AUDIT OF RECEIVABLES

Practice Problems

PROBLEM NO.1
To substantiate the existence of accounts receivable balances as it December 31, 2017, of LUKAS
COMPANY, you have decided to send confirmation request to costumers. Below is a summary of the
confirmation replies together with the exceptions and audit findings. Gross profit on sales is 20%. The
company is under the perpetual inventory method.

Name of Balance Comments Audit Findings

Costumers Per Books from Customers
Concordia P150,000 P90,000 was returned on December 30, Returned goods were received
2017. Correct balance as is P60,000. December 31, 2017.
Falcon P30,000 Your CM representing price adjustment The CM was taken up by Lukas
dated December 28, 2017, cancels this. Company in 2018.
Lazaro P144,000 You have overpriced us by P150. The complaint is valid.
Correct price should be P300.
Silang P112,500 We received the goods only on January Term is shipping point. Shipped
6, 2018. in 2017.
Yakal P135,000 Balance was offset by our December Lukas Company credited
shipment of your raw materials. accounts payable for P135,000
to record purchases. Yakal is a
supplier.

1. If the necessary adjusting journal entry is made regarding the case of Concordia, the net income will
A. Decrease by P18,000 C. Increase by P18,000
B. Decrease by P90,000 D. Increase by 90,000

2. The effect on 2017 net income of Lukas Company of its failure to record the CM involving transaction
with Falcon:
A. P30,000 over C. P6,000 over
B. P30,000 under D. P6,000 under

3. The overstatement of receivable from Lazaro is

A. P96,000 C. P72,000
B. P24,000 D. P48,000

4. The accounts receivable from Silang is

A. Correctly stated. C. P112,500 under.
B. P112,500 over. D. P225,000 under.

5. The adjusting entry to correct the receivable from Yakal is

A. Purchases 135,000
Accounts receivable 135,000
B. Accounts payable 135,000
Purchases 135,000
C. Accounts receivable 135,000
Accounts payable 135,000
D. Accounts payable 135,000
Accounts receivable 135,000
PROBLEM NO.2

The following information is based on a first audit of SABILA COMPANY. The client has not prepared
financial statements for 2015, 2016, or 2017. During these years, no accounts have been written off as
uncollectible, and the rate of gross income on sales has remained constant for each of the three years.

Prior to January 1, 2015, the client used the accrual method of accounting. From January 1, 2015, to
December 31, 2017, only cash receipts and disbursements records were maintained. When sales on
account were made, they were entered in the subsidiary accounts receivable ledger. No general ledger
postings have been made since December 31, 2014.

As result of your examination, the correct data shown in the table below are available:
12/31/14 12/31/17
Accounts receivable balances:
Less than one year old P15,400 P28,200
One to two year old 1,200 1,800
Two to three year old 800
Over three year old 2,200
Total accounts receivable P16,600 P33,000

Inventories P11,600 P18,800

Accounts payable for inventory purchased P5,000 P11,000

Cash received on accounts receivable in:

2015 2016 2017
Applied to:
Current year collections P148,800 P161,800 P208,800
Accounts of the prior year 13,400 15,000 16,800
Accounts of two years prior 600 400 2,000
Total P162,800 P177,200 P227,600

Cash sales P17,000 P26,000 P31,200

Cash disbursements for

inventory purchased P125,000 P141,200 P173,800

1. The company’s sales revenue for the three-year period amounted to

A. P658,200 B. P74,200 C. P625,400 D.415,300

2. What is the company’s total sales revenue for 2016?

A. P206,400 B. P183,600 C. P268,200 D. P180,400

3. The aggregate amount of purchases for the three-year period is

A. P131,000 B. P440,000 C. P434,000 D. P446,000

4. What is the company’s gross profit ratio in each of the three-year period?
A.33.33% B. 28.35% C.35.16% D.31.15%

5. What is the company’s gross profit for each of the three-year period?
2015 2016 2017
A. P60,933 P68,200 P80,000
B. 55,533 60,133 79,000
C. 122,400 137,600 178,800
D. 61,200 68,800 89,400