College of Business Administration

ACTG 109A – APPLIED AUDITING

Audit of Receivables

NAME:_____________________________________________COURSE & YEAR: __________________

1. The audit is concerned that a client is failing to bill customers for shipments. An audit procedure that would
gather relevant evidence would be to:
a. select a sample of duplicate sales invoices and trace each to related shipping documents.
b. trace a sample of shipping documents to related duplicate sales invoices.
c. trace a sample of sample journal entries to the Accounts Receivable subsidiary ledger.
d. compare the total of the schedule of Accounts Receivable with the balance of the Accounts Receivable
account in the general ledger

2. Cardis Corp. has the following date relating to accounts receivable for the year December 31, 2017:
Accounts receivable, January 1, 2017 P240,000
Allowance for doubtful accounts, January 1, 2017 9,600
Sales during the year, all on account, terms 2/10, 1/15, n/60 1,200,000
Cash received from customers during the year 1,280,000
Accounts written off during the year 8,800

An analysis of cash received from customers during the year revealed that P705,600 was received from
customers availing the 10-day discount period, P396,000 from customers availing the 15-day discount period,
P2,400 represented recovery of accounts written-off, and the balance was received from customers paying
beyond the discount period.
The allowance for doubtful accounts is adjusted so that it represents certain percentage of the outstanding
accounts receivable at year end. The required percentage at December 31, 2017 is 125% of the rate used on
December 31, 2016.

Compute:
a. Accounts receivable at December 31, 2017 135,200
b. Allowance for doubtful accounts at December 31, 2017 6,760
c. Doubtful accounts expense for the year ended December 31, 2017 3,560

3. Lakers Company provides financing to other companies by purchasing accounts receivables on a nonrecourse
basis. Lakers charges its clients a commission of 15% on all receivables factored. In addition, Lakers withholds
10% of receivables factored as protection against sales returns or other adjustments. Experience has led Lakers
to establish an allowance for bad debts of 4% of all receivables purchased.
On January 15, Lakers purchased receivables from Kobe Company totalling P1,500,000. Kobe had previously
an allowance for bad debts for these receivables at P35,000. By January 31, Lakers has collected P1,200,000
on these receivables. What is the loss on factoring to be recognized by Kobe Company? 190,000

4. On January 1, 2016, Batikan Company loaned Bagsik Company amounting to P4,000,000 and received a
two-year, 6% P4,000,000 note. The note calls for annual interest to be paid each December 31. Batikan collected
the 2016 interest on schedule. However, on December 31, 2017, based on the Bagsik’s recent financial
difficulties, Batikan expects that the 2017 interest, which was recorded in the books, will not be collected and
that only P2,400,000 of the principal will be recovered. The P2,400,000 principal amount is expected to be
collected in two equal instalments on December 31, 2019 and December 31, 2021. The prevailing interest rate
for similar type of note as of December 31, 2017 is 8%.
Compute:
a. Present value of the expected future cash flows as of December 31, 2017. 2,018,520
b. Loan impairment loss in 2017. 2,221,480
c. Interest income for the year 2018. 121,112
d. Carrying amount of the loan as of December 31, 2019. 1,068,010

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