Page 1 of 5
PROBLEM NO. 1
In the the audit of Beatles auditor or had had an appre apprecia ciatio tion n of the the follo followi wing ng Beatles Company Company, the audit schedule and noted some comments for possible adjustments: Beatles Company Accounts Receivable Schedule ecembe! "1# $%%&
Customer 1. Loe !. Do #. &trawberr' (ields . -his Bo' Compan' ). /irl Corporation . -icet -o 2ide -ransport Corp. 0. Let It Be Corporation +. 3e' 4ude *. /et Bac Compan' ". 5esterda' Corporation -otals
Balance P"#,$$$ )#$,$$$ $,$$$ +),$$$ 10$,$$$ 1#),$$$ ),$$$ #0,$$$ #)$,$$$ P#,$#$,$$$
Current P% #)*,$$$ "#,$$$ #1#,$$$ % 0$,$$$ ),$$$ *$,$$$ #)$,$$$ P"0,$$$
Past Due P"#,$$$ 1+#,$$$ #*,$$$ 10#,$$$ 10$,$$$ 0),$$$ % 1+0,$$$ % P1,$*),$$$
-he 6ccounts 2eceiable control account balance was determined to be P#,$#$,$$$. -he e7ternal auditor submitted the following audit comments for possible adjustments: 1.
Loe !. Do
!erchandise found defectie8 returned b' customer on 9ctober 1, #$$ for credit, but the credit memo was issued b' Beatles onl' on 4anuar' 1, #$$0.
#.
&trawberr' (ields
6ccount is good but usuall' pa's late.
.
-his Bo' Compan'
!erchandise worth P10$,$$$ was destro'ed while in transit on !a' 1, #$$, terms (9B Destination. -he carrier was billed on 4une 1, #$$. &ee -icet -o -o 2ide Corp. and 5esterda' Corp.;
).
/irl Corporation
Customer billed twice in error for P)$,$$$. Balance is collectible.
. -icet icet -o 2ide 2ide -ransp ransport ort Corp. Corp.
Colle Collecte cted d in in full full on 4anu 4anuar' ar' 1, 1, #$$ #$$0. 0.
0.
Let It Be Corporation
Paid in full on December $, #$$ but not recorded. Collections were deposited on 4anuar' #, #$$0.
+.
3e' 4ude
2eceied account confirmation from customer for P)),$$$. Inestigation reealed an erroneous credit for P)$,$$$. &ee /et Bac Compan';
*.
/et Bac Compan'
".
5esterda' Corporation
Customer wants to now reason for receipt of P10$,$$$ credit memo as their accounts pa'able balance was P)$$,$$$.
REQUIRED:
a. b.
6dju 6djust stin ing g entr entrie ies s as of Dec Decem embe berr 1, 1, #$$ #$$.. 6djuste 6djusted d balanc balance e of 6ccount 6ccounts s 2eceia 2eceiable ble % -rade as of Decembe Decemberr 1, #$$. #$$.
AP'&(%)
Page 2 of 5
PROBLEM NO. $
-he following information is based on the first audit of Paul Company . -he client has not prepared financial statements for #$$, #$$), or #$$. During these 'ears, no accounts hae been written off as uncollectible, and the rate of gross profit on sales has remained constant for each of the three 'ears. Prior to 4anuar' 1, #$$, the client used the accrual method of accounting. (rom 4anuar' 1, #$$ to December 1, #$$, onl' cash receipts and disbursements records were maintained. >hen sales on account were made, the' were entered in the subsidiar' accounts receiable ledger.
1$*"1*$%%&
P01,0$$ ),*$$ % % P00,)$$
P11#,*$$ +,#$$ ,#$$ *,*$$ P1#,$$$
1)0,)$$
1#),10$
#$,$$$
)),$$$
$%%"
$%%+
$%%&
P",#$$ ,0$$ #,)$$ P01,#$$
P0)+,#$$ 0$,$$$ 1,0$$ P+$*,*$$
P*,#$$ 0+,#$$ *,$$$ P"1$,)$$
0*,$$$
1$),$$$
1#),*$$
+$,$$$
+#*,)$$
*1,0$$
6ccounts receiable balances: Less than one 'ear old 9ne to two 'ears old -wo to three 'ears old 9er three 'ears old Inentories 6ccounts pa'able for inentor' purchased Cash receied on accounts receiable in: 6pplied to: Current 'ear sales 6ccounts of the prior 'ear 6ccounts of two 'ear prior -otal Cash sales Cash disbursements for inentor' purchased REQUIRED:
Based on the aboe and the result of 'our audit, compute for the gross profit for the 'ears ended December 1, #$$, #$$) and #$$.
AP'&(%)
Page 3 of 5
PROBLEM NO. "
In 'our audit of the boos of ,eo!-e Company for the 'ear #$$, 'ou concluded that the allowance for doubtful accounts should be adjusted to e?ual the estimated amount re?uired based on aging of the accounts as of December 1. During 'our audit, 'ou were able to gather the following data: 6llowance for doubtful accounts, 4an. 1, #$$ Proision for doubtful accounts during #$$ @ of P,$$$,$$$ sales; Bad debts written off in #$$ 2ecoer' of bad debts written off during #$$ Astimated doubtful accounts per aging of accounts on Dec. 1, #$$ 6ccounts receiable, December 1, #$$
P$$,$$$ 1$,$$$ 1*+,$$ $,$$$ #$$,$$$ #,+,$$$
REQUIRED:
1.
Based on the result of 'our audit, determine the following: a. Doubtful accounts e7pense for #$$. b.
#.
6ssuming there was no aging of accounts, determine the following: a. Doubtful accounts e7pense for #$$. b. 6llowance for doubtful accounts as of December 1, #$$.
.
6ssuming there was no aging of accounts and the compan' used *@ percent of accounts receiable method, determine the following: a. Doubtful accounts e7pense for #$$. b. 6llowance for doubtful accounts as of December 1, #$$.
PROBLEM NO. +
-he ohn Co!po!ation started its business on 4anuar' 1, #$$. 6fter considering the collections e7perience of other companies in the industr', 4ohn Corporation established an allowance for bad debts estimated to be @ of credit sales. 9utstanding receiables recorded in the boos of accounts on December 1, #$$ totaled P+,$$$, while the allowance for bad debts account had a credit balance of P0#,$$ after recording estimated doubtful account e7pense for December and after writing off P1#,$$ of uncollectible accounts. (urther anal'sis of the compan'=s accounts showed that merchandise purchased in #$$ amounted to P#,#$,$$$ and ending merchandise inentor' was P+,$$$. /oods were sold at )$@ aboe cost. *$@ of total sales were on account. -otal collections from customers, on the other hand, e7cluding proceeds from cash sales, amounted to P1,$$,$$$. QUESTIONS:
Based on the aboe and the result of 'our audit, answer the following: 1. #. .
).
-he recorded accounts receiable as of December 1, #$$ is understated b' a. P1#,$$ b. P)1#,$$ c. P+,$$ d. P$ -he doubtful accounts e7pense for the 'ear ended December 1, #$$ should be a. P1$,$$$ b. P+,$$$ c. P11,#$ d. P1#,$$$ -he recorded allowance for doubtful accounts receiable as of December 1, #$$ is understated b' a. P$,$$$ b. P$,$$$ c. P0,#$ d. P$ -he net realiable alue of accounts receiable as of December 1, #$$ is a. P)",$$$ b. P1#,$$ c. P"",+$ d. P*+,$$$
AP'&(%)
Page 4 of 5
PROBLEM NO. &
-he accounts receiable subsidiar' ledger of Rin-o Co!po!ation shows the following information: Dec. 1, #$$ Inoice Customer 6ccount balance Date 6mount !a'be, Inc. P1)$,+#$ 1#$0$ P0,$$$ 11#"$ *),+#$ Perhaps Co. *,0*$ $"#+$ )*,$$$ $*#$$ ,0*$ Pwede Corp. 1##,)$$ 1#$*$ *$,$$$ 1$#$ )#,)$$ Perchance Co. 1*$,0$ 111+$ "#,0$ 1$$"$ **,$$$ Possibl' Co. 1#0,)$$ 1#1#$ +0,*$$ 1#$#$ )",0$$ Luc, Inc. 0",0$$ $"1#$ 0",0$$ -otal P+#,0$ P+#,0$ The estimated bad debt rates below are based on the Corporation’s receivable collection experience. 6ge of accounts 2ate $ $ da's 1@ 1 0$ da's 1.@ 01 "$ da's @ "1 1#$ da's 1$@ 9er 1#$ da's $@
-he 6llowance for Doubtful 6ccounts had a credit balance of P1),$$$ on December 1, #$$, before adjustment. QUESTIONS:
Based on the foregoing, answer the following: 1.
3ow much is the adjusted balance of the allowance for doubtful accounts as of December 1, #$$E a. P#,+" b. P#),+" c. P*,+" d. P1),$$$
#.
-he necessar' adjusting journal entr' to adjust the allowance for doubtful accounts as of December 1, #$$ would include: a.
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Page 5 of 5
PROBLEM NO. )
-he balance sheet of /o0o Co!po!ation reported the following long%term receiables as of December 1, #$$):
P0,$$$,$$$ 1,0$$,$$$
In connection with 'our audit, 'ou were able to gather the following transactions during #$$ and other information pertaining to the compan'=s long%term receiables: a.
-he note receiable from sale of plant bears interest at 1#@ per annum. -he note is pa'able in annual installments of P#,$$$,$$$ plus interest on the unpaid balance eer' 6pril 1. -he initial principal and interest pa'ment was made on 6pril 1, #$$.
b.
-he note receiable from officer is dated December 1, #$$), earns interest at 1$@ per annum, and is due on December 1, #$$+. -he #$$ interest was receied on December 1, #$$.
c.
-he corporation sold a piece of e?uipment to 5es, Inc. on 6pril 1, #$$, in e7change for an P*$$,$$$ non%interest bearing note due on 6pril 1, #$$+. -he note had no read' maret, and there was no established e7change price for the e?uipment. -he preailing interest rate for a note of this t'pe at 6pril 1, #$$, was 1#@. -he present alue factor of 1 for two periods at 1#@ is $.+"+.
d.
6 tract of land was sold b' the corporation to
QUESTIONS:
Based on the aboe and the result of 'our audit, determine the following: 1.
d. P0,)),1$$
#.
Current portion of long%term receiables as of December 1, #$$ a. P#,$$$,$$$ b. P#,"),$$ c. P#,"$#,$$ d. P$
.
6ccrued interest receiable as of December 1, #$$ a. P0$,$$$ b. P1),$$$ c. P+1,*)
d. P0+),$$$
Interest income for the 'ear #$$ a. P*),$$$ b. P"11,*)
d. P1,$$*,$$$
).
c. P1,$"1,*)
PROBLEM NO.
9n December 1, #$$), Ono Company finished consultation serices and accepted in e7change a promissor' note with a face alue of P$$,$$$, a due date of December 1, #$$+, and a stated rate of @, with interest receiable at the end of each 'ear. -he fair alue of the serices is not readil' determinable and the note is not readil' maretable. Fnder the circumstances, the note is considered to hae an appropriate imputed rate of interest of 1$@. (Round-off presen !a"ue fa#ors o four de#$%a" p"a#es& REQUIRED:
1. #. .
Consultation serice fee reenue to be recognied Carr'ing amount of the
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