388579552 AP QUIZ 2 inventories investments doc PDF

Preview

Summary

Our Lady of the Pillar College-Cauayan Cauayan City, IsabelaINTEGRATED ACCOUNTINGName:__________________________________________ SCORE: _______________________A U D I T I N G P R O B L E M SQUIZ NO. 2MULTIPLE CHOICE - On a separate sheet of paper, please choose the best answer (letter of your choice...

Description

Our Lady of the Pillar College-Cauayan Cauayan City, Isabela

I NTEGRATED ACCOUNTI NG Name: _ _ _ _ _ __ _ _ _ _ _ __ _ _ _ _ _ _ __ _ _ _ _ _ __ _ _ _ _ _ __ _ _ _ _ _ _ SCORE:_ __ _ _ _ _ _ __ _ _ _ _ _ __ _ _ _ _ _ _

AUDITING

PROBLEMS

QUIZ NO. 2 MULTIPLE CHOICE - On a separate sheet of paper, please choose the best answer (letter of your choice) among the choices given under each of the following theory questions. Strictly no erasures on your answer sheet; otherwise answers will be invalidated.

PROBLEM NO NO.. 1 A portion of the SPARK COMPANY’s statement of financial position appears as follows: December 31, 2017

December 31, 2016

P353,300 0 ?

P100,000 25,000 199,875

?

75,000

Assets: Cash Notes receivable Inventory Liabilities: Accounts payable

Spark Company pays for all operating expenses with cash and purchases all inventory on credit. During 2017, cash totaling P471,700 was paid on accounts payable. Operating expenses for 2017 totaled P220,000. All sales are cash sales. The inventory was restocked by purchasing 1,500 units per month and valued by using periodic FIFO. The unit cost of inventory was P32.60 during January 2017 and increased P0.10 per month during the year. Spark sells only one product. All sales are made for P50 per unit. The ending inventory for 2016 was valued at P32.50 per unit.

1.Number of units sold during 2017 A. 7,066

B. 18,400

C. 4,268

D. 13,400

2.Accounts payable balance at December 31, 2017 A. P190,100

B. P50,000

C. P199,100

D. P200,000

C. 17,084

D. 10,750

C. P192,950

D. P189,660

3.Inventory quantity on December 31, 2017 A. 5,750

B. 2,750

4.Cost of inventory on December 31, 2017 A. P187,450

B. P186,875

5.Cost of goods sold for the year ended December 31, 2017 A. P609,125

B. P609,700

C. P606,915

D. P603,625

Solution: PROBLEM 4 – SPA SPARK RK COMPANY 1. B

Cash balance, Dec. 31, 2016 Sales (SQUEEZE) Cash paid for operating expenses Cash paid on accounts payable Collections on notes receivable

P100,000 920,000 (220,000) (471,700) 25,000

Cash balance, Dec. 31, 2017

P353,300

1

Units sold (P920,000/P50) 2. D

18,400

Accounts payable: Balance, Dec. 31, 2016 Purchases Cash payments on accounts payable Balance, Dec. 31, 2017

*Purchases: Purchases: Month January February March April May June July August September October November December Total purchases

Unit Cost P32.60 32.70 32.80 32.90 33.00 33.10 33.20 33.30 33.40 33.50 33.60 33.70

Units 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 18,000

P75,000 596,700* (471,700) P200,000 Total Cost P48,900 49,050 49,200 49,350 49,500 49,650 49,800 49,950 50,100 50,250 50,400 50,550 P596,700

Or (P32.60 + P33,70)/2 x (1,500 x 12) = P596,700

3. A

Inventory, Dec. 31, 2016 (P199,875/P32.50) Purchases Units sold Inventory, Dec. 31, 2017

4. C

FIFO cost of inventory, Dec. 31, 2017: December purchases 1,500 x P33.70 November purchase 1,500 x P33.60 October purchase 1,500 x P33.50 September purchase 1,250 x P33.40 5,750

P 50,550 50,400 50,250 41,750 P192,950

Inventory, Jan. 1, 2017 Purchases Goods available for sale Inventory, Dec. 31, 2017 Cost of goods sold

P199,875 596,700 796,575 (192,950) P603,625

5. D

6,150 18,000 (18,400) 5,750

PROBLEM NO NO.. 2 The following are selected unadjusted account balances and adjusting information of CORP. for the year ended December 31, 2017. Retained earnings, January 1 Sales salaries and commissions Advertising expense Legal services Insurance and licenses Travel expense – sales representatives Depreciation expense – sales/delivery equipment Depreciation expense – office equipment Interest revenue Utilities Telephone and postage Office supplies inventory Miscellaneous selling expenses Dividends Dividend revenue Interest expense Allowance for doubtful accounts (credit balance) Officers’ salaries

P 1,322,010 75,000 48,270 6,675 23,040 13,680 18,300 12,600 1,650 19,200 4,425 6,540 8,220 99,000 15,450 13,560 480 109,800

TANYING

2

Sales Sales returns and allowances Sales discounts Gain on sale of assets Inventory, January 1 Inventory, December 31 Purchases Freight in Accounts receivable, December 31 Income from discontinued operations (before income taxes) Loss on sale of equipment Ordinary shares outstanding

1,353,000 11,700 2,640 23,460 269,100 61,650 424,800 16,575 783,000 120,000 217,800 117,000

Adjusting information: (a) Cost of inventory in the possession of consignees as of December 31, 2017, was not included in the ending inventory balance......................................P55,800 (b) After preparing an analysis of aged accounts receivable, a decision was made to increase the allowance for doubtful accounts to a percentage of the ending accounts receivable balance............................................................................2% (c) Purchase returns and allowances were unrecorded. They are computed as a percentage of purchases (not including freight in)............................................6% (d) Sales commissions for the last day of the year had not been accrued. Total sales for the day........................................................................................P9,180 Average sales commissions as a percent of sales..............................................3% (e) No accrual had been made for a freight bill received on January 2, 2018, for goods received on December 29, 2017.......................................................P1,710 (f) An advertising campaign was initiated November 2, 2017. This amount was recorded as “Prepaid advertising” and should be amortized over a six-month period. No amortization was recorded........................................................P5,454 Freight charges paid on sold merchandise were netted against sales. Freight charges on sales during 2017...................................................................P10,500 (g) Interest earned but not accrued.................................................................P1,680 (h) Depreciation expense on a new forklift purchased March 1, 2017, had not been recognized. (Assume all equipment will have no salvage value and the straight-line method is used. Depreciation is calculated to the nearest month.) Purchase price.........................................................................................P23,400 Estimated life in years......................................................................................10 (i)

A “real” account is debited upon the receipt of office supplies. Office supplies on hand at year-end...................................................................................................P3,675

(j)

Income tax rate (on all items).......................................................................30%

Compute the adjusted balanc balances es of the following: 6.Net sales A. P1,363,500

B. P1,349,160

C. P1,353,000

D. P1,342,500

3

7.Cost of goods available for sale A. P684,900 B. P824,697

C. P686,697

D. P779,913

8.Inventory, December 31, 2015 A. P61,500 B. P61,350

C. P56,250

D. P117,450

9.Distribution costs A. P181,649

B. P167,513

C. P178,013

D. P176,453

10.Administrative expenses A. P207,345 B. P193,785

C. P194,265

D. P194,595

11.Allowance for doubtful accounts A. P15,660 B. P16,140

C. P15,180

D. P480

12.Total income A. P817,143

C. P779,913

D. P822,153

13.Income from continuing operations before taxes A. P231,360 B. P436,795 C. P218,995

D. P239,695

14.Office supplies inventory A. P6,540 B. P3,675

C. P2,865

D. P 0

15. Net income A. P237,296

C. P250,289

D. P216,296

B. P811,653

B. P210,299

PROBLEM 1 – T TANYING ANYING CORP CORP.. 6. B Sales (P1,353,000 + P10,500 Freight) Sales returns and allowances Sales discounts Net sales 7. C Inventory, Jan. 1 Purchases Purchase returns and allowances (P424,800 x 6%) Freight in (P16,575 + P1,710) Cost of goods available for sale 8. D Inventory, Dec. 31, 2017 Per books Goods out on consignment Per audit

P1,363,500 (11,700) (2,640) P1,349,160 P269,100 P424,800 (25,488) 18,285

417,597 P686,697

P 61,650 55,800 P117,450

9. C Distribution costs: Sales salaries and commissions (P75,000 + [P9,180 x 3%]) P75,275 Advertising expense (P48,270 + [P5,454 x 2/6]) 50,088 Depreciation expense – Sales/delivery equipment (P18,300 + [P23,400 x 10% x 10/12]) 20,250 Freight expense 10,500 Travel expense – sales representatives 13,680 Miscellaneous selling expenses 8,220 Total P178,013 10. B Administrative expenses: Legal services Insurance and licenses Depreciation expense – office equipment Utilities Telephone and postage Office supplies expense (P6,540 – P3,675) Officers’ salaries Doubtful accounts expense (P783,000 x 2% = P15,660 – P480) Total

P 6,675 23,040 12,600 19,200 4,425 2,865 109,800 15,180 P193,785

4

11. A Allowance for doubtful accounts (P783,000 x 2%) 12. D Net sales Cost of goods sold (P686,697 – P117,450) Gross income Interest revenue (P1,650 + P1,680) Dividend revenue Gain on sale of assets Total income 13. C Total income Distribution costs Administrative expenses Interest expense Loss on sale of equipment Income from continuing operations before tax 14. B Office supplies inventory 15. A Income before tax Income tax (P218,995 x 30) Income from continuing operations Income from discontinued operations, net of tax (P120,000 x 70%) Net income

P15,660 P1,349,160 (569,247) 779,913 3,330 15,450 23,460 P822,153 P822,153 (178,013) (193,785) (13,560) (217,800) P218,995 P3,675 P218,995 (65,669) 153,296 84,000 P237,296

PROBLEM NO NO.. 3 The following accounts were included in the unadjusted trial balance of BUNCHING COMPANY as of December 31, 2017: Cash.............................................................................P 963,200 Accounts receivable........................................................2,254,000 Inventory.......................................................................6,050,000 Accounts payable...........................................................4,201,000 Accrued expenses.............................................................431,000 During your audit, you noted that Bunching Company held its cash books open after year-end. addition, your audit revealed the following:

In

1. Receipts for January 2018 of P654,600 were recorded in the December 2017 cash receipts book. The receipts of P360,100 represent cash sales and P294,500 represent collections from customers, net of 5% cash discounts. 2. Accounts payable of P372,400 was paid in January 2018. The payments, on which discounts of P12,400 were taken, were included in the December 2017 check register. 3. Merchandise inventory is valued at P6,050,000 prior to any adjustments. The following information has been found relating to certain inventory transactions: a. The invoice for goods costing P175,000 was received and recorded as a purchase on December 31, 2017. The related goods, shipped FOB destination, were received on January 4, 2018, and thus were not included in the physical inventory. b. A P182,000 shipment of goods to a customer on December 30, 2017, terms FOB destination, are not included in the year-end inventory. The goods cost P130,000 and were delivered to the customer on January 3, 2018. The sale was properly recorded in 2018. c. Goods costing P637,500 were shipped on December 31, 2017, and were delivered to the customer on January 3, 2018. The terms of the invoice were FOB shipping point. The goods were included in the 2017 ending inventory even though the sale was recorded in 2017. d. Goods costing P217,500 were received from a vendor on January 4, 2018. The related invoice was received and recorded on January 6, 2018. The goods were shipped on December 31, 2017, terms FOB shipping point.

5

e. Goods valued at P275,000 are on consignment with a customer. These goods are not included in the inventory figure. f. Goods valued at P612,800 are on consignment from a vendor. These goods are not included in the physical inventory. Determine the adjusted balances of the following on December 31, 2017: 16. Cash A. P963,200

B. P681,000

C. P668,600

D. P693,400

17. Accounts receivable A. P2,908,600

B. P2,564,000

C. P2,254,000

D. P2,548,500

18. Inventory A. P6,035,000

B. P6,080,000

C. P5,860,000

D. P5,010,000

19.Accounts payable A. P4,790,900

B. P4,615,900

C. P4,573,000

D. P4,603,500

20.Current ratio A. 2.00

B. 1.83

C. 1.84

D. 2.01

PROBLEM 2 – BUNCHING COMP COMPANY ANY

Per books AJE 1 2 3 a b c d e Per audit

Cash P963,200 (654,600) 360,000 ----------P668,600 (16 – C)

Accounts Receivable P2,254,000 310,000 ------------P2,564,000 (17 – B)

Inventory P6,050,000 ------130,000 (637,500) 217,500 275,000 P6,035,000 (18 – A)

Accounts Payable P4,201,000 --372,400 (175,000) ----217,500 --P4,615,900 (19 – B)

Current ration 16+17+18/19+431,000

Problem 4 (R (Retail etail in inventory ventory method) 21. On December 31, 2015, an entity provided the following information: Inventory, January 1 Purchases Additional markup

Cost

Re Retail tail

735,000 4,165,000

1,015,000 5,775,000 210,000

Sales for the year totaled P5,500,000. Markdown amounted to P100,000. Under the app approximate roximate lower of aver average age cost or NRV retail method, what is the inventory on December 31, 2015? a. 1,050,000 b. 1,400,000 c. 994,000 d. 980,000 Problem 4 (no. 21) Answer D Inventory – January 1 Purchases Additional markup

Cost 735,000 4,165,000 ________

Retail 1,015,000 5,775,000 210,000

6

Goods available for sale Conservative cost ratio (4,900,000 / 7,000,000) Sales Markdown Ending inventory at retail At cost (70% x 1,400,000)

4,900,000 70%

7,000,000 (5,500,000) ( 100,000) 1,400,000

980,000

The lower of average cost or NRV retail method is the same as the conservative or conventional method. Thus, the markdown is ignored in computing the cost ratio.

Problem 5 (Gro (Gross ss profit method) 22.An entity budgeted the following sales. June Sales on account Cash sales

1,800,000 180,000

July 1,840,000 200,000

August 1,900,000 260,000

All merchandise is marked up to sell at invoice cost plus 20%. Merchandise inventory at the beginning of each month is 30% of that month's projected cost of goods sold. What is the amount of anticipated purchases for July? a. b. c. d.

1,632,000 2,076,000 1,700,000 1,730,000

Problem 5 Answer D e.

Cost of goods sold: June (1,980,000 / 120%) July (2, 040,000 / 120%) August (2,160,000 / 120%)

1,650,000 1,700,000 1,800,000

f.

Inventory – July 1 (30% x 1,700,000) Purchases (SQUEEZE) Goods available for sale Inventory – July 31 (30% x 1,800,000) Cost of goods sold - July

510,000 1,730,000 2,240,000 ( 540,000) 1,700,000

g.

h. The amount of purchases for July is computed by working back from the cost of goods sold. PROBLEM 6 – GROS GROSS S PROFIT METHOD On December 31, 2015, a fire damaged the warehouse and factory of an entity completely destroying the goods in process inventory. There was no damage to the raw materials, finished goods and factory supplies The physical inventory revealed the following. Raw materials Goods in process Finished goods Factory supplies

January 1

December 31

1,700,000 4,300,000 6,000.000 500,000

2,000,000 0 4,500,000 400,000

The gross profit margin historically approximated 30% of sales. The sales for the year amounted to P20,000,000. Raw material purchases totaled P4,000,000. Direct labor costs for the year amounted to P5,000,000, and manufacturing overhead has been applied at 60% of direct labor. 23. What is the cost of raw materials used? a. 5,700,000 b. 3,700,000 c. 3,800,000 d. 3,600,000...