AUDITING PROBLEMS TEST BANK 2 With Answers

AUDITING PROBLEMS TEST BANK 2
PROBLEM NO. 1
You have been assigned to audit the financial statements of AYALA MERCHANTS
CORPORATION for the year 2017. The company is a dealer of appliances and has several
branches in Metro Manila. Its main office is located in Makati City. You were given by the
company controller the unadjusted balances of the items to be included in the company’s
statement of financial position and statement of income as of and for the year ended
December 31, 2017. Audit findings are as follows:
I. AUDIT OF CASH
A cash count was conducted by your staff on January 7, 2018. The petty cash fund of P60,000
maintained by the company on an imprest basis relected a balance of P22,750. Unreplenished
expenses totaled P37,250 of which P9,510 pertains to January 2018.
You were furnished a copy of the company’s bank reconciliation statement with Chartered
Bank as follows:
Balance per bank P277,994
Add: Deposit in transit 248,836
Bank debit memos 712,750
Returned check 63,000
Less: Outstanding checks (174,580)
Book error (72,000)
Balance per books P1,056,000
Your review of the reconciliation statement disclosed the following:
1. Postdated checks totaling P107,400 were included as part of the deposit in transit. These
represent collections from various customers whose accounts have been outstanding for less
than three months. These checks were actually deposited on January 8, 2018.
2. Included in the deposit in transit is a check from a customer for P63,000 which was returned
by the bank on December 27, 2017 for insufficiency of funds. This account has been
outstanding for over six months. The check was replaced by the customer on January 15,
2018.
3. The bank debited the account of Ayala Merchants for P710,000 as payment of notes payable
including interest of P10,000 due on December 26, 2017. This was not recorded as of year-
end.
4. A check was cleared by the bank as P30,900 but was recorded by the bookkeeper as
P102,900. This was in payment of accounts payable.
5. Bank service charges totaling P2,750 were not recorded.
II. AUDIT OF ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
It is the company’s policy to provide allowance for doubtful accounts as follows:
Less than 3 months P2,500,960 1%

3 to 6 months 843,200 5%
Over 6 months 274,500 10%
Total P3,618,660
An analysis of the accounts receivable schedule showed that several long outstanding accounts
for more than a year totaling P152,460 should be written-off.
III. AUDIT OF MARKETABLE SECURITIES – TRADING
The company’s equity portfolio as of year-end showed the following:

Total Market Value
Shares Cost per Share
Bacnotan Cement 7,000 P108,500 P16.00
Fil-Estate 10,000 195,000 19.75
Ionics 2,400 49,200 24.00
La Tondena 2,000 67,000 26.00
Selecta 8,000 31,600 1.20
Union Bank 1,600 50,880 27.50
P502,180
The securities are listed in the stock exchange. The company follows the fair value
accounting.
IV. AUDIT OF NOTES RECEIVABLE
The note receivable amounting to P1,300,000 represents a loan granted to a subsidiary. This

is covered by a promissory note with interest at 15% per annum dated November 1, 2017. No
interest has been accrued on the note as of December 31, 2017.
V. AUDIT OF PREPAYMENTS
Prepaid expenses account consists of the following:

Prepaid advertising P 640,000
Prepaid insurance 490,000
Prepaid rent 420,000
Unused office supplies 361,000
P1,911,000
Ayala Merchants renewed its contract with an advertising agency for the annual promotion as
well as the regular advertisement of its products. It paid a total of P640,000, P100,000 of
which is for the Christmas promotion while the balance is for the regular promotion and which
will run for one year starting on August 1, 2017. Payment was made on July 20, 2017, and
the total amount was reflected as prepaid advertising.
The company leases the main office and store in Makati City at a monthly rental of
P140,000. On November 5, 2017, a check for P420,000 was issued in payment of three-
month rental as per renewal contract which was effective on November 1, 2017. Rental
deposit remained at three months and is included under other assets.
The company’s delivery equipment is insured with Fortune Insurance Corporation for a total
coverage of P2.4 million. Total payment made on November 16, 2017 for the renewal
amounted to P490,000 which covers the period from November 1, 2017 to November 1,
2018. No adjustment has been made as of December 31, 2017.
To take advantage of volume discount ranging from 10% to 20%, the company buys office
and store supplies on a bulk basis. The staff-in-charge bought supplies worth P220,000 on
June 10, 2017 and included the same in their office supplies inventory. As at year-end,
unused office supplies amount to P102,500.
VI. AUDIT OF INVENTORIES
A physical count of inventories was conducted simultaneously in all stores on December 29 and
20, 2017. Your review of the list submitted by the accountant disclosed the following:
1. Some deliveries made in December 2017 have not been invoiced and recorded as of year-
end. These items had a selling price of P146,940 with term of 15 days. The corresponding
cost was already deducted from the ending inventory.
2. Goods on consignment to Ayala Merchants totaling P356,000 were included in the inventory
list.
3. Some appliances worth P138,500 were recorded twice in the inventory list.
4. Goods costing P153,800 purchased and paid on December 26 was received on January 4,
2018. The goods were shipped by the supplier on December 28, FOB shipping point.
VII. AUDIT OF PROPERTY, PLANT AND EQUIPMENT
The company purchased additional equipment worth P268,000 on June 30, 2017. At the date
of purchase, it incurred the following additional costs which were charged to repairs and
maintenance account:
Freight-in P30,400
Installation cost 13,000
Total P43,400
The above equipment has an estimated useful life of ten years and estimated salvage value of
P20,000. Depreciation for the above equipment has been provided based on original cost.
The company discarded some store equipment on October 1, 2017, realizing no salvage
value. The cost of these equipment amounted to P165,520 with an accumulated depreciation
of P138,620 on December 31, 2017. Depreciation booked from October 1, 2017 to year-end
was P10,480. No entry was made on the disposal of the property.
VIII. AUDIT OF ACCRUED EXPENSES
Some expenses for December 2017 were recorded when paid in January 2018 which included
the following:
Electric bills P73,400
Commission of sales agents 57,000
Telephone charges 42,500
Minor repair of delivery equipment 21,340
Water bills 18,760
Total P213,000
IX. AUDIT OF LIABILITIES
Ayala Merchants obtained a one-year loan from Chartered Bank amounting to P2.6 million at
an interest rate of 16% per annum on October 1, 2017. Accrued interest on this loan was not
taken up at year-end.
X. OTHER AUDIT FINDINGS
A review of the minutes of meeting showed that a 10% cash dividend was declared to
shareholders of record as of December 15, 2017, payable on January 31, 2018.
Ayala Merchants Corporation
UNADJUSTED TRIAL BALANCE
December 31, 2017
Debit Credit
Petty cash fund P 60,000
Cash in bank 1,056,000
Trading securities 483,640
Accounts receivable – trade 3,618,660
Allowance for doubtful accounts P 110,360
Notes receivable 1,300,000
Inventories 7,274,900
Prepaid advertising 640,000
Prepaid insurance 490,000
Prepaid rent 420,000
Office supplies inventory 361,000
Furniture and fixtures 1,298,400
Delivery equipment 2,770,000
Accumulated depreciation 1,177,500
Other assets 548,000
Accounts payable – trade 2,356,320
Notes payable 3,300,000
Accrued expenses 169,040
Bonds payable 5,000,000
Discount on bonds payable 500,000
Ordinary share capital 5,400,000
Retained earnings 792,160
Sales 13,078,000
Cost of goods sold 8,034,000
Operating expenses 3,357,000
Other income 1,453,500
Other charges 625,280
P32,836,880 P32,836,880
Determine the adjusted balances of the following: (Ignore tax implications)

1. Petty cash fund
A. P37,250 B. P60,000 C. P22,750 D. P32,260
2. Cash in bank
A. P522,650 B. P450,650 C. P1,056,000 D. P244,850
3. Trading securities
A. P403,640 B. P502,180 C. P491,240 D. P472,700
4. Accounts receivable
A. P3,936,000 B. P3,618,660 C. P3,783,540 D. P3,613,140
5. Allowance for doubtful accounts

A. P110,360 B. P152,640 C. P130,316 D. P88,217
6. Notes and interest receivable

A. P1,331,960 B. P1,332,160 C. P1,332,500 D. P1,300,000
7. Inventories
A. P6,934,200 B. P7,274,900 C. P7,290,200 D. P6,780,400
8. Prepaid insurance
A. P449,167 B. P408,333 C. P490,000 D. P428,750
9. Prepaid rent
A. P140,000 B. P 0 C. P420,000 D. P280,000
10. Prepaid advertising
A. P325,000 B. P640,000 C. P373,334 D. P315,000
11. Office supplies inventory

A. P258,500 B. P117,500 C. P361,000 D. P102,500
12. Total current assets

A. P14,0333,612 B. P13,523,866 C. P13,677,666 D. P13,537,666
13. Property, plant, and equipment

A. P4,068,400 B. P2,905,228 C. P3,946,280 D. P3,902,880
14. Accumulated depreciation
A. P1,038,880 B. P1,041,050 C. P1,177,500 D. P1,179,672
15. Accounts payable
A. P2,525,360 B. P2,428,320 C. P2,597,360 D. P2,356,320
16. Interest payable
A. P104,000 B. P16,178 C. P4,000 D. P27,644
17. Total current liabilities

A. P6,803,798 B. P6,103,798 C. P6,054,360 D. P5,603,798
18. Sales
A. P13,068,440 B. P13,078,000 C. P13,224,940 D. P12,339,500
19. Cost of goods sold

A. P8,034,000 B. P8,236,200 C. P8,018,700 D. P8,374,700
20. Operating expenses
A. P4,296,514 B. P3,357,000 C. P4,341,514 D. P4,621,51
PROBLEM NO. 2
To substantiate the existence of the accounts receivable balances as at December 31, 2017 of
LUKAS COMPANY, you have decided to send confirmation requests to customers. Below is a
summary of the confirmation replies together with the exceptions and audit findings. Gross
profit on sales is 20%. The company is under the perpetual inventory method.
Name of Balance Comments

Customer Per Books From Customers Audit Findings
Concordia P150,000 P90,000 was returned on December 30, Returned goods were
2017. Correct balance as is P60,000. received December 31, 2017.
Falcon P30,000 Your CM representing price adjustment The CM was taken up by
dated December 28, 2017 cancels this. Lukas Company in 2018.
Lazaro P144,000 You have overpriced us by P150. Correct The complaint is valid.
price should be P300.
Silang P112,500 We received the goods only on January 6, Term is shipping
2018. point. Shipped in 2017.
Yakal P135,000 Balance was offset by our December Lukas Company credited
shipment of your raw materials. accounts payable for
P135,000 to record
purchases. Yakal is a
supplier.
21. If the necessary adjusting journal entry is made regarding the case of Concordia, the net
income will
A. Decrease by P18,000. C. Increase by P18,000.

B. Decrease by P90,000. D. Increase by P90,000.
22. The effect on 2017 net income of Lukas Company of its failure to record the CM involving
transaction with Falcon:
A. P30,000 over. C. P6,000 over.

B. P30,000 under. D. P6,000 under.
23. The overstatement of receivable from Lazaro is
A. P96,000 B. P24,000 C. P72,000 D. P48,000
24. The accounts receivable from Silang is
A. Correctly stated. C. P112,500 under.

B. P112,500 over. D. P225,000 under.
25. The adjusting entry to correct the receivable from Yakal is
A. Purchases 135,000
Accounts receivable 135,000
B. Accounts payable 135,000
Purchases 135,000
C. Accounts receivable 135,000
Accounts payable 135,000
D. Accounts payable 135,000
Accounts receivable 135,000
PROBLEM NO. 3
Palito, CPA, has just accepted an engagement to audit the financial statements of Crocodile,
Inc. for the year ending December 31, 2017. After obtaining an understanding of the client’s
design of the accounting and internal control systems and their operation, he then proceeded
in performing test of controls related to production cycle.
The following questions related to test of controls of the production cycle:
26. Which of the following auditing procedures probably would provide the most reliable evidence
concerning the entity’s assertion of rights and obligations related to inventories:
A. Trace the test counts noted during the entity’s physical count to the entity’s summarization of
quantities.
B. Inspect agreements to determine whether any inventory is pledged as collateral or subject to
any liens.
C. Select the last few shipping documents used before the physical count and determine whether
the shipments were recorded as sales.
D. Inspect the open purchase order file for significant commitments that should be considered for
disclosure.
27. Which of the following internal control activities most likely addresses the completeness
assertion for inventory?
A. The work-in-process account is periodically reconciled with subsidiary inventory records.
B. Employees responsible for custody of finished goods do not perform the receiving function
C. Receiving reports are prenumbered and the numbering sequence is checked periodically.
D. There is a separation of duties between the payroll department and inventory accounting
personnel.
28. From the auditor’s point of view, inventory counts are more acceptable prior to the year-end
when
A. Internal control is weak.
B. Accurate perpetual inventory records are maintained.
C. Inventory is slow moving.
D. Significant amounts of inventory are held on a consignment basis.
29. A retailer’s physical count of inventory was higher than that shown by the perpetual
records. Which of the following could explain the difference?
A. Inventory items had been counted but the tags placed on the items had not been taken off
and added to the inventory accumulation sheets.
B. Credit memos for several items returned by customers had not been recorded.
C. No journal entry had been made on the retailer’s books for several items returned to its
suppliers.
D. An item purchased FOB shipping point had not arrived at the date of the inventory count and
had not been reflected in the perpetual records.
30. An auditor will usually trace the details of the test counts made during the observation of
physical inventory counts to a final inventory compilation. This audit procedure is undertaken
to provide evidence that items physically present and observed by the auditor at the time of
the physical inventory count are
A. Owned by the client.
B. Not obsolete.
C. Physically present at the time of the preparation of the final inventory schedule.
D. Included in the final inventory schedule.
PROBLEM NO. 4
A portion of the SPARK COMPANY’s statement of financial position appears as follows:
December 31, 2017 December 31, 2016

Assets:
Cash P353,300 P100,000
Notes receivable 0 25,000
Inventory ? 199,875
Liabilities:
Accounts payable ? 75,000
Spark Company pays for all operating expenses with cash and purchases all inventory on
credit. During 2017, cash totaling P471,700 was paid on accounts payable. Operating
expenses for 2017 totaled P220,000. All sales are cash sales. The inventory was restocked by
purchasing 1,500 units per month and valued by using periodic FIFO. The unit cost of
inventory was P32.60 during January 2017 and increased P0.10 per month during the
year. Spark sells only one product. All sales are made for P50 per unit. The ending inventory
for 2016 was valued at P32.50 per unit.
31. Number of units sold during 2017
A. 7,066 B. 18,400 C. 4,268 D. 13,400
32. Accounts payable balance at December 31, 2017
A. P190,100 B. P50,000 C. P199,100 D. P200,000
33. Inventory quantity on December 31, 2017
A. 5,750 B. 2,750 C. 17,084 D. 10,750
34. Cost of inventory on December 31, 2017
A. P187,450 B. P186,875 C. P192,950 D. P189,660
35. Cost of goods sold for the year ended December 31, 2017
A. P609,125 B. P609,700 C. P606,915 D. P603,625
PROBLEM NO. 5
A depreciation schedule for semi-trucks of ISIDRO MANUFACTURING COMPANY was requested

by your auditor soon after December 31, 2017, showing the additions, retirements,
depreciation, and other data affecting the income of the company in the 4-year period 2014 to
2017, inclusive.
The following data were ascertained.
Balance of Trucks account, Jan. 1, 2014
Truck No. 1 purchased Jan. 1, 2011, cost P180,000

Truck No. 2 purchased July 1, 2011, cost 220,000
Truck No. 3 purchased Jan. 1, 2013, cost 300,000
Truck No. 4 purchased July 1, 2013, cost 240,000
Balance, Jan. 1, 2014 P940,000
The Accumulated Depreciation—Trucks account previously adjusted to January 1, 2014, and

entered in the ledger, had a balance on that date of P302,000 (depreciation on the four trucks
from the respective dates of purchase, based on a 5-year life, no salvage value). No charges
had been made against the account before January 1, 2014.
Transactions between January 1, 2014, and December 31, 2017, which were recorded in the
ledger, are as follows.
July 1, 2014 Truck No. 3 was traded for a larger one (No. 5), the agreed purchase price of
which was P400,000. Isidro Mfg. Co. paid the automobile dealer P220,000
cash on the transaction. The entry was a debit to Trucks and a credit to Cash,
P220,000. The transaction has commercial substance.
Jan. 1, 2015 Truck No. 1 was sold for P35,000 cash; entry debited Cash and credited Trucks,
P35,000.
July 1, 2016 A new truck (No. 6) was acquired for P420,000 cash and was charged at that
amount to the Trucks account. (Assume truck No. 2 was not retired.)
July 1, 2016 Truck No. 4 was damaged in a wreck to such an extent that it was sold as junk
for P7,000 cash. Isidro Mfg. Co. received P25,000 from the insurance
company. The entry made by the bookkeeper was a debit to Cash, P32,000,
and credits to Miscellaneous Income, P7,000, and Trucks, P25,000.
Entries for depreciation had been made at the close of each year as follows: 2014, P210,000;
2015, P225,000; 2016, P250,500; 2017, P304,000.
36. What is the total depreciation expense for the year ended December 31, 2014?
A. P180,000 B. P198,000 C. P172,000 D. P228,000
37. What is the gain (loss) on trade in of Truck #3 on July 1, 2014?
A. (P30,000) B. P10,000 C. (P60,000) D. P190,000
38. What is the net book value of the Trucks on December 31, 2017?
A. P414,000 B. P348,000 C. P228,500 D. P894,000
39. The total depreciation expense recorded for the 4-year period (2014-2017) is overstated by
A. P185,500 B. P265,500 C. P287,500 D. P275,500
40. The books have not been closed for 2017. What is the compound journal entry on December
31, 2017 to correct the company’s errors for the 4-year period (2014-2017)?
A. Accumulated depreciation 629,500
Trucks 480,000
Depreciation expense 140,000
B. Accumulated depreciation 665,500
Trucks 480,000
Depreciation expense 140,000
C. Accumulated depreciation 665,500
Trucks 480,000
D. Accumulated depreciation 665,500
Trucks 665,500
PROBLEM NO. 6
The cash account of NUNAL COMPANY shows the following activities:
Date Debit Credit Balance
Nov. 30 Balance P345,000
Dec. 2 November bank charges P 150 344,850
4 November bank credit for notes
receivable collected P 30,000 374,850
15 NSF check 3,900 370,950
20 Loan proceeds 145,500 516,450
21 December bank charges 180 516,270
31 Cash receipts book 2,121,900 2,638,170
31 Cash disbursements book 1,224,000 1,414,170
CASH BOOKS
RECEIPTS PAYMENTS
Date OR No. Amount Check No. Amount
Dec. 1 110-120 P 33,000 801 P 6,000
2 121-136 63,900 802 9,000
3 137-150 60,000 803 3,000
4 151-165 168,000 804 9,000
5 166-190 117,000 805 36,000
8 191-210 198,000 806 57,000
9 211-232 264,000 807 78,000
10 233-250 231,000 808 90,000
11 251-275 63,000 809 183,000
12 276-300 90,000 810 21,000
15 301-309 165,000 811 24,000
16 310-350 24,000 812 48,000
17 351-390 57,000 813 60,000
18 391-420 27,000 814 66,000
19 421-480 51,000 816 108,000
22 481-500 63,000 817 33,000
23 501-525 96,000 818 150,000
23 - - 819 21,000
23 - - 820 12,000
26 526-555 222,000 821 9,000
28 556-611 15,000 822 36,000
28 - - 823 39,000
29 612-630 114,000 824 87,000
29 - - 825 6,000
29 - - 826 33,000
Totals P2,121,900 P1,224,000
BANK STATEMENT
Date Check Charges Credits
Dec. 1 792 P 7,500 P 25,500
2 802 9,000 33,000
3 - - 63,900
4 804 9,000 60,000
5 EC 243,000 243,000
8 805 36,000 285,000
9 CM 16 - 36,000
10 799 21,150 462,000
11 DM 57 3.900 231,000
12 808 90,000 63,000
15 803 3,000 -
16 809 183,000 255,000
17 DM 61 180 24,000
18 813 60,000 57,000
19 CM 20 - 145,500
22 815 18,000 -
23 816 108,000 141,000
23 811 24,000 -
23 801 6,000 -
26 814 66,000 96,000
28 818 150,000 222,000
28 DM 112 360 -
29 821 9,000 15,000
29 CM 36 - 36,000
29 820 12,000 -
Totals P1,059,090 P2,493,900
Additional information:
1. DMs 61 and 112 are for service charges.
2. EC is error corrected.
3. DM 57 is for an NSF check.
4. CM 20 is for loan proceeds, net of P450 interest charges for 90 days.
5. CM 16 is for the correction of an erroneous November bank charge.
6. CM 36 is for customers’ notes collected by bank in December.
7. Bank balance on December 31 is P1,776,810
Based on the preceding information, determine the following:
41. Outstanding checks at November 30
A. P39,150 B. P28,650 C. P21,150 D. P46,650
42. Outstanding checks at December 31
A. P459,000 B. P477,000 C. P441,000 D. P487,650
43. Deposit in transit at November 30
A. P58,500 B. P145,500 C. P 0 D. P25,500
44. Deposit in transit at December 31

A. P114,000 B. P139,500 C. P132,000 D. P 0
45. Adjusted book balance at November 30
A. P410,850 B. P345,000 C. P375,000 D. P374,850
46. Adjusted bank receipts for the month of December
A. P2,297,400 B. P2,291,400 C. P2,303,400 D. P2,321,400
47. Adjusted book disbursements for the month of December
A. P1,228,440 B. P1,246,440 C. P1,210,440 D. P1,246,620
48. Adjusted bank balance at December 31
A. P1,449,810 B. P1,674,810 C. P1,431,810 D. P1,776,810
49. Unadjusted bank balance at November 30
A. P555,060 B. P94,560 C. P1,776,810 D. P342,000
50. The best evidence regarding year-end bank balances is documented in the
A. Cutoff bank statements.

B. Bank reconciliations.
C. Interbank transfer schedule.
D. Bank deposit lead schedule.
PROBLEM NO. 7
MINA MINING CO. has acquired a tract of mineral land for P50,000,000. Mina Mining
estimates that the acquired property will yield 150,000 tons of ore with sufficient mineral
content to make mining and processing profitable. It further estimates that 7,500 tons of ore
will be mined the first and last year and 15,000 tons every year in between. (Assume 11 years
of mining operations.) The land will have a residual value of P1,550,000.
Mina Mining builds necessary structures and sheds on the site at a total cost of
P12,000,000. The company estimates that these structures can be used for 15 years but,
because they must be dismantled if they are to be moved, they have no residual value. Mina
Mining does not intend to use the buildings elsewhere.
Mining machinery installed at the mine was purchased secondhand at a total cost of
P3,600,000. The machinery cost the former owner P9,000,000 and was 50% depreciated
when purchased. Mina Mining estimates that about half of this machinery will still be useful
when the present mineral resources have been exhausted but that dismantling and removal
costs will just about offset its value at that time. The company does not intend to use the
machinery elsewhere. The remaining machinery will last until about one-half the present
estimated mineral ore has been removed and will then be worthless. Cost is to be allocated
equally between these two classes of machinery.
51. What are the estimated depletion and depreciation charges for the 1st year?

Depletion Depreciation
A. P4,845,000 P870,000
B. P4,845,000 P780,000
C. P2,422,500 P870,000
D. P2,422,500 P780,000
52. What are the estimated depletion and depreciation charges for the 5th year?

A. P2,422,500 P1,740,000
B. P2,422,500 P1,560,000
C. P4,845,000 P1,560,000
D. P4,845,000 P1,740,000

A. P2,422,500 P1,560,000
B. P2,422,500 P1,740,000
C. P4,845,000 P1,560,000
D. P4,845,000 P1,740,000

A. P2,422,500 P1,380,000
B. P2,422,500 P1,560,000
C. P4,845,000 P1,380,000
D. P4,845,000 P1,560,000

A. P4,845,000 P1,380,000
B. P4,845,000 P690,000
C. P2,422,500 P1,380,000
D. P2,422,500 P690,000
PROBLEM NO. 8
The HVR Company included the following in its notes receivable on December 31, 2017:
Note receivable from sale of land P2,640,000

Note receivable from consultation 3,600,000
Note receivable from sale of equipment 4,800,000
The following transactions during 2017 and other information relate to the company’s notes
receceivable:
a) On January 1, 2017, HVR Company sold a tract of land to Triple X Company. The land,
purchased 10 years ago, was carried on HVR’s books at P1,500,000. HVR received a
noninterest-bearing note for P2,640,000 from Triple X. The note is due on December 31,
2018. There was no established exchange price for the land. The prevailing interest rate for
this note on January 1, 2017 was 10%.
b) On January 1, 2017, HVR Company received a 5%, P3,600,000 promissory note in exchange
for the consultation services rendered. The note will mature on December 31, 2019, with
interest receivable every December 31. The fair value of the services rendered is not readily
determinable. The prevailing rate of interest for a note of this type was 10% on January 1,
2017.
c) On January 1, 2017, HVR Company sold an old equipment with a carrying amount of
P4,800,000, receiving P7,200,000 note. The note bears an interest rate of 4% and is to be
repaid in 3 annual installments of P2,400,000 (plus interest on the outstanding balance). HVR
received the first payment on December 31, 2017. There is no established market value for
the equipment. The market interest rate for similar notes was 14% on January 1, 2017.
Note: Round off present value factors to four decimal places and final answers to the nearest
hundred.
56. What amount of consultation fee revenue should be recognized in 2017?
A. P3,600,000 B. P2,705,000 C. P4,047,500 D. P3,152,500
57. What amount should be reported as gain on sale of equipment?
A. P994,800 B. P2,400,000 C. P1,162,700 D. P1,237,300
58. The amount to be reported as noncurrent notes receivable on December 31, 2017 is
A. P7,482,200 B. P6,037,300 C. P5,477,500 D. P7,877,600
59. The amount to be reported as current notes receivable on December 31, 2017 is
A. P4,800,000 B. P2,400,200 C. P4,404,900 D. P7,440,000
60. How much interest income should be recognized in 2017?
A. P974,200 B. P756,000 C. P1,378,700 D. P1,160,500
--- END ---

AUDITING PROBLEMS TEST BANK 2 With Answers

Hochgeladen von

Dokumentinformationen

Originaltitel

Copyright

Verfügbare Formate

Dieses Dokument teilen

Dokument teilen oder einbetten

Freigabeoptionen

Stufen Sie dieses Dokument als nützlich ein?

Sind diese Inhalte unangemessen?

Copyright:

Verfügbare Formate

AUDITING PROBLEMS TEST BANK 2 With Answers

Hochgeladen von

Copyright:

Verfügbare Formate

AUDITING PROBLEMS TEST BANK 2

Your review of the reconciliation statement disclosed the following:

5. Bank service charges totaling P2,750 were not recorded.

II. AUDIT OF ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

Less than 3 months P2,500,960 1%

III. AUDIT OF MARKETABLE SECURITIES – TRADING

The company’s equity portfolio as of year-end showed the following:

IV. AUDIT OF NOTES RECEIVABLE

The note receivable amounting to P1,300,000 represents a loan granted to a subsidiary. This

Prepaid expenses account consists of the following:

VII. AUDIT OF PROPERTY, PLANT AND EQUIPMENT

VIII. AUDIT OF ACCRUED EXPENSES

X. OTHER AUDIT FINDINGS

Determine the adjusted balances of the following: (Ignore tax implications)

5. Allowance for doubtful accounts

6. Notes and interest receivable

11. Office supplies inventory

12. Total current assets

13. Property, plant, and equipment

17. Total current liabilities

19. Cost of goods sold

Name of Balance Comments

A. Decrease by P18,000. C. Increase by P18,000.

A. P30,000 over. C. P6,000 over.

23. The overstatement of receivable from Lazaro is

24. The accounts receivable from Silang is

A. Correctly stated. C. P112,500 under.

25. The adjusting entry to correct the receivable from Yakal is

The following questions related to test of controls of the production cycle:

A portion of the SPARK COMPANY’s statement of financial position appears as follows:

December 31, 2017 December 31, 2016

31. Number of units sold during 2017

32. Accounts payable balance at December 31, 2017

33. Inventory quantity on December 31, 2017

34. Cost of inventory on December 31, 2017

A depreciation schedule for semi-trucks of ISIDRO MANUFACTURING COMPANY was requested

The following data were ascertained.

Balance of Trucks account, Jan. 1, 2014

Truck No. 1 purchased Jan. 1, 2011, cost P180,000

The Accumulated Depreciation—Trucks account previously adjusted to January 1, 2014, and

37. What is the gain (loss) on trade in of Truck #3 on July 1, 2014?

The cash account of NUNAL COMPANY shows the following activities:

Based on the preceding information, determine the following:

41. Outstanding checks at November 30

42. Outstanding checks at December 31

43. Deposit in transit at November 30

44. Deposit in transit at December 31

45. Adjusted book balance at November 30

46. Adjusted bank receipts for the month of December

47. Adjusted book disbursements for the month of December

48. Adjusted bank balance at December 31

49. Unadjusted bank balance at November 30

50. The best evidence regarding year-end bank balances is documented in the

A. Cutoff bank statements.

51. What are the estimated depletion and depreciation charges for the 1st year?

52. What are the estimated depletion and depreciation charges for the 5th year?

53. What are the estimated depletion and depreciation charges for the 6th year?

54. What are the estimated depletion and depreciation charges for the 7th year?

55. What are the estimated depletion and depreciation charges for the 11th year?

Note receivable from sale of land P2,640,000

56. What amount of consultation fee revenue should be recognized in 2017?

57. What amount should be reported as gain on sale of equipment?

58. The amount to be reported as noncurrent notes receivable on December 31, 2017 is