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Which of the following statements is/are correct?

Statement 1: On recurring audits, the auditor should consider whether circumstances


require the terms of the engagement to be revised and whether there is a need to remind
the client of the existing terms of engagement.
Statement 2: The auditor should send a new engagement letter ecah year to an established
client.

Select one:
a. both statements are incorrect
b. both statements are correct
c. only statement 1 is correct 
d. only statement 2 is correct
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Question 2
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An engagement letter is prepared with the interest(s) of 

Select one:
a. the client only
b. the public
c. the auditor only
d. both the client and the auditor 
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Question 3
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Set the following phases in proper order:


i. Pre-Engagement
ii. Internal Controls
iii. Evidence-Gathering
iv. Planning
v. Post-Audit Responsibilities
vi. Reporting

Select one:
a. i, iv, iii, ii, v, vi
b. i, ii, iii, iv, v, vi
c. i, iv, ii, iii, vi, v 
d. i, iv, ii, iii, v, vi
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Question 4
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The objective and scope of the audit and the extent of the auditor’s responsibilities to the
client are best documented in

Select one:
a. Independent auditor’s report
b. Audit engagement letter
c. Audit program
d. Client’s representation letter 
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Question 5
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Engagement letter that documents and confirms the auditor's acceptance of the
engagement would normally be sent to the client

Select one:
a. before the commencement of the engagement
b. at the end of the fieldwork
c. before the auditor report is issued 
d. after the audit report is issued
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Question 6
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Before accepting an audit engagement, a successor auditor should make specific inquiries
of the predecessor auditor regarding the predecessor’s
Select one:
a. Opinion of any subsequent events occurring since the predecessor’s audit report was
issued.
b. Understanding as to the reasons for the change of auditors
c. Awareness of the consistency in the application of GAAP between periods. 
d. Evaluation of all matters of continuing accounting significance.
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Question 7
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According to PSA 210, the auditor and the client should agree on the terms of engagement.
The agreed terms would need to be recorded in

Select one:
a. memo placed in the permanent section of the working papers
b. engagement letter 
c. comfort letter
d. client representation letter
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Question 8
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If permission from client to discuss its affairs with the proposed auditor is denied by the
client, the predecessor auditor should:

Select one:
a. Keep silent of the denial.
b. Seek legal advice before responding to the proposed auditor
c. Disclose the fact that the permission to disclose is denied by the client. 
d. Disclose adequately to proposed auditor all noncompliance made by the client.
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Question 9
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Arrangements concerning with which of the following are least likely to be included  in the
engagement letter?

Select one:
a. CPA investment in client securities
b. A predecessor auditor
c. Fees and billing 
d. Other services to be provided in addition to the audit
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Question 10
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The form and content of the audit engagement letters may vary for each client, but they
would generally include reference to except:

Select one:
a. management's responsibility for all the financial statements
b. the form of any reports or any communication of results of engagement.
c. unrestricted access to whatever records, documentation and other information requested
in connection with the audit. 
d. the scope of the audit, excluding reference to applicable legislation, regulations, or
pronouncements of professional bodies to which the auditor adheres.
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Question 11
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An audit engagement letter least likely includes

Select one:
a. A reference to the inherent limitation of an audit that some material misstatements may
remain undiscovered. 
b. Description of any letters or reports that the auditor expects to submit to the client.
c. Arrangements concerning the involvement of internal auditors and other client’s staff.
d. Identification of specific audit procedures that the auditor needs to undertake.
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Question 12
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Which of the following is least likely included in an audit engagement letter?

Select one:
a. The objective of financial reporting.
b. Arrangement concerning the involvement of other auditors or experts in some aspects of
the audit. 
c. The form of any reports or other communication of the results of the engagement.
d. Management responsibility for the financial statements.
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Question 13
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Engagement letters are widely used in practice for

Select one:
a. related services only
b. audits only
c. assurance engagements only 
d. professional engagements of all types
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Question 14
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Which of the following should an auditor obtain from the predecessor auditor prior to
accepting an audit engagement?

Select one:
a. Analysis of income statement accounts
b. Analysis of balance sheet accounts
c. All matters of continuing accounting significance 
d. Facts that might bear on the integrity of management
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Question 15
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A successor auditor most likely would make specific inquiries of the predecessor auditor
regarding

Select one:
a. Specialized accounting principles of the client’s industry.
b. The competency of the client’s internal audit staff.
c. Disagreements with management as to auditing procedures.
d. The uncertainty inherent in applying sampling procedures. 
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Question 16
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Which of the following least likely requires the auditor to send a new engagement letter?

Select one:
a. Any revised or special terms of the engagement.
b. A recent change in the audit firm’s management.
c. An indication that the client misunderstands the objective and scope of the audit. 
d. Legal requirements and other government agencies’ pronouncements.
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Question 17
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Prior to the acceptance of an audit engagement with a client who has terminated the
services of the predecessor auditor, the CPA should

Select one:
a. Contact the predecessor auditor without advising the prospective client and request a
complete report of the circumstance leading to the termination with the understanding that
all information disclosed will be kept confidential. 
b. Accept the engagement without contacting the predecessor auditor since the CPA can
include audit procedures to verify the reason given by the client for the termination.
c. Advise the client of the intention to contact the predecessor auditor and request
permission for the contact.
d. Not communicate with the predecessor auditor because this would in effect be asking the
auditor to violate the confidential relationship between auditor and client.
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Question 18
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On recurring audit engagements, the auditor may decide not to send a new engagement
letter each period. In which of the following situations will there be no need to send a new
letter?

Select one:
a. indications of misunderstanding of the objective and scope of the audit 
b. revisions or special terms of the engagement
c. significant change in nature or size of the client's business
d. recent change of middle management and rank and file organizational structure
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Question 19
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When an independent auditor is approached to perform an audit for the first time, he or she
should make inquiries of the predecessor auditor. Inquiries are necessary because the
predecessor may be able to provide the successor with information that will assist the
successor in determining whether

Select one:
a. The predecessor’s work should be used.
b. The engagement should be accepted. 
c. The company rotates auditors.
d. In the predecessor’s opinion, control risk is low.
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Question 20
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When a CPA is the auditor of a parent entity and also the auditor of its subsidiary, branch or
division (component), which of the following are least likely to be included in the
engagement letter?

Select one:
a. who appoints the auditor of the component
b. legal requirements
c. whether a separate audit report is to be issued on the component 
d. number of reports to be prepared during the peak audit season
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Which of the following is required documentation in an audit in accordance with generally


accepted auditing standards?

Select one:
a. An internal control questionnaire identifying policies and procedures that assure specific
objectives will be achieved.
b. An audit program setting forth in detail the procedures necessary to accomplish the
engagement’s objectives. 
c. A planning memorandum establishing the timing of the audit procedures and
coordinating the assistance of entity personnel.
d. A flowchart or narrative of the information system describing the recording and
classification of transactions for financial reporting.
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Question 2
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Which of the following would a successor auditor normally perform after acceptance of an
audit client?

Select one:
a. Inquiry of predecessor auditor regarding the client.
b. Review of predecessor auditor working papers. 
c. Inquiry of bankers regarding the client.
d. Review the SEC filings of the client.
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Question 3
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The auditor should determine overall responses to address the risks of material
misstatement at the financial statement level.  Such responses least likely include 

Select one:
a. Performing substantive procedures at an interim date instead of at period end.  
b. Incorporating additional elements of unpredictability in the selection of further audit
procedures to be performed. 
c. Assigning more experienced staff or those with special skills or using experts. 
d. Emphasizing to the audit team the need to maintain professional skepticism in gathering
and evaluating audit evidence. 
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Question 4
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The auditor should plan the audit work so that the audit will be performed in an effective
manner. The extent of planning will vary according to any of the following, except:

Select one:
a. size of the audit client
b. auditor's experience with the entity and knowledge of the business
c. the nature and complexity of the audit engagement
d. the assessed level of control risk 
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Question 5
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Which of the following is/are correct?


Statement 1: The client should plan the audit work so that the audit will be performed in an
effective manner.
Statement 2: The auditor should develop and document an overall audit plan describing the
scope and conduct of the audit.

Select one:
a. both statements are correct
b. only statement 1 is correct
c. both statements are incorrect
d. only statement 2 is correct 
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Question 6
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Which of the following is an example of an inherent limitation in a client's internal control


system?

Select one:
a. procedures for handling large numbers of transactions are processed by information
technology (IT) equipment
b. the effectiveness of procedures depends on the segregation of employee duties
c. procedures are designed to assure the execution and recording of transactions in
accordance with management's authorization
d. in the performance of most control procedures, there are possibilities of errors arising
from mistakes in judgment 
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Question 7
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It is the process designed and effected by those charged with governance, management,
and other personnel to provide reasonable assurance about the achievement of the entity's
objectives.

Select one:
a. accounting process
b. internal control 
c. internal auditing
d. business strategy
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Question 8
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Internal controls are not designed to provide reasonable assurance that

Select one:
a. access to assets is permitted only in accordance with management's authorization
b. irregularities will be eliminated 
c. transactions are executed in accordance with management's authorization
d. the recorded accountability for assets is compared with the existing assets at reasonable
intervals
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Question 9
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The assessment of the risks of material misstatement at the financial statement level is
affected by the auditor’s understanding of the control environment. Weaknesses in the
control environment ordinarily will lead the auditor to 

Select one:
a. Modify the nature of audit procedures to obtain more persuasive audit evidence.  
b. Conduct some audit procedures at an interim date rather than at period end. 
c. Decrease the number of locations to be included in the audit scope. 
d. Have more confidence in internal control and the reliability of audit evidence generated
internally within the entity.
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Question 10
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In planning the audit engagement, the auditor should consider each of the following, except

Select one:
a. materiality level and audit risk
b. the kind of opinion that is likely to be expressed 
c. matters relating to the entity's business and the industry in which it operates
d. the entity's accounting policies and procedures
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Question 11
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 Which of the following is correct statement? 

Select one:
a. The auditor should obtain an understanding of the accounting and internal control
systems sufficient to plan the audit and develop an effective audit approach.  
b. The auditor is an insurer, and his or her report constitutes a guarantee. 
c. The subsequent discovery that a material misstatement exists in the financial statements is
evidence of inadequate planning, performance, or judgment on the part of the auditor. 
d. The auditor should use professional judgment to assess audit risk and to design audit
procedures to ensure it is eliminated. 
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Question 12
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 The auditor should design and perform further audit procedures whose nature, timing, and
extent are responsive to the assessed risks of material misstatement at the assertion level. 
Which of the following is the most important consideration in responding to the assessed
risks? 

Select one:
a. The timing of the audit procedures. 
b. The extent of the audit procedures. 
c. The nature of the audit procedures. 
d.  All of these are equally important.
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Question 13
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Internal control can only provide reasonable, not absolute, assurance of achieving entity
control objectives. One of the factors limiting the likelihood of achieving those objectives is
that:

Select one:
a. the auditor's primary responsibility is the detection of fraud
b. The cost of internal control should not exceed its benefits 
c. the board of directors is active and independent
d. management monitors internal control
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Question 14
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A reason to establish internal control is to:

Select one:
a. provide reasonable assurance that the objectives of the organization are achieved. 
b. have a basis for planning the audit
c. ensure the accuracy, reliability and timeliness of information
d. encourage compliance with organizational objectives
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Question 15
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The auditor should consider the nature, extent, and timing of the work to be performed and
should prepare a written audit program for every audit. Which audit standard is most closely
related to this requirement?

Select one:
a. The work is to be adequately planned and assistants, if any, are to be properly
supervised. 
b. Due professional care is to be exercised in the planning and performance of the audit and
preparation of the report.
c. The audit is to be performed by a person or persons having adequate technical training
and proficiency as an auditor.
d. In all matters relating to the assignment, an independent mental attitude is to be
maintained by the auditor(s).
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Question 16
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To obtain an understanding of a continuing client’s business in planning an audit, an auditor


most likely would

Select one:
a. Read specialized industry journals.
b. Perform tests of details of transactions and balances.
c. Reevaluate client’s internal control environment.
d. Review prior-year working papers and the permanent file for the client. 
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Question 17
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There is an inverse relationship that exists between the acceptable level of detection risk
and the
Select one:
a. preliminary judgments about materiality levels
b. assurance provided by substantive tests 
c. risk of misapplying audit process
d. risk of falling to discover material misstatement
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Question 18
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The development of a general strategy and a detailed approach for the expected nature,
timing, and extent of audit refers to :

Select one:
a. Supervision
b. Planning 
c. Directing
d. Audit procedures
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Question 19
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The auditor’s assessment of the identified risks at the assertion level provides a basis for
considering the appropriate audit approach for designing and performing further audit
procedures.  Which of the following is incorrect? 

Select one:
a. The auditor may determine that only by performing tests of controls may the auditor
achieve an effective response to the assessed risk of material misstatement for a particular
assertion. 
b. The auditor designs and performs substantive procedures for each material class of
transactions, account balance, and disclosure only when the auditor uses the substantive
approach.  
c. The auditor may determine that performing only substantive procedures is appropriate
for specific assertions and, therefore, the auditor excludes the effect of controls from the
relevant risk assessment. 
d. The auditor needs to be satisfied that performing only substantive procedures for the
relevant assertion would be effective in reducing the risk of material misstatement to an
acceptably low level. 
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Question 20
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It involves establishing the overall audit strategy for the engagement and developing an
audit plan in order to reduce audit risk to an acceptably low level.

Select one:
a. field work
b. planning 
c. reporting
d. organizing
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Engagement letter that documents and confirms the auditor's acceptance of the
engagement would normally be sent to the client

Select one:
a. before the commencement of the engagement 
b. before the auditor report is issued
c. after the audit report is issued
d. at the end of the fieldwork
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Question 2
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When an independent auditor is approached to perform an audit for the first time, he or she
should make inquiries of the predecessor auditor. Inquiries are necessary because the
predecessor may be able to provide the successor with information that will assist the
successor in determining whether

Select one:
a. The predecessor’s work should be used.
b. In the predecessor’s opinion, control risk is low.
c. The engagement should be accepted. 
d. The company rotates auditors.
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Question 3
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Which of the following procedures would an auditor most likely perform in planning a
financial statement audit?

Select one:
a. Searching for unauthorized transactions that may aid in detecting unrecorded liabilities.
b. Comparing the financial statements to anticipated results.
c. Inquiring of the client’s legal counsel concerning pending litigation.
d. Examining computer generated exception reports to verify the effectiveness of internal
controls. 
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Question 4
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Which statement is incorrect regarding the extent of further audit procedures? 

Select one:
a. Increasing the extent of an audit procedure is effective only if the audit procedure itself is
relevant to the specific risk. 
b. Extent includes the quantity of a specific audit procedure to be performed. 
c. The auditor ordinarily decreases the extent of audit procedures as the risk of material
misstatement increases.  
d. The extent of an audit procedure is determined by the judgment of the auditor after
considering the materiality, the assessed risk, and the degree of assurance the auditor plans
to obtain. 
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Question 5
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On recurring audit engagements, the auditor may decide not to send a new engagement
letter each period. In which of the following situations will there be no need to send a new
letter?

Select one:
a. significant change in nature or size of the client's business
b. indications of misunderstanding of the objective and scope of the audit
c. revisions or special terms of the engagement
d. recent change of middle management and rank and file organizational structure 
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Question 6
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The auditor should plan the audit work so that the audit will be performed in an effective
manner. The extent of planning will vary according to any of the following, except:

Select one:
a. the nature and complexity of the audit engagement
b. the assessed level of control risk 
c. size of the audit client
d. auditor's experience with the entity and knowledge of the business
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Question 7
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The primary objective of procedures performed to obtain an understanding of internal


control is to provide an auditor with

Select one:
a. evidence to use in reducing detection risk
b. a basis for modifying test of controls
c. knowledge necessary to plan the audit 
d. information necessary to prepare flowcharts
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Question 8
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It is the process designed and effected by those charged with governance, management,
and other personnel to provide reasonable assurance about the achievement of the entity's
objectives.
Select one:
a. internal auditing
b. accounting process
c. business strategy
d. internal control 
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Question 9
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There is an inverse relationship that exists between the acceptable level of detection risk
and the

Select one:
a. preliminary judgments about materiality levels
b. risk of falling to discover material misstatement
c. assurance provided by substantive tests 
d. risk of misapplying audit process
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Question 10
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Prior to the acceptance of an audit engagement with a client who has terminated the
services of the predecessor auditor, the CPA should

Select one:
a. Advise the client of the intention to contact the predecessor auditor and request
permission for the contact. 
b. Accept the engagement without contacting the predecessor auditor since the CPA can
include audit procedures to verify the reason given by the client for the termination.
c. Contact the predecessor auditor without advising the prospective client and request a
complete report of the circumstance leading to the termination with the understanding that
all information disclosed will be kept confidential.
d. Not communicate with the predecessor auditor because this would in effect be asking the
auditor to violate the confidential relationship between auditor and client.
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Question 11
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Which of the following is an effective audit planning and control procedures that helps
prevent misunderstandings and inefficient use of audit personnel?

Select one:
a. Make copies, for inclusion in the working papers, of those client supporting documents
examined by the auditor.
b. Arrange a preliminary conference with the client to discuss audit objectives, fees, timing,
and other information. 
c. Arrange to have the auditor prepare and post any necessary adjusting or reclassification
entries prior to final closing.
d. Provide the client with copies of the audit programs to be used during the audit.
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Question 12
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Which statement is incorrect regarding the nature of tests of controls? 

Select one:
a. The absence of misstatements detected by a substantive procedure provides audit
evidence that controls related to the assertion being tested are effective.  
b. As the planned level of assurance increases, the auditor seeks more reliable audit
evidence. 
c. Those controls subject to testing by performing inquiry combined with inspection or
reperformance ordinarily provide more assurance than those controls for which the audit
evidence consists solely of inquiry and observation. 
d. A material misstatement detected by the auditor’s procedures that was not identified by
the entity ordinarily is indicative of the existence of a material weakness in internal control. 
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Question 13
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Engagement letters are widely used in practice for

Select one:
a. assurance engagements only
b. related services only
c. professional engagements of all types 
d. audits only
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Question 14
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The objective and scope of the audit and the extent of the auditor’s responsibilities to the
client are best documented in

Select one:
a. Independent auditor’s report
b. Audit program
c. Client’s representation letter
d. Audit engagement letter 
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Question 15
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Analytical procedures used in planning an audit should focus on

Select one:
a. Assessing the adequacy of the available evidential matter. 
b. Providing assurance that potential material misstatements will be identified.
c. Reducing the scope of tests of controls and substantive tests.
d. Enhancing the auditor’s understanding of the client’s business.
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Question 16
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 Which statement is incorrect regarding the nature of further audit procedures? 

Select one:
a. Certain audit procedures may be more appropriate for some assertions than others. 
b. The higher the auditor’s assessment of risk, the less reliable and relevant is the audit
evidence sought by the auditor from substantive procedures.  
c. The auditor is required to obtain audit evidence about the accuracy and completeness of
information produced by the entity’s information system when that information is used in
performing audit procedures. 
d. The nature of further audit procedures refers to their purpose and their type. 
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Question 17
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Which of the following is least likely included in an audit engagement letter?


Select one:
a. The objective of financial reporting. 
b. Management responsibility for the financial statements.
c. The form of any reports or other communication of the results of the engagement.
d. Arrangement concerning the involvement of other auditors or experts in some aspects of
the audit.
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Question 18
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When a CPA is the auditor of a parent entity and also the auditor of its subsidiary, branch or
division (component), which of the following are least likely to be included in the
engagement letter?

Select one:
a. who appoints the auditor of the component
b. legal requirements
c. whether a separate audit report is to be issued on the component
d. number of reports to be prepared during the peak audit season 
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Question 19
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A reason to establish internal control is to:

Select one:
a. have a basis for planning the audit
b. provide reasonable assurance that the objectives of the organization are achieved. 
c. encourage compliance with organizational objectives
d. ensure the accuracy, reliability and timeliness of information
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Question 20
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If permission from client to discuss its affairs with the proposed auditor is denied by the
client, the predecessor auditor should:

Select one:
a. Seek legal advice before responding to the proposed auditor
b. Keep silent of the denial.
c. Disclose the fact that the permission to disclose is denied by the client. 
d. Disclose adequately to proposed auditor all noncompliance made by the client.
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Question 21
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As part of a periodic planning exercise, AAA Company discovers that a political dispute may
interfere with the company's supply sources. This is an example of:

Select one:
a. monitoring of controls
b. control environment 
c. risk assessment
d. control activities
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Question 22
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Which of the following is an example of an inherent limitation in a client's internal control


system?

Select one:
a. procedures are designed to assure the execution and recording of transactions in
accordance with management's authorization
b. in the performance of most control procedures, there are possibilities of errors arising
from mistakes in judgment 
c. the effectiveness of procedures depends on the segregation of employee duties
d. procedures for handling large numbers of transactions are processed by information
technology (IT) equipment
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Question 23
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In an audit of financial statements, an auditor's primary consideration regarding a control is


whether it:

Select one:
a. reflects management's philosophy and operating style.
b. affects management's financial statement assertions. 
c. provides adequate safeguards over access to assets.
d. enhances management's decision-making processes.
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Question 24
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The following are components of internal control:

Select one:
a. control environment, risk assessment process, control activities, information system
and communication, and monitoring of controls.
b. organizational structure, management philosophy, and planning.
c. legal environment of the firm, management philosophy, and organizational structure.
d. risk assessment process, backup facilities, responsibility accounting and natural laws. 
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Question 25
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The primary purpose of the auditor's consideration of internal control is to provide a basis
for

Select one:
a. determining whether procedures and records that are concerned with the safeguarding of
assets are reliable.
b. the expression of an opinion.
c. determining the nature, timing and extent of audit tests to be applied. 
d. constructive suggestions to clients concerning deficiencies in internal control.
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Question 26
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Which of the following statements is correct concerning analytical procedures?

Select one:
a. Analytical procedures are more efficient, but not more effective, than tests of details and
transactions.
b. Analytical procedures used in planning an audit generally use data aggregated at a high
level. 
c. Analytical procedures can replace tests of controls in gathering evidence to support the
assessed level of control risk.
d. Analytical procedures usually involve comparisons of ratios developed from recorded
amounts to assertions developed by management.
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Question 27
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Before accepting an audit engagement, a successor auditor should make specific inquiries
of the predecessor auditor regarding the predecessor’s

Select one:
a. Understanding as to the reasons for the change of auditors 
b. Evaluation of all matters of continuing accounting significance.
c. Awareness of the consistency in the application of GAAP between periods.
d. Opinion of any subsequent events occurring since the predecessor’s audit report was
issued.
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Question 28
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An engagement letter is prepared with the interest(s) of 

Select one:
a. the auditor only
b. the public
c. both the client and the auditor 
d. the client only
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Question 29
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According to PSA 210, the auditor and the client should agree on the terms of engagement.
The agreed terms would need to be recorded in

Select one:
a. client representation letter
b. memo placed in the permanent section of the working papers
c. comfort letter
d. engagement letter 
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Question 30
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PSA 315 Redrafted requires the auditor to obtain an understanding of the client's internal
controls

Select one:
a. whenever it would be appropriate
b. for first-time audits
c. sufficient to find any frauds which may exist 
d. for every audit
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Question 31
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An audit engagement letter least likely includes

Select one:
a. A reference to the inherent limitation of an audit that some material misstatements may
remain undiscovered.
b. Description of any letters or reports that the auditor expects to submit to the client.
c. Arrangements concerning the involvement of internal auditors and other client’s staff.
d. Identification of specific audit procedures that the auditor needs to undertake. 
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Question 32
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The form and content of the audit engagement letters may vary for each client, but they
would generally include reference to except:

Select one:
a. unrestricted access to whatever records, documentation and other information requested
in connection with the audit.
b. the form of any reports or any communication of results of engagement.
c. the scope of the audit, excluding reference to applicable legislation, regulations, or
pronouncements of professional bodies to which the auditor adheres. 
d. management's responsibility for all the financial statements
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Question 33
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Which of the following should an auditor obtain from the predecessor auditor prior to
accepting an audit engagement?

Select one:
a. Analysis of income statement accounts
b. All matters of continuing accounting significance
c. Facts that might bear on the integrity of management 
d. Analysis of balance sheet accounts
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Question 34
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Analytical procedures, which means the analysis of significant ratios and trends including
the resulting investigation of fluctuations and relationships that are inconsistent with other
relevant information or which deviate from predicted amounts, are not required to be
applied

Select one:
a. As substantive procedures 
b. At the planning stage of the audit
c. Overall review stage of the audit
d. None of the above
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Question 35
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Control activities constitute one of the five components of internal control. Which of the
following is not included in this internal control component?

Select one:
a. authorization
b. performance reviews
c. segregation of duties
d. an internal audit function 
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Question 36
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To obtain an understanding of the relevant policies and procedures of internal control, the
auditor performs all of the following except:

Select one:
a. make inquiries
b. inspect documents and records
c. design substantive tests 
d. make observations
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Question 37
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An internal control that is working effectively

Select one:
a. eliminates risk and potential loss to the entity
b. is unaffected by changing circumstances and conditions encountered by the entity
c. cannot be circumvented by management
d. reduces the need for management the review exception reports on a day-to-day basis 
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Question 38
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A successor auditor most likely would make specific inquiries of the predecessor auditor
regarding

Select one:
a. Specialized accounting principles of the client’s industry.
b. Disagreements with management as to auditing procedures. 
c. The competency of the client’s internal audit staff.
d. The uncertainty inherent in applying sampling procedures.
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Question 39
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Information about segregation of duties ordinarily is best obtained by

Select one:
a. obtaining a flowchart of activities performed by entity personnel.
b. developing audit objectives that reduce control risk.
c. performing test of transactions that corroborate management's financial statement's
assertions.
d. observing employees as they apply specific controls. 
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Question 40
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Set the following phases in proper order:


i. Pre-Engagement
ii. Internal Controls
iii. Evidence-Gathering
iv. Planning
v. Post-Audit Responsibilities
vi. Reporting

Select one:
a. i, iv, iii, ii, v, vi
b. i, iv, ii, iii, v, vi
c. i, iv, ii, iii, vi, v 
d. i, ii, iii, iv, v, vi
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Question 41
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In planning the audit engagement, the auditor should consider each of the following, except

Select one:
a. materiality level and audit risk
b. matters relating to the entity's business and the industry in which it operates
c. the kind of opinion that is likely to be expressed 
d. the entity's accounting policies and procedures
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Question 42
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Internal controls are not designed to provide reasonable assurance that

Select one:
a. transactions are executed in accordance with management's authorization
b. irregularities will be eliminated 
c. access to assets is permitted only in accordance with management's authorization
d. the recorded accountability for assets is compared with the existing assets at reasonable
intervals
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Question 43
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Which of the following least likely requires the auditor to send a new engagement letter?

Select one:
a. Any revised or special terms of the engagement.
b. A recent change in the audit firm’s management. 
c. An indication that the client misunderstands the objective and scope of the audit.
d. Legal requirements and other government agencies’ pronouncements.
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Question 44
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Which statement is incorrect regarding tests of controls? 

Select one:
a. Tests of the operating effectiveness of controls are performed only on those controls that
the auditor has determined are suitably designed to prevent, or detect and correct, a
material misstatement in an assertion.  
b. Testing the operating effectiveness of controls is the same as obtaining audit evidence
that controls have been implemented. 
c. Tests of controls are required when an entity conducts its business using IT and no
documentation of transactions is produced or maintained, other than through the IT
system. 
d. Tests of controls are required under certain circumstances. 
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Question 45
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Which of the following is/are correct?


Statement 1: The client should plan the audit work so that the audit will be performed in an
effective manner.
Statement 2: The auditor should develop and document an overall audit plan describing the
scope and conduct of the audit.

Select one:
a. both statements are incorrect
b. only statement 1 is correct
c. only statement 2 is correct 
d. both statements are correct
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Question 46
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Which statement is incorrect regarding the timing of further audit procedures? 

Select one:
a. All audit procedures can be performed prior to period end.  
b. The auditor may perform tests of controls or substantive procedures at an interim date or
at period end. 
c. Timing refers to when audit procedures are performed or the period or date to which the
audit evidence applies. 
d. If the auditor performs tests of controls or substantive procedures prior to period end, the
auditor considers the additional evidence required for the remaining period. 
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Question 47
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Arrangements concerning with which of the following are least likely to be included  in the
engagement letter?

Select one:
a. Fees and billing
b. A predecessor auditor
c. CPA investment in client securities 
d. Other services to be provided in addition to the audit
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Question 48
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Internal control can only provide reasonable, not absolute, assurance of achieving entity
control objectives. One of the factors limiting the likelihood of achieving those objectives is
that:

Select one:
a. the auditor's primary responsibility is the detection of fraud
b. management monitors internal control
c. the board of directors is active and independent
d. The cost of internal control should not exceed its benefits 
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Question 49
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It involves establishing the overall audit strategy for the engagement and developing an
audit plan in order to reduce audit risk to an acceptably low level.

Select one:
a. organizing
b. planning 
c. field work
d. reporting
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Question 50
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Which of the following statements is/are correct?


Statement 1: On recurring audits, the auditor should consider whether circumstances
require the terms of the engagement to be revised and whether there is a need to remind
the client of the existing terms of engagement.
Statement 2: The auditor should send a new engagement letter ecah year to an established
client.

Select one:
a. both statements are correct
b. only statement 2 is correct
c. both statements are incorrect
d. only statement 1 is correct 
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In considering internal control within the revenue/receipt cycle, what is the purpose of a
transaction walk through?
Select one:

a. To confirm the auditor’s understanding of the internal control structure. 

b. To assure that employees are performing assigned functions accurately.

c. To verify the results of the auditor’s sampling plan.

d. To select documents for detailed tests of controls

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Question 2
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When conducting surprise cash count, the auditor should simultaneously count all cash
funds, marketable securities and other negotiable assets to prevent
Select one:

a. time-out

b. substitution 

c. misappropriation

d. defalcation

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Question 3
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The basic "give and take" functions of a business have been grouped into transaction cycles.
The cycle that includes the events of hiring employees and paying them is known as the
Select one:

a. revenue cycle

b. expenditure cycle

c. financing cycle

d. human resources cycle 

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Question 4
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The transaction cycles relate to one another and interface with this to generate information
for both management and external parties.
Select one:

a. human resources cycle

b. general ledger and reporting system 

c. accounting information systems

d. computer processor

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Question 5
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The transaction cycles approach leads to efficient processing of large number of


transactions because
Select one:

a. the transaction cycle approach represents the natural order of business

b. transaction cycles are easier to computerize


c. a large number of transactions within a given cycle can be categorized into a relatively
small number of distinct types 

d. transaction cycles are easy to understand

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Question 6
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The general cash account is considered significant in almost all audits


Select one:

a. except those of not-for-profit organizations 

b. even when the ending balance is immaterial

c. where the ending balance is material

d. where the beginning balance is material

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Question 7
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What is the major difference between the revenue and the expenditure cycle?
Select one:

a. in the revenue cycle, cash is received; in the expenditure cycle, cash is paid out. 

b. the revenue cycle includes the activity of obtaining funds from investors.

c. the revenue cycle includes marketing activities; the expenditure cycle does not.

d. the expenditure cycle includes paying employees.

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Question 8
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The least crucial element of control over cash is


Select one:

a. Preparation of the monthly bank reconciliation

b. Separation of cash record keeping from custody of cash.

c. Separation of cash receipts from cash disbursements.

d. Batch processing of checks. 

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Question 9
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Which of the following would the auditor consider to be an incompatible operation if the
cashier receives remittances from the mail room?
Select one:

a. The cashier prepares the daily deposit.

b. The cashier makes the daily deposit at a local bank.

c. The cashier posts the receipts to the accounts receivable subsidiary ledger. 

d. The cashier endorses the checks.

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Question 10
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Defective merchandise returned by customers should be presented to


Select one:

a. Receiving personnel 

b. Purchasing personnel

c. Sales personnel.
d. Inventory control personnel.

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Question 11
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Which of the following would best protect a company that wishes to prevent lapping?
Select one:

a. Requesting that customers checks be made payable to the company and be addressed to
the treasurer

b. Segregating duties so that accounting has no access to an incoming mail

c. Having customers send payments directly to the company’s bank 

d. Segregating duties so that no employee has access both to checks from customers and to
currency from daily cash receipts

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Question 12
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The person who opens the mail commonly prepares a remittance advice when a customer
fails to return one with a payment. Consequently, mail should be opened by the
Select one:

a. Receptionist. 

b. Accounts receivable clerk.

c. Credit manager.

d. Sales manager.

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Question 13
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Which of the following is not a universal rule for achieving control over cash?
Select one:

a. Decentralize the receiving of cash as much as possible.

b. Deposit each day’s cash receipts by the end of the day.

c. Separate the cash-handling and record-keeping functions. 

d. Have bank reconciliation’s performed by employees who do not handle cash.

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Question 14
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The business owners obtain financing from outside investors, which result to an inflow of
cash into the company. This transaction is considered to be part of which cycle?
Select one:

a. production cycle

b. payroll cycle

c. financing cycle 

d. revenue cycle

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Question 15
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Which of the following is not normally considered an act of concealing cash shortage?
Select one:

a. lapping

b. banking 

c. window dressing
d. kiting

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Question 16
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To determine whether internal control operates effectively to minimize errors of failure to


bill a customer for a shipment, the auditor would select a sample of transactions from the
population represented by the
Select one:

a. Customer order file

b. Sales invoice

c. Shipping records file 

d. Subsidiary customer accounts ledger

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Question 17
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This occurs when collection of receivable from one customer is misappropriated and then
concealed by applying a subsequent collection from another customer.
Select one:

a. window dressing

b. floating

c. kiting

d. lapping 

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Question 18
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This occurs when cash shortage is concealed by overstating the balance of cash. This is
performed by exploiting the float period (the time it needs for a check to clear at the bank it
was drawn).
Select one:

a. window dressing

b. kiting 

c. floating

d. lapping

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Question 19
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After the auditor has prepared a flowchart of internal control for sales, and cash receipts
transactions and evaluated the design of the system, the auditor would perform tests of
controls on all control procedures
Select one:

a. Considered to be strengths that the auditor plans to rely on in assessing control risk. 

b. That would aid in preventing irregularities.

c. Considered to be deficiencies that might allow errors to enter the accounting system.

d. Documented in the flowchart.

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Question 20
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To achieve control when there is no billing department, the billing function should be
performed by the
Select one:
a. Credit and collection department

b. Sales department

c. Shipping department

d. Accounting department 

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Which of the following scenario would negative confirmation be inappropriate?


Select one:

a. the auditor has a reason to believe that recipients of negative confirmation requests will
disregard such confirmation requests 

b. the assessed level of inherent and control risk for receivable and sales is very low

c. the receivable comprises a large number of small, homogeneous account balances.

d. very few or no exceptions expected

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Question 2
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In the audit of Pasig Company’s cash account, you obtained the following information:
 
The company’s bookkeeper prepared the following bank reconciliation as of November 30,
2018:
 
Bank balance – November 30, 2018     P90,800
Undeposited collections     5,000
Bank service charges     100
Bank collection of customer’s note     (8,000)
Outstanding checks:      
  Number Amount  
  7159 P3,000  
  7767 5,000  
  7915 2,000  (10,000)
Book balance – November 30, 2018     P77,900
 
Additional data are given as follows:
 
a.    Company recordings for December:
Total collections from customers P165,000
Total checks drawn 98,000
 
b.    Bank statement totals for December :
Charges P123,800
Credits 169,000
 
c.    Check no. 7159 dated November 25, 2018, was entered as P3,000 in payment of a
voucher for P30,000.  Upon examination of the checks returned by the bank, the actual
amount of the check was P30,000.
 
d.    Check no. 8113 dated December 20, 2018 was issued to replace a mutilated check
(no.7767), which was returned by the payee.  Both checks were recorded in the amount
drawn, P5,000, but no entry was made to cancel check no. 7767.
 
e.    The December bank statement included a check drawn by Sipag Company for P1,500.
 
f.     Undeposited collections on December 31, 2018 - P8,000.
 
g.    The service charge for December was P150 which was charged by the bank to another
client.
 
h.    The bank collected a note receivable of P7,000 on December 28, 2018, but the
collection was not received on time to be recorded by Pasig.
i.    The outstanding checks on December 31, 2018, were:
 
Check No. Amount Check No. Amount
7767 P5,000 8910 P2,300
8856 1,300 8925 4,100
 
Based on the above and the result of your audit, determine the adjusted bank disbursement
for December 2018.

Select one:

a. P  98,150 

b. P120,150

c. P125,150

d. P  76,150

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Question 3
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The purpose of tests of controls over billing is to determine whether


Select one:

a. Shipments are billed.

b. Billing department personnel are competent

c. Billed goods have been shipped. 

d. Credit is approved before goods are billed.

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Question 4
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Which of the following is least likely to be typically considered to be an alternative


procedure for handling non-replies to positive accounts receivable confirmations?
Select one:

a. Physically examine items sold 

b. Examine bills of lading

c. Examine subsequent cash receipts


d. Examine correspondence

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Question 5
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In the audit of Pasig Company’s cash account, you obtained the following information:
 
The company’s bookkeeper prepared the following bank reconciliation as of November 30,
2018:
 
Bank balance – November 30, 2018     P90,800
Undeposited collections     5,000
Bank service charges     100
Bank collection of customer’s note     (8,000)
Outstanding checks:      
  Number Amount  
  7159 P3,000  
  7767 5,000  
  7915 2,000  (10,000)
Book balance – November 30, 2018     P77,900
 
Additional data are given as follows:
 
a.    Company recordings for December:
Total collections from customers P165,000
Total checks drawn 98,000
 
b.    Bank statement totals for December :
Charges P123,800
Credits 169,000
 
c.    Check no. 7159 dated November 25, 2018, was entered as P3,000 in payment of a
voucher for P30,000.  Upon examination of the checks returned by the bank, the actual
amount of the check was P30,000.
 
d.    Check no. 8113 dated December 20, 2018 was issued to replace a mutilated check
(no.7767), which was returned by the payee.  Both checks were recorded in the amount
drawn, P5,000, but no entry was made to cancel check no. 7767.
 
e.    The December bank statement included a check drawn by Sipag Company for P1,500.
 
f.     Undeposited collections on December 31, 2018 - P8,000.
 
g.    The service charge for December was P150 which was charged by the bank to another
client.
 
h.    The bank collected a note receivable of P7,000 on December 28, 2018, but the
collection was not received on time to be recorded by Pasig.
i.    The outstanding checks on December 31, 2018, were:
 
Check No. Amount Check No. Amount
7767 P5,000 8910 P2,300
8856 1,300 8925 4,100
 
Based on the above and the result of your audit, determine the adjusted book receipts for
December 2018.
Select one:

a. P172,000 

b. P182,000

c. P170,500

d. P173,000

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Question 6
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The cash and cash equivalents of P6,325,000 reported by Kristine Co. on December 31, 2018
include the following:
a) Two certificates of deposits, each totaling P500,000, having a maturity of 120 days.
b) A check that is dated January 12, 2019 in the amount of P125,000.
c) A commercial paper of P2,100,000 which is due in 90 days.
d) Currency and coins on hand amounted to P7,700.
Kristine Co. has agreed to maintain a cash balance of P500,000 in one of its banks at all
times to ensure future credit availability (this amount is legally restricted as to withdrawal
and was included in the above balance).
How much is the correct amount of cash and cash equivalents that Kristine should report in
its December 31, 2018 statement of financial position?
Select one:
a. P4,700,000

b. P5,200,000 

c. P6,200,000

d. P3,100,000

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Question 7
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In the audit of Pasig Company’s cash account, you obtained the following information:
 
The company’s bookkeeper prepared the following bank reconciliation as of November 30,
2018:
 
Bank balance – November 30, 2018     P90,800
Undeposited collections     5,000
Bank service charges     100
Bank collection of customer’s note     (8,000)
Outstanding checks:      
  Number Amount  
  7159 P3,000  
  7767 5,000  
  7915 2,000  (10,000)
Book balance – November 30, 2018     P77,900
 
Additional data are given as follows:
 
a.    Company recordings for December:
Total collections from customers P165,000
Total checks drawn 98,000
 
b.    Bank statement totals for December :
Charges P123,800
Credits 169,000
 
c.    Check no. 7159 dated November 25, 2018, was entered as P3,000 in payment of a
voucher for P30,000.  Upon examination of the checks returned by the bank, the actual
amount of the check was P30,000.
 
d.    Check no. 8113 dated December 20, 2018 was issued to replace a mutilated check
(no.7767), which was returned by the payee.  Both checks were recorded in the amount
drawn, P5,000, but no entry was made to cancel check no. 7767.
 
e.    The December bank statement included a check drawn by Sipag Company for P1,500.
 
f.     Undeposited collections on December 31, 2018 - P8,000.
 
g.    The service charge for December was P150 which was charged by the bank to another
client.
 
h.    The bank collected a note receivable of P7,000 on December 28, 2018, but the
collection was not received on time to be recorded by Pasig.
i.    The outstanding checks on December 31, 2018, were:
 
Check No. Amount Check No. Amount
7767 P5,000 8910 P2,300
8856 1,300 8925 4,100
 
Based on the above and the result of your audit, determine the adjusted cash balance as of
December 31, 2018.
Select one:

a. P134,650

b. P137,650 

c. P132,650

d. P137,800

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Question 8
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The cash account of Ria on December 31, 2018 has a balance of P151,000 and it consists of
the following:
Bills and coins on hand P52,780

Traveler's check 22,400

Credit memo from supplier for purchase returns  6,500

Postage stamps 120

Petty cash including paid cash vouchers of P1,650 2,000

Balance in Savings Account with a bank closed by the BSP 36,000

Customer's check dated January 15, 2016 8,000

Money order 800


Bills and coins on hand P52,780

IOU of an employee 400

Checking Account Balance in Bank of Philippine Island 22,000

 Total  P151,000

The correct cash and cash equivalents balance on December 31, 2018 is

Select one:

a. 98,330 

b. 98,900

c. 97,530

d. 98,730

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Question 9
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Of the two forms of confirmation request, which is considered more reliable source of
evidence?
Select one:

a. negative confirmation

b. positive confirmation 

c. both are equally reliable


d. none of the two is considered more reliable

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Question 10
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To test the existence assertion for recorded receivables, an auditor would select a sample
from the
Select one:

a. sales orders file

b. customer purchase orders

c. shipping documents (bills of lading) file

d. accounts receivable subsidiary ledger 

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Which of the following is an effective internal control over accounts receivable?
Select one:

a. Balances in the subsidiary accounts receivable ledger should be reconciled to the general
ledger control account once a year, preferably at year-end.

b. Only persons who handle cash receipts should be responsible for the preparation of
documents that reduce accounts receivable balances. 

c. The billing function should be assigned to persons other than those responsible for
maintaining accounts receivable subsidiary records.

d. Responsibility for approval of the write-off of uncollectible accounts receivable should be


assigned to the cashier.

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Question 12
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In the audit of Pasig Company’s cash account, you obtained the following information:
 
The company’s bookkeeper prepared the following bank reconciliation as of November 30,
2018:
 
Bank balance – November 30, 2018     P90,800
Undeposited collections     5,000
Bank service charges     100
Bank collection of customer’s note     (8,000)
Outstanding checks:      
  Number Amount  
  7159 P3,000  
  7767 5,000  
  7915 2,000  (10,000)
Book balance – November 30, 2018     P77,900
 
Additional data are given as follows:
 
a.    Company recordings for December:
Total collections from customers P165,000
Total checks drawn 98,000
 
b.    Bank statement totals for December :
Charges P123,800
Credits 169,000
 
c.    Check no. 7159 dated November 25, 2018, was entered as P3,000 in payment of a
voucher for P30,000.  Upon examination of the checks returned by the bank, the actual
amount of the check was P30,000.
 
d.    Check no. 8113 dated December 20, 2018 was issued to replace a mutilated check
(no.7767), which was returned by the payee.  Both checks were recorded in the amount
drawn, P5,000, but no entry was made to cancel check no. 7767.
 
e.    The December bank statement included a check drawn by Sipag Company for P1,500.
 
f.     Undeposited collections on December 31, 2018 - P8,000.
 
g.    The service charge for December was P150 which was charged by the bank to another
client.
 
h.    The bank collected a note receivable of P7,000 on December 28, 2018, but the
collection was not received on time to be recorded by Pasig.
i.    The outstanding checks on December 31, 2018, were:
 
Check No. Amount Check No. Amount
7767 P5,000 8910 P2,300
8856 1,300 8925 4,100
 
Based on the above and the result of your audit, determine the unadjusted cash balance per
books as of December 31, 2018?

Select one:

a. P144,900

b. P152,750

c. P165,700

d. P152,800 

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Question 13
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In the audit of Pasig Company’s cash account, you obtained the following information:
 
The company’s bookkeeper prepared the following bank reconciliation as of November 30,
2018:
 
Bank balance – November 30, 2018     P90,800
Undeposited collections     5,000
Bank service charges     100
Bank collection of customer’s note     (8,000)
Outstanding checks:      
  Number Amount  
  7159 P3,000  
  7767 5,000  
  7915 2,000  (10,000)
Book balance – November 30, 2018     P77,900
 
Additional data are given as follows:
 
a.    Company recordings for December:
Total collections from customers P165,000
Total checks drawn 98,000
 
b.    Bank statement totals for December :
Charges P123,800
Credits 169,000
 
c.    Check no. 7159 dated November 25, 2018, was entered as P3,000 in payment of a
voucher for P30,000.  Upon examination of the checks returned by the bank, the actual
amount of the check was P30,000.
 
d.    Check no. 8113 dated December 20, 2018 was issued to replace a mutilated check
(no.7767), which was returned by the payee.  Both checks were recorded in the amount
drawn, P5,000, but no entry was made to cancel check no. 7767.
 
e.    The December bank statement included a check drawn by Sipag Company for P1,500.
 
f.     Undeposited collections on December 31, 2018 - P8,000.
 
g.    The service charge for December was P150 which was charged by the bank to another
client.
 
h.    The bank collected a note receivable of P7,000 on December 28, 2018, but the
collection was not received on time to be recorded by Pasig.
i.    The outstanding checks on December 31, 2018, were:
 
Check No. Amount Check No. Amount
7767 P5,000 8910 P2,300
8856 1,300 8925 4,100
 
Based on the above and the result of your audit, determine the adjusted cash balance as of
November 30, 2018.

Select one:

a. P85,800

b. P90,800

c. P63,800 

d. P58,800

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Question 14
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Which of the following is the best argument against the use of negative accounts receivable
confirmations?
Select one:

a. recipients are likely to feel that in reality the confirmation is a subtle request for payment.

b. there is no way of knowing if the intended recipients received them.

c. the cost per response is excessively high.

d. the inference drawn from drawn from receiving no reply may not be correct. 

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What is the primary assertion being addressed by confirmation of receivables?


Select one:

a. accuracy

b. completeness

c. gross valuation
d. existence 

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Question 16
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The following pertains to Kerry Corporation on December 31, 2018:

Postal money order 50,000

Correct cash balance in a general checking account with BPI  320,000

Overdraft in a special checking account with RCBC Bank (Kerry does not have another account
20,000
with RCBC bank)

Cash accumulated in a special fund that will be used for plant expansion in five years 150,000

Cash surrender value of life insurance policy 32,000

Cash travel advances in the hands of sales personnel 12,000

Treasury warrants 20,000

Currency and coins in a petty cash fund (the company has not replenished the fund to the
1,000
imprest amount of P5,000)

How much cash and cash equivalents should Kerry Corp. report on the December 31, 2018
statement of financial position?

Select one:

a. P383,000

b. P372,000
c. P352,000

d. P391,000 

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Which of the following is a likely procedure to test the adequacy of the allowance for
doubtful accounts?
Select one:

a. Examine cash receipts received after year-end. 

b. Examine dates of purchase orders.

c. Confirm receivables.

d. Foot the receivables lead schedule.

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Question 18
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Which of the following types of misstatements is least likely a concern of the auditor when
verifying the occurrence of sales?
Select one:

a. Sale recorded more than once

b. Recorded sale with no shipment

c. Shipments made to non-existent customers

d. Shipments in transit to customer at year-end 

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Which of the following is a procedure to verify the existence of receivables and/or


occurrence of sales?
Select one:

a. vouching receivables to shipping documents

b. confirmation of receivables to customers 

c. vouching recorded sales transactions to customer orders and shipping documents

d. tracing the shipping documents to recorded sales transaction and receivable

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Question 20
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Which of the following would be least likely to diminish the validity of evidence obtained
through confirmation of accounts receivable?
Select one:

a. the return address on the envelope used to send the confirmation request is that of the
client.

b. the client's mailroom personnel closely monitor and inspect confirmations during mailing.

c. the confirmations are mailed to customers by the internal auditors.

d. the confirmations are sent on the client's letterhead. 

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The books of Manila's Service, Inc. disclosed a cash balance of P687,570 on December 31,
2018.  The bank statement as of December 31 showed a balance of P547,800.  Additional
information that might be useful in reconciling the two balances follows:
(a)  Check number 748 for P30,000 was originally recorded on the books as P45,000.
(b)  A customer's note dated September 25 was discounted on October 12.  The note was
dishonored on December 29 (maturity date).  The bank charged Manila's account for
P142,650, including a protest fee of P2,650.
(c)  The deposit of December 24 was recorded on the books as P28,950, but it was actually a
deposit of P27,000.
(d)  Outstanding checks totaled P98,850 as of December 31.
(e)  There were bank service charges for December of P2,100 not yet recorded on the books.
(f)   Manila's account had been charged on December 26 for a customer's NSF check for
P12,960.
(g)  Manila properly deposited P6,000 on December 3 that was not recorded by the bank.
(h)  Receipts of December 31 for P134,250 were recorded by the bank on January 2.
(i)   A bank memo stated that a customer's note for P45,000 and interest of P1,650 had been
collected on December 27, and the bank charged a P360 collection fee.
 
Based on the above and the result of your audit, determine the adjusted cash in bank
balance.

Select one:

a. P589,200 

b. P577,200

c. P583,200

d. P512,400

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Question 2
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The accountant for the Muntinlupa Company assembled the following data:
 
  June 30 July 31
Cash account balance P  15,822 P  39,745
Bank statement balance  107,082  137,817
Deposits in transit    8,201   12,880
Outstanding checks   27,718   30,112
Bank service charge       72       60
Customer's check deposited July 10, returned by bank on July 16 marked                8,250
NSF, and redeposited immediately; no entry made on books for return or
redeposit
Collection by bank of company's notes receivable   71,815   80,900
 
The bank statements and the company's cash records show these totals:
 
   
Disbursements in July per bank statement P218,373
Cash receipts in July per Muntinlupa's books 236,452
 
Based on the application of the necessary audit procedures and appreciation of the above
data, how much is the cash shortage as of July 31?

Select one:

a. P0 

b. P196,144

c. P8,250

d. P71,815

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Question 3
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The internal controls surrounding the revenue cycle provide the organization with several
assurances that include all of the following except the
Select one:

a. accurate recording, shipping, and billing of all valid sales transactions.

b. proper authorization of all sales and sales return and allowance transactions.

c. approval of all credit sales transactions after they are processed. 

d. proper safeguarding of finished goods inventories while in stock and during the shipment
process.

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Proof of cash or four-column bank reconciliation is normally prepared by


Select one:

a. the auditor 

b. neither client or auditor

c. either the client or auditor


d. the client

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Question 5
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Which of the following business functions is associated with the revenue/receipt cycle?
Select one:

a. Resources are distributed to outsiders in exchange for promises of future payments. 

b. obligations are paid to vendors and employees.

c. resources are held, used or transformed.

d. capital funds are received from investors and creditors.

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The use of pre-numbered invoices, then accounting for their numeric sequence, meets
primarily the
Select one:

a. valuation or allocation assertion

b. completeness assertion 

c. existence or occurrence assertion

d. rights and obligations assertion

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Question 7
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The accountant for the Muntinlupa Company assembled the following data:
 
  June 30 July 31
Cash account balance P  15,822 P  39,745
Bank statement balance  107,082  137,817
Deposits in transit    8,201   12,880
Outstanding checks   27,718   30,112
Bank service charge       72       60
Customer's check deposited July 10, returned by bank on July 16 marked                8,250
NSF, and redeposited immediately; no entry made on books for return or
redeposit
Collection by bank of company's notes receivable   71,815   80,900
 
The bank statements and the company's cash records show these totals:
 
   
Disbursements in July per bank statement P218,373
Cash receipts in July per Muntinlupa's books 236,452
 
Based on the application of the necessary audit procedures and appreciation of the above
data, how much is the adjusted cash balance as of July 31?
Select one:

a. P137,817

b. P112,335

c. P22,513

d. P120,585 

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Cutoff tests designed to detect credit sales made before the end of the year that have been
recorded in the subsequent year provide assurance about management's assertion of
Select one:

a. presentation

b. completeness 
c. existence

d. rights

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The accountant for the Muntinlupa Company assembled the following data:
 
  June 30 July 31
Cash account balance P  15,822 P  39,745
Bank statement balance  107,082  137,817
Deposits in transit    8,201   12,880
Outstanding checks   27,718   30,112
Bank service charge       72       60
Customer's check deposited July 10, returned by bank on July 16 marked                8,250
NSF, and redeposited immediately; no entry made on books for return or
redeposit
Collection by bank of company's notes receivable   71,815   80,900
 
The bank statements and the company's cash records show these totals:
 
   
Disbursements in July per bank statement P218,373
Cash receipts in July per Muntinlupa's books 236,452
 
Based on the application of the necessary audit procedures and appreciation of the above
data, how much is the adjusted bank receipts for July?

Select one:

a. P214,802

b. P245,537 

c. P232,881

d. P253,787

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This document is a bank statement prepared few days after month-end. Its purpose is to
help auditors verify reconciling items on the year-end bank reconciliation.
Select one:

a. bank transfer schedule

b. proof of cash

c. bank reconciliation

d. cut-off bank statement 

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Before goods are shipped on account, a properly authorized person must


Select one:

a. verify that the unit price is accurate

b. approve credit 

c. approve the journal entry

d. prepare the sales invoice

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Which procedure would be of most assistance to an auditor discovering a large credit sale
that has erroneously been recorded twice?
Select one:

a. footing the sales journal


b. sending accounts receivable confirmations 

c. observation of the physical inventory count at year-end

d. tracing the total sales in the sales journal to the general ledger

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Shown below is the bank reconciliation for Marikina Company for November 2018:
 
Balance per bank, Nov. 30, 2018   P150,000
Add:  Deposits in transit       24,000
Total   174,000
Less:  Outstanding checks P28,000  
          Bank credit recorded in error    10,000     38,000
Cash balance per books, Nov. 30, 2018   P136,000
 
The bank statement for December 2018 contains the following data:
 
Total deposits P110,000
Total charges, including an NSF check of P8,000 and a service charge of  
P400 96,000
 
All outstanding checks on November 30, 2018, including the bank credit, were cleared in the
bank in December 2018.
 
There were outstanding checks of P30,000 and deposits in transit of P38,000 on December
31, 2018.

Based on the above and the result of your audit, how much is the cash balance per bank on
December 31, 2018?

Select one:

a. P154,000

b. P172,400

c. P150,000

d. P164,000 

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Shown below is the bank reconciliation for Marikina Company for November 2018:
 
Balance per bank, Nov. 30, 2018   P150,000
Add:  Deposits in transit       24,000
Total   174,000
Less:  Outstanding checks P28,000  
          Bank credit recorded in error    10,000     38,000
Cash balance per books, Nov. 30, 2018   P136,000
 
The bank statement for December 2018 contains the following data:
 
Total deposits P110,000
Total charges, including an NSF check of P8,000 and a service charge of  
P400 96,000
 
All outstanding checks on November 30, 2018, including the bank credit, were cleared in the
bank in December 2018.
 
There were outstanding checks of P30,000 and deposits in transit of P38,000 on December
31, 2018.

Based on the above and the result of your audit, how much is the December disbursements
per books?

Select one:

a. P79,600 

b. P98,000

c. P89,600

d. P96,000

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Shown below is the bank reconciliation for Marikina Company for November 2018:
 
Balance per bank, Nov. 30, 2018   P150,000
Add:  Deposits in transit       24,000
Total   174,000
Less:  Outstanding checks P28,000  
          Bank credit recorded in error    10,000     38,000
Cash balance per books, Nov. 30, 2018   P136,000
 
The bank statement for December 2018 contains the following data:
 
Total deposits P110,000
Total charges, including an NSF check of P8,000 and a service charge of  
P400 96,000
 
All outstanding checks on November 30, 2018, including the bank credit, were cleared in the
bank in December 2018.
 
There were outstanding checks of P30,000 and deposits in transit of P38,000 on December
31, 2018.

Based on the above and the result of your audit, how much is the December receipts per
books?

Select one:
a. P110,000

b. P148,000

c. P96,000

d. P124,000 

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Question 16
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In connection with your audit of Caloocan Corporation for the year ended December 31,
2018, you gathered the following:
 
1.      Current account at Metrobank P2,000,000
2.      Current account at BPI (100,000)
3.      Payroll account 500,000
4.      Foreign bank account – restricted (in equivalent pesos) 1,000,000
5.      Postage stamps 1,000
6.      Employee’s post dated check 4,000
7.      IOU from controller’s sister 10,000
8.      Credit memo from a vendor for a purchase return 20,000
9.      Traveler’s check 50,000
10.    Not-sufficient-funds check 15,000
11.    Money order 30,000
12.    Petty cash fund (P4,000 in currency and expense receipts for P6,000)  
10,000
13.    Treasury bills, due 3/31/19 (purchased 12/31/18) 200,000
14.    Treasury bills, due 1/31/19 (purchased 1/1/18) 300,000
 
Based on the above information and the result of your audit, compute for the cash and cash
equivalent that would be reported on the December 31, 2018 balance sheet.

Select one:

a. P2,704,000

b. P3,084,000

c. P2,784,000 

d. P2,790,000

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You noted the following composition of Malabon Company’s “cash account” as of


December 31, 2018 in connection with your audit:
 
Demand deposit account P2,000,000
Time deposit – 30 days 1,000,000
NSF check of customer 40,000
Money market placement (due June 30, 2019) 1,500,000
Savings deposit in a closed bank 100,000
IOU from employee 20,000
Pension fund 3,000,000
Petty cash fund 10,000
Customer’s check dated January 1, 2019 50,000
Customer’s check outstanding for 18 months        40,000
Total P7,760,000
 
Additional information follows:
a)    Check of P200,000 in payment of accounts payable was recorded on December 31,
2018 but mailed to suppliers on January 5, 2019.
b)    Check of P100,000 dated January 15, 2019 in payment of accounts payable was
recorded and mailed on December 31, 2018.
c)    The company uses the calendar year.  The cash receipts journal was held open until
January 15, 2019, during which time P400,000 was collected and recorded on December 31,
2018.
 
The cash and cash equivalents to be shown on the December 31, 2018 balance sheet is

Select one:

a. P1,910,000

b. P2,910,000 

c. P4,410,000

d. P3,310,000

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Shown below is the bank reconciliation for Marikina Company for November 2018:
 
Balance per bank, Nov. 30, 2018   P150,000
Add:  Deposits in transit       24,000
Total   174,000
Less:  Outstanding checks P28,000  
          Bank credit recorded in error    10,000     38,000
Cash balance per books, Nov. 30, 2018   P136,000
 
The bank statement for December 2018 contains the following data:
 
Total deposits P110,000
Total charges, including an NSF check of P8,000 and a service charge of  
P400 96,000
 
All outstanding checks on November 30, 2018, including the bank credit, were cleared in the
bank in December 2018.
 
There were outstanding checks of P30,000 and deposits in transit of P38,000 on December
31, 2018.

Based on the above and the result of your audit, the adjusted cash in bank balance as of
December 31, 2018 is

Select one:
a. P196,000

b. P141,600

c. P172,000 

d. P162,000

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Question 19
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Shown below is the bank reconciliation for Marikina Company for November 2018:
 
Balance per bank, Nov. 30, 2018   P150,000
Add:  Deposits in transit       24,000
Total   174,000
Less:  Outstanding checks P28,000  
          Bank credit recorded in error    10,000     38,000
Cash balance per books, Nov. 30, 2018   P136,000
 
The bank statement for December 2018 contains the following data:
 
Total deposits P110,000
Total charges, including an NSF check of P8,000 and a service charge of  
P400 96,000
 
All outstanding checks on November 30, 2018, including the bank credit, were cleared in the
bank in December 2018.
 
There were outstanding checks of P30,000 and deposits in transit of P38,000 on December
31, 2018.

Based on the above and the result of your audit, how much is the cash balance per books
on December 31, 2018?

Select one:

a. P170,400

b. P180,400 

c. P150,000

d. P162,000

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Question 20
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Which of the following generally provides the least evidence regarding the valuation of
accounts receivable?
Select one:

a. reviewing an aging of accounts receivable


b. confirming current (0-30 day) year-end accounts receivable 

c. examination of cash receipts subsequent to the balance sheet date

d. reviewing credit files for selected account

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Question 21
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In a credit merchandising organization, the best place to vest credit approval is in


Select one:

a. accounts receivable department

b. the cashier area where receipts will eventually be sent

c. sales department

d. a completely separate department 

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Question 22
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You were able to gather the following from the December 31, 2018 trial balance of
Mandaluyong Corporation in connection with your audit of the company:
 
Cash on hand P  500,000
Petty cash fund 10,000
BPI current account 1,000,000
Security Bank current account No. 01 1,080,000
Security Bank current account No. 02 (80,000)
PNB savings account 1,200,000
PNB time deposit 500,000
 
Cash on hand includes the following items:
 
a.    Customer’s check for P40,000 returned by bank on December 26, 2018 due to
insufficient fund but subsequently redeposited and cleared by the bank on January 8, 2019.
b.    Customer’s check for P20,000 dated January 2, 2019, received on December 29, 2018.
c.    Postal money orders received from customers, P30,000.
 
The petty cash fund consisted of the following items as of December 31, 2018.
 
Currency and coins P  2,000
Employees’ vales 1,600
Currency in an envelope marked “collections for charity” with names attached  
1,200
Unreplenished petty cash vouchers 1,300
Check drawn by Mandaluyong Corporation, payable to the petty cashier  
     4,000
  P10,100
 
Included among the checks drawn by Mandaluyong Corporation against the BPI current
account and recorded in December 2018 are the following:
 
a.    Check written and dated December 29, 2018 and delivered to payee on January 2, 2019,
P80,000.
b.    Check written on December 27, 2018, dated January 2, 2019, delivered to payee on
December 29, 2018, P40,000.
 
The credit balance in the Security Bank current account No. 2 represents checks drawn in
excess of the deposit balance.  These checks were still outstanding at December 31, 2018.
 
The savings account deposit in PNB has been set aside by the board of directors for
acquisition of new equipment.  This account is expected to be disbursed in the next 3
months from the balance sheet date.

Based on the above and the result of your audit, determine the adjusted balance of BPI
Current Account.

Select one:

a. P1,000,000

b. 1,080,000

c. P1,120,000 

d. 1,040,000

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Question 23
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To achieve control when there is no billing department, the billing function should be
performed by the
Select one:

a. accounting department 

b. credit and collection department

c. shipping department

d. sales department

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Question 24
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In the course of your audit of the Las Piñas Corporation, its controller is attempting to
determine the amount of cash to be reported on its December 31, 2018 balance sheet.  The
following information is provided:
 
1.    Commercial savings account of P1,200,000 and a commercial checking account balance
of P1,800,000 are held at PS Bank.
2.    Travel advances of P360,000 for executive travel for the first quarter of the next year
(employee to reimburse through salary deduction).
3.    A separate cash fund in the amount of P3,000,000 is restricted for the retirement of a
long term debt.
4.    Petty cash fund of P10,000.
5.    An I.O.U. from a company officer in the amount of P40,000.
6.    A bank overdraft of P250,000 has occurred at one of the banks the company uses to
deposit its cash receipts.  At the present time, the company has no deposits at this bank.
7.    The company has two certificates of deposit, each totaling P1,000,000.  These
certificates of deposit have maturity of 120 days.
8.    Las Piñas has received a check dated January 2, 2019 in the amount of P150,000.
9.    Las Piñas has agreed to maintain a cash balance of P200,000 at all times at PS Bank to
ensure future credit availability.
10.  Currency and coin on hand amounted to P15,000.
 
Based on the above and the result of your audit, how much will be reported as cash and
cash equivalent at December 31, 2018?

Select one:

a. P2,825,000

b. P3,025,000 

c. P5,025,000

d. P2,575,000

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Question 25
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You were able to gather the following from the December 31, 2018 trial balance of
Mandaluyong Corporation in connection with your audit of the company:
 
Cash on hand P  500,000
Petty cash fund 10,000
BPI current account 1,000,000
Security Bank current account No. 01 1,080,000
Security Bank current account No. 02 (80,000)
PNB savings account 1,200,000
PNB time deposit 500,000
 
Cash on hand includes the following items:
 
a.    Customer’s check for P40,000 returned by bank on December 26, 2018 due to
insufficient fund but subsequently redeposited and cleared by the bank on January 8, 2019.
b.    Customer’s check for P20,000 dated January 2, 2019, received on December 29, 2018.
c.    Postal money orders received from customers, P30,000.
 
The petty cash fund consisted of the following items as of December 31, 2018.
 
Currency and coins P  2,000
Employees’ vales 1,600
Currency in an envelope marked “collections for charity” with names attached  
1,200
Unreplenished petty cash vouchers 1,300
Check drawn by Mandaluyong Corporation, payable to the petty cashier  
     4,000
  P10,100
 
Included among the checks drawn by Mandaluyong Corporation against the BPI current
account and recorded in December 2018 are the following:
 
a.    Check written and dated December 29, 2018 and delivered to payee on January 2, 2019,
P80,000.
b.    Check written on December 27, 2018, dated January 2, 2019, delivered to payee on
December 29, 2018, P40,000.
 
The credit balance in the Security Bank current account No. 2 represents checks drawn in
excess of the deposit balance.  These checks were still outstanding at December 31, 2018.
 
The savings account deposit in PNB has been set aside by the board of directors for
acquisition of new equipment.  This account is expected to be disbursed in the next 3
months from the balance sheet date.

Based on the above and the result of your audit, determine the adjusted balance of cash
and cash equivalents.

Select one:

a. P3,066,000 

b. P3,074,900

c. P3,052,000

d. P2,917,200

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Question 26
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Which of the following assertions is least likely to be addressed by sending bank


confirmation?
Select one:

a. existence

b. rights and obligation

c. completeness

d. classification 

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Question 27
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The books of Manila's Service, Inc. disclosed a cash balance of P687,570 on December 31,
2018.  The bank statement as of December 31 showed a balance of P547,800.  Additional
information that might be useful in reconciling the two balances follows:
(a)  Check number 748 for P30,000 was originally recorded on the books as P45,000.
(b)  A customer's note dated September 25 was discounted on October 12.  The note was
dishonored on December 29 (maturity date).  The bank charged Manila's account for
P142,650, including a protest fee of P2,650.
(c)  The deposit of December 24 was recorded on the books as P28,950, but it was actually a
deposit of P27,000.
(d)  Outstanding checks totaled P98,850 as of December 31.
(e)  There were bank service charges for December of P2,100 not yet recorded on the books.
(f)   Manila's account had been charged on December 26 for a customer's NSF check for
P12,960.
(g)  Manila properly deposited P6,000 on December 3 that was not recorded by the bank.
(h)  Receipts of December 31 for P134,250 were recorded by the bank on January 2.
(i)   A bank memo stated that a customer's note for P45,000 and interest of P1,650 had been
collected on December 27, and the bank charged a P360 collection fee.
 
Based on the above and the result of your audit, determine the net adjustment to cash as of
December 31, 2018.

Select one:

a. P  98,370 

b. P104,370

c. P175,170

d. P110,370

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Question 28
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Defective merchandise returned by customers should be presented to


Select one:

a. sales personnel

b. receiving personnel 

c. inventory control personnel

d. purchasing personnel

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Question 29
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In the audit of Pasig Company’s cash account, you obtained the following information:
 
The company’s bookkeeper prepared the following bank reconciliation as of November 30,
2018:
 
Bank balance – November 30, 2018     P90,800
Undeposited collections     5,000
Bank service charges     100
Bank collection of customer’s note     (8,000)
Outstanding checks:      
  Number Amount  
  7159 P3,000  
  7767 5,000  
  7915 2,000  (10,000)
Book balance – November 30, 2018     P77,900
 
Additional data are given as follows:
 
a.    Company recordings for December:
Total collections from customers P165,000
Total checks drawn 98,000
 
b.    Bank statement totals for December :
Charges P123,800
Credits 169,000
 
c.    Check no. 7159 dated November 25, 2018, was entered as P3,000 in payment of a
voucher for P30,000.  Upon examination of the checks returned by the bank, the actual
amount of the check was P30,000.
 
d.    Check no. 8113 dated December 20, 2018 was issued to replace a mutilated check
(no.7767), which was returned by the payee.  Both checks were recorded in the amount
drawn, P5,000, but no entry was made to cancel check no. 7767.
 
e.    The December bank statement included a check drawn by Sipag Company for P1,500.
 
f.     Undeposited collections on December 31, 2018 - P8,000.
 
g.    The service charge for December was P150 which was charged by the bank to another
client.
 
h.    The bank collected a note receivable of P7,000 on December 28, 2018, but the
collection was not received on time to be recorded by Pasig.
i.    The outstanding checks on December 31, 2018, were:
 
Check No. Amount Check No. Amount
7767 P5,000 8910 P2,300
8856 1,300 8925 4,100
 
Based on the above and the result of your audit, determine the unadjusted cash balance per
books as of December 31, 2018?

Select one:

a. P152,800 

b. P165,700

c. P152,750

d. P144,900

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Question 30
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The accountant for the Muntinlupa Company assembled the following data:
 
  June 30 July 31
Cash account balance P  15,822 P  39,745
Bank statement balance  107,082  137,817
Deposits in transit    8,201   12,880
Outstanding checks   27,718   30,112
Bank service charge       72       60
Customer's check deposited July 10, returned by bank on July 16 marked                8,250
NSF, and redeposited immediately; no entry made on books for return or
redeposit
Collection by bank of company's notes receivable   71,815   80,900
 
The bank statements and the company's cash records show these totals:
 
   
Disbursements in July per bank statement P218,373
Cash receipts in July per Muntinlupa's books 236,452
 
Based on the application of the necessary audit procedures and appreciation of the above
data, how much is the adjusted book disbursements for July?

Select one:

a. P212,517 

b. P181,782

c. P206,673

d. P220,767

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Question 31
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You were able to gather the following from the December 31, 2018 trial balance of
Mandaluyong Corporation in connection with your audit of the company:
 
Cash on hand P  500,000
Petty cash fund 10,000
BPI current account 1,000,000
Security Bank current account No. 01 1,080,000
Security Bank current account No. 02 (80,000)
PNB savings account 1,200,000
PNB time deposit 500,000
 
Cash on hand includes the following items:
 
a.    Customer’s check for P40,000 returned by bank on December 26, 2018 due to
insufficient fund but subsequently redeposited and cleared by the bank on January 8, 2019.
b.    Customer’s check for P20,000 dated January 2, 2019, received on December 29, 2018.
c.    Postal money orders received from customers, P30,000.
 
The petty cash fund consisted of the following items as of December 31, 2018.
 
Currency and coins P  2,000
Employees’ vales 1,600
Currency in an envelope marked “collections for charity” with names attached  
1,200
Unreplenished petty cash vouchers 1,300
Check drawn by Mandaluyong Corporation, payable to the petty cashier  
     4,000
  P10,100
 
Included among the checks drawn by Mandaluyong Corporation against the BPI current
account and recorded in December 2018 are the following:
 
a.    Check written and dated December 29, 2018 and delivered to payee on January 2, 2019,
P80,000.
b.    Check written on December 27, 2018, dated January 2, 2019, delivered to payee on
December 29, 2018, P40,000.
 
The credit balance in the Security Bank current account No. 2 represents checks drawn in
excess of the deposit balance.  These checks were still outstanding at December 31, 2018.
 
The savings account deposit in PNB has been set aside by the board of directors for
acquisition of new equipment.  This account is expected to be disbursed in the next 3
months from the balance sheet date.

Based on the above and the result of your audit, determine the adjusted balance of petty
cash fund.

Select one:

a. P6,000 

b. P2,000

c. P4,900

d. P7,200
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Question 32
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The cash account of the Makati Corporation as of December 31, 2018 consists of the
following:
 
On deposit in current account with Real Bank P  900,000
Cash collection not yet deposited to the bank 350,000
A customer’s check returned by the bank for insufficient fund 150,000
A check drawn by the Vice-President of the Corporation dated January 15,  
2019 70,000
A check drawn by a supplier dated December 28, 2018 for goods returned  
by the Corporation 60,000
A check dated May 31,2018 drawn by the Corporation against the Piggy  
Bank in payment of customs duties.  Since the importation did not  
materialize, the check was returned by the customs broker.  This check was
an outstanding check in the reconciliation of the Piggy Bank account  
 
 
410,000
Petty Cash fund of which P5,000 is in currency; P3,600 in form of  
employees’ I.O.U. s; and P1,400 is supported by approved petty cash  
vouchers for expenses all dated prior to closing of the books on December
31, 2018  
       10,000
Total 1,950,000
Less: Overdraft with Piggy Bank secured by a Chattel mortgage on the  
inventories      300,000
Balance per ledger P1,650,000
 
At what amount will the account “Cash” appear on the December 31, 2018 balance sheet?

Select one:

a. P1,315,000

b. P1,725,000

c. P1,425,000 

d. P1,495,000

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Question 33
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The overall objective in the audit of the sales and collection cycle is to evaluate whether
Select one:

a. the account balances affected by the cycle are fairly presented in accordance with GAAP. 

b. the sales account and the accounts receivable account are free of errors.

c. the sales account and the accounts receivable are free of material errors.
d. The sales account and the accounts receivable account are presented fairly in accordance
with GAAP.

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Question 34
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In the audit of Pasig Company’s cash account, you obtained the following information:
 
The company’s bookkeeper prepared the following bank reconciliation as of November 30,
2018:
 
Bank balance – November 30, 2018     P90,800
Undeposited collections     5,000
Bank service charges     100
Bank collection of customer’s note     (8,000)
Outstanding checks:      
  Number Amount  
  7159 P3,000  
  7767 5,000  
  7915 2,000  (10,000)
Book balance – November 30, 2018     P77,900
 
Additional data are given as follows:
 
a.    Company recordings for December:
Total collections from customers P165,000
Total checks drawn 98,000
 
b.    Bank statement totals for December :
Charges P123,800
Credits 169,000
 
c.    Check no. 7159 dated November 25, 2018, was entered as P3,000 in payment of a
voucher for P30,000.  Upon examination of the checks returned by the bank, the actual
amount of the check was P30,000.
 
d.    Check no. 8113 dated December 20, 2018 was issued to replace a mutilated check
(no.7767), which was returned by the payee.  Both checks were recorded in the amount
drawn, P5,000, but no entry was made to cancel check no. 7767.
 
e.    The December bank statement included a check drawn by Sipag Company for P1,500.
 
f.     Undeposited collections on December 31, 2018 - P8,000.
 
g.    The service charge for December was P150 which was charged by the bank to another
client.
 
h.    The bank collected a note receivable of P7,000 on December 28, 2018, but the
collection was not received on time to be recorded by Pasig.
i.    The outstanding checks on December 31, 2018, were:
 
Check No. Amount Check No. Amount
7767 P5,000 8910 P2,300
8856 1,300 8925 4,100
 
Based on the above and the result of your audit, determine the adjusted cash balance as of
November 30, 2018.
Select one:

a. P58,800

b. P90,800

c. P63,800 

d. P85,800

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Question 35
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From the standpoint of good internal control, the credit manager should be responsible to
the
Select one:

a. customer-service manager

b. sales manager

c. treasurer 

d. controller

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Question 36
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You were able to gather the following from the December 31, 2018 trial balance of
Mandaluyong Corporation in connection with your audit of the company:
 
Cash on hand P  500,000
Petty cash fund 10,000
BPI current account 1,000,000
Security Bank current account No. 01 1,080,000
Security Bank current account No. 02 (80,000)
PNB savings account 1,200,000
PNB time deposit 500,000
 
Cash on hand includes the following items:
 
a.    Customer’s check for P40,000 returned by bank on December 26, 2018 due to
insufficient fund but subsequently redeposited and cleared by the bank on January 8, 2019.
b.    Customer’s check for P20,000 dated January 2, 2019, received on December 29, 2018.
c.    Postal money orders received from customers, P30,000.
 
The petty cash fund consisted of the following items as of December 31, 2018.
 
Currency and coins P  2,000
Employees’ vales 1,600
Currency in an envelope marked “collections for charity” with names attached  
1,200
Unreplenished petty cash vouchers 1,300
Check drawn by Mandaluyong Corporation, payable to the petty cashier  
     4,000
  P10,100
 
Included among the checks drawn by Mandaluyong Corporation against the BPI current
account and recorded in December 2018 are the following:
 
a.    Check written and dated December 29, 2018 and delivered to payee on January 2, 2019,
P80,000.
b.    Check written on December 27, 2018, dated January 2, 2019, delivered to payee on
December 29, 2018, P40,000.
 
The credit balance in the Security Bank current account No. 2 represents checks drawn in
excess of the deposit balance.  These checks were still outstanding at December 31, 2018.
 
The savings account deposit in PNB has been set aside by the board of directors for
acquisition of new equipment.  This account is expected to be disbursed in the next 3
months from the balance sheet date.

Based on the above and the result of your audit, determine the adjusted balance of cash on
hand.

Select one:

a. P530,000

b. P410,000

c. P470,000 

d. P440,000

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Question 37
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A reconciliation that includes proof of receipts and disbursements that is useful in


discovering possible discrepancies in handling cash over a certain period of time.
Select one:

a. bank statement

b. cash requirements report

c. bank reconciliation

d. proof of cash 

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Question 38
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To obtain the best evidence regarding the completeness of recorded accounts receivable,
the auditors
Select one:
a. confirm a sample of accounts payable

b. trace a sample of recorded sales to shipping documents

c. trace a sample of bills of lading to sales invoices 

d. review the aging of accounts receivable

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Question 39
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To achieve good internal control, which department should perform the activities of
matching shipping documents with sales orders and preparing daily summaries?
Select one:

a. sales order department

b. billing department 

c. credit department

d. shipping department

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Question 40
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Which of the following is not typically included in the sales and collection cycle?
Select one:

a. cash credits from the cash disbursement journal 

b. allowance for uncollectible accounts

c. sales returns and allowances

d. bad debt expense

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Question 41
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In the audit of Pasig Company’s cash account, you obtained the following information:
 
The company’s bookkeeper prepared the following bank reconciliation as of November 30,
2018:
 
Bank balance – November 30, 2018     P90,800
Undeposited collections     5,000
Bank service charges     100
Bank collection of customer’s note     (8,000)
Outstanding checks:      
  Number Amount  
  7159 P3,000  
  7767 5,000  
  7915 2,000  (10,000)
Book balance – November 30, 2018     P77,900
 
Additional data are given as follows:
 
a.    Company recordings for December:
Total collections from customers P165,000
Total checks drawn 98,000
 
b.    Bank statement totals for December :
Charges P123,800
Credits 169,000
 
c.    Check no. 7159 dated November 25, 2018, was entered as P3,000 in payment of a
voucher for P30,000.  Upon examination of the checks returned by the bank, the actual
amount of the check was P30,000.
 
d.    Check no. 8113 dated December 20, 2018 was issued to replace a mutilated check
(no.7767), which was returned by the payee.  Both checks were recorded in the amount
drawn, P5,000, but no entry was made to cancel check no. 7767.
 
e.    The December bank statement included a check drawn by Sipag Company for P1,500.
 
f.     Undeposited collections on December 31, 2018 - P8,000.
 
g.    The service charge for December was P150 which was charged by the bank to another
client.
 
h.    The bank collected a note receivable of P7,000 on December 28, 2018, but the
collection was not received on time to be recorded by Pasig.
i.    The outstanding checks on December 31, 2018, were:
 
Check No. Amount Check No. Amount
7767 P5,000 8910 P2,300
8856 1,300 8925 4,100
 
Based on the above and the result of your audit, determine the adjusted cash balance as of
December 31, 2018.
Select one:

a. P134,650

b. P132,650

c. P137,650 

d. P137,800

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Question 42
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In the audit of Pasig Company’s cash account, you obtained the following information:
 
The company’s bookkeeper prepared the following bank reconciliation as of November 30,
2018:
 
Bank balance – November 30, 2018     P90,800
Undeposited collections     5,000
Bank service charges     100
Bank collection of customer’s note     (8,000)
Outstanding checks:      
  Number Amount  
  7159 P3,000  
  7767 5,000  
  7915 2,000  (10,000)
Book balance – November 30, 2018     P77,900
 
Additional data are given as follows:
 
a.    Company recordings for December:
Total collections from customers P165,000
Total checks drawn 98,000
 
b.    Bank statement totals for December :
Charges P123,800
Credits 169,000
 
c.    Check no. 7159 dated November 25, 2018, was entered as P3,000 in payment of a
voucher for P30,000.  Upon examination of the checks returned by the bank, the actual
amount of the check was P30,000.
 
d.    Check no. 8113 dated December 20, 2018 was issued to replace a mutilated check
(no.7767), which was returned by the payee.  Both checks were recorded in the amount
drawn, P5,000, but no entry was made to cancel check no. 7767.
 
e.    The December bank statement included a check drawn by Sipag Company for P1,500.
 
f.     Undeposited collections on December 31, 2018 - P8,000.
 
g.    The service charge for December was P150 which was charged by the bank to another
client.
 
h.    The bank collected a note receivable of P7,000 on December 28, 2018, but the
collection was not received on time to be recorded by Pasig.
i.    The outstanding checks on December 31, 2018, were:
 
Check No. Amount Check No. Amount
7767 P5,000 8910 P2,300
8856 1,300 8925 4,100
 
Based on the above and the result of your audit, determine the adjusted book receipts for
December 2018.

Select one:

a. P170,500

b. P182,000

c. P173,000

d. P172,000 

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Question 43
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The person who opens the mail commonly prepares a remittance advice when a customer
fails to return one with a payment. Consequently, mail should be opened by the
Select one:

a. accounts receivable clerk

b. credit manager

c. sales manager

d. receptionist 

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Question 44
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A client might overstate December 31 accounts receivable balances by dating and recording
January transactions in December. Such entries recorded in which journal are most likely to
achieve this end?
Select one:

a. cash receipts

b. sales 
c. payroll

d. purchases

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Question 45
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The internal control objectives of the revenue cycle include all of the following except
Select one:

a. revenue cycle transactions are properly executed.

b. Custody over assets resulting from the revenue cycle is properly maintained.

c. appropriate goods are ordered so that sales can be made. 

d. transactions relating to revenue are properly recorded.

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Question 46
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The primary assertion being addressed by sending bank confirmation is
Select one:

a. rights and obligation

b. classification

c. completeness

d. existence 

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Question 47
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Which of the following is not normally considered a step in the credit sales functions?
Select one:

a. approving credit

b. shipping the sales orders

c. acquiring goods to fill the order 

d. accepting customer orders

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Question 48
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Matching the suppliers' invoice, the purchase order , and the receiving report normally
should be the responsibility of the
Select one:

a. treasury function

b. accounting function 

c. purchasing department

d. receiving department

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Question 49
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In the audit of Pasig Company’s cash account, you obtained the following information:
 
The company’s bookkeeper prepared the following bank reconciliation as of November 30,
2018:
 
Bank balance – November 30, 2018     P90,800
Undeposited collections     5,000
Bank service charges     100
Bank collection of customer’s note     (8,000)
Outstanding checks:      
  Number Amount  
  7159 P3,000  
  7767 5,000  
  7915 2,000  (10,000)
Book balance – November 30, 2018     P77,900
 
Additional data are given as follows:
 
a.    Company recordings for December:
Total collections from customers P165,000
Total checks drawn 98,000
 
b.    Bank statement totals for December :
Charges P123,800
Credits 169,000
 
c.    Check no. 7159 dated November 25, 2018, was entered as P3,000 in payment of a
voucher for P30,000.  Upon examination of the checks returned by the bank, the actual
amount of the check was P30,000.
 
d.    Check no. 8113 dated December 20, 2018 was issued to replace a mutilated check
(no.7767), which was returned by the payee.  Both checks were recorded in the amount
drawn, P5,000, but no entry was made to cancel check no. 7767.
 
e.    The December bank statement included a check drawn by Sipag Company for P1,500.
 
f.     Undeposited collections on December 31, 2018 - P8,000.
 
g.    The service charge for December was P150 which was charged by the bank to another
client.
 
h.    The bank collected a note receivable of P7,000 on December 28, 2018, but the
collection was not received on time to be recorded by Pasig.
i.    The outstanding checks on December 31, 2018, were:
 
Check No. Amount Check No. Amount
7767 P5,000 8910 P2,300
8856 1,300 8925 4,100
 
Based on the above and the result of your audit, determine the adjusted bank disbursement
for December 2018.

Select one:

a. P  98,150 

b. P120,150

c. P125,150

d. P  76,150

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Question 50
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The accountant for the Muntinlupa Company assembled the following data:
 
  June 30 July 31
Cash account balance P  15,822 P  39,745
Bank statement balance  107,082  137,817
Deposits in transit    8,201   12,880
Outstanding checks   27,718   30,112
Bank service charge       72       60
Customer's check deposited July 10, returned by bank on July 16 marked                8,250
NSF, and redeposited immediately; no entry made on books for return or
redeposit
Collection by bank of company's notes receivable   71,815   80,900
 
The bank statements and the company's cash records show these totals:
 
   
Disbursements in July per bank statement P218,373
Cash receipts in July per Muntinlupa's books 236,452
 
Based on the application of the necessary audit procedures and appreciation of the above
data, how much is the adjusted cash balance as of June 30?

Select one:

a. (P3,695)

b. P107,082

c. P15,822

d. P87,565 

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The following accounts were taken from Cervantes Inc.’s balance sheet at December 31,
2018.
  Debit Credit
Accounts receivable P4,100,000  
Allowance for doubtful accounts 100,000  
Net credit sales   P7,500,000
 
If doubtful accounts are 3% of accounts receivable, determine the bad debt expense to be
reported for 2018.

Select one:

a. P123,000

b. P223,000 

c. P  23,000

d. P225,000

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Your audit of Banayoyo Corporation for the year ended December 31, 2018 revealed that
the Accounts Receivable account consists of the following:
 
Trade accounts receivable (current) P3,440,000
Past due trade accounts  640,000
Uncollectible accounts 128,000
Credit balances in customers’ accounts (80,000)
Notes receivable dishonored 240,000
Consignment shipments – at cost  
The consignee sold goods costing P96,000 for P160,000.  A 10%  
commission was charged by the consignee and remitted the balance to  
Banayoyo.  The cash was received in January, 2019.
     320,000
Total P4,688,000
 
The balance of the allowance for doubtful accounts before audit adjustment is a credit of
P80,000.  It is estimated that an allowance should be maintained to equal 5% of trade
receivables, net of amount due from the consignee who is bonded.  The company has not
provided yet for the 2018 bad debt expense.
Based on the above and the result of your audit, determine the adjusted balance
of Doubtful accounts expense.

Select one:

a. P220,000

b. P252,000

c. P264,000 

d. P227,200

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The adjusted trial balance of Galimuyod Company as of December 31, 2017 shows the
following:
 
  Debit Credit
Accounts receivable P1,000,000 
Allowance for bad debts   P40,000
 
Additional information:
 
·       Cash sales of the company represents 10% of gross sales.
·       90% of the credit sales customers do not take advantage of  the 2/10, n/30 terms.
·       It is expected that cash discount of P6,000 will be taken on accounts receivable
outstanding at December 31, 2018.
·       Sales returns in 2018 amounted to P400,000.  All returns were from charge sales.
·       During 2018, accounts totaling to P44,000 were written off as uncollectible; bad debt
recoveries during the year amounted to P3,000.
·       The allowance for bad debts is adjusted so that it represents certain percentage of the
outstanding accounts receivable at year end.  The required percentage at December 31,
2018 is 150% of the rate used on December 31, 2017.
Based on the above and the result of your audit, the allowance for doubtful accounts as of
December 31, 2018 is

Select one:

a. P  20,000

b. P120,000
c. P180,000 

d. P146,640

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In connection with your audit of the Salcedo Corporation, you noted that the company’s
Notes Receivable consists of the following:
 
a.    A 4-month note dated November 30, 2018, from AA Company, P200,000; interest rate,
16%; discounted on November 30, 2018 at 16%.
 
b.    A draft drawn payable 30 days after for P900,000 by the BB Company on the Charlie
Company in favor of the Delta Company, endorsed to Salcedo Corp. on December 2, 2018
and accepted on December 4, 2018.
 
c.    A 90-day note dated November 1, 2018 from E. Dy, P500,000; interest at 16%; the note
is for subscription to 5,000 shares of the preferred stock of Salcedo Corp. at P100 per share.
 
d.    A 60-day note dated May 3, 2018, from CC Company, P600,000; interest rate, 16%;
dishonored at maturity; judgment obtained on October 10, 2018.  Collection within the next
twelve months is doubtful.
 
e.    A 90-day note dated January 4, 2018, from Apol Bobads, president of Salcedo,
P160,000; no interest; note not renewed; president confirmed.
 
f.     A 120-day note dated September 14, 2018, from DD Company, P120,000; interest rate,
16%; note is held by bank as collateral.
Based on the above and the result of your audit, the adjusted balance of Notes Receivable
as of December 31, 2018 is

Select one:

a. P2,480,000

b. P   900,000

c. P1,020,000

d. P1,220,000 

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Cabugao Company provides for doubtful accounts based 3% of credit sales.  The following
data are available for 2018.
 
Credit sales during 2018 P21,000,000
Allowance for doubtful accounts 1/1/18 170,000
Collection of accounts written off in prior years (Customer credit was  
reestablished) 80,000
Customer accounts written off as uncollectible during 2018 300,000
 
What is the balance in allowance for doubtful accounts at December 31, 2018?

Select one:

a. P580,000 

b. P630,000

c. P420,000

d. P500,000

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Unless otherwise identified, the notes receivable of the Quirino Company on December 31,
2018, were trade notes receivable.  On this date the balance of the account, P3,036,915,
consisted of the following notes all received during the calendar year under audit:
 
Maker Date Term Rate Amount Remarks
A Co. Oct. 1   6 mos. 18% P    57,416Four notes to settle past due
Oct. 1 12 mos. 18% 100,000account.  Current billings are
on a 10 – day credit basis.
Oct. 1 18 mos. 18% 100,000
Oct. 1 24 mos. 18% 100,000
B Co. July 1 36 mos. 18% 500,000This note is for a cash loan
made to this customer.  No
Maker Date Term Rate Amount Remarks
interest has been collected to
date.
C Co. Oct. 1   4 mos. 15% 251,636All interest collected on Oct. 1.
Mr. Pogi Feb. 1 Demand 18% 1,000,000Loan approved in minutes
(Company book, Jan. 20.  On Aug. 1 this
President) note was pledged as collateral
for a bank loan P500,000.
D Co. Nov. 1 12 mos. 15% 546,387Interest payable at maturity
E, Inc. Dec. 10 90 days 18%  Interest payable at maturity
    381,476
        P3,036,915 
 
All of the above notes are considered good except that of A Company which is somewhat
doubtful.  An allowance of 25% should be established against the notes receivable of this
company.
Based on the above and the result of your audit, compute the Net realizable value of Trade
Notes Receivable as of December 31, 2018.
Select one:

a. P1,090,145

b. P1,447,561 

c. P   838,509

d. P1,947,561

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In connection with your audit of the Salcedo Corporation, you noted that the company’s
Notes Receivable consists of the following:
 
a.    A 4-month note dated November 30, 2018, from AA Company, P200,000; interest rate,
16%; discounted on November 30, 2018 at 16%.
 
b.    A draft drawn payable 30 days after for P900,000 by the BB Company on the Charlie
Company in favor of the Delta Company, endorsed to Salcedo Corp. on December 2, 2018
and accepted on December 4, 2018.
 
c.    A 90-day note dated November 1, 2018 from E. Dy, P500,000; interest at 16%; the note
is for subscription to 5,000 shares of the preferred stock of Salcedo Corp. at P100 per share.
 
d.    A 60-day note dated May 3, 2018, from CC Company, P600,000; interest rate, 16%;
dishonored at maturity; judgment obtained on October 10, 2018.  Collection within the next
twelve months is doubtful.
 
e.    A 90-day note dated January 4, 2018, from Apol Bobads, president of Salcedo,
P160,000; no interest; note not renewed; president confirmed.
 
f.     A 120-day note dated September 14, 2018, from DD Company, P120,000; interest rate,
16%; note is held by bank as collateral.
Based on the above and the result of your audit, how much of foregoing notes receivable
will be reported in the current assets section of the balance sheet?

Select one:

a. P1,680,000 

b. P1,520,000

c. P1,220,000

d. P2,480,000
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In connection with your audit of the Salcedo Corporation, you noted that the company’s
Notes Receivable consists of the following:
 
a.    A 4-month note dated November 30, 2018, from AA Company, P200,000; interest rate,
16%; discounted on November 30, 2018 at 16%.
 
b.    A draft drawn payable 30 days after for P900,000 by the BB Company on the Charlie
Company in favor of the Delta Company, endorsed to Salcedo Corp. on December 2, 2018
and accepted on December 4, 2018.
 
c.    A 90-day note dated November 1, 2018 from E. Dy, P500,000; interest at 16%; the note
is for subscription to 5,000 shares of the preferred stock of Salcedo Corp. at P100 per share.
 
d.    A 60-day note dated May 3, 2018, from CC Company, P600,000; interest rate, 16%;
dishonored at maturity; judgment obtained on October 10, 2018.  Collection within the next
twelve months is doubtful.
 
e.    A 90-day note dated January 4, 2018, from Apol Bobads, president of Salcedo,
P160,000; no interest; note not renewed; president confirmed.
 
f.     A 120-day note dated September 14, 2018, from DD Company, P120,000; interest rate,
16%; note is held by bank as collateral.
Based on the above and the result of your audit, the adjusted balance of Interest Receivable
as of December 31, 2018 is

Select one:

a. P  5,760

b. P         0

c. P70,613

d. P19,093 

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Your audit disclosed that on December 31, 2018, the accounts receivable control account of
Alilem Company had a balance of P2,865,000.  An analysis of the accounts receivable
account showed the following:
 
Accounts known to be worthless P    37,500
Advance payments to creditors on purchase orders 150,000
Advances to affiliated companies 375,000
Customers’ accounts reporting credit balances arising from sales return  
(225,000)
Interest receivable on bonds 150,000
Other trade accounts receivable – unassigned 750,000
Subscriptions receivable for common stock due in 30 days 825,000
Trade accounts receivable  - assigned (Finance company’s equity in assigned  
accounts is P150,000) 375,000
Trade installment receivable due 1 – 18 months, including unearned finance  
charges of P30,000 330,000
Trade receivables from officers due currently 22,500
Trade accounts on which post-dated checks are held (no entries were made on  
receipts of checks)        75,000
  P2,865,000
 
Based on the above and the result of your audit, determine the adjusted balance of the
trade accounts receivable as of December 31, 2018.

Select one:

a. P1,485,000

b. P1,147,500

c. P1,522,500 

d. P1,447,500

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An analysis and aging of Burgos Corp. accounts receivable at December 31, 2018, disclosed
the following:
 
Amounts estimated to be uncollectible P 1,800,000
Accounts receivable 17,500,000
Allowance for doubtful accounts (per books) 1,250,000
 
What is the net realizable value of Burgos’ receivables at December 31, 2018?

Select one:

a. P16,250,000

b. P15,700,000 

c. P17,500,000

d. P14,450,000

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The adjusted trial balance of Galimuyod Company as of December 31, 2017 shows the
following:
 
  Debit Credit
Accounts receivable P1,000,000 
Allowance for bad debts   P40,000
 
Additional information:
 
·       Cash sales of the company represents 10% of gross sales.
·       90% of the credit sales customers do not take advantage of  the 2/10, n/30 terms.
·       It is expected that cash discount of P6,000 will be taken on accounts receivable
outstanding at December 31, 2018.
·       Sales returns in 2018 amounted to P400,000.  All returns were from charge sales.
·       During 2018, accounts totaling to P44,000 were written off as uncollectible; bad debt
recoveries during the year amounted to P3,000.
·       The allowance for bad debts is adjusted so that it represents certain percentage of the
outstanding accounts receivable at year end.  The required percentage at December 31,
2018 is 150% of the rate used on December 31, 2017.
Based on the above and the result of your audit, the accounts receivable as of December 31,
2018 is

Select one:

a. P2,444,000

b. P   333,333

c. P   300,000

d. P3,000,000 

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Unless otherwise identified, the notes receivable of the Quirino Company on December 31,
2018, were trade notes receivable.  On this date the balance of the account, P3,036,915,
consisted of the following notes all received during the calendar year under audit:
 
Maker Date Term Rate Amount Remarks
A Co. Oct. 1   6 mos. 18% P    57,416Four notes to settle past due
Oct. 1 12 mos. 18% 100,000account.  Current billings are
on a 10 – day credit basis.
Oct. 1 18 mos. 18% 100,000
Oct. 1 24 mos. 18% 100,000
B Co. July 1 36 mos. 18% 500,000This note is for a cash loan
made to this customer.  No
interest has been collected to
date.
C Co. Oct. 1   4 mos. 15% 251,636All interest collected on Oct. 1.
Mr. Pogi Feb. 1 Demand 18% 1,000,000Loan approved in minutes
(Company book, Jan. 20.  On Aug. 1 this
President) note was pledged as collateral
for a bank loan P500,000.
D Co. Nov. 1 12 mos. 15% 546,387Interest payable at maturity
E, Inc. Dec. 10 90 days 18%  Interest payable at maturity
    381,476
        P3,036,915 
 
All of the above notes are considered good except that of A Company which is somewhat
doubtful.  An allowance of 25% should be established against the notes receivable of this
company.
Based on the above and the result of your audit, compute the Interest income for the year
ended December 31, 2018.
Select one:
a. P208,185

b. P253,185 

c. P  43,185

d. P243,749

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Your audit of Banayoyo Corporation for the year ended December 31, 2018 revealed that
the Accounts Receivable account consists of the following:
 
Trade accounts receivable (current) P3,440,000
Past due trade accounts  640,000
Uncollectible accounts 128,000
Credit balances in customers’ accounts (80,000)
Notes receivable dishonored 240,000
Consignment shipments – at cost  
The consignee sold goods costing P96,000 for P160,000.  A 10%  
commission was charged by the consignee and remitted the balance to  
Banayoyo.  The cash was received in January, 2019.
     320,000
Total P4,688,000
 
The balance of the allowance for doubtful accounts before audit adjustment is a credit of
P80,000.  It is estimated that an allowance should be maintained to equal 5% of trade
receivables, net of amount due from the consignee who is bonded.  The company has not
provided yet for the 2018 bad debt expense.
Based on the above and the result of your audit, determine the adjusted balance
of Allowance for doubtful accounts.

Select one:

a. P179,200

b. P216,000 

c. P204,000

d. P172,000

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Unless otherwise identified, the notes receivable of the Quirino Company on December 31,
2018, were trade notes receivable.  On this date the balance of the account, P3,036,915,
consisted of the following notes all received during the calendar year under audit:
 
Maker Date Term Rate Amount Remarks
A Co. Oct. 1   6 mos. 18% P    57,416Four notes to settle past due
Oct. 1 12 mos. 18% 100,000account.  Current billings are
on a 10 – day credit basis.
Oct. 1 18 mos. 18% 100,000
Oct. 1 24 mos. 18% 100,000
Maker Date Term Rate Amount Remarks
B Co. July 1 36 mos. 18% 500,000This note is for a cash loan
made to this customer.  No
interest has been collected to
date.
C Co. Oct. 1   4 mos. 15% 251,636All interest collected on Oct. 1.
Mr. Pogi Feb. 1 Demand 18% 1,000,000Loan approved in minutes
(Company book, Jan. 20.  On Aug. 1 this
President) note was pledged as collateral
for a bank loan P500,000.
D Co. Nov. 1 12 mos. 15% 546,387Interest payable at maturity
E, Inc. Dec. 10 90 days 18%  Interest payable at maturity
    381,476
        P3,036,915 
 
All of the above notes are considered good except that of A Company which is somewhat
doubtful.  An allowance of 25% should be established against the notes receivable of this
company.
Based on the above and the result of your audit, compute the Accrued interest income as of
December 31, 2018.
Select one:

a. P198,749

b. P253,185

c. P  78,749

d. P243,749 

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At the end of its first year of operations, December 31, 2018, Caoayan, Inc. reported the
following information:
 
Accounts receivable, net of allowance for doubtful accounts P9,500,000
Customer accounts written off as uncollectible during 2018 240,000
Bad debts expense for 2018 840,000
 
What should be the balance in accounts receivable at December 31, 2018, before
subtracting the allowance for doubtful accounts?

Select one:

a. P10,100,000 

b. P10,580,000

c. P10,340,000

d. P  9,740,000

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Your audit disclosed that on December 31, 2018, the accounts receivable control account of
Alilem Company had a balance of P2,865,000.  An analysis of the accounts receivable
account showed the following:
 
Accounts known to be worthless P    37,500
Advance payments to creditors on purchase orders 150,000
Advances to affiliated companies 375,000
Customers’ accounts reporting credit balances arising from sales return  
(225,000)
Interest receivable on bonds 150,000
Other trade accounts receivable – unassigned 750,000
Subscriptions receivable for common stock due in 30 days 825,000
Trade accounts receivable  - assigned (Finance company’s equity in assigned  
accounts is P150,000) 375,000
Trade installment receivable due 1 – 18 months, including unearned finance  
charges of P30,000 330,000
Trade receivables from officers due currently 22,500
Trade accounts on which post-dated checks are held (no entries were made on  
receipts of checks)        75,000
  P2,865,000
 
Questions:
 
Based on the above and the result of your audit, determine the adjusted balance of the
current trade and other receivables (net) as of December 31, 2018.

Select one:

a. P2,272,500

b. P2,610,000
c. P2,647,500 

d. P1,822,500

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Your audit of Banayoyo Corporation for the year ended December 31, 2018 revealed that
the Accounts Receivable account consists of the following:
 
Trade accounts receivable (current) P3,440,000
Past due trade accounts  640,000
Uncollectible accounts 128,000
Credit balances in customers’ accounts (80,000)
Notes receivable dishonored 240,000
Consignment shipments – at cost  
The consignee sold goods costing P96,000 for P160,000.  A 10%  
commission was charged by the consignee and remitted the balance to  
Banayoyo.  The cash was received in January, 2019.
     320,000
Total P4,688,000
 
The balance of the allowance for doubtful accounts before audit adjustment is a credit of
P80,000.  It is estimated that an allowance should be maintained to equal 5% of trade
receivables, net of amount due from the consignee who is bonded.  The company has not
provided yet for the 2018 bad debt expense.
Based on the above and the result of your audit, determine the adjusted balance of the
trade accounts receivable.

Select one:

a. P3,584,000

b. P4,464,000 

c. P3,440,000

d. P4,080,000

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Question 18
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In connection with your audit of the Salcedo Corporation, you noted that the company’s
Notes Receivable consists of the following:
 
a.    A 4-month note dated November 30, 2018, from AA Company, P200,000; interest rate,
16%; discounted on November 30, 2018 at 16%.
 
b.    A draft drawn payable 30 days after for P900,000 by the BB Company on the Charlie
Company in favor of the Delta Company, endorsed to Salcedo Corp. on December 2, 2018
and accepted on December 4, 2018.
 
c.    A 90-day note dated November 1, 2018 from E. Dy, P500,000; interest at 16%; the note
is for subscription to 5,000 shares of the preferred stock of Salcedo Corp. at P100 per share.
 
d.    A 60-day note dated May 3, 2018, from CC Company, P600,000; interest rate, 16%;
dishonored at maturity; judgment obtained on October 10, 2018.  Collection within the next
twelve months is doubtful.
 
e.    A 90-day note dated January 4, 2018, from Apol Bobads, president of Salcedo,
P160,000; no interest; note not renewed; president confirmed.
 
f.     A 120-day note dated September 14, 2018, from DD Company, P120,000; interest rate,
16%; note is held by bank as collateral.
Based on the above and the result of your audit, how much is the net interest income from
the foregoing notes receivable for 2018?

Select one:

a. P166,613

b. P  35,093 

c. P19,093

d. P70,613

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Question 19
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Your audit disclosed that on December 31, 2018, the accounts receivable control account of
Alilem Company had a balance of P2,865,000.  An analysis of the accounts receivable
account showed the following:
 
Accounts known to be worthless P    37,500
Advance payments to creditors on purchase orders 150,000
Advances to affiliated companies 375,000
Customers’ accounts reporting credit balances arising from sales return  
(225,000)
Interest receivable on bonds 150,000
Other trade accounts receivable – unassigned 750,000
Subscriptions receivable for common stock due in 30 days 825,000
Trade accounts receivable  - assigned (Finance company’s equity in assigned  
accounts is P150,000) 375,000
Trade installment receivable due 1 – 18 months, including unearned finance  
charges of P30,000 330,000
Trade receivables from officers due currently 22,500
Trade accounts on which post-dated checks are held (no entries were made on  
receipts of checks)        75,000
  P2,865,000
 
Based on the above and the result of your audit, how much of the foregoing will be
presented under noncurrent assets as of December 31, 2018?

Select one:

a. P525,000

b. P   375,000 

c. P           0

d. P1,200,000
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Unless otherwise identified, the notes receivable of the Quirino Company on December 31,
2018, were trade notes receivable.  On this date the balance of the account, P3,036,915,
consisted of the following notes all received during the calendar year under audit:
 
Maker Date Term Rate Amount Remarks
A Co. Oct. 1   6 mos. 18% P    57,416Four notes to settle past due
Oct. 1 12 mos. 18% 100,000account.  Current billings are
on a 10 – day credit basis.
Oct. 1 18 mos. 18% 100,000
Oct. 1 24 mos. 18% 100,000
B Co. July 1 36 mos. 18% 500,000This note is for a cash loan
made to this customer.  No
interest has been collected to
date.
C Co. Oct. 1   4 mos. 15% 251,636All interest collected on Oct. 1.
Mr. Pogi Feb. 1 Demand 18% 1,000,000Loan approved in minutes
(Company book, Jan. 20.  On Aug. 1 this
President) note was pledged as collateral
for a bank loan P500,000.
D Co. Nov. 1 12 mos. 15% 546,387Interest payable at maturity
E, Inc. Dec. 10 90 days 18%  Interest payable at maturity
    381,476
        P3,036,915 
 
All of the above notes are considered good except that of A Company which is somewhat
doubtful.  An allowance of 25% should be established against the notes receivable of this
company.
Based on the above and the result of your audit, compute the Adjusted balance of Trade
Notes Receivable as of December 31, 2018.

Select one:

a. P1,536,915 

b. P1,179,499

c. P   927,863

d. P2,036,915

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The accuracy of perpetual inventory records may be established, in part, by comparing


perpetual inventory records with
Select one:

a. vendor payments

b. purchase requisitions

c. purchase orders

d. receiving reports 

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The Anda Company is on a calendar year basis.  The following data were found during your
audit:
 
a.    Goods in transit shipped FOB destination by a supplier, in the amount of P100,000, had
been excluded from the inventory, and further testing revealed that the purchase had been
recorded.
 
b.    Goods costing P50,000 had been received, included in inventory, and recorded as a
purchase.  However, upon your inspection the goods were found to be defective and would
be immediately returned.
 
c.    Materials costing P250,000 and billed on December 30 at a selling price of P320,000,
had been segregated in the warehouse for shipment to a customer.  The materials had been
excluded from inventory as a signed purchase order had been received from the customer. 
Terms, FOB destination.
 
d.    Goods costing P70,000 was out on consignment with Hermie Company.  Since the
monthly statement from Hermie Company listed those materials as on hand, the items had
been excluded from the final inventory and invoiced on December 31 at P80,000.
 
e.    The sale of P150,000 worth of materials and costing P120,000 had been shipped FOB
point of shipment on December 31.  However, this inventory was found to be included in
the final inventory.  The sale was properly recorded in 2017.
 
f.     Goods costing P100,000 and selling for P140,000 had been segregated, but not shipped
at December 31, and were not included in the inventory.  A review of the customer’s
purchase order set forth terms as FOB destination.  The sale had not been recorded.
 
g.    Your client has an invoice from a supplier, terms FOB shipping point but the goods had
not arrived as yet.  However, these materials costing P170,000 had been included in the
inventory count, but no entry had been made for their purchase.
 
h.    Merchandise costing P200,000 had been recorded as a purchase but not included as
inventory.  Terms of sale are FOB shipping point according to the supplier’s invoice which
had arrived at December 31.
 
Further inspection of the client’s records revealed the following December 31, 2018
balances:  Inventory, P1,100,000; Accounts receivable, P580,000; Accounts payable,
P690,000; Net sales, P5,050,000; Net purchases, P2,300,000; Net income, P510,000.
 
Based on the above and the result of your audit, determine the adjusted balance of Net
sales as of December 31, 2018:

Select one:

a. P4,970,000

b. P4,650,000 

c. P4,550,000

d. P4,730,000

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Question 3
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Inquiries of warehouse personnel concerning possible obsolete or slow-moving inventory


items provide
Select one:

a. existence

b. rights and obligations

c. valuation 

d. completeness

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Question 4
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The Anda Company is on a calendar year basis.  The following data were found during your
audit:
 
a.    Goods in transit shipped FOB destination by a supplier, in the amount of P100,000, had
been excluded from the inventory, and further testing revealed that the purchase had been
recorded.
 
b.    Goods costing P50,000 had been received, included in inventory, and recorded as a
purchase.  However, upon your inspection the goods were found to be defective and would
be immediately returned.
 
c.    Materials costing P250,000 and billed on December 30 at a selling price of P320,000,
had been segregated in the warehouse for shipment to a customer.  The materials had been
excluded from inventory as a signed purchase order had been received from the customer. 
Terms, FOB destination.
 
d.    Goods costing P70,000 was out on consignment with Hermie Company.  Since the
monthly statement from Hermie Company listed those materials as on hand, the items had
been excluded from the final inventory and invoiced on December 31 at P80,000.
 
e.    The sale of P150,000 worth of materials and costing P120,000 had been shipped FOB
point of shipment on December 31.  However, this inventory was found to be included in
the final inventory.  The sale was properly recorded in 2017.
 
f.     Goods costing P100,000 and selling for P140,000 had been segregated, but not shipped
at December 31, and were not included in the inventory.  A review of the customer’s
purchase order set forth terms as FOB destination.  The sale had not been recorded.
 
g.    Your client has an invoice from a supplier, terms FOB shipping point but the goods had
not arrived as yet.  However, these materials costing P170,000 had been included in the
inventory count, but no entry had been made for their purchase.
 
h.    Merchandise costing P200,000 had been recorded as a purchase but not included as
inventory.  Terms of sale are FOB shipping point according to the supplier’s invoice which
had arrived at December 31.
 
Further inspection of the client’s records revealed the following December 31, 2018
balances:  Inventory, P1,100,000; Accounts receivable, P580,000; Accounts payable,
P690,000; Net sales, P5,050,000; Net purchases, P2,300,000; Net income, P510,000.
 
Based on the above and the result of your audit, determine the adjusted balance of Net
income as of December 31, 2018:

Select one:
a. P290,000

b. P540,000 

c. P220,000

d. P550,000

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Question 5
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In verifying debits to perpetual inventory records of a non-manufacturing firm, the auditor


would be most interested in examining the purchase
Select one:

a. requisitions

b. orders

c. journal

d. invoices 

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Question 6
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Which of the following is the best audit procedure for the discovery of damaged
merchandise in a client's ending inventory?
Select one:

a. compare the physical quantities of slow-moving items with corresponding quantities of


the prior year.

b. observe merchandise and raw materials during the client's physical inventory taking. 

c. test overall fairness of inventory values by comparing the company's turnover ratio with
the industry average.

d. review the management's inventory representation letter for accuracy.

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Question 7
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When perpetual inventory records are maintained in quantities and in dollars, and internal
control procedures over inventory are deficient, the auditor would probably
Select one:

a. Have to disclaim an opinion on the income statement that year.

b. Want the client to schedule the physical inventory count at the end of the year. 
c. Increase the extent of tests for unrecorded liabilities at the end of the year.

d. Insist that the client perform physical counts of inventory items several times during the
year.

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Question 8
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Which of the following is not true relating to the auditor's observation of the client's
physical inventory?
Select one:

a. the auditors should make certain that consigned items from suppliers are included in
physical inventory totals. 

b. the auditors should take test counts of the client's inventory.

c. the auditors should evaluate the adequacy of the client's counting procedures.

d. the auditors should evaluate the client's planning of the physical inventory.

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Question 9
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Which of the following policies is an internal control weakness related to the acquisition of
factory equipment?
Select one:

a. Variances between authorized equipment expenditures and actual costs are to be


immediately reported to management.

b. Depreciation policies are reviewed only once a year.

c. Acquisitions are to be made through and approved by the department in need of the
equipment. 

d. Advance executive approvals are required for equipment acquisitions.

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Question 10
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The Anda Company is on a calendar year basis.  The following data were found during your
audit:
 
a.    Goods in transit shipped FOB destination by a supplier, in the amount of P100,000, had
been excluded from the inventory, and further testing revealed that the purchase had been
recorded.
 
b.    Goods costing P50,000 had been received, included in inventory, and recorded as a
purchase.  However, upon your inspection the goods were found to be defective and would
be immediately returned.
 
c.    Materials costing P250,000 and billed on December 30 at a selling price of P320,000,
had been segregated in the warehouse for shipment to a customer.  The materials had been
excluded from inventory as a signed purchase order had been received from the customer. 
Terms, FOB destination.
 
d.    Goods costing P70,000 was out on consignment with Hermie Company.  Since the
monthly statement from Hermie Company listed those materials as on hand, the items had
been excluded from the final inventory and invoiced on December 31 at P80,000.
 
e.    The sale of P150,000 worth of materials and costing P120,000 had been shipped FOB
point of shipment on December 31.  However, this inventory was found to be included in
the final inventory.  The sale was properly recorded in 2017.
 
f.     Goods costing P100,000 and selling for P140,000 had been segregated, but not shipped
at December 31, and were not included in the inventory.  A review of the customer’s
purchase order set forth terms as FOB destination.  The sale had not been recorded.
 
g.    Your client has an invoice from a supplier, terms FOB shipping point but the goods had
not arrived as yet.  However, these materials costing P170,000 had been included in the
inventory count, but no entry had been made for their purchase.
 
h.    Merchandise costing P200,000 had been recorded as a purchase but not included as
inventory.  Terms of sale are FOB shipping point according to the supplier’s invoice which
had arrived at December 31.
 
Further inspection of the client’s records revealed the following December 31, 2018
balances:  Inventory, P1,100,000; Accounts receivable, P580,000; Accounts payable,
P690,000; Net sales, P5,050,000; Net purchases, P2,300,000; Net income, P510,000.
 
Based on the above and the result of your audit, determine the adjusted balance of
Accounts payable as of December 31, 2018:

Select one:

a. P710,000 

b. P760,000

c. P540,000

d. P810,000

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Question 11
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Which of the following is not one of the independent auditor's objectives regarding the
examination of inventories?
Select one:

a. ascertaining the physical quantities of inventory on hand.

b. verifying that inventory counted is owned by the client.

c. verifying that the client has used proper inventory pricing.

d. verifying that all inventory owned by the client is on hand at the time of the count. 

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Question 12
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The purpose of tests of controls over shipping is to determine whether


Select one:

a. Credit is approved before goods are shipped.

b. Billed goods have been shipped.

c. Shipping department personnel are competent.

d. Shipments are billed. 

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Question 13
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The objectives of the internal structure for a production cycle are to provide assurance that
transactions are properly executed and recorded, and that
Select one:
a. Independent internal verification of activity reports is established

b. Transfers to finished goods are documented by a completed production report and a


quality control report

c. Production orders are prenumbered and signed by a supervisor

d. Custody of work in process and of finished goods is properly maintained 

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Question 14
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Defective merchandise returned by customers should be presented to


Select one:

a. Inventory control personnel.

b. Sales personnel.

c. Purchasing personnel

d. Receiving personnel 

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Question 15
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Which of the following is true about the auditor's observation of the client's physical
inventory?
Select one:

a. the count must be made at year-end.

b. the auditor should supervise the client's personnel.

c. the auditor's observation addresses the existence assertion. 

d. the auditor should justify any omission of the observation in the audit report.

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Question 16
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The Anda Company is on a calendar year basis.  The following data were found during your
audit:
 
a.    Goods in transit shipped FOB destination by a supplier, in the amount of P100,000, had
been excluded from the inventory, and further testing revealed that the purchase had been
recorded.
 
b.    Goods costing P50,000 had been received, included in inventory, and recorded as a
purchase.  However, upon your inspection the goods were found to be defective and would
be immediately returned.
 
c.    Materials costing P250,000 and billed on December 30 at a selling price of P320,000,
had been segregated in the warehouse for shipment to a customer.  The materials had been
excluded from inventory as a signed purchase order had been received from the customer. 
Terms, FOB destination.
 
d.    Goods costing P70,000 was out on consignment with Hermie Company.  Since the
monthly statement from Hermie Company listed those materials as on hand, the items had
been excluded from the final inventory and invoiced on December 31 at P80,000.
 
e.    The sale of P150,000 worth of materials and costing P120,000 had been shipped FOB
point of shipment on December 31.  However, this inventory was found to be included in
the final inventory.  The sale was properly recorded in 2017.
 
f.     Goods costing P100,000 and selling for P140,000 had been segregated, but not shipped
at December 31, and were not included in the inventory.  A review of the customer’s
purchase order set forth terms as FOB destination.  The sale had not been recorded.
 
g.    Your client has an invoice from a supplier, terms FOB shipping point but the goods had
not arrived as yet.  However, these materials costing P170,000 had been included in the
inventory count, but no entry had been made for their purchase.
 
h.    Merchandise costing P200,000 had been recorded as a purchase but not included as
inventory.  Terms of sale are FOB shipping point according to the supplier’s invoice which
had arrived at December 31.
 
Further inspection of the client’s records revealed the following December 31, 2018
balances:  Inventory, P1,100,000; Accounts receivable, P580,000; Accounts payable,
P690,000; Net sales, P5,050,000; Net purchases, P2,300,000; Net income, P510,000.
 
Based on the above and the result of your audit, determine the adjusted balance of Net
income as of December 31, 2018:
Select one:

a. P290,000

b. P540,000 

c. P550,000

d. P220,000

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Question 17
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Which of the following is not a reason for the special significance attached by the auditors
to the verification of inventories?
Select one:

a. the existence of inventories is inherently difficult to substantiate. 

b. inventories are often the largest current assets of an enterprise.

c. the determination of inventory valuation directly affects net income.

d. special valuation problems often exist for inventories.

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Question 18
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The Anda Company is on a calendar year basis.  The following data were found during your
audit:
 
a.    Goods in transit shipped FOB destination by a supplier, in the amount of P100,000, had
been excluded from the inventory, and further testing revealed that the purchase had been
recorded.
 
b.    Goods costing P50,000 had been received, included in inventory, and recorded as a
purchase.  However, upon your inspection the goods were found to be defective and would
be immediately returned.
 
c.    Materials costing P250,000 and billed on December 30 at a selling price of P320,000,
had been segregated in the warehouse for shipment to a customer.  The materials had been
excluded from inventory as a signed purchase order had been received from the customer. 
Terms, FOB destination.
 
d.    Goods costing P70,000 was out on consignment with Hermie Company.  Since the
monthly statement from Hermie Company listed those materials as on hand, the items had
been excluded from the final inventory and invoiced on December 31 at P80,000.
 
e.    The sale of P150,000 worth of materials and costing P120,000 had been shipped FOB
point of shipment on December 31.  However, this inventory was found to be included in
the final inventory.  The sale was properly recorded in 2017.
 
f.     Goods costing P100,000 and selling for P140,000 had been segregated, but not shipped
at December 31, and were not included in the inventory.  A review of the customer’s
purchase order set forth terms as FOB destination.  The sale had not been recorded.
 
g.    Your client has an invoice from a supplier, terms FOB shipping point but the goods had
not arrived as yet.  However, these materials costing P170,000 had been included in the
inventory count, but no entry had been made for their purchase.
 
h.    Merchandise costing P200,000 had been recorded as a purchase but not included as
inventory.  Terms of sale are FOB shipping point according to the supplier’s invoice which
had arrived at December 31.
 
Further inspection of the client’s records revealed the following December 31, 2018
balances:  Inventory, P1,100,000; Accounts receivable, P580,000; Accounts payable,
P690,000; Net sales, P5,050,000; Net purchases, P2,300,000; Net income, P510,000.
 
Based on the above and the result of your audit, determine the adjusted balance of
Inventory as of December 31, 2018:

Select one:

a. P1,480,000

b. P1,650,000

c. P1,230,000

d. P1,550,000 

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Question 19
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An inventory turnover analysis is useful to the auditor because it may detect:


Select one:

a. the optimum automatic reorder points

b. methods of avoiding cyclical holding cost

c. inadequacies in inventory pricing

d. the existence of obsolete merchandise 

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Question 20
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The Anda Company is on a calendar year basis.  The following data were found during your
audit:
 
a.    Goods in transit shipped FOB destination by a supplier, in the amount of P100,000, had
been excluded from the inventory, and further testing revealed that the purchase had been
recorded.
 
b.    Goods costing P50,000 had been received, included in inventory, and recorded as a
purchase.  However, upon your inspection the goods were found to be defective and would
be immediately returned.
 
c.    Materials costing P250,000 and billed on December 30 at a selling price of P320,000,
had been segregated in the warehouse for shipment to a customer.  The materials had been
excluded from inventory as a signed purchase order had been received from the customer. 
Terms, FOB destination.
 
d.    Goods costing P70,000 was out on consignment with Hermie Company.  Since the
monthly statement from Hermie Company listed those materials as on hand, the items had
been excluded from the final inventory and invoiced on December 31 at P80,000.
 
e.    The sale of P150,000 worth of materials and costing P120,000 had been shipped FOB
point of shipment on December 31.  However, this inventory was found to be included in
the final inventory.  The sale was properly recorded in 2017.
 
f.     Goods costing P100,000 and selling for P140,000 had been segregated, but not shipped
at December 31, and were not included in the inventory.  A review of the customer’s
purchase order set forth terms as FOB destination.  The sale had not been recorded.
 
g.    Your client has an invoice from a supplier, terms FOB shipping point but the goods had
not arrived as yet.  However, these materials costing P170,000 had been included in the
inventory count, but no entry had been made for their purchase.
 
h.    Merchandise costing P200,000 had been recorded as a purchase but not included as
inventory.  Terms of sale are FOB shipping point according to the supplier’s invoice which
had arrived at December 31.
 
Further inspection of the client’s records revealed the following December 31, 2018
balances:  Inventory, P1,100,000; Accounts receivable, P580,000; Accounts payable,
P690,000; Net sales, P5,050,000; Net purchases, P2,300,000; Net income, P510,000.
 
Based on the above and the result of your audit, determine the adjusted balance of Net
purchases as of December 31, 2018:
Select one:

a. P2,150,000

b. P2,420,000

c. P2,370,000

d. P2,320,000 

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Question 21
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The auditor tests the quantity of materials charged to work-in-process by tracing these
quantities to
Select one:

a. material requisitions 

b. receiving reports

c. cost ledgers

d. perpetual inventory records

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In connection with your audit of the Salcedo Corporation, you noted that the company’s
Notes Receivable consists of the following:
 
a.    A 4-month note dated November 30, 2018, from AA Company, P200,000; interest rate,
16%; discounted on November 30, 2018 at 16%.
 
b.    A draft drawn payable 30 days after for P900,000 by the BB Company on the Charlie
Company in favor of the Delta Company, endorsed to Salcedo Corp. on December 2, 2018
and accepted on December 4, 2018.
 
c.    A 90-day note dated November 1, 2018 from E. Dy, P500,000; interest at 16%; the note
is for subscription to 5,000 shares of the preferred stock of Salcedo Corp. at P100 per share.
 
d.    A 60-day note dated May 3, 2018, from CC Company, P600,000; interest rate, 16%;
dishonored at maturity; judgment obtained on October 10, 2018.  Collection within the next
twelve months is doubtful.
 
e.    A 90-day note dated January 4, 2018, from Apol Bobads, president of Salcedo,
P160,000; no interest; note not renewed; president confirmed.
 
f.     A 120-day note dated September 14, 2018, from DD Company, P120,000; interest rate,
16%; note is held by bank as collateral.
Based on the above and the result of your audit, how much is the net interest income from
the foregoing notes receivable for 2018?

Select one:

a. P19,093

b. P70,613

c. P166,613

d. P  35,093 
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Question 2
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In connection with your audit of the Alcala Manufacturing Company, you reviewed its
inventory as of December 31, 2018 and found the following items:
 
(a)   A packing case containing a product costing P100,000 was standing in the shipping
room when the physical inventory was taken.  It was not included in the inventory because it
was marked “Hold for shipping instructions.”  The customer’s order was dated December 18,
but the case was shipped and the costumer billed on January 10, 2019.
 
(b)   Merchandise costing P600,000 was received on December 28, 2018, and the invoice
was recorded.  The invoice was in the hands of the purchasing agent; it was marked “On
consignment”.
 
(c)   Merchandise received on January 6, 2019, costing P700,000 was entered in purchase
register on January 7.  The invoice showed shipment was made FOB shipping point on
December 31, 2018.  Because it was not on hand during the inventory count, it was not
included.
 
(d)   A special machine costing P200,000, fabricated to order for a particular customer, was
finished in the shipping room on December 30.  The customer was billed for P300,000 on
that date and the machine was excluded from inventory although it was shipped January 4,
2019.
 
(e)   Merchandise costing P200,000 was received on January 6, 2019, and the related
purchase invoice was recorded January 5.  The invoice showed the shipment was made on
December 29, 2018, FOB destination.
 
(f)    Merchandise costing P150,000 was sold on an installment basis on December 15.  The
customer took possession of the goods on that date.  The merchandise was included in
inventory because Alcala still holds legal title.  Historical experience suggests that full
payment on installment sale is received approximately 99% of the time.
 
(g)   Goods costing P500,000 were sold and delivered on December 20.  The goods were
included in the inventory because the sale was accompanied by a purchase agreement
requiring Alcala to buy back the inventory in February 2019.
Based on the above and the result of your audit, how much of these items should be
included in the inventory balance at December 31, 2018?

Select one:

a. P   800,000

b. P1,650,000

c. P1,050,000
 

d. P1,300,000 

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In a manufacturing company, which one of the following audit procedures would give the
least assurance of the valuation of inventory at the audit date?

Select one:

a. Examining paid vendors' invoices.

b. Reviewing direct labor rates.

c. Testing the computation of standard overhead rates

d. Obtaining confirmation of inventories pledged under loan agreements 

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Question 4
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An auditor performs a test to determine whether all merchandise for which the client was
billed was received. The population for this test consists of all:
Select one:

a. canceled checks

b. vendor's invoices 

c. merchandise received

d. receiving reports

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On January 1, 2018, Sinait Company loaned P3,000,000 to Ilocos Company.  The terms of the
loan were payment in full on January 1, 2023, plus annual interest payments at 11%.  The
interest payment was made as scheduled on January 1, 2019; however, due to financial
setbacks, Ilocos was unable to make its 2020 interest payment.  Sinait considers the loan
impaired and projects the following cash flows from the loan as of December 31, 2020 and
2021.  Assume that Sinait accrued the interest at December 31, 2019, but did not continue
to accrue interest due to the impairment of the loan.
 
  Amount projected as of
Date of Flow Dec. 31, 2020 Dec. 31, 2021
December 31, 2021 P   200,000 P   200,000
December 31, 2022 400,000 600,000
December 31, 2023 800,000 1,200,000
December 31, 2024 1,200,000 1,000,000
December 31, 2025 400,000  
 
Your client requested you to determine the Loan impairment (bad debt expense) for the
year 2020
: (Round-off present value factors to four decimal places)

Select one:

a. P1,212,380 
b. P   882,380

c. P1,542,380

d. P1,549,500

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Tracing copies of computer-prepared sales invoices to copies of the corresponding


computer-prepared shipping documents provides evidence that
Select one:

a. shipments to customers were properly billed.

b. entries in the accounts receivable subsidiary ledger were for sales actually shipped.

c. sales billed to customers were actually shipped. 

d. no duplicate shipments to customers were made.

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The adjusted trial balance of Galimuyod Company as of December 31, 2017 shows the
following:
 
  Debit Credit
Accounts receivable P1,000,000 
Allowance for bad debts   P40,000
 
Additional information:
 
·       Cash sales of the company represents 10% of gross sales.
·       90% of the credit sales customers do not take advantage of  the 2/10, n/30 terms.
·       It is expected that cash discount of P6,000 will be taken on accounts receivable
outstanding at December 31, 2018.
·       Sales returns in 2018 amounted to P400,000.  All returns were from charge sales.
·       During 2018, accounts totaling to P44,000 were written off as uncollectible; bad debt
recoveries during the year amounted to P3,000.
·       The allowance for bad debts is adjusted so that it represents certain percentage of the
outstanding accounts receivable at year end.  The required percentage at December 31,
2018 is 150% of the rate used on December 31, 2017.
Based on the above and the result of your audit, the accounts receivable as of December 31,
2018 is

Select one:

a. P   333,333

b. P   300,000
c. P3,000,000 

d. P2,444,000

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Question 8
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In verifying debits to perpetual inventory records of a non-manufacturing firm, the auditor


would be most interested in examining the purchase
Select one:

a. requisitions

b. invoices 

c. journal

d. orders

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To best ascertain that a company has properly included merchandise that it owns in its
ending inventory, the auditors should review and test the:
Select one:

a. purchase cutoff procedures 

b. contractual commitments made by the purchasing department.

c. purchase invoices received on or around year end.

d. terms of the open purchase orders.

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Unless otherwise identified, the notes receivable of the Quirino Company on December 31,
2018, were trade notes receivable.  On this date the balance of the account, P3,036,915,
consisted of the following notes all received during the calendar year under audit:
 
Maker Date Term Rate Amount Remarks
A Co. Oct. 1   6 mos. 18% P    57,416Four notes to settle past due
Oct. 1 12 mos. 18% 100,000account.  Current billings are
on a 10 – day credit basis.
Oct. 1 18 mos. 18% 100,000
Oct. 1 24 mos. 18% 100,000
B Co. July 1 36 mos. 18% 500,000This note is for a cash loan
made to this customer.  No
interest has been collected to
Maker Date Term Rate Amount Remarks
date.
C Co. Oct. 1   4 mos. 15% 251,636All interest collected on Oct. 1.
Mr. Pogi Feb. 1 Demand 18% 1,000,000Loan approved in minutes
(Company book, Jan. 20.  On Aug. 1 this
President) note was pledged as collateral
for a bank loan P500,000.
D Co. Nov. 1 12 mos. 15% 546,387Interest payable at maturity
E, Inc. Dec. 10 90 days 18%  Interest payable at maturity
    381,476
        P3,036,915 
 
All of the above notes are considered good except that of A Company which is somewhat
doubtful.  An allowance of 25% should be established against the notes receivable of this
company.
Based on the above and the result of your audit, compute the Accrued interest income as of
December 31, 2018.
Select one:

a. P  78,749

b. P198,749

c. P253,185

d. P243,749 

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Question 11
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Which of the following procedures would an auditor most likely rely on to verify
management's assertion of completeness?

Select one:

a. Review standard bank confirmations for indications of kiting.

b. Confirm a sample of recorded receivables by direct communication with the debtors.

c. Compare a sample of shipping documents to related sales invoices. 

d. Observe the client's distribution of payroll checks.

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The adjusted trial balance of Galimuyod Company as of December 31, 2017 shows the
following:
 
  Debit Credit
Accounts receivable P1,000,000 
Allowance for bad debts   P40,000
 
Additional information:
 
·       Cash sales of the company represents 10% of gross sales.
·       90% of the credit sales customers do not take advantage of  the 2/10, n/30 terms.
·       It is expected that cash discount of P6,000 will be taken on accounts receivable
outstanding at December 31, 2018.
·       Sales returns in 2018 amounted to P400,000.  All returns were from charge sales.
·       During 2018, accounts totaling to P44,000 were written off as uncollectible; bad debt
recoveries during the year amounted to P3,000.
·       The allowance for bad debts is adjusted so that it represents certain percentage of the
outstanding accounts receivable at year end.  The required percentage at December 31,
2018 is 150% of the rate used on December 31, 2017.
Based on the above and the result of your audit, the allowance for doubtful accounts as of
December 31, 2018 is

Select one:

a. P  20,000

b. P146,640

c. P180,000 

d. P120,000

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Question 13
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An auditor performs a test to determine whether all merchandise for which the client was
billed was received. The population for this test consists of all:
Select one:

a. vendor's invoices 

b. receiving reports

c. merchandise received

d. canceled checks

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On January 1, 2018, Sinait Company loaned P3,000,000 to Ilocos Company.  The terms of the
loan were payment in full on January 1, 2023, plus annual interest payments at 11%.  The
interest payment was made as scheduled on January 1, 2019; however, due to financial
setbacks, Ilocos was unable to make its 2020 interest payment.  Sinait considers the loan
impaired and projects the following cash flows from the loan as of December 31, 2020 and
2021.  Assume that Sinait accrued the interest at December 31, 2019, but did not continue
to accrue interest due to the impairment of the loan.
 
  Amount projected as of
Date of Flow Dec. 31, 2020 Dec. 31, 2021
December 31, 2021 P   200,000 P   200,000
December 31, 2022 400,000 600,000
December 31, 2023 800,000 1,200,000
December 31, 2024 1,200,000 1,000,000
December 31, 2025 400,000  
 
Your client requested you to determine the Interest income for 2021 assuming the P200,000
was collected on December 31, 2021 as scheduled
: (Round-off present value factors to four decimal places)

Select one:

a. P  66,000

b. P200,000

c. P232,938 

d. P195,855

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Question 15
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To measure how effectively a client employs its assets, an auditor calculates inventory
turnover by dividing the average inventory into:
Select one:

a. cost of goods sold 

b. operating income

c. net sales
d. gross sales

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Question 16
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To gather audit evidence about the proper credit approval of sales, the auditor would select
a sample of documents from the population represented by the

Select one:

a. Sales invoice file 

b. Subsidiary customers' accounts ledger

c. Customer order file

d. Bill of lading file

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Presented below is a list of items that may or may not reported as inventory in a company’s
December 31 balance sheet.
 
1.    Goods out on consignment at another company’s store P800,000
2.    Goods sold on installment basis 100,000
3.    Goods purchased f.o.b. shipping point that are in transit at December 31  
120,000
4.    Goods purchased f.o.b. destination that are in transit at December 31  
200,000
5.    Goods sold to another company, for which our company has signed an  
agreement to repurchase at a set price that covers all costs related to the  
inventory
300,000
6.    Goods sold where large returns are predictable 280,000
7.    Goods sold f.o.b. shipping point that are in transit  
December 31 120,000
8.    Freight charges on goods purchased 80,000
9.    Factory labor costs incurred on goods still unsold 50,000
10.  Interest cost incurred for inventories that are routinely manufactured  
40,000
11.  Costs incurred to advertise goods held for resale 20,000
12.  Materials on hand not yet placed into production 350,000
13.  Office supplies 10,000
14.  Raw materials on which a the company has started production, but which  
are not completely processed 280,000
15.  Factory supplies 20,000
16.  Goods held on consignment from another company 450,000
17.  Costs identified with units completed but not yet sold 260,000
18.  Goods sold f.o.b. destination that are in transit at  
December 31 40,000
19.  Temporary investment in stocks and bonds that will be resold in the near  
future 500,000
 
How much of these items would typically be reported as inventory in the financial
statements?

Select one:

a. P2,000,000

b. P2,260,000

c. P2,300,000 

d. P2,220,000

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Unless otherwise identified, the notes receivable of the Quirino Company on December 31,
2018, were trade notes receivable.  On this date the balance of the account, P3,036,915,
consisted of the following notes all received during the calendar year under audit:
 
Maker Date Term Rate Amount Remarks
A Co. Oct. 1   6 mos. 18% P    57,416Four notes to settle past due
Oct. 1 12 mos. 18% 100,000account.  Current billings are
on a 10 – day credit basis.
Oct. 1 18 mos. 18% 100,000
Oct. 1 24 mos. 18% 100,000
B Co. July 1 36 mos. 18% 500,000This note is for a cash loan
Maker Date Term Rate Amount Remarks
made to this customer.  No
interest has been collected to
date.
C Co. Oct. 1   4 mos. 15% 251,636All interest collected on Oct. 1.
Mr. Pogi Feb. 1 Demand 18% 1,000,000Loan approved in minutes
(Company book, Jan. 20.  On Aug. 1 this
President) note was pledged as collateral
for a bank loan P500,000.
D Co. Nov. 1 12 mos. 15% 546,387Interest payable at maturity
E, Inc. Dec. 10 90 days 18%  Interest payable at maturity
    381,476
        P3,036,915 
 
All of the above notes are considered good except that of A Company which is somewhat
doubtful.  An allowance of 25% should be established against the notes receivable of this
company.
Based on the above and the result of your audit, compute the Interest income for the year
ended December 31, 2018.
Select one:

a. P  43,185

b. P253,185 

c. P208,185

d. P243,749

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Question 19
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The auditor tests the quantity of materials charged to work in process by tracing these
quantities to

Select one:

a. Perpetual inventory records

b. Materials requisition forms 

c. Cost ledgers

d. Receiving reports

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Question 20
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An auditor is testing sales transactions.  One step is to trace a sample of debit entries from
the accounts receivable subsidiary ledger back to the supporting sales invoices.  What
would the auditor intend to establish by this step?
Select one:

a. Sales invoices represent bona fide sales.

b. All sales invoices have been recorded.

c. Debit entries in the accounts receivable subsidiary ledger are properly supported by sales
invoices. 

d. All sales invoices have been properly posted to customer accounts.

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Question 21
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Purchase cutoff procedures should be designed to test that merchandise is included in the
inventory of the client company, if the company:
Select one:

a. has paid for the merchandise.

b. has physical possession of the merchandise.

c. holds the shipping documents for the merchandise issued in the company's name.

d. holds legal title to the merchandise. 

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Question 22
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In determining validity of accounts receivable, which of the following would the auditor
consider most reliable?

Select one:

a. Credits to accounts receivable from the cash receipts book after the close of business at
year end

b. Confirmation replies received directly from customers 

c. Direct telephone communication between auditor and debtor.

d. Documentary evidence that supports the accounts receivable balance

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Question 23
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A "bill and hold" scheme is most likely to include:


Select one:

a. selling items at substantial discounts near year-end.


b. billing of items that are held by customers for future revenue production purposes.

c. recording as sales items that the company retains as of year-end. 

d. shipment of items to a customer beyond what the customer has ordered.

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Question 24
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The accuracy of perpetual inventory records may be established in part by comparing


perpetual inventory records with

Select one:

a. Purchase requisitions

b. Vendor payments

c. Receiving reports 

d. Purchase orders

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Question 25
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The accuracy of perpetual inventory records may be established, in part, by comparing


perpetual inventory records with
Select one:

a. vendor payments

b. receiving reports 

c. purchase requisitions

d. purchase orders

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Question 26
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Which of the following control procedures would most likely be used to maintain accurate
perpetual inventory records?

Select one:

a. Independent matching of purchase orders, receiving reports, and vendors' invoices.


b. Periodic independent reconciliation of control and subsidiary records.

c. Independent storeroom count of goods received.  

d. Periodic independent comparison of records with goods on hand.  

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Question 27
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Otso Manufacturing Corporation mass produces eight different products.  The controller,
who is interested in strengthening internal controls over the accounting for materials used
in production, would be most likely to implement

Select one:

a. A separation of duties among production personnel.

b. An economic order quantity (EOQ) system.

c. A job order cost accounting system.

d. A perpetual inventory system 

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Question 28
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When auditing merchandise inventory at year end, the auditor performs a purchase cutoff
test to obtain evidence that

Select one:

a. No goods held on consignment for customers are included in the inventory balance.

b. All goods purchased before year end are received before the physical inventory count.

c. All goods owned at year end are included in the inventory balance 

d. No goods observed during the physical count are pledged or sold.

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Question 29
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After accounting for a sequence of inventory tags, an auditor traces a sample of tags to the
physical inventory listing to obtain evidence that all items:
Select one:

a. represented by inventory tags are bona fide.


b. included in the listing have been counted.

c. represented by inventory tags are included in the listing. 

d. included in the listing are represented by inventory tags.

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Question 30
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Inquiries of warehouse personnel concerning possible obsolete or slow-moving inventory


items provide assurance about management's assertion of:
Select one:

a. valuation 

b. completeness

c. rights and obligations

d. existence

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Question 31
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An auditor who wishes to substantiate the gross balance of the account "Trade Notes
Receivable" is considering the advisability of performing the four procedures listed below. 
Which pair of procedures is best suited to this objective?
I.     Age the receivables.
II.    Confirm the notes with the makers.
III.  Inspect the notes.
IV.  Trace a sample of postings from the sales journal to the notes receivable ledger.

Select one:

a. I and III

b. II and III 

c. I and IV

d. I and II

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Which of the following items should not be included in a physical inventory?

Select one:

a. Consignment to an agent.

b. Materials in transit from vendors.

c. Goods received for repairs under warranty. 

d. Goods in a private warehouse.

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Question 33
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An auditor has accounted for a sequence of inventory tags and is now going to trace
information on a representative number of tags to the inventory summary sheets. Which
assertion does this procedure relate to most directly?
Select one:

a. existence

b. completeness 

c. valuation

d. legality

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On January 1, 2018, Sinait Company loaned P3,000,000 to Ilocos Company.  The terms of the
loan were payment in full on January 1, 2023, plus annual interest payments at 11%.  The
interest payment was made as scheduled on January 1, 2019; however, due to financial
setbacks, Ilocos was unable to make its 2020 interest payment.  Sinait considers the loan
impaired and projects the following cash flows from the loan as of December 31, 2020 and
2021.  Assume that Sinait accrued the interest at December 31, 2019, but did not continue
to accrue interest due to the impairment of the loan.
 
  Amount projected as of
Date of Flow Dec. 31, 2020 Dec. 31, 2021
December 31, 2021 P   200,000 P   200,000
December 31, 2022 400,000 600,000
December 31, 2023 800,000 1,200,000
December 31, 2024 1,200,000 1,000,000
December 31, 2025 400,000  
 
Your client requested you to determine the Allowance for loan impairment as of December
31, 2021
: (Round-off present value factors to four decimal places)

Select one:

a. P776,900

b. P649,442
c. P554,340 

d. P752,640

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Question 35
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Unless otherwise identified, the notes receivable of the Quirino Company on December 31,
2018, were trade notes receivable.  On this date the balance of the account, P3,036,915,
consisted of the following notes all received during the calendar year under audit:
 
Maker Date Term Rate Amount Remarks
A Co. Oct. 1   6 mos. 18% P    57,416Four notes to settle past due
Oct. 1 12 mos. 18% 100,000account.  Current billings are
on a 10 – day credit basis.
Oct. 1 18 mos. 18% 100,000
Oct. 1 24 mos. 18% 100,000
B Co. July 1 36 mos. 18% 500,000This note is for a cash loan
made to this customer.  No
interest has been collected to
date.
C Co. Oct. 1   4 mos. 15% 251,636All interest collected on Oct. 1.
Mr. Pogi Feb. 1 Demand 18% 1,000,000Loan approved in minutes
(Company book, Jan. 20.  On Aug. 1 this
President) note was pledged as collateral
for a bank loan P500,000.
D Co. Nov. 1 12 mos. 15% 546,387Interest payable at maturity
E, Inc. Dec. 10 90 days 18%  Interest payable at maturity
Maker Date Term Rate Amount Remarks
    381,476
        P3,036,915 
 
All of the above notes are considered good except that of A Company which is somewhat
doubtful.  An allowance of 25% should be established against the notes receivable of this
company.
Based on the above and the result of your audit, compute the Net realizable value of Trade
Notes Receivable as of December 31, 2018.
Select one:

a. P   838,509

b. P1,447,561 

c. P1,090,145

d. P1,947,561

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In connection with your audit of the Salcedo Corporation, you noted that the company’s
Notes Receivable consists of the following:
 
a.    A 4-month note dated November 30, 2018, from AA Company, P200,000; interest rate,
16%; discounted on November 30, 2018 at 16%.
 
b.    A draft drawn payable 30 days after for P900,000 by the BB Company on the Charlie
Company in favor of the Delta Company, endorsed to Salcedo Corp. on December 2, 2018
and accepted on December 4, 2018.
 
c.    A 90-day note dated November 1, 2018 from E. Dy, P500,000; interest at 16%; the note
is for subscription to 5,000 shares of the preferred stock of Salcedo Corp. at P100 per share.
 
d.    A 60-day note dated May 3, 2018, from CC Company, P600,000; interest rate, 16%;
dishonored at maturity; judgment obtained on October 10, 2018.  Collection within the next
twelve months is doubtful.
 
e.    A 90-day note dated January 4, 2018, from Apol Bobads, president of Salcedo,
P160,000; no interest; note not renewed; president confirmed.
 
f.     A 120-day note dated September 14, 2018, from DD Company, P120,000; interest rate,
16%; note is held by bank as collateral.
Based on the above and the result of your audit, how much of foregoing notes receivable
will be reported in the current assets section of the balance sheet?

Select one:

a. P1,680,000 

b. P1,220,000

c. P1,520,000

d. P2,480,000

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Question 37
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An auditor would analyze inventory turnover rates to obtain evidence concerning


management’s assertion about

Select one:

a. Completeness

b. Valuation or allocation 

c. Presentation and disclosure

d. Rights and obligations

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Question 38
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In auditing a manufacturing entity, which of the following procedures would an auditor least
likely perform to determine whether slow-moving, defective, and obsolete items included in
inventory are properly identified?
Select one:

a. test the computation of standard overhead rates.


b. compare inventory balances to anticipated sales volume.

c. review inventory experience and trends.

d. tour the manufacturing plant or production facility. 

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Question 39
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An inventory turnover analysis is useful to the auditor because it may detect:


Select one:

a. inadequacies in inventory pricing.

b. the optimum automatic reorder points.

c. the existence of obsolete merchandise. 

d. methods of avoiding cyclical holding cost.

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Question 40
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In connection with your audit of the Salcedo Corporation, you noted that the company’s
Notes Receivable consists of the following:
 
a.    A 4-month note dated November 30, 2018, from AA Company, P200,000; interest rate,
16%; discounted on November 30, 2018 at 16%.
 
b.    A draft drawn payable 30 days after for P900,000 by the BB Company on the Charlie
Company in favor of the Delta Company, endorsed to Salcedo Corp. on December 2, 2018
and accepted on December 4, 2018.
 
c.    A 90-day note dated November 1, 2018 from E. Dy, P500,000; interest at 16%; the note
is for subscription to 5,000 shares of the preferred stock of Salcedo Corp. at P100 per share.
 
d.    A 60-day note dated May 3, 2018, from CC Company, P600,000; interest rate, 16%;
dishonored at maturity; judgment obtained on October 10, 2018.  Collection within the next
twelve months is doubtful.
 
e.    A 90-day note dated January 4, 2018, from Apol Bobads, president of Salcedo,
P160,000; no interest; note not renewed; president confirmed.
 
f.     A 120-day note dated September 14, 2018, from DD Company, P120,000; interest rate,
16%; note is held by bank as collateral.
Based on the above and the result of your audit, the adjusted balance of Interest Receivable
as of December 31, 2018 is

Select one:

a. P70,613

b. P  5,760

c. P         0
d. P19,093 

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Question 41
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In auditing inventories, a major objective relates to the existence assertion.  Of the following
audit procedures relating to inventories, which does not support the existence assertion?

Select one:

a. The auditor confirms inventories not on the premises.

b. The auditor observes the client's inventory and performs test counts as appropriate.

c. The auditor performs a lower of cost or market test for major categories of inventory. 

d. The auditor reviews the client's inventory-taking instructions for such matters as proper
arrangement of goods, separation of consigned goods, and limits on movements of goods
during inventory.

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Question 42
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In connection with your audit of the Salcedo Corporation, you noted that the company’s
Notes Receivable consists of the following:
 
a.    A 4-month note dated November 30, 2018, from AA Company, P200,000; interest rate,
16%; discounted on November 30, 2018 at 16%.
 
b.    A draft drawn payable 30 days after for P900,000 by the BB Company on the Charlie
Company in favor of the Delta Company, endorsed to Salcedo Corp. on December 2, 2018
and accepted on December 4, 2018.
 
c.    A 90-day note dated November 1, 2018 from E. Dy, P500,000; interest at 16%; the note
is for subscription to 5,000 shares of the preferred stock of Salcedo Corp. at P100 per share.
 
d.    A 60-day note dated May 3, 2018, from CC Company, P600,000; interest rate, 16%;
dishonored at maturity; judgment obtained on October 10, 2018.  Collection within the next
twelve months is doubtful.
 
e.    A 90-day note dated January 4, 2018, from Apol Bobads, president of Salcedo,
P160,000; no interest; note not renewed; president confirmed.
 
f.     A 120-day note dated September 14, 2018, from DD Company, P120,000; interest rate,
16%; note is held by bank as collateral.
Based on the above and the result of your audit, the adjusted balance of Notes Receivable
as of December 31, 2018 is

Select one:

a. P1,220,000 
b. P   900,000

c. P2,480,000

d. P1,020,000

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Question 43
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The auditor tests the quantity of materials charged to work in process by tracing these
quantities to
Select one:

a. cost ledgers

b. material requisitions 

c. receiving reports

d. perpetual inventory records

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Question 44
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Proper authorization procedures in the revenue/receipt cycle usually provide for approval of
write-offs by an employee in which of the following departments?

Select one:

a. Treasurer 

b. Billing

c. Accounts receivable

d. Sales

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Question 45
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The auditors will usually trace the details of the test counts made during the observation of
the physical inventory taking to a final inventory schedule. This audit procedure is
undertaken to provide evidence that items physically present and observed by the auditors
at the time of the physical inventory count are:
Select one:
a. owned by the client

b. included in the final inventory schedule 

c. not obsolete

d. physically present at the time of the preparation of the final inventory schedule.

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Question 46
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Tracing bills of lading to sales invoices provides evidence that

Select one:

a. Shipments to customers were invoiced. 

b. Recorded sales were shipped.

c. Invoiced sales were shipped.


 

d. Shipments to customers were recorded as sales.

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Question 47
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When the objective of the auditor is to evaluate the appropriateness of adjustments to


sales, the best available evidence would normally be

Select one:

a. Documentary evidence obtained by inspecting documents supporting entries to


adjustment accounts. 

b. Physical evidence obtained by inspection of goods returned for credit.

c. Oral evidence obtained by discussing adjustment-related procedures with controller


personnel.

d. Analytical evidence obtained by comparing sales adjustments to gross sales for a period
of time.

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Question 48
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Which source document should an auditor use to verify the correct sales date for an item
sold FOB shipping point?
Select one:
a. Carrier's bill of lading 

b. Customer's payment document

c. Customer's purchase order

d. Sales invoice

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Question 49
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The negative form of accounts receivable confirmation request is particularly useful except
when

Select one:

a. The auditor has reason to believe the persons receiving the request are likely to give them
consideration.

b. A large number of small balances are involved.

c. Individual account balances are relatively large. 

d. Internal control surrounding accounts receivable is considered to be effective.

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Question 50
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Unless otherwise identified, the notes receivable of the Quirino Company on December 31,
2018, were trade notes receivable.  On this date the balance of the account, P3,036,915,
consisted of the following notes all received during the calendar year under audit:
 
Maker Date Term Rate Amount Remarks
A Co. Oct. 1   6 mos. 18% P    57,416Four notes to settle past due
Oct. 1 12 mos. 18% 100,000account.  Current billings are
on a 10 – day credit basis.
Oct. 1 18 mos. 18% 100,000
Oct. 1 24 mos. 18% 100,000
B Co. July 1 36 mos. 18% 500,000This note is for a cash loan
made to this customer.  No
interest has been collected to
date.
C Co. Oct. 1   4 mos. 15% 251,636All interest collected on Oct. 1.
Mr. Pogi Feb. 1 Demand 18% 1,000,000Loan approved in minutes
(Company book, Jan. 20.  On Aug. 1 this
President) note was pledged as collateral
for a bank loan P500,000.
D Co. Nov. 1 12 mos. 15% 546,387Interest payable at maturity
E, Inc. Dec. 10 90 days 18%  Interest payable at maturity
    381,476
        P3,036,915 
 
All of the above notes are considered good except that of A Company which is somewhat
doubtful.  An allowance of 25% should be established against the notes receivable of this
company.
Based on the above and the result of your audit, compute the Adjusted balance of Trade
Notes Receivable as of December 31, 2018.
Select one:

a. P1,179,499

b. P2,036,915

c. P   927,863

d. P1,536,915 

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