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AUDITING PROBLEMS
Final Pre board Examination
1. Which of the following is not one of the independent auditors objectives regarding the audit of inventories?
a. Verifying that inventory counted is owned by the client.
b. Verifying that the client has used proper inventory pricing.
c. Ascertaining the physical quantities of inventory on hand.
d. Verifying that all inventory owned by the client is on hand at the time of the count.
2. An auditor is most likely to inspect loan agreements under which an entitys inventories are pledged to support
managements financial statement assertion of
a. Existence or occurrence.
c. Presentation and disclosure.
b. Completeness.
d. Valuation or allocation.
3. An auditor selected items for test counts while observing a clients physical inventory. The auditor then traced the
test counts to the clients inventory listing. This procedure most likely obtained evidence concerning
a. Existence
b. Completeness
c. Rights
d. Valuation
4. A client maintains perpetual inventory records in both quantities and pesos. If the assessed level of control risk is
high an auditor will probably
5. a. Apply gross profit tests to ascertain the reasonableness of the physical counts.
b. Increase the extent of tests of controls relevant to the inventory cycle.
c. Request the client to schedule the physical inventory count at the end of the year.
6. d. Insist that the client perform physical counts of inventory items several times during the year.
7. If the perpetual inventory records show lower quantities of inventory than the physical count an explanation of the
difference might be unrecorded
8.
a. Sales
10. c. Purchases
9.
b. Purchase returns
d. Purchase discounts
11. The physical count of inventory of a retailer was higher than shown by the perpetual records. Which of the
following could explain the difference?
a. Inventory item has been counted but the
tags placed on the items had not been taken off the items and added to the inventory accumulation sheets.
b. Credit memos for several items returned by customers had not been recorded.
c. No journal entry had been made on the retailers books for several items returned to its suppliers.
d. An item purchased FOB shipping point had not arrived at the date of the inventory count and had not been
reflected in the perpetual records.
12. The audit of year- end inventories should include steps to verify that the clients purchases and sale cut offs were
adequate. This audit steps should be designed to detect whether merchandise included in the physical count at
year-end was not recorded as a
13.
a. Sale in the subsequent period
c. Sale in the current period
14. b. Purchase in the current period
d. Purchase in the subsequent period
15. An auditors observation of physical inventories at the main plant at year-end provides direct evidence to support
which of the following objectives?
16. a. Accuracy of the periodic inventory.
b.
Evaluation of lower of cost or net realizable value test.
c. Identification of obsolete or damaged merchandise to evaluate allowance (reserve) for obsolescence.
d. Determination of goods on consignment at another location.
17. The auditor tests the quantity of materials charged to work in process by tracing these quantities to
18.
a. Cost ledgers
20. c. Receiving reports
19. b. Perpetual inventory records
21. d. Material requisitions
22. Jamaica, Inc., grants its customers 30 days credit. The company uses the allowance method for its uncollectible
accounts receivable. During the year, a monthly bad debt accrual is made by multiplying 2% by the amount of
credit sales for the month. At December 31, an aging of accounts receivable schedule is prepared and the
allowance for uncollectible accounts is adjusted accordingly.
23. At the end of 2013, accounts receivable were P1,250,000 and the allowance account had a credit balance of
P106,000. Accounts receivable activities for 2014 were as follows.
24. Credit sales
P3,800,000
Write-offs
82,000
25. Collection
?
26. The companys controller prepared the following aging summary of year-end accounts receivable:
27. Age Group
Amount
Percent uncollectible
28. 0-60 days
P825,000
2%
29. 61-90 days
220,000
10%
91-120 days
50,000
30%
Over 120 days
128,000
40%
30. Total
P1,223,000
31.
32. QUESTIONS:
33. Based on the above and the result of your audit, answer the following:
34. The balance in the allowance for uncollectible accounts before year-end adjustment is
a. P100,000
b. P104,700
c. P106,000
d. P76,000
35. The acquired balance in the allowance for uncollectible accounts at December 31,2014 is
a. P100,000
b. P76,000
c. P104,700
d. P106,000
36. The total bad debt expense for 2014 is
37. a. P76,000
b. P71,300
c. P4,700
d. P80,700
38. The amortized cost of accounts receivable at December 31,2014 is
39. a. P1,123,000
b. P1,118,300
c. P1,223,000
d. P1,142,000
40. How much was collected from customers during 2014?
41. A. P1,332,000
b. P4,968,000
c. P4,941,000
d. P3,745,000
42. Shown below is the bank reconciliation for Marikina Company for November 2014:
43. Balance per bank. Nov. 30,2014
Add: Deposits in transit
Total
Less: Outstanding checks
.
Bank credit recorded in error
44. Cash balance per books, Nov. 30,2014
P150,000
24,000
174,000
P28,000
10,000
38,000
P136,000
45. The bank statement for December 2014 contains the following data:
46. Total deposits
P110,000
47. Total charges, P96,000, including an NSF check of P8,000 and a service charge of P400
48. All outstanding checks on November 30,2014, including the bank credit, were cleared in the bank in December
2014.
49. There were outstanding checks of P30,000 and deposits in transit of P38,000 on December 31,2014.
50. QUESTIONS:
51. Based on the above and the result of your audit, answer the following:
52.
53.
54.
55.
56.
57.
58.
d. P172,400
d. P148,000
d. P98,000
d. P162,000
d. P196,000
61. On June 1, 2013, Panday Corporation purchased as a long term investment 6,000 of the P1,000 face value, 8%
bonds of Pira Corporation. Because of the entity demonstrates an ability and positive intent of holding the bonds
until maturity, Panday Corporation designates the bonds as held to maturity securities. The bonds were
purchased to yield 10% interest. Interest is payable semi-annually on December 1 and June 1. The bonds mature
on June 1,2019. On November 1,2014, Panday Corporation sold the bonds for a total consideration of
P5,887,500.
62. QUESTIONS:
63. Based on the above and the result of your audit, determine the following: (Round off present value factors to four
decimal places).
64. The purchases price of the bonds on June 1,2013 is
a. P5,467,992
b. P5,536,698
c. P5,545,104
d. P5,436,894
65. The carrying amount of the investment in bonds as of December 31,2013 is
a. P5,588,878
b. P5,474,311
c. P5,579,979
d. P5,507,237
66. The interest income for the year 2014 is
67. a. P459,911
b. P466,073
c. P466,827
d. P457,122
68. The gain on sale of investment in bonds on November 1,2014 is
a. P31,794
b. P120,352
c. P41,448
d. P156,068
69. PROBLEM NO.5
70. Painless Company has an overdue note receivable from Painful Company for P300,000. The note was dated
January 1,2010. It has an annual interest rate of 9%, and interest is paid December 31 of each year. Painful paid
the interest on the note on December 31,2010, but Painful did not pay the interest due in December of 2011. The
current effective interest rate is 6%.
71. On January 1,2012, Painless agrees to the following restructuring arrangement:
Reduce the principal to P250,000.
Forgive recorded accrued interest.
Reduce the interest rate of 6%.
Extend the maturity date of the note to December 31,2014.
72. QUESTIONS:
73. Based on the above and the result of your audit, answer the following: (Round off present value factors to four
decimal places).
74. The present value of the future cash flows of the restricted loan is
a. P250,000
b. P231,020
c. P233,145
d. P238,613
75. The loss on impairment of loan to be recognized by Painless in 2012 is
76. a. P95,980
b. P77,000
c. P88,387
d. P93,855
77. The interest income to be recognized in 2012 is
a. P20,792
b. P20,983
c. P21,475
d. P15,000
78. The carrying amount of the loan as of December 31,2012 is
79. a. P239,128
b. P245,088
c. P236,812
d. P250,000
80.
B.
81.
The trial balance of Penshoppe Company at December 31, 2014 includes the following accounts:
82.
83.
84.
85.
88.
90. 19,700
91.
93. 110,20
0
94.
96. 162,00
0
97.
100.
101.
87. P
5,000
99. 4,000
102.
65,000
103.
104.
105.
a
106.
2014:
The petty cash fund consisted of the following items as of December 31,
107.
108.
109.
b
110.
Customer's check for P5,000 returned by bank on December 26, 2014 due to insufficient
funds, but subsequently redeposited and cleared by the bank on January 10, 2015.
Postal money orders received from customers, P2,800.
Customer's check for P1,500 dated January 10, 2015 received December 23, 2014.
111.
112.
113.
114.
115.
c
116.
Included among the checks drawn by Penshoppe against the Metrobank
current account and recorded in December 2014 are the following:
Check #1214 written and dated December 23, 2014 and delivered to payee on January 3,
2015, P2,500.
Check #1219 written December 26, 2014, dated January 30, 2015, delivered to payee on
December 28, 2014, P4,300.
117.
118.
119.
120.
121.
d
122.
The credit balance in Allied Bank payroll account represents checks drawn in
excess of the deposit balance which are still outstanding at December 31, 2014. A right
of offset exists in the agreement between Allied Bank and its depositors.
123.
126.
The savings account deposit in Security Bank was set aside by the Board of
Directors for the acquisition of new equipment. This amount is expected to be
disbursed in March 2015.
124.
125.
e
127.
128.
2
129.
130.
131.
132.
A.
P5,000
136.
137.
2
138.
139.
140.
141.
A.
P10,400
145.
146.
3
147.
The amount of cash in bank that will be included in the Cash balance in the
current assets section of the balance sheet is
148.
149.
150.
A.
P268,200
154.
155.
3
156.
157.
158.
159.
A.
P100
overage
133.
B.
P3,480
134.
C.
P3,320
135.
D. P1,490
The correct cash on hand at December 31, 2014 (excluding petty cash fund)
142.
B.
P13,200
151.
B.
P275,000
143.
C.
P16,000
152.
C.
P279,000
144.
D.
P19,700
153.
D.
P340,000
160.
B.
P60
overage
161.
Zero
C.
162.
D.
shortage
P60
163.
164.
M
165.
The capital structure of Buenos Aires Corporation on December 31, 2013 follow:
166.
167.
168.
169.
170.
171.
172.
173.
174.
a.
b.
c.
d.
e.
f.
g.
175.
176. 177.
3
P 6,000,000
5,000,000
1,800,000
1,500,000
2,200,000
179.
180.
181.
A.
P5,200,000
185.
186.
3
187.
182.
B.
P6,000,00
0
183.
C.
P6,080,000
184.
D.
P6,800,000
188.
189.
190.
A.
P4,650,000
194.
195.
3
196.
197.
198.
199.
A.
P3,076,000
203.
204.
3
205.
206.
207.
208.
A.
200,000
212.
213.
3
214.
215.
216.
217.
A.
P2,200,000
191.
B.
P4,625,00
0
192.
C.
P5,000,000
193.
D.
P10,000,000
200.
B.
P3,201,00
0
201.
C.
P3,316,000
202.
D.
P3,340,000
209.
B.
190,000
210.
C.
188,000
211.
D.
178,000
218.
B.
P3,730,00
0
219.
C.
P3,970,000
220.
D.
P4,050,000
221.
222.223.
The following is a condensed trial balance of Probe Company, a publicly held company, after
D adjustment for income tax expense:
224.225.
228.229.
Cash
232.233.
236.237.
240.241.
Accumulated depreciation
244.245.
Dividends payable
248.249.
252.253.
256.257.
Bonds payable
260.261.
264.265.
Ordinary share
268.269.
Share premium
272.273.
Retained earnings
276.277.
Sales
280.281.
Cost of sales
284.285.
288.289.
Interest income
292.293.
Interest expense
296.297.
Depreciation
300.301.
304.305.
308.309.
226.
12/31
/14 balances
230.
484,0
00
234.
670,0
00
238.
1,070
,000
242.
(345,
000)
246.
(25,0
00)
250.
(60,0
00)
254.
(63,0
00)
258.
(500,
000)
262.
(71,0
00)
266.
(350,
000)
270.
(430,
000)
274.
(185,
000)
278.
(2,42
0,000)
282.
1,863
,000
286.
220,0
00
290.
(14,0
00)
294.
46,00
0
298.
88,00
0
302.
7,000
306.
(90,0
00)
310.
105,0
00
227.
231.
12/31/13
balances
817,000
235.
610,000
239.
995,000
243.
247.
251.
255.
259.
(280,000)
(10,000)
(150,000)
(42,000)
(1,000,000)
263.
(150,000)
267.
(150,000)
271.
(375,000)
275.
(265,000)
279.
283.
287.
291.
295.
299.
303.
307.
311.
312.313.
316.317.
318.
320.
322.
324.
326.
314.
315.
Additional information:
During 2014, equipment with an original cost of P50,000 was sold for cash, and equipment costing
P125,000 was purchased.
319.
On January 1, 2014, bonds with a face value of P500,000 and related premium of P75,000 were
redeemed. The P1,000 face value 10% par bonds had been issued on January 1, 2005, to yield
8%. Interest is payable annually every December 31 through 2017.
321.
Probes tax payments during 2014 were debited to Income Taxes Payable. Probe recorded a
deferred income tax liability of P42,000 based on temporary differences of P120,000 and an
enacted tax rate of 35% at December 31, 2013. Prior to 2013, there were no temporary
differences. Probes 2014 financial statement income before income taxes was greater than its
2014 taxable income, due entirely to temporary differences by P60,000. Probes cumulative net
taxable temporary differences at December 31, 2014 were P180,000. Probes enacted tax rates
for the current and future years is 35%.
323.
60,000 P2.50 par ordinary shares were outstanding at December 31, 2013. Probe issued an
additional 80,000 shares on April 1, 2014.
325.
There were no changes to retained earnings other than dividends declared.
327.
328.329.
37.
331.332.
337.338.
38.
340.341.
346.347.
39.
349.350.
355.356.
40.
358.359.
364.365.
41.
367.368.
373.374.
42.
376.377.
48.
330.
333.
339.
A. P42,000 334.
B. P46,000
Income taxes paid were
342.
A.
343.
B.
105,000
174,000
348.
Basic earnings per share is
335.
C. P50,000
344.
C.
P180,000
351.
357.
A. 1.393
352.
B. 1.625
353.
Cash flow from operating activities is
360.
A. P46,000
D. P84,000
345.
D.
P195,000
354.
D. P3.25
362.
C.
P67,000
Cash flow from (used in) investing activities is
363.
D. P75,000
369.
A.
370.
B.
371.
C.
P(590,000)
P(125,000)
P(105,000)
375.
Cash flow from financing activities is
372.
D. P20,000
366.
361.
C. 2.438
336.
B. P50,000
378.
A.
379.
B.
380.
C.
381.
D.
P(295,000)
(341,000)
(P345,000)
(P385,000)
43. Which of the following pairs of accounts would an auditor most likely analyze on the same working paper?
A.
Notes receivable and accounts payable.
C.
Notes receivable and interest income.
B.
Notes receivable and interest payable.
D.
Interest income and interest expense.
44. The current file of an audit documentation most likely would include
A.
Bond indenture of 20-year bonds
C.
Pension plan contract
payable.
D.
Analysis of accounts receivable
B.
Articles of incorporation.
45. An audit documentation should
A.
not contain comments concerning management.
B.
show that the accounting records agree or reconcile with the management.
C.
be destroyed after an announcement has been made for litigation involving an audit engagement.
D.
be made available to others even without the consent of the audit client.
46.
In which of the following circumstances would an auditor choose between issuing a qualified opinion and issuing a
disclaimer of opinion on a clients financial statements?
A.
Departure from reporting framework.
B.
Inadequate disclosure of accounting policies.
C.
Inability to obtain sufficient appropriate evidence.
D.
Unreasonable justification for a change in accounting policy.
47.
The following factors are considered in the selection of audit procedures to be performed in an engagement,
except
A.
the composition of the audit team.
C.
level of audit risk.
B.
audit objectives.
D.
type of audit evidence available.
A working paper that gives the components of a line item to be presented on the face of the financial statements is called
A.
B.
C.
D.
lead schedule.
draft of financial statements.
49.
50.
52.