I. The 2016 audit of the financial statements of KITTEN Company discloses the
following information:
!ccounts recei"a#le$ recei"a#le$ ending ending !llowance !llowance for dou#tful dou#tful accounts$ accounts$ ending !llowance !llowance for sales sales returns returns and allowances$ ending *ross *ross sales sales return returns s and and allow allowan ances ces +est +estima imated ted,, Estimated #ad de#ts for the year -ales discount not ta.en at end of year Credit sales during the year +terms$ 2/10$ n/60, Cash collected on !ccounts recei"a#le
201
2016
%&$000 %&$000 22$200
%61$'00 %61$'00 21$000
1($100 1($) 1($)00 00 21$600 0
11$)(& 1$60 1$600 0 22$00 1$200
1$12$000 1$06$000
1$1(0$000 1$102$00
1 !ccount !ccounts s written written off for the year year is is a %21$'00 # %2'$)00 c. %22$200 d. %2($600
Answer: b
!llowance$ !llowance$ #eg ad de#t epense for 2016 !ccounts !ccounts written written off +-34EE5 +-34EE5E, E, !llowance$ !llowance$ ending ending
%22$200 22$00 + 23,7 23 ,700 00 , %21$000
II. C!!C74C7I C89%s accounts recei"a#le su#sidiary ledger shows the following
The estimated #ad de#t rates #elow are #ased on Calachuchi Corps recei"a#le collection eperience: !ge of !ccounts 0@'0 days '1@60 days 61@>0 days >1@120 days 8"er 120 days
9ate 1A 1A 'A 10A 0A
1 The allowance for #ad de#ts to #e reported in the statement of financial position at =ecem#er '1$ 2016$ is a %>$6>> # %1$1>> c %($1>> d %$00 2 Bhat is the net realia#le "alue of accounts recei"a#le at =ecem#er '1$ 2016D a %16$6(1 # %1)1$1(1 c %1>6$0'> d %1&6$'(0
Answer: a, b
1 Computation of 9euired alance 0@'0 days %6$600 1A F % 66 '1@60 days (($'20 1AF 66 61@>0 days '2$600 'A F >)&
>1@120 days 2>$(00 10AF 2$>(0 8"er 120 days &$>20 0AF ($(60 Total %>$6>> 2 !ccounts recei"a#le %1&0$&(0 ess: !llowance for #ad de#ts >$6>> Net 9ealia#le ;alue$ =ec '1$ 2016 %1)1$1(1
III. =uring the audit of G89E;E9 C8<%!NH for the year ended =ecem#er '1$ 2016$
you find the following account Notes Receivable
=ate -ept 1 8ct 1 1 No" 1 '0 '0 =ec 1 1
=e#it %&0$000 '00$000
Cornea$ 20A$ due in ' months 7un. co$ 2(A$ due in 2 months =iscounted Cornea note at 2A ;alerie$ 2(A$ due in 1' months 600$000 Cellular Co$ no interest due in one year 00$000 =iscounted Cellular note at 1&A Tictic$ 1&A$ due in months >00$000 8 9eyes$ %resident$ 12A$ due in ' months +for cash loan gi"en to 8 9eyes, 1$200$00
Credits
%&0$000
00$000
!ll notes are trade notes unless otherwise specified The Cornea note was paid on =ecem#er 1 as per notification recei"ed from the #an. The 7un. Co note was dishonored on the due date #ut the legal department has assured management of its full collecti#ility The company$ with your occurrence$ will treat the discounting as a conditional sale of note recei"a#le ased on the ledger account presented$ what amount of interest income should #e accrued at =ecem#er '1$ 2016D a %$00 # %61$00 c %(>$00 d %6)$00 Answer: d
