Accounts Receivables

Receivables

If the amount is immaterial or negative should be offset

 ACCOUNTS RECEIVABLES
INTERNAL CONTROL OF SALES TRANSACTIONS, ACCOUNTS RECEIVABLE AND NOTES RECEIVABLE

When internal controls over sales on account are inadequate, the following situations may arise:
1. Merchandise may be shipped to customers whose credit standing has not been approved.
2. Shipments may be made to customers without notice being given to the billing department; consequently, no sales
invoice is prepared.
3. Sales invoices may contain errors in prices and quantities.
4. If sales invoices are not controlled by serial numbers, some may be lost and never recorded as accounts receivable.

Internal controls are strengthened by the following control measures:

1. The following functions should be segregated from each other: credit and collection; cashier; accounting and sales.
2. Subsidiary ledgers should be balanced regularly with the controlling accounts.
3. Monthly statements should be sent to all customers so that errors may be reported by the debtors.
4. Receivables should be confirmed periodically by the internal auditing department.
5. There should be sufficient control over the granting of credit and their collection
6. Accounts should be aged periodically.
7. Bad debt write off should be approved in writing by a responsible independent official.
8. The acceptance, renewal or write off of notes should be authorized by an independent, responsible official.

AUDIT WORKING PAPERS

1. Lead schedule
2. Aged trial balance of accounts receivable
3. Analysis of notes receivable and related interest
4. Summary of results of confirmation of receivable
5. Analysis of allowance for bad debts

AUDIT PROCEDURES FOR RECEIVABLES

Existence or Occurrence/Rights and Obligations
• Obtain schedule of aged trade accounts receivable and notes receivable schedule and reconcile to ledgers.
• Confirm receivables with debtors
• Inspect notes on hand.
• Perform analytical procedures to determine reasonability of recorded sales and receivables.

Completeness
• Test cut-off of sales and sales returns to determine whether receivables are recorded in the proper accounting
period.

Valuation
• Review collectability of receivables and determine the adequacy of allowance for doubtful accounts
• Recalculate the interest income from notes receivable.

Presentation and Disclosure

• Evaluate financial statement presentation and disclosure of receivables
• Obtain written client representations regarding pledge, discount or assignment of receivables.
AUDIT OF RECEIVABLES

MULTIPLE CHOICE- THEORY Allowance BDE

>
- Db .

Cr AIR
1. When the allowance method of recognizing bad debt expense is used, the entry to record the write-off of a
.

specific uncollectible account would decrease

A. Working capital
B. Net realizable value of accounts receivable
C. Net income
D. Allowance for bad debt

2. On July 1, 2022, a company received a one-year note receivable bearing interest at the market rate. The face
amount of the note receivable and entire amount of the interest are due on June 30, 2023. The interest
receivable account would show a balance on
A. July 1, 2022 but not on December 31, 2022
B. July 1, 2022 and December 31, 2022
C. December 31, 2022 but not on July 1, 2023
D. Neither July 1, 2022 nor on December 31, 2022

3. The balance of accounts receivable is reduced in recording all of the following financing arrangements except
A. Assignment of specific accounts receivable
B. Pledging of accounts receivable
C collateral)

C. Sale of accounts receivable

D. Accounts receivable factoring

4. An auditor’s purpose in reviewing credit ratings of customers with delinquent accounts receivable most likely is
to obtain evidence concerning management’ assertion about
A. Presentation and Disclosure
B. Existence or Occurrence
C. Rights and obligations
D. Valuation or allocation

5. Positive accounts receivable confirmations are appropriate when

A. Confirmations are mailed during an interim period
B. Accounts receivable consists of many small balances.
C. Control risk is low
D. There is reason to believe that a substantial number of accounts may be in dispute

6. Which of the following might be detected by sales cut-off tests?

A. Kiting
B. Understated inventory
C. Overstated receivables
D. Overstated sales

1
AUDIT OF RECEIVABLES

7. An auditor most likely would review an entity’s periodic accounting for the numerical sequence of shipping
documents and invoices to support management’s financial statement assertion of
A. Existence or occurrence
B. Rights and obligations
C. Valuation
D. Completeness

8. Which of the following might be detected by an auditor’s review of the client’s sales cut-off?
A. Excessive goods returned for credit
B. Unrecorded sales discounts
C. Lapping of year-end AR
D. Inflated sales for the year

9. Cut-off tests designed to detect credit sales made before the end of the year that have been recorded in the
subsequent year provide assurance about management’s assertion of
A. Presentation
B. Completeness
C. Rights
D. Existence

10. The auditor finds situation in which one person has the ability to collect receivables, make deposits, issue credit
memos and record receipt of payments. The auditor suspects the individual may be stealing from cash receipts.
Which of the following audit procedures would be most effective in discovering fraud in this scenario?
A. Send positive confirmations to a random selection of customers
B. Send negative confirmations to all outstanding accounts receivable customers
C. Perform a detailed review of debits to customers discounts, sales returns, or other debit accounts, excluding
cash posted to the cash receipts journal.
D. Take a sample of bank deposits and trace the detail in each bank deposit back to the entry in the cash
receipts journal.

11. Which of the following most likely would give the most assurance concerning the valuation assertion of accounts
receivable?
A. Vouching amounts in the subsidiary ledger to details on shipping documents
B. Comparing receivable turnover ratios with industry statistics for reasonableness
C. Inquiring about receivables pledged under loan agreements
D. Assessing the allowance for uncollectible accounts for reasonableness

2
 AUDIT OF RECEIVABLES

PROBLEM SOLVING
Problem 1. Account Classification

Classify each of the items listed below as (A) Accounts Receivable, (B) Notes Receivable, (C) Trade Receivable,
(D)Nontrade Receivable, or (‘E) Other-Indicate the nature of item. Since the classifications are not mutually exclusive,
more than one classification may be appropriate. Also indicate whether the item would normally be reported as a
current or noncurrent asset assuming a 6-month operating cycle.
Supplier's Acc .
with CR Bal .

, CA 1.
D Overpayment to supplier for inventory purchases on account Advance to suppliers

, CA 2.
D Insurance claim on automobile accident claims receivable
3.
A , C , CA
Charge sale to regular customer Accounts Receivable
-

D CA
4. .
Advances to sales manager Advance to Officer Employees
-

5. Interest due on 5-year note from company president, interest payable annually Interest receivable
=

D CA .

B D NCA
,
6. Acceptance of 3-year note on sale of land held as investment NRS Receivable
=

,
7. Acceptance of 6-month note for past due account arising from the sale of inventory Notes Receivable
BiCiCA8.
=

Claim for a tax refund from last year Claims receivable

=

D CA.

E CA
9.,
Prepaid insurance -four months remaining in the policy period Prepaid Insurance/Expense
=

Ch
10. Overpayment by customer of an accounts receivable Customer Asc
E ,
.
with CR Bal.

3
AUDIT OF RECEIVABLES

Problem 2. Accounts Receivable Balance

Chicken Company started operations on January 1, 2022. Following data are available as of June 30, 2022:

Purchase of merchandise P9,000,000

Inventory, June 30, 2022 1,500,000
Goods were sold at 50% above cost; 75% of sales were on account
Estimated bad debts 1% of credit sales
Collections from charge customers 6,300,000
Allowance for doubtful accounts, June 30, after write-off of 78,075
uncollectible accounts

The outstanding accounts receivable on June 30, 2022 is

A. P2,200,000 B. P2,137,500 C. P2,131,200 D. not given

Solution :
(9 000 ,000 -
1 , 500 ,000) 7 , 500, 000
Cost of Sales ,

X 150 %) 000
(7, 500 , 000 II 250 ,
TotalSales ,

75 %)
(11, 250 000 437, 500
x
Credit Sales , 8,

Bad Debt Expense (8 , 437, 500 x 1 %) 84 375 .

308
Write-off (84 , 375 -
78 , 075) 6 ,

8 437, 508
Credit sales
.

6 , 300 , 000
: Collections
less . 300
6
-
Write Off
:

200
2 , 131 ,
Accounts Receivable -
-

4
AUDIT OF RECEIVABLES

Problem 3. Test for Proper Sales Cut-off

You are engaged to perform an audit of the accounts of the Butterfly Corporation for the year ended December 31,
2022, and have observed the taking of the physical inventory of the company on December 30, 2022. Only merchandise
shipped by Butterfly to customers up to and including December 30, 2022 have been eliminated from inventory.

The inventory as determined by physical inventory count has been recorded on 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 2022 and January 2023,
respectively.

Sales Inv. Sales Inv. Date Cost of Mdse. Date Shipped

Amount Sold
December 2022
(a) P30,000 Dec. 21 P20,000 Dec 31
(b) 20,000 Dec. 31 8,000 Nov. 3
(‘c) 10,000 Dec. 29 6,000 Dec. 30
(d) 40,000 Dec. 31 24,000 Jan. 3
(‘f) 100,000 Dec. 30 56,000 Dec. 29 ( shipped to
consignee)
January 2023
(f) 60,000 Dec 31 40,000 Dec. 30
(g) 40,000 Jan. 2 23,000 Jan. 2
(h) 80,000 Jan. 3 55,000 Dec. 31

Requirement: Prepare the necessary adjusting journal entries at December 31, 2022.

sales Inventory December

Audit Book JE JE
Audit Book
Dec 20
A) DeC NO Yes
conventory 20

No No
Dec
B) Noy 2022
Dec No No
C) Dec
sales 40
Dec Yes Yes
Jan AR
D) Sales
40
100 Inventory 56
Dec Yes No
E) Consigned AIR 100 COS 56

AR 60
F) Dec Jan No No
Sales 60

Jan Jan Yes Yes

6) AIR 80 cos 55
Jan No Yes
H) Dec Sales 80 Inventory 55

5
AUDIT OF RECEIVABLES

Problem 4. Receivable Financing

During the second year of operations, Rabbit Company found itself in financial difficulties. The entity decided to use the
accounts receivable as a means of obtaining cash to continue operation.

On July 1, 2022, the entity sold P1,500,000 of accounts receivable for cash proceeds of P1,400,000. No allowance for
doubtful accounts was associated with these accounts.

On December 15, 2022, the entity assigned the remainder of its accounts receivable, P5,000,000 as of that date, as
collateral on a P2,500,000, 12% annual interest rate loan from Finance Company. The entity received P2,500,000 less a
2% finance charge.

None of the assigned accounts have been collected by the end of the year. It is estimated that 10% of accounts
receivable would be uncollectible.

The entity revealed the following data on December 31, 2022.

Accounts Receivable, excluding factored and assigned 1,000,000

accounts
Accounts receivable -assigned 5,000,000
Accounts receivable – factored 1,500,000
Allowance for doubtful accounts before adjustment 100,000

1. What total amount was received from the financing of accounts receivable?
A. 3,900,000 B. 3,850,000 C. 3,950,000 D. 4,000,000

2. What amount should be reported as net realizable value of accounts receivable on December 31, 2022?
A. 4,500,000 B. 5,400,000 C. 6,000,000 D. 5,000,000

3. What amount should be recognized as doubtful accounts expense for 2022?

A. 600,000 B. 500,000 C. 650,000 D. 0

1.400 000
-

Cash Received factoring

,
-

Cash Received assign (2 500 ,000X98%)

-

,
2 , 450 800
,
-

1) Total Cash Received 3 , 850 ,

-
-
000

1. 000,000
A/R assigned 5, 000,000
A/R assigned
( 600, 000)
Allowance for Doubtful account (6 000,000 x 10 %)-
2)
,

5 400 000
Net Realizable Value -
-
,
,

Allowance for Doubtful Account 600 , 000

000)
IIIIII il before adjustment 100 ,

3) Doubtful Account Expense

-
-
500 , 000

6
AUDIT OF RECEIVABLES

Problem 5. Notes Receivable

Presented below are unrelated situations. Answer the questions relating to each situation.

A. On January 1, 2022, Cat Corporation sold goods to Rat Company. Rat Company signed a non-interest-bearing
note requiring payment of P600,000 annually for seven years. The first payment was made on January 1, 2022.
The prevailing rate of interest for this type of note at date of issuance was 10%.
PV of an ordinary annuity of 1 at 10% for 6 periods 4.36
PV of an ordinary annuity of 1 at 10% for 7 periods 4.87

1. What is the amount of Sales Revenue credited on January 1, 2022?

2. What is the carrying amount of note receivable on December 31, 2022?

B. On January 1, 2022, Parrot Company sold equipment with a carrying amount of P4,800,000 in exchange for a
P6,000,000 noninterest-bearing note due January 1, 2025. There was no established exchange price for the
equipment. The prevailing rate of interest for a similar note was 10% and the present value of 1 at 10% for
three periods is 0.75.

1. How much is the Loss on Sale of equipment on January 1, 2022?

2. What is the interest income on December 31, 2023?

C. 120- day note of P100,000 dated October 1, non-interest bearing, and with a market rate of 9% interest,
discounted at the bank on November 30 at 12%. This note was received from the sale of the equipment.

Determine the proceeds from discounting of notes receivable.

First Payment / Downpayment 600 , 000
A 2 616 000
36)
,

000 x 4
,
PV(600 ,
.
-
. 000
216
Price 3 ,
S
1) Sales Selling -
-

3 600 , 000
Notes Receivable (600 , 000 XG) ,

600 1000
Cash -
. 000
4 , 200
Total
(3 , 216 , 000)
sales -
Income 984 , 000
Unearned Interest
Interest Income
(2 616 , 000 x 10%
Income Dec 31 2022
.
)
Unearned Interest
-
,
-
-

NR 3600 006 ,

2)
UI
carrying value 40
(
-
-

Bi 1) PV(6 000 000 x0 75)

, , .
4 500 , 000
,

Carrying
800 100
Amount
4
,

Loss on Sale
-

2) PV
Interest Income (4, 500 , 000 X 10 % )
4 500 , 000
,

450 , 000
Current Assets #1950
000
%
,

10
Multiply by rate
interest Income -95
000
-
,

C ,

value 100 , 008

Maturity
000)
Discount (100 , 000 X 12 % x 2/12) ( 2 ,

Net Proceeds
-

98 , 000
7
-
-
AUDIT OF RECEIVABLES

Problem 6. Loans Receivable

Banko of Baguio granted a loan to a borrower on January 1, 2022. The interest on the loan is 8% payable
annually starting December 31, 2022. The loan matures in three years on December 31, 2024. Principal amount
– 3,000,000; Direct origination cost incurred – 260,300; Origination fee charged against the borrower – 100,000.

After considering the origination fee charged to the borrower and the direct origination cost incurred, the
effective rate on the loan is 6%.

Required: Prepare the journal entries for 2022, 2023, 2024.

8
 AUDIT OF RECEIVABLES

Problem 7. Loans Receivable with Impairment Loss

Metro Bank loaned P10,000,000 to a borrower on January 1, 2022. The terms of the loan require principal payments
of P2,000,000 each year for 5 years plus interest at 8%. The first principal and interest payment is due on December
31, 2022 and December 31, 2023.

However, during 2024 the borrower began to experience financial difficulties, requiring the bank to reassess the
collectability of the loan. On December 31, 2024, the bank has determined that the remaining principal payments,
will be collected but the collection of the interest is unlikely. The bank has accrued the interest for 2024.

Extended principal payments: December 31, 2025 – 1,000,000; Dec. 31, 2026 – 2,000,000; Dec. 31, 2027 – 3,000,000

Present value of 1 at 8%- For one period – 0.93; For two periods – 0.86; For three periods -0.79

Required:

1. Compute the impairment loss on the loan receivable.

2. Prepare journal entries for 2024, 2025 and 2026.

loss
Dec 31 2015
(1 000 000
,
.
x . 93) 930 000 ,

2) 2023 Impairment 1 , 460 000 ,

480 000
,

Interest receivable
.

(2 000 , 000 X 86) 1 ,

720 000
, Accrued ,

2016
.

Pec 31.
,

Allowance for loan impairment 980 , 000

.
.

Pe 2000a 2014 Cash

Loan receivable
, 000
1 , 000
1 , 000 , 000

6 000 000
Loan Receivable
,
,

000
81) #80
Allowance for loan impairment
,

(6 000 000 401 600

X

Accrued Interest
,
000
6 480 ,
,
,

401 600
,

total Carrying
Value
Interest Income (3
2000
,

Less : Present Value

> , 020 , 000 x 8%)

Cash
Impairment loss
2825
an receivable 2 000 , 000
,

2 , 000 , 000

Allowance for loan impairment 353 , T28

Interest Income
553 728
,

Loan receivable -

2024 5
, 000 000 ,

Allowance for loan impairment 578 , 400

1980 000 ,
-

401 600)
.
#
421 600,
,

-
-
Carrying Amount -

2022

Income (4421 600 x 8 %) 353 728

Interest 2025 ,
-

2026 Cash
Loan Receivable

Allowance for loan impairment

Interest Income
9
 MULTIPLE CHOICE – THEORY

1. Which of the following may be considered to be a primary objective of the auditor in the examination of accounts
receivable?
a. Determine approximate time of collectability of receivables
b. Determine the relationship of receivables to sales
c. Determine the reasonableness of sales figure
d. Establish validity and collectability of receivables

2. Which of the following is not a procedure used by an auditor in examination of accounts receivable
a. Confirmation
b. Reconciliation
c. Inquiry
d. Physical count and inspection

3. In determining validity of accounts receivable, which of the following would the auditor consider most reliable?
a. Direct telephone communication between auditor and debtor
b. Confirmation replies received directly from customers
c. Credits to accounts receivable from cash receipts books after the close of the business year
d. Documentary evidence that supports the accounts receivable balance

4. Which of the following forms of evidence represents the most competent evidence that a receivable actually exists?
a. A positive confirmation
b. A sales invoice
c. A receiving report
d. A bill of lading

5. An auditor is testing sales transactions. One step is to trace a sample of debit entries from the accounts receivable
subsidiary ledger back to the supporting sales invoices. What would the auditor intend to establish by this step>
a. Sales invoices represent bona fide sales
b. Debit entries in the accounts receivable subsidiary ledger are properly supported by sales invoice
c. All sales invoices have been recorded
d. All invoices have been properly posted to customer accounts

6. Tracing bills of lading to sales invoices provides evidence that

a. Shipments to customers were recorded as sales
b. Shipments to customers were invoiced
c. Recorded sales were shipped
d. Invoiced sales were shipped

7. When the objective of the auditor is to evaluate the appropriateness of adjustments to sales, the best available evidence
would normally be
a. Documentary evidence obtained by inspecting documents supporting entries to adjustment accounts
b. Oral evidence obtained by discussing adjustment-related procedures with controller personnel
c. Analytical evidence obtained by comparing sales adjustments to gross sales for a period of time
d. Physical evidence obtained by inspection of goods returned for credit

8. An auditor most likely would review an entity’s periodic accounting for numerical sequence of shipping documents and
invoices to support management’s financial statement assertion of
a. Valuation
b. Completeness
c. Existence and occurrence
d. Rights and obligation
9. When the allowance method of recognizing bad debt expense is used, the entry to record the write-off of a specific
uncollectible account would decrease
a. Working capital
b. Net realizable value of accounts receivable
c. Net income
d. Allowance for bad debt

10. On July 1, 2022, a company received a one-year note receivable bearing interest at the market rate. The face amount of
the note receivable and entire amount of the interest are due on June 30, 2023. The interest receivable account would
show a balance on
a. July 1, 2022 but not on December 31, 2022
b. July 1, 2022 and December 31, 2022
c. December 31, 2022 but not on July 1, 2023
d. Neither July 1, 2022 nor on December 31, 2022

11. The balance of accounts receivable is reduced in recording all of the following financing arrangements except
a. Assignment of specific accounts receivable
b. Pledging of accounts receivable
c. Sale of accounts receivable
d. Accounts receivable factoring

12. An auditor’s purpose in reviewing credit ratings of customers with delinquent accounts receivable most likely is to
obtain evidence concerning management’ assertion about
a. Presentation and Disclosure
b. Existence or Occurrence
c. Rights and obligations
d. Valuation or allocation
- *

13. Positive accounts receivable confirmations are appropriate when Risk of misstatement at

a. Confirmations are mailed during an interim period maximum

b. Accounts receivable consists of many small balances.
c. Control risk is low
d. There is reason to believe that a substantial number of accounts may be in dispute

14. Which of the following might be detected by sales cut-off tests?

a. Kiting (part of cash)
b. Understated inventory (pwede makital

I
of
objective
But not the

c. Overstated receivables makita

(pwede
sale cut-off

d. Overstated sales
 PROBLEM SOLVING
PROBLEM 1: Classification
no Item Ccurent liability) Amount
1 Trade accounts receivable, net of P160,000 credit balance in customer accounts, P960,000H60 000
,
-

, 000
12 =
1 , 108 ,000

including P12,000 uncollectible customer accounts => write off

2 Credit card sale of merchandise to a customer 1,000,000
3 Trade accounts receivable- assigned used collateral -
as
1,800,000
4 Trade accounts receivable-unassigned 1,200,000
5 Trade accounts receivable-factored binenta =

1,200,000
6 8% notes receivable-trade 800,000
7 Accounts payable, net of P120,000 debit balance in supplier’s accounts 520,000
8 Special deposits on contract bids 440,000
9 Dividend receivables 60,000
10 Advances to officers (of which P240,000 is currently collectible) 1,200,000
11 Advances to affiliates 2,400,000
Ideduction from equity)
share holder's

12 Subscription receivable (of which P75,000 is collectible within 90 days) 300,000

13 Accrued interest receivable 150,000

Based on the data, Determine the following:

1) Trade receivable
2) Trade and other receivables
3) Total items classified as noncurrent assets

II I
NO .
Trade Receivables Trade and Other Receivables Non-current Assets

1) 1 108 , 000
, 1 108 , 000
,

2) 1. 000. 800 1 , 000: 000

1 , 800 , 000

3
1 , 800 , 000

is
1 200 : 000 1 , 200 , 000
,

800 , 000
800 , 000
6)

1) 120 , 008

440
1 000

S 60 , 008

i
. 008
240 960 , 000

i
2 , 400 000
,

751 000

150 , 000

5. 908 , 000 61553 000 3 , 800 , 000

,
 PROBLEM 2: Accounts Receivable Balance
The following T-account summarized the transactions affecting the accounts receivables of ABC company for 2022:

Purchase of merchandise P9,000,000

Inventory, June 30, 2022 1,500,000
Goods were sold at 50% above cost; 75% of sales were on account
Estimated bad debts 1% of credit sales
Collections from charge customers 6,300,000
Allowance for doubtful accounts, June 30, after write-off of uncollectible accounts 78,075

Requirement
The outstanding accounts receivable on June 30, 2022 is
a. P2,200,000
b. P2,137,500
c. P2,131,200
d. not given

Beginning Inventory
-

(8 437 500 11 78 , 075) + 300

Write off x
-

=
, ,

Purchases 9 , 000 , 000

500. 000
less : Ending Inventory -
1 ,

Cost of Sales . 000

7 500
COGS/ ,

150 % ) .000
250
Sales . 500 . 000
(7
x 11,
Total -

75 % ) 8 , 437 , 500
(11 250 , 000 x

Accounty Receivable
,

000
6 300.
Less : Collection from customers - ,

2 , 137 , 500
A/R End -
-

Note :
=> Bad Debt Expense
Income Statement Approach Debt
Sheet
11 => Allowance for Bad
Balance or

Receivable Allowance
 Problem 3. Test for Proper Sales Cut-off
You are engaged to perform an audit of the accounts of the Butterfly Corporation for the year ended December 31, 2022,
and have observed the taking of the physical inventory of the company on December 30, 2022. Only merchandise shipped
by Butterfly to customers up to and including December 30, 2022 have been eliminated from inventory.

The inventory as determined by physical inventory count has been recorded on 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 2022 and January 2023,
respectively.

Sales Inv. Amount Sales Inv. Date Cost of Mdse. Sold Date Shipped

December 2022
(a) P30,000 Dec. 21 P20,000 Dec 31
(b) 20,000 Dec. 31 8,000 Nov. 3
(c) 10,000 Dec. 29 6,000 Dec. 30
(d) 40,000 Dec. 31 24,000 Jan. 3
(e) 100,000 Dec. 30 56,000 Dec. 29 ( shipped to consignee)
January 2023
(f) 60,000 Dec 31 40,000 Dec. 30
(g) 40,000 Jan. 2 23,000 Jan. 2
(h) 80,000 Jan. 3 55,000 Dec. 31

Requirement:
Prepare the necessary adjusting journal entries at December 31, 2022.
Note : Always Check the date of details.

60 000
a) COGS / Inc. Summary
20 000
,

20 , 000
f) A/R ,

Inventory 60 , 000
sales
b) NO AJE

C) NO ASE 9) NE
d) Sales 40 , 000 80 , 000
A/R
40 , 000 n)
Alcales , 008
80

e) . 000
100

Sales R
100 , 000
55, 000
56 , 000 COGS
Inventory
53, 000
56 : 000
Summary
Inventory
COGs / Inc .
 Error
1) Erroneous
Problem 4: Analysis of Accounts receivable and related accounts (no adjusting entry)
Bataan Corporation’s general ledger showed the following information:
Accounts Receivable P550,000 (debit)
Allowance for Doubtful Accounts 16,500 (debit)

On the other hand, the accounts receivable subsidiary ledger shows the following composition:
Invoice Date Invoice Amount Balance
Customer A 12/06 -
P42,000 -

11/29 -
63,540 -
P105,540

Customer B 9/27 36,000

8/20 26,760 62,760

Customer C 12/30 20,000

12/08 40,000
10/25 31,800 91,800

Customer D 11/17 69,420

10/09 66,000 135,420

Customer E 12/12 57,600

8/20 37,200 94,800

Customer F 9/12 52,200 52,200

Audit notes:
a. Accounts receivable confirmation letters were sent to the customers. You have noted the following:

Customer Balance per reply Remarks

Customer B P36,000 Invoice dated 8/20 was already settled. Investigation revealed that Customer B’s payment was
erroneously posted against Customer E’s account for an invoice dated 12/20 for the same
amount.

Customer C 71,800 The difference was due to the invoice dated 12/30. Goods have not yet been received by
Customer C as of December 31. Terms of sale is FOB Destination.

Customer E 121,560 “Amount per our records appear to be higher, so please check”.

Customer F No reply Customer F is under liquidation and the amount

b. The company’s policy with regard uncollectible accounts is summarized below:

Age Collectibility %
30 days and below 99%
31-60 days 98%
61-90 days 95%
91-120 days 90%
Over 120 days 50%

c. In the event that the Accounts Receivable general ledger does not reconcile with the subsidiary ledger after
corrections are made and the difference cannot be located, you have come into an agreement with the client to
adjust the control to the sum of the subsidiaries as miscellaneous income or expense
Problem 4 :

Plegar

2) Set up
account
subsidiary ledger account
-
oran

Customer Balance Adjustment Balance 30 31 60 61-90 al-120 120 Total

Days over
-

A 105 , 540 105 , 540 42 , 000 63 , 548 105, 540

B
62 , 760 (26 76036 000
. ,
36 , 000 36, 000

C 91 800 (20 , 000) 71 , 800 40 , 000 31 800 71 , 800

, ,

D 135, 420 135 42857 600

, ,
69 420
, 66 , 000 135, 428

E
94 800
,
26 , 760 121 , 560 26 , 760 37 , 200 121 , 560
F , 700
-2 (52 , 200) -
-

- -
- - -

Total 542 , 528 470 , 320 166, 360 132 , 96097, 80036 , 00037 , 200470 , 320

X
Rate 1%
- %
5 10 % %
50

Allowance 1 , 663 68
.
2 , 659 204, 8903 , 600
.
18 , 600 80
5412 .

NRY 438 907

,
.
20
-

AJE

1 . Sales 20 , 000

AR 20 , 000

2 .
All. for DA 52 200
,

AR 52 200 ,

3) Misc Exp
.
7, 480

AR 7, 488

4) BDE 100 , 112 . 80

All. for DA 100 112 80

,
.
Requirements:
1. The erroneous posting of Customer B’s payment to Customer E’s account resulted to total accounts receivable
being
a. Properly stated
b. Overstated P26,760
c. Understated by P26,760
d. Understated by P53,520

2. The correct bad debt expense for the year is

a. P67,113
b. P70,383
c. P100,113
d. P103,393

3. The journal entry to reconcile the balances of the Accounts Receivable general and subsidiary ledger after
corrections, if any, will include a
a. Debit to Sales
b. Credit to Accounts Receivable
c. Credit to Miscellaneous Income
d. No journal entry required

4. What is the audited balance of the Accounts Receivable account as of December 31?
a. P438,907
b. P443,560
c. P458,707
d. P470,320

5. What is the correct Allowance for Doubtful Accounts balance as of December 31?
a. P31,413
b. P31,613
c. P44,525
d. P44,725

6. What is the audited net realizable value of the Accounts Receivable as of December 31?
a. P 438,907
b. P 441,947
c. P 458,707
d. P 470,320
Problem 5. Receivable Financing
During the second year of operations, Rabbit Company found itself in financial difficulties. The entity decided to use the accounts
receivable as a means of obtaining cash to continue operation.

On July 1, 2022, the entity sold P1,500,000 of accounts receivable for cash proceeds of P1,400,000. No allowance for doubtful
accounts was associated with these accounts.

On December 15, 2022, the entity assigned the remainder of its accounts receivable, P5,000,000 as of that date, as collateral on a
P2,500,000, 12% annual interest rate loan from Finance Company. The entity received P2,500,000 less a 2% finance charge.

None of the assigned accounts have been collected by the end of the year. It is estimated that 10% of accounts receivable would
be uncollectible.

The entity revealed the following data on December 31, 2022.

Accounts Receivable, excluding factored and assigned accounts 1,000,000
Accounts receivable -assigned 5,000,000
Accounts receivable – factored 1,500,000
Allowance for doubtful accounts before adjustment 100,000

Requirements
1) What total amount was received from the financing of accounts receivable? Sale of AIR 1 , 400 , 000
a. 3,900,000 Cash
cash
factorings
from
from assignment
400 1, , 000

Assignment of AR
b. 3,850,000 LOAN 2 , 500 , 000 or
98 % )
Finance
charge ) 450 000
(2 ,500 , 000 x 2 % 50 , 000 2, .
(2 , 500 , 000 x
-
2450 000 ,

c. 3,950,000
-

000 3 , 850 ,

d. 4,000,000

2) What amount should be reported as net realizable value of accounts receivable on December 31, 2022?
a. 4,500,000 AIR 1 000 000 , ,

b. 5,400,000 AIR-assigned . 000 000

5 ,

c. 6,000,000 Total AIR 600 000 ,

X10 % )
d. 5,000,000 less : Allowance for Doubtful Account (6000000 -

000 51 400 :

3) What amount should be recognized as doubtful accounts expense for 2022?

a. 600,000 Allowance for Doubtful Account 200 , 000
b. 500,000 less : Allowance Doubtful Account-unadjusted 00
c. 650,000 500 , 008
d. . 0
 Problem 6. Notes Receivable
Presented below are unrelated situations. Answer the questions relating to each situation.
A. On January 1, 2022, Cat Corporation sold goods to Rat Company. Rat Company signed a non-interest-bearing note
requiring payment of P600,000 annually for seven years. The first payment was made on January 1, 2022. The
prevailing rate of interest for this type of note at date of issuance was 10%.
PV of an ordinary annuity of 1 at 10% for 6 periods 4.36
PV of an ordinary annuity of 1 at 10% for 7 periods 4.87
Requirements:
i. What is the amount of Sales Revenue credited on January 1, 2022? 3 216 600 , ,

ii. What is the carrying amount of note receivable on December 31, 2022? 2 277 600 .
,

1 EIR-Payment/Collection
600 000
First Year Payment
,

CA end CA
beg X = .

4 36) 2 616 000

.
,

Present Value (600 000 ,

x .

-
,
,

000
3 216 ,

Sales ,

CA beg
, 2 616 , 000
,

118
Multiply by ;
Note Receivable (600 , 000 XG) 3 , 600 , 000
less : Payment , 000
-00
2 , 616 , 000 2 , 277 600
less : Present Value - CA end ,

984 000
,

Unearned Interest Income

,

JE
Jan 1
. Cash 600 ,000
Notes Receivable 3 , 600 , 000

sales 3 , 216 , 000

Income
unearned Interest 984 000
,
261 , 600
Dec 31 Unearned Interest Income
291 , 600
.

X10% )
. 616 000
Interest Income (2 ,

B. On January 1, 2022, Parrot Company sold equipment with a carrying amount of P4,800,000 in exchange for a
P6,000,000 noninterest-bearing note due January 1, 2025. There was no established exchange price for the
equipment. The prevailing rate of interest for a similar note was 10% and the present value of 1 at 10% for three
periods is 0.75.
Requirements:
i. How much is the Loss on Sale of equipment on January 1, 2022? (300. 000)
ii. What is the interest income on December 31, 2023? 495 000 ,

75) 4 , 500 000 CA (4 , 500 000 x1

,
.
10) 4 950
, , 000
Receivable (6 000 , 000 x0 ,
10 %
Notes
.
,

Amount Equipment
4
. 800 ,
000
Multiply by :
less : Carrying -
000) Interest Income Fas
000
(300 , ,

Loss on sale

C. 120- day note of P100,000 dated October 1, non-interest bearing, and with a market rate of 9% interest, discounted
at the bank on November 30 at 12%. This note was received from the sale of the equipment
Requirements
i. Determine the proceeds from discounting of notes receivable. 98 000 ,

100 , 000
Principal -

Interest To
000 ,
Total
less Discount (100 , 000
X12 %
x60/390)
or

2/12
-
2

98 ,
,
000

000
Net proceeds
 Problem 7:
The balance sheet of COMPETENCE Corporation reported the following long-term receivables as of December 31, 2020:
Notes receivable from sale of Plant 9,000,000
Notes receivable from officer 2,400,000

In connection with your audit, you were able to gather the following transactions during 2020 and other information
pertaining to the company’s long-term receivables:
a. The note receivable from sale of plant bears interest at 12% per annum. The note is payable in three equal annual
installments of P3,000,000 plus interest on the unpaid balance every April 1. The initial principal and interest
payment was made on April 1, 2021.
b. The note receivable from officer is dated December 31, 2020, earns interest at 10% per annum, and is due on
December 31, 2023. The 2021 interest was received on December 31, 2021.
c. The corporation sold a piece of equipment to Yes, Inc. on April 1, 2021, in exchange for a P1,200,000 noninterest
bearing note due on April 1, 2023. 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, 2021, was 12%. The present value factor
of 1 for two periods at 12% is 0.797 while the present value factor of ordinary annuity of 1 for 2 periods at 12% is
1.690.
d. A tract of land was sold by the corporation to No Co. on July 1, 2021 for P6,000,000 under an installment sale
contract. No Co. signed a 4-year 11% note for P4,200,000 on July 1, 2021, in addition to the down payment of
P1,800,000. The equal annual payments of the principal and interest on the note will be P1,353,750 payable on July
1, 2022, 2023, 2024 and 2025. The land had an established cash price of P6,000,000, and its cost to the corporation
was P4,500,000. The collection of the installments on this note is reasonable assured

Requirements
1. Noncurrent receivables as of December 31, 2021
a. 9,664,650
b. . 9,750,726
c. 10,556,400
d. 13,556,400

2. Current portion of the long-term receivables as of December 31, 2021

a. P0
b. 3,000,0000
c. 3,891,750
d. 4,353,750

3. Accrued interest receivable as of December 31, 2021

a. 540,000
b. 771,000
c. 857,076
d. 1,011,000

4. Interest income for the year 2021

a. 1,281,000
b. .1,367,076
c. 1,512,000
d. 1,637,076 Note 1 200 , 000 4 200 , 000
,
,
11
Interest Income X

Current Non-current Interest Receivable Multiply : PVF . 797 -

462 ,
000
NR 6 ,
400
3 000 , 000 3 000 , 000
Plant
,

Receivable from sale of ,

540 000 (April 1 -

Dec 31)
Notes
.
,
540 , 000 Collection 1 , 353 , 750
(Jan 1 Mar 31) CA
270 , 000
-

(6 000 000 X12 % x 9/12) . .

956 400 462 000

,
,

x9/12) , less ; Interest ,

000 , 000 x 12 % x 3/12) Amortization (956 400 x 12 %

076
-
(9 -6
,

891 , 750
,

principal
,

CA 1 , 042 ,
476
-
Notes From Officers 2 ,
400 , 000
4 , 100 000

240, 000
,
NR
(1 , 400 000 X 10 % ) 891 750
,
1042 . 476 less : Principal -
.

3 , 308 .
250
86 076 ,
NC

sale of land
Notes Fram 891 750
, 3 , 308 , 250 231 000
,
231 000,

(4 , 200 , 000 x11 % X G(12)

-
- -
-
726
3 , 891 750 ,
9 , 750 ,
771 , 000 1 , 367 , 076