‘Auditing Problems SETA INSTRUCTIONS: Select the best answer for each of the following questions. ALL questions are compulsory and MUST be attempted. Mark only one answer for each item on the answer sheet provided. Strictly NO ERASURES ALLOWED. Erasures willsrender your examination answer sheet INVALID, Use PENCIL NO. 2 only. GOODLUCK!@ PROBLEM NO, 10!" > aad During your audit of the records of the Indiana Corporation for the year ended December 31, 2014, the following facts were disclosed: Raw materials inventory, 1/1/2014 720,200 - Raw materials purchases- 5,232,800 © Direct labor * 6,300,000 Manufacturing overhead applied (150%tof direct labor) + 279,450,000 Finished goods inventory, 1/1/2014 Selling expenses Administrative expenses Your examination disclosed the following addition: a) Purchases of raw materials, Month s Unit Price Amount January - February $5,000 P17.76 976,800 March ~ Apr 45,000 20.00 ‘900/000 May ~ June 25,000 19.60 490,000 July - August 35,000 20.00 700,000, ‘September - October 45,000 20.40 918,000 November - December 60,000 20.80 1,248,000 265,000 9,232,800 Audling Problems _ sera APIITEMND b) Data with respect to quantities are as follows: Explanat naa ews Raw materials 35,000 ? Work in process (80% completed) oO 25,000 Finished goods 15,000 40,000 Sales, 205,000 units ) Raw materials are issued at the beginning of the manufacturing Process, During the year, no returns, spoilage, or wastage ‘occurred. Each unit of finished goods contains one unit of raw materials. d) Inventories are stated at cost as follows: ‘+ Raw materials ~ according to the FIFO method * Direct labor - at an average rate determined by correlating total direct labor cost with effective production during the period ‘+ Manufacturing overhead - at an applied rate of 150% of direct labor cost Questions: Based on the above and the result of your audit, answer the following: 1, The raw materials inventory as of December 31, 2014 is a. P1,976,000 c. P936,000 b. P1,352,000 4. P897,800 ‘The work in process inventory as of December 31, 2014 is a. Pi,780,000 c. P1,885,565 b. P1,751,294 d. P1,776,000 3. The finished goods inventory as of December 31, 2014 is a. P3,352,000 ¢. P3,553,130 b. P3,334,000 d. P3,284,588 Pape TAA aac BR bpentinPBETT by)SETA 4. The.cost of goods sold for the-year ‘ended December 31, 2014 is a. P16,897,000 ¢. P15,857,000 b. P16 ;568,304 @.- P16,875,000 5. When testing the valuation assertion, the auditor would most likely a. Observe the taking of physical inventory. b, Examine receiving reports for inventory, tracing their recorded amounts. © Perform price tests to the related cost flow assumption. 4. Confirm inventory on consignment. PROBLEM NO. 2 The general ledger trial balance of Miami Corporation includes the foltowing balance sheet accounts at December 31, 2014: Cash 1,056,000 Accounts receivable 1,220,000 Inventory 441,000 Trading securities 200,000 Available for sale investments 500,000 Prepaid insurance 50,000 Deferred tax asset 150,000 Bank overdraft 100,000 Additional information: Cash + The sales book wasdeft open-up to January 5, 2015, and cash sales totaling P150,000 were considered as sales in December. = Checks of P93,000 .in payment of liabilities were .prepared before December 31, 2014, recorded in the books, but not mailed or delivered to payees. ———-— ve + Post-dated checks totaling[ P78,000are being held by the Cashier as part of Cash. The Tompany’s experience shows post-dated checks are eventually realized. Pea to Sas an opeaiP ase np - 190,779 7 {use 4 | | | Auditing Problems aera + Customer's check fof 35900 Hepostea with but returned by Bank, "NSF* on er 27, 2014. Return was recorded in the books, * The Cash account includes P400,000 of compensating balance against a short-term bank loan. The compensating balance is legally restricted as to withdrawal. Accounts receivable The accounts receivable consists of the following: ‘Trade accounts receivable P 650,000 Allowance for uncollectible accounts (20,000) Claim against shipper for goods lost in transit 30,000 ling price of unsold goods sent by Miami on consignment at 130% of cost (included in 's ending inventory at cost) 260,000 it on lease of warehouse used for ‘storing some inventories 300,000 ~* Total 241.220.9000 Inventory A physical count of inventory at December 31, 2014 revealed that Miami had inventory on hand at that date with a cost of . 340,000 ‘.) ee 61 000 2,485,000 W? 92,436,800 6. 2,513,800 PROBLEM NO. 3 Among the account halances of Toronto Corporation at December 33, 2013 are the following Patent, net Installment contract recewable ‘Audeng Probiome, seta Relevant transactions and other information for 2014 were as follows: a) The patent was purchased for P3,150,000 on September 1, 2010. On that date, the remaining legal life was fifteen years, which was also determined to be the u fe. i b) The installment contract receivable represents the balance of the consideration received from the sale of a factory Raptors Company on March 31, 2012, for P12,000,000. Raptors made a P3,000,000 down payment and signed a five- 3% note for the P9,000,000 balance. The first of equal .000 at December 31, 2014. The 2014 payment was received on tune. ©) On January 2, 2034, Toronto purchased a trademark for 2,509,000. Toronto considers the life of the trademark to be wndefunite. 0) On May 1, 2014, Toronto sold the patent in exchange for a 5,000,000 non-interest bearing note due on May 1, 2017. Y ished exchange price for the pat the note had no reagy market. The prevailing rate of interest for a note of ths type at May 1, 2014 was 14%. The present value of 1 for three penods at 14% 15 0.675. The collection of the note recewable is reasonably assured, ©) On duly 1, 2014, Toronto paid 18,800,000 for 759,000 ordinary shares of Canada Corporation, which repre 25% stment in) ‘The fair value of all of Cay le assets net of liabilities equals their carrying amount 10,000. The market price of Canada’s ordinary share ber 31, 2014 was P26,00 per share. Ween Fen a ee