II.

Audit of Receivables

1. Composition of trade and other receivables

On Deember 3, 2015 the accounts receivable control account of Ipil Co. had
a balance of P180,000. An analysis of the accounts receivable account
______________________________________________
showed the following:
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Accounts known to be worthless
______________________________________________ PhP 2,500
Advance payments to creditors on purhase orders 10,000
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Advances to affiliated companies 25000
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Customer's accounts reporting credit balane arising from
sales______________________________________________
return (15,000)
Interest receivable on bonds 10000
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Other trade accounts receivable - unassigned 50000
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Subsription receivable for ordinary share capital due in
30 days 55000
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Trade accounts receivable - assigned 15000
Trade______________________________________________
installment receivable due 1-18 months including
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unearned finances charges, P2000 22000
Trade receivables from officers, due currently 1500
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Trade accounts on which post-dated checks are held (no
______________________________________________
entries were made on receipts of checks) 5000
Total______________________________________________ PhP 181,000
Required:
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1. Trade and other receivables to be reported on the entitys Dec. 31,
2015 statement of financial position.
______________________________________________
______________________________________________
Answer:
______________________________________________
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Non-trade receivables PhP 75,000
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Trade receivables 91,500
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Trade and other receivables PhP 166,500
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2. Computation of adjusted accounts receivable
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______________________________________________ In the audit of Beatles Company, the auditor had an appreciation of the
______________________________________________ following schedule and noted some comments for possible adjustments:
Beatles Company
______________________________________________ Accounts Receivable Schedule
______________________________________________ Dec. 31, 2015

______________________________________________
______________________________________________ Customer Balance Current Past Due
______________________________________________ Love M Do PhP 92,000.00 PhP - PhP 92,000.00
______________________________________________ Strawberry
Field 420,000 248,000 172,000
______________________________________________ This Boy
______________________________________________ Comp. 350,000 92,000 258,000
______________________________________________ Girl Corp. 374,000 212,000 162,000
Ticket to
______________________________________________ Ride
______________________________________________ Transport
Corp. 160,000 - 160,000
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 II. Audit of Receivables

Let It Be
Corp. 124,000 60,000 64,000
Hey Jude 4,000 4,000 -
Get Back
Comp. 256,000 80,000 176,000
Yesterday
Comp. 240,000
240,000 -
PhP936,000.0
Totals PhP 2,020,000.00 PhP 1,084,000.00
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0
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The Accounts Receivable control account balance was determined to be
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P2,020,000.
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The external auditor submitted the following audit comments for ossible
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adjustments:
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Love M Do Merchandise found defective; returned by customer on
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Oct. 31, 2015 for credit, but the credit memo was
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issued by Beatles on Jan. 15, 2016.
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Strawberry Account is good but usually pays late.
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Field
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This Boy Comp. Merchandise worth P160,000 was destroyed while in
transit on May 31, 2015, terms FOB Destination. The
_____________________________________________
carrier was billed on June 15, 2015. (See Tiket to Ride
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Corp. And Yesterday Corp.)
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Girl Corp. Customer billed twice in error for P40,000. Balance is
collectible.
_____________________________________________
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Ticket To Ride Collected in full on January 31, 2016.
Corp.
_____________________________________________
Let It Be Corp. Paid in full on Dec. 30, 2015 but not recorded.
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Collections were deposited on Jan. 2, 2016.
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Hey Jude Received account confirmation from customer for 3. Audit of accounts receivable and related accounts
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P44,000. Investigaton revealed an erroneous credit for
P40,000. (See Get Back Company)
_____________________________________________ In connection with the audit of the financial statements of Praktis
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Get Back Neglected to post P40,000 credit to customers' Corporation, your audit senior instructed you to examine the companys
Comp. account. accounts receivable.
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Yesterday Customer wants to know the reason for receipt of
_____________________________________________
Corp. P160,000 credit memo as their accounts payable Prior to any adjustments you were able to extract the following balances from
balance was P400,000. Praktis trial balance as of December 31, 2015:
_____________________________________________
_____________________________________________ Accounts receivable PhP 442,500
_____________________________________________ Allowance for doubtful accounts 15,000

_____________________________________________
Required: From the schedule of accounts receivables as of December 31, 2015, you
_____________________________________________ determined that this account includes the following:
1. Adjusting entries as of Dec. 31, 2015
_____________________________________________
2. Adjusted balance of Accounts receivable trade as of Dec. 31, 2015 Account with debit balances:
_____________________________________________ 60 days old & below PhP 238,500
_____________________________________________ 61 to 90 days 117,200
Over 90 days PhP 85,400 PhP 441,100
_____________________________________________
Advances to officers 16,400
_____________________________________________ Account with credit balances (15,000)
_____________________________________________ Accounts receivable per GL PhP 442,500

_____________________________________________ The credit balance in customers account represents collection from a

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customer whose account had been written-off as uncollectible in 2014.
Accounts receivable for more than a year totaling P21,000 should be written-
off.
Confirmation replies received directly from customers disclosed the following
exceptions:

_____________________________________________ Custome
Customer's comment Audit Findings
_____________________________________________ r
_____________________________________________
_____________________________________________
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 II. Audit of Receivables

Jessie The goods sold on Dec. 1 The client failed to record

were returned on Dec. 16, credit memo for no. 23 for
2015. P12,000. The merchandise
was inlcluded in the ending
inventory at cost.
Robert We do not owe this amount Investigation revealed that
(insert bad words). We did not goods sold for P16,000 were
receive any merchandise from shipped to Robert on Dec. 29,
your company. 2015, terms FOB shipping
point. The goods were lost in
transit and the shipping
company has acknowledge its
responsibility for the lost of
________________________________________________
the merchandise.
Anne I am entitled to a 10% Anne is an employee of
________________________________________________
employee discount. Your bill Prakts. Starting Nov. 2015, all
________________________________________________
should be reduced by P1,200. employees were entitled to a
special discount.
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JR We have not yet sold the Merchandise billed for
________________________________________________
goods. We will remit the P18,000 were consigned to JR
proceeds as soon as the on Dec. 30, 2015. The goods
________________________________________________
goods are sold. cost P13,000.
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Roy We do not owe you P20,000. The sale of merchandise on 4. Audit of allowance for doubtful accounts
We already paid our accounts Dec. 18, 2015 was paid by
________________________________________________
as evidenced by OR # 1234. Roy on Jan. 6, 2016. Professional Company produces paints and related products for sale to the
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Carla Reduce your bill by P1,500 This amount represents construction industry throughout M.Manila. While sales have remained
freight paid by the customer
________________________________________________ relatively stable despite a decline in the amount of new construction, there has
for the merchandise shipped
________________________________________________ been a noticeable change in the timeliness with which the companys
on Dec. 17, 2015, terms, FOB
destination-collect. customers are paying their bills.
________________________________________________
Based on your discussion with Praktis Credit Manager, you both agreed that an
________________________________________________
allowane for doubtful accounts should be maintained using the following rates: The company sells its products on payment terms of 2/10, n/30. In the past,
________________________________________________ over 75% of the credit customers have taken advantage of the disount by
60% days old and below 1% paying within 10 days of the invoie date. During the year ended Dec. 31, 2015,
________________________________________________ the number of customers taking the full 30 days to pay has increased. Current
61 to 90 days 2%
________________________________________________ indications are that less than 60% of the customers are now taking the
Over 90 days 5%
________________________________________________ discount. Uncollectible account as a percentage of total credit sales have risen
Required:
from 1.5% provided in the past years to 4% in the current year.
________________________________________________
1. Compute for the adjusted balances of following
________________________________________________
a. Accounts receivable P387,400
In response to your request for more nformation on the deterioration of
________________________________________________ accounts receivable collections, the companys controller has prepared the
b. Allowance for doubtful accounts 7,622
2. Adjusting entries as of Dec. 31, 2015 following report:
________________________________________________
________________________________________________ Professional Company
Accounts Receivable Collections
________________________________________________ Dec. 31, 2015
________________________________________________
________________________________________________ The fact that some credit accounts will prove uncollectible is normal, and
________________________________________________ annual bad debt write-offs had been 1.5% of total credit sales for many years.
________________________________________________ However, during the year 2015, this percentage increased to 4%. The accounts
receivable balance is P1,500,000, and the condition of this balance in terms of
________________________________________________ age and probability of collection is shown below:
________________________________________________
Proportion
________________________________________________ to total
Age of accounts Probability of collections
________________________________________________ 64% 1 - 10 days 99.0%
________________________________________________ 18% 11 - 30 days 97.5%
8% Past due 31 - 60 days 95.0%
________________________________________________ 5% Past due 61 - 120 days 80.0%
________________________________________________ 3% Past due 121 - 180 days 65.0%
2% Past due over 180 days 20.0%
________________________________________________
________________________________________________
________________________________________________ At the begnning of the year, the Allowane for Doubtful Accounts had a redit
balance of P27,300. The company has provded for a monthly bad debt expense
________________________________________________ arual during the year based on the assumption that 4% of total credit sales will
________________________________________________ be uncollectible. Total credit sales for the year 2015 amounted to P8,000,000,
________________________________________________ and write-offs of uncollectible accounts during the year totaled P292,500.
________________________________________________ Required:
________________________________________________
3
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 II. Audit of Receivables

1. Adjusted balane of the allowance for doubtful accounts as of Dec.

31, 2015
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2. The necessary adjusting journal entry to adjust the allowance for
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doubtful accounts as of Dec. 31, 2015.
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II. Audit of Receivables

6. Audit of accounts receivable and related accounts

In connection with your examination of the finacial statements of Ringo, Inc.
For the year ended Dec. 31, 205, you were able to obtain certain information
during your audit of the accounts receivable and related accounts.

The Dec. 31, 2015 balance in the Accounts Receivable control

accounts is P837,900.
An aging schedule of the accounts receivable as of Dec. 31, 2015 is
presented below:

Percentage to be applied after

Age Net debit balance
corretions have been made
60 days & under PhP 387,800 1%
61 to 90 days 307,100 2%
91 to 120 days 89,800 5%
Over 120 days 53,200 Definitely uncollectible,
PhP 837,900 P9,000; the remainder is
estimated to be 25%
uncollectible

The allowance for doubtful accounts schedule is presented below:

Debit Credit Balance

Jan. 1, 2015 PhP 19,700

Nov. 30, 2015 PhP 6,100 13,600
Dec. 31, 2015 PhP 41,895 PhP 55,495
(P837,900 x 5%)

Entries made to doubtful accounts expense account were:

1. A debit on Dec. 31 for the amount of the credit to allowance for
doubtful accounts.
2. A credit for P6,100 on Nov. 30, 2015, and a debit to allowance for
doubful accounts because of a bankruptcy. The related sales tookl
place on Oct. 1, 2015.
There is a credit balance in one account receivable (61 to 90 days) of
P11,000; it represents an advance on sales contract.

Required:

1. As of and for the year ended Dec. 31, 2015:

a. Accounts receivable
b. Allowance for doubtful accounts
c. Doubtful account expense
2. Adjusting entries as of Dec. 31, 2015