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Acc 11 Handout
Acc 11 Handout
You were engaged to audit Albert the Great Corporation. The Company started operations in 2015. The
following is the trial balance of your audit client.
You further noted that ordinary shares with total par value of P4,000,000 and share premium of P470,000
were recorded as sales.
Problem II
You were engaged to audit the inventory account of Raymund Co for the year ended December 31, 2015.
The following are the inventory accounts of your audit client:
Upon careful consideration, you also determined the following data pertaining to each inventory item:
Costs are traced to the general ledger balance of the inventory account. Selling price and cost to complete
are deemed in order.
The financial statements prepared by the company (uncorrected) showed the following: ending inventory,
P72,000; accounts receivable, P60,000; accounts payable, P30,000; sales, P400,000; net purchases,
P160,000, and pretax income P51,000.
You are auditing the accounts receivable and the related allowance for bad debts account of GRACE INC.
The control account of the aforementioned accounts had the following balances:
Accounts Receivable P1,270,000
Less: Allowance for bad debt (78,000)
Net Book Value P1,192,000
Upon your investigation, you found out the following information:
a. The companys normal sales term is n/30.
b. The allowance for bad debt account had the following details in the general
ledger:
Additional information
The credit balance with ABC Co. was for an overpayment from the customer. The company
delivered additional merchandise to ABC Co. on January 3, 2016 to cover such
overstatement.
The credit balance of DEF Corp. was due to a posting error, the amount should have been
credited to ZYA Corp for a 60 day outstanding receivable.
The credit balance from GHI Inc. was a cash advance for a delivery to be made on January
15, 2016.
The accountant of ABC Corporation provided you the following post-closing trial balance as part of your
audit of its 2015 financial statements:
Cash P800,000
Accounts receivable 750,000
Allowance for doubtful accounts 50,000
Prepaid expenses 160,000
Inventory 1,000,000
Financial assets at fair value 690,000
Building in process 5,500,000
Patent 200,000
Machinery and equipment 1,500,000
Accumulated depreciation 300,000
Discount on bonds payable 200,000
Accounts payable 900,000
Accrued expenses 150,000
Note payable, 10% 250,000
Bonds payable 2,000,000
Share capital 3,000,000
Retained earnings 4,150,000
Audit notes:
a. The financial assets at fair value include:
DEF Company 1,000 shares P 400,000
ABC Corporation 2,000 shares 250,000
Dividend receivable on DEF Company 40,000
b. The balance of building in process account represents the cost expended to date on a building in
the process of construction. The entity currently rents its factory space. The amount includes
P500,000 which is the acquisition price of the land on which the building is being constructed.
Also included in the Building in process amount is P50,000 which was for the property tax on the
land, half of which was for property taxes prior to the acquisition with the balance applicable for
the current year.
c. The 10% notes payable represents bank loan made on January 1, 2014 with the principal and
interest (compounded annually) being due December 31, 2016. Interest is yet to be accrued on
the loan.
d. The bonds pay 12% interest semi-annually on April 1 and October 1 and mature on April 1, 2014.
Interest is yet to e accrued on the bonds.
e. Forty-thousand shares, P100 par, are authorized, of which 30,000 issued.