5/18/2021
GENERAL REVIEW: AUDITING PROBLEMS: Attempt review
Home / My Courses / ACCTG504_6560_2020-2021_2NDSEM-1STTERM_CAE / General Review / GENERAL REVIEW: AUDITING PROBLEMS
Started on Tuesday, May 18, 2021, 4:26 PM
State Finished
Completed on Tuesday, May 18, 2021, 6:12 PM
Time taken 1 hour 45 mins
Grade 17.00 out of 35.00 (49%)
Question 1
Complete
Mark 0.00 out of 1.00
In auditing long-term bonds payable, an auditor most likely would
a. Perform analytical procedures on the bond premium and discount accounts.
b. Examine documentation of assets purchased with bond proceeds for liens.
c. Compare interest expense with the bond payable amount for reasonableness.
d. Confirm the existence of individual bond holders at year-end.
The correct answer is: Perform analytical procedures on the bond premium and discount accounts.
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Question 2
Complete
Mark 1.00 out of 1.00
Collections from customers?
Select one:
a. 7,935,000
b. 7,485,000
c. 8,385,000
d. 8,025,000
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The correct answer is: 7,485,000
Question 3
Complete
Mark 1.00 out of 1.00
Cash disbursed for purchases
Select one:
a. 4,185,000
b. 2,025,000
c. 1,575,000
d. 3,825,000
The correct answer is: 2,025,000
Question 4
Complete
Mark 0.00 out of 1.00
Net cash provided by operating activities
Select one:
a. 7,485,000
b. 3,885,000
c. 4,185,000
d. 2,025,000
The correct answer is: 4,185,000
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Question 5
Complete
Mark 0.00 out of 1.00
Net cash used in investing activities
Select one:
a. 2,430,000
b. 2,115,000
c. 2,160,000
d. 2,700,000
The correct answer is: 2,160,000
Question 6
Complete
Mark 0.00 out of 1.00
Net cash used in financing activities
Select one:
a. 1,350,000
b. 675,000
c. 2,025,000
d. 0
The correct answer is: 1,350,000
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Question 7
Complete
Mark 0.00 out of 1.00
PROBLEM 3
The RICARDO Company is on a calendar year basis. The following data were found during
your audit:
a.
Goods in transit shipped FOB shipping point by a supplier, in the amount of
P100,000, had been excluded from the inventory, and further testing revealed that the
purchase had been recorded.
b.
Goods costing P50,000 had been received, included in inventory, and recorded as a
purchase. However, upon your inspection the goods were found to be defective and would
be immediately returned.
c.
Materials costing P250,000 and billed on December 30 at a selling price of
P320,000, had been segregated in the warehouse for shipment to a customer. The
materials had been excluded from inventory as a signed purchase order had been received
from the customer. Terms, FOB destination.
d.
Goods costing P70,000 was out on consignment with Hermie Company. Since the
monthly statement from Hermie Company listed those materials as on hand, the items had
been excluded from the final inventory and invoiced on December 31 at P80,000.
e.
The sale of P150,000 worth of materials and costing P120,000 had been shipped FOB
point of destination on December 31. However, this inventory was found to be included in
the final inventory. The sale was properly recorded in 2018.
f.
Goods costing P100,000 and selling for P140,000 had been segregated, but not
shipped at December 31, and were not included in the inventory. A review of the
customer’s purchase order set forth terms as FOB destination. The sale had not been
recorded.
g.
Your client has an invoice from a supplier, terms FOB buyer but the goods had not
arrived as yet. However, these materials costing P170,000 had been included in the
inventory count, but no entry had been made for their purchase.
h.
Merchandise costing P200,000 had been recorded as a purchase but not included as
inventory. Terms of sale are FOB shipping point according to the supplier’s invoice which
had arrived at December 31.
Further inspection of the client’s records revealed the following December 31, 2019
balances: Inventory, P1,100,000; Accounts receivable, P580,000; Accounts payable,
P690,000; Net sales, P5,050,000; Net purchases, P2,300,000; Net income, P510,000.
QUESTIONS:
Based on the above and the result of your audit, determine the adjusted balances of
following as of December 31, 2019:
Inventory
a. P1,230,000
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b. P1,500,000
c. P1,550,000
d. P1,480,000
The correct answer is:
P1,500,000
Question 8
Complete
Mark 1.00 out of 1.00
Accounts payable
a. P710,000
b. P640,000
c. P810,000
d. P760,000
The correct answer is:
P640,000
Question 9
Complete
Mark 1.00 out of 1.00
Net sales
a. P4,550,000
b. P4,650,000
c. P4,730,000
d. P4,500,000
The correct answer is:
P4,500,000
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Question 10
Complete
Mark 1.00 out of 1.00
Net purchases
a. P2,370,000
b. P2,520,000
c. P2,250,000
d. P2,320,000
The correct answer is:
P2,250,000
Question 11
Complete
Mark 0.00 out of 1.00
Net income
a. P410,000
b. P290,000
c.
P540,000
d. P550,000
The correct answer is:
P410,000
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Question 12
Complete
Mark 1.00 out of 1.00
Problem 4
In line with your audit of Joed Corporation’s investment account as of December 31, 2014,
you ascertained the following information:
Investment Type
CV per book
Investment in bonds
4,000,000
Investment in stocks
6,200,000
Investment in property
3,500,000
Audit notes:
a.
Investment in bonds which shall mature on December 31, 2016 were acquired in
January 1, 2013 when the prevailing market rate of interest wat at 10%. Interest at 12% is
collectible from the bonds every December 31. The acquisition was recorded by the client
as a debit to investment in bonds at face value with the difference between the face value
and the total consideration given up to interest income. Interest collected in 2013 and
2014 were appropriately recorded. No other entry relating to the investment was made by
the client. Further investigation revealed that the company business model with regard
debt security investment has an objective of collecting contractual cash flows. The
prevailing market rate of interest was at 11% and 9% at the end of 2013 and 2014,
respectively.
b.
The investment in stock is for 40,000 shares of Princess EJ Corporation’s ordinary
shares acquired in September 30, 2013. The shares ere originally acquired at P145 per
share. The book value of the net assets of Princess EJ on this date was at P25 million and
its total outstanding shares was at 200,000. Princess EJ’s depreciable assets with average
remaining life of 10 years were understated on this date.
The fair value of Princess EJ’s shares were at P155 per share at the end of 2013. The
company recorded the remeasurement (from acquisition cost to fair value) of the
investment at the end of 2013 and recognized the same as unrealized holding gain in the
2014 profit/loss. The only other entry made by the client related to the investment was the
receipt of P2 per share dividend by the end of 2013 and P4 per share dividend in 2014 as
dividend income.
Further investigation revealed the following relevant information:
Princess EJ
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Net income for the year
2013
2014
3,800,000
5,200,000
Foreign exchange loss – OCI
400,000
Unrealized holding gain – OCI
300,000
Fair value
P155 per share
P169 per share
c.
The investment property was a building factory converted on June 30, 2014 as a
property for lease since the company decided to discontinue its production segment. The
factory was originally acquired at P5 million on January 1, 2011 and was depreciated using
straight-line method over a 10 year useful life. The company elected to use the fair value
model in measuring the investment property. The fair value of the building on June 30,
2014 was at P3.6 million. On December 31, 2014, the fair value of the building is at P3.2
million.
Questions:
What is the correct initial cost of the investment in bonds?
a. P 4,138,843
b. P 4,198,948
c. P 4,211,093
d. P 4,253,589
The correct answer is:
P 4,253,589
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Question 13
Complete
Mark 1.00 out of 1.00
What is the correct carrying value of the investment in bonds as of December 31, 2014?
a. P 4,068,501
b. P 4,138,843
c. P 4,198,948
d. P 4,211,093
The correct answer is:
P 4,138,843
Question 14
Complete
Mark 0.00 out of 1.00
What is the correct carrying value of the investment in stocks as of December 31, 2014?
a. P 6,670,000
b. P 6,760,000
c. P 6,770,000
d. P 7,180,000
The correct answer is:
P 6,670,000
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Question 15
Complete
Mark 1.00 out of 1.00
What is the retroactive adjustment to the retained earnings, beginning, as a result of your
audit of investment in stocks?
a. P 90,000
b. P 310,000
c. P 400,000
d. P 490,000
The correct answer is:
P 310,000
Question 16
Complete
Mark 1.00 out of 1.00
What is the retroactive adjustment to the retained earnings, beginning, as a result of your
audit of investment in stocks?
a. P 90,000
b. P 310,000
c. P 400,000
d. P 490,000
The correct answer is:
P 310,000
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Question 17
Complete
Mark 1.00 out of 1.00
Total depreciation in 2007
Select one:
a. P 289,000
b. P 625,000
c. P 100,000
d. P 420,000
The correct answer is: P 289,000
Question 18
Complete
Mark 1.00 out of 1.00
Carrying amount of property and equipment as of December 31, 2007
Select one:
a. P 2,500,000
b. P 2,400,000
c. P 2,080,000
d. P 2,211,000
The correct answer is: P 2,211,000
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Question 19
Complete
Mark 0.00 out of 1.00
Revaluation surplus as of December 31, 2007
Select one:
a. P 100,000
b. P 75,000
c. P 144,000
d. P 0
The correct answer is: P 75,000
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Question 20
Complete
Mark 0.00 out of 1.00
How much of the costs incurred on the new filtration system can be capitalized at the end
of May?
Select one:
a. P 0
b. P 419,000
c. P 499,000
d. P 564,000
The correct answer is: P 0
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Question 21
Complete
Mark 0.00 out of 1.00
How much of the costs incurred on the new filtration system can be capitalized at the end of June?
Select one:
a. P 58,000
b. P 45,000
c. P 70,000
d. P 110,000
The correct answer is: P 45,000
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Question 22
Complete
Mark 1.00 out of 1.00
Problem 6
DOMROX CO. reported the following amounts of net income for the years ended
December 31, 2016, 2017, and 2018.
2016- P190,500
2017- 225,000
2018- 192,750
You are performing the audit for the year ended December 31, 2018. During your
examination, you discover the following errors:
·
As a result of errors in the physical count, ending inventories were misstated as
follows:
December 31, 2017- P21,000 overstated
December 31, 2018- P34,500 understated
·
On December 29, 2018, DOMROX recorded as a purchase, merchandise in transit,
which cost P22,500. The merchandise was shipped FOB shipping point and had not arrived
by December 31. The merchandise was recorded in the ending inventory.
·
DOMROX records sales on the accrual basis but failed to record sales on account
made near the end of each year as follows:
2016- P6,000
2017- 7,500
2018- 5,250
·
The company failed to record accrued office salaries as follows:
December 31, 2016- P15,000
December 31, 2017- 21,000
·
On March 1, 2017, a 10% share dividend was declared and distributed. The par value
of the shares amounted to P15,000 and market value wad P19,500. The share dividend was
recorded as follows:
Miscellaneous expense
19,500
Ordinary share
15,000
Retained earnings
4,500
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·
On January 1, 2017, DOMROX acquired a three-year insurance policy. The three-year
premium of P9,000 was paid on that date, and the entire premium was recorded as
insurance expense.
·
On January 1, 2018, DOMROX retired bonds with a book value of P180,000 for
P159,000. The gain was incorrectly deferred and is being amortized over 10 years as a
reduction of interest expense on other outstanding obligations.
QUESTIONS:
What is the adjusted net income for the year 2016?
a. 169,500
b. 175,500
c. 181,500
d. 199,500
The correct answer is:
181,500
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Question 23
Complete
Mark 1.00 out of 1.00
What is the adjusted net income for 2017?
a. 183,000
b. 211,500
c. 268,500
d. 225,000
The correct answer is:
268,500
Question 24
Complete
Mark 1.00 out of 1.00
What is the adjusted net income for 2018?
a. 230,100
b. 194,400
c. 270,000
d. 282,900
The correct answer is:
194,400
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Question 25
Complete
Mark 0.00 out of 1.00
PROBLEM 7
At December 31, 2017, Rhodora Inc. had 1,800,000 authorized shares of P10 par value
ordinary shares of which 600,000 shares were issued and outstanding. The shareholder’s
equity accounts at December 31, 2017, had the following balances.
Ordinary shares- P6,000,000
Share premium- 2,250,000
Retained earnings- 1,941,000
Transactions during 2018 and other information relating to the shareholder’s equity
accounts were as follows:
I.
On January 7, 2018, Rhodora issued at P59 per shares, 30,000 shares of P50
par value, 8% cumulative convertible preference shares. Each share of preference is
convertible, at the option of the holder, into two ordinary shares. Rhodora had 180,000
authorized preference shares.
II.
On February 2, 2018, the company reacquired 5,000 of its ordinary shares for
P16 per share. Rhodora uses cost method to account for treasury shares.
III.
On April 29, 2018, Rhodora sold 150,000 shares (previously issued) of P10 par
value ordinary shares to the public at P17 per share.
IV.
On June 17, 2018, the company declared a cash dividend of P2 per ordinary
shares, payable om July 14, 2018, to shareholders of record on July 1, 2018.
V.
On November 12, 2018, Rhodora sold 3,000 treasury shares of P21 per share.
VI.
On December 15, 2018, the company declared the yearly cash dividend on
preference shares payable on January 14, 2019 to shareholders of record on December 31,
2018.
VII.
On January 22, 2019, before the books were closed for 2018, the company
become aware that the 2017 ending inventory was overstated by P90,000. The tax rate is
30%.
VIII.
After correcting the beginning inventory, net income was P1,350,000.
QUESTIONS:
The retained earnings, as restated, as of January 1, 2018 is
a. 1,785,000
b.
2,004,000
c. 1,875,000
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d. 1,878,000
The correct answer is:
1,878,000
Question 26
Complete
Mark 0.00 out of 1.00
The retained earnings balance as of December 31, 2018 is
a. 1,875,000
b. 1,522,000
c. 1,537,000
d. 1,618,000
The correct answer is:
1,618,000
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Question 27
Complete
Mark 1.00 out of 1.00
The share premium from preference shares as of December 31, 2018 is
a. 270,000
b. 180,000
c. 150,000
d. 120,000
The correct answer is:
270,000
Question 28
Complete
Mark 0.00 out of 1.00
The share premium form ordinary shares as of December 31, 2018 is
a. 3,000,000
b. 3,300,000
c. 3,315,000
d. 3,450,000
The correct answer is:
3,300,000
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Question 29
Complete
Mark 1.00 out of 1.00
The total shareholder’s equity as of December 31, 2018 is
a. 14,144,000
b. 13,920,000
c. 14,171,000
d. 14,910,000
The correct answer is:
14,171,000
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Question 30
Complete
Mark 1.00 out of 1.00
Problem 8
On January 1, 2017, GodBlessYou Corporation grants 100 cash share appreciation rights
(SARs) to each of its 200 employees remain in its employ for the next three years.
During 2017, 14 employees leave. The entity estimates that a further 24 will leave during
2018 and 2019. During 2018, 10 employees leave and the entity estimates that a further 8
will leave during 2019. During 2019, 6 employees leave. At the end of 2019, 60 employees
exercise their SARs, another 40 employees exercise their SARs at the end of 2020 and the
remaining employees exercise their SARs at the end of 2019, 2020, and 2021 are also
shown below.
Year
Fair value
intrinsic value
2017
P30
2018
32
2019
36
P35
2020
42
40
2021
46
Questions:
Compensation expense in 2020
a. P58,000
b. P160,000
c. P157,600
d. 0
The correct answer is:
P58,000
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Question 31
Complete
Mark 0.00 out of 1.00
Compensation expense in 2021
a. P322,000
b. P86,800
c. P28,000
d. 0
The correct answer is:
P28,000
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Question 32
Complete
Mark 0.00 out of 1.00
Problem 9
On January 1, 2017, Baguio Company issued 3-year, 4,000 convertible bonds at face value
of P1,000 per bond. Interest is to be paid annually in arrears at the stated coupon rate of
6%. Each bond is convertible, at the holder’s option, into 200 P2 par value ordinary shares
at any time up to maturity. On the date of issuance, the prevailing market interest rate for
similar debt without the conversion privilege was 9%. On the same date, the market price
of one ordinary share was P3. The bonds were converted on December 31, 2018.
Questions:
The interest expense to be reported on Baguio Company’s income statement for the year
ended December 31, 2018, is
a. P 101,000
b. P 110,107
c. P 240,000
d.
P 341,000
The correct answer is:
P 341,000
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Question 33
Complete
Mark 0.00 out of 1.00
The entry to record the bond conversion on December 31, 2018, should include a credit to
share premium – issuance of
a. P 0
b. P 2,289,893
c. P 2,400,000
d. P 2,593,661
The correct answer is:
P 2,593,661
Question 34
Complete
Mark 0.00 out of 1.00
Statement I: It is not necessary to physically count all the property, plant, and equipment.
// Statement II: Physically counting PPE will enable auditor to note conditions of the
assets, such as those which are in bad shape, not in running conditions, and damaged.
a. Both statements are true
b. Both statements are false
c. Only the first statement is true
d. Only the second statement is true
The correct answer is: Both statements are true
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Question 35
Complete
Mark 0.00 out of 1.00
Statement I: Repairs and maintenance account should be analyzed to ascertain if
expenditure which should be capitalized has been charged to asset account instead of
expense account. // Statement II: Immaterial charges to repairs account should be vouched
to supporting papers such as purchase orders and vouchers.
a. Both statements are true
b. Both statements are false
c. Only the first statement is true
d. Only the second statement is true
The correct answer is: Only the first statement is true
◄ GENERAL REVIEW: AUDITING THEORY
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