AUDITING PROBLEMS

FIRST PREBOARD

PROBLEM 01
You were able to gather the following from the December 31, 2022 trial balance of Cole Corporation in
connection with your audit of the company:
Cash on hand 372,000
Petty cash fund 10,000
BPI current account 950,000
Security bank current account No. 1 1,280,000
Security bank current account No. 2 (40,000)
PNB savings account 500,000
PNB time deposit 300,000

Cash on hand – includes the following items:

• Customer’s check for P60,000 returned by bank on December 26, 2022 due to insufficient fund but
subsequently redeposited and cleared by the bank on January 8, 2023.
• Customer’s check for P30,000 dated January 2, 2023, received on December 29, 2022.
• Postal money orders received from customers, P36,000.

Petty cash fund – consisted of the following items as of December 31, 2022:
Currency and coins 2,100
Employees’ vales 1,600
Currency in an envelope marked “collections for charity” with names attached 1,200
Unreplenished petty cash vouchers 800
Check drawn by Cole Corporation, payable to the petty cash cashier 4,600
10,300

BPI current account – included amount the checks drawn by Cole Corporation against the BPI current account
and recorded in December 2022 are the following:
• Check written and dated December 29, 2022 and delivered to payee on January 2, 2018, P50,000.
• Check written on December 27, 2022, dated January 2, 2023, delivered to payee on December 29, 2022,
P86,000.

The credit balance in the Security Bank current account No. 2 represents checks drawn in excess of the deposit
balance. These checks were still outstanding at December 31, 2022. The savings account deposit in PNB has been
set aside by the board of directors for acquisition of new equipment. This account is expected to be disbursed
in the next 3 months from the reporting date.

Questions: Based on the above and result of the audit, compute for the adjusted balances of the following:
1. Cash on hand
A. 282,000 B. 246,000 C. 408,000 D. 342,000

2. Petty cash fund

A. 6,700 B. 9,100 C. 10,000 D. 2,100

3. BPI current account

A. 1,086,000 B. 914,000 C. 1,000,000 D. 950,000

4. Cash and cash equivalents

A. 2,914,700 B. 2,954,700 C. 2,614,700 D. 3,414,700

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PROBLEM 02
In the course of the audit of Samsung Company’s cash in bank for the year ended December 31, 2018, you
ascertained the following information:
Nov. 30 Dec. 31
Cash per bank statements P803,115 P1,033,627
Deposit in transit 65,100 120,450
Outstanding checks 72,400 66,320
Bank service charges 700 300
Insufficient fund check 12,500 19,600
Company's notes receivable collected by bank 280,310 309,440

The bank statement and the company’s cash records show the following totals:
Checks and debit memos per bank statement P1,787,798
Cash receipts per cash record 2,033,130
Cash disbursements per cash records ?
Deposits and credit memos per bank statement 2,018,310

Additional information:
(a) A P45,000 bank credit error in November was corrected by the bank in December, while a P22,000 check
issued by Sam Jang Corp. was erroneously charge by the bank to the company’s account in December.

(b) A P150,000 customer collection was recorded by the book in December at P155,000 upon collection, the
error was detected and corrected in December.

(c) The accountant recorded a receipt in November for P80,000, the correct amount should be P90,000. The
error was detected and corrected in December.

(d) The book credited a collection made in December from a customer for P24,600. The correct amount of
collection is P26,400.

Questions:
5. What is the unadjusted book balance in November?
A. 473,705 B. 482,675 C. 466,805 D. 491,205

6. What is the unadjusted book disbursement in December?

A. 1,728,685 B. 1,720,675 C. 1,709,675 D. 1,737,618

7. What is the adjusted receipt in December 30?

A. 2,073,660 B. 2,057,730 C. 2,070,445 D. 2,466,825

8. What is the unadjusted cash balance per books as of December 31?

A. 793,817 B. 769,217 C. 770,525 D. 775,625

9. What is the correct cash balance as of December 31?

A. 1,086,957 B. 1,109,757 C. 1,046,675 D. 1,140,225

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PROBLEM 03
Samantha, Inc. grants its customers 30-day credit. The company uses the allowance method for its uncollectible
accounts receivable. During the year, a monthly bad debt accrual is made by multiplying 2% times the amount
of credit sales for the month. At the fiscal year-end of December 31, an aging of accounts receivable schedule is
prepared and the allowance for uncollectible accounts is adjusted accordingly.

At the end of 2020, accounts receivable were P1,250,000 and the allowance account had a credit balance of
P106,000. Accounts receivable activity for 2021 was as follows:

Credit sales P3,800,000

Write-offs 82,000
Collections ?

The company’s controller prepared the following aging summary of year-end accounts receivable:

Age group Amount Percent uncollectible

0-60 days 825,000 2%
61-90 days 220,000 10%
91-120 days 50,000 30%
Over 120 days 128,000 40%
Total 1,223,000

Based on the preceding information, determine the following:

10. Allowance for uncollectible accounts before year-end adjustment
A. 100,000 B. 104,700 C. 106,000 D. 0

11. Required balance in the allowance for uncollectible accounts at December 31, 2021
A. 100,000 B. 76,000 C. 104,700 D. 106,000

12. Correct bad debt expense for 2021

A. 76,000 B. 71,300 C. 4,700 D. 80,700

13. Net realizable value of accounts receivable at December 31, 2021

A. 1,123,000 B. 1,118,300 C. 1,223,000 D. 1,142,300

14. Collections from customers during 2021

A. 1,332,000 B. 4,968,000 C. 4,941,000 D. 3,745,000

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PROBLEM 04
Presented below are relevant extracts from Frey Corporation’s statement of financial position as of December
31, 2023.

Cash and cash equivalents 12,000,000

Trade and other receivables 38,000,000
Inventories 16,000,000
Other current assets 3,000,000
Trade and other payables 34,000,000
Short term borrowings 15,000,000
Other current liabilities 2,000,000

During the course of your audit, you noted the following.

Cash and cash equivalents

The following were included in Cash and cash equivalents:
• Customer’s check for P100,000 returned by bank on December 29, 2023 due to insufficient fund but
subsequently redeposited and cleared by the bank on January 3, 2024.
• Customer’s check for P200,000 dated January 2, 2024, received on December 29, 2023.
• Cash earmarked for bonds payable due on June 30, 2024, P5,000,000.
• P1,000,000 of compensating balance against short term borrowing arrangement at December 31, 2023. The
compensating balance is legally restricted as to withdrawal.
• Check written and dated December 29, 2023 and delivered to payee on January 2, 2024, P500,000.
• Check written on December 27, 2023, dated January 2, 2024, delivered to payee on December 29, 2023,
P800,000.
• One-year certificate of deposit, P2,000,000.

Trade and other receivables

The following were included in Trade and other receivables:
• Advances to an associate, P5,000,000. The settlement is neither planned nor likely to occur in the
foreseeable future.
• Share subscriptions receivable due on March 31, 2024, P900,000.
• Accounts receivable used as collateral, P10,000,000.

Inventories
• Not included in the physical count of inventory is P300,000 of merchandise purchased on December 15. This
merchandise was shipped f.o.b. shipping point on December 29 and arrived on January 3. The invoice arrived
and was recorded on January 3.
• Included in inventory is merchandise sold on December 30, f.o.b. destination. This merchandise was shipped
after it was counted. The invoice was prepared and recorded as a sale on account for P400,000 on December
31. The merchandise cost P320,000, and the customer received it on January 3.
• Included in inventory was merchandise received on December 31 with an invoice price of P600,000. The
merchandise was shipped f.o.b. destination. The invoice, which has not yet arrived, has not been recorded.
• Not included in inventory is P800,000 of merchandise purchased from a supplier. The merchandise was
received on December 31 after the inventory had been counted. The invoice was received and recorded on
December 30.
• Included in inventory was P700,000 of inventory held by Frey on consignment from Eagles Corporation.
• Included in inventory is merchandise sold f.o.b. shipping point. This merchandise was shipped after it was
counted. The invoice was prepared and recorded as a sale for P750,000 on December 31. The cost of this
merchandise was P600,000, and the customer received the merchandise on January 5.

Questions: Based on the above and the result of your audit, determine the adjusted amount of the following as
of December 31, 2023:

15. Cash and cash equivalent

A. 10,000,000 B. 8,700,000 C. 5,700,000 D. 3,700,000

16. Trade and other receivables

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 A. 33,300,000 B. 32,900,000 C. 32,600,000 D. 32,000,000

17. Inventories
A. 15,200,000 B. 15,520,000 C. 15,800,000 D. 16,120,000

18. Current assets

A. 61,400,000 B. 62,800,000 C. 63,200,000 D. 63,400,000

19. Working Capital

A. 11,500,000 B. 10,600,000 C. 10,500,000 D. 9,500,000

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PROBLEM 05
Stasis Smash Company revealed the following information on December 31, 2016:
Cash 3,700,000
Accounts receivable 1,500,000
Allowance for doubtful accounts (200,000)
Inventory 2,000,000
Prepaid insurance 300,000
Total current assets 7,400,000

Analysis of cash:
Cash in bank 1,300,000
Bank overdraft in another bank (300,000)
Cash set aside for plant addition 2,000,000
Petty cash fund 10,000
Cash withheld from wages 190,000
General cash 500,000
Total cash 3,700,000

The accounts receivable included past due account in the amount of P100,000. The account is deemed
uncollectible and should be written off. The inventory included goods held on consignment amounting to
P150,000 and goods of P200,000 purchased and received on December 31, 2016. Neither of these items have
been recorded as a purchase. The prepaid insurance included cash surrender value of life insurance of P50,000.

20. What is the adjusted cash balance?

A. 2,000,000 B. 1,700,000 C. 4,000,000 D. 2,300,000

21. What is the adjusted net realizable value of accounts receivable?

A. 1,200,000 B. 1,400,000 C. 1,300,000 D. 1,500,000

22. What is the adjusted inventory?

A. 2,200,000 B. 2,000,000 C. 1,850,000 D. 1,600,000

23. What total amount should be reported as current assets on December 31, 2016?
A. 5,400,000 B. 5,100,000 C. 5,300,000 D. 5,200,000

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PROBLEM 6
On December 1, 2022, Camille company assigned on a non-notification basis accounts receivable of P10,000,000
to a bank in consideration for a loan of 80% of the account less a 5% service fee on the account assigned. The
entity signed a note for the bank loan.

On December 31, 2022, the entity collected assigned accounts of P4,000,000 less discount of P400,000. The
entity remitted the collections to the bank in partial payment for the loan. The bank applied first the collection
to the interest and the balance to the principal.

The agreed interest is 1% per month on the loan balance. The entity accepted sales returns of P200,000 on the
assigned accounts and wrote off assigned accounts totaling P600,000

24. What is the amount of net proceeds from the assignment on December 31, 2022?
A. 10,000,000 C. 7,500,000
B. 8,000,000 D. 9,500,000

25. What is the balance of accounts receivable assigned on December 31, 2022?
A. 6,000,000 C. 4,800,000
B. 5,200,000 D. 5,800,000

26. What is the equity of the assignor in the assigned account that will be disclosed in the notes to Financial
statement on December 31, 2022?
A. 5,200,000 C. 720,000
B. 4,480,000 D. 0

PROBLEM 07
The records of Chest Retailers Company revealed the following information on December 31, 2018:
Cost Retail
Inventory, Jan 1 900,000 1,782,000
Purchases 5,380,000 10,652,400
Freight in 85,000
Freight out 40,000
Sales 12,000,000
Purchase returns 62,000 122,760
Sales allowance 64,300
Purchase allowance 37,000
Sales returns 135,000
Sales discounts 48,000
Purchase discounts 39,000
Normal shrinkages 54,000
Normal shoplifting losses 100,000
Discount granted to employees 43,000
Departmental transfer in 65,000 128,700
Departmental transfer out 49,000 97,020
Net mark down 280,000
Net mark up 365,000

A disastrous fire completely destroyed the inventory on December 31, 2018. (Round off the Cost-To-Retail ratio
into 2 decimal places e.g 88.88%).

Questions: Determine the following in relation to your audit:

27. How much is the ending inventory at cost under FIFO method?
A. 189,082 B. 205,438 C. 216,128 D. 183,856

28. How much is the ending inventory at cost under average method?
A. 201,222 B. 184,003 C. 113,717 D. 276,928

29. How much is the loss on fire on December 31, 2018 using conventional method?
A. 179,973 B. 180,083 C. 313,321 D. 276,928

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30. How much is the cost of sales under FIFO?
A. 6,059,144 B. 6,053,918 C. 6,153,664 D. 6,155,681

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