Saint Columban College

College of Business Education

2nd Semester, S.Y. 2021–2022

AUDIT PROBLEMS

FINAL EXAMINATION

Instructions: Choose the correct answer among the choices and shade
the corresponding letter in the answer sheet provided.

Problem 1

In connection with your audit of the financial statements of

BENJAMIN CORP. for the year ended December 31, 2010, you
conducted a surprise count of the company’s petty cash fund and
undeposited collections at 8:20 a.m. on January 3, 2011. Your
count disclosed the following:

Bills and coins

Bills Coins

P100.00 5 pieces 5.00 18 pieces

50.00 40 pieces 1.00 206 pieces

20.00 48 pieces 0.25 32 pieces

Postage stamps (unused) – P365

Checks

Date Payee Maker Amount

Dec. 30 Cash Custodian P 1,200

Dec. 30 Benjamin Corp. SLV, Inc. 14,000

Dec. 31 Benjamin Corp. Mario Lansang,

Sales manager 1,680

Dec. 31 Benjamin Corp. MSU Corp. 17,800

Dec. 31 Benjamin corp. Ateneo, Inc. 8,300

Dec. 31 Taiwan Corp.

(not endorsed) Benjamin Corp. 27,700

Page 1 of 16
Unreiumbursed vouchers

Date Payee Description Amount

Dec. 23 Mario Lansang Advance trip for P20,000

Sales manager Tagaytay City

28 Central Post Office Postage stamps 1,620

29 Messengers Transportation 150

29 Byte, Inc. Computer repair x800

Other items found inside the cash box:

1. Unclaimed pay envelope of Juan MacDonut. Indicated on the

pay slip is his net salary of P7,500.Your inquiry revealtd
that Juan’S salary is mingled with the petty cash fund.

2. The sales manger’s liquidation report for his Tagaytay City

trip.

Cash advance received on Dec. 23 P20,000

Less: Hotel accommodation, meals, etc. P16,000

Bus fare for two 1,200

Cash given to Pablo, salesman 1,000 18,200

Balance P 1,800

Accounted for as follows:

Cash returned by Pablo to the sales manager P 120

Personal check of the sales manager 1,680

Total P1,800

Additional information:

1. The custodian is not authorized to cash checks.

2. The last official receipt included in the deposit on

December 30 is No. 4351 and the last official receipt issued
for the current year is No. 4355. The following official
receipts are all dated December 31, 2010.

OR No. Amount Form of Payment

Page 2 of 16
 4352 P13,600 Cash

4353 17,800 Check

4354 3,600 Cash

4355 8,300 Check

3. The petty cash balance per general ledger is P25,000. The

last replenishment of the fund was made on December 22, 2010.

Page 23

1. What is the amount of shortage due from the sales manager?

A. P240 C. P120
B. P1,800 D. P 0

2. What is the amount of undeposited collections on December 31,

2010?
A. P44,300 C. P57,300
B. P84,300 D. P41,000

3. The adjusting entries on December 31. 2010 should include a

net debit of Travel expenses of
A. P17,320 C.P22,570
B. P18,320 D.P18,080

4. What is the total unreimbursed vouchers on January 3, 2011

(count date)?
A. P22,450 C. P22,570
B. P22,085 D. P22,205

5. What is the total cash shortage?

A. P22,166 C. P22,406
B. P8,166 D. P20,486

Problem 2

The cash account of VELASCO COMPANY shows the following

activities:

Date Debit Credit Balance

Nov.30 Balance P115,000

Dec. 2 November bank charges P50 114,950
4 November bank credit for
NR collected P10,000
124,950 15 NSF check 1,300
123,650 20 Loan proceeds 48,500
172,150 21 December bank charges 60
Page 3 of 16
 172,090 31 Cash receipt book 703,300
879,390 31 Cash disbursements book 408,000
471,390

CASH BOOKS

RECEIPTS PAYMENTS

Date OR NO. Amount Check No. Amount

Dec. 1 110-120 P11,000 801 P2,000

2 121-136 21,300 802
3,000 3 137-150 20,000 803
1,000 4 151-165 56,000 804
3,000 5 166-190 39,000 805
12,000 8 191-210 66,000 806
19,000 9 211-232 88,000 807
26,000 10 233-250 77,000 808
30,000 11 251-275 21,000 809
61,000 12 276-300 30,000 810
7,000 15 301-309 55,000 811
8,000 16 310-350 8,000 812
16,000 17 351-390 9,000 813
20,000 18 391-420 19,000 814
22,000 19 110-480 17,000 816
36,000 22 110-500 21,000 817
11,000 23 110-525 32,000 818
50,000 23 - - 819
7,000 23 - - 820
4,000 26 526-525 74,000 821
3,000 28 556-611 5,000 822
12,000 28 - - 823
13,000 29 612-630 38,000 824
29,000 29 - - 825
2,000 29 - - 826
11,000 Totals P703,300
P408,000

BANK STATEMENT

Date Check No. Charges Credits

Dec. 1 792 P2,500 P8,500

2 802 3,000
11,500 3 - -
21,300 4 804 3,000

Page 4 of 16
 20,000 5 EC 81,000
81,000 8 805 12,000
95,000 9 CM 16 -
12,000 10 799 7,050
154,000 11 DM 57 1,300
77,000 12 808 30,000
21,000 15 803 1,000
- 16 809 61,000
85,000 17 DM 61 60
8,000 18 813 20,000
19,000 19 CM 20 -
48,500 22 815 6,000
- 23 816 36,000
47,000 23 811 8,000
- 23 801 2,000
- 26 814 22,000
32,000 28 818 50,000
74,000 28 DM 112 120
- 29 821 3,000
5,000 29 CM 36 -
12,000 29 820 4,000
- Totals P353,030
P831,300

Additional information:

1. DMs 61 and 112 are for service charges.

2. EC is error corrected
3. DM 57 is for an NSF check.
4. CM 20 is for loan proceeds, net of P150
interest charges for 90 days.
5. CM 16 is for the correction of an
erroneous November bank charge.
6. CM 36 is for customer’s notes collected by bank in December.

7. Bank balance on December 31 is P592,270.

Answer the following:

6. The total outstanding checks at November 30 should be

A. P9,550 C. P13,050
B. P7,050 D. P15,550

7. The total outstanding checks at December 31 should be

A. P147,000 C. P153,000
B. P162,550 D. P159,000

8. The deposit in transit at November 30 should be

A. P8,500 C. P48,500
B. P19,500 D. P 0

9. The deposit in transit at December 31 should be

Page 5 of 16
 A. P44,000 C. P46,500
B. P 0 D. P38,000

10.The adjusted book balance at November 30 should be

A. P125,000 C. P115,000
B. P124,950 D. P136,950

11.The adjusted bank receipts for the month of December should

be
A. P763,800 C. P115,000
B. P773,800 D. P136,950

12.The adjusted book disbursements for the month of December

should be
A. P403,480 C. P415,480
B. P415,540 D. P409,480

13.The adjusted bank balance at December 31 should be

A. P592,270 C. P558,270
B. P477,270 D. P483,270

Problem 3

I Company’s accounting records disclose the following:

Accounts receivable, Jan. 1 2018 1,800,000

Allowance for credit loss, Jan. 1 2018(credit) 90,000
Sales for the year 15,000,000
Collections from customers during the year 13,080,000

The following additional information was also obtained:

1. Included in the amount collected from customers was the recovery of

P 30,000 receivable from a customer whose account had been charged off
as worthless in the prior year.
2. Inigo Company determined that its receivable from a customer of P
150,000 will not be collected, and management authorized its write-
off.
3. A customer settled its account on December 2, 2018 by issuing a
12%, 6-month note for P600,000.
4. The Accounts Receivable balance on December 31, 2018 includes
P900,000 past due accounts.
5. The entity estimated that 20% of past due accounts will not be
collected and that the probable loss on current accounts is 5%.

14.The current assets section of Inigo Company’s statement of

financial position on December 31, 2018, should include Accounts
Receivable of:
A. 3,600,000
B. 2,400,000
C. 3,000,000

Page 6 of 16
D. 2,970,000
15. What is the balance of the Allowance for credit loss before
adjustment on December 31, 2018?
A. 120,000 credit
B. 120,000 debit
c. 30,000 credit
D. 30,000 debit
16. The required Allowance for credit loss on December 31, 2018 is:
A. 285,000
B. 283,500
C. 315,000
D. 255,000
17. The Allowance for credit loss should be increased (decreased) by:
A. 315,000
B. (255,000)
C. 285,000
D. (313,500)
18. What is the adjusting entry to record the Expected credit loss for
the current year?
A. Expected Credit Loss 285,000
Allowance for credit loss 285,000
B. Expected Credit Loss 315,000
Allowance for credit loss 315,000
C. Expected Credit Loss 255,000
Allowance for credit loss 255,000
D. Expected Credit Loss 315,000
Allowance for credit loss 315,000

Problem 4

From inception of operations to December 31, 2018, M Corp. provided

for expected credit loss under the allowance method: provisions were
made monthly at 2% of credit sales; bad debts written off were charged
to the Allowance account; recoveries of bad debts previously written
off were credited to the Allowance account; and no year-end
adjustments to the Allowance account were made. Maharlika’s usual
credit terms are net 30 days

The balance in the Allowance for credit loss account was P 143,000 at
January 1, 2018. During 2018, credit sales totaled P 15,000,000,
interim provisions for expected credit loss were made at 2% of credit
sales, P 140,000 of bad debts were written off, and recoveries of
accounts previously written off amounted to P 43,000

Maharlika installed a computer facility in November 2018 and an aging

of accounts receivable was prepared for the first time as of December
31, 2018.

A summary of the aging is as follows:

Classification by Balanced in Default

Month of Sale each category Rate

Nov-Dec 2018 2,160,000 2%

Page 7 of 16
July-Oct 2018 1,300,000 10%
Jan-June 2018 840,000 25%
Prior to Jan 1, 2018 300,000 70%

Based on the review of collectability of the account balances in the

“prior to January 1, 2018” aging category, additional receivables
totaling P 120,000 were written off as of December 31, 2018. The 70%
uncollectible estimate applies to the remaining P 180,000 in the
category.

Effective with the year ended December 31, 2018, Maharlika adopted a
new accounting method for estimating the allowance for credit loss at
the amount indicated by the year-end aging analysis of accounts
receivable

19. What is the balance of the Allowance for credit loss on December
31, 2018 (before year-end adjustment)?
A. 300,000
B. 143,000
C. 226,000
D. 346,000

20. What is the journal entry for the year-end adjustment to the
Allowance for credit loss balance as of December 31, 2018?
A. Expected Credit Loss 283,200
Allowance for Credit Loss 283,200
B. Expected Credit Loss 163,200
Allowance for Credit Loss 163,200
C. Expected Credit Loss 143,000
Allowance for Credit Loss 143,000
D. Expected Credit Loss 509,200
Allowance for Credit Loss 509,200

21. For the year ended December 31, 2018, M Corp expected credit loss
would be
A. 626,200
B. 283,200
C. 300,000
D. 583,200

22. The net realizable value of Maharlika’s accounts receivable at

December 31, 2018, should be?
A. 4,374,000
B. 3,896,800
C. 3,970,800
D. 4,090,800

23. An auditor’s purpose in reviewing credit ratings of customers with

delinquent accounts receivable most likely is to obtain evidence
concerning management’s assertion about:
A. Completeness
B. Existence
C. Rights and obligations
D. Valuation and allocation

Page 8 of 16
Problem 5

The following information was provided by the bookkeeper of COW Inc.:

A. Sales for the month of June totaled 286,000 units

B. The following purchases were made in June:
Date Quantity Unit Cost
June 4 50,000 13.00
8 62,500 12.50
11 75,000 12.00
24 70,000 12.40

C. There were 108,500 units on hand on June 1 with a total cost of

1,450,000

Cow Inc. uses a periodic FIFO costing system. The company’s gross
profit for June was P2,058,750.

24. How many units were on hand on June 30?

A. 80,000
B. 177,500
C. 28,500
D. 149,000

25. What is the FIFO Cost of the company’s inventory on June 30?
A. 1,025,000
B. 1,016,230
C. 988,000
D. 1,069,124

26. What is the total cost of goods sold in June?

A. 3,632,200
B. 3,617,900
C. 3,580,126
D. 3,661,250

27. 286,000 units sold in June had a unit selling price of

A. 20
B. 13
C. 12.70
D. 7.20

28. An essential procedural control to ensure the accuracy of the

recorded inventory quantities is
A. Performing a gross profit test
B. Testing inventory extensions
C. Calculating unit costs and valuing obsolete or damaged inventory
items in accordance with inventory policy.
D. Establishing a cut-off for goods received and shipped

Problem 6

Supporting records of Mayon Corporation’s trading Securities portfolio

show the following debt and equity securities:

Page 9 of 16
Security Cost Fair Value
200 ordinary shares Concave Co. 127,250 121,500
P400,000 Tipo Co. 7% bonds 398,250 387,000
P600,000 Turkey Co. 7.5% bonds 603,750 609,450
Totals 1,129,250 1,117,950

Interest Dates on the bonds are January 1 and July 1. Mayon Co. uses
the income approach to record the purchase of bonds with accrued
interest. During 2018 and 2019, Mayon completed the following
transactions related to trading securities.

2018
Jan. 1 Received semiannual interest on bonds. Assume that the
appropriate adjusting entry was made on Dec. 31, 2017.
Apr 1 Sold P300,000 of 7.5% Turkey bonds for 305,000
May 21 Received dividend of 1.25 per share on the Concave ordinary
share capital. The dividend had not been recorded on the
declaration date.
July 1 Received semiannual interest on bonds and then sold the
7% Tipo bonds 388,750.
Aug 15 Purchased 100 shares of Newman Inc. ordinary share capital
at P580 per share plus brokerage fees of P250.
Nov 1 Purchased P250,000 of 8% Toll Co. bonds at 101 plus accrued
interest. Brokerage fees were P625. Interest dates are Jan 1
and July 1
Dec. 31 Market prices of securities were:
Concave ordinary shares P550
7.5% Turkey bonds 101.75
8% Toll Bonds 101
Newman Ordinary shares P583.75

2019
Jan 2 Recorded the receipt of semiannual interest on bonds
Feb 1 Sold the remaining 7.5% Turkey bonds for P301,500 plus
accrued interest.

29. What is the total intertest and dividend income for 2018?
A. 62,583
B. 82,208
C. 45,708
D. 49,402

30. What amount should be reported as gain on sale of trading

securities?
A. 2,025
B. 6,376
C. 4,275
D. 3,125

31. What amount of unrealized gain or loss should be reported in the

income statement for the year ended Dec. 31, 2018?
A. 10,600 unrealized gain
B. 10,600 unrealized loss
C. 3,075 unrealized gain

Page 10 of 16
D. 3,075 unrealized loss

32. What is the carrying amount of the remaining trading securities on

Dec. 31, 2018?
A. 740,500
B. 725,225
C. 736,725
D. 726,125

33. What is the loss on the sale of the remaining Turkey bonds om
February 1, 2019?
A. 3,750
B. 5,250
C. 6,750
d. 375

Problem 7

Shown below are the Machinery and equipment and Delivery equipment of
the Zambia Company. One-half year’s depreciation is charged in the
year of acquisition and/or disposition for these assets. The client
uses the straight-line method for depreciation.

The following transactions occurred during 2018:

a. A 2018 Isuzu Truck was purchased for 1,200,000 in June. In the same
month, a 2012 Fuso Truck was sold for 75,000. The truck was purchased
in April 2014 at a cost 630,000

b. In June, a drill press was purchased for 33,000. Freight in 3,000.

A drill press which had been purchased by the client in March 2014 for
30,000 was sold in June for 24,000.

c. One milling machine was purchased in July at a cost of 225,000.

Installation cost which was paid by the client and charged to
Miscellaneous expenses amounted to 10,500.

d. While analyzing the miscellaneous income account, your assistant

found that the proceeds of 1,500 from the sale of an electric welding
machine had been credited to this account. The machine, acquired in
March 2013 had a cost of 12,000. The machine was sold in September
2018.

Machine and Equipment

Dr Cr
1/1/18 Balance 450,000 June CR 24,000
June VR 36,000
July VR 225,000

Accumulated Depreciation-Machinery and equipment (10% annual rate)

Dr Cr
- 1/1/18 Balance 207,000

Delivery Equipment
Dr Cr

Page 11 of 16
1/1/18 Balance 2,850,000 June 7 CR 75,000
June 3 VR 1,200,000

Accumulated Depreciation-Delivery Equipment (20% annual rate)

Dr Cr
- 1/1/18 Balance 1,650,000

34. The loss on sale of Fuso Truck in June 2018 is:

A. 75,000
B. 114,000
C. 51,000
D. 0

35. The correct balance of Delivery Equipment at Dec. 31, 2018, is

A. 4,176,000
B. 3,456,000
C. 4,050,000
D. 3,420,000

36. What is the total depreciation expense for the year ended December
31, 2018?
A. 683,475
B. 882,150
C. 484,800
D. 682,800

37. What is the book value of Machinery and Equipment at December 31,
2018?
A. 428,025
B. 416,025
C. 434,025
D. 422,025

38. What is the correct balance of the AD-Delivery Equipment on

December 31, 2018?
A. 1,773,000
B. 2,277,000
C. 1,836,000
D. 1,647,000

Problem 8

Cameroon Corp has provided information on intangible assets as

follows:

a. A patent was purchased from Patintero Company for P6,000,000 on

January 1. 2017. On the acquisition date, the patent was estimated to
have a useful life of 10 years. The patent had a net book value of
P6,000,000 when Patintero sold it to Cameroon.

b. On February 1, 2018, a franchise was purchased from the Franchisor

Company for P1,440,000. The contract which runs for 20 years provides
that 5% of revenue from the franchise must be paid to Franchisor.
Revenue from the franchise for 2018 was P7,500,000

Page 12 of 16
c. The following research and development costs were incurred by
Cameron in 2018:
Materials and Equipment 426,000
Personnel 567,000
Indirect Costs 306,000
Total 1,299,000

Because of recent events, Cameroon, on January 1, 2018, estimates that

the remaining useful life of the patent purchased on January 1, 2017,
is only 5 years from January 1, 2018.

39. On December 31, 2018, the carrying value of the patent should be
A. 4,320,000
B. 6,000,000
C. 1,680,000
D. 0

40. The unamortized cost of the franchise at December 31, 2018 is

A. 999,000
B. 1,356,250
C. 1,440,000
D. 1,374,000

41. How much should be charged against Cameroons income for the year
ended Dec. 31, 2018?
A. 2,280,000
B. 2,826,000
C. 2,820,000
D. 1,725,000

42. An auditor will most likely obtain evidence regarding the

continuing validity and existence of the patent by obtaining a written
representation from
A. Security and Exchange Commission (SEC)
B. A patent attorney
C. The patent inventor
D. The patent owner

Problem 9

The following data were obtained from the initial audit of H Company:

15%, 10 year, Bonds payable, dated Jan. 1, 2017

Dr Cr Balance
Cash Proceeds from issue on
Jan. 1, 2017, of 1,000, P1,000
bonds. The market rate of interest
on the date of issue was 12% - 1,172,044 1,172,044

Bond Interest Expense

Cash paid 1/2/18 75,000 75,000
Cash paid 7/1/18 75,000 150,000
Accrual, 12/31/18 75,000 225,000

Page 13 of 16
Accrued Interest on Bonds
Balance, 1/1/18 75,000 75,000
Accrual, 12/31/18 75,000 150,000

Treasury Bonds
Redemption price and interest to
date on 200 bonds permanently
retired on Dec. 31, 2018 265,000 265,000

Based on the preceding information, determine the following:

43. Carrying value of bonds payable at December 31, 2018

A. 831,110
B. 800,000
C. 1,151,583
D. 921,266

44. Loss on bond redemption

A. 4,683
B. 19,683
C. 15,000
D. 34,683

45. Accrued interest on bonds at December 31, 2018

A. 75,000
B. 135,000
C. 60,000
D. 52,500

46. Bond interest expense for the year ended Dec. 31, 2018
A. 150,000
B. 139,174
C. 69,745
D. 160,826

Problem 10

The shareholders equity section of Bahrain corporation’s statement of

financial position as of dec 31 2012 is as follows

Share capital – ordinary (10 par, 750,000

shares authorized, 412,500 issued and outstanding 4,125,000
share premium 825,000
total paid in capital 4,950,000
unappropriated retained earnings 2,002,500
Appropriated retained earnings 750,000
Total retained earnings 2,752,500
Total shareholders’ equity 7,702,500

Bahrain Corporation had the following shareholders’ equity transaction

during 2013

Page 14 of 16
Jan 15 completed the building renovation for which 750,000 of
retained earnings had been restricted. Paid the contractor
727,500, all of which is capitalized
March 3 issued 150,000 additional ordinary shares for 18 per share
May 18 declared a dividend of 1.50 per share to be paid on july 31
2013, to shareholders’ record on june 30 2013
June 19 approved additional building renovation to be funded
internally. The estimated cost of the project is 600,000,
and retained earnings are to be restricted for that amount
July 31 paid dividend
Nov 12 declared property dividend to be paid on jan 5 2014. The
dividend is to consist of equipment that has a carrying amount of
360,000 and fair value of 472,500 on nov. 12
Dec 31 net income for 2013 (before recognition of impairment loss
on the equipment declared as properlt dividend) is 1,327,500. The
equipments fair value less cost to distribute on dec 31 is
330,000
47. Share capital – ordinary on dec 31 2013 is

a. 5,625,000 b. 4,125,000 c. 4,950,000 d. 7,650,000

48. Share premium on dec 31 2013 is

a. 2,625,000 b. 825,000 c. 2,025,000 d. 1,200,000

49. Unappropriated retained earnings on dec 31 2013 is

a. 2,163,750 b. 2,246,250 c. 2,133,750 d. 2,276,250

50. The total shareholders’ equity on dec 31 2013.

a. 10,376,250 b. 10,526,250 c. 9,926,250 d. 7,650,000

51. The auditor is concerned with establishing that dividends are paid
to client corporation shareholders owning stock as of the
a. Issue date
b. Declaration date
c. Record date
d. Payment date
52. The audit program for the retained earnings account should
include a step that requires verification of the
a. Fair value used to change retained earnings to account for a
two-for-one stock split.
b. Approval of the adjustment to the beginning balance as a
result of a write-down of an account receivable
c. Authorization for both cash and stock dividends
d. Gain or loss arising from disposition of treasury shares
53. During an audit of an entity’s shareholders’ equity
accounts, the auditor determines whether there are restrictions
of retained earnings resulting from loans, agreements, or law.
This audit procedure most likely is intended to verify management
assertion of
a. Existence
b. Completeness
c. Valuation
d. Presentation and disclosure

Page 15 of 16
54. If the auditee has a material amount of treasury stock on
hand at year-end, the auditor should
a. Count the certificates at the same time other securities are
counted
b. Count the certificate only if the company had treasury stock
transaction during the year
c. Not count certificates of treasury stock is a deduction from
shareholders’ equity
d. Count the certificates only if the company classifies treasury
stock with other asset
55. In performing test concerning the granting of stock options,
an auditor should
a. Confirm the transaction with the securities and exchange
commission
b. Verify the existence of option holders in the entity’s payroll
records or stock ledgers
c. Determine that sufficient treasury stock is available to cover
any new stock issued
d. Trace the authorization for the transaction to vote of the
board of directors
56. The auditor would not expect the client debit retained
earnings for which of the following transaction
a. A 4-for-a stock split
b. Loss arising from disposition of treasury shares
c. A 1-for-10 stock dividend
d. Correction of error affecting prior year’s earnings

Page 16 of 16