Professional Documents
Culture Documents
REQUIRED:
Determine the trade and other receivables to be reported on the entity's
December 31, 2015 statement of financial position.
SOLUTION:
Items included:
Trade accounts receivable (see computation below) `
91,500
Advance payments to creditors on purchase orders
10,000
Interest receivable on bonds
10,000
Subscriptions receivable due in 30 days
55,000
Trade and other receivables
166,500
The external auditor submitted the following audit comments for possible
adjustments:
Love M. Do Merchandise found defective; returned by
customer on October 31, 2015 for credit, but
the credit memo was issued by Beatles only on
January 15, 2016.
REQUIRED:
1. Adjusting entries as of December 31, 2015.
SOLUTION:
Requirement No. 1
1) Love M. Do
2) Strawberry Fields
No Entry
No Entry
4) Girl Corporation
Sales 40,000
Accounts receivable 40,000
6) Let It Be Corp
Cash 124,000
Accounts receivable 124,000
7) Hey Jude
No Entry
No Entry
9) Yesterday Corp
No Entry
Requirement No. 2
Prior to any adjustments you were able to extract the following balances
from Praktis' trial balance as of December 31, 201.5:
Accounts receivable for more than a year totaling P21,000 should be written
off.
Jay-ar We have not yet sold the goods. Merchandise billed for
P18,000
We will remit the proceeds as soon were consigned to Jay-ar on
as the goods are sold. December 30, 2015.
The goods cost P13,000.
Based on your discussion -with PraktIS Credit Manager, you both agreed that
an allowance for doubtful accounts should be maintained using the following
rates:
SOLUTION:
Per Books Adjustments Per Audit
a. Accounts receivable 442,500 1 (16,400)
387,400
2 15,000
3 (21,000)
4 (12,000)
5 (1,200)
6 (18,000)
7 (1,500)
61 to 90 days 117,200
117,200
Over 90 days 85,400 3 (21,000)
64,400
Adjusting Entries:
1. Advances to officers and employees 16,400
Accounts receivable
16,400
Inventory 13,000
Cost of sales
13,000
Goods out on consignment erroneously billed
Professional Company produces paints and related products for sale to the
construction industry throughout Metro Manila. While sales have remained
relatively stable despite a decline in the amount of new construction, there
has been a noticeable change in the timeliness with which the company's
customers are paying their bills.
The company sells its products on payment terms of 2/10, n/30. In the past,
over 75 percent of the credit customers have taken advantage of the
discount by paying within 10 days of the invoice date. During the year ended
December 31, 2015, the number of customers taking the full 30 days to pay
has increased. Current indications are that less than 60% -of the customers
are now taking the discount. Uncollect.ible accounts as a percentage of total
credit sales have risen from the 1.5% provided in the past years to 4% in the
current year.
Professional Company
Accounts Receivable Collections
December 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:
At the beginning of the year, the Allowance for Doubtful Accounts had a
credit balance of 1'27,300. The company has provided for a monthly bad
debt expense accrual 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 unc011ectible accounts during
the year totaled P292,500.
REQUIRED:
1. Adjusted balance of the allowance for doubtful accounts as of
December 31, 2015
2. The necessary adjusting journal entry to adjust the allowance for
doubtful accounts as of December 31, 2015
SOLUTION:
Requirement No.1
Category Aging ratio AR Balance Rate Allowance
1 10 days 64% 960,000 1.00% 9,600
11 30 days 18% 270,000 2.50%
6,750
31 60 days 8% 120,000 5.00%
6,000
61 120 days 5% 75,000 20.00%
15,000
121 180 days 3% 45,000 35.00%
15,750
over 180 days 2% 30,000 80.00%
24,000
100% 1,500,000 77,100
Requirement No. 2
Doubtful accounts expense 22,300
Allowance for doubtful accounts 22,300
Allowance for doubtful accounts, 1/1 27,300
Add provisions (P8,000,000 x 4%) 320,000
Total 347,300
Less accounts written-off 292,500
Balance before adjustment 54,800
Required allowance (see no. 1) 77,100
Additional required allowance for doubtful accounts 22,300
The Poster Co. sells direct to retail customers and also to wholesalers.
Accounts receivable and an allowance for had debts are maintained
separately for each division. On January 1, 2015 the balance of the retail
accounts receivable was P209,000 while the bad debts with respect to retail
customers was a credit of P7,600.
Bad debts are provided for as a percentage GI credit sales. The accountant
calculates the percentage annually by using the experience of the three
years prior to the current year. The formula is bad debts written off less
recoveries expressed as a percentage of the credit sales for the same period.
Cash receipts in 2015 from credit sales to retail customers was P1,380,200.
SOLUTION:
Requirement No. 1.
Accounts receivable, 1/1/12 209,000
Credit sales for 2012 1,500,000
Collections during 2012 (1,380,200)
Accounts written off - 2012 (31,000)
Accounts receivable, 12/31/12 297,800
Requirement No. 2
Allowance for doubtful accounts, 1/1/12 7,600
Doubtful accounts expense - 2012 (see computation below) 30,000
Accounts written off - 2012 (31,000)
Recovery of accounts written off - 2012 4,200
Allowance for doubtful accounts, 12/31/12 10,800
Debit Credit
Balance
January 1, 2015 P19,700
November 30, 2015 P6,100
13,600
December 31, 2015 (P837,900 x 5%) P41,895
P55,495
1 A debit on December 31 for the amount of the credit to the Allowance for
Doubtful Accounts.
REQUIRED:
1. Determine the following as of and for the year ended December 31, 2015:
a. Accounts receivable
b. Allowance for doubtful account
c. Doubtful accounts expense
2. Adjusting entries as of December 31, 2015
SOLUTION:
Requirement No. 1.a
GL/SL 60 61 to 90 91 to 120 over
120
Unadjusted balances 837,900 387,800 307,100 89,800
53,200
Add (deduct) adjustments:
AJE No. 1 (9,000) (9,000)
AJE No. 2 (6,100) (6,100)
AJE No. 3 11,000 11,000
Requirement No. 2
Adjusting journal entries:
1. Allowance for doubtful accounts 9,000
Accounts receivable - over 120 days 9,000
To write off definitely uncollectible accounts
a. The note receivable from sale of plant bears interest at 12% per
annum. The note is payable in 3 annual installments of P2,000000
plus interest on the unpaid balance every April 1. The initial principal
and interest payment was made on April 1, 2015.
b. The note receivable from officer is dated December 31, 2014, earns
interest at 10% per annum, and is due on December 31, 2017. The
2015 interest was received on December 31, 2015.
REQUIRED:
Determine the following as of and for the year ended December 31, 2015:
1. Noncurrent receivables
2. Current portion of long-term receivables
3. Accrued interest receivable
4. Interest income
SOLUTION:
Requirement No. 1
Note receivable from sale of plant
Balance, 12/31/12 (P6,000,000 - P2,000,000) 4,000,000
Less installment due on April 1, 2013 2,000,000
2,000,000
Note receivable from officer, due 12/31/14
1,600,000
Note receivable from sale of equipment
Present value of note, 4/1/12 (P800,000 x 0.797) 637,600
Discount amortization-2012 (P637,600 x 12% x 9/12) 57,384
694,984
Note receivable from sale of land 2,800,000
Balance, 12/31/12
Less principal installment due on 7/1/13 594,500
2,205,500
Total amount to be received
6,500,484
Less interest (P2,800,000 x 11%)
308,000
Total noncurrent receivables, 12/31/12
6,192,484
Requirement No. 2
Note receivable from sale of plant due on 4/1/13
2,000,000
Note receivable from sale of land (see no. 1)
594,500
Current portion of long-term receivables
2,594,500
Requirement No. 3
Note receivable from sale of plant (P4,000,000 x 12% x 9/12)
360,000
Note receivable from sale of land (P2,800,000 x 11% x 6/12)
154,00
Accrued interest receivable, 12/31/12 514,000
Requirement No. 4
Note receivable from sale of plant:
P6,000,000 x 12% x 3/12
180,000
P4,000,000 x 12% x 9/12 360,000
540,000
Note receivable from officer (P1,600,000 x 10%)
160,000
Note receivable from sale of equipment (P637,600 x 12% x 9/12)
57,384
Note receivable from sale of land (P2,800,000 x 11% x 6/12)
154,000
Interest income 911,384
On January 1, 2015, Pedro Company sold land that originally cost P400,00()
to Buyer Company. As payment, Buyer gave Pedro Company a P600,000
note. The note bears an interest rate of 4% and is to be repaid in three
annual installments of P200,000 (plus interest on the outstanding balance).
The first payment is due on December 3'1, 2015. The market price of the
land is not reliably determinable. The prevailing rate of interest for notes of
this type is 14% on January 1, 2015 and 15% on December 31, 2015.
Pedro made the following journal entries in relation to the sale of land and
the related note receivable:
January 1, 2015
Notes receivable P600, 000
Land P400, 000
Gain on sale of land 200,000
Cash P224,000
Notes receivable P200,000
Interest income 24,000
Pedro reported the notes receivable in its statement of financial position at
December 31, 2015 as part of trade and other receivables.
REQUIRED:
1. Determine the following as of and for the year ended December 31, 2015:
a. Correct gain on sale of land
b. Correct interest income
c. Overstatement of profit
d. Correct carrying amount of note receivable
e. Overstatement of working capital
2. Adjusting entries as of December 31, 2015
Requirement No. 1.a
PV of consideration receivable (see computation b 503,105
Carrying amount of land (400,000)
Correct gain on sale of land 103,105
My Love Corporation made the following entries in relation to the sale of the
equipment and the related note receivable:
January 1, 2014 P
Cash 300,000
Notes receivable 1,705,900
Cost of goods sold 750,000
Sales P2, 005,900
Inventory 750,000
December 31 2014
Cash P341, 180
Notes receivable P341, 180
December 31 2015
Cash P341, 180
Notes receivable P341, 180
REQUIRED:
Determine the following:
1. The effective interest rate
2. Overstatement of profit for 2014
3. Overstatement of retained earnings as of December 31, 2015
4. Overstatement of working capital as of December 31, 2015
SOLUTION:
Requirement No. 1
PVF used to calculate the annual payment (P1.2M/P341,180)
3.5172
Ordinary annuity factor at 13% for 5 periods
3.5172
Requirement No. 2
Profit
over (under)
Sales over
Reported 2,005,900
Should be 1,500,000 505,900
Interest income under
Reported 0
Should be 156,000
(156,000)
Net misstatement 349,900
Requirement No. 3
RE,
12/31/12
over
(under)
2011 profit overstated (see no. 2)
349,900
2012 profit understated (interest income under)
Reported 0
Should be (refer to amortization schedule) 131,927
(131,927)
Net misstatement 217,973
Requirement No. 4
Amount reported under current assets
[P1,705,900 - (P341,180 x 2)]
1,023,540 should be
236,456
Net misstatement of WC, 12/31/12 - over (under)
787,084
Amortization schedule:
Date Payment Interest (13%) Principal CA
1,200,000
12/31/11 341,180 156,000 185,180 1,014,820
12/31/12 341,180 131,927 209,253 805,567
12/31/13 341,180 104,724 236,456 569,111
12/31/14 341,180 73,984 267,196 301,915
12/31/15 341,180 39,265 301,915 -
1,705,900
Merlyn, Inc.
Analysis of Notes Receivable
For the Year Ended December 31, 2015
Date
2015 debit credit
Jan. 1 Balance Forwarded Received P118,000
P25,000 6% note due 10/29/15
from Anna whose trade account
was past due
Feb. 28 Discounted Anna note 24,960
(3)All notes were from the trade customers unless otherwise indicated.
REQUIRED:
1. Determine the following as of and for the year ended December 31, 2015:
a. Notes receivable-trade
b. Interest income
2. Adjusting entries as of December 31, 2015
SOLUTION:
Requirement No. 1.a
Unadjusted trade NR 12,014
Add (Deduct) adjustments:
1/1 25,000
2/28 24,960
3/29 (6,200)
8/30 4,200
9/4 (40,500)
11/1 8,120
11/4 (26,031)
(25,000)
12/27 24,000
12/31 6,200
12/31 42,437
12/31 (1,200)
Adjusted trade NR, 12/31/12 48,000
Composition:
Robinson (P70,000 - P30,000) 40,000
Tripper (received PDC on 11/1) 8,000
Adjusted notes receivable-trade, 12/31/12 48,000
Notes:
1) NR from Pepper - collected on 12/31/12
2) NR from Anna - accepted equipment in full settlement on 12/27/12
3) NR from Julia - non-trade
The borrower paid the interest due on December 31, 2014. However, during
2015 the borrower began to experience financial difficulties, requiring the
bank to reassess the collectability of the loan. As of December 31, 2015, the
bank expects that only P8,000,000 of the principal will be recovered. The
P8,000,000 principal amount is expected to be collected in two equal
installments on 'December 31, 2017 and December 31, 2019. The prevailing
interest rates for similar type of note as of December 31, 2014 and 2015 are
15% and 16%, respectively.
REQUIRED:
Determine the following:
1. Interest income to be recognized in 2014
2. Carrying amount of the loan as of December 31, 2014
3. Loan impairment loss to be recognized in 2013
SOLUTION:
Requirement No. 1 & 2
Principal 10,000,000
Direct origination cost 130,900
Origination fee received from borrower (P10M x .05) (500,000)
Carrying amount, 1/1/12 9,630,900
Amortization schedule
Requirement No. 3
7. The auditor finds situation in which one person has the ability to collect
receivables, make deposits, issue credit memos and record receipt of
payments. The auditor suspects the individual may be stealing from
cash receipts. Which of the following audit procedures would be most
effective in discovering fraud in this scenario?
a. Send positive confirmations to a random selection of customers.
b. Send negative confirmations to all outstanding accounts receivable
customers.
c. Perform a detailed review of debits to customer discounts, sales
returns, or other debit accounts, excluding cash posted to the cash
receipts journal.
d. Take a sample of bank deposits and trace the detail in each bank
deposit back to the entry in the cash receipts journal.
ANSWER - C