PROBLEM 1.
You were engaged to perform an audit of the accounts of the Fontana Blue Corporation
for the year ended December 31, 2019 and have observed the taking of the physical
inventory of the company on December 30, 2019. Only merchandise shipped by the
Fontana Blue Corporation to customers up to and including December 30, 2019 have
been eliminated from inventory. The inventory as determined by physical inventory
count has been recorded in the books by the company’s controller. No perpetual
inventory records are maintained. All sales are made on an FOB shipping point basis.
You are to assume that all purchase invoices have been correctly recorded.
The following lists of sales invoices are entered in the sales books for the months of
December 2019 and January 2020, respectively.
Sales Invoice Sales Invoice Cost of
Date Shipped
Amount Date Goods Sold
December 2019
a. P30,000 Dec. 21 P20,000 Dec. 31, 2019
b. 22,000 Dec. 31 18,000 Dec. 31, 2019
c. 10,000 Dec. 29 6,000 Dec. 30, 2019
d. 40,000 Dec. 31 24,000 Jan. 3, 2020
e. 100,000 Dec. 30 56,000 Dec. 29, 2019 (shipped to
consignee)*
f. 120,000 Dec. 30 80,000 Jan. 2, 2020
January 2020
g. 60,000 Dec. 31 40,000 Dec. 30, 2019
h. 40,000 Jan. 2 23,000 Jan. 2, 2020
i. 80,000 Jan. 3 55,000 Dec. 31, 2019
j. 90,000 Jan. 4 64,000 Dec. 29, 2019
*verification from the consignee indicated that 60% of the merchandise is still unsold at
December 31, 2019.
REQUIRED:
(a) Prepare the necessary adjusting journal entries at December 31, 2019 in
connection with the foregoing data
PROBLEM 2
Presented below and overleaf is information related to the Accounts Receivable
accounts of Balimbing, Inc. during the current year 2017.
a. The accounts receivable control account has a debit balance of P321,000 on
December 31, 2019.
b. An aging schedule of the accounts receivable as of December 31, 2019 is as
follows:
CHAPTER 4
AUDIT OF RECEIVABLES
HOMEWORK
Net Debit % to be applied after correction
Age
Balance made
Under 60 days P175,000 1%
61-90 days 80,000 3%
91-120 days 42,000 6%
Over 120 days 24,000 P4,200 definitely uncollectible
remainder estimated 25% uncollectible
c. Two entries were made in the uncollectible accounts expense account during the
year: (1) a debit on December 31 for the amount credited to allowance for
uncollectible accounts; and (2) a credit for P2,740 on November 3, 2019, and a
debit to allowance for uncollectible accounts because of a bankruptcy. The
P2,740 write off of receivables is related to the 91-120 day catergory.
d. The allowance for uncollectible accounts is as follows for 2019:
Date Particulars Debit Credit Balance
Jan. 1 Beginning Balance P8,750
Nov. 3 Write off P2,740 6,010
Dec. 31 Provision (5% of P321,000) P16,050 22,060
e. A credit balance exists in the accounts receivable (61-90 days) of P4,800, which
represents an advance on a sales contract.
REQUIRED:
1. Audit adjusting entries at December 31, 2019
2. Compute the correct balances of accounts receivable and allowance for
uncollectible accounts at December 31, 2019
3. Compute the correct amount of uncollectible accounts expense for the year
2019.
PROBLEM 3.
You are assigned to assess the collectibility of the receivables carried in the books of
Goliath Company, your company’s audit client. The working trial balance prepared at
December 31, 2019 showed the following balances:
Note Receivable P6,000,000
Accounts Receivable 4,000,000
In the course of your examination, you discovered the followig:
Notes receivable from Company A P2,000,000
Notes receivable from Company B 3,000,000
Notes receivable from Company C 1,000,000
CHAPTER 4
AUDIT OF RECEIVABLES
HOMEWORK
No interest has yet been recorded by Goliath during 2019 on any of the notes above.
Company A is undergoing bankruptcy proceedings and has negotiated for a
restructuring of its notes receivable. The note was for a four-year period and interest of
10% is collectible annually. All interest accrued before 2019 has been collected. The
note matured on December 31, 2019. Collection of interest was last made on
December 31, 2018. The restructuring agreement with Company A calls for annual
payment of P550,000 starting December 31, 2020. No further interest will be collected
during the four-year term.
The notes receivable from Company B is a three-year non-interest bearing note, with
face value of P3,000,000. The note was received in exchange for a piece of land sold
by Goliath on May 1, 2019. The land was carried in the books at the date of sale at
P2,600,000. The difference between the face amount of the note and the carrying value
of the land was credited to gain on sale of land. The market interest rate for a note of
this type is 10%.
The notes receivable from Company C bears interest at 10%. The note was received
from sale of goods in the normal course of business. The note is dated October 1, 2019
and matures on March 31, 2020.
REQUIRED:
1. Prepare any audit adjustments as a result of the foregoing.
2. Determine the carrying value of the notes that would appear under the
current assets section and non-current assets section of the statement of
financial position at December 31, 2019.
3. Determine the amount of impairment loss on receivables and interest
revenue that would appear in profit or loss for the year 2019.
