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APPLIED AUDITING

Audit of Receivables

Problem 1
The accounts receivable of FRANCO COMPANY were stated at P1,467,000 in a balance sheet submitted to a banker for
credit. You are called upon to audit the report and, upon analysis, the asset was found to consist of the following items:

Due from customers on open account P 1,125,000


Acknowledged claim for damages 22,500
Due from consignee at billed price cost price
being P22,500 30,000
Investment in and advances to affiliated company 150,000
Loans to officers and employees 13,500
Deposits with municipalities bids for contracts 67,500
Unpaid capital stock subscriptions 60,000
Advances to creditors for merchandise purchased
but not received 24,000
Cash advanced to salesmen for traveling expenses 4,500
Allowance for doubtful accounts (30,000)
P 1,467,000

The amount of P1,125,000 due from customers was the remaining balance after deducting accounts with credit balances of
P6,000. During your examination, you noted that on December 31, the company assigned P300,000 of customers accounts
to secure a 17%, P240,000 note payable. A 1% commission based on the accounts assigned was charged and deducted
from the cash received. The client recorded this transaction by a debit to cash and a credit to notes payable.

Questions
1. How much is the Accounts Receivable (gross) balance at December 31?
a. P 759,000 b. P 789,000 c. P 1,101,000 d. P 1,131,000

2. The total current non-trade receivable balance at December 31 is:


a. P 64,500 b. P 96,000 c. P 120,000 d. P 192,000

3. The liability for the accounts receivable assigned is:


a. P 237,000 b. P 240,000 c. P 243,000 d. P 300,000

4. The total non-trade receivable balance at December 31 is:


a. P 342,000 b. P 318,000 c. P 313,500 d. P 245,000

Problem 2
In your audit of MENDOZA COMPANY for the past calendar year, you find the following accounts:

ACCOUNTS RECEIVABLES
Jan. 1, 2012 P 800,000 Jan. Dec. 2002 collections P 5,900,000
Jan. Dec. Sales 6,300,000 Jan. Dec. write-off 100,000

ALLOWANCE FOR BAD DEBTS


Jan. Dec. Write-off of last years receivables P 85,000 Jan. 1, 2012 P 95,000
Write-off of this years Receivables 15,000 Dec. 31 provisions 315,000

In your examination, you find that the balance of Accounts Receivable represents sales of the current audit year only; that
credit balances in the subsidiary ledger for accounts receivable totaled P80,000; and that the current years provision for bad
debts expense was 5% of sales (as compared with 4% last year, 4% of the year before, and 3% the next previous year).
Sequential to aging the accounts receivable, you and the companys treasurer agree on an additional write-off of P50,000,
and P300,000 as the probable loss to be sustained on collection of the accounts receivable balance.

Questions
1. The adjusted Accounts Receivable balance is:
a. P 830,000 b. P 1,100,000 c. P 1,130,000 d. P 1,180,000

2. The adjusted Allowance for Bad Debts is:


a. P 260,000 b. P 300,000 c. P 315,000 d. P 355,000

3. The adjusted Bad Debts account is:


a. P 260,000 b. P 300,000 c. P 315,000 d. P 355,000

4. The provision per record at December 31 is:


a. P 260,000 b. P 300,000 c. P 315,000 d. P 355,000

Problem 3
The following selected transactions occurred during the year ended December 31, 2016 of DOMINGO COMPANY:
Gross sales (cash and credit) P 900,736.80
Collections from credit customers, net of 2% cash discount 294,000.00
Cash sales 180,000.00
Uncollectible accounts written off 19,200.00
Credit memos issued to credit customers for sales ret./allow. 10,080.00
Cash refunds given to cash customers for sales ret./allow. 15,168.00
Recoveries on accounts receivable written-off in prior years
(not included in cash received stated above) 6,505.20

At year-end, the company provides for estimated bad debts losses by crediting the Allowance for Bad Debts account for 2%
of its net credit sales for the year. The allowance for bad debts at the beginning of the year is P19,327.20.

Questions
1. How much is the DOMINGO COMPANYs gross sales?
a. P 900,736.80 b. P 720,736.80 c. P 704,656.80 d. P 689,488.80

2. DOMINGO COMPANYs credit sales at December 31, 2016 is:


a. P 900,736.80 b. P 720,736.80 c. P 704,656.80 d. P 689,488.80

3. How much is the DOMINGO COMPANYs net credit sales?


a. P 900,736.80 b. P 720,736.80 c. P 704,656.80 d. P 689,488.80

4. The Bad Debts Expense of DOMINGO COMPANY at December 31, 2016 is:
a. P 20,725.54 b. P 14,093.14 c. P 8,030.74 d. P7,829.14

5. The Accounts Receivable of DOMINGO COMPANY at December31, 2016 is:


a. P 408.042.00 b. P 407,536.80 c. P 401,536.80 d. P 391,456.80

6. The Allowance for Bad Debts of DOMINGO COMPANY at December 31, 2016 is:
a. P 20,725.54 b. P 14,093.14 c. P 8,030.74 d. P7,829.14

Problem 4
Presented below are unaudited balances of selected accounts of MARJORIE COMPANY as of December 31, 2016:
Unaudited Balances, 12/31/16
Selected Accounts Debit Credit
Cash P 500,000
Accounts receivable 1,300,000
Allowance for doubtful accounts 8,000
Net sales P 6,750,000

Additional information are as follows:


a. Goods amounting to P50,000 were invoiced for the accounts of Joy Store & Co., recorded on January 2, 2007 with terms
of net, 60 days, FOB shipping point. The goods were shipped to Variety Store on December 30, 2016.

b. The bank returned on December 29, 2016, a customers check for P5,000 marked DAIF, but no entry was made.

c. MARJORIE COMPANY estimates that allowance for uncollectible accounts should be one and one-half percent (1%) of
the accounts receivable balance as of year-end. No provision has yet been made for 2016.

Questions
1. What is the adjusted balance of Accounts Receivable on December 31, 2016?
a. P 1,355,000 b. P 1,350,000 c. P 1,305,000 d. P 1,300,000

2. What is the adjusted balance of Allowance for doubtful accounts on December 31, 2016?
a. P 36,325 b. P 28,325 c. P 20,325 d. P 8,000

3. What is the adjusted amount of 2016 Bad Debts Expense?


a. P 12,325 b. P 20,325 c. P 28,325 d. P 36,325

Problem 5
During December, 2016, the Accounts Receivable controlling account on the books of FERNANDEZ COMPANY showed one
debit posting and two credit postings. The debit represents receivables from December sales, P780,000. One credit was for
P470,400, made a result of cash collections on November and December receivables; the second credit was an adjustment
for estimated uncollectibles, P90,000. The December 31 balance was P270,000.

When receivables were collected, the bookkeeper credited Accounts Receivables for the cash collected. All customers who
paid their accounts during December took advantage of the 2% cash discount. As of December 1, debit balance in customers
subsidiary accounts totaled P177,000. An adjustment for estimated doubtful accounts of P18,000 had been posted to the
Accounts Receivable controlling account at the end of 2002, and no write-offs were recorded during 2016. In addition, a
number of customers had overpaid their accounts, and as a result, some of the customers subsidiary accounts had credit
balances on December 1. No overpayments were made during December nor were any credit balances in customers
accounts reduced during December.

Questions
1. The Accounts Receivable beginning balance (unadjusted) of FERNANDEZ COMPANY at December 31, 2016 is:
a. P 50,400 b. P 68,400 c. P 252,000 d. P 270,000
2. The Accounts Receivable beginning balance (adjusted) of FERNANDEZ COMPANY at December 31, 2016 is:
a. P 50,400 b. P 68,400 c. P 252,000 d. P 270,000

3. The Credit Balance of Accounts Receivable at the beginning of the year of FERNANDEZ COMPANY is:
a. P 48,600 b. P 66,600 c. P 108,600 d. P 126,600
4. The Accounts Receivable balance of FERNANDEZ COMPANY at December 31, 2016 is:
a. P 50,400 b. P 68,400 c. P 252,000 d. P 270,000

Problem 6
You are examining the financial statements of MATIAS CORPORATION for the year ended December 31, 2016. During the
audit of the accounts receivable and other related accounts, certain information was obtained. The December 31, 2016 debit
balance in the Accounts Receivable control account is
P197,000. The only entries in the Bad Debts Expense account were: a credit for P324 on December 31, 2016, because
Marlisa Company remitted in full for the accounts charged off October 31, 2016, and a debit on December 31 for the amount
of the credit to the Allowance for Doubtful Accounts.

The Allowance for Doubtful Accounts schedule is presented below:


Debit Credit Balance
January 1, 2016 P 3,658
October 21, 2016, Uncollectible;
Marlisa Co., - P324; Abonales Co.,
- P 820; Cherryl Co., - P564 P 1,508 2,150
December 31, 2016, 5% of P197,000 P 9,850 12,000

An aging schedule of the accounts receivable as of December 31, 2016 and the decision are shown in the table below:

Age Net Debit Balance Amount to which the Allow. is to be adjusted after adjust.
____________ ________________ and corrections have been made
0 1 month P 93,240 1 percent
1 3 months 76,820 2 percent
3 6 months 22,180 3 percent
over 6 months 6,000 Definitely uncollectible, P1,000;
P2,000 is considered 50% uncollectible; the remainder is estimated
to be 80% collectible.

There is a credit balance in one account receivable (0-1 month) of P2,000; it represents an advance on a sales contract. Also,
there is a credit balance in one of the 1-3 months accounts receivable of P500 for which merchandise will be accepted by the
customer. The ledger accounts have not been closed as of December 31, 2016. The Accounts Receivable control account is
not in agreement with the subsidiary ledger. The difference cannot be located, and the auditor decides to adjust the control
to the sum of the subsidiaries after corrections are made.

Questions
1. The adjusted balance of accounts receivable of MATIAS CORPORATION at December 31, 2016 is:
a. P 199,740 b. P 199,540 c. P 198,300 d. P 198,100
2. The adjusted write-off of accounts receivable balance of MATIAS CORPORATION at December 31, 2016 is:
a. P 2,708.00 b. P 2,508.00 c. P 2,384.00 d. P 1,708.00

3. The adjusted allowance of bad debts account of MATIAS CORPORATION at December 31, 2016 is:
a. P 4,980.60 b. P 4,964.20 c. P 4,780.60 d. P 4,764.20

4. The bad debts expense per book of MATIAS CORPORATION at December 31, 2016 is:
a. P 9,850.00 c. P 4,764.20
b. P 6,359.80 d. Cannot be determined

5. The adjusted bad debts expense of MATIAS CORPORATION at December 31, 2016 is:
a. P 3,814.20 b. P 3,614.20 c. P 3,490.20 d. P 2,814.20

6. The entry to adjust the account of Marlisa Company is:


a. Bad debts 324 c. Allow. for BD 324
Allow. for BD 324 Bad debts 324
b. Bad debts 324 d. Accounts receiv. 324
Accounts receivable 324 Bad debts 324

7. The entry to reconcile the accounts receivable control ledger to subsidiary ledger is:
a. Accounts receivable 1,440 c. Accounts receiv. 1,440
Allow. for BD 1,440 Misc. income 1,440
b. Allow. for BD 1,440 d. No adjustment
Accounts receivable 1,440

8. The net realizable value of accounts receivable of MATIAS CORPORATION at December 31, 2016 is:
a. P 194,975.80 b. P 194,775.80 c. P 193,335.80 d.P193,319.40

Problem 7
You are auditing the Accounts Receivable and the related Allowance for Bad Debts account of ROY COMPANY. The following
data are available:
Accounts Receivable, general ledger balance P 848,000

Allowance for bad debts:


Beginning balance P 20,000
Provision per general ledger 48,000
Write-offs (16,000)
Balance, end P 52,000

Summary of Aging Schedule


The summary of the subsidiary ledger as of December 31, 2016, was totaled as follows:
Debit balances:
Under on month P 360,000
One to six months 368,000
Over six months 152,000
P 880,000
Credit balances:
Almario P 8,000 - OK; additional billing in January 2004
Peter 14,000 Should have been credited To Manuel Co. - 1-6 mos. classification.
Bituin 18,000 - Advance on a sales contract P 40,000

The customers ledger is not in agreement with the accounts receivable control. The client instructs the auditor to adjust the
control to the subsidiary ledger after corrections are made.

ALLOWANCE FOR DOUBTFUL ACCOUNTS


It is agreed that 1 percent is adequate for accounts under one month. Accounts one to six months are expected to require a
reserve of 2 percent. Accounts over six months are

analyzed as follows:
Definitely bad P 48,000
Doubtful (estimated to be 50% collectible) 24,000
Apparently good, but slow (90% collectible) 80,000
Total P 152,000

Questions
1. The Accounts Receivable balance at December 31, 2016 is:
a. P 840,000 b. P 826,000 c. P 818,000 d. P 786,000

2. The Allowance for Bad Debts at December 31, 2016 is:


a. P 74,680 b. P 48,000 c. P 30,680 d. P 26,680

3. The Bad Debts Expense at December 31, 2016 is:


a. P 74,680 b. P 48,000 c. P 30,680 d. P 26,680

Problem 8
You have been assigned to audit the financial statement MALAQUI INCORPORATED. The company is a distributor of a
variety of electronic appliances and parts. The company uses the calendar year for reporting purposes. Information regarding
balances of MALAQUI INCORPORATEDS Accounts Receivable and the related Allowance for Doubtful Accounts as of
December 31, 2016 and the related audit finding, is given below. The schedule of accounts receivable furnished you by the
accountant reflects some errors. The total figure in the schedule does not tally with the balance per subsidiary ledger of
P919,000. Based on your review of sales invoices, purchase orders and other related
documents, you noted the following information:

1. Sales on account of various electronics totaling P36,480 were returned by the customer on December 28, 2016, but no
entry was made in the books. The goods were included in the year-end physical count.
2. Based on the findings per confirmation reply from a customer, he indicated that he has already paid his account of P23,980
in October, 2016. Your verification disclosed that said collection was credited to net sales account.
3. Collection of P12,950 on November 5, 2016 from Diana Corporation was credited to the account of DNA Corporation. The
allowance for doubtful accounts is set at 3% of the outstanding accounts receivable at
the end of the period. As of December 31, 2016, the Allowance for Doubtful Accounts has a balance of P32,400 before
adjustment.
Questions
1. What is the adjusted balance of Accounts Receivable as of December 31, 2016?
a. P 919,000 b. P 895,020 c. P 882,520 d. P 858,540
2. What is the adjusted balance of Allowance for Doubtful Accounts as of December 31, 2016?
a. P 27,570.00 b. P 26,850.60 c. P 26,475.60 d. P 25,756.20

Problem 9
You audit of APAS COMPANY for the year 2016 disclosed the following:
1. The December 31 inventory was determined by a physical count on December 28 and based on such count, the inventory
was recorded by:
Inventory 1,400,000
Cost of sales 1,400,000
2. The 2016 ledger shows a sales balance of P20,000,000.
3. The company sells a mark-up of 20% based on sales.
4. The company recognizes sales upon passage of title to the customers.
5. All customers are within a four-day delivery area.
The sales register for December, 2016 and January, 2007, showed the following details:

December Register
Invoice No. FOB Terms Date Shipped Amount
300 Destination 12/30 P 50,000

301 Shipping point 12/30 62,500


302 Destination 12/23 47,500
303 Destination 12/24 82,500
304 Shipping point 01/02 56,000
305 Shipping point 12/29 90,000
January Register
Invoice No. FOB Terms Date Shipped Amount
306 Destination 12/29 67,500
307 Shipping point 12/29 74,500
308 Destination 01/02 140,000
309 Shipping point 01/04 73,000
310 Shipping point 12/27 67,500

Questions
1. The Sales for December is over/(under) by:
a. P 36,000 under c. P 106,000 under
b. P 36,000 over d. P 106,000 over

2. The Inventory for December is over/(under) by:


a. P 235,600 under c. P 181,600 under
b. P 235,600 over d. P 181,600 over

3. The adjusted inventory at December 31, 2016 is:


a. P 1,645,412 b. P 1,635,600 c. P 1,218,400 d. P 1,164,400

4. The adjusted sales at December 31, 2016 is:


a. P 20,106,000 b. P 20,036,000 c. P 19,964,000 d. P 19,894,000

5. How much sales for the month of December 2016 were erroneously recorded in January 2007?
a. P 282,000 b. P 272,500 c. P 198,000 d. P 142,000
6. How much sales for the month of January 2007 were erroneously recorded in December 2016?
a. P 228,500 b. P 188,500 c. P 180,500 d. P 106,000

Problem 10
You are engaged to perform an audit of the accounts of the JELLER CORPORATION for the year ended December 31, 2016,
and have observed the taking of the physical inventory of the company on December 27, 2016. Only merchandise shipped
by the Durian Corporation to customers up to and including December 27, 2016 have been removed or excluded from
inventory. The inventory as determined by physical inventory count has been recorded on the books by the companys
controller. No perpetual inventory records are maintained. All
sales are made on an FOB shipping point basis. The following lists of sales invoices are entered in the sales books for the
months of December 2016 and January 2007, respectively.
Sales Invoices
Date Amount Date Shipped
December 2016 (a) 12/23/16 P 25,000 12/31/16
(b) 12/27/16 18,000 12/27/16
(c) 12/30/16 30,000 01/05/07
(d) 12/22/16 12,000 01/08/07
(e) 12/28/16 16,000 12/29/16
(f) 12/03/16 8,000 12/05/16
(g) 12/31/16 20,000 01/07/07
(h) 12/31/16 14,000 12/31/16
January 2017 (i) 12/31/16 7,500 12/29/16
(j) 12/27/16 11,000 01/04/07
(k) 01/08/07 9,000 01/09/07
(l) 01/10/07 5,000 12/31/16
Questions
1. How much sales for month of December 2016 were erroneously recorded in January 2007?
a. P 7,500 b. P 12,500 c. P 18,500 d. P 20,000

2. How much sales for the month of January 2007 were erroneously recorded in December 2016?
a. Zero b. P 12,500 c. P 20,000 d. P 62,000

3. How much is the correct amount of sales for the month ended December 31, 2016?
a. P 143,000 b. P 155,500 c. P 93,500 d. P 81,000

Problem 11
On September 1, DY COMPANY assigns specific receivables totaling P750,000 to Davao Bank as collateral on a P625,000,
12% note. DY COMPANY will continue to collect the assigned accounts receivable. Davao Bank also assesses a 2% service
charge on the total accounts receivable assigned. DY COMPANY is to make monthly payments to Davao Bank with cash
collected on assigned accounts receivable. Collections of assigned accounts during September totaled P260,000 less cash
discounts of P3,500.

Questions
1. What were the proceeds from the assignment of DY COMPANYs accounts receivable on September 1?
a. P 610,000 b. P 612,500 c. P 625,000 d. P 735,000
2. What amount is owed to Davao Bank by DY COMPANY for September collections plus accrued interest on the note to
September 30?
a. P 260,000 b. P 262,750 c. P 264,000 d. P 266,250

Problem 12
On April 1, 2016, VAILOCES CORPORATION assigned accounts receivable totaling P400,000 as collateral on a P300,000,
16% note from Racel Bank. The assignment was done on a nonnotification basis. In addition to the interest on the note, the
bank also receives a 2% service fee, deducted in advance on the P300,000 value of the note. Additional information is as
follows:
1. Collections of assigned accounts in April totaled P191,100, net of a 2% sales discount.
2. On May 1, VAILOCES CORPORATION paid the bank the amount owed for April collections plus accrued interest on note
to May 1.
3. The remaining accounts were collected by VAILOCES CORPORATION during May except for P2,000 accounts written-off
as worthless.
4. On June 1, VAILOCES CORPORATION paid the bank the remaining balance of the note plus accrued interest.
Questions

1. The total interest expense of VAILOCES CORPORATION on the assigned accounts receivable is:
a. P 5,400 b. P 8,066 d. P 10,000 c. P 11,400

Problem 13
UY FINANCE CORPORATION purchases the accounts receivable of other companies on a without recourse, notification
basis. At the time the receivables are factored, 15% of the amount factored is charged to the client as commission and
recognized as revenue in UYS books. Also, 10% of the receivables factored is withheld by Uy as protection against sales
returns or other adjustments. This amount credited by Uy to the client Retainer account. At the end of each month, payments
are made by Uy to its clients so that the balance in the Client Retainer account is equal to 10% of unpaid factored receivables.
Based on Uys bad debt loss experience, an allowance for bad debts of 5% of all factored receivables is to be established,
Uy makes adjusting entries at the end of each month. On January 3, 2013, Jannette Company factored its accounts receivable
totaling P1,000,000. By January 31, P800,000 on these receivables had been collected by Uy.
Questions
1. The commission earned of Uy Finance Corporation from Jannette Companys accounts receivable factored is:
a. P 150,000 b. P 120,000 c. P 135,000 d. P 90,000
2. The proceeds received by Jannette Company on the accounts factored is:
a. P 810,000 b. P 780,000 c. P 765,000 d. P 750,000
3. How much is the Client Retainer account of Uy Finance Corporation at January 31, 2013 is:
a. P 0 b. P 20,000 c. P 60,000 d. P 80,000
4. How much is the bad debts expense of Uy Finance Corporation at January 31, 2013 is:
a. P 50,000 b. P 40,000 c. P 20,000 d. P 0

Problem 14
During your audit of the LEILANI COMPANY for the calendar year 2016, you find the following accounts:

NOTES RECEIVABLE
Sept. 1 Samson, 12%, due in 3 mos. 36,000 36,000
Nov. 1 Hazel, 15%, due in 6 mos. 90,000 126,000
Nov. 1 Salazar, no interest, due in one year 75,000 201,000
Nov. 30 Rosa, Co. 12%, due in 13 mos. 15,000 216,000
Dec. 1 Rona, 15%, due in 15 mos. 36,000 252,000
Dec. 2 Anito, President, 18%, due in 3mos. 18,000 270,000

NOTES RECEIVABLE DISCOUNTED


Sept. 1 Samson note, discounted at 15% 36,000 36,000
Nov. 1 Salazar note, discounted at 15% 75,000 111,000

INTEREST EXPENSE
Sept. 1 Samson note 310.50 310.50
Nov. 1 Salazar note 11,250.00 11,560.50

All notes are trade notes receivable unless otherwise specified. The Samson note was paid December31, 2016. Interest
income is credited only upon receipt of cash.

Questions
1. The accrued interest income at December 31, 2016 is:
a. P 2,748 b. P 3,018 c. P 3,120 d. P 4,200
2. The interest expense at December 31, 2016 is:
a. P 1,875.00 b. P 2,185.50 c. P 4,060.50 d. P 11,560.50
3. The Notes Receivable at December 31, 2016 is:
a. P 141,000 b. P 159,000 c. P 216,000 d. P 252,000
4. The Notes Receivable discounted at December 31, 2016 is:
a. P 63,750 b. P 73,125 c. P 75,000 d. P 111,000
5. How much is the proceeds in the discounting of notes receivable for the year?
a. P 99,439.50 b. P 100,060.50 c. P 111,000.00 d. P 111,310.50

END
It does not matter how slowly you go as long as you do not stop.