Chapter 3: Audit of receivablesReview Case Analysis. Answer the following cases. Show yourcomputations.Case 1On December 31, 2021, the accounts receivable control account of BanaueRice Terraces Company had a balance of P4,465,000 which agreed withthe total shown in its subsidiary ledger. As an auditor, you performanalytical procedures and inquiry with the audit client. The following is thesummary of accounts included in the accounts receivable subsidiaryledger:Trade installment receivable due in 18 months, includingunearned interest of P15,000Receivables from the officersClaims against shipping company (15 months).Past due trade accounts receivablesCustomers NSF check returned by bankAdvances to employeesCustomers' accounts reporting credit balancesReceivable from customer arising from sale of goodsInterest receivable on bondsP725,000200,000120,000600,000(80,000)25,000(40,000)750,000150,00045,000240,000Interest receivable on notesOther trade accounts receivable- unassignedSubscriptions receivable for ordinary shares due in 24monthsde1,000,000550,000290,000Trade accounts receivable - assignedTrade accounts on which post-dated check is heldDeposit made by customer for warehouse rent for 2yearsTrade accounts known to be worthlessTotal Accounts receivable(140,000)30,000P4,465,000Other findings:a. The customers NSF check was returned by bank on December 29,2021 due to insufficient fund, Banaue Rice Terraces informed thecustomer and re-deposit the check on January of the following year.the memo received by the client was dated January 2, 2022.The ledger of Banaue Rice Terraces showed a beginning balance forallowance for uncollectible accounts of P56,500.w. d. The management policy and based on its historical experience, anestimate of 5% of the outstanding balance of trade receivable isC. The company quarterly provides allowance for uncollectible accountsChapter 3: Audit of receiva blestotaling to P102,000 in the current period.d. The management policy and based on its historical experienceestimate of 5% of the outstanding balance of trade receivab anuncollectible.Determine the following as a result of your audit:1. How much is the correct amount of gross trade receivables as tDecember 31, 2021?2. How much is the correct amount of "trade and other receivablesreported in its December 31, 2021 statement of financial position?3. How much is the balance of the allowance for bad debts as rfDecember 31, 2021?4. How much is the amount of bad debts expense recognized in itsstatement of comprehensive income in 2021?5. How much is the correct amount of non-current receivables reported inits Statement of financial position as of December 31, 2021?

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Auditing: A Risk Based-Approach (MindTap Course List)

11th Edition

ISBN:9781337619455

Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Chapter9: Auditing The Revenue Cycle.

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Read the following scenario about Strang Corporation and identify the substantive procedures that the CPA (Elaine Stanley) should perform to determine whether lapping exists. Do not discuss deficiencies in the system of internal control. During the year, Strang Corporation began to encounter cash flow difficulties, and a cursory review by management revealed receivable collection problems. Strang’s management engaged Elaine Stan ley, CPA, to perform a special investigation. Stanley studied the billing and collection cycle and noted the following: The accounting department employs one bookkeeper who receives and opens all incoming mail. This bookkeeper is also responsible for depositing receipts, filing daily remittance advices, recording receipts in the cash receipts journal, and posting receipts in the individual customer accounts and the general ledger accounts. There are no cash sales. The bookkeeper prepares and controls the mailing of monthly statements to customers. The concentration of functions and the receivable collection problems caused Stanley to suspect that a systematic theft of customers’ payments through a delayed posting of remittances (lapping of accounts receivable) is present.
Complex Balance Sheet Presented below is the unaudited balance sheet as of December 31, 2019, prepared by Zeus Manufacturing Corporations bookkeeper. Your company has been engaged to perform an audit, during which you discover the following information: 1. Checks totaling 14,000 in payment of accounts payable were mailed on December 31, 2019, but were not recorded until 2020. Late in December 2019, the bank returned a customers 2,000 check marked NSF, but no entry was made. Cash includes 100,000 restricted for building purposes. 2. Included in accounts receivable is a 30,000 note due on December 31, 2022, from Zeuss president. 3. During 2019, Zeus purchased 500 shares of common stock of a major corporation that supplies Zeus with raw materials. Total cost of this stock was 51,300, and fair value on December 31, 2019, was 51,300. Zeus plans to hold these shares indefinitely. 4. Treasury stock was recorded at cost when Zeus purchased 200 of its own shares for 32 per share in May 2019. This amount is included in investments. 5. On December 31, 2019, Zeus borrowed 500,000 from a bank in exchange for a 10% note payable, manning December 31, 2024. Equal principal payments are due December 31 of each year beginning in 2020. This note is collateralized by a 250,000 tract of land acquired as a potential future building site, which is included in land. 6. The mortgage payable requires 50,000 principal payments, plus interest, at the end of each month. Payments were made on January 31 and February 28, 2020. The balance of this mortgage was due June 30, 2020. On March 1, 2020, prior to issuance of the audited financial statements, Zeus consummated a non-cancelable agreement with the lender to refinance this mortgage. The new terms require 100,000 annual principal payments, plus interest, on February 28 of each year, beginning in 2021. The final payment is due February 28, 2028. 7. The lawsuit liability will be paid in 2020. 8. Of the total deferred tax liability; 5,000 is considered a current liability. 9. The current income tax expense reported in Zeuss 2019 income statement was 61,200. 10. The company was authorized to issue 100,000 shares of 50 par value common stock.
After Bunker Hill Assay Services Inc. had completed all postings for March in the current year (20Y4), the sum of the balances in the following accounts payable ledger did not agree with the 36,600 balance of the controlling account in the general ledger: Assuming that the controlling account balance of 36,600 has been verified as correct, (a) determine the error(s) in the preceding accounts and (b) prepare a listing of accounts payable creditor balances (from the corrected accounts payable subsidiary ledger).

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