DEPUNO, RICHARD VINCE MARFIL

BSA-3 [45227]

Demo, Inc.

Requirement (a): Audit work papers for the accounts receivable and the allowance for doubtful accounts as of December 31, 2017.

Accounts Receivable as of December 31, 2017

AR
AR Control Subsidiary
Unadjusted balances 197,000 198,240
Understatement of accounts written off (200)
Writeoff of uncollectible accounts in the "over 6 months" category (1,000) (1,000)
Customers' credit balances 2,500 2,500
Corrected balance 198,300 199,740
Unlocated difference (adjustment to general ledger balance) 1,440  
Adjusted balances 199,740 199,740

Computation of Required Allowance

Adjusted Required
Account classification Balance Adjustment Rate
Balance Allowance
0-1 month outstanding 93,240 2,000 95,240 1% 952.40
1-3 months outstanding 76,820 500 77,320 2% 1,546.40
3-6 months outstanding 22,180 22,180 3% 665.40
over 6 months outstanding 6,000 (1,000) 2,000 50% 1,000.00
3,000 20% 600.00
199,740 4,764.20

Allowance for Doubtful Accounts as of December 31, 2017

Balance per ledger 12,000

Adjustments:
Error on bad debts recovery 324
Understatement of accounts written off (200)
 Write off uncollectible accounts in the "over 6 months" category (1,000)
Adjustment of allowance to the required balance (6,359.80)
Adjusted balance 4,764.20

Requirement (b): Proposed audit adjustments.

Doubtful Accounts Expense 324

Allowance for Doubtful Accounts 324

Allowance for Doubtful Accounts 200

Accounts Receivable 200

Allowance for Doubtful Accounts 1,000

Accounts Receivable 1,000

Accounts Receivable 2,000

Advances from Customers 2,000

Accounts Receivable 500

Customers' accounts with credit balances 500

Accounts Receivable 1,440

Sales 1,440

Allowance for Doubtful Accounts 6,359.80

Doubtful Accounts Expense 6,359.80

ETC, Co.

Requirement (1): Total Cash in Bank

Cash in bank balance in Statement of Financial Position 15,825,000

Adjustments:
Cash - UCPB 225,000
Customers' check not yet deposited (37,500)
 Checks including in the cash count 28,709
Payment of note, including interest (83,700)
UCPB overdraft 25,000
Collections from note - SBTC 73,690
Total cash in bank 16,056,199 (C)

Requirement (2): Accounts Receivable

Subsidiary Ledger General Ledger

8,047,054 7,868,029
Customers' check 37,500 37,500
Collections (73,690)
Write-
offs (375,215)
Sales 122,500  
7,831,839 7,831,839 (B)

Requirement (3): Allowance for Doubtful Accounts

Required
Aging Distribution   Adjustment   Adjusted Balance Rate Allowance
Current 1,737,690.00 122,500 = 1,860,190.00 2% 37,203.80
Past due:
1 - 30 days 1,617,340.00 = 1,617,340.00 5% 80,867.00
143,770.6
31 - 60 days 1,437,706.50 = 1,437,706.50 10% 5
221,167.5
61 - 90 days 1,474,450.00 = 1,474,450.00 15% 0
Over 90 days 1,779,867.50 37,500
288,430.5
(375,215) = 1,442,152.50 20% 0
771,439.4
7,831,839.00 5 (A)
 Ling, Inc.

(1) Long-term portion of 9% note receivable at Dec. 31, 2017

Face amount of note, May 1, 2016 1,500,000

Less: Installment received, May 1, 2017 (500,000)

Balance, December 31, 2017 1,000,000

Less: Installment due, May 1, 2018 (500,000)

Long-term portion, Dec. 31, 2017 500,000

(2) Non-interest bearing note, net of imputed interest at Dec. 31, 2017

Face amount of note, April 1, 2017 100,000

Less: Imputed interest (P100,000 - [P100,000 x 0.756]) (24,400)

Balance, April 1, 2017 75,600

Add: Interest earned up to December 31, 2017 8,505

Carrying amount of non-interest bearing note, Dec. 31, 2017 84,105

(3) Long-term portion of installment contract receivable at Dec. 31, 2017

Contract selling price, July 1, 2017 200,000

Less:
Downpayment (60,000)

Balance, December 31, 2017 140,000

Less: Installment due, July 1, 2018 27,600

Carrying amount of long-term portion of installment
receivable 112,400
(4) Accrued interest - Note Receivable, sale of division at Dec. 31, 2017

Interest accrued from May 1 to Dec. 31, 2017 60,000

(5) Accrued interest - Installment Contract at Dec. 31, 2017

Interest accrued from July 1 to Dec. 31, 2017 11,200

(6) Interest Income - Note Receivable, Sale of Division for 2017

Interest earned from January 1 to May 1, 2017 45,000

Interest earned from May 1 to Dec. 31, 2017 60,000

105,000

(7) Interest income - Note Receivable, Officer for 2017

Interest earned Jan. 1 to Dec. 31, 2017 32,000

(8) Gain recognized on sale of patent

Selling price 100,000

Less: Imputed interest (24,400)

Actual selling price (100,000 x 0.756) 75,600

Less: Cost of patent (net)

Carrying value of patent, Jan. 1,
2017 40,000

Less: Amortization 2,000 38,000

Gain on sale of patent 37,600

(9) Gain recognized on sale of land

 Sale price 200,000

Less: Cost of land (150,000)

Gain on sale of
land 50,000

Requirement (1): Prepare the long-term receivables section of Ling's balance sheet at December 31, 2017.

9% note receivable from sale of division, due in annual installments of P500,000 to May 1, 2018, less current installment 500,000

8% note receivable from officer, due December 31, 2018, collaterized by 10,000 shars of Ling, Inc. ordinary shares 400,000

Non-interest bearing note from sale of patent, net of 15% imputed interest, due April 1, 2018 84,105

Installment contract receivable, due in annual installments of P50,000 to July 1, 2020, less current installment 112,400

Total long-term receivables 1,096,505

Requirement (2): Prepare a schedule showing the current portion of the long-term receivables and accrued interest that would appear in
Ling's balance sheet at December 31, 2017.

Current portion of long-term receivables:

Note receivable from sale of division 500,000

Installment contract receivable 27,600

Total 527,600

Accrued interest:
 Note receivable from sale of division 60,000

Installment contract receivable 11,200

Total 71,200

Requirement (3): Prepare a schedule showing interest income from the long-term receivables and gain recognized on sale of assets that
would appear on Ling's income statement for the year ended December 31, 2017.

Interest income:

Note receivable from sale of division 105,000

Note receivable from sale of patent 8,505

Note receivable from officer 32,000

Installment contract receivable from sale of land 11,200

Total 156,705

Gain recognized on sale of assets:

Patent 37,600

Land 50,000

Total 87,600

Grande Company

Requirement (1): What entries should be made in the records of Grande Company on December 31, 2017?
Carrying value of note and interest 106,000
Less: Due on Dec. 31, 2019 (P30,000 x 0.89) (26,700)
Due on Dec. 31, 2021 (P30,000 x 0.7921) (23,763) (50,463)
Impairment writedown 55,537

Interest Receivable 6,000

Interest Income 6,000

Doubtful Accounts Expense 55,537

Allowance for Decline in Note Value 55,537

Requirement (2): Assume that Grande Company collects expected payments from XYZ. What entries should be made on December 31, 2018, 2019,
2020 and 2021?

Dec. 31, '18

Allowance for Decline in Note Value 3,028
Interest Income 3,028

Dec. 31, '19

Allowance for Decline in Note Value 3,209
Interest Income 3,209

Cash 30,000
Notes Receivable 30,000

Dec. 31, '20

Allowance for Decline in Note Value 1,602
Interest Income 1,602

Dec. 31, '21

Allowance for Decline in Note Value 1,698
Interest Income 1,698

Cash 30,000
Notes Receivable 30,000
Allowance for Decline in Note Value 46,000
Notes Receivable 46,000