LYCEUM-NORTHWESTERN UNIVERSITY

Tapuac District, Dagupan City

COLLEGE OF BUSINESS EDUCATION
ACCTG17 APPLIED AUDITING
1ST Semester, AY 2016 2017
Name:
_____________________________________
Score:____________________
Year/Section:________________________________
Date:_____________________
I.

MULTIPLE CHOICE. Choose the best answer from the choices and
place your answer in the space provided before the number. Write
in CAPITAL LETTERS and strictly NO ERASURES.

PROBLEM NO. 1
In connection with your audit of Caloocan Corporation for the year ended December 31, 2006, you
gathered the following:
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12

Current account at Metrobank

Current account at BPI
Payroll account
Foreign bank account restricted (in equivalent pesos)
Postage stamps
Employees post dated check
IOU from controllers sister
Credit memo from a vendor for a purchase return
Travelers check
Not-sufficient-funds check
Money order
Petty cash fund (P4,000 in currency and expense
receipts for P6,000)
13. Treasury bills, due 3/31/07 (purchased 12/31/06)
14. Treasury bills, due 1/31/07 (purchased 1/1/06)

P2,000,000
(100,000)
500,000
1,000,000
1,000
4,000
10,000
20,000
50,000
15,000
30,000
10,000
200,000
300,000

Question:
Based on the above information and the result of your audit, compute for the cash and cash
equivalent that would be reported on the December 31, 2006 balance sheet.
a. P2,784,000
c. P2,790,000
b. P3,084,000
d. P2,704,000

PROBLEM 2

The CASH account of Don Corporations ledger on December 31, 2006 showed the
following:
a
b.
c.
d.
e.
f.
g.
h.
i.
j.
k.

Petty cash fund (including P7,500 unreplenished

voucher of which P2,400 is dated January 3, 2007)
Redemption Fund Account PNB
Travelers check
Money order
Treasury bill, purchased December 1, 2006 (due on Feb. 1, 2007)
Time deposit due on March 31, 2007
180-day Treasury bill, due March 15, 2007
Note receivable in the possession of a collecting agency
PNB Checking Account #211-009-091
Cash on hand, including customer postdated check of P15,000
Savings deposit, earmarked for acquisition of equipment

15,000
500,000
100,000
10,000
50,000
50,000
120,000
20,000
325,900
23,000
210,000

l
m
n.
o
p
q.
r.
s
t.
u.

A check payable to San Ignacio Incorporated, dated January 5, 2007,

that was included in the December 31 PNB Checking Account
#211-009-091
Bond Sinking Fund (used to finance the maturing long-term obligation
on March 31, 2007)
Overdraft in PNB Checking Account #211-099-085
Check #801 in payment to Accounts Payable, dated Dec. 31, 2006
not mailed until January 5, 2007
Advances to Officers/Employees for Seminars (no liquidation is
required)
Money market placement (due June 30, 2007)
Listed stock held as temporary investment
Check #789 in payment to Suppliers, dated January 5, 2007 and
recorded December 31, 2006.
Customers certified checks
Pension Fund
TOTAL

Questions
1. The entry to correct/adjust item F is:
a. Investment
50,000
Cash
b. Other assets
50,000
Cash
c. Short-term investment
50,000
Cash
d. No adjustment
2. The entry to correct/adjust item L is:
a. Accounts payable
50,000
Cash
b. Cash
50,000
Other liabilities
c. Cash
50,000
Accounts payable
d. No adjustment
3. The entry to correct/adjust item M is:
a. Investment
150,000
Cash
b. Other assets
150,000
Cash
c. Short-tem investment
150,000
Cash
d. No adjustment

50,000
150,000
( 50,000)
20,000
80,000
600,000
100,000
35,000
10,000
150,000
2,568,900

50,000
50,000
50,000

50,000
50,000
50,000

150,000
150,000
150,000

4. DON CORPORATIONS cash and cash equivalents balance at December 31, 2006 is:
a. Overstated by P1,950,100
c. Overstated by P 1,845,100
b. Overstated by P 1,895,100
d. Overstated by P 1,795,100
5. DON CORPORATIONS adjusted cash and cash equivalents balance at December 31,
2006 is:
a. P 618,800

b. P 623,800

c. P 673,800

d. P 723,800

PROBLEM 3
In connection with the general examination of the accounts of Nelson Trading Company at
December 31, 2006, you obtained the information and data as shown below relative to your
verification of Cash.
The record kept by the accountant showed the following:
a

Balances at the end of the month:

Per Bank Statement

Per Books
Undeposited collections
Outstanding checks

* Composed of the following

December 1, 2006
P 54,000
50,400
3,300
6,900 *

#6515
6517
6518
6519

Totals for the month of December, 2006:

Cash Book:
Receipts
Disbursement
Bank Statement
Receipts
Disbursement

510
2,250
2,400
1,740

December 31, 2006

P101,100
70,215
7,200
12,000 *

#6552 P 1,800
6553
5,700
6554
2,550
6555
1,950

P 425,550
405,735
P 444,225
397,125

After application of the necessary auditing procedures, the following were noted:
a
b
c

d
e

Footing of disbursement should be P 404,235, instead of P 405,735.

Bank service charge of P15 for December has not been booked.
Cancelled checks (returned together with the December bank statement) include the
following which were charged in the statement:
1 Check #6530 dated December 15, 2006 for P2,400 - this was issued as
replacement of check # 6518 which was returned by the payee because of
certain erasures. No entry has been made to record the cancellation of check
#6518.
2 Check #6517 for P225 - this was erroneously recorded on the books as
P2,250.
3 Check of Neil Trading for P900 - this was charged by bank in error.
Proceeds from sale of stocks amounting to P23,250 (cost is P18,000) transmitted
directly by the broker to the bank and credited on December 31, 2006. No entry has
been made on the books to record this sale of stock investment.
The company failed to record disbursement for payment of accounts payable at
December 31, 2006 for P1,500.

Questions

1. The adjusted cash receipts per ledger of NELSON TRADING COMPANY at December 31,
2006 is:
a. P 448,800
b. P 448,125
c. P 444,225
d. P 425,550
2. The adjusted cash disbursement per bank of NELSON TRADING COMPANY at December
31, 2006 is:
a. P 401,325
b. P 402,000
c. P 405,735
d. P 406,125
3

The adjusted cash ledger balance of NELSON TRADING COMPANY at December 31, 2006
is:
a. P 91,350
b. P 95,400
c. P 97,200
d. P 97,500

4. The adjusted cash in bank balance of NELSON TRADING COMPANY at December 31,
2006 is:
a. P 91,350
b. P 95,400
c. P 97,200
d. P 97,500
5. The cash shortage of NELSON TRADING COMPANY at December 31, 2006 is:

a. P 765

b. P 675

c. P 575

d. P 390

PROBLEM 4
The Valenzuela Corporation was organized on January 15, 2006 and started operation soon
thereafter. The Company cashier who acted also as the bookkeeper had kept the accounting records
very haphazardly. The manager suspects him of defalcation and engaged you to audit his account to
find out the extent of the fraud, if there is any.
On November 15, when you started the examination of the accounts, you find the cash on hand to
be P25,700. From inquiry at the bank, it was ascertained that the balance of the Companys bank
deposit in current account on the same date was P131,640. Verification revealed that the check
issued for P9,260 is not yet paid by the bank. The corporation sells at 40% above cost.
Your examination of the available records disclosed the following information:
Capital stock issued at par for cash
Real state purchased and paid in full
Mortgage liability secured by real state
Furniture and fixtures (gross) bought on which there
is still balance unpaid of P30,000
Outstanding notes due to bank
Total amount owed to creditors on open account
Total sales
Total amount still due from customers
Inventory of merchandise on November 15 at cost
Expenses paid excluding purchases

P1,600,000
1,000,000
400,000
145,000
160,000
231,420
1,615,040
426,900
469,600
303,780

QUESTIONS:
Based on the above and the result of your audit, compute for the following as of November 15, 2006:
1. Collections from sales
a. P1,188,140
b. P1,153,600

c. P1,615,040
d. P2,041,940

2. Payments for purchases

a. P1,854,620
b. P1,391,780

c. P1,207,204
d. P 922,180

3. Total cash disbursements

a. P2,340,960
b. P3,273,400

c. P2,810,560
d. P2,625,984

4. Unadjusted cash balance

a. P 74,740
b. P722,156

c. P1,007,180
d. P 537,580

5. Cash shortage
a. P574,076
b. P389,500

c. P859,100
d. P
0

PROBLEM 5
The balance sheet of Santiago Corporation reported the following long-term receivables as of
December 31, 2005:
Note receivable from sale of plant
Note receivable from officer

P9,000,000
2,400,000

In connection with your audit, you were able to gather the following transactions during 2006 and
other information pertaining to the companys long-term receivables:
a

The note receivable from sale of plant bears interest at 12% per annum. The note is payable in 3
annual installments of P3,000,000 plus interest on the unpaid balance every April 1. The initial
principal and interest payment was made on April 1, 2006.

The note receivable from officer is dated December 31, 2005, earns interest at 10% per annum,
and is due on December 31, 2008. The 2006 interest was received on December 31, 2006.

The corporation sold a piece of equipment to Yes, Inc. on April 1, 2006, in exchange for an
P1,200,000 non-interest bearing note due on April 1, 2008. The note had no ready market, and
there was no established exchange price for the equipment. The prevailing interest rate for a
note of this type at April 1, 2006, was 12%. The present value factor of 1 for two periods at 12%
is 0.797 while the present value factor of ordinary annuity of 1 for two periods at 12% is 1.690.

A tract of land was sold by the corporation to No Co. on July 1, 2006, for P6,000,000 under an
installment sale contract. No Co. signed a 4-year 11% note for P4,200,000 on July 1, 2006, in
addition to the down payment of P1,800,000. The equal annual payments of principal and
interest on the note will be P1,353,750 payable on July 1, 2007, 2008, 2009,and 2010. The land
had an established cash price of P6,000,000, and its cost to the corporation was P4,500,000.
The collection of the installments on this note is reasonably assured.

Based on the above and the result of your audit, determine the following:
1. Noncurrent notes receivable as of December 31, 2006
a. P13,556,400
c. P10,556,400
b. P 9,664,650
d. P 9,750,726

e
fg

a.
b.

2. Current portion of long-term notes receivable as of December 31, 2006

P3,891,750
c. P3,000,000
P4,353,750
d. P
0

3. Accrued interest receivable as of December 31, 2006

a. P771,000
c. P 540,000
b. P857,076
d. P1,011,000
4. Interest income for the year 2006
a. P1,281,000
b. P1,637,076

c. P1,367,076
d. P1,512,000

PROBLEM 6
On January 1, 2004, Sinait Company loaned P3,000,000 to Ilocos Company. The terms of the loan
were payment in full on January 1, 2009, plus annual interest payments at 11%. The interest
payment was made as scheduled on January 1, 2005; however, due to financial setbacks, Ilocos was
unable to make its 2006 interest payment. Sinait considers the loan impaired and projects the
following cash flows from the loan as of December 31, 2006 and 2007. Assume that Sinait accrued
the interest at December 31, 2005, but did not continue to accrue interest due to the impairment of
the loan.
Date of Flow
December 31,
December 31,
December 31,
December 31,
December 31,

2007
2008
2009
2010
2011

Amount projected as of
Dec. 31, 2006 Dec. 31, 2007
P 200,000
P 200,000
400,000
600,000
800,000
1,200,000
1,200,000
1,000,000
400,000

QUESTIONS:
Your client requested you to determine the following: (Round-off present value factors to four decimal
places)
1. Loan impairment (bad debt expense) for the year 2006
a.
P 882,380
c. P1,212,380
b. P1,549,500
d. P1,542,380
2

Interest income for 2007 assuming the P200,000 was collected on December 31, 2007 as
scheduled
a. P195,855
c. P200,000
b. P232,938
d. P 66,000

3. Allowance for loan impairment as of December 31, 2007

a. P554,340
c. P649,442
b. P752,640
d. P776,900
4. Interest income for 2008 assuming the P600,000 was collected on December 31, 2008 as

scheduled
a. P225,210
b. P247,023

c. P236,561
d. P222,541

5. Carrying amount of loan receivable as of December 31, 2008

a. P1,672,570
c. P1,645,641
b. P2,150,558
d. P1,892,683