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REVIEW OCTOBER 8, 2018 AUDITING PROBLEMS
UNIVERSITY OF THE CORDILLERAS
COLLEGE OF ACCOUNTANCY
Problem 8-16 BANK RECONCILIATION Your audit Senior instructed you to prepare a four column proof of cash receipts and disbursements for the month of December 2018. The bank reconciliation prepared by Character Company at November 30 is reproduced below: Unadj. Bank balance P69,000 Unadj. Book balance P66, Add: Add: Deposit in Transit 11,000 CM for note collected 8, Total P80,000 Total: 74, Less: Less: Outstanding Checks: Bank Service Charge 1, No. 143 P1, 144 P1, 145 P2, 146 P2,500 7,000 ______ Adjusted balance P73,000 P73, The bank statement, which has a beginning balance of P69,000, is reproduced below: May Bank Account Name: CHARACTER COMPANY Date Debits Credits 1-Dec P 1,000 P 11, 4-Dec 25,000 10, 5-Dec 3,000 CM 1 6-Dec 2,000 20, 8-Dec 10,000 DM 1 5, 9-Dec 2,500 40, 17-Dec 30,000 7, 19-Dec 40,000 DM 2 20-Dec 500 E 500 EC 26-Dec 40, 31-Dec 2,000 DM 3 35,000 CM 2 P113,000 P171, DM 1 Customer’s DAIF check DM 2 Customer’s DAIF check DM 3 Service charges CM 1 Account collected by Bank CM 2 Note collected by Bank E Error EC Error correction
The debit memo on December 8 and December 19 were customer NSF checks returned by the bank. The check on December 19 was redeposited on December 26 without entry. The company made a journal entry when the check returned on December 8 was received. This check was redeposited by the client in the bank on january 3 without entry. The company’s cash receipts and cash disbursement journals for the month of December 2018 are provided below: Cash Receipts Journal Cash Disbursements Journal Date O.R No. Amount Date O.R No. Amount Dec. 03 555 P10,000 Dec 03 147 P25, 5 556 20,000 15 148 30, 7 557 5,000 30 149 800 8 558 40,000 31 150 12, 18 559 7, 30 560 18, 31 561 200 _________ P102,000 P75, The Company’s Cash in Bank Ledger appears below: Cash in Bank
Balance P66,000 l 12/31/2018 GJ (DM 1) P10, 12/1/2018 GJ (CM ) 8,800 l 12/31/2018 CDJ 75, 12/8/2018 GJ (CM 1 ) 3,000 l 12/31/2018 CRJ 102,000 l QUESTIONS: Based on the application of the necessary audit procedures and appreciation of the above data, you are to provide the answers to the following: 1.How much is the outstanding checks as of December 31, 2018? a. P 21,500 c. P14, b. P 20,000 d. P24,
- How much is the adjusted book receipts for December , 2018? a. P 140,000 c. P180, b. P 140,500 d. P138,
- How much is the adjusted book disbursements for December , 2018? a. P 78,000 c. P79, b. P87,000 d. P127,
- How much is the adjusted cash balance as of December 31, 2018? a.P 127,800 c. P147, b. P126,000 d. P131,
- How much is the cash shortage as of December 31, 2018?
- The adjusted cash in bank per books, July 31, 2018 a. P 162,150 c. P 162, b. P 162,848 d. P 161,
- The adjusted disbursements for August, 2018 a. P 1,718,470 c. P 1,717, b. P 1,717,930 d. P 1,719,
- The adjusted cash in bank per books, August 31, 2018 a. P 283,964 c. P 282, b. P 283,424 d. P 288, PROBLEM 10-30 RECEIVABLES You obtained directly from Job Corporation, your client, and reviewed a schedule of shows that receivable amounts to P1,660,000. This amount not agree with the balance in the accounts receivable general ledger account. The difference may be shown below. Below are your audit findings: a. A special goods costing P72,000, fabricated to order for a customer, was finished and specifically segregated in back part of the shipping room on December 31, 2018. The customer was billed on that date and the goods excluded from the inventory although it was shipped on January 3, 2019. b. A promissory note was issued by a customer to Job Corporation for goods purchased worth P200,000. The promissory note carries an interest of 12% per annum with a term of 60 days dated November 30, 2018. This was reflected as part of accounts receivable. No interest was accrued as of year end. c. A review of pertinent records showed that on December 24, 2018, P160,000 of trade accounts receivable was factored without recourse for P152,000. Client recorded this transaction by debiting Cash and crediting note payable-Finance Co for P152,000. d. A review of sales documents revealed that goods having a selling price of P100,000 were shipped to a customer FOB shipping point on December 31, 2018, but the sale was recorded on January 4, 2019. The goods were not included in the December 31, 2018 inventory. Client’s gross profit rate is 40% of sales. Job corporation uses the allowance method and estimates bad debts at 1% of net sales. After consulting with the credit manager, you believe that this is a reasonable estimate. Below is a transcript of the allowance for doubtful accounts in the general ledger. Allowance for Doubtful Accounts
11/25/2018 P30,000 l P100,000 Beg bal 1/1/ l 80,000 GL 12/31/ 11/25/2018: To write-off the following known worthless accounts. Allowance for doubtful accounts P30, Accounts receivable P30, Ben P 8,
Kulas 3, Juan 6, Natan 3, Janet 6, P30, 12/31/2018: To record the doubtful accounts expense for the year ending December 31, 2018, computed as follows: Balance, 01/01/2018 P100, Accounts written off (30,000) Balance P 70, Provision for doubtful accounts 80, Balance, 12/31/2018 (P15Mx1%) P150, Doubtful accounts expense P80, Allowance for doubtful accounts P80, On January 10, 2019, P6,000 was received from Juan in settlement of his account. QUESTIONS Based on the above and the result of your audit, compute for the following:
- The amount of trade Accounts receivable to be reported in the audited statement of financial position at December 31, 2018. a. P 1,660,000 c. P 1,408, b. P 1,402,000 d. P 1,400,
- The allowance for doubtful accounts to be reported in the audited balance sheet at December 31, 2018? a. P 223,000 c. P 151, b. P 229,000 d. P 221,
- The doubtful accounts expense to be reported in the audited income statement for the year ending December 31, 2018 is a. P 229,000 c. P 221, b. P 223,000 d. P 151,
- The net increase (decrease) in the ending inventory resulting from audit adjustment is a. P 72,000 c. P 60, b. P 132,000 d. No effect
- The net increase (decrease) in net sales from audit adjustment is a. P 100,000 c. P 120, b. P (20,000) d. No effect
