Questions: Based on the above information, answer the following:

1. What is the entry to adjust audit finding “a” at December 31, 2006?
a. Accounts Receivable 8,500 c. Both A and B
Sales 8,500

b. Inventory 7,000 d. Accounts Receivable 8,500

Retained Earnings 7,000 Retained Earnings 8,500

2. What is the entry to adjust audit finding number “b” at December 31, 2006?
a. Inventory 15,000 c. Both A and B
Retained Earnings 15,000

b. Retained Earnings 15,000 d. Neither A nor B

Accounts Payable 15,000

3. DEMI CORPORATION should debit what account to adjust audit finding number “c” at
December 31, 2006?
a. Sales c. Retained Earnings
b. Cost of Sales d. No adjustment is necessary

4. In audit finding number “d”, choose the correct statement?

a. The company is correct for not making an entry on the P6,500 purchase on account even though it is already included in the
inventory count since no term of shipment is given.
b. The company should reduced its purchases at December 31, 2006 since the purchases being paid in 2006 was the purchase
for 2005.
c. The company is correct in recording of purchases in year 2006 since this is the time when the company made payment on
such.
d. Inventory should be recorded at December 31, 2005 since the purchases were recorded on this year.

5. The entry to adjust audit finding number “e” at December 31, 2006 is: (assume the book is not close)
a. Retained Earnings 6,400 c. Purchases 6,400
Inventory 6,400 Accounts Payable 6,400

b. Retained Earnings 6,400 d. Cost of sales 6,400

Accounts payable 6,400 Inventory 6,400

6. The entry to adjust audit finding number “f” at December 31, 2006 is: (assume the book
is close)
a. Inventory 25,000 c. Cost of sales 25,000
Accounts Receivable 25,000 Sales 25,000
Cost of sales 25,000 Retained Earnings 25,000
Sales 25,000 Accounts Receivable 25,000

b. Cost of sales 25,000 d. Retained Earnings 2,500

Sales 15,000 Inventory 12,500
Retained Earnings 25,000 Accounts Receivable 15,000
Accounts Receivable 15,000
Answer
1. b 2. d 3. d 4. b 5. a 6. d