CPA REVIEW SCHOOL OF THE PHILIPPINES AP-7608 Manila AUDITING PROBLEMS CPA Review AUDIT OF CASH PROBLEM NO.1 You are auditing general cash for the DION COMPANY for the fiscal year ended July 31, 2014, The client has not prepared the July 31 bank reconciliation. After a brief discussion with the ‘owner you agree to prepare the reconciliation, with assistance from one of Dion Company's clerks. You obtain the following information: General Bank Ledger Statement Beginning balance P 46,110 P.57,530 Deposits : : 250,560 Cash receipts journal (e«° 254,560 Checks cleared/(aid (236,150) Cash disbursements journal/is!\""" (218,110) July bank service charge (870) Note paid directly (61,000) NSF check (3.110) Ending balance 82,560 P6960 June 30 Bank Reconciliation Information in General Ledger and Bank Statement Balance per bank P57,530 Deposits in transit 6,000 A Outstanding checks 17,420- Balance per books 46,110 Additional information obtained is: 1. Checks clearing that were outstanding on June 30 totaled P16,920. 1 Ae, N07 . Checks clearing that were recorded in the July disbursements journal totaled P204,670. anh — Book : 3, A'tKEER for P10,600 cleared the bank, but had not been recorded in the cash disbursements journal. It was for an acquisition of inventory. Dion uses the periodic inventory method, 4, A check for P3,960'was charged to Dion Company but had been written on a different ‘company’s bank account." 154 560 5, Deposits included P6,000 from June and P244,560 for July. 6. The bank charged Dion Company's account for 2 nonsufficient check totaling P3,410. The credit manager concluded that the customer intentionally closed its account and the owner left the city. The check was turned over to a collection agency. 4:7.. A note for P58,000, plus interest, wes paid directly to the bank under an agreement signed four months ago. The note payable was recorded at P58,000 on Dion Company's books. Page 1 of 8 Pages= Av 7608 — AUDITOF CASH A CPAR - MANILA, Based on facts given, determine the following: ¢- 1. Outstanding checks on July 31 A. P9,980 B. P10,830 2, Deposits in transit on July 31 A A. P6,890 B. 10,000 ©. P6,000 D. P9110 3. Adjusted cash balance on July 31 A. P6,980 B. P10,940 D. P3,020 PROBLEM NO. 2 You obtained the following information on the current accauint of BAHT COMPANY during your ‘examination of its financial statements for the year ended December 31, 2014, The bank statement on November 30, 2014 showed a balance of P76,500. Among the bank credits in November was a.customer’s note forP25,000 collected for the account of the company which the company recognized in December among its receipts. Included in the bank debits were cost of checkhooks amounting to P00 and a P'10,000 check which was charged by the bank in error against Baht Company account. Also in November, you ascertained that there ‘were deposits in transit amounting to P20,000 and outstanding crecks totaling P42,500. The bank statement for the month of December showed total credits of P104,000 and total charges of 51,000. The company’s books for December shovied total receipts of P183,900, disbursements of P101,800, and a balance of Pi21,400. Bank debit memos for Decel er were: No. 143 for service charges, P400 and No. 145 on a customer's returned check marked “DAIF” for P6,000, (On December 31, 2014, the company placed with the bank a customer's promissory note with a face value of P30,000-for collection. The company treated this note as part of its recelpts although the bank was able to collect on the note only in January 2015 ‘A check for P990.was ints books in December as P9,900. corded in the company cash pa 70) = £010. . How much is the total _undepostted collections as of Decemzer 31, 2014? ‘A. P84,900 B. P54,900 7 = C. Pa4,900 D. P34,900; a 2. How much is the total outstanding checks as of December 31, 20147 A. 47,990 B. P90,490 Cc. P99,400 D. 3. How much is the adjusted cash balance as of November 30, 20147 A. P54,000 B. P64,000 cc. P44,000 D. 4. How much is the adjusted bank receipts for December? . A. P158,900 B. P128,900 Cc. P118,900 D. P108,900 5. How much is the adjusted book disbursements for December? A. P56,490 B. P98,990 c. P107,990 D. P99,290 6. How much is the adjusted cash balance as of December 31, 2014? A, P156,410 B. P93,910 C. P55,009CPAR- MANILA PROBLEM NO. 3 Your audit senior instructed you to prepare disbursements for the month of December 2014. ‘AP7608 ~ AUDIT OF CASH a four-column proof of cash receipts and The bank reconciliation prepared by RINGGIT COMPANY at November 30 js reproduced below: Unadjusted bank balance 96,800 Unadjusted book balance P58,640 Add: Deposit in transit -18,000° Add: CM ~ Note collected 40,320 verse’ Total 114,800 Total 98,960 Less: Outstanding checks: Less: DM ~ Bank charges 160 vt yet tecack No. 276 P2,400 Pe 282 7,200" 284 4,800 285 1,800 16,000 —_ Adjusted bank balance 98.800 Adjusted book balance 98,800 The December bank statement, which shows a beginning balance of P96,800, is reproduced below: May Bank ‘Account Name: Ringgit Company Date Dehits Credits December 1 P18,000 2 P7,200° 40,000 es 24,000 6 48,000 F 8 400,000 cy a3 Note. collected - seuerde 10 note DAIr 40,000 o 27 ee 41 eexeed 56,000 16 20,000 is 64,000 21 72,400 28 36,000 80,000 31 ps __4,000 om 98 64,000 C1 84 Acct Gallected ~ Woh yet recond Totals c D PA3L.200 R Be42.400 : DM 97~ Customer's DAIF check DM 98- Service charges C4 83~ Note collected by the bank (© 84 Account collected by the bank The company’s cash receipts and cash disbursements journals for the month of December 2014 are provided below: Cash Receipts Journal Date OR No. Amount Dec. 1 415 40,000 5 416 48,000 10 417 56,000 7 418 64,000 20 419 72,0008 tide 30 420 80,000 31 421 88,800% "~" Wee ee Total 440,800 AB Cash Disbursements Journal Date Check No. Amount Dec. 1 286 P16,000 - 287 24,000 10 288 32,000 scone 289 20,000 : 20 290 28,000 23 291 36,000" D 26 292 40,000 28 293 44,000 31 294 48,000 Total 304,000 Over NT gg Page 3 of 8 Pagesyotien company's cashier is also its accountant. After © months of operations, the c Uodep CPAR- MANILA P7608 = AUDIT OF CASH | The company’s Cash in Bank ledger appears below: | | | Cash in Bank Balance P 58,640 12/31/2014 CDI 304,000 5" 4 17/01/2014 G) 40,320 | 42/10/2014 G) (cvs) | 400,000 32/31/2014 CRI 40,800 Broce Rece 1. How much is the outstanding checks as of December 31, 20147 ‘A. P208,000 B. P232,800 C. P216,800 D. P224,000 2, How much is the adjusted book receipts for December 2014? A, 985,200 B. P771,600 . P913,200 D. P904,800 3. How much is the adjusted book disbursements for December 2014? A. P347,840 B, P348,000 C. P332,000 D. P339,200 4. How much is the adjusted cash balance as of December 31, 2014? A. P664,000 B. P688,800 C. P680,000 D. P672,800 PROBLEM NO. 4 ‘The auditor for RAKI-RAKI, INC. examined the petty cash fund immediately after the close of business, June 30, 2014, the end of the company's fiscal year. The following fund composition was arrived at: Currency P1272” Fund vouchers: Office supplies expense 388. Travel expense sunctained he 240 Office equipment repairs 70 Loans to officers and employees 400 A check drawn by Raki-Raki, Inc., payable to the order of Jingle, fund custodian 1,100 v ‘An employee's check, returned by bank, stamped NSF 230 A sheet of paper bearing the signatures of several employees, together with their contributions (total P200) for a gift for a departing employee. Attached to the paper is currency of 200» #fe9 vot attached, kasama na so Curency $4 Tacs, ‘The petty cash fund general ledger account has an imprest balance of 4,009. Traces REQUIRED: 1. What audit adjustment should be prepared as of June 30, 2014? 2, At what amount should the cash fund be shown in the balance sheet as of June 30, 2014? Ar a cus xe 8 a9 ttage — wolate acai — MOE nat eo) Bikee syepitpaic 1% average ~ “ cuwency then dedue (aotondinrte Seashore 20 Cverage PROBLEM NO. 5 peek e {028 FE COMPANY, organized on March 1, 2014, has a very poor internal control system. The mpany's manager suspects that the cashier-accountant has been misappropriating company collections, You have been engaged to audit the company’s accounts to determine the extent of fraud, if any. {You started the audit on November 15. On that date, the cash on hand per your surprise count >)Was P5,140, Also on that date, the bank confirmed that the balance of the company’s current account Was P26,328... Your examination of the records reveals that a check for P1,852 was outstanding on November 15. The company’s markup is 40% of sales. 3 Page 4 of 8 PagesCPAR = MANILA E ‘AP 7608 — AUDIT OF CASH Further examination of the company’s records reveals the following balances at November 15, 2014: Ordinary share capital 300,000 Share premium 20,000 Real property purchased for cash 200,000 Mortgage payable 80,000 Furniture and fixtures (of the acquisition cost, 'P6,000.remains unpaid as of Nov. 15) 29,000- 61 = 231 Notes payable ~ bank 32,000 ach, 209,200 Accounts payable — trade 46,284 Ap-hade 46,284 Expenses paid (excluding purchases) 60,756 Tate Merchandise inventory at cost 93,920 ” ‘Accounts receivable ~ trade 85,380 Total sales 340,000% 60%, Tee oir aa onenchinvly _ P op furch Ae-tra 1. How much was paid for inventory purchases? © 1" Colechows A. P157,716 B, 293,716 CC. P183,636 D. P251,636 2. How much was collected from customers? “Nit A, P118,620 B, P254,620 C. P50,620 D. P340,000 3, How much is the cashier's accountability at November 15, 2014? A. P131,228 B, P83,228 C. P145,228 D. P151,228 4, What is the adjusted bank balance as of November 15, 2014? A. P31,468 B. 26,328 C. P29,616 D. P23,040 5, The cash shortage as of November 15, 2014 totaled A. P121,612 B. P101,612 C. P127,612 D. 206,992 PROBLEM NO. 6 Your client, a successful small business, has never given much attention to a sound internal control. In Its employ is Alex Coopit, the company’s cashier-bookkeeper. Alex handles cash receipts, makes small disbursements from the cash receipts, maintains accounting records, and prepares the monthly bank reconciliation. Accomnted The bank statement for the month ended March 31, 2014, shows a cash balance of P590,000._ The following checks are outstanding on March 31: No, 7163 P 8,623 No. 7284 7,320 No. 7285 10,612 No, 8722 6,322 No. 8724 12,280 No, 8733 _ 6,200 pe Bs Accourtabitty The company's general ledger shows a cash balance of P696,499 on March 31, 2014. Realizing that being the cashier-accountant of the company he can easily misappropriate collections and conceal it, Alex removed all the cash on hand in excess of P127,301, and then prepared the following reconciliation in an effort to conceal this theft. Page 5 of 8 PagesPAR - MANILA : ‘497608 — AUDIT OF CASH BANK RECONCILIATION Balance per accounting records 696,499 | ‘Add: Outstanding checks | No. 8722 P 6,322 No. 8724 12,280 94,609 No. 8733 6,200 _20,802 Total 717,301 Deduct: Cash on hand 127,301 Balance per bank statement, March 31 590,000 || 1. How much was taken by the cashier-accountant? A. 30,555 B. P157,856 C. P4,000 D. P26,555 2. What is the amount of cash that should be on hand at March 31, 2014? A. P127,301 B. 131,301 C. P157,856 D. P30,555 PROBLEM NO. 7 You were engaged to audit the books of DINAR COMPANY. From the records of the company, you gathered the following information: Dinar Company started operations on October 2, 2014, with the owners investing P150,000 cash. Monthly bank reconciliation statements have not been prepared; however, bank statements for October, November, and December were made available to you, Your analysis of these bank statements showed total bank credits (deposits) of P575,000, including the owners’ initial investment and a bank oan, details of which are in the additional data. The bank statement in December 2014, showed an ending balance of P30,200.~* Zack\r Examination of the paid checks disclosed that checks totaling P4,500_were issued by the company in December 2014, and were presented for payment only in January 2015. Cash count of the cashier’s accountability amounted to P6,300. You were told by the cashier that uy/>\T _P5,000 of this, in checks, were cash sales on December 29, 2014, deposited on January 3, 2015. The balance, in currency and coins, represents petty cash fund.—* 1,309 _ Pl per leigre fr 1300 Adaitional data: Be 1. Accounts receivable subsidiary ledgers had total balance of P70,000 at December 31, 2014._P5,000 of this was ascertained to be uncollectible. 2. Suppliers’ unpaid invoices for merchandise totaled P15,000; while an account for store fixtures bought for P50,000 had an unpaid balance of(P5,000) 457 3. Merchandise inventory at December 31, 2014, amounted to P30,000 but P5,000 of this was spoiled with no resale value. 4, The bank statement in October showed a bank credit for P98,000, dated October 2, 2014. Inquiry from the cashier disclosed that the amount represents proceeds of a 90-day, discounted bank note. 80,000 of this oan was paid by check in Decemder 2014, 5. Operating expenses paid during the period totated P180,000; while merchandise purchases to 250,000. 6. The gross profit rate Is 120% of cost. REQUIRED: Determine the cash shortage at December 31, 2014. Page 6 of 8 PagesCPAR- MANILA a __AP7608— AUDIT OF CASH PROBLEM NO. 8 Select the best answer for each of the following: 1. Whois responsible, at all times, for the amount of the petty cash fund? A. General cashier B. Petty cash custodian CC. President of the company D. Chairman of the Board of Directors 2, The following are appropriate procedures for controlling the petty cash fund, except. A. To monitor variations in different types of expenditures, the petty cash custodian files, petty cash vouchers by category of expenditure after replenishing the fund, B. To replenish the fund, the general cashier issues a company check to the petty cash custodian, rather than cash. C. To determine that the fund is being accounted for satisfactorily, surprise counts of the fund are made from time to time by the internal auditor or other responsible official. D. Each individual to whom petty cash is paid is required to present signed receipts to the petty cash custodian. 3. What is the effect of not replenishing the petty cash fund at year-end and not making the appropriate adjusting entry? A. A detalled audit is necessary. B. The petty cash custodian should turnover the petty cash to the general cashier. C. Cash will be overstated and expenses understated. D. Expenses will be overstated and cash will be understated. 4, As one of the year-end audit procedures, the auditor instructed the client’s personnel to prepare a standard bank confirmation request for a bank account that had been closed during the year. After the client's treasurer had signed the request, It was mailed by the assistant treasurer. What is the major fiaw in this audit procedure? ‘A. The confirmation request was signed by the treasurer. B. Sending the request was meaningless because the account was closed before year~ end. . The request was mailed by the assistant treasurer. D. The CPA did not sign the confirmation request before it was mailed. 5, On receiving the bank cutoff statement, the auditor should trace A. Deposits in transit on the year-end bank reconciliation to depo: journal. B. Checks dated prior to year-end to the outstanding checks listed on the year-end bank reconciliation. C. Deposits listed on the cutoff bank statement to deposits in the cash receipts journal. D. Checks dated subsequent to year-end to the outstanding checks listed on the year-end bank reconciliation in the cash receipts 6. An unrecorded check issued during the last week of the year would most likely be discovered by the auditor when ‘A. Check register for the last month is reviewed. B. Cutoff bank statement is reconciled. C. Bank confirmation is reviewed. D. Search for unrecorded liabilities is performed. 7. To gather evidence regarding the balance per bank in a bank reconciliation, an auditor ‘would examine all of the following except A. Cutoff bank statement B. Year-end bank statement C. Bank confirmation Page 7 of 8 PagesCPAR - MANILA, Ap7608.— AUDIT OF CASH 8. 10. D. General ledger ‘An auditor compares information on cancelled checks with information contained in the cash disbursements journal. The objective of this test is to cetermine that | A. Recorded cash disbursement transactions are properly authorized. ' B. Proper cash purchase discounts have been recorded. . Cash disbursements are for goods and services actually received. D. No discrepancies exist between the data on the checks and the data in the journal. A cash shortage may be concealed by transporting funds from one location to another or by converting negotiable assets to cash. Because of this, which of the following is vital? A. Simultaneous confirmation B. Simultaneous bank reconciliation C. Simultaneous verification D. Simultaneous surprise cash count When counting cash on hand, the auditor must exercise ccntrol over all cash and other negotiable assets to prevent A. Theft B. Irregular endorsement C. Substitution D. Deposit in transit —END— Page8 of 8 Pages