Richard Derick has asked you to review the accounts receivable aging analysis and the allowance for doubtful accounts and to recommend any audit adjustments or reclassifications you consider necessary. Shelly Ross had prepared the aging analysis and the allowance for doubtful accounts document before being temporarily transferred to the Joplin Mills audit. She should be back early next week, but Derick would like to “wrap up” accounts receivable this week.

Based on the aging analysis prepared by Ross, you have decided to confirm all large accounts and a sampling of the smaller accounts, using positive confirmations.

Requirements

1. Retrieve the file labeled “20X9_ar.xlsx” (Link) Locate the following documentation in this file:

WP 3—Accounts and notes receivable—trade

WP 3.A—Accounts receivable aging analysis

WP 3.C—Allowance for uncollectible accounts

Scroll to WP 3.A, “Accounts Receivable Aging Analysis” and answer the following questions:

What proportion of the total dollar amount of accounts receivable have you included in your confirmation requests?

What procedures should you apply in the event of no reply to a request for positive confirmation?

What is the purpose of analyzing subsequent collections?

2. Based on your analysis of subsequent collections and the results of the confirmation process, are you satisfied that you have sufficient appropriate evidence to evaluate the existence and valuation assertions?

3. Draft the suggested Reclassification Entry A for the credit balances that are included on the accounts receivable sub-ledger.

4. Scroll to WP 3.C, “Allowance for Uncollectible Accounts.”

What type of correspondence would you examine to satisfy yourself as to the accounts receivable write-offs?

Draft the suggested Audit Adjustment 2 based on your review of the allowance calculation in comparison to the balance the client currently has on their books. Are you satisfied that the balance in the allowance is adequate after your recommended adjustment?

Scroll to WP 3, “Accounts and Notes Receivable—Trade” (lead schedule). Post Reclassification Entry A and Audit Adjustment 2 to the appropriate locations in the lead schedule.

WP 3 Brony's Bikes
Accounts and Notes Receivable-Trade
December 31, 20X9
	12/31/20X8	12/31/20X9	Audit		12/31/20X9
	Audited Balance	Per Ledger	Adjustments	Reclassifications	Audited
Accounts Receivable-Trade	$11,700,000	$11,920,000			$11,920,000	3.A
Notes Receivable-Trade	$1,500,000	$80,000			$80,000	3.B
	-	-	-	-	-
Total	$13,200,000	$12,000,000	$0	$0	$12,000,000
Allowance for Doubtful Accounts	($800,000)	($220,000)			($220,000)	3.C
	-	-	-	-	-
	$12,400,000	$11,780,000	$0	$0	$11,780,000
	=	=	=	=	=

WP 3.A Brony's Bikes

Prepared by:

Accounts Receivable Aging Analysis

Date:

December 31, 20X9

Reviewed by:

Date:

PAST DUE (DAYS)

CUSTOMER

TOTAL

CURRENT

1-30

31-60

61-90

91-120

OVER 120

COMMENTS

Adams Supply

$35,668

$35,668

Arley Supply

$123,400

$66,880

$56,520

Atlantic Bicycle Shops, Inc.

$234,500

C &

$234,500

Beece Hardware Outlets

$66,700

$66,700

Big Mart Discount Centers

$773,200

C U

$773,200

Customer unable to confirm details

Examined invoices and bills of lading

Big Tiger Discount Stores

$997,650

C &

$923,440

$74,210

Bikes and Parts

$188,990

$123,400

$65,590

Brown's Bikes

$2,344

$2,344

Chicago Bike and Fitness Stores

$45,689

$23,449

$22,240

Churchill Stores

$65,788

$65,788

Crandall Stores

$33,211

C &

$33,211

Epworth Sales

$12,366

$12,366

Florida Bike World

$664,100

C &

$455,600

$208,500

Florida Marts

$198,760

$198,760

Garrold Outfitters

$133,456

$23,467

$35,689

$12,335

$61,965

Gibson Sales and Service

$11,234

C &

$1,344

$9,890

Ginny Lou Midwest Sales

$189,600

$189,600

Great Lakes Fitness Centers

$144,600

$144,600

Howell Sports Shops

$23,440

$23,440

Jackson Bicycle Store

$3,256

$3,256

Jackson Jovia

$8,800

$8,800

Jamby, Inc.

$23,440

C &

$12,200

$11,240

John Vance Boats and Bikes

$22,344

$22,344

Josh and Lanier

$4,566

$4,566

L Mart Department Stores

$1,320,000

C U

$1,320,000

Customer unable to confirm details

Examined invoices and bills of lading

Lee Stores

$76,000

C &

$76,000

Leemer Hardware

$3,346

$3,346

Liesure Time

$338,700

C U

$338,700

Customer unable to confirm details

Examined invoices and bills of lading

Lincoln Supply

($22,400)

C &

($22,400)

Lippincott's

$5,677

$5,677

Long Island Bicycle Sales

$166,945

$166,945

Luther Stores

$122,340

$112,450

$9,890

Marion Stores

$112,780

C &

$112,780

Morison, Inc.

$166,700

$166,700

Nationwide Hardware Supply

$442,300

C &

$442,300

New England Bike Tours and Sales

$467,323

C U

$322,300

$56,780

$88,243

Collected in January

Northeast Discount Outlets

$388,900

C &

$385,600

$3,300

Northwest Supply

$222,589

C &

$120,489

$102,100

Oxford, Inc.

$67,854

$67,854

In Chapter 11 bankruptcy

Pacific Bike Suppliers

$337,780

C &

$337,780

Payne Sports Shop

$2,238

$2,238

Pedomar

$336,223

C U

$336,223

Examined shipping documents

Perleman Enterprises

$312,399

C &

$13,450

$166,800

$132,149

$0

Rear and Sawbuck

$881,870

C U

$881,870

Customer unable to confirm details

Examined invoices and bills of lading

Reggie's Bikes

$44,567

$44,567

Sacramento Sales

$249,240

C &

$249,240

Saftner Sales and Service

$4,532

$4,532

Scramble Gogmo Stores

$446,770

C &

$225,445

$76,800

$22,340

$122,185

Smith & Hines Bike Sales and Service

($113,320)

C &

($113,320)

Southwest Spokes, Inc.

$443,760

C U

$443,760

Customer unable to confirm details

Examined invoices and bills of lading

Taylor's Bicycle Shop

($54,765)

C &

($54,765)

Texas Bike Emporium

$266,800

C &

$266,800

Torkini, Inc.

$233,400

C U

$233,400

Amount in dispute

Trooper Shoop Sales and Service

$16,788

$16,788

Truly Bikes

$122,900

C &

$122,900

Turin, Inc.

$33,446

C &

$13,500

$12,300

$7,646

Uncle John's Discount Hardware

$223,400

C U

$223,400

Amount in dispute

Warner Discount Stores

$56,700

$23,400

$33,300

Wayne and Lambert, Inc.

$98,760

$98,760

Wouk, Inc.

$3,204

$3,204

Zerleena Stores

$87,180

$78,950

$8,230

-

-

-

-

-

-

-

$11,920,028

$9,456,221

$831,216

$1,299,904

$219,837

$18,120

$94,730

=

SUBSEQUENT COLLECTIONS(To January 28, 20Y0)

$466,987

$89,900

$202,300

$5,677

$0

$0

-

-

-

-

-

-

UNCOLLECTED (as of January 28, 20Y0)

$11,155,164

$8,989,234

$741,316

$1,097,604

$214,160

$18,120

$94,730

-

-

-

-

-

-

Estimated percent uncollectible

1.00%

10.00%

20.00%

50.00%

75.00%

100.00%

Estimated uncollectible-dollars

$598,945

$89,892

$74,132

$219,521

$107,080

$13,590

$94,730

Audit Reclassification Entry A:

Accounts and Notes Receivable-Trade

Accounts Payable

To reclassify credit balances.

Explanation of Audit Legends:

C Mailed confirmation request:

All accounts >=$200,000

Random selection of remainder confirmed

& Confirmation returned-no exception

U Unable to confirm (see comments)

WP 3.C Brony's Bikes
Allowance for Uncollectible Accounts
December 31, 20X9
		Account 1250	Account 8325
		All. for D.A.	B.D. Expense
		-	-
1/1/09 Balance per ledger		$800,000
1/1-12/31/X9 Monthly provision		$500,000	$500,000
		-	-
		$1,300,000	$500,000
1/1-12/31/09 Write-offs:
Pacific Coast Bike Shops		($325,600)	* C
Phar Mor Stores, Inc.		($134,600)	* C
Ontario Discount Stores, Inc.		($344,750)	* C
Jack's Bike and Training Shops		($275,050)	* C
		-	-
12/31/X9 Balance per ledger		$220,000	$500,000
AJE 2
		-	-
12/31/X9 Audited balance		$220,000	$500,000
		=	=
Audit Adjustment 2:
8325 Bad Debts Expense
1250 Allowance for Doubtful Accounts
To adjust allowance for doubtful accounts
to $600,000 as agreed.
Based on aging analysis and subsequent collections (WP 3.B)
and discussions with Mr. White, the credit manager,
an allowance of $600,000 seems reasonable and adequate.
Explanation of audit legends:
* Examined correspondence and discussed with credit manager
C Confirmed