Quizzer in Auditing Problems PDF

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Punongbayan&Araullo’sAuditingProblemsQuizEASY On July 01, 2007, one of FLOYD INC.'S delivery trucks was destroyed in an accident. On that date, the truck's book value was P900,000. On July 15, 2007, FLOYD INC. received and recorded a P42,000 invoice for a new engine installed in the truck in...

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Punongbayan & Araullo’s Auditing Problems Quiz

EASY 1.

On July 01, 2007, one of FLOYD INC.'S delivery trucks was destroyed in an accident. On that date, the truck's book value was P900,000. On July 15, 2007, FLOYD INC. received and recorded a P42,000 invoice for a new engine installed in the truck in May 2007 and another P6,000 invoice for various repairs. What amount should FLOYD INC. use to determine the gain or loss on disposal of the truck? a.P900,000 b.P94 b.P942,000 2,000 c.P948,000 d.P936,000

2.

Henry Company had the following bank reconciliation at March 31: Balance per bank statement, March 31 Add deposit in transit

P

Less outstanding checks Balance per books, March 31

P

93,000 20,600 113,600 25,200 88,400

Data per bank statement for the month of April follow: Deposits Disbursements

P P

116,800 99,400

P

All reconciliation items at March 31 cleared through the bank in April. Outstanding checks at April 30 totaled P15,000. What is the amount of cash disbursements per books in April? a.P 89,200 b.P 99,400 c.P109,600 d.P114,400

3.

BRAND CO. reported P9,000 of net income for 2007. The correct net income however was was determined that the ending inventory was overstated by P1,000. The only other error was with the beginning inventory which must have been: a. Understated by P1,000 b. Understated by P3,000 c. Overstated by P1,000 d. Overstated by P3,000

4.*

On December 30, 2007, SWIFT CO. shipped to a customer merchandise with selling price of P37,500; terms net 30, FOB Shipping Point. The sale which is 125% of cost was recorded in January 2007 when the check was received from the customer. Ending inventory was determined by physical count on December 31, 2007. As a result of the above transactions, SWIFT CO.’s cost of goods sold for the year ended December 31, 2007 was: a. Understated by P3,000 b. Overstated by P30,000 c. Overstated by P37,500 d. Correctly stated

5.

BART Company started operations on January 01, 2008. The following are available as of June 30, 2008: Purchase of merchandise P 450,000 Inventory, June 30, 2008 75,000 Goods were sold at 50% above cost; 75% ofsales were on account Estimated bad debts 1% of credit sales Collections from charge customers 315,000 Allowance for doubtful accounts, June 30,2008 after write off of uncollectible accounts 3,903.75 The outstanding accounts receivable as of June 30, 2008 were: a.P110,000 b.P106,875 c.P106,560

P11,000. It

d.P285,000

6.

PRIME Co. received from a customer a one year, P500,000 note bearing annual interest of 8%. After holding the note for six months, PRIME discounted the note at Asian Bank at an effective interest rate of 10%. At the date of discounting, PRIME should recognize a. P 40,000 interest revenue b. P23,810 interest revenue c. P13,00 P13,000 0 interest revenue d. P 4,762 interest expense

7.

Information pertaining to Trace Company for the month of August appears below: Balance per bank statement P 310,000 Balance per books 187,500 Deposit in transit 70,000 Service charges 2,500 Note collected by bank 75,000 Outstanding checks ? An analysis of the cancelled checks returned with the bank statement reveals the following: a. Check for the purchase of merchandise was drawn for P155,000 but was recorded as P150,000. b. The management wrote a check for traveling expenses of P25,000 while out of town. The check was not recorded. What is the amount of outstanding checks on August 31, 2006? a.P150,000 b.P140,000 c.P125,000 d.P230,000

8.

The inventory on hand on December 31, 2006 of LEISA CORP. is valued at a cost of P300,000. The following items were not included in the inventory: a. Purchased goods in transit shipped FOB Destination, with price of P30,000 which included freight charge of P5,000. b. Goods held on consignment by LEISA CORP. at a sales price of P10,000, excluding a 20% commission on the sales price. Freight paid by LEISA CORP. was P1,000. c. Goods sold in transit FOB Destination with invoice price of P49,000 which included freight charge of P4,000 to deliver the goods. d. Purchased goods in transit FOB Shipping Point with invoice price of P60,000. Freight costs amount to P6,000. Goods out on consignment with sales price of P30,000. Shipping costs amounts to P3,000. What is the correct inventory on December 31, 2006 assuming LEISA’s selling price is 150% of costs? a.P419,000 b.P416,000 c.P410,000 d.P 17,500

9.

In analyzing the shareholders’ equity section of the PEARSON CORP. The following information was abstracted from the accounts at December 31, 2007: Total income since incorporation P 7,875,000 Total cash dividends paid 2,437,500 Proceeds from sale of donated stock 843,750 Total value of stock dividends distributed 562,500 Excess of proceeds over cost of treasury stock sold 131,250 What should be the balance of the Retained earnings account as of December 31, 2007? a.P 4,875,000 b. P 6,218,750 c. P 7,031,250 d. P 10,031,250

10.

Still Trading made investments in available for sale securities. The Unrealized gain or loss account has a debit balance of P38,700 at December 31, 2006. An analysis of the investment account on December 31, 2006 showed the following: No. of shares Cost Market A common 600 shares P922,500 P810,000 B common 225 shares 229,500 270,000 C common 2,000 shares 808,500 841,800 On July 01, 2007, the shares of B common were sold for P210,000. On December 31, 2007, A shares were quoted at P1,320 per share and C common shares were quoted at P414 per share. How much is the required increase in the Unrealized gain or loss account at the end of 2007? a.P130,500 b.P111,000 c.P 91,800 d.P 31,800

AVERAGE 1. While preparing its 2008 financial statements, Dell Corp. discovered computational errors in its 2007 and 2006 depreciation expenses. These errors resulted in the overstatement of each year’s income by P25,000 net of income taxes. The following amount were reported in the previously issued financial statements. 2007 2006 Retained earnings, January 1 700,000 500,000 Net income 150,000 200,000 Retained earnings, December 31 850,000 700,000 Dell Corp. net income is correctly reported at P180,000.

2.

Which of the following amounts should be reported as prior period adjustments and net income in Dell Corp.’s 2008 and 2007 comparative financial statements? Year Prior period Adj. Net Income a. 2007 150,000 2008 ( 50,000) 180,000 b. 2007 ( 50,000) 150,000 2008 180,000 c. 2007 ( 25 25,000) ,000) 12 125,000 5,000 2008 180,000 d. 2007 125,000 2008 180,000 Henri Company purchased for cash on January 01, 2003, three machines which cost a total of P1,800,000. Estimated selling prices of the machines were: Machine 1 P 600,000 Machine 2 750,000 Machine 3 900,000

The machines were believed to have a useful life of 10 years without residual value. The company records depreciation annually on a monthly basis. On January 01, 2006, Machine 1 was sold for P375,000 cash. The proceeds were credited to the Machinery account. On July 01, 2007, Machine 3 was traded in for a new machine (No. 4) which had a cash price of P750,000, Henri paying P300,000 for the difference with the trade in value of the old machine. What should be the balance of the Accumulated depreciation – Machinery on December 31, 2007 after adjustment of the books? a.P805,500 b.P481,500 c.P337,500 d.P387,500

3.The following data are taken from the shareholders’ equity section of the balance sheet of FLOOD CORP. 12.31.06 12.41.07 Ordinary shares (P100 par value) 625,000 637,500 Share premium in excess of par 312,500 362,500 Retained earnings 625,000 653,750 During 2007, the company declared and paid cash dividend of P93,750 and also declared and issued a stock dividend. There were no other changes in stock issued and outstanding during 2007. Net income for 2006 is: a. P 28,750 b. P 122,500 c. P 135,000 d. P 185,000 4.

During 2007, Pen Corporation acquired common stock of Rap Company as follows: LOT DATE NO. OF SHARES COST PER SHARE TOTAL COST A January 25 800 560 448,000 B April 5 600 600 360,000 Rap Company issued a 20% stock dividend on February 14, 2007. Common stock rights were issued on October 30, 2007 entitling holders to purchase one new common share at P450 for each ten shares held. On this date, the rights were being traded at P20 each and the stock ex-rights were being traded at P620 per share. On November 8, 2007, Pen sold 500 rights that pertained to Lot A. Sales price was P25 per right. The corporation paid a brokerage fee of P500 on the sale of the stock rights. Pen exercised the remaining rights on November 11, 2007. The gain on the sale of right is: a.P5,208 b.P4,708

c.P3,750

d.P3,250

5.

Use the same information used in Number 4. How many new shares of RPP common were acquired by Peninsula through the exercise of the stock rights? a.168 shares b.140 shares c.118 shares d.106 shares

6.

On July 1, 2007, Marcus Company purchased 4,000 of the P1,000 face amount , 8% bonds of Olay Corporation for P3,692,000 to yield 10% per annum. The bonds which mature on July 1, 2010, pay interest semiannually on January 1 and July 1. Marcus Company classifies the securities as held to maturity. What is the investment carrying value at December 31, 2007? a.P3,975,400 b.P3,741,200 c.P3,716,600

7.

d.P3,667,400

Use the same information in number 6 above. How much is the interest revenue reported by Marcus Company’s income statement for year ended December 31, 2007? a.P200,000 b.P190,800 c.P184,600 d.P160,000

Use the following information for questions 8 and 9. Cline Company's December 31 year-end financial statements contained the following errors: Dec. 31, 2007 Dec. 31, 2008_________ Ending inventory P3,000 understated P4,400 overstated Depreciation expense P 800 understated An insurance premium of P7,200 was prepaid in 2007 covering the years 2007, 2008, and 2009. The prepayment was recorded with a debit to insurance expense. In addition, on December 31, 2008, fully depreciated machinery was sold for P3,800 cash, but the sale was not recorded until 2009. There were no other errors during 2007 or 2008 and no corrections have been made for any of the errors. Ignore income tax considerations.

8.

What is the total net effect of the errors on the amount of Cline's working capital at December 31, 2008? a.Working capital overstated by P2,000. b.Working capital overstated by P600. c.Working capital unde understated rstated by P1,800. d.Working capital understated by P4,800.

9.

What is the total effect of the errors on the balance of Cline's retained earnings at December 31, 2008? a.Retained earnings understated by P4,000. b.Retained earnings understated by P1,800. c.Retained earnings understated by P1,000. d.Retained earnings overstated by P1,400.

10.

In your examination of the books and accounts of PLUM Company for the year 2008, you have noted that the entire past due accounts of the company amounting to P200,000 should be set up as Allowance for Doubtful accounts. On these past due accounts, management with proper recommendation from the company’s legal counsel, has decided to write off accounts with balance totaling P40,000. As of December 31, 2008, the balance of Allowance for Doubtful Accounts was P125,000. The additional provision required for the company’s doubtful accounts is: a.P 35,000 b.P 75,000 c.P160,000

d.P200,000

DIFFICULT Items 1 and 2 are based on th the e following: CONCORD CO. purchased real property for P3,225,000 which included P67,500 for realty tax arrears for prior years. A mortgage of P1,500,000 was assumed by CONCORD CO. on the purchase. Twenty percent of the purchase price should be allocated to the land and the balance to the building....