Professional Documents
Culture Documents
Auditing Problems
1st Pre-board (July 23, 2007)
PROBLEM 1 Problem 2 Audit of Cash
Your examination of the financial statements of MAGDALO Group Co. for the year ended December 31, 2007 you
obtained the following information on the checking account of the company:
a. The bank statement on November 30, 2007 showed a balance of P15,300.
b. Among the bank credits in November was a customers note for P5,000 collected for the account of the
company which the company recognized in December among its receipts.
c. Included in the bank debits in November was a cost of checkbooks amounting to P60.
d. A check for P2,000 issued by MAGULO Group Co. in November was charged by the bank in error against
MAGDALO Group Co. account.
e. You also ascertained that there were deposits in transit amounting to P4,000 and outstanding checks
totaling P8,500 as of November 30, 2007.
f. The bank statement for the month of December showed total credits of P20,800 and total charges of
P10,200.
g. Company books for December showed total receipts of P36,780 and disbursements of P20,360.
h. Bank debit memos for December were: No. 418 for service charges, P80 and No. 504 on a customers
returned check marked Refer to Drawer for P1,200.
i. On December 29, 2007 the company placed with the bank a customers promissory note with a face value
of P6,000 for collection. The company treated this note as part of its receipts although the bank was able to
collect on the note only in January, 2007.
j. A check for P198 was recorded in the company cash payments books in December as P1,980.
1. Adjusted cash balance as of December 31, 2007.
a. P24,280
b. P36,880
c. P18,782
2. Unadjusted book balance November 30, 2007.
a. P12,800
b. P7,800
c. P12,860
3. Adjusted cash balance November 30, 2007.
a. P8,800
b. P12,800
c. P21,300
4. Deposit in transit as of December 31, 2007.
a. P21,980
b. P10,980
c. P8,890
5. Outstanding Checks as of December 31, 2007.
a. P19,940
b. P16,818
c. P19,880
d. P16,940
e. other amount
d. P7,860
e. other amount
d. P10,800
e. other amount
d. P16,980
e. other amount
d. P18,098
e. other amount
60
d. P62,220
e. other amount
d. P688,180
e. other amount
d. P637,160
e. other amount
d. P308,120
e. other amount
d. P356,200
e. other amount
d. P2,600
d. P70,760
d. P890,000
d. P560,000
d. P500,000
d. P351,500
d. P0
d. P2,250
d. P106,000
c. P4,140
d. P6,740
c. P (6,225)
d. P 775
c. P 5,525
d. P (8,475)
c. P 6,000
d. P 22,150
24. What is the effect of these errors on the net working capital at the end of 2007?
a. P 8,000 understated
c. P 16,850 understated
b. P 8,900 understated
d. P 9,250 understated
25. What is the adjusted balance of the stockholders equity at December 31, 2007?
a. P 95,000
b. P 95,900
c. P 103,850
d. P 96,250
Debit
P 100,000
400,000
260,000
90,000
Credit
Buildings
Accumulated depreciation- buildings
Equipment
Accumulated depreciation- equipment
Goodwill
Accounts payable
Allowance for future inventory losses
King, capital
Queen, capital
Prince, capital
Totals
500,000
P 20,000
560,000
60,000
50,000
.
P1,960,000
550,000
30,000
600,000
400,000
300,000
P1,960,000
5. The partners agreed to establish an allowance for doubtful accounts at two percent of
current accounts receivable and five percent of past due accounts. At December 31,
2006 the partnership had P540,000 of accounts receivable, of which only P40,000
was past due. At December 31, 2007 fifteen percent of accounts receivable was past
due, of which P40,000 represented sales made in 2006, and was generally considered
collectible. The partnership had written off uncollectible accounts in the year the
accounts became worthless as follows:
2007 accounts
2006 accounts
6. Goodwill was recorded on the books in 2007 and credited to the partners capital accounts in the profit
and loss ratio in recognition of an increase in the value of the business resulting from improved sales
volume.
7. No other capital transactions took place in 2006 and 2007.
8. Ignore tax implications.
Based on the above information, answer the following:
26. The net income of the partnership in 2007, before adjustment is:
a. P1,000,000
b. P980,000
c. P950,000
d. P920,000
27. The capital balance of King on January 1, 2007 before adjustment is:
a. P100,000
b. P125,000
c. P300,000
d. P600,000
28. The capital balance of Queen on December 31, 2007 before adjustment is:
a. P410,860
b. P374,140
c. P385,000
d. P400,000
29. What is the effect on 2007 net income of the omission of prepaid insurance, advances from customers, and
accrued interest expenses in 2006 and 2007?
a. P9,000 understated
b. P9,000 overstated
c. P5,000 understated
d.P14,000 understated
30. What is the carrying value of equipment on December 31, 2007?
a. P600,000
b. P540,000
c. P544,000
d. P604,000
31. What should be the balance of the allowance for uncollectible accounts at December 31, 2007?
a. P9,800
b. P12,000
c. P15,800
d. P14,500
32. How much is the uncollectible account expense that should have been recognized in 2006?
a. P24,500
b. P14,500
c. P12,000
d. P9,500
33. The adjusted net income in 2007 is:
a. P1,086,200
b. P1,027,200
c. P1,008,200
d. P1,036,200
34. What should be the capital balance of Prince at December 31, 2007?
a. P310,240
b. P300,240
c. P317,240
d. P307,240
d. P79,000
36. By how much would the 2006 net income be misstated, if no adjustments were made for the above errors?
a. P31,000 overstated
b.P31,000 understated
c. P21,000 overstated
d.P21,000 understated
37. The adjusted partners equity on December 31, 2007 is:
a. P1,315,200
b. P1,336,200
c. P1,306,200
d. P1,365,200
Your examination of the 2008 entries in the accounts uncovered the following:
1. An expenditure of P10,000 for repairs of office equipment had been charged to Furniture and Equipment.
The Company records depreciation at 10% of the December 31 balance of the Property and Equipment
accounts.
2. A 2007 account receivable in the amount of P4,000 had been written off as uncollectible by a charge to
Retained Earnings.
3. Salesmens commission includes P2,400 paid on undelivered customers orders.
Additional data:
1. The audited statement of 2007 showed a net income of P250,000.
2. The unadjusted net income for 2008 is P320,000.
38. The unadjusted net income for the year 2007 is:
a. P 253,500
b. P 256,700
c. P 263,700
d. P 261,700
39. By how much would the December 31, 2008 retained earnings be misstated if no adjustments were made
for the above errors?
a. Retained earnings overstated by P11,800.
c. Retained earnings overstated by P15,800.
b. Retained earnings overstated by P12,800.
d. Retained earnings overstated by P16,800.
40. The adjusted net income for the year 2008 is:
a. P 315,900
b. P 308,400
c. P 314,900
d. P 310,900
41. A client maintains perpetual inventory records in both quantities and pesos. If the assessed level of control risk is
high, an auditor would probably Problem 3 Audit of Inventory
a. Increase the extent of tests of controls of the inventory cycle.
b. Request the client to schedule the physical inventory count at the end of the year.
c. Insist that the client perform physical counts of inventory items several times during the year.
d. Apply gross profit tests to ascertain the reasonableness of the physical counts.
42. After accounting for a sequence of inventory tags, an auditor traces a sample of tags to the physical inventory
listing to obtain evidence that all items Problem 7 Audit of Inventory
a. Included in the listing have been counted.
b. Represented by inventory tags are included in the listing.
c. Included in the listing are represented by inventory tags.
d. Represented by inventory tags are bona fide.
43. The physical count of inventory of a retailer was higher than shown by the perpetual records. Which of the
following could explain the difference? Problem 12 Audit of Inventory
a. Inventory items had 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 retailers 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
44. Some firms that dispose of only a small part of their total output by consignment shipments fail to make any
distinction between consignment shipments and regular sales. Which of the following suggests to the auditor that
the clients goods have been shipped on consignment? Problem 19 Audit of Inventory
a. Numerous shipments of small quantities
b. Numerous shipments of large quantities and few returns
c. Large debits to accounts receivable and small periodic credits
d. Large debits to accounts receivable and large periodic credits
45. Purchase cutoff procedures should be designed to test whether all inventory Problem 6 Audit of Inventory
a. Purchased and received before year-end was paid for
b. Ordered before year-end was received
c. Purchased and received before year-end was recorded
d. Owned by the company is in the possession of the company at year-end
AUDITING PROBLEMS
1
2
3
4
5
6
7
8
9
10
C
D
B
B
D
B
C
B
D
A
11
12
13
14
15
16
17
18
19
20
D
A
C
B
C
C
A
B
C
A
21
22
23
24
25
26
27
28
29
30
A
C
A
D
A
C
A
D
D
B
31
32
33
34
35
36
37
38
39
40
A
B
D
B
C
C
A
B
A
A
41
42
43
44
45
B
B
B
C
C