‘Topic: Substantive Tests of Cash and Accounts Receivable Problem Salvin: ‘A You were abl to gather the following from the December 31,2019 tral balance of Manila Corporation in connection with your audit of the company: cash 500,000 Petty cash fond 10,000 {PL current account 1,000,000 Security Bank~ current not 11990,000 Security Bank -curreat no.2 (80,000) PNB savings account 1200000 PNB tine dep 500,000 ‘Cash on hand includes the folowing it p "Casters check for P 4,000 returned by bank on December 26,2019 due wo insulfitent fund but subsequ ‘ cleared by the bank on January 8,2020. Se eras sn by. Costomer' check for P 20,000 dated January 2, 2020, received on December 29,2019. €. Postal money orders received from customers, P 30.000. a “The petty cash fund consisted ofthe following items as of December 31, 2019, Crreney andl coins 2000 : Employee vas 1600 Carengy in an envelope markedcllecions for har wit aries tached 1.200 5 Unreplenished pty exch vouchers 1300 Check drawn by Mana Corp payable to } petty cashier 000 e000 tnched among the checks dravm by Mania Corp. salnsthe HPL sument account and recorded in December 2019 ae the following: 2 Ghec writen and dated December 28,2019 and delivered to payecon Jantar 2.2020,P 80.000. Check written on December 27, 2019, dated January 2,2020, delivered to payee on December 29, 2019, P 40,000. ‘The credit balance inthe Security Bank current 2 sent account no, 2 represents checks drawn In excess ofthe deposit balance. These checks were still outstanding at December 31, 2019. The savings account deposit in PNB has been set aside by the boardof directors for acquisition of new equipment. This account is expected to be disbursed in the next 3 months after the. ‘Required: Determine the adjusted balances of the (1) Cash on hand, (2) Petty cash fund, (3) BPI current account, and (4) Cash equivalents. 8: in the auditor Pasay Company tas accounts you ablained the Slowing infornadon ‘The company’s bookkeeper prepared the following bnk resonellation a of November 30,2019: dof the reporting period. 1d cash Sys) Vase TOR! rau ‘Bank balance - November 30,2019, =, P9000) rear Undeposited collections 5.000 A) sey codes ust Bank service charges 5 400. tink re Bank collection of customer’s note (8,000) NES ‘Outstanding checks: No, ‘Amount 1159 P3,000,7 90,000 = 29,070 1767 5.000 = sheula camel 1915 2000 ‘Book balance ~ November 30, 2019 77,900 ‘Additional data are given as follows: ‘a. Company recordings for December ‘Total collections from customers 165,000, ‘Total checks drawn 98,000 r Bank statements totals for December: Charges 123,900 Credits 169,000 e Cheak no. 1159 dated November 25,2019, was entered as P 3,000in payment ofa voucher for P 30,000. Upon examination of checks returned by the bank, the actual amount ofthe check was P 30,000. Creare 2113 dated December 20, 2019 wasissued to replace a mutilated check (no. 1767), which was returned by the payee. Both checks were recorded in the amount draven,P 5,000, but no entry was made to cancel check no. 1767, ‘The December bank statement included 2 check drawn by Sist Company for P 1,500. Undeposited collections on December 31,2019 P 8,000. ‘The service charge for December was P150 which was charged by the bank to another client. ‘The bank collected a note receivable of P 7,000 on December 28, 2019, but the collection was no Pasay. The outstanding checks on December 31,2019 were: t received on timetobe recorded by Fane No, ‘Amount 1767 5,000 2856 1,300 2910 2300 2925 ‘4100 nine he (1) Unadjusted cash balance per books as of December 31,2019, (2) Adjusted cash balance sof November 30,2019. disbursement for December 2019, and (5) Adjusted cash balance as of | w® Required: Detert (@) Adjusted book receipts for December 2019, (4) Adjusted bank December 31, 2019.Your audit disclosed that on December 31, 2019, the accounts receivable comtrol account of Allen Company had a balance of P 2,865,000, ‘An analysis ofthe accounts receivable account showed the following: ‘Accounts known to be worthless P3700" _xdvance payments to ereditors on purchase orders 150,01 ‘Advances to affliated companies 375,000 Customers’ accounts reporting credit balances arising from sales return. ‘ Interest receivable on bonds 150,000~ Other trade accounts receivable - unassigned 750,000 Subscription recelvable due in 30 days 825,000 ‘Trade accounts receivable ~ assigned (Allen Company's equity in assigned accounts is P 150,000) 375,000 ‘Trade installment receivable due 1-18 months, including unearned Finance charges of P 30,000 330000~ ‘Trade recelvables from officers due currently 225007 ‘Trade accounts on which post-dated checks are held (no entries were made on receipts of checis) 75,0097 2,865,000 Required: Determine the adjusted balance of (1) trade accounts recelvable as of December 31, 2019, (2) net current trade and other receivables as of December 31, 2019, and (3) How much ofthe foregoing will be presented under noncurrent assets as of December 31,2019? D. In your audit of Lily Products, you noted that the company's statement of financial position shows the accounts receivable balance at December 31, 2018 as follows: Accounts receivable 3,600,000 Allowance for doubtful accounts ‘72.900 3,528,000 During 2019, transactions relating to the accounts were as follows; ‘Sales on account, P 38,400,000, * Cash received from collection of current receivable totaled P 31,360,000, after discount of P 640,000 were allowed for prompt payment. Customer's accounts of P 160,000 were ascertained to be worthless and were written off ‘Bad accounts previously written off prior to 2019 amounting to P 40,000 were recovered. The company decided to provide P 184,000 for doubtful accounts by journal entry at the end of the year, ‘+ + Accounts receivable of P 5,600,000 have been pledged toa local bank on a loan of P 3,200,000. Collections of P 1,200,000 were made fon these recelvables (not included in the collections previously given) and applied as partial payment to the loan, Required: Compute for (1) accourits receivable as of December 31,2019, (2) allowance for déubtful accounts as of December 31,2019, (3) net ‘realizable value of accounts receivable as of December 31, 2019, and (4) ifreceivables are hypothecated against borrowings, the amount of receivables involved should be reated as? b eee? E, On January 1, 2018, Baby Company loaned Bebe Company amounting to P 2,000,000 and received a two-year, 6%, P 2,000,000 note. The note call for annual interest to be pald each December 31. Baby collected the 2018 interest on schedule. However, on December 31, 2019, ‘based on Bebe's recent financial difficulties, Baby expects that the 2019 interest, which was recorded in the books, will not be collected and thatonly P 1,200,000 ofthe principal will be recovered. The P 1,200,000 principal amounts expected tobe collected in two equal installments ‘on December 31, 2021 and December 31, 2023. The prevailing interest rate for similar type of note as of December 31, 2019 s 8%, Required: 1. The present value of the expected future cash flows as of December 31, 2019 2. Theloan impairmentlossin 2019 3. How much isthe interest income for the year 2020? 4. Carrying amount ofthe loan as of December 31, 2021Ve hand Auditing eaba\uay 2 aT xe TTOO™ W090 = 7,460 =1,360 @ vet = #500000 casi Garren ay + coins #2000 WEF hea Cac) creak dean Postdeked chede (20.000) momila Op geyoine cotn 6n hand 1 440,000 +o _wlty Cuticr G00 Re Foo OP current account @_ carn B 490,050 BAL Curent oeconnt figov,000 for eae, undeivered chede goon BM cane’ cect ovo 00 10004888 Beyer va {0 06 68> Carton 90% ( woo) teuiie US VOD + s000 wh. « (9g 00)? 0 : Py =. 1490 CB) 13%)800 teban CVO) C000 3,020 600 i 191400. (1200), 1 $00. C60) ae 134 &S0 (19,00) t2 300 (iso ~ [25 wo 4e180 # sg ew Casto D wav ‘000)Athtm #3 @ Tode_kLe - — eet bea Se Quiet Ned AJA = unassigned za oe F50,000 trade fly, _-atss dred SOTO shade incteil ment etecivetbl. (380.009 ~ 30,08) 2000 Tod! reeevebli Prem opeactit 42860 fd Account om wit fortdeld cheer Ge bald. (ss ae ost a oter APR — a COL payments forced SOD poe 8M fecal, 825,00 o yen sud AZ Wt sO J ievtteat recowalle companies Oats : @___agn. Han | 31 340.00 two, | 42900 Gyo: bep 40,000 a 4a sod Au, ssamces‘Tople: Substantive Tests of Accounts Receivable ak PR psc rt ta a ‘Tre following may be considered tobe a primary objective ofthe autor in the examination of accounts receivable? ‘Determine approximate time of collectbity of receivables b Determine te eltonshipof receivables to sales Determine the resonableness af the sles gure {Byatt satya collect of receivables D 2yadrorm 2 Co 6 Inquiry coe 4. Physica count and inspection A SAT ofthe fllowing forms of evidence represent the mast campeteat evidence that receivable actually exsts? a Apositiveenitirmation © Areceiving report Ares invoice @ Abilloftading t“An auditor should perform alternative procedures to substantiate the existence of accounts receivable when 4 Pledging of the receivable is probable ‘G Noreply toa postive confirmation request fs received +b, Mo reply to a negative confirmation request I received 4, Collecbity of recevables isin doubt towing 003 procedure we by an autorin the examination of acount ecelable? c & he auaitor should use postive confirmation of ‘8. When internal controls aver the recelvables process are believed to be strong 'b, When the possibility of disputes i the accounts preater than usual © Forindvicial account balances that are Immaterial in amount ren vatables estimation sampling techniques arent used sunt reeelvable unts receivable confirmation request particularly useful except when ‘a, Individual account balances are relatively large lg aecounts receivable Is considered tobe effective balances are involved (believe the persons recelvng he request are key to give them consideration © Alar numb Theat ithout an entry being made i the hooks untla subsequent cash receipts received from which the cashler pays the ppeteding amount retated Gpping b. Kiting & Cash shorting 4. Misappropriating 2018 of ace Company, you! lies together with the ex aAudit Probrgms 02 = kaon + 20,000 '= P20, 66 parse sano x 388 Piinagal F100 (e. a E 7 aag CApEV ‘and. 3025 341 {5 uycanned itenece income 2,220.649 or Pag2l a ap/ [ara wr eee i J_occounte Wereased whom feck ynkereet “\nconnG, noe recowlid Euavle© 1.When auditing inventories of raw materials, purchased parts, and/or merchandise inventory, the auditor's most eee luatlon assertion is 10 foe evaluating the nt iavoices Tram vendors long with freight bills and compare with client's unit costs, as adjusted for freight and sa Examine recent 2 discount £ Bicompare purchases with prior year and with industry averages and account for significant uctuations. Ce Trace quantities Irom tags oF count sheets to final inventory listings . GLScan inventory listings for large extended amounts, and trace related quantities to auditor's copy ofthe inventory tagor listing. 2 The auditor tests the quantity of materials charged to work in process by tracing these quantitles to iy Prarcostledgers. +B Perpetual Inventory records. «, Receiving reports. @ Material requisitions instead of taking. physical inventory cou internal controls ate adequate and 2 Computerized cecords of perpetwal inventory are maimained. Dilnventory is slaw moving €.CaIS error reparts are generated for missing pre-numbered inventory tickets. Obsolete inventory items are segregated and excluded. + A The nroabiity of significant de capacity loss increases under which ofthe fllowing conditions? G C-a soles and production have increased significantly during the period under audit. Sales have declined somewhat, but production has remained constant in anticipation ofa sales recovery in the following accounting period [Sales and production have declined materially during the period under audit. 4. The client has increased its overhead absorption rate effective atthe beginning ofthe following accounting period. bb, 5Theacurayof perpetual inventory records may be established in part by comparing perpetual inventor records with 9 Oe rcase regulations i Receiving reports. te Purchase orders vendor payments J.C. 6.An auditor's observation of physical inuantacies at the main plant at year-end would provide direct evidence ta support which of | the fltowing objectives? | a-Aceuracy of the priced out inventory. bs Evaluation of lower of cost or market test. ‘eldentification of obsolete or damaged merchandise to evaluate allowance for obsolescence, a 4. Detefmination of goods on consignment at another location. “z When auditing merchandise inventory at year end the auditor performs a purchase guaff test to obtain evidence that ‘All goods purchased before year end are received before the physical inventory count. b. No goods held on consignment for customers re included inthe inventory balance. -No goods observed during the physical countare pledged or sold. 4.All goods owned at year end are included in the inventory balance. {Which of the following would be the best procedure to determine whether purchases were properly authorized? 2 Discuss authorization procedures with personnel inthe controller's and purchasing functions. b Review and evaluate alowchartof purchasing procedures. | GDetermine whether simple of entries in the purchase journal is supported by properly executed purchase orders. | dVoueh payments for selected purchases to supporting receiving reports. | f,-1na manufacturing company, which one of te following audit procedures would give the least assurance of the valuation of " javentory at the audit date? — Testing the computation of standard overhead rates. bb. Examining paid vendors’ invoices. Reviewing direct labor rates. ‘GObsaining confirmation of inventories pledged under loan agreements. ‘n auditing inventories, major objective relates to the existence assertion. Of the following audit procedures relating to Inventories, which does aat support the existence assertion? a. The auditor observes the client's inventory and performs test counts as appropriate. ~ b.The auditor confirms inventories not on the premises. The auditor performs a lower of cast or market test for major categories ofinventory. va t=¥== d. The auditor reviews the client's inventory-taking instructions for such matters as proper arrangement of goods, separation of consigned goods, and limits on movements of goods during inventory. =r COMPLETIO! ‘Ginventory in transit from vendor to cliept should be added to the client’s physical inventory provided the goods were shipped prior to year énd and the transportation terms were F.0.8. dexhea Hm Bergeieg #ekine ‘Qpinventory in transit from the client to customers should be excluded from the client's inventory provided the goods were shipped prior to year end and the transportation te ePOB. 8 RIPPIN enantio 3,-Goads were received prior to year end and included in the physical inventory. The purchase, however, was not recorded until the Following accounting period. Net income, in this instance, was. (overstated or understated). tt-key ct over frais + t aat 4. Although goods were shipped prior to year end, Sa8 extfuded front tbe Gnding inventory, the sale was not recoded uni tho- tiling ennai come mss (nr or ander) te amount hang price or gross pont) andra agg rie Bree or BO Po) anasser ations simultaneous repli acnurs is dtr mat MEHR cal 6. The most effective means for evaluating the valuation assertion as it relates to depreciation expense is 1g MuUEepreciation on a 2 testbass ve ntcatee 7 Bramining documentation supporting maor plant asst addons is commonly referred toas_~_plantasset addons, veu 1.12s5080 fw UR5S0%) = Pantrpal 4 interat 1919) G49. 99 Spots orwing (oncdipal amaith) C row, 090, ) oS alors (ipedpic verounng) 2 ee R ; : _noreht (Greve ral Vorounre)) {44 o40 ert Anbwret ty ho, capita 222% 044.99 of 2.294 090etn HL @_qvo/s = (2000 Q_tso.009_/fo- = tooo x22 40,0 a __ $80.0 _= $0.00 2 120,000_- 90 oo unm = 1010 =fsrLoet = 24 ood love @_ 150.00 L10 = sso x3 = Hoo) _ 105,90 150.0 - ys am_= P05 000 (san) f @ 21000 Poblem 8 3 @__2014 @ swe aa 50,000 _ 1280 000 100, 06D, 5000, 000 (_ Lset so) (2501.0) 0 19485, 493. 50 50,6 / 440,009 sual 25000 alex, Sm9 200,00 / 4000 , 060 OL, bUY (S246 x 16,600 = 130 _y soppy = 410, CU .83 sduso0 E va @ __54us $60! aaa @) _9200,009 4.000 040 (361992. Ga) Ciatens C_ ws) 3000, 600 4 OG, 323.94 eT 5199 soo 090,00 LoD 000 iy (30m) $760 104-3|_ = SAAC OW SAoe soo sa = 0-%G 525845 GLX 9500000 =o. ae = 934.332. 04 6) 149% 494. So Cato, eur. 39) {202 245-44 5995 00D = 0 20G4 stay X 2509, 900 = Fu ing. ye —. ——of Manila Corporation forthe year ended 2019. For each of the preceding Iaely related to the evidence the procedure will prod if inspect the physical assets. Exishen Ce ‘hey ave proper repairs and not eapital items. Theories * et ar sypervsing the aut of propery plant and equipment i arte pei ution that is most cl substantive procedures, determine the primary ass 4. Select major additions forthe year andl a random sample of ther vditere a Fae cattle of chagges Inte Repairs account and determine whet aes Emp den ee 3 Review the useful yet? depreciation method and \Valualnn te depreciation. ‘savage values for reasonableness. Recale 4d for purchase of Property, Plant, and Equipment. 1 Seat Sl aay ean sigh ea obignton S Inspect the documents for aut 50,000 from unaffiliated company. At the time of rppralsal disclose the following values: Machine A ad to machines A,B, and Gefespectively? Problems A The Boston Company macle a lump sum purchase of three pie a quisition, Boston paid P 50,000 to determine the appraisal value = 3940000; Machine BP 420,000; and Machine C- P 260,00) machine f= @ Ud es of machinery for P21 the machinery. The a prior years, Amortgage of oper for? 600000 which nuded P 10,000 of reat taxareasfor prior years. A mor ae are Twenty perzentof the pura price shold Be aloated 1 te nore a erie fare Wea Calforna, remodeling costad tobe incurred! inthe Sosy 1 a tng which resulted in cecovery of salvage material std fr P ro 320000, while repalrsin the main hall were P 45,000. Compute the 8. california Company purchased real p 4,000,000 was assumed by California the batance tothe bullding. In order to ma 9001000. This however, necessitated the demolition of a por M000 cash, Landscaping and parking lat cost the company ato 0 costof (1) and and (2) Building os SF Yiu —- PrGdv GY XY —]o AS0 o On December 31, 2019, Denmark Company traded in an old machine with ‘book value of P 10,000 for.a al -newafachine having a list M00 a paid cash difference of P 19,000. Denmark should record the new machine at tol a | plas | ven Gompny parsed mahi fr 10000 on nur 1,201, the elowingaaoaitems par neue B.Banla com dpsed aponsequaon a ew mache p08 | 1,300 \ {Given below concerning a plant asset currently used In operations. Situation Carrying Value Value in Use Selling Price (net) a 40,000 P 60,000 45,000 B 45000 65,000 40,000 a 50/000. 770,000 85,000 D 60,000. 40,000 30,000 E 70,000 55,000 65,000 75,000 65,000 35,000 e ¥ ich santos any reglre an impalrment Jos o be rengnlzed and in what amount? ese vee OMX c= P35C0dX During 2022-2 controller ofthe Magic Company asked yu to prepare correcting Journal entries for de following three situations: es purchasedforP 30000 on January 1,2020. (had an estimated residual vale of P 5,000 and an estimated servicelifeof 10, Sar ee the dale decning blanc method fr 2 years. Now tthe beplaning ofthe third yea, Magic as ee ee ee rosaiites i (995 cea se aes Se ab G00 on andar 12047, Stightne depreation has been reared for Sears and the Accumulated Pa ee a DSM Tecate etual vale remains at? 5,00 bute serve fe snow ertinated 0 be 2 yearslonger than estimated originally, 779-23 i. 3 Machine ¢ was purchased for P 20,000 on January 1, 2021, Double-declining balance depreciation has been recorded for 1 year. The i & 3 Machine Cas puchated (oF 20100 oF ac entated service fe years. The computation of te deprsiauonezaneus fneluded tieestinatedresiual value. pares) z mem oe = Heer eat y neces) jouralentriesfrcach stuaon, Azo prepare the jourmal entry necessary foreach station record the fleprectation for 2022. (Assume that the dbltis to Depreciation Expense) y SE ee ane 6 cermany Company acquires anew manufacturing equipment on Janary 12022, on installment basis. The deferred payment contract oo era ey antl nba seer 2408 00 The eet bepalindeqalsanal nsaliment payments Se eee re aye agent ta wae on December sha ext ye being December 3, 2022. The auipmenthasa cas price eqalet of 297000, Cerapy's Mandl ynr-ndj-Becember 3 ele a ee cea ar eee f 1370 160e we + Theamountt be recognized on january 12022, 35 discount on note payabless L034 WUD 5 theamountcfinterest expense to be recognized 2073 is IAQUMAL, C6 189 — The caryingvluct the notepyabeat December 3207216 1A AD,