1Acctg 336-Auditing & Assurance: Specialized Industries

Random Audit Case Problems

The following are selected unadjusted account balances and adjusting information of
TANYING CORP. for the year ended December 31, 2017.

Retained earnings, January 1 P 1,322,010

Sales salaries and commissions 75,000
Advertising expense 48,270
Legal services 6,675
Insurance and licenses 23,040
Travel expense – sales representatives 13,680
Depreciation expense – sales/delivery equipment 18,300
Depreciation expense – office equipment 12,600
Interest revenue 1,650
Utilities 19,200
Telephone and postage 4,425
Office supplies inventory 6,540
Miscellaneous selling expenses 8,220
Dividends 99,000
Dividend revenue 15,450
Interest expense 13,560
Allowance for doubtful accounts (credit balance) 480
Officers’ salaries 109,800
Sales 1,353,000
Sales returns and allowances 11,700
Sales discounts 2,640
Gain on sale of assets 23,460
Inventory, January 1 269,100
Inventory, December 31 61,650
Purchases 424,800
Freight in 16,575
Accounts receivable, December 31 783,000
Income from discontinued operations (before income taxes) 120,000
Loss on sale of equipment 217,800
Ordinary shares outstanding 117,000

Adjusting information:

(a) Cost of inventory in the possession of consignees as of December 31, 2017,

was not included in the ending inventory balance....................................................P55,800

(b) After preparing an analysis of aged accounts receivable, a decision was made
to increase the allowance for doubtful accounts to a percentage of the ending
accounts receivable balance............................................................................................2%

(c) Purchase returns and allowances were unrecorded. They are computed as a
percentage of purchases (not including freight in)............................................................6%

(d) Sales commissions for the last day of the year had not been accrued. Total
sales for the day........................................................................................................ P9,180
Average sales commissions as a percent of sales...........................................................3%

(e) No accrual had been made for a freight bill received on January 2, 2018, for
goods received on December 29, 2017.....................................................................P1,710

(f) An advertising campaign was initiated November 2, 2017. This amount was
recorded as “Prepaid advertising” and should be amortized over a six-month
period. No amortization was recorded.......................................................................P5,454

Freight charges paid on sold merchandise were netted against sales. Freight
charges on sales during 2017..................................................................................P10,500

(g) Interest earned but not accrued.................................................................................P1,680

(h) Depreciation expense on a new forklift purchased March 1, 2017, had not
been recognized. (Assume all equipment will have no salvage value and the
straight-line method is used. Depreciation is calculated to the nearest month.)
Purchase price.........................................................................................................P23,400
Estimated life in years.......................................................................................................10

(i) A “real” account is debited upon the receipt of office supplies. Office supplies on hand at
year-end..................................................................................................................... P3,675

(j) Income tax rate (on all items).........................................................................................30%

Compute the adjusted balances of the following:

1. Net sales
A. P1,363,500 B. P1,349,160 C. P1,353,000 D. P1,342,500

2. Cost of goods available for sale

A. P684,900 B. P824,697 C. P686,697 D. P779,913

3. Inventory, December 31, 2015

A. P61,500 B. P61,350 C. P56,250 D. P117,450

4. Distribution costs
A. P181,649 B. P167,513 C. P178,013 D. P176,453

5. Administrative expenses
A. P207,345 B. P193,785 C. P194,265 D. P194,595

6. Allowance for doubtful accounts

A. P15,660 B. P16,140 C. P15,180 D. P480

7. Total income
A. P817,143 B. P811,653 C. P779,913 D. P822,153

8. Income from continuing operations before taxes

A. P231,360 B. P436,795 C. P218,995 D. P239,695

9. Office supplies inventory

A. P6,540 B. P3,675 C. P2,865 D. P 0

10. Net income

A. P237,296 B. P210,299 C. P250,289 D. P216,296

The following trial balance of an entity on December 31, 2017 has been adjusted except
for income tax expense.
Cash 6,000,000
Accounts receivable 14,000,000
Inventory 10,000,000
Property, plant and equipment 25,000,000
Accounts payable 9,000,000
Income tax payable 6,000,000
Preference share capital 3,000,000
Ordinary share capital 15,000,000
Share premium 4,000,000
Retained earnings – January 1 9,000,000
Net sales and other revenue 80,000,000
Cost of goods sold 48,000,000
Expenses 12,000,000
Income tax expense 11,000,000 __________
126,000,000 126,000,000
During the year, estimated tax payments of P5,000,000 were charged to income tax
expense. The tax rate is 30% on all types of revenue. Inventory and accounts payable
included goods purchased in transit, FOB destination, costing P500,000, and unsold
goods held on consignment at year-end, costing P300,000. The perpetual system is
used. The preference share capital is redeemable mandatorily on December 31, 2018.

1. What amount should be reported as current assets on December 31, 2017?

a. 29,200,000
b. 29,700,000
c. 29,500,000
d. 30,000,000

2. What amount should be reported as current liabilities on December 31, 2017?

a. 14,200,000
b. 17,200,000
c. 12,200,000
d. 9,200,000

3. What is the net income for 2017?

a. 20,000,000
b. 14,000,000
c. 23,000,000
d. 9,000,000

4. What amount should be reported as total shareholders’ equity on December 31,

2017?
a. 40,000,000
b. 37,000,000
c. 45,000,000
d. 42,000,000

An entity reported the following data for the current year:

Net sales 9,500,000
Cost of goods sold 4,000,000
Selling expenses 1,000,000
Administrative expenses 1,200,000
Interest expense 700,000
Gain from expropriation of land 500,000
Income tax 800,000
Income from discontinued operations 600,000
Unrealized gain on equity investment at FVOCI 900,000
Unrealized loss on futures contract designated as a cash flow hedge 400,000
Increase in projected benefit obligation due to actuarial assumptions
300,000
Foreign translation adjustment – debit 100,000
Revaluation surplus 2,500,000
1. What amount should be reported as income from continuing operations?
a. 3,100,000
b. 2,300,000
c. 1,800,000
d. 2,900,000

2. What net amount should recognized in other comprehensive income for the year?
a. 2,600,000
b. 3,100,000
c. 3,400,000
d. 800,000
 3. What net amount in OCI should be presented as “may not be recycled to profit or
loss?
a. 3,400,000
b. 2,700,000
c. 3,700,000
d. 3,100,000

4. What amount should be reported as net income?

a. 2,900,000
b. 2,300,000
c. 3,100,000
d. 2,400,000

5. What amount should be reported as comprehensive income?

a. 5,500,000
b. 2,900,000
c. 2,600,000
d. 6,100,000