Quiz in AACA 1 - Audit of Receivables

PROBLEM NO.
On December 31, 2021, the accounts receivable control account of Teemarie Co. had a balance
of P179,000. An analysis of the account; receivable account showed the following:
Accounts known to be worthless P2,500

Advance payments to creditors on purchase orders 10,000
Advances to affiliated companies 25,000
Customers' accounts reporting credit balance arising from sales return (15,000)
Interest receivable on bonds 10,000
Other trade accounts receivable – unassigned 50,000
Subscriptions receivable for ordinary share capital 55,000
Trade accounts receivable – assigned 15,000
Trade installment receivable due - 18 months,
(excluding unearned finance charges, P2,000) 20,000
Trade receivables from officers, due currently 1,500
Trade accounts on which post-dated checks are held
(no entries were made on receipts of checks) 5,000
Total P179,000
1. Determine the trade and other receivables to be reported on the entity's December 31, 2021
statement of financial position. 111,500
PROBLEM NO. II
On November 15, 2021, Frank Company sold merchandise to James Company. James
issued a P1,000,000, 90-day, 12% interest bearing note dated November 15, 2021. On
December 15, 2021, Frank discounted the note at Metrobank Bank Company at 15%
discount rate. Frank informed James regarding the discounting arrangement. On maturity
date, James dishonored the note and as a result Metrobank Bank charged Frank Company
for the total amount due plus P7,500 protest fee.
2. As a result of the above transactions, the amount of Franks debit to accounts

receivable account should be: 1,037,500
PROBLEM NO. III

Your audit of Regent Corporation for the year ended December 31, 2021 revealed that the
Accounts Receivable account consists of the following:
Trade accounts receivable (current) P3,440,000

Past due trade accounts 640,000
Uncollectible accounts 128,000
Credit balances in customers’ accounts (80,000)
Notes receivable dishonored 240,000
Consignment shipments – at cost
The consignee sold goods costing P96,000 for P160,000. A 10%
commission was charged by the consignee and remitted the balance
to Regent. The cash was received in January, 2022. 320,000
Total P4,688,000
The balance of the allowance for doubtful accounts before audit adjustment is a credit of
P80,000. It is estimated that an allowance should be maintained to equal 5% of trade receivables,
net of amount due from the consignee who is bonded. The company has not provided yet for the
2021 bad debt expense.
Based on the above and the result of your audit, determine the adjusted balance of following:
3. Trade accounts receivable P4,464,000
4. Allowance for doubtful accounts P216,000
5. Doubtful accounts expense P264,000
PROBLEM NO. IV
The Notes Receivable account of Zia Company has a debit balance of P239,200 on December
31, 2021. There was no balance at the beginning of the year. Your analysis of the account reveals
the following:
a. Notes amounting to P845,000 were received from customers during the year.
b. Notes of P416,000 were collected on due dates and notes amounting to P221,000 were
discounted at the Active Bank. The Notes Receivable account was credited for the notes
discounted.
c. Of the P221,000 notes discounted, P104,000 was paid on maturity date while a note for
P31,200 was dishonored and was charged back to Notes Receivable account.
d. Cash of P33,000 was received as partial payment on notes not yet due. The amount
received was credited to Liability on Partial Payments account.
e. A note for P50,000 was pledged as collateral for a bank loan.
f. Included in the company's cash account balance is a three-month note from an officer
amounting to P8,000 which is over a month past due.
Assuming that Zia Company will use a Notes Receivable Discounted account, the adjusted
balance of the Notes Receivable account on December 31, 2021 is 260,800
PROBLEM NO. V
Neurobion 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, 2021, 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. Uncollectible 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.
In response to your request for more information on the deterioration of accounts receivable
collections, the company's controller has prepared the following report:
Neurobion Company
Accounts Receivable Collections
December 31, 2021
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 2021,
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 Collection
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 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 2021 amounted to P8,000,000, and write-offs of unc011ectible accounts during the year
totaled P292,500.
6. Adjusted balance of the allowance for doubtful accounts as of December 31, 2021 77,100

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PROBLEM NO.

Accounts known to be worthless P2,500

2. As a result of the above transactions, the amount of Franks debit to accounts

PROBLEM NO. III

Trade accounts receivable (current) P3,440,000

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