AUDITING PROBLEMS: TRENEO/ESPENILLA/ JAMES. LIABILITIES. PROBLEM 2.) You were provided the following (formation relative to your audit of the financial statenieit oF Victor Company an at December 4, 2011; | Employee income tax withheld Cash balance at First Philippine Bank © Cash overdratt at Second Phil ypine Hank 4 ACCOUNTS Fecelvable with Credit halances | Estimated expenses of meeting warranties on merchandise sold Estimated damages on unsatisfactory performance on a contract Taccounts payable Dwidends in arrears on preference shares D »j Deferred serial bonds of PA00,000, Issued at par, payable in semi-annual [installments of P50,000, due April Land October 1 of eact year; the last payment shall be October 2017 Theye serial bonds bear a 10% interest thal paid semiannually Ordinary shares at par to be distributed as a result of a share dividend | declaration | Deferred tax abilities expected Lo reverse next year | Reserve for contingencies 1. At year end, how much should be presented as current Habil a. 151,800 gy. 1,800 b. 61,800 a. 49,300 2. How much is the total of the non-current Hlabiities? a. $00,000 410,000 b. 440,000 510,000 a . yw 2 Kye PROBLEM 2; At December 31, 2011, Patrick Company's liabilities include the following listed below. Patrick's December 31, 2011 year-end financial statements were issued on March 13, 2012 2. A 10%, P2 million Notes Payable due on March 31, 2016. A debt covenant requires Patrick to maintain current assets at least equal to 150% of its current liabilities. On December 31, 2014, Patrick 1s 1 violation of this covenant. On December 31, 2011, Patrick obtained & #® waiver until June 2012, from Golden Corp, Bank, having convinced the bank that the company’s normal current ration of 2:1 will be reestablished during the first half of 2012. b. PG million of non-cancelable 13% bonds issued at face value on September 30, 2002. The oy bonds mature on August 31, 2012. Sufficient cash is expected to be available to retire the bonds at maturity €. P15 million of 10% bonds Issued for P15 milion on June 30, 1992. The bonds mature on June 30, 2016, but bondholders have the option of calling (they can demand payment ) the bonds % on June 30, 2012, It is probable that the bondholder will be exercising their option on the said date, sy d. Patrick Company haw (PD inuliion short-term commercial papers. On December 31, 2011, Patrick intends to refifiance the commercial paper by Issuing long-term debt. However, because of existence of excess cash, P41 zllion oF these liabilities was liquidated in February, 202. On March 1, 2017, Patrick issued/P9)Million of long-term bonds, P3 million of which was used to replenish the working capital ditto the payment of the P3 million in February, 2012; P4 rrullion to pay the remaining balance: af the commercial paper due within the year, and the remaining P7 million for acquisition of new equipment. How much from the ems above (8 ~ d) should be presented as current? 33,000,110 © 11,000,000 Pa b. 18,090,000 é d. 9,000,000PROBLEM 3: During 2011, Cory Company introduced a new line of machines that carries a two- yeat_warranty against manufacturer's defects. Based on industry experience, the estimated warranty cost percentages related to peso sales are as follows: Year of sale 26, yy Year after sale o> Wh Sales and actual warranty expenditures for the years ended December 31, 2010 and 2011 were ee fatows. ~ Year [Sales ~ 2010 fw s00,000 Dot 700,000 1. How much Is the warranty expense to be recognized in 2010 and 2011; respectively? @, 15,000 and 47,000 @ 50,000 and 70,000 b. 20,000 and 58,000 d. and 120,000 2, What Is the estimated warranty liability as of December 31, 2010? a 0 @ 35,000 b. 16,000, d. 50,000 3. Whats the estimated warranty lability as of December 31, 20117 oo © s7.000 8. 6,000 fi 36.000 PROBLEM 4; Pancake Inc. has initiated promotional program whereby each box of pancake mix contain one coupon, which if submitted with P40, entitles the customer to a frying pan. Pancake Inc. pays P90 for each frying pan and incurs additional P10 for handling and shipping costs upon redemption, The following information are deemed relevant: | Number of boxes sold Selling price per box Number of frying pans purchase F Inventory of frying pans at year _|_5,000 [4,000 | The company estimates that 40% of the coupon: from boxes soid will be presented for the redemption. Coupons are redeemable within one year from the date of purchase of the related pancake mix. 1, How much is the total premium expense to be reported in 2010 and 2011, respectively. 2. 2,800,000 and 3,800,000 ‘A. 1,680,000 and 2,280,000 b. 2,520,000 and 3,420,000 4. 1,400,000 and 1,900,000 2. How much is the total premiums liabilities to be reported at the end of 2010 and 2011, respectively. 2, 350,000 and 600,000 ¢. 630,000 and 1,080,000 J. 420,000 and 720,000 4. 700,000 and 1,200,000 PROBLEM 5: Bake Food Corporation (BFC) issues coupons to consumers which may be presented ‘on or before their expiration date at retail food stores in order to obtaln discounts on certain products produced by BFC. Retail food stores are reimbursed equal to the face value of the coupons redeemed, plus 10% of coupon face value as compensation for handling costs. BFC honors requests for coupon redemptions by retail food stores received up to three months after the In BFC's experience, 60% of the coupons issued ultimately are fedesmets Information the two series of coupons issued by BFC during 2011 are redeemed. Information with respect to tl 5 follows: Consumer expiration date Total face value of coupon: expense to be recognized in 2011? 1. How much Is the promotional exper recognized a, 330,000 b. 300,000 gy 192,500 : , 2011? 2. How much ig the liabilities for unredeemed coupons 2 of December 31, a, 120,000 132,00 + 91,500 4.ROBLEM 6: Yin your examination of the financial statements of Sikatuna Financing Company(SFC),fou learned that it grants its president a bonus. Said bonus is composed of 2 ‘equivalent to 10% of the company’s net income before deducting the bonus but after deducting the corporate income tax. In addition, the basic bonus will be increased by the company’s tax savings because the total amount of bonus is deductible in computing the company’s taxable income. (The tax savings is the difference between the income taxes the company would have paid had there been no bonus and the income taxes the company now pays with the bonus). SEC registered a net income of P100,000 in 2611 before the deductions of both the bonus and the corporate income tax at 30%. 1, The 2011 bonus is: a 7,216.49 9,381.44 b. 7,313.43 # 10,447.76 2, The 2011 income tax is: mM 26,865.67 27,805.97 ‘b. 27,185.57 4. 10,447.76 3, The total tax savings to be added to his basic bonus is: a0 2,194.03 b. 2,164.95 FF 3134.33 “4, ‘The income for 2011 after deducting the president’s bonus and the corporate income tax is: 62,686.57 64,880.60 ’b. 63,432.99 : 4. 64,948.46 PROBLEM 7: Jaycee Mowers allows each employee to earn a 15-day paid vacation each year. Unused vacation can be carried over the next year; thereafter it expires. By the end of 2010, all but 3 of the 30 employees had taken their earned vacation leaves. These 3 employees carried over to 2011 a total of 20 vacation days, amounting to P6,000. During 2011, all of these 3 employees consumed their 2010 unused vacation leaves. Salary rates remain unchanged in 2011. Total wages paid in 2010 and 2011 were P700,000 and P740,00, respectively. There were no unused vacation leave at the end of 2011. 1. The 2010 compensation expense is: a. 700,000 f 796,000 b. 740,00 4. 734,000 2, The 2011 compensation expense is: a, 700,000 ¢. 706,000 b. 740,00 734,000 3. The 2011 liability for compensated absences is: Az 0 <. 6,000 b. 12,000 d. 18,000 4. If salaries of employees increased by 10% in 2011, and 40 vacation days were carried over 2012, what is the compensation expense in 2011 and the liability for compensated absences in 2011, assuming total payroll paid in 2011 is stil P740,0002: 747,200 and 13,200 c. 734,000 and 13,200 , 753,200 and 13,200 4. 753,200 and zero PROBLEM 8: [AUREL Company had the following selected balances in the hability portion of its unaudited balance sheet as of December 31, 2011: ‘Accrued warranty expense PO Accrued compensated absences 297,500 ‘Accrued bonus i 0 Audit notes: ‘a. The company commenced its two-year warranty program during the current year. It estimated that warranty costs shall be approximately P125 in parts and labor per unit returned, ‘The company further estimate that 2/3 of the units sold shall be returned during the warranty period and shail materialized as follows: 40% on the year of sale 60% on the year following the year of sale.Ke@oA: The Review School of Accountancy Page 4 of 10 ‘The company sold 1,000 unite of product covered by the sald warranty In 2011. Moreover, actual warranty costs ticurted amounted to 98,000 which the company charged to waranty expense, Dd. The Accrued compensated absences refers to the balance of the liability accrued in the prior year for unavailed sick leaves and vacation leaves of the company’s employees. Company reconty shows the following information: Sick leaves Vacation leaves. 2010 leaves carried forward to 2011 S00 days 350 days. és 2010 leaves usedt/avatied In 2011 350 250 co) 2011 leaves to be carried forward to 2012 300 200 Additional information + Employees are entitled to accumulate unused sick and vacation leaves up to 2 years from date of grant S + Prior year leaves availed during the current year were charged to current year Salaries and wanes + Average daily salaries in 2010 and 2011 amounted to P350 and{P400) respectively. €. The company provites incentive bonus to Its key officers based on the net income after bonus. The Company Is yet to accrue lability for the said bonus at year end. The company’s unadjusted net income amounted to P1,427,500. nal information: a Bonus rate 1s at 15% b. Tocome tax rate 1S 3596 iy Required: 1, What is the correct estimated liability for warranties at the end of 2011? a, 250,000 «150,000 152,000 Sd. 98,000 2, What is the correct bavlance of the accrued compensated absences account? @. 297,500 _% 300,000 b, 280,000 ‘4, 320,000 3. What is the correct batance of the accrued bonus account? y 166,083, c. 168,913 130,814 111,492 4. What Is the correct net income after tax? a, 828,750 . 720,652 719,522 4. 704,332 PROBLEM: Determine the implication of the following independent cases to the December 31, 2011 financial statements as per PAS 37, Provisions, Contingent Liabilities, and Contingent Assets, Case 1: On December 5, 2011, an employee filed a P3,000,000 lawsuit against FS Company for damages suffered when one of FS’ equipment malfunctioned in August of 2011. In your inquiry of FS Company's legal counsel, the legal counsel expects the company will lose the lawsuit and estimates the loss to be Between 500,000 and P1,500,000. The employee has offered to settle the lawsuit out of court for Pi,200,000, but FS,.Company will not agree to the settlement. howe CEE TSM Pm, case 2: aed FS Company guaranteed @ loan of P2,000,000 of one of its key officers from a. bank, By the time the financial statement of FS company were approved for issuance by the its BOD, It Is clear that the key officer is in financial difficulties and it is probable that FS company will meet the guarantee. fawe Qe sree ‘ase 3 Ga becember 20, 2011, an explosion occurred at FS Company's plant causing extensive property damages fo adjacent areas. Although no claims had yet been asserted against FS Company by ‘Apnt 15, 2012, FS Company's management and counsel believes that it is probable that the Company will be Hable for damages, and that P2.5M would be reasonable estimate of its liability. The Tegal counsel further opines that the total liabilty may possibly be up to PSM given the extent| “Tease i Tee 2 ase Teas Fa." Accrue liability at | Disclose contingency | Accrue liability at | Aci |,P,200,000 4, at P2,000,000 ;P1,500,000__| F2,000,000___| Accrue liability at | Disclose contingency | Accrue liability at | Disclose contingency P1,000,000____at P2,000,000 ___ P1,000,000 _| at P2,000,000 Fe. | Accrue liability at T Accrue hability at | Accrue hability at | Disclose contingency 1,000,000 92,000,000 ___| P1,000,000 at 2,000,000 _ 1d. accrue lhabiity at Accrue liability at crue liability at | Accrue lability at | P1,000,000, | | P2,000,000 | 1,500,000 __| P2,000, 0 A ReSA: The Review School of Accountancy Page 5 of 10 Of the damages to the neighboring areas. FS Company's P10M comprehensive public hability policy has a PIM deductible clause. Aecwe wy Case 4: On January 12, 2012, a fire at the production araa of FS company damaged a number of adjacent buildings. FS Company's insurance policy does not cover damages to property of others. ‘The adjacent neighbors have filed a P2M damages suit against the company and the legal counsel ‘pines that its probable that such damages will be awarded to them. ycclesust 20 PROBLEM 10: The following were the liabilities of Bristol Corporation as at December 31, 2010: Note payable 2,800,000 Liability under finance lease 430,000 Deferred income taxes, 360,000 Transactions during 2011 and other information relating to Bristol's liabilities were.as follows: * The principal amount of the note payable is P2,800,000 and bears interest at 15%. The note is dated April 1, 2010 and is payable in four- equal annual installments of P700,000 beginning April 1, 2011. The first principal and interest payment was made on April 1, 2011, ‘+ The Liability under finance lease is for a ten-year period beginning December 31, 2003. Equal annual payments of P100,000 are due every December 31. Bristol is aware of the A renpicit interest relative to the lease. The present value at December 31, 2010, of the seven remaining lease payments (due December 31, 2011 to December 31,' 2012) discounted at 14% was P430,000. + Deferred income taxes are provided in recognition of the timing differences between financial statement and income tax reporting of the depreciation. For the year ended December 31, 2011 depreciation per tax return exceeded book depreciation by P90,000. Income tax rate for 2011 was 40%. : + On July 1, 2011, Bristol sold for-1,774,000, its 10%, P2,000,000 face value bonds. The bonds were issued to yield 12%. The bonds were dated July 1, 2011 and mature on July 1, 2021. Interest is payable every July 1. Bristol uses the interest method to amortize bond discount. peleaijes 1. How much is the total long-term liabilities to be presented in the 2011 balance sheet? (3,921,268 €. 4,621,268 b, 3,525,268 d. 4,225,268 AL t : 2. How much is the total current portion of long-term tiabilities? MO MMINAL INTEREST RATE = 4 AccHu a. 700,000 745,372 OF mtepeet b. 45,372 4.0 3. How much the total accrued intrest payable? oe 2. 236,250 g 336,250 Say b. 100,000 @. 0 Lx 6h 75 Via 347004 PROBLEM 21: Cute Pipol, Inc. has produced quality children’s apparel for over 25 years. The company’s fiscal year is from April 1 to March 31. The following information relates to the obligations of Cute Pipol as of March 31, 2011;Beads ihe Review School of Accountancy Page 6 of 10 Merch 4) 0H Bonds Payable: The company issued 7%, P4,000,000 bonds an July 1, 2005 at 98. The bonds mature on July 1, 2015. Interest is paid semi-annually on July 1 and January 1, Cute Pipol uses the straight-line method to amortize the bond discount. 57 Svp 600 Notes Payable: Cute Pipol has signed several long-term notes with financial institutions and Insurance companies. The maturities of these notes are given below. The total unpaid interests ‘April 3, 201 [100,000 uly. 4, 2011 200,000 [ October 100,000, January 1, fe 4, 2012 ra 1, 2015 April 1, 2016 - March 31, 2017 TOTAL Estimated Warranties: Cute Pipol has a one-year product warranty on selected items. The estimated warranty liability on sales made during 2009-2010 fiscal year and still outstanding as of March 31, 2010, amounted to P55,000. The warranty costs on sales made from April 1, 2010, to March 31, 2011, are estimated at 145,000, The actual warranty costs incurred during the current 2010-2011 fiscal year were as follows: Trade payables: Accounts payable for supplies, goods and services purchased on open account amounted to P325,000 as of March 31, 2011. Payroll related items: The following outstanding obligations relate to the payroll as of March 31, 2011; _ [Accrued salaries and wages, Income taxes withheld from employees Pia5,000 — 45,000 3,000 " year. 250,00 100,000 _ 185,000 a1 ‘Other accruals: Other accruals amounted to P50,000 as of March 31, 2011, Dividends: On March 15, 2011, the company’s board of directors declared a cash dividend of 0.40 per share and a 10%’ share dividend. Both dividends were to be distributed on April 12, 2011, to the ordinary shareholders of record at the close of business on March 31, 2011. Data regarding the company’s ordinary shares were as follows: much is the total long-term liabilities? wo ut + om 6,320,000 ¢. 6,354,000 TapHeb A aye60 6,366,000 4. 6,400,000 total current liabilities? fee We t wines i5a3,000 c 3,000,000 ei & Gay # ib. 2,883,000 4. 2,500,000ReSA: The Review School of Accountancy Page 7 of 10 \ PROBLEM 42: ABC CORP, Issued P5,000,000 of 10% bonds on January 1, 2011. The prevailing marker rate of interest for similar type of securities was at 12% an the date of issue. The bonds will mature on January 1, 2021, Interests are being paid semi-annually every July 1, and January a ‘The following present value factors are taken from the present value tables: Present value of 1 at 12% for 10 periods 0.32197 Present value of 1 at 6% for 20 periods 0.31180 Present value of an ordinary annuity of 1 at 12% for 10 periods 5.65022, Present value of an ordinary annuity of 1 at 6% for 20 periods 11.46992—|uterp * Effective Interest Amortization Table f ] Interest Effective Amortization | Unamortized [Carrying [Bate | Payments Interest of discount | Discount Amount. c | ceventnss/ 12) | (CA*EIR*6/12) | (IP-Er) | (uD-Amort) | (CA + Amort) _ Diet ‘k 7 “To 573,520] Pa, 426,480 WAL 950,006 | ie 589 | 45,589 [557,931] 4,442,069 Cavan ~250,000 266,524 | 16,524) $41,407] 4,458,593 r 250,000 | 267,516 | 17,516] 523,891) 4,476,109 i 18,567 | 505,324] 4,494,676 1. What is the total proceeds from the bond issuance? ‘a. 5,000,000 fF 4,426,480 b. 4.458.593 4. 4,447,069 2. What is the correct interest expense in 20117 a. 871,534 A 532,113 b. 600,000 d. 500,000 3. What is the adjusted balance of the bonds payable as of December 31, 20127 Sf 4,494,676 © 4,426,480 o. 4,458,593 4. 4,442,069 PROBLEM 13: On January 1, 2011, SUV CORP. issued a 3-year, 8,000, P1,000 convertible bonds at 110. Interest is to be paid annually at the stated coupon rate of 12% every December 31. Each bond is convertible, at the holder’s option, into 30, P25 par value common shares at any time up to maturity. On the date of issuance, prevailing market interest rate for similar debt without the conversion privilege was 9%. Gn the same date market price of one common share was P30. The present value of P1 at 9% for 3 periods is at 0.7722 Gr ‘The present value of Pi at 9% ordinary annuity is at 2.5313 Interest Amarizaton | naire Carrying | _| payment ___| of prem LAAT Aan Laas. Yat 1. What is the equity component of the convertible debt? pe 392,352 c. 422,335 £. 300,000 Seed 8 2. What is the resulting bonds payable carrying value as of December 31, 2011? ‘2 8,607,648 $8,422,336 b. 8,220,346 ‘d. 8,000,000 3._Assuming that the convertible bonds above were converted on January 1, 2013, how much should be credited to Share premium Additional paid-in capital from the equity conversion? a. 2,616,688 2,412,698 ifs wh SeecHy b. 132,382 Dad WO eo “aie : 08 Grom : SPY | 2sine Review Scnool of Accountancy Page 8 of 10 4, Asaming thatthe convertible hoes thee were eatin at 9808 Jase 3 on , 2013 prevailing quoted value of Boris were at 96, Row much ws the gam of loss To be recoaneed ane Income statement for the retirement? ae ee ome oR (B. 540,346 6. 32,352 Leet Petite mare wn meR Shady ee eo 43, On January 1, 2011, GIS CORP. issued 1,000 of its January 1, 2006, 8%, 10 ‘year, P1,000 face value bonds with detachabie stock warrants at 1,250,000. Each bond, which pays semi annual interests every January 1 and July 1, carned 5 detachable warrants which entitle the holder to acquire one share of GIS CORP. ordinary shares for every warrant ata specified ‘option price of PSS per share. Immediately after the issuance the prevailing market rate of interagt is at 10% and the market value of the warrants was P30. The present value of Pi at 10% for 5 periods is at 0.6209 The present value of PI at 5% for 10 periods is at 0.6139 The present vaiue of PL at 10% ordinary annuity is at 3.7908 The present value of Pi at S8% ordinary annuity ts at 7.7217 AMORTIZATION-TABLE: i Interest Effective ‘Amortization | Unamortized | Carrying | t ayment __ interest__| of dise jscount | amount 4 [| Gam*e6/a2) (carsowee/azy t 77,232 122,768 | 928,906 935,351 | 40,0 — 49,000 1. What is the equity component of the compound instrument? 327,232 250,000 b. 77,232 a0 2. What is the balance of the bonds payable as of December 31, 20117 a. 922,768 <. 935,085 b. 928,906 35,351 3. How much is the interest expense in 2011? Ao, 92,583 92,277 b.” 80,000 d. 100,000 PROBLEM 15: Tan internal control questionnaire indicates that an approved receiving report is required to accompany every check request for payment of merchandise. Which of the following procedures provides the greatest assurance that this control is operating effectively? ‘Select and examine canceled checks, and ascertain that the related receiving reports are dated no earlier than the checks. b. Select and examine canceled checks, and ascertain that the related receiving reports are dated no later than the checks. (x) c. Select and examine receiving reports, and ascertain that the related canceled checks are dated no earlier than the receiving reports. d. Select and examine receiving reports, and ascertain that the related canceled checks are dated no later than the receiving reports. a. 2. The accounts payable department receives the purchase order to accomplish all the following except : ‘3. Comparing the Invoice price to the purchase order price. b. Ensuring that the purchase had been property authorized. c._ Ensuring that the goods had been recerved by the party requesting them. (x) 4. Comparing the quantity ordered to the quantity purchased. For effective internal control, which of the following individuals should be responsible for mailing signed checks? a. Receptionist b. Treasurer (x) ¢. Accounts payable clerk 6. Payroll check 3AE internal contiot is property designed, the same employee should not be permitted to Sigh checks and cance! supporting documents, Db. Receive men haindise and prepare a receiving report, c. Prepate disbursement vouchers and sign checks. (x) d._Initiite a request to onfer merchandise and approve merchandise ordered. 5, A chent erroneously recanted 4 karae purchase twice, Which of the following internal accounting control measures would De most hkely to detect this error in a timely and efficient manner? a. Footing the purnases journal, b.-Revoncihig vendors’ monthly. statements with subsidiary payable ledger accounts, 0 €. Tracing totals from the purchases journal to the ledger accounts, Sewing watten quarterly confirmations to all veridors, 6. For effective internal control purposes, which of the following individuals should be responsible for mading signed checks? a. Receptionist, b. Treasurer, (x) c. Accounts payable clerk, d. Payroll clerk, The accounts payable deparunent receives the purchase order form to accomplish all the following except Compare invoice price to purchase order price. b, Ensure the pun hase had been properly authorized. © Ensure the goods had been received by the party requesting the goods. (x) 4. Compare quantity ordered to quantity purchased, 8. You are auditing the December 31, 2005, accounts payable balance of one of your firm's divisions. The division controller's office has provided you with a schedule listing the creditors and the amount owed to each at December 31, 2005. Which of the following audit procedures would be your best choice for determining that no individual account payable has been omitted from the schedule? a. Send confirmation requests to a randomly selected sample of creditors listed on the schedule b. Send confirmation requests to creditors that are listed on the schedule but not listed (on the corresponding December 31, 2004, schedule, c. Examine support for selected January 2006 payments to creditors, ascertaining that those relating to 2006 are: not on the schedule, d. Examine support for selected January 2006 payments to creditors, ascertaining that those relating (0 2005 are on this schedule. (x) 9. A preliminary survey of the purchasing function indicates the following: a. Department managers initiate purchase requests, which must be approved by the plant superintendent b. Purchase orders are typed by the purchasing department by using the prenumbered and controlled forms. c. Buyers regularly update the official vendor listing as new sources of supply become known. d. Rush orders can be placed with a vendor by telephone but must be followed by a written purchase order before delivery can be accepted fe. Vendor invoice payntent requests must be accompanied by a purchase order and a receiving report. One possible fault of this system is that ‘a. Purchases can be made at prices higher than normal from a vendor controlled by 2 buyer. (x) b. Unnecessary supplies can be purchased by department managers, c. Payment can be made for supplies not received, d. Payment can be made for supphes received but not ordered by the purchasing departnrent, 10. The treasurer makes disbursements by check and reconciles the monthly banks statement to accounting: records. Which of the following best describes the control impact of this arrangement? 2. Internal control will he enhanced because these are duties a treasurer should perform. 1b. The treasurer will be in position to make ant conceal unauthorized payments. (x) 6 The treasurer will be able to make unauthorized adjustments to the cash accouat,d. Controls will be enhanced because the treasurer will have two opportunities to discover inappropriate disbursements. 11, Which of the following procedures would an auditor most likely perform in searching for unrecorded liabilities? ‘a. Vouch a sample of accounts payable entries recorded just before year end to the unmatched receiving report file. b. Compare a sample of purchase orders issued just after year end with the year-end accounts payable trial balance, c. Vouch a sample of cash disbursements recorded just after year end to receiving reports and vendor invoices. (x) d. Scan the cash disbursements entries recorded just before year end for indications of unusual transactions. 12. For effective internal control, the accounts payable department generally should ‘a. Stamp, perforate, or otherwise cancel supporting documentation after payment is mailed, b. Ascertain that each requisition is approved as to price, quantity, and quality by an authorized employee. c. Obliterate the quantity ordered on the receiving department copy of the purchase order. d. Establish the agreement of the vendor's invoice with the receiving report and purchase order. (x) 13. In testing controls over cash disbursements, an auditor most likely would determine that the person who signs checks also ‘a, Review the monthly bank reconciliation. b. Returns the checks to accounts payable. ¢._Is denied access to the supporting documents. d._ Is responsible for mailing the checks. (x) 14. To provide assurance that each voucher is submitted and paid only once, an auditor most likely ‘would examine a sample of paid vouchers and determine whether each voucher is ‘a. Supported by a vendor's invoice. b, Stamped “paid” by the check signer. (x) ¢. Prenumbered and accounted for. d. Approved for authorized purchases. 15. Which of the following internal control activities is not usually performed in the vouchers payable department? 'a. Matching the vendor's invoice with the related receiving report. b. Approving vouchers for payment by having an authorized employee sign the vouchers. c. Indicating the asset and expense accounts to be debited. d. Accounting for unused prequmbered purchase orders and receiving reports. (x) 16. In assessing control risk for purchases, an auditor vouches 2 sample of entries in the voucher register to the supporting documents. Which assertion would this test of controls most likely support? ‘a. Completeness b. Existence or occurrence (x) ¢. Valuation or allocation. , Rights and obligations. 17. Under properly designed internal control, the same employee most likely would match vendors’ Invoices with receiving reports and also ‘a, Post the detailed accounts payable records. b. Recompute the calculations on vendors’ invoices. (x) c. Reconcile the accounts payable ledger. d. Cancel vendors’ invoices after payment. 18. An auditor traced a sample of purchase orders and the related receiving reports to the purchases journal and the cash disbursements journal. The purpose of this substantive audit procedure most likely was to ‘2. Identify unusually large purchase that should be investigated further. b. Verify that cash disbursements were for goods actually received. c._Determine that purchases were properly recorded. (x) Gd. Test whether payments were for goods actually ordered. gi