Review In Auditing Problems

First Pre-board Examination

Problem 1
Tatlong Beinte Singko’s net income for 2015, 2016 and 2017 were
P200,000, P290,000 and P370,000; respectively. The following items
were not handled properly.
a. Rent of 13,000 for 2018 was received from a lessee on December
23, 2017, and recorded as outright income in 2017.

b. Salaries payable at the end of the following years were omitted:

December 31, 2015 5,000 December 31, 2017 15,000
December 31, 2016 11,000 December 31, 2015 9,400

c. The following unused office supplies were omitted in the

accounting records:
December 31, 2015 7,000 December 31, 2017 7,400
December 31, 2016 13,000 December 31, 2018 14,200

d. On January 1, 2015, the company completed major repairs on the

company’s machinery and equipment totaling P440,000 which was expensed
outright. The said equipment is 5 years old as of January 1, 2015. As
a December 31, 2017, the equipment had an original cost of P1,000,000
and a carrying value of 50% of original cost
REQUIRED: Answer the following questions-
1. The correct 2017 depreciation expense is:
a. 140,000
b. 102,500
c. 100,000
d. 62,500

2. The adjusted 2015 net income is:

a. 600,000
b. 480,000
c. 468,000
d. 160,000

3. The adjusted 2016 net income is:

a. 278,600
b. 253,400
c. 240,400
d. 227,400

4. The adjusted 2017 net income is:

a. 369,400
b. 341,800
c. 331,200
d. 329,400

Problem 2
Your audit of Sige Na Ale Company (SNAC) revealed that your client
kept very limited records. Purchases of merchandise were paid for bay
check, 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 receivable were
recorded only by keeping copy of tickets and these copies were given
to the customers when paying their accounts. The company started its
operations on January 2, 2017 and issued 216,000 ordinary shares with
100 par, for the following considerations:
Cash P1,800,000
Building, useful life of 15 years 16,200,000
Land 5,400,000

An analysis of the bank statements showed total deposits, including

original cash investment, of P 12,600,000. The balance in the bank
 Review In Auditing Problems
First Pre-board Examination
statement on December 31, 2017, was P900,000 but there were checks
amounting to P180,000 dated in December but not paid by the bank until
January 2018. Cash on hand on December 31, 2017 was P450,000 including
customer’s deposit of 135,000.

During this year, SNAC borrowed P1,800,000 from the bank and repaid
P450,000 and P90,000 interest.

Disbursements paid in cash during the year were as follows: Utilities,

P360,000: Salaries, P360,000; Supplies, P720,000 and; Dividends,
P540,000.
Other information:
a. An inventory of merchandise taken on December 31, 2017 showed
P2,718,000 of merchandise
b. Tickets for accounts receivable totaled of P3,240,000 but
P180,000 of that amount may prove uncollectible.
c. Unpaid supplier invoices for merchandise amounted to P1,260,000.
d. Equipment with a cash price of P 1,140,000 was purchased in early
January 2017 on one-year installment basis. During the year,
checks for the down payment and all maturing installments totaled
P1,602,000.
e. The useful lives of property, plant and equipment are: Building
15 years; Equipment, 5 years. Straight line depreciation is used.
Required: Determine the audited balances of the following:
5. Collections from customers in 2017
a. 12,960,000
b. 14,760,000
c. 11,430,000
d. 11,295,000
6. Total sales on accrual basis in 2017
a. 11,295,000
b. 11,430,000
c. 14,535,000
d. 14,670,000
7. Payments for merchandise purchases
a. 9,738,000
b. 7,758,000
c. 7,308,000
d. 7,938,000
8. Total purchases on accrual basis in 2017
a. 10,998,000
b. 10,818,000
c. 9,738,000
d. 9,558,000
9. Cost of goods sold in 2017
a. 6,840,000
b. 7,020,000
c. 8,100,000
d. 8,280,000
10. Profit for the year ended December 31, 2017
a. 4,860,000
b. 3,105,000
c. 5,310,000
d. 4,680,000

Problem 3
You were able to gather the following from the December 31, 2017 trial
balance of Papalit ng Barya Company in connection with your audit of
the company:
Petty cash fund 50,000
Cash on hand 1,500,000
 Review In Auditing Problems
First Pre-board Examination
Cash in bank – MBTC current
4,000,000
account
Cash in bank – BDO Acct No. 1 3,160,000
Cash in bank – BDO Acct No. 2 (160,000)
Cash in bank – UCPB 4,500,000
Time deposits – BPI 2,000,000
Additional Information:

Petty Cash Fund. A count was conducted and the petty cash fund
consisted the following items as of December 31, 2017:
Currency and coins P10,000
Employees’ vales 8,000
Currency in an envelope marked “collections for
wedding gift” with names attached 6,000
Unreplenished petty cash vouchers 6,500
Check drawn by Papalit ng Barya Company, payable to
the petty cashier 20,000
Unused postage stamps 1,500
P52,000
Cash on hand. Cash on hand represents undeposited collections as of
December 31, 2017 and includes the following items:
a. Customer’s check for P16,000 returned by the bank on December 26,
2017 due to insufficient fund but subsequently redeposited and
cleared by the bank on January 3, 2018.
b. Customer’s check for P80,000 dated January 2, 2018, received on
December 29, 2017.
c. A customer check for P90,000 dated June 1, 2017 received on the
same date and yet to be deposited since the same has been
missing.
d. Postal money orders received from customers, P100,000.

MBTC Checking Account. Included among the checks drawn by Papalit ng

Barya Company against the MBTC current account and recorded in
December 2017 are following:
a. Check written on December 29, 2017 dated January 2, 2018,
delivered to payee on December 29, 2017, P160,000.
b. Check written and dated December 29, 2017 and delivered to payee
on January 2, 2018, P200,000.

BDO Account 1 and 2. The credit balance in the BDO Current Account No,
2 represents checks drawn
Petty Cash Fund
A. 10,000 B. 24,500 C. 30,000 D,.
36,000

12. Petty Cash shortage/overage

A. 500 over B. 2,000 over C. 4,000 short
DD, 5,500 short
13. Cash and cash equivalents to be reported in the December 31, 2017
statement of financial position.
A. 8,560,000 B. 8,566,000 C. 10,560,000
D. 15,060,000

Problem 4 ( Adapted )

You obtained the following information on the current account of Kahit

Sandali Lang Company during your examination of its financial
statements for the year ended December 31, 2017.
November items. The bank statement on November 30, 2017 showed a
balance of P918,000. Among the bank credits in November was customer’s
note for P300,000 collected for the account of the company which the
 Review In Auditing Problems
First Pre-board Examination
company recognized in December among its receipts. Included in the
bank debits were cost of checkbooks amounting to P 3,600 and a P
120,000 check which was charged by the bank in error against Kahit
Sandali Lang’s account. Also in November you ascertained that there
were deposits in transit amounting to P240,000 and outstanding checks
totaling P510,000.
December items. The bank statement for the month of December showed
total credits of P1,248,000 and total changes od P612,000. The
company’s books for December showed total debits of P2,206,800 total
credits of 1,221,600 and a balance of P1,456,800. Bank debit memos for
December were: No. 0719 for service charges, P4,800 and a No. 0730 on
a customer’s returned check marked “Refer To Drawer” for P72,000.
Other data. On December 31, 2017 the company placed with the bank a
customer’s promissory note with a face value of P360,000 for
collection. The company treated this note as part of its receipts
although the bank was able to collect on the note only in January,
2018. A check for P11,880 was recorded in the company cash payments
books in December as P188,800.
REQUIRED:
Prepare a proof of cash and answer the following:
14. How much is the undeposited collections as of December 31, 2017
A. 418,800 B. 538,800 C. 658,800
D. 1,018,800
15. How much is the outstanding checks as of December 31, 2017?
A. 575,880 B. 1,085,880 C. 1,089,480
D. 1,192,800
16. How much is the adjusted cash balance as of November 30, 2017?
A. 471,600 B. 528,000 C. 648,000
D. 768,000
17. How much is the adjusted cash balance as of December 31,2017?
A. 586,920 B. 660,000 C. 1,126,920
D. 1,876,920

Problem 5 ( Adapted )
The following information is based on the audit of WALANG IBA Company.
The client has not prepared financial statements for 2015, 2016 or
2017. During these years, no accounts have been written off as
uncollectible, and the rate of gross profit on sales has remained
constant for each of the three years.
Before January 1, 2015, the client used the accrual method of
accounting. After the said date, omly cash receipts and disbursement
records were maintained. When sales on account were made, they were in
the subsidiary accounts receivable ledger. No general ledger postings
have been made since December 31, 2014.
As a result of our examination, the correct data shown in the table
below are available:
12/31/2014 12/31/2017
Accounts receivable balance
Less than one year old
P92,400 P169,200
One to two years old
7,200 10,800
Two to three years old 4,800
Over three years old
13,200
Total Accounts Receivable
P99,600 P198,000

Inventories
P69,600 P112,800

Accounts payable for inventory purchased P30,000

P66,000
 Review In Auditing Problems
First Pre-board Examination
Problem 7 ( Adapted )

A portion of the IRONMAN COMPANY’S statement of financial position

appears as follows:

December 31, 2017 December 31, 2016

Assets:
Cash
P706,600 P200,000
Notes Receivable
0 50,000
Inventory
? 399,750
Liabilities:
Accounts Payable
? 150,000

Inoman Company pays for all operating expenses with cash and
purchases all inventory on credit. During 2017, cash totaling P943,
400 was paid on accounts payable. Operating expenses for 2017 totaled
P440, 000. All sales are cash sales. The inventory was restocked by
purchasing 3,000 units per month and valued by using period FIFO. The
unit cost of inventory was P 32.60 during January 2017 and increase
P0.10 per month during the year. Ironman sells only one product. All
sales are made for P50 per unit. The ending inventory for 2016 was
valued at P32.50 per unit

REQUIRED: Based on the preceding information, compute the following:

26. Number of Units sold during 2017

A. 14,132 B. 36,800 C. 8,536 D.
26,800

27. Accounts payable balance at December 31, 2017

A. 380,200 B. 100,000 C. 398,200 D.
400,000

28. Inventory quantity on December 31, 2017

A. 11,500 B.5, 500 C. 34,168 D.
21, 500

29. Cost of Inventory on December 31, 2015

A. 374,900 B. 373,750 C. 385,900
D.379,320

30. Cost of goods sold for the year ended December 31,2015
A. 1,218,250 B. 1,213,830 C. 1,213,830 D.
1,207,250

Problem 8 ( Adapted )
The Leatherman Company started business on January 1, 2017 by
purchasing three equipment items having the following costs:

Equipment 1 P15,720
Equipment 2 12,000
Equipment 3 13,200
Since that date of purchase, the company has charged depreciation at
20% on the
balance of the asset account at the end of each year. The
amount depreciation computed on each year has been credited directly
 Review In Auditing Problems
First Pre-board Examination
to the asset account. Moreover, all purchases since the inception of
the operations have been debited to the equipment account. Cash
proceeds from the disposal of equipment were credited to the same
account.

All the equipment were estimated to have a useful life of 5

years and were supposed to be depreciated under the straight line
method.

You first time audit of the equipment account revealed the

following information:
 On September 30, 2017, an equipment (
Equipment 4 ) with a cash price of P18,000 was purchased on
installment basis. The installment contract called for 12 monthly
payments of P1,800. The monthly payments on the installment contract
beginning September 31,2017 gas been debited to the equipment account.
Freight and installation charges amounting to P600 were paid and
charged to the equipment account on October of the same year.
 On June 30, 2018, another equipment (
Equipment 5 ) was purchased for P24,000, 2/10, n/30. The amount was
paid on July 15, 2018. The equipment account was debited for the
amount paid on the same date.
 On June 30,2019, Equipment 1 was traded
for a more superior equipment (Equipment 6) having a cash price of
P27,900. An allowance amounting to P12,900 was received on the old
equipment with the balance being paid in cash. The company recorded
the trade-in by merely crediting the equipment account for the cash
payment.
 On January 1, 2020, Equipment 3 was sold
for P7,500. The company incurred creating costs on the machinery
amounting to P375. The equipment account was credited for the net cash
received from the disposal.
Ordinary shares (4,000 shares issued)
P 36,000
10% Preference shares (1,000 shares issued)
24,000
Subscriptions receivable
(8,000)
Receive for depreciation
32,000
Accumulated profits
40,000
Total shareholder’s equity
124,000
Total liabilities and shareholder’s equity
P200,000

Your investigation of bin Taggers Corporation’s financial records

indicates that all authorized shares have been either issue or
subscribed. The par values for the ordinary and preference shares are
P4 and P20, respectively. The treasury shares were originally
purchased when the market price was P40 per share.
During 2017, 250 treasury shares were resold for P50 per share. A gain
on treasury share transactions’ was credited for the difference
between the original cost and the selling price. Furthermore, the
excess of cost over market of the treasury shares at the end of the
period was recognized as an unrealized loss in the profit or loss
section of the 2017 statement of comprehensive income.
During 2017, Don Kenji Asano, a majority shareholder, donated land
which originally costed Don Cruz P10, 000. The Land has a market value
of P18,000 on the date of donation. No entry has been made tp record
this transaction.
 Review In Auditing Problems
First Pre-board Examination
Subscription receivable are due five months from December 31, 2017

REQUIRED: Determine the adjusted balances of the following:

39. Share premium
A. 38,000 B. 42,000 C. 60,000 D. 62,500
40. Total contributed capital
A. 80,500 B. 82,500 C. 100,500 D. 196,000
41. Accumulated profits, end
A. 39,500 B. 37,500 C. 40,000 D. 42,000
42. Treasury shares
A. 28, 000 B. 30 000 C.37,500 D. 42,000
43. Total shareholder’s equity
A. 110,000 B. 124,000 C. 138,000 D. 166,000
44. Total liabilities
A. 40,000 B. 56,000 C. 76,000 D. 96,000
45. Total assets
A. 158,000 B. 166,000 C. 194,000 D. 198,000