CPA REVIEW SCHOOL OF THE PHILIPPINES

Manila

AUDITING
FINAL PREBOARD EXAMINATION Batch 91

MULTIPLE CHOICE QUESTIONS

1. The following statements relate to the auditor’s responsibilities regarding related parties
andtransactions with such parties. Which is incorrect?
A. The auditor is responsible for the identification and disclosure of related parties and
transactions with such parties.
B. Management is required to implement adequate internal control to ensure that
transactions with related parties are appropriately identified in the information system
anddisclosed in the financial statements.
C. The auditor should have a sufficient understanding of the entity and its environment to
identify events, transactions, and practices that may result in a risk of material
misstatement regarding related parties and transactions with such parties.
D. A financial statement audit cannot be expected to detect all related party transactions.

2. The date of the end of the latest period covered by the financial statements, which is normally
the date of the most recent balance sheet in the financial statements subject to audit is the
A. Date the financial statements are issued.
B. Date of the auditor’s report.
C. Date of the financial statements.
D. Date of approval of the financial statements.

3. Which of the following statements concerning the auditor’s responsibility regarding

subsequent events is incorrect?
A. The auditor should perform audit procedures designed to obtain sufficient appropriate
audit evidence that all events up to the date of the auditor’s report that may require
adjustment of, or disclosure in, the financial statements have been identified.
B. The audit procedures to identify events that may require adjustment of, or disclosure
in, the financial statements should be performed as near as practicable to the date of
issuance of the audited financial statements.
C. When the auditor becomes aware of events which materially affect the financial
statements, the auditor should consider whether such events are properly accounted
forand adequately disclosed in the financial statements.
D. The auditor does not have any responsibility to perform audit procedures or make inquiry
regarding the financial statements after the date of the auditor’s report.

4. Which of the following statements best describes an auditor’s responsibility regarding

misstatements?
A. An auditor should plan and perform an audit to provide reasonable assurance of
detecting misstatements that are material to the financial statements.
B. An auditor is responsible to detect material errors but has no responsibility to detect
material fraud that is concealed through employee collusion or management override
of internal control.
C. An auditor has no responsibility to detect material misstatements unless analytical
procedures or tests of transactions identify conditions causing a reasonably prudent
auditor to suspect that the financial statements were materially misstated.
D. An auditor has no responsibility to detect material misstatements because an auditor is
not an insurer and an audit does not constitute a guarantee.

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CPA REVIEW SCHOOL OF THE PHILIPPINES (CPAR) - MANILA FINAL PREBOARD EXAMINATION
AUDITING Batch 91

5. An accountant may perform an agreed-upon procedures engagement regarding

prospectivefinancial statements provided that
A. Use of the report is to be restricted to the specified users.
B. The prospective financial statements are also examined.
C. Responsibility for the sufficiency of the procedures performed is taken by the accountant.
D. Negative assurance is expressed on the prospective financial statements taken as a whole.

6. A service organization’s internal control may interact with that of the client. The user auditor
A. Is not required to evaluate the service organization’s controls.
B. Should obtain absolute assurance that the service organization’s internal control will
prevent or detect errors or fraud.
C. Should not consider weaknesses in the service organization’s internal control to
beweaknesses in the client’s system.
D. Need not be concerned with the service organization’s internal control if the client has
effective controls related to service organization processing.

7. A continuing accountant is one who has been engaged to audit, review, or compile and report
on the financial statements of the current period and one or more consecutive periods
immediately prior to the current period. A continuing accountant who performs the same
ora higher level of service with respect to the financial statements of the current period
should
A. Update his/her report on the financial statements of a prior period.
B. Disclaim any assurance on the prior periods’ statements.
C. Reissue the report on the financial statements of a prior period.
D. Express an adverse opinion with respect to the prior period’s financial statements.

8. Auditors are often requested to report on interim financial statements. A review of interim
financial information consists primarily of
A. Vouching and tracing.
B. Reconciliation and reperformance.
C. Inquiries and analytical procedures.
D. Confirmation and observation.

9. When a scope limitation has precluded the auditor from obtaining sufficient competent
evidential matter to determine whether certain client acts are illegal, (s)he would most likely
express
A. An unqualified opinion with a separate explanatory paragraph.
B. Either a qualified opinion or an adverse opinion.
C. Either a disclaimer of opinion or a qualified opinion.
D. Either an adverse opinion or a disclaimer of opinion.

10. The size of a sample designed for dual-purpose testing should be

A. The larger of the samples that would otherwise have been designed for the two separate
purposes.
B. The smaller of the samples that would otherwise have been designed for the two separate
purposes.
C. The combined total of the samples that would otherwise have been designed for the
twoseparate purposes.
D. More than the larger of the samples that would otherwise have been designed for the
two separate purposes, but less than the combined total of the samples that would
otherwisehave been designed for the two separate purposes.

11. In a sampling application, the group of items about which the auditor wants to estimate some
characteristic is called
A. Population.
B. Attribute of interest.
C. Sample.
D. Sampling unit.
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CPA REVIEW SCHOOL OF THE PHILIPPINES (CPAR) - MANILA FINAL PREBOARD EXAMINATION
AUDITING Batch 91

12. Which of the following is not an assurance engagement?

A. Compilation of financial or other information.
B. Engagement to provide high or moderate level of assurance.
C. Engagements to report on non-financial information.
D. Engagements to report on financial information.

13. An auditor, who, before the completion of the engagement, is requested to change
theengagement to one which provides a lower level of assurance, should consider the
appropriateness of doing so. If the auditor concludes that there is reasonable justification
to change the engagement and if the audit work performed complies with the PSAs
applicable to the changed engagement, the report issued would be that appropriate for the
revised termsof engagement and would include reference to:
I. The original engagement.
II. Any procedures that may have been performed in the original engagement.
A. I only.
B. II only.
C. Both I and II.
D. Neither I nor II.

14. Assistants to whom work is delegated need appropriate direction. Direction involves
A. Informing assistants of their responsibilities and the objectives of the procedures they
areto perform.
B. Informing assistants of matters, such as the nature of the entity’s business and possible
accounting or auditing problems that may affect the nature, timing, and extent of audit
procedures with which they are involved.
C. Both A and B.
D. Neither A nor B.

15. The following are control environment factors, except

A. Limiting direct physical access to assets and records.
B. The function of the board of directors and its committees.
C. Management’s philosophy and operating style.
D. Management’s control system including the internal audit function, personnel policies and
procedures and segregation of duties.

16. The auditor ordinarily assesses control risk at a high level for some or all assertions when
A. The entity’s accounting and internal control systems are not effective.
B. Evaluating the effectiveness of the entity’s accounting and internal control systems would
not be efficient.
C. Either A or B.
D. Neither A nor B.

17. The preliminary assessment of control risk is the process of evaluating the efficiency of an
entity’s accounting and internal control systems in preventing or detecting and correcting
material misstatements.
The auditor should document in the audit working papers the understanding obtained of the
entity’s accounting and internal control systems and the assessment of control risk.
There will always be some control risk because of the inherent limitations of any accounting
and internal control systems.

A. False; True; True.

B. True; True; False.
C. False; False; True.
D. True; False; True.

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CPA REVIEW SCHOOL OF THE PHILIPPINES (CPAR) - MANILA FINAL PREBOARD EXAMINATION
AUDITING Batch 91

18. An entity installed antivirus software on all its personal computers. The software was
designed to prevent initial infections, stop replication attempts, detect infections after their
occurrence, mark affected system components, and remove viruses from infected
components. The major risk in relying on antivirus software is that it may
A. Consume too many system resources.
B. Interfere with system operations.
C. Not detect certain viruses.
D. Make software installation too complex.

19. Which of the following procedures relating to the examination of accounts payable could
theauditor delegate entirely to the client’s employees?
A. Test footings in the accounts payable ledger.
B. Reconcile unpaid invoices to vendors’ statements.
C. Prepare a schedule of accounts payable.
D. Mail confirmations for selected account balances.

20. Which of the following procedures would an auditor most likely perform for year-end
accounts receivable confirmation when the auditor did not receive replies to second
requests?
A. Review the cash receipts journal for the month prior to year-end.
B. Intensify the study of internal control concerning the revenue cycle.
C. Increase the assessed level of detection risk for the existence assertion.
D. Inspect the shipping records documenting the merchandise sold to the debtors.

21. Each time an auditor draws a conclusion based on evidence from a sample, an additional
risk,sampling risk, is introduced. An example of sampling risk is
A. Improperly applying a proper audit procedure to sample data.
B. Properly applying an improper audit procedure to sample data.
C. Projecting the results of sampling beyond the population tested.
D. Drawing an erroneous conclusion from sample data.

22. Internal auditing can affect the scope of the external auditor’s audit of financial statements
by
A. Decreasing the external auditor’s need to perform detailed tests.
B. Allowing the external auditor to limit his/her audit to substantive testing.
C. Limiting direct testing by the external auditor to assertions not directly tested by internal
auditing.
D. Eliminating the need to be on hand during the physical count of inventory.

23. Which of the following questions would not appear in an internal control questionnaire
relatingto cash disbursements?
A. Are all disbursements except for petty cash made by check?
B. Are imprinted and prenumbered checks used and is a check protection device used in
printing the check amount?
C. Is each check supported by an approved voucher?
D. Are prelistings made of all cash receipts?

24. Under which of the following circumstances is a disclaimer of opinion inappropriate?

A. The client refuses to permit its attorney to furnish information requested in a letter
ofaudit inquiry.
B. The auditor is engaged after fiscal year-end and is unable to observe physical inventories
or apply alternative procedures to verify their balances.
C. The financial statements fail to contain adequate disclosure concerning related party
transactions.
D. The auditor is unable to determine the amounts associated with fraud committed by the
client’s management.

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CPA REVIEW SCHOOL OF THE PHILIPPINES (CPAR) - MANILA FINAL PREBOARD EXAMINATION
AUDITING Batch 91

25. Which of the following observations, made during the preliminary survey of a local department
store’s disbursement cycle, reflects a control strength?
A. Individual department managers use prenumbered forms to order merchandise from
vendors.
B. The receiving department is given a copy of the purchase order complete with
a description of goods, quantity ordered, and extended price for all merchandise
ordered.
C. The treasurer’s office prepares checks for suppliers based on vouchers prepared by the
accounts payable department.
D. Individual department managers are responsible for the movement of merchandise
fromthe receiving dock to storage or sales areas as appropriate.

26. The date on which those with the recognized authority assert that they have prepared the
entity’s complete set of financial statements, including the related notes, and that they have
taken responsibility for them is the
A. Date of approval of the financial statements.
B. Date of the financial statements.
C. Date of the auditor’s report.
D. Date the financial statements are issued.

27. Which of the following statements is incorrect?

A. When inventory is material to the financial statements, the auditor should obtain
sufficientappropriate audit evidence regarding its existence and condition by attendance
at physicalinventory count unless impracticable.
B. Where attendance at physical inventory count is impracticable, the auditor should
consider expressing a qualified opinion or a disclaimer of opinion.
C. When inventory is situated in several locations, the auditor would consider at which
locations attendance is appropriate, taking into account the materiality of the inventory
and the assessment of inherent and control risk at different locations.
D. In planning attendance at the physical inventory count, the auditor would consider
whether an expert’s assistance is needed.

28. Safeguards created by the profession, legislation or regulation include the following, except
A. Continuing professional development requirements.
B. Professional standards.
C. Firm-wide and engagement specific safeguards.
D. Educational, training and experience requirements for entry into the profession.

29. An affordable yet powerful self-contained general purpose computer which consists typically
of a central processing unit (CPU), monitor, keyboard, disk drives, printer cables, and
modemsis a/an
A. Personal computer
B. Mainframe
C. On-line computer
D. Terminal

30. An auditor is concerned with completing various phases of the audit after the balance sheet
date. This subsequent period extends to the date of the
A. Delivery of the auditor’s report to the client.
B. Auditor’s report.
C. Final review of the audit working papers.
D. Public issuance of the financial statements.

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CPA REVIEW SCHOOL OF THE PHILIPPINES (CPAR) - MANILA FINAL PREBOARD EXAMINATION
AUDITING Batch 91

31. An entity’s management is responsible for the preparation and fair presentation of the
financial statements. Its responsibility includes the following, except
A. Designing, implementing, and maintaining internal control relevant to the preparation
andpresentation of financial statements.
B. Making accounting estimates that are reasonable in the circumstances.
C. Selecting and applying appropriate accounting policies.
D. Assessing the risks of material misstatement of the financial statements.

32. The auditor shall express an adverse opinion when

A. The auditor, having obtained sufficient appropriate audit evidence, concludes that
misstatements, individually or in the aggregate, are material, but not pervasive, to the
financial statements.
B. The auditor is unable to obtain sufficient appropriate audit evidence on which to base
the opinion, but the auditor concludes that the possible effects on the financial
statements ofundetected misstatements, if any, could be material but not pervasive.
C. The auditor, having obtained sufficient appropriate audit evidence, concludes that
misstatements, individually or in the aggregate, are both material and pervasive to the
financial statements.
D. The auditor is unable to obtain sufficient appropriate audit evidence on which to base
the opinion, and the auditor concludes that the possible effects on the financial
statements ofundetected misstatements, if any, could be both material and pervasive.

33. Auditors may use positive and/or negative forms of confirmation requests. An auditor most
likely will use
A. The negative form for small balances.
B. The positive form, when the combined assessed level of inherent and control risk
forrelated assertions is acceptably low, and the negative form when it is unacceptably
high.
C. The positive form to confirm all balances regardless of size.
D. A combination of the two forms, with the positive form used for trade balances and
thenegative form for other balances.

34. During an audit of a company’s stockholders’ equity accounts, the auditor determines
whetherthere are restrictions on retained earnings resulting from loans, agreements, or
law. This audit procedure most likely is intended to verify management’s assertion of
A. Existence.
B. Presentation and disclosure.
C. Completeness.
D. Valuation and allocation.

35. The date of the review report should

A. Not be earlier than the date on which the financial statements were approved by
management.
B. Be earlier than the date on which the financial statements were approved by management.
C. Coincide with the balance sheet date.
D. Not be later than the balance sheet date.

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CPA REVIEW SCHOOL OF THE PHILIPPINES (CPAR) - MANILA FINAL PREBOARD EXAMINATION
AUDITING Batch 91

SITUATIONAL

Situation 1 – MELCHORA CORPORATION

The following accounts were extracted from the unadjusted trial balance of MELCHORA
CORPORATION as of December 31, 2022:
Cash P 963,200
Accounts receivables 2,254,000
Merchandise inventory 6,050,000
Accounts payable 4,201,000
Accrued expenses 60,400

During your audit, you discovered that the client held its cash records open even after year end.
Audit notes:

A. Collections for January 2023 of P654,600 were recorded in the December 2022 cash
records. The receipts of P360,100 represents cash sales with the balance representing
collections from customers who paid within the 5% cash discount period.

B. Accounts payable of P372,400 was paid in January 2023. The payments on which a
P12,400 cash discount has been taken were included in the December 31, 2022 check
register.

C. Merchandise inventory as stated in the trial balance represented the result of the count
conducted on December 30, 2022 on inventories on hand. The following information were
found to be relevant in your audit of inventories:
• Goods valued at P275,000 are on consignment with a customer and were not
included in the physical count
• Goods costing P217,500 were received from a vendor on January 4, 2023. The
related invoice was received and recorded on January 6, 2023. These goods were
shipped by the vendor on December 31, 2022 under FOB shipping point terms.
• Goods costing P637,500 were shipped on December 31, 2022, and were received
by the customer on January 2, 2023. The terms of the invoice were FOB shipping
point. The sales of P815,000 has been recorded in 2022.
• A shipment of goods invoiced at P182,000 to a customer on December 29, terms
FOB destination was recorded in 2023. The cost of the related goods amounted to
P130,000 and were received by the customer on January 4, 2023.
• The invoice for goods costing P175,000 was received and recorded as purchase on
December 31, 2022. The related goods, shipped FOB Destination, were received on
January 4, 2023.
• Goods valued at P612,800 are on consignment from a vendor. These goods were
excluded from the physical count.

Questions:

Based on the result of your audit, determine the following:

36. Adjusted Cash, ending

A. 963,200 B. 693,400 C. 681,000 D. 668,600

37. Adjusted Accounts Receivable, ending

A. 2,254,000 B. 2,548,500 C. 2,564,000 D. 2,908,600

38. Adjusted Inventory, ending

A. 5,010,000 B. 5,860,000 C. 6,035,000 D. 6,080,000

39. Adjusted Accounts Payable, ending

A. 4,243,500 B. 4,398,400 C. 4,615,900 D. 4,790,900
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CPA REVIEW SCHOOL OF THE PHILIPPINES (CPAR) - MANILA FINAL PREBOARD EXAMINATION
AUDITING Batch 91

40. Net adjustment to Cost of Sales

A. debit by P57,500 C. debit by P232,500
B. credit by P580,000 D. credit by P555,300

Situation 2 – CLAUDIA CORPORATION

You are revisiting the audit working paper presented to you by your audit staff in line with his
audit procedures done in auditing CLAUDIA CORPORATION’s accounts receivable. The following
were lifted from the said working papers:

A. CLAUDIA CORPORATION’s accounts receivable subsidiary ledger had the following details:
Customer Invoice date Invoice amount Balance
Zinc, Inc. 12/6/2022 P 127,000
10/29/2022 84,000 P 211,000
Yankee Co. 12/30/2022 42,000
9/27/2022 30,000
8/20/2022 53,520 125,520
Xylon, Inc. 12/30/2022 40,000
12/8/2022 80,000
11/25/2022 63,600 183,600
Winnie Co. 11/17/2022 138,840
10/9/2022 132,000
8/20/2022 74,400 345,240
Vicor Corp. 12/10/2022 250,000 250,000
Ursula, Inc. 9/12/2022 104,400 104,400
Total P 1,219,760

B. The accounts receivables balance were confirmed with the customers. You have noted
the following exceptions:
Customer Balance per reply Remarks
Zinc, Inc. P 197,000 The invoice dated 10/29/2022 was erroneously priced at P84
per unit. The agreed upon price per the customer’s approved
purchase order was at P70.
Yankee Co. 83,520 Invoice dated 12/30/2022 was for a sale made on the same
date. An additional clause in the sales agreement with Yankee
Co. is to install the merchandise sold which the company is yet
to accomplish as of December 31. The installation service is
considered as a separate performance obligation contract and
based on pro-rata allocation, you determined that 20% of the
invoice price is attributable to the unearned installation service
revenue.
Xylon, Inc. 143,600 The difference was due to the invoice dated 12/30/2022.
Goods have not been received by Xylon, Inc. yet as of
12/31/2022. Term of sale is FOB Shipping Point.
Winnie Co. 326,400 Credit memo for customer returns for damaged goods worth
P18,840 related to the invoice dated 11/17/2022 was recorded
in January of the following year.
Vicor Corp. 200,000 Invoice dated 12/10/2022 was the sales price of 2,500 units
of merchandise delivered to Vicor Corp. on the same date on
consignment basis. As of December 31, per Vicor Corp.’s reply,
500 units still remained on hand. The consignment agreement
provides Vicor Corp. a commission of 20% based on sales.
Ursula, Inc. No reply Ursula, Inc. is under liquidation and the amount receivable
from the company is deemed definitely uncollectible.

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CPA REVIEW SCHOOL OF THE PHILIPPINES (CPAR) - MANILA FINAL PREBOARD EXAMINATION
AUDITING Batch 91

C. The balance of the allowance for doubtful accounts at the beginning of the year was at
P52,500. During the year, the company wrote off P44,200 receivables and recovered
P24,800 from the previously written-off accounts. The company’s policy with regard
uncollectible accounts are summarized below:
Age % of collectibility
0-30 days 99%
31-60 days 98%
61-90 days 95%
91-120 days 90%
Over 120 days 50%

Questions:

Based on the result of your audit, answer the following:

41. What is the correct balance of the accounts receivable from Zinc, Inc.?
A. 127,000 B. 197,000 C. 207,000 D. 211,000

42. What is the correct balance of the accounts receivable from Vicor Corp.?
A. 200,000 B. 160,000 C. 120,000 D. 100,000

43. What is the correct balance of the accounts receivable gross of any allowances as of
December 31?
A. 1,004,520 B. 900,520 C. 950,520 D. 984,120

44. What is the correct allowance for bad debts as of December 31, 2022?
A. 85,138 B. 86,310 C. 85,910 D. 84,802

45. What is the correct bad debt expense?

A. 157,210 B. 156,102 C. 157,610 D. 156,438

Situation 3 – CRUZ, INC.

You are auditing the Accounts Receivable of CRUZ, INC. as of December 31, 2022. You found the
following information in the general journal:
Accounts receivable P 1,466,720
Less: Allowance for doubtful accounts (46,720)
Accounts receivable net P 1,420,000

The accounts receivable subsidiary ledger had the following details:

Customer Invoice date Amount Balance
Gudang 9/12/2022 P 139,200 P 139,200
Tisoy 12/12/2022 153,600
12/02/2022 99,200 252,800
Gusoy 11/17/2022 185,120
10/08/2022 176,000 361,120
Naning 12/08/2022 160,000
10/25/2022 44,800
8/20/2022 40,000 244,800
Nanong 9/27/2022 96,000 96,000
Balong 8/20/2022 71,360 71,360
Peejong 12/06/2022 112,000
11/29/2022 169,440 281,440
Total P 1,446,720

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CPA REVIEW SCHOOL OF THE PHILIPPINES (CPAR) - MANILA FINAL PREBOARD EXAMINATION
AUDITING Batch 91

Additional information:

A. You discovered based on your review of subsequent events that Balong recently went
bankrupt, thus you suggested that the receivable from the same shall be written off.

B. You also discovered that the invoice dated 12/02/2022 has already been settled by Tisoy
per OR number 34675. This amount however has been erroneously posted against Gusoy’s
subsidiary ledger as a settlement for an invoice dated 11/05/2022 for the same amount.

C. The estimated bad debt rates (expected credit loss rates) below are based on the
company’s receivable collection experience:
Age of accounts Expected credit loss rates
0 – 30 days 2%
31 – 60 days 5%
61 – 90 days 10%
91 – 120 days 20%
Over 120 days 50%

Questions:

Based on the result of your audit, answer the following:

46. Assuming that there were no other entries to the allowance for doubtful accounts, what is
the correct bad debt expense for the year?
A. 95,680 B. 92,704 C. 141,984 D. 144,960

47. What is the correct allowance for bad debt expense for the year ended December 31, 2022?
A. 156,000 B. 153,024 C. 120,320 D. 117,344

48. What is the net adjustment to the Accounts receivable in the general ledger?
A. 172,560 B. 119,200 C. 91,360 D. 71,360

49. What it the carrying value of the company’s accounts receivable as of December 31, 2022?
A. 1,255,040 B. 1,258,016 C. 1,275,040 D. 1,295,040

50. What is the necessary adjusting entry to adjust any unlocated difference between the SL
and GL?
A. Bad debt expense 20,000
Accounts receivable 20,000
B. Sales 20,000
Accounts receivable 20,000
C. Accounts receivable 20,000
Other income 20,000
D. No necessary entry

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CPA REVIEW SCHOOL OF THE PHILIPPINES (CPAR) - MANILA FINAL PREBOARD EXAMINATION
AUDITING Batch 91

Situation 4 – PANALO CORPORATION

Shown below is the May 31, 2022 bank reconciliation prepared by PANALO CORPORATION’s staff:
Panalo Corporation
Bank Reconciliation: BPI Acct No. 0021261
May 31, 2022

Bank balance P 652,000

Add: Deposit in transit 10,000
Total P 662,000
Less: Outstanding checks
No. 640 P 10,000
No. 652 8,000
No. 653 2,000 20,000
Adjusted balance P 642,000

Book balance P 570,800

Add: Proceeds of note receivable collected in May P 70,000
Deposit on May 31 not recorded on books until June 2,000 72,000
Total P 642,800
Less: Bank service charge 800
Adjusted balance P 642,000

The June 2022 bank statement is shown below:

Bank of the Philippine Islands
From May 31, 2022 to June 30, 2022
Account No.: 0021261

Date Checks Deposit

June 1 P 8,000 P 10,000
June 8 2,000
June 11 14,000 20,000
June 13 1,000 DM 1,000
June 16 4,000
June 21 12,000 56,000
June 27 18,000
June 29 1,000 EC 1,000 EC
June 30 200 SV
June 30 3,000 DM

SV – Service Charge DM – Debit Memo

EC – Error Corrected CM – Credit Memo

The paid checks accompanying this bank statement (all clearing in June) are the following:
No. 652 P 8,000
No. 653 2,000
No. 654 14,000
No. 655 4,000
No. 657 12,000
No. 658 18,000

The check register reveals that the last check issued in June is No. 659 for P5,000 and that check
no. 656 is for P2,600. Cash received for the period June 22 through June 30 of P70,000 was
deposited in the bank on July 1. The bank erroneously charged the company P1,000 on June 29
but immediately corrected the error on the same date.

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CPA REVIEW SCHOOL OF THE PHILIPPINES (CPAR) - MANILA FINAL PREBOARD EXAMINATION
AUDITING Batch 91

The debit memos on June 13 and June 30 represent customers’ NSF checks returned by the bank.
The June 13 NSF check was immediately redeposited without entry. The June 30 NSF check was
redeposited on July 1 without entry.

Questions:

Based on the result of your audit, answer the following:

51. What is the total bank receipts in June per bank statement?
A. 87,000 B. 88,000 C. 77,000 D. 78,000

52. What is the total bank disbursements in June per bank statement?
A. 59,200 B. 58,000 C. 58,200 D. 63,200

53. What is the total receipts in June per books?

A. 88,000 B. 220,000 C. 146,000 D. 218,000

54. What is the total disbursement in June per books?

A. 53,000 B. 57,400 C. 56,400 D. 63,200

55. What is the balance per books on June 30, 2022?

A. 676,800 B. 627,200 C. 732,400 D. 729,200

Situation 5 – TRALALA CO.

You are conducting an audit of the TRALALA COMPANY for the year ended December 31, 2022.
The company’s internal control procedures over cash transactions were not adequate. Elma
Noknok, the bookkeeper-cashier, handles cash receipts, maintains accounting records, and
prepares the monthly reconciliations of the bank account.

Elma Noknok prepared the following reconciliation at the end of the year:
Balance per bank statement P 1,050,000
Add: Deposit in transit P 525,750
Note collected by bank 45,000 570,750
Balance 1,620,750
Less: Outstanding checks 740,250
Balance per general ledger P 880,500

In the process of your audit, you gathered the following information:

A. At December 31, 2022, the bank statement and the general ledger showed balances of
P1,050,000 and P880,500, respectively.

B. The cut-off bank statement showed a bank charge on January 2, 2023 for P90,000
representing a correction of an erroneous bank credit.

C. Included in the list of the outstanding checks were the following:

1. A check payable to a supplier, dated December 30, 2022, in the amount of P44,250,
released on January 4, 2023.
2. A check representing advance payment to a supplier in the amount of P111,630, the date
of which is January 3, 2023, and released in December 2022.
3. On December 31, 2022, the company received and recorded a customer’s postdated check
in the amount of P150,000.

Page 12 of 16 Pages
CPA REVIEW SCHOOL OF THE PHILIPPINES (CPAR) - MANILA FINAL PREBOARD EXAMINATION
AUDITING Batch 91

Questions:

Based on the result of your audit, compute the following:

56. The adjusted cash to be shown in the statement of financial position as at December 31,
2022:
A. P931,380 B. P796,380 C. P751,380 D. P706,380

57. The cash shortage as at December 31, 2022:

A. P180,000 B. P135,000 C. P174,120 D. P24,120

Situation 6 – ORLANDO CO.

You are examining the records of ORLANDO COMPANY where internal control is found to be
weak. Part of your work includes reconciliation of cash for December 2022. You have determined
that the client’s cash reconciliation as of November 30, 2022, is correct. The following information
is available to you:

Client’s reconciliation, November 30, 2022

Cash per general ledger P 526,348
Less: Cash on hand 42,178
484,170
Less: Bank service charge for November 1,800
482,370
Add: Outstanding checks 198,200
Balance per bank P 680,570

Cash receipts are summarized weekly. The cash receipts book for December is shown below:
Dec. 1 Balance from November 30 P 526,348
8 Received on accounts 5,154,960
15 Received on accounts 5,489,512
22 Received on accounts 931,964
29 Received on accounts 1,177,370
P13,060,154

The cash payments record for December shows the following details:
Dec. 1 November service charge P 1,800
3 Checks 1,047,300
5 Checks 729,042
8 Checks 3,278,978
10 Checks 3,174,684
12 Checks 969,778
19 Checks 724,566
22 Checks 738,418
31 Checks 1,531,540
31 Balance 862,248
P13,060,154

Cash on hand on December 31 amounted to P20,000. The transactions per the December bank
statement, which are correctly recorded by the bank, show that deposits amounted to
P12,574,184; checks paid amounted to P11,590,406; service charge for the month was P2,000;
and a charge of P20,000 was made against the account because of the return unpaid of
customer’s check. The service charge and the returned check were not recorded on the client’s
books. The total of outstanding checks as of December 31 was found to be P822,100.

Page 13 of 16 Pages
CPA REVIEW SCHOOL OF THE PHILIPPINES (CPAR) - MANILA FINAL PREBOARD EXAMINATION
AUDITING Batch 91

Questions:

58. The cash shortage as of December 31 is

A. P218,200 B. P 0 C. P201,800 D. P221,800

59. The adjusted book balance on November 30 is

A. P1,283,848 B. P524,548 C. P1,062,048 D. P840,248

60. The adjusted bank receipts and disbursements for December are
Receipts Disbursements
A. P12,552,006 P12,236,306
B. 12,753,806 12,216,306
C. 12,552,006 12,214,306
D. 12,753,806 11,590,406

Situation 7 – ROBINDERS, INC.

ROBINDERS, INC. had the following portfolio of financial assets as of December 31, 2022. All the
financial assets were acquired in 2022:
Financial asset Acquisition Cost
Elegance Corp. Stocks, 20,000 shares P 590,000
Force, Inc. Stocks, 40,000 shares 1,100,000
Grace Co. 10%, P2M bonds 1,973,000
Handy Corp. Stocks, 50,000 shares 2,400,000

Audit notes:

A. Elegance Corp. shares were acquired with an intention of generating short-term profits
from the share price’s fluctuations. The company paid P29.50 per share, which included
the P0.50 per share broker’s fees and commissions. The shares were acquired on February
20, 2022. A P2 per share cash dividends were received on March 30. These dividends
were declared by Elegance Corp. on January 20, 2022 to stockholders as of record date
March 1, 2022.

B. The company paid P27.50 per share, including P0.50 per share brokers’ fee on the
acquisition of Force, Inc. on March 1, 2022. These shares were acquired for trading
purposes. A P3 per share dividends were received from the said shares on May 3, 2022.
These dividends were declared on April 1 to stockholders as of record date April 20.

C. Grace Co. bonds which pay semi-annual interest every June 30 and December 31, were
acquired on October 1, 2022 at P1,973,000, when the prevailing effective interest rate on
similar instrument was at 12%. The bonds shall mature on December 31, 2024. The
company has a business model of holding debt securities for short-term profits.

D. Handy Corp. stocks were acquired P48 per share, including P3 per share brokers’ fees and
commissions on June 30, 2022. Handy Corp. had a total of 200,000 shares outstanding
on the same date. The company received P5 dividends per share form Dee on December
20, 2022.

E. The following information were deemed relevant at year-end and no entries had been
made yet by the company to reflect any of the following information:
Elegance Corp. Force, Inc. Grace Co. Handy Corp.
Net income in 2022 P1,200,000 P1,500,000 P2,000,000 P2,240,000
Fair Value P35/sh P25/sh 11% P51/sh

Page 14 of 16 Pages
CPA REVIEW SCHOOL OF THE PHILIPPINES (CPAR) - MANILA FINAL PREBOARD EXAMINATION
AUDITING Batch 91

Questions:

61. What is the correct carrying value of investments that should be presented as current asset?
A. 3,665,750 B. 3,543,000 C. 3,664,948 D. 3,765,250

62. What is the correct carrying value of investments that should be presented as non-current?
A. 2,280,000 B. 2,150,000 C. 2,430,000 D. 2,550,000

63. How much in total should be recognized in the income statement in relation the
investments?
A. 261,948 B. 541,948 C. 571,948 D. 542,750

64. Assuming that the company’s business model regarding debt securities has an objective of
collecting contractual cash flows, what is the correct carrying value of investments that
should be presented as non-current?
A. 4,394,948 B. 4,362,390 C. 4,395,750 D. 4,360,690

65. Assuming that the company’s business model regarding debt securities has an objective of
collecting contractual cash flows, how much in total should be presented in the income
statement in relation to the investments?
A. 461,948 B. 525,750 C. 537,690 D. 507,690

Situation 8 – GENERY CORPORATION

You are assigned to audit the financial statements of GENERY CORPORATION for the first time
for the period ended December 31, 2022. In line with your audit, the following information were
made available:

A. A collection for rental amounting to P45,000 of one of its idle properties covering the
period July 1, 2021 to June 30, 2022 was received and recorded as rent income in in July
1, 2021.

B. The following were consistently omitted at each year end.

2020 2021 2022
Salaries payable 5,500 3,600 9,900
Unused office supplies 5,400 9,000 6,100
Accrued royalty income 4,000 7,900 5,400

C. The following deliveries were made to customers at each year-end, but were recorded as
sales only upon cash collection the following year. All sales were made FOB Shipping Point
and the related inventories were included in the physical count conducted every Dec. 31:
2020 2021 2022
Sales price 28,000 30,000 22,000
Cost of goods 15,400 17,400 13,200

D. A major repair cost improving the operating efficiency of an equipment was incurred at
the beginning of 2020. The cost amounting to P55,000 was recognized as an outright
repairs and maintenance expense. The equipment was acquired on January 2014 with a
total useful life of 15 years.

E. Dividend amounting to P120,000 was declared on December 20, 2022 to stockholders as

of the same date and were recorded upon payment the following year January 20, 2023.

Page 15 of 16 Pages
CPA REVIEW SCHOOL OF THE PHILIPPINES (CPAR) - MANILA FINAL PREBOARD EXAMINATION
AUDITING Batch 91

F. The general ledger of the company’s accumulated profits account contained the following
information:
Date Particulars Debit Credit
01/01/2020 Balance 625,400
01/03/2020 Excess over par for ordinary shares issued 120,000
12/31/2020 Net loss for the year 177,400
01/05/2021 FMV of land donated by a majority stockholder 480,000
12/31/2021 Net income for the year 214,300
01/03/2022 Cash dividend payment, declared in 12/20/2021 90,000
12/30/2022 Loss on sale of an equipment 22,500
12/31/2022 Net income for the year 421,700
12/31/2022 Balance 1,571,500

Questions:

66. What is the adjusted net loss for 2020?

A. (95,900) B. (110,900) C. (95,500) D. (115,900)

67. What is the adjusted net income for 2021?

A. 218,700 B. 198,200 C. 191,200 D. 196,200

68. What is the adjusted net income for 2022?

A. 423,700 B. 419,500 C. 406,200 D. 401,200

69. What is the correct retained earnings ending balance 2022?

A. 901,900 B. 924,400 C. 1,021,900 D. 956,900

70. What is the effect of the errors to the 2022 working capital?
A. 109,600 over B. 96,500 over C. 10,400 under D. 23,600 under

--- END OF EXAMINATION ---

Page 16 of 16 Pages
 CPA REVIEW SCHOOL OF THE PHILIPPINES
Manila

AUDITING
FINAL PREBOARD EXAMINATION Batch 91

1. A 6. D 11. A 16. C 21. D 26. A 31. D

2. C 7. A 12. A 17. A 22. A 27. B 32. C
3. B 8. C 13. D 18. C 23. D 28. C 33. A
4. A 9. C 14. C 19. C 24. C 29. A 34. B
5. A 10. A 15. A 20. D 25. C 30. B 35. A

Situation 1 – MELCHORA CORPORATION

Cash Acc. Rec. Merch. Invty Acc. Pay. Accrued Exp. Cost of Sales
Unadj. bal. 963,200 2,254,000 6,050,000 4,201,000 60,400
(a) (654,600) 310,000
(b) 360,000 372,400
(c-1) 275,000 (275,000)
(c-2) 217,500 217,500 -
(c-3) (637,500) 637,500
(c-4) 130,000 (130,000)
(c-5) (175,000) (175,000)
Adj. bal. 668,600 2,564,000 6,035,000 4,615,900 60,400 57,500
36. D 37. C 38. C 39. C 40. A

Situation 2 – CLAUDIA CORPORATION

Customer Invoice date Invoice amount Adjustments Adjusted bal.

Zinc, Inc. 12/6/2022 127,000 127,000 0-30 days
10/29/2022 84,000 (14,000) 70,000 61-90 days
197,000 41. B
Yankee Co. 12/30/2022 42,000 (8,400) 33,600 0-30 days
9/27/2022 30,000 30,000 91-120 days
8/20/2022 53,520 53,520 Over 120 days
117,120
Xylon, Inc. 12/30/2022 40,000 40,000 0-30 days
12/8/2022 80,000 80,000 0-30 days
11/25/2022 63,600 63,600 31-60 days
183,600
Winnie Co. 11/17/2022 138,840 (18,840) 120,000 31-60 days
10/9/2022 132,000 132,000 61-90 days
8/20/2022 74,400 74,400 Over 120 days
326,400
Vicor Corp. 12/10/2022 250,000 (90,000) 160,000 0-30 days 42. B
Ursula, Inc. 9/12/2022 104,400 (104,400) -
1,219,760 984,120

Adjustments

a) Sales 14,000
AR (Zinc, Inc.) 14,000
(84-70) x (84,000/84)

b) Sales 8,400
AR (Yankee Co.) 8,400
Installation service not yet completed

c) Sales returns 18,840

AR (Winnie Co.) 18,840
 CPA REVIEW SCHOOL OF THE PHILIPPINES (CPAR) - MANILA FINAL PREBOARD EXAMINATION
AUDITING

d) Sales (250,000/2,500) x 500 50,000

Commission expense (2,000 x P100) x 20% 40,000
AR (Vicor Corp.) 90,000

e) Allowance for bad debts 104,400

AR (Ursula, Inc.) 104,400

AR, gross Required allowance Allowance

0-30 days (Dec invoices) 440,600 1% 4,406
31-60 days (Nov invoices) 183,600 2% 3,672
61-90 days (Oct invoices) 202,000 5% 10,100
91-120 days (Sep invoices) 30,000 10% 3,000
More than 120 days (Aug and earlier) 127,920 50% 63,960
984,120 85,138
43. D 44. A

Allowance for bad debts, beg 52,500

Add: Recoveries 24,800
Total 77,300
Less: Allowance for bad debts, end (85,138)
Recorded write-off (44,200)
Additional write-off per audit (104,400)
Bad debts expense (156,438)
45. D

Situation 3 – CRUZ, INC.

Aug and
Dec Nov Oct Sep
prior
0-30 31-60 61-90 91-120 > 120
Customer Invoice date Amount
days days days days days
Gudang 9/12/2022 139,200 139,200
Tisoy 12/12/2022 153,600 153,600
12/02/2022 99,200 99,200
Gusoy 11/17/2022 185,120 185,120
10/08/2022 176,000 176,000
Naning 12/08/2022 160,000 160,000
10/25/2022 44,800 44,800
8/20/2022 40,000 40,000
Nanong 9/27/2022 96,000 96,000
Balong 8/20/2022 71,360 71,360
Peejong 12/06/2022 112,000 112,000
11/29/2022 169,440 169,440
Total 1,446,720 524,800 354,560 220,800 235,200 111,360

Reconciliation between GL and SL with aging of AR analysis:

0-30 31-60 61-90 91-120 > 120

Per GL Per SL
days days days days days
Unadj. bal. 1,466,720 1,446,720 524,800 354,560 220,800 235,200 111,360
(a) WO of AR-Balong (71,360) (71,360) (71,360)
(b) Posting error - - (99,200) 99,200
Adj. bal. 1,395,360 1,375,360 425,600 453,760 220,800 235,200 40,000
Unrecon. differences (20,000)
Adj. bal. 1,375,360
Req. all. % 2% 5% 10% 20% 50%
Req. all. 120,320 8,512 22,688 22,080 47,040 20,000
47. C

Page 2 of 5 Pages
 CPA REVIEW SCHOOL OF THE PHILIPPINES (CPAR) - MANILA FINAL PREBOARD EXAMINATION
AUDITING

Allowance for BD, end 120,320

Less: Allowance for BD, unadj. (46,720)
Add: WO of AR-Balong 71,360
Bad debts expense 144,960
46. D

WO of AR-Balong (71,360)
Unreconciled diff. (dr to Sales) (20,000)
Total adjustments to AR-GL (91,360)
48. C

AR, gross 1,375,360

Allowance for bad debts (120,320)
Amortized cost/carrying value 1,255,040
49. A

50. B

Sales 20,000
Accounts receivable 20,000

Situation 4 – PANALO CORPORATION

Proof of cash, June 30, 2022

BANK 51. B 52. D

May 31 Rec. Disb. Jun 30
Unadj. bal. per bank 652,000 88,000 63,200 676,800
DIT, May 10,000 (10,000)
DIT, June 70,000 70,000
OC, May (20,000 (20,000)
OC, June 17,600 (17,600)
Bank error, Jun, corrected in Jun (a) (1,000) (1,000)
Adj. bal. 642,000 147,000 59,800 729,200

BOOK 53. D 54. C 55. C

May 31 Rec. Disb. Jun 30
Unadj. bal. per book 570,800 218,000 56,400 732,400
Unrec. bank cr., May 72,000 (72,000)
Unrec. bank dr.: BSC, May (800) (800)
Unrec. bank dr.: BSC, Jun 200 (200)
Unrec. bank dr.: NSF, Jun 13 (b) 1,000 1,000
Unrec. bank dr.: NSF, Jun 30 3,000 (3,000)
Adj. bal. 642,000 147,000 59,800 729,200

Situation 5 – TRALALA CO.

Book Bank
Unadjusted balances P 880,500 P1,050,000
Deposit in transit (P525,750 – P150,000) 375,750
Customer’s postdated check (150,000)
Note collected by bank 45,000
Outstanding checks (P740,250 – P44,250 – P111,630) (584,370)
Unreleased check 44,250
Released postdated check 111,630
Erroneous bank credit in December (90,000)
Corrected balances 931,380 751,380
SHORTAGE (57. A) (180,000)
Adjusted balances (56. C) P751,380 P751,380

Page 3 of 5 Pages
 CPA REVIEW SCHOOL OF THE PHILIPPINES (CPAR) - MANILA FINAL PREBOARD EXAMINATION
AUDITING

Situation 6 – ORLANDO CO.

Nov. 30 Receipts Disbursements Dec. 31

Unadjusted bank balances P680,570 P12,574,184 P11,612,406 P1,642,348
Undeposited collections:
Nov. 30 42,178 (42,178)
Dec. 31 20,000 20,000
Outstanding checks:
Nov. 30 (198,200) (198,200)
Dec. 31 822,100 (822,100)
Adjusted bank balances P524,548 P12,552,006 P12,236,306 P840,248
59. B 60. A

Nov. 30 Receipts Disbursements Dec. 31

Unadjusted book balances P526,348 P12,533,806 P12,197,906 P862,248
Bank service charges:
Nov. 30 (1,800) (1,800)
Dec. 31 2,000 (2,000)
Returned NSF check 20,000 (20,000)
Understatement of Dec. receipts 220,000 220,000
Overstatement of Dec. disbursements (1,800) 1,800
Corrected book balances P524,548 P12,753,806 P12,216,306 P1,062,048
Adjusted bank balances 524,548 P12,552,006 12,236,306 840,248
P -- P 201,800 P 20,000 P 221,800
58. D

Book receipts = P13,060,154 – P526,348 = P12,533,806

Understatement of receipts = P12,753,806 – P12,533,806 = P220,000

Book disbursements = P13,060,154 – P862,248 = P12,197,906

Overstatement of disbursements = P12,197,906 – P12,196,106 = P1,800

Situation 7 – ROBINDERS, INC.

61. C

FV 12/2022 CV/Cost
Elegance Corp. shares 700,000 540,000 (29.50-2-0.50) x 20,000 sh
Force, Inc. shares 1,000,000 1,080,000 (27.50-0.50) x 40,000 sh
Grace Co. 10% 2M bonds * 1,964,948 1,923,000 (1,973,000-50,000)
Total 3,664,948 3,543,000

* Grace Co. 10% 2M bonds

Principal (2M x 0.8072) 1,614,433
Interest (100,000 x 3.5052) 350,515
PV 1,964,948

62. C

Investment in Dee shares (assoc.)

Initial cost (6/30/2022) 2,400,000
Share from dividends (250,000)
Share from net income 280,000 (2,240,000 x 6/12) x 25%
Investment in assoc. bal. 2,430,000

63. B

Transaction costs – expense

Elegance Corp. shares (10,000)
Force, Inc. shares (20,000)
Dividend income – Force, Inc. 120,000
Interest income – Grace Co. 50,000
Unrealized holding gain – FA 121,948
Share from net income – Handy Corp. 280,000
Total/net investment income 541,948

Page 4 of 5 Pages
 CPA REVIEW SCHOOL OF THE PHILIPPINES (CPAR) - MANILA FINAL PREBOARD EXAMINATION
AUDITING

64. D

Grace Co. bonds at amortized cost *1,930,690

Handy Corp. shares – assoc. 2,430,000
Total noncurrent investments 4,360,690

* Grace Co. 10% 2M bonds

Principal (2M x 0.7921) 1,584,187
Interest (100,000 x 3.4651) 346,511
Amortized cost, 12/31/2022 1,930,698

65. D

Transaction costs – expense

Elegance Corp. shares (10,000)
Force, Inc. shares (20,000)
Dividend income – Force, Inc. 120,000
Interest income – Grace Co. 57,690 (1,923,000 x 12% x 3/12)
Unrealized holding gain – FA 80,000 from Elegance Corp. and Force, Inc. only
Share from net income – Handy Corp. 280,000
Total/net investment income 507,690

Situation 8 – GENERY CORPORATION

Net Income RE WC
2020 2021 2022 2022 2022
Unadj. bal. (177,400) 214,300 421,700 1,571,500
a. Unearned rent inc., 2021 (22,500) 22,500
b. Salaries payable, 2020 (5,500) 5,500
Salaries payable, 2021 (3,600) 3,600
Salaries payable, 2022 (9,900) (9,900) (9,900)
Unused off. supp., 2020 5,400 (5,400)
Unused off. supp., 2021 9,000 (9,000)
Unused off. supp., 2022 6,100 6,100 6,100
Accrued royalty inc., 2020 4,000 (4,000)
Accrued royalty inc., 2021 7,900 (7,900)
Accrued royalty inc., 2022 5,400 5,400 5,400
c. Sales/AR, 2020 28,000 (28,000)
Sales/AR, 2021 30,000 (30,000)
Sales/AR, 2022 22,000 22,000 22,000
EI, 2020 (15,400) 15,400
EI, 2021 (17,400) 17,400
EI, 2022 (13,200) (13,200) (13,200)
d. Repairs expense, 2020 55,000 55,000
Depn expense, 2020-2022 (5,000) (5,000) (5,000) (15,000)
e. 2022 dividend declaration (120,000) (120,000)
f. Share premium (120,000)
FV of land donated (480,000)
Loss on sale of an eq. (22,500)
(110,900) 196,200 401,200 901,900 (109,600)
66. B 67. D 68. D 69. A 70. A

Page 5 of 5 Pages