‘Auditing Problems = cr so SETA INSTRUCTIONS: Select the. best following, iauesticns: answer for each of the MUST be attempted. Mark only one answer for each frenent the answer sheet provided. Strictly NO ERASURES ALLOWED Frasures will render your examination answer sheet INVALID, Use PENCIL NO. 2 only. GOODLUCKIG PROBLEM NO. 1 Excel, Inc. is an importer and whol Its merchandise is warehoused unt lesaler of cellphone accessories, Purchased from @ number of suppliers and is sold to customers. In conducting your audit of Excel's finan financial statements for the year ended December 31, 2014, you determined that the internal control system is functioning effectively. You observed the physical count of inventory on November 30, 2014. The following information were obtained from Excel's accounting ‘Sales for 11 months ended November 30 3,400,000 Sales for the year ended December 31 3,840,000 Purchases for 11 months ended Nov. 30 2,700,000 Purchases for the year ended Dec. 31 3,200,000 Inventory, January 1 350,000 Inventory, Nov. 30 (per physical count) 380,000 Your audit disclosed the following information: a) Shipments received in unsalable condition and ‘excluded from physical inventory. The returns were not recorded because no credit memos were received from vendors: Total at November 30 P 4,000 Total at December 31 6,000 (including the November 30 unrecorded returns) ST RE OpenPBS. Ta— Page 7 oF 20 a ‘Auditing Problems mera: b) Deposit made with vendor and charged to Purchases in. October. The goods were shipped in January 2015. ) Deposit made with vendor and charged to Purchases in November. The goods were shipped FOB destination on November 29 and were included in physical inventory as goods in transit. 4) Shipments received in November and included in the physical count at November 30 but recorded as December purchases: fe) Due to the carelessness of the receiving department, a December shipment was damaged by rain. These goods were later sold at cost in December. | 8,000 22,000 30,000 40,000 QUESTIONS: Based on the above and the result of your audit, answer the following: f 1,-#@justed net purchases ; on Up to November 30: 2,666,000; Up to December 31: P3,190,000 700,000; \ (696,000; ~ i |. Up to November + Up to December 31: P3,184,000 for 11 months ended November 30,2014 2. Cost of goods sold for ded November 3 2,688,000 @ 2,666,000 4. P2,692,000 3, "Gross profit ratio for, 14 months ended November 30, 2014 o* @® 21.58% 21.47% 20.94% 4. 20.82% sary wana a = Bi GpenaPRS Ta Fore S dAuditing Problems Pacers ~ : FO8s profit for the month of December 2014 a. 92,136 -€" P83,760 b. P91,236 d. P88,000 A Estimated inventory at December 31,2014 a. P491,760 & Pa90,000 b. 456,000 dpa PROBLEM NO, 2 \tory of the company Only“ merchandis. company to customers up to Deca ae oes and including December have been eliminated from. inventory. the inverter se determined by physical inventory count has been recorded on the books by the company’s controller. No perpetual inventory Fecords are maintained. All sales are made on an FOB shipping point basis. You are to assume that all been correctly recorded. ‘The inventory w: cost of sales method, jas recorded through the The following lists of sales invoices are entered in the sales books for the month of December 2014 and January 2015, respectively. Purchase invoices have - | | ‘Austing Probes SETA JANUARY 2015 f fy 300,000 Dec. 31 200,000 . Dec. 30, 2014 g) 200,000 Jan, 02 115,000 Jan. 02,2015 ~ h) Jan. 03 475,000 Dec. 31, 2014° °c, QUESTIONS: Based on the above and the result of your audit, answer the following: by 6, -Salés for the year ended December 31, 2014 ts misstated =a, P100,000 over °° (f, °100,000 under b. 200,000 over (A) °200,000 under it for the year ended December 31, 2014 is misstated by A 95,000 ever . P_ 25,000 under “p< P195,000 over d. P380,000 under isstated by 8,.A¥fventory as of December 31, 2014 is misst oa, 180,000 under |! M ‘By P95.6 milion ha 14. Total depreciation a. P16.6 PROBLEM NO. 4 Calamba Corporation owns the following~properties at 1 January 2014: Property A office building used by Calamba for administrative purpose: Mtns Seprected nistoncal cost of P2 millon. At 2 January 2014 it had a remaining life of 20 years. After a re-organizatior ——ar TS oa Ai OpentaPes a Page FoF aoAuditing Problems sera on 1 July 2014, the ' the property was i reclassified as an invest S Tet to a third iment, Party ar of the fair value model. An indepen fing Calamba's policy Property to have a fair valu valuer assessed 1 had risen to P2.34 million at 1¢ of P2,3 million att t 31 December 2014, SY 2014» which Property B Another office building ilding sub-let to a subsidi January 2014, it had a fair value of P18 nay 1.65 million at 31 December 2014, At i} @ remaining life of 15 years. of Calamba. At 1 ‘on which had risen nuary 2014 it had QUESTIONS: Based on the above and th ie result of your audit, deter amounts that should be recognized by the entity in respect oF the above properties as of and for th soos arenes ae for the year ended December 31, IS-BERecation expense a. 150,000 <.P50,000 b. P100,000 7 a Nil, 17. Fair value adjustment gains in profit or loss a. P 40,000 c. P390,000~ b. P190,000 d. P540,000 18. Net amount in profit or loss , a. P540,000 c. P190,000/ b. P490,000 d. P140,000 19. Net amount in other comprehensive income a. PS00,000 c. P300,000 b. 350,000 d. Nil / 20. Carrying amount of investment properties a. P3,990,000 a 150,000 'b. P2,340,000 + a. AP OpentairBs a4 Pageb oto wanrecom.oh ‘Aung Problems SETA PROBLEM NO. 5 ‘of Bacolod Company disclosed that your client kept red records. Purchases of merchandise were paid for by but most other items were out of cash receipts. The company’s collections were deposited weekly. No record was kept of cash in the bank, nor was a record kept of sales. ‘Accounts réceivable were recorded only by keeping a copy of the ticket, and this copy was given to the customer when he paid his, account Additional information: ‘a.On January 2, 2014 Bacolod Company started business and issued share capital, 72,000 shares with P100 pat, for the following considerations: Cash P_ 600,000 Building (useful life, 15 years) 5,400,000 ban 1,800,000 27,800,090 b.An analysis of the bank statements showed total deposits, including the original cash investment, of P4,200,000. The balance in the bank statement on December 31, 2014, was 300,000, but there were checks amounting to P60,000 dated in December but not paid by the bank until January 2015. Cash on hand on December 31, 2014 was P150,000 including customers’ deposit of 90,000. c. During the year, Bacolod borrowed P600,000 from the bank and repaid P150,000 and P30,000 interest. 4d. Disbursements paid in cash during the year were as follows: 120,000 120,000 240,000 Fame Foz AP OpanisiPas 14‘Auditing Problems om A ©: An inventory of merchandise taken on bs showed P906,000 of merchandise, ent ony F- Tickets for accounts receivable totaled P1,08 of that amount may prove uncollectible, 9. Unpaid suppliers inv 420,000. h. Equipment with*a cash price of 480,000 was purchased in carly January on @ one-year instaliment basis. During the year, checks for the down payment and all maturing installments totaled P534,000, The equipment has a useful lift of 5 years. 10,000 but P60,000 ‘olces for merchandise amounted to QUESTIONS: Based on the above and the result of your audit, determine the following: {Disregard income taxes) ayments for merchandise purchases in 2014 a. P2,586,000 c. P2,646,000 b. 2,436,000 ds P3,246,000 32. Collections from sales in 2014 ne 2 P3,720,000 c, P3,000,000 b. P4,320,000 d. 4,920,000 23. Net income for the year ended December 31, 2014 2. P1,770,000 _&r" 1,560,000 ye neh d. P 960,000 Shareholders’ equity as of December 31, 2014 a. P9,390,000 ¢. 9,180,000 b. 9,240,000 (a3) 8,580,000 25. Total assets as of December 31, 2014 a. 9,583,200 9,390,000 b. 9,540,000 (2 P9450,00 ices | | Ausitng Problems SseTA PROBLEM NO. 6 ‘Cebu Company had the following bank reconciliation on June 30, 2014: Balance per bank statement, June 30, 2014 3,000,000 Add: Deposit in transit 400,000 Total 3,400,000 Less: Outstanding checks 900.000 Balance per book, June 30 22,200,000 The bank statement for the month of July 2014 showed the following: Deposits (including 200,000 note collected for Cebu) 9,000,000 Disbursements (including P140,000 NSF check and P10,000 service charge) 7,000,000 All reconciling items on June 30, 2014 cleared through the bank in July. The outstanding checks totaled P600,000 and the deposits in transit amounted to P1,000,000 on July 31, 2014, QuesTions: Based on the above and the result of your audit, you are to Drovide the answers to the following: 26. What is the amount of cash receipts per books in July? a. 9,600,000 (9,800,000 b. 9,400,000 P8,400,000 27. What is the amount of cash disbursement per books in July ‘2. P6,550,000 7,450,000 b. 6,700,000 PSs 28. What is the cash balance per books at July 317 a. 5,400,000 b. P5,350,000 ‘Pope of yainaorezaan 3 I :Auditing Problems — QUESTIONS: Based on the above and the result of your audit, answer thi following: p48a,400 ¢. P503,200 B. P484,000 d. P483,200 32, cash shortage as of December 31, 2014 is ij P18,800 ‘a. )P19,200 &s ~ Pig.400 a. P 0 a. P13,360-— {220.820 P1060, a 34. WhictY statement is incorrect regarding audit of cast ~~ a, The auditor places Tore emphasis ‘on the audit of the ~~ Gash account because of the account's susceptibility to fraud. v b. A possible intentional overstatement of cash may be a overed up by omitting large belance-outstanding checks bank reconciliation. To tre murol risk 1s assessed at a high level for cash, the perform detailed substantive tests. ees @ 7 the cash account requires internal control oV & Seong tena cone oe spate for many he oreo prepare the bank fec0n beeen ienced with the transactions. thabptrson is most experi , 7 Inventory. 750,000 UL Gary December 31, 203. Cash P3a1,180 Notes receivable P34i,180 ccember 31, 2 Cash P341,180 Notes receivable 341,180 Davao Corporation reported the notes receivable in its statement of financial position at December 31, 2013 an trade and other receivables. MF SONS shoe QUESTIONS: : \ a Soerics a _‘Auditing Problems Based on the above and the result of your audit, answer the following: a db. ‘interest rate on the note is 10% c. 12% 11% = 13% 37. Profit for 2013 is overstated by 7 a. b. a. 349,900 Ce. P505,900 P361,900 d- P 49,900 38. Retained earnings as of December 31, 2014 is overstated by Nil a 241,562 349,900 4. 217,973 b. 39. The working capital as of December 31, 2014 is overstated by 776,197 cc. P787,084 682,360 da. Nil 40. Which of the following is the major risk associated with receivables? a. b. c 4. rse. They may be sold to a bank with 7 when in fact they will They may be recorded as long-te! be realized in the current period. They will not be realized for the entire amount due They are pledged as collateral as disclosed in the footnotes to finanicial statements. PROBLEM NO. 9 Presented below are unaudited balances of selected accounts - Lipa Corporation as of December 31, 2014. During the course your audit of Lipa’s books you obtained additional information affecting these accounts. Debit Credit Cash P 500,000 Accounts receivable 1,300,000 v Bin, for doubtful accounts 1000 50,000 a es Pp OpentatPasi# Pega 166720 Sawectccomach om SETA ‘Audling Problema SETA Accounts payable ————--—-——_._*S_ 666 685 Purchases, net 4,350,000 Cars and trucks 3,200,000 Machinery and equipment ‘950,000 Accumulated depreciation, machinery Fae and equipment 95,000 Additional information: a)On December 28, 2014, the company recorded and wrote check payments to creditors amounting to P300,600. A umber of checks, amounting to P150,000 were mailed on January 3, 2015. b) On December 29, 2014, the company purchased and recewed goods amounting to P100,000 terms 2/10, 0/30. As a policy, the company records purchases m accounts payable at net amounts. This particular invoice was recorded and paid on January 3, 2015. c) On December 26, 2014, a supplier authorized the company to return goods shipped and billed at P&0,000 on December 3, 2014, The goods were returned on December 28, 2014. The supplier's credit memo was received and recorded on January 5, 2015. 4) Goods amounting to P50,000 were invoiced for the account of a customer and recorded on January 2, 2015 with terms of net 60 days, FOB shipping point. The goods were shipped on December 30, 2014 e) The bank returned on December 29, 2014 a customer check for P5,000 marked “DAIF” but no entry was made. f) The company estimates’ that allowance for uncollectible accounts should be one and one-half percent (1 ¥2%) of the accounts receivable balance as of year end. No provision has yet been made for 2014. ‘ ~ age 17 oF 26 Sempcccom.oh 7 d ‘AP OpenistPOs.14£. AvdtingProbioms oy sora 4g) All cars and trucks were acquired on May 1, 2014 at a total cost of P1,200,000. The company estimates the useful life of the cars and trucks as five years and depreciates these assets based on 150% of declining balance. As a policy, depreciation is computed to the nearest month and rounded off to the nearest peso. No depreciation has been recorded for cars and trucks as at December 31, 2014, Seo QUESTIONS: Based on the above and the result of your audit, answer the following: AL ANE Gajusted amount of cash as of December 31, 2014 is a. P500,000 AE bed b. P495,000 Ca 848 The net realizable value of accounts receivable as of December 31, 2014 is a 75 cc. 1,329,750 GL naiesrs 4. 1,280,500 43. The adjusted amount of accounts payable as of December 31, O14 is SS cc. P618,000 239,000 d.P769,600 B. P848,000 44The adjusted carrying amount of property and equipment as Oo 3 14s CiSeusis.000" ° «71,695,000 b P1,533,500 bb would provide the one of the following procedures wou e a. Fixed asset schedule (By Purchase invoice T. Receiving report d. Inquiry of the purchasing agent ‘Auditing Problems sepa! PROBLEM NO. 10 Select the best answer. 46. Which statement is incorrect regarding audit of acquisition and payment cycle and inventory? 2. In order for the auditor to perform an engagement on a. manufacturing firm, it is important that the entire <~integrated process is understood. 1 indication of potential inventory fraud is that inventory levels are growing faster than sales. > Supply chain’ management nas helped many companies improve the efficiency of operations. 4, Inventory is complex and typically considered a high-risk area in audits of service firms, 42.Which statement igfrue regarding audit of acquisition and Payment cycle and invertory? , 4. The acquisition process begins with a purchase of goods enn OF services. ~ b.) Management may intentionally misstate inventory _’ balances by overvaluing items that are obsolete. ¢, Inventory turnover is often calculated by the auditor for proper disclosure in cient financial statements. d. A purchase order identifies the quantity and description of produets that have been received. 48. Which statement is incorrect regarding audit of acquisition ‘and payment cycle and inventory? @. For proper control, the receiving department should receive a copy of the purchase order that has the quantities blanked out. © b. Inventory may become obsolete because of technological advances even though there are no signs of physical wear and tear. / Proper internal control over the inventory account would require that inventory items should be reviewed for ‘obsolescence and proper accounting treatment. /” weasag ee Page or20 "ae aceon ah = AP DpantsPes. ia aAuditing Problems Sety, “The auditor is responsible to take a physical inv the client location on behalf of the audit client ye at 49. Which statement is (true regarding audit of acquisition and payment cycle and inventory? Piss counts are performed by the auditor to give the impression of control and they are not used fe substantive testing. b. Sources of information regarding a client's inventory observation. ¢. Quality control in the manufacturing process is’ an operational concern and does not apply to auditor assessment of internal control. The acquisition and payment cycle typically begins with the cash disbursement for requested raw materials. t of materials for the production process bears a direct _felationship to (2:) Authorization of purchases. B. Vendor selection. ¢. Obsolescence of inventory. d. Recording of accounts payable. > end of examination - Please submit your answer sheet Keep the questionnaire. Thank you for taking the PRTC Open Pre-Board Examinations! ©