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SI-U-DEPARTM
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ETdT OF ACCOU }ITAF{ CY

AUDITING
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PROBLET,TS

C.T.ESPEiIXLI-A

AI,'DIT OF CASH
APO1-PR.OBLEII|
1.

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Which of the following cash fraud activities involves the postponement of the recording of receipts and can bg.rye-ll perpetrated where there is lack of s'egregation of duties between recordkeeping and custodial fu nctions? a. Kitinc rappi'rg c. Window dressing d. Salarni fraud

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An audltor suspects that a client's cashier is misappropriating cash receipts for personal use by lapping customer checks received in the mail. In attempting to uncover this embezzlement scfierne, the auditor most likely would compare the: a. Dates uncollectible accounts are authorized to be written off with the dates the writeoff,s are actually recorded. b. Individual bank deposits slips with the details of the monthly bank statements. cJ Daity cash summaries witfi the sums of the cash receipts journal entries. @ Oates checks are deposited per bank statements with'the dates remittance credits are

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recorded.

3.

Which of the following controls most likely would reduce the risk of diversion of customer receipts by an entity's employees? a. Daily deposit of cash receipts. b. Monthly,bank r6conciliations. '- Prenumbered rernmitance advice @ n bank lockbox system

4.

Sound internal tontrol dictates that, inlrnediately upon receiving checks fi'om customers by mail, a responsible employee should : a. ACd tne checks to the daily cash summary. b. Verifu that each check is supported by a prenumbered sales invoice. the checks A Record theduplicateinlistingcash receipts journal. Prepare a of checks received.

Which of the following describes the most effective preventive controf to ensure proper handling of cash receipt transactions? a. Flave bank reconciliations prepared by an emptoyee not involved with cash collections and then have then reviewed by a supewisor. b. Use predetermined totals of cash receipts to control posting routines. c. Have the employee who receives customer mail prepare daily bank deposit; have

another employee actually make the deposit. Have one emplo/ee issue a.prenurnbered receipt forall cash collections; have another employee match daily total of the prenumbered receipts to the bank deposits.

6.

Checks from customers are received in the company mailroorn each day. Which of tllF folfowing controls should be in place to safeguard them? :' a. Establish a separate post office box for customer payments. b. Forward all checks to the cashier upon receipt. c. Provide bonding protection for mail cferks. '\J ffl Require specifiC mall clerk to list and restrictively ehdorse each check.

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7.

r _ --i ;- , -----,-- ---il-' internal control, monthly bank statements should be received directly from For the most efftctive the banks and revlewed bY the

b.

Cash receipts acountant. Cash disbunsement accountant'

) g.

Internal auditor.

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of prelistlng As paymenrs are t"epeivedr one mailroorn employee is assigned the responsibility slip. and the and :preparing the'deposit slip prior to forwarding the receipts, the deposit ,"cdiptr the remittance aoviies ti accounts receivatle for posting. ACcounts receivable personnel refoot the 'for-ward stamp i reiir;ctive endorsement 6n the- back of each check. and then deposit stip, ;d#;i,i.l ine ieposit stip to the treasury-department, Which of the following is a reasonable
asseisment of internal control on this process? a. Internal control is adequate
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have Intemal control is inadequate because mailrooni ernployees should not access to cash. i,iiJ,.*ai-;r"trot is'inaOequate because treasury employees should prepare the

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deposit slip. fniernal cbntrol is inadequate because of a lack of segr:egation of duties''

g.

like to validate in deciding to Which of the fiollowing assertions does the auditor rnost likely would render cash counts?

Cb)

a. X d.

completeness
Existence

valuation Rights and obligation

I 10. In rendering cash.counts, the accountability shall represent: The cash items onlY. a. b. Cash items and other evidences of the use ot cash such as unreplenished pald vouchers. fn Caifr tnat should be on hand per collection.activities of the custodian' the valid cash #;'bit+;ie-n;;;t*# ine cisr, batance per collection records against

a1'.

11, In rendering'cash counts, there cash shortage results when: , a. Rccountabitid is equat to cash itbms'
,

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Y d.

Accountabiliby is tower than cash items'

AccountabilitY is zero'
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23

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LrreLK kitinE? nrost lil(ely \roulo.De indicative ur check |ri 12. Which of the following characteristics t"nsst likely woulO.be Inglcaf,rve of ' employees who have access.to cash' High tunioVer of ". Many large checks that are recorded on Mondays b'. c. FrequeniAlq checking account withdrawals' deposiis' O Lo-*-u"uLge balance iompared to high level

kitlng activities of the client? 13. Which of the following audit procedures will likely detect Gr uncover l to banks' a. Sending confirmation b. vor.f1 Snlik isbuances representing disbursemetts to source documents' c. Render cash count on a surprise basis' fO) Sirnultaneously validate ban k reconciliations statements' f7 -"'

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14.onreceivingac|ient'sbankcutoffstaternent,anauditormost|ike|ytrace to the cut-off statement' yeai-end a. Deposits recorded in the .u=n-i"z.i* journa-l after t[" ."t.* staiement to the ]ear-end outstanding after y"ur-"iii,..-J'i"
checklist' checklist' to the year-en'dbankreconciliation. -r-+^mant l^ #ho vaer-end bank reconciliation' riii-"iiG in ffansit tistLd in rhe cutoff statement *:i.^::s,r.llIeqsr:lqq_tlelert in the sH!-9[:13!iIa* ::: clqlloro rr."' DeDo3lc3 ilEEffiitE ;Hgtpllgt: prior-year checks listeo in the cut-off ttut"t"";i;; iffi ' the ban\ Flxa ctanrlard l-rank c confirmation request rnaybe limited because fS,-fne usefulness of the standard bank to a third obrisared to veriry confidentiat information

b,

checks dated

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b. Billt
11

the accuracy of the client's bank return the form without inspecting reconciliation' the client's cutoff bank statement' c. ruot nlvJlccessailtothe,fin;&j";;iffi;hffih.t the bank.has with the client' ffi ee unaware of \J' should trace back client' sEarelrrerrL) vr 'rs'":"-' tlte auditor k reconcillatlon statements of the 16. In validating bank reconciliation . outstanding checks to the: ---a. Accounts payable voucher' by the bank' b. Cancelled'checks retumed month' ;. gank iiatement of the current subsequent month' orthe

i'n A.;ffi;ili;i;**nt

LT.Invalidating the bank '' unt ioioed?ebits. like service charges to the: a' Accounts PaYable voucner' by the bank' b. Cancelled checks returned month' f duni 't"t"*ent of the current subsequent month.. of the

reconciliatio"-1t-"::T::rs or LrrE L'E'

k' il;-;f&;iiliit.J**nt
CASH

aupntr*c-pRoBl-EMs -

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statement 18. In PreParing the bank reconiiliation --' ;;fi;'whei: per br','ks' 3r bank is rower than the unadjust:1!,ll:l* rne unao:;sil$L?l3l??lHk b313li" p6r books, i,jd;;;in11t#i,'iilfi"ted

normally of the client' a cash in bank shsrtage

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@,n"jx:1;?tE;;il;;#;,il'",*7'in".tn."o,,".::1oa|ancePerbooks.
usually prepared by 19. The proof of cash statements is Conttoititt is placed at the maximum' rnternar contror o\r"|. contro! rigk is place at the maximum' Internal control over cash i. *""['una
the, auditor when:

c.

The unadjusred baranc"

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tn.; ln" 'nidjusted

balance per books'

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d. casrr niilnce is very insignificant'

it utw signincant'

22

APOI-PROBLEM

2:

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, -': In the course of your audit of Cash of Mapera Corporation

z/purrent account at Metrobank /Savings account at Rural Bank CL.fiCurrent account at BDO

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as of and for the period ended December 31, 2008, the following is a list that comprise the cornBany's Cash and cash eguivalent account:

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4ravel

tund

P3,000,400 2,000,000 (240,000) 50,000 250,000 25,000 500,000 ' 30,000

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S,OOO .i 3o;ooo l' , i,; .#nves|ritentindebtsecurities,due3/3L/09(purchased12/31/0g)600.000 i5' ,- {.Investment in debt securities, due LfiL/A9 (purchased V1l08) 900,000 -1il '. L,000,000 in equity securities 4lnvestment .- Audit notes: 1, The current account at Metrobank inciuCed:the.re.cofflings: o-f tlre fg!!9-Ej!g: dated_December supplier; in payrnent of an 1. 6a. P1?1,-0_005heck to a was issued as of Decernber outstardinginvoice dated January 5, ' 30. 2008 but were L,2008. The check ;t 2009. 2c : lb. P200,000 check to a supplier, in payment of another invoice dated December 20, The __-_+;checkwhichwasdatedDecember30,2008wassti||onhandasofDecember31,2008
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XPension fund zChange tund fBond Sinking tund /Petty cash fund, lmprept balance f,Cash in closed bank :f=eo=taa* stamps fl lou cm a key officer i |6Creor ''!emo from a vendor for a purchdgg rgtum

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+? The savings account at Rural bank included a P50C,000 compensating balance related to a 5 year , LTo/o, PSM bank loan dated January 1, 2q06. The terms of the loan called for the legal restrlction on drawing from the said compensating balance atany tinne during the five year
na

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9nq ygt !o be released to the payee. P150i000 check'to another supplier dated December 3l and released on the date i'or the payment of an invdice dated December 15.

'

same

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26

26 "'L&LI . 3. The undeposited checks, bank drafts and moriey'orders included the following -]termofthe|oan.Cn'\htirlasco.l,"pr.^sah!bal.,"*nn^.,"-

items:

'_ ,-r,r,*c. PlT5,000checkfromacustomerdatedLU6/0S,returnedbythebankwiththe,r,//t1- ;c5*,r vv " llovember bank statement marked DAUD, yet to be redeposited. ''-F'D{-{:b.P155,o00checkfromacustomerdatedU6/o9,{'asl,l [^cst, 2-a''yuNovemberbankStatementmarkedDAUD,yettoberedeposited. ?i ,/a. P107,000 check from an employee dated L2/20/08. tJ,/) ra*.,i usf *9. P100;000checkformanoffiter'datedtz/z/oareturnedbythebankmarkedNsF. c 'Vx /4-'"- t: _r?g|yy\-'.,-]..'1,^,;
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''.ge*a,P20o,000checkfromacustomerdated,6/]./08.

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4.

P100,000 postal money

order.

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On hand by the petty cash custodian on,December 31, 2008 were: /" PV,500 worth of bills and coins o Pl2,000 replenishment check . P10,000 wo.trh of unreplenished paid petty cash vouchers

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AUDITING !PROBLEMS - uryl ! r\vEb-r,!g CASH

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on hand' All other cash funds were accounted fur as egualing cash/securities in closed bank shall be recovered The'company made an estimate that only 50-o/o from cash with some detay witfiin ihe next operatirrg year'
7.

Theinvestmentinequitysecuritiescompriseofthefollow.ing:
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ffi db;ffi '";.;;;-i"oioinu.v'naresacquire-d?i-13!!{9,e:Tl1'?.1"j?l$i iJ? I [",#fi:;;iil ;os.e;' ffi i" *p ; "'i "t9 nd j:,:?!1 -t15?S""* 2vclient ft 'tiOii,o'o'O-;;;H;;;;in'orCinary shares"acquired on !2/L/07 which the ^,?rc is
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/ option of the isiuer bY Requirements: part of Cash 1. what is the adjusted current account at Metrobank that should be presentet C as 'iaS,llOt,
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"^-^^ ^^-^ !-.,^-!'.^^s pt-rurun." : ,;filj:#".;#il;Hinin nrsforanro shares acquired on rz/uas redeemable at the 2/28/09,
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intendlnq'to hold as available for sale' qln

and cash

equivalent? 3,

2. 3. 4,

preSented as part of cash and cash How much from the savinEs account with BDO shall be equivalent? presented as the undePosited checks, rnoney orders and bank drafts shalt be

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HoW mr.lch from part of Cash and cash

equivalents? ggl etO

How nruch is the adjusted petty cash tund?

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6.

petty c-ash tund) shall be How much from the total cash tunds (including the adjusted part or Caln Jnd cash eluivaten[ in the balance sheet? L t ,/ .rrO

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How much from the debt and equivalents? 2008 balance sheet?

equiti

:curlties shall be pf.L-ented as part of cash and cash

7.
5.

ito-t; the company in its December 3L, what is the total cash and cash equivaient to be reported t ,

presented elsewhere as part of current l-tow nluch in aggregate from the listed item's shall be ;;;t; i" ;# DEi.niuen 31, 2008 balance sheet? presented elsewhere as part of nonHow mu'ch in aggregate fiom the listed items shall be 2008 balance sheet? iri[ne-Oecember 31, .u#"ni

9.

""tet presented elsewhere as Part of current 10. How much in aggregate from the listed items shall be liabilities in the Oec-ember 31, 2008 balance sheet?
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APOI-PROBLEI4 3:
A count ol!he-Petty Cash Fur:d in the moming _of-Januar! 3, 2008, of Manny Co. with an imprest ba|anceofP40,000showeditscompositionasfollows:.
t-

r'Balf-and P1,000, 5 pieces 500, 10. pcs. 200, 5 pcs. 100, 10 pcs. !!, ro pci '.20, 20 pcs 10, 25 pcs 5, 50 pcs ,r Unreplenished paid vouchery L2/29 Transportation .72/30 Office repairs L2/30 Officers' meeting meals Dfiq Due to employeis
Unreplenished unpaid vouchers L/3 Transportation L/3 Office supplies Checks on hand

coins:

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, .P500

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7/2

Gasoline

300 900 1,000 1,000 800 1,500

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AUDITING PROBLEMS

CAS}I

.r't2130 E. Dikong, employee !L/3O M, Dugas, employee, retumed by the bank marked NSF L2/27.Manny Co;, payable to the custodian Cash rebeipt voucher for a return of an eipense advance
Requirenrents: 1. How much is the total

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1,000 10,000 900

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accountability?

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2. 3, - 4.

How rnuch is the total shortage/overage if there are any?

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What is the correct peFty cash fund balance to be reported as of December 31. 2008?
Prepare a adjusting journal entry/ies to:correct the petty cash fund balance as of December

31,2AO8.

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APOI.PR.OELEI{ 4:
A cqu4t gfthC-qngqposited receipts under the custody of Mando Rugas, cashier of gakwart-a

Company, on datoEe!' iIl-ZOUB-,-In relation to your audit of casn

2008, showed the following composition:

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period endbd56pGmber: 30,

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Currency and coins Unused postaEe and documentary stamps

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9-30-08_,

,date

L0-3-08'
L0-3-08

O4i'lmatwarta Co. 6r*r" Makwarta Co. MWSS

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Payee Cash

Drawer
R. Zamora Baguio Corp.

LA/2/A8-

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Makwarta

Co.-

L. Reyes Makwarta Co, La, Union Corp.

,l 900,/, , - L 1,590
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1,000 ,y t 235garu"v) r)

Voucher paid out of receipts

/lQtficiat Receipts 1100801

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100820 date

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Other information: The audite-d bank rbconciliation for@e*"showed deposits in-transit totaling to P4,500 and a bank charge error amounting to P1,400. (all collections as at September 30 has been deposited) 0ffifu,t rqn6l*f

b. Total bank credits for the period w,tto

octoher LL;, pQr statement requested to the bank amounted to P16,550. -r0n _ +sro
to (gP z/

va--\. t-

2008?

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APOI-PROBLEITI 5: You are examinilg tne accounts of BETW

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Co. The balance oj $-e petty Cash account, December 31, 2008 walP:0iry!-I.":m-Fth"iffipt"st tund, made at 9:00 am on ranuaiy 2, 2009, in the ' ,, "= presenfo-r;t *n-g-,pettv cashier revealedth; foilo;i;E;-- -" -'--. -"' "

qlantity Denomination Quantity Denomination p10 76 3 5 \24 Z 500, tra't .

tLZ 20

Coins :>u

giils 2

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lb,ou'r

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12

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14

,25 .10

L6

100 20

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B p1,0oo* p^-Jrnwa ru CaSh co'' n co- custorner 3A Lasn ',@ D.ong' vlcfresidqnt. :' I f)nnn \/iaa oraair{a*r Betty co, -t,Zio _ t'oo 10 Beneco ,.. error cdrp.,(u"to-*1o.pFgv[ . ')j,{*/^"^L ; ye,rvw Dsrty Betty co. . ilooo 2 Oo0 ,^- _31 Cash , )unior.I\.o, ,trt-r+?q Jan. 2 . Emolivee 3L2 /,,

27

Betty

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urufrYo?i; ,,r"r#,T;;il,ji'jW\, 3j, 2!00s

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200

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VOUCheTS

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94re Dec. 15 lG L7 ,, 28 ' lan' z :, 2

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J Particulars Transportation officesuppties Xerox feei Postage Newspapers

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Arnount

Pt3o
140

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Jci

Freight bill on merchandise

purchases

'" _ 160 i:X 399 )n/-f Oi ?,

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iri 30 + -.- -

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Date Dec. 20

2i

T. Tiy - EmPloYee R, Ron - Saiesman

Pafticulars

Amount
P500 200

Sales Invoicps (for cash sales. all in cash no checks)

Invoice # 2oosbg Dec?9-z-- '- # 200890 Dec 30 # 200891 Dec 31 - , # 200901 Jan 7^ '/
Requiredl

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P300

f \ 420\ 610 ,)
340

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1.

2.20A9? How much is the coffect accountabitity as of January

a. 10,000

t. t2:,s7a
2,
l

,4' 11,y-a d' l's,L7o d'

none

How rnuch is the petty cash shortage as of lanuary 2' 2009?

o' r,ggo . ' 3.

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credit to petty cash fund at: The adjustment to correct petty cash fund involves a

i,
wt

3,038 b, J/vJv

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{; nllffn LI' +, rf,(

d' 10'000

]..]4.'whatistheadjLfstectpettycashfundasofDecember31,2aa8? --'.'i]4,'whatistheadjLfstedpettycashfundasofDecemP.:^1l,2aa8? ;j :rt ii 6,232 c

a.-

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5,952 b' 5',842

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APON-PR,OBLEII 6: The Datung Manufacturing co,

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casnio.fti* at october 3L, 2008

h4 yTy poor internal control.over its cash transactions' as fiollows:

were

Data
:

of the Thecashbookshowecabalanceg'fP!25!2!5;whichinc|udedundepositedreceiRpg.AcreditofPS,000 oeposits made did not appqal gl the books per bank sratements ioi tn. n,'ontn or octiuei,-io. was returned by fZ, amounting' td'pZ'gOO company. Moreover an customer.ch""f Ai[JA'Sepi"-frU", the.bankwiththeoct0berbankstatementiorinsufficiencyoffund' The bank statemeflt had a balanc of P144'975'00' The ouEtanding checks were as to"o1Ut;. 0210667

02L0671 0210693

0zL}v34

4,724 5,200 10,130 7,62A 16,270 6,6tr0

nuprrrnc

PROBLEMS

CASFT

in excess otPta,7v0 and prepi ared the following The cashier misappropriated allundeposited receipts reconciliation:
.io .l19. frf -tr 20
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haonufact trit s QmL&ecotciliaicn

Octofier 31,

Co.

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Eatarce per 6oo|9, ActuAer .4 dd: Outstanfritg c fre cfu

1, 2008
7,620 16,270

6;610

125,245'

:1.

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30,-500.

lr':

No.0210734
0210737
02 10749

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L e ss : I,'hlep

sb$

receiP

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3

25 zs] *-T ..:

2A

Ea[once per bank Octoier Less:'O nreco tdetr ctzdit

1, 2oOE

-74rv{
\qq-o'oq
1.36,975
I

155'745 10,770

!.j

j. Cornct casfr Sehnce, OcuSer 1, 2oa8

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Ilhe bank was not you also discovered per the cut-off bank statement dated Novernber 15; 2008 that chatg" amounting to P1'250' n"nr t"*it" able to inctude ..ong*bJo-#-uun[a"nitr,;;;;iJ6;i

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Requirements: ""-1. -io* mucn oia tnu cishier mlsappropriate? ' ' balance sheeg ,. what is the correct cash baiance to be reported in the october 31' 2008

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3.AdjustingentriestocorrectthecashbalanceinvolvesanetcredittocasharnTntinqt::

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APT}1-PROBI.EM 7:

In-the course of yor.lr audit of the cash in bank account of Pira Co , you obtained the following inf*rmation
,i

i'eThebankstatementonMay31'2008snowecahalanceofP1,836,000'.
Among the bank credits in May was custorner's note for P600.000 collected for the account of

thec#npanywhichthecompanyrecognizedinJu:reamongi!sreceipts'
',8

Included in the bank debits for the rnonth of May were cost of service charges amounting to ii,ZniO and a p240,000 check which was charged by the bank in error against Pira's account.

you also ascertained that lhere were deposits in transit amounting to P480,000 and outstanding checks totaling P1.020,000 by the end of May'
The bank staternent for the rnonth of.June showed total credits'ot ?2,496,000 and rtotal charges of Pt,224,0O0. The company's books for lune showed total debits of P4,818,600/ total credits and a bajanie of P2,913,600.
1t,:,

of e2,++3,200

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No, izt tor service charges, P9,600 and No' i22 on a returned check marked "Refer to Drawef for P144,00o. custorner,s
Bank debit memos for lune were:

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On June 30, 2008 the company flacecl with the bank a customer's promissory note with a face value of p720,000 for collection. Tlre company treated thls note as part of its receipts although the 6ank was able,to collect on the note only in Juty, 2008,
;

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A check of P45,000 was recorded by the company as P450,000 in the month of May' This error wab corrected in the books iq June'

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Another check far P23,760 was recorded in the company cash payments books in June as P237,608.

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Requirements: t. Holy much is the unadjustgd cash balance per books as of 1"1ay,30. 2008?

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2. 3.

How much is the adjusted cash balance as of May 30, 2008? How much is the cash shortage/overage on May 30. 2008?

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AUDITTNG PROBLEMS

CASH

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4. 5. 6.

What is the correct deposit-inltransit as of lune 30, 2008? What is the correct oubtanding hecks as of June 30' 2008?
How much is the adjusted cash batance as of June

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30' 2008?

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APdt-PRoBLEtrt
of Mango company for the month of Following the information pefiains to the cash in Bank account

8:

a. b.

Balances per bank statement March 3X, P21,560, and April 30' P23'040'
Bpta"nces of Cash

P22,684.
16

in Bank accQunt in Companyb books; March 31. P16,545, and April 30'
r

to a ,creditor on April Total receipts per books were P222,L9O of which Pt,21Q was 'paid in cash
d.
6

)ank staternen! during Aprii were PZLB,g70' Undeposited receipts were: Marcfi

3t,

p9,060 and April 30, P10'120:

of which a check for P500 outstanding checks were: Marcn _31, P2,675 and April 30, P1,930, *ir ."rtin"? bY the bank on APril 22' receipts were: NSF checks returned, recorded as reductions of cash in April, recorded also in April'-P-1-'040 Returned by'Bank

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1. ;'. dilrnil

nv Banr in April but recorded in Mav' P860'

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.:t::j u::tt'to0 in April' conecrions by Bank not recorded bv.companv were P12,1s0 '.: March 3L, P75a, and April 30 Bank service charges not enterecl in company's books were:
P42A.

company in error' A check for pg50 of Marang compa:y was charged to Mango
as P480' A check drawn for P840 was erroneo{lsly entered in the books

batances for APril, 2008, Preoare a fiour-column reconciliation of receipts, disbursement: s and bank

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Preparethejoumalentries.toadjusttheCashinBankaccountatApri|30'

";

i;f* ;;;r"'the bank and book figures

are brought to corrected balances'

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SLU-DEPART}| ETTT OF ACCOU'{TANCV

C,T.ESPENILLA

AU9ET &F RECEIVABLES

3
4

Apoz-pRoBLEll

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1. Which of the following procedures concerning accountsassessed level of oontrul riskmost likely - p;;*t. to oltain evidentdai rnagter in support of an receivable would an auditor below the rnaxirnurn ievel? 'r*^'"'6i' '6dil*inE an eniity's emptoyee prepare the schedule of past due accounts s receivable' b. sending confirmation nequests to qn entitlr's principal custorners to verify the
c.iffi&..;gi"--titvtanalysiioiaccountsreceivab|eforunusua|balances. d. Coinparin-g an eni;ty's urncollectibie 'accounts payable to actual uncollectibfe
existence of accounts r'civable.

t,

2:a 3
.!

2.
1il

Which of the follswinE procedures mogt likely would not be an internal contfi)l designed the risti of errors in the b-i!!in-g process? -'- "-';. -Combarins

to reduce

l.i

'

cijntnii'tqti;r for shipping

docurnents

with corresponding totals for

b" c.
/. , 'u'

sales invoices" .Using cornputer prograrnmed controjs on of sales invoices,

the prictng and rnathernafical accuraq

invoice

MatchinE shipping documents

PreParat[on.

with approved sales orders before

helonciting ttie. control totals for sales irrvoices wlth the accounts reeeivable
subsidlary ledger.

proper authorization sf write-o$s of uncollectible accounts shr:uld be approved in rrrrhich of the foll ov;i ng dePartments?

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'lfl;il*'leceivabre'
Accounls PaYable. Treasurer.

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to customers An auditor tests an enUty's conirol of obtainingl iredi! lpPfoJal before shipping Eoods of in suppg{rt of managernent's financlal staternent assertion GJ Valuatlon or allocation.

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ComPleteness. Existence or occurrence. Rights and obtigations.

Which of the following internal controls mo,st likely would assure that atl -billed satres are coffectly post d to the accounts receivable ledger? a. Daily sales summaries are compared to daily postings to the accounts receivable

b. Each sales invoice is strpported by a prenumbered shipping document' A, fn. u.aounts receivabte'ledger is reconciled daily,toe the control account in the ''-/ general ledger. d. Each sfripm-ent on credit !s supported by a prenumbered salei invoice' 6,
Which of the following audit procedures worild. an auditor rnost likqly perforrn tortest controis relating to management's assertion concerninE the completeness of gales transactions? 2. Veriff that extensions and.footings on the.entity's sales invoices and monthly custorner. statements have been recomputed' 6f iiJil"t the enrity's reporclJprenlrnderea shipping documents that have been \] recorded in the sbEs;ournal. c. Cornpare the invoiced prices on prenumbered sales invoices to the entity's authorized price list.
.

ledger.

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"oo,,.uoon An auditor's purpose ln reviewing most likely is-to obtain .ria"*. ioncernin!-rninugurn"nt,s :14,-t,:tt"9s of custorners with dering'ent accounts receivabde asseaionE about about

entitv's credit srantins policies and the consistent

q : d.
c. d.

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's

5i1:=-il:i;.-'#;"'RJghts and obligationr.

Credit -

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.a

Saies order

r; "

would the audifor "'. 3|i!! 3f il;';!;iJ;::'';J"'E#'tr#::i;?f'fi: consider to be jn inanm*r;rra oBe,-arion E--. a cashier ir ffigilT an incornpatrbre ^^^>ali^- ror ji];LE,jPoStingthereceiptstotheaccoun.trrece.ivautesubsidiary|edgercards.

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the foltowing

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-;]o.Ihe*3'tJ'*qJr.resultofine-ffqctivejnte,rnalcontroJsinthesalescycleisthat

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b.

Making the daity-deposit at itre loca-t

trant.

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Flctitious transactions could be."ioro"j,;;;il;;u"#'"or"r"-ent 3nd an overstatement of receivables.

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a'

of

revenues

,.

b.Irregularitiesinretordingtransa-ionsinthesubsidiaryaccountscot.l|dde|aythe
!r.vv.'"' c' ;-r_l:l'r of shipping docunients coukJ go undeteEted, ornission causing an _, tunderstatenrent of iq Final authorization ini*,itory, \ permit an employeeot credii rnernos by personnel in the sales department could defalcation s.t Lrn*. shipment of goods. v'I

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should not a,sc

For effective internal control, ernployees nraintaining the aecount".dii"ure subsidiary Lrrq GtLLuutrls rt}celvaDle suDsidia approve :. fmploide o*ni*u waEes" f' Credit granted to custo-mers of customer -----'Y' $ Cash disbursements. accounts. E ryrrte_offs
ralren rrom

redoer

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12' During an audit of the accounts receivable

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+, An incre.?.se in the discount offered i2'.; + more Jjberat creag-AoficV for early payment \c. A change d.
form net 30 net 25 Greateicash sales

you- found thati*;;ru;-f i,vnut isthe accounts receivable the most rikery,cause or

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13' shipping documents should be traces to and compared wiu.l sares records or invoices to Dete?'mine,whether payments. are '* Ensure that shiprnents'are billed toproperly applied tg customer accounts. . (b,) ."-ri;;;;:' \f Detei-mine *nelner'uniipiio.r-uniud;;;;;;;"rdance d' Ascertain whether a' satEs are sr.lpported by shipping with sales contracts. documents. 14' An auciitor noted. that the a.counts receivable activities' credit is approverc bv a seParate "department is separate from other credit department. contror accounts'and accounting le'dgers are barancea honffrry.'slmTLny, accounts aiJ ageo monthly. ,tr-he accounts subsidiary receivable

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AUDITING pnOgLfFtS _ RECEIVABLES

a;

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witl .receiving circumstance is involved. credit rnernoranda are pnenumbered and rnust.corlelate coufd be viewed as an internal control weakness of the above rirroii"s ;ild;. ilffir,toiii.,*

or other manaEer writes off delinquent-accounts after one year or sooner' if a bankruptqy

unusual

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"r*"i orqanization? - d! Write-offs of delinquent accounts

"fr
c. d.

cieait aPProvals MonthlY aging of receivables Haridling oi ci*Oit memos

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15" SendinE iaccounts receivable eonfirmatioh

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lettgls to the. client's customers is consistent with. the clienf's recejvable assert&cn on: auditoq's obiective of validating ff.; existence and rights H ComPleteness and valuation

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Existence and valuation

16. The auditors' analysis of the" ciients aged accounts receivable schedule audito/s ob3ective bf vatidating client's receivable assertion on; a. Existence : b. Completeness

is consistent with the

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Rights and obligation Valuation

AtDOz-pRoELElf 2"'
The following sun-rmarizes the transactions recorded ln the Accounts receivable-trade accotrnt of
Presario Cor!oration:

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Receivable Receipts from customers, incl.
P1O5,OSO

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Jan. 1 balance, net of credit P9,000 balance

Charge sales

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*Charge f,or consignment salcs

# Shareholders subscriPtions

1,250,OQg 25,0OO
60,OOO

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14

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. Recovery of Prev. write-offs f, i"iefunds to customers Vcredit balances *Deposit on contrac-i

*Claim against cpmmon carrier for shipping damages 1-IOUs from emPloYees ;Cash advance to affiliate *Advance to supplier Rquirements:

5,000 5,000 50,o0o

5,OO0

Merchandise retums Allowance to customers for shipping damages Collections on carrier claims Collection on subscriPtion

overpayment Write offs

of

PIO,OOO

P1,240,000
7,OOO

5,500
3,O00 2,00O 45,Ooo

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5O,O0O 1O,O0o

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Prep.are adJustfng entries to correct accounts receivable-

2.

What is the correct accounts receivable

trade balance?

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Your a.udit of Delt Company's accounts receivable and its related allowance for doubtftll accounts expense revealed t&e followifig infio.i:matiran: .:

'.

a)

The generalledgers of Dell Company have the Accounts reteivable Allowance for doubtft.ll accounts

follorving'balances:
P36O,0OO:

o, il -*tl
23
24.t,
1

(1,32O)
2OO8-

b)

An aging of pelt Cornpanyrs acaounts receivablg per subsidiary ledgeq, on Decernber 31;

25

contained the following information : Time OutstandilO Under 30 days 30-60 daYs
61.72O daYs

Amount of
Accounts Receivable P 24O;000
48,O0O
36,OOO

2A il

' ,27 li 25 il

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30

121-180 daYs Over 18O daYs Total

24,0OO
12.OOO

P3rn-0oo

c) .Investigati6ns,revealed tirat 50o/o of the over 180 days account Jl-defi1it9ly ulcotlectible and ttrat FlZ,oOO customer credlt balance.for an advanc payment for a future delivery was " included in the uftder 3O days account.

d) Based on past experiences, the company beiieves that the following uncollectible percentages
are

appropriate:

:,...

,.

3O.6O'days , 61-120 days L21:180 days

over 18O diiys

nE-

Reguirement5:

1" what is the adjusted balance of the accounts receivable account? 2. What is the correct doubtfut accounts expense for the period? 3. What is the allowance for doubtful accounts for the period? 4. What is the carqying value of the company's accounts'receivable as of Decembei 31, 2OOg? 5. Assuming that the allowance for doubtful accounts had a P1,'68o debit batanEe before any
adjustments; what is
tPre

correct doubttul accounts expense?

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APOZ-PROBLEFi 4r
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From igception of operations to December 3x., 20O8, Twinhead Corporation provided for Uncollectible accounts receivable under the allowance method: provisions were made rhonthly at 2o/o of credit sales; bad debts written off were charged to the allowance accountl recoveries of bad debts previously written off were.credited to the allowance account; and no yeai-end adjustrytents to the allocation account werq, made. Twinhead's usual credit ten'l.rs ane net 30 days.

. ,:

''..-

The balance in the allowance for doubtful accounts was P65.000 at lanuary 1, 2008. During 2008 credit sales totaled P4,500,000, interjm provistons fon doubtful accounts were made at 2Yo of credit saies; P45,000 of bad debts were written off, and recoveries of accounts previously written off amounted to P7,500. Twinhead installed a cornputer facility in Novernber, 2008, aod an aging of accounts receivable was prepdred for the first tinne as of pecernber 31, 2008.
.

-.'- --:'

A summary of the aging is as follows:

Classification by Month of Sale

Balance in
Each Category

Estimatedo/o

Uncollectible

AI.'DITTf{G PROBLET{S

RECEXVABLES
P1,140rO00 6O0,0oo

@
1.5
;8,O

Nov-Dec 2OOB
,

Jul-Oct

Jan-.lune Prior to lfv$e

40o.o00
130.OOg

+2JZ0,OQ0

'

35.O 7A.A
,

L/A8'aging category, additional receivables totaling P30,0O0 rsere written off as of December 31., 2008. Effbctive with the year ended December 31, 2008, Twinh*ari adopted the revised accounting standards in recognlzing
1,/

Based on the review cf collectibility of the account balances in the "prior

to

!.:

bad

debts.

'

1..
7.
3.

Prepare the joumal entry for the year-end adjustment to the allowance for doubtful accounts balance as of December 31, 20O8.

What is the correct balance of the allowance for doubtful accounts at year end? What is the carrying vatue of the accounts receivable at year end?

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NG

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9

110

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YouareassignedtoauditBoNlFAclolhc.fortheyearendingJune30.2ooS. i the client's recorcls: I uqrq.wJ r able tc extract the following balances'frorn Prior to any adjustrnents you were
Accounts rec6ivable, control account Allowance tor doury+ul accounts Accounts receivable, subsidiary records 6O days old and below 61 - 120 days P?.zt,250
(7,5OO)

:,

p71;9,,625

66,375

>

120 daYs

5t,754

Credit balance

t7,500)

The credit balance in

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had been written off as uncoilectible in the previous year-

the accounts receivable represents collection fi.om a customer whose account

The Accounts Receivable were circularized as at June 30, 2OOB and the foltowing exceptions/replies
l

have not been disposed off at the date of your examination-

Customer
Aye

Balances Cornmengs-fromCustomeq AuditFindings Bonifacio lnc. received . P4,000 This baiance for invoice mailed check on July 2, dated lune 5. 2008 was
paid in June 29,

2008.

2008. Bonifacio Inc. credited accounts payable for P13,800 to record purchase of tires" .r

Bee

13,800

The Batance for invoice dated June 1 was offset bY our June 10, shipment of tires.

See

1.6,600 The above balance for invoice dated April 20 has

to cqstomer Dee,

The payment was credited A new confirmation was mailed. All outstandinE invoice to

Dee

20,000

been paid. The records show a bigger balance, please check.

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AUDIIru$G FR.OBLEftIS - R,ECEIVAB!-ES

Dee are dated June.
Eee

@
The shipment costing P8,OOO was made on June 29, 2OOg and the goods were not included in recording the June 3O,
20OB inventory summarY.

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We do not owe Bonifacio Inc. anythihg as the goods were received JulY, 20O8, FOB Destination.

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Our deposlt of P18'0OO should cover this balance

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Bonifacio Inc. had previously credited the deposit to sales. The P14,0OO balance was for a lune shipment.

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6,0-00 ArnoLlnt okay. Since this is

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Goods cost P4.40O and were appropriately on consignment, we will remit payment upon selllng included in Bonifacio Inc.'s Inventory. the goods" The amount is included in the "below 60 days" receivables. balance.

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1,200

CM No. 8118 cancels this

The CM dated April 31, 20OB was recdrded by Bonlfacio Inc. in July 2008. The arnount is for an April

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the uncollectible

Based on your discussion with the client, the fotlowing estimated rates are appropriate for coniputing
6O days and below

accounts'

61 to 12O days l4ore than J2O days

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1.

What is the adjustment to the controlling account appropriate for customer's See account?

2. , What.is the adjusted accounts receivable account balance?

3.
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What

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the required allowance for bad debts as of June 30, 2008?

Assuming that there were'no other ehtries affecting the allowance account during the fiscal year, how -much is the.bad debt exPense?
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APO2-PROBLEIT 6: account of ABC CorpT a lending company' for In thir course of your audlt of the L-oilns and Recivables tfte:nolO*ing inbrmation ftom tire companyt .tfi year ended ALi Z(X)g, trrili"#t;a accgunts: subsidiary lEdOer'eaemger , Balances Per ledger
DEF CorP, 10o/o P5,OO0,Ooo

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5
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NOf,

non interest bearing

1O96 seriaf

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Audit notes:

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of interest

(a)

The three year toan to DEF Corp. was made on January

was

value of the loan charging a'ny difference between the loaned amount"and the face value of the loan to interest income, Semi-annual interest collection on the loan every lune 3O,and December 31 has been appropriately recorded.

at 7296. The company recordd the ioan as a debit to the L&R account at the face

I,

2OO7

when the prevaillng rate

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(b) Loan to GHI, an associate, was made at face value on January 1, 2008 and is due on December 31; 2010. The first annual interest collection on the loan on December 31, was correctly recorded.
(c) The P4M, five years non-interest bearing loan to KLM was made on January L, 20O6. The total amount disbursed on that date was based on the approprlate discount rate prevailing on that date at 10%" The transaction was recorded by the clierit as a debit to L&R at face value of the loan charging interest incdme for its difference to the arnount credited to cash,
The NOP serial notes which were dated January 1,2OOB were collectible,at the rate of every July L and January 1. The ompany recorded the loan as a debit to the [&R account at the face value of the loan charying any difference between the loaned amount and the face value of the loan to interest income. The first collection was made on July 1 of the current year. The amount extendd on the loan was consistent with the prevailing interest rate for similar note which waq 1296.
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Required:

Notes are from normal lending operations not unless otherwise specified.

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Total amount extended to DEF on January 1, 2007 and the outstandinE balance of the loan as of December 31, 2O08.
Total amount extended to GHI on 3anuary 1, 2008 and the outstanding balance of the loan as of December 31, 2OO8.

Total amount extended to KLM on January 1, 2008 and the outstanding balance of the loan as of December ;t1, 2008.
balance of the
:

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4- Total amount extended to NOP on January tr, 2008 and the outstdnding loan as of December 31, 2008.
Correct interest income for 20O8.
6.

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Accrued interest receivable as of December 31, 2008.

^.'.23,

7. 8.

Total Correct balance ofthe loans and receivable to be presented as currentasset. Total Correct balance ofthe loandand receivable to be presented as non-current asset.

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Thetalance sheet of DWARF coRp. reported the followlng long-term receivables as or oecember 31, 2QCI7:

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Note receivable frorn sale of

ptant i*""i#i;;;;;1ft"*.

P4,5OO,O0O

L,zgo,ooo

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In connection with your audit, you drere able to g1_t1". the other information pbrtaining t'o'tf,* ;;p;il'J;n9-rerrn following transactions during 20og and
receivabres:
q.

at l2i6 per annurn. The note is payaple in 3 annual installments of.Pl,sob,ooo btu" interest-onthe uipaid balance everyApril 1. The initial principal and interest,payment wJj made on Aprit

Tlre note recervable fo,rm qlle of plant beacs.interest

t, 2OO8.

b.

The ncte receivabre frorn officer is dated D.llTq.rj3jt annum' and is due on December 31, 2010. The 2o08

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,2ooz,earns interest at 1oo/o per inie."rt tn." received at year-end.

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"i';}ji;;annuity of I for two periodL at 12olo is d' A rracr of ra* o=_Tia.ov tfie coraorSr.icn wt,'q co. on Ju.ty 7, 2o.,,8, p3,ooo,ooo, for under an installrnent sale contract. wrrite to jts-lg u +-i"ii r rgo- note for p2, 1o0,oo0 on Jury 1, 2ao6o in addition-to the'd.own pa,yfient pgbo,ooo. lf';d:
of ine-equar annual payments ol, principal and interst on rhe,note.wirt be'p67e,a11qgl+li9,"lrrvi, zaog,2olo. zoLL,and 2012. The - land had an established cash irii"-Jir:,boo,ooo, iL-*"t to the corporation was ' P2'25o,ooo' The collection ofine initallments "no on this note is reasonably assured.

The corporation sold :.4".9 of equiparcnt to sNow rNC. on Apri I 7, 2oog, in exchangefor an P600'0oo non interest bearing noi*lu* ol Aprit r, zor0. The.note had no ready market, and there was no establlshed excf,ange price tur qn ttre p.u,r.itine'ili..*"t rate for note of this type at April 1. 2008 was 12Yo. me",ird;;nt. . factor of 1.for two periods ata dielent'vafue o'7s7 white the present vatue iactor

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2.

is the total .noncurrent notes receivabls as of December 31, 2OO8?

2008? How much is the total current portion of lonE-term nortes receivable as of December 31.

3.

Whatistheaccruedinter5treceivab!easofDecember31,"2oo8? 4. What is the correct interest income for the year 2OO8?

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On January 1, 2008, ABC Company, a calendar-year firm, gave a loan to XYZ Enterprises amounting. ' to pl,OOO,bOO and received a two-year, tr.2?o, P1,000,O00 note, The note calls for annual interest to be paid each January 2. ABC coltected th 2009. intrest on schedule. The company incurred origination cost afnounting to P57,85l,40o1o of which had been char$ed to XYZ Enterprises. Yietd rate on the loan with this arrangement r{ras at lOoy'o.

At December 31, 2009, however, based on XYZ's recent financial problems, ABC expects to collect only P900,000 of all the arnounts due.
:

The P90O,O0O principal amount is expected to be coltected in three equaf installments on December

31, 2010; 2o1i ano'zot2.

2009.

ABC believes

that

8o/o is

the markefs assessrnent of the time value of money,as of December 31,

Reguirements: , 1, ' Flow much loss should be recognized in relation to the loan on December 31, 2OO9?

2;

Assume that AtsC Company colfects the expected payments ftom XYZ. What entries shoutd be made on December 31, 2010; Decemben 31, 2011, and December 31'. 2012?

AUDTTTHG PROELEMS

RECEIVABLES

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SLU_DEPAR.TMEFST OF ACCOUNTANCY

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AUDITIIVG PROBLEMS
AUDET OF INVENTORIES

C"T.ESPENILLA

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APO3-PR.OBLEM I.:

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personnel An auditor most likely would make inquiries of production and sales concerning possible obsolete or slow-moving inventory tO support management'S financial assertion of : :a. Valuation b. Rights and obligations d) Existence W" occurrence

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test counts for While observlnrg a client's annual physlcal inventoryn an auditor recorded were higher than the recorded several items aid noticed that certain test cor"lnts quantities in the client's perpetr.lal records. This situation could be the result of the client's failure to record 'a. discounts. 'b. Purchase returns Purchase c. Sales sates returns.

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schedule are To gain assurance that all inventory items in a client's inventory listing trace valid, an auditor most likely would a. trnventory tags noted during the aurditor's observation to items listed in the

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inventory listing schedule' b. Inventory tagjs"noted during he auditor's obserl'ation to items listed in the receivinE reports and vendor invoices' the @) ltems tlited in the inventory listing schedule to inventory tags and v auditor's recbrded count shleet' d. trtenrs listed in the receiving reports and venclors' invoices to the inventory lisiing scheduie.

-.

calculates To measure how effectively an entity ernploys it resources, an auditor dividing average inventory into inventory turnover by a. Net sales. @, Cost of goods sold -. OPerating income d. Gross sales. provide assurance about which.of the follouring auditing procedures most likely would manufaEturing entities inventory valuation? - overhead rates. -iuiting the entity,s cornputation of standarcl under loan agreements' ptedged b. obtaining .onrirftation of inventories procedures for inventories c. neviewini snipping ancj receiving cut-off listing. d. Tracing tEst cbrrnts to the entity's inventory
a

6.

A'client maintains perpetual inventory records in both quantities and pesos. If the assessed level of control risk is high, an auditor would probably a. Increase the extent of test of controls of the inventory rycle. end of the year. @ Request the client to schedule the physical inventory at the severaltimes the clientperform physical counts on inventories t. Insist that

d.
7

Apply gross profit tests to ascertain the re:lsonableness of pnysical counts.

'

An auditor concluded that no excessive costs for idle plant were charged to inventory' This cqnclugion most likely related to the auditors objective to qbtain evidepce about the financial statement assertions regarding inventory: a. Rights and obligation

@ vi"iti6" c. Existence d' ComPleteness

B.

An auditor selected items for test counts while observing a client's physical count of inventory. The auditor then traced the test counts to the clients' inventory listing. This procedure most likely obtained evidence concerning management's assertion of a, Rights and obligations fh comoleteness \_-/ c. trxrstence d. Valuation

9. An

auditor most likely would analyze inventory turn-over rates to obtain evidence concerning management assertion about a. Rights and obligations
Existence Valuation @

b. Con'lpleteness

10. An audit-or usually examines receiving reports

6. c. d.

to support entries in the: Voucher register and sales return journal Sales journal and sales returns journal Voucher register and sales journal Check register and sales journal

30 ,i
31

11.WhenauditinEinventories,anauditorwould|east|ikelyver:ifythat: a. The financial statement presentation of inventories is appropriate

b. Damaged goods and obsolete items have been properly accounted for 6 All inventories owned by he client is on hand by the time'of the count. d The client has used proper inventory pricing.

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.APO3-FR.OBLEM 2:

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foilowing date were found during your The FrroKIA coR.p. is on a carendar year basis. TFre audit: account barances: An excerpt t*n:Hfi:"5'.:J:1,3"'"n!" reveared tn".t;|',%13s

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Inventory/ Per count

Accounts PaYable Net sales Net Purchases Net income

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Pl-,200,000 790,000 6,050,000 3,300,000 610,000

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b.TheclientconductedaninventgrycountonDecember3l,2008.NokiaCorp'
normally sells at 307o gross pnofit based on selling Price,

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d.

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in the amount of P120,000' Goods were in transit Fots destination from a supptier invoice pertaining to the delivery was Further tesiing revealed that the suppliers received and iecorded on Decei-nber 28' 2008'
December 31, and recorded as a Goods costing P70,000 had been received on the goods were found to be defective and punchase. However, ,pon youi inspection would be immediatelY returned' 30 under a "bill and hold" agreement' Materials costing P224,AAA, sOld on DeCember pick-up by customer' Being on had been segregat;J in it'le warellouse awaiting the count' tr"nO, tne mateiials had been included in with sony compa-ny.. since the Goods costing p70,000 was out on consignment as on hull' the items had been monthly statement from Sony listed thoie materials on Decernber 31 at a normal Gross excluded from theii;;i i"t".iory and invoiced Profit Provision.

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been.shippea The sale of materials invoiced at P150,00o had

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onDecember3l.However,thisinventorywasiglndtobeincludedinthefinal in 2008'

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The sale was properly recorded

but notshipped at Dgt-.ember 31. A Goods costing P98,00o had been segregated to the goods set forth terms as FOB review of the customer's purchase orOei related while the goods were excluded frorn shipping point. The sale had not been-recorded the count.

Yourc|ienthasaninvoicefrornasttpplier,termsFoBshippingpointbutthegoods costing P17b'ooo had been included in had not arrived ut vui. while these'riraterials purchase' the inventony .orni, no entry had been nrade for their
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of the following: Requirements: Determine the correct balances 1. Inventory:

2.
5

Accounts PaYable

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3. Net sales
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APO3.PROBLEM 3: and replacement Super Inggo is a wholesale distributor of heavy industria! equipn'lent spare contained the following information: parts. super InEgo's books

a physical The unadjusted Inventory balance at December 31, 2008 whrich was based on 2OO8 amounted to count conducted in all super Inggo's warehouse on Decernber 31, P3,750,000. The company uses the periodic inventory rnethod"
and The unadjusted Accounts payable as of December 31, 2008 amounted to P3,075,000 following suppliers: comprise-the following open accounts with the

Supplier Beta.Corporation Charlie Inc. Delta Inc. Echo ComPanY Fox Inc. Golf Corp. Hotel Inc. Total

Terms Zo/a tO days, net 30 Irlet 30 Net 30 tU'et :O

Amount
P795,0O0
63O,0OO

900,OO0

675,0O0

(25,000)
Lo0,oo0 P3.075.000

The unadjusted sales recbrded for the year is at P27,OOO,00O.

Additional information : a. Inventories held on consignment fronr Charlie Inc. amounting to P465,000 wer'e included in the physical count of goods as of Decernber 31, 2OOB. It is the company's practice to record consignment goods as liabilities upon receipt'

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Page 4 of 9 .

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paid for in December 2008"' the inventories p-urchased ltol Fox lnc' and WeresoldinthelastweekorzooeandrecordedassalesatPB4,oo0ona..Sa|eon 20 days ine uuyer. The buyer, who was given Approval with Right or n"iu.n; terms wi*r of the balance sheet date' option io return [oods n"iJ tn" goods as
P6S,O00 of

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December 31, 2008' '; seven days of the occurred during. 2i: g. All of the punchases from Beta corporationaccounts payable the last accounted for in the y"ui. rn*se items have been recorded in super lnggo's and is to pay invoices in ?:t .policy physical inventory at cost before oiscouni. adjust inventory accordingly' and record ?: time to take advantage of all cash discounts, ' -; utto'''nt' payable nefot cash discount' i-:h'rhebalanceowedtoHotellnc'wasfor.rnerchal-d'::-1"::::*I:"-Tl:.t":,*:r""'-1 ';;;"; i;ggo prn.n;u*; ih; goods from Hotel Inc' under the ,:26, -.;?-aol. December 2s
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The customer' *:-"j:t:.*"tlt:T;fJ December 28, 2O0B amounted to P102'000' i" 6 ihe customers ror the items ror the parts *"r" 1; r"l"J"a by Super Inggo on December 28' 2o0B' l,; n nn ^ ^+ -^hail\ nf annrlc nn r-onsionment --^ d.RetailerswereholdingP630,0o0atcost(P750'oo0-a119ta!)ofgoodsonconsignmenti; t: 2008' T-hese were invoiced and frorn super Inggo at iheirstores on necemu.r31, the consignee' Lt' to recorded on December.28, 2O0g upon a"ii*rv ?.r -)nnQ Tha cnqf of li ----L^Decernber 31, 2008' Th9 to;=.t:: ii in transit from Golf corp. to super Inggo on e. Goods \',2 These as of December 31 goods have not arrived were yet to be .".orO"d is purchast' 'in* 'L of the current Year' re' to merchandise :c t. A quarterly freight bill in the^alo.ynt of P6,000 specifically relating nuri oi *ni.t-'13:::ll zboa, purchases i,'

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were

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amount advanced
Requirements:

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.1.1'il;i;theadjustedbalanceoftheinventoryatDecember,31,2008?

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z. what is the adjusted balance of the accounts payable ai

? ri\/hai ic the adiusted sales for the year
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December 31,

2008?

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2008?

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APO3-PROBLEM 4: Torete company loi tf q year ended You are engaged in an audit of financial statements of date' O.ioU"i Sfl ioOg, and have observed the physical inventory count on that
23

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has beerl- included in the All merchandise received up to an{ lnlludlng October,30, 2008 piivri.ul iount which totaled to p354,500. As a result of the countr the following cost of satLs scnedule has been prepared by the client's accountant:

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Torete ComPanY Schedule of Cost of Sales For the period ended October 31, 2008
f,nventory, November L, 2OA7 Net Purchases, unadjusted Cost of goods available for sale Inventory, Per count Cost of sales

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.2,543,900
P2,778,94Q

P235,000

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P2.424,400

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Amount
P14,400 8,800 18,500

Ffeight terms

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October 19 October 20 October 20 October 25 November 4 October 25 October 25 October 21 October 29
l

Destination Destination Shipping Point ?'800 Destination 5,000 Destination 20,5O0 Shipping Point 18,400 Shipping Point 24,2OO Destination 69,2O4 Destination

Date Merchandise Were received October 21 October 22 October 30 November 3 October 29 October 30 October 3O October 3O October 30

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Amount

Freiqht terms

Date of Invoice October 29 October 3O October 27 Novernber 2 October 23 October 23 October 27

P4,000 Destination

\'JOA Destinatign t2,84O ShiPPing Point 14,44A ShiPPing Point ' 25,64A ShiPPing Point 2B,4OO ShiPPing Point 14,ZOO Destination

Date Merchandise were- received October 31 October 30 October 30 November 3 November 3 November 3 November 3

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Requirements: 1. Adjusting journal entries.resulting form the cut-off procedures.

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The adjusted balance of the Inventory account as of October 31, 2008' The correct cost of sales for the period ended october 31, 2008.

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APO3.PROBLEM 5:

of its inventory on a fire on October 31' As the auditor, you were requested to make an estimate as to the total darnages in inventories caused by the fire.
ABC Corp. lost considerable part

24 24i

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1

Upon inquiry and inspection of records you ascertained the following: Merchandise inventory' JanuarY 1 Purchases, January 1 to October 31 Purchases returns and allowances Transportation in Sales, January 1 to October 31 Sales returns Sales allowance Sales discount Employee discounts Merchandise not damaged by fire on October
31 36r

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P120,000,

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2R 281

830,00o 10,000 20,000 1,096,000 40,000 20,000 50,ooo

24,OOO
48,OOO

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29 29

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30301

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Requirements:

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1.

Using the gross profit test, what was the estimated loss in inventory due tp the fire assuming that the gross profit rate is 30o/o based on sales? Using the gross profit test, what was the estimated loss in inventory due to the fire assuming that the gross profit rate is 25olo based on cost?

2.

APO3-PROBLEM 6:

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$

Having been engaged as external auditor of Kagome Company on February 2B,'2008, you were unable to observe the taking of inventory on Decerhber 3L, 2OAB, which was reported to amount to P320,OOO. The following data, however, were gather{d by you:

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Inventory, December 3L, 2OO7 Purchases during 2008 Cash sales during 20O8 Shipment received on December 26,2OOBJ included in physical inventory, but not recorded as purchases Deposits made with suppliers, entered as purchases Goods were not received in 2008 Collections on accounts receivable, 2008 Accounts receivable, January 1, 2008 Write-off of accounts receivable Sales returns
Sales discounts Accounts receivable, December 31, 2008 Gross Profit Pencentage on sales

P 32O,OO0

1,41O,000
350,OOO

sE

1O,000
20,0OO

1,825,000 295,0O0 20,000 25,000 30,000

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4Ao/o

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Resuirements:

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1,

How much is total gross sales for 2008?

2. How much is gross sales,for 2008 for inventory estimation purposes? 3. How much is the estimated errding inventory using the gross profit approach? 4. How much is the inventory shortage?

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APO3-PROBLEM 7:

an importer and wholesaler. Its merchandise is purchased from several supp'lieis and is warehoused by Jim Corpbration until sold to consumers. In conducting her audit for the year ended June 3O, 2008 the corporation,s CpA determined that the system of internal control was good. Accordingly, she observed the physical inventory at an interim date, May 31, 2008, instead oiai tiscat year-end.
The cPA obtained the following information

The Jim Corporation is

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from the general ledger: Inventory, July L, 2OO7 Physical inventory, May 31, 2008 Sales for 11 months ended May 31, Z0Og Sales for year-ended June 30, 2OO8 Purchases for 11 months ended May 31, 2O0g (before audit adjustments) Purchases for year ended June 3O, 2OOg {before audit adjustments)
l

P 87,5OO

95,00O
840,OOO

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960,0O0 675,000 800,000

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The CPA's audit disclosed

the following information: Shipments received in May and included in the physical inventory but recorded as June purcha.ses Shipments received in unsatable condition and excluded

P7,500

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'from physical inventory; credit memos had not been received nor had chargebacks to vendors been recorded: Total at May 31, 2OO8 Total at June 30, 2OO8 (including the May unrecorded chargebacks) Deposit made with vendor and charged to purchases in April
2008, Product was shipped in July 2008., Deposit made with venejor and charged to purchases in May 2008. Product was shipped, FOB destination, on may 28, 2008, and was included in May 31, 2OO8 physical : inventory as goods in transit. Through the carelessness of the receiving department, a. June shipment was damaged by rain. This shipment was latr sold in June at its cost of P10,000.
Reguirements: 1. Compute of the gross profit ratio for 11 months ended May 31,'2008.

P1,000
P1,5OO

P2,000

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2. 3.

Compute by the'gross profit ratio method the cost of goods sold during June 2008. Compute by the gross profit ratio method the estimated June 30, 2008 inventory,

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APO3-PROBLEM
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L-.--^ ^. r^rL^t^^-t^ a un Apnl 13/ zuuo d llig ulllllgcu LtlE vIrrLs qrru rYqtvuvsJe v, ^^.-,^ On April l-5,200g a fire damaEed the office and warehouse of Down.Wholesale Corporation'

]i.::ir-'u.inrvaccountingrecordsavedwasthegenera||edger,frorr.lwhichthefo||owingtrial
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balance was'PrePared:

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Down wholesale corporation .L qAqrygF TRIAL BALANCF March 31' 2008

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es, :, --- -j0-10-_ -. n.', tt-" - :32 32 ".].i "-' r 34 3ri , 3s ac ,--lieo 36
las

Cash :"ot'

P7,O0O

--- ^--^:..-Lt^ Accounts Receivable Inventory, December 3L,

Building and equipnnent Accumulated depieciation Other assets Accounts payable sAccrued iiubititi.t Capital Stock Retained earnings

Land

TOOV

?7 27 nnn

1,2OO,OO0 36'000

50,000 240,000

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272'2oo
23,7oo 7,2oa

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Sales purchases
A!L^-

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1,O0O,0OO

other exPense

42,OQO
?? 6nn 22'5oO

231,100 '::'i:: 90'4OO

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been gathered: The following additional information has a, The fiscal year of the corporation ends on December 31.

b.

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checks nevealed that 9ryj-c^alceled The examination of the April bank statementP5,7O0for account payable as of March checks written Aprit 1 -15 totaled iii,OOO' a1!^e]'9OO for other expenses' 31; P2,000 for n-prii merchandise shipments; P10,650, which consisted of receipts io for Deposits during the same period utJut1LO *ig, irru exieption of a P45O refund from a vendor on account rrom cuJo-.ru, merchandise returned on APrit' of P8'500 unrecorded obligations at April 15 correspondence with suppliers revealed in transit on that P1,300 for sh-ipments for April merchindise stripmentr, ii.irJing date.

AUDIffNG PROBLEMS - INVENTOR'IES

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customersacknowledgedindebtednessofP26,4o0atAprill5,200s'Itwasalso or r-i,ooo'tntwill never be acknowledged estimated ,nu,.urili.,o# .*" ".,"tt.*r P600 will probably be uncollectible' recovered. of the ,.r.".*Gageo incetiJn"rr, Thecompaniesinsuringtheinventoryagreedthatthecorporation'sfirlossc|aim ttraitne overall gross margin on sales should be based ";th; assumption percentageforthepasttwoyearswasinertectduringthecurrentyear.The the following :
disclosed corporation's auOitJJ statembnts Net saies Net purchases Beginning inventory Ending inventory

2AO7
2?

P4oo,0o0 226,AOA

2006 P3oo,ooo
|74,OOO

45,000 50,000

35,000 45,000

a=

f'InventorywithacostofP6,500wassalvagedandso|dforPl,35o.Thebalanceof the inventow *ut tne total loss:

'

Required; 15' - ,, . --:2008 to April 15, 2008: 1' Net purchases for the period January 1' 2' 3. 5.
1, 2008 to Apri| 15, 2008: Net sales forthe period January profit percentage: The company's overall gross

4.EstirnatedendinginventoryasofAprit15,2o0B:
Inventory loss due to the fire:
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APO3.PROBLEM 9:

The records of Diosah Inc. revealed the following inforrnation on September 30,

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Inventory, October L, 2OO7 Purchases Transportation in Sales Purchase return xSdles allowance Purchase allowance Sales returns Sales discounts Purchase discounts Norrnal breakages Discounts granted to emPloYees Departmental transfer out Departmental transfer in Mark ups Mark downs Mark up cancellations Markdown cancellation

Cost 372,OAO
2,91O,OOO

Retail
620,OOO

4,452,OO4
4,B72,OOO

55,0p0
27,OOO

45,000 125,500
355,000 322,254

18,500 15,960 50,500 75,500 175,000 165,ooo 290,000 283,O00 40i0oo 40,000

135,500 125,500

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The company reported inventories per a physical count conducted on September 30 p225,000. you asceitained that the count conducted was adequately made by the client. at (HINT: round percentages to 2 decimal polnts)
Required:

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Total cost of inventory shortage under the conventional retail method'

AUDITIHG PROBLEMS
25

INVENTORIES

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cost method' 2. Total cost of inventory shortage under the average

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Total cost of inventory shortage under the FIFO retail method.

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APO3.PROBLEM 1OI Gloria Corporation uses the lower of cost or net realizable value inventory. Data regarding the company's inventories are as follows:

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The general ledgers showed the following balances: P1,430,000 Cost: finisfreO goods 748,000 Work-in-Process 2,g75,ooo Raw materials (10,000) Allowance: Finished goods (40,000) Raw materials
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The following information were further furnished to you .by the client: Finished Goods
Cost

Item
of sales

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Selling price . Estimated cost to sell, as

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P550,000 675,000
20o'lp

Item'P P54O'000 ' 620,000

L5o/o
P188,000
2B9,OOO

item O
P430,000 820,000
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Work:in:Pr9cess Cost Selling price Estimated cost to comPlete Replacement cost Normal profit margin ds o/o of selling price

P240,000
36O,OOO

48,000 208,000
25o/o

97,650
16B,0oO
35o/c'

P320,000 735,000 74,O40 375,000

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Raw Materials Cost

- Item M

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Current purchase price

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A P250,000 250,000
X

c
P400,000 375,000

P500,000

480,0o0

Raw Materials Cost

Itern

34

Current purchase Price

Raw Materials Cost

P400,o00 450,00'0

P300,000 P200,000 275,OAO 180,000

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- Item O

P375,000

E.

P450,000 420,OAA

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2'What'isthecorrect.Work-in:processinventorytobereportedattheba|ancesheet date for item M, P and Q? 3.WhatisthecorrecttotalrawmaterialsforltemM,tobereportdatthebalance p, to be reporred at the balance A correct torar raw materiars for rtem
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to be reported at the balance sheet is the correct Finished goods inventory . -r--. r^ L date for item M, P and'Q?

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sheet date?

ro be reported at the barance correct totar raw materrats for rtem Q,

6.

Whatisthetota|lossoninventorywrite-downtobereportedfortheperiod?

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AUDITI?I!6 PROBLET{S
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C.T.ESPES{IN-LA

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AU&fT OF EFIE\fESTMEHTS
APO4.PROBLEFI 1:

1. A company holds bearer bonds as a short-terrn investments. Responsibitity fo_r the custody oi these bonds and for the subrnission of coupons for periodic interest
colleCcions probably should be deleEated Chief accoL.!ntant'

a. b. internal auciitor" t\ Cashier. ( :J Treasurer.

io the

2.

A company had temporarily excess funds to invest. The board of directors decided to purchase marketabie securities, and it assigned the future purchase and sale decisions lo a ne"ponsible financial execLltive. The best person(s) tc rnake periodlc reviews of the investments activiiv wot-lid be the "' committee of the boanci of directors. ,v/il';;;#*"-i

D. c. d.

ire&surei', Corporate ccntroller. Chief operating officen,

3,

if an auditor is unabie to inspect and count a client's investment securlties until after the batance sheet date, ihe bank in which the securities are held in a safe deposit box
should be asked to a. Verify any differences between the contents of the irox and the balanceq in ihe ciient's subsidiary tedger. b. Provide a list of securities added to and removed fronr the box between the balance sheet date and the security count date' 6\ Confirm that there has been no access to the box between the, balances sheet date and tlre security count date" d. Count the securities in tl're box so the auditor wilN have en indepgndent direct verification.
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4. An auditor who physicaliy exarnines securities should insist

that te client representative

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be present in order to a. Detect fnaudulent securities b. Lend authority to theaucfitor's directives. returned @ Ackr:owledge the reeeipt of securities the proper location d. Coordinate the return of securities to
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In establlshing the existence and ownership of a long-terrn lnvestment in the form of publicly traded stock, an auditor shouid inspect the securities or a. Cor:nespond with the investee compan)r to verify the nurnber of shares owned. Q, Inspect unaudited financial statements of the investee cornpany (c) Confirm the number of shanes owned that are held by an independent custodian X Determine that the investment is carried at the lower of cost or market" Ill

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an auditor is unable to inspect and count a client's investment securities Yhu.n untit after date, the bank where the securities are h;id box a. Verify any differences between the contents of the box and the balances in the client's subsidiary ledger. b. Provide a list of securities added and removed from the box between the balance sheet date and the security_count date" there has been 6 daie and that security count no access to the box-between the balartce sheet -t-"lt'lm the date. d. Count the securities in the box so that auditor will have anr independent dinect verification.

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7.

Which of the tollowing would provide the best form of evidence peftaining to the annual valuation of a long-term investment in which the independent auditofs client owns a 30 percent voting interest? a. Market quotations of the lnvestee companyrs shares b. Current fair value of the investee conrpany's assets q. l-'Nistorical cost of the investee company's assets Audited financial staternents of the investee company lonE-ternn investments, an auditor ondinariiy would use analytical procedures to ascgrtain the reasonableness of the @ Co*pleteness of recorded investment incorne. bl Classlfication between cl.lrrent and l'loncurrent portfollos. ' c. Valuation of marketable equity securities. d. Existence oCunrealized gains or losses in the portfolio.

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APO4-PROBLEI{ 2:
On January 1., 2008 KILALA CORP" acquired a 5 )rear; 10o/o, ABC Co. Pl,000,000 face value bonds at S,0. The cornpany paid broker's fees and,non-refundable taxes arnounting to PL36,959, as a result, yield nate on the bond was XXo/o"

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The bonds rvere sellinq at 120 at the end of 2008 and at 105 at
REQUIREMEI.ITS:
ai

the

end of 2009,

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Case L: Assuming that the company has a business mrodel whose objective is to hold the asset in onderter collect contractual cash flows (contractual,terms of the financial assetgive rise on specific dates to cash flows that are solely payment so principal and interest on the pnncipal outstandrng) :

1"

!-low nruch should

the lnvestment in ABC Co. bonds be lnitialiy recognized?

2. 3.
4"
:

How much should be reported inr the 2008 profit or loss in relation to ti'le bonds? Flow much should be reported in the 2OG9 profit on loss irl relation to the bonds?

What ls the adjusted balance of the investrnent as of Eecervrber 3l-,

2OO9?

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How much should the investment in ABC Co. bonds be initially recognized?

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10' How much should be reported in the 2008 profit or loss in relation to the bonds?

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11'How much should be reported in the 2009 othercomprehensive income portion of the statement of comprehensive income for 2009?

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AUDITING PR.OBLE}IS - TNT'ESTilENTS

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12. How much

shouid be reported as othier cornprehensive incorne in the 2009 staternent of financial position?

13.What is the adjusted balance of the investrnent as of Decemben 31, 2009?

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APO4.PROBLEM 3; sanEo lnc' bonds on January l' 2008 acquired l2ozb.plo,ooo,ooo, lo-year s.ta corp*ration 1 oo/o' rh e bonds wh ich th e p revai i ns effective i ntereslfi:j:.:*** vr he n Decernber 3] )ioi'p-"v'annuur interest every f::iffi:.-J;. '
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2009.

Bondsprevai|ingmarketrateonDecember3].,2008was9o1'oandSo/oonDecember3l,
Case 1: AssumingthatthecompanYintendstoho|dtheinvestmentuntilrnaturity:

t.

How muchshou|d[heinvestmentinSangolrrc.bondsbeinitiallyrecognized? to the bonds? in the 2008 income staternent related 2. F{ow rnuch should be reported to the bonds? in the 2oo9 incorne staternent related 5. l-low rnucl.r should be reponted a

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WhatistheadjustedhalanrceoftheinvestmentasofDecenrber'31,2CI09?

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at fain valule designates the bonds as investment case 2:,Assuming that the company through Profit or losses: bcnrds be initially recognized? s, l-{ow muctr should the investnrent in sango Inc. to tl'le honds? in the 2008 incovire staternerit nelated 6. h{ow rnuch should be reported to the bonds? in the 2009 incsrne statetnent related 7" How rnuch should be reported
8. WhatistheadjustedbalanceoftheinvestmentasofDecernber3l,2009?

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:EPT):Assurningthatthecorllpanydesignatesthebondsasinvestmentat other comprehensive incorne: .i" through fuii "uf !s be initially recogllized? r,- ^ investrnent 9. How much should, the :--.^-!*^^6s!n Sango Inc' bonc 2008 profit or loss re|ated to the bonds? 10. How rnuch shou|d be reported in the for the period as othen cornp.rehensiVe income much should be reported in theg009 11. How in.o*" related to the bonds? in its state**ni'Ir".i;;;;;;r* :omprehensive inconne as of the -- jeriod ended ;';t; iiJit"t.nnent sf tinancial position?

13.Whatistheadjustecba|anceoftheinvestrnentasofDecennber3l,2009?

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APG4.PROsLEI{ 4:
Based on the previous problem anci assuminE that the bonds were cetegorized as held-tomaturity securities, what is/are the entry/ieJto !.eco!-d the sale of p6M of the ptOM face value bonds on January 1, 2010 at 110.

AUDTTIITG PROBLEHS

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On January 1, 2006 PAKBET Co. purchased P10,ooO,OOO bonds of ADOBO INC. for P^7:3-aL,S!3. I.h9 bon.ds'effective yield is_at lOYo. The bonds shall matur" on :un,rary 1, 2011 and pay interest at a coupon rate of 8Yo every December 31. The cornpany claisifres the investment as held to maturity security.

On December 31, 2OO6 the prevailing market rate of, interest is !Zo/o, while on December 37, 2AO7 market rate of interest is l4o/o. The decline the value of the investrnent in 2006 was temporary while the dectine in 2aA7 was ascertained to be permanent due primarily to the financiaf difficutty being experienced by ADOBO' As a result of the'permanent decline in value of the investrnent, lng cornpany ascertained that ADOBO will no longer be able to pay any interest as they fall due and that - - fr:om the principaf amount, only zs;lo shall be recovered upon maturity. R,EQUIREMENTS:

'i1".

l-. What amount of irnpairment loss should the ccmpany recognized in its income statennents?
what is the carrying value of the investrnent as of December 31, 200g?
:

3. Assuming that by the end of 2008, revised estimates places expected recovery at 100o/o of the pqincipal amountdue upon maturity, what is the Eain on imbairrnenrnecw6ry,to U" recognized in its income statements for ZOO8?

4. Using the information in number 3, whht is the correct carrying value of the investment as of Decernber 31, 2AOg?

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ABC Corponation has the following stock investment portfolio in

APO4-PROBLEM 6: balance sheet: Equity Securities Alpha

Beta

its December 3l,

ZOOB

Acquisition Cost
P250,OOO
5OO,O0O

Market Values as of December 31, 2008 Trading 475,000 Trading 850,000 SAS 1n600,O00 Associate investment
P30O,O0o

Charlie Delta

800,000 1,500,000

Alt the investments were acquired at the beginning of 2CI08, Investment in Delta represented 25a/o interest. Delta reported a total -omprehensive lncoml p2,000,o0o of in 2008 which is net of a foreign transiation loss reported in its otnei *.np]r"nunsive loss amounting to P500,000. Delta also distributed a total of p200,o00 in cJrn dividends in 200B. The company reclassified its investment in Alpha Securities to securities available for sale (sAs) durinE 2009 when the prevailing market pr.ice aggregateJi" plio,ooo. The company also acquired additional shares of Delta costing p500,0o0 at the year, increasing the company's proportionate ownershiBio gbii".-;;i"the beginning of repo;ted total comprehensive income of P2,S0o,oGo which include a foreign transtation gain repofted in its other comprehensive income amounting to p60c,OCI0 for Zd'Og. the complny atso paid a P300,000 dividends per share by the end of the year.
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The following reflected the fair valuation of the investments as of December 31, 200g: Equity Acquisition Market Values as of Securities Cost December 31, 2006

Alpha
Beta Charlie Delta

P2SO,OO0
500,o00
8OO,000

p350,000

SAS

2,00o,000

525,000 Trading 750,000 sAS 1,750,000 Associate

investrnent

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Requirements: -w;;; i. is the entry to record change in fair valEre of trading securities in 20CB?

2.
4 '.

What is the entry to record change in fair vaiue of securities available for sale in 2008?
What is the entry to record change in fair va{ue of associate investrnent in 2008? What is the entry to record change in fair value of trading securities in 2009? What is the entry to record change in fair value of securities available for sale in 2009?

5.
a

what is the total investment in trading securities as of December 31, 2009?

What is the total investment in securities availab{e for sale as of Decernher 31, 2009?

v/hat is the totai associate investnrent as of Decernber 31, 2009?

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ETC INC. has the following securities in its avallable-for-sale portfollo of securities on December 31, 20O7:, ' Number of AEgregate Aggregate l,{umber Fair value cf shares as Fair value of of shares rernaining of remaining originally OriEinal shares as of I"/3L/2OO7 shares as of acquired Cost 1U31.12A06 L2/3L17OO7 Aye Co" common P45,000 P50,000 ' 9,000 9,000 P50,000 Bee Inc. common 30,000 300,000 250,000 15,000 90,000 Si Corp. preferred 2,4AA 36,000 30,000 2,400 24,AOO

All of the above securities were bought in 20O6. Tlre only ffansaction affecting the portfolio is the disposal of half of the investments in Bee Inc, common stocks on June iO, ?:O,AZ at PB per share.
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None of the chafiges in the values of the investrnents in 2006 were judged to be other than

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However, the decline in the vatues of Bee Inc. common and Sl 'Corp. preferred in 2007 were ascertained to be permanent.
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REQUIREMET'!TS:

1,

How much is the unrealized loss to be reported in the 2006 balance sheet? How much is the realized loss frorn sale of Bee Inc. stocks?
How much is the irnpairment loss to be reported

2.
3,

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income staternent?

4.

How much is the unrealized gain or (loss) to be reported in the 2007 balance sheet?

5'

How much investment in Available for sales securities to be reported as of December 31, 2007?

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Assuming that based oltll_" ?]Y"n i["ln"uitments are as follows:

problem' the fair market v' inforrnation in previous

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Fair value of remaining shares as of

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Aye Co. cornrYlon Bee Inc. corfimon. Si CorP. Preferreo

Shares 9,000 15,000 2,400

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P75,000 175,000 50,00o

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2008? REQUIREMEITITS: REQUIREMEI'iT::should be recognized in err '-' r gain on irnpairment rec()very i-ilo* rnuch vqrr' I now nruLrr Unrealized gain lent accotint and ttte correSponding 2. what is the balance, .f zooe barance sheet? nil'JrlTi=dffi"fi ;inu :Hi"I:,t=Te cheet? li r ii
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co' acquired 25Yo cf+il: ooaK vsruv On Janua!-v L' Lvwvt on January 1', 2008, lHlPg :ost of p14r000r000 I ne il;n''"J;il9':iih:-:11::'-nynrl llFO was arMcRUKu INc" *as at P48,000,01 af MORUKIJ rNc at a totar :::'-"-r-:13,:?';:?3;JJ:;o;;5Jeljffiiinffi:l:l'"'il%ffiio lota.r :::t-=I,;-i#;;;-

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^^^ b'Mo|ukuownedlandwithcurrer.ltfairvalueofF6,0CI0,oCI0rrgorethanitscarryingj amount' +c urith fain value i

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2008' on Decernber 31, Moruku a*.rui"J-.*J;.,; to common stockholders' Moroku also reported an unrealized holding gain as other comprehensive income for the year amoult1ng to psoo,ooo, prarkei ;"i; oi tt," shares herd by Shipo. on December 31, aods is p15,00c,d00. ---'-' -'-: -,

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REQUIREMENTS:

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total amount of goodwill of Moruku based on the 25vo acquisition? How rnuch is the inveqtrnent incorne to be necognized by shipo for the period?
what is the carryinE vaiue of the investmer.rt in Moruku?
Assuming that ol J,??u.ury -i., 2009,,shipo sold 50o/o of its stockholding from Moruku P7M, how much is the toial gain at ol lor" on ."irutionf'
How rnuch from the cessation gain

How much is the

or loss in unrealized?

what is/are the.entry/ies to record the sate in nurnber 4?

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.APO4-PROBLEI'I Kikio Corporation acquired on January 1, 2008 a real property and classified the same as an investment property. The acquisition cost was PL0,O00;O0O and has an estimated life of 1O years. The cornpany pald for a finder's fee anc cornmissions at P500,000.

The investment property was appraised

P11,000,000 on December 31, 2009.
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at

P12,500,000

on December 31; 2008

and

Requirements:
Case L

1:

that the company Assurmlng *rr-+ rh^ FAmFah' uses the Fair value Method: the investment property be presented in the 2008 balance sheet?

Flow much should

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How much gain/loss related ts the investrnefti shouid be recognized in the 2008 income statement? How much should the investment property be presented in the 2009 balance sheet?

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A

How much gain/loss related to the investment shoulci be recognized in the 2O09 income
sta te m ent?

5.

Assuming that the real property was reclassified as owner-occupied propenty on June 30, 2010, when the fair value of the investrnent was at PIOM, lrow rnuch should the property be initially recognized Llpon transfer and how much Eain/loss frorh reclassifi cation should be recognized?

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6.

Assuming the real praperty was disposed on Jr:ne 30n 2010 at PIOM, how rnuch is the realized gain/loss on the disposai?

Case

2:

Assuming that the company uses the Cost Method.:

7^ How'snuch should the investment property be presented in the 2008 balancesheet?

B.

How much should the investment property be presented in the 2009 balance sheet? Assuming that ttre real property was reclassified as owner-occupied property on June 3O, 2010, when the fair value of the investment was at PLOM, how much should the property be initialty recognlzed upon trahsfer and how nnuch gain/loss fnorfi reclassification shor.lld be recoge'lized?

9.

10.{ssuming the real property was disposed on June 30, 2010 at P10M, how rnuch is the reallzed gain/loss on the disposal?
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for P5'000'000' The annual prenrriurn is Inc. insures the life of its general manager n'e poiicy is dated January,1' 2005 with Pulitzer p180,000 pavabte ut tr,. beginning orlyt'. perioi.
the fotlowing cash surrender values:

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ThecompanyreceivedP5,000andPT,000dividendsfromtheCSVin20oSand2009 respectively" .ti ih-,,F2r'r.rr exnense be reported ln 2o06' 2o07"?o08? Dv--' mucn shotlld insurance exper

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