Pamantasan ng Lungsod ng Marikina Auditing and Assurance Concepts & Applications

On-line Learning Mr. Nilo N. Iglesias, CPA, MBA, REA

Activities for Week 1 and Week 2

San Mateo Trading Company was incorporated 3 years ago as a trading company engaged in the sale and
distribution of hardware and electrical supplies. Its office and store are in San Mateo, Rizal.

You were given by your client’s controller a copy of unadjusted trial balance as of December 31, 2019. The
company maintains its bank account with Security Bank. Your review of the bank reconciliation statement disclosed the
following information:

1. On December 22, 2019, the bank erroneously credited the account of San Mateo Trading Company for
P 195,000 representing deposit for the account of another company.
2. Postdated checks totaling P 37,900 were included in the deposits in transits. These represent collections
of accounts receivable from customers. The checks were deposited on January 5, 2020.
3. On December 28, 2019, the company issued checks to creditors totaling P 115,000. These checks were
released on January 5, 2020.
4. A check dated December 12, 2019, in payment of accounts payable was recorded as P 12,000. Upon
examination of the checks returned by the bank, the actual amount was P 21,000.
5. A check for P 4,750 in payment of a minor repair of office equipment was not recorded on the company’s
books.
6. Transfer of fund of P 59,300 to Mecca Bank current account of DBP Securities was not recorded. This
pertains to purchase of 5,000 shares of Superferry Lines to be held as trading securities. Based on the
quoted price as of December 31, 2019, the market value per share is P 8.20.
7. Interest earned amounting to P 5,720 was not recorded.
8. Deposits in transit and outstanding checks at December 31, 2019, amounted to P 89,200 and P 132,000,
respectively.
9. The cash in bank balance per book on December 31, 2019, is P 681,200.

The petty cash fund of P 35,000 maintained on imprest basis was counted on January 2, 2020.
Unreplenished expenses include petty cash vouchers for various expenses totaling P 19,300 and employees’
advances for P 5,800 all dated December 2019.

San Mateo Trading Company purchased several non-trading equity securities during 2019. The company
has selected irrevocably to present changes in fair value in other comprehensive income. At December 31, 2019,
the company had the investments in equity securities listed below. None was held at the last reporting date.

No. of Shares Cost MV per Share

San Miguel “A” 2,000 150,000 58.50
ABC Bank 2,000 110,000 49.25
Vitarich 5,000 54,600 9.10
Total 314,600

Your physical count of stock certificates disclosed that stock dividend of the following issued were not yet
recorded.
Issue No. of shares
ABC Bank 500
Vitarich 200

*******************************************************************************************

The unadjusted trial balance of the company at December 31, 2019 included the following:
Debit Credit
Accounts Receivable 1,452,700
Allowance for doubtful accounts 10,200
Sales 4,820,000

Your review of the accounts receivable schedule disclosed that various collections totaling P 17,350 were
not recorded in the books but already reflected in the subsidiary ledgers. You also noted the following information:
1. A customer’s deposit of P 38,000 for goods to be delivered in January 2020 was deducted from
accounts receivable.
2. A cash advance to an officer of P 75,000 was included as part of accounts receivable.
 3. Goods sold on account and delivered on December 21, 2019, amounting to P 31,810 were not
recorded.
4. Collection of P 15,275 on October 31, 2019, from Marikina Trading was credited to the account of
Marina Trading.
5. A promissory note was issued by a customer to San Mateo Trading Company for goods purchased
worth P 168,000. The promissory note carried interest of 12% per annum with a term of 60 days,
value dated November 15, 2019. This was reflected as part of accounts receivable. No interest
was accrued as of year-end.
6. Bad debts are provided based on 2% of outstanding accounts receivable at the year end.

A physical count of merchandise on hand was made on December 30 and 31, 2019, which reflected
balance of P 3,873,000. Your review of the inventory list disclosed the following:

1. Goods costing P 148,000 shipped FOB shipping point on December 16, 2019 by a supplier to San
Mateo Trading Company was received on January 3, 2020. The purchase was recorded on
December 30, 2019.
2. Goods costing P 195,000 shipped FOB destination by the supplier on December 28, 2019 were
recorded and received on January5, 2020.
3. Goods purchased for cash for P 41,700 were returned to the supplier on December 22, 2019.
These goods were still included in the inventory schedule and the refund was received and
recorded on January 10, 2020.
4. Goods consigned to San Mateo Trading Company totaling P 89,500 were included in the physical
count.
5. Included in the physical count were goods sold to a customer on FOB shipping point on December
27, 2019. These goods with a selling price of P 52,830 and a cost of P 35,600 were already recorded
as sales on account but were shipped only on January 5, 2020.

**********************************************************************************************

Prepayments consist of:

Prepaid Advertising 144,000
Prepaid rent 165,000
Unused Office and Store Supplies 129,000
Total 438,000

Prepaid advertising consists of payment to an advertising agency for the design of newspaper ad which
will run for a period of one year from July 31, 2019.

***********************************************************************************************
San Mateo Trading Company renewed its 5-year lease contract on the office building which expired on
October 31, 2019. Total advance rental for 3 months was made amounting to P 165,000 was booked as Prepaid
Rent.

******************************************************************************************

The company books purchased office supplies as inventory as inventory. The expense is normally taken
Up after physical count is made at year-end. On July 9, 2019, a total of P 38,450 worth of supplies was bought and
included in the inventory. As of year-end, unused supplies inventory per physical count amounted to P 53,200. No
entry to set up the expense was recorded.

San Mateo Trading Company’s property, plant and equipment consist of the following:

Furniture and Equipment 1,045,000

Delivery Equipment 1,637,000
Leasehold improvements 363,000
Total 3,045,000
Accumulated Depreciation ( 936,500)
Carrying Amount 2,108,500
 The building under lease was renovated at a cost of P 363,000 which was booked as leasehold
improvements on September 30, 2019. These improvements will be amortized over 5 years. No amortization was
recorded as at December 31, 2019.

On May 31, 2019, the company bought new computers totaling P 325,000. In addition to the cost, it paid
additional charges which were taken up as Repairs Expense. These are delivery charges P 12,500; installation cost,
P 11,300; and testing cost, P 6,520. The estimated useful life of these computers is 4 years. No depreciation was
provided on the equipment as of December 31, 2016.

San Mateo Trading opened additional stores in nearby localities. To service more deliveries, additional 3
units of delivery equipment were bought on installment basis on December 29, 2019. The installment price was
P 1,200,000 but the cash price was P 1,000,000. The terms are P 200,000 down payment and the balance payable
in four equal installments. A non-interest bearing promissory note was issued for the unpaid portion on December
30, 2019. The down payment of P 200,000 was recorded as a debit to Delivery Equipment and a credit to Cash.

Included in the company’s unadjusted trial balance on December 31, 2019, are accounts payable and
accrued expenses of P 523,100 and P 63,100, respectively. Upon verification, the following information was
discovered:

1. On December 26, 2019, the company purchased on accounts goods worth P 215,000, but no entry
was made in books. The goods were already included in the year physical count.
2. The following items were erroneously included in accounts payable:

• Accrued expenses totaling P 37,450

• A cash advance from the President of San Mateo Trading amounting to P 350,000 to be
used as working capital. This will be repaid within 6 months without interest.
• A debit balance of P 87,250 representing advance payment for goods ordered to be
shipped by the supplier on January 12, 2020.
3. Your review of the subsequent payment from January 2-15, 2020, revealed that no accrual was
made on December 31, 2019, for the following:

•
Light and water for November and December 2019 P 21,200
•
Telephone bill for December 31, 2019 18,150
•
Representation Expense for December 2019 11,990
•
Minor repair of a delivery car on December 26, 2019 3,180
•
Transportation expenses for 2020 2,560
Total P 57,080
*******************************************************************************************

San Mateo Trading was granted a credit limit of up to P 5 Million by Security Bank. As of the year end,
availments are as follows:

Value Date Due Date Principal Interest Rate Maturity Value

July 1, 2019 Feb. 1, 2020 500,000 13 1/8% 539,193
Sept. 15, 2019 March 16, 2020 2,300,000 14 3/8% 2,467,149
Dec. 5, 2019 April 4, 2020 1,800,000 15 1/2% 1,893,000
4,600,000 4,899,342
Interest are paid on scheduled maturity dates. No accrual was made as of year-end.

******************************************************************************************

The company issued P 1,200,000 face value of 12% bonds at par on July 1, 2019, maturing on July 1, 2024, and
paying interest semi-annually on January 1 and July 1.
 Questions

1. The cash balance per bank statement on December 31, 2019, is

a) 946,120 b) 988,770 c) 984,020 d) 993,020

2. The adjusted Cash in Bank balance at December 31, 2019, is

a) 708,320 b) 746,220 c) 726,320 d) 702,600

3. The adjusted Petty Cash Fund balance at December 31, 2019, is

a) 15,700 b) 29,200 c) 35,000 d) 9,900

4. What is the carrying value of the investment I Super Ferry Lines on December 31, 2019?
a) 41,000 b) 59,300 c) 0 d) 156,312

5. What amount of unrealized loss should be shown in the 2019 statement of comprehensive
income as component of other comprehensive income?
a) 0 b) 27,155 c) 8,855 d) 45,455

6. The account receivable balance at December 31, 2019, should be

a) 1,300,060 b) 1,247,230 c) 1,262,160 d) 1,209,330

7. What is the year-end adjustment to the Allowance for doubtful Accounts?

a) 14,745 b) 15,801 c) 35,145 d) 15,043

8. What is the adjusted inventory on December 31, 2019?

a) 3,979,300 b) 3,854,200 c) 3,889,800 d) 4,084,800

9. How much sales should be reported in the 2019 Income Statement?

a) 4,820,000 b) 4,798,980 c) 4,709,480 d) 4,816,210

10. The total prepayments at December 31, 2019, should be

a) 153,750 b) 252,200 c) 247,200 d) 192,200

11. The total cost of the company’s Property, Plant and Equipment at December 31, 2019, is
a) 3,868,800 b) 4,075,320 c) 4,238,320 d) 3,875,320

12. What is the net book value of the company’s Property, Plant and Equipment at December 31,
2019?
a) 2,862,332 b) 2,868,852 c) 3,231,852 d) 2,938,820

13. The adjusted balance of Accounts Payable at December 31, 2019, is

a) 437,900 b) 543,900 c) 395,900 d) 738,900

14. The adjusted balance of Accrued expenses on December 31, 2019, is

a) 157,630 b) 54,520 c) 155,070 d) 57,080

15. The interest payable at December 31, 2019, should be

a) 151,778 b) 249,342 c) 321,342 d) 223,778

--0-0-0-0-0-0-0-0-0-0-0-0-0-0-0-0-0-0-0-0-0-0-0-0-0-0-0-0-0-0-0-0-0-0-0-0-0-0-0-0-0-0-0-0-0-0-0-0-0-0-0-0-0-0-0-0-0-0-0-

Accompanying Notes:
For Week 1 – Submit your answer including the solution on Question No. 1 to Question No. 8
For Week 2 - Submit your answer including the solution on Question No.9 to Question No. 15