Problem 1

In the course of your audit of DKNY Company’s “Receivables” account as of December 31,
2014, you found out that the account comprised the following items:

Trade accounts receivable 1,550,000

Trade accounts receivable, assigned (proceeds from assignment amounted to P650,000) 750,000
Trade accounts receivable, factored (proceeds from factoring done on a without-recourse
basis amounted to P250,000) 300,000

12% Trade notes receivable 200,000

20% trade notes receivable, discounted at 49% upon receipt of the 180-day note on a
without recourse basis 300,000

Trade receivables rendered worthless 50,000

Installment receivable, normally due 1 year to two years 600,000

Customers' account reporting credit balances arising from sales returns 60,000

Advance payments for purchase of merchandise 300,000

Customers' accounts reporting credit balances arising from advance payments 40,000

Cash advances to subsidiary 800,000

Claim from insurance company 30,000

Subscription receivable due in 60 days 600,000

Accrued interest receivable 20,000

Deposit on contract bids 500,000

Advances to stockholders (collectible in 2017) 2,000,000

1. How much is the total trade receivables?
a. 3,650,000
b. 3,100,000
c. 3,000,000
d. 2,950,000
2. How much is the amount to be presented as “trade and other receivables” under
current assets?
a. 7,350,000
b. 5,350,000
c. 4,850,000
d. 4,050,000
3. How much loss from receivable financing should be recognized in the income
statements?
a. 36,000
b. 50,000

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 c. 86,000
d. 105,000

Problem 2
In your audit of MENDOZA COMPANY for the past calendar year, you find the following
accounts:
ACCOUNTS RECEIVABLES
Jan. 1, 2002 P 800,000 Jan. – Dec. 1992 collections P 5,900,000
Jan. – Dec. Sales 6,300,000 Jan. – Dec. write-off 100,000

ALLOWANCE FOR BAD DEBTS

Jan. – Dec. Write-off of Jan. 1, 2002 P 95,000
last year’s receivables P 85,000 Dec. 31 provisions 315,000

Write-off of this year’s

Receivables 15,000

In your examination, you find that the balance of Accounts Receivable represents sales of
the current audit year only; that credit balances in the subsidiary ledger for accounts
receivable totaled P80,000; and that the current year’s provision for bad debts expense was
5% of sales (as compared with 4½% last year, 4% of the year before, and 3½% the next
previous year). Sequential to aging the accounts receivable, you and the company’s
treasurer agree on an additional write-off of P50,000, and P300,000 as the probable loss to
be sustained on collection of the accounts receivable balance.

4. The adjusted Accounts Receivable balance is:

a. P 830,000 b. P 1,100,000 c. P 1,130,000 d. P 1,180,000

5. The adjusted Allowance for Bad Debts is:

a. P 260,000 b. P 300,000 c. P 315,000 d. P 355,000

6. The adjusted Bad Debts account is:

a. P 260,000 b. P 300,000 c. P 315,000 d. P 355,000

7. The provision per record at December 31 is:

a. P 260,000 b. P 300,000 c. P 315,000 d. P 355,000

Problem 3

The following selected transactions occurred during the year ended December 31, 2006 of
DOMINGO COMPANY:

Gross sales (cash and credit) P 900,736.80

Collections from credit customers, net of 2% cash discount 294,000.00
Cash sales 180,000.00
Uncollectible accounts written off 19,200.00
Credit memos issued to credit customers for sales ret./allow. 10,080.00
Cash refunds given to cash customers for sales ret./allow. 15,168.00
Recoveries on accounts receivable written-off in prior years
(not included in cash received stated above) 6,505.20

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At year-end, the company provides for estimated bad debts losses by crediting the
Allowance for Bad Debts account for 2% of its net credit sales for the year. The allowance
for bad debts at the beginning of the year is P19,327.20.

Questions
8. How much is the DOMINGO COMPANY’s gross sales?
a. P 900,736.80 b. P 720,736.80 c. P 704,656.80 d. P 689,488.80
2. DOMINGO COMPANY’s credit sales at December 31, 2006 is:
a. P 900,736.80 b. P 720,736.80 c. P 704,656.80 d. P 689,488.80

9. How much is the DOMINGO COMPANY’s net credit sales?

a. P 900,736.80 b. P 720,736.80 c. P 704,656.80 d. P 689,488.80

10. The Bad Debts Expense of DOMINGO COMPANY at December 31, 2006 is:
a. P 20,725.54 b. P 14,093.14 c. P 8,030.74 d. P7,829.14

11. The Accounts Receivable of DOMINGO COMPANY at December31, 2006 is:

a. P 408.042.00 b. P 407,536.80 c. P 401,536.80 d. P 391,456.80

12. The Allowance for Bad Debts of DOMINGO COMPANY at December 31, 2006 is:
a. P 20,725.54 b. P 14,093.14 c. P 8,030.74 d. P7,829.14

Problem 4
You have been assigned to audit the financial statement MALAQUI INCORPORATED. The
company is a distributor of a variety of electronic appliances and parts. The company uses
the calendar year for reporting purposes. Information regarding balances of MALAQUI
INCORPORATED’S Accounts Receivable and the related Allowance for Doubtful Accounts as
of December 31, 2006 and the related audit finding, is given below.

The schedule of accounts receivable furnished you by the accountant reflects some errors.
The total figure in the schedule does not tally with the balance per subsidiary ledger of
P919,000. Based on your review of sales invoices, purchase orders and other related
documents, you noted the following information:

1. Sales on account of various electronics totaling P36,480 were returned by the customer
on December 28, 2006, but no entry was made in the books. The goods were included
in the year-end physical count.

2. Based on the findings per confirmation reply from a customer, he indicated that he has
already paid his account of P23,980 in October, 2006. Your verification disclosed that
said collection was credited to net sales account.

3. Collection of P12,950 on November 5, 2006 from Diana Corporation was credited to the
account of DNA Corporation.

The allowance for doubtful accounts is set at 3% of the outstanding accounts receivable at
the end of the period. As of December 31, 2006, the Allowance for Doubtful Accounts has a
balance of P32,400 before adjustment.

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 13. What is the adjusted balance of Accounts Receivable as of December 31, 2006?
a. P 919,000 b. P 895,020 c. P 882,520 d. P 858,540

14. What is the adjusted balance of Allowance for Doubtful Accounts as of December 31,
2006?
a. P 27,570.00 b. P 26,850.60 c. P 26,475.60 d. P 25,756.20

Problem 5
On January 2, 2006, a tract of land that originally cost P800,000 was sold by MAYLENE
CORPORATION. The company received a P1,200,000 note as payment. It bears interest
rate of 4% and is payable in 3 annual installments of P400,000 plus interest on the
outstanding balance. The prevailing rate of interest for a note of this type is 10%. The
present value table shows the following present value factors of 1 at 10%:

Present value factor of 1 for 3 periods 0.75132

Present value factor of 1 for 2 periods 0.82645
Present value factor of 1 for 1 period 0.90909
Present value of an ordinary annuity of 1 for 3 periods 2.48685

Questions

15. The gain on sale of land on January 2, 2006 is:

a. P 194,740 b. P 276,847 c. P 290,740 d. P 400,000

16. The interest income on the note receivable for the year ended December 31, 2006
using effective interest method is:
a. P 120,000 b. P 109,074 c. P 107,685 d. P 99,474

17. How much cash will MYLENE CORPORATION received from notes receivable?
a. P 1,076,847 b. P 1,200,000 c. P 1,296,000 d. P 1,476,847

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