University of San Jose-Recoletos

AUDITING PROBLEMS

Problem 1
Ecleo Company
TRIAL BALANCE
December 31, 2003
Petty Cash Fund
Cash in Bank
Marketable Securities
Accounts Receivable
Allowance for Bad Debts
Accounts Receivable Employees
Notes Receivable
Interest Receivable
Merchandise Inventory, 12/31/03
Office Supplies on Hand
Prepaid Insurance
Investment in Stock
Leasehold Improvements
Accumulated Depreciation Leasehold
Improvements
Equipment
Accumulated Depreciation Equipment
Delivery Van
Accumulated Depreciation Delivery Van
Accounts Payable
Notes Payable
Interest Payable
Common Stock
Retained Earnings
Sales
Interest Income
Dividend Income
Repairs Expense
Postage Expense
Cost of Goods Sold
Rent Expense
Advertising Expense
Taxes and licenses
Salaries Expense
Utilities Expense
Commission Expense
Interest Expense
Miscellaneous Selling Expense
Miscellaneous General Expense
Cash Over or Short
Loss on Damages

Debit
3,000
38,700
300,000
698,000

Credit

P108,500
14,200
45,000
5,100
365,000
15,000
90,000
1,500,000
180,000
72,000
300,000
27,000
510,000
170,000
864,000
340,000
5,000
3,000,000
1,128,500
6,000,000
13,000
120,000
123,000
15,200
3,900,000
96,000
55,000
45,000
1,700,000
413,500
264,000
34,000
148,000
132,000
8,300
850,000
P11,848,000

___________
P11,848,000

Additional information:
1. An examination of the petty cash fund on the morning of January 2, 2004, discloses
the following items in the petty cash drawer.
Coins and currency
P 152.00
Postage stamps
29.00
An I.O.U. from Favila, an employee
for cash advance
400.00
Check payable to Ecleo from Yongco,
an employee, marked NSF
340.00
Vouchers for the following:
Stamps
P 200.00
Computer repairs
1,843.50
2,043.50
P2,964.50

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2. The correct balance of the Cash in Bank account on November 1, 2003, was P40,000.
Subsequent transactions during November and December relating to the records of
Ecleo and Econg Bank are summarized below.
Ecleo Books
Econg Bank Books
November deposits
P73,600
P71,100
November checks
62,900
61,300
November service charge
100
November 30 balance
50,700
49,700
December deposits
82,200
82,800
December checks
94,100
92,200
December service charge
150
Note collected by bank
in December
10,150
November service charge
recorded in December
100
December 31 balance
38,700
50,300
3. An examination of the companys allowance for bad debts reveals the following:
Estimated Bad Debts
Actual Bad Debts
2000
P111,000
P45,000
2001
130,000
68,000
2002
165,000
89,500
2003
No adjustment yet
95,000
In the past, the company has estimated that 3% of sales will be uncollectible. The
companys accountant has determined that the percentage used in estimating bad
debts has been inappropriate. He would like to revise the estimate downward to 1.5%.
The president of the company has stated that if the previous estimates of bad debt
expense were incorrect, the financial statements should be restated using the more
accurate estimate.
4. An examination of the companys December 31, 2003, inventory revealed errors in its
inventory-taking procedures that have caused inventories for the last 3 years to be
incorrect, as follows:
December 31, 2001
Understated
P160,000
December 31, 2002
Understated
210,000
December 31, 2003
Overstated
67,000
QUESTIONS:
1. What is the correct amount of petty cash for the balance sheet?
a. P87.50
b. P492.00
c. P152.00

d. P187.50

2. The petty cash shortage is

a. P35.50
b. P206.50

d. P64.50

c. P0

3. What is the total bank receipts (credits) in December?

a. P92,800
b. P81,250
c. P92,950

d. P82,800

4. What is the total bank disbursements (debits) in December?

a. P92,350
b. P92,200
c. P92,450

d. P61,400

5. What is the total book disbursements (credits) in December?

a. P94,200
b. P94,100
c. P94,350

d. P63,000

6. What is the total deposits in transit at November 30?

a. P0
b. P2,500
c. P1,900

d. P2,250

7. What is the total deposits in transit at December 31?

a. P2,250
b. P2,500
c. P1,900

d. P2,050

8. What is the total outstanding checks at November 30?

a. P0
b. P1,550
c. P1,700

d. P1,600

9. What is the total outstanding checks at December 31?

a. P3,500
b. P3,350
c. P3,250

d. P3,550

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10. What is the correct cash in bank balance at November 30?
a. P49,700
b. P50,700
c. P48,600

d. P50,600

11. What is the correct cash in bank balance at December 31?

a. P49,200
b. P48,700
c. P48,550

d. P50,300

12. What is the correct book receipts in December?

a. P 92,350
b. P102,950
c. P91,400

d. P92,750

13. What is the correct bank disbursements in December?

a. P92,250
b. P94,150
c. P94,250

d. P94,350

14. What is the entry to record the bad debt expense for the year?
a. Bad Debt Expense
90,000
Allowance for Bad Debts
90,000
b. Allowance for Bad Debts
18,500
Bad Debt Expense
18,500
c. Bad Debt Expense
18,500
Allowance for Bad Debts
18,500
d. No adjusting entry.
15. What catch-up entry would be made to correct the inaccurate estimates for previous
years?
a. Allowance for Bad Debts
203,500
Retained Earnings
203,500
b. Allowance for Bad Debts
18,500
Retained Earnings
18,500
c. Allowance for Bad Debts
203,500
Retained Earnings
185,000
Bad Debt Expense
18,500
d. No entry.
16. What is the adjusted balance of the allowance for bad debts at December 31, 2003?
a. P 18,500
b. P198,500
c. P90,000
d. P0
17. What is the effect of the inventory errors on the companys income in 2001?
a. P160,000 understatement
c. P117,000 understatement
b. P160,000 overstatement
d. No effect
18. What is the effect of the inventory errors on the companys income in 2002?
a. P50,000 overstatement
c. P210,000 understatement
b. P50,000 understatement
d. P210,000 overstatement
19. What is the effect of the inventory errors on the companys income in 2003?
a. P67,000 understatement
c. P277,000 overstatement
b. P143,000 overstatement
d. P277,000 understatement
20. What is the adjusting entry at December 31,
a. Cost of Sales
Retained Earnings
Merchandise Inventory, Ending
b. Cost of Sales
Merchandise Inventory, Ending
c. Cost of Sales
Merchandise Inventory, Ending
d. Retained Earnings
Cost of Sales
Merchandise Inventory, Ending

2003, to correct the inventory errors?

277,000
210,000
67,000
67,000
67,000
277,000
277,000
277,000
210,000
67,000

Problem 2
Resilience Corporation is selling audio and video appliances. The company's fiscal year ends
on March 31. The following information relates the obligations of the company as of March
31, 2003:

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Notes payable
Resilience has signed several long-term notes with financial institutions. The maturities of
these notes are given below. The total unpaid interest for all of these notes amounts to
P340,000 on March 31, 2003.
Due date
Amount
April 31, 2003
P 600,000
July 31, 2003
900,000
September 1, 2003
450,000
February 1, 2004
450,000
April 1, 2004 - March 31, 2005
2,700,000
P5,100,000
Estimated warranties
Resilience has a one-year product warranty on some items. The estimated warranty liability
on sales made during the 2001 - 2002 fiscal year and still outstanding as of March 31,
2002, amounted to P252,000.The warranty costs on sales made on April 1, 2002 to March
31, 2003, are estimated at P630,000. The actual warranty costs incurred during 2002 2003 fiscal year are as follows:
Warranty claims honored on 2001 - 2002 sales
P252,000
Warranty claims honored on 2002 - 2003 sales
285,000
Total
P537,000
Trade payable
Accounts payable for supplies, goods and services purchases on open account amount to
P560,000 as of March 31, 2003.
Dividends
On March 10, 2003, Resilience board of directors declared a cash dividend of P9.30 per
common share and a 10% common stock dividend. Both dividends were to be distributed
on April 5, 2003 to common stockholders on record at the close of business on March 31,
2003. As of March 31, 2003, Resilience has 5 million, P2 par value, common shares issued
and outstanding.
Bonds payable
Resilience issued P5,000,000, 12% bonds on October 1, 1997 at 96. The bonds will mature
on October 1, 2007. Interest is paid semi-annually on October 1 and April 1. Resilience
uses the straight line method to amortize bond discount.
Based on the foregoing information, determine the adjusted balances of the following as of
March 31, 2003:
21. Estimated warranty payable
a. P262,000
b. P345,000

c. P630,000

d. P882,000

22. Unamortized bond discount

a. P110,000
b. P200,000

c. P100,000

d. P90,000

23. Bond interest payable

a. P0

c. P150,000

d. P250,000

24. Total current liabilities

a. P6,445,000
P3,815,000

b. P300,000
b. P5,105,000

25. Total non-current liabilities

a. P7,700,000
b. P7,590,000

c. P5,445,000

c. P7,500,000

d.

d. P7,610,000

Problem 3
The financial statements of Determination Company include the following:
December 31, 2002
December 31, 2003
Accounts receivable
P900,000
Allowance for doubtful accounts
45,000
Sales
P7,500,000
Cash collected from customers
6,540,000

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Among the cash collections was the recovery of P15,000 receivable from a customer
whose account had been written off as worthless in 2002. During 2003, it was necessary to
write-off uncollectible, customers' accounts at P75,000. On December 1, 2003, a customer
settled his account by issuing a 12% six-month note for P300,000.
On December 31, 2003, the accounts receivable included P450,000 at past due accounts.
After careful study, the management estimated that the probable loss on past due
accounts is 20% and that in addition, 5% of the current accounts may prove uncollectible.
QUESTIONS:
26. What is the balance of accounts receivable on December 31, 2003?
a. 1,500,000
b. 1,800,000
c. 1,485,000
d. 1,470,000
27. What is the balance of allowance for doubtful accounts before adjustment on December
31, 2003?
a. 15,000 debit
b. 45,000 credit
c. 30,000 debit
d. 60,000 debit
28. How much is the required allowance for doubtful accounts on December 31, 2003?
a. 185,000
b. 90,000
c. 127,500
d. 142,500
29. How much increase in allowance for doubtful accounts is required on December 31,
2003?
a. 127,500
b. 157,500
c. 97,500
d. 142,500
30. The adjusting entry to record the doubtful accounts
a. Doubtful accounts expense
Allowance for doubtful accounts
b. Retained earnings
Allowance for doubtful accounts
c. Doubtful accounts expense
Allowance for doubtful accounts
d. Doubtful accounts expense
Allowance for doubtful accounts

expense for 2003 is:

P127,500
P127,500
P142,500
P142,500
P 97,500
P 97,500
P157,500
P157,500

Items 31 through 36 are based on the following data.

The following accounts were included in the unadjusted trial balance of Charlotte
Company as of December 31, 2003:
Cash
P 240,800
Accounts receivable
563,500
Merchandise inventory
1,512,500
Accounts payable
1,050,250
Accrued expenses
107,750
During your audit, you noted that Charlotte Company held its cash books open after yearend. In addition, your audit revealed the following:
1. Receipts for January 2004 of P163,650 were recorded in the December 2003 cash
receipts book. The receipts of P90,025 represents cash sales and P73,625 represents
collections from customers, net of 5% cash discounts.
2. Payments to suppliers made on January 2004 of P93,100, on which discounts of P3,100
were taken, were included in the December 2003 check register.
3. Merchandise inventory is valued at P1,512,500 prior to any adjustments. The following
information has been found relating to certain inventory transactions.
a. Goods valued at P68,750 are on consignment with a customer. These goods are not
included in the P1,512,500 inventory figure.
b. Goods costing P54,375 were received from a vendor on January 4, 2004. The
related invoice was received and recorded on January 6, 2004. The goods were
shipped on December 31, 2003, terms FOB shipping point.
c. Goods costing P159,375 were shipped on December 31, 2003, and were delivered
to the customer on January 3, 2004. The terms of the invoice were FOB shipping
point. The goods were included in the 2003 ending inventory even though the sale
was recorded in 2003.
d. A P45,500 shipment of goods to a customer on December 30, terms FOB
destination are not included in the year-end inventory. The goods cost P32,500 and
were delivered to the customer on January 3, 2004. The sale was properly recorded
in 2004.

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e. The invoice for goods costing P43,750 was received and recorded as a purchase on
December 31, 2003. The related goods, shipped FOB destination were received on
January 4, 2004, and thus were not included in the physical inventory.
f. Goods valued at P153,200 are on consignment from a vendor. These goods are not
included in the physical inventory.
Based on the above and the result of your audit, determine the adjusted balances of the
following as of December 31, 2003.
A
B
C
D
31. Cash
240,800
170,250
167,150
173,350
32. Accounts receivable
641,000
727,150
637,125
563,500
33. Merchandise inventory
1,252,500
1,508,750
1,520,000
1,465,000
34. Accounts payable
1,143,250
1,197,725
1,150,875
1,153,975
35. Working capital
1,055,175
1,158,800
1,058,275
1,000,800
36. Current ratio
2.00
2.01
1.84
1.83

END

GOD BLESS!!!