Theory QUESTION #1:

Which of the following statements regarding the audit of negotiable notes receivable is not correct?

A)Materiality of the amount involved is a factor considered when selecting the accounts to be confirmed.

B) The auditor should confirm all notes receivables as of the end of the reporting period.

C)Physical inspection of a note by the auditor does not provide conclusive evidence.

D) Notes receivable discounted with recourse need to be confirmed.

EASY PROBLEM QUESTION #1:

On December 31, 2015, Mami Company reported that the current receivables consisted of the following:

Trade accounts receivable 930,000

Allowance for uncollectible accounts (20,000)

Claims against shipper for goods lost

In transit in November 30,000

Selling price of unsold goods sent by

Mami on consignment at 130% of cost

and not included in Mami’s ending inventory 260,000

Security deposit on lease of warehouse used for

Storing some inventories 300,000

TOTAL 1,500,000

On December 31, 2015 what total amount should be reported as trade and other receivables under current assets?

a. 940,000 b. 1,200,000 c. 1,240,000 d. 1,500,000

AVERAGE PROBLEM QUESTION #1:

On January 1, 2018, TUQUIB COMPANY sells its equipment with a carrying value of P160,000. The company
receives a non-interest-bearing note due in 3 years with a face amount of P200,000. There is no established market
value for the equipment. The prevailing interest rate for a note of this type is 12%. The following are the present
value factors of 1 at 12%:

Present value of 1 for 3 periods 0.71178

Present value of an ordinary annuity of 1 for 3 periods 2.40183

The gain or loss on the sale of equipment is:

a. P 40,000 b. P 122 c. P 0 d. (P 17,644)

Mark Company provided the following data relating to accounts receivable for the current year:

Accounts Receivable, January 1 650,000

Credit sales 2,700,000

Sales returns 75,000

Accounts written off 40,000

Collections from customers 2,150,000

Estimated future sales returns at December 31 50,000

Estimated uncollectible accounts at 12/31 per aging 110,000

What amount should be reported as net realizable value of accounts receivable on December 31

a. 1,200,000 b. 1,125,000 c. 1,085,000 d. 925,000

Theory QUESTION #2:

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

EASY PROBLEM QUESTION #2:

When examining the accounts of Brook Co. it is ascertained that balances relating to both receivables and payables
are included in a single controlling account called “receivables control” with a debit balance of P 4,850,000

An analysis of the make-up of this account revealed the following:

DEBIT CREDIT

ACCOUNTS RECEIVABLES- CUSTOMERS 7800000

ACCOUNTS RECEIVABLES- OFFICERS 500000

DEBIT BALANCES- CREDITORS 300000

POSTDATED CHECKS FROM CUSTOMERS 400000

ACCOUNTS PAYABLE FOR MERCHANDISE 4500000

CREDIT BALANCES IN CUSTOMERS ACCOUNT 200000

CASH RECEIVED IN ADVANCE FROM CUSTOMERS 100000

EXPECTED BAD DEBTS 150000

After further analysis of the aged accounts receivable, it is determined that the allowance for doubtful accounts
should be p 200,000

What amount should be presented as trade and other receivables under current assets?

A) 8,950,000

B) 8,800,000

C) 8,600,000

D) 8,850,000

AVERAGE PROBLEM QUESTION #2:

Cocoa Company started business at the beginning of the current year. The entity established an allowance for
doubtful accounts estimated at 5% credit sales. During the year, the entity wrote off P 50,00 of uncollectible
accounts. Further analysis showed that merchandise purchase amounted to P9,000,000 and ending merchandise
inventory was P1,500,000, goods were sold at 40% above cost. The total sales comprised 80% sales on account.
Total collections from customers, amounted to P6,000,000.

What is net realizable value of accounts receivable at year-end?

A) 2,350,000

B) 1,980,000

C) 1,960,000

D) 2,400,000

DIFFICULT PROBLEM QUESTION #2:

On August 31, 2015, Goreng Co. discounted with recourse a note at the bank at discount rate of 15%. The note was
received from the customer on August 1, 2015, is for 90 days, has a face value of P5,000,000. And carries an
interest of 12%

The discounting transaction is accounted for as secured borrowing. The customer paid the note to the bank on
October 30,2014, date of maturity

What is the interest expense to be recognized on August 31, 2015

A) 50,000

B) 28,750
C) 25,000

D) 21,250

Theory QUESTION #3:

Which of the following procedures would an auditor most likely rely on to verify management's assertion of
completeness?

a. Confirm a sample of recorded receivables by direct communication with the debtors.

b. Observe the client's distribution of payroll checks.

c. Compare a sample of shipping documents to related sales invoices.

d. Review standard bank confirmations for indications of kiting.

EASY PROBLEM QUESTION #3:

The following are the receivables of ABC Company

Customer A 2 000, 000 which the entity determined as partially impaired by Ph 500.000.

Customer B 3000, 000 which the entity determined as partially impaired by Ph 2,500,000

Customer CE and FB account with a balance of 50,000 each

Customer D account with a credit balance of 400,000

Customer G Ph 4 000,000

Other customer’s account receivable Ph 4,000,000

The entity considered all amounts accounts amounting 100, 000 above as significant, It is also reliably determined
that a composite 3% is appropriate to measure impairment in all other accounts.

How much is the impairment loss of the company

a. 3 231 000

b. 3 255 000

c. 3 243 000

d. Answer not given

AVERAGE PROBLEM QUESTION #3:

In your audit of Lidlidda Plastic Products Co., you noted that the company’s balance sheet shows the accounts
receivable balance at December 31, 2018 as follows:
Accounts receivable P3,600,000

Allowance for doubtful accounts 72,000

During 2006, 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 2005 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.

The accounts receivable as of December 31, 2018 is

a. P8,680,000 b. P8,940,000 c. P8,640,000 d. P8,240,000

DIFFICULT PROBLEM QUESTION #3:

ABC Auditing conducted an audit of the DEF Company for the year ended 2018 and send a positive confirmation
of accounts to the customer. The following are their reply

Customer A, 300,000

“Your selling price per product is overstated by Ph 50”

“We just received the product on Jan 5, 2018”

The terms of the contract are FoB shipping point, freight prepaid. The company debited 5, 000 on to customers
account for the shipment cost paid by the company which is included in the amount billed of 500, 000

Customer C, 300,000

“We just received the goods worth 300 000 we ordered today”, the letter dated January 20 2019

The billing was sent to customer on December 20, 2018, and was received by the customer on December 30, 2018.
The terms of the contract are FOB Shipping point, freight collect. Customer C paid 3000 for the freight. The
company recorded the Accounts receivable of 300, 000 when the billing was sent but did not record the 3000
shipment fee

Customer D, 350,000

“We already paid 50, 000 of our account last December 20 2018”

The company mistakenly credited the payment of 50, 000 Customer D to customer Di
AB Company 40, 000

“The consigned goods was received on December 30, we will remit the collections once we sold all the consigned
goods”

The company did not record any receivable amount on the said transaction

How much is the net adjustment in the receivable account?

a. 400 000

b. (610 000)

c. (413 000)

d. answer not given

Theory QUESTION #4:

If the receivable are hypothecated against borrowings, the amount of receivables involved should be:

A)Disclosed in the 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

EASY PROBLEM QUESTION #4:

RRO Bank granted a loan to a borrower on January 1, 2018. The interest on the loan is 10% payable annually
starting December 31, 2018. The loan matures in three years on December 31, 2020.

Principal amount 5,000,000

Direct origination cost incurred 100,000

Indirect origination cost incurred 50,000

Origination fee charged against the borrower 340,000

After considering the origination fee charged against the borrower and the direct origination cost incurred, the
effective rate on the loan is 12%.

What is the carrying amount of the loan receivable on December 31, 2018?

a) 5,000,000 b. 4,910,944. c. 4,831,200 d. 4,760,000

Apex Company accepted from a customer P1,000,000 face amount, 6-amount, 8% note dated at the beginning of
current year. On the same date, Apex discounted the note with recourse at the bank at a 10% discount rate. The
discounting is accounted for as a secured borrowing.

What is the interest expense to be recognized on the date o discounting?

a. 50,000 b. 40,000 c. 52,000 d. 12,000

DIFFICULT PROBLEM QUESTION #4:

Asuncion Company factored P6,000,000 of accounts receivable to the finance entity at the beginning of current
year. Control was surrendered by Asuncion Company. The factor assessed a fee of 3% and retained a holdback
equal to 5% of the accounts receivable. In addition, the factor charged 15% interest computed on a weighted
average time to maturity of the accounts receivable of 54 days.

What is the amount of cash initially received from the factoring?

5,296,850 b. 5,386,850 c. 5,476,850 d. 5,556,850