‘Auditing Problems SETA
INSTRUCTIONS: Select the best answer for each of the
following questions. ALL questions are compulsory and
MUST be attempted. Mark only one answer for each item on
the answer sheet provided. Strictly NO ERASURES ALLOWED.
Erasures willsrender your examination answer sheet INVALID,
Use PENCIL NO. 2 only. GOODLUCK!@
PROBLEM NO, 10!" > aad
During your audit of the records of the Indiana Corporation for
the year ended December 31, 2014, the following facts were
disclosed:
Raw materials inventory, 1/1/2014 720,200
- Raw materials purchases- 5,232,800
© Direct labor * 6,300,000
Manufacturing overhead applied
(150%tof direct labor) + 279,450,000
Finished goods inventory, 1/1/2014
Selling expenses
Administrative expenses
Your examination disclosed the following addition:
a) Purchases of raw materials,
Month s Unit Price Amount
January - February $5,000 P17.76 976,800
March ~ Apr 45,000 20.00 ‘900/000
May ~ June 25,000 19.60 490,000
July - August 35,000 20.00 700,000,
‘September - October 45,000 20.40 918,000
November - December 60,000 20.80 1,248,000
265,000 9,232,800
Audling Problems
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APIITEMND
b) Data with respect to quantities are as follows:
Explanat naa ews
Raw materials 35,000 ?
Work in process (80% completed) oO 25,000
Finished goods 15,000 40,000
Sales, 205,000 units
) Raw materials are issued at the beginning of the manufacturing
Process, During the year, no returns, spoilage, or wastage
‘occurred. Each unit of finished goods contains one unit of raw
materials.
d) Inventories are stated at cost as follows:
‘+ Raw materials ~ according to the FIFO method
* Direct labor - at an average rate determined by correlating
total direct labor cost with effective production during the
period
‘+ Manufacturing overhead - at an applied rate of 150% of
direct labor cost
Questions:
Based on the above and the result of your audit, answer the
following:
1, The raw materials inventory as of December 31, 2014 is
a. P1,976,000 c. P936,000
b. P1,352,000 4. P897,800
‘The work in process inventory as of December 31, 2014 is
a. Pi,780,000 c. P1,885,565
b. P1,751,294 d. P1,776,000
3. The finished goods inventory as of December 31, 2014 is
a. P3,352,000 ¢. P3,553,130
b. P3,334,000 d. P3,284,588
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4. The.cost of goods sold for the-year ‘ended December 31, 2014
is
a. P16,897,000 ¢. P15,857,000
b. P16 ;568,304 @.- P16,875,000
5. When testing the valuation assertion, the auditor would most
likely
a. Observe the taking of physical inventory.
b, Examine receiving reports for inventory, tracing their
recorded amounts.
© Perform price tests to the related cost flow assumption.
4. Confirm inventory on consignment.
PROBLEM NO. 2
The general ledger trial balance of Miami Corporation includes the
foltowing balance sheet accounts at December 31, 2014:
Cash 1,056,000
Accounts receivable 1,220,000
Inventory 441,000
Trading securities 200,000
Available for sale investments 500,000
Prepaid insurance 50,000
Deferred tax asset 150,000
Bank overdraft 100,000
Additional information:
Cash
+ The sales book wasdeft open-up to January 5, 2015, and cash
sales totaling P150,000 were considered as sales in December.
= Checks of P93,000 .in payment of liabilities were .prepared
before December 31, 2014, recorded in the books, but not
mailed or delivered to payees. ———-— ve
+ Post-dated checks totaling[ P78,000are being held by the
Cashier as part of Cash. The Tompany’s experience shows
post-dated checks are eventually realized.
Pea to Sas an opeaiP ase
np - 190,779 7
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Auditing Problems aera
+ Customer's check fof 35900 Hepostea with but returned by
Bank, "NSF* on er 27, 2014. Return was recorded in
the books,
* The Cash account includes P400,000 of compensating balance
against a short-term bank loan. The compensating balance is
legally restricted as to withdrawal.
Accounts receivable
The accounts receivable consists of the following:
‘Trade accounts receivable P 650,000
Allowance for uncollectible accounts (20,000)
Claim against shipper for goods lost in transit 30,000
ling price of unsold goods sent by Miami on
consignment at 130% of cost (included in
's ending inventory at cost) 260,000
it on lease of warehouse used for
‘storing some inventories 300,000 ~*
Total 241.220.9000
Inventory
A physical count of inventory at December 31, 2014 revealed that
Miami had inventory on hand at that date with a cost of
. 340,000 ‘.)
ee 61 000 2,485,000
W? 92,436,800 6. 2,513,800
PROBLEM NO. 3
Among the account halances of Toronto Corporation at December
33, 2013 are the following
Patent, net
Installment contract recewable
‘Audeng Probiome, seta
Relevant transactions and other information for 2014 were as
follows:
a) The patent was purchased for P3,150,000 on September 1,
2010. On that date, the remaining legal life was fifteen years,
which was also determined to be the u fe. i
b) The installment contract receivable represents the balance of
the consideration received from the sale of a factory
Raptors Company on March 31, 2012, for P12,000,000.
Raptors made a P3,000,000 down payment and signed a five-
3% note for the P9,000,000 balance. The first of equal
.000 at December 31, 2014. The 2014 payment was
received on tune.
©) On January 2, 2034, Toronto purchased a trademark for
2,509,000. Toronto considers the life of the trademark to be
wndefunite.
0) On May 1, 2014, Toronto sold the patent in exchange for a
5,000,000 non-interest bearing note due on May 1, 2017.
Y ished exchange price for the pat
the note had no reagy market. The prevailing rate of interest
for a note of ths type at May 1, 2014 was 14%. The present
value of 1 for three penods at 14% 15 0.675. The collection of
the note recewable is reasonably assured,
©) On duly 1, 2014, Toronto paid 18,800,000 for 759,000
ordinary shares of Canada Corporation, which repre
25%
stment in) ‘The fair value of all of Cay
le assets net of liabilities equals their carrying amount
10,000. The market price of Canada’s ordinary share
ber 31, 2014 was P26,00 per share.
Ween Fen a ee
