Auditing Problems ACTG 11

JDTA AP-02 Cash/Accrual, Single Entry

AUDITING PROBLEMS ADAYO/TADIAR

CASH/ ACCRUAL, SINGLE ENTRY
PROBLEM 1: The selected balance sheet information for the MG Company at November 30 and December 31,
2011, is presented below. The company uses the perpetual inventory system and all sales to customer were
made on credit.
November 30 December 31
Debit Credit Debit Credit
Accounts receivable P10,000 P 3,000
Prepaid insurance 5,000 7,500
Inventory 7,000 6,000
Accounts payable 12,000 15,000
Wages payable 5,000 3,000
The following cash flow information is also available:
a. Cash collected from credit customers amounted to P 80,000
b. Cash paid for insurance amounted to P5,000
c. Cash paid to suppliers of inventories amounted to P60,000. The accounts payable account
pertains to purchase of inventories
d. Cash paid to employees for salaries amounted to P10,000

Required: Determine the following, under the accrual basis

A B C D
1. Sales Revenue 73,000 80,000 83,000 87,000
2. Cost of sales 60,000 63,000 64,000 66,000
3. Insurance expense 2,500 5,000 7,500 10,000
4. Wage expense 3,000 5,000 8,000 10,000
PROBLEM 1: The Revolutionary Corporation began operation in 2011. The company purchases computer
equipment from manufacturers and then sells to retail stores. During 2011, the bookkeeper used a check
register to record all cash receipts and cash disbursements. No other journals were used. The following is a
recap of the cash receipts and disbursements made during the year.
Cash receipts:
Sale of share capital P 50,000
Collections from customers 320,000
Borrowed from a local bank on April 1,
note signed requiring principal and interest
at 12% to be paid on March 31, 2012 40,000
Total cash receipts P 410,000
Cash disbursements:
Purchase merchandise P 220,000
Payment of salaries 80,000
Purchase of equipment 30,000
Purchase of rent on building 14,000
Miscellaneous expense 10,000
Total cash disbursements P 354,000
You are called in to prepare the financial statements at December 31, 2011. The following additional
information were provided to you:
a. Customers owed the Company P22,000 at year end. Of this amount, it was anticipated that
P3,000 would probably not be collected. There were no actual bad debt write-offs in 2011.
b. At year end, P30,000 was still due to suppliers costing P50,000 still remained on hand
c. At year end, merchandise inventory costing P50,000 still remained on hand
d. Salaries owed to employees at year-end amounted to P5,000.
e. On December 1, P3,000 in rent was paid to the owner of the building used by Revolutionary. This
represented rent for the months of December through February.
f. The equipment, which has a 10-year life and no salvage value, was purchased on January 1, 2011.
Straight line depreciation is used.
Requirements: Determine the adjusted balances of the following:
A B C D
1. Sales Revenue 320,000 339,000 342,000 345,000
2. Cost of Sales 200,00 220,000 250,000 270,000
3. Salaries expense 75,000 80,000 85,000 90,000
4. Rent expense 9,000 12,000 15,000 16,000
5. Net income 32,000 29,000 25,400 24,400
6. Total current Assets 130,000 127,000 125,000 120,000
7. Total noncurrent assets 30,000 28,000 27,000 24,000
8. Total current liabilities 38,600 70,000 75,000 78,600
9. Total noncurrent liabilities -0- 3,600 40,000 43,600

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Auditing Problems ACTG 11
JDTA AP-02 Cash/Accrual, Single Entry

PROBLEM 3: George Laundry Company is in retailing laundry supplies. The company kept very limited
records and most of the company’s transactions are summarized in cash records. George Laundry Company
presented you the following information, in line with your audit:
Total cash receipt from customer, based on cash records P 576,000
Proceeds from a bank loan (note payable-non trade) 100,000
Total cash payments to suppliers, based on cash records 299,000
Total cash payments for other operating expenses 144,000
Credit memos issued, for returns and allowances 50,000
Total refund for goods received as returns, based on cash records 25,000
Sales discount 40,000
Credit memos received, for returns 45,000
Total refund for goods returned to suppliers, based on cash records 15,000
Purchase discounts 30,000

Further investigation revealed the following:

Decrease in accounts receivable P 150,000
Increase in accounts payable 200,000
Increase in notes receivable 50,000
Increase in notes payable-trade and non trade 10,000
Accounts written off during the year 25,000
Cash recovered from previous write-offs 5,000
Increase in merchandise inventory 131,000
Required:
1. What is the accrual basis gross sales?
a. 561,000 c. 586,000
b. 566,000 d. 591,000
2. What is the accrual basis gross purchases?
a. 584,000 c. 484,000
b. 499,000 d. 114,000
3. What is the correct net sales?
a. 501,000 c. 476,000
b. 496,000 d. 471,000
4. What is the correct cost of sales?
a. 107,000 c. 278,000
b. 263,000 d. 363,000
5. What is the correct gross profit?
a. 208,000 c. 218,000
b. 213,000 d. 233,000
PROBLEM 4: Your audit of Edu Company revealed that your client kept very limited records. Purchases of
merchandise were paid for by check, but most other items were out of cash receipts. The company’s
collections were deposited weekly. No record was kept of cash in the bank, nor was a record kept of sales.
Accounts receivable were recorded only by keeping copy of tickets, and these copies were given to the
customers when paying their accounts.
The company started its operations on January 2, 2006 and issue common stock, 216,000 shares with P100
par, for the following considerations:
Cash P 1,800,000
Building, useful life of 15 years 16,200,000
Land 5,400,000
An analysis of the bank statements showed total deposits, including original cash investment, of P12, 600,000.
The balance in the bank statement on December 31, 2006, was P900,000, but there were checks amounting to
P 180,000 dated in December dated in December but not paid by the bank until January 2007. Cash on hand
on December 31, 2006 was P450,000 including customers’ deposit of P135,000
During the year, Edu borrowed P 1,800,000 from the bank and repaid P 450,000 and P90,000 interest.
Disbursements paid in cash during the year were as follows: Utilities, P360,000; Salaries, P360,000; Supplies,
P720,000, and Dividends, P540,000
An inventory of merchandise taken on December 31, 2006 showed P 2,718,000 of merchandise.
Ticket for accounts receivable totaled P 3,240,000 but P180,00 of that amount may prove uncollectible.
Unpaid supplier invoices for merchandise amounted to P1,260,000
Equipment with a cash price of P1,440,000 was purchased in early January on one-year installment basis.
During the year, checks for the down payment and all maturing installments totaled P 1,602,000. The
equipment has a useful life of 5 years.

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Auditing Problems ACTG 11
JDTA AP-02 Cash/Accrual, Single Entry

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

1. Payments for merchandise purchases

a. 9,378,000 c. 7,308,000
b. 7,758,000 d. 7,938,000
2. Collections from customers in 2006
a. 12,960,000 c. 11,430,000
b. 14,760,000 d. 11,295,000
3. Total sales in accrual basis in 2006
a. 11,295,000 c. 14,535,000
b. 11,430,000 d. 14,670,000
4. Total purchases on accrual basis in 2006
a. 10,998,000 c. 9,738,000
b. 10,818,000 d. 9,558,000
5. Cost of goods sold in 2006
a. 6,840,000 c. 8,100,000
b. 7,020,000 d. 8,280,000
6. Net income for the year ended December 31, 2006
a. 4,860,000 c. 5,310,000
b. 3,015,000 d. 4,680,000

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