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Your new client has not prepared financial statements for three years since December 31, 2016. The company used the accrual method of accounting and reported

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Your new client has not prepared financial statements for three years since December 31, 2016. The company used the accrual method of accounting and reported income on a calendar year basis prior to 2017. During the three years since December 31, 2016 his cash receipts and cash disbursements records were maintained and sales on account were entered, when made, directly into an accounts receivable subsidiary ledger. However, no general ledger postings have been made since the December 31, 2016. Your examination has disclosed balances at the beginning and the end of the three-year period as follows: Dec. 31, 2016 Dec. 31, 2019 Aging of accounts receivable Less than 1 year old 176,120 282,000 1 to 2 years old 12,000 18,000 2 to 3 years old 8,000 Total accounts receivable 188,120 308,000 Inventories 116,000 188,000 Accounts payable - merchandise purchases 50,000 110,000 You have satisfied yourself as to the accuracy of the balances shown above. Other information available to you is as follows: 2017 2018 2019 Cash received on account applied to: Current years collections 1,480,000 1,618,000 2,088,000 Prior year's accounts 134,000 150,000 168,000 Other accounts 6,000 4,000 64.120 Total 1,620,000 1,772,000 2,320,120 Cash sales 170,000 260,000 312,000 Disbursements for merchandise purchases 1,792,500 1,412,000 1,738,000 No account balances have been written off as uncollectible during the three-year period. The ratio of gross profit to sales remains constant from year to year.You were assigned to audit the financial statements of your first-time client, SKY Corporation, as of and for the period ended December 31, 2018. Based on their December 31, 2018 trial balance, you were able to obtain the following balances of the accounts relevant to your audit: Debit Credit Accounts receivable 1,987,500 Allowance for bad debts 152,500 Retained earnings 6,365,500 Sales 12,595,000 Sales returns 460,000 Sales discounts 824,000 Bad debts expense 80,000 Audit notes: a. The balances in the trial balance are balances before any year-end adjustments. b. The beginning balance of SKY's accounts receivable is P1,728,000. The entity sells at 2/10, n/30. C. The only transaction during the year that affected the retained earnings balance is the declaration of mid-year dividends of P1,000,000. d. At interim (September 30, 2018), sales totaled to P8,000,000; the entity provided an interim bad debts expense which is 1% of interim sales; and a receivable from a customer for P13,900 was written off. e. SKY is consistently using percentage of accounts receivable, which you ascertained to be reasonable. f. Sales returns for P45,000 was received and recorded on January 6, 2018. These returns are related to sales made on December 30, 2017. g. Receivables for P200,000 collected last January 7, 2018 were related to sales made on December 31, 2017. The related discount was recorded in 2018. h. The following subsequent events are not recorded by the entity in its 2018 books: Sales returns related to 2018 sales, P30,000, were received on January 2, 2019. Receivables totaling to P170,000 were collected in the period from January 1 to January 10, 2019. These receivables are all related to 2018 sales and are all within the discount period

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