CUP- AUDITING

EASY

1. Which of the following best defines fraud in a financial statement auditing context?
a. Fraud is an unintentional misstatement of the financial statements
b. Fraud is an intentional misstatement of the financial statements.
c. Fraud is either an intentional or unintentional misstatement of the financial statements, depending on
materiality
d. Fraud is either an intentional or unintentional misstatement of the financial statements, depending on
consistency
2. Consulting differs fundamentally from the CPA’s function of attesting to the assertions of the other parties. In
consulting service,

a. The practitioner expresses a conclusion about the reliability of a written assertion that is the
responsibility of another party, the assertor.
b. The work is generally performed only for the use and benefit of the client.
c. The client develops the findings, conclusions and recommendations.
d. The nature and scope of work is determined solely by the consulting services practitioner.

3. Cavaliers has a one-year product warranty on some selected items. The estimated warranty liability on sales made
during the 2003 – 2004 fiscal year and still outstanding as of March 31, 2004, amounted to P252,000. The warranty
costs on sales made from April 1, 2004 to March 31, 2005, are estimated at P630,000. The actual warranty costs
incurred during 2004 – 2005 fiscal year are as follows:
Warranty claims honored on 2003 – 2004 sales P 252,000
Warranty claims honored on 2004 – 2005 sales 285,000
Total P 537,000

What is the estimated warranty payable as of March 31,2005?

a. P882,000
b. P93,000
c. P345,000
d. P285,000
4. A proof of cash used by an auditor

a. Provides that the client’s year-end balance of cash is fairly stated.

b. Confirms that the client has properly separated the custody function from the recording function with
respect to cash.
c. Validates that the client’s bank did not make an error during the period being examined.
d. Determines whether any unauthorized disbursements or unrecorded deposits were made for
the given period.

5. On July 1, 2017,one of Pacquiao company’s delivery truck was destroyed in an accident. On that date, the truck’s
book value was P800,000. On July 15, 2017,Pacquiao Company received and recorded a P55,000 invoice for a new
engine installed in the truck in May 2017 and another P6,000 invoice for various repairs. What amount should
Pacquiao Company use to determine the gain or loss on disposal of truck.
a. P800,000
b. P861,000
c. P855,000
d. P849,000
6. The following are appropriate procedures for controlling the petty cash fund except,
a. To monitor variations in different types of expenditures, the petty cash custodian files petty
cash vouchers by category of expenditure after replenishing the fund.
b. To replenish the fund, the general cashier, issues a company a check to the petty cash custodian,
rather than cash.
c. To determine that the fund is being accounted for satisfactorily, surprise counts of the fund are made
from time to time by the internal auditor or other responsible official.
d. Each individual to whom petty cash is paid is required to present signed receipts to the petty cash
custodian.
7. Toyota Company leases computer equipment to customers using direct financing leases. The equipment has no
residual value at the end of the lease and the leases do not contain bargain purchase options. Toyota company
wishes to earn 8% interest on a 5-year lease of equipment with a cost of P323,400. The present value of an annuity
due of 1 at 8% for 5-years is 4.312. What is the total amount of interest revenue that Toyota Company will earn over
the lease term?
a. P51,600
b. P55,300
c. P375,000
d. P323,400
8. Which of the following statements is/are correct?

a. Managers carry out their planning functions by mobilizing the organization’s resources and overseeing day-to-
day operations.
b. Managers carry out their decision-making function by obtaining feedback to ensure that the plans are being
followed.
c. The planning, directing and motivating, and controlling functions of a manager are kept separate from the
manager’s decision-making activities.
d. The manager’s planning function involves setting of an organization’s goals and identifying
alternatives and selecting the alternative that best furthers such goals, set for the organization.

9. On July 1, 2017, Fast Manufacturing issued a five-year note payable with a face amount of P2,500,000 and an
interest rate of 10%. The terms of the note require Fast Manufacturing to make the five annual payments of
P500,000 plus accrued interest, with the first payment due on June 30,2018. With respect to the note, the current
liability section of Fast’s December 31, 2017, Balance Sheet should include?
a. P625,000
b. P750,000
c. P500,000
d. P125,000
10. A Company determined the following values for its inventory as of the end of the fiscal year:
Historical Cost P100,000
Current replacement cost 70,000
Net realizable value 95,000
Net realizable value less normal profit margin 90,000
Fair value 95,000

What amount should the company report as inventory on its balance sheet?

a. P100,000
b. P95,000
c. P90,000
d. P70,000
AVERAGE

1. Which of the following statement/s is/are true:

I. Other matter paragraph refers to a matter appropriately presented or disclosed in the financial statements while
Emphasis of matter paragraph pertains to matter other than those presented or disclosed in the financial statements.
II. Emphasis of the matter paragraph may be necessary when law, regulation or generally accepted practice in a
jurisdiction may require or permit the auditor to elaborate on matters that provide further explanation of the auditor’s
responsibilities in the audit of the financial statements or of the auditor’s report thereon.
III. Other matter paragraph may be necessary when there is an early application (where permitted) of a new
accounting standard (e.g. PFRS) that has a pervasive effect on the financial statements in advance of its effective
date.

a. I, II and III
b. II and III only
c. III only
d. None of the above
2. Cavaliers issued P5,000,000, 12% bonds, on October 1, 2003 at 96. The bonds will mature on October 1, 2012.
Interest is paid semi-annually on October 1 and April 1. Cavaliers uses the straight line method to amortize bond
discount. Compute for unamortized bond discount as of March 31, 2008.
a. P110,000
b. P200,000
c. P100,000
d. P90,000
3. Which of the following best describe a voucher prepared under good internal control?
a. A document prepared by Stores that indicates amount to be purchased.
b. A document prepared by Receiving that indicates the quantity received and approves payment.
c. A document prepared by Accounts Payable authorizing a cash disbursement.
d. A document prepared by Purchasing, from a supplier, indicating quantity of goods purchased and amount
due.
4. The “cash account of Boss Company’s ledger on December 31, 2013 showed a balance of P5,250,000 which included
the following:

Petty cash fund P50,000

Undeposited receipts, including a postdated customer check of P20,000 1,300,000
Cash in bank 2,500,000
Cash in sinking fund(will use to pay the bonds that will due in 2014) 1,000,000
Vouchers paid out of collection, not yet recorded 250,000
IOUs signed by employees 150,000
Total P5,250,000

At what account should Boss Company report as “cash” in the Dec. 31, 2013 Statement of Financial Position?

a. P3,650,000
b. P4,650,000
c. P4,900,000
d. P4,800,000

5. Statement 1: The independent external auditor has the primary responsibility for the prevention and detection of fraud.
Statement 2: The auditor’s professional duty to maintain the confidentiality of client information precludes reporting
fraud to a party outside the client entity.
 a. True, True
b. True, False
c. False, False
d. False, True
6. The following information pertains to Luffy Company on December 31, 2015.

Correct cash balance in general checking account with First Bank P5,000,000
Overdraft in special checking account with Second Bank (500,000)
Cash accumulated in the special fund that will be used for plant expansion 2,000,000
Cash surrender value 100,000
Change fund 50,000
Currency and coins of petty cash fund 15,000

How much should be reported as cash under current assets?

a. P5,565,000
b. P7,065,000
c. P5,165,000
d. P5,065,000
7. Analytical procedures are
a. Substantive tests designed to evaluate a system of internal control
b. Substantive test designed to evaluate the reasonableness of financial information.
c. Tests of controls designed to evaluate the reasonableness of financial information.
d. Tests of controls designed to evaluate the validity of management’s representation letter.
8. On June 9, Mine Corporation sold merchandise with a list price of P10,000 to Yours on account. Mine allowed trade
discount of 30% and 20%. Credit terms were 2/15, n/40 and the sale was made FOB shipping point. Mine prepaid
P500 of delivery costs for Yours as an accommodation. On June 25, Mine received from Yours a remittance in full
payment amounting to?
a. P5,600
b. P5,988
c. P6,100
d. P10,500

9. Which of the following is not among the qualifications of a member of the Board of Accountancy?

a. He/She must have at least 10 years of work experience in any scope of practice of accountancy.
b. He/She must be a natural-born or naturalized Filipino citizen and a resident of the Philippines.
c. He/She must not be a director or officer of the accredited national professional organization at the time of
appointment.
d. Must be a good moral character and must not have been convicted of crimes involving moral turpitude.

10. Statement 1: Cash is more susceptible to theft than an inventory of coal because it has a greater inherent risk.
Statement 2: The existing levels of inherent risk, control risk and detection risk can be changed at the discretion of the
auditor.

a. True, True
b. True, False
c. False, False
d. False, True

DIFFICULT
1. Accounts payable per general ledger control amounted to P5,440,000, net of P240,000 debit balances in suppliers’
accounts. The unpaid voucher file included the following items that not had been recorded as of December 31, 2017:

a.) A Company – P224,000 merchandise shipped on December 31, 2017, FOB destination; received on January 10,
2018.
b.) B, Inc. – P192,000 merchandise shipped on December 26, 2017, FOB shipping point; received on January 16,
2018.
c.) C Super Services – P144,000 janitorial services for the three-month period ending January 31, 2018.
d.) MERALCO – P67, 200 electric bill covering the period December 16, 2017 to January 15, 2018.

On December 28, 2017, a supplier authorized Sonic to return goods billed at P160,000 and shipped on December 20,
2017. The goods were returned by Sonic on December 28, 2017, but the P160,000 credit memo was not received
until January 6, 2018.

What is the correct value of Liabilities on December 31, 2017?

a. P5,808,000
b. P5,712,000
c. P5,841,600
d. P6,001,600

2. Voltron Inc. reported inventory of P360,000 at December 31, 2017. The following data were gathered to confirm the
reported inventory figure.

Inventory, December 31, 2016 P320,000

Purchases during 2017 1,410,000
Cash sales during 2017 350,000
Shipment received on December 26, 2017 included in physical inventory but 10,000
not recorded as purchases
Deposit made with suppliers, entered as purchased. Goods were not 20,000
received during 2017
Collections on accounts receivable during 2017 1,800,000
Accounts receivable, December 31, 2016 250,000
Accounts receivable, December 31, 2017 300,000
Gross profit percentage on sales 40%

The estimated inventory shortage at December 31, 2017 is?

a. P30,000
b. P40,000
c. P45,000
d. P50,000
3. While preparing its 2006 financial statements, Falfact Corp. discovered computational errors in its 2005 and 2004
depreciation expense. These errors resulted in overstatement of each year’s income by P25,000, net of income
taxes. The following amounts were reported in the previously issued financial statements:
2005 2004
Retained earnings, 1/1 P 700,000 P 500,000
Net income 150,000 200,000
Retained earnings, 12/31 P 850,000 P 700,000

Falfact’s 2006 net income is correctly reported at P180,000. Which of the following amounts should be reported as
prior-period adjustments and net income in Falfact’s 2006 and 2005 comparative financial statements

Year Prior period adjustment Net income

a. 2005 - P150,000
2006 P (50,000) 180,000
b. 2005 (50,000) 150,000
2006 - 180,000
 c. 2005 (25,000) 125,000
2006 - 180,000
d. 2005 - 125,000
2006 - 180,000
4. The holding of media-covered events undertaken only to commemorate a professional accountant’s anniversaries in
public practice does not violate the rules on advertising and solicitation provided that such undertaking should be
done only ___ years of celebration.
a. 5
b. 2
c. 6
d. 4
5. The following statements relate to some of the provision of RA 9298. Which is correct?
a. Audit working papers are generally the property of the company whose financial statements were audited.
b. After 3 years, subject to certain conditions, the board of Accountancy may order the reinstatement of a
CPA whose certificate of registration has been revoked.
c. The penal provision (Sec. 36) of RA 9298 applies only to the Rules and Regulations are unenforceable.
d. It shall be the primary duty of PRC and the BOA to effectively enforce the provisions of RA 9298.
6. Which of the following is not a category of inquiry used by auditors?
a. Assessment inquiry
b. Declarative inquiry
c. Interrogative inquiry
d. Informational inquiry
7. The accrued interest on a 12%, 60-day note of a customer dated December 1, 2006 with a face value of P100,000
was not taken up as of December 31, 2004. The collection of the note, which matured on January 31, 2007, was
recorded as
Cash 102,000
Notes receivable 100,000
Interest Income 2,000
The error was discovered after collection. The correcting entry would require a
a. P2,000 debit to cash.
b. P2,000 debit to accrued interest receivable
c. P1,000 debit to interest income
d. P2,000 credit to interest income
8. This type of inquiry often elicits “yes” or “no” responses to the auditor’s questions.
a. Assessment
b. Declarative
c. Interrogative
d. Informational
9. A note to the financial statements of the GVO Bank indicates that all of the records relating to the bank’s business
operations are stored on magnetic disks, and that no emergency backup systems or duplicate disks are stored
because the bank considers the occurrence of a catastrophe to be remote. Based upon this note, the auditor’s report
should express:
a. A qualified opinion
b. An unmodified opinion
c. An adverse opinion
d. A “subject to” opinion
10. The following selected transactions occurred during the year ended December 31, 2006 of DOMINGO COMPANY:
Gross sales (cash and credit) P 900,736.80
Collections from credit customers, net of 2% cash discount 294,000.00
Cash sales 180,000.00
Uncollectible accounts written off 19,200.00
 Credit memos issued to credit customers for sales ret./allow. 10,080.00
Cash refunds given to cash customers for sales ret./allow. 15,168.00
Recoveries on accounts receivable written-off in prior years
(not included in cash received stated above) 6,505.20

The Allowance for Bad Debts of DOMINGO COMPANY at December 31, 2006 is:
a. P 20,725.54
b. P 14,093.14
c. P 8,030.74
d. P7,829.14

At year-end, the company provides for estimated bad debts losses by crediting the Allowance for Bad Debts
account for 2% of its net credit sales for the year. The allowance for bad debts at the beginning of the year is
P19,327.20.

CLINCHER

11. Analytical procedures may be used for the following purposes

I. As a planning tool, to obtain corroborative evidence about particular assertions related to the account balance or
transaction class.
II. As a substantive test of the financial statement in the completion phase of the audit.
III. As an overall review to determine the nature, timing, and extent of other auditing procedures.
a. I and III only
b. II and III only
c. III only
d. None of the above
12. Misappropriation of assets involves the following except?
a. Embezzling receipts
b. Stealing of entity’s asset
c. Recording of transaction without substance
d. Lapping of accounts receivable
13. Which of the following defines the essential concept of internal control?
I. Internal control is a process.
II. internal control is effected by those charged with governance, management and other personnel.
III. Internal control can be expected to provide reasonable assurance of achieving the entity’s objective.
IV. Internal control is designed to help achieve the entity’s objective.
a. I, II and IV
b. I, II and III
c. I, II, III and IV
d. None of the above