Professional Documents
Culture Documents
Satu2 Midterm Exam Problems-Answers
Satu2 Midterm Exam Problems-Answers
The balance of the trade notes receivable of Quake Quaker Quakest (3Q) Inc. as of December 31, 2012 showed
a balance of P6,073,830. In the course of your audit, you found out the following:
a. Four notes were made by Amaryao Mktg. to settle four different past due accounts. The following are
the terms of the notes:
Date of the Note Term Interest Rate Amount
January 1, 2012 18 months 4.5% P 114,832
April 1, 2012 18 months 6% 200,000
July 1, 2012 24 months 9% 200,000
September 1, 2012 24 months 13.5% 200,000
b. Bakulao Co. made a note against 3Q on July 1, 2012 for a cash loan made by the former. The amount of
the note has a face value of P1,000,000 bearing an interest of 18%p.a. The principal of the note is
payable in full on July 1, 2015. First interest is due on July 1, 2013.
c. A note was made by CicipGomezValerio Corp. for a purchase of black highlighter pen on October 1,
2012 for P503,272. The note bears an interest of 15% and is payable on February 1, 2013. Interest on
the note was paid by CicipGomezValerio on September 1, 2013.
d. On January 20, 2012, the P2,000,000 cash loan of Mr. Vasthos from the company was approved by the
board. An 18%-note was made by Mr. Vasthos for this loan on February 1, 2012. On August 1, 2012,
the company pledged this note as a collateral for a bank loan worth P1,000,000.
e. Dakog Dacac Inc. made a P1,092,774 note for purchase of a dozen units of solar-powered flash light
on November 1, 2012. The note bears an interest of 15%. Principal and interest is payable on
November 1, 2013.
f. Ethotathotaputtytat Corp. also made a note in the amount of P762,952 for its purchase of smooth
sandpapers on December 11, 2012. The note bears interest at 18% p.a. The principal and interest will
be paid in full on March 11, 2012, 90 days after the note was made.
All of the notes were considered by 3Q Inc. as good except for the Amaryao Mktg. notes which, to the company
analyst’s assessment, would only be 75% collectible.
BASED ON THE ABOVE AND THE RESULT OF YOUR AUDIT, DETERMINE THE FOLLOWING:
1. The adjusted balance of Trade Notes Receivable as of December 31, 2012
a. P1,855,726
b. P2,358,998
c. P3,073,830
d. P4,073,830
Although the books have been closed, your working trial balance is prepared showing all accounts with
activity during the year. This is the first time your firm has made an examination. The January 1 and
December 31 inventories appearing above were determined by physical count of the goods on hand on those
dates and no reconciling items were considered. All purchases are FOB shipping point.
In the course of your examination of the inventory cutoff, both at the beginning of the year, you discovered the
following facts:
1. Invoices totaling P27,000 were entered in the voucher register in January, but the goods were
received during December.
2. December invoices totaling P65,000 were entered in the voucher register in December, but goods
were not received until January.
3. Sales of P88,000 (cost P26,400) were made on account on December 31 and goods delivered at that
time. Entries relating to the sale were entered in the books on December 31.
4. Invoices totaling P54,000 were entered in the voucher register in January, but goods were received in
December.
5. December invoices totaling P37,000 were entered in the voucher register in December, but the goods
were not received until January.
6. Invoices with an aggregate value of P93,000 were entered in the voucher register in January, and the
goods were received in January, but the invoices were dated December.
11. The raw materials inventory on December 31, 2013 should be valued at
a. P227,400
b. P223,400
c. P254,800
d. P240,000
12. The factory supplies inventory on December 31, 2013 should be valued at
a. P69,000
b. P61,700
c. P64,800
d. P65,900
13. The total inventories to be recognized in the statement of financial position as of December 31, 2013 is
a. P1,049,450
b. P1,043,000
c. P1,041,900
d. P1,070,250
BASED ON THE PRECEDING INFORMATION, DETERMINE THE FOLLOWING: (Round off present value factors
to four decimal places.)
14. Loan proceeds received by Mewantbapple on December 31, 2010.
a. P500,000
b. P473,240
c. P463,940
d. P283,700
PROBLEM 5. Substantive test of Receivables and Liabilities – Audit Objectives and Procedures
19. An auditor most likely would analyze inventory turnover rates to obtain evidence regarding
management’s assertion about
a. Completeness
b. Valuation and measurement
c. Presentation and disclosure
d. Rights and obligations
20. Which of the following analytical audit findings would most likely indicate a possible problem?
a. A material increase in acid test ratio.
b. A material increase in inventory turnover.
c. A material decrease in the receivables turnover.
d. A material decrease in days’ sales outstanding.
21. Which of the following is not a procedure used by an auditor in the examination of accounts receivable?
a. Confirmation
b. Reconciliation
c. Inquiry
d. Physical count and inspection
22. To ascertain whether physical inventories included in the statement of financial position physically exist,
a CPA will ordinarily:
a. Obtain confirmation of pledged inventories.
b. Observe physical inventory counts.
c. Test client’s shipping cutoff procedures.
d. Perform an analytic review of the relationship of the inventory balance to recent sales.
23. Which of the following audit procedures provides the best evidence about the collectability of notes
receivable?
a. Examination of cash receipts records to determine promptness of interest and principal
payments.
b. Reconciliation of the detail of notes receivable and the provision for uncollectible amounts to the
general ledger control.
c. Confirmation of note receivable balance with the debtor.
d. Examination of notes for appropriate debtor’s signature.
25. An auditor would primarily rely upon which type of evidential matter when evaluating the collectibility of
accounts receivable?
a. Negative confirmation
b. Positive confirmation
c. Management’s representations
d. Aged accounts receivable listing