Professional Documents
Culture Documents
AP Quizzer (CPAR)
AP Quizzer (CPAR)
1
In connection with the audit of the PAKYO COMPANY for the year ended December 31, 2010 you are
called upon to verify the accounts payable transactions. You find that the company does not make use of a
voucher register but enters all merchandise purchases in a Purchases Journal, from which posting are
made to a subsidiary accounts payable ledger. The subsidiary ledger balance of P1,500,000 as of
December 31, 2010 agrees with the accounts payable balance in the companys general ledger. An analysis
of the account disclosed the following:
Trade creditors, credit balances
Trade creditors, debit balances
Net
Estimated warranty on products sold
Customers deposits
Due to officers and shareholders for advances
Goods received on consignment at selling price
(offsetting debit made to Purchases)
P 1,363,000
63,000
P 1,300,000
100,000
9,000
50,000
41,000
P 1,500,000
Items
Miscellaneous debit balances prior to 2007.
No information available due to loss
of records in a fire.
Amount
P 3,000
8,000
7,000
5,000
12,000
24,000
4,000
63,000
Your next step is to check the invoices in both the paid and the unpaid invoice files against ledger accounts.
In this connection, you discover an invoice from Atlas Co. of P45,000 dated December 12, 2010 marked
Duplicate, which was entered in the Purchase Journal in January 2011. Upon inquiry, you discover that
the merchandise covered by this invoice was received and sold, but the original invoice apparently has not
been received.
In the bank reconciliation working papers, there is a notation that five checks totaling P 63,000 were
prepared and entered in the Cash Disbursements Journal of December, but these checks were not issued
until January 10, 2011.
The inventory analysis summary discloses good in transit of P 6,000 at December 31, 2010, not taken up by
the company under audit during the year 2010. These goods are included in your adjusted inventory.
1. The Accounts payable Trade balance at December 31, 2010 should be
A. P 1,471,000
C. P 1,214,000
B. P 1,614,000
D. P 1,477,000
B. P 23,000
D. P 39,000
4. The entry to adjust the Accounts payable account for those accounts with debit balances should include a
debit to
A. Miscellaneous losses if P 23,000
B. Advances to suppliers of P 24,000
C. Suppliers to debit balances of P 18,000
D. Purchases of P 21,000
5. Auditor confirmation of accounts payable balances at the end of the reporting period may be necessary
because
A. There is likely to be other reliable external evidence to support the balances
B. Correspondence with the audit clients attorney will reveal all legal action by vendors for non-payment
C. This is a duplication of cutoff test
D. Accounts payable at the end of reporting period may not be paid before the audit is completed.
Problem 2
You were able to obtain the following from the accountant for Maverics Corp. Related to the companys
liability as of December 31, 2010.
Accounts payable
Notes payable trade
Notes payable bank
Wages and salaries payable
Interest payable
Mortgage notes payable 10%
Mortgage notes payable 12%
Bonds Payable
P 650,000
190,000
800,000
15,000
?
600,000
1,500,000
2,000,000
2.
3.
4.
The portion of the Notes payable bank to be reported under current liabilities as of December
31, 2010 is
a. P 300,000
b. 500,000
c.800,000
d. 0
Total current liabilities as of December 31, 2010 is
a. P 3,950,000
b. 4,138,000
c. 3,938,000
d. 3,998,000
Total noncurrent liabilities as of December 31, 2010 is
a. P1,760,000
b. 2,560,000
c. 3,960,000
d. 1,960,000
Problem no. 3
In conjunction with your firms examination of the financial statements of PISTONS COMPANY as of
December 31, 2010, you obtained from the voucher register the information shown in the working paper
below.
Item
no.
1
Entry Date
12.18.10
Voucher
Ref.
12-202
12.18.10
12-204
12.21.10
12-206
12.21.10
12-214
12.21.10
12-219
12.26.10
12-221
7
8
12.28.10
12.28.10
12-230
12-234
12.28.10
12-243
10
01.02.11
01-001
11
01.05.11
01-002
12
01.05.11
01-003
13
01.05.11
01-004
14
01.10.11
01-005
15
01.12.11
01-006
16
01.12.11
01-007
Description
Amount
Account Charged
P 20,000
Supplies on hand
24,000
Prepaid insurance
24,000
17,000
Repairs and
maintenance
Inventory
69,000
5,000
29,000
111,500
Dues and
subscription
Utilities expense
Inventory
84,000
Inventory
46,000
Legal and
professional expense
25,000
Medical expense
55,000
Inventory
72,000
64,000
Inventory
39,000
Manufacturing cost
38,000
Inventory
17
01.13.11
01-008
18
01.14.11
01-009
19
01.15.11
01-010
20
01.15.11
01-011
Maintenance e services;
received 01.09.11
Interest on bank loan, 1012-10 to 021.10.11
Manufacturing equipment
installed on 12.29.10
Dividends declared,
12.15.10
9,000
30,000
254,000
160,000
Repairs and
maintenance
Interest Expense
Machinery and
equipment
Dividends payable
Amount Due
P 400,000
600,000
300,000
300,000
1,200.000
1,000,000
800,000
1,000,000
P 7,000,000
ESTIMATED WARRANTIES
Feel Na Feel has a one-year product warranty on some selected items in its product line. The estimated
warranty liability on sales made during the 2008-2009 fiscal year and still outstanding as of March 31, 2009
amounted to P180,000. The warranty cost on sales made from April 1 2009, through March 31,2010, are
estimated as P520,000. The actual warranty cost incurred during the current 2009-2010 fiscal tear are as
follows:
Warranty claims honored on 2008-2009 sales
P 180,000
Warranty claims honored on 2009-2010 sales
178,000
Total warranty claims honored
P 358,000
OTHER INFORMATION
1.
2.
TRADE PAYABLES
Accounts payable for supplies, goods and services purchased on open account amount to
P740,000 as March 31, 2010
PAYROLL RELATED ITEMS
DIVIDENDS
On march 15, 2010, Feel Na Feels board of directors declared a cash dividend of
P0.20 per common share and a 10% common stock dividend. Both dividends were to be
distributed on April 12, 2010, to the common stockholders of record at the close of business on
march 31, 2010. Data regarding Feel Na Feel common stock are as follows:
Per Value
P
5.00 per share
Number of shares issued and outstanding
6,000,000
shares
Market Values of Common Stock:
March 15, 2010
March 31, 2010
April 12, 2010
share
1.
2.
3.
How much was received by Feel Na Feel from the bonds issued on July 1, 2008?
a. P8,852,960
b. 10,000,000
c. 10,500,000
d.
10,647,040
On March 31, 2010, Feel Na Feels statements of financial position would report total current
liabilities of
a. P5,286,000
b. 4,386,000
c. 5,336,000
d.
5,642,000
On March 31, 201, Feel Na Feels statement of financial position would report total
noncurrent liabilities of
a. P14,389.350 b. 14,352,217
c. 14,370,783
d.
14,252,960
PROBLEM NO. 5
On January 1, 2009, WIZARDS CORPORATION issued 2,000 of its 5-year, P1,000 face value 11% bonds
date January 1 at an effective annual interest rate (yield) of 9%. Interest is payable each December 31.
Wizards uses the effective interest method of amortization. On December 31, 2010. The 2,000 bonds were
extinguished early through acquisition on the Open Market by Wizard for P1,980,000 plus accrued interest.
On July 1, 2009, Wizards issued 5,000 of its P1,000 face value, 10% convertible bonds at pat. Interest is
payable every June 30 and December 31. On the date of issue, the prevailing market interest rate for
similar debt without the conversion option is 12%. On July 1, 2010, an investor in Wizards convertible bonds
tendered 1,500 bonds for conversion into 15,000 shares of Wizards common stock, which had a fair value
of P105 and a par value of P1 at the date of conversion.
Based on the above and the result of your audit, determine the following: (Round off present
value factors to four decimal places.)
1.
The issue price on the 2,000 5-year, P1,000 face value bonds in January 1, 2009 is
a. P2,155.500
b. P2,000,000
c. 1,844,400
d. 2,147,800
2.
The carrying value of the 2,000 5-year, P1,000 face value bonds on December 31, 2009 is
a. 1,898,400
b. 2,129,500
c. 2,000,000
d.
2,121,100
The gain on early retirement of bonds on December 31, 2010 is
a.
P20,000
b. 112,000
c. 121,200
D. 0
The carrying value of the 5,000 6 year, P1,000 face value bonds on December 31, 2009 is
3.
4.
a.
5.
P4,605,800
b. 5,000,000
c. 4,732.875
d. 4,615,400
The conversion of the 1,500 6-years, P1,000 face value bonds on July 1, 2010 will increase APIC
by
a. P1,485,000
b. 1,374,000
c. 1,415.054
d. P1,377,697
PROBLEM NO. 6
The following data were obtained from the initial audit of BIBI COMPANY:
15%, 10 year, bonds payable, dated January 1, 2009
Debit
Balance
Cash proceeds from issue on January 1, 2009
Of 1,000, P1,000 bonds. The market rate of
Interest on the date of issue was 12%
Bond Interest Expense
Cash paid, 1/2/10
Cash paid, 7/1/10
Accrual, 12/31/10
Accrued Interest on Bonds
Balance, 1/1/10
Accrual, 12/31/10
Treasurer bonds
Redemption price and interest to date on
200 bonds permanently retired on 12/31/10
265,000
P 1,172,044
Credit
P1,172.044
P 75,000
75,000
75,000
P 75,000
150,000
225,000
P 75,000 P 75,000
75,000 150,000
P 265,000
d.
d. 34,683
d. 52,500
d. 160,826
PROBLEM 7
NUGGETS CORPORATION manufactures and sells food products and food processing machinery. Its
reporting date is December 31. Relevant extracts from its financial statements at December 31, 2009 are as
follows:
Current liabilities
Provision
Provision for warranties
P270,000
Noncurrent liabilities
Provision
Provision for warranties
P180,000
P 1,000,000
P 6,000,000
80%
15 %
5%
all in
2010
Expected timing of settlement of warranty payments
-those with major defects
40%
in 2010
60% in 2010
During the year ended December 31, 2010, the following occurred:
1.
2.
3.
4.
5.
6.
In a relation to the warranty provision of P450,000 at December 31, 2009, P200,000 was
paid out of the provision. Of the amount paid, P150,000 was for products with minor defects
and P50,000 was for products with major defects, all of which related to amounts that had
been expected to be paid in 2010/
In calculating its warranty provision for December 31, 2010, NUGGETS made the following
adjustment to the assumptions used for the prior year:
Estimated cost of repairs-products with minor defects
no change
Estimated cost if repairs products with major defects
P 5,000,000
Expected % of products sold during 209 having no defects in 2011
85%
Expected % of products sold during 2009 having minor defects in 2011
13%
Expected % of products sold during 2009 having major defects in 2011
2%
-those with minor defects
all in
one 2011
Expected timing of settlement of warranty payments
20% in 2011
-those with major defects
80%
in 2012
NUGGETS determined that part of its plant and equipment needed an overhaul the
conveyor belt on one of it s machines would need to be replaced ion about December 2011
at an estimated cost of P250,000. The carrying amount of the conveyor belt at December
31, 2009 was P140,000. Its original cost was P200,000
NUGGETS was unsuccessful in its defense of the peanut allergy case and was ordered to
pay P1,5000,000 to the plaintiffs. As at December 31, 2010, NUGGETS had paid P800,000
NUGGETS commenced litigation against one of its adviser for negligent advice given on the
original installation of the conveyor belt referred to in (3) above, in October 2010, the court
found in favor of NUGGETS. The hearing for damages had not been scheduled as at the
date the financial statement for 2010 were authorized for issue. NUGGETS estimated that it
would receive about P425,000.
NUGGETS signed an agreement with Choko Bank to the effect that NUGGETS would
guarantee a loan made by Choko Bank to NUGGETS subsiadiary, ChapaChocks Ltd.
ChapaChocs loan with Choko Bank was P3,200,000 as at December 31, 2010.
ChapaChocs was in a strong financial position at 31 December 2010
Based on the above and the result of your audit, answer the following:
1.
2.
3.
4.
a.
5.
P. 80,000
b. P260,000
c. 150,000
d.
330,000
Total provisions to be reported in the statement of financial position as of December 31, 2010 is
a. P480,000
b. 410,000
c. 1,180,000
d.
1,360,000
PROBLEM NO 8
Select the best answer for each of the following:
1.
2.
3.
4.
5.
6.
7.
In Auditing accounts payable, an auditor procedures most likely will focus primarily
on managements assertion of.
a. Existence
c.
Completeness
b. Presentation and disclosure
d. Valuation and allocation
An auditor performs a test to determine whether all merchandise for which the
client was billed was received. The population for this test consist of all
a. Merchandiser received
c. Canceled checks
b. Vendors invoices
d.
receiving
reports
The primary audit test to determine if accounts payable are valued properly is
a. Confirmation of accounts payable
b. Vouching accounts payable to supporting documentation
c. An analytical procedure
d. Verification that accounts payable was reported as a current liability in
the balance sheet.
Which of the following procedures is least likely to be performed before the
balance sheet date?
a. Observation of inventory count.
b. Testing of internal control over cash.
c. Search for unrecorded liabilities.
d. Confirmation of receivables.
An audit assistant found a purchase order for a regular supplier in the amount P
5,500 the purchase order was date after receipt of goods. The purchasing agent
had forgotten to issue the purchase order. Also, a disbursement of P450 for
materials did not have receiving report. The assistant wanted to select additional
purchase orders for investigation but was unconcerned about lack of receiving
report. The audit director should.
a. Agree with the assistant because the amount of the purchase order
exception was considerably larger than the receiving report exception
b. Agree with the assistant because the cash disbursement clerk had been
assured by the receiving clerk that the failure to fill out a report didnt
happen very often.
c. Disagree with the assistant because two problems have an equal risk of
loss associated with them
d. Disagree with the assistant because the lack of a receiving report has a
greater risk of loss associated with it.
When using confirmation to provide evidence about completeness assertion for
account payable, the appropriate population most likely is
a. Vendors with whom the entity has previously done business
b. Amounts recorded in the accounts payable subsidiary ledger
c. Payees of checks drawn in the month after the year end.
d. Invoices filed in the entitys open invoice file.
Which of the following is a substantive test than an auditor is most likely to
perform to verify the existence and valuation of recorded accounts payable?
a. Investigating the open purchase order file to ascertain that prenumbered purchase orders are used and accounted for.
b.
8.
9.
10. Which of
liability?
a.
b.
c.
d.
11. Unrecorded liabilities are most likely to be found during the review of which of the
following documents?
a. Unpaid bills
c. bills of lading
b. Shipping records
d. Unmatched sales invoice
12. Which of the following audit procedures is best for identifying unrecorded trade
accounts payable?
a. Reviewing cash disbursement recorded subsequent to the balance
sheet date to determine whether the related payables apply to the prior
period.
b. Investigating payables recorded just prior to and just subsequent to the
balance sheet date to determine whether they are supported by
receiving reports.
c. Examining unusual relationships between monthly accounts payable
balances and recorded cash payments.
d. Reconciling vendors statement to the file of receiving reports to identify
items received just prior to the balance sheet date,
13. In verifying debits to perpetual inventory records of nonmanufacturing firm, the
auditor is most interested in examining the purchase
a. Journal
c. Order
b. Requisitions
d. Invoices.
14. Which of the following procedures relating to the examination of accounts payable
could the auditor delegate entirely to the clients employees
a. Test footings in the accounts payable ledger
b. Reconcile unpaid invoices to vendors statements
15.
16.
17.
18.
19.
20.
Suggested Answers
Problem 1
1. D
2. C
3. A
4. B
5. A
Problem 2
1. B
2. A
3. C
4. D
Problem 3
Adjusting entries
Problem 4
1. A
2. A
3. C
Problem 5
1. A
2. B
3. C
4. A
5. B
Problem 6
1. D
2. B
3. C
4. C
5. D
6. A
7. C
Problem 7
1. C
2. D
3.
4. A
5. B
Problem 8
1. C
2. B
3. C
4. C
5. D
6. A
7. C
8. B
9. B
10. B
11. A
12. A
13. D
14. C
15. D
16. A
17. D
18. C
19. A
20. A