Audit of Receivables

1) Jingle bell Corporation estimates its bad debts losses by aging its accounts
receivable. The aging schedule of accounts receivables at December 31, 2013 are as
follows.

Age of Accounts Amount
0-30 days P 923,300
31-60 days 572,000
61-90 days 188,500
91-120 days 75,560
Over 120 days 41,400
P1,800,760

Jingle Bells Corporations uncollectible accounts experience for the past 5 years are
summarized in the following schedule:

A/R balance 0-30 31-60 61-90 91-120 Over
Year Dec 31 days days days days 120days
2012 P 2,005,000 0.4% 2.0% 10.2% 41% 95%
2011 782,000 0.5% 1.7% 9.7% 50% 81%
2010 780,600 0.2% 1.5% 12% 38% 70%
2009 456,700 0.9% 1.6% 11% 33% 65%
2008 1,800,600 0.3% 1.8% 9% 47% 69%

The balance of the allowance for bad debts account at December 31, 2013 before adjustment
is P85,300.

Required:
1) Average Bad debts expense rate for 31-60 days
2) Average bad debts expense rate for 0-30 days
3) Net realizable value of companys Accounts receivable
4) Bad debts expense for 2013
5) Adjusting entry to adjust bad debts expense at December 2013





2) The following long term receivables were reported in the December 31, 2011,
statement of financial position of Apple corporation:

Note receivable from sale of plant P 4,000,000
Note receivable from officer 900,000

The following transactions during 2012 and other information relate to companys
long term receivables:

a) The note receivable from sale of plant bears interest at 15% per annum. The
note is payable in 3 annual installments of P1,000,000 plus interest on the unpaid
balance every April 1. The initial principal and interest payment was made on
April 1, 2012.
b) The note receivable from officer is dated December 31,2011, earns interest at
10% per annum, and is due on December 2014. The 2012 interest was received
on December 31, 2012
c) Apple sold a piece of equipment to Mango Inc. on April 1 ,2012, in exchange for
a P 400,000 non-interest bearing note due april 1,2014 . The note had no ready
market, and there was no established exchange price for the equipment. The
prevailing interest rate for a note of this type at April 1, 2012 was 15%. The
resent value factor of 1 for two periods at 15% is 0.756
Required:
1) The amount to be reported as non-current receivables on statement of financial
position at December 31,2012
2) The current portion of Notes receivable on December 31,2012
3) Accrued interest receivable on December 31, 2012
4) Unamortized discount on notes receivable from sale of equipment
5) Interest income for the year December 31, 2012












3) Laguna corporation paints and related products for sale to the construction industry
throughout Metro Manila. While sales have remained elatively stable despite the
decline in the amount of new construction, there has been a noticeable change in the
timeliness with which customers are paying their bills. In response to a request for
more information in the deterioration of accounts receivable collection, the companys
accountant has prepared an aging of accounts receivable at December 31,2014

Age Categories Amount Probability of collections
1-30 days P 890,000 99%
31-60 days 350,000 95%
61-90 days 110,000 80%
91-120 days 45,000 65%
Over 120 days 35,000 20%
TOTAL P 1,430,000

Laguna has provided for a monthly bad debts expense accrual during 2014 based the
assumption that 5% of total credit sales wil be uncollectible. Total credit sales for 2014
amounted to P 8,000,000 and write-offs of uncollectible accounts during the year totaled to
P 280,700. At January 1, 2014, the allowance for doubtful accounts had a credit balance of
P 66,700.
Required:
1) Bad debts Expense for the year ended Dec 31, 2014
2) Total amount of doubtful accounts for 2014
3) Net realizable value of accounts receivable for 2014
4) Adjusting entry necessary to bring the allowance to the balance indicated in the aging
analysis
5) The gross amount of accounts receivable for the year ended Dec. 31,2014

Audit of Inventories
1) Diesel Corporation started operations in 2014. Diesel Corporation manufactures bath
towels. 70% of the production are Smooth Class which sell for P 600 per dozen and
30% are in Rough Class which sells for P 300 per dozen. During 2014, 10,000 dozens
were produced at an average cost of P 400 per dozen. The inventory at the year-end is
as follows
320 dozens Smooth Class@P400 P 128,000
450 dozens Rough Class@P400 180,000
P 308,000
Required:
1) Total cost allocated to Smooth Class
2) Total cost allocated to Rough Class
3) Value of inventory as of December 31, 2014
4) Cost of Sales at year end 2014
5) Gross profit for the year 2014
2) Quezon City uses average retail method. The following information is available for the
current year:

Cost Retail
Beginning Inventory P 1,100,000 P 2,200,000
Purchases 16,700,000 23,000,000
Freight in 700,000
Purchase returns 800,000 1,000,000
Purchase allowances 500,000
Departmental transfer in 700,000 800,000
Net markups 500,000
Net markdowns 700,000
Sales 25,700,000
Sales returns 350,000
Sales discounts 150,000
Employee discounts 770,000
Loss from breakage 70,000


Required:
1) Cost ratio using average retail inventory method
2) Estimated ending inventory at retail
3) Estimated ending inventory at cost
4) Estimated cost of goods sold
5) Inventory shortage/overage based on physical inventory count of P 1,300,000

3) Boracay Company values its inventory at the lower of FIFO cost or net realizable value
(NRV). The inventory accounts at December 31,2014 had the following balances.

Raw Materials P 750,000
Work in Process 1,200,000
Finished goods 1,540,000
The following are some of the transactions that affected the inventory of the Boracay
company during 2015.
Jan 7 Boracay purchased raw materials with list price of P550,000 and was given a
trade discount of 20% and 10% terms 2/15, n/30. Boracay values inventory at
net invoice price.

Feb 15 Boracay repossessed an inventory items from a customer who was overdue in
making payment. The unpaid balance on the sale is P16,700. The
repossessed merchandise is to be refinished and placed n sale. It is expected
that the item can be sold for P25,000 after estimated refinishing costs of
P7,800. The normal profit is considered to be P4,300.

Mar 5 Refinishing coss of P7,500 were incurred on the repossessed item.

Apr. 4 The repossessed item wa resold for P23,000 on account, 25% down .

Aug. 30 A sale on account was made of finished goods that have a list price of
P59,200 and a cost of P38,400. A reduction of P8,000 off the list price was
granted as a trade-in allowance. The trade-in item is to be priced to sell at
P6,400 as is. The normal profit on this type of inventory is 25% of the sales
price

Required:
1) The amount to be debited to Raw materials account
2) The value of repossessed inventory on Feb 14
3) The value to be credited to repossessed inventory on April 3
4) The value of trade-in inventory on Aug 3
5) The amount of sales on Aug 30