AUDIT PROBLEMS Exam

In the examination of Eng-Eng Co., the following materials are available:

December 31, 2003

Debit
Credit
Accounts receivables
P 499,000
Allowance for doubtful accounts
3,000
Inventory
206,000
Cash
283,000
Investments
246,000
Properties
108,000
Accumulated depreciation
P 11,750
Suspense accounts
85,000
Accounts payable
76,000
Stockholders equity
1,115,000
Retained earnings
80,000
Withholding tax payable
4,000
SSS & Medicare premium payable
2,250
Sales
2,000,000
Cost of sales
1,600,000
Operating expenses
210,000
Other income/ charges, net
11,000
Other expenses and charges
60,000
_________
Totals
P3,300,000
P3,300,000
Information contained in the audit working papers:
Cash
1 The cash receipts and disbursements books were held upon whereby
transactions up to January 20, 2004 were included as 2003.
Collections from customers
P 26,000*
Payments to supplier
15,000
*P20,000 current, P6,000 overdue 61-90 days
2 The bank on December 23, 2003 approximately charged the client for
P1,000 representing deposit of bogus two P500 bills.
The cashier
negligently failed to detect the faked bills. This matter has not been
recognized in the books.
Accounts Receivable
Analysis of the accounts revealed the following details:
Non-trade
Due from officers
P 65,000
Fast Cargo for shipments damaged while in transit
5,000
Trade
Current
210,000
Overdue:
31-60 days, estimated to be 95% collectible
120,000
61-90 days, estimated to be 80% collectible
50,000
91-120 days, estimated to be 70% collectible 40,000
Over 120 days, definitely uncollectible
12,000
Credit balance
( 7,000)
Unlocated error in recording subsidiary ledger
with control account
4,000
Balance per ledger
P499,000

Inventories
1 The following errors were committed on the inventory account:
Items duplicated
P 5,000
Items missed in counting
3,000
Count cards not included in inventory summary
4,000
2 The following items were included in the inventory summary at cost:
Purchases in transit
FOB shipping point
P11,000
FOB destination
9,000
The corresponding purchase invoices were recorded as of 2003.
Sales in transit
Cost
Sales price
FOB shipping point
P 7,000
P 8,500
FOB destination
19,000
25,000
The corresponding sales invoices were not recorded as of 2003.
Investments
Analysis of the investment accounts revealed the following details:
Investee
Shares
Type
Cost
Market
PLDT
5,000
Common
P 50,000
P 51,000
XXX Co.
2,000
Common
40,000
10,000
SS Co.
500
Common
15,000
16,000
UU Co.
1,000
Preferred
20,000
8,000
Eng-Eng Co. 300
Common
31,000
45,000
PP Co.
900
Common
90,000
60,000
Totals
P246,000
P190,000
The investment in PP Co. is a long-term investment while others are
temporary investment of surplus cash.
Property and related Depreciation
Cost
Equipment Furniture
2001 P50,000
P20,000
P3,500
2002 20,000
5,000
8,250
2003 10,000
3,000

Total
P70,000
25,000

Depreciation Expense
Equipment Furniture
Total
P2,500
P1,000
6,000

2,250

13,000
P108,000

_____

P11,750
Eng-Eng depreciates using a 10% annual rate and charges depreciation at
only one-half the annual rate in the year of acquisition.
Suspense Accounts
This account carries the following:
Deposit on:
Orders for new machine
Meralco generators
Water pumps
Debit balances in accounts payable
subsidiary ledger
Special advertising costs for the
succeeding 3 years
Additional tax assessment for 2001,
paid in 2003

Stockholders Equity

P15,000
40,000
17,000
2,000
6,000
5,000
P85,000

The account analysis showed the following details:

Common Preferred
Total
Authorized, P100 par
P1,000,000 P500,000
P1,500,000
Unissued
300,000 200,000
500,000
Balance
P 700,000 P300,000
P1,000,000
Subscribed
100,000
50,000
150,000
Total
P 800,000 P350,000
P1,150,000
Subscriptions receivable
15,000
20,000
35,000
Balance
P 785,000 P330,000
P1,115,000
Compute the adjusted balances of the following accounts on December 31, 2003:
1. Cash
(a) P272,000

(b) P294,000

(c) P242,000

(d) P324,000A

2. Accounts Receivable, Net Realizable Value

(a) P496,000
(b) P451,500
(c) P419,300

(d) P425,300C

3. Inventory
(a) P192,000

(b) P202,000

(c) P208,000

(d) P209,000A

4. Investments
(a) P 0

(b) P190,000

(c) P60,000

(d) P125,000C

5. Properties, Net Book Value

(a) P96,250
(b) P86,100

(c) P108,000

(d) P85,250 B

6. Suspense Accounts
(a) P 0

(b) P59,000

(c) P77,000

(d) P85,000 A

7. Accounts Payable
(a) P61,000

(b) P91,000

(c) P82,000

(d) P100,000C

(c) P45,000

(d) P39,000 B

8. Retained Earnings before net income

(a) P80,000
(b) P75,000
9. Cost of Sales
(a) P1,606,000
P1,601,000 C
10.Operating Expenses
(a) P226,000

(b) P1,590,000

(c) P1,605,000

(b) P266,000

(c) P276,150

(d)

(d) P264,350D