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)
P1,467,000

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.

Required:
1. Prepare adjusting entries.
2. Compute for the following:
a. Accounts receivable (gross) balance at December 31
b. Total current non-trade receivable balance at December 31
c. Liability for the accounts receivable assigned
d. Total non-trade receivable balance at December 31

Problem 2
In your audit of MENDOZA COMPANY for the past calendar year, you find the following
accounts:
ACCOUNTS RECEIVABLES
Jan. 1, 2002 P 800,000 Jan. Dec. 1992 collections P 5,900,000
Jan. Dec. Sales 6,300,000 Jan. Dec. write-off 100,000

ALLOWANCE FOR BAD DEBTS

Jan. Dec. Write-off of Jan. 1, 2002 P 95,000
last years receivables P 85,000 Dec. 31 provisions 315,000
Write-off of this years
Receivables 15,000

In your examination, you find that the balance of Accounts Receivable represents
sales of the current audit year only; that credit balances in the subsidiary ledger for
accounts receivable totaled P80,000; and that the current years provision for bad
debts expense was 5% of sales (as compared with 4% last year, 4% of the year
before, and 3% the next previous year). Sequential to aging the accounts
receivable, you and the companys treasurer agree on an additional write-off of
P50,000, and P300,000 as the probable loss to be sustained on collection of the
accounts receivable balance.

Required:
1. Prepare adjusting entries.
2. Compute for the following:
a. Adjusted accounts receivable balance
b. Adjusted allowance for bad debts
c. Adjusted bad debts account
d. Provision per record at December 31

Problem 3
Presented below are unaudited balances of selected accounts of MARJORIE
COMPANY as of December 31, 2006:
Unaudited Balances, 12/31/06
Selected Accounts Debit Credit
Cash P 500,000
Accounts receivable 1,300,000
Allowance for doubtful accounts 8,000
Net sales P 6,750,000

Additional information are as follows:

a. Goods amounting to P50,000 were invoiced for the accounts of Joy Store &
Co., recorded on January 2, 2007 with terms of net, 60 days, FOB shipping
point. The goods were shipped to Variety Store on December 30, 2006.

b. The bank returned on December 29, 2006, a customers check for P5,000
marked DAIF, but no entry was made.

c. MARJORIE COMPANY estimates that allowance for uncollectible accounts

should be one and one-half percent (1%) of the accounts receivable balance
as of year-end. No provision has yet been made for 2006.

Questions:
1. What is the adjusted balance of Accounts Receivable on December 31, 2006?
2. What is the adjusted balance of Allowance for doubtful accounts on
December 31, 2006?
 3. What is the adjusted amount of 2006 Bad Debts Expense?

Problem 4
You are examining the financial statements of MATIAS CORPORATION for the year
ended December 31, 2006. During the audit of the accounts receivable and other
related accounts, certain information was obtained.

The December 31, 2006 debit balance in the Accounts Receivable control account is
P197,000.
The only entries in the Bad Debts Expense account were: a credit for P324 on
December 31, 2006, because Marlisa Company remitted in full for the accounts
charged off October 31, 2006, and a debit on December 31 for the amount of the
credit to the Allowance for Doubtful Accounts.

The Allowance for Doubtful Accounts schedule is presented below:

Debit Credit Balance
January 1, 2006 P 3,658
October 21, 2006, Uncollectible;
Marlisa Co., - P324; Abonales Co.,
- P 820; Cherryl Co., - P564 P 1,508 2,150
December 31, 2006, 5% of P197,000 P 9,850 12,000

An aging schedule of the accounts receivable as of December 31, 2006 and the
decision are shown in the table below:
Age Net Debit Balance Amount to which the Allow.
is to be adjusted after adjust.
____________ _________________ and corrections have been made
0 1 month P 93,240 1 percent
1 3 months 76,820 2 percent
3 6 months 22,180 3 percent
over 6 months 6,000 Definitely uncollectible, P1,000;
P2,000 is considered 50%
uncollectible; the remainder is
estimated to be 80% collectible.

There is a credit balance in one account receivable (0-1 month) of P2,000; it

represents an advance on a sales contract. Also, there is a credit balance in one of
the 1-3 months accounts receivable of P500 for which merchandise will be accepted
by the customer.

The ledger accounts have not been closed as of December 31, 2006. The Accounts
Receivable control account is not in agreement with the subsidiary ledger. The
difference cannot be located, and the auditor decides to adjust the control to the sum
of the subsidiaries after corrections are made.

Required:
1. Audit adjustments as of December 31, 2006.
 2. Compute for the following:
a. The adjusted balance of accounts receivable of MATIAS CORPORATION
at December 31, 2006
b. The adjusted write-off of accounts receivable balance of MATIAS
CORPORATION at December 31, 2006
c. The adjusted allowance of bad debts account of MATIAS CORPORATION
at December 31, 2006
d. The bad debts expense per book of MATIAS CORPORATION at December
31, 2006
e. The adjusted bad debts expense of MATIAS CORPORATION at December
31, 2006
f. The net realizable value of accounts receivable of MATIAS
CORPORATION at December 31, 2006

Problem 5
You are auditing the Accounts Receivable and the related Allowance for Bad Debts
account of ROY COMPANY. The following data are available:
Accounts Receivable, general ledger balance P 848,000

Allowance for bad debts:

Beginning balance P 20,000
Provision per general ledger 48,000
Write-offs (16,000)
Balance, end P 52,000

Summary of Aging Schedule

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 analysed 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

Required:
1. Audit adjustments as of December 31, 2006.
2. Compute for the following:
a. The Accounts Receivable balance at December 31, 2006
b. The Allowance for Bad Debts at December 31, 2006
c. The Bad Debts Expense at December 31, 2006

Problem 6
You are assigned to audit KENT COMPANY for the year ending December 31, 2006.
The accounts receivable were circularized as at December 31, 2006 and the following
exceptions/replies have not been disposed of at the date of your examination.
Customer Balance Comments Audit Findings
Duque P 30,000 Balance was paid Dec. Kent received mailed
29, 2006. January 2, 2007.

Odessa 74,000 Balance was offset by our Kent credited accounts

Dec. 10 shipment of goods. payable for P74,000 to
record purchase of goods

Solejon 16,200 The above balance has The payment was

been paid. Credited to Dairen cust.

Rubin 23,700 We do not owe Kent any- The shipment costing

thing as the goods were
received January, 2007,
FOB Destination
P16,300 was made on
Dec. 29, 2006 and the
goods were not included
in recording the year-end
inventory.

Jamea 150,000 Our deposit of P200,000 Kent had previously

should cover this balance credited the deposit to
sales.

Ocsio 54,000 We never received these The shipment was

goods. erroneously made to
another customer and
the goods worth P51,000
 are now on its way to
Ocsio. The shipment, FOB
Shipping Point, was made
on Dec. 30, 2006.

Dela Cruz 100,000 We are rejecting the price, Kents clerk erroneously
which is too much computed the unit price
at P2,000. The correct
pricing should have been
at P1,200 per unit.

Ronel 18,000 Amount is okay. Since Goods cost P12,000 and

this is on consignment, we were appropriately
will remit payment upon included in Kents
selling the goods inventory

KENT COMPANY has not recorded yet its 2006 inventory. The balance of inventory
and Accounts Receivable at December 31, 2006 (per trial balance) is P 456,000 and
P345,900, respectively.

Required:
1. The entry to adjust the finding made in the account of Duque is:
2. The entry to adjust the finding made in the account of Odessa is:
3. The entry to adjust the finding made in the account of Solejon is:
4. The entry to adjust the finding made in the account of Rubin is (for sales):
5. Entry to adjust the finding made in the account of Rubin is (for cost of sales):
6. The entry to adjust the finding made in the account of Jamea is:
7. The entry to adjust the finding made in the account of Ocsio is:
8. The entry to adjust the finding made in the account of Dela Cruz is:
9. The adjusted balance of Kent Companys inventory at December 31, 2006 is:
10.The adjusted balance of Kent Companys accounts receivable at December 31,
2006 is:

Problem 7
On April 1, 2006, VAILOCES CORPORATION assigned accounts receivable totaling
P400,000 as collateral on a P300,000, 16% note from Racel Bank. The assignment
was done on a nonnotification basis. In addition to the interest on the note, the bank
also receives a 2% service fee, deducted in advance on the P300,000 value of the
note.

Additional information is as follows:

1. Collections of assigned accounts in April totaled P191,100, net of a 2% sales

discount.
2. On May 1, VAILOCES CORPORATION paid the bank the amount owed for April
collections plus accrued interest on note to May 1.
 3. The remaining accounts were collected by VAILOCES CORPORATION during
May except for P2,000 accounts written-off as worthless.
4. On June 1, VAILOCES CORPORATION paid the bank the remaining balance of
the note plus accrued interest.

Questions:
1. The journal entry of VAILOCES CORPORATION in the assignment of accounts
receivable on April 1, 2006 is:
2. The journal entry of VAILOCES CORPORATION in the assignment of accounts
receivable on April 1, 2006 assuming the assignment is on notification basis:
3. The entry of VAILOCES CORPORATION on April collection of the assigned
account is:
4. If the assignment is on notification basis, who should collect the assigned
accounts receivable?
5. Using the assumption in number 4 above, what will be the entry of VAILOCES
6. CORPORATION on the April collection of the assigned accounts receivable?
7. The journal entry of VAILOCES CORPORATION on the on May 1, 2006 is:
8. Using the same information in number 6 (May 1 transaction) except that the
assignment is done on a notification basis, the entry should be:
9. The total interest expense of VAILOCES CORPORATION on the assigned
accounts receivable is:

Problem 8
During your audit of the LEILANI COMPANY for the calendar year 2006, you find the
following accounts:

NOTES RECEIVABLE
Sept. 1 Samson, 12%, due in 3 mos. 36,000 36,000
Nov. 1 Hazel, 15%, due in 6 mos. 90,000 126,000
Nov. 1 Salazar, no interest, due in one
year 75,000 201,000
Nov. 30 Rosa, Co. 12%, due in 13 mos. 15,000 216,000
Dec. 1 Rona, 15%, due in 15 mos. 36,000 252,000
Dec. 2 Anito, President, 18%, due in 3
mos. 18,000 270,000

NOTES RECEIVABLE DISCOUNTED

Sept. 1 Samson note, discounted at
15% 36,000 36,000
Nov. 1 Salazar note, discounted at
15% 75,000 111,000

INTEREST EXPENSE
Sept. 1 Samson note 310.50 310.50
Nov. 1 Salazar note 11,250.00 11,560.50

All notes are trade notes receivable unless otherwise specified. The Samson note
was paid December31, 2006. Interest income is credited only upon receipt of cash.
Questions:
1. The accrued interest income at December 31, 2006 is:
2. The interest expense at December 31, 2006 is:
3. The Notes Receivable at December 31, 2006 is:
4. The Notes Receivable discounted at December 31, 2006 is:
5. How much is the proceeds in the discounting of notes receivable for the
year?

Problem 9
On January 2, 2006, a tract of land that originally cost P800,000 was sold by
MAYLENE CORPORATION. The company received a P1,200,000 note as payment. It
bears interest rate of 4% and is payable in 3 annual installments of P400,000 plus
interest on the outstanding balance. The prevailing rate of interest for a note of this
type is 10%. The present value table shows the following present value factors of 1
at 10%:

Present value factor of 1 for 3 periods 0.75132

Present value factor of 1 for 2 periods 0.82645
Present value factor of 1 for 1 period 0.90909
Present value of an ordinary annuity of 1 for 3 periods 2.48685

Questions:
1. The gain on sale of land on January 2, 2006 is:
2. The interest income on the note receivable for the year ended December 31,
2006 using effective interest method is:
3. How much cash will MYLENE CORPORATION received from notes receivable?

Problem 10
You are engaged in your fifth annual examination of the financial statements of
NAVAL CORPORATION. Your examination is for the year ended December 31, 2006.
The client prepared the following schedule of Trade Notes Receivable and Interest
Receivable for you at December 31, 2006. You have agreed the opening balances to
your prior years audit workpapers.

NAVAL CORPORATION
TRADE NOTE RECEIVABLES AND RELATED INTEREST RECEIVABLE
Trade-Notes Receivable
Int. Bal. 2006 2006 Bal.
Maker Date Terms
Rate 12/31/05 debits credits 12/31/06
Rubin 04/01/05 1-year 12% P60,000 P60,000
90 days
Cardoza 05/01/06 - P30,000 29,375 P 625
after date
60 days
Pancho 07/01/06 12% 6,000 6,000
after date
Betque 08/03/06 Demand 12% 15,000 15,000
Gabuter 60 days
10/02/06 12% 50,000 50,000 -
o after date
90 days
Noval 11/01/06 8% 42,000 35,000 7,000
after date
90 days
Gan 11/01/06 12% 32,000 32,000
after date

INTEREST RECEIVABLE
Balance
Due from Balance 2006 debit 2006 credit
12/31/06
Rubin P5,400 P1,800 P7,200
Pancho 120 P 120
Betque 400 400
Gabutero 1,000 660 340
Noval 560 560
Gan 640 640
Totals P5,400 P4,520 P7,860 P2,060

Your examination reveals this information:

1. Interest is computed on a 360-day basis. In computing interest, it is the

corporations practice to exclude the first day of the notes term and to include
the due date.

2. The Cardozas 90-day non-interest bearing note was discounted on May 15 at

10%, and the proceeds were credited to the Trade Notes Receivable account.
The note was paid at maturity.
3. Pancho became bankrupt on August 31, and the corporation will recover 75
cents on the peso. All of Naval Corporations notes receivable provide for
interest at a rate of 12% on the maturity value of a dishonored note.

4. Betque, president of Naval Corporation, confirmed that she owed Naval

Corporation P15,000 and that she expected to pay the note within six months.
You are satisfied that the note is collectible.

5. Gabuteros 60-day note was discounted on November 1 at 8%, and the

proceeds were credited to the Trade Notes Receivable and Interest Receivable
accounts. On December 2, Naval Corporation received notice from the bank
that GAbuteros note was not paid at maturity and that it had been charged
against Navals checking account by the bank. Upon receiving the notice from
the bank, the bookkeeper recorded the note and the accrued interest in the
Trade Notes Receivable and Interest Receivable account. Gabutero paid Naval
Corporation the full amount due in January 2003.

6. Noval, 90-day note was pledged as collateral for P35,000, 60-day 10% loan
from the Davao National Bank on December 1.
 7. On November 1, the corporation received four, P8,000, 90-day notes from
Gan. On December 1, the corporation received payment from Gan for one of
the P8,000 notes with accrued interest. Prepayment of the notes is allowed
without penalty. The bookkeeper credited the Gans Accounts Receivable
account for the cash received.

Questions:
1. At December 31, 2006, the note receivable from Cardoza has a balance of:
2. The interest income from Cardozas note at December 31, 2006 is:
3. At December 31, 2006, the note receivable from Pancho has a balance of:
4. The interest income from Panchos note at December 31, 2006 is:
5. At December 31, 2006, the note receivable from Betque has a balance of:
6. At December 31, 2006 the note receivable from Gabutero has a balance of:
7. At December 31, 2006 the note receivable from Noval has a balance of:
8. At December 31, 2006 the note receivable from Gan has a balance of:
9. The total Note Receivable Trade at December 31, 2006 is:
10.The total Interest Receivable at December 31, 2006 is: