AUDITING PROBLEMS

CASH AND CASH EQUIVALENTS, RECEIVABLES AND INVENTORIES

PROBLEM 1:

Presented below is a list of items that may or may not be reported as inventory in a company’s
December 31, balance sheet:
Cost of goods out on consignment at another company’s store P2,400,000
Goods sold on installment basis 300,000
Goods in transit purchased FOB shipping point 360,000
Goods in transit purchased FOB destination 600,000
Cost of goods sold to another company, for which the company has signed an
agreement to repurchase at a set price that covers all costs related to the inventory 900,000
Cost of goods sold where large returns are predictable 840,000
Cost of goods in transit sold FOB shipping point 360,000
Freight charges on goods purchased 240,000
Factory labor costs incurred on goods still unsold 150,000
Interest cost incurred for inventories that are routinely manufactured 120,000
Costs incurred to advertise goods held for resale 60,000
Materials on hand not yet placed into production 1,050,000
Office supplies 30,000
Raw materials on which the company has started production, but which are
not completely processed 840,000
Factory supplies 60,000
Costs of goods held on consignment from another company 1,350,000
Costs identified with units completed but not yet sold 780,000
Cost of goods in transit sold FOB destination 120,000
Temp. investment in stocks and bonds that will be resold in the near future 1,500,000

1. How much of these items would typically be reported as inventory in the financial statements?
a. 6,900,000 b. 6,000,000 c. 6,780,000 d. 6,660,000

PROBLEM 2:
The following accounts were extracted from the unadjusted trial balance of Silang Corp. as of
December 31, 2014:
Cash 963,200
Accounts receivables 2,254,000
Merchandise inventory 6,050,000
Accounts payable 4,201,000
Accrued expenses 60,400
During your audit, you discovered that the client held its cash records open even after year end.

Audit notes:
a. Collections for January 2015 of P654,600 were recorded in the December 2014 cash records.
The receipts of P360,100 represents cash sales with the balance representing collections from
customers who paid within the 5% cash discount period.

b. Accounts payable of P372,400 was paid in January 2015. The payments on which a P12,400 cash
discount has been taken were included in the December 31, 2014 check register.

c. Merchandise inventory as stated in the trial balance represented the result of the count
conducted on December 30, 2014 on inventories on hand. The following information were
found to be relevant in your audit of inventories:

• Goods valued at P275,000 are on consignment with a customer and were not included
in the physical count

• Goods costing P217,500 were received from a vendor on January 4, 2015. The related
invoice was received and recorded on January 6, 2015. These goods were shipped by
the vendor on December 31, 2014 under an FOB shipping point terms.
 • Goods costing P637,500 were shipped on December 31, 2014, and were received by the
customer on January 2, 2015. The terms of the invoice were FOB shipping point.
The sales of P815,000 has been recorded in 2014.

• A shipment of goods invoiced at P182,000 to a customer on December 29, terms FOB

destination was recorded in 2015. The cost of the related goods amounted to P130,000
and were received by the customer on January 4, 2015.

• The invoice for goods costing P175,000 was received and recorded as purchase on
December 31, 2014. The related goods, shipped FOB Destination were received on
January 4, 2015.

• Goods valued at P612,800 are on consignment from a vendor. These goods were
excluded from the physical count.

Requirements: Based on the result of your audit ascertain the following:

2. Adjusted balance of Cash:
a. 963,200 c. 681,000
b. 693,400 d.668,600
3. Adjusted balance of Accounts receivable:
a. 2,254,000 c. 2,564,000
b. 2,548,500 d. 2,908,600
4. Correct Inventory ending balance:
a. 5,010,000 c. 6,035,000
b. 5,860,000 d. 6,080,000
5. Net adjustment to cost of sales:
a. debit by P57,500 c. credit by P580,000
b. debit by P232,500 d. credit by P555,300
6. Adjusted accounts payable:
a. 4,243,500 c. 4,615,900
b. 4,398,400 d. 4,790,900
7. Correct working capital ratio:
a. 2.20 c. 1.85
b. 1.98 d. 1.80

PROBLEM 3:
In your audit of the December 31, 2014 financial statements of Ivy Inc., you found the following
inventory related transactions:
a. Goods costing P100,000 are on consignment with a customer. These goods were invoiced at
normal profit margin which was at 40% based on cost and was recorded as 2014 sales. Being
offsite on the count date which was on December 30, 2013, the goods were not included in the
physical count.

b. Goods costing P33,000 were delivered to Ivy Inc. on January 4, 2015. The invoice of these goods
were received and recorded on January 10,2015. The invoice showed the shipment was made
on December 29, 2014, FOB shipping point.

c. Goods costing P40,000 were shipped FOB shipping point on December 31, 2014, and were
received by the customer on January 2, 2015. Although sale was recorded in 2014, these goods
were included in the 2014 inventory.

d. Goods costing P16,000 were shipped to a customer on December 30, 2014, FOB destination.
These goods were received by the customer on January 5, 2015 and were not included in the
physical count. The sale was properly recorded in 2015.

e. Goods costing P22,000 shipped by a vendor under FOB destination term, were received on
January 3, 2015. The related invoice however, were received on December 31, 2014, thus was
recorded as purchase in 2014.

f. Goods costing P50,000 were received from a vendor under consignment term. These goods
were included in the physical count. No purchase related to the inventory had been recorded
yet.
 g. Ivy Inc., recorded as 2014 sale a P112,000 invoice for goods delivered to a customer on
December 32, 2014, FOB Destination. The goods were received by the customer on January
5, 2015. Having been delivered after the count date, the goods were included in the physical
count.

Requirements:
8. What is the net adjustment to inventories as of December 31, 2014?
a. 59,000 c. 50,000
b. 43,000 d. 66,000
9. Assuming all sales are on account, what is the net adjustment to accounts receivable as of
December 31, 2014?
a. 260,000 c. 140,000
b. 252,000 d. 212,000
10. Assuming all purchases are on account, what is the net adjustment to accounts payable?
a. 22,000 c. 11,000
b. 33,000 d. 55,000
11. What is the effect of the errors to the 2014 net income?
a. 194,000 c. 164,000
b. 220,000 d. 204,000

PROBLEM 4:
Bird Company is a manufacturer of small tools. The following information was obtained from the
company’s accounting records for the year ended December 31, 2014:

Inventory at December 31, 2014 (based on physical count in Bird’s

warehouse at cost on December 31, 2014) P1,870,000
Accounts payable at December 31, 2014 1,415,000
Net sales (sales less sales returns) 9,693,400

Your audit reveals the following information:

a. The physical count included tools to be shipped to a customer FOB shipping point on December
31, 2014. These tools cost P64,000 and were billed at P78,500 and were recorded as December
sales. They were physically segregated awaiting shipping instructions from the customer.

b. Goods shipped FOB shipping point by a vendor were in transit on December 31, 2014. These
invoice amounting to P93,000 were received in January 2015 and were recorded as purchases
upon receipt.

c. Work in process inventory costing P27,000 was sent to a job contractor for further processing.

d. Not included in the physical count were goods returned by customers on December 31, 2014.
These goods costing P49,000 were inspected and returned to inventory on January 7, 2015.
Credit memos for P67,800 were issued to the customers at that date.

e. In transit to a customer on December 31, 2014, were goods costing P17,000 shipped FOB
destination on December 26, 2014. A sales invoice for P29,400 was issued on January 3, 2015,
when Bird Company was notified by a customer that the tools had been received.

f. At exactly 5:00 pm on December 31, 2014, goods costing P31,200 were received from a vendor.
These were recorded on a receiving report dated January 2, 2015. The related invoice was
recorded on December 31, 2014, but the goods were not included in the physical count.

g. Included in the physical count were goods received from a vendor on December 27, 2014.
However, the related invoice for P36,000 was not recorded because the accounting
department’s copy of the receiving report was lost.

h. A monthly freight bill for P16,000 was received on January 3, 2015. It specifically related to
merchandise bought in December 31, 2014, one-half of which was still in the inventory at:
December 31, 2014. The freight was not included in either the inventory or in accounts payable
at December 31, 2014.
Based on the preceding information, compute the December 31, 2014, adjusted balance of the
following:

A B C D

12. Inventory 2,095,200 2,031,200 2,046,200 2,078,200

13. Accounts payable 1,552,000 1,560,000 1,467,000 1,591,200
14. Net sales 9,614,900 9,576,500 9,625,600 9,547,100

PROBLEM 5:
You are making an audit of the Malaguku Co. for the year ended December 31, 2014. You have observed
the taking of physical inventory and have noted that all merchandise actually received up to the close of
business, December 28, 2014, were included on the inventory sheets. The total of the physical
inventory, at invoice cost is P175,000, while the purchase account shows a balance of P1,750,000 as of
December 31, 2014.

You noted also the following purchases invoices have been recorded in the voucher register as follows:

DECEMBER
RR. 2014 VOUCHER INVOICE DATE TERMS MERCHANDISE
No. REGISTER RECEIVED
631 P 2,000 December 26 Shipping point December 29
632 4,000 December 26 Destination January 5
633 9,000 January 2 Destination December 30
634 8,000 December 31 Shipping point January 4
635 1,000 January 7 Shipping point December 28
636 6,000 January 3 Shipping point January 6

JANUARY
RR. 2015 VOUCHER INVOICE DATE TERMS MERCHANDISE
No. REGISTER RECEIVED
637 P 8,500 December 20 Destination January 8
638 7,200 January 2 Shipping point December 27
639 11,700 December 28 Destination January 7
640 6,900 December 30 Destination January 6
641 4,100 January 2 Destination December 25

Requirements:

15. What is the adjusted balance of Purchases for the period ended December 31, 2014?
a. 1,751,300 c. 1,753,200
b. 1,743,800 d. 1,751,200
16. What is the adjusted balance of the Inventory account as of December 31, 2014?
a. 175,000 c. 194,000
b. 186,000 d. 198,100

PROBLEM 6:
You are engaged in the audit of the inventory of the Kula Inc. as of December 31, 2014. The company is
on physical inventory basis. The physical inventory was actually taken on December 29, 2014 rather than
the evening of December 31, so that the company employees might enjoy the New Year’s festivities. You
have observed the taking of the physical inventory. As taken, the physical inventory included only
merchandise received through December 29. The subsequent compilation of the inventory includes only
the merchandise physically counted and is not yet recorded on the books. After having completed
appropriate work on the inventory as compiled, you make additional tests to determine:

a. The correct cut off the purchases account for the year 2014. (it is the company policy to
recognize purchases based on freight terms and the passage of title). The ledger balance is
P650,000.
b. The correct amount of the inventory to be stated on a comparable basis with acquisition costs
(purchases) and sales. The inventory summary shows a total of P27,000.
 Listed in the table below are certain matters developed in the course of your tests.
Certain voucher register entries are as follows:

Dates Mdse.
F.O.B. Terms Shipped Received Invoice Amount
December, 2014
Destination 12-23-14 12-26-14 1401 P 250
Shipping point 12-24-14 12-30-14 9176 310
Shipping point 12-24-14 12-31-14 0010 180
Destination 12-24-14 12-29-14 1307 550
Shipping point 12-26-14 1-2-15 6609 690
Destination 12-26-14 12-31-14 6610 420
Destination 12-26-14 1-3-15 0481 750
Shipping point 12-27-14 12-30-14 3671 290
Shipping point 1-2-15 1-4-15 6098 350

January, 2015
Destination 12-26-14 1-2-15 7611 680
Shipping point 12-27-14 12-30-14 7711 460
Destination 12-27-14 12-29-14 9001 770
Destination 12-28-14 1-2-15 8345 205
Shipping point 12-28-14 1-3-15 4678 315
Shipping point 12-29-14 12-31-14 9981 595
Destination 12-29-14 12-31-14 7263 610
Destination 12-31-14 1-4-15 4915 375
Shipping point 1-2-15 1-5-15 5666 805

The physical inventory compilation includes P750 of merchandise received on consignment from a
supplier.

The company has other consigned stocks on hand which were not included in the physical inventory
compilation and which cost P5,200 if purchased.

Shipments of December 31, 2014 were properly recorded on the books as sales. You computed the cost
of these sales as being P1,900.

Requirements: Adjusted balances at December 31, 2014 of:

17. Inventory
a. 30,120 c. 27,300
b. 28,220 d. 26,430
18. Purchases
a. 649,675 c. 650,585
b. 649,990 d. 651,650

PROBLEM 7:
Flores Company cans two food commodities which it stores at various warehouses. The company uses a
perpetual inventory system under which the finished goods inventory is charged with production and
credited for sales at standard cost. The detail of the finished goods inventory is maintained on punched
cards by the tabulating department in units and pesos for the various warehouses.

The accounting department receives copies of daily production reports and sales invoices. Units are then
extended at standard cost and a summary of the day’s activity is posted to the Finished Goods Inventory
general ledger control account. Next the sales invoices and production reports are sent to the tabulating
department for processing. Every month the control account and detailed tab records are reconciled
and adjustments recorded.

The last reconciliation and adjustments were made at November 30, 2014.

Your CPA firm observed the taking of the physical inventory at all locations in December 31, 2014. The
inventory count began at 4:00 p.m. and was completed at 8:00 p.m. The company’s figure for the
physical inventory is P342, 400. The general ledger control account balance at December 31 was
P384,900, and the final “tab run” of the inventory punched cards showed a total of P403,300.
Unit cost data for the company’s two products are as follows:
Product Standard Cost
A P2
B 3
A review of December transactions disclosed the following:
1. Sales invoice no. 1310, December 2, was priced at standard cost for P11,700 but was listed on
the accounting department’s daily summary at P11,200.

2. A production report for P23,900, December 15, was processed twice in error by the tabulating
department.

3. Sales invoice no. 1423, December 9, for 1,200 units of product A, was priced at a standard cost
of P1.50 per unit by the accounting department. The tabulating department corrected the error
but did not notify the accounting department of the error.

4. A shipment of 3,400 units of Product A was invoiced by the billing department as 3,000 units on
sales invoice no. 1504, December 27, the error was discovered by your review of transactions.

5. On December 27 the Pampanga warehouse notified the tabulating department to remove 2,200
unsalable units of product A from the finished goods inventory, which it did without receiving a
special invoice from the accounting department. The accounting department received a copy of
the Pampanga warehouse notification on December 29 and prepared a special invoice which
was processed in the normal manner. The units were not included in the physical inventory.

6. A report for the production on January 3 of P2,500 units of product B was processed for the
Bulacan plant as of December 31.

7. A shipment of 300 units of Product B was made from Tarlac warehouse to Ken’s Markets, Inc., at
8:30 p.m. on December 31 as an emergency service. The sales invoice was processed as of
December 31. Flores Company prefers to treat the transaction as a sale in 2014.

8. The working papers of the auditor observing the physical count at the Bataan warehouse
revealed that 700 units of Product B were omitted from Flores’s physical count. Flores
concurred that the units were omitted in error.

9. A sales invoice for 600 units of Product A shipped from the Zambales warehouse was mislaid
and was not processed until January 5. The units were shipped on December 30.

10. The physical inventory of the Angeles warehouse excluded 350 units of Product A marked
“reserved”. Investigation revealed that this merchandise was being stored as a convenience for
Steve’s Markets Inc., a customer. The merchandise, which has not been recorded as a sale, is
billed as it is shipped.

11. A shipment of 10,000 units of Product B was made on December 27 from the Zambales
warehouse to the Bataan warehouse. The shipment arrived on January 6 but had been excluded
from the physical inventories.

Requirements:
19. What is the correct inventory balance to be presented in the balance sheet as of December 31,
2014?
a. 344,300 c. 383,000
b. 375,500 d. 374,300
20. What is the inventory shortage/overage?
a. 7,500 over c. 1,500 over
b. 7,500 shortage d. 0

PROBLEM 8:
On May 31, 2014, a fire completely destroyed the work-in process inventory of Alder Paints. Physical
inventory figures were published as follows:

As of January 1, 2014 As of May 31, 2014

Raw Materials P 15,000 P 30,000
 Work- in Process 50,000 --
Finished Goods 70,000 60,000

Sales for the first five months of 2014 were P150,000. Raw materials purchased were P50,000. Freight
on purchases was P5,000. Direct labor for the five months was P40,000. To determine the value of the
lost inventory, the insurance adjusters have agreed to use an average gross profit rate of 32.5%. Assume
that manufacturing overhead was 45% of direct labor cost.

Requirements:
21. The value of the goods manufactured and completed as of May 31, 2014 was
a. P60,000 c. P95,000
b. P90,000 d. P91,250
22. Raw materials used during the first five months of 2014 were
a. P25,000 c. P40,000
b. P35,000 d. P45,000
23. The total value of goods put in process during the five-month period amounted to
a. P143,000 c. P168,000
b. P150,000 d. P148,000
24. The value of the destroyed work-in process inventory as determined by the insurance adjusters
would be
a. P56,750 c. P86,750
b. P65,750 d. P57,650

PROBLEM 9:
On May 21, 2014, a fire destroyed the entire merchandise inventory on hand of Natural Corporation.
The following information is available:

Sales, January 1 through May 2, 2014 P380,00

Sales return (covering the same period) 20,000
Sales allowance (covering the same period) 10,000
Sales discounts (covering the same period) 25,000
Inventory, January 1, 2014 80,000
Purchases, January 1 through May 2, 2014 (including P40,000 of
goods in transit on May 2, 2014 shipped FOB shipping point) 400,000
Purchase discounts 40,000
Purchase returns and allowances 30,000
Mark-up percentage on cost 20%

25. What is the estimated inventory on May 2, 2014 immediately prior to the fire?
a. 70,000 c. 110,000
b. 82,000 d. 122,000
26. How much should be recognized as inventory loss?
a. 30,000 c. 70,000
b. 42,000 d. 82,000

PROBLEM 10:
You were assigned to test the reasonableness of the inventory account balance as reported by your
client, Surety Corp. The following information is made available by Surety Corp. ‘s accountant:

Cost Retail
Beginning inventory P598,400 P1,500,000
Purchases 3,048,400 5,500,000
Freight in 80,000
Purchase returns 140,000 180,000
Mark-ups 600,000
Mark-up cancellations 100,000
Mark-downs 1,300,000
Mark-down cancellations 385,000
Sales 4,470,000
Sales returns 150,000
Sales discount 200,000
Employee discount 400,000
Ending inventory as a result of the physical count conducted on December 31, was at P649,600. What is
the amount of estimated inventory shortage, if any, as a result of your test of reasonableness under the
following assumed cost formula? (round-off cost percentage to 2 whole numbers)

27. Lower of cost or average/Conservative/Conventional Approach

a. None b. 176,050 c. 327,700 d. 479,350
28. Average Approach
a. None b. 176,050 c. 294,000 d. 327,700
29. FIFO Retail Approach
a. 176,050 b. 294,000 c. 378,250 d.479,350

PROBLEM 11:
You were assigned to audit the inventories of Titanium Corp. in relation to your audit firm’s audit of the
company’s financial statements as of and for the period ended December 31, 2014: Since internal
control over inventories were good, your audit manager simply asked you to render analytical
procedure to test the reasonableness of the inventory balance. The following information were made
available by Titanium Corp.’s accountant:

Cost Retail
Beginning inventory 1,020,000 1,920,000
Purchases 13,072,500 22,155,000
Freight in 300,000
Purchase return 450,000 750,000
Purchase allowance 270,000
Departmental transfer debit 300,000 425,000
Departmental transfer credit 600,000 1,200,000
Net markup 450,000
Net markdown 1,425,000
Sales 19,800,000
Sales returns and allowance 450,000
Sales discounts 500,000
Employee discount 300,000
Normal Spoilage and breakages 600,000
Abnormal Spoilages and breakages 120,000 200,000

The company reported inventories at P400,000 as a result of its physical count on December 31, 2014,
what is the amount of estimated ending inventory shortage/overage as a result of your audit
procedures? (round off cost% to nearest whole number, e.g.: xx%)

30. Lower of cost or average/Conservative/Conservative Approach:

a. 297,500 b. 252, 500 c. 308,750 d. 320,000
31. Average Approach:
a. 297,500 b. 252,500 c.308,750 d. 320,000
32. FIFO Retail Approach:
a. 297,500 b. 252, 500 c. 308,750 d. 320,000

PROBLEM 12:
Nancy Inc. had the following items of merchandise inventories with related information about estimated
selling price and cost to sell as of December 31, 2014:

Class Z:
Item Quantity Unit Cost Unit Selling Price Unit Cost to Sell
Z-01 10,000 P20 P30 P5
Z-02 15,000 25 30 8
Z-03 20,000 30 40 14
Z-04 25,000 32 45 10
Z-05 30,000 35 50 20
 Class Y:
Item Quantity Unit Cost Unit Selling Price Unit Cost to Sell
Y-01 20,000 P22 P25 P2
Y-02 22,000 28 30 5
Y-03 28,000 25 40 10
Y-04 25,000 30 35 10
Y-05 30,000 15 30 5

Required:
33. What is the correct carrying value of inventories if the lower of cost or NRV valuation is
employed on an item per item basis?
a. 5,515,000 b. 5,831,000 c. 5,981,000 d. 6,100,000
34. What is the loss on inventory write-down, assuming that direct write-off method is used under
requirement 1?
a. None b. 119,000 c. 150,000 d. 466,000
35. What is the correct carrying value of inventories if the lower of cost or NRV valuation is
employed on a per class basis?
a. 5,515,000 b. 5,831,000 c. 5,981,000 d. 6,100,000
36. What is the loss on inventory write-down, assuming that direct write-off method is used under
requirement 3?
a. None b. 119,000 c. 150,000 d. 466,000

PROBLEM 13:
The Savior Corporation uses the lower of cost or net realizable value inventory. Data regarding the items
in work-in- process inventory are presented below:
Markers Pens Pencils
Historical cost P24,000 P18,880 P30,000
Selling price 36,000 21,800 38,000
Estimated cost to complete 3,000 2,620 6,200
Replacement cost 20,800 16,800 16,800
Normal profit margin as a % of selling 20% 20% 20%
price
Cost to sell based on selling price 5% 10% 10%

Required:
37. What is the loss on write-down under the direct write-off method?
a. None b. 3,880 c. 3,320 d. 5,620
38. What is the loss on write-down under the allowance method, assuming that the unadjusted
balance of the allowance for inventory write-down is at P2,000?
a. None b. 1,880 c. 1,320 d. 3,620
39. What is the gain on recovery of previous write-down under the allowance method, assuming
that the unadjusted balance of the allowance for inventory write-down is at P5,000?
a. None b. 1,120 c. 3,680 d. 1,380
40. What is the correct carrying value of inventories as of December 31?
a. 72,880 b. 76,200 c. 69,000 d. 67,200

PROBLEM 14:
October Inc., a manufacturing company, had the following information about its inventories as of
December 31, 2014:

Finished Goods Inventory:

Item Cost Selling Price Cost to Sell
A P500,000 P1,000,000 20% of Sales Price
B 1,200,000 1,500,000 30% of Sales Price
C 800,000 1,200,000 10% of Sales Price

Work-in-process Inventory:
Item Direct Direct Labor Overhead Cost to Complete Selling Price upon
Materials Completion
A P30,000 P50,000 P25,000 P50,000 P200,000
B 45,000 65,000 40,000 60,000 250,000
C 75,000 25,000 80,000 40,000 240,000
 Raw Materials Inventory: Finished Goods A:
Item Cost Replacement Cost
RM A-01 P120,000 P125,000
RM A-02 95,000 90,000

Raw Materials Inventory: Finished Goods B:

Item Cost Replacement Cost
RM B-01 P80,000 P100,000
RM B-02 105,000 98,000
RM B-03 110,000 100,000

Raw Materials Inventory: Finished Goods C:

Item Cost Replacement Cost
RM C-01 P175,000 P170,000
RM C-02 40,000 45,000

Required:
41. What is the correct carrying value of finished goods inventory?
a. 2,500,000 b. 2,350,000 c. 2,930,000 d. 3,000,000
42. What is the correct carrying value of work-in-process inventories?
a. 435,000 b. 396,000 c. 401,000 d. 445,000
43. What is the correct carrying value of raw-materials inventories?
a. 725,000 b. 708,000 c. 728,000 d.698,000
44. Assuming direct write-of method is used to account for inventory write-down, how much should
be recognized in the profit/loss as a result of the lower of cost or net realizable value valuation
of inventories?
a. 201,000 b. 206,000 c.210,000 d. 216,000
45. Assuming allowance method and the following allowance for inventory write-down existed at
the beginning of the year (FG- P60,000; WIP- P70,000; RM-0), how much should be recognized in
the profit/loss as a result of the lower of cost or net realizable value valuation of inventories?
a. 107,000 b. 86,000 c. 138,000 d. 145,000

PROBLEM 15:
You observed the inventory count of the Solsons Company as of December 31, 2014. The client prepared
the summary presented below and gave it to you for verification.

Quantity Cost NRV Amount

A 360 units P3.60/dozen P3.64/dozen P1,310.40
B 24 units 4.70 each 4.80 each 112.80
C 28 units 16.50 each 16.50 each 1,353.00
D 43 units 5.15 each 5.20 each 176.80
E 400 units 9.10 each 8.10 each 3,640.00
F 70 dozens 2.00 each 2.00 each 140.00
G 95 grosses 144.00 per gross 132.00 per gross 13,780.00

46. How much should the inventory be presented in the 2014 balance sheet?
a. 18,364.25 c. 20, 513.20
b. 19,604.25 d. 20, 315.00

PROBLEM 16:
In the course of your audit of DKNY Company’s “Receivables” account as of December 31, 2014, you
found out that the account comprised the following items:

Trade accounts receivable P1,550,000

Trade accounts receivable, assigned (proceeds from assignment
amounted to P650,000) 750,000
Trade accounts receivable, factored (proceeds from factoring done on
a without-recourse basis amounted to P250,000) 300,000
12% Trade notes receivable 200,000
20% Trade notes receivable, discounted at 40% upon receipt
of the 180-day note on a without recourse basis 300,000
Trade receivables rendered worthless 50,000
 Installments receivable, normally due 1 year to two years 600,000
Customers’ accounts reporting credit balances
arising from sales returns 60,000
Advance payments for purchase of merchandise 300,000
Customers’ accounts reporting credit balances arising
from advance payments 40,000
Cash advances to subsidiary 800,000
Claim from insurance company 30,000
Subscription receivable due in 60 days 600,000
Accrued interest receivable 20,000
Deposit on contract bids 500,000
Advances to stockholders (collectible in 2017) 2,000,000

Requirements:
47. How much is the total trade receivables?
a. 3,650,000 c. 3,000,000
b. 3,100,000 d. 2,950,000
48. How much is the amount to be presented as “trade and other receivables” under current assets?
a. 7,350,000 c. 4,850,000
b. 5,350,000 d. 4,050,000
49. How much loss from receivable financing should be recognized in the income statements?
a. 36,000 c. 86,000
b. 50,000 d. 105,000
PROBLEM 17:
In relation to your audit of Inuyasha Inc.’s accounts receivable you ascertained the following information:

a. The general ledger balances of the client’s receivable and related accounts were:
Accounts receivables P3,225,300
Allowance for bad debts (169,000)
Amortized cost P3,056,300
b. Inuyasha Inc. estimates its bad debt losses by aging its accounts receivable, the aging schedule
of accounts receivable at December 31, 2014, is presented below:

Age of accounts Amount

Current P1,686,400
1 to 30 days past due 922,000
31 to 60 days past due 384,800
61 to 90 days past due 153,300
Over 90 days past due 78,800
c. The company normally sells n/30.
d. Furthermore, the company’s uncollectible accounts experience for the past 5 years are
summarized in the schedule that follows:
Year Current 1-30 31-60 1-90 More than
days PD days PD days PD 90 days PD

2013 1% 6% 9% 23% 55%

2012 2% 8% 10% 18% 60%
2011 1% 4% 11% 16% 45%
2010 3% 5% 12% 22% 45%
2009 3% 2% 8% 21% 45%

Requirements:
50. What are the corresponding percentages to be used per age category in computing for the client’s
require allowance for bad debts?
Current 1-30 31-60 1-90 > 90
a. 1% 3% 10% 20% 45%
b. 1.5% 5% 10% 20% 45%
c. 2% 5% 10% 20% 50%
d. 2% 3% 10% 25% 45%
51. The required allowance for bad debt expense is:
a. 173, 653 c. 188,368
b. 185,415 d.220,842
 52. The net realizable value of the company’s accounts receivable on December 31, 2014, should be:
a. 3,036,932 c. 2,986,345
b. 3,004,458 d. 2,976,540

PROBLEM 18:
The Mexican Corp. grants its customers 30 days credit. The company uses the allowance method for its
uncollectible accounts receivable. During the year, a monthly bad debt accrual is made by multiplying 2%
by the amount of credit sales for the month. At the fiscal year-end of December 31, an aging of accounts
receivable schedule is prepared and the allowance for uncollectible accounts is adjusted accordingly.

At the end of 2014 before any audit adjustments, the general ledger accounts showed balances of account
receivable at P1,230,000 and the allowance for bad debt at P106,000. Accounts receivable activity for
2014 included the following:
Credit sales P12,800,000
Write offs 82,000
The company’s controller prepared the following aging summary of year-end account receivable:
Age Group Amount Percent Collectible
0-60 days P825,000 98%
61-90 days 220,000 90%
91-120 days 50,000 70%
Over 120 days 128,000 60%
Total P1,223,000
It was ascertained that P40,000 from the over 120 days accounts are absolutely worthless.

Requirements:
53. How much is the unreconciled difference between the general ledger and the subsidiary ledger
balance of accounts receivable and how should it be accounted for:
a. P70,000; GL prevailing over SL, with the difference being charged against sales.
b. P10,000; GL prevailing over SL, with the difference being charged to bad debt expense
c. P7,000; SL prevailing over GL, with the difference being charged against sales.
d. P10,000; SL prevailing over GL, with the difference being charged to bad debt expense
54. How much is the total bad debt expense for 2014?
a. 304,700 c. 280,700
b. 278,700 d. 294,700
55. How much is the net realizable value of accounts receivable at December 31, 2014?
a. 1,123,000 c. 1,094,300
b. 1,118,300 d. 1,223,000

PROBLEM 19:
You are auditing the Accounts Receivable of Rovers Inc. as of December 31, 2014. You found the following
information in the general journal:

Accounts receivable P1,466,720

Less: Allowance for doubtful accounts (46,720)
Accounts receivable net P1,420,000

The accounts receivable subsidiary ledger had the following details:

Customer Invoice date Amount Balance
Gudang 9/12/2014 P139,200 P139,200
Tisoy 12/12/2014 153,600
12/02/2014 99,200 252,800
Gusoy 11/17/2014 185,120
10/08/2014 176,000 361,120
Naning 12/08/2014 160,000
10/25/2014 44,800
8/20/2014 40,000 244,800
Nanong 9/27/2014 96,000 96,000
Balong 8/20/2014 71,360 71,360
Peejong 12/06/2014 112,000
11/29/2014 169,440 281,440
Total P1,446,720
Additional information:
a. You discovered based on your review of subsequent events that Balong recently went
bankrupt, thus you suggested that the amount receivable from the same shall be written off.

b. You also discovered that the invoice dated 12/02/2014 has already been settled by Tisoy per
OR number 34675. This amount however has been erroneously posted against Gusoy’s
subsidiary ledger as a settlement for an invoice dated 11/05/2014 for the same amount.

c. The estimated bad debt rates below are based on the company’s receivable collection
experience:
Age of accounts % of Collectability
0-30 days 98%
31-60 days 95%
61-90 days 90%
90-120 days 80%
Over 120 days 50%
Required:
56. Assuming that there were no other entries to the allowance for doubtful accounts, what is the
correct bad debt expense for the year?
a. 95,680 c. 141,984
b. 92,704 d. 144,960
57. What is the correct allowance for bad debt expense for the year ended December 31, 2014?
a. 156,000 c. 120, 320
b. 153,024 d. 117,344
58. What is the net adjustment to the Accounts receivable in the general ledger?
a. 172,560 c. 91,360
b. 119,200 d. 71,360
59. What is the carrying value of the company’s accounts receivables as of December 31, 2014?
a. 1,255,040 c. 1,275,040
b. 1,258,016 d. 1,295,040
60. What is the necessary adjusting entry to adjust any unlocated difference between the SL and GL?
a. Bad debt expense 20,000
Accounts receivable 20,000
b. Sales 20,000
Accounts receivable 20,000
c. Accounts receivable 20,000
Other income 20,000
d. No necessary entry