Audit of Receivables

1. From inception of operations to December 31, 2021, Bandila Co.

provided for uncollectible accounts receivable under the allowance
method: provisions were made monthly at 2% of credit sales;
bad debts written off were charged to Allowance accoun; recoveries
of bad debts previously written off were credited to the Allowance
account; and no year-end adjustments to the Allowance account
were made . Bandila's usual credit terms are net 30 days.
wer
The balance in the Allowance for Bad Debts account was P143,000
at January 1, 2021. During 2021, credit sales totaled P15,000,000,
interim provisions for doubtful accounts were made at 2% of credit
sales, P140,000 of bad debts were written off, and recoveries of
accounts previously written off amounted to P43,000. Bandila Co.
installed a computer facility in November 2021 and an aging of
accounts receivable was prepared for the first time as of
December 31, 2021. A summary of the aging is as follows:

Balance in Estimated %
Classification by Motion of Sale Category Uncollectible
November - December 2021 P2,160,000 2%
July - October 2021 1,300,000 10%
January - June 2021 840,000 25%
Prior to January 2021 300,000 70%
P4,600,000

Based on the review of collectibility of the account balances in the

"prior to January 2021" aging category, additional receivables
totaling P120,000 were written off as of December 31, 2021. The
70% uncollectible estimate applies to the remaining P180,000 in the
category. Effective with the year ended December 31, 2021,
Bandila adopted a new accounting method for estimating the
 allowance for bad debts at the amount indicated by year-end aging
analysis of accounts receivable.

Required:
Based on the application of the necessary audit procedures and
application of the above data, determine the following:

a. The balance of the Allowance for Bad Debts account before

the change in accounting estimate.
b. The journal entry for the year-end adjustment to the allowance
for bad debts account balance as of December 31, 2021.
c. The company's bad debts expense for the year ended
December 31, 2021.
d. The net realizable value of the company's accounts receivable
at December 31, 2021.

2. You are auditing the accounts receivable and the related allowance
for bad debts accounts of Juliano Corporation. The control account
of the aforementioned accounts had the following balances:

Accounts Receivable P1,270,000

Less: Allowance for Bad Debts 78,000
Amortized cost P1,192,000

Upon your investigation, you found out the following information:

a. The company's normal sales term is n/30.
b. The allowance for bad debts account had the following details
in the general ledger:
Allowance for Bad Debts
July 31 Write off 24,000 Jan. q Balance 30,000
Dec. 31 Provision 72,000
c. The subsidiary ledger balances of the company's accounts
receivable as of December 31, 2021 contained the following:
Debit balances Credit balances
Under one month 540,000 Rozano Co. 12,000
One to six months 552,000 Romano Co. 21,000
Over six months 228,000 Eduardo Co. 27,000
1,320,000 60,000

Additional information:
 The credit balance with Rozano Co. was for an overpayment
from the customer. The company delivered additional
merchandise to Rozano Co. on January 3, 2022 to cover such
overpayment.
 The credit balance of Romano Co. was due to a posting error,
the amount should have been credited to Romando Co. for a
60-day outstanding receivable.
 The credit balance from Eduardo Co. was a cash advance for
a delivery to be made on January 15, 2022.

d. It was estimated that 1% of accounts under one month is

doubtful of collection while 2% 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
228,000

Required:
Based on the above and the result of your audit, answer the
following:
 a. What is the entry to adjust any unlocated difference between
the control account and the subsidiary ledger?
b. What is the adjusted accounts receivable balance on
December 31, 2021?
c. What is the required balance of the allowance for bad debts
account on December 31, 2021?
d. What is the entry to adjust the allowance for bad debts account
on December 31, 2021?

3 The following information is based on a first audit of Masaya Co.

The client has not yet prepared financial statements for 2019, 2020,
and 2021. During these years, no accounts have been written off
as uncollectible, and the rate of gross profit on sales has remained
constant for each of the three years.

Prior to January 1, 2019, the client used the accrual method of

accounting. From January 1, 2019 to December 31, 2021, 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. 2018.

As a result of your examination, the correct data shown below are

available:
12/31/2018 12/31/2021
Accounts receivable balances:
Less than one year old 61,600 112,800
One to two years old 4,800 7,200
Two to three years old - 3,200
Over three years old - 8,800
 66,400 123,200

Inventories 146,400 124,160

Accounts payable for purchases 20,000 44,000

Cash received on accounts

receivable in 2019 2020 2021
Applied to:
Current year sales 595,200 647,200 835,200
Prior year 53,600 60,000 67,200
Two years prior 2,400 1,600 8,000
651,200 708,800 910,400

Cash sales 68,000 104,000 124,800

Cash disbursements for
purchases 750,000 728,400 581,600

Required:
Based on the application of the necessary audit procedures and
appreciation of the above data, answer the following:

a. Sales on account for the year 2019

b. Cost of sales for the year 2019
c. Total sales for the year 2020
d. Gross profit for the year 2020
e. Gross profit for the year 2021