Professional Documents
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Auditing Problems PR
Auditing Problems PR
PROBLEM 1 - You are a senior accountant on the staff of Alejo & Associates, CPAs. You are
conducting the annual audit of Harry Corporation for calendar year 2007. You are now
working on the audit of the accounts receivable and related allowance for doubtful
accounts.
Questions:
5. Interest income for year 2008
a. 8,000 b. 9,366 c. 9,242 d. 9,818
6. Market value of investment as of December 31, 2008.
a. 95,026 b. 90,393 c. 93,240 d. 90,973
7. Unrealized gain or loss on AFS as of December 31, 2009.
a. (1,786) b. (4,053) c. 4,053 d. (4,633)
8. Unrealized gain on loss as of December 31, 2009.
a. (3,289) b. (2,709) c. 3,289 d. (2,519)
9. Carrying value of investment as of December 31, 2009.
a. 97,240 b. 96,429 c. 93,240 d. 110,000
Questions:
10.The gain or loss on sale of stock rights on November 21, 2007 is
a. 1,200 gain b. 2,840 loss c. 2,000 loss d. 200 gain
11.The gain or loss on sale of stock on December 15, 2007 using the first-in, first-out basis
of assigning costs to sales is
a. 2,170 loss b. 3,180 loss c. 2,000 loss d.
3,180 gain
12.The cost of the stock rights received on November 3 is
a. 4,000 b. 4,040 c. -0- d. 8,040
13.The cost of additional shares acquired on November 21 amounted to
a. 6,780 b. 3,750 c. 6,750 d. 6,000
14.The cost of shares held as of December 31 2007 is
a. 52,290 b. 57,750 c. 51,110 d. 58,290
PROBLEM 4 --- Geoffrey and Jekell are partners in the operation of a retail store. They are
concerned about the apparent discrepancy between their income and their volume of sales.
Although they maintain incomplete accounting records, their experience in the business
told them that there is a possible theft or larceny on the part of their staff.
The partners have asked you, in connection with your initial audit covering the calendar
year 2007 to apply such tests as you can to determine whether there is any indication of
shortage.
In the course of your examination you obtain the following facts having a bearing on the
problem.
a. The physical inventory taken December 31, 2007, under your observation, amounted to
P25,000 cost, P23,000 market. The inventory of December 31, 2006, was P38,000 cost,
P36,500 market. It has been the firm’s practice to value inventory at “lower of cost or
net realizable value” treating any loss or decline in market value as “other expense”.
b. Using the treatment of “loss or decline in Net realizable value” of inventory as
mentioned in (a) above, the average gross profit in recent periods has been 35 percent
of net sales. The partners inform you that this percentage seems reasonable and that
they expected the same results for 2007, since their mark-up per cent was
approximately the same as in the past.
c. The December 31, 2006, balance-sheet shows accounts receivable of P48,000. Notes
payable to banks and trade accounts payable were combined on the December 31,
2006 balance sheet. They totaled P26,000. The firm records accounts payable at the
net figure, as cash discounts are seldom missed. Purchases have been shown net in
past income statements. Sales discounts have been treated as deduction from sales in
the past.
d. During 2007, accounts were written off in the amount of P8,000 and an account for
P6,000 written off in 2006 was collected and recorded as a regular collection on
account.
e. Unpaid sales slips show that customers owed P55,000 on December 31, 2007.
f. Unpaid invoices indicate that the firm owed trade creditors P12,000 at the end of 2007.
Record of notes outstanding indicates that P10,000 was owed to banks on December
31, 2007.
g. Sales returns amounted to P3,000 and purchase returns amounted to P4,000.
h. Of the items in the cash records, the following are pertinent:
Receipts:
From customers (after P4,000 discounts) P105,000
CRC-ACE/AP_2nd Preboard Exams October 2007 Page 4 of 7
From bank loan (net of 60 day, 6% discount) 9,900
Disbursements:
To trade creditors (after P8,000 cash discounts) P 70,000
To bank loans 12,000
To customers for returned goods 1,000
Questions:
15. Gross Sales for calendar year 2007
a. 113,000 b. 108,000 c. 120,000 d. 121,000
16. Net Purchases for calendar year 2007
a. 68,000 b. 70,000 c. 76,000 d. 82,000
17. Balance of Accounts Payable as of December 31, 2006
a. 12,000 b. 10,000 c. 16,000 d. 14,000
18. Estimated ending inventory as of December 31, 2007
a. 31,000 b. 35,800 c. 27,350 d. 32,550
19. Possible inventory shortage as of December 31, 2007
a. 2,350 b. 7,550 c. 10,800 d. 6,050
PROBLEM 6 – You are engaged to audit the records of Western Company, which has not
previously been audited. The trial balance at December 31, 2007, follows:
161,00
Total 549,000 0
Credits
Accounts payable 23,000
Mortgage payable 50,000
Capital stock 100,000
Retained earnings - January 1,
2007 26,000
150,00
Sales 350,000 0
161,00
Total 549,000 0
The following additional information is to be considered:
1. The branch receives all of its merchandise from the home office. The home office bills
goods to the branch at 125% of cost. During 2007 the branch was billed for P105,000 on
shipments from the home office.
2. The home office credits sales for the invoice price of goods shipped to the branch.
3. On January 1, 2007, the inventory of the home office was P25,000. The branch books
showed a P6,000 inventory.
4. The home office billed the branch for P12,000 on December 30, 2007, representing the
branch’s share of expenses paid at the home office. The branch has not recorded this
billing.
5. All cash collections made by the branch are deposited in a local bank to the account of
the home office. Deposits of this nature included the following:
Amoun Date Deposited by
t Branch Date recorded by Home Office
5,000 December 28, 2007 December 30, 2007
3,000 December 29, 2007 January 2, 2008
7,000 December 30, 2007 January 3, 2008
2,000 January 2, 2008 January 5, 2008
6. Expenses incurred locally by the branch are paid from an imprest bank account that is
reimbursed periodically by the home office. Just prior to the end of the year, the home
office forwarded a reimbursement check in the amount of P3,000, which was not
received by the branch office until January 2008.
7. It is not necessary to make provisions for income tax.
Questions:
24.The combined cash amounted to
a. 17,000 b. 30,000 c. 20,000 d. 27,000
25.The combined inventories will be
a. 36,400 b. 44,400 c. 48,000 d. 38,400
26.The corrected Home Office and Branch Accounts amounted to
a. 21,000 b. 19,000 c. 31,000 d. 34,000
27.Shipments in transit as of December 31, 2007 amounted to
a. 10,000 b. -0- c. 25,000 d. 20,000
28.The combined sales will be
a. 500,000 b. 434,000 c. 395,000 d. 350,000
29.The combined cost of sales will be
a. 210,400 b. 294,400 c. 313,000 d. 219,800
30.The adjusted Branch profit, before tax, amounted to
a. 13,700 b. 20,600 c. 16,000 d. 22,600
CRC-ACE/AP_2nd Preboard Exams October 2007 Page 6 of 7
31.The combined net income amounted to
a. 51,600 b. 58,400 c. 76,000 d. 61,600
32.The combined operating expenses amounted to
a. 111,000 b. 70,000 c. 123,000 d. 73,000
PROBLEM 7 - The general ledger accounts showed the following cash balances at December
31, 2007:
BDO current account P210,000
EPCI savings account 90,000
Working Fund 10,000
Total per WBS P310,000
BDO Current – The following bank reconciliation as of December 31, 2007, was given to you
by the accountant:
You traced the balance per books to the general ledger and the balance per bank to the
bank confirmation reply.
EPCI Savings Account – The balance in this account represents funds set aside for the
purchase of a computer, per resolution of the Board of Directors.
Questions:
33.How much is the adjusted and reconciled balance of the BDO current account as of
December 31, 2007?
a. 200,000 b. 210,000 c. 198,000 d. 195,000
34.After considering all audit adjustments, what should be the correct total of outstanding
checks?
a. 21,000 b. 18,000 c. 16,000 d. 13,000
35.The amount of cash to be reported in the audited balance sheet at December 31, 2007
is
a. 195,000 b. 295,000 c. 205,000 d. 310,000
CRC-ACE/AP_2nd Preboard Exams October 2007 Page 7 of 7
AUDITING PROBLEMS
1 B 11 C 21 C 31 D
2 C 12 A 22 A 32 C
3 A 13 C 23 B 33 D
4 B 14 B 24 B 34 A
5 B 15 C 25 B 35 C
6 B 16 A 26 D
7 D 17 D 27 A
8 A 18 D 28 C
9 C 19 B 29 A
10 D 20 A 30 D