Cordillera Career Development College

Buyagan, Poblacion, La Trinidad, Benguet

Tel. No.: (074) 422-2221/Email: ccdc@ccdc.edu.ph
COLLEGE OF ACCOUNTANCY

Practice Set: Audit of Receivables (Trade)

PROBLEM NO. 1
Your audit disclosed that on December 31, 2020, the accounts receivable control account of
BENECO Company had a balance of P2,865,000. An analysis of the accounts receivable account
showed the following:
Accounts known to be worthless P 37,500
Advance payments to creditors on purchase orders 150,000
Advances to affiliated companies 375,000
Customers’ accounts reporting credit balances arising from sales return (225,000)

Interest receivable on bonds 150,000

Other trade accounts receivable – unassigned 750,000
Subscriptions receivable for common stock due in 30 days 825,000
Trade accounts receivable - assigned (Finance company’s equity in assigned
accounts is P150,000) 375,000
Trade installment receivable due 1 – 18 months, including unearned finance
charges of P30,000 330,000
Trade receivables from officers due currently 22,500
Trade accounts on which post-dated checks are held (no entries were made on
receipts of checks) 75,000
P2,865,000

Questions:

Based on the above and the result of your audit, determine the adjusted balance of following:

1. The trade accounts receivable as of December 31, 2020 is

a. P1,147,500 c. P1,485,000
b. P1,522,500 d. P1,447,500

2. The current trade and other receivables net as of December 31, 2020 is
a. P2,647,500 c. P2,272,500
b. P2,610,000 d. P1,822,500

3. How much of the foregoing will be presented under noncurrent assets as of December 31, 2020?
a. P1,200,000 c. P525,000
b. P 375,000 d. P 0

PROBLEM NO. 2
Your audit of Baguio Corporation for the year ended December 31, 2020 revealed that the Accounts
Receivable account consists of the following:
Trade accounts receivable (current) P3,440,000
Past due trade accounts 640,000
Uncollectible accounts 128,000
Credit balances in customers’ accounts (80,000)
Notes receivable dishonored 240,000
Consignment shipments – at cost
The consignee sold goods costing P96,000 for P160,000. A 10%
commission was charged by the consignee and remitted the balance to
Banayoyo. The cash was received in January, 2021. 320,000
Total P4,688,000

The balance of the allowance for doubtful accounts before audit adjustment is a credit of P80,000.
It is estimated that an allowance should be maintained to equal 5% of trade receivables, net of
amount due from the consignee who is bonded. The company has not provided yet for the 2020 bad
debt expense.

Questions:
Based on the above and the result of your audit, determine the adjusted balance of following:
1. Trade accounts receivable
a. P4,080,000 c. P4,464,000
b. P3,440,000 d. P3,584,000

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2. Allowance for doubtful accounts
a. P204,000 c. P172,000
b. P216,000 d. P179,200
3. Doubtful accounts expense
a. P264,000 c. P252,000
b. P220,000 d. P227,200

PROBLEM NO. 3
Presented below are a series of unrelated situations. Answer the following questions relating to each
of the independent situations as requested.
1. Pharmally Company’s unadjusted trial balance at December 31, 2020, included the following
accounts:
Debit Credit
Accounts receivable P1,000,000
Allowance for doubtful accounts 40,000
Sales P15,000,000
Sales returns and allowances 700,000
Pharmally Company estimates its bad debt expense to be 1 1/2% of net sales. Determine its
bad debt expense for 2020.
a. P225,000 c. P214,500
b. P254,500 d. P 55,000

2. An analysis and aging of Pharmally Corp. accounts receivable at December 31, 2020, disclosed
the following:
Amounts estimated to be uncollectible P 1,800,000
Accounts receivable 17,500,000
Allowance for doubtful accounts (per books) 1,250,000
What is the net realizable value of Pharmally’ receivables at December 31, 2020?
a. P15,700,000 c. P16,250,000
b. P17,500,000 d. P14,450,000

3. CCDC Company provides for doubtful accounts based 3% of credit sales. The following data are
available for 2020.
Credit sales during 2020 P21,000,000
Allowance for doubtful accounts 1/1/20 170,000
Collection of accounts written off in prior years (Customer credit was
reestablished) 80,000
Customer accounts written off as uncollectible during 2002 300,000

What is the balance in allowance for doubtful accounts at December 31, 2020?
a. P630,000 c. P500,000
b. P420,000 d. P580,000

4. At the end of its first year of operations, December 31, 2020, Squid, Inc. reported the following
information:
Accounts receivable, net of allowance for doubtful accounts P9,500,000
Customer accounts written off as uncollectible during 2020 240,000
Bad debts expense for 2020 840,000

What should be the balance in accounts receivable at December 31, 2020, before subtracting
the allowance for doubtful accounts?
a. P10,100,000 c. P 9,740,000
b. P10,340,000 d. P10,580,000

5. The following accounts were taken from BCOR Inc.’s balance sheet at December 31, 2020.
Debit Credit
Accounts receivable P4,100,000
Allowance for doubtful accounts 100,000
Net credit sales P7,500,000

If doubtful accounts are 3% of accounts receivable, determine the bad debt expense to be
reported for 2020.
a. P123,000 c. P223,000
b. P 23,000 d. P225,000

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PROBLEM NO. 4
The adjusted trial balance of Benguet Company as of December 31, 2019 shows the following:
Debit Credit
Accounts receivable P1,000,000
Allowance for bad debts P40,000

Additional information:
• Cash sales of the company represents 10% of gross sales.
• 90% of the credit sales customers do not take advantage of the 2/10, n/30 terms.
• It is expected that cash discount of P6,000 will be taken on accounts receivable outstanding at
December 31, 2020.
• Sales returns in 2020 amounted to P400,000. All returns were from charge sales.
• During 2020, accounts totaling to P44,000 were written off as uncollectible; bad debt recoveries
during the year amounted to P3,000.
• The allowance for bad debts is adjusted so that it represents certain percentage of the
outstanding accounts receivable at year end. The required percentage at December 31, 2020 is
150% of the rate used on December 31, 2019.

Questions:
Based on the above and the result of your audit, answer the following:
1. The accounts receivable as of December 31, 2020 is
a. P3,000,000 c. P 333,333
b. P 300,000 d. P2,444,000
2. The allowance for doubtful accounts as of December 31, 2020 is
a. P 20,000 c. P180,000
b. P120,000 d. P146,640
3. The net realizable value of accounts receivable as of December 31, 2020 is
a. P 307,340 c. P2,874,000
b. P2,814,000 d. P2,291,360
4. The doubtful account expense for the year 2020 is
a. P181,000 c. P 21,000
b. P121,000 d. P147,640

PROBLEM NO. 5
In your audit of Baguio Products Co., you noted that the company’s balance sheet shows the
accounts receivable balance at December 31, 2019 as follows:
Accounts receivable P3,600,000
Allowance for doubtful accounts 72,000
P3,528,000

During 2020, transactions relating to the accounts were as follows:

• Sales on account, P38,400,000.
• Cash received from collection of current receivable totaled P31,360,000, after discount of
P640,000 were allowed for prompt payment.
• Customers’ accounts of P160,000 were ascertained to be worthless and were written off.
• Bad accounts previously written off prior to 2019 amounting to P40,000 were recovered.
• The company decided to provide P184,000 for doubtful accounts by journal entry at the end of
the year.
• Accounts receivable of P5,600,000 have been pledged to a local bank on a loan of P3,200,000.
Collections of P1,200,000 were made on these receivables (not included in the collections
previously given) and applied as partial payment to the loan.

Questions:
Based on the above and the result of your audit, answer the following:
1. The accounts receivable as of December 31, 2020 is
a. P8,680,000 c. P4,240,000
b. P9,840,000 d. P8,640,000
2. The allowance for doubtful accounts as of December 31, 2020 is
a. P 8,000 c. P184,000
b. P136,000 d. P176,000

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3. The net realizable value of accounts receivable as of December 31, 2020 is
a. P8,544,000 c. P8,504,000
b. P8,456,000 d. P4,104,000
4. If receivables are hypothecated against borrowings, the amount of receivables involved should be
a. Disclosed in the statements or notes
b. Excluded from the total receivables, with disclosure
c. Excluded from the total receivables, with no disclosure
d. Excluded from the total receivables and a gain or loss is recognized between the face value
and the amount of borrowings

PROBLEM NO. 6
You were able to obtain the following information from your audit of Kings Corporation’s Accounts
Receivable and Allowance for Doubtful Accounts:

• From the general ledger you noted that the Accounts Receivable has a balance of P848,000 as of
December 31, 2020. Below is a transcript of the Allowance for Doubtful Accounts:
Debit Credit Balance
January 1 – Balance P20,000
July 31 – Write-off P16,000 4,000
December 31- Provision P48,000 P52,000

• The summary of the subsidiary ledger as of December 31, 2020 was totaled as follows:
Debit balances:
Under one month P360,000
One to six months 368,000
Over six months 152,000
P880,000

Credit balances:
Alien P 8,000 - OK; additional billing in January, 2020
T. Twister 14,000 - Should have been credited to Apol*
Dee Lah 18,000 - Advances on sales contract
P40,000
*Account is one to six months classification

The customers’ ledger is not in agreement with the accounts receivable control. The client
requested you to adjust the control account to the subsidiary ledger after corrections are made.

• It is agreed that 1 percent is adequate for accounts under one month. Accounts one to six
months are expected to require a reserve of 2 percent. Accounts over six months are analyzed
as follows:
Definitely bad P 48,000
Doubtful (estimated to be 50% collectible) 24,000
Apparently good, but slow (estimated to be 90% collectible) 80,000
Total P152,000

Questions:

Based on the above and the result of your audit, answer the following:

1. How much is the adjusted balance of Accounts Receivable as of December 31, 2020?
a. P818,000 c. P832,000
b. P846,000 d. P826,000

2. How much is the adjusted balance of the Allowance for Doubtful Accounts as of December 31,
2020?
a. P30,680 c. P30,960
b. P31,240 d. P30,760

3. How much the Doubtful Accounts expense for the year 2020?
a. P74,680 c. P74,960
b. P75,240 d. P74,760

PROBLEM NO. 7
In connection with your examination of the financial statements of Brother Tiger, Inc. for the year
ended December 31, 2020, you were able to obtain certain information during your audit of the
accounts receivable and related accounts.
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The December 31, 2020 balance in the Accounts Receivable control accounts is P788,000.

The only entries in the Doubtful Accounts Expense account were:

• A credit for P1,296 on December 2, 2020 because Company A remitted in full for the
accounts charged off on October 31, 2020; and
• A debit on December 31 for the amount of the credit to the Allowance for Doubtful Accounts.

The Allowance for Doubtful Accounts schedule is follows:

Debit Credit Balance
January 1, 2020 P14,632
October 31, 2020
Uncollectible accounts:
Company A – P1,296
Company B – P3,280
Company C – P2,256 P6,032 8,600
December 31, 2020 P39,400 P48,000

An aging schedule of the accounts receivable as of December 31, 2020 is presented below:
Amount to which the Allowance is
Net debit to be adjusted after adjustments
Age balance and corrections have been made
0 to 1 month P372,960 1 percent
1 to 3 months 307,280 2 percent
3 to 6 months 88,720 3 percent
Over 6 months 24,000 Definitely uncollectible, P4,000;
P8,000 is considered 50%
uncollectible; the remainder is
estimated to be 80% collectible.

There is a credit balance in one account receivable (0 to 1 month) of P8,000; it represents an

advance on a sales contract. Also, there is a credit balance in one of the 1 to 3 months account
receivable of P2,000 for which merchandise will be accepted by the customer.

The ledger accounts have not been closed as of December 31, 2020. The Accounts Receivable
control account is not in agreement with the subsidiary ledger. The difference cannot be located,
and you decided to adjust the control account to the sum of the subsidiaries after corrections are
made.

Questions:
Based on the above and the result of your audit, answer the following:
1. How much is the adjusted balance of Accounts Receivable as of December 31, 2020?
a. P794,000 c. P798,960
b. P793,200 d. P802,960
2. How much is the adjusted balance of the Allowance for Doubtful Accounts as of December 31,
2020?
a. P63,552 c. P18,937
b. P23,057 d. P19,057
3. How much is the net adjustment to the Allowance for Doubtful Accounts?
a. P24,493 debit c. P28,943 debit
b. P15,552 credit d. P29,063 debit
4. How much is the Doubtful Accounts expense for the year 2020?
a. P13,961 b. P18,411 c. P58,456 d. P13,841
5. How much is the net adjustment to the Doubtful Accounts expense account?
a. P20,352 debit c. P24,143 credit
b. P24,263 credit d. P19,693 credit

PROBLEM NO. 8
During your examination of the 2020 financial statements of the C2 Company you find that the
company does not provide allowance for doubtful accounts ever since it started operations in 2016.
The company’s practice is to directly write-off as expense doubtful accounts and credit recoveries to
income. The company’s contracts are generally for two years.

Upon your recommendation, the company agreed to change its accounts for 2020 to give effect to
doubtful treatment on the allowance basis. The allowance is to be based on a percentage of sales
which is derived from the experience of prior years. Statistics for 2016 to 2020 are shown as
follows:
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 Year of Sale 2016 2017 2018 2019 2020

Charge Sales P2,400,000 P6,000,000 P7,200,000 P7,800,000 P6,600,000

Accounts
Written off
& Year of
Sale
2016 13,200
2017 36,000 24,000
2018 12,000 96,000 31,200
2019 28,800 108,000 36,000
2020 64,800 120,000 33,600
Recoveries &
Year of
Sale
2016
2017 2,400
2018 9,600
2019 12,000
2020 14,400

Accounts receivable at December 31, 2020 were as follows:

From 2019 sales P 360,000
From 2020 sales 3,240,000
Total P3,600,000

Questions:
Based on the above and the result of your audit, you are to provide the answers to the following:
1. The average percentage of net doubtful accounts to charge sales that should be used in setting
up the 2020 allowance is
a. 2.50% c. 2.05%
b. 1.90% d. 1.77%
2. How much is the doubtful accounts expense for 2020?
a. P131,400 c. P165,000
b. P218,400 d. P175,200
3. The doubtful accounts expense for 2020 is over(under) stated by
a. P223,800 c. (P131,400)
b. P 53,400 d. (P165,000)
4. The net realizable value of accounts receivable as of December 31, 2020 balance sheet is
a. P3,415,200 c. P3,326,400
b. P3,474,600 d. P3,240,000
5. The adjusting journal entry necessary to set up the allowance for doubtful accounts as of
December 31, 2020 will include a debit to Retained Earnings of
a. P223,800 c. P165,000
b. P184,800 d. P 0