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Problem 1
Bird Company is a manufacturer of small tools. The following information was obtained from the
companys accounting records for the year ended dec. 31 2013
Inventory count dec.31 2013 (based on physical count
in birds warehouse at cost on dec.31 2013)
accounts payable at dec.31 2013
net sales (sales less sales return)
3,740,000
2,830,000
19,386,800
Question
1. Birds dec. 31 2013 inventory shoud be increased by
a. 279,000
B. 648,600
c.555,000
d.540,600
2. Birds accounts payable balance at dec. 31 203 should increase by
a.483,000
b.279,000
c.108,000
d.576,600
3. The amout of net sales to be reported on birds income statement for the year ended dec 31
2013 should be
a.18,947,900
b.19,386,800
c.19,036,100
d.19,151,300
4. Birds statement of financial position at dec 31 2013 should report accounts payable of
a.3,217,000
b.2,755,000
c.2,830,000
d.3,313,000
5.
the amount of inventory to be reported on birds dec 31 2013 statement of financial
position should be
a.4,148,000
b.4,294,000
c.4,388,600
d.3,740,000
PROBLEM 2
You were engaged by first love corporation for the audit of the companys financial statement for the
year ended dec 31 2013. The company is engaged in the wholesale business and make all sales at
25% over cost
*the following were gathered from the clients accounting records:
Sales
purchases
Date
reference
amount
date
reference
amount
Bal forwarded
5,200,000
bal. forwarded
2,800,000
Dec 27
si no. 965
40,000
dec 28
rr no 1059
24,000
Dec 28
si no 966
150,000
dec 30
rr no 1061
70,000
Dec 28
si no 967
10,000
dec 31
rr no 1062
42,000
Dec 31
si no 969
46,000
dec 31
rr no 1063
64,000
Dec 31
si no 970
68,000
dec 31
closing entry
(3,000,000)
Dec 31
si no 971
16,000
P 0
Dec 31
closing entry
(5,530,000)
P 0
Note: SI sales invoice
RR = receiving report
Accounts receivable
500,000
Inventory
600,000
Accounts payable
400,000
You observed the physical inventory of goods in the warehouse on dec 31 and were satisfied that it
was properly taken.
When performing the sales and purchases cut off test, you found that at dec 31 the last receiving
report which had been used was no. 1063 and that no shipments had been made on any sales invoice
whose no. is larger than no. 968. You also obtained the following additional information:
a.) Included in the warehouse physical inventory at dec 31 were goods which had been
purchased and received report no 1060 but for which the not received until the following year.
The cost was 18,000
b.) At the close of the business, dec 31 2013, there were two trucks on the company siding:
Truck no. CPA 123 was unloaded on jan 2 of the folloing year and received on
receiving report no 1063. The freight was paid by the vendor.
Truck no. ILU 143 was loaded and sealed on dec 31 but left the company premises
in jan 2. This order was sold for 100,000 per saled invoice no 968
c.) Temporary stranded at dec 31 at the railroad siding were two delivery trucks enroute to
brooks trading corporation. Brooks received the goods which were sold on sales invoice
no.966, terms fob destination ,the next day
d.) Enroute to the client on dec 31 was truckload of goods, which was received on receiving
report no 1064. The goods were shipped fob destination, and freight of 2,000 was paid by the
client. However the freight was deducted from the purchase price of 800,000.
Based on the above and the result of your audit, determine the following
1. Sales for the year ended dec 31 2013
a. 5,250,000
b. 5,400,000
c. 5,150,000
d.5,350,000
2. Purchases for the year ended dec 31 2013
a.3,000,000
b.3,018,000
c.3,754,000
d.3,818,000
3.
inventory as of dec 31 2013
a.864,000
b.968,000
c.800,000
d.814,000
4.
accounts receivable as of dec 31 2013
a.350,000
b. 370,000
c.220,000
d.120,000
5.
d. 1,218,000
PROBLEM NO. 4
Malabon sales company uses first in first out method in calculating the cost of goods sold for the
three product that the company handles. Inventories and purchases information concerning the three
products are given for the month of October.
Product c
product p
product a
Oct 1
inventory
50,000 units
30,000 units
65,000 units
At 6.00
at 10.00
at 0.90
Oct 1-15 purchases
70,000 units
45,000 units
30,000 units
At 6.50
at 10.50
at 1.25
Oct 16-31
purchases
30,000 units
At 8.00
Oct 1-31 sales
105,000 units
50,000 units
45,000 units
Oct 31
sales price
8.00/units
11.00/unit
2.00/units
*on oct 31 the companys suppliers reduced their prices from the most recent purchase price by the
following percentage: product c,20% ; product p 10% ; product a,8%. Accordingly, malabod decided to
reduce its sales price at all times by 10% effective November 1. Malabons selling cost is 10% of the
sales price. Product c and p have a normal profit(after selling cost) of 30% on sales price, while the
normal profit on product a (after selling cost) is 15% of selling price.
Base on the above and the result of your audit, determine the fillowing
1. The cost of inventory at oct 31 is
a.565,000
b.557,310
c.655,500
d.617,500
2. The amount of inventory to be reported on the companys balance sheet at oct 31 is
a.569,850
b.559,350
c.543,810
d.595,350
3. The allowance of inventory writedown at oct 31 is
a.5,650
b.85,650
c. 13,500
d.60,150
4. The cost of sales after loss on inventory writedown for the month on oct is
a.1,293,650
b.1,022,260
c.1,290,650
d.1,208,000
.
Select the best answer
1. Which of the following is not one of the independent auditors objective regarding the audit of
inventories?
a. Verifying that the inventory counted is owned by the client
b. Verifying that the client has used proper inventory pricing
c. Ascertaining the physical quantities of inventory on hand
d. Verifying that all inventory owned by the client is on hand at the time of count
2. Which of the following audit procedures probably provides the most reliable evidence
concerning the entitys assertion of rights and obligations related to inventories?
a. Trace test counts noted during the entitys physical count to the entities summarization of
quantities
5. Periodic cycle counts of selected inventory items are made at various items during the year
rather than a single inventory count at year-end. Which of the following is necessary if the
auditor plans to observe inventories at interim dates ?
a.
b.
c.
d.
6. A client maintains perpetual inventory records in both quantities and pesos. If the assessed
level of control risk is high, an auditor will probably
a. Apply gross profit test to ascertain the reasonableness of the physical counts
b. Increase the extent of the tests of controls relevant to the inventory cycle
c. Request the client to schedule the physical count at the end of the year
d. Insist that the client perform physical counts of inventory items several times during the
year
7. After accounting for a sequence of inventory tags, an auditor traces a sample of tags to the
physical inventory listing to obtain evidence that all items
a. Included in the listing have been counted
b. Represented by inventory tags are included in the listing
c. Included in the listing are represented bay inventory tags
d. Represented by inventory tags are bona fide
8. If the perpetual inventory records show lower quantities of inventory than the physical count,
an
a.
b.
c.
d.
9. The physical count of inventory of a retailer was higher than shown by the perpetual records.
Which of the following could explain the difference?
a. Inventory item has been counted but the tag placed on the items had not been taken off
the items and added to the accumulation sheets
b. Credit memos of several items returned by customer had not been recorded
c.
No journal entry had been made on the retailers books for several items returned to its
suppliers.
d. An item purchased fob shipping point had not arrived at the date of the inventory count
and had not been reflected in the perpetual records.
10. An
a.
b.
c.
d.
11. Purchase cut off procedures should be designed to test whether all inventory
a. Purchased and receives before year-end was paid for
b. Ordered before year-end was received
c. Purchased and received before year-end was received
d. Owned by the company is in the possession of the company at year-end
12. The audit of inventories should include steps to verify that the clients purchases and sales
cutoffs were adequate. This audit step should be designed to detect whether merchandise
included in the physical count at year-end was not included as a
a. Sale in the subsequent period
b. Purchase in the current period
c. Sale in the current period
d. Purchase in the subsequent period
13. An auditors observation of physical inventories at the main plant at year-end provides direct
evidence to support which of the following objectives
a. Accuracy of period-out inventory
b. Evaluation of the lower cost or market test
c. Identification of obsolete or damaged merchandise to evaluate allowance (reserve) for
obsolescence
d. Determination of goods on consignment at another location
14. What form of analytical review might uncover the existence of obsolete merchandise?
a. Inventory turnover rates
b. Decrease in the ratio of gross profit sales
c. Ratio of inventory to accounts payable
d. Comparison of inventory values to purchase invoices
15. Which of the following is the best audit test to evaluate the accuracy of the inventory record of
materials inventory in a production operation/
a. Trace selected inventory receipts to perpetual inventory records
b. Vouch selected postings in the perpetual inventory records to source documents
c. Perform turnover test for materials inventory
d. Reconcile quantities on hand per physical counts of selected items with perpetual
inventory and verify pricing