THIRD EXAM REVIEWER

1. The schedule aged trial balance of trade accounts receivable at the audit date is commonly prepared by the
auditor for improved accuracy.
Under the first-in, first-out method, every credit to a customer’s account is applied to the latest unpaid
invoice.
a. True, true
b. False, false
c. True, false
d. False, true

2. In verifying the adequacy of the allowance for doubtful accounts, the auditor starts by assessing the client’s
policies for granting credit and collecting cash.
By maintaining good statistics on doubtful accounts, the client can determine what percentage of each
ageing category will become uncollectible.
a. True, true
b. False, false
c. True, false
d. False, true

3. A positive external confirmation request asks the confirming party to reply with exception on valid
circumstances.
A response to a positive confirmation request ordinarily is expected to provide reliable audit evidence.
a. True, true
b. False, false
c. True, false
d. False, true

4. In a negative confirmation, if the auditor did not received any reply from the customer, then it is assumed
that recipient disagree with the amount as per confirmation letter.
The failure to receive a response to a negative confirmation request does not explicitly indicate receipt by
the intended confirming party of the confirmation request or verification of the accuracy of the information
contained in the request.
a. True, true
b. False, false
c. True, false
d. False, true

5. Reviewing loan agreements addresses presentation assertion.

Footing the sales journal and reconcile with postings to the general ledger addresses existence assertion.
a. True, true
b. False, false
c. True, false
d. False, true

6. The appropriate evidence to be obtained from tests of details must be decided on a(n):
a. efficiency basis.
b. effectiveness basis.
c. audit objectives basis.
d. none of the above.

7. Which of the following is not a balance-related audit objective evaluated in the audit of accounts receivable?
a. Occurrence
b. Completeness
c. Rights
d. Accuracy

8. Which of the following types of receivables would not deserve the special attention of the auditor?

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 a. Accounts receivables with credit balances.
b. Accounts that have been outstanding for a long time.
c. Receivables from affiliated companies.
d. Each of the above would receive special attention.

9. A listing of the balances in the accounts receivable master file at the balance sheet date, by total balance
outstanding and by the amount of time the component parts have been outstanding, is the:
a. customer list.
b. aged trial balance.
c. accounts receivable ledger.
d. schedule of accounts receivable.

10. An auditor's purpose in reviewing credit ratings of customers with delinquent accounts receivable most
likely is to obtain evidence concerning management's assertion about
a. Valuation or allocation
b. Presentation and disclosure
c. Existence and occurrence
d. Rights and obligations

PROBLEM 1
To substantiate the existence of accounts receivable balances as at December 31, 2014 of Lucrative Company, you
have decided to send confirmation request to customers. Below is a summary of the confirmation requests to
customers together with the exceptions and audit findings. Gross profit on sales is 20%. The company applies
perpetual inventory method.

Customer Balance Comments Audit findings

Cruz P50,000 P30,000 was returned on January 2, Returned goods were received
2015. Correct balance is P20,000. January 5, 2015.
Frias P10,000 Your CM representing price The CM was taken up by
adjustment dated December 29, Lucrative in 2015.
2014 cancels this.
Lazo P48,000 You have overpriced us by P50. The complaint is valid.
Correct price should be P100.
Sia P37,500 We received the goods only on Term is shipping point. Shipped
January 5, 2015. in 2014.
Yao P45,000 Balance was offset by our Lucrative credited accounts
December shipment of you raw payable for P45,000 to record
materials. purchases. Yao is a supplier.

11. If necessary adjusting entry is made regarding the case of Mr. Cruz, the net income will increase or decrease
by:
12. The effect on 2014 net income of Lucrative Company of its failure to record CM involving transaction with Mr.
Frias is:
13. The actual number of units sold to Mr. Lazo is:
14. The overstatement of receivale from Mr. Lazo is:
15. The adjusting entry to correct the receivable from MR. Yao is:

PROBLEM 2
In connection with your examination of the financial statements of Aguilar, Inc for the year ended December 31,
2024, you were able to obtain certain information during your audit of the accounts receivable and related
accounts.

The December 31, 2024 balance in the Accounts Receivable control accounts is P788,000.

The only entries in the Doubtful Accounts Expense account were:

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 • A credit for P1,296 on December 2, 2024 because Company A remitted in full for the accounts charged off
on October 31, 2024; and
• A debit on December 31 for the amount of the credit to the Allowance for Doubtful Accounts.

The Allowance for Doubtful Accounts schedule is presented below:

Debit Credit Balance

January 1, 2024 P14,632
October 31, 2024
Uncollectible accounts:
Company A – P1,296
Company B – P3,280
Company C – P2,256 P6,032 8,600
December 31, 2024 39,400 P48,000

An aging schedule of the accounts receivable as of December 31, 2024 is presented below:

Age Net debit balance Amount to which the Allowance is to be

Adjusted after adjustment and
Corrections have been made
0 to 1 month P372,960 1 percent
1 to 3 months 307,280 2 percent
3 to 6 months 88,720 3 percent
over 6 months 24,000 Definitely uncollectible, P4,000; P8,000 is
considered 50% uncollectible; the remainder is
estimated to be 80% collectible.

There is a credit balance in one account receivable (0 to 1 month) of P8,000; it represents an advance on a sales
contract. Also, there is a credit balance in one of the 1 to 3 months account receivable of P2,000 for which
merchandise will be accepted by the customers.

The ledger accounts have not been closed as of December 31, 2024. The Accounts Receivable control account is
not in agreement with the subsidiary ledger. The difference cannot be located, and you decided to adjust the
control account to the sum of the subsidiaries after corrections are made.

Questions:
Based on the above and the result of your audit, answer the following:
16. How much is the adjusted balance of Accounts Receivable as of December 31, 2024?
17. How much is the adjusted balance of the Allowance for Doubtful Accounts as of December 31, 2024?
18. How much is the net adjustment to the Allowance for Doubtful Accounts?
19. How much is the Doubtful Accounts expense for the year 2024?
20. How much is the net adjustment to the Doubtful Accounts expense account?