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Finals Answer Key
Finals Answer Key
Peter’s College
Acctg 22 Auditing Problem
F 5:30pm – 8:30pm
Final Exam
Name: ________________________
Multiple Choice.
Problem 1: Yellow Bells, Inc. estimates its bad debt losses by aging its accounts receivable. The aging
schedule of accounts receivable at December 31, 2019, is presented below: (Aud prob 2013 pg. 140)
Age of Accounts Amount
0 – 30 days 843,200
31 – 60 days 461,000
61 – 90 days 192,400
91 – 120 days 76,650
Over 120 days 39,400
Yellow Bells, Inc.’s uncollectible accounts experience for the past 5 years are summarized in the following
schedule:
A/R Balance 0-30 31-60 61-90 91-120 Over 120
The balance of allowance for bad debts account at December 31, 2019, (before adjustment) is 84,500.
1. What is the average bad debt expense rate for “91-120 days” accounts?
a. 76% b. 8.6% c. 10.38% d. 41.80%
2. What is the average bad debt expense rate for “31-60 days” accounts?
a. 10.38% b. 41.80% c. 0.46% d. 1.72%
3. The net realizable value of company’s accounts receivable on December 31, 2019, should be
a. P1,518,887 b. 1,612,650 c. 1,528,150 d. 1,603,358
4. What entry should be made to adjust the allowance for bad debts on December 31, 2019?
a. Bad debt expense 178,263
Allowance for bad debts 178,263
b. Bad debt expense 93,763
Allowance for bad debts 93,763
c. Bad debt expense 9,263
Allowance for bad debts 9,263
d. Allowance for bad debts 9,263
Bad debt expense 9,263
5. In evaluating the adequacy of the allowance for bad debts, an auditor most likely reviews the entity’s
aging of receivables to support management’s financial statement assertion of
a. Existence
b. Valuation and allocation
c. Completeness
d. Right and obligations
Problem 2: The following accounts were taken from the adjusted trial balance of Golden Three Company at
December 31, 2019:
Land 25,000,000
Building 36,000,000
A/D – Building 16,400,000
Equipment 24,000,000
A/D – Equipment 8,000,000
The company provides depreciation based on straight line method and the following useful lives:
building, 20 years; equipment, 10 years. Salvage values are ignored and depreciation is rounded to the nearest
full month. No fixed asset was acquired nor disposed of during the year 2019. Depreciation has already been
provided for the current year.
In the course of your examination, you were able to gather the following information:
c. Included in the balance of the Equipment account is a special equipment costing 800,000 and with
recorded accumulated depreciation of 320,000 as at December 31, 2019. This unit of equipment had
been depreciated until December 31, 2019 although it was retired by the company from active use on
September 30, 2019 at which time a negotiation for its sale had been entered into. The sale was
considered then as highly probable although no selling price had been contracted yet with the willing
buyers on that date. On December 31, 2019, the expected selling price of this equipment based on
negotiation with the potential buyer was 520,000. Expected selling cost was 50,000. The company is
committed to the plan of selling this equipment, which had already been replaced by a unit with higher
capacity.
d. The company shall use the cost model to account for its investment property.
11. What is the book value of the held-to-maturity investment at the end of 2018?
a. 1,347,157 b. 1,460,882 c. 1,500,000 d. 1,425,393
12. What amount of impairment loss should be recognized in 2019?
a. 697,932 b. 750,000 c. 636,275 d. 675,393
13. How much interest income should be recognized in 2020?
a. 24,793 b. 0 c. 75,000 d. 120,000
14. What amount of impairment loss reversal should be recognized in 2020?
a. 697,932 b. 647,725 c. 750,000 d. 0
15. How much discount amortization should be recognized in 2021?
a. 27,725 b. 0 c. 120,000 d. 75,000
Problem 4: Your company has been engaged to examine the financial statements of Gloria Company for the
years ended December 31, 2019 and December 31, 2018. You have been assigned to review the liabilities and
shareholders equity balances. You have learned that on January 1, 2017, Gloria Company issued a five year, 8%
bonds 5,000,000 bonds for 5,500,000. Each 1,000 bond is convertible into 8 shares of P100 par ordinary share
of Gloria Company, at the option of the bondholder. Interest on the bonds is payable annually on December 31.
Without the conversion feature, the bonds would have sold to yield 10% to the holders. (Round the present
value factors to four decimal places)
16. The issue price that was attributable to the debt is
a. 5,420,000 b. 5,399,350 c. 5,000,000 d. 4,620,820
17. What was the correct carrying value of the bonds on December 31, 2017?
a. 4,682,902 b. 4,744,984 c. 5,000,000 d. 5,467,402
18. What is the interest expense on these bonds for the year ending December 31, 2018?
a. 400,000 b. 437,392 c. 468,290 d. 500,000
19. 2,000,000 of the bonds were converted into ordinary shares on January 1, 2019. What amount should
have been credited to share premium, upon conversion?
a. 652,149 b. 520,000 c. 400,000 d. 300,477
20. Disregard the information given in item 5. Assume, instead, that on January 1, 2019, 2,000,000 of the
bonds were retired @ 109. The bonds without the conversion feature would have sold @105 on this
date. What amount of gain or (loss) should be recognized on the retirement of the bonds?
a. 40,000 b. 160,000 c. (59,523) d. (199,523)
Problem 5: The Nepal Company is authorized to issue 600,000 shares of P10 par value ordinary share capital.
Nepal’s accounting year ends on December 31. The following transactions occurred in 2019, the company’s
first year of operations. (Aud prob 2013, pg 618)
a. Issued 20,000 shares at P20 per share; received cash.
b. Issued 2,500 shares to attorneys for services in securing the corporate charter and for preliminary
legal costs of organizing the corporation. The value of the services was P85,000
c. Issued 300 shares, valued objectively at P15,000, to the employees instead of paying them cash
wages.
d. Issued 325,000 shares in exchange for a building valued at P3,000,000 and land valued at
P4,000,000. (The building was originally acquired by the investor for P2,500,000 and has
P1,000,000 of accumulated depreciation; the land was originally acquired for P1,500,000.)
21. What is the ordinary share capital balance on December 31, 2019?
a. 3,453,000 b. 3,478,000 c. 3,490,000 d. 4,278,000
22. The amount of share premium to be reported on Nepal’s statement of financial position at December 31,
2019 is
a. 3,962,000 b. 4,047,000 c. 3,022,000 d. 4,022,000
23. The amount of organization expense to be charged against Nepal’s income for 2012 is
a. 85,000 b. 0 c. 25,000 d. 60,000
24. Recalculation of dividends, share issuances and share repurchases made by the treasury department is a
test of
a. Cutoff b. occurrence c. ownership d. valuation
25. Footing the shares outstanding in the share register and comparing the total to the shares outstanding in
the general ledger addresses the audit objective of
a. Classification b. completeness c. ownership d. valuation
Problem 6: The following information was provided by the bookkeeper of COW, INC.:
Sales for the month of June totalled 286,000 units.
The following purchases were made in June:
Date Quantity Unit Cost
June 4 50,000 P13.00
8 62,500 12.50
11 75,000 12.00
24 70,000 12.40
There were 108,500 units on hand on June 1 with a total cost of P1,450,000.
Cow, Inc. uses a periodic FIFO costing system. The company’s gross income for June was P2,058,750.
Problem 7: In connection with your audit of the financial statements of Onor Company for the year ended
December 31, 2018, you gathered the following information.
1. The company maintains its current account with Tsunami Bank. The bank statement on December 31,
2018 showed a balance of 638,340.
Your audit of the company’s account with Tsunami Bank disclosed the following:
A check of 22,500 received from a customer whose account is current had been deposited and the
returned by the bank on December 28, 2018. No entry was made for the return of this check. The
customer replaced the check on January 15, 2019.
A check for 5,720 was cleared by the bank as 7,520. The bank made correction on January 2, 2019.
A check for 3,500 representing payment of an employee advance was received and deposited on
December 27, 2018, but was not recorded until January 3, 2019.
Post-dated checks totalling 67,300 were included in the deposits in transit. These represent
collections of current accounts receivable from customers. The checks were actually deposited on
January 5, 2019.
Various debit memos for drafts purchased for payment of importation of equipment totalling
230,000 were not yet recorded. These purchases were previously set up as accounts payable. Said
equipment arrived in December 2018.
Interest earned on the bank balance for the 4th quarter of 2018 amounting to 1,950 was not recorded.
Bank service charge totalling 1,260 were not recorded.
Deposit in transit and outstanding checks at December 31, 2018 totaled 136,250 and 276,380,
respectively.
2. Various expenses from the company’s imprest petty cash fund dated December 2018 totaled 16,250,
while those dated January 2019 amounted to 5,903. Another disbursement from the fund dated
December 2018 was a cash advance to an employee amounting to3,500. A replenishment of the petty
cash fund was made on January 8, 2019.
3. The company’s trial balance on December 31, 2018 includes the following accounts:
Cash in bank – Tsunami bank 748,320
Cash in bank – Earthquake Bank (restricted account for plant
expansion, expected to be disbursed in 2019) 700,000
Petty cash fund 30,000
Time deposit, placed December 20, 2018 and due March 20, 2019 1,000,000
Money market placement – Prudential Bank 4,000,000
31. What is the adjusted petty cash fund balance on December 31, 2018?
a. 4,347 b. 10,250 c. 30,000 d. 24,097
32. The petty cash shortage on December 31, 2018 is
a. 0 b. 5,903 c. 3,500 d. 4,347
33. What is the adjusted Cash in bank – Tsunami Bank balance on December 31, 2018?
a. 500,010 b. 748,320 c. 432,710 d. 429,110
34. The entry to adjust the Cash in bank – Tsunami Bank account should include a debit to
a. Accounts receivable for 89,800 c. Accounts payable for 228,200
b. Accounts receivable for 86,300 d. Interest expense for 1,950
35. The December 31, 2012 statement of financial position should show Cash and Cash equivalents at
a. 6,142,960 b. 5,439,360 c. 4,442,960 d. 5,442,960
Problem 8: Robi Corp. reported profit for the years 2019 and 2018 at P700,000 and P550,000, respectively.
Your audit of the company’s accounts disclosed the need for adjustments as follows:
2018 2019
Overstatement of ending inventories due to
error in pricing 29,000 33,000
Omission of depreciation on newly-acquired
equipment 15,000 15,000
Understatement of commission receivable 22,000 18,000
A purchase of merchandise was not recorded
until the following year, and also was not
included in the ending inventory. 60,000