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Midterm Examination

The document contains 3 problems related to auditing concepts. Problem 1 asks to describe and illustrate the sales and collection cycle through a flowchart. Problem 2 asks to calculate the net over/understatement of sales for the year based on information provided about shipping documents and sales invoices. Problem 3 provides information about accounts receivable and allowance for bad debts accounts, and asks to calculate the adjusted receivables balance and entry to adjust allowance.

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CJ Cariño Sabas
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23 views4 pages

Midterm Examination

The document contains 3 problems related to auditing concepts. Problem 1 asks to describe and illustrate the sales and collection cycle through a flowchart. Problem 2 asks to calculate the net over/understatement of sales for the year based on information provided about shipping documents and sales invoices. Problem 3 provides information about accounts receivable and allowance for bad debts accounts, and asks to calculate the adjusted receivables balance and entry to adjust allowance.

Uploaded by

CJ Cariño Sabas
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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AUDITING AND ASSURANCE:CONCEPTS AND APPLICATIONS 2

MIDTERM EXAMINATION
MID-YEAR TERM

Problem 1 (45 points)


Describe and illustrate (thru flowchart diagram) the processing of transactions in the sales and
collection cycle in the following functions:

1. Order entry

2. Credit approval

3. Warehousing

4. Shipping

5. Customer billing

6. Collecting account receivable

7. Granting credit for returns and allowances

8. Recording uncollectible accounts expense

9. Writing off uncollectible accounts


Problem 2 (5 points)
Dagupan Auto Parts sells new parts to auto dealers. Company policy requires that a prenumbered
shipping document be issued for each sale. At the time of pickup or shipment, the shipping clerk
writes the date on the shipping document. The last shipment made in the year ended December
31, 2020, was recorded on document 3167. Shipments are billed in the order that the billing clerk
receives the shipping documents.

For late December 2020 and early January 2021, shipping documents are billed on sales invoices
as follows:

Shipping Document No. Sales Invoice No.


3163 5332
3164 5326
3165 5327
3166 5330
3167 5331
3168 5328
3169 5329
3170 5333
3171 5335
3172 5334

The December 2020 and January 2021 sales journals have the following information included:

SALES JOURNAL - DECEMBER 2020

Day of Month Sales Invoice No. Amount of Sale


30 5326 P72, 611
30 5329 191, 430
31 5327 41, 983
31 5328 62, 022
31 5330 4,774

SALES JOURNAL – JANUARY 2021

Day of Month Sales Invoice No. Amount of Sale


1 5332 P264, 131
1 5331 10, 639
1 5333 85, 206
2 5335 125, 050
2 5334 64, 658

What is the net overstatement (understatement) of Dagupan’s sales for the year ended December
31, 2020? (show your solution)
What adjusting entry is necessary to correct Dagupan’s financial statements for the year ended
December 31, 2020?
Problem 3 (5 points)
You are auditing the accounts receivable and the related allowance for bad debts account of
Calasiao Company.

The following data are available:

General ledger

Accounts Receivable
2019
Dec. 31 P424.000

Allowance for Bad Debts


2019 2019
July 31 GJ – Write-off P 8,000 Jan 1 Balance P10,000
Dec 31 GJ – Provision
24,000

Summary of Aging Schedule

The summary of the subsidiary ledger balances as of December 31, 2019, is shown
below:
Debit balances:
Under 1 month P180,000
1 – 6 months 184,000
Over 6 months 76,000
P440,000

Credit balances:
A Co. P 4,000 OK; additional billing in Jan, 2020
B Co. 7,000 Should haven credited to D Co.*
C Co. 9,000 Advance on a sale contract
P 20,000

 Account is in “one to six months” classification.

The customers’ ledger is not in agreement with the accounts receivable control. The
client instructs the auditor to adjust the control to the subsidiary ledger after
corrections are made.

Allowance for Bad Debts Requirements

It is agreed that 1 percent is adequate for accounts under one month. Accounts one to
six months are expected to require an allowance of 2 percent. Accounts over six
months are analyzed as follows:
Definitely bad P24,000
Doubtful (estimated to be 50% collectible) 12,000
Apparently good, but slow (estimated to be 90% collectible) 40,000
Total P76,000

Based on the above and the result of your audit:

What is the adjusted accounts receivable (net of allowance) balance on December


31, 2019? (show your solution)
What is the entry to adjust the allowance for bad debts account is

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