AUDIT OF INVENTORY
PROBLEM 4
You were engaged by Angela Crizelle Company for the audit of the company’s financial statements
for the year ended December 31, 2020. The company is engaged in the wholesale business and
makes all sales at 20% over sales.
The following were gathered from the client’s accounting records:
SALES
PURCHASES
Date
Ref.
Amount
Date
Ref.
Amount
Balance forwarded
P10, 400,000
Balance forwarded
P5, 400,000
Dec. 27
SI No. 2965
80,000
Dec. 27 RR No. 557
70,000
Dec. 28
SI No. 2966
300,000
Dec. 28 RR No. 558
130,000
Dec. 28
SI No. 2967
20,000
Dec. 29 RR No. 559
48,000
Dec. 31
SI No. 2969
92,000
Dec. 30 RR No. 561
140,000
Dec. 31
SI No. 2970
136,000
Dec. 31 RR No. 562
84,000
Dec. 31
SI No. 2971
32,000
Dec. 31 RR No. 563
128,000
Dec. 31
Closing entry (11,060,000)
Dec. 31 Closing entry (6,000,000)
P
P
Note: SI = sales invoice
RR = receiving report
Inventory
Accounts receivable
Accounts payable
P1,200,000
1,000,000
800,000
You observed the physical inventory of goods in the warehouse on December 31 and were
satisfied that it was properly taken. When performing sales and purchase cut-off test, you
found that at December 31, the last RR which had been used was No. 563 and that no
shipments had been made on any SI whose number is larger than No. 2968.
You also obtained the following additional information:
•
Included in the warehouse physical inventory at December 31 were goods which had
been purchased and received on RR no. 560 but for which the invoice was not
received until the following year. Cost was P36, 000.
•
On the evening of December 31, there were two delivery trucks in the company
siding:
•
Delivery truck no. CER 489 was unloaded on January 2 the following year
and received on RR no. 563. The freight was paid by the vendor
•
Delivery truck no. RTS 543 was loaded and sealed on December 31 but left
the company’s premises on January 2. This order was sold for P200,000 per
SI no. 2968.
•
Temporarily stranded on December 31 at the railroad siding were two delivery trucks
en route to X Corporation. X Corporation received the goods the next day, which were
sold on SI no. 2966 terms FOB destination.
•
En route to the client on December 31 was a truckload of goods, which was received
on RR no. 564. The goods were shipped FOB Destination, and freight of P4, 000 was
paid by the client. However, the freight was deducted from the purchase price of P1,
600, 000.
Based on the above and the result of you audit, determine the following:
Question 1:
Sales for the year ended December 31, 2020
a. P10,500,000
b. P10,300,000
c. P10,800,000
d. P10,700,000
Question 2:
Purchases for the year ended December 31, 2020
a. P 6,000,000
b. P 7,508,000
c. P 6,036,000
d. P 7,636,000
Question 3:
Inventory as of December 31, 2020
a. P 1,728,000
b. P 1,600,000
c. P 1,936,000
d. P 1,628,000
Question 4:
Accounts receivable as of December 31, 2020
a. P 700,000
b. P 440,000
c. P 740,000
d. P 240,000
Question 5:
Accounts payable as of December 31, 2020
a. P 836,000
b. P 708,000
c. P 800,000
d. P 1,435,000