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College of Accounting Education3F Facundo Hall, Business and Engineering Building Matina Campus, Davao City Telefax: (082)300- Phone No.: (082) 305-0645 Local 137FINAL Examination – Applied Auditing 1 st SY 2017-INSTRUCTION: Follow the instruction in the special answer sheet.Problem 1 You are engage...

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College of Accounting Education 3F Facundo Hall, Business and Engineering Building Matina Campus, Davao City Telefax: (082)300-1496 Phone No.: (082) 305-0645 Local 137

FINAL Examination – Applied Auditing 1st SY 2017-2018 INSTRUCTION: Follow the instruction in the special answer sheet. Problem 1 You are engaged to audit the books of Yanguas Enterprise. From the records of the company, you gathered the following information: Yanguas Enterprises started its operation on October 2, 2017 with Tropico investing P150,000 cash. Monthly bank reconciliation statements have not been prepared; however, bank statements for October, November, and December were made available to you. Your analysis of these bank statements showed total bank credits (deposits) of P575,000 including Tropico’s initial investment and a bank loan, details of which are in the additional data. The bank statement in December 2017 showed an ending balance of P30,380. Examination of the paid checks disclosed that checks totaling P4,500 were issued by the company in December, 2017, and were presented for payments only in January 2018. Cash count of the cashier’s accountability amounted to P6,300. You were told by the cashier that P5,000 of these, in checks, were cash sales on December 28, 2017, deposited on January 3, 2018. The balance, in currency and coins, represents petty cash fund. Additional data: a.

Accounts receivable subsidiary ledgers had a total balance of P70,000 at December 31, 2017. P5,000 of this was ascertained to be uncollectible.

b.

Suppliers’ unpaid invoices for merchandise totaled P15,000, while an account for store fixtures bought for P50,000 had an unpaid balance of P5,000.

c.

Merchandise inventory at December 31, 2017 amounted to P30,000 but P5,000 of these were spoiled with no resale value.

d.

The bank statement in October showed a bank credit for P98,000, dated October 2, 2017. Inquiry from the cashier disclosed that the amount represents proceeds of a 90-day, discounted bank note. P80,000 of this loan was paid by check in December 2017.

e.

Operating expenses paid during the period totaled P180,000; while merchandise purchases amounted to P250,000.

f.

The gross profit rate is 120% of cost.

Questions: 1.

2.

3.

4.

5.

The unaccounted cash receipt is a. P 67,000 b. P 72,000

c. P 82,000

d. P 87,000

The unsupported and unrecorded disbursement is a. P 2,820 b. P 3,320 c. P 7,820

d. P 11,220

Total shortage is a. P 78,220

c. P 89,820

d. P 90,320

c. P 135,700

d. P 200,700

b. P 79,820

The cash per ledger before adjustment is a. P 119,400 b. P 120,700 The adjusted cash balance is

Final Exam – Audtg 421: Applied Auditing 1st Sem SY 2017-2018

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a. P 24,280

b. P 25,880

c. P 30,380

d. P 30,880

Solution: Collection from customers Purchases Less: Ending Inventory Cost of Sales Add: 120% Total Sales Less: AR Collections

250,000 30,000 220,000 264,000 484,000 70,000 414,000

Reconstruction of Cash Account Receipts: Investment Loan proceeds Collections from customer

150,000 98,000 414,000

662,000

Disb.

Petty Cash fund 1,300 Purchases (250,000 – 15,000) 235,000 Furniture 45,000 Loan repayment 80,000 Operating expenses 180,000 541,300 Balance Cash – December 31, 2009 120,700 Bank Reconciliation Unadjusted bal. Outstanding checks (4,500) Dep. In transit Total Shortage Adjusted balance

Per bank Outstanding checks Deposit in transit Adjusted bal. Per reconciliation Unaccounted receipts Unsupported disb.

Bank 30,380

Book 120,700

5,000 30,880 _____ 30,880

______ 120,700 (89,820) 30,880

Receipts 575,000 4,500 5000 580,000 662,000 82,000

disbursement 544,620 _______ 549,120 641,300 7,820

Problem 2 You are auditing the financial statements of Asidor Corporation for the year ended December 31, 2017. The internal control procedures surrounding cash transactions were not adequate. Marcela Ramos, the bookkeepercashier, handles cash receipts, maintains accounting records, and prepare the monthly reconciliations of the bank account. The bookkeeper-cashier prepared the following reconciliation at the end of the year. Balance per bank statement Add: Deposit in transit Note collected by bank Balance Less: Outstanding checks Balance per general ledger

P350,000 P175,250 15,000

190,000 P540,250 246,750 P293,500

In the process of your audit, you gathered the following: a. At December 31, 2017, the bank statement and the general ledger showed balances of P350,000 and P293,500, respectively. b. The cut-off bank statement showed a bank charge on January 2, 2018 for P30,000 representing a correction of an erroneous credit. c. Included in the list of the outstanding checks were the following:  A check payable to a supplier, dated December 29, 2017, in the amount of P14,750 released on January 5, 2018.  A check representing advance payment to a supplier in the amount of P37,210, the date of which is January 4, 2018, and released in December, 2017. d. On December 31, 2017, the company received and recorded customer’s postdated check amounting to P50,000.

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Final Exam – Audtg 421: Applied Auditing 1st Sem SY 2017-2018

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Required: 6. The adjusted deposit in transit at December 31, 2017: b. P125,250 a. P175,250 c. P225,250 7.

The adjusted outstanding checks as at December 31, 2017: a. P298,710 b. P232,000 c. P209,540

d. P125,000

d. P194,790

8.

The adjusted cash to be presented in the balance sheet as at December 31, 2017: b. P250,460 a. P235,460 c. P265,460 d. P310,460

9.

The cash shortage a. P45,000

10.

b. P58,040

The net adjustments to cash account a. P43,040 b. P60,000 Bank

Unadj. Bal DIT OC Error - over Receipt Unreleased check Company's PDC Customers' PDC

Adjusted bal.

350,000 Unadj. Bal 175,250 CM - notes (246,750) (30,000) 14,750 Unreleased check 37,210 Company's PDC (50,000) Customers' PDC 250,460 - Cash shortage 250,460 Adjusted bal.

DIT per book Customers' PDC Adjusted DIT

175,250 OC per book (50,000) Unreleased check 125,250 Company's PDC Adjusted OC

Cash per book Cash per audit Net Adjustment

293,500 250,460 43,040

c. P60,000

d. P8,040

c. P58,040

d. P45,000

Book 293,500 15,000

14,750 37,210 (50,000) 310,460 (60,000) 250,460 246,750 (14,750) (37,210) 194,790

Problem 3 In connection with your examination of the financial statements of Aguilar, Inc for the year ended December 31, 2019, you were able to obtain certain information during your audit of the accounts receivable and related accounts. The December 31, 2019 balance in the Accounts Receivable control accounts is P788,000. The only entries in the Doubtful Accounts Expense account were:  A credit for P1,296 on December 2, 2019 because Company A remitted in full for the accounts charged off on October 31, 2019; and  A debit on December 31 for the amount of the credit to the Allowance for Doubtful Accounts. The Allowance for Doubtful Accounts schedule is presented below: Debit January 1, 2019 October 31, 2019 Uncollectible accounts: Company A – P1,296 Company B – P3,280 Company C – P2,256 December 31, 2019

Credit

P6,032 P39,400

Balance P14,632

8,600 P48,000

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Final Exam – Audtg 421: Applied Auditing 1st Sem SY 2017-2018

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An aging schedule of the accounts receivable as of December 31, 2019 is presented below: Age

Net debit balance

0 to 1 month 1 to 3 months 3 to 6 months over 6 months

Amount to which the Allowance is to be Adjusted after adjustment and Corrections have been made 1 percent 2 percent 3 percent Definitely uncollectible, P4,000; P8,000 is considered 50% uncollectible; the remainder is estimated to be 80% collectible.

P372,960 307,280 88,720 24,000

There is a credit balance in one account receivable (0 to 1 month) of P8,000; it represents an advance on a sales contract. Also, there is a credit balance in one of the 1 to 3 months account receivable of P2,000 for which merchandise will be accepted by the customers. The ledger accounts have not been closed as of December 31, 2019. The Accounts Receivable control account is not in agreement with the subsidiary ledger. The difference cannot be located, and you decided to adjust the control account to the sum of the subsidiaries after corrections are made. Questions: Based on the above and the result of your audit, answer the following: 11.

How much is the adjusted balance of Accounts Receivable as of December 31, 2019? a. P794,000 b. P793,200 c. P802,960 d. P798,960

12. a. 13.

How much is the net adjustment to the Allowance for Doubtful Accounts? P28,943 debit c. P15,552 credit c. P24,493 debit a.

14. a. 15.

How much is the adjusted balance of the Allowance for Doubtful Accounts as of December 31, 2019? 19,057 b. 63,552 c. 23,057 d. 18,937

How much is the Doubtful Accounts expense for the year 2019? P18,411 b. P58,456 c. P13,841

d. P29,063 debit

d. P13,961

How much is the net adjustment to the Doubtful Accounts expense account? b. P24,143 credit a. P20,352 debit c. P24,263 credit

d. P19,693 credit

PROBLEM 9 GL

NET AMOUNT

SL - Net 788,000

792,960

372,960

307,280

88,720

24,000

(800) (4,000)

(4,000)

8,000

8,000

2,000

2,000

793,200

Required Allow. OE: Cash

798,960

19,057

380,960

309,280

-

-

88,720

20,000 8,000

12,000

x 1%

x 2%

x 3%

x 50%

X 20%

3,810

6,186

2,662

4,000

2,400

1,296 1,296

Allow. for DA Adj: Bad Debts

-

1,296

Bad Debts CE: Cash

2,000 798,960

5,760 798,960

(4,000)

8,000

1,296

Allow. for DA 6,832 4,000

1,296

14,632 1,296 13,961

DA Exp.

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Final Exam – Audtg 421: Applied Auditing 1st Sem SY 2017-2018

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Allow. for DA OE: Bad Debts

1,296 39,400

Allow. for DA CE: Bad Debts

39,400 13,961

Allow. for DA Adj: Allow. for DA

13,961 25,439

Bad Debts Adj: Allowance for DA

800

Sales

Per Audit

19,057

Adj. overstatement

28,943

39,400

4,000

1,296 38,104

8,000 8,000 2,000

Cust. with cr. Bal. Adj: Accnts. Receiv.

48,000

4,000

Adv. From cust. Adj: Accnts. Receiv.

Per Book

Bad Debts Exp

800

Accnts. Receiv Adj: Accnts. Receiv.

Allow. for DA

25,439

Accnts. Receiv Adj: Allowance for DA

19,057

2,000 5,760

Bad Debts: Per Book

38,104

Per Audit

13,961

Adj. overstatement

24,143

5,760

Problem 4 Angelo Company, a financing company, extended a loan to Alonso Corporation amounting to P10M on January 1, 2011 receivable five years after. The loan bears 10% annual interest collectible at the end of each year starting December 31, 2011. The company paid direct origination cost amounting to P300,000 and charged Alonso Corporation origination fees at P1,020,955. The yield on the loan under this arrangement was at 12%. The 2011 to 2013 interest were collected as scheduled. By the end of 2014, due to financial difficulties being experienced by Alonso Corporation, Alonso Corporation failed to pay the annual interest as scheduled and Angelo Company is doubtful as to the collectability of the remaining interest and the principal. After due consideration and correspondence with Alonso Corporation, Angelo Company estimated that it will be able to recover the following amounts at respective estimated dates: Amount P1,000,000 2,000,000 2,500,000 2,500,000

Expected recovery date December 31, 2015 December 31, 2016 December 31, 2017 December 31, 2018

Required: (round-off PV factor to 4 decimal places) 16.

What is the carrying value of the loans receivable as of December 31, 2014 before impairment? d. P 9,821,429 a. P 9,392,530 b. P 9,519,634 c. P 9,661,990

17.

How much is impairment loss on the receivable (including interest receivable) as of December 31, 2014? a. P 4,806,499 c. P 6,344,509 d. P 6,855,491 b. P 4,965,879

18.

What is the correct net book value of the receivable as of December 31, 2014? a. P 5,344,509 b. P 5,855,550 c. P 6,344,509 d. P 6,855,491

19.

Assume that in December 31, 2015, amounts were received as estimated, what is the balance of the receivable as of December 31, 2015? d. P 5,558,216 a. P 2,232,143 b. P 2,500,000 c. P 4,225,128

20.

Assume that in December 31, 2016, amounts were received as estimated, what is the correct interest income to be recognized in 2016? a. P 267,857 b. P 507,015 c. P 666,986 d. P 702,659

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Final Exam – Audtg 421: Applied Auditing 1st Sem SY 2017-2018

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Solution Int. Received

Int. Inc.

Amort

Amortized Cost 9,279,045

1/1/2011

1,000,000

1,113,485

113,485

9,392,530

12/31/2011

1,000,000

1,127,104

127,104

9,519,634

12/31/2012

1,000,000

1,142,356

142,356

9,661,990

12/31/2013

1,000,000

1,159,439

159,439

9,821,429

12/31/2014

Recoverable cost - based on original yield rate 1,000,000 x 0.8929

892,900

2,000,000 x 0.7972

1,594,400

2,500,000 x 0.7118

1,779,500

2,500,000 x 0.6355

1,588,750

5,855,550

Carrying value of loans (9,821,429 + 1,000,000)

10,821,429

Impairment loss

(4,965,879)

Int. Received

Int. Inc.

Amort

Principal

Amortized Cost 5,855,550

12/31/2014

-

-

702,666

1,000,000

5,558,216

12/31/2015

-

-

666,986

2,000,000

4,225,202

12/31/2016

-

-

507,024

2,500,000

2,232,226

12/31/2017

-

-

267,774

2,500,000

0

12/31/2018

Problem 5 Barangan Company has the following transactions in 2017 involving notes receivable: May 1

1

Received a P1,000,000, 90-day 12% interest bearing note from Barbosa Company in settlement of account. Received a P1,500,000, six-month, 12% interest bearing note from Barlovinto Company in settlement of account.

Jul. 30

Barbosa Company defaulted on the P1,000,000 note.

Aug. 1

Discounted the Barlovinto Company note at a bank at 15%.

Sept.1

Received a one-year noninterest bearing note from Bastunan in settlement of a P600,000 account receivable. The face value of the note was P660,000.

28

Collected the defaulted Barbosa Company note plus accrued interest at 12% per annum on the total amount due.

Oct.1

Received a P2,500,000, 90-day note from Batante. The note is for the payment goods purchased and bears interest at 12%.

Nov.1

Barlovinto defaulted on the P1,500,000 note, Barangan Company paid the bank the total amount due plus P60,000 for protest fee and other bank charges.

Dec.30

Collected Batante note in full.

Collected from Barlonvinto Company in full including interest on the total amount due at 12% since default date. Questions: Based on the above and the result of your audit, answer the following: 21.

The proceeds from discounted Barlovinto note on August 1, 2017 is P 1,530,375 b. P 1,542,300 c. P 1,487,062 a.

d. P 1,000,000

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Final Exam – Audtg 421: Applied Auditing 1st Sem SY 2017-2018

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22.

The amount collected on September 28, 2017 on the defaulted Barbosa Company note is P1,030,000 b. P 1,050,000 c. P 1,050,600 d. P 1,081,500

a. 23.

The amount collected on December 31, 2017 on defaulted Barlovinto note is a. P 1,683,000 b. P 1,681,800 c. P 1,650,000

24.

The interest income to be recognized in 2017 related to these transactions is P 128,600 b. P 248,975 c. P 158,975

a. 25.

d. P 1,680,000

d. P 223,600

Which of the following audit procedures provides the best evidence about the collectibility of notes receivable? a. Examination of cash receipts records to determine the best evidence about the principal payments. b. Reconciliation of the detail of notes receivable and the provision for uncollectible amount to the general ledger control. c. Confirmation of note receivable balances with the debtors. d. Examination of notes for appropriate debtors’ signatures.

PROBLEM 19 Notes Receiv. Barbosa

Acc. Int.

Int. Inc.

Liab. On NR disc.

Int. Expense

Accn. Receiv.

1,000,000 (1,000,000)

Barlovinto

30,000

1,030,000

20,600

(1,030,000)

1,500,000 45,000 (1,500,000)

(1,500,000)

14,625

1,500,000

1,650,000

33,000 Bastunan

660,000

Batante

(1,650,000)

20,000

2,500,000 (2,500,000)

12/31/17 bal.

75,000

660,000

-

223,600

-

14,625

-

P = 1,590,000 - 59,626 = 1,530,375 Cash

1,530,375

Int. Exp

14,625

Liab. On NR disc.

1,500,000

Interest income OE: NR

45,000 660,000

Accnts. Receiv. Unearned int. inc.

600,000 60,000

Problem 6 You have been engaged for the audit of the Aude Company for the year ended December 31, 2017. The Aude Company is engaged in the wholesale business and makes all sale at 30% gross profit based on sales price. Portions of the client’s Sales and Purchases accounts follow.

Date 12/31

...