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Audit Case Study: Receivables Analysis

Clasadoagdrin.com is a new audit client for the year ended December 31, 2018. Various transactions occurred in 2018, including sales on account, cash receipts from customers, sale of equipment receiving a note, write-offs of uncollectible accounts, sales returns, and recovery of previously written-off accounts. The auditor needs to determine account balances such as accounts receivable, bad debt expense, and notes receivable for 2018.

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99 views2 pages

Audit Case Study: Receivables Analysis

Clasadoagdrin.com is a new audit client for the year ended December 31, 2018. Various transactions occurred in 2018, including sales on account, cash receipts from customers, sale of equipment receiving a note, write-offs of uncollectible accounts, sales returns, and recovery of previously written-off accounts. The auditor needs to determine account balances such as accounts receivable, bad debt expense, and notes receivable for 2018.

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Anonymous CuUAaRSN
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© © All Rights Reserved
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CASE STUDY: RECEIVABLES AND SALES

You are engaged in the audit of [Link]., a new client at December


31, 2018.

The following balances have been excerpted from Clasadoagdrin’s financial


statement for the year ended 2017:
Accounts receivable 400,000
Inventory 700,000
Equipment and furniture 350,000
Supplies 299,000
Notes Receivable 100,000
Accounts Payable 600,000
Notes Payable 200,000
Allowance for bad debts 70,000

In connection with your audit, you were able to gather the following transactions
during 2018:
a) Sales on account, 1,085,000.
b) Cash received from customers during the year, 2,000,000.
c) On January 1, 2018, the company sold the equipment and received a
10% note with a face amount of 400,000. The note requires interest to be
paid annually on December 31. The prevailing rate of interest for a note
of this type is 13%.
d) Customers’ accounts of 59,000 were ascertained to be worthless.
e) Sales return in 2018 amounted to 10,000.
f) Bad accounts previously written off prior to 2018 amounting to 9,000
were recovered.
g) On January 1, 2018 [Link] granted a 5-year loan to Joy
Company in the amount of 7,000,000. The interest is 12% payable
annually starting December [Link] company received 500,000 and paid
200,000 origination
Cost
h) On October 1, of the current year, the entity assigned a customer’s
account in the amount of 300,000 to Gabrielle bank as a security for a
loan amounting to 250,000 with a stated interest of 12%.Gabrielle Bank
charges 5% for the loan and [Link] will continue to collect
the accounts from customer and will remit the payments to Gabrielle
Bank. On December 31 of the current year, cash collection on the
assigned accounts amounted to 200,000 and was remitted in full plus
interest.
i) [Link] estimates its bad debts expense to be 3% of accounts
Receivables.
Based on the above data and the result of your audit, answer the following:
1. Accounts receivable-2018
2. Loss on impairment-2018
3. Bad Debt Expense-2018
4. Allowance for bad debts-2018
5. Gain or loss on sale of equipment and furniture
6. Notes receivable-2018
7. Net realizable value-2018
8. Amount of equity over the assigned accounts to be disclosed at December
31

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