Exercises On Trade Receivables and Sales PDF
Exercises On Trade Receivables and Sales PDF
Exercises On Trade Receivables and Sales PDF
Accountancy Department
EXERCISES
Substantive Procedures:
1. Obtain confirmation of receivables.
2. Compare the disclosures made in the financial statements with the requirements of the IFRS.
3. Obtain confirmation of receivables pledged under loan agreements«
4. Vouch recorded sales transactions back to customer order and shipping document.
5. Perform cutoff tests for sales and sales returns.
6. Perform cutoff tests for cash collections.
7. Compare current year's cash sales with those of previous year.
8. Reconcile subsidiary records with the general ledger records for accounts receivable.
9. Review credit collection policies and procedures and analyze the age of the receivables
10. Examine credit files for large accounts.
11. Perform analytical review procedures to evaluate appropriateness of the balance of the allowance for
uncollectible accounts
12. Inspect notes receivable.
13. Recompute interest revenue
14. Identify related party transactions
15. Inquire from management, examine bank confirmations and review minutes of meetings to identify
receivables pledged or collateralized.
Required: Prepare the necessary adjusting journal entries at June 30, 2020 in connection with the
foregoing data.
Monty's Meat buys beef, pork, and poultry from local slaughterhouses, processes it, and sells it to area grocery
retailers and restaurants. As of October 31, the company had 450 customer accounts with a combined balance
of P365,000. Annette stratified the population of accounts so that all balances equal to or greater than P2, 000
were selected for confirmation. From the remaining 420 accounts, she drew a random sample of 50 accounts.
Annette then mailed positive confirmation requests to the 80 customers. Working Paper 1 summarizes the
confirmation replies.
Required:
a. Comment on the adequacy of Annette's workpaper as presented in Working Paper 1.
b. Assuming all amounts are considered material, draft any audit adjustments that you consider necessary.
Include journal explanations. (Assume that Monty's Meat maintains perpetual inventory records.)
c. Working Papers 2 and 3 reproduce the audit workpapers for the "accounts receivable aging analysis"
and "'allowance for uncollectible accounts," respectively:
1) Using two separate sheets of paper, reproduce on the first workpaper the last line of Working
Paper 2, which represents the aged totals of Monty's Meat's accounts receivable. On the second
workpaper, reproduce the last line of Working Paper 3, the October 31 general ledger balance in
allowance for doubtful accounts. Add an audit legend describing how Annette obtained the
balance in accounts receivable.
Current P210,113
1-30 days past due 13,353
Total P223,466
4) Add an audit legend describing the procedures you would apply to the subsequent collections.
5) Calculate estimated uncollectible accounts receivable on the aging analysis, assuming that the
following percentages adjusted for current observable data on collectibility of records are used by
Monty's Meat, and have been agreed to by the auditors:
Current 10%
Past due: 1-30 days 25%
31-60 days 70%
Over 60 days 100%
6) Evaluate the adequacy of the allowance for doubtful accounts and record any necessary audit
adjustment on the allowance for doubtful accounts workpaper.
7) Add an audit legend presenting your conclusion regarding the adequacy of the allowance for
doubtful accounts.
The allowance for uncollectible accounts, before audit, has a credit balance of P8,000. The Allowance for
Uncollectible Accounts is to be adjusted to balance determined as follows:
The allowance for uncollectible accounts is to be based only on the trade accounts. Except where payments are
earmarked, the oldest items are paid first.
Required:
a. Prepare audit work papers for aging the accounts receivable. In your schedule, show also
the disposition and any remarks, which you as the auditor would note.
b. Show the necessary audit adjustments as at December 31, 2020.
b. The Accounts Receivable control account has a debit balance of P321,000 on December 31,
2020.
c. Two entries were made in the Uncollectible Accounts Expense account during the year:
1) a debit on December 31 for the amount credited to Allowance for Uncollectible Accounts,
and
2) a credit for P2,740 on November 3, 2020, and a debit to Allowance for Uncollectible
Accounts because of a bankruptcy. The P2,740 write off of receivables is related to the
91-120 day category.
e. A credit balance exists in the Accounts Receivable (61-90 days) of P4,800, which represents an
advance on a sales contract.
Required:
a. Audit adjusting entries at December 31, 2020.
b. Compute the correct balances of Accounts Receivable and Allowance for
Uncollectible Accounts at December 31, 2020.
c. Compute the correct amount of Uncollectible Accounts Expense for the year 2020.
* Verification from the consignee indicates that 60% of the merchandise is still unsold at December 31, 2020.
Required: Prepare the necessary adjusting journal entries at December 31, 2020 in connection with the
foregoing data.
During the course of the audit of the financial statements of Moore, Inc., for the year ended December 31,
2019, you examined the notes receivable represented by the following items:
1. A four-month note dated November 30, 2019, from the Aeon Company, P 10,000; interest rate, 16
percent; discounted on November 30, 2019, at 16 percent.
2. A draft drawn payable 30 days after date for P45,000 by the Benton Company on the Dodge Company
in favor of the Gerrard Company, endorsed to Moore, Inc., on December 2, 2019, and accepted on
December 4, 2019.
3. A 90-day note dated November 1, 2019, from J.C. Cruz of P25,000; interest at 16 percent; the note is
for subscriptions to 250 preference shares of Moore, Inc., at PI 00 per share.
4. A 60-day note dated May 3, 2019, from the National Investment Company, P30,000; interest rate, 16
percent; dishonored at maturity; judgment obtained on October 10, 2019. Collection doubtful. (No
interest after maturity.)
5. A 90-day note dated January 4, 2019, from Romeo Paz, president of Moore, P8,000; no interest; not
renewed; president confirmed.
6. A 120-day note dated September 14, 2019, from the Samson Company, P6,000; interest rate, 16
percent; note is held by bank as collateral.
Where the company discounted a note, -Interest Expense was debited for the discount cost and Interest
Income was credited for the revenue.
Requirements:
From the information presented, prepare the following:
a. Working papers for Notes Receivable as of December 31, 2019.
b. All necessary audit adjustments, including entries for interest accrued and prepaid.
c. Statement of financial position presentation of the notes receivable as of December 31, 2019.
Transactions during 2020 and other information relating to SUNCOR's long-term receivables were as follows:
1. The P 1,500,000 note receivable is dated May 1, 2019, bears interest at 9%, and represents the balance
of the consideration received from the sale of SUNCOR's electronics division to Ally Company. Principal
payments of P500,000 plus appropriate interest are due on May 1, 2020, 2021, and 2022. The first
principal and interest payment were made on May 1, 2020. Collection of the note installments is
reasonably assured.
2. The P400,000 note receivable is dated December 31, 2012, bears interest at 8%, and is due on
December 31, 2022. The note is due from Richard Cage, president of SUNCOR, Inc., and is collateralized
by 10,000 shares of SUNCOR's ordinary shares. Interest is payable annually on December 31, and all
interest payments were paid on their due dates through December 31, 2020. The quoted market price of
SUNCOR's ordinary share was P45 per share on December 31, 2020.
3. On April 1, 2020 SUNCOR sold a patent to Nell Company in exchange for a P 100,000 non-interest-
bearing note due on April 1, 2022. There was no established exchange price for the patent, and the note
had no ready market. The prevailing rate of interest for a note of this type at April 1, 2020 was 15%. The
present value of P1 for two periods at 15% is 0.756. The patent had a carrying value of P40,000 at
January 1, 2020, and the amortization for the year ended December 31, 2020 would have been P8,000.
The collection of the note receivable from Nell is reasonably assured.
4. On July 1, 2020 SUNCOR sold a parcel of land to Elaine Company for P200,000 under an installment
sale contract. Elaine made a P60,000 cash down payment on July 19, 2020 and signed a 4-year, 16%
note for the PI 40,000 balance. The equal annual payments of principal and interest on the note will be
P50,000, payable on July 1, 2021 through July 1, 2024. The land could have been sold at an established
cash price of P200,000. The cost of the land to SUNCOR was P 150,000. Circumstances are such that
the collection of the installments on the note is reasonably assured.
Required:
1. Prepare the long-term receivables section of SUNCOR's statement of financial position at
December 3 1, 2020.
2. Prepare a schedule showing the current portion of the long-term receivables and accrued interest
receivable that would appear in SUNCOR's statement of financial position at December 31, 2020.
3. Prepare a schedule showing interest income from the long-term receivables and gains recognized
on sale of assets that would appear on SUNCOR's income statement for the year ended December
31, 2020.