Problem 5

During December, 2006, the Accounts Receivable controlling account on the books of
FERNANDEZ COMPANY showed one debit posting and two credit postings. The debit
represents receivables from December sales, P780,000. One credit was for P470,400,
made
a result of cash collections on November and December receivables; the second credit
was
an adjustment for estimated uncollectibles, P90,000. The December 31 balance was
P270,000.
When receivables were collected, the bookkeeper credited Accounts Receivables for
the cash
collected. All customers who paid their accounts during December took advantage of
the
2% cash discount.
As of December 1, debit balance in customers’ subsidiary accounts totaled P177,000.
An
adjustment for estimated doubtful accounts of P18,000 had been posted to the
Accounts
Receivable controlling account at the end of 2002, and no write-offs were recorded
during
2006. In addition, a number of customers had overpaid their accounts, and as a
result,
some of the customers’ subsidiary accounts had credit balances on December 1. No
overpayments were made during December nor were any credit balances in
customers’
accounts reduced during December.6
Questions
1. The Accounts Receivable beginning balance (unadjusted) of FERNANDEZ COMPANY
at
December 31, 2006 is:
a. P 50,400
b. P 68,400
c. P 252,000
d. P 270,000
2. The Accounts Receivable beginning balance (adjusted) of FERNANDEZ COMPANY at
December 31, 2006 is:
a. P 50,400
b. P 68,400
c. P 252,000
d. P 270,000
3. The Credit Balance of Accounts Receivable at the beginning of the year of
FERNANDEZ
COMPANY is:
a. P 48,600
b. P 66,600
c. P 108,600
d. P 126,600
4. The Accounts Receivable balance of FERNANDEZ COMPANY at December 31, 2006
is:
a. P 50,400
b. P 68,400
c. P 252,000
d. P 270,000
Solution
Computation for unadjusted AR beginning balance:
Accounts Receivable
* Beg. bal. 50,400
Collections 470,400
Sales 780,000
Allow. for BD 90,000
830,400
560,400
End bal. 270,000
* squeezed figure
Ending balance of AR control account
270,000
Add: Credits during December
560,400
Less: Debits during December
( 780,000)
Balance of AR control account – Dec. 1
50,400
Add: 2006 Est. allowance for BD
18,000
Adjusted AR control account – Dec. 1
68,400
Less: AR subsidiary account – Dec. 1
177,000
Credit balance of AR account – Dec. 1
108,600
Answer:
1. A
2. B
3. C
4. D
Problem 6
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.7
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% uncollec
tible; the remainder is estima
ted 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.
Questions
1. The adjusted balance of accounts receivable of MATIAS CORPORATION at
December 31,
2006 is:
a. P 199,740
b. P 199,540
c. P 198,300
d. P 198,100
2. The adjusted write-off of accounts receivable balance of MATIAS CORPORATION at
December 31, 2006 is:
a. P 2,708.00
b. P 2,508.00
c. P 2,384.00
d. P 1,708.00
3. The adjusted allowance of bad debts account of MATIAS CORPORATION at
December 31,
2006 is:
a. P 4,980.60
b. P 4,964.20
c. P 4,780.60
d. P 4,764.20
4. The bad debts expense per book of MATIAS CORPORATION at December 31, 2006
is:
a. P 9,850.00
c. P 4,764.20
b. P 6,359.80
d. Cannot be determined
5. The adjusted bad debts expense of MATIAS CORPORATION at December 31, 2006
is:
a. P 3,814.20
b. P 3,614.20
c. P 3,490.20
d. P 2,814.208
6. The entry to adjust the account of Marlisa Company is:
a. Bad debts
324
c. Allow. for BD
324
Allow. for BD
324
Bad debts
324
b. Bad debts
324
d. Accounts receiv. 324
Accounts receivable
324
Bad debts
324
7. The entry to reconcile the accounts receivable control ledger to subsidiary ledger
is:
a. Accounts receivable 1,440
c. Accounts receiv. 1,440
Allow. for BD
1,440
Misc. income 1,440
b. Allow. for BD
1,440
d. No adjustment
Accounts receivable
1,440
8. The net realizable value of accounts receivable of MATIAS CORPORATION at
December
31, 2006 is:
a. P 194,975.80
b. P 194,775.80
c. P 193,335.80
d.P193,319.40
Solution
Per
PER SUBSIDIARY LEDGERS
Control
Acct.
0-1 mo.
1-3 mos
3-6 mos.
Over
6 mos.
Total
Bal. before adjustments
P 197,000
P 93,240
P 76,820
P 22,180
P 6,000
P 198,240
Adjustments:
Add(Deduct)
(2) Correction to 10.31.02
entry to write-off
uncollectible accts.
(200)
(3) Write-off of acct.
considered definitely
uncollectible
( 1,000)
(1,000)
(1,000)
(4) Reclassification of
credit balances
2,500
2,000
500
2,500
P 198,300
P 95,240
P 77,320
P 22,180
P 5,000
P 199,740
(5) To adjust the control
acct. to agree with SL
1,440
Adjusted balance
P 199,740
Audit adjustments as of 12.31.06
(1)
Bad Debts expense
324
Allowance for doubtful accounts
324
(2)
Allowance for doubtful accounts
200
Accounts Receivable
200
(3)
Allowance for doubtful accounts
1,000
Accounts Receivable
1,000
(4)
Accounts Receivable
2,500
Customer’s Accounts with Credit Balances
2,500
(5)
Accounts Receivable
1,440
Miscellaneous Revenue
1,440
(6)
Allowance for Doubtful Accounts
6,359.80
Bad Debts Expense
6,359.809
Required allowance on 12.31.06
0-1 mo.
P 95,240 x 1%
P 952.40
1-3 mos.
77,320 x 2 %
1,546.40
3-6 mos.
22,180 x 3%
665.40
Over 6 mos.
3,000 x 20%
600.00
2,000 x 50%
1,000.00
P 4,764.20
Beg. balance
3,658.00
+ Provision per audit
(squeezed figure)
3,490.20
- Write-off
2,384.00
Ending balance
4,764.20
Provision per book
9,850.00
Provision per audit
3,490.20
Adjustment
6,359.80
Answer:
1. A
2. C
3. D
4. A
5. C
6. A
7. C
8. A