AP Prelim Exam Anskey
AP Prelim Exam Anskey
AP Prelim Exam Anskey
AUDITING PROBLEMS 1
Prelim Examination
PROBLEM 1:
The “CASH” account of TEDDIE SALAZAR CORPORATION’S ledger on December 31,
2019 showed the following:
Requirements:
1. TEDDIE SALAZAR CORPORATION’S Cash and cash equivalent is over/understated
by: Overstated by P1,950,100
2. TEDDIE SALAZAR CORPORATION’S adjusted cash and cash equivalents balance
is: P 618,800
Solution
PROBLEM 2:
Based on your preliminary understanding of internal control over BAKIT PARANG
KASALANAN KO CORP.’S cash account, you have ascertained that internal
controls over cash is weak thus you have placed the control risk assessment
at the maximum level. Consequently, you have planned to render an extensive
substantive test procedure to audit its cash balance.
The November bank statement balance was at P1,245,900. The statement also
revealed that a P450,000 note payable of BAKIT PARANG KASALANAN KO CORP. paid
by the bank in November in behalf of the company. Interest paid on the same
note was P45,000. Bank loan proceeds amounting to P600,000 in November also
appeared in the November bank statement. These were recorded by the company
in its cash records in December. A bank debit amounting to P91,000 was
charged by the bank to the company in error. This was immediately corrected
by the bank in December. The November deposits in transit was at P298,500
while P521,800 disbursement checks remained outstanding as at November 30.
Total bank credits for December amounted to P5,235,600 while total bank
debits for December was at P4,865,300. Total collections per book was at
P6,130,500 while total disbursement was at P4,976,800. Cash balance per books
as of December 31, was at P2,162,300.
The December bank statement included bank debits for bank loan payment
amounting to P120,000 and loan interest at P12,500. A customer NSF check
amounting to P122,000 also appeared as a December bank debit. The check was
cleared with the customer and was redeposited to the bank the following
month.
Requirements:
3. What is the correct cash in bank balance as of November 30? P1,113,600
4. What is the correct deposits in transit as of December 31? P684,400
5. What is the correct outstanding checks as of December 31? P383,800
6. What is the correct cash in bank balance as of December 31? P1,880,800
Requirements:
7. The correct cashier’s accountability at December 31, 2019 is: P 1,493,000
8. REBREB CORPORATION’S cash account is over/understated by: Understated by P
393,000
Solution
* Accounts Receivable
Beg. bal 275,000 Collection 1,360,000 squeeze figure
Cr. Sales 1,480,000 Write-off 25,000
Recovery 15,000 ________
1,770,000 1,385,000
End bal 385,000
PROBLEM 4:
The income statement and a schedule reconciling cash flows from operating
activities to net income are provided below (P in 000s) for ALEX - THE BLACK
SHEEP CORP.
Sales 305
Cost of goods sold 185
Gross profit 120
Salaries expense 41
Insurance expense 19
Depreciation expenses 11
Net income 22
Adjustments for Noncash effects:
Depreciation expense 11
Loss on sale of land 5
Decrease in accounts receivable 6
Increase in inventory ( 13)
Decrease in accounts payable ( 8)
Increase in salaries payable 5
Decrease in prepaid insurance 9
Increase in income tax payable 20
Net cash flows from operation 57
Questions:
9. The cash received from customer during the reporting period is: P 311
10. The cash paid to suppliers of goods during the reporting period is: P
206
11. The cash paid to employees during the reporting period is: P 36
12. The cash paid for insurance during the reporting period is:P 10
13. The cash paid for income taxes during the reporting period is: P 2
Solution –
* - assumed amount
Accounts Receivable___ Accounts payable___
beg. bal. 10* collection 311 (squeezed figure) payment 206 beg. bal. 10 *
Sales 305 ___ (squeezed purchases 198
315 311 figure) ___ ___
end. bal 4 * 206 208
end bal. 2
Inventory – beg 10 *
Purchases 198 (squeezed figure)
TGAS 208
Inventory – end 23 *
COS 185
PROBLEM 5:
You were engaged to audit the financial statements of CHARARAT CORPORATION
for the year ended December 31, 2019. The summary of the company’s cash
transactions are presented below:
Receipts:
Cash Sales 2,000,000
Collections from customers 5,920,000
Collections on notes receivable 980,000
Interest 220,000
Disbursements:
Cash purchases 1,200,000
Sales returns and allowances (total sales returns
and allowances, P280,000) 40,000
Payments on Accounts Payable 3,400,000
Insurance 80,000
Equipment 360,000
Office expenses 2,760,000
Other expenses 260,000
Withdrawals 400,000
Additional information:
Further analysis of the company’s incomplete records revealed the following
changes in the following account balances:
Increase/(Decrease)
Cash 780,000
Accounts Receivable 280,000
Notes Receivable (100,000)
Accrued Interest receivable 80,000
Inventory 320,000
Prepaid insurance (20,000)
Equipment* 80,000
Accounts Payable 200,000
Accrued office expenses 40,000
Unearned interest income (120,000)
*no other transaction affecting the equipment apart from the newly acquired
equipment and depreciation.
Requirements:
14. Gross sales 9,320,000
15. Gross purchases 5,000,000
16. Cost of sales 4,420,000
17. Gross profit 4,620,000
18. Interest income 420,000
19. Depreciation Expense 280,000
20. Net income 1,600,000
PROBLEM 6:
21. Which of the following is not an audit objective related to cash?
a. Reported cash exists
b. The client has ownership rights in the reported cash.
c. Compensating cash balances are reported as other assets.
d. The reported cash balance includes all cash transaction that should
have been recorded.
22. The process of transferring money from one bank account to another and
improperly recording the transaction
a. Lapping
b. Embezzling
c. Kiting
d. Defalcation
25. The auditor should ordinarily mail confirmation requests to all banks
which the client has conducted any business during the year, regardless of
the year-end balance, since
a. The confirmation form also seeks information about indebtedness to
the bank.
b. This procedure will detect kiting activities which would otherwise
not be detected.
c. The mailing confirmation forms to all such banks are required by PSA.
d. Tis procedure relieves the auditor of any responsibility with respect
to non-detection of forged checks.
30. As one of the year-end audit procedures, the auditor instructed the
client’s personnel to prepare a standard bank confirmation request for a
bank account that had been closed during the year. After the client’s
32. The receipt of the completed standard bank confirmation form would
provide the auditor with all of the following items except
a. The balances in all bank accounts with that bank
b. Any restrictions on withdrawals
c. The adjusted cash balances
d. Loan balances with that bank
33. An auditor should trace bank transfers for the last part of the audit
period and first part of the subsequent period to detect whether
a. The cash receipts journal was held open for a few days after year-
end.
b. The last checks recorded before the year-end were actually mailed by
the year-end
c. Cash balances were overstated because of kiting.
d. Any unusual payments to or receipts from related parties occurred.
***The information below was taken from the bank transfer schedule prepared
during the audit of TOTI MARIE Co.’s financial statement for the year ended
December 31, 2019. Assume all checks are dated and issued on December 30,
2019.
37. A client has large and active investment portfolio that kept in bank
safe deposit box. If the auditor is unable to count the securities at the
balance sheet date, the auditor most likely will
43. Which of the following is one of the better auditing techniques that
might be used by an auditor to detect kiting?
a. Review composition of authenticated deposit slips
b. Review subsequent bank statements and cancelled checks received
directly from the banks
c. Prepare a schedule of bank transfers
d. Prepare year-end bank reconciliations
44. On receiving the bank cut-off statement, the auditor should trace:
a. Deposits in transit on the year-end bank reconciliation to deposits
in the cash receipts journal
b. Checks dated prior to year end to the outstanding checks listed on
the year-end reconciliation