Auditing Tilt | Debits And Credits | Option (Finance)

Quizbowl RF12 E1.

Accepting an engagement to compile a financial projection for a publicly held company most likely would be inappropriate if the projection were to be distributed to a. A bank with which the entry is negotiating for a loan. b. A labor union with which the entity is negotiating a contract. c. The principal stockholder, to the exclusion of the other stockholders. d. All stockholders of record as of the report date. E2. Chan Reyes had the following transactions in the capital stock of Lee Corporation: 2006 June 2 Purchased 200 shares of P100 par value common stock at P120 per share. 2007 Mar 1 Received stock rights permitting him to purchase at par one new share of common stock for every four shares held. On this date, the bid price for a share was P140; for a right, P10. May 1 Exercised 60% of the rights received. June 1 Sold remaining rights at P9.80 each. Dec. 1 Received a cash dividend of P10 a share and a 20% stock dividend. 2008 Apr. 1 Sold the shares received as stock dividend on December 1, 2007 at P110 a share. Use the average cost method. How much is the cost of the investment after the sale on April 1, 2008? a. P 21,967 c. P 24,000 P P 22,400 d. P 26,360

E3. Comparative financial statements include the prior year’s statements that were audited by a predecessor auditor whose report is not presented. If the predecessor’s report was unqualified, the successor should a. Express an opinion on the current years statements alone and make no reference to the prior year’s statements. b. Indicate in the auditor’s report that the predecessor auditor expressed an unqualified opinion. c. Obtain a letter of representations from the predecessor concerning any matters that might affect the successor’s opinion. d. Request the predecessor auditor to reissue the prior year’s report. E4 When reporting on comparative financial statements, which of the following circumstances ordinarily should cause the following circumstances ordinarily should cause the auditor to change the previously issued opinion on the prior year’s financial statements? a. The prior year’s financial statements are restated following a pooling of interests in the current years. b. A departure from generally accepted accounting principles caused an adverse opinion on the prior year’s financial statements and those statements have been property restated. c. A change in accounting principle caused the auditor to make a consistency modification in the current year’s auditor’s report. d. A scope limitation caused a qualified opinion on the prior year’s financial statements but the current year’s opinion was properly unqualified.

accountants for the effect of a material accounting change prospectively when the inclusion of the cumulative effect of the change is required in the current year. 3. The principal of the note was reduced from P5. The P200. Qualified opinion or a disclaimer of opinion. P300.000 and the maturity date extended 1 year to December 31. P 86. P 0.34M was written to pay for the entire purchase price of the computer equipment. Adverse opinion and a qualified opinion. Land and office building were purchased for P23M. the property being given a collateral to the note which was due in 3 months time only. before taxes. 4. in its 2008 income statement of: a. Assume all transactions of the company were properly recorded and the balance of the checking account at the end of April was found to be P43. 2008. Mount owed P200. Mount and the bank agreed to amend the note as follows: a.750. P 4.19M c. and the cash collected was deposited in the company’s checking account. In 2008.E5 The following transactions took place in the month of April for Sure Company: 1. Mount was in financial difficulty and was unable to make any payments. As a result of the troubled debt restructuring. P15.000. 5. 2008. A check for P4. A down payment of P8M was paid by check.77M b. b. One piece of computer equipment was sold to Sorry Company at its original price.000.000 c. Tread Corp. Mount would be required to make one interest payment totaling P150.000 on December 31. c. P200.85M d. Mount should report a gain. c. a note was signed for the remaining P15M.000 of accrued interest and P5. 2008 was forgiven. The auditor would choose between expressing a(an) a.000 principal on the note.62M was written to acquire software technology.77M E6. Mount Corporation acquired land by paying P375.000. 2009.000 d. the selling price of the piece of equipment sold in item (3) above is: a. P250. b.000 .81M. E7. 2. December 31.000 to P4.000 down and signing a note with a maturity value of P5. Disclaimer of opinion or an unqualified opinion with an explanatory paragraph.000 b. Unqualified opinion with an explanatory paragraph and an adverse opinion. P450. A check in the amount of P0.000 of interest due on December 31. The company was incorporated on April 1 by selling shares for P56M. d. On the note’s due date.000.

P300.000 in full payment of the accounts payable to Hampton Bays and recorded a gain amounting to P122. At present. Current exchange rate is P50. As of December 31.E8.45. all the assumed financial obligations of A Company will be settled. What amount of bad debt/ impairment loss should Quest Company recognize related to its accounts receivable in 2006? a. c. in part. F Company is more than willing to assume only 75% of A Company’s financial obligations and by the end of 2007. At January 1. 2006. through a. 12 – Purchased raw materials from Hampton Bays Company. the prevailing interest rate for a similar financial asset is 14%. A recent inventory purchase involved the following events: Nov.000 b. Matters to which the attorney has given substantive attention in the form of legal representation. inquiries. The substantive evidential matter required by this standard may be obtained. The Scope of an audit is not restricted when an attorney’s response to an auditor as a result of a client’s letter of audit inquiry limits the response to a. d. Auditor working papers E9. b.000. As of December 31. 31 – Made year-end adjusting entry relating to the US 250. P263. An evaluation of the likelihood of an unfavorable outcome of the matters disclosed by the entity. (Syosset uses perpetual inventory system and debits inventory account) Dec. Proper planning of the audit engagement. Initial investigation revealed that A Company is in deep financial dilemma.843 c. P400.000 that is due from A Company. Analytical procedures. What is the exchange rate of the Philippine peso to US dollar on January 11? . and confirmation to afford a reasonable basis for an opinion regarding the financial statements under audit. d. Jan. P136. However. The probable outcome of asserted claims and pending or threatened litigation. Flowcharting the internal control structure. amounting to US 250. Current exchange rate is P50. A Company is unable to settle all outstanding obligations but further investigation revealed that F Company is taking over to run and operate the business affairs of A Company. Syosset Company is a Philippine corporation that purchases inventory from US manufacturers. payable in 60 days. Quest Co. had a receivable from A Company of P400.000 that has been outstanding for quite some time. observation. 2006. b. A1.157 d.000 accounts payable to Hampton Bays. The third standard of field work states that sufficient competent evidential matter is to be obtained through inspection.89. The attorney’s opinion of the entity’s historical experience in recent similar litigation. 2006. 11 – Issued a check amounting to US 250. c. a US manufacturer.000 E10.500. Quest Company expects to collect P300.

Test data must consist of all possible valid and invalid conditions. Substantiate the accuracy of data through spellchecking digits and hash totals.000 The company has adopted the revaluation model for the valuation of property and equipment. P 300. d. the balance sheet of Timo Company showed the following property and equipment after charging depreciation: Building Accumulated depreciation Equipment Accumulated depreciation 3. P 50.000 400.89 P 51.a. Amount to be recognized in 2009 profit or loss related to the revaluation of property and equipment a. A purpose of this procedure is to a. P 400. c. When an auditor tests a computerized accounting system.200. Detect kiting activities that may otherwise not be discovered. This has resulted in the recognition in prior periods of an asset revaluation surplus for the building of P150. On December 31. The building and equipment had remaining useful lives of 25 years and 4 years.000 c.40 c. P 50. d. an independent valuer assessed the fair value of the building to be P1. b.000 d. P 250. which of the following is true of the test data approach? a.67 b.000 and the equipment to be P900. 2009. . P A2.600.000 2. 2009. As auditor ordinarily sends a standard confirmation request to all banks with which the client has done business during the year under audit. Seek information about contingent liabilities and security agreements. Consider increasing the use of substantive test of transactions in place of analytical procedures. Test data are processed by the client’s computer programs under the auditor’s control. respectively. On December 31. Reduce the level of required tests of controls to a relatively small amount.000. A4. b. A3. Request a cutoff bank statement and related checks be sent to the auditor. P 150.000.000 800. 50. as of December 31. A primary advantage of using generalized audit software packages to audit the financial statements of a client that uses an EDP system is that the auditor may a.000. The program tested is different from the program used throughout the year by the client.000 1.000 b.000. Provide the data necessary to prepare a proof of cash.000. c. b. 2009.000 1. c.000 A5. regardless of the year-end balance. Several transactions of each type must be3 tested.38 d.

000. Charmaine sold the plant for P785. Yields a weighted sum of the strata standard deviations that is greater than the standard deviation of the population. at which time the operations of the plant will be outsourced.000.380 d.000 b. May be applied to populations where many monetary errors are expected to occur.676 A7.650. On March 31. It is depreciating the machine over 12 years by the SLM to a residual value of P100. Stratified mean per unit (MPU) sampling is a statistical technique that may be more efficient than uncertified MPU because it usually a. with accumulated depreciation of P160. because of increasing competition in the industry. P 0 A9. A8. the Paul Company purchased a machine for P1.000.000 and will incur total cash outflows of P1.000. The cash flows are independent of the company’s other activities and will occur evenly each year. Late in 2007.000. 2003. incurring P20.000 selling costs in the process. The Recoverable Cost of the machine is a. 2007. c. The plant will continue to be operated until it is sold. 2007. P 56.d. Depreciation on the plant since it was originally acquired has been charged of P10. 265. P 280.000 c.760 c. there had been an increase in the fair value to P770. the plant had not been sold but.000 incurring P25. The company undertook all the necessary actions to be able to classify the asset as held for sale. d. The depreciation expense to be recognized in 2007 is a. The fair value of the machine is P280.300. Charmaine Corporation decided to dispose of an item of plant that is carried in its records at a cost of P900.000. It is estimated that it could sell the plant for its fair value.000.000 per month. P 60. Increases the variability among items in a stratum by grouping sampling units with similar characteristics. b. P 58.000 b. the company believes that its asset may be impaired and will have a remaining useful life of 5 years over which it estimates the asset will produce total cash inflows of P2. Access information stored on computer files while understanding of the client’s hardware and software features. On January 1. 2007. Implemented internal control policies and procedures designed to detect all illegal acts.356 d. due to shortage of this type of plant. having a limited A6.000 selling costs. P 292.000 per month. On June 30. P 240.000 which it installed in a rented factory.000. Produces an estimate having a desired level of precision with a smaller sample size. The company’s discount rate is 10%.000. an auditor should obtain written management representations acknowledging that management has a. Because of the pervasive effects of laws and regulations on the financials statements of governmental units. P720. The plant has been depreciated at an amount of P10. The cost to sell the machine is P40. On January 1. .

75.000 . f. As at September 15.640 on the insurance carried was due and paid on January 1.369. Perform alternative procedures to provide a satisfactory basis for the unqualified opinion. Unpaid open invoices due to the suppliers as of the date of the fire were ascertained to be P380. b. e. 2007 that destroyed its inventory and accounting records. d. an auditor discovered that the engagement personnel failed to confirm several of the client’s material accounts receivable balances. you were requested the company to determine the amount of loss and in filing the said insurance claim. the total cost of inventory items not destroyed by the fire amounted to P434. Reported all known illegal acts and material weaknesses in internal control structure to the funding agency or regulatory body.99. The auditor should first a. b.000 carries an 80% coinsurance clause (applied to the estimated book value of inventories on the date of the fire. 193.586. Request the permission of the client to undertake the confirmation of accounts receivable. 2006. Identified and disclosed all laws and regulations that have a direct and material effect on its financial statements.722. As the external auditor of the company.68 while total collections on receivables during the same inclusive dates totaled to P2. Six months after issuing an unqualified opinion on audited financial statements. 2007. A10. You obtained the following information based on your investigation: a.b. Assess the importance of the omitted procedures to the auditor’s ability to support the previously expressed opinion.65 c.2006.925.HARPER LEE TRADING CORPORATION is in the process of filing an insurance claim in connection with a fire on September 15.319. d.11.435.776.027.628.2006 to the date of the fire totaled to P1. 275. Accounts payable and accounts receivable as reported in the latest annual financial statements amounted to P330. on the unqualified opinion. Inventory as reported in the latest annual financial statements. D1. 121.060. c. or likely to rely. Documented the procedures performed to evaluate the governmental unit’s compliance with laws and regulations. d.54. g. Almost all the merchandise items are sold at approximately 30% in excess of cost. c.50. The policy.48 d.) What is the estimated amount to be recovered from the insurance company? (Hint: recoverable amount + [(Face of policy/ Co-insurance requirement)*Fire Loss] a. dated December 31. The annual premium of P23. Inquire whether there are persons currently relying. c.614.40 this amount is based on the physical inventory count conducted by the Harper Lee under you observation on December 31. 465. All sales are on account and unpaid open invoices due from customer as of the date of the fire were ascertained to be P321. which has a face amount of P465. Payments to vendors from December 31.23 and P405.836.67 b. 2006 amounted to P632.646.

This amount was recognized as insurance expense when it was paid. 40. 34. d. Should no be part of the audit report.D2. What is the total liabilities to be reported as of the balance sheet date under the accrual basis? a. Qualify the opinion. b. a consolidated subsidiary.510 from investment is receivable at the end of 2007. Prepaid insurance f P5. f. These sentences a.000 (247.400. Divide responsibility. The company presented the foll0owing cash receipts and disbursement records for 2007: Cash receipts Cash disbursements P384. respectively.000 of it was space that will be provided in 2008. P21.010 c. b. D3.500.410 d. You estimate that your 2007 fee for accounting services that have not been billed will be P1.500 b. is based solely upon the report of other auditors. and our opinion. d. These statements were audited by other auditors. Disclaim an opinion. whose report has been furnished to us. The following information are deemed relevant in your analysis: a. c.500) P136. two-thirds of which relates to 2008.900 .500 The management requested you to compute its income under accrual basis.000 in advance rent for space in its building. is included in the 2007 cash disbursement figure.An auditor’s report contains the following: We did not audit the financial statement of B Company. which statements reflect total assets and revenues constituting 20 percent and 22 percent. Employees are due P8. Depreciation of plant assets for 2007 computed by straight-line method is P31.500.PORTER COMPANY is in its first year of operation and is using the cash basis of accounting. Porter Company received P36. of the related consolidated totals. c. 44. The entire amount is included in the cash receipts figure and was recognized as rent revenue when received. However. 30. insofar as it relates to the amounts included for B Company.400 at the end of 2007. e. Interest amounting to P9.

BRUCE Ltd. 4.00 On January 1. On January 1.Which of the following is least considered if the auditor has to determine whether specialized CIS skills are needed in an audit? a. The details of the stock options are set out below: Option to purchase Option price per share Market price per share at grant date Stock options expire 5. The auditor needs to determine the effect of the CIS environment on the assessment of overall risk and of risk at the account balance and class of transactions level. This is the only stock option plan that BRUCE offers.000 of the options were exercised when the market price of the common shares was P78.000 c.D4. The rest of the options were allowed to expire. 2007. The earlier of 4 years after issuance or the date on which an employee reaches the retirement age of 65. 2002. as determined by using a binomial valuation model P10.000 b. Granted stock options to its chief executive officer (CEO). The need of the auditor to make analytical procedures during the completion stage of audit. Design and perform appropriate tests of controls and substantive procedures. The options are first exercisable Fair value at grant date.00 The earlier of 8 years after issuance or the employee’s cessation of employment with the company for any reason other than retirement. 2007 will require a. c.000 d.000 D5.000 options on January 1. a debit to cash P312. The journal entry to record the exercise of 4. b. The auditor needs to obtain a sufficient understanding of the accounting and internal control system affected by the CIS environment. a credit to contributed surplus of P248. a credit to common shares of P40. . a debit to contributed surplus of P40.000 no-par-value common shares P62. d.00.00 P57.

000 1. indefinitely. P179. Rebecca Rose has exclusive use of the list for5 years.D6.500.000 per year.333 c.000 in 2007 and P80.584 d. Book values and fair values of the assets and liabilities of the Hayo Manufacturing reporting unit are as follows: Book values Fair values Identifiable assets P2. Goodwill for P1. P133. b) The cash flows expected to be generated by the Hayo Manufacturing reporting unit is P250. 2005. It is anticipated that the trademark will be renewed in the future. Because of market conditions. III. The trademark has 7 years remaining legal life.476 b.The following procedures may be performed by CPAs in an engagement: I.800.000. Consideration of internal control Observation Inquiry and analysis Inspection . before any adjusting entries for the year were made.000 ? Liabilities 1. P0 D7.000.800.000 c) The cash flows expected to be generated by the customers list are P120. II.On December 31. The useful life of trademark still extends beyond the foreseeable horizon. 2006. The goodwill is associated with Rebecca Rose’s Hayo Manufacturing reporting unit.000 in 2008. the following information was assembled about each of the intangible assets: a) Because of a decline in the economy. • • On December 31. IV.000 per year for the next 22 years.000. By contract. it is expected that the list will have economic value for just 3 years. without problem. Rebecca Rose Corporation acquired the following three intangible assets: • A trademark for P300. P90. A customer list for P220.700. Assume that the appropriate discount rate for all items is 6% Impairment loss for the year 2006 a.000. trademark is now expected to generate cash flows of just P10.500.000 P3.000 Goodwill 1.

Which of the following is not an objective of requiring registration of individual CPAs and Firms of partnership of CPAs engaged in public accounting practice? a. sold P6. an P8. P1.440 D9. at 101. and V only b. each year.000 bond. 2006. and VI only d. II. and July 1. P1. II and VI only c.320 b. 2001. and are due in 20 years. IV.965. interest payable semiannually on January 1. 2005 to June 30. It will enable the Board of Accountancy to formulate and implement rules and regulations more effectively for the enhancement and maintenance of high professional. IV.440 c. redeemable after June 30.000. These bonds are dated July 1. P1. 2009 at the rate of 5 shares for each P1. The following transactions occur in connection with the bonds: 2007 July 1 2008 Dec. at the rate of 4 shares for each P1.V.000 issue of 7% bonds was sold at 97.000. The company adjust its books monthly and closes its boos as of December 31. ethical.000 of 9% bonds on October 1. The bonds mature 10 years from their issue date. 2007. and VI only D8.000 face value of bonds were reacquired at 99-1/4 plus accrued interest. b. at P5. the remaining bonds were called for redemption and accrued interest was paid. I. For purposes of obtaining funds for re4demption and business expansion.000.000. These were immediately retired. at the rate of 6 shares for each P1. II. In recording the bond conversion on July 1. P1.796. 2001.747.845. III. The bonds were dated July 1.000 of bonds were converted into stock. how much should be credited to the additional paid-in capital account? a. 31 2009 July 1 P2. and technical standards of the accounting profession. and thereafter until maturity at 100 and convertible into P10 par value common stock as follows: • Until June 30.440 d. 2002.865. P1. II. • After June 30.The STEPHANY CO.000 bond. The required registration will give equal opportunities to CPAs in the practice of their profession. III. VI. 2006. 2009. to June 30. 2009.280 plus accrued interest.000 bond • Form July 1. Confirmation Obtaining management representation letter Which of the foregoing are normally performed in an agreed-upon procedures engagement? a. .

000 units P8.00/unit Product A 65. Inventories and purchase information concerning the three products are given for the month of October.00 70.621.50 30.000 units at P10.000 125. deception.000 ? 85. P60. Accordingly. Oct.90 30.250 25. 1-31 Oct.000 units at P10. It will help PRC and BOA to identify and impose corresponding sanctions and penalties on individual CPAs.000 units at P6. incompetence and incapacity in the practice of public accounting.c. the company’s suppliers reduced their prices from the most recent purchase prices by the following percentages: product C.000 35. Jennifer decided to reduce its sales price on all items by 10%.000 units P2. Jennifer’s selling cost is 10% of sales price.000 d.000 units at P8.632. d.00/unit On October 31.618.000 14.650 b. P13. 1-15 Oct. 16-31 Oct.000 12/31/2008 P4.000 1/1/2008 P6. product P.000.000 75. To protect the public against fraud.000 2.00 105.000 units at P1. 10%. 1 Oct. unethical practices and from the consequences of ignorance. P85. Jennifer Sales Company uses the first-in.500 Clincher # 1 You were able to gather the following in connection with your audit to the CHONA-ANN Company for the year ended December 31.000 units P11.00/unit Product P 30.50 50. 31 Inventory Purchases Purchases Sales Sales price Product C 50. product A.000 41.000. D10. 8%.400.000 4.25 45.000 40. first-out method in calculating cost of goods sold for the three products that the company handles. effective November 1. 2008: Accounts receivable Unpaid merchandise invoices Accrued wages Advertising supplies inventory Accrued advertising Prepaid Insurance Unexpired insurance During the year: Amount collected from customers Total payments to suppliers of merchandise Total payments to suppliers of merchandise of prior years P10.000 units at P6.000 13. The Allowance for inventory write down at October 31 is a.00 45. while the normal profit on product A (after selling cost) is 15% of sales price.150 . P5.000 units at P0. 20%. Products C and P have a normal profit (after selling costs) of 30% on sales prices.650 c.

200.000 applicable in 2006 Insurance premium paid 3.000 was sold by LANGIT Corporation.000 300.500 136. The difference between this amount and the adjusted balance was established as advances to officers and employees. 2007 showed the following: % to be applied after correct made 3% 8% 12% P4. 2007 and a debit to Allowance for Doubtful Accounts because of Bankruptcy. a tract of land that originally cost P800.050.000 note as payment.200 which represents an advance on a sales contract.400 definitely uncollectible estimated remainder is 25% uncollectible *The P2. 2007.000 on December 31. and (2) credit for P2. The company received a P1. 2008. To correct the entry to write-off the accounts receivable. (d) The allowance for Doubtful accounts showed a debit of P2. (e) A credit balance exists in the Accounts Receivable (61 – 90 days) of P4. Age Under 60 days 61-90 days 91 – 120 days over 120 days Net debit balance P172.900 39.000 write-off of receivables belongs to this category. respectively are (Give the entry) Clincher # 3 On January 2. the account debited and credited.000 125.000 and a credit equal to 5% of the December 31. It bears interest rate of 4% and is payable in 3 annual installments of P400.000 on November 4.600 * 28. 2007 Accounts Receivable balance aside from the beginning balance which amount to P20.000.(1) a debit for the amount credited to Allowance for Doubtful Accounts.000 plus interest on the outstanding .700 (b) The accounts receivable control account has a debit balance of P398.000 1. (c) Two entries were made in the Bad Debts account during the year. What is the net purchases for 2008? __________________ Clincher # 2 Information about accounts receivable during the year follows: (a) An aging schedule of the accounts as of December 31.Wages paid Advertising paid which includes P40.

The present value table shows the following present value factors of 1 at 10%.000.260. 2007. P300. of the 4 annual payments discounted at 14% (the implicit rate for a loan of this type) is P874. The prevailing rate of interest for a note of this type is 10%. 2007. 2008. P 183.000 of experimental and development costs in its laboratory to develop a patent which was granted on January 2.75132 0.400 b. YouCanPass signed an agreement to operate as a franchise of Jolibee for an initial franchise fee of P1. Expenditures for successful litigation is defense of the trademark totaling P163.400 c. 2006.200 were paid on July 1.82645 0. 2007. Legal fees and other costs associated with registration of the patent totaled P272.300. P 1. Of this amount. The total expenses resulting from the transactions that would appear on YouCanPass Company’s income statement for the year ended December 31.760 . YouCanPass Company estimates that the useful life of the trademark will be 20 years from the date of acquisition.balance.000 each. YouCanPass Company estimates the useful life of the franchise to be 10 years. The present value at January 1. P 1. c.000. The agreement provides that the down payment is not refundable and no future services are required of the franchisor.48685 The effective interest income on the note receivable for the year ended December 31. P 1.000.90909 2.133. 2004. beginning January 1.000 on July 1. YouCanPass estimates that the useful life of the patent will be 8 years.000 was paid when the agreement was signed and the balance is payable in 4 annual payments of P300.255. A trademark was purchased from McDonalds for P640. 2007 should be a. On January 1.560 d. Present Present Present Present value value value value factor of 1 for 3 periods factor of 1 for 2 periods factor of 1 for 1 period of an ordinary annuity of 1 for 3 periods 0. 2008 is __________________ Clincher # 4 The following information pertains to YouCanPass Company’s intangible assets: a.500. b. The agreement also provides that 5% of the revenue from the franchise must be paid to the franchisor annually. YouCanPass incurred P1.

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