Sample/practice exam 18 October Autumn 2019, questions and answers PDF

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MODULE # 5 Post-test AUDIT OF INVENTORYPROF. U. VALLADOLIDMultiple Choice Identify the choice that best completes the statement or answers the question. Presented below is a list of items that may or may not reported as inventory in a company’s December 31 statement of financial position. Goods out ...

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MODULE # 5 Post-test AUDIT OF INVENTORY PROF. U.C. VALLADOLID Multiple Choice Identify the choice that best completes the statement or answers the

question.

1. Presented below is a list of items that may or may not reported as inventory in a company’s December 31 statement of financial position. 1. Goods out on consignment at another company’s store 2. Goods sold on installment basis 3. Goods purchased f.o.b. shipping point that are in transit at December 31 4. Goods purchased f.o.b. destination that are in transit at December 31 5. Goods sold to another company, for which our company has signed an agreement to repurchase at a set price that covers all costs related to the inventory 6. Goods sold where large returns are predictable 7. Goods sold f.o.b. shipping point that are in transit December 31 8. Freight charges on goods purchased 9. Factory labor costs incurred on goods still unsold 10. Interest cost incurred for inventories that are routinely manufactured 11. Costs incurred to advertise goods held for resale 12. Materials on hand not yet placed into production 13. Office supplies 14. Raw materials on which a the company has started production, but which are not completely processed 15. Factory supplies 16. Goods held on consignment from another company 17. Costs identified with units completed but not yet sold 18. Goods sold f.o.b. destination that are in transit at December 31 19. Temporary investment in stocks and bonds that will be resold in the near future

800,000 100,000 120,000 200,000

300,000 280,000 120,000 80,000 50,000 40,000 20,000 350,000 10,000 280,000 20,000 450,000 260,000 40,000 500,000

How much of these items would typically be reported as inventory in the financial statements? a. 2,300,000 c. 2,260,000 b. 2,000,000 d. 2,220,000 2. Sales and purchases cutoff Rosalina Company is on a calendar year basis. The following data were found during your audit:

a. Goods in transit shipped FOB destination by a supplier, in the amount of 100,000, had been excluded from the inventory, and further testing revealed that the purchase had been recorded. b. Goods costing 50,000 had been received, included in inventory, and recorded as a purchase. However, upon your inspection the goods were found to be defective and would be immediately returned. c. Materials costing 250,000 and billed on December 30 at a selling price of 320,000, had been segregated in the warehouse for shipment to a customer. The materials had been excluded from inventory as a signed purchase order had been received from the customer. Terms, FOB destination. d. Goods costing 70,000 was out on consignment with Hermie Company. Since the monthly statement from Hermie Company listed those materials as on hand, the items had been excluded from the final inventory and invoiced on December 31 at 80,000. e. The sale of 150,000 worth of materials and costing 120,000 had been shipped FOB point of shipment on December 31. However, this inventory was found to be included in the final inventory. The sale was properly recorded in 2020. f.

Goods costing 100,000 and selling for 140,000 had been segregated, but not shipped at December 31, and were not included in the inventory. A review of the customer’s purchase order set forth terms as FOB destination. The sale had not been recorded.

g. Your client has an invoice from a supplier, terms FOB shipping point but the goods had not arrived as yet. However, these materials costing 170,000 had been included in the inventory count, but no entry had been made for their purchase. h. Merchandise costing 200,000 had been recorded as a purchase but not included as inventory. Terms of sale are FOB shipping point according to the supplier’s invoice which had arrived at December 31. Further inspection of the client’s records revealed the following December 31, 2020 balances: Inventory, P1,100,000; Accounts receivable, P580,000; Accounts payable, P690,000; Net sales, P5,050,000; Net purchases, P2,300,000; Net income, P510,000. QUESTIONS: Based on the above and the result of your audit, determine the adjusted balances of following as of December 31, 2017: 1. Inventory a. 1,230,000 b. 1,650,000

c. 1,550,000 d. 1,480,000

2. Accounts payable a. 710,000 b. 540,000

c. 810,000 d. 760,000

3. Net sales

a. 4,550,000 b. 4,650,000

c. 4,730,000 d. 4,970,000

4. Net purchases a. 2,370,000 b. 2,420,000

c. 2,150,000 d. 2,320,000

5. Net income a. 220,000 b. 290,000

c. 540,000 d. 550,000

3. Joseph Sales Company uses the first-in, first-out method in calculating cost of goods sold for the three products that the company handles. Inventories and purchase information concerning the three products are given for the month of October.

Oct. 1

Inventory

Oct. 1-15

Purchases

Oct. 16-31

Purchases

Oct. 1-31 Oct. 31

Sales Sales price

Product C 50,000 units at P6.00 70,000 units at P6.50 30,000 units at P8.00 105,000 units P8.00/unit

Product P 30,000 units at P10.00 45,000 units at P10.50

Product A 65,000 units at P0.90 30,000 units at P1.25

50,000 units P11.00/unit

45,000 units P2.00/unit

On October 31, the company’s suppliers reduced their prices from the most recent purchase prices by the following percentages: product C, 20%; product P, 10%; product A, 8%. Accordingly, Joseph decided to reduce its sales prices on all items by 10%, effective November 1. Joseph’s selling cost is 10% of sales price. Products C and P have a normal profit (after selling costs) of 30% on sales prices, while the normal profit on product A (after selling cost) is 15% of sales price. Based on the above and the result of your audit, determine the following: 1. Total cost of Inventory at October 31 is a. 565,000 c. 557,310 b. 655,500 d. 617,500 2. The amount of Inventory to be reported on the company’s statement of financial position at October 31 is a. 569,850 c. 559,350 b. 543,810 d. 595,350 3. The Allowance for inventory write down at October 31 is a. 5,650 c. 85,650 b. 13,500 d. 60,150 4. The cost of sales after loss on inventory write down for the month of October is a. 1,298,500 c. 1,022,260 b. 1,290,650 d. 1,208,000

4. You were engaged by Alfredo Corporation for the audit of the company’s financial statements for the year ended December 31, 2020. The company is engaged in the wholesale business and makes all sales at 25% over cost. The following were gathered from the client’s accounting records: SAL E S Date Reference Amount Balance forwarded P7,800,000 12/27 SI No. 60,000 865 12/28 SI No. 225,000 866 12/28 SI No. 15,000 867 12/31 SI No. 69,000 869 12/31 SI No. 102,000 870 12/31 SI No. 24,000 871 12/31 Closing entry (8,295,000) P Note: SI = Sales Invoice Accounts receivable Inventory Accounts payable

P U R C HAS E S Date Reference Amount Balance forwarded P4,200,000 12/28 RR #2059 36,000 12/30

RR #2061

105,000

12/31

RR #2062

63,000

12/31

RR #2063

96,000

12/31

Closing entry

(4,500,000) P -

RR = Receiving Report P750,000 900,000 600,000

You observed the physical inventory of goods in the warehouse on December 31 and were satisfied that it was properly taken. When performing sales and purchases cut-off tests, you found that at December 31, the last Receiving Report which had been used was No. 2063 and that no shipments had been made on any Sales Invoices whose number is larger than No. 868. You also obtained the following additional information: a) Included in the warehouse physical inventory at December 31 were goods which had been purchased and received on Receiving Report No. 2060 but for which the invoice was not received until the following year. Cost was P27,000. b) On the evening of December 31, there were two trucks in the company siding:  Truck No. XXX 888 was unloaded on January 2 of the following year and received on Receiving Report No. 2063. The freight was paid by the vendor.  Truck No. MGM 357 was loaded and sealed on December 31 but leave the company premises on January 2. This order was sold for P150,000 per Sales Invoice No. 868.

c) Temporarily stranded at December 31 at the railroad siding were two delivery trucks enroute to ABC Trading Corporation. ABC received the goods, which were sold on Sales Invoice No. 866 terms FOB Destination, the next day. d) Enroute to the client on December 31 was a truckload of goods, which was received on Receiving Report No. 2064. The goods were shipped FOB Destination, and freight of P2,000 was paid by the client. However, the freight was deducted from the purchase price of P800,000. Based on the above and the result of your audit, determine the following: 1. Sales for the year ended December 31, 2020 a. 8,100,000 c. 7,875,000 b. 7,725,000 d. 8,025,000 2. Purchases for the year ended December 31, 2020 a. 4,500,000 c. 5,631,000 b. 5,727,000 d. 4,527,000 3. Accounts receivable as of December 31, 2020 a. 330,000 c. 525,000 b. 555,000 d. 180,000 4. Inventory as of December 31, 2020 a. 1,452,000 c. 1,200,000 b. 1,221,000 d. 1,296,000 5. Accounts payable as of December 31, 2020 a. 600,000 c. 531,000 b. 627,000 d. 1,827,000

5. The following accounts were included in the unadjusted trial balance of Alfredo Company as of December 31, 2020: Cash Accounts receivable Inventory Accounts payable Accrued expenses

P 481,600 1,127,000 3,025,000 2,100,500 215,500

During your audit, you noted that Alfredo held its cash books open after year-end. In addition, your audit revealed the following: 1. Receipts for January 2021 of 327,300 were recorded in the December 2020 cash receipts book. The receipts of 180,050 represent cash sales and 147,250 represent collections from customers, net of 5% cash discounts. 2. Accounts payable of 186,200 was paid in January 2021. The payments, on which discounts of 6,200 were taken, were included in the December 2020 check register. 3. Merchandise inventory is valued at 3,025,000 prior to any adjustments. information had been found relating to certain inventory transactions.

The following

a. Goods valued at 137,500 are on consignment with a customer. These goods are not included in the inventory figure. b. Goods costing 108,750 were received from a vendor on January 4, 2021. The related invoice was received and recorded on January 6, 2021. The goods were shipped on December 31, 2020, terms FOB shipping point. c. Goods costing 318,750 were shipped on December 31, 2020, and were received by the customer on January 3, 2021. The terms of the invoice were FOB shipping point. The goods were included in the 2020 ending inventory even though the sale was recorded in 2020. d. A 91,000 shipment of goods to a customer on December 30, terms FOB destination are not included in the year-end inventory. The goods cost 65,000 and were delivered to the customer on January 3, 2021. The sale was properly recorded in 2021. e. The invoice for goods costing 87,500 was received and recorded as a purchase on December 31, 2020. The related goods, shipped FOB destination were received on January 4, 2021, and thus were not included in the physical inventory. f.

Goods valued at 306,400 are on consignment from a vendor. These goods are not included in the physical inventory.

Based on the above and the result of your audit, determine the adjusted balances of the following as of December 31, 2020: 1. Cash a. 481,600 b. 340,500

c. 334,300 d. 346,700

2. Accounts receivable a. 1,454,300 b. 1,282,000

c. 1,127,000 d. 1,274,250

3. Inventory a. 3,017,500 b. 3,040,000

c. 2,930,000 d. 2,505,000

4. Accounts payable a. 2,395,450 b. 2,307,950

c. 2,286,500 d. 2,301,750

5. Current ratio a. 2.00 b. 1.83

c. 1.84 d. 2.01

6. Mavis, Inc., owner of a trading company, engaged your services as auditor. There is a discrepancy between the company’s income and the sales volume. The owner suspects that the staff is committing theft. You are to determine whether or not this is true. Your investigations revealed the following. 1. Physical inventory, taken December 31, 2020 under your observation showed that cost was P265,000 and net realizable value (NRV), P244,000. The inventory on January 1, 2020 showed cost of P390,000 and net realizable value of P375,000. It is the corporation’s practice to value inventory at “lower of cost or NRV.” Any loss between cost and NRV is included in “Other expenses.” 2. The average gross profit rate was 40% of net sales. 3. The accounts receivable as of January 1, 2020 were 135,000. During 2020, accounts receivable written off during the year amounted to 10,000. Accounts receivable as of December 31, 2020 were 375,000. 4. Outstanding purchase invoices amounted to 300,000 at the end of 2020. At the beginning of 2020 they were 375,000. 5. Receipts from customers during 2020 amounted to 3,000,000. 6. Disbursements to merchandise creditors amounted to 2,000,000.

Based on the above and the result of your audit, determine the following: 1. The total sales in 2020 is a. 3,240,000 b. 3,230,000

c. 3,250,000 d. 2,770,000

2. The total purchases in 2020 is a. 2,000,000 b. 2,075,000

c. 1,950,000 d. 1,925,000

3. The amount of inventory shortage as of December 31, 2020 is a. 106,000 c. 100,000 b. 175,000 d. 0 7. A recent fire severely damaged Penguin Company’s administration building and destroyed many of its financial records. You have been contracted by Penguin’s management to reconstruct as much financial information as possible for the month of July. You learn that Penguin makes a physical inventory count at the end of each month to determine monthly ending inventory values. You also find out that the company applies the average cost method. You are able to gather the following information by examining various documents: Inventory, July 31 150,000 units Total cost of goods available for sale in July 356,400 Cost of goods sold during July 297,000 Gross profit on sales for July 303,000 Cost of inventory, July 1 P0.35 per unit The following are Penguin’s July purchases of merchandise: Date Quantity Unit Cost July 6 180,000 P0.40 12 150,000 0.41 16 120,000 0.42 17 150,000 0.45 1. Number of units on hand July 1 a. 450,000 c.169,714 2. Units sold during July a. 600,000 c. 750,000 3. Unit cost of inventory at July 31 a. 0.35 c.0.419

b. 848,571 d. 300,000

b. 300,000 d. 450,000 b. 0.396 d. 0.279

8. Dundas Mart uses the average retail inventory method. The following information is available for the current year:

Beginning inventory Purchases Freight in Purchase returns Purchase allowances Departmental transfer in Net markups Net markdowns Sales Sales returns Sales discounts Employee discounts Loss from breakage

Cost P 1,100,000 15,800,000 400,000 600,000 300,000 400,000

Retail P 2,200,000 26,300,000 1,000,000 800,000 600,000 900,000 24,700,000 350,000 200,000 600,000 50,000

Based on the above and the result of your audit, answer the following: 1. The cost ratio using the average retail inventory method is a. 58.13% c. 62.00% b. 61.07% d. 60.00% 2. The estimated ending inventory at retail is a. 3,000,000 c. 2,800,000 b. 3,600,000 d. 3,650,000 3. The estimated ending inventory at cost is a. 1,743,945 c. 1,832,143 b. 2,198,571 d. 1,800,000 4. The estimated cost of goods sold is a. 15,267,857 c. 15,000,000 b. 14,901,429 d. 15,056,055 5. If the inventory at retail based on physical count at December 31 is P1,700,000, the estimated inventory shortage is a. 780,000 c. 755,709 b. 793,929 d. 0

9. On November 17, 2020, Matet Airways entered into a non-cancelable commitment to purchase 3,000 barrels of aviation fuel for 9,000,000 on March 31, 2021. Matet entered into this purchase commitment to protect itself against the volatility in the aviation fuel market. By December 31, 2020, the purchase price of aviation fuel had fallen to 2,200 per barrel. However, by March 31, 2021, when Matet took delivery of the 3,000 barrels, the price of aviation fuel had risen to 3,100 per barrel. Based on the above and the result of your audit, answer the following: 1. The loss on purchase commitment on December 31, 2020 is a. 1,500,000 c. 2,400,000 b. 900,000 d. 0 2. The gain on purchase commitment on March 31, 2021 is a. 2,700,000 c. 2,400,000 b. 300,000 d. 0 10. Biological assets; Agricultural produce A public limited company, Windsor Dairy Products, produces milk on its farms. As of January 1, 2021 Windsor has a stock of 1,050 cows (average age, 2 years old) and 150 heifers (average age, 1 year old). Additional information:  Windsor purchased 375 heifers, average age 1 year, on July 1, 2021. No animals were born or sold during the year.  The Company produced milk with a fair value of 660,000 (that is determined at the time of milking) in the year ended 31 December 2021. The Company also estimated the following costs: Commissions to brokers and dealers Transport and other costs necessary to get milk to a market

20,000 10,000

 The fair values less costs to sell were 1 - year old animal at December 31, 2021 2 - year old animal at December 31, 2021 1.5 - year old animal at December 31, 2021 3 - year old animal at December 31, 2021 1 - year old animal at January 1, 2021 and July 1, 2021 2 - year old animal at January 1, 2021

P3,200 4,500 3,600 5,000 3,000 4,000

QUESTIONS: Based on the above and the result of your audit, answer the following: 1. The milk should be valued at a. 660,000

c. 650,000

b. 640,000

d. 630,000

2. The increase in value of biological assets in 2021 due to price change? a. 460,000 c. 630,000 b. 555,000 d. 1,500,000 3. The increase in value of biological assets in 2021 due to physical change? a. 870,000 c. 590,000 b. 720,000 d. 780,000 4. The carrying amount of the biological assets as of January 1, 2021 is a. 4,650,000 c. 5,150,000 b. 5,205,000 d. 3,150,000 5. The carrying amount of the biological assets as of December 31, 2021 is a. 6,150,000 c. 7,325,000 b. 6,825,000 d. 7,275,000 11. Pickering Corp. produces milk on its farms. The entity produces 20% of the community's milk that is consumed. Farmville Incorporated owns 5 farms and had a stock of 4,200 cows and 2,100 heifers. The farms produce 1,600,000 kilograms of milk a year and the average inventory held is 30,000 kilograms of milk. However, on December 31, 2021 the entity is currently holding 100,000 kilograms of milk in powder. On December 31, 2021, the biological assets are: Purchased before January 1, 2021. ( 3 years old ) Purchased on January 1,2021. ( 2 years old) Purchased on July 1,2021. (1.5 years old)

4,200 cows 600 heifers 1,500 heifers

No animals were born or sold during the current year. The unit fair value less cost of disposal is as follows: January 1, 2021: 1-year old. 2-year old. July 1, 2021: 1-year old. December 31, 2021: 1-year old. 2-year old. 1.5-year old. 3-year old.

3,000 4,000 3,000 3,200 4,500 7,200 10,000

1. What is the fair value of biological assets on January 1, 2021? a. 18,600,000 b. 19,200,000 c. 16,800,000 d. 14,400,000 2. What is the fair value of biological assets purchased on July 1, 2021?

a. 4,500,000 b. 6,000,000 c. 7,500,000 d. 6,750,000 3. What is the fair value of biological assets on December 31, 2021? a. 29,100,000 b. 55,500,000 c. 30,450,000 d. 23,700,000 4. What is the increase in fair value of biological assets due to price change? a. 2,520,000 b. 10,500,000 c. 9,900,000 d. 12,300,000 5. What is the increase in fair value of biological assets due to physical change? a. 2,520,000 b. 3,480,000 c. 6,000,000 d. 29,880,000 12. The following account balan...