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FEU Cavite MetroGate Silang Estates, Silang, Cavite Quiz No. 1 in Practical Auditing Second Semester,

FEU Cavite

MetroGate Silang Estates, Silang, Cavite

Quiz No. 1 in Practical Auditing

Second Semester, SY 2015-2016

Name:

Date:

Course:

Prof: Nathaniel W. Ansay

Part I Theory Multiple Choice: Write the letter of the best answer (USE CAPITAL LETTERS, NO ERASURES).

1. Who is responsible, at all times, for the amount of the petty cash fund?

A. General cashier

B. President of the company

C. Petty cash custodian

D. Chairman of the Board of Directors

2. What is the effect of not replenishing the petty cash fund at year-end and not making the appropriate adjusting entry?

A. A detailed audit is necessary.

B. The petty cash custodian should turn over the petty cash to the general cashier.

C. Cash will be overstated and expenses understated.

D. Expenses will be overstated and cash will be understated.

3. The primary purpose of sending a standard confirmation request to financial institutions with which the client has done

business during the year is to:

A. Detect kiting activities that may otherwise not be discovered.

B. Corroborate information regarding deposit and loan balances.

C. Provide the data necessary to prepare a proof of cash.

D. Request information about contingent liabilities and secured transactions.

4. The auditor should ordinarily mail confirmation requests to all banks with which the client has conducted any business during

the year, regardless of year-end balance, since

A. The confirmation form also seeks information about indebtedness to the bank.

B. This procedure will detect kiting activities which otherwise not be detected.

C. The mailing of confirmation forms to all such banks is required by GAAS.

D. This procedures relieves the auditor of any responsibility with respect to non-detection of forged checks.

5. How will the auditor most likely utilize the bank reconciliation as evidence in the audit of cash?

A. The auditor tests deposits-in-transit and outstanding items to other corroborating evidence.

B. The auditor sends the reconciliation to the bank for independent verification.

C. The auditor performs the reconciliation for the client to record the proper cash balance.

D. The auditor traces the book balance of the reconciliation to the cutoff bank statement.

6. The opinion expressed by the auditor when the auditor concludes that the financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework is

A. Qualified opinion

B. Unmodified opinion

C. Undeniable opinion

D. Denial of opinion

7. The adverse opinion report will be issued by the independent auditor when he/she

A. Suspects the client has not followed the identified financial reporting framework.

B. Suspects the client’s financial statements are not in conformity with PSAs.

C. Has knowledge that the financial statements are not in conformity with the applicable financial reporting framework.

D. Has knowledge that PSAs were not followed.

8. Both disclaimers and adverse opinions are used

A. When the condition is material and pervasive.

B. Irregardless of the auditor’s independence.

C. Whether the condition is material or not.

D. Irregardless of client’s choice of unacceptable accounting method.

9. Which of the following circumstances would most likely cause the auditor to modify his opinion?

Immaterial Misstatements

Scope Limitation

A.

Yes

No

B.

Yes

Yes

C.

No

No

D.

No

Yes

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FEU Cavite MetroGate Silang Estates, Silang, Cavite Quiz No. 1 in Practical Auditing Second Semester,

FEU Cavite

MetroGate Silang Estates, Silang, Cavite

Quiz No. 1 in Practical Auditing

Second Semester, SY 2015-2016

Name:

Date:

Course:

Prof: Nathaniel W. Ansay

10. If the auditor believes that a required material disclosure is omitted from the financial statements, the auditor should decide between issuing a(n)

A. Qualified opinion or an adverse opinion.

B. Disclaimer of opinion or a qualified opinion.

C. Adverse opinion or a disclaimer opinion.

D. Unmodified opinion or a qualified opinion.

Part II Problems Multiple Choice: Write the letter of the best answer (USE CAPITAL LETTERS, NO ERASURES).

11. The following information has been extracted from the accounting records of the 31, 2014:

HAZELNUT COMPANY at December

1.

Cash on hand (undeposited sales receipts)

P40,800

2.

Certificate of time deposit with maturity of 3 months

1,000,000

3.

Customer’s note receivable

40,000

4.

Reconciled balance in AA Bank checking account

(14,000)

5.

Reconciled balance in BB Bank checking account

374,000

6.

Balance in CC savings account

342,400

7.

Customer’s postdated check

54,000

8.

Employee travel advances

64,000

9.

Cash in bond sinking fund

48,000

10.

Bond sinking fund investments

323,600

11.

Postage stamps

17,000

What total amount should Hazelnut Company report as “Cash” at December 31, 2014?

A. P805,200

C. P743,200

B. P757,200

D. P703,200

12. The controller of the LYRIC CO. is trying to determine the amount of cash and cash equivalents to be reported on its December 31, 2014, statement of financial position. The following information is provided:

1.

Balances in the company’s accounts at the Monte Bank:

* Checking account P540,000

* Savings account P884,000

2.

Undeposited customer checks of P208,000.

3.

Currency and coins on hand of P23,200.

4.

Savings account at the Naic Bank with a balance of P350,000. This account is being used to accumulate cash for future

plant expansion (in 2016).

5. P800,000 balance in a checking account at the Naic Bank. In exchange for a line of credit, Lyric Co. has agreed to

maintain a minimum balance of P100,000 in this account.

6. Treasury bills; 30-day maturity bills totaling P600,000, and 180-day bills totaling P800,000.

What total amount of “Cash and cash equivalents” should be reported in the current asset section of the 2014 statement of financial position?

A. P3,055,200

C. P2,955,200

B. P2,455,200

D. P2,355,200

13. The controller of the OTO COMPANY is the process of preparing the company’s December 31, 2014 financial statements. He is trying to determine the correct balance of cash and cash equivalents to be reported as a current asset in the statement of

financial position. The following items are being considered:

1. Savings account of P900,000 and a checking account balance of P1,200,000 are held at Manila Bank.

2. Money market placement with maturity of 3 months, P7,500,000.

3. Currency and coins on hand amounted to P11,550.

4. Travel advances of P270,000 for the first quarter of next year (employee reimbursement will be through salary deduction).

5. Oto Company has purchased P3,150,000 of commercial paper of Mendez Corp. which is due in 60 days.

6. A separate cash fund amounting to P2,250,000 is restricted for the retirement of long-term debt.

7. Petty cash fund of P1,500.

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FEU Cavite MetroGate Silang Estates, Silang, Cavite Quiz No. 1 in Practical Auditing Second Semester,

FEU Cavite

MetroGate Silang Estates, Silang, Cavite

Quiz No. 1 in Practical Auditing

Second Semester, SY 2015-2016

Name:

Date:

Course:

Prof: Nathaniel W. Ansay

8. An IOU from an employee of Oto Company in the amount of P2,000.

9. Two certificates of deposit, each totaling P500,000. These CDs have a maturity of 120 days.

10. Oto Company has received a check from a customer in the amount of P187,500 dated January 15, 2015.

11. Oto Company has agreed to maintain a cash balance of P50,000 at all times at Manila Bank to ensure future credit

availability.

12. On January 1, 2014, Oto Company purchased marketable equity securities to be held as “trading” for P3,000,000. On

December 31, 2014, its market value is P4,300,000. What amount should be reported as “Cash and cash equivalentson December 31, 2014?

A.

B.

P13,763,050

P12,575,550

C. P12,751,500

D. 12,763,050

14. The accountant of SANTIAGO COMPANY is in the process of preparing the company’s financial statements for the year ended December 31, 2014. He is trying to determine the correct balance of cash and cash equivalents to be reported as a current asset on the statement of financial position. The following items are being considered:

• Balances in the company’s accounts at the Metropolitan bank:

Current account

P81,000

Savings account

P132,600

Undeposited customer checks of P22,200 (including a customer check dated January 2, 2015 for P3,000).

Currency and coins on hand of P3,480.

Savings account at the Northern Philippines Bank with a balance of P2,400,000. This account is being used to accumulate

cash for future plant expansion (in 2015).

Petty cash of P4,000 (currency of P1,200 and unreplenished vouchers of P2,800).

P120,000 in a current account at the Northern Philippines Bank. This represents a 20% compensating balance for P600,000

loan with the bank. Santiago Company is legally restricted to withdraw the funds until the loan is due in 2017.

Treasury bills:

Two-month maturity bills

P90,000

Seven-month bills

120,000

• Time deposit

What is the correct balance of Cash and cash equivalents to be reported in the current assets section of the statement of financial position?

P100,000

A. P547,480

C. P430,280

B. P427,480

D. P327,480

15. Your audit of the December 31, 2014, financial statements of DIONISIO CORP. reveals the following:

Current account at Prime Bank

P

(30,000)

Current account at Prudent Bank

135,000

Treasury bills (acquired 3 months before maturity)

300,000

Treasury bills (maturity date is Dec. 31, 2015)

1,500,000

Payroll account Foreign bank account restricted (translated using

390,000

the December 31, 2014, exchange rate)

2,000,000

Postage stamps

1,250

Employee’s postdated check

4,500

IOU from the vice-president

8,000

Credit memo from a supplier for a purchase return

8,100

Traveler’s check

21,000

Money order

12,900

Petty cash fund (P3,000 in currency and expense receipts for P12,000)

15,000

What amount would be reported as “Cash and cash equivalents” in the statement of financial position on December 31, 2014?

A. P840,050

C. P849,400

B. P873,900

D. P861,900

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FEU Cavite MetroGate Silang Estates, Silang, Cavite Quiz No. 1 in Practical Auditing Second Semester,

FEU Cavite

MetroGate Silang Estates, Silang, Cavite

Quiz No. 1 in Practical Auditing

Second Semester, SY 2015-2016

Name:

Date:

Course:

Prof: Nathaniel W. Ansay

Nos. 16 to 20 is based on the following information. In connection with your audit of the financial statements of ONOR COMPANY for the year ended December 31, 2014, you gathered the following information.

1. The company maintains its current account with Tsunami Bank. The bank statement on

balance of P638,340. Your audit of the company’s account with Tsunami Bank disclosed the following:

A check for P22,500 received from a customer whose account is current had been deposited and then returned by the bank

on December 28, 2014. No entry was made for the return of this check. The customer replaced the check on January 15,

2015.

A check for P5,720 was cleared by the bank as P7,520. The bank made the correction on January 2, 2015.

A check for P3,500 representing payment of an employee advance was received and deposited on December 27, 2014, but

was not recorded until January 3, 2015.

Postdated checks totaling P67,300 were included in the deposits in transit. These represent collections of current accounts

receivable from customers. The checks were actually deposited on January 5, 2015.

Various debit memos for drafts purchased for payment of importation of equipment totaling P230,000 were not yet recorded. These purchases were previously set up as accounts payable. Said equipment arrived in December 2014.

Interest earned on the bank balance for the 4th quarter of 2014, amounting to P1,950 was not recorded.

Bank service charges totaling P1,260 were not recorded.

Deposit in transit and outstanding checks at December 31, 2014 totaled P136,250 and P276,380, respectively.

December 31, 2014 showed a

2. Various expenses from the company’s imprest petty cash fund dated December 2014 totaled P16,250, while those dated

January 2015 amounted to P5,903. Another disbursement from the fund dated December 2014 was a cash advance to an

employee amounting to P3,500. A replenishment of the petty cash fund was made on January 8, 2015.

3.

The company’s trial balance on December 31, 2014 includes the following accounts:

 

Cash in bank Tsunami Bank

P 748,320

Cash in bank Earthquake Bank (restricted account for plant expansion, expected to be disbursed in 2015)

700,000

Petty cash fund

30,000

Time deposit, placed December 20, 2014 and due March 20, 2015

1,000,000

Money market placement Prudential Bank

4,000,000

16.

What is the adjusted petty cash fund balance on December 31, 2014?

 

A. P4,347

C. P30,000

B. P10,250

D. P24,097

17.

The unadjusted book balance of Cash in bank Tsunami Bank on December 31, 2014

 

A. P748,320

C. P638,340

B. P429,110

D. P500,010

18.

What is the adjusted Cash in bank Tsunami Bank balance on December 31, 2014?

 

A. P500,010

C. P432,710

B. P748,320

D. P429,110

19.

The entry to adjust the Cash in bank Tsunami Bank account should include a debit to

 

A. Accounts receivable for P89,800.

B. Accounts receivable for P86,300.

C. Accounts payable for P228,200.

D. Interest expense for P1,950.

20.

The December 31, 2014 statement of financial position should show “Cash and cash equivalents” at

 

A. P6,142,960

C. P4,442,960

B. P5,439,360

D. P5,442,960

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