000 3,000 5,00 300,000 ,000 305,00 00,000 10&,450 93&,000 !!5,000 &,300 !3,49& 15,000 4,50 9,000 11,000 ,50 3,000 500
C
3,30 5,000 3,000 ,100 30,000 500 ,&30 &,500 1,15 3,!00 % 11,950 910,000 50,000 !0!,000 !49,0 5,00 5,00 3,000 !,000 3,000 !,000 10&,450 111,10 950,000 !!1,000 &5,000 40,000 14,!0 5,500 !,000 14,000 1,450 ,000 ,000
D
5,50 5,500 &,000 1,900 9,900 1,000 ,430 3,50 % 1!,000 900 11,&0 930,000 5!,000 5&3,000 !4&,&0 ,&00 1,00 1,00 !0,000 30,000 !&,00 0&,450 93,450 95,000 !!3,300 &4,000 !3,000 1&,300 4,450 ,000 13,000 % % 1,500