(CPA REVIEW SCHOOL OF THE PHILIPPINES Manila AUDITING PROBLEMS APRIL 19, 2015 FINAL PREBOARD EXAMINATION SUNDAY, 8:00AM — 11:00AM SETA ' INSTRUCTIONS: CHOOSE THE BEST ANSWER FOR EACH OF THE FOLLOWING. FULLY SHADE ONLY ONE BOX FOR EACH ITEM. STRICTLY NO ERASURES ALLOWED. PROBLEM NO. 1 MACHINE PARTS SUPPLY COMPANY is @ distributor of various engine parts. In testing the sales ‘and purchases cutoff of the company in connection with your audit ofits financial statements for the year ended August 31, 20X1, you find the following information: The company has ceased operation during the physical count on September 2, except for receiving goods from suppliers and making shipments to essential wholesale customers. On the ‘moming of the physical count, you noted in your working papers the last shipping document (no. 314) and recelving report (no, 682) issued the previous day. You observed the client’s counting procedures and performed test counts of selected inventory items. You found the counts and descriptions to be accurate. Before leaving the warehouse at the end ofthe day after all counting is completed, you performed the following: 1. Examined the receiving reports book. The last number used was 686. The receiving clerk {informed you that all goods received on September'2 were kept in the receiving department with other goods recelved during the past two or three days. 2, Examined the shipping documents book. The last number used was 318, 3, Asked the receiving department to identify all goods received September 1. He told you that receiving reports 680 through 682 are those goods received on September 1. 4. Asked the shipping department to identify all goods shipped or sold over the counter September 1. He informed you goods on shipping documents 311 to 313 were shipped September 1. 5. Examined the dient’s inventory counts in the receiving department. Inventory had been counted only for receiving reports 674 to 684. 6. Your exemination showed that inventory for all shipments made September 2 were included in the counts in the department from which the inventory was taken. buts the year-end audit work you obtained selling prices, costs, terms, and recording data for ch receipt and shipment. They are as shown below. PURCHASES OF INVENTORY Included in (1) or Excluded from (E) Receiving Peso August FOB Origin Report Date Amount of Purchases or i Destis nm 679 8:30 1 Destination 680 901 r Origin | 681 901 1 Origin | 682 9-01 1 Destination 683 9-02 E Destination 684 3-02 E Origin 685 $02 E Origin 686 9-02 E Destination Page 1 of 14 Pages‘CPA REVIEW SCHOOL OF THE PHILIPPINES (CPAR) - MANILA FINAL PREBOARD EXAMINATION AUDITING PROBLEMS APRIL 19, 2015 / SUNDAY /8:008M = 11:008M ‘SHIPMENTS OF INVENTORY Shipping Document —_Date Peso Amount Included in (1) or Excluded from (E) i t 1 310 831 P 23,400 I ait 9-01 1,680- I 312 9-01 95,820- WS. I 313 9-01 19,050- » >. I 314 9-01 5,790 I 315 9-02 48,630 E 316 9-02 10,350 E 317 9-02 2,340 E 1318 9-02 108,330 E 1. The entry to adjust the records as of August 31 for cutoff errors in accounts payable is: A. Accounts payable 182,340 Purchases 182,340 B. Purchases 37,260 ‘Accounts payable 37,260 C. Accounts payable 137,040 Purchases 137,040 D. Purchases 25,800 Accounts payable 25,800 2. The entry to adjust the records as of August 31 for cutoff errors in sales is: A. Accounts receivable 23,400 Sales 23,400 B. Accounts receivable 169,650 Sales 169,650 C Sales 98,940 ‘Accounts receivable 98,940 D. Sales 122,340 Accounts receivable 322,340 For the following questions, assume that no adjustments in questions 1 and 2 affected inventory and that the gross profit percentage is approximately 30 percent. 3. AS a result of the purchases cutoff test, how much should be removed from the client's physical Inventory? A. 140,220 B. P143,400 C. :P153,720 D. P146,010 4, AS a result of the sales cutoff test, how much should be added to the client's physical inventory? A. 118,755 B. P38,094 C. /PBE SSS D. P102,018 5, The net adjustment to the client's inventory is 102,126 decrease 41,382 decrease 64,425 decrease | P72,135 decrease gomp> =~ PROBLEM NO. 2 x Your firm is currently conducting the audit of EVERLASTING COMPANY's financiai statements for the year ended May 31, 2015. You are now concentrating on the review of the working papers prepared by your staff where possible adjusting journal entries may be drafted to arrive at the adjusted balances of the accounts that may be affected.CPA REVIEW SCHOOL OF THE PHILIPPINES (CPAR) - MANILA FINAL PREBGARD EXAMINATION /RUL 19, 2015 / SUNDAY / 8:00AM — 11-0088 Working Paper No. 1 CASH - BPI Bank Reconailiation May 31, 2015 Balance per bank statement P7,823,170 ‘Add (deduct) reconciling ttems: Deposit in transit (Note 1) 93,812 ~ Outstanding checks (Note 2) (108,832) Note charged by the bank (Note 3) 41,850 Fund transfer from PNB (42,500) Balance per general ledger P2,837,500 ‘The top schedule for Cash showed the following accounts with their unadjusted balances: ‘Cash ~ BPI P7,837,500 Cash ~ PNB 112,500 Cash ~ SB — 187.500 Total P8137,500 Audit Notes: F. Indlusive of a customer's check in the amount of P18,750 dated April 25, 2014, which up to now is not yet deposited because It has been misplaced. o's fk wae. ie ceri, SERENE FORD CROC Chan CATO so MAT PA Oe ~~ . Thdlddes two Gheds totaling P1438 which were among the teams counted during the cash count conducted early moming of June 1, 2015. uneicased. Ave NT Pangea ae . This is the maturity vatue of a two-year note maturing on May 31, 2015. The note bears interest of 12%? Interest for the year ended May 31, 2014 was properly accrued. . Upon cross-referencing this with the working paper showing the bank reconciliation with PNB, whereby the bank balance was reconalled with the general ledger balance, you verified that the P12,500 was appropriately shown as an addition: to the bank balance. Working Paper No. 2 ACCOUNTS RECEIVABLE Reconciliation Between Subsidiary Ledger and General Ledger Balances May 31, 2015 Balance per subsidiary ledger 4,023,527 ‘Add (deduct) reconciling items: \Write-offs (See Working Paper No. 3) (187,608) Sales (Note 5) 61,250 Gallections (Note 6) 36,845 Balance per general ledger P3934.014 ‘The company maintains a credit term of n/30. Audit Notes: 5. The goods were in transit as at May 31, 2015, terms FOB shipping point. The company recognized a gross profit of 25% on this sale. 6. This was collected from a customer by the company’s branch on May 31, 2015 on sales made ‘on March 25, 2015 and was remitted to the company on June 15, 2015. Collections from branches are charged to Cash — SB account.