SUCCEED REVIEW CENTERAUDITING PROBLEMS Final Pre board Examination 1. Which of the following is not one of the independent auditor’s objectives regarding the audit of inventories? a. Verifying that inventory counted is owned by the client. b. Verifying that the client has used proper inventory pricing. c. Ascertaining the physical quantities of inventory on hand. d. Verifying that all inventory owned by the client is on hand at the time of the count. 2. An auditor is most likely to inspect loan agreements under which an entity’s inventories are pledged to support management’s financial statement assertion of a. Existence or occurrence. c. Presentation and disclosure. b. Completeness. d. Valuation or allocation. 3. An auditor selected items for test counts while observing a client’s physical inventory. The auditor then traced the test counts to the client’s inventory listing. This procedure most likely obtained evidence concerning a. Existence b. Completeness c. Rights d. Valuation 4. A client maintains perpetual inventory records in both quantities and pesos. If the assessed level of control risk is high an auditor will probably 5. a. Apply gross profit tests to ascertain the reasonableness of the physical counts. b. Increase the extent of tests of controls relevant to the inventory cycle. c. Request the client to schedule the physical inventory count at the end of the year. 6. d. Insist that the client perform physical counts of inventory items several times during the year. 7. If the perpetual inventory records show lower quantities of inventory than the physical count an explanation of the difference might be unrecorded 8. a. Sales 10. c. Purchases 9. b. Purchase returns d. Purchase discounts 11. The physical count of inventory of a retailer was higher than shown by the perpetual records. Which of the following could explain the difference? a. Inventory item has been counted but the tags placed on the items had not been taken off the items and added to the inventory accumulation sheets. b. Credit memos for several items returned by customers had not been recorded. c. No journal entry had been made on the retailer’s books for several items returned to its suppliers. d. An item purchased “FOB shipping point” had not arrived at the date of the inventory count and had not been reflected in the perpetual records. 12. The audit of year- end inventories should include steps to verify that the client’s purchases and sale cut offs were adequate. This audit steps should be designed to detect whether merchandise included in the physical count at year-end was not recorded as a 13. a. Sale in the subsequent period c. Sale in the current period 14. b. Purchase in the current period d. Purchase in the subsequent period 15. An auditor’s observation of physical inventories at the main plant at year-end provides direct evidence to support which of the following objectives? 16. a. Accuracy of the periodic inventory. b. Evaluation of lower of cost or net realizable value test. c. Identification of obsolete or damaged merchandise to evaluate allowance (reserve) for obsolescence. d. Determination of goods on consignment at another location. 17. The auditor tests the quantity of materials charged to work in process by tracing these quantities to 18. a. Cost ledgers 20. c. Receiving reports 19. b. Perpetual inventory records 21. d. Material requisitions 22. Jamaica, Inc., grants its customers 30 days credit. The company uses the allowance method for its uncollectible accounts receivable. During the year, a monthly bad debt accrual is made by multiplying 2% by the amount of credit sales for the month. At December 31, an aging of accounts receivable schedule is prepared and the allowance for uncollectible accounts is adjusted accordingly. 23. At the end of 2013, accounts receivable were P1,250,000 and the allowance account had a credit balance of P106,000. Accounts receivable activities for 2014 were as follows. 24. Credit sales P3,800,000 Write-offs 82,000 25. Collection ? 26. The company’s controller prepared the following aging summary of year-end accounts receivable: 27. Age Group Amount Percent uncollectible 28. 0-60 days P825,000 2% 29. 61-90 days 220,000 10% 91-120 days 50,000 30% Over 120 days 128,000 40% 30. Total P1,223,000 P5. P4.600 How much is the cash balance per books on December 31.142. 53. On November 1.000 d.968.500.000 24. 30.000 on December 31.2013 is a. QUESTIONS: 33.000 b. 32.000 d.400 59.794 b.31.2014? a.000 b. 49. were cleared in the bank in December 2014.400 c.000 b.2014. QUESTIONS: 63. 30.700 d.332.2019. P154.000 b. P124. P76. P170.123.000 face value. P110. 50.000 61. The bonds mature on June 1. P156. a. On June 1. 64. P172. A. 54. answer the following: 52.000. P180.000 d. Based on the above and the result of your audit.600 b. P5. P31. P162. Bank credit recorded in error 44. P1.000 174.311 c.104 d. The bonds were purchased to yield 10% interest. Panday Corporation sold the bonds for a total consideration of P5.000 How much is the December receipts per books? a. including an NSF check of P8.000.000 c. P3.887. P196. P150. a.000 b.700 38. Shown below is the bank reconciliation for Marikina Company for November 2014: 43.474.579. P466.992 b.000 42. Because of the entity demonstrates an ability and positive intent of holding the bonds until maturity. The gain on sale of investment in bonds on November 1. P457. PROBLEM NO.000 c.000 c.698 c. P148. The total bad debt expense for 2014 is 37.827 d.237 66. P5.2014 Add: Deposits in transit Total Less: Outstanding checks . The amortized cost of accounts receivable at December 31.700 d.000 How much is the December disbursement per books? a. Painful paid .436.073 c. P41. P1.448 d.894 65.2014 P150.000 47.2014 is 60. P1.700 c.2014? a.2010. determine the following: (Round off present value factors to four decimal places). P106. P1. Total deposits P110. How much was collected from customers during 2014? 41.2014 is a. 8% bonds of Pira Corporation.118. The carrying amount of the investment in bonds as of December 31. 2013.000 and a service charge of P400 48. P89. 58.941. P100.878 b. Painless Company has an overdue note receivable from Painful Company for P300.000 36. P459.000 P136.000 of the P1. P71. P106.000 and deposits in transit of P38. P5.000 b. P120. P4.000 b. P4. Cash balance per books. The balance in the allowance for uncollectible accounts before year-end adjustment is a. It has an annual interest rate of 9%. Based on the above and the result of your audit.545.745.536. and interest is paid December 31 of each year. P96. There were outstanding checks of P30.000 d.000 c. Based on the above and the result of your audit. a. The note was dated January 1.000 P28.122 68. P96. The interest income for the year 2014 is 67. Nov.300 c. P80.000 b. 56. P172.979 d.911 b.000 d. The acquired balance in the allowance for uncollectible accounts at December 31.2013 is a. P100. P141.000 45. Panday Corporation designates the bonds as held to maturity securities. P98. including the bank credit.400 d. P96.352 c. 57. Panday Corporation purchased as a long term investment 6.000 10. P5. answer the following: 34.5 70. Interest is payable semi-annually on December 1 and June 1. a. P5.000 d. P466.588. P164.000 b. All outstanding checks on November 30. P79. How much is the cash balance per bank on December 31. The purchases price of the bonds on June 1.068 69.000 35.600 c. P150. 62. 55. P104.000 40. QUESTIONS: 51.000 38. P76.2014. Total charges. The bank statement for December 2014 contains the following data: 46.223.2014 is 39.2014 is a. P5.467.000 c.507. P1. P5.000 d. P76. The adjusted cash in bank balance as of December 31. Nov.300 c. Balance per bank. P104.2014. P162. 114. P20.830 107.792 b.000 78. 101. 92. P21. 2014 includes the following accounts: 82. P95. General Account 96. B. 113.800. P1. 85.2012.000 103. The interest income to be recognized in 2012 is a.500. 105.00 0 97. Based on the above and the result of your audit. 118. P236. The trial balance of Penshoppe Company at December 31.000. On January 1.2010. P250. ● Reduce the interest rate of 6%. b 110. Allied Bank. P15. The current effective interest rate is 6%.387 d. 115. 109. a 106. Cash on hand includes the following items: Customer's check for P5. Petty Cash Fund 88. Metrobank. 2015.20 0 94.983 c. 83.020 c.000 c. P250.475 d.300.613 75. 84. Current Account 93.088 c. P231. Unreplenished petty cash vouchers. 65. 86.812 d. Security Bank. 74. P239. P233. 71. 2014.128 b. 2014. Painless agrees to the following restructuring arrangement: ● Reduce the principal to P250. a. c 116. 162.the interest on the note on December 31. 110. P 5.500 dated January 10. 104.980 b. P93. The loss on impairment of loan to be recognized by Painless in 2012 is 76. 2015.2012 is 79. 117. Postal money orders received from customers. Check #1219 written December 26. 95. Allied Bank.2014. Employees’ advances. . 2014 due to insufficient funds. P77. 2014 and delivered to payee on January 3. a. dated January 30.000 99. 2014: The petty cash fund consisted of the following items as of December 31. 89. 2014. Savings Account 87.000 80. P740 Replenishment check drawn by Penshoppe payable to the petty cashier. 19. Cash on Hand 90. delivered to payee on December 28. ● Extend the maturity date of the note to December 31. P238. P880 Currency in an envelope marked “collections for charity” with employees’ names attached. P2. Included among the checks drawn by Penshoppe against the Metrobank current account and recorded in December 2014 are the following: Check #1214 written and dated December 23. P88. QUESTIONS: 73. 98. 108. but Painful did not pay the interest due in December of 2011.000 returned by bank on December 26. 72. Customer's check for P1. 81.000 b. P1. P2. 4. 111. 112. but subsequently redeposited and cleared by the bank on January 10.145 d. with no supporting vouchers. Currency and coins. The carrying amount of the loan as of December 31. answer the following: (Round off present value factors to four decimal places). P245.855 77.700 91.490. 2015 received December 23. The present value of the future cash flows of the restricted loan is a. ● Forgive recorded accrued interest. 2015. Payroll Account (credit balance) 100. P160. P20. P4. 119.000 102. 2014. 155. The company recorded the donated shares as a memorandum in the treasury stock ledger. 186. A. 137. 2014 (excluding petty cash fund) 142. C. 172.000 1.800. 139.000. 2 129. 157.000 shares issued and outstanding Share Premium-Preference Share Premium-Ordinary Retained Earnings 174. b.000 shares of its own ordinary share at P75 per share when each share is selling in the market at P78 each.850. The balance of Preference Share at December 31. C. 169. e. D. 177. the following selected transactions occurred: a. C. f.080.000 Purchased and retired 4. P100 overage The correct balance of petty cash fund is 133. c. 3 147. 2014 balance sheet is 179.000 143. D. shortage P60 163. 130.000. 128.700 153.200 151. 175. 181. A. 3 187. P200 par.000 5. The amount of cash in bank that will be included in the Cash balance in the current assets section of the balance sheet is 148.320 135. B. 170. 3 P 6. 125. B. D. 100.200.200. A right of offset exists in the agreement between Allied Bank and its depositors. P16. 162. Two thousand of the donated shares were issued for P48 per share.000 184.120. 126. 146.000 1. Purchased 8. 176. 2 138. e 127.000 2. The savings account deposit in Security Bank was set aside by the Board of Directors for the acquisition of new equipment. The capital structure of Buenos Aires Corporation on December 31. 124.490 The correct cash on hand at December 31. P6. A. 158. C. 178. P268. The credit balance in Allied Bank payroll account represents checks drawn in excess of the deposit balance which are still outstanding at December 31. P13. P5. P60 overage 161. B.500. d. P275. 132.000 144. M 165. 2013 follow: 166. 159. A. d 122. A. Reissued 6. 168. P3. P6.000 preference shares at P280 per share.400 145.000 treasury shares at P45 each. P340. P3.000 152. 141. 150. thereby reducing the par value to P25. 171. 123. D. P1. During 2014. P279. P19. Preference 12% Share. 149. P50 par. g. P10. B.000 shares issued and outstanding Ordinary Share. The net income for 2014 was P1.000 The balance of Ordinary Share at December 31. 121.000 185.000.200 154. P6. D. 167. A two-for-one share split on the ordinary share was approved by the shareholders. 173. 3 156. This amount is expected to be disbursed in March 2015.000 136. 180. 2014 balance sheet is . 182. Zero C.000 ordinary shares when the market price was P46 per share. B. 30. 164. No dividends were declared. 131.800.00 0 183.000 The amount of cash (shortage) or overage in the petty cash fund is 160. Shareholders donated 4. P5.000. 140.480 134. 198.000 235.0 00) 310. The following is a condensed trial balance of Probe Company. .000) (150. (350. 303.200. 000) 270. C. (185.000) (42. (150. (500.188.970.000) 279.000 202. P3. Interest income 292.650. 251.000.301.285. P4. A.000 242. 259. (150. 3 196. 213.000 306. 207. 610.00 0 219. 670.000 193.0 00 290. A. 000) 274. Unamortized bond premium 264.863 .000 243. 190.076. Retained earnings 276. P10.223. C.0 00) 250.000 286.0 00) 254. 197. 2014 is 218. 200. 247.0 00) 294.730. 188. (60.000 203. 299.281. after D adjustment for income tax expense: 224.000.000) 282. D. 216. Income taxes payable 252.0 00) 258. 178. Income tax expense 226.237. 215. P2. 484. (90.000 211. 228.316. P4. (25.000) (1.241.000) 267.000 212.201. (63. 3 205. 000) 262.00 0 302. Interest expense 296.000 220. D.257. P5.340. 189. 311.42 0.0 00 227. net 236. Deferred income tax liability 256. C. Cost of sales 284.000 Total Additional Paid in Capital is 200. Depreciation 300. 000) 246. A. Accounts receivable.000 210. P3. 2014 is 209.261. 7. (265. 190. 222. 12/31/13 balances 817.000 239. (280.277. Ordinary share 268. Dividends payable 248.245.229.0 00 238. 291. Share premium 272. P3. Bonds payable 260.249. 105. (2. plant and equipment 240. Cash 232. B.625. 255.309. 208. P3.000 The number of ordinary shares outstanding at December 31. (14. (375. 1.050.269.297. Selling and administrative expenses 288. B. 217. Loss on sale of equipment Gain on retirement of bonds 308.000 221. 204. 1. Sales 280. 195.233.00 0 298. 304.265. 12/31 /14 balances 230.00 0 201. (430. a publicly held company.000 194. 3 214. Property. P4. 46. C.273. P3.000) 263.00 0 192.225. (71.0 00) 266. D. (345.000) 271.000) 275.305. 283.000. 307. 231. D.289. 199.070 .000 Retained Earnings at December 31. B. 287. 206. 220.000 191.0 00 234. 995.253. B. A. 88. P3.293. 000) 278.000) (10. Accumulated depreciation 244. 295. Interest income and interest expense. 320. Notes receivable and interest payable. 373. 321.50 par ordinary shares were outstanding at December 31.000 334. D.000) 375. 331.332.000 was sold for cash.000 345.000 Income taxes paid were 342. 319. 2013.000) (P385. P50. D.312. 47. to yield 8%. 330. 371. D. Bond indenture of 20-year bonds C. A. D. B. Articles of incorporation. C.000) (341.000 369. 367. 2005. 376. 380. Probe issued an additional 80. Probe recorded a deferred income tax liability of P42. level of audit risk.000 face value 10% par bonds had been issued on January 1.347.25 362. There were no changes to retained earnings other than dividends declared.000 P2. 45.000) 43. B. A.356. Inability to obtain sufficient appropriate evidence. D. A. 370.350. Probe’s cumulative net taxable temporary differences at December 31. P3. 48. D. 44. 322. 328. 358.000 were redeemed. 41. 381. Unreasonable justification for a change in accounting policy. Notes receivable and interest income.000 174. B. D. C. 314. 105. 2014. Departure from reporting framework. P42. type of audit evidence available. P84. be destroyed after an announcement has been made for litigation involving an audit engagement.329. 39. An audit documentation should A. B. be made available to others even without the consent of the audit client. not contain comments concerning management. The following factors are considered in the selection of audit procedures to be performed in an engagement. Which of the following pairs of accounts would an auditor most likely analyze on the same working paper? A. Pension plan contract payable. 1. C. due entirely to temporary differences by P60. The P1. On January 1.338.000 348.000 D. Interest paid in 2014 is 333. P(590. 324. D. C.000 shares on April 1.000. D.000 351. The current file of an audit documentation most likely would include A. P195. the composition of the audit team. B.000 based on temporary differences of P120. B.000 344.341. A. 357. 37.000 and related premium of P75. 318.317. bonds with a face value of P500. Notes receivable and accounts payable.000) (P345.313. A. P75. C. except A. Inadequate disclosure of accounting policies.365. 42. show that the accounting records agree or reconcile with the management. 346. there were no temporary differences. 379.000 366. 323. P46.000 354. 340.359. In which of the following circumstances would an auditor choose between issuing a qualified opinion and issuing a disclaimer of opinion on a client’s financial statements? A. 325. B. P(295.000 was purchased. equipment with an original cost of P50. 355.368. Probe’s 2014 financial statement income before income taxes was greater than its 2014 taxable income. 316.000) P(125. 327. 326. 2013. 60.000 Cash flow from (used in) investing activities is 363. Cash flow from operating activities is 360. Probe’s tax payments during 2014 were debited to Income Taxes Payable. 46. and equipment costing P125.438 336. Analysis of accounts receivable B. B. P50. 339. Additional information: During 2014. 315. 2014 were P180. 343. C. 349.374. 1. Basic earnings per share is 335. D. 361. C.000 378. 2. C. Prior to 2013. Interest is payable annually every December 31 through 2017. B.000 and an enacted tax rate of 35% at December 31. 337. A.393 352. P46.377. 40. B. 38. Probe’s enacted tax rates for the current and future years is 35%. Cash flow from financing activities is 372. audit objectives. P67. C. P180. C. P20. A working paper that gives the components of a line item to be presented on the face of the financial statements is called .000) P(105.625 353. 364. 2014.000. C. . draft of financial statements. D. lead schedule. supporting schedule. B.A. working trial balance. Reconcile disbursements per books with checks appearing in the bank statement. Which of the following is classified as a substantive test? A. form an opinion on the fairness of the financial statements. B.49. An auditor gathers audit documentation mainly to A. detect fraud and misstatements. 50. evaluate internal control. Review of payroll checks B. 51. C. Scanning of employment contracts D. Accounting for a sequence of issued credit memoranda. . C. 52. D. evaluate management effectiveness.