Auditing Problems

AUDIT OF RECEIVABLES

PROBLEM NO. 1

Your audit disclosed that on December 31, 2015, the accounts receivable control account of
Alilem Company had a balance of P2,865,000. An analysis of the accounts receivable account
showed the following:

Accounts known to be worthless P 37,500

Advance payments to creditors on purchase orders 150,000
Advances to affiliated companies 375,000
Customers’ accounts reporting credit balances arising from sales return (225,000)
Interest receivable on bonds 150,000
Other trade accounts receivable – unassigned 750,000
Subscriptions receivable for common stock due in 30 days 825,000
Trade accounts receivable - assigned (Finance company’s equity in assigned
accounts is P150,000) 375,000
Trade installment receivable due 1 – 18 months, including unearned finance
charges of P30,000 330,000
Trade receivables from officers due currently 22,500
Trade accounts on which post-dated checks are held (no entries were made on
receipts of checks) 75,00
0
P2,865,000

Based on the above and the result of your audit, determine the adjusted balance of following:

1. The trade accounts receivable as of December 31, 2015 is

2. The current trade and other receivables net as of December 31, 2015 is
3. How much of the foregoing will be presented under noncurrent assets as of December 31,
2015?

PROBLEM NO. 2

Your audit of Banayoyo Corporation for the year ended December 31, 2015 revealed that the
Accounts Receivable account consists of the following:

Trade accounts receivable (current) P3,440,000

Past due trade accounts 640,000
Uncollectible accounts 128,000
Credit balances in customers’ accounts (80,000)
Notes receivable dishonored 240,000
Consignment shipments – at cost
The consignee sold goods costing P96,000 for P160,000. A 10% commission
was charged by the consignee and remitted the balance to Banayoyo. The
cash was received in January, 2016. 320,00
0
Total P4,688,000

The balance of the allowance for doubtful accounts before audit adjustment is a credit of
P80,000. It is estimated that an allowance should be maintained to equal 5% of trade
 Auditing Problems

receivables, net of amount due from the consignee who is bonded. The company has not
provided yet for the 2015 bad debt expense.

Based on the above and the result of your audit, determine the adjusted balance of following:
1. Trade accounts receivable
2. Allowance for doubtful accounts
3. Doubtful accounts expense

PROBLEM NO. 3

Presented below are a series of unrelated situations. Answer the following questions relating to
each of the independent situations as requested.

1. Bantay Company’s unadjusted trial balance at December 31, 2015 , included the following
accounts:
Debit Credit
Accounts receivable P1,000,000
Allowance for doubtful accounts 40,000
Sales P15,000,000
Sales returns and allowances 700,000

Bantay Company estimates its bad debt expense to be 1 1/2% of net sales. Determine its
bad debt expense for 2015.

2. An analysis and aging of Burgos Corp. accounts receivable at December 31, 2015, disclosed
the following:

Amounts estimated to be uncollectible P

1,800,000
Accounts receivable 17,500,000
Allowance for doubtful accounts (per 1,250,000
books)

What is the net realizable value of Burgos’ receivables at December 31, 2015?

3. Cabugao Company provides for doubtful accounts based 3% of credit sales. The following
data are available for 2015.

Credit sales during 2015 P21,000,000

Allowance for doubtful accounts 1/1/15 170,000
Collection of accounts written off in prior years
(Customer credit was reestablished) 80,000
Customer accounts written off as uncollectible during
2015 300,000

What is the balance in allowance for doubtful accounts at December 31, 2015?

4. At the end of its first year of operations, December 31, 2015, Caoayan, Inc. reported the
following information:

Accounts receivable, net of allowance for doubtful P9,500,000

accounts
 Auditing Problems

Customer accounts written off as uncollectible during 240,000

2015
Bad debts expense for 2015 840,000

What should be the balance in accounts receivable at December 31, 2015, before subtracting
the allowance for doubtful accounts?

5. The following accounts were taken from Cervantes Inc.’s balance sheet at December 31,
2015.

Debit Credit
Accounts receivable P4,100,000
Allowance for doubtful accounts 100,000
Net credit sales P7,500,000

If doubtful accounts are 3% of accounts receivable, determine the bad debt expense to be
reported for 2015.