CRC Auditing Oct 2022 (1st PB)
CRC Auditing Oct 2022 (1st PB)
Main: 3F C. Villaroman Bldg. 873 P. Campa St. cor Espana, Sampaloc, Manila
(02) 735 8901 / 0917-1332365
email add: [email protected]
Baguio Davao
DE GUZMAN BLDG. 18 LEGARDA ROAD, BAGUIO CITY 3/F GCAM Bldg. Monteverde St. Davao City
0921-7566143 0917-1332365
1. Which element of a system of quality control strives to provide the firm with reasonable assurance
that its policies and procedures are operating effectively?
A. Human resources
B. Leadership responsibilities for quality within the firm
C. Monitoring
D. Relevant ethical requirements
2. In which of the following should an auditors' report refer to the lack of consistency when there is a
change in accounting principle that is significant?
A. The Auditor’s Responsibilities for the Audit of the Financial Statements Section.
B. The Opinion Section.
C. An emphasis-of-matter paragraph following the Basis for Opinion Section.
D. An emphasis-of-matter paragraph preceding the Basis for Opinion Section.
3. The auditors' report on the entity's financial statements included language disclosing a difference of
opinion between the auditors and the entity for which the auditors believed an adjustment to the
financial statements should be made. The Opinion Section of the auditors' report should express a(n)
A. unmodified opinion.
B. qualified opinion citing a departure from generally accepted accounting principles.
C. qualified opinion citing a scope limitation and lack of specific evidence.
D. disclaimer of opinion.
4. Which of the following presumptions does not relate to the reliability of audit evidence?
A. The more effective the client's internal control, the more assurance it provides about the
accounting data and financial statements.
B. The auditors' opinion, to be economically useful, is formed within reasonable time and based on
evidence obtained at a reasonable cost.
C. Evidence obtained from independent sources outside the entity is more reliable than evidence
secured solely within the entity.
D. The independent auditors' direct personal knowledge, obtained through observation and
inspection, is of higher quality than information obtained indirectly.
5. Which of the following statements is not included in the Basis for Opinion Section of the standard
(unmodified) report on the entity's financial statements?
A. "We are required to communicate with those charged with governance…"
B. "We are required to be independent of [the client]…"
C. "We believe that the audit evidence we have obtained is sufficient and appropriate to provide a
basis for our audit opinion."
D. "We conducted our audit in accordance with…(GAAS)"
6. If management fails to provide adequate justification for a change from one generally accepted
accounting principle to another, the auditors should
A. Modify the Opinion Section and Basis for Opinion Section of the report for lack of conformity
with generally accepted accounting principles.
B. Disclaim an opinion on the entity's financial statements because of uncertainty.
C. Disclose the matter in an emphasis-of-matter paragraph but not modify the Opinion Section of
the report.
CRC-ACE/AUDITING: FIRST PREBOARD EXAMS – October 2022 Batch Page 2
D. Not modify the report because both principles are generally accepted accounting principles.
7. Which of the following is true with respect to the auditors' report on summary financial statements?
A. Auditors can only issue a report on summary financial statements if they have expressed an
unmodified opinion on the full financial statements.
B. The report will indicate whether the summary financial statements are fairly stated in relation
to the full financial statements.
C. The report will express limited assurance on whether the summary financial statements are
prepared in accordance with ISA.
D. The report will express an opinion on whether the summary financial statements present the
financial condition, results of operations, and cash flows in accordance with generally accepted
accounting principles.
8. When updating the report on prior years' financial statements presented in comparative form, the
auditors' responsibility for the prior years' financial statements is
A. limited to the previously issued report date.
B. extended to the date of the updated audit report.
C. limited to 30 days after the date of the prior years' financial statements.
D. extended to the updated report date only if information comes to the auditors' attention requiring
modification of the previously expressed opinion.
9. An audit of the financial statements of CV Corporation is being conducted by external auditors. The
external auditors are expected to:
A. certify the correctness of CV's financial statements.
B. make a complete examination of CV's records and verify all of CV's transactions.
C. give an opinion on the fair presentation of CV's financial statements in conformity with the
applicable financial reporting framework (e.g., GAAP, IFRS).
D. give an opinion on the attractiveness of CV for investment purposes and critique the wisdom
and legality of its business decisions.
10. Which of the following is an example of the appropriate implementation of a system of quality
control?
A. The firm requires all documents obtained during the audit to be destroyed immediately
following the engagement to ensure the client's information remains confidential.
B. The firm's quality control policies have evolved through the performance of audit procedures
but are not formally developed or communicated to staff members.
C. All firm employees must verbally confirm their compliance with the appropriate independence
requirements before being assigned to an engagement.
D. The firm uses manuals and standardized forms for audit documentation to help ensure
engagement performance objectives and quality standards are met.
11. Which of the following types of audit evidence provides the least assurance of reliability?
A. Receivable confirmations received from the client's customers.
B. Prenumbered receiving reports completed by the client's employees.
C. Prior months' bank statements obtained from the client.
D. Municipal property tax bills prepared in the client's name.
12. On which of the following matters would it not be appropriate for the auditors to report using an
other-matter paragraph?
A. An indication that a predecessor auditor examined prior year’s financial statements presented
in comparative form.
B. Procedures performed related to supplementary mineral reserve information required by the
SEC.
C. The consistency of summary financial statements with the audited financial statements from
which they were derived.
D. An updated opinion on comparative financial statements that differs from the opinion
originally issued by the auditors.
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13. Which of the following is not true with respect to the concept of reasonable assurance?
A. Reasonable assurance allows for mistakes and misinterpretations by the audit team throughout
the examination.
B. The nature of many audit procedures is such that they cannot always be relied upon to detect
misstatements.
C. Audit teams should evaluate all transactions and components of an account balance or class of
transactions.
D. Auditors should control the overall risk in an audit to an acceptably low level.
14. The auditors conclude that an entity's illegal act, which has a material effect on the financial
statements, has not been properly accounted for or disclosed. Depending on the overall materiality
and pervasiveness of the effect of this illegal act on the financial statements, the auditors should
express either a(n)
A. adverse opinion or a disclaimer of opinion.
B. qualified opinion or an adverse opinion.
C. disclaimer of opinion or an unmodified opinion with a separate emphasis-of-matter paragraph.
D. unmodified opinion with a separate emphasis-of-matter paragraph or a qualified opinion.
15. Which reporting options do auditors have if the client's financial statements are not presented
according to the applicable financial framework (e.g., GAAP, IFRS)?
A. Unmodified opinion or disclaimer of opinion.
B. Qualified opinion or disclaimer of opinion.
C. Unmodified opinion or adverse opinion.
D. Qualified opinion or adverse opinion.
16. In which of the following circumstances would auditors most likely add an emphasis-of-matter
paragraph or additional section to the standard (unmodified) report without modifying the opinion
on the entity's financial statements?
A. The auditors are asked to report on the balance sheet, but not on the other basic financial
statements.
B. There is substantial doubt about the entity's ability to continue as a going concern.
C. Management's estimates of the effects of future events on the entity's financial condition,
results of operations, and cash flows are unreasonable.
D. Certain transactions cannot be tested because of management's records retention policy.
17. What type of evidence would provide the highest level of assurance in an attestation engagement?
A. Evidence secured solely from within the entity.
B. Evidence obtained from independent sources.
C. Evidence obtained indirectly.
D. Evidence obtained from multiple internal inquiries.
18. Which of the following courses of action is most appropriate if an auditor concludes that there is a
high risk of material misstatement?
A. Use smaller, rather than larger, sample sizes.
B. Perform substantive tests as of an interim date.
C. Select more effective substantive tests.
D. Increase tests of controls.
19. When a circumstance-imposed scope limitation has a material but not pervasive effect on the
sufficiency of the auditors' evidence, the auditors' report will
A. modify the Opinion Section and Basis for Opinion Section.
B. modify the Opinion Section and Auditor’s Responsibilities for the Audit of the Financial
Statements Section.
C. modify the Opinion Section, Basis for Opinion Section, and Auditor’s Responsibilities for the
Audit of the Financial Statements Section.
D. modify the Opinion Section and Basis for Opinion Section and omit the Auditor’s
Responsibilities for the Audit of the Financial Statements Section.
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20. In which of the following circumstances would auditors be most likely to express an adverse
opinion?
A. The chief executive officer refuses to provide the auditors access to minutes of board of
directors' meetings.
B. Tests of controls show that the entity's internal control is so ineffective that it cannot be relied
upon.
C. The financial statements are not in accordance with generally accepted accounting principles
regarding the capitalization of leases.
D. Information comes to the auditors' attention that raises substantial doubt about the entity's
ability to continue as a going concern.
21. Which of the following questions would be in appropriate for an auditor to ask a client when
exhibiting an appropriate level of professional skepticism while completing an audit procedure
related to the internal control system?
A. What can go wrong in this process?
B. Which of your employees is a fraudster?
C. What else is important to know about this process?
D. What happens when a key employee goes on vacation?
22. Which of the following types of auditors' reports does not require additional information to support
the opinion?
A. Unmodified opinion.
B. Adverse opinion.
C. Qualified opinion.
D. Disclaimer of opinion.
23. Hart, CPA, is auditing the year 2 financial statements of Kell Co. Previously, Hart audited Kell's
year 1 financial statements and expressed a qualified opinion due to a scope limitation. Hart decides
to include an other-matter paragraph in the year 2 report because comparative financial statements
are being presented for year 2 and year 1. This paragraph should indicate the
A. substantive reasons for the prior year's qualification.
B. reason that Hart continued to provide audit services, despite the previous scope limitation.
C. consistency of application of accounting principles between year 2 and year 1.
D, restriction on the distribution of the report.
24. The basic requirements for becoming a CPA public practitioner are:
A. education, the CPA Examination, experience, and substantial equivalency.
B. the CPA Examination, experience, continuing professional education, and a BIR accreditation
certificate.
C, continuing professional education, the CPA Examination, experience, and an PICPA
certificate of good standing.
D. education, the CPA Examination, experience, continuing professional development, and a
BOA accreditation certificate.
25. GEE, CPAs, were engaged to perform an audit of the financial statements of Happy, Inc. Happy's
management would not allow GEE to confirm any of the accounts receivable. All other auditing
procedures were performed as considered necessary by GEE and no issues were encountered.
However, GEE was unable to satisfy themselves about the balance in accounts receivable.
The following modifications, if any, may be required to the standard report, EXCEPT:
CRC-ACE/AUDITING: FIRST PREBOARD EXAMS – October 2022 Batch Page 5
A. The Opinion Section (labeled Disclaimer of Opinion) would be modified to note that the audit
team was “engaged” to audit the financial statements, express a disclaimer of opinion, and indicate
that the audit team was unable to gather sufficient appropriate evidence.
B. The Basis for Opinion Section (labeled Basis for Adverse Opinion) would be modified to
identify the scope limitation and delete the standard paragraph indicating that an audit had been
conducted.
C. The Auditor’s Responsibilities for the Audit of the Financial Statements Section would be
modified to note that the audit team was not able to obtain sufficient appropriate evidence and delete
language describing an audit and indicating that the audit provides a reasonable basis for the opinion
D. No exception as all these statements is appropriate reporting in this given circumstance.
26. An auditor who is unable to form an opinion on a new client's opening inventory balances may issue
an unmodified opinion on the current year's
A. income statement only
B. statement of cash flows only.
C. balance sheet only.
D. statement of changes in shareholders' equity only.
27. Which of the following section(s) references the requirement of auditors to be independent?
A. Opinion on the Financial Statements section.
B. Basis for Opinion section.
C. Key Audit Matters section.
D. Opinion on the Financial Statements section and Basis for Opinion section.
28. The concept of _____ recognizes that a GAAS audit may fail to detect all material misstatements.
A. absolute assurance
B. due care
C. reasonable assurance
D. risk of material misstatement
29. The state of mind that characterizes the auditors' appropriate questioning and critical assessment of
audit evidence is referred to as:
A. due care.
B. independence in appearance.
C. professional judgment.
D. professional skepticism.
30. A practitioner is engaged to express an opinion on management's assertion that the square footage of
a warehouse offered for sale is 150,000 square feet. The practitioner should refer to which of the
following sources for professional guidance?
A. International Standards on Auditing
B. International Standards on Assurance Engagements.
C. International Standards on Review Engagements.
D. International Standards on Related Services.
31. Charlie Company's comparative financial statements include the financial statements of the prior
year that were audited by predecessor auditors whose report on those financial statements is not
presented. If the predecessor's report was qualified, the successor auditors should
A. Indicate in their report the substantive reasons for the qualification issued by the predecessor
auditors.
B. Request the entity to reissue the predecessor's report on the prior years' statements.
C. Issue an updated comparative report on the entity's financial statements, indicating the
involvement of component auditors.
D. Express an opinion only on the current year's financial statements and make no reference to the
prior years' financial statements or opinion
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32. In which of the following circumstances may auditors issue the standard (unmodified) report on the
entity's financial statements?
A. The entity changed accounting principles having an immaterial effect on the entity's financial
position, results of operations, and cash flows.
B. The auditors wish to emphasize a matter regarding the financial statements.
C. The auditors appropriately reference an expert’s work used in the engagement.
D. The auditors have not been able to audit a substantial portion of the balance sheet because of a
circumstance-imposed scope limitation.
33. All of the following are examples of procedures a firm can use to monitor its system of quality
control except:
A. Discussions with firm personnel.
B. Conducting reviews of engagement documentation.
C. Devoting sufficient resources to developing a system of quality control.
D. Assessing compliance with independence policies and procedures.
34. If financial statements contain a material but non-pervasive departure from generally accepted
accounting principles, the auditors should render a(n)
A. Qualified opinion with reference to departure.
B. Adverse opinion with scope limitation reference.
C. Adverse opinion with reference to departure.
D. Disclaimer of opinion.
35. Neil is auditing the financial statements of Cole Corp., an energy company. The SEC requires that
these financial statements must be accompanied by supplementary mineral reserve information. If
this required information is materially misstated, what type of report should Neil issue?
A. Unmodified opinion with an other-matter paragraph disclaiming an opinion on the mineral
reserve information.
B. Adverse opinion on the financial statements and mineral reserve information due to the
misstatement.
C. Unmodified opinion on the financial statements with an other-matter paragraph expressing an
adverse opinion on the mineral reserve information.
D. Qualified opinion on the financial statements and mineral reserve information due to the
misstatement.
36. When auditors qualify their opinion on the entity's financial statements because of inadequate
disclosure, the auditors should describe the nature of the omission and modify
A. The Qualified Opinion Section only.
B. The Basis for Qualified Opinion Section only.
C. The Auditor’s Responsibilities for the Audit of the Financial Statements Section only.
D. The Qualified Opinion Section and the Basis for Qualified Opinion Section.
37. An auditor has substantial doubt about the entity's ability to continue as a going concern for a
reasonable period of time because of negative cash flows and working capital deficiencies. Under
these circumstances, the auditor would be most concerned about the:
38. The confirmation of an account payable balance selected from the general ledger provides primary
evidence regarding which management assertion?
A. Completeness.
B. Valuation.
C. Allocation.
D. Existence.
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39. Which of the following would most likely be a violation of the independence requirement found in
the general responsibilities principle under GAAS?
A. An auditor on the engagement has a distant relative who is employed by a vendor that does a
significant amount of business with clients.
B. The client's Chief Executive Officer graduated from the same university as the partner in
charge of the accounting firm.
C. An auditor on the engagement owns a financial interest in the stock of the client.
D. The client provides financial support to several charitable causes that also receive support from
the accounting firm.
40. Tick and Tie, CPAs, were performing their annual audit of Johnson Manufacturing Company.
Johnson is currently being sued for P2,000,000 related to an alleged defective product that they sold
to a customer. Johnson's legal counsel has told Tick and Tie that it is probable that Johnson will lose
the suit and will most likely required to pay the entire P2,000,000. Johnson's management has
included information in the notes about the lawsuit. However, they have not recorded any loss or
liability in the income statement or balance sheet.
The following modifications, if any, may be required to the standard report, EXCEPT:
A. The Opinion Section (labeled Qualified Opinion or Adverse Opinion) would be modified to
express the appropriate type of opinion.
B. The Basis for Opinion Section (labeled Basis for Qualified Opinion or Basis for Adverse
Opinion)would include a description of the departure from applicable financial reporting
framework.
C. The Key Audit Matters Section would be modified to indicate that auditor challenged the non
disclosure of any loss or liability.
D. No exception as all these statements is appropriate reporting in this given circumstance.
41. To be proficient as an auditor, a person must first be able to accomplish which of these tasks in a
decision-making process?
A. Identify audit evidence relevant to the verification of assertions management makes in its
unaudited financial statements and notes.
B. Formulate evidence-gathering procedures (audit plan) designed to obtain sufficient, competent
evidence about assertions management makes in financial statements and notes.
C. Recognize the financial assertions made in management's financial statements and footnotes.
D. Evaluate the evidence produced by the performance of procedures and decide whether
management's assertions conform to generally accepted accounting principles and reality.
42. Which of the following situations would most likely be in conflict with the responsibilities principle?
A. Auditors perform the engagement with the performance level expected of prudent auditors, but
not expert auditors.
B. Auditors obtain expertise in their client's industry as they are conducting the audit examination.
C. Auditors are directly involved with a client manager in a strategic decision-making capacity.
D. Auditors fail to document their assessment of control risk following their study of internal
control.
43. Which of the following situations would require auditors to add an other-matter paragraph to their
report on comparative financial statements?
A. An unmodified opinion is issued in the current year while a qualified opinion was issued in
prior years.
B. A qualified opinion is issued in the current year because of a scope limitation; because this
limitation was not encountered in prior years, the opinion issued in those years was unmodified.
C. The updated opinion issued on prior years' financial statements differs from the opinion
originally issued on those financial statements.
D. The auditors' unmodified opinion issued on prior years' financial statements is still considered to
be appropriate.
CRC-ACE/AUDITING: FIRST PREBOARD EXAMS – October 2022 Batch Page 8
44. When a firm decides to withdraw from an engagement, it should document all of the following
EXCEPT:
A. significant issues influencing the decision to withdraw from the engagement.
B. the basis for any conclusions related to this decision to withdraw from the engagement.
C. significant consultations related to the decision to withdraw from the engagement.
D. significant effects the decision to withdraw from the engagement could have on the firm.
45. Which of the following actions should a CPA firm take to comply with the ISQC 1?
A. Establish procedures that comply with the PAA of 2004.
B. Use attributes sampling techniques in testing internal controls.
C. Consider inherent risk and control risk before determining detection risk.
D. Establish policies to ensure that the audit work meets applicable professional standards.
46. Holmes & Smith, LLP, were engaged to audit the financial statements of Sodolak Reality for the
year ended December 31. During the engagement, Sodolak filed a lawsuit against Holmes & Smith,
LLP. What effect, if any, will this lawsuit have on the auditors' report?
A. The report should be modified to include an emphasis-of-matter paragraph describing the
pending litigation.
B. A disclaimer of opinion should be issued because the auditors' independence is impaired.
C. The litigation will not have any impact on the report or auditors' independence unless Holmes &
Smith are found guilty.
D. A qualified or adverse opinion should be issued depending on the severity of the lawsuit.
48. When a predecessor auditor has examined the prior years' financial statements presented in
comparative format, the current auditors' report should
A. make no reference to the predecessor auditors' report.
B. reference the predecessor auditors' report in the Opinion Section, Basis for Opinion Section, and
Auditor’s Responsibilities for the Audit of the Financial Statements Section.
C. reference the predecessor auditors' report in an other-matter paragraph.
D. disclaim an opinion on the prior years' financial statements.
49. When an entity will not permit inquiry of outside legal counsel, the auditors' report on the entity's
financial statements will ordinarily contain a(n)
A. disclaimer of opinion.
B. qualified opinion referencing a departure from generally accepted accounting principles.
C. unmodified opinion with an emphasis-of-matter paragraph.
D. adverse opinion.
50. In which of the following circumstances would a qualified opinion not be appropriate?
A. A scope limitation prevents the auditors from completing an important auditing procedure.
B. The entity has failed to properly disclose going-concern uncertainties.
C. An accounting principle at variance with generally accepted accounting principles is used.
D. The auditors lack independence with respect to the audited entity.
CRC-ACE/AUDITING: FIRST PREBOARD EXAMS – October 2022 Batch Page 9
PROBLEM 1
The following facts apply to GYM COMPANY during 2021:
1. Savings account of P900,000 and a checking account balance of P1,200,000 are held at Manila
Bank.
2. Money market placement with maturity of 3 months, P7,500,000.
3. Currency and coins on hand amounted to P11,550.
4. Travel advances of P270,000 for the first quarter of next year (employee reimbursement will be
through salary deduction).
5. GYM COMPANY has purchased P3,150,000 of commercial paper of Mendez Corp. which is due
in 60 days.
6. A separate cash fund amounting to P2,250,000 is restricted for the retirement of long-term debt.
7. Petty cash fund of P1,500.
8. An IOU from an employee of GYM COMPANY in the amount of P2,000.
9. Two certificates of deposit, each totalling P500,000. These CDs have a maturity of 120 days.
10. GYM COMPANY has received a check from a customer in the amount of P187,500 dated January
15, 2022.
11. On January 1, 2021, GYM COMPANY purchased marketable equity securities to be held as
“trading” for P3,000,000. On December 31, 2021, its market value is P4,300,000.
51. What amount should be reported as cash and cash equivalents on December 31, 2021?
A. P13,763,050
B. P12,751,500
C. P12,575,550
D. P12,763,050
PROBLEM 2
In connection with your audit of the financial statements of BELL COMPANY for the year ended
December 31, 2021, you gathered the following information:
1. The company maintains its current account with Tsunami Bank. The bank statement on December 31,
2021, showed a balance of P638,340.
Your audit of the company’s account with Tsunami Bank disclosed the following:
• A check for P22,500 received from a customer whose account is current had been deposited
and then returned by the bank on December 28, 2021. No entry was made for the return of this
check. The customer replaced the check on January 15, 2022.
• A check for P5,720 was cleared by the bank as P7,520. The bank made the correction on
January 2, 2022.
• A check for P3,500 representing payment of an employee advance was received and deposited
on December 27, 2021, but was not recorded until January 3, 2022.
• Postdated checks totalling P67,300 were included in the deposits in transit. These represent
collections of current accounts receivable from customers. The checks were actually deposited
on January 5, 2022.
• Various debit memos for drafts purchased for payment of importation of equipment totalling
P230,000 were not yet recorded. These purchases were previously set up as accounts payable.
Said equipment arrived in December 2021.
• Interest earned on the bank balance for the 4th quarter of 2021, amounting to P1,950 was not
recorded.
• Bank service charges totalling P1,260 were not recorded.
• Deposit in transit and outstanding checks at December 31,2021, totalled P136,250 and
P276,380, respectively.
2. Various expenses from the company’s imprest petty cash fund dated December 2021, totalled
P16,250, while those dated January 2022, amounted to P5,903. Another disbursement from the fund
dated December 2021 was a cash advance to an employee amounting to P3,500. A replenishment of
the petty cash fund was made on January 8, 2022.
CRC-ACE/AUDITING: FIRST PREBOARD EXAMS – October 2022 Batch Page 10
The company’s trial balance on December 31, 2021, includes the following accounts:
Cash in Bank – Tsunami Bank P 748,320
Cash in Bank – Earthquake Bank (restricted account for 700,000
plant expansion, expected to be disbursed in 2022)
Petty Cash Fund 30,000
Time deposit, placed December 20, 2021, and due March 1,000,000
20, 2022
Money Market Placement – Prudential Bank 4,000,000
Requirements:
52. What is the adjusted petty cash fund balance on December 31, 2021?
A. P4,347
B. P30,000
C. P10,250
D. P24,097
54. What is the adjusted Cash in Bank – Tsunami Bank balance on December 31, 2021?
A. P500,010
B. P432,710
C. P748,320
D. P429,110
55. The entry to adjust the Cash in Bank – Tsunami Bank account should include a debit to
A. Accounts receivable for P89,800.
B. Accounts receivable for P86,300.
C. Accounts payable for P228,200.
D. Interest expense for P1,950.
56. The December 31, 2021, statement of financial position should show “Cash and Cash Equivalents” at
A. P6,142,960
B. P4,442,960
C. P5,439,360
D. P5,442,960
PROBLEM 3
In connection with your audit of the financial statements of BROTHER CORP, for the year ended
December 31, 2021, you conducted a surprise count of the company’s petty cash fund and undeposited
collections at 8:20 a.m. on January 3, 2022. Your count disclosed the following:
Checks
Date Payee Maker Amount
Dec. 30 Cash Custodian P 1,200
Dec. 30 BROTHER Corp SLV, Inc 14,000
Dec. 31 BROTHER Corp Mario Lansang, Sales Manager 1,680
Dec. 31 BROTHER Corp MSU Corp 17,800
Dec. 31 BROTHER Corp Ateneo, Inc 8,300
Dec. 31 Taiwan Corp BROTHER Corp 27,000
Unreimbursed Vouchers
Date Payee Description Amount
Dec. 23 Mario Lansang, Sales Manager Advance for trip to Tagaytay City P 20,000
Dec. 28 Central Post Office Postage Stamps 1,620
Dec. 29 Messengers Transportation 150
Dec. 29 Byte, Inc. Computer repair 800
2. The sales manager’s liquidation report for his Tagaytay City trip.
Additional Information:
1. The custodian is not authorized to cash checks.
2. The last official receipt included in the deposit on December 30 is No. 4351 and the last official
receipt issued for the current year is No. 4355. The following official receipts are all dated
December 31, 2021.
OR No. Amount Form of Payment
4352 P 13,600 Cash
4353 17,800 Check
4354 3,600 Cash
4355 8,300 Check
3. The petty cash balance per general ledger is P25,000. The last replenishment of the fund was made
on December 22, 2021.
Requirements:
57. What is the amount of shortage due from the sales manager?
A. P240
B. P120
C. P1,800
D. P0
59. The adjusting entries on December 31, 2021, should include a net debit to Travel Expenses of
A. P 17,320
B. P 18,200
C. P 18,320
D. P 18,080
PROBLEM 4
In connection with your audit of the cash account of JAY CORP., you gathered the following information.
Requirements:
62. What is the total book receipts in December?
A. P295,399
B. P334,857
C. P306,542
D. P346,000
PROBLEM 5
LOUNGE, INC. estimates its bad debt losses by aging its accounts receivable. The aging schedule of
accounts receivable at December 31, 2021, is presented below:
Age of Accounts Amount
0 - 30 days P 843,200
31 – 60 days 461,000
61 – 90 days 192,400
91 – 120 days 76,650
Over 120 days 39,400
LOUNGE, Inc.’s uncollectible accounts experience for the past 5 years are summarized in the following
schedule:
A/R Balance 0 – 30 31 – 60 61 – 90 91 – 120 Over 120
Year Dec. 31 Days Days Days Days Days
2015 P 1,312,500 0.3% 1.8% 12% 38% 65%
2014 999,999 0.5% 1.6% 11% 41% 70%
2013 465,000 0.2% 1.5% 9% 50% 69%
2012 816,000 0.4% 1.7% 10.2% 47% 81%
2011 1,243,667 0.9% 2.0% 9.7% 33% 95%
The balance of the allowance for bad debts account at December 31, 2021, (before adjustment) is P84,500.
Requirements:
65. What is the average bad debt expense rate for “91-120 days” accounts?
A. 76%
B. 10.38%
C. 8.6%
D. 41.80%
66. What is the average bad debt expense rate for “31-60 days” accounts?
A. 10.38%
B. 0.46%
C. 41.80%
D. 1.72%
67. The net realizable value of the company’s accounts receivable on December 31, 2021, should be
A. P1,518,887
B. P1,528,150
C. P1,612,650
D. P1,603,358
68. What entry should be made to adjust the allowance for bad debts on December 31, 2021?
A. Bad debt expense 178,263
Allowance for bad debts 178,263
B. Bad debt expense 93,763
Allowance for bad debts 93,763
C. Bad debt expense 9,263
Allowance for bad debts 9,263
D. Allowance for bad debts 9,263
Bad debt expense 9,263
CRC-ACE/AUDITING: FIRST PREBOARD EXAMS – October 2022 Batch Page 14
69. In evaluating the adequacy of the allowance for bad debts, an auditor most likely reviews the entity’s
aging of receivables to support management’s financial statement assertion of
A. Existence
B. Valuation and Allocation
C. Completeness
D. Rights and Obligations
PROBLEM 6
You are examining the financial statements of DEVS COMPANY for the year ended December 31, 2021.
Your audit of the accounts receivable and other related accounts disclosed the following information:
1. The December 31, 2021, balance in the Accounts Receivable control account is P788,000.
2. The only entries in the Bad Debts Expense account were:
a. A credit for P1,296 on December 1, 2021, because customer A remitted in full for the
account charged off October 31, 2021.
b. A debit on December 31 for the amount of the credit to Allowance for Bad Debts.
3. The Allowance for Bad Debts account is presented below:
Date Particulars Debit Credit Balance
Oct. 31 Uncollectible:
Customer A P 1,286
Customer B 3,280
4. An aging schedule of the accounts receivable as of December 31, 2021, and the decisions are as
shown in the table below:
AGE Net Debit Amount to which the allowance is to be adjusted after
Balance adjustments and corrections have been made
0 – 1 month P 372,960 1%
1 – 3 months 307,280 2%
3 – 6 months 88,720 3%
P 792,960
5. There is a credit balance in one account receivable (0-1 month) of P8,000; it represents an
advance on a sales contract; also there is a credit balance in one of the 1-3 months accounts
receivable of P2,000 for which merchandise will be accepted by the customer.
6. The Accounts Receivable control account is not in agreement with the subsidiary ledger. The
differences cannot be located, and the company’s accountant decides to adjust the control to the
sum of the subsidiaries after corrections are made.
CRC-ACE/AUDITING: FIRST PREBOARD EXAMS – October 2022 Batch Page 15
Requirements:
71. The required allowance balance (per aging) on December 31, 2021, is
A. P29,354 C. P19,858
B. P19,058 D. P32,858
72. The net realizable value of DEVS’s accounts receivable on December 31, 2021, amounts to
A. P779,902 C. P793,200
B. P774,142 D. P788,664
74. What entry is necessary to adjust the allowance account at December 31, 2021?
A. Bad Debts Expense 10,296
Allowance for Bad Debts 10,296
B. Bad Debts Expense 13,800
Allowance for Bad Debts 13,800
C. Allowance for Bad Debts 10,296
Bad Debts Expense 10,296
D. Allowance for Bad Debts 13,800
Bad Debts Expense 13,800
PROBLEM 7
You were engaged by Red Company to audit their financial statements as of and for the period ended
December 31, 2021. Based on your examination, the entity had two transactions during the year related to
notes receivable.
You discovered that your client sold a tract of land last January 2, 2021 to Cream Corporation. The carrying
value of the land on the date of sale is P1,300,000, and Cream issued a non-interest bearing note that will
mature on December 31, 2022, with a face value of P1,500,000. The prevailing interest rate on the date of
sale is 9%. The present value factor of 1 at 9% for two periods is 0.8417, and the present value factor of an
ordinary annuity of 1 at 9% for two periods is 1.7591. Based on your client’s record, the entry prepared was
as follows:
A building with a cost of P3,200,000 was also sold last July 1, 2021 for a note with a face value of P900,000
and interest rate of 11%. The maturity date of the note is June 30, 2022. The carrying value of the building
on December 31, 2020 was P960,000, and the remaining useful life as of that date is 3 years. On the date of
sale, the entry made by the entity was as follows:
Requirements:
75. What is the correct net gain(loss) from the transactions?
A. 62,550 B. 300,000 C. (97,450) D. 140,000
76. What is the balance of Notes Receivable to be presented in the December 31, 2021 Statement of
Financial Position?
A. 2,400,000 B. 2,162,550 C. 2,276,180 D. 2,200,000
PROBLEM 8
Sisters, Inc., your audit client, is in the business of selling canned goods. The goods are shipped in boxes to
customers, with each box containing 100 units. Terms of shipment are FOB shipping point; 2/10, n/30; with
a 10% volume discount if a customer purchased 300 boxes or more.
During 2021, each canned good cost the entity P20 (each box contains canned goods with a total cost of
P2,000), and each can is sold for P30.
An inventory count was conducted by your client last December 31, 2021, from 8:00am to 4:30pm. You
were able to observe this count, and the following information were obtained:
• At 4:30pm, 600 boxes of canned goods, plus 83 cans, remain in the warehouse.
• 100 boxes of canned goods ordered last December 28, 2021, arrived at 5:10pm on the day of the
count. The purchase was recorded last December 30, 2021, when the invoice arrived.
• Your client is using the FIFO method.
In your audit of your client’s accounts receivable, you were able to obtain their subsidiary ledger. The
breakdown and age of the accounts receivable are as follows:
To confirm the December 31, 2021 balances of your client’s receivables from its customers, you required
your client to send out confirmation requests to its customers. The customers are required to return the
letters directly to you. A summary of replies is presented below:
Amount per reply
Aesthetics Enterprise 891,000
Bullish, Inc. 153,000
Crepes Corporation 210,000
Dunk Corporation 0
Elements, Inc. no reply
Funky Ltd. 600,000
Garments Co. 390,000
CRC-ACE/AUDITING: FIRST PREBOARD EXAMS – October 2022 Batch Page 17
Audit notes related to the investigation of variances between the amount per subsidiary ledger and amount
per reply:
• The entity was not able to include the volume discount that should be extended to Aesthetics
Enterprise for purchasing 330 boxes last December 24, 2021.
• The negative balance in Dunk Corporation’s account is due to a return they made after they have
fully paid their balance.
• Elements, Inc.’s account has been outstanding for more than a year already. The company’s policy is
to write-off accounts that exceed one year.
Additional information and transactions that transpired affecting your client’s accounts receivable valuation:
• Based from your client’s policy, the estimated percentage of collectability for current accounts is
100%; 88% for 31-60 days; 75% for 61-120 days; and 25% for over 120 days.
• A P50,000 provision for doubtful accounts expense was recognized last September 30, 2021 for their
interim report.
• Crepes Corporation paid all of its account in January 5, 2021, which is within the discount period.
78. How much is the company’s cost of goods sold for 2021?
A. 17,898,340 B. 17,698,340 C. 17,498,340 D. 17,298,340
79. What is the adjusted balance of your client’s accounts receivable as of December 31, 2021?
A. 2,214,000 B. 2,244,000 C. 2,369,000 D. 2,343,000
80. What is the adjusted balance of your client’s allowance for doubtful accounts as of December 31,
2021?
A. 122,860 B. 216,610 C. 120,860 D. 241,220
81. How much additional doubtful accounts expense shall be recognized by the end of 2021?
A. 95,300 B. 50,000 C. 45,300 D. 139,050
82. What is the carrying value of your client’s accounts receivable as of December 31, 2021?
A. 2,116,940 B . 2,121,140 C. 2,023,190 D. 2,027,390
PROBLEM 9
You were engaged for the first time by Everything Wrong Corporation to audit their financial statements as
of and for the period ended December 31, 2021. In your examination of their financial statements, you
discovered the following errors committed during 2020 and 2021:
2020 Errors
• A machinery was purchased on January 2 for P500,000. This transaction was recorded as an expense
on the date of purchase. The estimated useful life of the said machinery is 10 years; no residual
value. On January 1, 2021, the entity discovered the error, and provided a correction debiting
Machinery and crediting Retained Earnings, both for P500,000. Subsequently, the entity provided a
depreciation in 2021 for P50,000. No other entries pertaining to the machinery were made.
• Accrued salaries for December totalling to P26,000 were omitted. The entry prepared in 2021
pertaining to the salaries was a debit to Salaries Expense and a credit to Cash, both for P26,000.
• Advance payments from customers on December 29, totalling to P178,000, were recorded as sales.
The goods were shipped on January 5, 2021.
• A one-year note receivable was received on July 1. The face value is P800,000; interest is 10%. No
accrual was made for the interest for the year. On June 30, 2021, the entry prepared by the entity
included a debit to Cash – P880,000; a credit to Notes Receivable – P800,000; and a credit to
Interest Income – P80,000.
• Their investment in equity securities, carried at fair market value through profit or loss, was carried
at its fair value on December 31, 2019, which is P650,000; and the fair value by the end of 2020 is
P695,000. However, the entity was not able to provide an entry for the change in the fair value in
2020. By the end of 2021, the fair value of the investment is P645,000, and the entity prepared an
entry debiting Unrealized Holding Gain – Profit or Loss, and crediting Financial Asset at Fair Value
Through Profit or Loss, both for P5,000.
CRC-ACE/AUDITING: FIRST PREBOARD EXAMS – October 2022 Batch Page 18
2021 Errors (aside from the possible effects of the entries and errors mentioned in the 2020 Errors)
• Supplies worth P15,000 purchased on January 2 was erroneously debited to an Equipment account
which has a remaining useful life of 5 years. As of December 31, only P1,200 worth of supplies
remain. The 2021 depreciation provided for the equipment included the erroneous capitalization.
• A purchase was made on December 27, and the entity prepared an entry debiting Purchases and
crediting Accounts Payable, both for P234,000. The related invoice, which was received on
December 29, stated that the term is FOB Destination. The goods were received on January 2, 2022.
• Minor repairs made on the building on December 30, totalling to P28,000, was debited to the
Building account.
• A P2-per-share dividend for the 300,000 outstanding shares was declared on December 15, to be
paid on January 31, 2022 to the shareholders on record as of January 15, 2022. No entry was made
on the declaration, and the entry prepared by the entity on January 31, 2022 includes a debit to
Retained Earnings and a credit to Cash, both for P600,000.
lgr/cde/07192022