ReSA The Review School of Accountancy BTel. No. 735-9807 & 734-3989 AUDITING PROBLEMS IRENEO/ESPENILLA CONVERSION CYCLE/REVENUE AND RECEIPT CYCLE/PURCHASING AND DISBURSEMENT CYCLE AUDIT OF INVENTORIES, RECEIVABLES AND CASH You are engaged to perform an avait of the accounts of Kamp Gompany for its first year of ‘operations ending December 31, 2017, You have chservu the taking of the physical inventory of the company on December 28, 2017. Ail sales are mane on an F.0.8. shipping point basis. An excerpt of the company’s trial balance revealed the following information. PROBLEM Accounts receivable 7225, Inventory, physical count 2 Sales 2,543,000 : Purchases 1,125,600 ‘The following lists of sales invoice are entered in the sales hooks for the months of December 2017 and January 2018 respectively. DECEMBER 201: Saling price [Si Date J Cost Date of Siipment 1) 14,500 | Novenbar7—[$.200| cami 1 2087 2) 3,000 (| ziad0 [December si, 2017 3) 7,000, 6,100 |b jer 26, 2017 4)2,000 [anuary 5) 1,000, ecember 30, 2017 )_4,000 | December 31 | 2,400 | January 3, 2018 December 28, (shipped to consignee); unsold as at December 31, 2017 _ 2) 10,000 _| December 30 36,000 | Daceni '9) “6,300 _| December 2% 70) 8,000 [January 3 What are the adjusted balances of the following accounts: 1, Sales 2) Accounts Receivable 3. Inventories 4. Cost of Sales PROBLEM 2: You are engaged in an audit of financi2! statements of Tour Company for the year ended October 31, 2017, and have observed the physical inventory count on October 30, 2017. ‘All merchandise received up to and including October 30, 2017 has been included in the physical count which totaled to P354,500, As a result of the count, the following ost of sales schedule has been prepared by the client's accountant: Tour Company Schedule of Cost of Sales For the period ended October 31, 2017 Inventory, November 1, 2016 235,000 Net Purchases, unadjusted 2,543,900 Cost of goods available for sale 2,778,900 Inventory, per count (354,500) Cost of sales 2,424,400 “The following list of invoices is for purchases of merchandise and are entered in the purchase journal for the months of October and November 2017: ocroser 2 Receiving Date Report No. | Amount Freight terms of Inve Merchandise were received 11205 | ___ 18,500 ‘October 30, 11206 7,800 | De: fs November 3 31207, 5,000 | Destination ‘October 29 11208, 20,590 | Shipping poi ‘October 30, (3209, 24/200 | Destination ‘October 30,ReSA: The Review School of Accountancy Page 2 of 10 NOVEMBER = te Receiving Date of Invoice | Merchandise |_Repert No were received 11210 Sctobar October 31 ti2i1 “October 30 October 30 31242 10"| Shipping point | November 2 wovernber 3 11213 25,640 | Shipping point | October 23. November 3 11214 14,200 | Destination | October 27 November 3 Requirements: 1. The adjusted purchases for the period ended October 31, 2017. 2, The adjusted balance of the Inventory accoutt as of October 31, 2017. 3. The correct Cost of sales for the period nracd October 31, 2017, PROBLEM 3: You have been engaged to audit Ayala Company for the year ended December 31, 2017. The Company is engaged in the wholesaie Lusinest and makes all sales at 30% gross profit based on sales P Portions of the client's sales and purchases accou Sales ts for the calendar yéar 2017 follow: Date Reference Amount Date ___ Reference Amount 12/31 Closing entry 4,313,000 | Balance” Forwarded 3,915,000, 12/26 S1# 705 85,000 12/27 S1# 706 60,000 12/28 SI # 708 80,000 32/28 st# 709 50,000 12/31, S1# 710 “40,000 4231 sta 74 45,000 _ [42/31 St 712 38,000 4,325,000 24,313,000 Purchases Date Reference __Amount_._Date__Reference _ Amount. Balance forwarded P 3,200,900 | 12/31 Closing entry P 3,735,000 12/28 RR 9G ‘190,000 32/30 RR # 905 110,000 42/31 RR # 906 450,000 12/31 RR#907 175,000! 3,735,000 |~ 3,735,000 RR is Receiving Report and SI is Sales Invoice You observed the physical inventory count in the warehouse on December 31, 2017, and were satisfied that it was properly taken. Per cut-off tests, the last receiving report used was No. 907 and the last sales invoice with actual shipment of goods was No. 709. The following additional information were gathered: 1. Included in the physical inventory were jjoods purchased and received on receiving report No. 904 but the corresponding invoice document was received on January 3, 2018. Cost was P30,000. 2. In the warehouse at December 31, 2017, were goods covered by the sales invoice No. 706. Since the customer has already advanced the payment for these goods, these were no longer included in the physical inventory count. 3. ‘The company uses the railroad facilities of PNR for its purchases or sales shipments. On the evening of December 31, 2017, there were 3 cars still on the Ayala Company siding: ‘a. Car No. 1 was unloaded on January 2, 2018, and received per receiving report No. 905. b. Car No. 2 was loaded and sealed on Seceinber 31, 2017 and was switched off the company’s iding on January 2, 2018 These gootis were billed per sales invoice No. 708, . Car No. 3 was loaded and seaied on December 31, 2017, and was switched off the company’s siding on tanuary 2, 2018. The sates price was P 120,000. This order was covered by sales invoice No. 707. 4, The tracks were damaged in Quezon Province on December 31, 2017. In the train cars were goods in transit to a customer in Bicol. The goods were billed on sales invoice No. 709 and the terms were FOB Destination. 5. In transit to Ayala on December 31, 2017, were goods received per receiving report No. 910. The freight of P1,000 was properly deducted from the purchase price of P31,000.he Review Schoo! of Accountancy Page 3 of 10 6. In transit to Ayala on December 31, 2017 were goods acknowledged per receiving report no. 915. ‘The freight of P2,500 was paid oy the supplier. The supplier's invoice shows a total price of P37,500 which appropriately included the ireight charge 7. Included in the physical inventory count were unsalable items because they were exposed to rain while they were in transit ro Ayala, The invoice cost for the goods which were shipped FOB Seller was P10,000. REQUIRED: 1. What Is the adjusted balance of sates? What is the adjusted balance of purch What is the net adjustment to accounts receivable account? What is the net adjustment to accounts payable? What is the net adjustment to inventory? What is the net adjustment to the ret income? PROBLEM 4: Having been engaged as external auditor of Duhat Company on February 28, 2018, you were tunable to observe the taking of inventory on December 33, 2017, which was reported to amount to 335,000. The following data, however, were aathered by you Inventory, December 31, 2016 320,000 Purchases during 20:7 1,430,000 Purchase discounts 5 15,000 Purchase allowances 5,000 Cash sales during 2037 350,000 4,790,000 2017 Collections on accounts receivable Accounts receivable, January 1, 2017 250,000 ‘Accounts receivable, December 31, 2017 300,000 Sales discounts 30,000 Sales returns, including P20,000 that was refunded to customers 50,000 Gross profit percentage on sales 40% Additional purchases cut-off information z Shipment received on Deceriber 26, 2017 were not recorded as purchases eae Shipments made in 2017, under FOB shipping point were received + 25,000 fon January 2, 2018. These were recorded as 2017 purchases Deposits made with suppliers, entered as purchases, Goods were not 20,000 received in 2017 1 ‘The estimated inventory shortage at December 31, 2017 was: ‘a. P40,000 'b. P50,000 ‘60,000 4d. none of these PROBLEM 5: The Davao Corporation 15 att importer and wholesaler. In conducting his audit for the year. eed December 31, 2017, the company’s Ct” determined that the system of internal control was good. ‘Accordingly, he observed the physical inventory at an interim cate November 30, 2017, instead of at year end. “The following information was obtained from the general ledger: Inventory, January 1, 2017 0,000 Inventory, November 30, 2017, per count 225,000 Sales for eleven months ended November 30, 2017 ‘800,000 Sales for year ended December 31, 2017 ‘950,000 Purchases for eleven months caded November 30, 2017 (before audit adjustmencs} 720,000, Purchases for year ended December 31, 2017 (before audit adjustments) 810,000 ‘Additional information: 1- Goods received on November 28 but recorded as purchases in December P 10,000 2+ Deposits made in October 2017 for purchases to be made in 2018 but charged a3 2017 purchases. 14,000 3+ Defective merchandise to be returned to suppliers: Total at November 30, 2027 5,000 Total at December 31, 2917, exctuding November ems 7,000 ‘The retuens have not been recorded pending receipt of credit memos from the suppliers. i = (re) AUDITING PROBLEMS —ReSA: The Review School of Accountancy Page 4 of 10 ‘The defective goodis were ast sacluded in the inventory, : Goods shipped in November under FOB destination and received in December sirre recorded as purchases in November 18,500 5° Goods shipped in November under FOB shipping point and received in December were recorded as purchases in November 20,500 6 ‘Through the carelessness of the client's warehouseman, certain goods were damaged in December and sold in December at its cost 20,000 7. Audit of the clients Novembar inventry suramary revealed the following: Items duplicated 3,000 Errors in extersion overvalued the items 4,000 REQUIRED: Compute for the follow 1.” Adjusted net purchases up to November 30, 217 a. 682,500 b. 692,500 c. 687,500 d. 706,000 2. Adjusted net purchases up to December 31, 2017: ‘a. 784,000 b. 796,009 c. 794,000 . 810,000 3. Gross profit for the eleven months ended November 30, 2017: a. 544,000 b. 520,000 c. 263,500 d. 256,000 4. Gross profit ratio for eleven months ended tusvember 30, 2017; a. 68% b. 65% c. 35% d. 32% 5. Cost of goods sold during December 2017 (for the month of December) under the gross profit method: ‘a. 88,400 b. 97,500 102,000 d, 108,400 6. December 31, 2017 inventory under the gross profit method: ‘a. 220,000 b. 221,600 . 256,500 . 265,500 PROBLEM 6: You were assigned to audit the inventories of Titenuim Corp. in relation to your audit firm’s ‘audit of the company’s financial statements as of and for the period ended December 31, 2017. Since Internal control over inventories were good, you audit manager simply asked you to render analytical procedure to test the reasonableness of the inventory balance. The following information were made available by Titanuim Corp.'s accountant: Cost Retail Beginning inventory 1,020,000 _ 1,920,000 Purchases 13,072,500 22,155,000 Freight in 300,000 Purchase return 450,000 750,000 Purchase allowance 270,000 Departmental transfer debit 300,000 425,000 Departmental transfer credit, 600,000 1,200,000 Net markup) ‘450,000 Nec markdown . 1,425,000 Sales 19,800,000 Sales returns and allowance ‘450,000 Sales discounts 500,000 Employee discount 300,000 Normal Spoilage and breakages 600,000 Abnormal Spoilages and breakages 120,000 200,000 ‘The company reported inventories at P400,000 as 2 result of its physical count on December 31, 2017, what is the amount of estimated ending inventory shortage/overage as a result of your audit procedures? (round off cost% to nearest whole number, eg: xx%) Required: 1. Lower of cost or average/Conservative/Conventional Approach: ‘a. 297,500 , 252,590 €. 308,750 4. 320,000 2. Average Approach: a, 297,500 b, 252,500 ¢, 308,750 4, 320,000. 3. FIFO Retail Approach: 2. 297,500 b. 252,500 ©. 398,750 4, 320,000 AUDITING PROBLEMS:ReSA: The Review School of Accountancy Page 5 of 10 PROBLEM 7: October Inc., a manufacturing company, had the following information about its inventories as of December 31, 2017: Finished Goods Inventor tem Cost__[$ x [__P500,060 20% : B “0% of Sales Price tc "10% of Sales Price Work-in-process Inventory: _ tem Direct | Direct tabor | Overhead | Costto [Selling Materials Complete | Price upon i ee [A 30,000 50,000 |" p25,000 | P50,000 | P200,000 3 48-000"[ 65 uu0-| 40.000 60,000] — 250,000 cc 75,000 [25,000 |. 80,000 | 40,000 | 240,000 Raw Materials inventory: Fi Peston | Cost 1 Re RMA-O1 | 120,000 RM A-02 95,000. Raw Materials Inventory: Finished Gnods 8: item Cost | Repiacérnent | RM 8-01 | _ P80,006. RM B-02 | 105,000 RMB-03 | 110,000 Raw Materials Inventory: Finished Goods ©. item Cost | Replacement | 7 cost, | BH Coa | 175,000 | —_P#70,6001 RM C02 40,0001" 45,000 Required: 4. What is the correct carrying value of finished goods inventory? 2. 2,500,000. 2,250,005 <. 2,930,000 d, 3,000,000 sn process inventories? 2. What is the correct carrying value of wor 401,000, 1d, 445,000 a, 435,000 , 396,000 3. What is the correct carrying value of raw-materials inventories? a. 725,000 b. 708,000 c. 728,006 d. 698,000 4. Assuming direct write-off method is used to account for inventory write-down, how much should be fecognized in the profit/loss ae 2 eesult of the lower of cost or net realizable value valuation of inventories? ‘a. 201,000 b. 206,000 c. 210,000 d. 216,000 5, Assuming allowance method and the following allowance for inventory write-down existed at the beginning of the year (FG ~ P60,099; WI¥ - P70,000; RM ~ 0), how ruch should be recognized in the profit/loss as a result of the lower of cost or net realizable value valuation of inventories? ‘a. 107,000) . 76,000 «. 138,000 d. 145,000 PROBLEM 8: You were able to gather the following from the December 31, 2016 trial balance of RHEA INC. in connection with your audit of the company: Petty cash fund 50,000 Cash on hand 1,500,000 Cash in bank - Metrobenk current 4,000,000 Cash in bank - BDO Acct fe. 2 3,160,000 Cash in bank ~ 8DO Acct fio. 7 (160,000) Cash in bank ~ Coco bank savings 4,500,000 Time deposits - 8PI 2,000,000 ‘Audit notes: AUDITING PROBLEMSReSA: The Review Schoo! of Accountancy Page 6 of 10 1. The petty cash fund consisted of the following items as of December 31, 2016: Currency and coins P10,000 Employees" vales 8,000 Currency in an envelope marked “collections for chanty” with names attached 6,000 Unreplenished petty cash vouchers: 6,500 Check drawn by RHEA, payable to the petty cashier 20,000 Unused postage stamps 1/500 52,000. 2. Cash on hand represents undepasited collections as of December 31, 2016 and includes the following items: a. Customer's check for P160,000 returned by bank on December 26, 2016 due to insufficient fund but subsequently redeposited and cleared by the bank on January 3, 2017. b. Customer's check for P6U,000 dated January 2, 2017, received on December 29, 2016. ©. A customer check for P90,000 dated June 1, 2016 received on the same date and yet to be deposited since the same has been missing 4. Postal money orders received from customers, P100,000. 3. Included among the checks diawn by AHA against the Metrobank current account and recorded in December 2016 are the following: a. Check written on Decerder 29, 2016 dated January 2, 2017, delivered to payee on December 29, 2016, P369,:300. b. Check written and dated December 29, 2016 and delivered to payee on January 2, 2017, 200,000. . 4. The credit balance in the BDO Current Account No. 2 represents checks drawn in excess of the deposit balance. These checks were still outstanding at December 31, 2016. 5, The savings account deposit in Coco Bank has been set by the board of directors for acquisition of ew computers. This account is expected to be disbursed in the next 3 months from the balance sheet date. 6. The time deposit with BPI was pu 2017. hased on November 1, 2016 and shall mature on November 1, Determine the audited balances of the following 1. Petty cash fund a. 30,000 b. 36,000 . 10,000 4. 24,500 2. Petty cash shortage/overage . 2. 4,000 short —b. 5,500 short ¢ 2,000 over, 4d. 500 over 3. Cash on hand a. 1,070,000 b. 1,170,060 . 1,260,090 4. 1,500,000 4. Cash in bank ~ Metrobank current a. 4,000,000 b. 4,160,000 . 4,200,000 4. 4,360,000 5, Cash and cash equivalents to be reported in the 2036 balance sheet a. 8,560,000 b. 8,566,000 . 10,560,000 d. 15,060,000 PROBLEM 9: A count of the Petty Cash fund having un imprest balance of P10,000 of Reyes Corp. showed its composition as follows: Coins and currency... « 2,900 Paid vouchers: ‘Transportation. P 600 Gasoline. 400 Office supplies. 7 . 500 Postage stamps... cies 300 Due from employee. 1200 3,000 Manager's check returned by bank Marked "NSF". 2 3 1,000 Check drawn by company to the order =f 4 petty cash custodian... 2,700 Unused postage stamps 300 Petty cash receipt voucher 500 ‘The petty cash receipt voucher is for a retusa of travel expense advance, AUDITING PROBLEMSReSA: The Review School of Accountancy Page 7 of 10 What is the petty cash shortage? 2.0 . 500 «900 4. 1,000 PROBLEM | A count of the undeposited receipts under the custody of U. Rita, cashier of Ube Corp., on September 30, 2016 showed the following composition: Currency and coins 24,620 Unused postage and documentary stamps 220 ‘Checks: Drawer U. Rit 2,000 Ube Corp Tarns C0. 4700 Ube corp tonll Ine 31920 ERALCO Ube Corp, 1,800 Cash disbursements out cf receipts - 3,000 Total per count P 40,620 Assuming the cashier’s accountability to be 36,940 per the client's record, what was the amount of shortage/overage on September 30, 20167 @. P480 shortage —b, 3,220 shortage €. 3,320 overage —_d._No shortage/overage PROBLEM 11: You obtained the foito.sing infermation on the current account of Bugs Corp. During your ‘examination of its financial statements for the year ended December 31, 2016. ‘The bank statement on November 39, 2016 showed a balance of P918,000. Among the bank credits in November was customer's note for P200,000 collected for the account of the company which the company recognized in December among its receipts. included in the bank debits were cost of checkbooks amounting to P3,600 and a P120,000 check which was charged by the bank in error against Bugoy’s account. Also in November you ascertained that there were deposits in transit amounting to P240,000 and outstanding checks totaling P510,000. ‘The bank statement for the month of December showed total credits of 1,248,000 and total charges of 612,000. The company’s books for Hecember showed total debits of P2,206,800, total credits of 1,221,600 ‘and a balance of P1,456,800. Bank debit memos for December were: No. 121 for service charges, P4,800 nd No. 122 on a customer's returned check marked "Refer to Drawer” for P72,000, ‘On Decémber 31, 2016 the company placed with the bank a customer's promissory note with a face value of 560.000 for collection. The company treated this note as part of its receipts although the bank was able to collect on the note only in January, 2017. ‘A check for P11,880 was recorded in the company cash payments books in December as P118,800, How much is the undeposited collections as of December 31, 2016? a. 1,018,800 b. 536,800 c. 656,800 d, 418,800 2. How much Is the outstanding checks as ef December 31, 20167 a. 575,880 b, 1,192,800 c. 1,085,860 d. 1,089,480 How much is the adjusted cash balance as of November 30, 20167 a, 648,000 b. 768,000 528,000 d. 471,600 How much is the adjusted cach balance as of December 31, 2016? a. 1,876,920 b. 586,920 c. 660,000 d, 1,126,920 PROBLEM 12: In your audit of Jene orparatin for the year 2036, you concluded that the allowance for Feubtful accounts should be adjusted to equal zis estimated amount required based on aging of the secounts as of December 31. During your audit, you were able to gather the following data: Allowance for doubtful accounts, Jan 1, 2016 600,000 Provision for doubtful accounts during (2016 (3% of 10M Sales) 300,000 Bad debts written-off in 2016 375,000 Recovery of bad dabts written-off during 2016 100,000 Estimated doubtful accounts per aging of accounts on December 31, 2016 400,000 Accounts receivable, December 31, 2016 2,375,000 AUDITING PROBLEMS —ReSA: The Review School of Accountancy Page 8 of 10 1, Based on the result of your audit, what is the correct doubtful accounts expense for the year 2016? a. 375,000 b. 300,000 . 175,000 d. 75,000 2. What Is the correct net book value of the receivables? a. 2,375,000 b. 1,775,000 ©. 2,000,000 d. 1,975,000 From inception of operations to December 31, 2016, PDA Corporation provided for "@ method: provisions were made monthly at 2% of PROBLEM_13 uncollectible accounts receivable under the allowan credit sales; bad debts written off were charged to the allowance account; recoveries of bad debts previously wnitten off were credited to the allowance account; and no year-end adjustments to the allocation account were made. PDA's usual credit terms are net 30 days. The balance in the allowance for doubtful accounts was P130,000 at January 1, 2016. During 2036, credit sales totaled P9,000,000, interim provisions for doubtful accounts were made at 2% of credit sales; P90,000 of bad debts were written off, and recoveries of accounts previously written off amounted to P15,000. PDA installed a computer facility in November, 2015, and an aging of accounts receivable was prepared for the first time as of December 31, 2016. A summary of the aging is as follows: Classification by “Balance in” Estimated Month of Sale Each Category Uncollectible Nov-Dec 2016 1,140,000 1.5% Jul-Oct. 600,000 8.0 Jan-June 400.000 35.0 Prior to 1/1/16 130,000 70.0 P2,270,000 ___ Further audit procedures revealed that a 160,600 customer credit balance resulting from overpayment was included in the “Nov-Dec. 2016” receivables anc that based on the review of collectibility of the account balances in the “prior to 1/1/16" aging cateyory, additional receivables totaling P60,000 were written off as of December 31, 2016. Requirements: 1. What is the correct balance of the allowance for doubtful accounts at year end? a. 254,100 b. 256,500 . 296,100 d. 298,500 2. What Is the correct bad debt expense for the year? a. 261,500 b. 201,500 c. £1,500 d. 76,500 3. What is the carrying value of the accounts secavable at year end? a. 2,013,500 b. 2,108,500 &. 2,123,500 4. 2,370,000 PROBLEM 14: As an audit in-charge you are reviewing the work done by your audit staff who has been assigned to audit the accounts receivable account of Hope Inc. in line with your firm's audit of the company’s financial statements as of and for the period ended December 31, 2016, The following are the relevant audit notes: a, The general ledger accounts of the compazy revealed the following: ‘Accounts receivable balance per yeneral ledger 2,175,300 Less: Allowance for doubtful accounts 215,800, PH,934,500 “Amount P68,500 (04-Nov-16. 112,000, “[as-Sep-16. 89,000 Bee Ine [05-Dec-16. 125,500 si 7 ‘98,700. 56,000 45,800 16 95, 700. 1-36 137,800 16 98,700 [= IV-Ot-16 123,500, : (09-Aug-16 56,400. [tart 701,200 198,400 95,400 AUDITING PROBLEMSReSA: The Review Schoo! of Accountancy Page 9 of 10 734,400 67,900 ‘90,800 12,500 iM '80,600 [03-Nov-16 ‘60,500. 36-Sep-16 50,400 “07-Jul-16 93,400 C | AS-Mar-16 67,300 Fych Co 04-Sep-15 65,400. ‘Eye Inc (24,500) Total 72,196,800 [eff Company | c. The audit staff's examination revealed the following: 1, The amount receivable from Eych Ca. is definitely uncollectible thus has to be written off. 2. The negative balance in Ey# Inc. suosidiary account resulted from a collection from Eye Inc. of a previously written off account. Investigation revealed that the only entry made by the company in the general and subsidiary books was the collection, debiting cash crediting the accounts receivable account. 3. According to Aye Corp., In response to a confirmation request sent to the company, the invoice dated September 15, 2016 has already been settled by the company. Further Investigation revealed that Aye Corp.'s payment was erroneously posted against Syi Co, subsidiary ledger In payment of an invoice dated December 16, 2016 for the same amount. 4. The February 14, 206 invoice to Eff Company is offset by 2 credit memo for a sales return issued to the said compary. The credit memo was appropriately recorded in the general books but were apparently overlooked in the posting to the subsidiary ledger. S. The Sales Invoice to Gee Inc. dated December 5, 2016 was erroneously posted to the subsidiary ledger at P80,600. Further investigation revealed that the correct amount recorded In the sales Journal was at P60,800. 4. The company has the following policy in providing for the allowance for bad debts. ‘Age Category. ‘% of Collectibility 4-60 da ‘98% 61-120 days 90% [421-180 days _ 80% 60% | Requirements: 1. What is the correct accounts receivable account balance gross of allowance for bad debts? a. 2,125,600 2,101,100, b. 2,145,400 4. 2,191,000 2. What is the correct of allowance for bad debts? a. 303,478 284,254 b. 290,978 d. 283,858 3. What Is the correct bad debt expense for the period? a. 128,578 109,354 b. 116,078 d. 108,958 4, The entry to record the uncoated difference if there are any shail be: a. Sales 8,200 ‘Accounts receivable 8,800 b. Accounts receivable 3,700 Sales 3,760 c. Accounts receivable 12,000 Sales 11,000 d. There is no unlocated difference PROBLEM 15: On January 1, 2014, YZA Inc. gave a loan to ABC Corp. amounting to 1,000,000 ang reelved a three-year, 6% note. The note calls for annual interest to be paid each December 31. The Company Incurred origination costs amounting to 2. The company charged 80,000 to ABC as origination fees. As a result, the yield on the loan was at 8%. AUDITING PROBLEMSReSA: The Review School of Accountancy Page 10 of 10 At December 31, 2015, based on ABC's financial crisis YZA was not able to collect the 2015 Interest and that ‘only P600,000 of the principal due December 31, 2016 will be collected. The P600,000 principal Is expected to be collected in two equat installments un December 31, 2016 and December 31, 2018. Required: 1. What ts the origination cost incurred by YZA un January 1, 2014 in relation to the loans receivable? a. 28,458 c. 108,458 b. 51,542 d._none 2. What is the impairment ioss to te recegnized in 2015? a. 981,481 c. 525,554 b. 532,190 d. 542,170 3. What is the correct carrying value of the losns receivable from ABC on December 31, 2015? a. 981,481 c. 515,927 b. 532,190 d. 542,170 PROBLEM 16: The balance sheet of DWARF CORP. reported the following long-term receivables as of December 31, 2015: Note receivable from sale of plant 4,500,000 Note receivable from officer 1,200,000 In connection with your audit, you were able to gather the following transactions during 2016 and other Information pertaining to the company’s long-term receivables: 2. The note receivable form sale of plant bears interest at 12% per annum. The note is payable in 3 annual installments of P1,500,000 plus interest on the unpaid balance every April 1. The initial Principal and interest payment was made om April 1, 2016. b. The note receivable from officer is dated December 31, 2015, earns interest at 10% per annum, and is due on December 31, 2038. The interest were received on December 31, 2016. €. The corporation sold a piece cf equipment to SNOW INC. on April 1, 2016, In exchange for an 600,000 non interest bearing note due on April 1, 2018. The note had no ready market, and there was no established exchange price for the equipmient. The prevailing interest rate for a note of this type at April 1, 2016 was 12%. The present value factor of 1 for two periods at 12% is 0.797 while the present value facter of ordinary annuity of 1 for two periods at 12% Is 1.690. d. A tract of land was sold by the corporation to WHITE CO. on July 1, 2016, for P3,000,000, under an installment sale contract. White signed a 4-year 11% note for P2,100,000 on July 1, 2016, in addition to the down payment of P500,000. The equal annual payments of principal and interest on the note will be P676,875 payable on July 1, 2017, 2018, 2019, and 2020. The land had an established cash price of P3,000,000, and its cost to the corporation was P2,250,000. The collection of the installments on this note is reasonabiy assured. 1. How much is the total noncurrent notes receivables as of December 31, 2016? a. 6,778,200 b. 4,832,325 . 4,875,363 d. 3,675,363 2. How much Is the total current portion of fong-term notes receivable as of December 31, 2016? . 1,945,875 . 2,176,875 . 1,500,000 40 3. What is the accrued interest receivable as of December 31, 20167 a. 385,500 b. 428,538 . 270,009 d. 505,500 4, What is the correct interest incomne for the year 20167 a, 640,500 b. 818,536 c. 683,538 d. 756,000 AUDITING PROBLEMS 500