orca_share_media1506255759817

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CHRISTOPHER T. ESPENILLA, CPA MBA

FACULTY – SAINT LOUIS UNIVERSITY, BAGUIO CITY

REVIEWER – REVIEW SCHOOL OF ACCOUNTANCY,

MANILA

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AUDITING (2016 EDITION)

CTESPENILLA

SOLUTIONS GUIDE

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155 CHAPTER 1: THE AUDIT PROCESS

CHAPTER 1: THE AUDIT PROCESS

PROBLEM 1: CLIENT ACCEPTANCE AND CONITINUANCE

1 D 11 B 2 D 12 C 3 D 4 A 5 D 6 B 7 B 8 A 9 D 10 D

PROBLEM 2: UNDERSTANDING THE BUSINESS AND THE INDUSTRY

1 D 11 C 2 D 12 B 3 C 13 B 4 D 14 D 5 D 15 D 6 D 16 B 7 A 8 D 9 C 10 E

PROBLEM 3: INTERNAL CONTROL

1 C 11 E 21 B 2 D 12 B 22 A 3 C 13 D 23 C 4 C 14 C 24 B 5 A 15 C 25 C 6 D 16 C 26 A 7 C 17 C 8 D 18 D 9 D 19 D 10 A 20 A

PROBLEM 4: RISK BASED AUDIT PLANNING

1 D 11 C 2 C 12 B 3 D 4 B 5 B 6 B 7 C 8 A 9 D 10 C

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AUDITING (2016 EDITION)

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155 CHAPTER 1: THE AUDIT PROCESS

CHAPTER 1: THE AUDIT PROCESS

PROBLEM 5: SUBSTANTIVE TESTING

1 B 21 B 2 A 22 D 3 C 23 B 4 C 24 D 5 C 25 C 6 D 26 C 7 C 27 B 8 D 28 B 9 C 29 B 10 C 30 B 11 A 31 D 12 B 32 A 13 B 33 A 14 A 15 A 16 B 17 A 18 A 19 D 20 A

PROBLEM 6: AUDIT REPORTING

1 C 2 B 3 B 4 B 5 B 6 C 7 A 8 B 9 C 10 C 11 A 12 C

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AUDITING (2016 EDITION) AUDITING (2016 EDITION) CTESPENILLA CTESPENILLA SOLUTIONS GUIDE SOLUTIONS GUIDE 3 3 of of 155155

CHAPTER 2: AUDIT OF CASH AND CASH EQUIVALENTS CHAPTER 2: AUDIT OF CASH AND CASH EQUIVALENTS CHAPTER 2: AUDIT OF CASH

CHAPTER 2: AUDIT OF CASH

DISCUSSION PROBLEMS DISCUSSION PROBLEMS CHAPTER 2-PROBLEM 1 CHAPTER 2-PROBLEM 1 1 1 BB 2 2 DD 3 3 AA 4 4 BB 5 5 DD 6 6 DD 7 7 DD 8 8 DD 9 9 DD 10 10 DD 11 11 DD 12 12 BB 13 13 CC 14 14 BB 15 15 BB 16 16 CC 17 17 BB 18 18 DD 19 19 DD 20 20 BB 21 21 CC 22 22 DD 23 23 CC 24 24 DD 25 25 BB

AP02-PROBLEM 2: MAPERA CORPORATION AP02-PROBLEM 2: MAPERA CORPORATION 1. A

1. Ans. ns. P3,445,000P3,445,000

Current account at Metrobank 3,250,000 Post-dated disbursement check - adjusted to AP 75,000 Undelivered disbursement check - adjusted to AP 120,000 Ad

Adjujuststed ed cucurrrrenent t acaccocoununt t at at MeMetrtrobobanankk 3,3,44445,5,000000 2. Ans. P2,250,000

2. Ans. P2,250,000

Savings account at Rural Bank 2,750,000 Compensating balance - legally restricted (500,000) Ad

Adjujuststed ed sasavivingngs as accccouount nt at at RuRuraral Bl Banankk 2,2,25250,0,000000 3. Ans. Zero

3. Ans. Zero

The bank overdraft balance with BDO shall be presented as a current liability since there is no right of offset, that is the company has no bank account with BDO.

4. Ans. P738,000. 4. Ans. P738,000.

Undeposited collections, unadjusted balance 1,278,000 Customer stale check - adjusted to AR (180,000) Customer post-dated check - adjusted to AR (125,000) Customer DAUD check - Adjusted to AR (155,000) Officer's NSF check - Ad justed to AR-nontrade (80,000) A

Addjjuusstteed d uunnddeeppoossiitteed d ccoolllleeccttiioonnss 773388,,000000 5. Ans. P18,500

5. Ans. P18,500

Bills and coins 7,000 Replenishment check 11,500 Ad

Adjjusustted ed ppetettty cy c asash fh f uund nd as as oof 1f 1 2/2/3131//1414 1818,,505000 6. Ans. P613,500

6. Ans. P613,500

Travel fund 50,000 Interest and dividend fund 120,000 Payroll fund 400,000 Change fund 25,000 Petty cash fund 18,500 Adj

Adjustusted caed cash funsh fun d - Casd - Cas h and ch and c ash eqash equivuivaleale 613613,50,5000 7. Ans. P900,000

7. Ans. P900,000

Debt security investment due 3/31/15 purchased 12/31/14 600,000 Preference shares redeemable on 2/28/15 purchased 12/1/14 300,000 De

Debt bt anand ed eququitity sy sececururititieies - Cs - Casash anh and cd casash eh eququivivalalenentt 90900,0,000000 8. Ans. P7,946,500

8. Ans. P7,946,500

Adjusted current account at Metrobank 3,445,000 Adjusted savings account at Rural Bank 2,250,000 Adjusted undeposited collections 738,000 Adjusted cash fund - Cash and cash equivalent 613,500 Debt and equity securities - Cash and cash equivalent 900,000 C

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CHAPTER 2: AUDIT OF CASH AND CASH EQUIVALENTS CHAPTER 2: AUDIT OF CASH AND CASH EQUIVALENTS 9. Ans. P1,874,500

9. Ans. P1,874,500

Customer stale check - adjusted to AR 180,000 Customer post-dated check - adjusted to AR 125,000 Customer DAUD check - Adjusted to AR 155,000 Officer's NSF check - Adjusted to AR-nontrade 80,000

Petty cash fund shortage - Adjusted to AR-custodian 1,500 *alternatively, this can be charged to other expense

Postage stamps - Office supplies 3,000 IOU from a key officer - AR-nontrade 30,000

Investment in debt security due 1/31/15 purchased 1/1/14 900,000 *classified as short-term investment

Ordinary shares - Trading securities/FA at FMV through P&L 400,000 Cur

Currenrent asst assets (ets (othother ther than caan cash ansh and casd cash eqh equivuivalealentsnts)) 1,81,874,74,500500 10. Ans. P1,700,000

10. Ans. P1,700,000

Rural bank - compensating balance - Adjusted to Other assets 500,000 Pension fund - Adjusted to Long-term Investment 250,000 Bond sinking fund - Adjusted to Long-term Investment 500,000 Cash in closed bank at recoverable value - Adjusted to Other assets 150,000 Ordinary shares - A vailable-for-sale security/FA at FMV through OCI/L 300,000 Non-current

Non-current assets assets 1,700,0001,700,000 11. Ans. P495,000

11. Ans. P495,000

Current account at BDO - Bank overdraft 240,000 Post-dated disbursement check - adjusted to AP 75,000 Undelivered disbursement check - adjusted to AP 120,000 Credit memo for a purchase return - adjusted to AP 60,000 C

Cuurrrreennt lliiat abbiilliittiieess 449955,,000000

CHAPTER 2-PROBLEM 3: MANNY CO. CHAPTER 2-PROBLEM 3: MANNY CO. Accountability:

Petty Cash Fund, Imprest balance 40,000 Return of an expense advance (a) 900 T

Toottaal AAcl cccoouunnttaabbiilliittyy 4400,,9901. 1. Ans.000Ans. Valid supporting items:

Bills and coins 13,400 Unreplenished paid vouchers 3,700 Accomodated checks

Dated 12/30 2,000 Dated 11/30 - marked NSF 1,000

Replenishment check 10,000 30,100 P

Peetttty y ccaassh h ffuunnd d sshhoorrttaaggee 110 0,,8800002. 2. Ans.Ans.

(a) Should be subsequently deposited to the bank.

Cash items as of December 31, 2014

Bills and coins 13,400 Return of excess travel expense advance (a) (900) Unreplenished paid voucher dated 1/2 1,000 Accomodated check 12/30 2,000 Replenishment check 10,000 A

Addjjuusstteed d ppeetttty y ccaassh h ffuunndd 2255,,550003. 3. Ans.0Ans.

(a) Should be subsequently deposited to the bank.

4. Adjusting entries: 4. Adjusting entries:

1 Transportation expense 500 Repairs and maintenance expense 300 Entertainment, amusement and representation ex 900 Due to employees 1,000

Petty cash fund 2,700 To record unreplenished paid vouchers.

2 Receivable from employee 1,000 Petty cash fund 1,000

To record NSF accomodated check.

3 Receivable from employee 10,800 Petty cash fund 10,800

To record petty cash fund shortage. Petty cash fund, imprest balance 40,000 AJE 1. (2,700) AJE 2. (1,000) AJE 3. (10,800) A

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CHAPTER 2: AUDIT OF CASH AND CASH EQUIVALENTS CHAPTER 2: AUDIT OF CASH AND CASH EQUIVALENTS CHAPTER 2-PROBLEM 4: MAKWARTA COMPANY

CHAPTER 2-PROBLEM 4: MAKWARTA COMPANY Ans. P1,630

Ans. P1,630 Accountability:

Total collections, 10/1-10/11 (per OR) 28,840 Total bank credits, 10/1-10/11 (per bank statement) 16,550 September deposit in transit (4,500)

September bank charge error (corrected in October) (1,400) 10,650 Undeposited collections as of October 11 18,190 Valid supporting items:

Currency and coins 12,310 Customer collection checks

9/30/14 - Baguio Corp. 2,350 10/3/14 L. - Reyes 1,960

10/4/14 - La. Union Corp. 1,590 5,900 Unused postage (adjusted to supplies) 110

Vouchers paid out of receipt (adjusted to expense) 1,500 19,820 O

Ovveerraaggee 11,,663300

CHAPTER 2-PROBLEM 5: BETTY CO. CHAPTER 2-PROBLEM 5: BETTY CO. Accountability

Petty cash fund, imprest balance 10,000 Undeposited collections

Cash collections (per cash sales invoices) 1,670 Customer collection checks (depositable only) 2,500 4,170 T

Toottaal AAcl cccoouunnttaabbiilliittyy 1144,,1171. 1. Ans.700Ans. Valid supporting items

Currencies and coins 5,980 Customer collection checks (depositable only)

12/30 Errol Corp., Customer 1,300 1/2 R. Rarr, Customer 1,200 Accomodated checks (whether depositable or not)

12/30 D. Dong, Vice President 1,220 1/2 Junior, Employee 312 Unreplenished Vouchers 850 Employee IOU's 700 11,562 P

Peetttty CCay assh h SShhoorrttaaggee 22,,6600882. 2. Ans.Ans. AJEs to the Petty Cash Fund:

(a) Expenses 730

Petty Cash Fund 730 To record unreplenished expense vouchers as of Dec. 31 only. (b) Receivable from employee 700

Petty Cash fund 700 To record employee .

(c) Receivable from employee 2,608 Petty Cash fund 2,608

To record the petty cash fund shortage.

Imprest balance 10,000 AJE (a) (730) AJE (b) (700) AJE (c) (2,608) (4,038)(4,038)3. 3. Ans.Ans. A

Addjjuusstteed d PPeetttty y CCaassh h FFuunnd d aas s oof f DDeecc. . 3311 55,,996624. 4. Ans.2Ans.

CHAPTER 2-PROBLEM 6: DATUNG MANUFACTURING CO. CHAPTER 2-PROBLEM 6: DATUNG MANUFACTURING CO.

Bank Reconciliation Statement 10/31/2014

BANK BOOK

Unadjusted Balance, per Bank Statement 144,975 125,245Unadjusted Balance per Books Undeposited collections, excluding missapprop. 10,770 8,000Unrecorded Bank Credits Oustanding checks (50,550) (2,300)Unrecorded Bank Debits: NSF Check Bank error (unrecorded bank charge) (1,250) (1,250)Unrecorded Bank Debits: Bank Service Charge C

Cororrerect ct cacash sh in in bbanank k bbalalanance ce (2(2. . AAnsns. . )) 110303,,949455 129,695Adjusted balance per books (25,750)

(25,750)

Cash Cash shortage shortage (1. (1. Ans. Ans. )) 103,945

103,945

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CHAPTER 2: AUDIT OF CASH AND CASH EQUIVALENTS CHAPTER 2: AUDIT OF CASH AND CASH EQUIVALENTS 3

3 AdjuAdjustinsting Entries:g Entries:

(a) Cash bankin 8,000

Accounts receivables 8,000 (b) Accounts receivables 2,300

Cash bankin 2,300 (c) Bank service charge/Other expenses 1,250

Cash bankin 1,250

CHAPTER 2-PROBLEM 7: JADE CORPORATION CHAPTER 2-PROBLEM 7: JADE CORPORATION

Bank Reconciliation 12/31/2014

BANK BOOK

Unadjusted balance 792,285 726,600Unadjusted balance Deposit in transit 10,500 20,000Unrecorded credit Outstanding check (75,975) (5,000)Unrecorded debit Bank error 2,250 31,500Book errors (audit note a.) C

Coorrrreecct t ccaassh h bbaallaanncce e ((11. . AAnnss. . )) 772299,,006600 773,100 (44,040) (44,040)

Shortage Shortage (3. (3. Ans. Ans. )) 729,060

729,060 Adjusted Adjusted balancebalance Unadjusted balance per books 726,600

Correct cash balance 729,060 N

Neet t aaddjjuusstteemmeennt t tto o ccaassh h ((1122//3311)) ((22,,42. 2. Ans.4660Ans.0))

Accountability as of January 15 180,500 Unrecorded credit as of 12/31 (20,000) Book errors in Janaury (audit note b and c) 19,500 Adjusted accountability 180,000 January deposits from January collections

Januray bank credits 143,895 Correction of Dec. bank charge error (2,250) Dec. deposit in transit (10,500) 131,145 Cash handon 10,125 Expense vouchers 1,125 Cash shortage from Jan. 2 - Jan. 15 37,605 Add: Cash shortage as of Dec. 31 44,040 T

Toottaal l ccaassh h sshhoorrttaagge e aas s oof f JJaann. . 1155, , 22001155 8811,,664454. 4. Ans.5Ans.

CHAPTER 2-PROBLEM 8: PIRA CO. CHAPTER 2-PROBLEM 8: PIRA CO.

Proof of Cash, 6/30/2014

May 3 1, Receipt Disbursement June 3 0, Unadjusted balances per bank statement 1,836,000 2,496,000 1,224,000 3,108,000 Deposit in transit, May 480,000 (480,000)

Deposit

Deposit in in transit, transit, June June (SQUEEZE) (SQUEEZE) 4. 4. Ans. Ans. 1,317,6001,317,600 1,317,600 Outstanding checks, May (1,020,000) (1,020,000) Outstanding

Outstanding checks, checks, June June (SQUEEZE) (SQUEEZE) 5. 5. Ans. Ans. 2,171,7602,171,760 (2,171,760) Bank error, May Overstated disbursement 240,000 (240,000)

Adjusted balances 1,536,0001,536,000 3,093,600 2,375,760 2,253,8402,253,840 2.

2. Ans. Ans. 6. 6. Ans.Ans. May 3 1, Receipt Disbursement June 3 0, Un

Unadadjujuststed ed babalalancnces es peper r bobook ok (1(1. A. Ansns. . )) 53538,8,2020004,818,600 2,443,200 2,913,600 Unrecorded bank credit: May 600,000 (600,000)

Unrecorded bank debits: BSC, May (7,200) (7,200) Unrecorded bank debits: BSC, June 9,600 (9,600) Unrecorded bank debits: NSF Check June 144,000 (144,000) Bank error, May Overstated disbursement 405,000 (405,000)

Book error, June O verstated collection (720,000) (720,000) Book error, June Overstated disbursement (213,840) 213,840 Adjusted balances 1,536,000 3,093,600 2,375,760 2,253,840 3. Ans. No shortage.

CHAPTER 2-PROBLEM 9: KRAME INC. CHAPTER 2-PROBLEM 9: KRAME INC. Proof of Cash

Augsut 31: Receipt Disbursemen September 30: Unadjusted balances, per bank 485,000 1,955,000 1,655,000 785,000 Undeposited collections - Aug 450,000 (450,000)

U

Unnddeeppoossiitteed d ccoolllleeccttiioonns s - - SSeepptt 224400,,000000 240,000240,0002. 2. Ans.Ans. Outstanding checks - Aug (180,000) (180,000)

O

Ouuttssttaannddiinng g cchheecckks SeS- - s epptt 222200,,000000 (220,000)(220,000)3. 3. Ans.Ans. Bank error Aug- (80,000) (80,000)

675,000 675,000 1,745,000 1,615,000 805,000805,000 1 1. . A Annss.. AAn44. . nss.. June 30: Receipt Disbursemen July 31: Unadjusted balances, per book 640,000 1,795,000 1,800,000 635,000 Unrecorded credit - Aug 200,000 (200,000)

Unrecorded credit - Sept 250,000 250,000 Unrecorded debit - Aug (120,000) (120,000) Unrecorded debit Sept- 80,000 (80,000) Book Error Aug- (45,000) (45,000) Book Error - Sept /Correction - Sept (100,000) (100,000)

675,000 1,745,000 1,615,000 805,000 Shortage/Overage -

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CHAPTER 2: AUDIT OF CASH AND CASH EQUIVALENTS CHAPTER 2: AUDIT OF CASH AND CASH EQUIVALENTS CHAPTER 2-PROBLEM 10: MANGO COMPANY

CHAPTER 2-PROBLEM 10: MANGO COMPANY Proof of Cash, 4/30/2014

March 31, Receipt Disbursement April 30, Unadjusted balances per bank statement 21,560 220,450 218,970 23,040 Undeposited receipts, March 9,060 (9,060)

Undeposited receipts, April 10,120 10,120 Outstanding checks, March (2,675) (2,675) Outstanding checks, April (excluding certified check) 1,430 (1,430) Bank error, April Overstated disbursement (950) 950 Adjusted balances 27,94527,945 221,510221,510 216,775216,775 32,68032,680 March 31, Receipt Disbursement April 30, Unadjusted balances per book 16,545 222,190 216,055 22,680 Book receipts used to pay creditors in cash (1,210) (1,210) Unrecorded bank credit: March 12,150 (12,150)

Unrecorded bank credit: April 11,640 11,640 Unrecorded bank debits:

NSF check, returned in April recorded in April 1,040 1,040

NSF check, returned in April not yet recorded 860 (860) Unrecorded bank debits: BSC, March (750) (750) Unrecorded bank debits: BSC, April 420 (420) Bank error, April Understated disbursement 360 (360) Adjusted balances 27,94527,945 221,510221,510 216,775216,775 32,68032,680

1.

1. AnAns.s. 22. . AAnsns. . 3. 3. AAnsns. . 4. 4. AnAns.s.

MULTIPLE CHOICE EXERCISES MULTIPLE CHOICE EXERCISES CHAPTER 2-EXERCISE 1: ILANG-ILANG COMPANY CHAPTER 2-EXERCISE 1: ILANG-ILANG COMPANY

Unadjusted cash balance 105,600 1. January 5 collection recorded in December (15,000) 2. Undelivered check disbursements 9,300 3. Post-dated customer collection check (7,800) 4. NSF customer collection check (1,500)

5. Cash fund for non-current purpose (40,000)*classifed as LT Fund Investment A

Addjjuusstteed d ccaassh bh baallaanncce - e - ccuurrrreennt t aasssseett 5050,,6Ans. Ans. B.60000B.

CHAPTER 2-EXERCISE 2: BIG

CHAPTER 2-EXERCISE 2: BIG BROTHER CORP.BROTHER CORP.

Equivalent Asset 6,000,000 6,000,000

(300,000) *no right of off-set, classified as current liabi 1,500,000 1,500,000

60,000 3,000,000*Other Asset at current exchang price 3,000 *prepaid expense

12,000 *other receivables 30,000 *other receivables 60,000 *debited to accounts payable 150,000 150,000 45,000 *accounts receivable 90,000 90,000 12,000 12,000 600,000 600,000 900,000 *current investment 10,000 10,000 1,000,000 1,000,000*LT fund investment 8, 8,36362,2,000000 4,4,00000,0,000000 1 1. A. Ans ns .C.C.. 2. 2. AAnsns. . B.B.

CHAPTER 2-EXERCISE 3: UHAWSAIYO CHAPTER 2-EXERCISE 3: UHAWSAIYO COMPANYCOMPANY Accountability:

Petty cash fund, imprest balance 15,000 Undeposited collections

Cash sales invoices (17903-18112) 100,500 Official receipts 39,537 Customer collection check, n ot yet included 5,707 145,744 Other collections: Return of expense advance 260 Other collections: Contribution for Christmas Party 9,500 T

Toottaal AAcl cccoouunnttaabbiilliittyy 117700,,550044 Valid supporting items:

Bills and coins 105,174 Customer collection checks

12/30 OtisT. 11,920 12/26 R. Eyes 12,505 1/2 O. Liever 5,707 12/21 F. Rancisco 13,350 Accomodated check 310 12/29 O. Camp (return of expense advance) 260 Expense vouchers and IOUs 6,775 156,001 P

Peetttty ccay assh h sshhoorrttaaggee 1144,,5500331. 1. Ans. Ans. B.B. Treasury bills, due 3/31/15 (purchased 12/31/14)

Treasury bills, due 1/31/15 (purchased 1/1/14) Change fund

Bond sinking fund

Current account at Bank of the Philippine Islands Current account at Equitable PCI Bank Payroll account

Foreign bank account – restricted (in USD) ** Postage stamps

Employee’s post dated check IOU from a key officer

Credit memo from a vendor for a purchase return Traveler’s check

Customer’s not-sufficient-funds check Money orders

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CHAPTER 2: AUDIT OF CASH AND CASH EQUIVALENTS CHAPTER 2: AUDIT OF CASH AND CASH EQUIVALENTS Cash on hand as of January 5, 2015

Bills and coins 105,174 Customer collection checks 43,482 Accomodated check 310 Return of expense advance check 260 149,226 Cash that does not belong to the petty cash fund

Undeposited collections:

Collection checks 43,482

Cash collections (100,500+560+1,202) 102,262 (145,744) Return of expense advance (260) Excess collection from Christmas Party (9,500-6,290) (3,210) Cash on hand as of January 5, belonging to the Petty Cash 12 Vouchers paid after December 31: 1/2/15, PNR 35 P

Peetttty y ccaassh h ffuunnd d aas s oof f DDeecceemmbbeer r 3311, , 22001155 44773. 3. Ans. Ans. B.B. AJEs:

(a) Office supplies expense (150-80) 70 Unused office supplies 80 Receivable from employee 300

Petty cash fund 450 To record unreplensihed expense vouchers as of December 31. (b) Receivable from employee 14,503

Petty cash fund 14,503 To record petty cash shortage

Reconciliation:

Petty cash fund, imprest balance 15,000 AJE

(a) (450)

AJE (b) (14,503) (14,953)(14,953)2. 2. ans. ans. B.B. P

Peetttty y ccaassh h ffuunndd, , aaddjjuusstteed d bbaallaannccee 44773. 3. Ans. Ans. B.B. Notes:

1. The unused portion of the collection from the Christmas Party does not belong to the company and should not be reflected in the books of the company. Should it be recorded as part of the cash of the company, the same shall be regarded as a payable to whoever owes the excess collectoins (e.g. the employees who made the contribution). 2. The unreplenished voucher dated 1/2/15 shall still be considered as valid cash as of December 31, 2014 since the disbursement

was made only on 1/2, thus the same was not included among the adjustments to petty cash as of December 31. 3. The return of expense advance amounting to P260 shall be included as part of accountability, and since it is still in check

the same was also part of the valid supporting items. As an additional audit procedure, return of expense advance shall be traced to eventual deposit to the bank after the count date since the amount no longer belongs to the fund and should be returned back to the general cash of the company.

CHAPTER 2-EXERCISE 4: SILVER COMPANY CHAPTER 2-EXERCISE 4: SILVER COMPANY Bank Reonciliation Statement 12/31/2014

BANK BOOK

Unadjusted balance per Bank Statement 12,300 15,000Unadjusted balance per books Undeposited collections (as being reported) 3,000 150Unrecorded bank credit Outstanding checks (as per complete list) (850)

Co

Corrrrecect ct c asash bh balalanance ce peper aur au didit (t ( 4. 4. AnAns. Bs. B .).) 14,414,45050 15,150Unadjusted balance per books (700)

(700)

Shortage 1. Shortage 1. Ans. Ans. D.D. 14,450Adjusted balance per books 2. Ans. D.

2. Ans. D.

Undeposited collections (as being reported) 3,000

Shortage 700

A

Accccoouunnttaabbiilliitty y ffoor r ccaassh h oon n hhaanndd 3,,7370000 3. Ans. B.

3. Ans. B.

Correct cash balance per audit 14,450 Cash on hand/Undeposited collection (3,000) C

Caassh ih in n BBaannk k ((eexxcclluuddiinng g CCaassh h oon Hn Haanndd)) 1111,,445500

CHAPTER 2-EXERCISE 5: HOME CORP. CHAPTER 2-EXERCISE 5: HOME CORP.

Bank Reconciliation 12/31/2014

BANK BOOK

Unadjusted balance 1,548,570 1,239,200Unadjusted balance Deposit in transit 21,000 200,000Unrecorded credit Outstanding check (151,950) (10,000)Unrecorded debit Bank error 4,500 63,000Book errors (audit note) C

Coorrrreecct t ccaassh bh baallaanncce (e ( 1166. . AAnnss. D. D )) 11,,442222,,112200 1,492,200 (70,080) (70,080)

Shortage Shortage (17. (17. Ans. Ans. C C )) 1,4

1,422,22,120120 AdAdjusjusted ted balbalancancee Accountability as of January 10 521,000

Unrecorded credit as of 12/31 (200,000) Book errors in Janaury (audit note a and b) 39,000 A

Addjjuusstteed d aaccccoouunnttaabbiilliittyy 336600,,00000(18. (18. Ans. 0 Ans. B.)B.) January deposits from January collections

Januray bank credits 322,790 Correction of Dec. bank charge error (4,500) Dec. deposit in transit (21,000) 297,290 Cash and Checks on hand (Depositable) 23,475 Expense vouchers 22,250 C

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CHAPTER 2: AUDIT OF CASH AND CASH EQUIVALENTS CHAPTER 2: AUDIT OF CASH AND CASH EQUIVALENTS CHAPTER 2-EXERCISE 6: CARRERA INC.

CHAPTER 2-EXERCISE 6: CARRERA INC. Proof of Cash, July 31, 2014

June 30, Receipt Disbursement July 31, Unadjusted b alances p er bank s tatement 172,590 751,680 903,390 20,880 Deposit in transit, June 18,000 (18,000)

D

Deeppoossiit t iin n ttrraannssiitt, , JJuully y ((SSQQUUEEEEZZEE)) 3300,,000000 30,00030,0002. 2. Ans. Ans. B.B. Outstanding checks, June (52,260) (52,260)

O

Ouuttssttaannddiinng g cchheecckkss, , JJuully y (S(SQQUUEEEEZZEE)) 4411,,882200 (41,820)(41,820)1. 1. Ans. Ans. C.C. Bank error, July Overstated disbursement (11,880) 11,880 Adjusted balances 138,330138,330 763,680763,680 881,070881,070 20,94020,9403. 3. Ans. Ans. A.A.

March 31, Receipt Disbursement April 30, Unadjusted balances per book 140,330 763,680 654,330 249,680 Unrecorded bank debits, July Payment of AP 31,800 (31,800) Unrecorded bank debits, July BSC 2,610 (2,610) Unrecorded bank debits, July Payment of NP 183,000 (183,000) Unrecorded bank debits, July NSF 9,330 (9,330) Adjusted balances 140,330140,330 763,680763,680 881,070881,070 22,94022,940 C

Caassh h iin n bbaannkk, , sshhoorrttaagge e JJuunne e 3300 22,,0000004. 4. Ans. Ans. C.C. CHAPTER 2-EXERCISE 7: EDILBERTO INC.

CHAPTER 2-EXERCISE 7: EDILBERTO INC. Proof of Cash, December 31, 2014

November 30, Receipt Disbursement December 31, Unadjusted b alances p er bank s tatement 535,410 1,245,540 1,091,865 689,085 Undeposited collections, Nov. 41,005 (41,005)

Undeposited collections, Dec. 64,400 64,400 Outstanding checks, Nov. (138,590) (138,590) Outstanding checks, Dec. 150,560 (150,560) Adjusted balances 11,,2437,825437,82526688,,993355 1,,1110033,,883355 660022,,99225 5

4

4. . AAnnss. . AA.. 55. . AAnnss. . BB.. 66. . AAnnss. . BB.. November 30, Receipt Disbursement December 31,

Unadjusted balances per book 82,350 1,1,18182,2,262600 1,1,06063,3,181855 201,4251. 1. AnAnss. B. B .. 2. A2. Ansns. B. B .. Unrecorded bank credit: Note Col., Nov. 359,075 (359,075)

Unrecorded bank credit: Note Col., Dec. 404,500 404,500 Unrecorded bank debits: BSC, Nov. (3,600) (3,600) Unrecorded bank debits: BSC, Dec. 3,000 (3,000) NSF Check, return and redeposit, same month* 41,250 41,250

Adjusted balances 11,,2437,825437,82526688,,993355 1,,1110033,,883355 660022,,99225 5 3. Ans. B.

3. Ans. B.

CHAPTER 2-EXERCISE 8: HALALAN CORP. CHAPTER 2-EXERCISE 8: HALALAN CORP.

Proof of Cash, June 30, 2014

May 3 1, Receipt Disbursement June 3 0, Unadjusted b alances p er bank s tatement 652,000 88,00088,000 63,20063,200 676,800676,8003. 3. Ans. Ans. A.A. Deposit in transit, May 10,000 (10,000)

Deposit in transit, June 70,000 70,000 Outstanding checks, May (20,000) (20,000) Outstanding checks, June 17,600 (17,600) Bank error, June corrected also in June (a) (1,000) (1,000) Adjusted balances 642,000 148,000 60,800 729,200

1

1. A. Ansns. . B.B. 2. 2. AAnsns. . D.D. May 3 1, Receipt Disbursement June 3 0, Unadjusted balances per book 570,800 219,000219,000 57,40057,400 732,400732,4006. 6. Ans. Ans. C.C. Unrecorded bank credit: May 72,000 (72,000)

Unrecorded bank debits: BSC, May (800) (800) Unrecorded bank debits: BSC, June 200 (200) Unrecorded bank debits: NSF, June 13 (b) 1,000 1,000

Unrecorded bank debits: NSF, June 30 3,000 (3,000) Adjusted balances 642,000 148,000 60,800 729,200

4

4. A. Ansns. D. D.. 5. 5. AAnsns. B. B.. Notes:

(a) the error committed by the bank in June was also corrected in June, thus both receipts and disbursements per bank shall be in excess by P1,000 if compared to receipts and disbursements per books. To reconcile, the same had been deducted from both receipt and disbursements. (b) the NSF check on June 13 had been redeposited immediately. No entry had been made by the company to reflect the receipt and redeposit while on the bank side, the NSF check had been recorded both as disbursement (upon learning that it is NSF) and as receipt (upon redeposit). Thus, to reconcile, the same has been added to both receipts and disbursements per books.

CHAPTER 2-EXERCISE 9: SALUYOT CORP. CHAPTER 2-EXERCISE 9: SALUYOT CORP.

Proof of Cash, September 30, 2014

August 31, Receipt Disbursement September 30, Unadjusted b alances p er bank s tatement 156,000 76,020 29,220 202,800202,8001. 1. Ans. Ans. D.D. Deposit in transit, August 2,700 (2,700)

Deposit in transit, September 28,200 28,200 Outstanding checks, August (12,000) (12,000) Outstanding checks, September 10,800 (10,800) Bank error, Sept. corrected also in Sept. (300) (300) Bank error, Sept., Overstated receipt (600) (600) Adjusted balances 146,700 100,620 27,720 219,600219,6005. 5. Ans. Ans. B.B.

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CHAPTER 2: AUDIT OF CASH AND CASH EQUIVALENTS CHAPTER 2: AUDIT OF CASH AND CASH EQUIVALENTS

August 31, Receipt Disbursement September 30, Unadjusted balances per book 120,000 127,200127,200 25,38025,380 221,820221,8204. 4. Ans. Ans. A.A. Unrecorded bank credit: August 27,000 (27,000)

Unrecorded bank debits: BSC, August (300) (300) Unrecorded bank debits: BSC, September 1,320 (1,320) Unrecorded bank debits: NSF, Sept. 12 420 420

Unrecorded bank debits: NSF, Sept. 30 900 (900) Adjusted balances 146,700 100,620 27,720 219,600

2

2. A. Ansns. . CC.. 3. 3. AAnsns. . B.B.

CHAPTER 2-EXERCISE 10: WISE COMPANY CHAPTER 2-EXERCISE 10: WISE COMPANY 1. Ans. B.

1. Ans. B.

December actual collections from customers 152,500 Deposit credited by bank in Decemeber 145,000 Less: DIT, November (12,500) December collections credited in December (132,500) D

DIITT, DDe, ecceemmbbeerr 2200,,000000 2. Ans. B.

2. Ans. B.

November Bank Service Charge 1,500 Decemeber Bank Service Charge 3,250 Bank Service Charge recorded per books in Dec. (2,500) U

Unnrreeccoorrddeed d BBaannk k SSeerrvviicce e CChhaarrggee, , DDeecc.. 22,,225500 3. Ans. A.

3. Ans. A.

Actual company collections in December 152,500 Book error, underfooting cash receipts (2,500) B

Booook k rreecceeiippttss, , DDeecceemmbbeerr 115500,,000000 4. Ans. C.

4. Ans. C.

Outstanding checks, December 31 12,500 Add: Checks paid by bank in December 130,000

Total 142,500

Less: Outstanding checks, November 30 (16,250) C

Chheecckks s iissssuueed d iin n DDeecceemmbbeer r 112266,,225500 5. Ans. D.

5. Ans. D.

C hecks issued in December (4) 126,250 2,500 B

B ooook k ddiissbbuurrsseemmeenntts s iin n DDeecceemmbbeerr 112288,,775500 6. Ans. A.

6. Ans. A.

Book balance, December 31 37,500 Add: Book disbursements in December (5) 128,750

T otal 166,250

(150,000) B

B ooook k bbaallaannccee, , NNoovveemmbbeer r 3300 1166,,225500 Proof of Cash, December 31, 2014

November 30. Receipt Disbursement December 31, Un

Unadadjujuststed ed babalalancnces es peper r babank nk ststatatememenentt 1818,5,50000 145,000145,000 137,000137,000 26,50026,500(SQUEEZE)(SQUEEZE) Deposit in transit, November 12,500 (12,500)

Deposit in transit, December 20,000 20,000 Outstanding checks, November (16,250) (16,250) Outstanding checks, September 12,500 (12,500) Bank error, Dec. Overstated Disbursement (3,750) 3,750 Adjusted balances 14,750 152,500 129,500 37,750

7

7. . AAnnss. . BB.. 88. . AAnnss. . CC.. 99. . AAnns s DD.. 1100. . AAnnss. . BB.. November 30. Receipt Disbursement December 31, Unadjusted balances per book 16,250 150,000 128,750 37,500 Unrecorded bank debits: BSC, November (1,500) (1,500) Unrecorded bank debits: BSC, December 2,250 (2,250) Book error, Dec. Understated Receipt 2,500 2,500 Adjusted balances 14,750 152,500 129,500 37,750

CHAPTER 2-EXERCISE 11: I-BOT INC. CHAPTER 2-EXERCISE 11: I-BOT INC. 1. Ans. A

1. Ans. A

Total checks issued and recorded in December 377,632 November BSC recorded in Decemeber 36 T

Toottaal l bbooook k ddiissbbuursrseemmeennttss, , DDeecceemmbbeerr 337777,,666688 2. Ans. D.

2. Ans. D.

Balance per books, November 30 15,698 Total book receipts, December 371,766 Total book disbursements, December (377,668) B

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CHAPTER 2: AUDIT OF CASH AND CASH EQUIVALENTS CHAPTER 2: AUDIT OF CASH AND CASH EQUIVALENTS 3. Ans. C. 3. Ans. C. Check number 3408 440 Check number 3418 2,814 Check number 3419 5,788 O

Ouuttssttaannddiinng g cchheecckkss, , DDeecceemmbbeer r 3311,, 99,,004422

Proof of Cash, December 31, 2014

November 30. Receipt Disbursement December 31, Unadjusted balances per bank statement 24,298 373,502 380,284 17,516 Deposit in transit, November 3,648 (3,648)

Deposit in transit, December 5,912 5,912 Outstanding checks, November (11,214) (11,214) Outstanding checks, September 9,042 (9,042) Bank error, Dec. Overstated Disbursement (480) 480 Bank error, Dec. Understated Disbursement 42 (42) Adjusted balances 16,73216,732 375,766 377,674 14,824

4. Ans. B. 4. Ans. B.

November 30. Receipt Disbursement December 31, Unadjusted balances per book 15,698 371,766 377,668 9,796 Unrecorded bank credits: Note Coll, Dec. 4,000 4,000 Unrecorded bank debits: BSC, November (36) (36) Unrecorded bank debits: BSC, December 42 (42) Book error, Nov. Over. check 3413 (not yet corr.) 270 270 Book error, Nov. Over. Check 3417 (not yet corr.) 800 800 Adjusted balances 16,732 375,766375,766 377,674377,674 14,82414,824

5

5. A. Annss. . DD.. 6. 6. AAnnss. . CC.. 77. . AAnnss. A. A..

CHAPTER 2-EXERCISE 12: HALAL CORP. CHAPTER 2-EXERCISE 12: HALAL CORP.

Proof of Cash, December 31, 2014

November 30. Receipt Disbursement December 31,

Unadjusted b alances p er bank s tatement 685,180 308,120308,120 356,080 637,2202. Ans. B (SQUEEZE)2. Ans. B (SQUEEZE) Deposit in transit, November 15,260 (15,260)

Deposit in transit, December 16,140 16,140 Outstanding checks, November (64,140) (64,140) Outstanding checks, September 74,080 (74,080) Bank error, Nov. Overstated Disbursement 1,500 (1,500)

Bank error, Dec. Overstated Disbursement (180) 180 Adjusted balances 637,800637,800 307,500 365,840365,840 579,460

4

4. . AAnnss. . C..C 66. . AAnnss. . BB..

November 30. Receipt Disbursement December 31,

Unadjusted balances per book 637,860 306,220 367,660367,660 576,4201. Ans. A. (SQUEEZE)1. Ans. A. (SQUEEZE) Unrecorded bank credits: Note Coll, Dec. 2,060 2,060

Unrecorded bank debits: BSC, November (60) (60) Book error, December, Overstated Disbursement (980) 980 Reversal of check (stop-payment)** (780) (780) Adjusted balances 637,800 307,500307,500 365,840 579,460579,460

5

5. . AAnnss. . AA.. 77. . AAnnss. . D..D 3. Ans. D.

3. Ans. D.

Checks issued prior to Dec.(P64,140- P26,140) 38,000 Checks issued in Dec. not yet clearing the bank 36,080 To

To ttaal ol o uuttssttaannddiinng cg chheecckkss, D, Deecceemmbbeer 3r 3 11 7744,,008800

**Note that the entry to record the reversal of the dibursement check in which the company released a stop-payment order to the bank will result both as a credit and debit in the company's books and will never be reflected as debit and credit on the bank records. Thus, to reconcile, the same has been deducted both in the receipt and disbursement columns per books.

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DISCUSSION PROBLEMS

CHAPTER 3-PROBLEM 1 CHAPTER 3-PROBLEM 1 1 1 AA 2 2 B.B. 3 3 A.A. 4 4 A.A. 5 5 D.D. 6 6 B.B. 7 7 D.D. 8 8 D.D. 9 9 D.D. 1 100 DD.. 1 111 AA.. 1 122 CC.. 1 133 BB.. 1 144 AA.. 1 155 AA.. 1 166 DD.. 1 177 CC.. 1 188 BB.. 1 199 BB.. 2 200 AA.. 2 211 AA.. 2 222 DD..

CHAPTER 3-PROBLEM 2: PRESARIO CORPORATION CHAPTER 3-PROBLEM 2: PRESARIO CORPORATION 1. Ans. P124,500

1. Ans. P124,500

January 1, balance (credit balance to be adjusted to Advances) 115,000 Charge sales 1,250,000 Recovery of previous write-offs 5,000 Collections from customers (overpayment credited to Advances) (1,230,000) Write-off of receivables (7,000) Sales returnds and allowances (P5,500+P3,000) (8,500) G

Grroosss s AAccccoouunntts s RReecceeiivvaabblle e bbaallaannccee 112244,,550000 2.

2. Ans. Ans. P107,537P107,537

Gross Accounts Receivable 124,500 Allowance for Sales Discount (P124,500*50%*25%)*5% (778) Alowance for Bad Debts:

60 Days past due (P124,500*30%)*10% (3,735)

>120 Days past due (P124,500*20%)*50% (12,450) (16,185) A

Ammoorrttiizzeed d ccoosstt, 112, 2//3311//1144 110077,,553377 3. Adjusting Journal Entries:

3. Adjusting Journal Entries:

(a) Accounts receivable-trade 9,000

Advances from customers 9,000 (b) Sales 25,000

Accounts receivable-trade 25,000 (c) Subscriptions receivable (AR-nontrade) 60,000

Accounts receivable-trade 60,000 (d) Advances from customers 5,000

Accounts receivable-trade 5,000 (e) Claims r eceivable ( AR-nontrade) 5,000

Accounts receivable-trade 5,000 (f) Advances to employees (AR-nontrade) 1,000

Accounts receivable-trade 1,000 (g) Advances to affiliates (Investment) 50,000

Accounts receivable-trade 50,000 (h) Advances to suppliers 10,000

Accounts receivable-trade 10,000 (i) Accounts receivable-trade 10,000

Advances from customers 10,000 (j) Accounts receivable-trade 2,000

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(k) Accounts receivable-trade 45,000

Subscriptions receivable (AR-nontrade) 45,000

CHAPTER 3-PROBLEM 3: DELL COMPANY CHAPTER 3-PROBLEM 3: DELL COMPANY 1. Ans. P366,000

1. Ans. P366,000

Per GL Per SL Under 30 d 30-60 d 61-120 d 121-180 d Over 180 d Balances 360,000 360,000 240,000 48,000 36,000 24,000 12,000 Accounts definitely uncollectible (6,000) (6,000) (6,000) Advances from customers 12,000 12,000 12,000

Adjusted balances 366,000366,000 366,000366,000 252,000 48,000 36,000 24,000 6,000 %

Uncollectible %- 15%3 30% 60%

Allowance for Doubtful Accounts 17,640 - 1,440 5,400 7,200 3,600 2.

2. Ans. Ans. P22,320; P22,320; 3. 3. Ans. Ans. P17,640P17,640 A

Alllloowwaanncce e ffoor r DDoouubbttffuul l AAccccoouunnttss, , EEnndd 1177,,664400 Less: Allowance for Doubtful Accounts, Beginning (1,320) Add: Write-of off Accounts 6,000 B

Baad d ddeebbt t eexxppeennsse e ffoor r tthhe e yyeeaarr 2222,,332200 4. Ans. P330,720

4. Ans. P330,720

Gross Accounts Receivable 366,000 Allowance for Doubtful Accounts (17,640) Allowance for Sales Discounts (P252,000*20%)*10% (5,040) Allowance for Sales Returns (P252,000*5%) (12,600) A

Ammoorrttiizzeed d CCoosstt, 112, 2//3311//1144 333300,,772200 5. Ans. P25,320

5. Ans. P25,320 A

Alllloowwaanncce e ffoor r DDoouubbttffuul l AAccccoouunnttss, , EEnndd 1177,,664400 Add: Allowance for Doubtful Accounts, Unadjusted Debit Balance 1,680

Write-of off Accounts 6,000 B

Baad d ddeebbt exet xppeennsse e ffoor r tthhe e yyeeaarr 225 5,,332200

CHAPTER 3-PROBLEM 4: TWINHEAD CORPORATION CHAPTER 3-PROBLEM 4: TWINHEAD CORPORATION

Per GL Per SL Nov-Dec Jul-Oct Jan-Jun Prior to Jan Balances 2,270,000 2,270,000 1,140,000 600,000 400,000 130,000 Accounts definitely uncollectible (30,000) (30,000) (30,000) Adjusted balances 2,240,000 2,240,000 1,140,000 600,000 400,000 100,000 %

Uncollectible 1.5% 8% 35% 70%

A

Alllloowwaanncce e ffoor r DDoouubbttffuul l AAccccoouunnttss 227755,,110000 17,100 48,000 140,000 70,000 2. Ans.

2. Ans. Per books:

Allowance for DA, Jan. 1 65,000 Add: Interim provisions (P4.5M*2%)_{Recoveries of previous write-off} 90,000_7,500 Less: Write-off of receivables (45,000)

Additional write-off (30,000) Allowance for DA, Dec. 31 per books 87,500 Allowance for DA, per audit 275,100 Additional DA Expense for the year 187,600 1. Ans. Entry: 1. Ans. Entry: D Doouubbttffuul l AAccccoouunntts s EExxppeennssee 118877,,660000 Allowance for DA Allowance for DA 187,600187,600 3. Ans. P1,960,700 3. Ans. P1,960,700

Gross Accounts Receivable 2,240,000 Allowance for DA (275,100) Allowance for Sales Discount (P700,000*30%)*2% (4,200) A

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CHAPTER 3-PROBLEM 5: MAHOGANNY CORP.

Customer Invoice Date Amount Current 1-60 d past 61-120 d pas >120 d past Credit bal Nov-Dec Sept-Oct Jul-Aug June and prior Zulu Inc. 41,993 550,000 550,000 41,974 1,200,000 1,200,000 41,923 950,000 950,000 41,855 420,000 420,000 Whiskey Co. 41,963 2,000,000 2,000,000 41,886 900,000 900,000 41,853 500,000 500,000 Uniform Inc. 41,983 1,750,000 1,750,000 41,916 600,000 600,000 41,825 500,000 500,000 Tango Corp. 41,891 2,600,000 2,600,000 41,830 1,250,000 1,250,000 41,703 900,000 900,000 Romeo Co. 41,974 ( 500,000) (500,000) 13,620,000 5,500,000 5,050,000 2,670,000 900,000 (500,000) Reconciliation of GL and SL

Per GL Per SL Current 1-60 d past 61-120 d pas >120 d past Credit bal Balances 13,650,000 13,620,000 5,500,000 5,050,000 2,670,000 900,000 (500,000) Advances from Reomeo Co. 500,000 500,000 500,000 Posting error - - 600,000 (600,000)

Adjsuted balances 14,150,000 14,120,000 6,100,000 4,450,000 2,670,000 900,000 -Un

Unrerecoconcncililed ed didiffffererenence ce (1(1. . AnAns.s.)) (30,(30,00000)0) A

Addjjuusstteed bd b aallaanncce (e ( 22. A. A nnss..)) 1144,,112200,,000000

Required allowance for Bad Debt as % 2% 5% 20% 50% Required allowance for Bad Debt 1,328,500 122,000 222,500 534,000 450,000 3. Ans. P378,500

3. Ans. P378,500

Allowance for BD, ending 1,328,500 Less: Allowance for BD, beg (950,000) B

Baad d DDeebbt t EExxppeennssee 337788,,550000 4.

4. Ans. Ans. P12,791,500P12,791,500

Gross Accounts Receivable 14,120,000 Allowance for BD (1,328,500) A

Ammoorrttiizzeed d CCoosstt, 1, 1 22//3311//1144 1122,,779911,,550000

CHAPTER 3-PROBLEM 6: BONIFACIO INC. CHAPTER 3-PROBLEM 6: BONIFACIO INC. ADJUSTING ENTRIES:

(a) Credit balance:_{Accounts receivable} _7,500 Allowance for bad debts 7,500 (b) Customer Aye:

No AJE necessary since the remmittan ce is still in transit as of December 31, 2014. (c) Customer Bee:

Sales Returns 13,800 Accounts payable 13,800

Accounts receivable (1-60 days) 13,800

Purchases 13,800

(d)

(d) CustCustomer omer See aSee and Dend Dee: (1e: (1. Ans. Ans.).)

Payment of customer See for a 61-120 days receivable has been deducted from customer Dee's 1-60 days receivable. Payment of customer See for a 61-120 days receivable has been deducted from customer Dee's 1-60 days receivable. Posting error only. No AJE necessary.

Posting error only. No AJE necessary. (e) Customer Eee:

Sales 11,600

Accounts receivable (1-60 days) 11,600 Inventory 8,000

Income summary/Cost of sales 8,000 (f) Customer Eff:

Sales 18,000

Accounts receivable (1-60 days) 14,000 Advances from customers 4,000

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(g) Customer Jeeh:

Sales 6,000

Accounts receivable (1-60 days) 6,000 (h) Customer Eych:

Sales returns and allowance 1,200

Accounts receivable (61-120 days) 1,200

Per GL Per SL 1-60 days 61-120 days > 120 days Credit bal. Unadusted balances 221,250 221,250 110,625 66,375 51,750 (7,500) (a) Credit balance 7,500 7,500 7,500 (c) Customer Bee (13,800) (13,800) (13,800)

(d) Customer See and Dee - 16,600 (16,600) (e) Customer Eee (11,600) (11,600) (11,600) (f) Customer Eff (14,000) (14,000) (14,000) (g) Customer Jeeh (6,000) (6,000) (6,000) (h) Customer Eych (1,200) (1,200) (1,200) A

Addjjuusstteed d bbaallaannccees s ((22. . AAnnss..)) 118822,,115500 182,150 81,825 48,575 51,750 -Required allowance for BD in % 2% 10% 20%

R

Reeqquuiirreed d aalllloowwaanncce e ffoor r BBD D ((33. . AAnnss..)) 1616,,884444 1,636.50 4,857.50 10,350.00 4. Ans. P1,844

4. Ans. P1,844

Allowance for BD, ending 16,844 Less: Allowance for BD, beg. (7,500)

AJE a) Recovery of write-off (7,500) B

Baad d DDeebbt t EExxppeennssee 11,,884444

CHAPTER 3-PROBLEM 7: ABC COMPANY CHAPTER 3-PROBLEM 7: ABC COMPANY 1. Ans. P1,034,711 1. Ans. P1,034,711 Principal Amount 1,000,000 Origination cost 57,851 Origination fee (23,140) FM

FMV V of of LoaLoan/n/InInitiitial al memeasuasuremrementent 1,1,03034,74,71111 2. Ans. P1,018,182

2. Ans. P1,018,182

Amortization table: Loans Receivable/Notes Receivable

Correct Int. Nominal Int. Amortization Balance January 2014:1, 1,034,711 December 31, 2014: December 31, 2014: 103,471 120,000 (16,529) 1,018,1821,018,182 December 31, 2015: 101,818 120,000 (18,182) 1,000,000 3. Ans. P373,944 3. Ans. P373,944

Carrying value/Amortized cost 12/31/15 1,000,000 1 Accured interest, 12/31/15 120,000 2.48685

Total 1,120,000

Present value of new future cash flows at 10% for

3 periods with annuity P300,000*2.48685 746,056 I

Immppaaiirrmmeennt t lloosss s 1122//3311//1155 337733,,994444 4. Entries 12/31/16 to 12/31/18

4. Entries 12/31/16 to 12/31/18 Amortization table after impairment loss:

Correct Int. Nominal Int. Amortization Principal Coll. Balance December 31, 2015: 746,056 December 31, 2016: 74,606 - 74,606 (300,000) 520,661 December 31, 2017: 52,066 - 52,066 (300,000) 272,727 December 31, 2018: 27,273 - 27,273 (300,000) 0 12/31/16: Cash 300,000 Interest income 74,606 Notes r eceivable/Loans r eceivable 225,394 12/31/17: Cash 300,000

Interest income 52,066 Notes r eceivable/Loans r eceivable 247,934 12/31/18: Cash 300,000

Interest income 27,273 Notes r eceivable/Loans r eceivable 272,727

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CHAPTER 3-PROBLEM 8: ABC CORP.

CHAPTER 3-PROBLEM 8: ABC CORP. 1. Ans. P4,754,134 and P4,908,330 1. Ans. P4,754,134 and P4,908,330

(a) DEF Corp, 10% - Trade receivable,Term, Interest-bearing CORRECT ENTRIES:

Jan. 1, 2013:

Cash 4,754,134

Loans receivable 4,754,134

Fair market value = Loan proceeds (Present value of future cash flows at 6% semi-annual effective rate for 6 semi-annual periods) Principal: (5,000,000*0.704961) 3,524,803 0.704961

Interest: ( 250,000*4.917324) 1,229,331 4.917324 T

Toottaall 44,,775544,,113344 Amortization table: Loans receivable, DEF Corp.

Correct Int. Nominal Int. Amortization Balance January 2013:1, 4,754,134 June 30, 2013: 285,248 250,000 35,248 4,789,382 December 31, 2013: 287,363 250,000 37,363 4,826,745 June 30, 2014: 289,605 250,000 39,605 4,866,349 December 31, 2014: December 31, 2014: 291,981 250,000 41,981 4,908,3304,908,330 June 30, 2015: 294,500 250,000 44,500 4,952,830 December 31, 2015: 297,170 250,000 47,170 5,000,000 June 30, 2013: June 30, 2014: Cash 250,000ash C250,000

Interest income 250,000Intrest Income 250,000 Loans receivable 35,248 Loans receivable 39,605

Interest income 35,248Interest income 39,605 December 31, 2013: December 31, 2014:

Cash 250,000ash C250,000

Interest income 250,000Intrest Income 250,000 Loans receivable 37,363 Loans receivable 41,981

Interest income 37,363Interest income 41,981 2. Ans. Retroactive adjustement:

2. Ans. Retroactive adjustement:

Retained earnings, beg 173,255

Loans receiavable 173,255 Face value 5,000,000 Less: Proceeds (4,754,134) Add: Nominal interest 500,000 Interest income in 2013, per books 745,866 Interest income in 2013, per audit (see amo.) 572,611 Overstatement in interest income in 2013 173,255 3. Ans. P2,000,000 and P2,000,000

3. Ans. P2,000,000 and P2,000,000

(b) GHI, 12% - Non-trade receivable (Advances to associate), Term and Interest-bearing CORRECT ENTRIES

January 1, 2014:

Cash 2,000,000

Loans receivable-Nontrade 2,000,000

*note that the nominal interest and effective interest are the same thus, the face value is also the proceeds (fmv) December 31, 2014:

Cash 240,000

Interest income (2M*12%) 240,000

*note that since nominal interest and effective interests are the same and since there are no principal collections yet, the carrying value/amortized cost at 12/31/14 remains the face value.

4. Ans. P2,483,684 and P3,305,785 4. Ans. P2,483,684 and P3,305,785

(c) KLM - Trade receivable, Term and Non-interest-bearing CORRECT ENTRIES

Janaury 1, 2012:

Cash 2,483,685

Fair market value = Loan proceeds (Present value of future cash flows at 10%effective rate for 5 periods) Principal: P4,000,000*0.6209213) 2,483,6852,483,685 0.6209213

Amortization table: Loans receivable, KLM

Correct Int. Nominal Int. Amortization Balance January 2012:1, 2,483,685 December 31, 2012: 248,369 - 248,369 2,732,054 December 31, 2013: 273,205 - 273,205 3,005,259 December 31, 2014: 300,526 - 300,526 3,305,7853,305,785 December 31, 2015: 330,579 - 330,579 3,636,364 December 31, 2016: 363,636 - 363,636 4,000,000

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December 31, 2012: Loans receivable 248,369 Interest income 248,369 December 31, 2013: Loans receivable 273,205 Interest income 273,205 December 31, 2014: Loans receivable 300,526 Interest income 300,526 5. Ans. Retroactive adjustement:

5. Ans. Retroactive adjustement:

Retained earnings, beg 994,741

Loans receivable 994,741 Principal amount 4,000,000 Less: Proceeds (2,483,685) Interest income rececognized in 2012 1,516,315 Correct interest income in 2012 (see amo.) (248,369) Correct interest income in 2013 (see amo.) (273,205) Overstatement in interest income in '12 and '13 994,741 6. Ans. P4,780,007 and P4,350,818

6. Ans. P4,780,007 and P4,350,818 (d) NOP, 10% - Trade, Serial and Interest-bearing

CORRECT ENTRIES January 1, 2014:

Cash 4,780,007

Fair market value = Loan proceeds (Present value of future cash flows at 6% semi-annual effective rate for 10 semi-annual periods) Cash to be collected on:

Principal Interest Total PV factor Present Value July 1, 2014: 500,000 250,000 750,000 0.943396 707,547 January 1, 2014: 500,000 225,000 725,000 0.889996 645,247 July 1, 2015: 500,000 200,000 700,000 0.839619 587,733 January 1, 2015: 500,000 175,000 675,000 0.792094 534,663 July 1, 2016: 500,000 150,000 650,000 0.747258 485,718 January 1, 2016: 500,000 125,000 625,000 0.704961 440,600 July 1, 2017: 500,000 100,000 600,000 0.665057 399,034 January 1, 2017: 500,000 75,000 575,000 0.627412 360,762 July 1, 2018: 500,000 50,000 550,000 0.591898 325,544 January 1, 2018: 500,000 25,000 525,000 0.558395 293,157 TOTAL 4,780,007

Amortization table: Loans receivable, NOP

Correct Int. Nominal Int. Amortization Princ. Coll. Balance January 2014:1, 4,780,007 July 1, 2014: 286,800 250,000 36,800 (500,000) 4,316,808 January 1, 2015: 259,008 225,000 34,008 (500,000) 3,850,816 July 1, 2015: 231,049 200,000 31,049 (500,000) 3,381,865 January 1, 2016: 202,912 175,000 27,912 (500,000) 2,909,777 July 1, 2016: 174,587 150,000 24,587 (500,000) 2,434,364 January 1, 2017: 146,062 125,000 21,062 (500,000) 1,955,425 July 1, 2017: 117,326 100,000 17,326 (500,000) 1,472,751 January 1, 2018: 88,365 75,000 13,365 (500,000) 986,116 July 1, 2018: 59,167 50,000 9,167 (500,000) 495,283 January 1, 2019: 29,717 25,000 4,717 (500,000) (0) July 1, 2014: Loans receivable 36,800 Interest income 36,800 Cash 750,000 Interest income 250,000 Loans receivable 500,000 December 31, 2014: Loans receivable 34,008 Interest income 34,008 Interest receivable 225,000 Interest income 225,000

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Proceeds from issue 1/1/14 4,780,007

July 1, 2014 amortization 36,800 July 1, 2014 principal collection (500,000) Dec 31, 2014 amortization 34,008 D

Deecceemmbbeer r 3311, , aammoorrttiizzeed d ccoosstt 44,,335500,,881166*note that the next P500,000 principal collection shall be made on Jan. 1, 2015 SUMMARY

Interest Interest Current Non-current Income Recevable Loans Rec. Loans Rec. (a) DEF Corp, 10% - trade 581,586 - 4,908,330 (b) GHI, 12% - nontrade 240,000 - 2,000,000 (c) KLM - trade 300,526 - 3,305,785 (d) NOP - trade 545,809 225,000 4,350,816

Total 1,667,9201,667,920 225,000225,000 12,564,93212,564,932 2,000,0002,000,000 6.

6. Ans. Ans. 7. 7. Ans. Ans. 8. 8. Ans. Ans. 9. 9. Ans.Ans.

Note that as per PAS 1, a receivable that is expected to be realized as part of the normal operating cycle is always current, thus trade receivables are always current.

CHAPTER 3-PROBLEM 9: DWARF CORP. CHAPTER 3-PROBLEM 9: DWARF CORP.

Noncurrent Current Int. Receivabl Int. Income (a) Note receivable from sale of plant - nontrade

Dec. 31, 2013 balance 4,500,000 Apr. 1, 2 014, pr incipal collection (1,500,000)

Dec. 31, 2104 balance 3,000,000 1,500,000 1,500,000 Int. Receivable: P3,000,000*12%*9/12 270,000 Int. Income: (P4.5M*12%*3/12) + (P3M*12%*9/12) 405,000 (b) Note receivable from officer - nontrade 1,200,000 -

-Int. Income (P1,200,000*10%) 120,000 (c) Note receivable from sale of equipment - nontrade

Apr. 1, 2014 @FMV=PV of future cash flows at 12% for 2 periods (P600,000*0.797) 478,200

Dec. 31, 2014: Amo. (478,200*12%*9/12) 43,038 43,038 Dec. 31, 2014 amortized cost 521,238 521,238 -

-(d) Note receivable from sale of land - nontrade Jul. 1, 2014 @ FMV=Face (Nominal%=Effective%) Dec. 31, 2014 balance = Face 2,100,000

Current portion:

Periodic payment (on Jul. 1, 2015) 676,875

Interest expense (upto Jul. 1, 2015) 231,000 445,875 445,875 Long-term portion: 1,654,125 1,654,125 Interest receivable (P2.1M*11%*6/12) 115,500 Interst income (P2.1M*11%*6/12) 115,500 T Toottaall ,,944,,8944587755,,85,,38736756353 11338855,,550000 683,538683,538 1 1. . AAnnss.. 22. . AAnnss. . 33. . AAnnss. . 44. . AAnnss.. Note that per PAS 1, a nontrade receivable is current if it is realizable within 12 months after the reporting period or balance sheet date.

CHAPTER 3-PROBLEM 10: WHISKEY INC. CHAPTER 3-PROBLEM 10: WHISKEY INC. 1. JORNAL ENTRIES

1. JORNAL ENTRIES (a) Pledging of AR

June 30, 2014: SUMMARY:

Cash (P4M*80%)-(P4M*5%) 3,000,000 2. Ans. P1,450,0002. Ans. P1,450,000 Interest expense (P4M*5%) 200,000

Loans payable (P4M*80%) 3,200,000 Jun. 30, bal 4,000,000

1,320,000Jul. Coll July

31,

2014: 80,000 Jul Returns

Cash 1,200,000 950,000Aug. Coll

Sales discount 120,000 200,000Aug. Write-o Accounts receivable 1,320,000 Aug. 31Aug. 31, bal, bal 1,1,45450,00,00000

Interest expense (P3.2M*12%*1/12) 32,000

Loans payable (balance) 1,168,000 3. Ans. P1,152,3203. Ans. P1,152,320

C ash 1,200,000

3,200,000Jun. Loan Sales returns 80,000 Jul. Payment 1,168,000

Accounts receivable 80,000 2,032,000Jul 31. bal Aug. P aymen 879,680

1,

1,15152,2,323200 AuAug. g. 3131, b, b ACCOUNTS RECEIVABLE

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August 31, 2014:

Cash 900,000

Sales discount 50,000

Accounts receivable 950,000 Interest expense (P2,032K*12%*1/12) 20,320 2,032,000 Loans payable (balance) 879,680

Cash 900,000 Allowance for BD 200,000 Accounts receivable 200,000 (b) Discounting of NR Cash (Proceeds) 2,082,667 Notes receivable 2,000,000 Interest income (P2M*10%*4/12) 66,667 Gain on discounting 16,000 Maturity Value: Principal Amount 2,000,000 Interest (P2M*10%) 200,000 2,200,000 Proceeds: (Maturity value - Discount)

Maturity Value 2,200,000 Less: Discount: (Maturity value*Discount rate*Remaining term)

(P2,200,000*8%*8/12) (117,333) Proceeds from discounting 2,082,667 4. Ans. 0

4. Ans. 0

Since discounting was recognized as a sale, where there is transfer of significant risk and rewards (e.g. without recourse basis), the notes receivable has been derecognized/transferred.

5. Ans. P16,000. 5. Ans. P16,000.

Proceeds f rom d iscounting/Sales p roceeds 2,082,667 Less: Carrying value of Notes Receivabl 2,000,000

Interest from Jan. 1 to May 1 (4 mo.)

(P2,000,000*10%*4/12) 66,667 2,066,667 G

Gaaiin n oon n ddiissccoouunnttiinngg 1166,,000000

CHAPTER 3-PROBLEM 11:VICTORY INC. CHAPTER 3-PROBLEM 11:VICTORY INC. 1. JORNAL ENTRIES

1. JORNAL ENTRIES (a) Assignement of AR

November 2014:1, SUMMARY:

Cash (P1.5M*95%) 1,425,000 2. Ans. P470,000.2. Ans. P470,000. Interest expense (P1.5M*5%) 75,000

Loans payable 1,500,000 Jun. 30, bal 2,000,000

650,000Jul. Coll Accounts receivable-Assigned 2,000,000 60,000Jul Returns Accounts receivable 2,000,000 740,000Aug. Coll

80,000Aug. Write-o November 30, 2014: AugAug. 3. 311, b, baall 447700,0,00000

Cash 600,000

Sales discount 50,000

Accounts receivable-Assigned 650,000 3. Ans. P224,1503. Ans. P224,150

Interest expense (P1.5M*12%*1/12) 15,000 1,500,000Jun. Loan Loans payable (balance) 585,000 Jul. Payment 585,000

Cash 600,000 915,000Jul 31. bal

Aug. P aymen 690,850

Sales returns 60,000 224,150224,150Aug. Aug. 31, 31, bb Accounts receivable-Assigned 60,000 August 31, 2014: Cash 700,000 Sales discount 40,000 Accounts receivable-Assigned 740,000 Interest expense ( P915K*12%*1/12) 9,150 915,000 Loans payable (balance) 690,850

Cash 700,000

Allowance for BD 80,000

Accounts receivable-Assigned 80,000

ACCOUNTS RECEIVABLE-ASSIGNED

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(b) Factoring of AR

Cash, net (350,000-10,000) 340,000 Receivable from factor 50,000 Allowance for BD 20,000 Loss on Factoring 90,000

Accounts receivable 500,000

Since factoring was recognized as a sale, where there is transfer of significant risk and rewards (e.g. without recourse basis), the accounts receivable factored has been derecognized/transferred.

4. Ans. (P90,000) 4. Ans. (P90,000)

Net proceeds from factoring (350,000-10,000) 340,000 Add: Factor's holdback 50,000 Total/Net Sales proceeds from AR 390,000 Carrying value of AR

Gross Accounts receivable factored 500,000

Allowance for BD (20,000) 480,000 L

Loosss s oof FFaf accttoorriinngg ((9900,,000000))

MULTIPLE CHOICE EXERCISES

CHAPTER 3-EXERCISE 1: DKNY COMPANY CHAPTER 3-EXERCISE 1: DKNY COMPANY

Trade Other - current Total trade & other Trade accounts receivable 1,550,000

, _750,000

12% Trade notes receivable 200,000 600,000

300,000 Claim from insurance company 30,000 Subscription receivable due in 60 days, 600,000 Accrued interest receivable 20,000

3,100,000 3,100,000 950,000 4,050,0004,050,000 1 1. . AAnnss. . BB.. 22. . AAnnss. . DD.. 3. Ans. C. 3. Ans. C.

Proceeds from AR factored 250,000 Carrying value of AR factored (300,000) L

Loosss s ffrroom m ffaaccttoorriinngg ((5500,,000000)) Proceeds from NR discounted:

Maturity value: (Principal + Interest) Principal 300,000

Interest (P300,000*20%*6/12) 30,000 330,000 Less: Discount (MV*disc%*remaining term)

(P330,000*40%*6/12) (66,000) Proceeds from NR discounted: 264,000 Carrying value of NR (no interest) 300,000 L

Loosss s ffrroom m diisdsccoouunnttiinngg ((3366,,000000)) T

Toottaal l lloosss s ffrroom m rreecceeiivvaabblle e ffiinnaanncciinngg ((8866,,000000)) Note:

(a) The credit balances from customer accounts at P60,000 and P40,000 shall be presented as advances from customers (current liab.) unless there is right of offset.

(b) The cash advances to subsidiary amounting to P800,000 shall be presented as an addition to the investment in subsidiary account in the parent-company financial statements, thus is presented as LT Investment.

(c) The deposit on contract bids amounting to P500,000 shall be presented as Other Assets in the noncurrent asset portion of SFP. (d) The advances to stockholders amounting to P2,000,000 is a non-trade, noncurrent receivable, thus is presented as Other Asset.

CHAPTER 3-EXERCISE 2: MORGAN INC. CHAPTER 3-EXERCISE 2: MORGAN INC. 1. Ans. A.

1. Ans. A.

Allowance for DA, Dec. 31, 2014 (per aging) 700,000 3,225,300 Less: Allowance for DA, Jan. 1, 2014 (600,000) (169,000) Recovery of previously written-off accounts (100,000) 3,056,300 Add: Write-off of accounts during the year 375,000

C

Coorrrreecct t BBaad d DDeebbt t EExxppeennssee 337755,,000000 2. Ans. B.

2. Ans. B.

Gross Accounts Receivable 2,375,000 Less: Allowance for DA, Dec. 31, 2014 (per aging) (700,000) Am

Amorortitizezed cd c osost/t/CaCarrrryiying ng vavalulue, e, DeDec. c. 3131, 2, 2010144 1,1,67675,5,000000 Installments receivable, normally due 1 year to two yea

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CHAPTER 3-EXERCISE 3: INUYASHA INC.

CHAPTER 3-EXERCISE 3: INUYASHA INC. 1. Ans. C.

1. Ans. C.

Year Current 1 – 30 days PD

2013 1% 6% 9% 23% 55% 2012 2% 8% 10% 18% 60% 2011 1% 4% 11% 16% 45% 2010 3% 5% 12% 22% 45% 2009 3% 2% 8% 21% 45% A

Avveerraagge e uunnccoolllleeccttiibblle e aaccccoouunntts s iin n 22%% 55%% 1100%% 2200%% 5500%% 2. Ans. C.

2. Ans. C.

Age of accounts Amount A llow in % Required Allow. In Amount Current 1,686,400 2% 33,728

1 to 30 days past due 922,000 5% 46,100 31 to 60 days past due 384,800 10% 38,480 61 to 90 days past due 153,300 20% 30,660 Over 90 days past due 78,800 50% 39,400 Total 3,225,300 188,368188,368 3. Ans. A.

3. Ans. A.

Gross Accounts Receivable 3,225,300 Allowance for uncollectible accounts (188,368) A

Ammoorrttiizzeed d ccoosstt//NNeet t rreeaalliizzaabblle e vvaalluuee 33,,003366,,993322

CHAPTER 3-EXERCISE 4: MEXICAN CORP. CHAPTER 3-EXERCISE 4: MEXICAN CORP. Reconciliation of GL and SL with Aging of AR

Per GL Per SL 0-60 days 61-90 days 91-120 days > 120 days 1,230,000 1,223,000 825,000 220,000 50,000 128,000 Write off of AR (40,000) (40,000) (40,000) Balance 1,190,000 1,183,000 825,000 220,000 50,000 88,000 U

Unnllooccaatteed d ddiiffffeerreennccee** (7(7,,000000)) Adjusted Gross AR 1,183,000

Required Allowance for BD in % 2% 10% 30% 40% Required Allowance for BD in Amounts 88,700 16,500 22,000 15,000 35,200 1. Ans. C.

1. Ans. C.

*Note that the unlocated difference between GL and SL shall be adjusted to GL since SL should prevail. The adjusting entry shall be: S ales 7,000

Accounts receivable 7,000 2. Ans. B.

2. Ans. B.

Required allowance for BD, Dec. 31 88,700 Less: Allowance for BD, unadjusted balance (106,000) Add: Additional write-off per audit 40,000 Additional bad debt expense per audit 22,700 Bad debt expense per books (P12.8M*2%) 256,000 T

Toottaal l bbaad d ddeebbt t eexxppeennsse e ppeer r aauuddiitt 227788,,770000 3. Ans. C.

3. Ans. C.

Gross Accounts Receivable 1,183,000 Less: Allowance for BD (88,700) A

Ammoorrttiizzeed d ccoosstt//NNeet t rreeaalliizzaabblle e vvaalluuee 11,,009944,,330000

CHAPTER 3-EXERCISE 5: ROVERS INC.

CHAPTER 3-EXERCISE 5: ROVERS INC. Dec. Nov. Oct. Sept. Aug. and pri Customer Invoice date Amount 0-30 days 31-60 days 61-90 days 91-120 days >120 days

Gudang 9/12/14 1 39,200 139,200 Tisoy 12/12/14 153,600 153,600 12/2/14 99,200 99,200 Gusoy 11/17/14 185,120 185,120 10/8/14 176,000 176,000 Naning 12/8/14 160,000 160,000 10/25/14 44,800 44,800 8/20/14 40,000 40,000 Nanong 9/27/14 96,000 96,000 Balong 8/20/14 71,360 71,360 Peejong 12/6/14 112,000 112,000 11/29/14 169,440 169,440 Total 1,446,720 524,800 354,560 220,800 235,200 111,360

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Reconciliation between GL and SL with Aging of AR analysis

Per GL Per SL 0-30 days 31-60 days 61-90 days 91-120 days >120 days Unadjusted balances 1,466,720 1,446,720 524,800 354,560 220,800 235,200 111,360 (a) Write-off of AR-Balong (71,360) (71,360) (71,360) (b) Posting error - - (99,200) 99,200

Adjusted balances 1,395,360 1,375,360 425,600 453,760 220,800 235,200 40,000 Unreconciled difference (20,000)

Adjusted balance 1,375,360

Required allowance for BD in % 2% 5% 10% 20% 50% Required allowanc for BD in amount 120,320120,320 8,512 22,688 22,080 47,040 20,000 1. Ans. D.

1. Ans. D.

Allowance for BD, ending 120,320 Less: Allowance for BD, unadjusted (46,720) Add: Write off of AR-Balong 71,360 B Baad d DDeebbt t EExxppeennssee 114444,,996600 2. Ans. C. 2. Ans. C. 3. Ans. C. 3. Ans. C. Write-off of AR-Balong (71,360) Unlocated difference (debited to S ales) (20,000) T

Toottaal l aaddjjuussttmmeenntts s tto o AARR--GGLL ((9911,,336600)) 4. Ans. A.

4. Ans. A.

Gross Accounts Receivable 1,375,360 Allowance for Bad Debts (120,320) A

Ammororttizized ced c oostst//CaCarrrryyining vg v aaluluee 11,,225555,0,04400 5. Ans. B.

5. Ans. B.

AJE to record unreconciled difference:

Sales 20,000

Accounts receivable 20,000

CHAPTER 3-EXERCISE 6: NATASHA INC. CHAPTER 3-EXERCISE 6: NATASHA INC. Reconciliation between GL and SL with Aging of AR analysis

Per GL Per SL 0-1 Month 1-3 Months 3-6 Months > 6 Months Unadjusted balances 788,000 792,960 372,960 307,280 88,720 24,000 (b) Additional write-off (GL only) (800)

(c) Additional write-off per aging sched. (4,000) (4,000) (4,000) (d) AR with credit balances 10,000 10,000 8,000 2,000

793,200 798,960798,960 380,960 309,280 88,720 20,000 Unreconciled difference 5,760 8,000 12,000 A

Addjjuusstteed d bbaallaannccees s ((33. . AAnnss. . CC..)) 779988,,996600

Allowance %BD in for 1% 2% 3% 50% 20% A

Alllloowwaanncce e ffoor r BBD D iin n AAmmoouunnt t ((44. . AAnnss. . AA..)) 1199,,005577 3,810 6,186 2,662 4,000.00 2,400.00 Adjusting entries:

(a) Bad debt expense 1,296

Allowance for bad debt 1,296

To adjust the entry made upon recovery of previously written-off account, credited by the client to Bad Debt Expense account. (b) Allowance for bad debt 800

Accounts receivable 800 To record additional accounts written-off per SL.

(c) Allowance for bad debt 4,000

Accounts receivable 4,000 To record additional accounts written-off per the aging schedule. (d) Accounts receivable 8,000

Advances from customers 8,000

To reclassify the credit balances in customer accounts at (0-1 mo.) P8,000 and (1-3 mo.) P2,000. (e) Allowance for bad debts 10,297

Bad debt expense 10,297 Allowance for BD, ending 19,057

Less: Allowance for BD, beginning (15,250) Recovery of previous write-off (1,296) Add: Write off of accounts receivable 6,832

Additional write-off per audit 4,000 B

Baad d DDeebbt t EExxppeennsse e ppeer r aauuddiitt 1133,,334431. 1. Ans. 3Ans. C.C. Bad Debt Expense per books 23,640 Overstatement in Bad Debt Expense (10,297)

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(f) Accounts receivable Accounts receivable 5,7605,760 2. Ans. B.2. Ans. B.

S

S aalleess 5,,7576600 To adjust the unlocated difference (SL should prevail over GL). 5. Ans. D.

5. Ans. D.

Gross Accounts Receivable 798,960 Allowance for BD (19,057) A

Ammoorrttiizzeed cd c oosstt//CCaarrrryyiinng vg v aalluuee 777799,,990033

CHAPTER 3-EXERCISE 7: SAYOTE INC. CHAPTER 3-EXERCISE 7: SAYOTE INC.

Reconciliation between GL and SL with Aging of AR analysis

Per GL Per SL Under 1 mo. 1-6 mo. Over 6 mo. Credit bal. Unadjusted balances 1,270,000 1,260,000 540,000 552,000 228,000 (60,000) Credit balance - Kamote (Advances) 12,000 12,000 12,000 Credit balance - Kutchay (Posting error - - (21,000) 21,000 Credit balance - Kalachuchi (Advances) 27,000 27,000 27,000 Write-off of accounts (72,000) (72,000) (72,000)

1,237,000 1,227,000 540,000 531,000 156,000 -Unlocated difference (10,000) 36,000 120,000 A

Addjjuusstteed d bbaallaanncce e ((22. . AAnnss. . BB)) 11,,222277,,000000

Allowance %BD for 1% 2% 50% 10% A

Alllloowwaanncce e ffoor r BBD D iin n AAmmoouunnt t ((33. . AAnns s AA)) 4466,,002200 5,400 10,620 18,000 12,000 1. Ans. A.

1. Ans. A.

Sales 10,000

Accounts receivable 10,000 To record the unlocated difference (SL should prevail over GL) 4. Ans. D.

4. Ans. D.

Allowance for BD, ending 46,020 Less: Allowance for BD, beg. (30,000) Add: Write off of AR 24,000

Additional write-off per audit 72,000 B

Baad d ddeebbt t eexxppeennsse e ppeer r aauuddiitt 111122,,002200 Bad debt expense per books 72,000 Additional bad debt expense per audit 40,020 AJE:

Bad debt expense 40,020

Allowance for bad debt 40,020 5. Ans. C.

5. Ans. C.

Accounts receivable, Gross 1,227,000 Allowance for bad debts (46,020) Amortized cost/Carrying vallue 1,180,9801,180,980

CHAPTER 3-EXERCISE 8: LUCRATIVE COMPANY CHAPTER 3-EXERCISE 8: LUCRATIVE COMPANY

(320*P100) – P48,000 = P16,000.

CHAPTER 3-EXERCISE 9: MILK CORP.

CHAPTER 3-EXERCISE 9: MILK CORP. Dec. Nov. Oct. Sept. Aug. and pri Customer Invoice date Invoice Amount 1-30 days 31-60 days 61-90 days 91-120 days more than 1 Zulu Inc. 12/6/14 42,000 42,000 11/29/14 63,540 63,540 Yankee Co. 9/27/14 36,000 36,000 8/20/14 26,760 26,760 Xylon Inc. 12/30/14 20,000 20,000 12/8/14 40,000 40,000 10/25/14 31,800 31,800 Whiskey Co. 11/17/14 69,420 69,420 10/9/14 66,000 66,000 Victory Corp. 12/12/14 57,600 57,600 8/20/14 37,200 37,200 Uniform Inc. 9/12/14 52,200 52,200 542,520 159,600 132,960 97,800 88,200 63,960 16. Ans. D. 16. Ans. D. 1. Ans. C. 1. Ans. C.

P30,000*20% = P6,000 - Income is overstated by the gross profit on the sales. 2. Ans. A.

2. Ans. A.

The credit memo should be recorded as of December 31, 2014. 3. Ans. B.

3. Ans. B.

Actual number of units sold to Mr Lazo was 320 (P48,000/P150) 4. Ans. D.

4. Ans. D.

Receivable from Mr. Sia is correctly stated because the goods are considered sold in 2014 5. Ans. A.