To substantiate the existence of the accounts receivable balances as at December 31, 2017 of LUKAS COMPANY, you have decided to send confirmation requests to customers. Below is a summary of the confirmation replies together with the exceptions and audit findings. Gross profit on sales is 20%. The company is under the perpetual inventory method.
Bad Debts
At the end of the accounting period, a financial statement is prepared by every company, then at that time while preparing the financial statement, the company determines among its total receivable amount how much portion of receivables is collected by the company during that accounting period.
Accounts Receivable
The word “account receivable” means the payment is yet to be made for the work that is already done. Generally, each and every business sells its goods and services either in cash or in credit. So, when the goods are sold on credit account receivable arise which means the company is going to get the payment from its customer to whom the goods are sold on credit. Usually, the credit period may be for a very short period of time and in some rare cases it takes a year.
To substantiate the existence of the
LUKAS COMPANY, you have decided to send confirmation requests to customers. Below is a
summary of the confirmation replies together with the exceptions and audit findings. Gross profit
on sales is 20%. The company is under the perpetual inventory method.
Name of
Customer
Balance
Per Books
Comments From
Customers Audit Findings
Concordia P150,000 P90,000 was returned on December 30,
2017. Correct balance as is P60,000.
Returned goods were received
December 31, 2017.F
Falcon P30,000 Your CM representing price adjustment dated
December 28, 2017 cancels this.
The CM was taken up by Lukas
Company in 2018.
Lazaro P144,000 You have overpriced us by P150. Correct
price should be P300.
The complaint is valid.
Silang P112,500 We received the goods only on January 6,
2018.
Term is shipping point.
Shipped in 2017.
Yakal P135,000 Balance was offset by our December
shipment of your raw materials.
Lukas Company credited
accounts payable for
P135,000 to record purchases.
Yakal is a supplier.
21. If the necessary adjusting
income will
A. Decrease by P18,000. C. Increase by P18,000.
B. Decrease by P90,000. D. Increase by P90,000.
22. The effect on 2017 net income of Lukas Company of its failure to record the CM involving
transaction with Falcon:
A. P30,000 over. C. P6,000 over.
B. P30,000 under. D. P6,000 under.
23. The overstatement of receivable from Lazaro is
A. P96,000 B. P24,000 C. P72,000 D. P48,000
24. The accounts receivable from Silang is
A. Correctly stated. C. P112,500 under. B. P112,500 over. D. P225,000 under.
25. The
A. Purchases 135,000
Accounts receivable 135,000
B. Accounts payable 135,000
Purchases 135,000
C. Accounts receivable 135,000
Accounts payable 135,000
D. Accounts payable 135,000
Accounts receivable 135,000
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