Cebu Institute of Technology University

College of Management, Business, & Accountancy

Department of Accountancy

Mid-term examination
ARC 416 – Applied Auditing
JESAPARIYA

Instruction: KINDLY SHOW YOUR SOLUTIONS IN GOOD FORM. MAKE A SUMMARY OF YOUR
FINAL ANSWERS ON THE FIRST SHEET OF YOUR ORANGE BOOKLET. A DEMERIT OF 10 POINTS
WILL BE CHARGED FOR NOT FOLLOWING INSTRUCTION. WRITE THE AMOUNTS and THE
LETTERS in the summary. (3 PTS PER REQUIREMENT)
Problem 1
Using the data given below, compute for the cash balance for purposes of a condensed statement of financial
position:
Currency and coins P 50,000
Checks received from customers 600,000
Certificate of deposit, term: 12 months 800,000
Petty cash fund 4,000
Postage stamps 600
Bank A, Checking account balance 2,100,000
Postdated check, customer 10,000
Money order from customer 15,000
Cash in savings account 100,000
Bank draft from customer 40,000
Utility deposit to Gas Company, refundable 5,000
Cash advance received from customer 800
NSF Check, C Pah 20,000
Cash advance to company executive, collectible upon demand 200,000
Bank B, checking account, overdraft 20,000
IOU’s from employees 12,000
a. P2,869,000 b. 2,874,000 c. 2,882,000 d. 2,909,000

Problem 2
The following long-term receivables were reported in the December 31, 2017, statement financial position of XYZ
CORPORATION:

Note receivable from sale of plant P3,000,000

Note receivable from officer 800,000

The following transactions during 2018 and other information relate to the company’s long-term receivables:

1. The note receivable from sale of plant bears interest at 12% per annum. The note is payable in 3 annual
installment of P1,000,000 plus interest on the unpaid balance every April 1. The initial principal and interest
payment was made on April 1, 2018.

2 The note receivable from officer is dated December 31, 2017 earns interest at 10% per annum, and is due on
December 31, 2020. The 2018 interest was received on December 31, 2018.

3. XYZ sold a piece of equipment to Banana, Inc. on April 1, 2018 in exchange for a P400,000 non-interest-bearing
note due on April 1, 2020. The note had no ready market, and there was no established exchange price for the

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equipment. The prevailing interest rate for a note of this type at April 1. 2018, was 12%. The present value factor
of 1 for two periods at 12% is 0.797.

4. A tract of land was sold by XYZ to MNO, Inc. on July 1, 2018, for P2,000,000 under an installment sale contract.
Orange signed a 4-year 11% note for P1,400,000 on July 1, 2018, in addition to the down payment of P600,000.
The equal annual payments of principal and interest on the note will be P451,250 payable on July 1, 2019, 2020,
2021, and 2022. The land had an established cash price of P2,000,000 and its cost to XYZ was P1, 500, 000. The
collection of the installment on this note is reasonably assured.

Answer the following:

1. The amount to be reported as noncurrent receivables in the statement of financial position at December
31, 2018,
a. 3,096,242 b. 3,067,550 c. 3,221,550 d. 3,250,242
2. The current portion of notes receivable on December 31, 2018, should be
a. 1,451,250 b. 1,297,250 c. 2,097,250 d. 2,297,250
3. The accrued interest receivable on December 31, 2018, should be
a. 257,000 b. 180,000 c. 285,692 d. 334,000
4. On December 31, 2018, the unamortized discount on note receivable from sale of equipment should be
a. 42,944 b. 109,892 c. 0 d. 52,508
5. The total interest income for the year ended December 31, 2018 should be
a. 427,000 b. 455,692 c. 375,692 d. 532,692

Problem 3
CDE Corp. has the following data relating to accounts receivable for the year ended December 31, 2017:
Accounts receivable, 1/1/17 480,000
Allowance for doubtful accounts, 1/1/2017 19,200
Sales during the year, all on credit, terms 2/10
1/15, n/60 2,400,000
Cash received from customers during the year 2,560,000
Accounts written off during the year 17,600

An analysis revealed that 1,411,200 was received from customers availing the 10-day discount period, 792,000
from customers availing the 15-day discount period, 4,800 represented recovery of accounts written-off, and the
balance was received from customers paying beyond the discount period. The allowance for doubtful accounts is
adjusted so that it represents certain percentage of the outstanding accounts receivable at year end. The required
percentage at December 31, 2017 is 125% of the rate used on December 31, 2016.

Answer the following:

1. Accounts receivable at December 31, 2017
a. 270,400 b. 307,200 c. 265,600 d. 302,400
2. The allowance for doubtful accounts at December 31, 2017
a. 13,280 b. 15,120 c. 15,360 d. 13,520
3. The doubtful accounts expense for the year ended December 31, 2017.
a. 6,880 b. 7,120 c.8,720 d. 8,960

Problem 4
During your audit, you noted that BCD Trading held its cash books open after year-end and revealed the following
a. Receipts for January 2018 of 327,300 were recorded in the December 2017 cash receipts book. The receipts of
180,050 represent cash sales and 147,250 represent collections from customers, net of 5% cash discounts.

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b. Accounts payable of 186,200 was paid in January 2018. The payments, on which the discounts of 6,200 were
taken, were included in the December 2017 check register.

c. Merchandise inventory is valued at 3,025,000 prior to any adjustments. The following information had been
found relating to certain inventory transactions.
c.1. Goods valued at 137,500 are on consignment with a customer. These goods are not included in the
inventory figure.

c. 2. Goods costing 108,750 were received from a vendor on January 4, 2018. The related invoice was
received on January 6, 2018. The goods were shipped on December 31, 2017, terms FOB shipping
point.

c.3. Goods costing 318,750 were shipped on December 31, 2017 and were delivered to the customer on
January 3, 2018. The terms of the invoice were FOB shipping point. The goods were included in
the 2017 ending inventory even though the sale was recorded in 2017.

c.4. A 91,000 shipment of goods to a customer on December 30, terms FOB destination are not included
in the year-end inventory. The goods cost 65,000 and were delivered to the customer on January
3, 2018. The sale was properly recorded in 2018.

c. 5. The invoice for goods costing 87,500 was received and recorded as a purchase on December 31,
2017. The related goods, shipped FOB destination were received on January 4, 2018 and thus
were not included in the physical inventory.

c. 6. Goods valued at 306,400 are on consignment from a vendor. These goods are not included in the
physical inventory.

Based on the unadjusted Trial Balance of BCD Trading, the following date are available:
Cash, 481,600 Accounts payable, 2,100,500
Accounts receivable, 1,127,000 Accrued expenses, 215,500
Inventory, 3,025,000

Compute the adjusted balances of the following:

1. Cash
a. 481,600 b. 340,500 c. 334,300 d. 346,700
2. Accounts receivable
a.. 1,454,300 b. 1,282,000 c. 1,127,000 d. 1,274,250
3. Inventory
a. 3,017,500 b. 3,040,000 c. 2,930,000 d. 2,505,000
4. Accounts Payable
a. 2,395,450 b. 2,307,950 c. 2,286,500 d. 2,301,750
5. Current ratio
a. 2 b. 1.83 c. 1.84 d. 2.01

Problem 5
On May 31, 2015, Peter Co. had an adjusted credit balance of P4,000 in its allowance for uncollectible accounts. An
analysis of Peter’s trade accounts receivable at that date revealed the following:

Age Amount Estimated Uncollectible

0-30 P 240,000 5%
31-60 16,000 10%
Over 60 days 8,000 P 5,600

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What amount should Peter report as allowance for uncollectible accounts in its May 31, 2015 statement of financial
position?
a. 5,600 b. 19,000 c. 12,900 d. 19,200

Problem 6
The inventory on hand at December 31, 2013 for Conrad Company is valued at a cost of P947,800. The following
items were not included in this inventory amount:
A. Purchased goods in transit shipped FOB destination. Invoice price-P32,000, which includes freight charges of P1,
600.
B. Goods held on consignment by Conrad at a sales price of P28,000, including sales commission of 20% of the sales
price.
C. Goods sold to Ube Company, under terms FOB destination, invoiced for P24,400 which includes P1, 000 freight
charges to deliver the goods. The goods are in transit.
D. Purchased goods in transit, terms FOB shipping point. Invoice price-P48,000. Freight costs P3,000.
E. Goods out on consignment to Can Company, sales price-P36,400. Shipping cost of P2,000.
Mark-up on cost for sale is 30%.

What is the correct cost of inventory to be reported in Conrad’s financial statements?

a. 1,046,800 b. 1,046,000 c. 1,406,000 d. 1,064,800

Problem 7
The following selected transactions occurred during the year ended December 31, 2017:
Gross sales (cash and credit) 750,000
Collections from credit customers, net of 2% cash discount 245,000
Cash Sales 150,000
Uncollectible accounts written off 16,000
Credit memos issued to credit customers for sales returns and allowances 8,400
Cash refunds given to cash customers for sales returns and allowances 12,640
Recoveries on accounts receivable written off in prior years (not included
In cash received stated above) 5,421
At year-end, the company provides for estimated bad debt losses by crediting the Allowance for Bad Debts account
for 2% of its net credit sales for the year. What is the bad debt expense for 2017?
a. 11,000 b. 13,400 c. 11,732 d. 8,400

Problem 8
On December 31, 2018. TUV signed a 2,000,000 note to LBP Bank. The market interest rate at that time was 12%.
The stated interest on the note was 10%, payable annually. The note matures in five years. Unfortunately, because
of lower sales, TUV’s financial conditioned worsened. On December 31, 2020, LBP Bank determined that it was
probable that TUV would pay back only 1,200,000 of the principal at maturity. However, it was also considered
likely that interest would continue to be paid, based on the 2,000,000 loan. The prevailing interest rate for similar
type of note as of December 31, 2017 is 14%. (Round off PV factors to four decimal places)

1. Amount of Cash TUV received from the loan on December 31, 2018
a. 2,000,000 b. 1,892,960 c. 1,855,760 d. 1,134,800
2. Interest income in 2020
a. 225,414 b. 230,414 c. 222,691 d. 200,000
3. Loan impairment loss in 2020
a. 665,480 b. 616,009 c. 569,345 d. 761,489
4. Interest income in 2021
a. 137,085 b. 160,142 c. 239,858 d. 200,000

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