NTC PRELIMINARY EXAMINATION

IN AUDITING PRACTICE
(Concepts and Application)

Name Score:
Student No. Section:

Problem 1:

On January 1, 2019, DAKS BANK provided a loan of P4,000,000 to Juts Company. Under the loan
agreement, the effective interest rate is 10% and that Juts Company is to pay the annual interest every
December 31. The principal amount of the loan is due on December 31, 2023. On December 31, 2019,
Daks Bank needs to measure the 12-month expected credit loss for the loan. Daks Bank determined that
the probability of the loan being in default over the next 12 months is 1% and that 20% of the gross carrying
amount will be lost over the term of the loan, i.e., the Loss Given Default (LGD) is 20%. On December 31,
2020, Daks Bank has determined that there is a significant increase in the credit risk of the loan receivable.
The probability of the loan being in default over the life of the loan is 10% and the LGD is 25% of the gross
carrying amount. During 2021, Juts Company began to face financial difficulties. At year- end, Daks Bank
considered the loan to be impaired. Interest for that year was collected. However, only 40% of the principal
amount is expected to be received on due date.

1. What amount of interest income should be reported for the year ended December 2021?
A. 382,584
B. 200,000
C. 145,447
D. 400,000

2. What amount of interest income should be reported for the year ended December 2022?
A. 132,224
B. 200,000
C. 145,447
D. 0

3. What amount of impairment loss should be recognized on December 31, 2019?

A. 0
B. 18,140
C. 8,000
D. 5,464

4. What amount of impairment loss should be recognized on December 31, 2020?

A. 100,000
B. 75,130
C. 93,270
D. 156,470
5. What amount of impairment loss should be recognized on December 31, 2021?

A. 2,503,600
B. 2,577,760
C. 2,400,000
D. 1,600.000

Problem 2:

6. Bobong Panget Company bought merchandise on January 2, 20X9 from Bobong Tamad Company
costing P15,000; terms, less 20%, 20% down payment, balance 2/10, n/30. Two days after, P2,000 worth
of merchandise was returned due to wrong specification. Bobong Panget Company paid the account
within the discount period. How much Bobong Panget Company paid to Bobong Tamad Company?

A. 7,600
B. 7,448
C. 7,408
D. 7,360

7. Merchandise shipped fob buyer to customer named Baby Loves Company, was made on January 5,
20X9 for P25,000. The customer issued P10,000 12% 30-day note and the balance 2/10, n/30 on January
10, 20X9, the date the goods were received. The customer made a partial payment on January 15, 20X9
for P5,000. Payment was made within the discount period. How much discount was granted?

A. 0
B. 200
C. 300
D. 500

8. The worth of goods P12,000 was shipped on account (2/10, n/30) to Putok Company on January 15,
2006 from Anghit Company The term of the shipment was CIF. Anghit Company paid freight of P950. On
January 12, 2006, P2,500 worth of merchandise was received by Anghit Co. from Putok Co. due to wrong
specification. Putok Company made a partial payment of P5,000. How much is the subsequent collection
of Anghit Company from Putok Company assuming Putok Company paid within the discount period?

A. 5,450
B. 5,260
C. 4,500
D. 4,410
Problem 3:

The Cash Account of AYAW KONA COMPANY shows the following activities:

DATE DESCRIPTIONS DEBIT CREDIT BALANCE

Nov. 30 Balance P 345,000
Dec. 2 November bank charges P 150 344,850
4 November bank credit for
notes receivable collected P 30,000 374,850
15 NSF check 3,900 370,950
20 Loan proceeds 145,500 516,450
21 December bank charges 180 516,270
31 Cash receipts book 2,121,900 2,638,170
31 Cash disbursements book 1,224,000 1,414,170

The Bank statements provided by SUKO NAKO BANK to AYAW KONA COMPANY are as follows:

Date Check No Charges Credits

Dec. 1 792 P 7,500 P 25,500
2 802 9,000 33,000
3 - - 63,900
4 804 9,000 60,000
5 EC 243,000 243,000
8 805 36,000 285,000
9 CM 16 - 36,000
10 799 21,150 462,000
11 DM 57 3,900 231,000
12 808 90,000 63,000
15 803 3,000 -
16 809 183,000 255,000
17 DM 61 180 24,000
18 813 60,000 57,000
19 CM 20 - 145,500
22 815 18,000 -
23 816 108,000 141,000
23 811 24,000 -
23 801 6,000 -
26 814 66,000 96,000
28 818 150,000 222,000
28 DM 112 360 -
29 821 9,000 15,000
29 CM 36 - 36,000
29 820 12,000 -
Totals P 1,059,090 P 2,493,900
The Cash book of AYAW KONA COMPANY show the details of the following:

RECEIPTS PAYMENTS
Date OR No. Amount Check No. Amount
Dec. 1 110-120 P 33,000 801 P 6,000
2 121-136 63,900 802 9,000
3 137-150 60,000 803 3,000
4 151-165 168,000 804 9,000
5 166-190 117,000 805 36,000
8 191-210 198,000 806 57,000
9 211-232 264,000 807 78,000
10 233-250 231,000 808 90,000
11 251-275 63,000 809 183,000
12 276-300 90,000 810 21,000
15 301-309 165,000 811 24,000
16 310-350 24,000 812 48,000
17 351-390 57,000 813 60,000
18 391-420 27,000 814 66,000
19 421-480 51,000 816 108,000
22 481-500 63,000 817 33,000
23 501-525 96,000 818 150,000
23 - - 819 21,000
23 - - 820 12,000
26 526-555 222,000 821 9,000
28 556-611 15,000 822 36,000
28 - - 823 39,000
29 612-630 114,000 824 87,000
29 - - 825 6,000
29 - - 826 33,000
Totals P 2,121,900 P 1,224,000

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 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 customers notes collected by bank in December.
7. Bank balance on December 31 is P1,776,810
Based on the preceding information, determine the following:

9. Outstanding checks at December 31?

A. P459,000
B. P477,000
C. P441,000
D. P487,650
10. Deposit in transit at December 31?
A. P114,000
B. P139,500
C. P132,000
D. P 0
11. Adjusted bank receipts for the month of December?
A. P2,297,400
B. P2,291,400
C. P2,303,400
D. P2,321,400
12. Adjusted book disbursements for the month of December?
A. P1,228,440
B. P1,246,440
C. P1,210,440
D. P1,246,620
13. Adjusted bank balance at December 31?
A. P1,449,810
B. P1,674,810
C. P1,431,810
D. P1,776,810

Problem 4:

The following example illustrates the preparation of a bank reconciliation and the required adjusting entries
for the Suzuka Pero Di Suzuko Corporation for the month ended June 30, 20X7. The unadjusted cash
balances are as follows:

Cash balances per bank statement, June 30, 20X7 P249,223.00

Cash balance per company records, June 30, 20X7 248,758.80

The bank statement disclosed the following information:

1. A customer note for P24,000 plus P240 interest was collected on June 30, 20X7.
2. A customer check for P2,762.80 was returned because of insufficient funds (NSF check).
3. The month service charge was P300.

A review of the company records disclosed the following:

1. A deposit for P22,857.40 mailed to the bank on June 29, 20X7 did not appear on the bank statement.
2. Customer checks totaling P6,548.00 were on hand at the end of June awaiting deposit.
3. The following company checks were outstanding at the end of June:
#862 P 1,923.80
#864 2,943.60
#865 5,265.00
4. Check #843 written for P1,824.00 in payment of a creditor account and included with the canceled
checks in the bank statement has been erroneously recorded as P384.00 in the company records.

The proof of cash for the requires the following in addition to that given in the preceding case:

a.) May 31, 20X7 bank balance P272,348.40

b.) Deposit in transit received by the bank June 2, 20X7 P24,803.00
c.) Total receipts recorded by the bank during June, 20X7 was P528,423.40
d.) Total payments recorded by the bank during June, 20X7 was P551,548.80
e.) May 31, 20X7 book balance was P289,630.40
f.) Outstanding checks on May 31, 20X7 for checks no.
#781 P 3,263.00
#782 4,258.00
g.) Total receipts per books during June, 20X7 was P508,785.80
h.) Total payments per books during June, 20X7 was P549,657.40.

14. What is the adjusted Book Disbursement per Bank at June 30, 20X7.

A. 533,025.80
B. 549,657.40
C. 555,600.20
D. 554,160.20

15. What is the adjusted Bank balance at June 30, 20X7.

A. 268,496.00
B. 289,630.40
C. 249,223.00
D. 270,350.00

16. What is the adjusted Bank balance at May 31, 20X7.

A. 268,496.00
B. 289,630.40
C. 249,223.00
D. 270,350.00

Problem 5:

The Vigan Company included the following in its notes receivable as of December 31, 2023: The 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 2023 and other information pertaining to the company's notes receivable: On January
1, 2023, Vigan Company sold a tract of land. The land, purchased 10 years ago, was carried on Vigan
Company's books at a value of P500,000. Vigan received a noninterest-bearing note for P880,000. The
note is due on December 31, 2024. There is no readily available market value for the land, but the current
market rate of interest for comparable notes is 10%. On January 1, 2023, Vigan Company finished
consultation services and accepted in exchange a promissory note with a face value of P1,200,000, a due
date of December 31, 2025, 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 the
circumstances, the note is considered to have an appropriate imputed rate of interest of 10%. On January
1, 2023, Vigan Company sold equipment with a carrying amount of P1,600,000 to X Company. As
payment, X gave Vigan Company a P2,400,000 note. The note bears an interest rate of 4% and is to be
repaid in three annual installments of P800,000 (plus interest on the outstanding balance). The first
payment was received on December 31, 2023. The market price of the equipment is not reliably
determinable. The prevailing rate of interest for notes of this type is 14%. QUESTIONS: Based on the
given information and the result of your audit, answer the following: (Round off present value factors to
four decimal places and final answers to nearest hundred).

17. The consultation service fee revenue that should be recognized in 2023 is
A. 901,600
B. 1,050,800
C. 1,095,800
D. 1,200,000

18. The gain on sale of equipment that should be recognized in 2023 is?
A. 257,280
B. 331,600
C. 412,400
D. 800,000

19. The noncurrent notes receivable as of December 31, 2023 is?

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

20. The current portion of long-term notes receivable as of December 31, 2023 is?
A. 800,000
B. 1,468,200
C. 1,600,000
D. 1,680,000

21. The interest income to be recognized in 2023 is?

A. 156,000
B. 435,800
C. 459,500
D. 464,000
Problem 6:

MABES Corporation, a manufacturer of small tools, provided the following information from its accounting
records for the year ended December 31, 20X7:

Inventory at December 31, 20X7 (based on physical

count of goods in MABES's plant at cost on
December 31, 20X7) P1,750,000
Accounts payable at December 31, 20X7 1,200,000
Net sales (sales less sales returns) 8,500,000

Additional information is as follows:

1) Included in the physical count were tools billed to a customer FOB shipping point on December
31, 20X7. These tools had a cost of P28,000 and had been billed at P35,000. The shipment was
on MABES's loading dock waiting to be picked up by the common carrier.

2) Goods were in transit from a vendor to MABES on December 31, 20X7. The invoice cost was
P50,000, and the goods were shipped FOB shipping point on December 29, 20X7.

3) Work-in-process inventory costing P20,000 was sent to an outside processor for plating on
December 30, 20X7.

4) Tools returned by customers and held pending inspection in the returned goods area on December
31, 20X7, were not included in the physical count. On January 8, 20X8, the tools costing P26,000
were inspected and returned to inventory. Credit memos totaling P40,000 were issued to the
customers on the same date.

5) Tools shipped to a customer FOB destination on December 26, 20X7, were in transit at December
31, 20X7, and had a cost of P25,000. Upon notification of receipt by the customer on January 2,
20X8, MABES issued a sales invoice for P42,000.

6) Goods, with an invoice cost of P30,000, received from a vendor at 5:00 p.m. on December 31,
20X7, were recorded on a receiving report dated January 2, 20X8. The goods were not included
in the physical count, but the invoice was included in accounts payable at December 31, 20X7.

7) Goods received from a vendor on December 26, 20X7, were included in the physical count.
However, the related P60,000 vendor invoice was not included in accounts payable at December
31, 20X7, because the accounts payable copy of the receiving report was lost.

8) On January 3, 20X8, a monthly freight bill in the amount of P4,000 was received. The bill
specifically related to merchandise purchased in December, 20X7, one-half of which was still in
the inventory at December 31, 20X7. The freight charges were not included in either the inventory
or in accounts payable at December 31, 20X7.
Based on the preceding information, determine the following:

22. What is the adjusted balance of Inventory as of December 31, 20X7

A. 1,901,000
B. 1,903,000
C. 1,853,000
D. 2,625,700

23. What is the adjusted balance of Accounts Payable as of December 31, 20X7
A. 1,400,000
B. 1,310,000
C. 1,260,000
D. 1,314,000

24. What is the adjusted balance of Net Sales as of December 31, 20X7

A. 8,425,000
B. 8,465,000
C. 8,550,000
D. 8,429,000

Problem 7:

On December 31, SUKO NA Co's "Accounts receivable" balance per ledger of P1,250,000 includes:
1. MasterCard or VISA credit card sale of merchandise to customer P10,000
2. Overpayment to supplier for inventory purchased on account 20,000
3. Insurance claim on automobile accident 2,000
4. Advance to sales manager due in one year 4,000
5. 5-year note receivable due from company president
(This was issued by the president for the loan granted to him.) 300,000
6. Interest due on 5-year note from company president,
interest payable annually 6,000
7. Acceptance of 6-month note for past due-account
arising from sale of inventory 5,000
8. Accrued interest receivable on the note above 100
9. Overpayment by customer of an account receivable (5,000)
10. Accounts receivable to customers definitely uncollectible 4,000
11. Other trade accounts receivable-unassigned 50,000
12. Trade accounts receivable-assigned 10,000
13. Note receivable customer (this note is for a cash loan
made to this customer collectible in 3 years.) 30,000
14. Claim for a tax refund from last year 3,000
 15. Prepaid insurance-4 months remaining in the policy period 4,000
16. Advances to or receivables from stockholders,
(P100,000 is collectible currently) 250,000
17. Advances to affiliates 125,000
18. Subscription receivables 150,000
19. Special deposits on contract bids 30,000
20. Dividend receivables 10,000
21. Notes receivable dishonored 5,000
22. Accrued rent receivables 6,000
23. Claims against common carriers 4,900
24. Acceptance of 8-month note from employees arising
from sale of inventory 6,000
25. Trade installment receivable due within 16 months,
gross of unearned interest income of P20,000 220,000
TOTAL P1,250,000

Based on the above data, compute for the following:

25. Trade accounts receivable as of December 31

A. 295,000
B. 275,000
C. 225,000
D. 250,000

26. Trade and other receivables to be presented in the current asset section of the balance sheet
A. 431,000
B. 442,000
C. 422,000
D. 400,000

27. Noncurrent receivables as of December 31

A. 600,000
B. 625,000
C. 615,000
D. 635,000

28. Non-trade receivables as of December 31

A. 791,000
B. 635,000
C. 780,000
D. 641,000
Problem 8:

UHAWSAIYO COMPANY General and Petty Cash Count Audit Year: 2030 Date of count – January 5,
2031, 9:10 am

Bills and Coins

Denomination Bundles of 100 pcs Rolls of 50 coins Loose
500 1 9
100 2 27
50 3 5
20 5 4
10 10
5 6 4
1 10 20
0.25 40 16

Checks
Maker Payee Date Amounts
T. Otis – customer Uhawsaiyo 12/30/30 P11,920
R. Eyes – customer Uhawsaiyo 12/26/30 12,505
O. Liever - customer Uhawsaiyo 1/2/31 5,707
F. Rancisco - customer Uhawsaiyo 12/21/30 13,350
Uhawsaiyo ABC Co. 12/27/30 14,500
M. Doza - Officer Cash 1/5/31 310
O. Campo Cash 12/29/31 260

*Amount is for a return of travel advance made to the employee in an earlier period.

Vouchers and IOUS

Paid to Date Amount
PNR – transportation expense 1/2/31 P35
Post office – postage stamps 12/20/30 150
Italian Village – Christmas party 12/23/30 6,290
I. Dio – IOU 12/27/30 300

Others
1. Cash sales invoices (all currencies No. 17903 to 18112), P100,500
2. Official receipts
Number Amount Form of Collection
31250 P560 Cash
31251 12,505 Check
31252 1,202 Cash
31253 11,920 Check
31254 13,350 Check
 3. Stamps of various denomination amounted to P80.
4. A notation on a sheet of paper as follows:
“Proceeds from employee contribution for Christmas Party, P9,500”
5. Petty cash per ledger, P15,000.

29. How much is the petty cash shortage as of January 5, 2031?

A. 13,913
B. 15,303
C. 14,503
D. none

30. The adjustment to correct petty cash fund involves a credit to petty cash fund at:
A. 15,000
B. 14,988
C. 14,953
D. 14,688

Problem 9:

You were engaged by REMEMBER CO. for the audit of the company’s financial statements for the year
ended December 31, 2029. The company is engaged in the wholesale business and makes all sales at
25% over cost. he following were gathered from the client’s accounting records:

SALES PURCHASES
DATE REFERENCE AMOUNT DATE REFERENCE AMOUNT
Balance forwarded P 5,200,000 Balance forwarded P 2,700,000
Dec-27 SI No. 965 40,000 Dec-27 RR No. 1057 35,000
Dec-28 SI No. 966 150,000 Dec-28 RR No. 1058 65,000
Dec-28 SI No. 967 10,000 Dec-29 RR No. 1059 24,000
Dec-31 SI No. 969 46,000 Dec-30 RR No. 1061 70,000
Dec-31 SI No. 970 68,000 Dec-31 RR No. 1062 42,000
Dec-31 SI No. 971 16,000 Dec-31 RR No. 1063 64,000
Dec-31 Closing Entry (5,530,000) Dec-31 Closing Entry (3,000,000)
Total P - Total P -

Note: SI = Sales Invoice RR = Receiving Report

Inventory P 600,000
Accounts Receivable 500,000
Accounts Payable 400,000

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. 1063 and that no shipments had been made on any Sales Invoices
whose number is larger than No. 968.

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. 1060 but for which the invoice was not received until the following
year. Cost was P18,000.
b) On the evening of December 31, there were two trucks in the company siding:
I. Truck No. CPA 123 was unloaded on January 2 of the following year and received on Receiving
Report No. 1063. The freight was paid by the vendor.
II. Truck No. ILU 143 was loaded and sealed on December 31 but leave the company premises on
January 2. This order was sold for P100,000 per Sales Invoice No. 968.
c) Temporarily stranded at December 31 at the railroad siding were two delivery trucks enroute to Brooks
Trading Corporation. Brooks received the goods, which were sold on Sales Invoice No. 966 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. 1064. 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 given information and the result of your audit, determine the following:

31. Sales for the year ended December 31, 2020

A. P5,250,000
B. P5,400,000
C. P5,150,000
D. P5,350,000

32. Purchases for the year ended December 31, 2020

A. P3,000,000
B. P3,018,000
C. P3,754,000
D. P3,818,000

33. Inventory as of December 31, 2020

A. P864,000
B. P968,000
C. P800,000
D. P814,000

34. Accounts receivable as of December 31, 2020

A. P350,000
B. P370,000
C. P220,000
D. P120,000
35. Accounts payable as of December 31, 2020
A. P418,000
B. P 400,000
C. P354,000
D. P1,218,000

Theory:

1. When inventory is material to the financial statements, the auditor shall obtain sufficient appropriate
audit evidence regarding the existence and condition of inventory by:
A. Attendance at physical inventory counting, unless impracticable.
B. Performing audit procedures over the entity’s final inventory records to determine whether they
accurately reflect actual inventory count results.
C. Both a and b.
D. Neither a nor b.

2. Attendance at physical inventory counting involves:

A. Inspecting the inventory to ascertain its existence and evaluate its condition, and performing test counts.
B. Observing compliance with management’s instructions and the performance of procedures for
recording and controlling the results of the physical inventory count.
C. Obtaining audit evidence as to the reliability of management’s count procedures.
D. All of these.

3. The procedures involve in the attendance at physical inventory counting

A. Serve as risk assessment procedures.
B. Serve as test of controls.
C. Serve as substantive procedures.
D. May serve as test of controls or substantive procedures depending on the auditor’s risk assessment,
planned approach and the specific procedures carried out.

4. In which of the following cases is attendance at physical inventory counting impracticable?

A. Where inventory is held in a location that may pose threats to the safety of the auditor.
B. Where the auditor will be inconvenienced because of the difficulty, time and cost involved in doing the
procedures.
C. Both a and b.
D. Neither a nor b.

5. If attendance at physical inventory counting is impracticable, the auditor shall

a. Perform alternative audit procedures to obtain sufficient appropriate audit evidence regarding the
existence and condition of inventory.
b. Modify the opinion in the auditor’s report.
c. Make or observe some physical counts on an alternative date, and perform audit procedures on
intervening transactions.
d. Do nothing and just rely on the result of physical inventory counting conducted by the client
6. Which of the following may provide sufficient appropriate audit evidence about the existence and
condition of inventory if attendance at physical inventory counting is impracticable?
a. Inspection of documentation of the subsequent sale of specific inventory items purchased prior to the
physical inventory counting.
b. Inspection of documentation of the subsequent sale of specific inventory items purchased after the
physical inventory counting.
c. Both a and b.
d. Neither a nor b.

7. When inventory under the custody and control of a third party is material to the financial statements,
the auditor shall obtain sufficient appropriate audit evidence regarding the existence and condition of that
inventory by
a. Requesting confirmation from the third party as to the quantities and condition of inventory held on
behalf of the entity.
b. Performing inspection or other audit procedures appropriate in the circumstances.
c. Performing one or both of the procedures in (a) and (b).
d. Relying only on the written representations made by the client’s management.

8. Which of the following is not one of the independent auditor's objectives regarding the audit of
inventories?
a. Verifying that inventory counted is owned by the client.
b. Verifying that the client has used proper inventory pricing.
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

9. An auditor is most likely to inspect loan agreements under which an entity’s inventories are pledged to
support management’s financial statement assertion of?
a. Existence or occurrence.
b. Completeness.
c. Presentation and disclosure.
d. Valuation or allocation.

10. 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
a. Existence.
b. Completeness.
c. Rights.
d. Valuation.

11. 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 confirmation request was signed by the treasurer.
b. Sending the request was meaningless because the account was closed before the year-end.
c. The request was mailed by the assistant treasurer.
d. The CPA did not sign the confirmation request before it was mailed.

12. In October, three months before year-end, the bookkeeper erroneously recorded the receipt of a
one-year bank loan with a debit to cash and a credit to miscellaneous revenue. Select the most effective
method for detecting this type of error.
a Foot the cash receipts journal for October.
b. Send a bank confirmation as of year-end.
c. Prepare bank reconciliation as of year-end.
d. Prepare a bank transfer schedule as of year-end.

13. Which of the following is not confirmed on the standard form used for cash balances at financial
institutions?
A. Cash checking account balances.
B. Cash savings account balances.
C. Loans payable.
D. Securities held for the client by the financial institution.

14. The primary assertion being addressed by sending bank confirmation is

A. Existence
B. Rights and obligation
C. Completeness
D. Classification

15. Which of the following assertions is least likely to be addressed by sending bank confirmation?
A. Existence
B. Rights and obligation
C. Completeness
D. Classification

16. This document is a bank statement prepared a few days after month-end Its purpose is to help
auditors verify reconciling items on the year-end bank reconciliation.
A. Cut-off bank statement
B. Bank transfer schedule
C. Bank reconciliation
D. Proof of cash

17. By preparing a four-column bank reconciliation (proof of cash) at year-end, an auditor will generally
be able to detect:
a. An unrecorded deposit made at the bank at the end of the month.
b. A second payment of an account payable which had already been paid in full two months earlier.
c. An embezzlement of cash receipts not recorded in the cash receipts journal before they had been
deposited into the bank.
d. A receivable collected that had previously been written off as uncollectible.

18. The following specific scenarios are normally uncovered using proof of cash. Select the exception:
a. Cash receipts and disbursements recorded in the accounting records, but not on the bank statement.
b. Cash deposits and disbursements recorded on the bank statement, but not on the accounting
records.
c. Cash receipts and disbursements not recorded in the accounting records and on the bank statement.
d. Cash receipts and disbursement recorded at different amounts by the bank than in the accounting
records.

19. This document shows the dates of all transfers of cash among the various bank accounts. Its
primary purpose is to help auditors detect kiting.
a. Cut-off bank statement
b. Bank transfer schedule
c. Bank reconciliation
d. Proof of cash

20. Kiting would least likely be detected by:

a. Analyzing details of large cash deposits around year end.
b. Comparing customer remittance advices with recorded disbursements in the cash disbursements
journal.
c. Preparing four-column bank reconciliation for all major cash accounts.
d. Preparing a schedule of interbank transfers by using the client's records and bank statements around
year end.

21. An auditor most likely would limit substantive audit tests of sales transactions when control risk is
assessed as low for the existence or occurrence assertion concerning sales transactions and the auditor
has already gathered evidence supporting:
A. Shipping and receiving activities.
B. Opening and closing inventory balances.
C. Cutoffs of sales and purchases.
D. Cash receipts and accounts receivable.

22. Which of the following areas would ordinarily be expected to require the most time when performing
an audit of a continuing client?
A. Accounts receivable.
B. Common stock.
C. Retained earnings.
D. Revenues.

23. Which of the following is a procedure to verify the existence of receivables and/or occurrence of
sales?
a. Vouching receivables to shipping documents.
b. Vouching recorded sales transactions to customer orders and shipping documents.
c. Tracing the shipping documents to recorded sales transaction and receivable.
d. Confirmation of receivables to customers.

24. Of the two forms of confirmation request, which is considered more reliable source of evidence?
a. Positive confirmation
b. Negative confirmation
c. Both are equally reliable
d. None of the two is considered more reliable

25. Which of the following scenario would positive confirmation be appropriate?

a. The assessed level of inherent and control risk for receivable and sales is very low.
b. Very few or no exceptions expected.
c. The auditor has a reason to believe that recipients of negative confirmation requests will disregard
such confirmation requests.
d. The receivable comprises a large number of small, homogenous, account balances.

26. Which of the following is the best argument against the use of negative accounts receivable
confirmations?
a. The cost per response is excessively high.
b. There is no way of knowing if the intended recipients received them.
c. Recipients are likely to feel that in reality the confirmation is a subtle request for payment.
d. The inference drawn from drawn from receiving no reply may not be correct.

27. Which of the following would be least likely to diminish the validity of evidence obtained through
confirmation of accounts receivable?
a. The confirmations are sent on the client's letterhead.
b. The confirmations are mailed to customers by the internal auditors.
c. The client's mailroom personnel closely monitor and inspect confirmations during mailing.
d. The return address on the envelope used to send the confirmation request is that of the client.

28. What is the primary assertion being addressed by confirmation of receivables?

a. Completeness
b. Gross valuation
c. Existence
d. Accuracy

29. To test the existence assertion for recorded receivables, an auditor would select a sample from the.
a. Sales orders file.
b. Customer purchase orders.
c. Accounts receivable subsidiary ledger.
d. Shipping documents (bills of lading) file.

30. During the process of confirming receivables as of December 31, 2021, a positive confirmation was
returned indicating the "balance owed as of December 31 was paid on January 9, 2022." The auditor
would most likely
a. Determine whether there were any changes in the account between January 1 and January 9, 2022.
b. Determine whether a customary trade discount was taken by the customer.
c. Reconfirm the zero balance as of January 10, 2022.
d. Verify that the amount was received.
31. A client maintains perpetual inventory records in both quantities and pesos. If the assessed level of
control risk is high, an auditor would probably
A. Increase the extent of test of controls of the inventory cycle.
B. Request the client to schedule the physical inventory at the end of the year.
C. Insist that the client perform physical counts on inventories several times during the year.
D. Apply gross profit tests to ascertain the reasonableness of physical counts.

32. The auditor is most likely to learn of slow-moving inventory through:

A. Inquiry of sales personnel.
B. Inquiry of the warehouse personnel.
C Physical observation of inventory
D. Review of perpetual inventory records.

33. An essential procedural control to ensure the accuracy of the recorded inventory quantities is:
A. Performing a gross profit test.
B. Testing inventory extension.
C. Calculating unit costs and valuing obsolete or damaged inventory items in accordance with inventory
policy.
D. Establishing cut-off for goods received and shipped.

34. An auditor concluded that no excessive costs for idle plant were charged to inventory. This
conclusion most likely related to the auditor's objective to obtain evidence about the financial statement
assertions regarding inventory:
A. Rights and obligation
B. Valuation
C. Existence
D. Completeness

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