AUDIT PROBLEMS – Exam

In the examination of Eng-Eng Co., the following materials are available:

December 31, 2003
Debit Credit
Accounts receivables P 499,000
Allowance for doubtful accounts 3,000
Inventory 206,000
Cash 283,000
Investments 246,000
Properties 108,000
Accumulated depreciation P 11,750
Suspense accounts 85,000
Accounts payable 76,000
Stockholders’ equity 1,115,000
Retained earnings 80,000
Withholding tax payable 4,000
SSS & Medicare premium payable 2,250
Sales 2,000,000
Cost of sales 1,600,000
Operating expenses 210,000
Other income/ charges, net 11,000
Other expenses and charges 60,000 _________
Totals P3,300,000 P3,300,000

Information contained in the audit working papers:

Cash
1 – The cash receipts and disbursements books were held upon whereby transactions
up to January 20, 2004 were included as 2003.
Collections from customers P 26,000*
Payments to supplier 15,000
*P20,000 current, P6,000 overdue 61-90 days
2 – The bank on December 23, 2003 approximately charged the client for P1,000
representing deposit of bogus two P500 bills. The cashier negligently failed to
detect the faked bills. This matter has not been recognized in the books.

Accounts Receivable
Analysis of the accounts revealed the following details:
Non-trade
Due from officers P 65,000
Fast Cargo – for shipments damaged while in transit 5,000
Trade
Current 210,000
Overdue:
31-60 days, estimated to be 95% collectible 120,000
61-90 days, estimated to be 80% collectible 50,000
91-120 days, estimated to be 70% collectible 40,000
Over 120 days, definitely uncollectible 12,000
Credit balance ( 7,000)
Unlocated error in recording subsidiary ledger
with control account 4,000
Balance per ledger P499,000
Inventories
1 – The following errors were committed on the inventory account:
Items duplicated P 5,000
Items missed in counting 3,000
Count cards not included in inventory summary 4,000
2 – The following items were included in the inventory summary at cost:
Purchases in transit
FOB shipping point P11,000
FOB destination 9,000
The corresponding purchase invoices were recorded as of 2003.
Sales in transit
Cost Sales price
FOB shipping point P 7,000 P 8,500
FOB destination 19,000 25,000
The corresponding sales invoices were not recorded as of 2003.

Investments
Analysis of the investment accounts revealed the following details:
Investee Shares Type Cost Market
PLDT 5,000 Common P 50,000 P 51,000
XXX Co. 2,000 Common 40,000 10,000
SS Co. 500 Common 15,000 16,000
UU Co. 1,000 Preferred 20,000 8,000
Eng-Eng Co. 300 Common 31,000 45,000
PP Co. 900 Common 90,000 60,000
Totals P246,000 P190,000
The investment in PP Co. is a long-term investment while others are temporary
investment of surplus cash.

Property and related Depreciation

Cost Depreciation Expense
Equipment Furniture Total Equipment Furniture Total
2001 P50,000 P20,000 P70,000 P2,500 P1,000 P3,500
2002 20,000 5,000 25,000 6,000 2,250 8,250
2003 10,000 3,000 13,000 _____
P108,000 P11,750
Eng-Eng depreciates using a 10% annual rate and charges depreciation at only one-half
the annual rate in the year of acquisition.

Suspense Accounts
This account carries the following:
Deposit on:
Orders for new machine P15,000
Meralco generators 40,000
Water pumps 17,000
Debit balances in accounts payable
subsidiary ledger 2,000
Special advertising costs for the
succeeding 3 years 6,000
Additional tax assessment for 2001,
paid in 2003 5,000
P85,000
Stockholders’ Equity
The account analysis showed the following details:
Common Preferred Total
Authorized, P100 par P1,000,000 P500,000 P1,500,000
Unissued 300,000 200,000 500,000
Balance P 700,000 P300,000 P1,000,000
Subscribed 100,000 50,000 150,000
Total P 800,000 P350,000 P1,150,000
Subscriptions receivable 15,000 20,000 35,000
Balance P 785,000 P330,000 P1,115,000

Compute the adjusted balances of the following accounts on December 31, 2003:

1. Cash
(a) P272,000 (b) P294,000 (c) P242,000 (d) P324,000 A

2. Accounts Receivable, Net Realizable Value

(a) P496,000 (b) P451,500 (c) P419,300 (d) P425,300 C

3. Inventory
(a) P192,000 (b) P202,000 (c) P208,000 (d) P209,000 A

4. Investments
(a) P 0 (b) P190,000 (c) P60,000 (d) P125,000 C

5. Properties, Net Book Value

(a) P96,250 (b) P86,100 (c) P108,000 (d) P85,250 B

6. Suspense Accounts
(a) P 0 (b) P59,000 (c) P77,000 (d) P85,000 A

7. Accounts Payable
(a) P61,000 (b) P91,000 (c) P82,000 (d) P100,000 C

8. Retained Earnings before net income

(a) P80,000 (b) P75,000 (c) P45,000 (d) P39,000 B

9. Cost of Sales
(a) P1,606,000 (b) P1,590,000 (c) P1,605,000 (d) P1,601,000 C

10. Operating Expenses

(a) P226,000 (b) P266,000 (c) P276,150 (d) P264,350 D