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A.Y. 2017-2018
f. Goods valued at P160,000 are on consignment with a purchases in November, 2017. Product was
customer. These goods are not included in the physical shipped FOB destination, on Nov. 29, 2017 and
inventory. was included in November 30, 2017 physical
inventory as goods in transit.
QUESTIONS: 82,500
Based on the above and the result of your audit, answer the e) Through the carelessness of the receiving
following: department, shipment in early December 2017
1. The inventory as of December 31, 2017 is understated by was damaged by rain. This shipment was later
2. The cost of sales for the year ended December 31, 2017 is sold in the last week of December at cost. 150,000
overstated by
3. The profit for the year ended December 31, 2017 is misstated REQUIRED:
by 1. Gross profit rate for 11 months ended November 30, 2017
4. The working capital as of December 31, 2017 is misstated by 2. Cost of goods sold during the month of December 2017 using
the gross profit method.
PROBLEM NO. 3 3. December 31, 2017 inventory using the gross profit method.
Your client, Lorna Company, is an importer and wholesaler. Its
merchandise is purchased from several suppliers and is PROBLEM NO. 4
warehoused until sold to customers. On April 21, 2017, a fire damaged the office and warehouse of
Divina Company. The only accounting record saved was the
In conducting your audit for the year ended December 31, 2017, general ledger, from which the trial balance below was prepared.
you were satisfied that the system of internal control was good.
Accordingly, you observed the physical inventory at an interim Divina Company
date, November 30, 2017 instead of at year end. You obtained the Trial Balance
following information from your clients general ledger: March 31, 2017
A.Y. 2017-2018
c. Correspondence with suppliers revealed unrecorded The companys physical inventory revealed that the book
obligations at April 21 of P106,000 for April merchandise inventory of P1,695,960 was understated by P84,000. To avoid
purchases, including P23,000 for shipments in transit on that delay in completing its monthly financial statements, the company
date. decided not to adjust the book inventory until year-end except for
d. Customers acknowledged indebtness of P360,000 at April 21, obsolete inventory items.
2017. It was also estimated that customers owed another
P80,000 that will never be acknowledged or recovered. Of the Your examination disclosed the following information regarding
acknowledged indebtedness, P6,000 will probably be the November 30 inventory:
uncollectible. a. Pricing tests showed that the physical inventory was
e. The insurance company agreed that the fire loss claim should overstated by P61,600.
be based on the assumption that the overall gross profit ratio b. An understatement of the physical inventory by P4, 200 due
for the past two years was in effect during the current year. to errors in footings and extensions.
The companys audited financial statements disclosed the c. Direct labor included in the inventory amounted to P280,000.
following information: Overhead was included at the rate of 200% of direct labor.
2016 2015 You have ascertained that the amount of direct labor was
Net Sales P 5,300,000 P 3,900,000 correct and that the overhead rate was proper.
Net Purchases 2,800,000 2,350,000 d. The physical inventory included obsolete materials with a total
Beginning Inventory 500,000 660,000 cost of P7,000. During December, the obsolete materials
Ending Inventory 750,000 500,000 were written off by a charge to cost of sales.
f. Inventory with a cost of P70,000 was salvaged and sold for Your audit also disclosed the following information about the
P35,000. The balance of the inventory was a total loss. December 31 inventory:
a. Total debits to the following accounts during December were:
QUESTIONS: Cost of sales P 1,920,800
Based on the above and the result of your audit, answer the Direct Labor 338,800
following: Purchases 691,600
1. How much is the adjusted balance of Accounts Receivable as b. The cost of sales of P1,920,800 included direct labor of
of April 21, 2017? P386,400.
2. How much is the sales for the period January 1 to April 21,
2017? QUESTIONS:
3. How much is the adjusted balance of Accounts Payable as of Based on the above and the result of your audit, determine the
April 21, 2017? following:
4. How much is the net purchases for the period January 1 to 1. Adjusted amount of physical inventory at November 30, 2017
April 21, 2017? 2. Adjusted amount of inventory at December 31, 2017
5. How much is the cost of sales for the period January 1 to April 3. Cost of materials on hand, and materials included in work in
21, 2017? process as of December 31, 2017
6. How much is the estimated inventory on April 21, 2017? 4. The amount of direct labor included in work in process as of
7. How much is the estimated inventory fire loss? December 31, 2017
5. The amount of factory overhead included in work in process
PROBLEM NO. 5 as of December 31, 2017
You are engaged in the regular annual examination of the
accounts and records of Smartmatic Manufacturing Co. for the
year ended December 31, 2017. To reduce the workload at year
end, the company, upon your recommendation, took its annual
physical inventory on November 30, 2017. You observed the
taking of the inventory and made tests of the inventory count and
the inventory records.
A.Y. 2017-2018