Exam 2020, questions and answers PDF

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CEBU CPAR CENTER, INC.Auditing Problems1 st Pre-board (July 23, 2007)PROBLEM 1 – Problem 2 Audit of CashYour examination of the financial statements of MAGDALO Group Co. for the year ended December 31, 2007 you obtained the following information on the checking account of the company: a. The bank st...

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CEBUCP ARCENT ER, I NC. Au di t i n gPr o bl e ms s t 1 Pr eboa r d( J ul y2 3 , 2 0 0 7 )

obl e m2Audi t ofCa s h PROBLEM1–Pr Y o u re x a mi n a t i o no ft h efi n a n c i a ls t a t e me n t so fMAGDAL OGr o u pCo .f o rt h ey e a re n d e dDe c e mb e r3 1 ,2 0 0 7y o u o b t a i n e dt h ef o l l o wi n gi n f o r ma t i o no nt h ec h e c k i n ga c c o u n t o f t h ec o mp a n y : a .Th eb a n ks t a t e me n t o nNo v e mb e r3 0 , 2 0 0 7s h o we dab a l a n c eo f P1 5 , 3 0 0 . b .Amo n gt h eb a n kc r e d i t si nNo v e mb e rwa sac u s t o me r ’ sn o t ef o rP5 , 0 0 0c o l l e c t e df o rt h ea c c o u n to ft h e c o mp a n ywh i c ht h ec o mp a n yr e c o g n i z e di nDe c e mb e ra mo n gi t sr e c e i p t s . c .I n c l u d e di nt h eb a n kd e b i t si nNo v e mb e rwa sac o s t o f c h e c k b o o k sa mo u n t i n gt oP6 0 . d .Ac h e c kf o rP2 , 0 0 0i s s u e db yMAGUL OGr o u pCo .i nNo v e mb e rwa sc h a r g e db yt h eb a n ki ne r r o ra g a i n s t MAGDAL OGr o u pCo . a c c o u n t . e .Y o ua l s oa s c e r t a i n e dt h a tt h e r ewe r ed e p o s i t si nt r a n s i ta mo u n t i n gt oP4 , 0 0 0a n do u t s t a n d i n gc h e c k s t o t a l i n gP8 , 5 0 0a so f No v e mb e r3 0 , 2 0 0 7 . f .Th eb a n ks t a t e me n tf o rt h emo n t ho fDe c e mb e rs h o we dt o t a lc r e d i t so fP2 0 , 8 0 0a n dt o t a lc h a r g e so f P1 0 , 2 0 0 . g .Co mp a n yb o o k sf o rDe c e mb e rs h o we dt o t a l r e c e i p t so f P3 6 , 7 8 0a n dd i s b u r s e me n t so f P2 0 , 3 6 0 . h .Ba n kd e b i tme mo sf o rDe c e mb e rwe r e :No .4 1 8f o rs e r v i c ec h a r g e s ,P8 0a n dNo .5 0 4o nac u s t o me r ’ s r e t u r n e dc h e c kma r k e d“ Re f e rt oDr a we r ”f o rP1 , 2 0 0 . i .OnDe c e mb e r2 9 ,2 0 0 7t h ec o mp a n yp l a c e dwi t ht h eb a n kac u s t o me r ’ sp r o mi s s o r yn o t ewi t haf a c ev a l u e o fP6 , 0 0 0f o rc o l l e c t i o n . Th ec o mp a n yt r e a t e dt h i sn o t ea sp a r t o fi t sr e c e i p t sa l t h o u g ht h eb a n kwa sa b l et o c o l l e c t o nt h en o t eo n l yi nJ a n u a r y , 2 0 0 7 . j .Ac h e c kf o rP1 9 8wa sr e c o r d e di nt h ec o mp a n yc a s hp a y me n t sb o o k si nDe c e mb e ra sP1 , 9 8 0 . 1 . Ad j u s t e dc a s hb a l a n c ea so f De c e mb e r3 1 , 2 0 0 7 . a . P2 4 , 2 8 0 b . P3 6 , 8 8 0 c . P1 8 , 7 8 2 2 . Un a d j u s t e db o o kb a l a n c eNo v e mb e r3 0 , 2 0 0 7 . a . P1 2 , 8 0 0 b . P7 , 8 0 0 c . P1 2 , 8 6 0 3 . Ad j u s t e dc a s hb a l a n c eNo v e mb e r3 0 , 2 0 0 7 . a . P8 , 8 0 0 b . P1 2 , 8 0 0 c . P2 1 , 3 0 0 4 . De p o s i t i nt r a n s i t a so f De c e mb e r3 1 , 2 0 0 7 . a . P2 1 , 9 8 0 b . P1 0 , 9 8 0 c . P8 , 8 9 0 5 . Ou t s t a n d i n gCh e c k sa so f De c e mb e r3 1 , 2 0 0 7 . a . P1 9 , 9 4 0 b . P1 6 , 8 1 8 c . P1 9 , 8 8 0

d . P1 6 , 9 4 0

e . o t h e ra mo u n t

d . P7 , 8 6 0

e . o t h e ra mo u n t

d . P1 0 , 8 0 0

e . o t h e ra mo u n t

d . P1 6 , 9 8 0

e . o t h e ra mo u n t

d . P1 8 , 0 9 8

e . o t h e ra mo u n t

obl e m5Audi t ofCa s h PROBLEM2–Pr Bi o fl uCo mp a n yh a sac u r r e n t a c c o u n t i nMe t r o b a n k . Yo u ra u d i t o f t h ec o mp a n y ’ sc a s ha c c o u n t r e v e a l st h ef o l l o wi n g : a . Ba l a n c e st a k e nf r o mt h ec o mp a n y ’ sg e n e r a l l e d g e r : Ca s hb a l a n c e , No v e mb e r3 0 , 2 0 0 7 P6 3 7 , 8 6 0 Ca s hb a l a n c e , De c e mb e r3 1 , 2 0 0 7 5 7 6 , 4 2 0 Re c e i p t s , De c e mb e r 1 3 1 , 2 0 0 7 3 0 6 , 2 2 0 b . Ou t s t a n d i n gc h e c k s , No v e mb e r3 0 , 2 0 0 7 ( P2 6 , 1 4 0wa sp a i db yb a n ki nDe c e mb e r ) 6 4 , 1 4 0 c .Ch e c k swr i t t e na n dr e c o r d e di nDe c e mb e r ;n o ti n c l u d e di nt h ec h e c k sr e t u r n e dwi t ht h e De c e mb e r b a n ks t a t e me n t 3 6 , 0 8 0 d . De p o s i t i nt r a n s i t , No v e mb e r3 0 , 2 0 0 7 1 5 , 2 6 0 e . De p o s i t i nt r a n s i t , De c e mb e r3 1 , 2 0 0 7 1 6 , 1 4 0 f .Ab a n kc r e d i tme mowa si s s u e di nDe c e mb e rt oc o r r e c ta ne r r o n e o u sc h a r g ema d ei n No v e mb e r 1 , 5 0 0 g . No t ec o l l e c t e db yb a n ki nDe c e mb e r( c o mp a n ywa sn o t i n f o r me do f t h ec o l l e c t i o n ) 2 , 0 6 0 h .Ac h e c kf o rP2 , 0 2 0( p a y a b l et oas u p p l i e r )wa sr e c o r d e di nt h eCh e c kRe g i s t e ri nDe c e mb e r a sP3 , 0 0 0 9 8 0 i . Ac h e c kf o rP2 , 2 4 0wa sc h a r g e db yt h eb a n ka sP2 , 4 2 0i nDe c e mb e r 1 8 0 j .Bi o fl uCo mp a n yi s s u e das t o pp a y me n to r d e rt ot h eb a n ki nDe c e mb e r .Th i sp e r t a i n st oa c h e c kwr i t t e ni nDe c e mb e rwh i c hwa sn o tr e c e i v e db yt h ep a y e e .An e wc h e c kwa swr i t t e n

a n dr e c o r d e di nt h eCh e c kRe g i s t e ri nDe c e mb e r .T h eo l dc h e c kwa swr i t t e no ffb yaj o u r n a l e n t r y , a l s oi nDe c e mb e r 7 8 0 k . Ba n ks e r v i c ec h a r g e , No v e mb e r3 0 , 2 0 0 7 6 0 6 .Th et o t a l o u t s t a n d i n gc h e c k so nDe c e mb e r3 1 , 2 0 0 7 , s h o u l db e: a . P3 8 , 0 0 0 b . P7 4 , 0 8 0 c . P3 6 , 0 8 0 d . P6 2 , 2 2 0 e . o t h e ra mo u n t 7 . Wh a t i st h eb a n ks t a t e me n t b a l a n c eo nNo v e mb e r3 0 , 2 0 0 7 ? a . P6 8 4 , 4 0 0 b . P5 8 7 , 4 2 0 c . P6 8 5 , 1 8 0 d . P6 8 8 , 1 8 0 e . o t h e ra mo u n t 8 . Wh a t i st h eb a n ks t a t e me n t b a l a n c eo nDe c e mb e r3 1 , 2 0 0 7 ? a . P6 3 6 , 4 4 0 b . P6 3 7 , 2 2 0 c . P6 3 7 , 5 8 0 d . P6 3 7 , 1 6 0 e . o t h e ra mo u n t 9 . Th et o t a l b a n kr e c e i p t sf o rt h emo n t ho f De c e mb e rs h o u l db e: a . P3 0 9 , 6 8 0 b . P3 0 4 , 0 0 0 c . P3 0 8 , 9 0 0 d . P3 0 8 , 1 2 0 e . o t h e ra mo u n t 1 0 . Th et o t a l b a n kd i s b u r s e me n t sf o r t h emo n t ho f De c e mb e ri s : a . P3 5 6 , 0 8 0 b . P3 5 6 , 8 6 0 c . P3 5 7 , 6 4 0 d . P3 5 6 , 2 0 0 e . o t h e ra mo u n t obl e m1 3Audi tofCa s h PROBLEM3–Pr Y o uwe r ee n g a g e dt oa u d i t t h eb o o k so fa c c o u n t so f EEn t e r p r i s ef o rt h ey e a re n d e dDe c e mb e r3 1 , 2 0 0 7 .F r o mt h e r e c o r d so f t h eCo . y o ug a t h e r e dt h ef o l l o wi n gi n f o r ma t i o n : EEn t e r p r i s e ss t a r t e do p e r a t i o no nOc t o b e r2 ,2 0 0 7wi t hEi n v e s t i n gP2 0 0 , 0 0 0c a s h .Mo n t h l yb a n kr e c o n c i l i a t i o n s t a t e me n t sh a v en o t b e e np r e p a r e df o r2 0 0 7 ; h o we v e r , b a n ks t a t e me n t sf o rOc t o b e r , No v e mb e r , a n dDe c e mb e rwe r e ma d ea v a i l a b l et oy o u .Y o u ra n a l y s i so ft h e s eb a n ks t a t e me n t sr e v e a l e dt o t a l b a n kc r e d i t s( d e p o s i t s )o fP1 , 1 4 0 , 0 0 0 i n c l u d i n g ,E’ si n i t i a li n v e s t me n ta n db a n kl o a n ,d e t a i l so fwh i c ha r ei nt h ea d d i t i o n a ld a t a .Th eb a n ks t a t e me n ti n De c e mb e r , 2 0 0 7s h o we da ne n d i n gb a l a n c eo f P6 0 , 7 6 0 . Ex a mi n a t i o no f t h ep a i dc h e c k sd i s c l o s e dt h a tc h e c k st o t a l i n gP9 , 0 0 0we r ei s s u e db yt h eCo . i nDe c e mb e r ,2 0 0 7 a n d we r ep r e s e n t e df o rp a y me n t o n l yi nJ a n u a r y , 2 0 0 8 .Ca s hc o u n t o f t h eCa s h i e r ’ sa c c o u n t a b i l i t ya mo u n t e dt oP1 2 , 6 0 0 . Y o uwe r et o l db yt h eCa s h i e rt h a t P1 0 , 0 0 0o f t h e s e , i nc h e c k s , we r ec a s hs a l e so nDe c e mb e r2 9 , 2 0 0 7 , d e p o s i t e do n J a n . 3 , 2 0 0 8 .Th eb a l a n c e , i nc u r r e n c ya n dc o i n s , r e p r e s e n t sPe t t yCa s hF u n d . Ad d i t i o n a l d a t a : 1 . Ac c o u n t sr e c e i v a b l es u b s i d i a r yl e d g e rh a dat o t a l b a l a n c eo f P1 4 0 , 0 0 0a t De c e mb e r3 1 , 2 0 0 7 .P1 0 , 0 0 0 o f t h i swa se s t i ma t e dt ob eu n c o l l e c t i b l e . 2 . Su p p l i e r ’ su n p a i di n v o i c e sf o rme r c h a n d i s et o t a l e dP3 0 , 0 0 0 ;wh i l ea na c c o u n tf o rs t o r efi x t u r e sb o u g h t o nOc t o b e r2 ,2 0 0 7f o rP1 0 0 , 0 0 0h a da nu n p a i db a l a n c eo fP1 0 , 0 0 0 .F i x t u r e sa r ed e p r e c i a t e da t1 0 % p e r a n n u m. 3 . Me r c h a n d i s ei n v e n t o r ya t De c e mb e r3 1 , 2 0 0 7a mo u n t e dt oP6 0 , 0 0 0 . 4 . Th eb a n ks t a t e me n t i nOc t o b e rs h o we dab a n kc r e d i t f o rP1 9 0 , 0 0 0d a t e dOc t o b e r2 , 2 0 0 7 .I n q u i r yf r o m t h eCa s h i e rd i s c l o s e dt h a tt h ea mo u n tr e p r e s e n t sp r o c e e d so fa9 0 d a y ,2 0 %d i s c o u n t e db a n kn o t e . P1 6 0 , 0 0 0o f t h i sl o a nwa sp a i db yc h e c ki nDe c e mb e r , 2 0 0 7 . 5 . Op e r a t i n ge x p e n s e sp a i dd u r i n gt h ep e r i o dt o t a l e dP3 5 1 , 5 0 0 ;wh i l eme r c h a n d i s ep u r c h a s e sa mo u n t e d t oP5 0 0 , 0 0 0 . REQUI RED: 1 1 .Pe t t yc a s hf u n da so f De c e mb e r3 1 , 2 0 0 7 . a .P1 2 , 6 0 0 b . P5 , 0 0 0 c . P1 1 , 6 0 0 1 2 .Ad j u s t e dc a s hb a l a n c ep e r b a n k . a .P6 1 , 7 6 0 b . P5 1 , 7 6 0 c . P6 0 , 7 6 0 1 3 .T o t a l s a l e si n2 0 0 7 . a . P9 0 2 , 6 0 0 b . P9 1 0 , 0 0 0 c . P9 0 0 , 0 0 0 1 4 .T o t a l c a s hp a i dt os u p p l i e r sf o rme r c h a n d i s ep u r c h a s e s . a .P5 0 0 , 0 0 0 b . P4 7 0 , 0 0 0 c . P5 3 0 , 0 0 0 1 5 .Co s t o f s a l e si n2 0 0 7 . a .P5 6 0 , 0 0 0 b . P5 3 0 , 0 0 0 c . P4 4 0 , 0 0 0 1 6 .T o t a l o p e r a t i n ge x p e n s ei n2 0 0 7 . a .P3 7 1 , 5 0 0 b . P3 6 3 , 7 5 0 c . P3 6 4 , 0 0 0 1 7 .Ba dd e b t se x p e n s ei n2 0 0 7 . a . P1 0 , 0 0 0 b . P5 , 0 0 0 c . P2 0 , 0 0 0

d . P2 , 6 0 0 d . P7 0 , 7 6 0 d . P8 9 0 , 0 0 0 d . P5 6 0 , 0 0 0 d . P5 0 0 , 0 0 0 d . P3 5 1 , 5 0 0 d . P0

1 8 .De p r e c i a t i o ne x p e n s ei n2 0 0 7 . a .P1 0 , 0 0 0 b . P2 , 5 0 0 1 9 .Ne t i n c o mei n2 0 0 7 . a .P9 8 , 6 0 0 b . P9 6 , 0 0 0 2 0 .Ca s hs h o r t a g ea so f De c e mb e r3 1 , 2 0 0 7 . a . P1 4 , 1 4 0 b . P1 6 , 7 4 0

c . P5 , 0 0 0

d . P2 , 2 5 0

c . P8 6 , 0 0 0

d . P1 0 6 , 0 0 0

c . P4 , 1 4 0

d . P6 , 7 4 0

obl e m8Cor r e c t i onof Er r or s PROBLEM4–Pr Y o uh a v eb e e ne n g a g e dt op r e p a r ea u d i t e dfi n a n c i a ls t a t e me n tfi g u r e sf o rBOURNE,I n c .Th er e c o r d sa r ei n a g r e e me n t wi t ht h ef o l l o wi n gb a l a n c es h e e t : BOURNE, I NC. Ba l a n c eSh e e t De c e mb e r 3 1 , 2 0 0 7 As s e t s L i a b i l i t i e sa n dCa p i t a l Ca s h P1 0 , 0 0 0 Ac c o u n t sPa y a b l e P1 0 , 0 0 0 Ac c o u n t sr e c e i v a b l e 1 2 , 0 0 0 No t e sPa y a b l e 3 , 0 0 0 No t e sr e c e i v a b l e 1 3 , 0 0 0 Co mmo nSt o c k 2 0 , 0 0 0 I n v e n t o r y 2 5 , 0 0 0 Ad d i t i o n a l p a i d i nc a p i t a l 4 0 , 0 0 0 Eq u i p me n t -n e t 4 0 , 0 0 0 Re t a i n e dEa r n i n g s 2 7 , 0 0 0 P1 0 0 , 0 0 0 P1 0 0 , 0 0 0 Ar e v i e wo f t h er e c o r d so f t h ec o r p o r a t i o ni n d i c a t e st h a t t h ee r r o r sa n do mi s s i o n sl i s t e di nt h et a b l eb e l o wh a dn o t b e e nc o r r e c t e dd u r i n gt h ea p p l i c a b l ey e a r s : I n v e n t o r y I n v e n t o r y De p r e c i a t i o n Pr e p a i d Un e a r n e d Ac c r u e d De c e mb e r 3 1 Ov e r s t a t e d Un d e r s t a t e d Ex p e n s e Ex p e n s e I n c o me Ex p e n s e 2 0 0 4 P6 , 0 0 0 P2 5 0 P9 0 0 P2 0 0 2 0 0 5 P7 , 0 0 0 5 0 0 7 0 0 P4 0 0 7 5 2 0 0 6 8 , 0 0 0 1 5 0 5 0 0 1 0 0 2 0 0 7 9 , 0 0 0 3 5 0 6 0 0 3 0 0 5 0 Th en e t i n c o mea c c o r d i n gt ot h er e c o r d si s :2 0 0 5 , P7 , 5 0 0 ;2 0 0 6 ,P6 , 5 0 0 ;a n d2 0 0 7 , P5 , 5 0 0 .Nod i v i d e n d swe r e d e c l a r e dd u r i n gt h e s ey e a r s , a n dn oa d j u s t me n t swe r ema d et or e t a i n e de a r n i n g s . I g n o r i n gi n c o met a xe ff e c t s , a n s we rt h ef o l l o wi n gq u e s t i o n s : 2 1 .Ad j u s t e dn e t i n c o me / ( n e t l o s s )f o r2 0 0 5 : a .P( 6 , 4 7 5 ) b .P2 2 5

c .P( 6 , 2 2 5 )

d .P7 7 5

2 2 .Ad j u s t e dn e t i n c o me / ( n e t l o s s )f o r2 0 0 6 : a .P6 , 0 2 5 b .P( 1 , 4 7 5 )

c .P5 , 5 2 5

d .P( 8 , 4 7 5 )

2 3 .Ad j u s t e dn e t i n c o me / ( n e t l o s s )f o r2 0 0 7 : a .P2 2 , 0 0 0 b .P1 4 , 0 0 0

c .P6 , 0 0 0

d .P2 2 , 1 5 0

2 4 .Wh a t i st h ee ff e c t o f t h e s ee r r o r so nt h en e t wo r k i n gc a p i t a l a t t h ee n do f 2 0 0 7 ? a .P8 , 0 0 0u n d e r s t a t e d c .P1 6 , 8 5 0u n d e r s t a t e d b .P8 , 9 0 0u n d e r s t a t e d d .P9 , 2 5 0u n d e r s t a t e d 2 5 .Wh a t i st h ea d j u s t e db a l a n c eo f t h es t o c k h o l d e r s ’ e q u i t ya t De c e mb e r3 1 , 2 0 0 7 ? a .P9 5 , 0 0 0 b .P9 5 , 9 0 0 c .P1 0 3 , 8 5 0

d .P 9 6 , 2 5 0

obl e m9Cor r e c t i onof Er r or s PROBLEM5–Pr Th ep a r t n e r s h i po fKi n g ,Qu e e na n dPr i n c ee n g a g e dy o ut oa u d i ti t sa c c o u n t i n gr e c o r d s .So mea c c o u n t sa r eo nt h e a c c r u a l b a s i sa n do t h e r sa r eo nt h ec a s hb a s i s .Th ep a r t n e r s h i p ’ sb o o k swe r ec l o s e da tDe c e mb e r3 1 ,2 0 0 7b yt h e b o o k k e e p e rwh op r e p a r e dt h eg e n e r a l l e d g e rt r i a l b a l a n c et h a t a p p e a r sb e l o w. Ki n g , Qu e e na n dPr i n c e GENERALL EDGERTRI ALBAL ANCE

De c e mb e r 3 1 , 2 0 0 7 Ca s h Ac c o u n t sr e c e i v a b l e I n v e n t o r y L a n d Bu i l d i n g s Ac c u mu l a t e dd e p r e c i a t i o n -b u i l d i n g s Eq u i p me n t Ac c u mu l a t e dd e p r e c i a t i o n -e q u i p me n t Go o d wi l l Ac c o u n t sp a y a b l e Al l o wa n c ef o rf u t u r ei n v e n t o r yl o s s e s Ki n g , c a p i t a l Qu e e n , c a p i t a l Pr i n c e , c a p i t a l T o t a l s

De b i t P1 0 0 , 0 0 0 4 0 0 , 0 0 0 2 6 0 , 0 0 0 9 0 , 0 0 0 5 0 0 , 0 0 0

Cr e d i t

P2 0 , 0 0 0 5 6 0 , 0 0 0 6 0 , 0 0 0 5 0 , 0 0 0

. P1 , 9 6 0 , 0 0 0

5 5 0 , 0 0 0 3 0 , 0 0 0 6 0 0 , 0 0 0 4 0 0 , 0 0 0 3 0 0 , 0 0 0 P1 , 9 6 0 , 0 0 0

Y o u ri n q u i r i e sd i s c l o s e dt h ef o l l o wi n g: 1 . Th ep a r t n e r s h i pwa so r g a n i z e do nJ a n u a r y1 ,2 0 0 6wi t ht h ep a r t n e r sma k i n ge q u a la mo u n to f c o n t r i b u t i o n s . Th ei n i t i a l p a r t n e r s h i pa g r e e me n t c a l l sf o ra ne q u a l d i s t r i b u t i o no fp r o fi t o r l o s sa mo n gt h e p a r t n e r s .Th ep a r t n e r s h i pa g r e e me n twa sa me n d e de ff e c t i v eJ a n u a r y1 ,2 0 0 7t op r o v i d ef o rt h e f o l l o wi n gp r o fi ta n dl o s sr a t i o :Ki n g ,5 0 %;Qu e e n ,3 0 %;a n dPr i n c e ,2 0 %.Th ea me n d e dp a r t n e r s h i p a g r e e me n ta l s os t a t e dt h a t t h ea c c o u n t i n gr e c o r d swe r et ob ema i n t a i n e do nt h ea c c r u a l b a s i sa n dt h a t a n ya d j u s t me n t sn e c e s s a r yf o r2 0 0 6s h o u l db ea l l o c a t e da c c o r d i n gt ot h e2 0 0 6d i s t r i b u t i o no f p r o fi t s . 2 . Th ef o l l o wi n ga mo u n t swe r en o t r e c o r d e d : De c e mb e r 3 12 0 0 7 De c e mb e r 3 12 0 0 6 Pr e p a i di n s u r a n c e P7 , 0 0 0 P6 , 5 0 0 Ad v a n c e sf r o mc u s t o me r s 2 , 0 0 0 1 1 , 0 0 0 Ac c r u e di n t e r e s t e x p e n s e 4 , 5 0 0 Th ea d v a n c e sf r o mc u s t o me r swe r er e c o r d e da ss a l e si nt h ey e a rt h ec a s hwa sr e c e i v e d . 3 .I n2 0 0 7t h ePa r t n e r s h i pr e c o r d e dap r o v i s i o no f P3 0 , 0 0 0f o ra n t i c i p a t e dd e c l i n e si ni n v e n t o r yp r i c e s . Yo u c o n v i n c e dt h ep a r t n e r st h a t t h ep r o v i s i o nwa su n n e c e s s a r ya n ds h o u l db er e mo v e df r o mt h eb o o k s . 4 . Th ep a r t n e r s h i pc h a r g e de q u i p me n tp u r c h a s e df o rP4 4 , 0 0 0o nJ a n u a r y3 ,2 0 0 7t oe x p e n s e .Th i s e q u i p me n th a sa ne s t i ma t e dl i f eo ft e ny e a r sa n da ne s t i ma t e ds a l v a g ev a l u eo fP4 , 0 0 0 .Th e p a r t n e r s h i pd e p r e c i a t e si t sc a p i t a l i z e de q u i p me n t u n d e rt h es t r a i g h t l i n ed e p r e c i a t i o nme t h o d . 5 . Th ep a r t n e r sa g r e e dt oe s t a b l i s ha na l l o wa n c ef o rd o u b t f u l a c c o u n t sa t t wop e r c e n to f c u r r e n ta c c o u n t s r e c e i v a b l ea n dfi v ep e r c e n t o f p a s t d u ea c c o u n t s . At De c e mb e r3 1 , 2 0 0 6t h ep a r t n e r s h i ph a dP5 4 0 , 0 0 0 o fa c c o u n t sr e c e i v a b l e ,o fwh i c ho n l yP4 0 , 0 0 0wa sp a s td u e .AtDe c e mb e r3 1 ,2 0 0 7fi f t e e np e r c e n to f a c c o u n t sr e c e i v a b l ewa sp a s td u e ,o fwh i c hP4 0 , 0 0 0r e p r e s e n t e ds a l e sma d ei n2 0 0 6 ,a n dwa s g e n e r a l l yc o n s i d e r e dc o l l e c t i b l e .Th ep a r t n e r s h i ph a dwr i t t e no ffu n c o l l e c t i b l ea c c o u n t si nt h ey e a rt h e a c c o u n t sb e c a mewo r t h l e s sa sf o l l o ws : Ac c o u n t sWr i t t e nOffi n 2 0 0 7 2 0 0 6 2 0 0 7a c c o u n t s P8 , 0 0 0 2 0 0 6a c c o u n t s 1 0 , 0 0 0 2 , 5 0 0 6 . Go o d wi l l wa sr e c o r d e do nt h eb o o k si n2 0 0 7a n dc r e d i t e dt ot h ep a r t n e r s ’ c a p i t a l a c c o u n t si nt h ep r o fi t a n dl o s sr a t i oi nr e c o g n i t i o no fa ni n c r e a s ei nt h ev a l u eo ft h eb u s i n e s sr e s u l t i n gf r o mi mp r o v e ds a l e s v o l u me . 7 . Noo t h e rc a p i t a l t r a n s a c t i o n st o o kp l a c ei n2 0 0 6a n d2 0 0 7 . 8 .I g n o r et a xi mp l i c a t i o n s ....