ACCO 30053 - Auditing and Assurance - CA1 (AACA1) Midterm examination final PDF

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Polytechnic University of the Philippines Sta. Mesa ACCO 30053 – Auditing and Assurance: Concepts and Application Part 1 Midterm Examination January 17, 2020Name: ______________________________________________ Section: _________Instruction: Compute for the required for each of the cases presented. S...

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Polytechnic University of the Philippines Sta. Mesa ACCO 30053 – Auditing and Assurance: Concepts and Application Part 1 Midterm Examination January 17, 2020 Name: ______________________________________________ Section: _________ Instruction: Compute for the required for each of the cases presented. Select your corresponding answer in your answer sheet in MS forms. Solutions are required and will be uploaded in MS Teams under assignment tab. Each correct item will be credited two (2) points. CASE 1 Bridgerton Company, one of your audit clients, presented to your audit team it’s trial balance at the end of the current year. A summary of the cash account is presented as follows: Petty Cash P 10,000 Cash in bank – UCPB (checking account) P 263,000 Cash in Bank – BPI (saving account) P 350,000 Cash in Bank – BDO (peso savings account #1) P 100,000 Cash in Bank – BDO (dollar savings account #2) $ 1,000 The following information was gathered from your audit: a. The petty cash fund reported on the books represents the imprest balance designated by the entity. Upon examination, you found that receipts and documents for miscellaneous general expenses amounting to P8,210 were unreplenished as of December 31, 2020. In addition, the actual currency (bills and coins) per count amounted to P1,500. b. The bank statement for UCPB showed a balance of P350,000. This does not include deposit in transit P52,000 and outstanding checks of P150,000. The statement showed deposit of P62,000 (not yet recognized in the company’s records) from one of the company’s customers representing advance payment for services to be rendered in the future. A check that cleared the bank amounting to P70,000 was recognized in the company’s disbursement records at P7,000. The bank statement also showed a disbursement of P10,000 which was related to a check issued by an unrelated entity. c. The bank statement from BPI revealed a balance of P440,000. Upon inspection of the bank statement and the company records, there were various deposits acknowledged by the bank during the last month of the period totaling P30,000 from unknown parties which were still to be verified by the entity. It is the entity’s practice to require online clients to make cash deposit slip for verification and proper application of payments Furthermore, there were still unaccounted deposits of P60,000 in the past months which were not yet reflected in the entity’s records. d. The BDO accounts are designated for donations and fund-raising activities related a building construction project. The closing rate for the year was $1 = P54 and the average rate was $1 = P40. Determine the following as a result of your audit: 1. How much is the cash shortage or overage on the petty cash fund? a. P380 overage b. P290 shortage c. P380 shortage d. P290 overage 2. How much is the adjusted balance of cash in bank – UCPB checking account? a. P252,000 b. P245,000 c. P235,000 d. P262,000 3. How much is the adjusted balance of cash in bank – BPI saving account? a. P350,000 b. P430,000 c. P440,000 d. P450,000 4. How much is the combined balance of the BDO accounts (in peso)? a. P100,000 b. P140,000 c. P154,000 d. P145,000 5. How much should be reported as cash in the statement of financial position? a. P703,500 b. P702,000

c. P666,500 d. P811,500

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CASE 2 In the course of the audit of Hastings Company’s cash in bank for the year ended December 31,2018, you ascertained the following information:

Cash per books Cash per bank statements Undeposited collections Outstanding checks Bank services charges Insufficient fund check Company’s notes receivable collected by bank

Nov. 30

Dec. 31

P60,350 535,410 40,005 138,590 6,300 41,250 434,775

P? 689,085 64,000 150,560 3,000 _ 656,800

The bank statement and the company’s cash records show the following totals: Checks and debit memos per bank statement P1,091,865 Cash receipts per cash record 1,125,510 Cash disbursements per cash records ? Deposits and credit memos per bank statement 1, 245,540 Additional information: a. The insufficient fund check was re-deposited in the same month. No entries were made to take up the return and redeposit. b. A P70,000 bank charge error in November was corrected by the bank in January of the following year, while a P120,000 deposit of Hatings Corp. was erroneously credited by the bank to the company’s account in December and corrected in December. c. A P13,000 disbursement check was recorded in November as P31,000. The error was discovered and corrected in December. d. A P20,000 customer collection was recorded in the books in December as P200,000, the error was detected and corrected in December. Determine the following as a result of your audit: 6. What is the adjusted cash balance as of November 30? a. P507,825 b. P606,825 c. P578,935 d. P605,835 7. What is the unadjusted book disbursement in December? a. P1,103,835 b. P1,078,935 c. P1,167,135 d. P1,125,510 8. What is the unadjusted cash balance per book as of December 31? a. P109,725 b. P81,425 c. P265,025 d. P87,825 9. What is the adjusted disbursement as of December 31? a. P983,835 b. P1,120,425 c. P953,275 d. P1,103,835 10. What is the correct cash balance as of December 31? a. P482,925 b. P532, 525 c. P439,185 d. P672,525 CASE 3 In connection with the audit of the financial statement of Prusia Inc. for the year ended December 31, 2020, you performed a surprises count of the petty cash fund and un-deposited collections under the custody of Ms. Queen at exactly 10:15 in the morning of January 12, 2021. Your count disclosed the following:

Bills P100 50 20

180 pieces 550 pieces 580 pieces

Coins P1.00 0.50 0.25

3,950 pieces 5,400 pieces 580 pieces

Unused postage stamps - P1,450 Page 2

Checks Date Dec 30 Dec 30 Dec 31 Dec 31 Dec 31 Dec 31

Payee Cash Prusia Inc. Prusia Inc. Prusia Inc. Prusia Inc. Danbury Corp

Drawer Prusia Inc. (replenishment) Anthony Eloise, sales manager Penelope Benedict Prusia Inc.

Amount P2,000 222,000 4,600 180,000 256,000 500,000

Expense Vouchers Date Dec 20 Dec 20 Dec 22 Dec 23 Dec 27 Dec 29 Dec 29 Jan. 2, ’21 Jan. 4, ’21

Payee Fitness First MilkDonalds Foods Kailan Gen. Merchandise Thanos, Sales Manager Post office Messengers Mac express Today Merchandise Trey Taxi

Description Amount Zumba fee P1,000 Meals during meeting 200 Bond Paper and Scissors 800 Cash advance for trip to Davao 40,000 Postage stamps 4,500 Transportation 2,500 Machinery Repair 4,500 Air fresher 1,000 Transportation 1,200

Other items found in the cash box a. Two pay envelopes with note outside “unclaimed salaries” of P55,000 which had been opened and the contents aggregating P50,000 had been found inside the envelope. b. Sales manager liquidation report for his London trip. Cash advance received P40,000 Less: Hotel accommodation P30,000 Air fare 2,000 Cash given to Star Lord, salesman 3,000 35,000 Balance P5,000 c. Accounted for as follows: Cash returned by Star Lord to the sales manager Personal check of sales manager Total

P400 4,600 P5,000

Additional information: d. The custodian is not authorized to encash checks. e. The last official receipt included in the deposit on December 30 is No. 3051 and the last official receipt issued for the current year is No. 3055. The following official receipts are all dated December 31, 2020. O.R. No. 3052 3053 3054 3055

Amount P71,000 222,000 50,000 256,000

Form of Payment Cash Check Cash Check

f. The petty cash balance per general ledger is P60,000. The last replenishment of the fund was made on December 20, 2020. Determine the following as a result of your audit: 11. Determine the amount of cash shortage or overage on petty cash fund, if any: a. P7,700 b. P3,500 c. P4,300 d. P5,200 12. How much is the total cash shortage or overage? a. P66,405 b. P74,405 c. P67,205 d. P65,605 13. How much is the adjusted balance of petty cash fund as of December 31?

a. b. c. d.

P13,100 P8,800 P4,300 P12,600

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14. While performing an audit of cash, an auditor begins to suspect check kiting. Which of the following is the best evidence that the auditor could obtain concerning whether kiting is taking place? a. Documentary evidence obtained by vouching credits on the latest bank statement to supporting documents. b. Documentary evidence obtained by vouching entries in the cash account to supporting documents. c. Oral evidence obtained by discussion with controller personnel. d. Evidence obtained by preparing a schedule of interbank transfers. 15. Two months before year-end, the bookkeeper erroneously recorded the receipt of a long-term bank loan by a debit to cash and a credit to sales. Which of the following is the most effective procedure for detecting this type of error? a. Analyze bank confirmation information. b. Analyze the notes payable journal. c. Prepare year-end bank reconciliation. d. Prepare a year-end bank transfer schedule. CASE 4 In connection with your examination of the financial statements of Twice Inc. for the year ended December 31, 2020, you were able to obtain certain information during your audit of the accounts receivable and related accounts. a. The December 31, 2020 net debit balance in the Accounts Receivable control accounts is P1,230,000. b. An aging schedule of the accounts receivable as of December 31, 2020 is presented below: % in the % net debit balance uncollectible (before adjustments) to applied Age 30 days and below 40% 1% 31 to 60 days 15% 5% 61 to 90 days 12% 10% 91-120 days 8% 20% Over 120 days 25% 30% You were able to obtain the following information with respect to specific customer accounts included in Twice’s accounts receivable control account: c. A purchased of goods on December 28 under freight term FOB Shipping point was recorded by the accountant as follows. Purchases 23,000 Accounts receivable 23,000 Further inquiries revealed that the goods are still in transit as of December 31, 2020. d. A confirmation of a customer account revealed the following items: Customer Per books Per confirmation Remarks The invoice dated 11/10/20 was erroneously priced at Sana 33,250 32,000 P33.25, agreed price per customer sales invoice is P32. The difference was due to invoice dated 12/15/20 was not received by Mina as the goods were damaged by fire in the Mina loading dock of Jihyo Shipping, the logistic company hired by Twice to deliver the goods. Twice paid P200 32,000 30,000 freight. Terms FOB Destination. The difference was due to the invoice dated 12/27/20. Goods have not been received by Dahyun yet as of Dahyun 56,700 46,000 12/31/20. Term of sale FOB Shipping point. Chaeyoung is liquidating for few months. Chaeyoung informed Twice that only 50% will be paid from the available resources of Chaeyoung as of December 31. The Chaeyoung credit and collection manager issued a credit memo for the write off of the uncollectible accounts. The invoice of 12,000 – Chaeyoung was dated June 15, 2020. e.

Sales made on account last October 15, 2020 in the amount P38,000 was paid by the customer on December 5, 2020 and was recorded twice by Twice accounting department.

f.

Your test of journal entries was made in the Doubtful Accounts Expense account during the period: • A debit on April 30 and December 31 for the amount of the credit to the Allowance for Doubtful Accounts representing provisions during the period. • A credit for P10,000 on November 30, 2020, and a debit to Allowance for Doubtful Accounts because of a bankruptcy. The related sales took place on October 28, 2020.

g. The Allowance for Doubtful Accounts schedule is presented below: Debit Credit Balance January 1, 2020 P12,725 April 30, 2020 P10,250 22,975 November 30, 2020 P10,000 12,975 December 31, 2020 7,500 P20,475 Page 4

Determine the following as a result of your audit: 16. What is the correct gross balance of Accounts receivable as of December 31? a. P1,282,450 b. P1,261,050 c. P1,271,750 d. P1,281,450 17. What is the balance of allowance for doubtful accounts as of December 31? a. P141,983 b. P142,090 c. P141,623 d. P141,876 18. How much is the doubtful accounts expense in 2020? a. P145,365 b. P145,258 c. P144,898 d. P145,151 19. What is the proposed adjusting journal entry to adjust the balance of allowance will include accredit to allowance of? a. P127,876 b. P127,148 c. P127,615 d. P127,508 20. The write-off of Chaeyoung’s account is evidenced by a credit memo issued by the credit and collection manager. As an auditor, do you think the action of the credit and collection manager is appropriate and the account shall be writtenoff? What is your reason? a. No, because the credit memo shall be issued by the accounting department and not by credit and collection department. b. No, there is no sufficient and appropriate evidence to support the write-off of the account. The credit memo is an internal document and shall not be used alone to support the write-off of the account. c. Yes, the credit and collection department have the authority to assess and approve the write-off of account. There is enough evidence to write-off the account. d. Yes, because there is no confirmation reply received from the customer therefore, it follows that the accounts receivable is no longer collectible and needs to be written-off. Nevertheless, credit memo was issued in relation to this account. CASE 5 The Borderland Company is a wholesale distributor of automotive replacements parts. Initial amounts taken from Borderland’s accounting records are as follows: Inventory at December 31, 2020 (based on physical count of goods in warehouse on December 31, 2020) P1,250,000 Sales in 2020 9,000,000 Accounts payable at December 31, 2020: Vendor Chota Company Arisu Company Karube Corp Niragi Inc. Asahi Inc. Total

Terms 3/10, n/30 n/30 n/30 n/30 n/30

Amount P365,000 210,000 200,000 125,000 100,000 1,000,000

Additional information: a. Parts held on consignment from Arisu to Borderland amounting to P155,000, were included in the physical count of goods in Borderland’s warehouse on December 31, 2020 and in accounts payable as of December 31, 2020. b. Parts in transit on December 31, 2020 to a customer, shipped FOB seller on December 28, 2020, costing P34,000. The customer received the parts on January 4, 2021. Sales for P40,000 to the customer for the parts were recorded by Borderland on January 4, 2021. c. Retailers were holding a P210,000 at cost (P250,000 at retail) of goods on consignment from Borderland at their stores as of December 31, 2020....