Scribd
Upload
53 views3 pages

Audit of Receivables

1. The accounts receivable balance of Franco Company consists of various items including amounts due from customers, claims, investments, loans, and allowances. 2. Domingo Company's gross sales for the year were P900,736.80. Various cash receipts and credits were recorded, and an allowance for bad debts was provided at year-end. 3. The subsidiary ledger of accounts receivable contained debit and credit balances as of December 31, 2006 that required adjustments to reconcile to the control account. An analysis of doubtful accounts was also performed to adjust the allowance for bad debts.

Uploaded by

Arlene Rose Gonzalo
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
53 views3 pages

Audit of Receivables

1. The accounts receivable balance of Franco Company consists of various items including amounts due from customers, claims, investments, loans, and allowances. 2. Domingo Company's gross sales for the year were P900,736.80. Various cash receipts and credits were recorded, and an allowance for bad debts was provided at year-end. 3. The subsidiary ledger of accounts receivable contained debit and credit balances as of December 31, 2006 that required adjustments to reconcile to the control account. An analysis of doubtful accounts was also performed to adjust the allowance for bad debts.

Uploaded by

Arlene Rose Gonzalo
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 3

PROBLEM 1.

The accounts receivable of FRANCO COMPANY were stated at P1,467,000 in a balance sheet
submitted to a banker for credit. You are called upon to audit the report and, upon
analysis, the asset was found to consist of the following items:

Due from customers on open account P 1,125,000


Acknowledged claim for damages 22,500
Due from consignee at billed price – cost price
being P22,500 30,000
Investment in and advances to affiliated company 150,000
Loans to officers and employees 13,500
Deposits with municipalities – bids for contracts 67,500
Unpaid capital stock subscriptions 60,000
Advances to creditors for merchandise purchased
but not received 24,000
Cash advanced to salesmen for traveling expenses 4,500
Allowance for doubtful accounts (30,000)
P 1,467,000

The amount of P1,125,000 due from customers was the remaining balance after deducting
accounts with credit balances of P6,000.

During your examination, you noted that on December 31, the company assigned P300,000
of customers’ accounts to secure a 17%, P240,000 note payable. A 1% commission based
on the accounts assigned was charged and deducted from the cash received. The client
recorded this transaction by a debit to cash and a credit to notes payable.

Questions

1. How much is the Accounts Receivable (gross) balance at December 31?


a. P 759,000 b. P 789,000 c. P 1,101,000 d. P 1,131,000

2. The total current non-trade receivable balance at December 31 is:


a. P 64,500 b. P 96,000 c. P 120,000 d. P 192,000

3. The liability for the accounts receivable – assigned is:


a. P 237,000 b. P 240,000 c. P 243,000 d. P 300,000

4. The total non-trade receivable balance at December 31 is:


a. P 342,000 b. P 318,000 c. P 313,500 d. P 245,000

PROBLEM 2
The following selected transactions occurred during the year ended December 31, 2006 of
DOMINGO COMPANY:

Gross sales (cash and credit) P 900,736.80


Collections from credit customers, net of 2% cash discount 294,000.00
Cash sales 180,000.00
Uncollectible accounts written off 19,200.00
Credit memos issued to credit customers for sales ret./allow. 10,080.00
Cash refunds given to cash customers for sales ret./allow. 15,168.00
Recoveries on accounts receivable written-off in prior years
(not included in cash received stated above) 6,505.20
At year-end, the company provides for estimated bad debts losses by crediting the
Allowance for Bad Debts account for 2% of its net credit sales for the year. The allowance
for bad debts at the beginning of the year is P19,327.20.

Questions
1. How much is the DOMINGO COMPANY’s gross sales?
a. P 900,736.80 b. P 720,736.80 c. P 704,656.80 d. P 689,488.80
2. DOMINGO COMPANY’s credit sales at December 31, 2006 is:
a. P 900,736.80 b. P 720,736.80 c. P 704,656.80 d. P 689,488.80

3. How much is the DOMINGO COMPANY’s net credit sales?


a. P 900,736.80 b. P 720,736.80 c. P 704,656.80 d. P 689,488.80

4. The Bad Debts Expense of DOMINGO COMPANY at December 31, 2006 is:
a. P 20,725.54 b. P 14,093.14 c. P 8,030.74 d. P7,829.14

5. The Accounts Receivable of DOMINGO COMPANY at December31, 2006 is:


a. P 408.042.00 b. P 407,536.80 c. P 401,536.80 d. P 391,456.80

6. The Allowance for Bad Debts of DOMINGO COMPANY at December 31, 2006 is:
a. P 20,725.54 b. P 14,093.14 c. P 8,030.74 d. P7,829.14

PROBLEM 3
The summary of the subsidiary ledger as of December 31, 2006, was totaled as follows:

Debit balances:
Under on month P 360,000
One to six months 368,000
Over six months 152,000
P 880,000

Credit balances:
Almario P 8,000 - OK; additional billing in
January 2004
Peter 14,000 - Should have been credited
To Manuel Co. - 1-6 mos.
classification.
Bituin 18,000 - Advance on a sales contract
P 40,000

The customers’ ledger is not in agreement with the accounts receivable control. The client
instructs the auditor to adjust the control to the subsidiary ledger after corrections are
made.

ALLOWANCE FOR DOUBTFUL ACCOUNTS


It is agreed that 1 percent is adequate for accounts under one month. Accounts one to six
months are expected to require a reserve of 2 percent. Accounts over six months are
analyzed as follows:

Definitely bad P 48,000


Doubtful (estimated to be 50% collectible) 24,000
Apparently good, but slow (90% collectible) 80,000
Total P152,000
Questions

1. The entry to adjust the account of Almario is:


a. Accounts receivable 8,000 c. Accounts receivable 8,000
Sales 8,000 Cust. with Cr. bal. 8,000
b. Sales 8,000 d. No adjustment
Accounts receivable 8,000

2. The entry to adjust the account of Peter is:


a. Accounts receivable 14,000 c. Accounts receivable 14,000
Sales 14,000 Cust. with Cr. bal. 14,000
b. Sales 14,000 d. No adjustment
Accounts receivable 14,000

3. The entry to adjust the account of Bituin is:


a. Accounts receivable 18,000 c. Accounts receivable 18,000
Sales 18,000 Cust. with Cr. bal. 18,000
b. Sales 18,000 d. No adjustment
Accounts receivable 18,000

4. The entry to reconcile the control ledger to the subsidiary ledger is:
a. Miscellaneous loss 8,000 c. Accounts receivable 8,000
Accounts receivable 8,000 Sales 8,000
b. Accounts receivable 8,000 d. Sales 8,000
Miscellaneous gain 8,000 Accounts receivable 8,000

5. The entry to adjust the Bad Debts Expense is:


a. Bad Debts Expense 74,680 c. Bad Debts Expense 30,680
Allow. for BD 74,680 Allow. for BD 30,680
b. Bad Debts Expense 26,680 d. No adjustment
Allow. for BD 26,680

6. The Accounts Receivable balance at December 31, 2006 is:


a. P 840,000 b. P 826,000 c. P 818,000 d. P 786,000

7. The Allowance for Bad Debts at December 31, 2006 is:


a. P 74,680 b. P 48,000 c. P 30,680 d. P 26,680

8. The Bad Debts Expense at December 31, 2006 is:


a. P 74,680 b. P 48,000 c. P 30,680 d. P 26,680

You might also like