Reference no: EM132764583
Problem - You were assigned to audit the financial statements of your first-time client, SKY Corporation, as of and for the period ended December 31, 2018. Based on their December 31, 2018 trial balance, you were able to obtain the following balances of the accounts relevant to your audit:
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Debit
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Credit
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Accounts receivable
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1,987,500
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Allowance for bad debts
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152,500
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Retained earnings
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6,365,500
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Sales
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12,595,000
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Sales returns
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460,000
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Sales discounts
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824,000
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Bad debts expense
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80,000
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Audit notes:
a. The balances in the trial balance are balances before any year-end adjustments.
b. The beginning balance of SKY's accounts receivable is P1,728,000. The entity sells at 2/10, n/30.
c. The only transaction during the year that affected the retained earnings balance is the declaration of mid-year dividends of P1,000,000.
d. At interim (September 30, 2018), sales totaled to P8,000,000; the entity provided an interim bad debts expense which is 1% of interim sales; and a receivable from a customer for P13,900 was written off.
e. SKY is consistently using percentage of accounts receivable, which you ascertained to be reasonable.
f. Sales returns for P45,000 was received and recorded on January 6, 2018. These returns are related to sales made on December 30, 2017.
g. Receivables for P200,000 collected last January 7, 2018 were related to sales made on December 31, 2017. The related discount was recorded in 2018.
h. The following subsequent events are not recorded by the entity in its 2018 books:
Sales returns related to 2018 sales, P30,000, were received on January 2, 2019.
Receivables totaling to P170,000 were collected in the period from January 1 to January 10, 2019. These receivables are all related to 2018 sales and are all within the discount period.
Required -
1. How much is the bad debt expense for 2018?
2. What is the net realizable value of SKY's accounts receivable as of December 31, 2018?