Question

Receivables Confirmation Exercise (10 points) You have been engaged to audit the financial statements of ABC Company, for the year ended 12/31/02. To begin your substantive audit work in the accounts receivable area, you obtained an aged trial balance from the bookkeeper. 1-30 days 30-60 days 60-90 days Over 90 current 3,900 1,050 750 800 400 1,720 5,500 Customer Total Name Abner | $3,900 Botox 750 Cat 3,950 Dexter 7.400 Engle 4,500 Fox 31,700 Gate 17,200 Horton 9,060 ISB 4.600 Jet 3,290 1,850 Long 4,050 Mart 77.540 Net 19,400 Orb 18.748 Pax 4,767 Total 212,705 7,300 2.100 7.400 2,380 26,200 17,200 1,760 4,600 3,290 1,850 2,700 77,540 19,400 17.000 4,767 188,1871 King 1,350 1,748 20,570 | 3,198 | 750 You can assume that you checked the aged trial balance with the accounts receivable subsidiary ledger and that the subsidiary ledger supports the aged trial balance as to both the amounts and the age of the accounts. The trial balance is illustrated below.

Answer 1

All negative reply which were send doesnot return by post office , hence it is assumed all negetive reply which were send are accurate and doesnot need any adjusting entry

1) adjusting entry of postive reply received which doesnot agree with the balances

a) dexter sends the reply balances are accurate so adjusting entry for him

b) Fox sends the reply balances are accurate so adjusting entry for him

c)Gate sends the reply balances are accurate so adjusting entry for him

d) Hortan has a balance $9060 he disagrees and tell us that 20 units were wrongly billed for 82.3 , actually it was 28.30

entry passed in accounts of horton before  correction was

Account Receivable A/c Dr 1646

To sales A/c 1646

( being sale made)

Now we will rectify horton accounts by passing

Sales Return & allowances A/c Dr 1080

To account Receivable A/c 1080

( Being sales invoice overcharged by $54 (82.3-28.3)

e)mart ends the reply balances are accurate so adjusting entry for him

f ) Net ends the reply balances are accurate so adjusting entry for him

g) Orb has a balance $18748 he disagrees and tell us that $ 17000 is correct balance, $1748 item was damaged and credit note has to be issued

adjusting entry

Sales Return & allowances   A/c DR 1748

To Account Receivables A/c 1748

( Being accounts receivables reduced by $1748 )

so proposed Journal entry to be passed on 12/31/2

1) for horton

Sales return & allowances A/c Dr 1080

To account Receivable A/c 1080

( Being sales invoice overcharged by $54 (82.3-28.3)

2) orb

Sales Return & allowances A/c DR 1748

To Account Receivables A/c 1748

( Being accounts receivables reduced by $1748)

B) effect of adjusting entry on trail balance

Account	Balance ($)	adjusting entry	Balance ($)
cash	500000		500000
A/R	212705	-2828	209877
inventory	800000		800000
ppd's	35000		35000
net ppe	137295		137295
A/P	(150000)		(150000)
other liabilities	(80000)		(80000)
common stock	(925000)		(925000)
retained earnings	(530000)		(530000)
sales	(1005000)		(1005000)
sales return & allowances	5000	+2828	7828
expenses	800000		800000
current income	200000		200000
total	0	0	0