PROBLEM 3: Audit of Inventories and Related Accounts (Adapted)

You are engaged in an audit of the financial statements of the THINKPOSITIVE COMPANY for the year ended October
31, 2016, and have observed the physical inventory count on that date.
All merchandise received up to and including October 2016 has been included in the physical count. The following list of
invoices is for purchases of merchandise and is entered in the purchases journal for the months of October and November
2012, respectively:

Date Date Merchandise

Amount FOB of Invoice Received

OCTOBER 2016
P 7,200 Destination October 19 October 21
4,400 Destination October 20 October 22
9,250 Shipping point October 20 October 30
3,900 Destination October 25 November 3
2,500 Destination November 4 October 29
10,250 Shipping point October 25 October 30
9,200 Shipping point October 25 October 30
13,600 Destination October 21 October 30
34,600 Destination October 29 October 30

NOVEMBER 2016
P 2,000 Destination October 29 November 4
4,850 Destination October 30 October 31
6,420 Shipping point October 27 October 30
7,220 Shipping point November 2 October 30
12,820 Shipping point October 23 November 3
14,200 Shipping point October 23 November 3
15,000 Destination October 27 November 3

No perpetual inventory records are maintained, and the physical inventory count is to be used as a basis for the financial
statements.

Required:
9) What adjusting entry is necessary for the October 25 invoice?
a. Accounts payable 3,900
Purchases 3,900
b. Purchases 3,900
Accounts Payable 3,900
c. Inventory, ending 3,900
Cost of Sales 3,900
a. No adjusting entry is necessary.

10) What adjusting entry is necessary for the November 4 invoice?

a. Purchases 2,500
Accounts payable 2,500
b. Accounts payable 2,500
Purchases 2,500
c. Cost of sales 2,500
Inventory, (ending) 2,500
 d. No adjusting entry is necessary.

11) The journal entry to adjust the purchases account should be

a. Debit to purchases of P45,510
b. Credit to purchases of P3,900
c. Net debit to purchases of P41,610
d. Net credit to purchases of P41,610

Oct 25 Credit (3,900)

Oct 30 Debit 4,850
Oct 27 Debit 6,420
Nov 2 Debit 7,220
Oct 23 Debit 12,820
Oct 23 Debit 14,200
Total Debit 41,610

12) The net adjustment to accounts payable is

a. P3,900 increase
b. P3,900 decrease
c. P41,610 increase
d. P41,610 decrease

13) THINKPOSITIVE’s October 31 physical inventory should be increased by

a. P31,870
b. P41,610
c. P45,510
d. P73,480
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14) In performing your audit for a privately-held firm your inquiries have yielded that one of the company's owner's
primary motivations is to pay the least amount of income tax that is possible. Based on this observation which audit
objective for ending inventory would the auditor be most concerned about ascertaining?
A) Completeness
B) Accuracy
C) Rights and obligations
D) Existence
15) You are auditing the company's purchasing process for goods and services. You are primarily concerned with the
company not recording all purchase transactions. Which audit procedure below would be the most effective audit
procedure in this case?
A) Vouching from the accounts payable account to the vendor invoices.
B) Tracing vendor invoices to recorded amounts in the accounts payable account.
C) Confirmation accounts payable recorded amounts.
D) Reconciling the accounts payable subsidiary ledger to the accounts payable account.
16) The overall objective in the audit of the acquisition and payment cycle is:
A) to ensure the reliability of the affected accounts.
B) to ensure the accuracy of the affected accounts.
C) to evaluate whether the affected accounts are fairly stated in accordance with accounting standards.
D) to evaluate whether fraudulent payments were made.
17) During your audit of Williams Company you are trying to determine whether all accounts payable were recorded in
the proper period. Which assertion are you gathering evidence for?
A) Occurrence
B) Completeness
 C) Cutoff
D) Rights and Obligations
18) What typically initiates the acquisitions and payment cycle?
A) issuance of a purchase requisition or request for purchase of goods/services
B) issuance of payment to vendor
C) approval of a new vendor
D) purchase requisition
19) What typically ends the acquisitions and payment cycle?
A) issuance of a purchase requisition or request for purchase of goods/services
B) issuance of a payment to a vendor
C) approval of a new vendor
D) purchase requisition
20) Which of the following accounts is not included in the acquisitions class of transactions?
A) Inventory
B) Prepaid expenses
C) Purchase discounts
D) Accounts payable