Reference no: EM132847242

Question 1 - You were able to gather the following from the December 31, 2018 trial balance of Karen Corporation in connection with your audit of the company:

Cash on hand P500,000

Petty cash fund 10,000

BPI current account 1,000,000

Security Bank current account No. 01 (80,000)

PNB savings account 1,200,000

PNB time deposit 500,000

Cash on hand includes the following items:

Customer's check for P40,000 returned by bank on December26, 2018 due to insufficient fund but subsequently re-deposited and cleared by the bank on January 8, 2019.

Customers check for P20,000 dated January 2, 2019, received on December 29, 2018

Postal money orders received from customers, P30,000.

The petty cash fund consisted of the following items as of December 31, 2018:

Currency and coins P2,000

Employees' vales 1,600

Currency in an envelope marked "collections for charity" with names attached 1,200

Un-replenished petty cash vouchers 1,300

Check drawn by Karen Corporation, payable to the petty cashier 4,000

P10,100

Included among the checks drawn by Karen Corporation against the BPI current account and recorded in December 2018 are the following:

1. Check written and dated December 29, 2018 and delivered to payee on January 2, 2019, P80,000.

2. Check written on December 27, 2018, dated January 2, 2019,delivered to payee on December 29, 20180, Php 40,000.

The credit balance in the Security Bank current account No. 2 presents checks drawn in excess of the deposit balance. These checks were still outstanding at December 31, 2018. The savings account deposit in PNB has been set aside by the board of directors for acquisition of new equipment. This account is expected to be disbursed in the next 3 months after the end of the reporting period.

Required - Based on the above and the result of your audit, determine the adjusted balances of following:

1. Cash on hand

2. Petty cash fund

3. BPI current account

4. Cash and cash equivalents

Question 2 - The books of Karen Company Service, Inc. disclosed its cash balance of P687,570 on December 31, 2018. The bank statement as of December31 showed a balance of P54 800. Additional information that might be useful in reconciling the two balances follows:

(a) Check number 748 for P30,000 was originally recorded on the books as P45,000.

(b) A customer's note dated September 25 was discounted on October12. The note was dishonored on December 29 (maturity date). The bank charged Karen's account for P142,650, including a protest fee of P2,650.

(c) The deposit of December 24 was recorded on the books as P28,950, but it was actually a deposit of P27,000.

(d) Outstanding checks totaled P98,850 as of December 31.

(e) There were bank service charges for December of P2, 100 not yet recorded on the books.

(f) Manila's account had been charged on December 26 for a customer's NSF check for P12,960.

(g) Manila properly deposited P6,000 on December 3 that was not recorded by the bank.

(h) Receipts of December 31 for P134,250 were recorded by the bank on January 2.

(i) A bank memo stated that a customer's note for P45,000 and interest of P1,650 had been collected on December 27, and the bank charged a P360 collection fee.

Required - Based on the above and the result of your audit, determine the following:

1. Adjusted cash in bank balance

2. Net adjustment to cash as of December 31, 2018

Question 3 - Shown below is the bank reconciliation for Karen Company for November 2018:

Balance per bank, Nov, 30, 2018 P150,000

Add; Deposit in transit 24,000

Total 174,000

Less: Outstanding checks P 28,000

Bank credit recorded in error 10,000 38,000

Cash balance per books, Nov. 30, 2018 P136,000

The bank statement for December 2010 contains the following data:

Total deposits P 110,000

Total charges, including an NSF check of P8,000 and a service charge of P400 96,000

All outstanding checks on November 30, 2018, including the bank credit, were cleared in the bank in December 2018. There were outstanding checks of P30,000 and deposits in transit of P38,000 on December 31, 2010.

Required - Based on the above and the result of your audit, answer the following:

1. How much is the cash balance per bank on December 31, 2018?

2. How much is, the December receipts per books?

3. How much is the December disbursements per books?

4. How much is the cash balance per books on December 31, 2018?

5. The adjusted cash bank balance as of December 31, 2018 is?

Question 4 - The following accounts were from Karen Company statement of financial position at December 31, 2018.

Debit Credit

Accounts receivable P 4,100,000

Allowances for doubtful accounts Php 100,000

Net credit sales 7,500,000

If doubtful accounts are 3% of accounts receivable, determine the bad debt expense to be reported for 2018.

Question 5 - The adjusted trial balance of Karen Company as of December 31, 2018 shows the following:

Debit Credit

Accounts receivable P1,000,000

Allowance for bad debts P40,000

Additional information:

Cash sales of the company represents 10% of gross sales.

90% of the credit sales customers do not take advantage of the 2/10, n/30 terms.

It is expected that cash discount of P6,000 will be taken on accounts receivable outstanding at December 31, 2019.

Sales returns in 2019 amounted to P400,000. All returns were from charge sales.

During 2019, accounts totaling to P44,000 were written off as uncollectible; bad debt recoveries during the year amounted to P3,000.

The allowance for bad debts is adjusted so that it represents certain percentage of the outstanding accounts receivable at year end. The required percentage at December 31, 2019 is 150% of the rate used on December 31, 2018.

Required - Based on the above and the result of your audit, answer the following:

1. The accounts receivable as of December 31, 2019.

2. The allowance for doubtful accounts as of December 31, 2019.

3. The net realizable value of accounts receivable as of December 31, 2019.

4. The doubtful account expense for the year 2019.

Question 6 - Your audit client, Karen Corporation, provided for uncollectible accounts receivable under the allowance method since the start of its operations last December 31, 2018. Provisions were made monthly at 2% of credit sales; bad debts written off were charged to the allowance account; recoveries of bad debts previously written off were credited to the allowance account; and no year-end adjustments to the allowance account were made. Karen Corporation usual credit terms are net 30 days. The credit balance in the allowance for doubtful accounts was P260,000 at January l, 2018. During 2018, credit sales totaled Pl8,000,000, interim provisions for doubtful accounts were made at 2 percent of credit sales, Pl80,000 of bad debts were written off, and recoveries of accounts previously written off amounted to P30,000. Karen installed a computer system in November 2018 and an aging of accounts receivable was prepared for the first time as of December 31, 2018. A summary of the aging is as follows:

Classifications by Month of Sale	Balance in Each Category	Estimated % Uncollectible
November-December 2018	P2,280,000	2%
July-October 2018	1,200,000	15%
January-June 2018	800,000	25%
Prior to January 1, 2018	260,000	80%

Based on the review of collectibility of the account balances in the "prior to January 1, 2018" aging category, additional receivables totaling P120,000 were written off as of December 31, 2018. Effective with the year ended December 31, 2018, Karen adopted a new accounting method for estimating the allowance for doubtful accounts at the amount indicated by the year-end aging analysis of accounts receivable.

Required - Based on the above and the result of your audit, answer the following:

1. How much is the adjusted balance of the allowance for doubtful accounts as of December 31, 2018?

2. How much is the doubtful accounts for the year 2018?

3. The recorded allowance for doubtful accounts should be increased by how much?

Question 7 - On January 1, 2018, Karen Company sold an office equipment with a cost of Php 1,000,000 and accumulated depreciation of Php 150,000 in exchange for a 3-year 10% Php 2,000,000 note receivable. Principal is due on December 31, 2020 but interest is due annually every December 31. The prevailing interest rate for this type of note is 12%.

Required - Based on the above data, compute for the following:

1. How much is the gain or loss on sale of office equipment in 2018?

2. How much is the interest income for 2018?

3. How much is the carrying amount of the note on December 31, 2018?

4. How much is the current portion of the note on December 31, 2018?

5. How much is the non-current portion of the note on December 31, 2018?