BS Accountancy Batch 2018: Instructor: John Rey G. Lobaton

BS Accountancy
Batch 2018
BSA IV A Instructor: John Rey G. Lobaton

Monday 5:30 6:30 ; 7:30 to 8:30
Wednesday 5:30 6:30
BSA IV B
Tuesday and Thursday
7:00 to 8:30
1 - 40
AR 2 Auditing theory 2 - 40
Other trade accounts receivable - unassigned 600,000
Trade accounts receivable - assigned (LODI Company's equity in assigned
accounts is P80,000) 210,000
Trade instalment receivable due 1 - 18 months, net of unearned finance
charges of P45,000 140,000
Due from officers - trade 31,500
Trade accounts receivable - December 31, 2016 981,500
Answer: d
AR 6 Auditing problems 3 - 40
Trade accounts receivable (Question 1) 981,500
Advance payments to creditors on purchase orders 170,000
Subscriptions receivable due in 40 days 750,000
Interest receivable on bonds 200,000
Current trade and other receivables 2,101,500
Answer: b
Advances to subsidiaries are normally presented under
noncurrent assets
Answer: d
Which of the following may be considered to be a primary
objective of the auditor in the examination of accounts
receivable?
a. Determine approximate time of collectability of

receivables.
b. Determine the relationship of receivables to sales.
c. Determine the reasonableness of the sales figure.
d. Establish validity and collectability of receivables.
Which of the following is not a procedure used by an auditor
in the examination of accounts receivable?
a. Confirmation
b. Reconciliation
c. Inquiry
d. Physical count and inspection
An auditor most likely would review an entitys periodic
accounting for the numerical sequence of shipping
documents and invoices to support managements financial
statement assertion of
a. Valuation
b. Completeness
c. Existence and occurrence
d. Rights and obligations
Which of the following forms of evidence represents the most
competent evidence that a receivable actually exists?
a. A sales invoice
b. A receiving report
c. A positive confirmation
d. A bill of lading
Accounts receivable 17,500,000
Amount estimated to be uncollectible (1,800,000)
Net realizable value 15,700,000
Answer: b
Bad debt expense for 2016 840,000
Customer accounts written off as
uncollectible during 2016 (240,000)
AFDA - 12/31/16 600,000
Accounts receivable, net of AFDA 9,500,000

AFDA - 12/31/16 600,000
Accounts receivable - before
deducting AFDA 10,100,000
Answer: c
Sales 15,000,000
Less sales returns and allowances 700,000
Net sales 14,300,000

Multiply by bad debt rate 1 1/2%
Bad debt expense 214,500
Answer: b
AFDA - 1/1/16 170,000
Establishment of accounts written off in prior years 80,000
Customer accounts written off in 2016 (300,000)
Bad debt expense for 2016 (P21,000,000 x 3%) 630,000
AFDA - 12/31/16 580,000
Answer: d
Percentage 3%
Bad debt expense, before adjustment 123,000
AFDA - debit balance 100,000
Bad debt expense for 2016 223,000
Answer: c
An aged trial balance of accounts receivable is usually used
by the auditor to
a. Evaluate the results of compliance tests.

b. Evaluate the provision for bad debt expense.
c. Verify the validity of recorded receivables.
d. Ensure that all accounts are promptly credited.
When auditing the allowance for uncollectible accounts, the
least reliance should be placed on which of the following?
a. An aging of past due accounts.

b. The credit managers opinion.
c. Ratios that show the past relationship of the allowance to
net credit sales.
d. Collection experience of the clients collection agency.
Expected cash discounts 6,000
Divided by % of cash discount 0.02
Portion of AR that will be granted cash discounts 300,000
Divide by percentage of total AR estimated to take
advantage of the discount 0.10
AR - 12/31/16 3,000,000
Answer: a
Accounts receivable - 12/31/16 3,000,000
Multiply by bad debt rate [(P40,000/P1,000,000) x 1.5] 0.06
AFDA - 12/31/16 180,000
Answer: c
Accounts receivable, 12/31/16 3,000,000
Less: AFDA 180,000
AFSD 6,000 186,000
NRV, 12/31/16 2,814,000
Answer: b
AFDA, 12/31/16 180,000
Add accounts written off 44,000
Total 224,000
Less: AFDA, 12/31/16 40,000
Bad debt recoveries 3,000 43,000
Doubtful accounts expense for 2016 181,000
Answer: a
Add: Sales on account 38,400,000
Bad debt recoveries 40,000
Total 42,040,000
Less:
Current receivables collected,
before cash discounts
(P31,360,000 + P640,000) 32,000,000
Accounts written off 160,000
Bad debt recoveries 40,000
Collections made on AR
pledged as collateral 1,200,000 33,400,000
Answer: a
AFDA, 12/31/15 72,000
Add: Bad debt recoveries 40,000
Provision for doubtful accounts 184,000
Total 296,000
Less: Accounts written off 160,000
AFDA, 12/31/16 136,000
Answer: b
Less: AFDA - 12/31/16 136,000
NRV - 12/31/16 8,504,000
Answer: c
SL
GL Debit Credit 0 to 1 1 to 6 Over 6
Unadjusted balances 848,000 880,000 40,000 360,000 368,000 152,000

Add (deduct):
Accounts with credit balances 26,000 (14,000) (40,000) (14,000)
Definitely uncollectible accounts (48,000) (48,000) (48,000)
Unlocated difference (8,000)
Adjusted balances 818,000 818,000 - 360,000 354,000 104,000
Answer: a
Account Required
classification Adjusted balance Rate allowance
0 to 1 mo. 360,000 1% 3,600

1 to 6 mos. 354,000 2% 7,080
Over 6 mos. 104,000 P24,000 - 50% 12,000
P80,000 - 10% 8,000
30,680
Answer: a
Doubtful accounts expense, per books 48,000
Add adjustment to allowance:
Required allowance 30,680
Less: balance before required
allowance (P52,000 - P48,000) 4,000 26,680
Doubtful accounts expense for 2016 74,680
Answer: a
Year Credit sales Write off Recovery Net
2012 3,000,000 30,000 - 30,000

2013 4,500,000 76,000 5,400 70,600
2014 5,900,000 104,000 5,000 99,000
2015 6,600,000 130,000 9,600 120,400
20,000,000 340,000 20,000 320,000
Net accounts written off (2012 to 2015) 320,000

Divide by credit sales (2012 to 2015) 20,000,000
Percentage of uncollectible accounts to charge sales 1.60%
AFDA, 1/1/2016 (P3,000,000 x 1.60%) 48,000
Answer: a
Year Credit sales Write off Recovery Net
2012 3,000,000 30,000 - 30,000
2013 4,500,000 76,000 5,400 70,600
2014 5,900,000 104,000 5,000 99,000
2015 6,600,000 130,000 9,600 120,400
2016 8,000,000 166,000 10,000 156,000
28,000,000 506,000 30,000 476,000
Net accounts written off (2012 to 2016) 476,000

Divide by credit sales (2012 to 2016) 28,000,000
Percentage of uncollectible accounts to charge sales 1.70%
Answer: c
AFDA, 12/31/2016 (P3,500,000 x 1.70%) 59,500
Answer: b
Required AFDA, 12/31/16 (see No. 27) 59,500
Accounts written off in 2016 166,000
Bad debt recoveries in 2016 (10,000)
AFDA, 1/1/16 (see No. 25) (48,000)
Doubtful accounts expense in 2016 167,500
Answer: d
Which of the following analytical audit findings would most
likely indicate a possible problem?
a. A material increase in the acid test ratio.

b. A material increase in inventory turnover.
c. A material decrease in the receivables turnover.
d. A material decrease in days sales outstanding.
The retention of cash receipts without an entry being made in
the books until a subsequent cash receipt is received from
which the cashier pays the preceding amount retained.
a. Lapping.
b. Kiting.
c. Cash shorting.
d. Misappropriating.
Unadjusted Trade Notes receivable 3,036,915
Less: Non trade notes receivable
B Co. (Cash loan) 500,000
Mr. Suave (Loan to officer) 1,000,000 1,500,000
Adjusted trade notes receivable 1,536,915
Answer: d
Adjusted trade notes receivable 1,536,915
Less: AFDA (P357,416 x 25%) 89,354
Net realizable value 1,447,561
Answer: a
Maker Date Amount Rate Interest income AIR
A Co. Oct. 1 57,416 18% 2,584 2,584

Oct. 1 100,000 18% 4,500 4,500
Oct. 1 100,000 18% 4,500 4,500
Oct. 1 100,000 18% 4,500 4,500
B Co. Jul. 1 500,000 18% 45,000 45,000
C Co. Oct. 1 251,636 15% 9,436 -
Mr. Suave Feb. 1 1,000,000 18% 165,000 165,000
D Co. Nov. 1 546,387 15% 13,660 13,660
E Co. Dec. 10 381,476 18% 4,005 4,005
253,185 243,749
Answer: b
A Co. Oct. 1 57,416 18% 2,584 2,584

Oct. 1 100,000 18% 4,500 4,500
Oct. 1 100,000 18% 4,500 4,500
Oct. 1 100,000 18% 4,500 4,500
B Co. Jul. 1 500,000 18% 45,000 45,000
C Co. Oct. 1 251,636 15% 9,436 -
Mr. Suave Feb. 1 1,000,000 18% 165,000 165,000
D Co. Nov. 1 546,387 15% 13,660 13,660
E Co. Dec. 10 381,476 18% 4,005 4,005
253,185 243,749
Answer: c
AA Company 200,000
BB Company 900,000
DD Company 120,000
Adjusted balance of NR 1,220,000
Answer: b
Notes receivable - trade (excluding
note discounted amounting to
P200,000) 1,020,000
Subscription receivable 500,000
Advances to officers 160,000
Amount that will be reported in the

current assets section of the SFP 1,680,000
Answer: c
E. Dy Nov. 1 500,000 16% 13,333 13,333

CC Company May 3 600,000 16% 16,000 -
DD Company Sep. 14 120,000 16% 5,760 5,760
35,093 19,093
Answer: d
E. Dy Nov. 1 500,000 16% 13,333 13,333

CC Company May 3 600,000 16% 16,000 -
DD Company Sep. 14 120,000 16% 5,760 5,760
35,093 19,093
Answer: a
Principal 5,000,000
Origination fee (P5M x 8%) (400,000)
Direct loan origination cost 39,400
Carrying amount, 1/1/16 4,639,400
Answer: b
The EIR is 12% since it exactly discounts estimated future cash
receipts over the term of the loan to the net carrying amount of
the loans receivable.
Answer: c
Date EI NI Amortization CA
01/01/2016 4,639,400
12/31/2016 556,728 500,000 56,728 4,696,128
12/31/2017 563,535 500,000 63,535 4,759,663
12/31/2018 571,160 500,000 71,160 4,830,823
12/31/2019 579,699 500,000 79,699 4,910,522
12/31/2020 589,263 500,000 89,478 5,000,000
Answer: d
01/01/2016 4,639,400
12/31/2016 556,728 500,000 56,728 4,696,128
12/31/2017 563,535 500,000 63,535 4,759,663
12/31/2018 571,160 500,000 71,160 4,830,823
12/31/2019 579,699 500,000 79,699 4,910,522
12/31/2020 589,263 500,000 89,478 5,000,000
Answer: b
PV of Principal (P2,000,000 x 0.5674) 1,134,800
PV of Interest (P2,000,000 x 10% x 3.6048) 720,960
Loan proceeds 1,855,760
Answer: c
12/31/2014 1,855,760
12/31/2015 222,691 200,000 22,691 1,878,451
12/31/2016 225,414 200,000 25,414 1,903,865
12/31/2017 228,464 200,000 28,464 1,932,329
12/31/2018 231,880 200,000 31,880 1,964,209
12/31/2019 235,705 200,000 35,791 2,000,000
Answer: a
Carrying amount, 12/31/16 1,903,865
Less PV of cash flows:
Principal (P1.2M x 0.7118) 854,160
Interest (P2M x 10% x 2.4018) 480,360 1,334,520
Loan impairment loss in 2016 569,345
Answer: c
Interest income in 2017 (P1,334,520 x 12%) 160,142
Answer: b
Original note payable (P5M x 90%) 4,500,000
Less payment applied to principal:
Total payment (P3M - P200,000) 2,800,000
Less payment applied to interest
(P4.5M x 1%) 45,000 2,755,000
Note payable, 12/31/16 1,745,000
Answer: a
Total AR assigned 5,000,000
Less collections 3,000,000
AR assigned, 12/31/16 2,000,000
Note payable, 12/31/16 1,745,000
Equity in AR assigned 255,000
Answer: d
Journal entry to record the sale (factoring) of AR:
Cash 1,340,000
AFDA (P1.55M - P1.47M) 80,000
Loss on factoring (Finance charge) 130,000
Answer: b
Face value 600,000
Add interest up to maturity (P600,000 x 10% x 6/12) 30,000
Maturity value 630,000

Less discount (P630,000 x 12% x 4/12) 25,200
Proceeds from NR discounting 604,800
Answer: c
Accounts receivable pledged against borrowings, should be
a. Included in total receivables with disclosure.

b. Included in total receivables without disclosure.
c. Excluded from total receivables with disclosure.
d. Excluded from total receivables without disclosure.
A logical substantive test for accrued interest receivable
would be to
a. Verify the cost, carrying value, and market value of notes

receivable.
b. Verify the interest income by a calculation based on the
face amount of notes and the nominal interest rate.
c. Recalculate interest earned and compare it to the
amounts received.
d. Compare the interest income with published interest
investment records.
Tracing bills of lading to sales invoices provides evidence that
a. Shipments to customers were recorded as sales.

b. Shipments to customers were invoiced.
c. Recorded sales were shipped.
d. Invoiced sales were shipped.
Which source document should an auditor use to verify the
correct sales date for an item sold FOB Shipping point?
a. Customers purchase order.

b. Customers payment document.
c. Carriers bill of lading.
d. Sales invoice.
Which account balance is most likely to be misstated if an
aging of accounts receivable is not performed?
a. Accounts receivable
b. Allowance for bad debts
c. Sales revenue
d. Sales returns and allowances.
AR 2 Auditing theory 58 - 40
Book balance, November 16, 2017
Book balalnce, October 31, 2017 12,000
Add - Receipts 44,000
Gross 56,000
Less - Disbursements 36,000
Book balalnce, November 16, 2017 20,000
Answer: b
Undeposited collections, November 16, 2017
Undeposited collections, October 31, 2017 3,000
Add - Company collections 44,000
Gross 47,000
Less - Deposits credited by bank:
Bank receipts 45,000
Less - bank credit not representing deposit 1,500 43,500
Undeposited collections, November 16, 2017 3,500
Answer: d
Particulars Bank Book
Unadjusted balances 22,000 20,000

Add on bank balance:
Undeposited collections 3,500
Deduct from bank balalce:
Outstanding checks (4,000)
Erroneous bank credit (1,500)
Adjusted balances 20,000 20,000
Adjusting entries
December 31, 2016
1 Cash 500
Bad debts 500
To adjust erroneous charge to the latter
account for cash received from customer.
2 Cash 250
Salary 250
To correct customer's payment erroneously
debited to salary account.
3 Cash 800
Accounts receivable 800
To take up unrecorded collection from
customer
4 Cash 30
Interest expense 30
To record bank refund of P30 interest paid by
company before maturity of a note.
5 Cash 100
Accounts payable 100
To record return of P100 check made in error
to a trade customer.
6 Receivable from custodian 2,700

Cash 2,700
To take up cash shortage as of December

31 as receivable from custodian.
Bank Reconciliation
December 31, 2016
Bank Book

Undeposited colelctions 800
Erroneous bank charge 200
Deduct from bank balance:
Outstanding checks, net of P100 (5,020)
Add on book balalnce:
AJE 1 500
AJE 2 250
AJE 3 800
AJE 4 30
AJE 5 100
Corrected balances 59,980 62,680
Shortage (2,700)
Adjusted balance 59,980 59,980
Adjusting entries
January 20, 2017
1 Cash 910
Accounts receivable 910
To take up unrecorded deposit
2 Cash 1,200
Accounts receivable 1,200
To take up unrecorded collection from
customer.
3 Receivable from custodian 3,060

Cash 3,060
To take up shortage from January 1 to
20 as receivable from custodian.
Balance per general ledger as presented 24,927
Add (Deduct):
Subtraction error (35,000 - 11,073 = 23,927) (1,000)
Listed deposits in transit representing
2017 cash receipts (17,000) 1
2016 checks not included in outstanding list (12,857) 2
Bank overdraft - 5,930
1. The deposit in transit listed in the 12/31/16 bank
reconciliation, P23,000, is the sum of the first four deposits
appearing on the 1/9/17 cutoff bank statement. Of these
four, it is likely that only the first one for P6,000, dated
1/2/17, represents the 12/31/16 deposit in transit. The latter
three probably represent 2017 cash receipts. Deposits in
transit, therefore, are overstated by P17,000.
2. Checks 21886 and 21887 are dated 12/31/16 and are

therefore most likely 2016 disbursements. Outstanding
checks, therefore, are understated by the amounts of these
two checks, P12,857.
Check 20803 for P1,600 has not cleared as of the date of the
cutoff bank statement and appears to have been drawn some
time ago.
Who is the payee?

Why has the check not cleared?
Should a new check be drawn?
Should this check be restored to the cash account?
Collections from sales:
Sales 18,550
Less: Accounts receivable - trade 6,200
Collections from sales 12,350
Payments for purchases:
Cost of sales (P18,550 x 66%) 12,243
Add: Inventory end 21,500
Purchases 33,743
Less: Notes payable - trade 5,000
Accounts payable - trade 3,400 8,400
Payments for purchases 25,343
Reconstruction of cash accounts:
Receipts:
Capital stock 50,000
Notes payable - bank 7,000
Collections 12,350
Total 69,350
Disbursements
Payments for purchases 25,343
Land 16,500
Building 12,000
Furniture and fixtures 3,500
Expenses paid 7,996 65,339
Book balance - Cash 4,011
Bank Reconciliation
December 31
Bank Book

Undeposited collection 441
Deduct from bank balance:
Outstanding checks (475)
Deduct from book balance:
Bank service charges (8)
Adjusted balalnces 4,003 4,003
Proof of cash - December 2016
Balance December Balance

Particulars Nov. 30 Receipts Disbursements Dec. 31
Book balance 7,849 185,883 188,834 4,898

Bank charges -
November 30 (18) (18) -
December 31 21 (21)
Check no. 2813 - overstatement of November
book - disbursements 135 135
November book disbursement canceled 400 400
Bank collection - December 2,000 2,000
-
Adjusted book balances 8,366 187,883 188,837 7,412
Proof of cash - December 2016
Balance December Balance

Particulars Nov. 30 Receipts Disbursements Dec. 31
Bank balance 12,149 186,751 190,142 8,758

Undeposited collections: -
November 30 1,824 (1,824) -
December 31 2,956 2,956
Erroneous bank charge - -
December (240) 240
Outstanding checks:
November 30 (5,607) (5,607)
December 31 4,521
Bank service charge -
December 21 (21)
-
Adjusted bank balances 8,366 187,883 188,837 7,412
Balance per general ledger as presented 24,927
Add (Deduct):
Subtraction error (35,000 - 11,073 = 23,927) (1,000)
Listed deposits in transit representing
2017 cash receipts (17,000) 1
2016 checks not included in outstanding list (12,857) 2
Bank overdraft - 5,930
Which of the following is a
BS Accountancy
Batch 2018
Instructor: John Rey G. Lobaton
About the instructor:
BOA Accredited Practitioner

Audit Supervisor, BDO Roxas Cruz Tagle and Co., CPAs
(Formerly BDO Alba Romeo & Co., CPAs)
Faculty member, CHMSC, Riverside College and STI West Negros
University
Masters in Business Administration (on-going), UNO-Recoletos
BS Accountancy, CHMSC
Certified Public Accountant
Member, Philippine Institute of Certified Public Accountants
Member, Philippine Association of Certified Tax Technician
78 - 40

BS Accountancy Batch 2018: Instructor: John Rey G. Lobaton

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BS Accountancy

BSA IV A Instructor: John Rey G. Lobaton

Trade accounts receivable - December 31, 2016 981,500

a. Determine approximate time of collectability of

Net realizable value 15,700,000

AFDA - 12/31/16 600,000

Accounts receivable, net of AFDA 9,500,000

Net sales 14,300,000

AFDA - 12/31/16 580,000

a. Evaluate the results of compliance tests.

a. An aging of past due accounts.

AFDA - 12/31/16 180,000

Accounts receivable, 12/31/2016 8,640,000

NRV - 12/31/16 8,504,000

Unadjusted balances 848,000 880,000 40,000 360,000 368,000 152,000

0 to 1 mo. 360,000 1% 3,600

Doubtful accounts expense for 2016 74,680

2012 3,000,000 30,000 - 30,000

20,000,000 340,000 20,000 320,000

Net accounts written off (2012 to 2015) 320,000

AFDA, 1/1/2016 (P3,000,000 x 1.60%) 48,000

Net accounts written off (2012 to 2016) 476,000

a. A material increase in the acid test ratio.

Net realizable value 1,447,561

A Co. Oct. 1 57,416 18% 2,584 2,584

A Co. Oct. 1 57,416 18% 2,584 2,584

Adjusted balance of NR 1,220,000

Advances to officers 160,000

Amount that will be reported in the

E. Dy Nov. 1 500,000 16% 13,333 13,333

E. Dy Nov. 1 500,000 16% 13,333 13,333

Loan proceeds 1,855,760

Loan impairment loss in 2016 569,345

Note payable, 12/31/16 1,745,000

Equity in AR assigned 255,000

Maturity value 630,000

Proceeds from NR discounting 604,800

a. Included in total receivables with disclosure.

a. Verify the cost, carrying value, and market value of notes

a. Shipments to customers were recorded as sales.

a. Customers purchase order.

Unadjusted balances 22,000 20,000

Adjusted balances 20,000 20,000

December 31, 2016

6 Receivable from custodian 2,700

To take up cash shortage as of December

Unadjusted balances 64,000 61,000

January 20, 2017

3 Receivable from custodian 3,060

2. Checks 21886 and 21887 are dated 12/31/16 and are

Who is the payee?

Unadjusted balances 4,037 4,011

Balance December Balance

Book balance 7,849 185,883 188,834 4,898

Adjusted book balances 8,366 187,883 188,837 7,412

Balance December Balance

Bank balance 12,149 186,751 190,142 8,758

About the instructor:

BOA Accredited Practitioner

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