APPLIED AUDITING

BS Accountancy, SY 2019-2020
4th Year, 1st Semester
PRELIMINARY EXAMINATION

Student Name:
Date:

Instructions: Encircle the letter of the correct answer. Please avoid erasures.

1. Presented below are UNAUDITED balances of selected accounts of ARES COMPANY as of

December 31, 2019:

 Cash – 500,000 (Debit)

 Accounts Receivable – 1,300,000 (Debit)
 Allowance for Uncollectible Accounts – 8,000 (Credit)
 Net Sales – 6,750,000 (Credit)
 Additional Information:
o Goods amounting to 50,000 were invoiced for the account of HESTIA COMPANY and
recorded in January 2, 2020 with terms of net 60 days, FOB Shipping point. The goods
were shipped to HESTIA COMPANY on December 31, 2019.
o The bank returned on December 29, 2019, a customer’s check for 5,000 marked
“No Sufficient Funds” but no entry was made.

What is the correct balance of accounts receivable account at December 31,

2015? a. P1,355,000 (x)
b. P1,347,000
c. P1,305,000
d. P1,350,000

On December 31, 2019, DIONYSUS Corporation sold for P40,000 notes an old machine having an
original cost of P70,000 and a book value/carrying amount of P20,000. The note was agreed to be
paid in 2 equal annual installments of P20,000 on December 31 each of the next 2 years.

The agreement of sale made NO MENTION OF INTEREST; however, 9% would be considered the
effective rate for this type of transaction.

2. How much is the carrying value/present value of the notes receivable on December 31,
2019? a. P35,182 (x)
b. P45,182
c. P40,000
d. P70,364
3. How much is the gain on sale on December 31,
2019? a. P15,182 (x)
b. P15,128
c. P10,000
d. P20,000

4. The audited financial statements of DIONISIO CORP. for December 31, 2019 shows the following:
 Current account at Prime Bank – (30,000)
Current account at Prudent Bank – 135,000
Treasury Bills (acquired 3 months before maturity) – 300,000
Treasury Bills (maturity date is December 31, 2020) – 1,500,000
Payroll account – 390,000
Foreign bank account (restricted) – 2,000,000
Postage stamps – 1,250
Employee’s postdated check – 4,500
IOU from the vice-president – 8,000
Credit memo from a supplier for a purchase return – 8,100
Traveler’s check – 21,000
Money order – 12,900
Petty Cash Fund (3,000 in currency and expense receipts of 12,000) – 15,000

What amount would be reported as “Cash and Cash Equivalents” in the statement of financial
position on December 31, 2019?

a. P840,050
b. P873,900
c. P849,400
d. P861,900 (x)

5. On December 31, 2019, the cash account of POSEIDON COMPANY shows the following composition:

Petty cash fund – 30,000

Cash in back (payroll fund) – 2,000,000
Postage stamps – 150,000
Interest and dividend fund – 250,000
Tax fund – 120,000
Cash in bank (current account) – 3,000,000
Certificate of deposit (terms 90 days) – 1,000,000
Cash in foreign bank (restricted) – 500,000
Money market fund (6 months) – 900,000
Customer’s check dated February 15, 2020 – 60,000
Customer’s check dated December 31, 2019 returned for lack of funds – 40,000
30-day BSP treasury bill – 1,000,000
A 3-year BSP treasury bill acquired 3 months prior to maturity – 1,200,000
Sinking fund cash – 800,000
Insurance fund – 200,000
Fund for the acquisition of a long-lived asset – 500,000
Traveler’s check – 60,000
Manager’s check – 100,000

What is the correct cash and cash equivalents balance to be reported by Poseidon Company on
December 31, 2019?
a. P3,200,000
b. P5,560,000
c. P8,760,000 (x)
d. P9,260,000
 CHILE CO. reported incomes of P505,000 and P387,000 for the years ended December 31, 2018 and
2019, respectively. However, the auditor noted that the following errors had been made:

 Sales for 2018 included amounts of P191,000 which had been received in cash during 2018,
but for which the related goods were shipped in 2019. Title did not pass to the buyer until
2019.

 The inventory on December 31, 2018, was understated by P43,200.

 Ordinary repairs to equipment had been erroneously charged to the Equipment account
during 2018 and 2019. Repairs of P42,500 and P47,000 had been incurred in 2018 and 2019,
respectively. In determining depreciation charges, Chile applies a rate of 10% to the balance in
the Equipment account at the end of the year.

6. What is the corrected income for

2018? a. P303,200
b. P225,350
c. P311,700
d. P318,950 (x)
7. What is the corrected income for
2019? a. P488,950
b. P480,000
c. P496,750 (x)
d. P572,850

8. On December 31, 2019, APHRODITE COMPANY’s “cash” account balance per ledger of
P3,600,000 includes:

Demand deposit – 1,500,000

Certificate of deposit (30 days) – 500,000
NSF check of customer – 20,000
Money market placement (due date: June 30, 2020) – 1,000,000
Savings deposit in closed bank – 50,000
IOU from an employee – 30,000
Pension fund – 400,000
Petty cash fund – 10,000
Customer’s check dated January 31, 2020 – 60,000
Customer’s check outstanding for 18 months – 30,000

Additional information:
 Check of 100,000 in payment of accounts payable was recorded on December 31, 2019
but mailed to creditors on January 15, 2020
 Check of 50,000 dated January 31, 2020 in payment of accounts payable was recorded
and mailed December 31, 2019
 The company uses the calendar year. The cash receipts journal was held open until January
15, 2020, during which time, 200,000 was collected and recorded on December 31, 2019

How much “cash and cash equivalents” should be shown on the December 31, 2019 balance
sheet? a. P1,960,000 (x)
b. P2,050,000
c. P2,160,000
d. P2,360,000
 The following balances have been excerpted from Chlorine’s Statement of Financial Position for the
year:

Accounts receivable, decrease 100,000

Merchandise inventory, decrease 25,000
Accounts payable, decrease 200,000
Notes receivable-trade, increase 100,000
Rental receivables, increase 14,000
Unearned rental income, decrease 40,000
Prepaid interest, decrease 5,500
Interest payable, increase 8,500
Additional data:
Accounts receivable written off 10,000
Cash received from customers 4,200,000
Cash paid to creditors 2,800,000
Sales discounts 30,000
Sales returns and allowances 20,000
Purchase discounts 40,000
Purchase returns 10,000
Cash received from tenants 400,000
Interest paid 100,000

9. What is the amount of gross sales?

a. P4,110,000
b. P4,160,000
c. P4,210,000
d. P4,260,000 (x)

10. What is the amount of gross

purchases? a. P3,000,000
b. P3,050,000
c. P2,600,000
d. P2,650,000 (x)

11. What is the amount of the cost of sales for the

year? a. P2,625,000 (x)
b. P2,575,000
c. P2,675,000
d. P2,725,000

On January 1, 2019, JIMA Co. sold office equipment with an original cost of P1,000,000 and
accumulated depreciation of 150,000 in exchange for a 3-year, 10% stated interest P2,000,000 note
receivable. Principal is due on December 31, 2021 but interest is due annually every December 31.
The prevailing interest rate for this type of note is 12%.

12. How much is the gain or loss on sale of office equipment in

2019? a. P1,903,960
b. P1,053,960 (x)
c. P903,960
d. P1,051,730
13. How much is the interest income for
2019? a. P200,000
b. P228,475 (x)
 c. P235, 704
d. P114,104
14. How much is the carrying amount (net) of the note on December 31, 2019?
a. P1,932,435 (x)
b. P1,964,327
c. P2,000,000
d. P1,915,834

The petty cash fund of HADES TRADING at the end of the fiscal year ended September 30, 2019 is
composed of the following:

Currencies and coins

10 pcs of P100
8 pcs of 50
5 pcs of 20
Replenishment check dated September 15, 2019 – 3,500
Paid vouchers for expenses and loans dated September 16-30, 2019 (unreplenished)
Supplies – 1,200
Postage stamps – 300
Loans to employees – 1,500
Unused supplies – 120
Check drawn by office manager marked NSF – 2500
Check drawn by employee dated October 5, 2019 – 500
Envelope containing cash donations for the departed parent of one employee (currencies attached) –
1,500

The general ledger balance of the imprest petty cash fund at September 30, 2019 is 17,500.

15. How much is the correct petty cash fund balance on September 30, 2019?
a. P1,500
b. P5,500
c. P5,000 (x)
d. P11,500
16. How much is the cash shortage or overage?
a. P6,380 shortage
b. P6,380 overage
c. P6,500 shortage (x)
d. P6,500 overage

17. The following information was taken from the record of CROCODILE BOUTIQUE for the month
of December:

Sales – 198,000
Sales return – 4,000
Additional markups – 20,000
Markup cancellations – 3,000
Markdowns – 18,600
Markdown cancellations – 5,600
Freight-in – 4,800
Purchases at cost – 96,000
Purchases at retail – 176,000
Purchase returns at cost – 4,000
 Purchase returns at retail – 6,000
Beginning Inventory at cost – 60,000
Beginning Inventory at retail – 93,000

What is the cost of Crocodile’s ending inventory under the retail inventory (average cost)
method? a. 40,880
b. 43,070 (x)
c. 51,296
d. 43,500

18. At December 31, 2018, the balance in Zebra’s Inventory account was P502,000, and the Allowance
for Inventory Writedown had a balance of P32,000. The relevant inventory cost and market data
at December 31, 2019, are summarized in the schedule below

Cost Replacement Sales Price Net Realizable Normal Profit

Cost Value
Guitars 89,000 86,000 91,500 87,000 6,400
Xylophones 94,000 92,000 93,000 85,000 7,440
Trumpets 125,000 135,000 129,000 111,000 11,610
Violins 194,000 114,000 205,000 197,000 20,500
Total 502,000 427,000 518,500 480,000 45,950

What is the proper balance in the Allowance for Inventory Writedown at December 31,
2019? a. 75,000
b. 22,000
c. 32,000
d. 25,000 (x)

19. Synzer Co. has incurred the following costs in connection with its purchase of inventory:

Purchase price based on vendor’s invoice – 1,250,000

Trade discounts on purchases already deducted from vendor’s invoice – 125,000
Salaries of accounting department – 150,000
Brokerage commission paid to agents for arranging imports – 50,000
Sales commission paid to sales agents – 75,000
After-sales warranty costs – 62,500
Import duties – 100,000
Freight and insurance on purchases – 250,000
Other handling costs relating to imports – 25,000

What is the total cost of the

purchases? a. 1,425,000
b. 1,550,000
c. 1,675,000 (x)
d. 1,625,000

20. Data relating to consignment transactions during December 2019 of Desiree Co. are as follows:

Inventory shipped on consignment to Lomasoc Company – 360,000

Freight paid by Desiree – 18,000
Inventory received on consignment from Killase Company – 240,000
 Freight paid by Desiree – 10,000

What amount should be included as consigned inventory on December 31,

2019? a. 240,000
b. 250,000
c. 360,000
d. 378,000 (x)

Brenalyn Co. entered into a purchase commitment on March 31, 2019 to purchase raw materials.
These materials are to be delivered on April 30, 2020. The contract price and the market prices for
these materials are as follows:

Contract price – 1,200,000

Market price, 12/31/19 – 1,000,000
Market price, 4/30/20 – 1,400,000

21. How much is to be recognized as loss on purchase commitment on December 31, 2019?
a. Nil
b. 200,000 (x)
c. 400,000
d. 600,000
22. On April 30, 2020, time of delivery, how much should the company record the raw materials?
a. 1,200,000 (x)
b. 1,000,000
c. 1,400,000
d. 1,600,000

23. Hayaan Mo Sila Construction purchased a crane on January 1, 2016, for 102,750. At the time of
purchase, the crane was estimated to have a life of six years and a residual value of 6,750. In 2018,
Hayaan Mo Sila determined that the crane had a total useful life of seven years and a residual value
of 4,500. If Hayaan Mo Sila uses the straight-line method of depreciation, what will be the
depreciation expense for the crane in 2018?
a. 16,000
b. 13,250 (x)
c. 9,464
d. 8,000

24. A truck that cost 8,000 was originally being depreciated over 4 years using the straight-line method
with no salvage value. If after one year, it was decided that the truck would last an additional 4
years (or a total of 5 years), the 2nd year’s depreciation would be
a. 2,000
b. 1,000
c. 1,500 (x)
d. 2,500

25. The following information appears in Jasper Company’s records for the year ended December 31:

Inventory, January 1 – 650,000

Purchases – 2,300,000
 Purchase returns – 80,000
Freight in – 60,000
Sales – 3,400,000
Sales discounts – 20,000
Sales returns – 30,000

On December 31, a physical count revealed that the ending inventory was only 420,000. Jasper’s
gross profit on net sales has remained constant at 30% in recent years. Jasper suspects that some
inventory may have been pilfered by one of the company’s employees. On December 31, what is the
estimated cost of missing inventory?

a. 151,000 (x)
b. 165,000
c. 420,000
d. 585,000

26. Josiah Co. acquired a new machine. Details of the acquisition are as follows:

Purchase price including 12% VAT – 1,568,000

Cost of water device to keep machine cool – 8,000
Cost of safety rail and platform surrounding machine – 12,000
Installation cost, including site preparation and assembling – 20,000
Fees paid to consultants for advice on acquisition of the machinery – 13,000
Present value of the estimated dismantling cost of the new machine – 10,000
Repair cost of the machine damaged while in the process of installation – 5,000
Loss on premature retirement-old machine – 18,000
Other nonrefundable sales tax – 13,000
Cost of training for personnel who will use the machine – 25,000
Cost of removing old machine – 10,000

Determine the cost of the

Machinery. a. 1,476,000 (x)
b. 1,420,000
c. 1,422,000
d. 1,644,000

27. The Aldrin Merchandising Co. uses the retail inventory method. Information relating to
the computation of the inventory at December 31, is as follows:

Cost Retail
Inventory, January 1 70,000 100,000
Purchases 292,500 400,000
Net markups 75,000
Net markdowns 25,000
Sales 375,000

What would be the estimated cost of the ending inventory using FIFO
retail? a. 113,750 (x)
b. 118,750
c. 115,500
d. 110,250
 28. At the start of its business. Aral Aral Lang Corp. decided to use the composite method of
depreciation and prepared the following schedule of machinery owned

Total Cost Estimated Salvage Estimated Life in Years

Value
Machine A 275,000 25,000 20
Machine B 100,000 10,000 15
Machine C 20,000 - 5

Aral Aral Lang computes depreciation on the straight-line method. Based on the information
presented, the composite life of these assets (in years) should be

a. 13.30
b. 16.00 (x)
c. 18.00
d. 19.80

29. Overberg Company purchased a machine on January 2, 2017, for 1,000,000. The machine has an
estimated useful life of 5 years and a salvage value of 100,000. Depreciation was computed by
the 150% declining-balance method. The accumulated depreciation balance at December 31,
2018, should be
a. 360,000
b. 459,000
c. 490,000
d. 510,000 (x)

30. Joe Corporation bought a machine on January 1, 2017. In purchasing the machine, the company paid
50,000 cash and signed an interest-bearing note for 100,000. The estimated useful life of the machine
is 5 years, after which time the salvage value is expected to be 15,000. Given this information, how
much depreciation expense would be recorded for the year ending December 31, 2018 if Joe uses the
sum-of-the-years digits depreciation method?
a. 45,000
b. 40,000
c. 36,000 (x)
d. 34,000