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Canlubang Campus AY 2011-2012 2nd Semester College of Accountancy, Business Administration and Computer Studies
APPLIED AUDITING PART 2 Name:_______________________________ Score:_____________________ Yr& Section: __________________________ Date: _____________________ GENERAL DIRECTION: Choose the letter of the correct answer. Write the letter of your answer before the number. Answers requiring solution should be provided accordingly. Present your solution in good form. (2pts each) Problem 1 Mcdodo Co. wholesales food products to independent grocery stores. The company uses the perpetual inventory system and assigns cost to inventory on a first in first out basis. Transactions and other related information regarding two of the items (baked beans and plain flour) carried by Mcdodo are given below for December 2011, the last month of the company’s reporting period. Baked Beans Plain Flour Unit of packaging Case containing 25x410g Box containing 12x4 kg bags cans Inventory 350 cases @ 196 625 boxes @ P384 Purchases 1. Dec. 10: 200 cases 1.Dec.3: 150 boxes@ P384.50 @ P195 per case 2.Dec.15:200 boxes@ P384.50 2. Dec. 19: 470 cases 3.Dec.29:240 boxes@ P390 @ P197 per case Purchase Terms 2/10,n/30, FOB shipping n/30, FOB destination December Sales 730 cases@ P285 950 boxes@ P400 Returns and A customer returned 50 As of Dec. 15 purchase was Allowances cases that had been unloaded, 10 boxes were shipped in error. The discovered damaged. A credit customer’s account was of P3,845 was received by credited for P14,250. McDodo Physical count at 326 cases on hand 15 boxes on hand December 31 Explanation of No explanation found— Boxes purchased on Dec. 29 variance assumed stolen still in transit on Dec. 31 Net realizable value P290 per case P385 per box at Dec. 31 1. What is the cost of Baked Beans inventory that was assumed stolen? a. P2,744 b. P 4,060 c. P 2,370 d. P 2,758 2. What is the cost of Plain Flour inventory on December 31,2011 ? a. P 5,850 b. P 5,760 c. P 5,767 d. P 5,775 3. What is the total cost of McDodo’s inventory (Baked Beans and Plain Flour) on December 31,2011? a. P 69,989 b. P 72,747 c. P 77,301 d. P 100,315 4. What amount of loss on decline in value of inventory should be recognized by McDodo at the end of the reporting period? a. P 38,236 b. P 7,910 c. P 30,236 d. P 0
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“Life shrinks or expands in proportion to one's courage.” – Anais Nin
1063 Dec.2011.000 16.28 SI No.000 2.000 (P5. there were two trucks on the company siding: Truck No. The goods were shipped FOB Destination and freight of P2.000 150. 1063 and that no made on any sales invoice whose number is larger than No. net selling price Problem 2 You were engaged by First Love Corporation for the audit of the company’s financial statements for the year ended December 31.31 Closing Entry Note: SI = Sales Invoice Accounts Receivable Inventory Accounts Payable RR = Receiving Report P500. which was received on Receiving Report No. nominal value b. the shipments had need 968. The following were gathered from the client’s accounting records: SALES Date Reference Amount P 5.31 RR No. the next day.000 You observed the physical inventory of goods in the warehouse on December 31 and were satisfied that it was properly taken.31 RR No.000 42.” – Anais Nin . 966 Dec.1063.000.800. The company is engaged in the wholesale business and makes all sales at 25% over cost. Truck No. 1064. Temporarily stranded at December 31 at the railroad siding were two delivery trucks enroute to Brooks Trading Corporation. 3.000 600.000 10. Cost was P 18.000 64. 971 Dec. Fair value c. 967 Dec. additional information were likewise gathered: 1.1062 Dec.000. you found out that at last receiving report used was No.00 24.000 400.000 was paid by the client. December 31.000 40.000) P ---Date PURCHASES Reference Amount P 2.31 SI No. Net realizable value d. 969 Dec. 966.5.000 per Sales Invoice No. The following sales and purchases cutoff test.200. The freight was paid by the vendor.000 (P3.000 68. When performing a December 31.965 Dec.28 RR No. 970 Dec. At the close of the business.1061 Dec. Enroute to the client on December 31 was a truckload of goods.530.000 70.28 SI No. Page 2 of 7 “Life shrinks or expands in proportion to one's courage. terms FOB Destination. This order was sold for P100.000 46.000) P ---- Balance forwarded Dec. which were sold on Sales Invoice No. Brooks received the goods.2011.31 Closing Entry Balance Forwarded Dec. 4.31 SI No. PAS 2 requires inventory to be stated at the lower of cost and a. 1059 Dec 30 RR No. 27 SI No. However the freight was deducted from the purchase price of P800. CPA 123 was unloaded on January 2 of the following year and received on Receiving report No.31 SI No. Included in the physical inventory at December 31 were goods purchased and received per RR # 1060 but for which the invoice was not received until the following year. ILU 143 was loaded and sealed on December 31 but left the company premises in January 2. 968.
000 c. P1. P370.000 b.25 October1-15 Purchases October 16-31 Purchases October 1-31 Sales October 31 Sales Price On October 31.000 7.000 c.150 14.500 d. the company’s suppliers reduced their prices from the most recent purchase prices by the following percentages: Product C.000 Page 3 of 7 “Life shrinks or expands in proportion to one's courage. P543. P800. Purchases for the year ended December 31. Inventory as of December 31.50 Product A 65. P617.350.000 d.000 b. P354. 11.290. The allowance for inventory writedown at October 31 is a. P814.000 units at P10.650 b. 2011 a.350 13.00/unit 45. 2011 a. Malabon’s selling cost is 10% of sales price. Total cost of inventory at October 31 is a.000. The amount of inventory to be reported on the company’s balance sheet at October 31 is a.20%. first-out method in calculating cost of goods sold for the three products that the company handles. Accordingly. P13. P3.8%.000 units at P0. Accounts Payable as of December 31.250.90 30. P60. P968.810 d.000 d.000 b.022.850 b. Product P.650 c. Malabon decided to reduce its sales prices on all items by 10% effective November 1.000 units at P1. Inventories and purchases information concerning the three products are given for the month of October.2011 a. for the month of October is a.000 d.000 units P8. P559.000 units P2. P220. P350.000 9.500 d. P418. The cost of sales.000 units At P8.500 12. Products C and P have a normal profit (after selling costs) of 30% on sales prices. P569.00 105.2011 a. P3. P557.00 45.754.10%. P864. while the normal profit on Product A (after selling cost) is 15% of sales price. P5. Accounts Receivable as of December 31.818.650 d. P655. determine the following: 6.000 10.000 Problem 3 MALABON SALES COMPANY uses first-in. P1.218.000 units at P10.260 c. Product C October1 Inventory 50.150. P1.Based on the result of your audit.000 c. P595.P3. P5.293.208.000 b.400.P3.000 d. P1.000 b. Product A.00/unit 50.310 c. P5. P5.000 units At P6.000 8.000 b. after loss on inventory writedown. 2011 a.000 c. P565. 400.” – Anais Nin .000 d.000 units At P6.000 c.50 30. P5.000 units P11. Sales for the year ended December 31. P120. P85.00 70. P1.650 b.018.00/unit Product P 30.350 c.
P210. POMELO’s intent in buying investment securities is to make them available for sale when circumstances warrant. Verifying that the client has used proper inventory pricing.2010 income statement relative to these investments? a. c.000 December 31 Recorded the necessary adjusting entries relating to the investments.000 c.000 b.100. preference shares for P78 per share. and not necessarily to hold debt securities to maturity.000 d. P0 Page 4 of 7 “Life shrinks or expands in proportion to one's courage. The market values of the investments are P30 per share for PG. Purchased P1. preference shares including brokerage fees and commissions. not to earn profit from short term fluctuations in price.000.000 b.2010? a. Described below are the company’s investment related transactions: 2010 March 1 April 15 Purchased 30. ordinary shares for P750.15. What is the gain (loss) on the sale of the OW Corporation bonds on October 16. P0 b. preference shares.Inc.000) d. Received semiannual interest on the investment in OW Corporation bonds. Sold the OW Corporation bonds for P1. Pomelo Company’s fiscal year ends on December 31.Inc.000 d. What is the total amount that would be reported on Pomelo Company’s December 31. Problem 4 On the acquisition date. How much unrealized gain(loss) should be reported in profit or loss in 2010? a. P100. P110.000 c.500. 2011 January 27 March 2 Sold half the PG Inc. Verifying that all inventory owned by the client is on hand at the time of the count. and P44 per share for ESP Co. of 10% bonds at face value from OW July 23 October 15 October 16 November 2 Received cash dividends of P60. Verifying that inventory counted is owned by the client. P160. P200.000 Purchased 250. shares for P75 per share. POMELO COMPANY designates purchased debt and equity securities as available for sale. d. Inc. for P12.000 18.000 including brokerage fees and commissions. ordinary shares.000) c.500. No investments were held by the company at the beginning of the year.000 Corporation. (P1.000 17. Ascertaining the physical quantities of inventory on hand.” – Anais Nin . Which of the following is not one of the independent auditor’s objectives regarding the audit of inventories? a. 16. b. (P100.000 PG. P260. Sold the ESP Co. P100. P150.000 on the investment in PG.000 ESP Co.
Inc.500.000 550. preference shares on March 2.2011 a.250 186. Net realized gain or loss on sale of 4.500.2010. LA COST COMPANY’s statement of financial position showed the following balances related to its securities accounts: Trading Securities Available for sale securities Interest Receivable.180. P450.000 Market P762.Inc.Inc.” – Anais Nin .750 630.000 loss c.stock AFS 20. P7.000 shares of the Totoy Bibo. Purchased 3.19. stock trading 10% Mayniladlad Water bonds (interest Payable semiannually on Jan1 and July1) trading 10. stock for P832.000 Totoy Bibo.000 590. shares on January 27.was Securities Classification 10.500. P600. What amount of gain on sale of PG Inc. stock for P69 per share.875 gain d.000 12.2011 should Pomelo recognize? a.000 made up of the 31. Purchased 15.000 loss c.Inc. Sold 4. P4.000 loss Page 5 of 7 “Life shrinks or expands in proportion to one's courage.500 100. classified as trading security. P300. P4.00 per share Based on the above and the result of your audit.000 d. shares on April 15.477. Stock Mayniladlad Water Bonds Bulaklak. Received interest on the Mayniladlad Water Bonds.875 loss 22.000 d.000.000 shares Yeye Bonel Corp.000 c.000 550.000 shares Jumbo Hotdog Unlimited.000 b.00 per share 27. classified as trading security The market values of the stocks and bonds on December 31. What is the gain on the sale of the ESP Co.2010.000 250.000 b.500. P12. P12.2011? a. P11.000 gain b. shares on May 4.500 1.P1.000.60 per share 68.Inc. Sold 4.000 gain d. stock P76.stock AFS During 2011. the following transactions took place: Jan Mar Apr May July Oct 3 1 15 4 1 30 Cost P750. Inc.000 shares Bulaklak. Inc.Inc. stock for P229.Mayniladlad Water bonds Unrealized gain –AFS La Cost’s securities following securities: portfolio on December P 1.000 490. Gain or loss on sale of 4.500 528. P11. Inc.2011 are as follows: Yeye Bonel Corporation stock Totoy Bibo. Inc. P1.000 Problem 5 On December 31.000 shares Totoy Bibo.000 Bulaklak. stock Jumbo Hotdog Unlimited.2011 a.000 gain b. determine the following: 21. stock trading 8. stock Pasaway Co.000 c. P1.25 per share P205. P9.000 Received interest on the Maynilad Water bonds. P75. stock for P62 per share.550 61.000 shares of the Bulaklak. P5.000 shares of Pasaway Co.000 20.50 per share 55.000 additional shares of Yeye Bonel Corp.
P28.000 b.2011 a. c. 28. P806. Which of the following is the most effective audit procedure for verification of dividends earned on investments in equity securities? a.000 gain b. b. Carrying amount of trading securities as of December 31. c.an auditor ordinarily would use analytical procedures to ascertain the reasonableness of the Page 6 of 7 “Life shrinks or expands in proportion to one's courage.725 gain P22. Count the securities in the box so that the auditor will have an independent direct verification d. P2. When an auditor is unable to inspect and count a client’s investment until after the balance sheet date. Carrying amount of available for sale securities as of December 31.000 gain 26. Tracing deposited dividend checks to the cash receipts book b.287. P906.000 25. P32. P2.600 gain P78. In testing the long term investments. P844. Confirm that there has been no access to the box between the balance sheet date and the security count date. 30.400 24. Which of regarding the auditee? a. 27.725 gain P62. the bank where the securities are held in a safe deposit box should be asked to a.2011 a.000 loss c. Request the bank to confirm to the auditor the contents of the safe-deposit box at the balance sheet date. Count the securities at a subsequent date and confirm with bank whether securities were added or removed since the balance sheet date. P28. In 2011. P944. Confirmation the following is the least effective audit procedure existence assertion for the securities held by the of paid checks issued in payment of securities changes during the year to supporting documents count of liquid assets from the custodian 29. Provide a list of securities added and removed from the box between the balance sheet date and security count date.000 d. the auditor most likely will a.800 c. Vouching all c. d.337. Examine supporting evidence for transactions occurring during the year. b. Comparing the amounts received with preceding year dividends received.” – Anais Nin .23. Verify any differences between the contents of the box and the balances in the client’s subsidiary ledger. b.297. Request the client to have the bank seal the safe deposit box until the auditor can count the securities at a subsequent date. Examination purchased. P2. If the auditor is unable to count the securities at the balance sheet date.000 c.304. d. Recomputing selected extensions and footings of dividend schedules and comparing totals to the general ledger. P2. Reconciling the amounts received with published dividend records c.000 loss d. Simultaneous d.100 d. A client has a large and active investment portfolio that is kept in a bank safe deposit box. P39.900 loss P122. what amount of unrealized gain or loss should be shown as component income and shareholder’s equity? Income Shareholder’s Equity a.000 b.
b.” – Anais Nin . c. d.a. Classification between current and non current portfolios Valuation of marketable equity securities Existence of unrealized gains and losses in the portfolio Completeness of recorded investment income END OF EXAMINATION “Happy holidays!” Page 7 of 7 “Life shrinks or expands in proportion to one's courage.
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