DATE: 10/3/22

AUDITING APPLICATION (FAR APPROACH)

PRACTICE EXERCISES (TTH @ 2:00-3:30)

SHOW YOUR SOLUTIONS:

1. Roxy Company provided the following information for the current year:
Accounts receivable on January 1 1,300,000
Credit sales 5,400,000
Collections from customers, excluding recovery 4,750,000
Accounts written off 125,000
Collection of accounts written off in prior year
(customer credit was not reestablished) 25,000
Estimated uncollectible receivables per aging
Of receivables at December 31 165,000

What is the balance of accounts receivable, before allowance for doubtful accounts on December 31?
a. 1,825,000 b.1,850,000 c. 1,950,000 d. 1,990,000

2. Jay Company provided the following data 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 is the amortized cost of accounts receivable on December 31?

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

3. Miami Company reported the following information at year-end:

Trade accounts receivable 930,000
Allowance for uncollectible accounts (20,000)
Claim against shipper for goods lost in transit in November 30,000
Selling price of unsold goods sent by Miami on consignment
At 130% of cost and not included in Miami’s ending inventory 260,000
Security deposit on lease of warehouse used for storing some inv. 300,000
Total 1,500,000

What total amount should be reported as trade and other receivables under current assets at year-end?
a. 940,000 b. 1,200,000 c. 1,240,000 d. 1,500,000

4. Faith Company provided the following information relating to current operations:

Accounts receivable, January 1 4,000,000
Accounts receivable collected 8,400,000
Cash sales 2,000,000
Inventory, January 1 4,800,000
Inventory, December 31 4,400,000
Purchases 8,000,000
Gross margin on sales 4,200,000
What amount should be reported as accounts receivable on December 31?
a. 8,200,000 b. 6,200,000 c. 2,000,000 d. 4,200,000

5. Steven Company provided the following information during the first year of operations:
Total merchandise purchases for the year 7,000,000
Merchandise inventory on December 31 1,400,000
Collections from customers 4,000,000

All merchandise was marked to sell at 40% above cost. All sales are on a credit basis and all receivables are
collectible.
What amount should be reported as accounts receivable on December 31?
a. 1,000,000 b. 3,840,000 c. 5,000,000 d. 5,800,000
6. Aroma Company used the net price method of accounting for cash discounts. In one of its transactions on
December 26, 2021, the entity sold merchandise with a list price of P5,000,000 to a customer who was given a trade
discount of 20%, 10% and 5%. Credit terms were 4/10, n/30.
The goods were shipped FOB destination, freight collect. Total freight charge paid by the customer was P100,000. On
December 27, 2021, the customer returned damaged goods originally billed at P500,000.
What is the net realizable value of the accounts receivable on December 31, 2021?
a. 3,420,000 b. 2,920,000 c. 2,703,000 d. 2,803,200

Items 7-8
on June 1, 2021, Pitt Company sold merchandise with a list price of P5,000,000 to Burr on account. Pitt allowed trade
discounts of 30% and 20%.
On June 11, 2021, the customer paid in full.
Credit terms were 2/10, n/30 and the sale was made FOB shipping point. Pitt prepaid P200,000 of delivery costs for
Burr as an accommodation.
7. What amount should be reported as sales revenue?
a. 5,000,000 b. 2,800,000 c. 3,500,000 d. 2,500,000

8. What amount was received by Pitt from Burr as remittance in full?

a. 2,744,000 b. 2,940,000 c. 2,944,000 d. 3,140,000

9. Honduras Company revealed a balance of P8,200,000 in the accounts receivable control account at year-end.
An analysis of the accounts receivable showed the following:
Accounts known to be worthless 100,000
Advance payments to creditors on purchased orders 400,000
Advances to affiliated entities 1,000,000
Customers’ accounts reporting credit balances arising from sales returns (600,000)
Interest receivable on bonds 400,000
Trade accounts receivable – unassigned 2,000,000
Subscription receivable due in 30 days 2,200,000
Trade accounts receivable – assigned (Finance Company’s equity in assigned
Accounts is P500,000) 1,500,000
Trade installments receivable due 1 – 18 months, including unearned
Finance charge of P50,000 850,000
Trade accounts receivable from officers, due currently 150,000
Trade accounts on which postdated checks are held and no entries were
Made on receipts of checks 200,000
Total 8,200,000
What amount should be reported as trade accounts receivable at year-end?
a. 4,650,000 b. 4,700,000 c. 4,150,000 d. 4,050,000

Items 10-11
When examining the accounts of Brute Company, 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 P4,850,000.
An analysis of the make-up of this account revealed the following:
Debit credit
Accounts receivable – customers 7,800,000
Trade accounts receivable – officers 500,000
Debit balances – creditors 300,000
Postdated checks from customers 400,000
Subscriptions receivable 800,000
Accounts payable for merchandise 4,500,000
Credit balances in customers’ account 200,000
Cash received in advance from customers 100,000
Expected bad debts 150,000

After further analysis of the aged accounts receivable, it is determined that the allowance for doubtful accounts
should be P200,000.
10. What is the net realizable value of accounts receivable?
a. 8,000,000 b. 8,500,000 c. 8,300,000 d. 8,550,000

11. What amount should be reported as accounts payable?

a. 4,200,000 b. 4,700,000 c. 4,500,000 d. 4,800,000

Items 12-14
Von Company provided the following data for the current year in relation to accounts receivable:
Debits
January 1 balance after deducting credit balance of P30,000 530,000
Charge sales 5,250,000
Charge for goods out on consignment 50,000
Shareholders’ subscriptions 1,000,000
Accounts written off but recovered 10,000
Cash paid to customer for January 1 credit balance 25,000
Goods shipped to cover January 1 credit balance 5,000
Deposit on long-term contract 500,000
Claim against common carrier 400,000
Advances to supplier 300,000

Credits
Collections from customers, including overpayment of P50,000 5,200,000
Write off 35,000
Merchandise returns 25,000
Allowances to customers for shipping damages 15,000
Collection on carrier claim 50,000
Collection on subscription 200,000
12. What amount should be reported as accounts receivable on December 31?
a. 565,000 b. 595,000 c. 545,000 d. 495,000

13. What total amount of trade and other receivables should be reported under current assets?
a. 1,745,000 b. 2,045,000 c. 1,245,000 d. 1,195,000

14. What total amount of other receivables should be reported under non-current assets?
a. 1,650,000 b. 1,150,000 c. 1,300,000 d. 1,600,000

Items 15-17
Germany Company started business at the beginning of current year. The entity established an allowance for
doubtful accounts estimated at 5% of credit sales. During the year, the entity wrote off P50,000 of uncollectible
accounts.
Further analysis showed that merchandise purchased 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 and 20% cash sales. Total collections from customers, excluding cash
sales, amounted to P6,000,000.
15. What amount should be reported as cost of goods sold?
a. 7,500,000 b. 5,400,000 c. 3,600,000 d. 6,900,000

16. What amount should be reported as sales on account?

a. 10,500,000 b. 18,750,000 c. 12,000,000 d. 8,400,000

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

a. 1,980,000 b. 2,350,000 c. 1,930,000 d. 2,400,000