1.

In connection with your audit of CD Corporation for the year ended December 31, 2021, you gathered
the following information :

Current account at M Bank P 2,000,000

Current account at BPI ( 100,000)
Payroll account 500,000
Foreign bank account -restricted 1,000,000
(equivalent in pesos)
Postage stamps 1,000
Employee’s post-dated checks
4,000
IOU from controller’s sister 10,000
Credit memo from a vendor for a
purchase return 20,000
Traveler’s check 50,000
Non-sufficient funds check 15,000
Money order 30,000
Petty cash fund (P 4,000 in
currency and expense receipts for
P 6,000) 10,000
Treasury bills, due 3/30/22
(purchased 12/29/21) 200,000
Treasury bills, due 1/31/22
(purchased 2/1/21) 300,000

Based on the above information and the result of your audit, compute for the cash and cash equivalents that will be
reported on December 31, 2021 statement of financial position.
A. P 2,704,000
B. P 2,784,000
C. P 3,084,000
D. P 2,790,000

2. The cash account of MCC Corporation as of December 31, 2021 consists of the following :
On deposit in current account with R Bank P 900,000
Cash collection not yet deposited to the bank 350,000
A customer’s check returned by the bank for insufficient
fund 150,000
A check drawn for the Vice-President of the Corporation
dated January 15, 2022 70,000
A check drawn by a supplier dated December 28, 2021 for
goods returned by the Corporation 60,000
A check dated May 31, 2021 drawn by the Corporation
against the Piggy Bank in payment of custom duties .
Since the importation did not materialize, the check was
returned by the customs broker. This check was an
outstanding check in the reconciliation of the Piggy Bank
account
410,000
Petty Cash Fund of which P 5,000 is in currency P3,600 in
the form of employees’ IOUs and
P 1,400 is supported by approved petty cash vouchers for
expenses all dated prior to closing of the books on
December 31, 2021 10,000
 Total P 1,950,000
Less: Overdraft with Piggy Bank secured by a Chattel
mortgage on the inventories 300,000
Balance per Ledger P 1,650,000

How much is the adjusted cash account balance at December 31, 2021?
A. P 1,315,000
B. P 1,495,000
C. P 1,425,000
D. P 1,725,000
3. In the audit of Pilar Company’s cash account , you obtained the following information:
The company’s bookkeeper prepared the following bank reconciliation as of November 30, 2021:

Bank Balance – November 30,

2021 P 90,800
Undeposited collections 5,000
Bank service charges 100
Bank collection of customer’s note
( 8,000)
Outstanding Checks :
Number Amount
1159 P 3,000
1767 5,000
1915 2,000
Total P (10,000)
Book Balance -November 30,
2021 P 77,900
Additional data are given as follows:
a. Company’s recordings for December :
Total collections P 165,000
Total checks drawn 98,000
b. Bank statement totals for December :
Charges P 123,800
Credits 169,000
c. Check no. 1159 dated November 25, 2021 was entered as P 3,000 in payment of a voucher for
P 30,000. Upon examination of the checks returned by the bank, the actual amount of the check
was P 30,000
d. Check no. 2113 dated December 20, 2021 was issued to replace a multilated check (no. 1767) which
was returned by the payee. Both checks were recorded in the amount drawn, P 5,000 but no entry
was made to cancel check no. 1767.
e. The December bank statement included a check drawn by Sipag Company for P 1,500.
f. Undeposited collections on December 31, 2021 – P 8,000
g. The service charge for December was P 150 which was charged by the bank to another client.
h. The bank collected a note receivable of P 7,000 on December 28, 2021 but the collection was not
received on time to be recorded by Pilar
i. The outstanding checks on December 31, 2021, were :

Check No. Amount Check No. Amount

1767 P 5,000 2910 P 2,300
2856 1,300 2925 4,100
Based on the given information and the result of your audit , determine the following:
Unadjusted cash balance per books as of December 31, 2021
A. P 144,900
B. P 152,750
C. P 152,800
D. P 165,700

4. Adjusted cash balance as of November 30, 2021

A. P 63,800
B. P 85,800
C. P 58,800
D. P 90,800

5. Adjusted book receipts for December 2021

A. P 170,500
B. P 172,000
C. P 173,000
D. P 182,000

6. Adjusted bank disbursement for December 2021

A. P 76,150
B. P 125,150
C. P 120,150
D. P 98,150

7. Adjusted cash balance as of December 31, 2021

A. P 132,650
B. P 134,650
C. P 137,650
D. P 137,800

8. Your audit senior instructed you to prepare a four-column proof of cash receipts and disbursements for
the month of December 2021.
The bank reconciliation prepared by Alimall Company at November 30 is reproduced below :

Unadjusted bank Unadjusted book

balance P 96,800 balance P 58,640
Add: Deposit in Add : CM-Note
transit 18,000 collected 40,320
Total 114,800 Total P 98,960
Less: Outstanding Less : DM bank
checks : charges 160
No. 276 P 2,400
282 7,200
284 4,800
285 1,600 16,000
Adjusted Balance P 98,800 Adjusted balance P 98,800

The December bank statement which has a beginning balance of P 96,800 is reproduced below:
May Bank
Account Name : Alimall Company
Date Debits Credits
December 1 P 18,000
December 2 P 7,200 40,000
December 4 24,000
December 6 48,000
December 8 400,000 CM83
December 10 40,000 DM97
December 11 56,000
December 16 20,000
December 18 64,000
December 21 72,400
December 28 36,000 80,000
December 31 4,000 DM98 64,000 CM84
Totals P 131,200 P 842,400
DM97 : Customer’s DAIF check
DM98 : Service charges
CM83 : Note collected by the bank
CM84 : Account collected by the bank

The company’s cash receipts and cash disbursements journals for the month of December 2021 are provided below:
CASH CASH
RECEIPTS DISBURSEMENTS
JOURNAL JOURNAL
DATE OR No. Amount DATE Check No. Amount
Dec 1 415 P 40,000 Dec 1 286 P 16,000
Dec 5 416 48,000 Dec 3 287 24,000
Dec 10 417 56,000 Dec 10 288 32,000
Dec 17 418 64,000 Dec 14 289 20,000
Dec 20 419 72,000 Dec 20 290 28,000
Dec 27 420 80,000 Dec 23 291 36,000
Dec 31 421 88,800 Dec 26 292 40,000
Dec 28 293 44,000
Dec 31 294 48,000
Total P 440,800 Total P 304,000
The company’s Cash in Bank ledger appears below:

CASH IN BANK
Balance P 58,640 12/31/21 CDJ P 304,000
12/01/21 GJ 40,320
12/10/21 GJ (CM83) 400,000
12/31/21 CRJ 440,800
Based on the application of the necessary audit procedures and appreciation of the given information, you are to provide
the answers to the following :
How much is the outstanding checks as of December 31, 2021?
A. P 208,000
B. P 216,800
C. P 224,000
D. P 232,800

9. how much is the adjusted book receipts for December 2021?

A. P 771,600
B. P 904,800
C. P 913,200
D. P 985,200

10. How much is the adjusted book disbursements for December 2021?
A. P 332,000
B. P 339,200
C. P 347,840
D. P 348,000

11. How much is the adjusted cash balance as of December 31, 2021?
A. P 664,000
B. P 672,800
C. P 680,000
D. P 688,800
12. How much is the cash shortage as of December 31, 2021?
A. P 0
B. P 15,840
C. P 23,840
D. P 24,240
13. You obtained the following information on the current account of Par Company during your examination of its financial
statements for the year ended December 31, 2021.
The bank statement on November 30, 2021 showed a balance of P 306,000 . Among the bank credits in November was
customer’s noted for P 100,000 collected for the account of the company which the company recognized in December
among its receipts. Included in the bank debits were costs of checkbooks amounting to P 1,200 and a P 40,000 check
which was charged by the bank in error against Par Company account. Also in November, you ascertained that there
were deposits in transit amounting to P 80,000 and outstanding checks totaling P 170,000.
The bank statement for the month of December showed total credits of P 416,000 and total charges of P 204,000. The
company’s books for December showed total debits of P 735,600 , total credits of P 407,200 and a balance of P485,600.
Bank debit memos for December were: No. 121 for service charges P1,600 and No. 122 on a customer’s returned check
marked “Refer to Drawer” for P 24,000.
On December 31, 2021 the company placed with the bank a customer’s promissory note with a face value of P 120,000
for collection. The company treated this note as part of its receipts although the bank was able to collect the note only in
January 2022.
A check for P 3,960 was recorded in the company cash payments books in December as P 39,600.
How much is the undeposited collections as at December 31, 2021?
A. P 139,600
B. P 179,600
C. P 219,600
D. P 339,600

14. How much is outstanding checks as at December 31, 2021?

A. P 191,960
B. P 391,960
C. P 363,160
D. P 397,600

15. How much is the adjusted book balance as at November 30, 2021?
A. P 157,200
B. P 176,000
C. P 216,000
D. P 256,000

17. How much is the adjusted bank receipts for December ?

A. P 435,600
B. P 475,600
C. P 515,600
D. P 635,600

18. How much is the adjusted book disbursements for December ?

A. P 225,960
B. P 395,960
C. P 397,160
D. P 431,600

19. How much is the adjusted cash balance as at December 31, 2021?
A. P 195,640
B. P 220,000
C. P 375,640
D. P 625,640
20. Your audit disclosed that on December 31, 2021, the accounts receivable control account of Eileen Company had a
balance of P 2,865,000. An analysis of the accounts receivable account showed the following:
Accounts known to be worthless P 37,500
Advance payments to creditors on purchase orders 150,000
Advances to affiliated companies 375,000
Customer’s accounts reporting credit balances arising
from sales return (225,000)
Interest receivable on bonds 150,000
Other trade accounts receivable -unassigned 750,000
Trade accounts receivable – assigned ( Eileen
Company’s equity in assigned accounts is P 150,000) 375,000
Subscription receivables due in 30 days 825,000

Trade installment receivable due 1-18 months including

unearned finance charges of P 30,000 330,000
Trade receivables from officers due currently 22,500
Trade accounts on which post-dated checks are held (no
entries were made on receipts of checks) 75,000
Total P 2,865,000

The trade accounts receivable balance as at December 31, 2021 is

A. P 1,522,500
B. P 1,147,500
C. P 1,485,000
D. p 1,447,500

21. The net current trade and other receivables as at December 31, 2021 is
A. P 1,822,500
B. P 2,272,500
C. P 2,647,500
D. P 2,610,000

22. How much of the foregoing will be presented under noncurrent assets as at December 31, 2021?
A. P 0
B. P 375,000
C. P 525,000
D. P 1,200,000

23. BJ Company’s unadjusted trial balance at December 31, 2021 included the following accounts :
DEBIT CREDIT
Accounts receivable P 1,000,000
Allowance for doubtful accounts 40.000
Sales P 15,000,000
Sales returns and allowances 700,000
BJ Company estimates its bad debts expense to be 1 ½% of net sales . Determine the bad debts expense for 2021.
A. P 55,000
B. P 214,500
C. P 225,000
D. P 254,500

24. An analysis and aging of Eagle Corporation accounts receivable at December 31, 2021 , disclosed the following
Amount estimated to be uncollectible P 1,800,000
 Accounts receivable 17,500,000
Allowance for doubtful accounts (per books)
1,250,000
What is the net realizable value of Eagle Corporation’s receivables at December 31, 2021?
A. P 14,450,000
B. P 16,250,000
C. P 15,700,000
D. P 17,500,000

25. Cabuyao Company provides for doubtful accounts based 3% of credit sales. The following data are available for 2021.
Credit sales during 2021 P 21,000,000
Allowance for doubtful accounts 1/1/21 170,000
Collection of accounts written off in prior
years (Customer credit was
reestablished 80,000
Customer accounts written off as
uncollectible during 2021 300,000
What is the balance in allowance for doubtful accounts as at December 31, 2021?
A. P 420,000
B. P 580,000
C. P 500,000
D. P 630,000

26. At the end of its first year of operations, December 31, 2021 Nickle Inc. reported the following information:
Accounts receivable, net of allowance
for doubtful accounts P 9,500,000
Customer accounts written off as
uncollectible during 2021 240,000
Bad debt expense for 2021 840,000

What should be the balance of accounts recievable mat December 31, 2021 before substracting allowance for doubtful
accounts?
A. P 10,100,000
B. P 9,740,000
C. P 10,340,000
D. P 10,580,000

27. The following accounts were taken from Zious Inc.’s statement of financial position at December 31, 2021.
DEBIT CREDIT
Accounts receivable P 4,100,000
Allowance for doubtful accounts 100,000
Net Credit Sales P 7,500,000
If doubtful accounts are 3% of accounts receivable, determine the bad debt expense to be reported in 2021
A. P 23,000
B. P 223,000
C. P 225,000
D. P 123,000

28. In your audit of Ledo Plastic Corporation , you noted that the company’s statement of financial position shows the
accounts receivable balance as at December 31, 2020 as follows :
Accounts Receivable P 3,600,000
Allowance for Doubtful
Accounts 72,000
P 3,528,000
During 2021 , transactions relating to the accounts were as follows:
a. Sales on account , P 38,400,000
b. Cash received from collection of current receivable totaled P 31,360,000 after discount of P 640,000 were allowed for
 prompt payment
c. Customer’s accounts of P 160,000 were ascertained to be worthless and were written off
d. Bad debts accounts previously written prior to 2021 amounting to P 40,000 were recovered
e. The company decided to provide for P 184,000 for doubtful accounts by journal entry at the end of the year
f. Accounts receivable of P 5,600,000 have been pledged to a local bank on a loan of P 3,200,000. Collections of P
1,200,000 were made on these receivables (not included in the collections previously given) and applied as partial
payment to the loan.
Based on the stated information and the results of your audit . What would be the accounts receivable balance as at
December 31, 2021?
A. P 9,840,000
B. P 4,240,000
C. P 8,680,000
D. P 8,640,000

29. The allowance for doubtful accounts as at December 31, 2021 is

A. P 136,000
B. P 8,000
C. P 176,000
D. P 184,000

30. The net realizable value of Accounts Receivable as at December 31, 2021 is:
A. P 4,104,000
B. P 8,504,000
C. P 8,456,000
D. P 8,544,000

31. Vigan Corporation included the following in its notes receivable as at December 31, 2021:
Note receivable from sale of land P 880,000
Note receivable from consultation 1,200,000
Note receivable from sale of
equipment 1,600,000
In connection with your audit, you were able to gather the following transactions during 2021 and other information
pertaining to the company’s notes receivable:

a. On January 1, 2021, Vigan Corporation sold a tract of land. The land was purchased 10 years ago was carried on
Vigan’s Corporation’s books at a value of P 500,000. Vigan received a noninterest bearing note for P 880,000 . The note
is due on December 31, 2022. There is no readily available market value for the land but the current market rate of
interest for comparable notes is 10%.
b. On January 1, 2021, Vigan Corporation finished consultation services and accepted in exchange of a promissory note
with a face value of P 1,200,000 , a due date of December 31, 2023 and a stated rate of 5% with interest receivable at the
end of each year. The fair value of the services is not readily determinable and the note is not readily marketable. Under
this circumstances, the note is considered to have an appropriate imputed rate of interest of 10%.
c. On January 1, 2021, Vigan Corporation sold equipment with a carrying amount of P 1,600,000 to Y Company. As
payment , Y gave Vigan Corporation a P 2,400,000 note. The note bears an interest rate of 4% and is to be repaid in three
annual installments of P 800,000 (plus interest on the outstanding balance) The first payment was received on December
31, 2021. The market price of the equipment is not reliably determinable. The prevailing rate of interest for notes of this
type is 14%.
The consultation service fee revenue that should be recognized in 2021 is
A. P 901,600
B. P 1,095,800
C. P 1,050,800
D. P 1,200,000

32. The gain on sale of equipment that should be recognized in 2021 is

A. P 412,400
B. P 257,280
C. P 331,600
D. P 800,000

33. The noncurrent notes receivable as at December 31, 2021 is

A. P 2,494,000
B. P 2,605,706
C. P 1,825,800
D. P 2,625,700

34. The current portion of long-term notes receivable as at December 31, 2021 is
A. P 1,468,200
B. P 800,000
C. P 1,600,000
D. P 1,680,000

35. The interest income to be recognized in 2021 is

A. P 156,000
B. P 435,800
C. P 464,000
D. P 459,500

36. Tagum Inc. required additional cash for its operation and used accounts receivable to raise such needed cash, as
follows:
a. On December 1, 2021 Tagum Inc. assigned on a non-notification basis accounts receivable of P 5,000,000 to a bank in
consideration for a loan of 90% of the receivables less 5% service fee on the accounts assigned. Tagum Inc. signed a
note for the bank loan. On December 31, 2021, Tagum Inc. collected assigned accounts of P 3,000,000 less discount
of P 200,000. Tagum Inc. remitted the collections to the bank in partial payment for the loan. The bank applied first the
collection to the interest and the balance to the principal. The agreed interest is 1% per month on the loan balance.
b. Tagum Inc. sold P 1,550,000 of accounts receivable for P 1,340,000 . The receivables had a carrying amount
of P 1,470,000 and were sold outright on a nonrecourse basis.
c. Tagum Inc. received an advance of P 300,000 from Union Bank by pledging P 360,000 of accounts receivable
d. On June 30, 2021, Tagum Inc. discounted at a bank a customer’s P 600,000 , 6-month , 10% note receivable dated
April 30, 2021. The bank discounted the note at 12% on the same date.
A. In its December 31, 2021 statement of financial position, Tagum Inc. shall report notes payable as current liability at
A. P 1,545,000
B. P 1,700,000
C. P 1,745,000
D. P 2,250,000

37. Tagum Inc.’s equity in the assigned accounts receivable as at December 31, 2021 is
A. P 0
B. P 255,000
C. P 300,000
D. P 455,000

38. The entry to record the sale of accounts receivable would include
A. A debit to Finance Charge of P 210,000
B. A credit to Accounts Receivable of P 1,470,000
C. A debit to Allowance for Doubtful Accounts of P 80,000
D. A credit to Notes Payable of P 1,550,000

39. Accounts receivable pledged against borrowings should be

A. Included in total receivables with disclosure
B. Included in total receivables without disclosure
C. Excluded from total receivables with disclosure
D. Excluded from total receivables without disclosure

40. The proceeds from the note receivable discounted on June 30, 2021 is
A. P 564,000
B. P 576,000
C. P 604,800
D. P 617,400
41. Sigma Bank granted a loan to a borrower in the amount of P 5,000,000 on January 1, 2021. The interest rate on the
loan is 10% payable annually starting December 31, 2021. The loan matures in five years on December 31, 2025. Sigma
Bank incurs P 39,400 of direct loan origination cost and P 10,000 of indirect loan origination cost. In addition, Sigma Bank
charges the borrower an 8-point nonrefundable loan origination fee. PV of principal .5674; PV of interest 3.6048
Prepare an amortization table.
The carrying amount of the loan as of January 1, 2021 is
A. P 4,639,400
B. P 5,000,000
C. P 4,649,400
D. P 5,039,400

42. The effective interest of the loan is

A. 9.80 %
B. 10%
C. 12%
D. 11.94%

43. What is the carrying amount of the loan as at December 31, 2021?
A. P 5,000,000
B. P 4,696,128
C. P 4,759,663
D. P 4,639,400

44. The interest income to be recognized in 2021

A. P 493,861
B. P 500,000
C. P 555,138
D. P 556,728

45. What is the amount of discount amortization as at December 31, 2021?

A. P 56,728
B. P 63,535
C. P 71160
D. P 56,627

46. Lean Corporation provided the following information regarding its Notes Receivable as at December 31, 2021.
LIFETIME 12-MONTH
GROSS CARRYING EXPECTED CREDIT EXPECTED CREDIT CREDIT RISK
NOTE AMOUNT LOSSES LOSSES ASSESSMENT
A P 3,000,000 P 300,000 P 50,000 Low credit risk
B 2,000,000 400,000 40,000 31 days past due
C 1,000,000 500,000 60,000 Credit-impaired
The loss allowance that the entity should recognize as at December 31, 2021 is
A. P 590,000
B. P 900,000
C. P 950,000
D. P 1,200,000

47. The following information pertains to Mane Lending Corporation’s loan portfolio as at December 31, 2021:
a. Mane Lending Corporation considers all loans over 90 days past due to be credit-impaired based on historical
experience with recovering the associated debt.
b. The aging of Mane Lending Corporation’s loan on December 31, 2021 is a follows:
PV OF EXPECTED FUTURE
LOAN AMOUNT PAST DUE STATUS CASH FLOWS
1 P 200,000 90 days P 180,000
2 150,000 Current Not calculated
3 50,000 60 days 37,000

Other information :
Loan 1 – The borrower has filed bankruptcy
Loan 2 - None
Loan 3 - The borrower recently lost his job due to an economic recession and was granted a concession to skip
Payments

ADDITIONAL INFORMATION:
Taking into account historical information, current conditions and forward looking information, including actual loss
experience and recoveries from the sale of collateral is as follows:
a. Probability of default in the next 12 months 2%
b. Lifetime probability of default
Credit-impaired loans 100%
Not credit-impaired loans 5%
c. Loss given default on all loans 25%
Based on the given information : the total loans classifies under Stage 1 is
A. P 1,400,000
B. P 1,550,000
C. P 1,625,000
D. P 1,670,000

48. The total loans classified under Stage 2 is

A. P 75,000
B. P 100,000
C. P 175,000
D. P 235,000

49. The total loans classified under Stage 3 is

A. P 325,000
B. P 375,000
C. P 495,000
D. P 595,000

50. The total loss allowance to be recognized as at December 31, 2021 is

A. P 74,188
B. P 73,438
C. P 74,938
D. P 75,688

PART II : MULTIPLE CHOICE- THEORIES

1. The general cash account is considered a significant account in almost all audits
A. Where the ending balance is material
B. Even when the ending balance is immaterial
C. Except those of not-for-profit organizations
D. Where either the beginning or ending balance is material

2. The primary audit objective for cash is to establish that the balance is properly stated. This involves determining :
A B C D
That cash on hand as
shown in the general
ledger is represented
by currency and coins
on hand YES YES YES YES
Ownership and
proper
accountabilities YES NO NO YES
 That cash balances
are available without
restrictions YES NO YES NO

3. An auditor for a large service company is performing an audit of the company’s cash balance. The auditor is
considering the most appropriate audit procedure to use to ensure that the amount of cash is accurately recorded on the
company’s financial statements. The most appropriate audit procedures for the objectives are :
A. Examine bank reconciliations, confirm bank balances and verify cut off of receipts and disbursements ; foot totals of
reconciliations and compare to cash account balances
B. Review collection procedures and perform an analytical review of accounts receivable; confirm balances of accounts
receivable ; and verify the existence of appropriate procedures and facilities
C. Compare cash receipt lists with the receipts journal and bank deposit slips ; review the segregation of duties and
observe and test cash receipts
D. Review the organizational structure and functional responsibilities; verify existence and describe protection procedures
for unused checks, including security measures

4. The starting point for the verification of the balance in the general bank account is to obtain:
A. The client’s year-end bank statement
B. The client’s cash account from the general ledger
C. A bank reconciliation from the client
D. A cutoff bank statement directly form the bank

5. Which of the following substantive audit procedures is most likely to be performed by the auditor to gather evidence in
support of the balance per bank ?
A. Compare to general ledger
B. Trace to cash receipts journal
C. Confirm directly to bank
D. Trace items on the cut-off bank statement to bank reconciliation

6. Which of the following may be considered to be a primary objective of the auditor in the examination of accounts
receivable?
A. Establish validity and collectability of receivables
B. Determine the approximate time of collectability of receivables
C. Determine the relationship of receivables to sales
D. Determine the reasonableness of the sales amount

7. Which of the following is not a procedure used by an auditor in the examination of accounts receivable?
A. Confirmation
B. Reconciliation
C. Inquiry
D. Physical count and inspection

8. In determining validity of accounts receivable, which of the following would the auditor consider most reliable ?
A. Direct telephone communication between the auditor and debtor
B. Confirmation replies received directly from customers
C. Credits to accounts receivable from the cash receipts book after the close of business at year end
D. Documentary evidence that supports the accounts receivable balance

9. Which of the following forms of evidence represents the most competent evidence that a receivable actually exists?
A. A sales invoice
B. A receiving report
C. A positive confirmation
D. A bill of lading

10. Confirmation which is a specific type of inquiry is the process of obtaining a representation of information or of an
existing condition directly from a third party. Two assertions for which confirmation of accounts receivable balances
provides primary evidence are:
A. Completeness and valuation
B. Valuation and rights and obligations
C. Existence and completeness
D. Rights and obligations and existence

11. An auditor ordinarily sends a standard confirmation request to all banks with which the client has done business during
the year under audit, regardless of the year-end balance. A purpose of this procedure to
A. request a cutoff bank statements and related checks be sent to the auditor
B. Detect kiting activities that may otherwise not be discovered
C. Seek information about contingent liabilities and security agreements
D. Provide the data necessary to prepare proof of cash

12. As one of the year-end audit procedures , the auditor instructed the client’s personnel to prepare a standard bank
confirmation request for a bank account that had been closed during the year. After the client’s treasurer had signed the
request , it was mailed by the assistant treasurer. What is the major flaw in this audit procedure?
A. The request was mailed by the assistant treasurer
B. The CPA did not sign the confirmation request before it was mailed
C. Sending the request was meaningless because the account was closed before year-end
D. The confirmation request was signed by the treasurer

13. The usefulness of the standard bank confirmation request maybe limited because the bank employee who completes
the form may :
A. Not believe that the bank is obligated to verify confidential information to a third party
B. Be unaware of all the financial relationships that the bank has with the client
C. Sign and return the form without inspecting the accuracy of the client’s bank reconciliations
D. Not have access to the client’s cutoff bank statement

14. An auditor who is engaged to examine the financial statements of a business entity will request cutoff bank statement
primarily in order to:
A. Detect lapping
B. Detect kiting
C. Verify reconciling items on the client’s bank reconciliation
D. Verify the cash balance reported on the bank confirmation inquiry form

15. Which of the following auditing procedures would the auditor not apply to a cutoff bank statement?
A. Trace year end outstanding checks and deposits in transit to the cutoff bank statement
B. Reconcile the bank account as of the end of the cutoff period
C. Compare dates, payees and endorsements on returned checks with the cash disbursements record
D. Determine that the year-end deposit in transit was credited by the bank on the first working day of the following
accounting period.

16. Which of the following is not one of the independent auditor’s objectives regarding the audit of inventories?
A. Verifying that the client has used proper inventory pricing
B. Verifying the inventory counted is owned by the client
C. Ascertaining the physical quantities of inventory on hand
D. Verifying that all inventory owned by the client is on hand at the time of the count

17. A client maintains perpetual inventory records in both quantities and pesos. If the assessed level of control risk is high
an auditor will probably
A. Increase the extent of tests of controls relevant to the inventory cycle
B. Request the client to schedule the physical inventory count at the end of the year
C. Insist that the client perform physical counts of inventory items during the year
D. Apply gross profit tests to ascertain the reasonableness of the physical counts

18. To ascertain whether inventories included in the statement of financial position physically exist, a CPA will ordinarily:
A. Obtain confirmation of pledged inventories
B. Test client’s shipping cutoff procedures
C. Observe physical inventory counts
D. Perform analytical review of the relationship of the inventory balance to recent sales
19. The procedures involve in the attendance at physical inventory counting
A. May serve as test of controls or substantive procedures depending on the auditor’s risk assessment , planned
approach and the specific procedures carried out
B. Serve as risk assessment procedures
C. Serve as tests of controls
D. Serve as substantive procedures

20. An auditor selected items for test counts while observing a client’s physical inventory. The auditor then traced the test
counts to the client’s inventory listing. This procedure most likely obtained evidence concerning management’s assertion
of :
A. Valuation
B. Completeness
C. Rights and obligations
D. Existence or occurrence