Auditing Appplications Prelims

AUDITING ASSURANCE & APPLICATION – PRELIMS
Problem 1
Your audit of Manre Primos Corporation’s cash in bank account revealed the following
information:
a. The unadjusted balance per bank statement on November 30, 2020 was at P435,600.
b. The unadjusted balance per books on December 31, 20220 was at P789,200.
c. November bank credits included a customer’s note collected by the bank at P138,000 and
a P75,000 of Federal Express Company erroneously credited by the bank to Manre
Primos Corporation’s account.
d. November bank debits included a P9,000 bank service charge and a P25,000 customer’s
check returned by the bank marked “NSF”.
e. November deposit in transit was at P125,000 while outstanding checks was at P90,000,
which included a P10,000 certified by the bank at the request of Manre Primos.
f. A P52,000 collection check from customer was recorded by the company at P25,000 in
November.
g. All reconciling items in the month of November were recorded in the month of
December.
h. A P40,000 depositor’s note was charged by the bank in December along with a P12,000
December bank service charge.
i. Among the December bank credits was a P100,000 bank credit for a loan proceeds from
the same bank.
j. A P32,000 check issued to a supplier was recorded by the company as P23,000 in
December.
k. The bank statement for December showed a total credits at P2,140,000 and total debits of
P1,890,000.
l. The cash records for December showed total collections at P2,400,000 and total
disbursements at P1,900,000.
Based on the above and the results of your audit, you are to provide the answers to the following:
1. What is the correct cash balance as of November 30, 2020?

a. P395,600 b. P405,600 c. P420,200 d. P410,000
2. What is the total cash shortage/overage as of November 30, 2020?

a. P24,600 b. P14,600 c. P9,600 d. P4,600
3. What is the total deposit in transit as of December 31, 2020?

a. P220,000 b. P297,000 c. P320,000 d. P347,000
4. What is the total outstanding checks as of December 31, 2020?

P192,000 b. P183,000 c. P42,000 d. P117,000
5. What is the correct cash balance as of December 31, 2020?

a. P813,600 b. P823,600 c. P828,200 d. P843,200
Problem 2
You are auditing the accounts receivables of Samhata Corporation, a supplier of office and
school supplies in the Northern Luzon region. Your investigation revealed the following general
ledger balances as of December 31, 2020 before any proposed audit adjustments:
Accounts Receivable P1,250,000

Allowance for Doubtful Accounts 38,500
The company provides for its doubtful accounts expense for interim reporting purposes using
income statement approach. Doubtful accounts expense is provided at 2% of sales for the first
three quarters. Total sales for the first three quarters, from which interim provisions were made
was at P4,500,000. During the year, P56,000 were written off, while P20,000 of previously
written-off accounts were recovered.
The following ageing of accounts receivable schedule was provided by the company accountant:
1 – 30 days current P420,000

16 – 30 days current 240,000
1 – 30 days past due 210,000
31 – 60 past due 250,000
More than 60 days past due 120,000
Of the more than 60 days past due accounts, P30,000 is deemed uncollectible thus has to be
written off.
You sent confirmation letters to customers with significant account balances. The following is a
summary of confirmation replies:
Customer Amount Customers’ Reply Audit Findings

Alpha P150,000 “Our records show a balance The difference was due to merchandise
of P135,000”. return made by customer on December
28. The goods were received on
January 2. The related credit memo
was issued and recorded by then.
The
return was for goods originally delivered
and invoiced by the company on October
12.
Beta P300,000 “Our records show a balance The difference was due to an error made
by
of P290,000. the company in preparing an invoice dated
November 20. The invoice was P200 per
unit whereas the agreed price should have
been at P190 per unit.
Charlie P190,000 “Our records show a balance The payment made by Charlie for an
invoice
of P150,000. dated October 20 was posted
erroneously to the subsidiary ledger
of Echo.
Delta P255,000 “Our records indicate that The invoice for deliveries made on
the balance is at P250,000. December 3 was erroneously posted in the
subsidiary ledger at P55,000. The
correct invoice amount is P50,000.
Echo P160,000 “Our records show a bigger Payment of Charlie for an October 20
balance”. invoice was posted against the
subsidiary ledger of Echo. All
outstanding transactions with Echo
were made in November.
The term of sale is 5/15, n/30. Per past experience of the company, 25% of customers normally
take advantage of cash discounts. The following are deemed appropriate regarding accounts that
are doubtful of collection:
1 – 30 days current -
16 – 30 days current 2%
1 – 30 days past due 10%
31 – 60 past due 25%
More than 60 days past due 50%
6. What is the total unreconciled difference between the accounts general ledger and
subsidiary ledgers?
a. P5,000 b. P10,000 c. P15,000 d. P0
7. What is the correct balance of accounts receivable before any valuation allowance?
a. P1,200,000 b. P1,195,000 c. P1,185,000 d. P1,180,000
8. What is the correct allowance for doubtful accounts as of December 31, 2020?
a. P122,450 b. P122,550 c. P127,050 d. P126,050
9. What is the correct carrying value of accounts receivables as of December 31, 2020?
a. P1,082,300 b. P1,087,550 c. P1,057,550 d. P1,052,300
10. What is the correct doubtful accounts expense for 2020?

a. P173,950 b. P203,950 c. P204,050 d. P174,050
Problem 3
Shoreland Corporation, organized on March 1, 2020, has a very poor internal control system.
The company’s cashier is also its accountant. After nine months of operations, the company’s
manager suspects that the cashier-accountant has been misappropriating company collections.
You have been engaged to audit the company’s accounts to determine the extent of fraud, if any.
You started the audit on November 15. On that date, the cash on hand per your surprise count
was P5,140. Also on that date, the bank confirmed that the balance of the company’s current
account was P26,328. Your examination of the records reveals that a check for P1,852 was
outstanding on November 15. The company’s gross profit rate is 40% of sales.
Further examination of the company’s records reveals the following balances at November 15,
2020:
Ordinary share capital P300,000
Share premium 20,000
Land and building purchased for cash 200,000
Mortgage payable 80,000
Furniture and fixtures (of the acquisition cost, P6,000
remains unpaid as of November 15) 29,000
Note payable – Bank 32,000
Accounts payable –trade 46,284
Expenses paid (excluding purchases) 60,756
Merchandise inventory, at cost 93,920
Accounts receivable – trade 85,380
Total sales 340,000
11. How much was paid for inventory purchase?
a. P157,716 b. P293,716 c. P183,636 d. P251,636
12. How much was collected from customers?

a. P118,620 b. P254,620 c. P50,620 d. P340,000
13. How much is the cashier’s accountability at November 15, 2020?

a. P131,228 b. P83,228 c. P145,228 d. P151,228
14. What is the adjusted bank balance as of November 15, 2020?

a. P31,468 b. P26,328 c. P29,616 d. P23,040
15. How much is the cash shortage as of November 15, 2020?

a. P121,612 b. P101,612 c. P127,612 d. P206,992

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AUDITING ASSURANCE & APPLICATION – PRELIMS

1. What is the correct cash balance as of November 30, 2020?

2. What is the total cash shortage/overage as of November 30, 2020?

3. What is the total deposit in transit as of December 31, 2020?

4. What is the total outstanding checks as of December 31, 2020?

5. What is the correct cash balance as of December 31, 2020?

Accounts Receivable P1,250,000

1 – 30 days current P420,000

Customer Amount Customers’ Reply Audit Findings

10. What is the correct doubtful accounts expense for 2020?

12. How much was collected from customers?

13. How much is the cashier’s accountability at November 15, 2020?

14. What is the adjusted bank balance as of November 15, 2020?

15. How much is the cash shortage as of November 15, 2020?

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