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Auditing Problems

Auditing Problems

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Published by 'Jemuel Vales

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Published by: 'Jemuel Vales on Feb 18, 2011
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ELIMINATION ROUND
EASY ROUND
RFJPIA CUP LEVEL 5 – Auditing Problems (EASY QUESTION #1)
 You were engaged to examine the accounts of Power Play Inc. as of December 31, 2010. Your audit disclosed that the cash counted on December 31,2010 included two customers’ checks amounting to P5,000 both dated in January2011. These checks were recorded in the books in December and were acceptedfor deposit by the bank on due dates. The adjusting entry is:
Answer: Dr. Accounts Receivable5,000Cr. Cash5,000RFJPIA CUP LEVEL 5 – Auditing Problems (EASY QUESTION #2)
As an auditor, you were asked by your client to examine its accounts as of December 31, 2010. Your audit disclosed that checks with a total of P10,000 aspayment to suppliers were prepared and taken up as debits to accounts payable.One of these checks in the amount of P2,000 was cancelled on January 5, 2011 andreplaced with another for the correct amount of P2,500. No entry was made forthe cancellation. The adjusting entry is:
Answer: None.
No adjustment is necessary.
RFJPIA CUP LEVEL 5 – Auditing Problems (EASY QUESTION #3)
 Your audit of Super Club Co. for the year ended December 31, 2010disclosed that customerschecks amounting to P4,500 were returned duringDecember 2010 by the bank with the notation “NSF”. Of these checks P3,000 hadbeen redeposited and cleared by the bank during the month. No entries weremade for the return or redeposit. The adjusting entry is:
Answer: Dr. Accounts Receivable1,500Cr. Cash1,500RFJPIA CUP LEVEL 5 – Auditing Problems (EASY QUESTION #4)
 You were engaged to audit the records of Generation, Inc. as of December31, 2010. Your audit shows that goods costing P20,000 were excluded from theending inventory. The selling price of these goods was P30,000. The goods wereshipped by your client on December 29, 2010, FOB shipping point. The transactionwas not recorded in 2010. The adjusting entry is:
Answer: Dr. Accounts Receivable30,000
NFJPIA-Region X and CARAGA Council
RFJPIA Cup Level 5 – Auditing Problems
 
Cr. Sales30,000RFJPIA CUP LEVEL 5 – Auditing Problems (EASY QUESTION #5)
 Your audit of your client as of December 31, 2010 disclosed thatmerchandise costing P15,000 were still included in ending inventory althoughthese were already invoiced and recorded as sales to customers on December 31. The sales invoices totaling P25,000 were no longer recorded when the goods weredelivered on January 5, 2011. The adjusting entry is:
Answer: Dr. Cost of Sales15,000Cr. Inventory15,000
AVERAGE ROUND
RFJPIA CUP LEVEL 5 – Auditing Problems (AVERAGE QUESTION #1)
 Just In Love Corp. decided that the allowance for bad debts should beadjusted to equal the estimated amount required based on aging the accounts asof December 31. Following data were gathered:Allowance for bad debts, January 1, 2010P120,000Provision for bad debts during 2010 at 2% 60,000of P3,000,000 salesBad debts written off in 2010 75,000Estimated bad debts per aging of accounts on 80,000December 31, 2010What entry is necessary to adjust the bad debts provision?
Answer: Dr. Allowance for Bad Debts25,000Cr. Bad Debts Expense25,000RFJPIA CUP LEVEL 5 – Auditing Problems (AVERAGE QUESTION #2)
 You completed your filed work for 2010 on April 10, 2011. Before issuance of your audit report on April 25, 2011, you were advised that on April 15, 2011 a largereceivable from a customer who is facing bankruptcy was written off asuncollectible. What should you do about this fact?
a.
Disclose the loss in the 2010 statements.
b.
Adjust the 2010 financial statements.
c.
Date your report April 10, 2011.
d.
 Take up the loss in the 2011 statements.e.Do nothing.
RFJPIA CUP LEVEL 5 – Auditing Problems (AVERAGE QUESTION #3)
 The closing inventory of Gandhi Company amounted to P284,000 atDecember 31, 2010. This total includes two inventory lines about which theinventory taker is uncertain.
500 items which had cost P15 each and which were included at P7,500. These items were found to have been defective at the balance sheet
 
date. Remedial work after the balance sheet date cost P1,800 and theywere then sold for P20 each. Selling expenses were P400.
100 items that had cost P10 each but after the balance sheet date, thesewere sold for P8 each with selling expenses of P150.What figure should appear in Gandhi’s balance sheet for inventory?
Answer: P283,650.RFJPIA CUP LEVEL 5 – Auditing Problems (AVERAGE QUESTION #4)
Cavaliers has a one-year product warranty on some selected items. Theestimated warranty liability on sales made during the 2009 – 2010 fiscal year andstill outstanding as of March 31, 2010, amounted to P252,000. The warranty costson sales made from April 1, 2010 to March 31, 2011, are estimated at P630,000. The actual warranty costs incurred during 2010 – 2011 fiscal year are as follows:Warranty claims honored on 2009 2010 sales P252,000Warranty claims honored on 2010 2011 sales 285,000
 
 Total P537,000Being Cavaliers’ auditor, determine the adjusted balances of the estimatedwarranty payable as of March 31, 2011.
Answer: P345,000.RFJPIA CUP LEVEL 5 – Auditing Problems (AVERAGE QUESTION #5)
On January 1, 2010, Rostrum Company purchased debt securities with a facevalue of P500,000. The securities mature in 7 years and are to be classified as aheld to maturity investment. The securities have a stated interest rate of 8% andinterest is paid semiannually, on January 1 and July 1. The prevailing marketinterest rate on these debt securities is 12% compounded semiannually. Thefollowing present value factors are taken from the present value tables:
Present value of 1
12% for 7 periods0.452356% for 14 periods0.442308% for 7 periods0.583494% for 14 periods0.57748
Present value of an ordinary annuity of 1
12% for 7 periods4.563766% for 14 periods9.294988% for 7 periods5.206374% for 14 periods 10.56312Determine the fair value of the debt securities on January 1, 2010.
Answer: P407,050.
DIFFICULT ROUND
RFJPIA CUP LEVEL 5 – Auditing Problems (DIFFICULT QUESTION #1)
Which of the following subsequent events will be least likely to result in anadjustment to the financial statements?

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