Auditing Problems Reviewer
Auditing Problems Reviewer
Problem 1
The following amounts were prepared by your client, Camil Corporation for the year
December 31, 2017:
Accounts Receivable Php 2,040,000
Allowance for doubtful accounts ( 14,000)
Merchandise Inventories 632,000
Net sales 6,000,000
In the course of your audit, you have ascertained the following information:
Accounts Receivable
December 31, 2017
Balance per subsidiary ledger Php 1,520,000
Undelivered sales 200,000
Sales (Note 1) 120,000
Sales (Note 2) 200,000
Additional information:
a. All collections pertain to past due accounts.
b. Except those, given, assume that the company’s credit terms are FOB
shipping point, n/30.
c. The company bills all customers at 20% above cost.
Note 1
These were shipped on December 15, 2017.
Note 2
These were shipped on January 2, 2018.
Note 3
In your audit of subsequent events from January 1 to February 15, 2018, you
discovered that a customer’s check amounting to Php100,000, received in
December 2017 was returned by the bank in January 2018 due to insufficient of
funds. Three days after, the check was redeposited.
Note 4
A customer paid his account of Php120,000 through the bank but the bank
erroneously credited this to another depositor’s account.
Allowance for Doubtful Accounts
December 31, 2017
Balance per books Php 14,000
The company provides an allowance based on the aging distribution of the accounts
receivable at year end.
The breakdown of the balance of the subsidiary ledger is:
Amount Percentage
Age classification Php 195,000 6%
Past due 1,325,000 10%
--------------------
Php 1,420,000
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Inventories
Balance per books
(based on physical count), 12/31/17 Php 632,000
Based on your cut-off examination, the last delivery receipt (DR) issued at the end of
the accounting period in 2017 was DR No. 38742.
Your cut-off working paper for delivery receipts dated December 2017 disclosed the
following:
Date Recorded Sales Account
DR No. in Sales Book Charged Amount Remarks
38739 2017 Accts Rec Php 8,640 Note 5
38740 2018 Accts Rec 6,720 Note 6
38741 2017 Accts Rec 20,160 Note 7
38742 2017 Accts Rec 34,560
38743 2017 Accts Rec 38,400 Note 8
Note 5 : The customer was complaining since this was personal transaction
of their purchasing manager.
Note 6 : The delivery receipt was misplaced in 2017 and was found in 2018.
Note 7 : The goods were lost in transit. In 2017, the company received the
whole amount of Php20,160 from the insurance company.
The term FOB Destination.
Note 8 : The company dated the delivery receipt as 2017, although the
goods were received by the customer only in 2018. The
goods were excluded from the physical inventory count. The
term was FOB Destination.
Questions:
1. Accounts Receivable
a. Php1,640,000 c. Php1,620,000
b. Php1,740,000 d. Php1,568,160
2. Allowance for doubtful accounts end
a. Php146,289 c. Php142,290
b. Php151,090 d. Php129,612
3. Doubtful accounts for the year
a. Php132,289 c. Php128,290
b. Php137,090 d. Php225,612
4. Merchandise inventory, end
a. Php632,000 c. Php600,000
b. Php664,000 d. Php612,000
5. Net sales
a. Php5,548,160 c. Php5,606,720
b. Php5,568,320 d. Php5,586,560
Problem 2
In your audit of the December 31, 2016, Statement of Financial Position of Camil
Company, you discovered the following inventory-related transactions.
1. Goods costing Php500,000 are on consignment with a customer. These goods
were not included in the physical count on December 31, 2016.
2. Goods costing Php165,000 were delivered to Camil Company on January 4,
2017. The invoice for these goods was received and recorded on January 10,
2017. The invoice showed the shipment was made on December 29, 2016,
FOB Destination.
3. Goods costing 216,400 were shipped FOB shipping point on December 31,
2016, and were received by the customer on January 2, 2017. Although the
sale was recorded in 2016, these goods were included in the 2016
inventory.
4. Goods costing Php86,400 were shipped to a customer on December 31, 2016,
FOB destination. These goods were delivered to the customer on January 5,
2017, and were not included in the inventory. The sale was properly taken up
in 2017.
5. Goods costing Php86,000 shipped by a vendor under FOB shipping point term,
were received on January 3, 2017, and thus were not included in the physical
inventory. Because the related invoice was received on December 31, 2016,
this shipment was recorded as a purchase in 2016.
6. Goods valued at Php510,000 were received from a vendor under consignment
term. These goods were included in the physical count.
7. Camil Company recorded as a 2016 sale a Php643,000 shipment of goods to a
customer on December 31, 2016, FOB destination. This shipment of goods
costing Php375,000 was received by the customer on January 5, 2017, and
was not included in the ending inventory figure.
Problem 3
Pau Company is a manufacturer of small tools. The following information was obtained
from the company’s accounting records for the year ended December 31, 2016:
Problem 4
Mari Company has been producing quality children’s apparel for more than 30 years.
The company’s fiscal year runs from April 1 to March 31. The following information
relates to the obligations of Mari Company as of march 31, 2016.
Bonds Payable
Mari Company issued Php10,000,000 of 10% bonds on July 1, 2014. The prevailing
market rate of interest for these bonds was 12% on the date of issue. The bonds will
mature on July 1, 2024. Interest is paid semi-annually on July 1 and January 1. Mari
Company uses the effective interest method to amortize the bond premium or discount.
(Round present value factors to the nearest five decimal palaces)
Notes Payable
Mari Company has signed several long-term notes with financial institutions. The
maturities of these notes are given below. Interest were paid every end of the month,
thus, no unpaid interest as of March 31, 2016.
Due Date Amount Due
April 1, 2016 Php 400,000
July 1, 2016 600,000
October 1, 2016 300,000
January 1, 2017 300,000
April1, 2017 – March 31, 2018 1,200,000
Estimated Warranties
Mari Company has a one-year product warranty on some selected items in its product
line. The estimated warranty liability on sale made during the 2014-2015 fiscal year and
still outstanding as of march 31, 2015 amounted to Php180,000. The warranty costs on
sales made from April 1, 2015 through March 31, 2016, were estimated at Php520,000.
The actual warranty costs incurred during 2015-2016 fiscal year are as follows:
Warranty claims honored on 2014-2015 sales Php 180,000
Warranty claims honored on 2015-2016 sales 178,000
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Total warranty claims honored Php 358,000
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Other Information:
a. Trade Payables. Accounts payable for supplies, goods, and services purchases
on open account amount to Php740,000 as of March 31, 2016.
b. Sales Commission Payable. Mari Company pays its outside salespersons fixed
monthly salaries and commissions on net sales. Sales commissions are
computed and paid on a monthly basis (in month following the month of sale),
and fixed salaries are treated as advances against commissions.
However, if the fixed salaries for salespersons exceed their sales commissions
earned for the month, such excess is not charged back to them. Pertinent data
for the month of March 2016 for the 3 salespersons are as follows:
Salespersons Fixed Salary Net Sales Commissions rate
A Php 10,000 Php 200,000 4%
B 14,000 400,000 6%
C 18,000 600,000 6%
c. Dividends
On March 15, 2016, Mari Company board of directors declared a cash dividend
of Php0.20 per ordinary share and a 10% common share dividend. Both
dividends were to be distributed on April 12, 2016 to the ordinary shareholders
of record at the close of business on march 31, 2016. Data regarding Mari
Company common stock are as follows:
Par value Php5 per share
Number of shares 6,000,000 shares
Market values of the ordinary shares
March 15, 2016 Php22 per share
March 31, 2016 Php21.50 per share
April 12, 2016 Php22.50 per share
17. The current portion of Mari Company’s notes payable at March 31, 2016.
a. Php2,280,000 c. Php1,300,000
b. Php1,600,000 d. Php3,800,000
Problem 5
Pau Company has adjusted and closed its books at the end of 2016. The company
arrives at its ending inventory position of Php2,000,000 by a physical count taken on
December 31 of each year. The following are other data as December 31, 2016:
Net sales Php 4,000,000
Cost of sales 2,200,000
Net income 800,000
Retained earnings after closing
Net income of Php400,000 6,000,000
During the audit, the following errors were discovered:
a. Merchandise which cost Php100,000 was sold for Php128,000 on December 28,
2016. The order was shipped on December 31, 2016 with terms FOB shipping
point. The merchandise was not included in the ending inventory. The sale was
recorded on January 10, 2017 when the customer made payment on the sale.
b. Merchandise costing Php38,000, located in a separate warehouse, was
overlooked and excluded from the 2016 inventory count.
c. On December 27, 2016, Pau Company purchased merchandise from a supplier
costing Php47,000. The order was shipped December 29 (terms FOB
destination) and was still “in transit” on December 31. Since the invoice was
received on December 31, the purchase was recorded in 2016. The
merchandise was not included in the inventory count.
d. The client included in its 2016 ending inventory a merchandise costing
Php51,600. This merchandise had been custom-built and was being held until
the customer could come and pick up the merchandise. The sale for Php57,000
was recorded in 2017.
23. Compute for the adjusted balance of ending inventory as of December 31,
2016.
a. Php2,038,000 c. Php1,986,400
b. Php2,089,600 d. Php1,948,400
24. Compute for the adjusted balance of Net sales , 12/31/2016.
a. Php4,128,000 c. Php3,929,000
b. Php4,071,000 d. Php4,185,000
25. Compute for the adjusted balance of cost of sales, 12/31/2016
a. Php2,233,400 c. Php2,285,000
b. Php2,215,000 d. Php2,166,600
26. Compute for the adjusted balance of Net Income, 12/31/2016.
a. Php970,000 c. Php924,400
b. Php1,070,000 d. Php1,018,400
27. Compute for the adjusted balance of the retained earnings, 12/31/2016.
a. Php6,170,000 c. Php6,124,400
b. Php6,218,400 d. Php5,818,400
Problem 6
The following accounts were included in the unadjusted trial balance of Mari Company
as of December 31, 2016:
Cash Php 3,852,800
Accounts receivable 9,016,000
Inventory 24,200,000
Accounts payable 16,804,000
Accrued expenses 1,724,000
During the audit, you noted that Mari Company held its cash books open after year
end. In addition, your audit revealed the following:
a. Receipts for January 2017 of Php1,309,200 were recorded in the December
2016 cash receipt book. The receipts of Php720,200 represent cash sales with
the balance representing collections from customers, net of 5% cash discounts.
b. Accounts payable of Php744,800 was paid in January 2017. The payments, on
which discounts of Php24,800 were taken, were included in the December 2016
check register.
c. Merchandise inventory as stated in the trial balance represented the result of the
count conducted on December 30, 2016. The following information has been
found relating to certain inventory transactions.
1. Goods valued at Php550,000 are on consignment with customer. These
goods are not included in the inventory figure.
2. Goods costing Php435,000 were received from a vendor on January 4,
2017. The related invoice was received and recorded on January 6,
2017. The goods were shipped on December 31, 2016, terms FOB
shipping point.
3. Goods costing Php1,275,000 were shipped on December 31, 2016, and
were delivered to the customer on January 3, 2017. The terms of
the invoice were FOB shipping point. The sales of Php1,630,000 has
been recorded in 2016.
4. A shipment of goods invoiced at Php364,000 to a customer on December
29, terms FOB destination was recorded in 2017. The goods cost
Php260,000 and received by the customer on January 3,
2017.
5. The invoices for goods costing Php350,000 was received and recorded as
purchase on December 31, 2016. The related goods shipped FOB
Destination were received on January 4, 2017.
6. Goods valued at Php1,225,600 are on consignment from a vendor, these
goods were excluded in the physical count.
28. Cash
a. Php3,852,800 c. Php3,263,600
b. Php3,288,400 d. Php3,313,200
29. Accounts Receivable
a. Php9,636,000 c. Php9,016,000
b. Php9,605,000 d. Php10,325,200
30. Inventory
a. Php24,170,000 c. Php22,120,000
b. Php23,820,000 d. Php24,260,000
31. Accounts Payable
a. Php17,633,800 c. Php16,889,000
b. Php17,198,800 d. Php17,983,800
32. Net adjustments of Cost of Sales
a. Debit by Php115,000 c. Credit by Php1,160,000
b. Debit by Php139,800 d. Credit by Php1,110,600
Problem 8
Problem 9
Your company has been engaged to examine the financial statements of Pau Company
for the years ended December 31, 2017 and December 31, 2016. You have been
assigned to review the liabilities and shareholders equity balances. You have learned
that on January 1, 2015, Pau Company issued a five year, 8% bonds Php5,000,000
bonds for Php5,500,000. Each Php1,000 bond is convertible into 8 shares of Php100
par ordinary share of Pau Company, at the option of the bondholder. Interest on the
bonds is payable annually on December 31. Without the conversion feature, the bonds
would have sold to yield 10% to the holders. (Round present value factors to four
decimal places.)
43. Disregard the information given in No. 42. Assume, instead, that on January
1,2017, Php2,000,000 of the bonds were retired. The bonds without the
conversion feature would have sold @105 on this date. What amount of gain or
(loss) should be recognized on the retirement of the bonds?
a. Php40,000 c. Php(59,523)
b. Php160,000 d. Php(199,523)
e. answer not given
44. Disregard the assumption in item No. 42. Assume that on January 1, 2017,
Php2,000,000 of the bonds were retired. The bonds without the conversion
feature would have sold @ 105 on this date. What should be the interest
expense for the year ended December 31, 2017?
a. Php252,374 c. Php300,000
b. Php285,072 d. Php475,119
e. answer not given
45. What is the carrying value of the bonds to be converted on January 1, 2018?
a. Php965,262 c. Php950,238
b. Php1,930,525 d. Php2,895,787
46 What is the interest expense on these bonds for the year ending December 31,
2017? Php 285, 072 (refer to amortization table)
a. Php285,072 c. Php468,290
b. Php240,000 d. Php160,000
47. What is the interest expense on these bonds for the year ending December 31,
2018 and 2019? Php193,052 and Php196,423 (refer to amortization table)
a. Php193,052 and Php196,423 c. Php142,536 and Php193,052
b. Php142,536 and Php196,423 d. Php160,000 and Php196,423
e. answer not given