REVIEW OCTOBER 8, 2018 AUDITING PROBLEMS 

 
UNIVERSITY OF THE CORDILLERAS   
COLLEGE OF ACCOUNTANCY 
 
Problem 8-16 BANK RECONCILIATION 
Your audit Senior instructed you to prepare a four column proof of cash receipts and 
disbursements for the month of December 2018. 
 
The bank reconciliation prepared by Character Company at November 30 is reproduced 
below: 
 
Unadj. Bank balance P69,000 Unadj. Book balance  P66,000 
Add: Add: 
Deposit in Transit ​ 11,000 CM for note collected ​ 8,800 
Total P80,000 Total: 74,800 
Less: Less: 
Outstanding Checks: Bank Service Charge 1,800 
No. 143 P1,000 
144 P1,500 
145 P2,000 
146 P2,500 7,000  ______ 
Adjusted balance P73,000 P73,000 
 
The bank statement, which has a beginning balance of P69,000, is reproduced below: 
 
May Bank 
Account Name: CHARACTER COMPANY 
​Date Debits Credits 
1-Dec P 1,000 P 11,000 
4-Dec  25,000 10,000 
5-Dec 3,000 CM 1 
6-Dec 2,000 20,000 
8-Dec 10,000 DM 1 5,000 
9-Dec 2,500 40,000 
17-Dec 30,000 7,000 
19-Dec 40,000 DM 2 
20-Dec 500 E 500 EC 
26-Dec 40,000 
31-Dec 2,000​ DM 3 35,000 CM 2 
​P113,000 P171,500 
DM 1 Customer’s DAIF check 
DM 2 Customer’s DAIF check 
DM 3 Service charges 
CM 1 Account collected by Bank 
CM 2 Note collected by Bank 
E Error 
EC Error correction 
  
The debit memo on December 8 and December 19 were customer NSF checks returned by the 
bank. The check on December 19 was redeposited on December 26 without entry. The 
company made a journal entry when the check returned on December 8 was received. This 
check was redeposited by the client in the bank on january 3 without entry. 
 
The company’s cash receipts and cash disbursement journals for the month of December 2018 
are provided below: 
 
Cash Receipts Journal Cash Disbursements Journal 
Date O.R No.  Amount Date O.R No.  Amount 
Dec. 03 555 P10,000 Dec 03 147 P25,000 
5 556 20,000 15 148 30,000 
7  557 5,000 30  149 800 
8 558 40,000 31 150 12,000 
18 559 7,000 
30 560 18,000 
31 561 200 _________ 
​ P102,000 P75,000 
 
The Company’s Cash in Bank Ledger appears below: 
 
Cash in Bank 
_____________________________________________________________ 
Balance P66,000 l 12/31/2018 GJ (DM 1) P10,000 
12/1/2018 GJ (CM ) 8,800 l 12/31/2018 CDJ 75,000 
12/8/2018 GJ (CM 1 ) 3,000 l 
12/31/2018 CRJ 102,000 l 
 
 
QUESTIONS: 
Based on the application of the necessary audit procedures and appreciation of the above 
data, you are to provide the answers to the following: 
 
1.How much is the outstanding checks as of December 31, 2018? 
a. P 21,500 c. P14,300 
b. P 20,000 d. P24,000 
2. How much is the adjusted book receipts for December , 2018? 
a. P 140,000 c. P180,500 
b. P 140,500 d. P138,200 
3. How much is the adjusted book disbursements for December , 2018? 
a. P 78,000 c. P79,800 
b. P87,000 d. P127,500 
4. How much is the adjusted cash balance as of December 31, 2018? 
a.P 127,800 c. P147,500 
b. P126,000 d. P131,400 
5. How much is the cash shortage as of December 31, 2018? 
 
 a. NIL c. P3,800 
b. P2,000 d. P1,800 
 
Problem 8-15 BANK RECONCILIATION 
You have been hired by Sophia Manufacturing Co. as an internal auditor. One of your first 
assignments is to reconcile the bank account of the company. 
 
The bank statement shows the following: 
 
Beginning balance, Aug. 1, 2008 P 180,250 
Deposits (20) 1,830,752 
Checks (64) Plus debit memos (1,702,830) 
Service charges-new checks ​( 88) 
Ending balance P 308,084 
 
CASH 
_____________________________________________________________ 
7/1 Beginning P 128,384 l 7/31- Cash Disb P 1,330,882 
7/31- Cash Receipts 1.364,858 l 8/1- Bank Recon 750 
8/31-Cash Receipts 1,839,744 l 8/31- Cash disbur. 1,712,892 
Your review of last month’s bank reconciliation and the current bank statement reveals the 
following: 
1. Outstanding checks  
July 31,2018 ? 
August 31 ,2018 P67, 122 
2. Deposits in transits 
July 31,2018 P32,844 
August 31 ,2018 P41,836 
3. Check No. 216 for the Office Furniture was written for P1,390 but recorded in the cash 
disbursements journal as P1.390. The bank deducted the check as 1,390. The error 
happened in July and is not yet corrected as of August 31. 
4. A check written on the account of the Caleb Co. for P1,166 was deducted by the bank 
from Sophia’s account. 
5. Included with the bank statement was a debit memorandum dated August 31 for P4,950 
for interest on a note taken out by the Sophia Manufacturing Co. on July 30. 
6. The service charge for new checks has not been recorded. 
7. The july 31, 2018 bank reconciliation showed as reconciling item a service charge of P52 
and an NSF check for P698. 
 
QUESTIONS 
 
1. Unadjusted cash in bank per books, August 31, 2018 
a. P 288,462 c. P 289,752 
b. P 289,212 d. P 289,002 
2. Outstanding checks as of July 31, 2018 
a. P 51,484 c. P 50,944 
b. P 52,110 d. P 50,570 
 
 3. The adjusted cash in bank per books, July 31, 2018 
a. P 162,150 c. P 162,202 
b. P 162,848 d. P 161,610 
 
4. The adjusted disbursements for August, 2018 
a. P 1,718,470 c. P 1,717,180 
b. P 1,717,930 d. P 1,719,096 
 
5. The adjusted cash in bank per books, August 31, 2018 
a. P 283,964 c. P 282,798 
b. P 283,424 d. P 288,914 
 
PROBLEM 10-30 RECEIVABLES 
You obtained directly from Job Corporation, your client, and reviewed a schedule of shows that 
receivable amounts to P1,660,000. This amount not agree with the balance in the accounts 
receivable general ledger account. The difference may be shown below. Below are your audit 
findings: 
 
a. A special goods costing P72,000, fabricated to order for a customer, was finished and 
specifically segregated in back part of the shipping room on December 31, 2018. The 
customer was billed on that date and the goods excluded from the inventory although it 
was shipped on January 3, 2019. 
b. A promissory note was issued by a customer to Job Corporation for goods purchased 
worth P200,000. The promissory note carries an interest of 12% per annum with a term of 
60 days dated November 30, 2018. This was reflected as part of accounts receivable. No 
interest was accrued as of year end. 
c. A review of pertinent records showed that on December 24, 2018, P160,000 of trade 
accounts receivable was factored without recourse for P152,000. Client recorded this 
transaction by debiting Cash and crediting note payable-Finance Co for P152,000. 
d. A review of sales documents revealed that goods having a selling price of P100,000 were 
shipped to a customer FOB shipping point on December 31, 2018, but the sale was 
recorded on January 4, 2019. The goods were not included in the December 31, 2018 
inventory. Client’s gross profit rate is 40% of sales. 
 
Job corporation uses the allowance method and estimates bad debts at 1% of net sales. After 
consulting with the credit manager, you believe that this is a reasonable estimate. Below is a 
transcript of the allowance for doubtful accounts in the general ledger.  
 
Allowance for Doubtful Accounts 
_____________________________________________________________ 
11/25/2018 P30,000 l P100,000 Beg bal 1/1/2018 
l 80,000 GL 12/31/2018 
 
11/25/2018: To write-off the following known worthless accounts. 
 
Allowance for doubtful accounts P30,000 
Accounts receivable P30,000 
Ben P 8,000 
Kulas 3,600 
Juan 6,400 
Natan 3,960 
Janet 6,040 
P30,000 
12/31/2018: To record the doubtful accounts expense for the year ending December 31, 2018, 
computed as follows: 
 
Balance, 01/01/2018 P100,000 
Accounts written off ​(30,000) 
Balance P 70,000 
Provision for doubtful accounts ​ 80,000 
Balance, 12/31/2018 (P15Mx1%) P150,000 
 
Doubtful accounts expense P80,000 
Allowance for doubtful accounts P80,000 
 
On January 10, 2019, P6,000 was received from Juan in settlement of his account. 
 
QUESTIONS 
Based on the above and the result of your audit, compute for the following: 
1. The amount of trade Accounts receivable to be reported in the audited statement of 
financial position at December 31, 2018. 
a. P 1,660,000 c. P 1,408,000 
b. P 1,402,000 d. P 1,400,000 
2. The allowance for doubtful accounts to be reported in the audited balance sheet at 
December 31, 2018? 
a. P 223,000 c. P 151,000 
b. P 229,000 d. P 221,000 
3. The doubtful accounts expense to be reported in the audited income statement for the 
year ending December 31, 2018 is 
a. P 229,000 c. P 221,000 
b. P 223,000 d. P 151,000 
4. The net increase (decrease) in the ending inventory resulting from audit adjustment is 
a. P 72,000 c. P 60,000 
b. P 132,000 d. No effect 
5. The net increase (decrease) in net sales from audit adjustment is 
a. P 100,000 c. P 120,000 
b. P (20,000) d. No effect