ACCP302 Project Questions PDF

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AUDIT OF CASH SAMPLE PROBLEMSCHAPTER 7 CASH AND CASH EQUIVALENTSCurrent account at Metrobank P2, 000, Current account at BPI (100,000) Payroll account 500, Foreign bank account – restricted (in equivalent pesos) Postage stamps 1, Employee’s post-dated check 4, IOU from controller’s sister 10, Credit...

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AUDIT OF CASH SAMPLE PROBLEMS CHAPTER 7 CASH AND CASH EQUIVALENTS Current account at Metrobank Current account at BPI Payroll account Foreign bank account – restricted (in equivalent pesos) Postage stamps Employee’s post-dated check IOU from controller’s sister Credit memo from a vendor for a purchase return Traveler’s check Not-sufficient-funds check Money order Petty cash fund (P4, 000 in currency and exp. receipts for P6, 000) Treasury bills, due 3/30/20 (purchased 12/29/19) Treasury bills, due 1/31/20 (purchased 2/1/19)

P2, 000,000 (100,000) 500,000 1,000 4,000 10,000 20,000 50,000 15,000 30,000 10,000 200,000 300,000

1. Compute for the cash and cash equivalents that will be reported on Dec 31, 2019. a. P2, 784,000 b. P3, 084,000 c. P2, 790,000 d. P2, 704,000 SOLUTIONS: Current account at Metrobank Payroll account Traveler’s check Money order Petty cash fund (P4, 000 in currency) Treasury bills, due 3/31/20 (purchased 12/29/19) TOTAL

P2, 000,000 500,000 50,000 30,000 4,000 200,000 P2, 784,000

PAS 7 par. 6 defines cash and cash equivalents as follows: Cash – comprises cash on hand and demand deposits Cash equivalents – short term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. An investment normally qualifies as a cash and cash equivalent only when it has a short maturity of, say, three months or less from date of acquisition. 2. You noted the following composition of JOSHI Company’s “cash account” as of December 31, 2019 in connection with your audit: Demand deposit account Time deposit – 30 days NSF check of customer Money market placement (due 6/30/19)

P2, 000,000 1,000,000 40,000 1,500,000

Savings deposit in a closed bank IOU from employee Pension fund Petty cash fund Customer’s check dated 1/1/20 Customer’s check outstanding for 18 months TOTAL

100,000 20,000 3,000,000 10,000 50,000 40,000 P7, 760,000

Additional information: a. Check of P200, 000 in payment of accounts payable was recorded on 12/31/2019 but mailed to suppliers on 1/5/2020 b. Check of P100, 000 dated 1/5/2020 in payment of accounts payable recorded and mailed on 12/31/2019 c. The company uses the calendar year. The cash receipts journal was held open until 1/15/2020, during which time P400,000 was collected and recorded on 12/31,2019 Compute for the cash and cash equivalents to be shown in 12/31/2019 statement of financial position. a. P3, 310,000 b. P1, 910,000 c. P2, 910,000 d. P4, 410,000 SOLUTIONS: Demand deposit account as adjusted: Demand deposit account per books Undelivered check Postdated check issued Window dressing of collection Time deposit – 30 days Petty cash fund Cash and cash equivalents

P2, 000,000 200,000 100,000 (400,000)

P1, 900,000 1,000,000 10,000 P2, 910, 000

PAS 7 par. 6 defines cash and cash equivalents as follows: Cash – comprises cash on hand and demand deposits Cash equivalents – short term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. An investment normally qualifies as a cash and cash equivalent only when it has a short maturity of, say, three months or less from date of acquisition. 3. JOSHI Company provided the following information at year-end: Cash 1,500,000 Accounts receivable 1,200,000 Inventory, including inventory expected in the ordinary course of operations to be sold beyond 12 months amounting to P700, 000 1,000,000

Financial asset held for trading Equity investment at fair value through OCI Equipment held for sale Deferred tax asset

300,000 800,000 2,000,000 150,000

What amount should be reported as total current assets at year-end? a. 6,000,000 b. 4,000,000 c. 6,800,000 d. 4,800,000 SOLUTIONS: Cash Accounts receivable Inventory Financial asset held for trading Equipment held for sale Total Current Assets

1,500,000 1,200,000 1,000,000 300,000 2,000,000 6,000,000

In the absence of statement to the contrary, equity investment at fair value through other comprehensive income shall be classified as noncurrent asset. Under IFRS, deferred tax asset is a noncurrent asset. Under IFRS, noncurrent asset held for sale is a current asset. 4. JOSHI Company reported the following current assets at year-end: Cash Accounts receivable Inventory, including goods received on consignment P200, 000 Bond investment at fair value through other comprehensive income Prepaid expenses, including a deposit of P50, 000 made on inventory to be delivered in 18 months Total current assets

5,000,000 2,000,000

150,000 8,950,000

Cash in general checking account Cash fund to retire 5-year bonds payable Cash held to pay value added taxes Total cash

3,500,000 1,000,000 500,000 5,000,000

800,000 1,000,000

What total amount of current assets should be reported at year-end? a. 6,750,000 b. 6,700,000 c. 7,700,000 d. 7,750,000

SOLUTIONS: Cash (3,500,000 + 500,000) Accounts receivable Inventory (800,000 – 200,000) Prepaid Expenses (150,000 – 50,000) Total Current Assets

4,000,000 2,000,000 600,000 100,000 6,700,000

The goods received on consignment should be excluded from inventory. The cash fund to be used to retire bonds payable in 2021 should be classified as noncurrent because the bonds mature in more than one year. The bond investment at fair value through other comprehensive income is a noncurrent asset. 5. JOSHI Company reported the following current assets at year-end : Cash Accounts receivable Notes receivable, net of discounted note of P500, 000 Inventory Deferred charges

4,500,000 7,900,000 2,000,000 4,000,000 1,000,000 19,400,000

Accounts receivable comprised the following: Trade accounts receivable Allowance for doubtful accounts Claim against shipper for goods lost in transit Selling price of JOSHI Company’s unsold goods sent to QUIMCO Company as consignment at 150% of cost and excluded from JOSHI’s ending inventory

5,000,000 (500,000) 400,000

3,000,000 7,900,000

What amount should be reported as total current assets at year-end? a. 17,400,000 b. 17,000,000 c. 18,400,000 d. 15,400,000 SOLUTIONS: Cash Accounts receivable Allowance for Doubtful Accounts Notes receivable Claim receivable Inventory (4,000,000 + 2,000,000) Total Current Assets

4,500,000 5,000,000 (500,000) 2,000,000 400,000 6,000,000 17,400,000

The selling price of the unsold goods out on consignment is excluded form accounts receivable but the cost of the goods should be included in inventory. The cost of goods out on consignment is

P3, 000,000 divided by 150% or P2, 000,000. The discount note receivable is properly netted against the total notes receivable. The deferred charges are noncurrent because technically they expire in more than one year after the reporting period.

CHAPTER 8 BANK RECONCILIATION 6. In preparing the bank reconciliation for the month of August, JOSHI Company provided the following information: Balance per bank statement Deposit in transit Return of customer check for insufficient fund Outstanding checks Bank service charge for August

1,805,000 325,000 60,000 275,000 10,000

What is the adjusted cash in bank? a. b. c. d.

1,855,000 1,795,000 1,785,000 1,755,000

SOLUTIONS: Balance per bank Deposit in transit Total Outstanding checks Adjusted bank balance

1,805,000 325,000 2,130,000 (275,000) 1,855,000

The customer check which is returned for insufficient fund and the bank service charge are ignored because these are book reconciling items. 7. JOSHI Company provided the bank statement for the month of December which included the following information: Ending balance, December 31 Bank service charge for December Interest paid by bank to JOSHI Company for December

2,800,000 12,000 10,000

In comparing the bank statement to its own cash records, the entity found the following: Deposits made but not yet recorded by the bank Checks written and mailed but not yet recorded by the bank

350,000 650,000

In addition, the entity discovered that it had drawn and erroneously recorded a check for P46, 000 that should have been recorded for P64, 000.

What is the cash balance per ledger on December 31? a. 2,500,000 b. 2,520,000 c. 2,540,000 d. 2,800,000 SOLUTIONS: Balance per bank Deposits in transit Outstanding checks Adjusted bank balance

2,800,000 350,000 (650,000) 2,500,000

Balance per ledger (SQUEEZE) Interest Income Service charge Book error (64,000 – 46,000) Adjusted book balance

2,520,000 10,000 (12,000) (18,000) 2,500,000

The cash balance per book is “squeezed” by working back from the adjusted balance 8. JOSHI Company provided the bank statement for the month of April which included the following information: Bank service charge for April Check deposited by JOSHI during April was not collectible and has been marked “NSF” by the bank and returned

15,000

40,000

In comparing the bank statement to its own records, the entity found the following: Deposits made but not yet recorded by bank Checks written and mailed but not yet recorded by bank

130,000 100,000

All deposits in transit and outstanding checks have been properly recorded in the entity’s books. A customer check for P35, 000 payable to JOSHI Company had not yet been deposited and had not been recorded by the entity. The cash in bank account balance per ledger is P920,000. What amount should be reported as adjusted cash in bank on April 30? a. 900,000 b. 865,000 c. 930,000 d. 965,000

SOLUTIONS: Balance per ledger Unrecorded customer check Bank service charge NSF check Adjusted book balance

920,000 35,000 (15,000) (40,000) 900,000

The deposits in transit and checks outstanding are ignored because these are bank reconciling items. CHAPTER 9 PROOF OF CASH 9. JOSHI Company prepared the following bank reconciliation on June 30: Balance per bank Deposits in transit Outstanding checks Balance per book

9,800,000 400,000 (1,400,000) 8,800,000

There were total deposits of P6, 500,000 and charges for disbursements of P9, 000,000 for July per bank statement. All reconciliation items on June 30 cleared the bank on July 31. What is the cash balance per ledger on July 31? a. 8,800,000 b. 8,500,000 c. 6,300,000 d. 7,500,000 SOLUTIONS: Bank receipts for July Deposits in transit - June 30 Deposits transit – July 31 Book receipts in July

6,500,000 (400,000) 1,200,000 7,300,000

Balance per book – June 30 Book receipts for July Book disbursements for July Balance per book – July 31

8,800,000 7,300,000 (8,600,000) 7,500,000

The balance per book on July 31 is also the adjusted book balance because there are no book reconciling items 10. JOSHI Company had the following bank reconciliation on March 31: Balance per bank statement, March 31 Add: Deposits in transit Total Less: Outstanding checks

4,650,000 1,030,000 5,680,000 1,260,000

Balance per book, March 31 Data per bank statement for the month of April:

4,420,000

Deposits Disbursements

5,840,000 4,970,000

All reconciliation items on March 31 cleared through the bank in April. Outstanding checks on April 30 totaled P700,000 and there were no deposits in transit on April 30. What is the cash balance per book on April 30? a. 4,820,000 b. 5,290,000 c. 5,520,000 d. 5,850,000 SOLUTIONS: Balance per bank statement, March 31 Bank deposits – April Bank disbursements – April

4,650,000 5,840,000 (4,970,000)

Balance per bank – April 30 Outstanding checks – April 30 Adjusted cash in bank – April 30

5,520,000 (700,000) 4,820,000

The adjusted cash in bank on April 30 is also the cash balance per book on April 30 because there are no book reconciling items. AUDIT OF RECEIVABLES SAMPLE QUESTIONS CHAPTER 10 ACCOUNTS RECEIVABLE 1. JOSHI Company provided the following information for the current year: Accounts receivable on January 1 Credit sales Collections from customers, excluding recovery Accounts written of Collection of accounts written of in prior year (customer credit was not established) Estimated uncollectible receivables per aging of receivables at December 31

1,300,000 5,400,000 4,750,000 125,000 25,000 165,000

What is the balance of accounts receivable, before allowance for doubtful accounts on December 31? a. 1,825,000 b. 1,850,000 c. 1,950,000

d. 1,990,000

SOLUTIONS: Accounts receivable – January 1 Add: Credit Sales Total Less: Collection from customers Accounts written of Accounts receivable – December 31

1,300,000 5,400,000 6,700,000 4,750,000 125,000

4,875,000 1,825,000

The recovery of accounts written of does not afect the balance of accounts receivable because the efect is ofsetting. 2. JOSHI Company reported the following information at year-end: Trade accounts receivable Allowance for uncollectible accounts Claim against shipper for goods lost in transit in November Selling price of unsold goods sent by Miami on consignment at 130% of cost and not included in Miami’s ending inventory Security deposit on lease of warehouse used for storing some inventories Total

930,000 (20,000) 30,000

260,000 300,000 1,500,000

What total amount should be reported as trade and other receivables under current assets at yearend? a. 940,000 b. 1,200,000 c. 1,240,000 d. 1,500,000 SOLUTIONS: Trade accounts receivable Allowance for uncollectible accounts Claim receivable Total trade and other receivables

930,000 (20,000) 30,000 940,000

The selling price of goods on consignment is excluded from accounts receivable because the goods are still unsold. The cost of the consigned goods of P200, 000(260,000/130%) should be included in inventory. The security deposit is a noncurrent receivable. 3. JOSHI Company provided the following data for the current year: Accounts receivable, January 1 Credit sales

650,000 2,700,000

Sales returns Accounts written of Collection from customers Estimated future sales returns at Dec. 31 Estimated uncollectible accounts at 12/31 per aging

75,000 40,000 2,150,000 50,000 110,000

What is the amortized cost of accounts receivable on December 31? a. 1,200,000 b. 1,125,000 c. 1,085,000 d. 925,000 SOLUTIONS: Accounts receivable – January Credit sales Total Less: Collections from customers2,150,000 Accounts written of 40,000 Sales returns 75,000 Accounts receivable – December 31 Accounts receivable Less: Allowance for doubtful accounts Allowance for doubtful accounts Net realizable value

650,000 2,700,000 3,350,000

2,265,000 1,085,000 1,085,000

110,000 50,000

160,000 925,000

The amortized cost of accounts receivable is the same as the net realizable value. 4. JOSHI Company received from customer a one-year, P500,000 note bearing annual interest of 8%. After holding the note for six months, the entity discounted the noted without recourse at 10%. What amount of cash was received from the bank? a. 540,000 b. 523,810 c. 513,000 d. 495,238 SOLUTIONS: Principal Add: Interest (500,000 x 8%) Maturity value Less: Discount (540,000 x 10% x 6/12) Net proceeds

500,000 40,000 540,000 27,000 513,000

Principal Accrued interest receivable (500,000 x 8% x 6/12) Carrying amount of the note receivable

500,000 20,000 520,000

Net proceeds Carrying amount of note receivable Loss on note receivable discounting

513,000 (520,000) (7,000)

Maturity value – principal plus interest for the “full” term of the note Interest – principal times interest rate times the full term of the note Discount – maturity value times discount rate x discount period 5. JOSHI Company prepared an aging of accounts receivable on December 31 and determined that the net realizable value of the accounts receivable was P2, 500,000. Allowance for doubtful accounts on January 1 Accounts written of as uncollectible Accounts receivable on December 31 Uncollectible accounts recovery

280,000 230,000 2,700,000 50,000

What amount should be recognized as doubtful accounts expense for the current year? a. 230,000 b. 200,000 c. 150,000 d. 100,000 SOLUTIONS: Allowance for doubtful accounts – January 1 Recovery of accounts written of Doubtful accounts expense (SQUEEZE) Total Accounts written of Allowance for doubtful accounts – December 31

280,000 50,000 100,000 430,000 (230,000) 200,000

Since the December 31 accounts receivable balance is P2, 700,000 and the net realizable value is P2, 500,000, the December 31 allowance for doubtful accounts should be P200, 000. The doubtful accounts expense is “squeezed” by working back from the December 31 allowance for doubtful accounts of P200, 000. AUDIT OF INVENTORIES SAMPLE QUESTIONS 1. JOSHI Company has incurred the following costs during the current year. Cost of purchases based on vendor’s invoices Trade discounts on purchases already deducted from vendors’ invoices Import duties Freight and insurance on purchases Other handling costs relating to imports Salaries of accounting department Brokerage commission paid to agents for arranging imports Sales commission paid to sales agents

5,000,000 500,000 400,000 1,000,000 100,000 600,000 200,000 300,000

After-sales warranty costs

250,000

What is the total cost of purchases? a. 5,700,000 b. 6,100,000 c. 6,700,000 d. 6,500,000 SOLUTIONS: Cost of purchases Import duties Freight and insurance Other handling costs Brokerage commission Total cost of purchases

5,000,000 400,000 1,000,000 100,000 200,000 6,700,000

The salaries of accounting department, sales commission and after-sales warranty costs are not inventoriable but should be expensed immediately. 2. JOSHI Company’s usual sales are net of 60 days, FOB shipping point. Sales, net of returns and allowances, totalled P9, 200,000 for the year ended December 31, 2019, before year-end adjustments. 

  

On December 27, 2019, JOSHI authorized a customer to return, for full credit, goods shipped and billed at P200, 000 on December 15, 2019. The returned goods were received by JOSHI on January 4, 2020 and a P200, 000 credit memo was issued and recorded at the same date. Goods with an invoice amount of P300, 000 were billed and recorded on January 3, 2020. The goods were shipped on December 30, 2019. Goods with an invoice amount of P400,000 were billed and recorded on December 30, 2019. The goods were shipped on January 3, 2020. On January 5, 2020, a customer notified JOSHI that goods billed and shipped on December 21, 2019 were lost in transit. The invoice amount was P500,000.

What amount should be reported as net sales for 2019? a. 9,300,000 b. 9,100,000 c. 8,400,000 d. 8,900,000 SOLUTIONS: Net sales per book Sales returns Goods shipped on Dec. 30, 2019 but recorded on Jan. 3, 2020 Goods shipped on Jan. 3, 2020 erroneously recorded on Dec. 30, 2019 Adjusted net sales

9,200,000 (200,000) 300,000 (400,000) 8,900,000

The goods sold and lost in transit are properly included in sales because the customer will sufer the loss since the term is FOD shipping point. 3. JOSHI Company reported inventory on December 31, 2019 at P6,000,000 based on physical count of goods priced at cost and before any necessary year-end adjustments relating to the following: 



Included in the physical count were goods billed to a customer FOB shipping point on December 30, 2019. These goods had a cost of P...