AUDITING PROBLEMS

AP_02: LOANS AND RECEIVABLES

PROBLEM 1
The financial statements of Exo Corporation included the following:
December 31, 2021 December 31, 2022
Accounts receivable 3,675,000
Allowance for doubtful accounts 81,000
Sales on account 22,500,000
Cash collected from customers 21,000,000
Among the cash collections was the full recovery of an P80,000 receivable from Big Company, a customer whose account
had been written off as worthless late in 2021.

During 2022, it was necessary to write off uncollectible customers’ accounts totaling P101,000.

On December 1, 2022, Bang Electronics, Inc., a customer, settled its account by issuing to Exo Corporation a 12%, six-
month note for P1,300,000.

At December 31, 2022, the accounts receivable included P504,000 past due accounts. After careful study of all past-due
accounts, the management estimated that the probable loss contained therein was 10%. In addition, 2% of the current
accounts receivable might prove uncollectible.

1) What is the balance of Accounts receivable as of December 31, 2022?

A. 3,774,000 B. 3,854,000 C. 5,154,000 D. 3,674,000
2) What is the amount of the current accounts receivable that might prove to be uncollectible?
A. 67,000 B. 63,400 C. 77,080 D. 65,400
3) What is the balance of the allowance for uncollectible accounts before adjustments on December 31, 2022?
A. 81,000 credit B. 60,000 credit C. 20,000 debit D. 161,000 credit
4) How much increase in the allowance for uncollectible accounts is required on December 31, 2022?
A. 57,400 B. 40,320 C. 137,400 D. 43,600
5) What is the balance of the allowance for uncollectible accounts after all the necessary adjusting entries on December
31, 2022?
A. 60,000 B. 113,800 C. 127,480 D. 117,400
PROBLEM B, A, B, A, D
Trade Receivable
Beginning balance 3,675,000
(a) Sale on account 22,500,000 21,000,000 (a) Collection of accounts receivable
(b) Recovery of written of receivables 80,000 -- (b) Collection of recovery
(c) Freight FOB shipping point, prepaid - 101,000 (c) Write off of accounts receivable
-- (d) Discount taken by customers
-- (e) Sales actually returned
1,300,000 (f) Other form of payment
Ending balance 3,854,000

Allowance for Doubtful Accounts before

81,000 Beginning balance
(a) Write off of accounts receivable 101,000 (a) Bad debt expense / provision
80,000 (b) Recovery of write off
60,000 Ending balance

Allowance for Doubtful Accounts after

81,000 Beginning balance
(a) Write off of accounts receivable 101,000 57,400 (a) Bad debt expense / provision
80,000 (b) Recovery of write off
117,400 Ending balance

Past due Current Total

Accounts Receivable Bal. 504,000 3,350,000 3,854,000
Percentage per category 10% 2%
Allowance per category 50,400 67,000 117,400
PROBLEM 2
You are auditing the accounts receivable and the related allowance for bad debt accounts of Everyday Company. The
control account of the aforementioned accounts had the following balances:
Accounts receivable 1,270,000
Less: Allowance for bad debts 78,000
Amortized cost 1,192,000
Upon your investigation, you found out the following information:
a. The company’s normal sales term is n/30.
b. The allowance for bad debt account had the following details in the general ledger:
July 31 Write off 24,000 Jan 1 Balance 30,000
Dec. 31 Provision 72,000
c. The subsidiary ledger balances of the company’s accounts receivable as of December 31, 2016 contained the following
information:
Debit balances Credit Balances
Under one month 540,000 Apple Company 12,000
One to six months 552,000 Boy Corporation 21,000
Over six months 228,000 Cat Incorporated 27,000
1,320,000 60,000
d. Additional information:
§ The credit balance with the Apple Company was for an overpayment from the customer. The company
delivered additional merchandise to Apple Co. on January 3, 2022 to cover such overstatement.
§ The credit balance of Boy Corporation was due to a posting error, the amount should have been credited to
Bae Corp. for a 60 day outstanding receivable.
§ The credit balance from Cat Inc. was a cash advance for a delivery to be made on January 15, 2022.
e. It was estimated that 1 percent of accounts under one month is doubtful of collection while 2 percent of the accounts
under one to six months are expected to require an allowance for doubtful collection. The accounts over six months are
analyzed as follows:
Definitely uncollectible 72,000
Doubtful (estimated to be 50% collectible) 36,000
Apparently good, but slow (estimated to be 90% collectible) 120,000
Total 228,000

6) What is the entry to adjust any unlocated difference between the control account and the subsidiary ledger?
A. Sales 10,000 C. Sales 14,000
Accounts receivable 10,000 Accounts receivable 14,000
B. Accounts receivable 10,000 D. No journal entry
Sales 10,000

7) The adjusted account receivable balance on December 31, 2021?

A. 1,212,000 B. 1,227,000 C. 1,239,000 D. 1,260,000

8) The required balance of the allowance for bad debts account on December 31, 2021 is
A. 46,020 B. 46,440 C. 64,020 D. 142,020

9) The entry to adjust the allowance for bad debts account is

A. Bad debts expense 46,020 C. Bad debts expense 6,000
Allowance for bad debts 46,020 Allowance for bad debts 60,000
B. Bad debts expense 52,020 D. Bad debts expense 40,020
Allowance for bad debts 52,020 Allowance for bad debts 40,020

AR Age Category 1 AR Age Category 2 AR Age Category 3 Total

Accounts Receivable Bal. 540,000 552,000 228,000
Adjustment (21,000) (72,000)
Adjusted AR balance 540,000 531,000 156,000 1,227,000
Percentage per category 1% 2% (36,000 x 50%) +
(120,000 x 10%)
Allowance per category 5,400 10,620 30,000 46,020

Allowance for Doubtful Accounts after

30,000 Beginning balance
(a) Write off of accounts receivable 96,000 40,020 (a) Bad debt expense / provision
-- (b) Recovery of write off
46,020 Ending balance


AP_02: LOANS AND RECEIVABLES PAGE 2 OF 12
72,000 – 112,020 = 40,020

PROBLEM 3
Your audit of Dell Company’s accounts receivable and its related allowance for doubtful accounts expense revealed the
following information:

a. The general ledgers of Dell Company have the following balances:

Accounts receivable 360,000
Allowance for doubtful accounts (1,320)
Amortized cost 358,680
b. An aging of Dell Company’s accounts receivable per subsidiary ledgers, on December 31, 2014 contained the following
information:
Time outstanding Amount
Under 30 days 240,000
30 – 60 days 48,000
61 – 120 days 36,000
120 – 180 days 24,000
Over 180 days 12,000
Total 360,000
c. Investigations revealed that 50% of the over 180-day account is definitely uncollectible and that a P12,000 customer
credit balance for an advance payment for a future delivery was included in the under 30 days account.

d. Based on past experiences, the company believes that the following uncollectible percentages are appropriate:
Time outstanding %
Under 30 days ----
30 – 60 days 3%
61 – 120 days 15%
121 – 180 days 30%
Over 180 days 60%
e. The term of sale is 10/15, n/30. As per past experience, 20% of the customer whose accounts are still current are
expected take advantage of the cash discount.
f. Also, based on past experience, you have ascertained that 5% of the current account should be provided for probable
future sales returns.
Questions: Based on the above and the result of your audit, answer the following:
10) What is the adjusted balance of the accounts receivable account?
A. 366,000 B. 342,360 C. 360,000 D. 348,000
11) What is the correct doubtful accounts expense for the period?
A. 17,640 B. 16,320 C. 22,320 D. 23,640
12) What is the allowance for doubtful accounts for the period?
A. 17,640 B. 16,320 C. 22,320 D. 23,640
13) What is the carrying amount of the company’s accounts receivable as of December 31, 2014?
A. 330,720 B. 313,080 C. 302,040 D. 319,680
14) Assuming that the allowance for doubtful accounts had a P1,680 debit balance before any adjustments, what is the
correct doubtful accounts expense?
A. 25,320 B. 21,960 C. 19,320 D. 23,640

ANSWER: A, C, A, A, A
Under 30 30 – 60 days 61 – 120 days 121 – 180 days Over 180 days Total
AR balance 240,000 48,000 36,000 24,000 12,000 360,000
Adjustment 12,000 (6,000)
Adjusted 252,000 48,000 36,000 24,000 6,000 366,000
Bad debt % -- 3% 15% 30% 60%
Allowance -- 1,440 5,400 7,200 3,600 17,640

Accounts receivable at December 31 366,000

(a) Allowance for doubtful accounts (17,640)
(b) Allowance for estimated sales discount to be taken 252,000 x 10% x 20% (5,040)
(c) Allowance for estimated sales to be returned 252,000 x 5% (12,600)
(d) Allowance for freight (sold FOB destination, freight collect) _______
NRV of Accounts receivable at December 31 330,720


AP_02: LOANS AND RECEIVABLES PAGE 3 OF 12
 1,680 Beginning balance
(a) Write off of accounts receivable 6,000 25,320 (a) Bad debt expense / provision
(b) Recovery of write off
17,640 Ending balance

PROBLEM 4
Panthers Company produces herbal tea and other slimming products that are sold throughout the Philippines. While the
company is experiencing a steady growth in sales, it has become noticeable that collections of accounts receivable from
customers are no longer as fast as they used to be.

Panther Company’s products are sold on payment terms of 2/10, n/30. In the past, more than 75% of the credit customers
have availed of the discount by paying within the discount period.

During the year ended December 31, 2022, there has been an increase in the number of customers taking the full 30 days
to pay. The company estimates that less than 60% of the customers are taking advantage of the discount. Bad debt losses
as a percentage of gross credit sales have increased from the 1.5% provided in prior years to about 4% in the current year.

The deterioration of accounts receivable collections has prompted the company’s controller to prepare the following report.

Accounts receivable collections

December 31, 2022

a. It is normal that some receivables will prove uncollectible. In fact, annual bad debt write-off had been 1.5% of total
credit sales for many years. However, this rate has increased to 4% during the current year.

b. The accounts receivable balance at December 31, 2022, is P1,500,000. The condition of this balance in terms of age
and probability of collection is presented below.
Proportion of Total Age Categories Probability of Collection
64% 1 to 10 days 99%
18% 11 to 30 days 97.5%
8% Past due 31 to 60 days 95%
5% Past due 61 to 120 days 80%
3% Past due 121 to 180 days 65%
2% Past due over 180 days 20%
c. The allowance for bad debts had a credit balance of P27,300 on January 1, 2022.

d. The P320,000 bad debt expense provided during the year is based on the assumption that 4% of total credit sales will
be uncollectible.

e. Accounts written-off during the year totaled P292,500.

Questions: Based on the preceding information, determine the following:

15) What is the required allowance balance on December 31, 2022?
A. 27,500 B. 54,800 C. 77,100 D. 104,600
16) What year-end adjustment is necessary to bring Panther Company’s allowance for doubtful accounts to the balance
indicated by the aging analysis?
A. Bad debt expense 5,200
Allowance for bad debts 5,200
B. Allowance for bad debts 5,200
Bad debt expense 5,200
C. Bad debt expense 22,300
Allowance for bad debts 22,300
D. Bad debt expense 77,100
Allowance for bad debts 77,100
17) What is the net realizable value of Panther Company’s accounts receivable at December 31, 2022?
A. 837,900 B. 1,368,100 C. 1,422,900 D. 1,477,700
18) Panther Company should report bad debt expense for 2022 of
A. 49,800 B. 297,700 C. 320,000 D. 342,300
19) Panther Company’s total credit sales for 2022 is
A. 7,312,500 B. 8,000,000 C. 12,800,000 D. 21,333,333

AP_02: LOANS AND RECEIVABLES PAGE 4 OF 12

ANSWER: C, C, C, D, B
1-10 11-30 31-60 61-120 121-180 >180 Total
AR bal. 960,000 270,000 120,000 75,000 45,000 30,000 1,500,000
% 1% 2.5% 5% 20% 35% 80%
Allow. 9,600 6,750 6,000 15,000 15,750 24,000 77,100

Allowance for Doubtful Accounts

27,300 Beginning balance
(a) Write off of accounts receivable 292,500 320,000 (a) Bad debt expense / provision
-- (b) Recovery of write off
54,800 Before adjustment Ending balance
77,100 Required allowance for bad debt
22,300 Adjustment to allowance and expense

Accounts receivable at December 31 1,500,000

(a) Allowance for doubtful accounts (77,100)
NRV of Accounts receivable at December 31 1,422,900

Allowance for Doubtful Accounts

27,300 Beginning balance
(a) Write off of accounts receivable 292,500 342,300 (a) Bad debt expense / provision
-- (b) Recovery of write off
77,100 Required allowance for bad debt

Total credit sales Squeeze 8,000,000

% of sales uncollectibility 4%
Total bad debt based on sales 320,000

PROBLEM 5
You are auditing the receivable of TZUYU Inc., a supplier of office and school supplies in the Northern Luzon region. Your
investigation revealed the following general ledger balances as of December 31, 2022 before any audit adjustments:
Account receivable 1,250,000
Allowance for bad debt 38,500

The company proves for bad debt expense for interim reporting purposes using the income statement approach. Bad debt
expense is provided as 2% of Sales for the first three quarters. Total sales for the first three quarters, from which the interim
provisions were made was at P4,500,000. During the year, P56,000 of the receivables were written off, while P20,000 of
previously written off accounts were recovered. The following aging of accounts receivable schedule was provided by the
company accountant:
Accounts receivable age Amount
1 – 15 days current 420,000
16 – 30 days current 240,000
1 – 30 days past due 210,000
31 – 60 days past due 250,000
More than 60 days past due 120,000
Of the more than 60 days past due account, P30,000 is deemed uncollectible thus has to be further written off. You sent
confirmation letters to customers with significant balances. The following is a summary of the confirmation replies:
Customer Amount Customer’s Reply Audit Findings
Dahyun 150,000 “Our records show a The difference was due to merchandise return made by the customer
balance of P135,000” on December 28. The goods were received on January 2. The related
credit memo was issued and recorded by then, the return was for
goods originally delivered and invoiced by the company on October 12.
Jihyo 300,000 “Our records show a The difference was due to an error made by the company preparing an
balance at P290,000” invoice dated November 20. The invoice price used was at P200/unit
whereas the agreed price should have been at P190/unit.
Sana 190,000 “Our records show a The payment made by Sana for an invoice dated October 20 was
balance at P150,000” posted erroneously to the subsidiary ledger of Nayeon.
Jeongyeon 255,000 “Our records indicate The invoice for the deliveries made on December 3, was erroneously

AP_02: LOANS AND RECEIVABLES PAGE 5 OF 12
 that the balance is at posted in the subsidiary ledger at P55,000. The correct invoice amount
P250,000” is P50,000.
Nayeon 160,000 “Our records show a Payment of Sana for an October 20 invoice was posted against the
bigger balance” subsidiary ledger of Nayeon. All outstanding transaction with Nayeon
were made in November.

The term of sale is 5/15, n/30. Per the past experience of the company, 25% of current customers normally take advantage
of cash discounts. The following are deemed appropriate regarding accounts that are doubtful of collection:
Accounts receivable age % uncollectible
1 – 15 days current --
16 – 30 days current 2%
1 – 30 days past due 10%
31 – 60 days past due 25%
More than 60 days past due 50%
Questions: Based on above data and result of your audit, answer the following:
20) What is the total unreconciled difference between the accounts receivable general ledger and subsidiary ledger?
A. 5,000 B. 10,000 C. 15,000 D. 0
21) What is the correct balance of accounts receivables before any valuation balance?
A. 1,200,000 B. 1,195,000 C. 1,185,000 D. 1,180,000
22) What is the correct allowance for bad debts expense as of December 31, 2022?
A. 122,450 B. 122,550 C. 127,050 D. 126,050
23) What is the correct carrying amount of accounts receivables as of December 31, 2022?
A. 1,082,300 B. 1,087,550 C. 1,057,550 D. 1,052,300
24) What is the correct bad debts expense for 2022?
A. 173,950 B. 203,950 C. 204,050 D. 174,050

1-15 16-30 1-30 31-60 >60 Total

AR bal. 420,000 240,000 210,000 250,000 120,000 1,500,000
Adjustment (5,000) 30,000 (55,000) (30,000)
Adjusted 420,000 235,000 240,000 195,000 90,000 1,180,000
% -- 2% 10% 25% 50%
Allow. -- 4,700 24,000 48,750 45,000 122,450

Accounts receivable at December 31 1,180,000

(a) Allowance for doubtful accounts (122,450)
(b) Allowance for estimated sales discount to be taken 420,000 x 5% x 25% (5,250)
(c) Allowance for estimated sales to be returned --
(d) Allowance for freight (sold FOB destination, freight collect) --
NRV of Accounts receivable at December 31 1,052,300

Allowance for Doubtful Accounts

squeeze 15,500 Beginning balance
(a) Write off of accounts receivable 56,000 90,000 (a) Bad debt expense / provision
20,000 (b) Recovery of write off
38,500 Ending balance

Allowance for Doubtful Accounts

squeeze 15,500 Beginning balance
(a) Write off of accounts receivable 56T + 30T 86,000 203,950 (a) Bad debt expense / provision
20,000 (b) Recovery of write off
122,450 Ending balance

PROBLEM 6
Remix Company included the following in its notes receivable as of December 31, 2022:
Notes receivable from sale of land 2,640,000
Notes receivable from consultation 3,600,000
Notes receivable from sale of equipment 4,800,000
The following transaction during 2022 and other information relate to the company’s note receivable:

AP_02: LOANS AND RECEIVABLES PAGE 6 OF 12
a. On January 1, 2022, Remix Company sold a tract of land to Future Company. The land, purchased 10 years ago, was
carried on Remix’s books at P1,500,000. Remix received a noninterest-bearing note for P2,640,000 from Future. The
note is due on December 31, 2023. There was no established exchange price for the land. The prevailing interest rate
for this note on January 1, 2022 was 10%.

b. On January 1, 2022, Remix Company received a 5%, P3,600,000 promissory note in exchange for the consultation
services rendered. The note will mature on December 31, 2024, with interest receivable every December 31. The fair
value of the services rendered is not readily determinable. The prevailing rate of interest for a note of this type was 10%
on January 1, 2022.

c. On January 1, 2022, Remix sold an old equipment with a carrying amount of P4,800,000, receiving P7,200,000 note.
The note bears an interest rate of 4% and is to be repaid in three annual installments of P2,400,000 (plus interest on the
outstanding balance). Remix received the first payment on December 31, 2022. There is no established market value
for the equipment. The market interest rate for similar note was 14% on January 1, 2022.

Questions: Round off present value factors to four decimal places and final answers to the nearest hundred:
25) What is the consultation free revenue should be recognized in 2022?
A. 3,600,000 B. 2,705,000 C. 4,047,500 D. 3,152,500
26) What should be reported as gain on sale of equipment?
A. 994,800 B. 2,400,000 C. 1,162,700 D. 1,237,300
27) The amount to be reported as noncurrent notes receivable on December 31 2022 is
A. 7,482,200 B. 6,037,300 C. 5,477,500 D. 7,877,600
28) The amount to be reported as current notes receivable on December 31 2022 is
A. 4,800,000 B. 2,400,200 C. 4,404,900 D. 7,440,000
29) How much interest income should be recognized in 2022?
A. 974,200 B. 756,000 C. 1,378,700 D. 1,160,500

PROBLEM 7
The balance sheet of Yuri Corp. reported the following long-term receivables as of December 31, 2020:
Note receivable from sale of plant 6,000,000
Note receivable from officer 1,600,000
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 the sale of plant bears interest at 12% per annum. The note is payable in 3 annual installments
of P2,000,000 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 2020 interest was received on December 31, 2021.
c. The corporation sold a piece of equipment to Inozent One Company on April 1, 2021, in exchange for a P800,000 non-
interest 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 the 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 two periods at 12%
is 1.690.
d. A tract of land was sold by the corporation to Momay Company on July 1, 2021, for P4,000,000, under an installment
sale contract, Momay signed a 4-year, 11% note for P2,800,000 on July 1, 2021, in addition to t he down payment of
P1,200,000. The equal annual payments of principal and interest on the note will be P902,500 payable on July 1, 2022,
2023, 2024 and 2025. The land has an established cash price of P4,000,000, and its cost to the corporation was
P3,000,000. The collection of the installments on this note is reasonably assured.
Questions: Based on the above and the result of your audit, answer the following:
30) How much is the total noncurrent notes receivables as of December 31, 2021?
A. 9,037,600 B. 7,037,600 C. 6,500,484 D. 6,443,100
31) How much is the total current portion of long-term notes receivable as of December 31, 2021?
A. 2,000,000 B. 2,902,500 C. 2,594,500 D. 0
32) What is the correct accrued interest receivable as of December 31, 2021?
A. 854,000 B. 1,091,384 C. 911,384 D. 1,008,000
33) What is the correct interest income for the year 2021?
A. 360,000 B. 571,384 C. 514,000 D. 674,000

PROBLEM 8

AP_02: LOANS AND RECEIVABLES PAGE 7 OF 12
On January 1, 2021, SNSD Company sold land that originally cost P400,000 to GG Company. As payment, GG gave
SNSD Company a P600,000 note. The note bears an interest rate of 4% and is to be repaid in three annual installments of
P200,000 (plus interest on the outstanding balance). The first payment is due on December 31, 2021. The market price of
the land is not reliably determinable. The prevailing rate of interest for notes of this type is 14% on January 1, 2021 and
15% on December 31, 2021.

SNSD made the following entries in relation to the sale of land and the related note receivable:
January 1, 2021 December 31, 2021
Notes receivable 600,000 Cash 224,000
Land 400,000 Notes receivable 200,000
Gain on sale of land 200,000 Interest income 24,000
SNSD reported the notes receivable in its statement of financial position at December 31, 2016 as part of trade and other
receivables.

Questions: Round off present value factors to four decimal places and answer the following:
34) The correct gain on sale of land is
A. 103,105 B. 94,868 C. 120,061 D. 200,000
35) The correct interest income for 2021 is
A. 74,230 B. 72,809 C. 70,435 D. 24,000
36) Profit for 2016 is overstated by
A. 50,460 B. 31,130 C. 54,902 D. 0
37) The correct carrying amount of the notes receivable at December 31, 2021 is
A. 400,000 B. 345,098 C. 368,870 D. 349,540
38) SNSD’s working capital at December 31, 2021 is overstated by
A. 235,765 B. 232,936 C. 182,476 D. 0

PROBLEM 9
Showtime Co., a financing company, extended a loan to Despacito Corp. amounting to P10M on January 1, 2019
receivable 5 years after. The loan bears 12% annual interest collectible at the end of each year starting December 31, 2019.
The 2019 and 2020 interests were collected as scheduled.

By the end of 2021, due to financial difficulties being experienced by Despacito, Despacito failed to pay the annual interest
as scheduled and Showtime Co. is doubted as to the collectability of the remaining interests and principal.

After due consideration and correspondence with Despacito Company, Showtime estimated that it will be able to recover
the following amounts at respective estimated dates:
Amount Expected recovery date
1,000,000 December 31, 2022
2,000,000 December 31, 2023
2,500,000 December 31, 2024
2,500,000 December 31, 2025
Questions: Based on the above and the result of your audit, answer the following:
39) How much is the impairment loss on the receivables as of December 31, 2021?
A. 6,855,491 B. 6,344,509 C. 5,855,491 D. 5,344,509
40) What is the correct net book value of the receivables as of December 31, 2021?
A. 6,855,491 B. 6,344,509 C. 5,855,491 D. 5,344,509
41) Assuming that in December 31, 2022, amounts were received as estimated, what is the balance of the receivables as
of December 31, 2022?
A. 5,558,150 B. 4,225,128 C. 2,232,143 D. 2,500,000
42) Assuming that in December 31, 2023, amounts were received as estimated, what is the correct interest income to be
recognized in 2023?
A. 702,659 B. 666,978 C. 507,015 D. 267,857

END OF HO_02: LOANS AND RECEIVABLES
SELF-TEST

PROBLEM 1
The adjusted trial balance of Motherhood Company as of December 31, 2019 shows the following:

AP_02: LOANS AND RECEIVABLES PAGE 8 OF 12
 Debit Credit
Accounts receivable 1,000,000
Allowance for bad debts 40,000
Additional information:
• Cash sales of the company represents 10% of gross sales.

• 90% of the credit sales customers do not take advantage of the 2/10, n/30 terms.

• It is expected that cash discount of P6,000 will be taken on accounts receivable outstanding at December 31, 2020.

• Sales returns in 2020 amounted to P400,000. All returns were from charge sales.

• During 2020, accounts totaling to P44,000 were written off as uncollectible; bad debt recoveries during the year
amounted to P3,000.

• The allowance for bad debts is adjusted so that it represents certain percentage of the outstanding account receivable
at year end. The required percentage at December 31, 2020 is 150% of the rate used on December 31, 2019.

Questions: Based on the above and result of your audit, answer the following:
1) The accounts receivable as of December 31, 2020 is
A. 3,000,000 B. 300,000 C. 333,333 D. 2,444,000
2) The allowance for doubtful accounts as of December 31, 2020 is
A. 20,000 B. 120,000 C. 180,000 D. 146,640
3) The net realizable value of accounts receivable as of December 31, 2020 is
A. 307,340 B. 2,814,000 C. 2,878,000 D. 2,291,360
4) The doubtful accounts expense for the year 2020 is
A. 181,000 B. 121,000 C. 21,000 D. 147,640

PROBLEM 2
In connection with your examination of accounts receivable, which has an unadjusted balance of P904,000 on December
31, 2014, you perform a test for proper sales cut-off. All sales are made on FOB shipping point basis. You noted only
merchandise shipped by the company to customers up to and including December 30, 2014 has been eliminated from
inventory. The inventory as determined by physical count has been recorded on the books by the company’s accountant.
The following lists of sales invoices are entered in the sales books for the months of December 2014 and January 2015,
respectively.
Date of record Sales Invoice Amount Sales Invoice Date Cost of Goods Sold Date Shipped
December 2014 30,000 December 21, 2014 20,000 December 31, 2014
20,000 December 31, 2014 8,000 January 3, 2015
10,000 December 28, 2014 6,000 December 29, 2014
40,000 December 31, 2014 24,000 January 3, 2015

January 2015 60,000 December 31, 2014 40,000 December 30, 2014
40,000 January 2, 2015 23,000 January 2, 2015
80,000 January 3, 2015 55,000 December 31, 2014
The allowance for doubtful accounts has a credit balance of P54,200 on January 01, 2014. A total of P36,000 in
uncollectible accounts was written off during the fiscal year ended December 31, 2014. It is the company policy to adjust
the allowance account to equal 5% of the outstanding accounts receivable balance at the end of the accounting period.

Questions: Based on the above and the result of your audit, answer the following:
5) The amount of January 2015 sales that were incorrectly recorded as December 2014 sales is
A. 60,000 B. 100,000 C. 140,000 D. 180,000
6) The amount of December 2014 sales that were incorrectly recorded as January 2015 sales is
A. 60,000 B. 100,000 C. 140,000 D. 180,000
7) The adjusted balance of Accounts Receivable to be reported on the balance sheet of December 31, 2014 is
A. 984,000 B. 844,000 C. 1,044,000 D. 824,000
8) The amount of Doubtful Accounts Expense to be recognized for the year ended December 31, 2014 is
A. 31,000 B. 49,200 C. 45,200 D. 39,000
9) The adjusted balance of the Allowance for Doubtful Accounts to be reported on the balance sheet of December 31,
2014 is
A. 31,000 B. 49,200 C. 45,200 D. 39,000

AP_02: LOANS AND RECEIVABLES PAGE 9 OF 12
PROBLEM 3
You were assigned to audit the receivables of Yoon-ah Corporation for the period ended December 31, 2022. Your
examination revealed the following:

a. The general ledger showed the following balances:

Accounts receivable 1,250,000
Allowance for doubtful accounts, credit balance 122,000
Bad debt expense 122,000

b. The subsidiary ledger showed the following details:

Customer Invoice date Amount Total
Taeyeon December 28 95,000
October 12 59,000
June 42,000 196,000
Tiffany December 20 100,000
September 5 63,000
April 15 50,000 213,000
Seohyun December 15 85,000
November 4 62,000
August 14 55,000 202,000
Yuri November 2 105,000
September 11 62,000 167,000
Sooyoung October 20 75,000
July 4 60,000
May 5 41,000 176,000
Sunny December 29 115,000
August 4 60,000
June 14 45,000 220,000
Hyeyeon February 4 80,000 80,000
c. You sent confirmation letters to the client’s customers. The following summarizes the reply of the customers:
Customer Customer Reply Audit Findings
Taeyeon “The amount is overstated by The December 28 invoice was sent to the customer Taeyeon on January
P95,000. Please check” 2, 2023. The invoice was for a shipment made on December 28.

Tiffany “The amount is overstated by The customer returned defective merchandise which was covered by the
P50,000. Please check.” Invoice dated April 15. The credit memo covering the return was already
issued but not yet recorded.

Seohyun “the amount is overstated by You discovered that the payment of Seohyun covering the Invoice dated
P55,000. Please check.” August 14 was erroneously posted against Yuri’s ledger and was applied
to an invoice Dated April 14 for the same amount.

Yuri “The amount is understated

by P55,000. Please check.”

Sooyoung “The amount is overstated by The invoice dated May 5 is covered by Sooyoung’s cash deposit/advance
P41,000. Please check.” received and credited to sales on May 1.

Sunny “The amount is ok.” The invoice dated December 29 was for a shipment made on the same
date FOB Buyer. The goods were in transit as of the balance sheet date.
Inventories were excluded from the year-end physical count.

Hyeyeon No reply A second set of confirmation has been sent to Hyeyeon to no avail.
Discussion with management resulted to the receivable being definitely
worthless this has to be written off.
d. The allowance for bad debt had a beginning balance of P80,000. During the year write-off of accounts receivable
amounted to P120,000 while recoveries of previously written-off accounts amounted to P40,000. The client also
provided interim provision for bad debt which was based on Net sales. The interim provision amounted to P122,000. It
is the policy of the company to set the required allowance for doubtful accounts at year end using an aging of accounts
receivable with the following required percentages: 1 – 60 days, 2%; 61 – 120 days, 10%; 121 – 180 days, 20%; more
than 180 days, 40%.

Questions: Based on above data and result of your audit, answer the following:
10) What is the adjusted balance of accounts receivable as of December 31, 2022?

AP_02: LOANS AND RECEIVABLES PAGE 10 OF 12
 A. 1,083,000 B. 988,000 C. 873,000 D. 968,000
11) What is the required allowance as of December 31, 2022?
A. 112,540 B. 106,640 C. 115,640 D. 113,740
12) What is the correct bad debt expense for 2022?
A. 195,640 B. 122,000 C. 115,640 D. 112,540
13) What is the correct amortized cost of the receivables as of December 31, 2022?
A. 872,360 B. 855,460 C. 852,360 D. 759,260
14) What is the unlocated difference as of December 31, 2022?
A. 1,000 B. 2,000 C. 3,000 D. 4,000

PROBLEM 4
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 INCORPORATED’S Accounts Receivable and the related Allowance for Doubtful Accounts
as of December 31, 2021 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:

a. Sales on account of various electronics totaling P36,480 were returned by the customer on December 28, 2021, but no
entry was made in the books. The goods were included in the year-end physical count.

b. Based on the findings per confirmation reply from a customer, he indicated that he has already paid his account of
P23,980 in October, 2021. Your verification disclosed that said collection was credited to net sales account.

c. Collection of P12,950 on November 5, 2021 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, 2021, the Allowance for Doubtful Accounts has a balance of P32,400 before adjustment.

Questions: Based on the above and the result of your audit, answer the following:
15) What is the adjusted balance of Accounts Receivable as of December 31, 2021?
A. 919,000 B. 895,020 C. 882,520 D. 858,540
16) What is the adjusted balance of Allowance for Doubtful Accounts as of December 31, 2021?
A. 27,570.00 B. 26,850.60 C. 26,475.60 D. 25,756.20

PROBLEM 5
NMT (No More Trust) Company is local company engaged in buying and selling manufacturing equipment. On January 1,
2020. NMT Company sold equipment, with a cash price of P1,500,000 to Lamest Corporation. The cost of the equipment
is P750,000. LS Corporation signed a deferred payment contract that provides for a down payment of P300,000 and a 5-
year note for P1,705,900. The note is to be paid in 5 equal annual payments of P341,180. The payments include interest
and are made on December 31 of each-year, beginning on December 31, 2020.

NMT Company made the following entries in relation to the sale of equipment and the related note receivable:
January 1, 2020
Cash 300,000
Notes receivable 1,705,900
Cost of goods sold 750,000
Sales 2,005,900
Inventory 750,000
December 31, 2020
Cash 341,180
Notes receivable 341,180
December 31, 2021
Cash 341,180
Notes receivable 341,180
NMT Company reported the notes receivable in its statement of Financial position at December 31, 2020 and 2021 as part
of trade and other receivables.

Questions: Based on above and result of your audit, answer the following:
17) The interest rate on the note is

AP_02: LOANS AND RECEIVABLES PAGE 11 OF 12
 A. 10% B. 11% C. 12% D. 13%
18) Profit for 2020 is overstated by
A. 349,900 B. 361,900 C. 505,900 D. 49,900
19) Retained earnings as of December 31, 2021 is overstated by
A. 205,900 B. 193,900 C. 241,562 D. 217,973
20) The working capital as of December 31, 2021 is overstated by
A. 776,197 B. 682,360 C. 787,084 D. Correctly stated
21) The adjusting journal entry to correct the entry made on January 1, 2020 would include a
A. Debit to Sales – P505,900 C. Credit to Discount on notes receivable – P205,900
B. Debit to Sales – P205,900 D. Credit to Notes receivable P205,900

PROBLEM 6
On January 1, 2021, Twice Company gave a loan to Qri Corporation amounting to P1,000,000 and received a three-year,
6% note. The note calls for annual interest to be paid each December 31. The company incurred origination cost
amounting to _?_. The company charged P80,000 to Qri as origination fees. As a result, the yield on the loan was at 8%.

At December 31, 2022, based on Qri’s financial crisis. Twice was not able to collect the 2022 interest and that only
P600,000 of the principal due December 31, 2023 will be collected. The P600,000principal is expected to be collected in
two equal installments on December 31, 2023 and December 31, 2025.

22) What is the origination cost incurred by Twice on January 1, 2021 in relation to the loans receivable?
A. 28,458 B. 51,542 C. 108,458 D. 0
23) What is the impairment loss to be recognized in 2022?
A. 981,481 B. 523,190 C. 525,554 D. 542,170
24) What is the correct carrying amount of the loans receivable from Qri on December 31, 2022?
A. 981,481 B. 523,190 C. 515,927 D. 542,170

PROBLEM 7
Flo-rida Company has an overdue note receivable from Doug Company for P300,000. The note was dated January 1,
2020. It has an annual interest rate of 9% and interest is paid December 31 of each year. Doug paid the interest on the note
on December 31, 2020, but Doug did not pay the interest due on December 2021. The current effective interest rate is 6%.

On January 1, 2022, Flo-rida agrees to the following restructuring arrangement:

• Reduce the principal to P250,000.
• Forgive recorded accrued interest.
• Reduce the interest rate to 6%.
• Extend the maturity date of the note to December 31, 2024.

25) The present value of future cash flows in the restructured loan is
A. 250,000 B. 231,020 C. 233,145 D. 238,613
26) The loss on impairment of loan to be recognized by Flo-rida in 2022 is
A. 95,980 B. 77,000 C. 88,387 D. 18,980
27) The valuation allowance for impaired loans to be recognized on January 1, 2022 is
A. 16,855 B. 11,387 C. 88,387 D. 18,980
28) The interest income to be recognized in 2022 is
A. 20,792 B. 20,983 C. 21,475 D. 15,000
29) The carrying amount of the loan as of December 31, 2022 is
A. 239,128 B. 245,088 C. 236,812 D. 250,000

END OF SELF-TEST

AP_02: LOANS AND RECEIVABLES PAGE 12 OF 12