‘Main: 3F C. Villaroman Bldg. 873 P. Campa St. cor Espana, Sampaloc, Manila % (02) 735 8901 / 735 9031 Branch: Rudel Bldg. V, Lower Mabini cor Diego Silang, Baguio City (074)4221440 ‘email add: crc_ace@yahoo.com AUDITING PROBLEMS MAY 2014 BATCH ‘SOLUTION TO FINAL PRE-BOARD EXAMS SET A/B PROBLEM 1/PROBLEM 7 Hiro Company Proof Of Cash For the Month of December 2003 Nov. 30 Receipts, Disbursements Dec. 31 Balances per books Unadjusted balances P 10,000 ——P.135,000* 94,100" 50,900, Service Charges: "Nov. (100) (100) Dec. 400 (400) NSF Checks: Nov. (2,000) (2,000) Dec. 3,000 (3,000) Collection of Customer's Note Credit Memos Nov. 55,000 (55,000) Dec. 70,000 70,000 ADJUSTED BALANCES 62,900 ____150,000______95,400__447,500 Balances per bank Unadjusted balances P 66,900 P 138,000 P 101,400 P 103,500 Cash on Hand (DIT): Nov, 4,000 (4,000) Dec. 6,000 6,000 Outstanding Checks: Nov. (13,000) (13,000) Dec. SY ESS [ADIUSTED BALANCES 5Z,800(#3/30)_ 140,000 103,409 94,500(42/31) DIFFERENCE '5,000(#3/32) 10,000(#5/34) 8,000(#6/35) 23,000(#4/33) ‘Cash column of cash receipts book{collections) 80,000 Credit memo previous month $5,000 Unadjusted receipts per books 135,000 +Cash credits per cash disbursements book (payments) P-92,000 Service charge — previous month 100 NSF Check previous month: 2,000 Unadjusted disbursements per book ‘94,100PROBLEM 2/PROBLEM 1 7/1 Cash receipts DEPOSITED: Deposits per bank statement 1,305,000 Initial investment (200,000) Proceeds of bank loan 50,000) 1,055,000 Cash receipts used as EXPENDITURES: Payment of 1 year rental P 50,000 Leasehold improvement on leased building 100,000 Payment of various expenses 54,500 Drawings by the owner 2,400 206,900 Cash receipts remaining on cash on hand 3.300 1,265,200 Outstanding A/R balance 12,700 Total sales 1:277,900 8/2 A/P,end 182,000 Payments to suppliers, adjusted (1,100,000 + 21,500 outstanding checks) 1121500 Total purchases (Goods available for sale) 1,303,500 Less: ending inventory 167,100) Cost of sales 1,136,400 9/3 Sales 1,277,900 Cost of sales (1,136,400) Gross profit 141,500 Depreciation expense: On leasehold improvement(109,000/Syears) (20,000) ‘On office equipment(70,000/10years) (7,000) Rent expense (50,000) Various other expenses (54,500) Doubtful accounts expense (1,200) Interest expense: Total payments to be made (56,000 down payment + 15,250 unpaid balance) 71,250 Less: Cash price equivalent (70,000) (1,250) Net income 1550 10/4 Total cash receipts from CUSTOMERS (see #11 above) 41,265,200 Initial investment Proceeds of bank loan Total receipts of the BUSINESS Less; Disbursements: Payments to suppliers, adjusted (#2 above) {1,100,000 + 21,500 outstanding checks) Cash receipts used as EXPENDITURES (#1 above) Down payment on office equipment Cashier's accountability (SHOULD-BE CASH, EXPECTED CASH BALANCE) (2,121,500) (206,900) 456,000) 130,800‘Accounted for as (ACTUAL CASH): ‘Adjusted bank balance: Balance per bank statement 53,000 Deposit in transit(cash on hand) 3,300 Less: outstanding checks (21,500) CASH SHORTAGE 11/5 Correct cash balance ~ ACTUAL CASH PROBLEM 3/PROBLEM 4 12/15. Selling Price FV of Bymore Shares (FV @ Jan. 28 of P8 x SOshares) Gain on sale of Bymore shares. 13/16 Number of shares held in Red Tool Company FVof shares ~ December 31 Carrying value of investment - Dec. 31. 14/17 Number of shares held in Kevin Instruments, Inc. FV of shares - December 31 Carrying value of investment ~ Dec. 31 15/28 Cost of Investment Dividends received ~ reduction of investment Share in net income of associate (10%/30K x 336,000) Investment in associate -Dec 31 16/19 Dividend income from Red Too! Company - the Bymore Shares Dividend income from Kevin Instruments, Inc. Total dividend income PROBLEM 4/PROBLEM 5 17/20. Cash shown in the unadjusted trial balance A/P paid in January, net of discount (372,400 ~ 12,400) Collections for January recorded in December Adjusted cash balance 18/21 A/Runadjusted ‘Add back A/R collected: Total collections P 654,600 Less: cash sales 360 100) Colfection on account sales, net of discount 294,500 Divided by (100% ~ 5% discount rate) 95% Adjusted A/R balance 700 (400) 300 1,000 shares paz 42,000 6,000 shares P31 186,000 P 170,000 (7,500) 112,000 P.400 2400 P 963,200 360,000 (554,600) -668,600 P 2,254,000 310,000 2.564,00019/22 Inventory balance unadjusted 6,962,800 * Adjustments to inventory account: Shipments in transit to customer, FOB destination at cost (225,000 invoice price x 60% cost ratio) 135,000 Goods held on consignment (612,800) Goods out on consignment (in the hands of consignee) 275,000 Shipments in transit from a vendor, FOB shipping point 217,500 Shipments in transit to customer, FOB shipping point, included in the count on Dec. 30 (1,062,500 x 60%) 637, Net adjustment on inventory 622,81 Adjusted inventory balance 6,040,000 20/21 Net adjustment on inventory (above) 622,800 (NOTE: The net CREDIT adjustment on the inventory balance has an equal net DEBIT adjustment to cost of sales in this problem) Purchases in transit, FOB destination, already Recorded as Purchases (175,000) “Purchases in transit, FOB shipping point, not yet recorded as Purchases 217,500 Net DEBIT adjustment to cost of sales 665,300 21/24 B ‘The only logical answers in this problem are letter choices 8 and D. When you are asked of these kind of questions, the trick is dapat magsimula ka sa kung anong meron ka. Dito, ang auditor ay may hawak na SHIPPING DOCUMENTS at tinitrace niya sa sales invoices. Yun ang meron si auditor initially. Kaya hindi D ang sagot kasi hindi naman hawak ni auditor ang sales invoice sa simula. Kapag sinabing “The auditor is tracing SALES INVOICES to SHIPPING DOCUMENTS,” then that is when we should pick letter choice D. Basta magsimula lang tayo sa kung anong meron. Kasi, pag nagsimula tayo sa wala, wala tayong mararating. Katulad nito. Huwag tayong magsimula sa sales invoice kasi wala namang sales invoice sa simula, ang meron tayo is shipping documents. PROBLEM 5/PROBLEM 6 : 22/25 Depreciation expense from 10/1/12 — 12/31/12 P 80,000 Divided by 3/12 or 25% Converted to annual depreciation 320,000 Multiplied by the useful life Syears DEPRECIABLE amount 1,600,000 Divided by (100% - 20% residual value) 80% Acquisition cost of equipment 2,000,00023/26 Sales (15M +2M) 21,000,000 Multiplied by gross profit rate 50/150 Gross profit 7,000,000 Less: net income ‘{2,200,000) Expenses aside from cost of sales 5,800,000 NON-CASH expenses: Depreciation — office equipment (80,000) Depreciation — equipment (initial investment) (2M x 80% = 1.6M/Syears x 6/12 from Jul, 01) (160,000) Interest expense 100,000) Operating expenses, PAID 5,450,000 24/27 Initial CASH investment 3,000,000 Proceeds of loan, net of discount(5M ~ 100K) 4,900,000 Collection from customers 119,000,000 Total BUSINESS receipts 26,900,000 Less disbursements: Repayment of loan (1M x3 monthly instalments from 10/1 to 12/1) (3,000,000) Payments to suppliers in 2012 (18.5M - 2.3M paid in Jan 2013) (16,200,000) Acquisition of NEW equipment (2,000,000) Operating expenses PAID (from above) (5,460,000) Cash balance, Dec. 31, 2012 240,000 25/28. Purchases 18,500,000 Less cost of sales (21M x 100/150) 114,000,000) Inventory, Dec. 31, 2012 4,500,000 26/29. Cash 240,000 ‘Accounts receivable 2,000,000 Inventory 4,500,000 Property, plant and equipment: Office equipment, new (2M - 80K) 1,920,000 Equipment, initial investment (2M ~ 160K) 1,840,000 Total assets, Dec. 31, 2012 10,500,000 PROBLEM 6/PROBLEM 2 27/2 Mighty Bond, face amount 500,000 NOTE: The Mighty Bond is classified as Trading Securitiesoo 28/7 29/8 30/9 31/10 PV of principal (1,000,000 x 0.3855) PV of interest payments (120,000 x 6.1446) PV of bond investment Multiplied by (1 + interest rate) Less interest payment Carrying value of bonds, 12/31/14 - HTM "Difference due to rounding off of PV factors PV of principal, from 12/31/14 (0.4604 x 1,000,000) PV of interest payments (80,000 x 5.9952") FV of bonds, 12/31/14 - AFS 385,500 737,352 1,122,852 1.10 120,000) 4,415,137°, 460,400 479,616 940,016" *PV of Pi and OA of P1 @ 9% for 9 periods, respectively “Difference due to rounding off of PV factors PV of principal (0.7084 x 500,000) PV of interest (3.2397° x 50,000) FV of Mighty Bond bonds, 12/31/14 Cost of the bonds Unrealized gain - P/L 354,200 161,995 516,155 (500,000) 18,155: *PV of Pi and OA of P1 @ 9% for 4 periods, respectively “Difference due to rounding off of PV factors Interest income ~ Mighty Bond (nominal interest) Interest income - James Bond (effective interest) (1,122,900 rounded off, see above x 10%) Interest income — Rubber Bond (effective interest) (877,100* x 10%) Interest income *PV of principal (1,000,000 x 0.3855) PV of interest payments (80,000 x 6.1446) FV of bonds, 1/1/14 50,000 112,290 87,710 250,000 385,500 491,568 £877,068{rounded off to 877,100)PROBLEM 7/PROBLEM 3 32/11. Unit sales 205,000 Finished goods, end 40,000 Finished goods, beg 115,000) Manufactured units 30,000 ‘Work in Process (WIP), end 25,000 WIP, beg 10) Raw materials used 255,000 Raw materials, beg 35,000 Raw materials purchases 265,000 Raw materials used (255,000) Raw materials, end 45,000 units Multiplied by unit cost on Nov-Dec 20.80 Raw materials, end 936,000 33/12. Cost of raw materials in WIP, end: From Nov-Dec (15,000 x 20.80) 312,000 From Sept-Oct (10,000 x 20.40) 204,000 Conversion costs in WIP, end {20,000* EQUIVALENT UNITS x P63" unit cost) 126 ‘WIP, end B.,776,000 **25,000 units in WIP, end x 80% completion rate *Direct labor 6,300,000 Factory overhead applied 9,450,000 Total conversion costs P 15,750,000 Divided by equivalent units: Manufactured units—see above (100%) 230,000 Units in WIP, end (25K x 80%) 20,000 Equivalent units 250,000 Unit cost 63/unit 34/13. Cost of materials in finished goods, end: From Sept-Oct (35,000units x 20.40) 714,000 : From July-Aug (5,000units x 20.00) 100,000 Raw materials in finished goods, end 814,000 Conversion costs in finished goods, end (40,000units x P63) 2.520.000 Finished goods, end 3,334,000po 35/14 Raw materials, beg 720,200 4 Raw materials purchases 5,232,800 Raw materials, end (936,000) fq Raw materials used 5,017,000 i Direct labor 6,300,000 i Factory overhead 19,450,000 Total manufacturing cost 20,767,000 WIP, beg, 0 WIP, end (1,776,000) Cost of goods manufactured 18,991,000 Finished goods, beg 41,240,000 Finished goods, end (3,334,000) Cost of goods sold 26,897,000 “The Lord is my LIGHT and my SALVATION ~ whom shall | fear? The Lord is the ‘STRONGHOLD of my life ~ of whom shall | be afraid?” Psalms 27:1 ‘Make the Lord your stronghold, and He will take charge of your board exam! Prepared by: Arby Mata