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. Account Balance Balance Adjusting Entries Cash AR Inventory PPD's $500,000 212.705 800,000 35,000 Net PPE Other Liabilities Common Stock Retained earnings Sales Sales returns & allowances Expenses Current Income Total 137,295 (150.000) | (80,000) (925,000) (530,000) (1005.000) 5,000 800.000 200,000 With the client's assistance, you prepared and mailed both positive and negative receivable confirmations on January 2, 2003. Positive confirmations (which must be answered) were sent to the following seven customers with balances over $5000. Dexter, Fox, Gate, Horton, Mart, Net, and Orb. Negative confirmations (only required to answer if the information is not correct) were mailed to all other customers with an accounts receivable balance. None of the confirmations were returned by the Post Office because of an inability to deliver. You have received replies to all of the positive confirmations and no replies to the negative confirmations. The positive confirmations are shown below. Palayiapin SLYICS answered) were sent to the following seven customers with balances over $5000. Dexter, Fox, Gate, Horton, Mart, Net, and Orb. Negative confirmations (only required to answer if the information is not correct) were mailed to all other customers with an accounts receivable balance. None of the confirmations were returned by the Post Office because of an inability to deliver. You have received replies to all of the positive confirmations and no replies to the negative confirmations. The positive confirmations are shown below. After examining the confirmations, you follow up on the two discrepancies. Horton was charged the incorrect price per unit and Orb was promised a credit for damaged merchandise. Required: 1. Prepare the appropriate proposed adjusting journal entry to correct the accounts receivable balance as of 12/31/02. 2. Enter the proposed entry on the working trial balance, reflecting the correct account balances. Dexter Address January 2, 2003 Dear Sir or Madam; For the purpose of providing independent confirmation of our accounts receivable, please advise our auditors, Jones and Jones Certified Public Accountants, of the correctness of your balance with us as of December 31, 2002, as shown on the enclosed statement After comparing the statement with your records, please sign the confirmation below and retum it directly to our auditors in the enclosed, addressed envelope. If your records differ from the balance shown, please note your exceptions belox. This letter is not a request for payment, but merely for confirmation of your account balance. Yours truly, ABC Company - - - - - - -- - - - - - - - - - - - - - -- - - - - -- - - - - - - -- - - - - - - - CONFIRMATION OF ACCOUNTS RECEIVABLE Jones and Jones, Certified Public Accountants Address Dear Sir or Madam; The statement of our account showing a balance of $_7,400 wants of 12/31/02 is correct except as noted below. Date 1/8/03 Yours truly, Dexter.consigned Exceptions.........No exceptions Fox January 2, 2003 Address Dear Sir or Madam; For the purpose of providing independent confirmation of our accounts receivable, please advise our auditors, Jones and Jones Certified Public Accountants, of the correctness of your balance with us as of December 31, 2002, as shown on the enclosed statement. After comparing the statement with your records, please sign the confirmation below and retum it directly to our auditors in the enclosed, addressed envelope. If your records differ from the balance shown, please note your exceptions belox. This letter is not a request for payment, but merely for confirmation of your account balance. Yours truly, ABC Company - - - - - - - - - - - - - - - - - - - - - - - - - - - CONFIRMATION OF ACCOUNTS RECEIVABLE Jones and Jones, Certified Public Accountants Address was of 12/31/02 is correct except as noted below. Dear Sir or Madam The statement of our account showing a balance of $_31.700 Date_1/25/03 Yours truly, Fox_ Exceptions.......... No exceptions signed Gate Address January 2, 2003 Dear Sir or Madam For the purpose of providing independent confirmation of our accounts receivable, please advise our auditors, Jones and Jones Certified Public Accountants, of the correctness of your balance with us as of December 31, 2002, as shown on the enclosed statement After comparing the statement with your records, please sign the confirmation below and retum it directly to our auditors in the enclosed, addressed envelope. If your records differ from the balance shown, please note your exceptions belox. This letter is not a request for payment, but merely for confirmation of your account balance. Yours truly, ABC Company CONFIRMATION OF ACCOUNTS RECEIVABLE Jones and Jones, Certified Public Accountants Address Dear Sir or Madam; The statement of our account showing a balance of $_17.200 Date 1/14/03 Yours truly, Gate Exceptions.............No exceptions wens of 12/31/02 is correct except as noted below. signed Horton January 2, 2003 Address Dear Sir or Madam; For the purpose of providing independent confirmation of our accounts receivable, please advise our auditors, Jones and Jones Certified Public Accountants, of the correctness of your balance with us as of December 31, 2002, as shown on the enclosed statement After comparing the statement with your records, please sign the confirmation below and retum it directly to our auditors in the enclosed, addressed envelope. If your records differ from the balance shown, please note your exceptions belox. This letter is not a request for payment, but merely for confirmation of your account balance. Yours truly, ABC Company CONFIRMATION OF ACCOUNTS RECEIVABLE Jones and Jones, Certified Public Accountants Address Dear Sir or Madam; The statement of our account showing a balance of $_9.060 was of 12/31/02 is correct except as noted below. Date_1/15/03 Yours truly, Horton_ signed Exceptions. Our balance is not correct. A Dec invoice for 20 units was priced incorrectly. Charged 82.30 per, should be 28.30 per. January 2, 2003 Mart Address Dear Sir or Madam; For the purpose of providing independent confirmation of our accounts receivable, please advise our auditors, Jones and Jones Certified Public Accountants, of the correctness of your balance with us as of December 31, 2002, as shown on the enclosed statement. After comparing the statement with your records, please sign the confirmation below and retum it directly to our auditors in the enclosed, addressed envelope. If your records differ from the balance shown, please note your exceptions belox. This letter is not a request for payment, but merely for confirmation of your account balance. Yours truly, ABC Company CONFIRMATION OF ACCOUNTS RECEIVABLE Jones and Jones, Certified Public Accountants Address Dear Sir or Madam; The statement of our account showing a balance of $_77,540 end of 12/31/02 is correct except as noted below. Date 1/12/03 Yours truly, Mart_ signed Exceptions........ No exceptions January 2, 2003 Net Address Dear Sir or Madam; For the purpose of providing independent confirmation of our accounts receivable, please advise our auditors, Jones and Jones Certified Public Accountants of the correctness of your balance with us as of December 31, 2002, as shown on the enclosed statement After comparing the statement with your records, please sign the confirmation below and retum it directly to our auditors in the enclosed, addressed envelope. If your records differ from the balance shown, please note your exceptions belox. This letter is not a request for payment, but merely for confirmation of your account balance. Yours truly, ABC Company CONFIRMATION OF ACCOUNTS RECEIVABLE Jones and Jones, Certified Public Accountants Address Dear Sir or Madam; The statement of our account showing a balance of $_19400 Date 1/9/03 Yours truly, Net_ was of 12/31/02 is correct except as noted below. signed Exceptions None Orb Address January 2, 2003 Dear Sir or Madam; For the purpose of providing independent confirmation of our accounts receivable, please advise our auditors, Jones and Jones Certified Public Accountants of the correctness of your balance with us as of December 31, 2002, as shown on the enclosed statement After comparing the statement with your records, please sign the confirmation below and retum it directly to our auditors in the enclosed, addressed envelope. If your records differ from the balance shown, please note your exceptions belox. This letter is not a request for payment, but merely for confirmation of your account balance. Yours truly, ABC Company CONFIRMATION OF ACCOUNTS RECEIVABLE Jones and Jones, Certified Public Accountants Address Dear Sir or Madam; The statement of our account showing a balance of $ 18,748 waras of 12/31/02 is correct except as noted below. Date_1/10/03 Yours truly, Orb_ signed Exceptions. The correct bal is $17,000. Items damaged in shipment totaled $1.748. Credit has been promised but not received