1st Semester 2021-2022

Prepared by: Dr. Catherine O. Aquino, CPA

Auditing Problem

NAME: DATE: SCORE:

Problem 1. You observed the inventory count of the Solamin Company as of December 31,
2017. The client prepared the summary presented below and gave it to you for verification:
Quantity Cost Market Amount

A 360 units 3.60/doz. 3.64/doz. 1,310.40

B 24 units 4.70 each 4.80 each 112.80

C 28 units 16.50 each 16.50 each 1,353.00

D 43 units 5.15 each 5.20 each 176.80

E 400 units 9.10 each 8.10 each 3,640.00

F 70 dozen 2.00 each 2.00 each 140.00

G 95 grosses 144.00/gross 132.00/gross 13,780.00

Questions:
1. You determined from your examination that the proper value for Item A should be:
a. 1,250
b. 1,296
c. 1,526
d. 108
2. You have also determined that the value for Item E is:
a. Correct
b. 3,200
c. 3,240
d. 3,280
3. Based on your findings, Item c should be valued at:
a. 12,380
b. 12,540
c. 13,680
d. 462
4. Based on your working papers, the proper value of the inventory as of December 31,
2017 is:
a. 18,364.25
b. 19,604.25
c. 20,513.20
d. 20,315.00
 1st Semester 2021-2022
Prepared by: Dr. Catherine O. Aquino, CPA
Auditing Problem

Problem 2. Your client furnished you with the following data:

Merchandise inventory, January 1 60,000.00

Purchases, January 01 to October 31 415,000.00

Purchases returns and allowances 5,000.00

Transportation in 10,000.00

Sales, January 01 to October 31, at 35% above 540,000.00

cost

• Using the gross profit test, what was the estimated loss in inventory due to the fire?
a. 38,000
b. 60,000
c. 80,000
d. None of these

Problem 3. On September 30, 2017 a fire at Niala Company’s only warehouse caused severe
damage to its entire inventory. Based on recent history, Niala has a gross profit of 30% of net
sales. The following information is available from Niala’s records for the nine months ended
September 30, 2017:
Inventory at 1/1/17 550,000.00
Purchases 3,000,000.00
Net Sales 4,000,000.00
• A physical inventory disclosed usable damaged goods which Niala estimates can be sold
to a jobber for 50,000. Using the gross profit method, the estimated cost of goods sold
for the nine months ended September 30, 2017 should be?
a. 2,050,000
b. 2,485,000
c. 2,750,000
d. 2,800,000

Problem 4. On May 21, 2017, a fire destroyed the entire merchandise inventory on hand of
Trugo Corporation. The following information is available:
Sales, January 01 through May 02, 2017 - 360,000 Inventory, January
01, 2017 - 80,000 Merchandise purchases, January 01 through
May 02, 2017 (including 40,000 of
Goods in transit on May 02, 2017
Shipped F.O.B shipping point) - 330,000
Mark-up percentage on cost - 20% • What is the estimated inventory on May
02, 2017 immediately prior to the fire? a. 70,000
b. 82,000
 c. 110,000
d. 122,000

1st Semester 2021-2022

Prepared by: Dr. Catherine O. Aquino, CPA
Auditing Problem

Problem 5. Having been engaged as external auditor of Mactal Company on February 28,
2018, you were unable to observe the taking on inventory on December 31, 2017, which was
reported to amount to 360,000. Thee following data, however, were gathered by you:
Inventory, December 31, 2016 320,000
Purchases during 2017 1,410,000
Cash sales during 2017 350,000
Shipment received on December 26, 2017, included
in physical inventory, but not recorded as purchases 10,000
Deposits made with suppliers, entered as purchases
Goods were not received in 2017 20,000
Collections on accounts receivable, 2017 1,800,000
Accounts receivable, January 01, 2017 250,000
Accounts receivable, December 31, 2017 300,000
Gross profit percentage of sales 40%

• The estimated inventory shortage on December 31, 2017 was?

a. 40,000
b. 50,000
c. 60,000
d. 70,000

Problem 6. The owner of a trading company engaged your services as auditor. There is a
discrepancy between the company’s income and the sales volume. The owner suspects that the
staff is committing theft. You are to determine whether this is true. Your investigations
revealed the following:
➢ Physical inventory, taken December 31, 2017 under your observation, showed that cost
was 26,500 and market value, 25,000. The inventory of January 01, 2017 showed cost
of 39,000 and market value of 37,500. It is the firm’s practice to value inventory at
“lower of cost or market”. Any loss between cost and market value is included on
“other expenses”.
➢ The average gross profit rate was 40% of net sales.
➢ The accounts receivable as of January 01, 2017 were 13,500. During 2017, accounts
receivable written off during the year amounted to 1,000. Accounts receivable as of
December 31, 2017 were 37,500.
➢ Outstanding purchase invoices amounted to 50,000 at the end of 2017. At the
beginning of 2017 they were 37,500.
➢ Receipts from customers during 2017 amounted to 300,000.
➢ Disbursement to merchandise creditors amounted to 200,000.
Questions:
1. The total sales for 2017 is:
a. 277,000
b. 300,000
c. 324,000
d. 325,000
 1st Semester 2021-2022
Prepared by: Dr. Catherine O. Aquino, CPA
Auditing Problem

2. The total purchases for 2017 is:

a. 187,500
b. 200,000
c. 212,500
d. 325,000
3. The amount of inventory shortage is:
a. 30,000
b. 30,600
c. 45,000
d. 95,000

Problem 7. Goma company is a manufacturer of small tools. The following information was
obtained from the company’s accounting records for the year ended December 31, 2014:
Inventory on December 31, 2014 (based on
physical count in Goma’s warehouse at cost
on December 31, 2014) 1,870,000
Accounts payable on December 31, 2014 1,415,000
Net sales (sales less sales returns) 9,693,400

Your audit reveals the following information:

➢ The physical count included tools billed to a customer FOB shipping point on
December 31, 2014. These tools cost 64,000 and were billed at 78,500. They were in
the shipping area waiting for to be picked up by the customer.
➢ Goods shipped FOB shipping point by a vendor were in transit on December 31, 2017.
These goods with invoice cost of 93,000 were shipped on December 29, 2014. ➢ Work in
process inventory costing 27,000 was sent to a job contractor for further processing.
➢ Not included in the physical count were goods returned by customers on December 31,
2014. These goods costing 49,000 were inspected and returned to inventory on
January 07, 2015. Credit memos for 67,800 were issued to the customers at that date.
➢ In transit to a customer on December 31, 2014, were tools costing 17,000 shipped FOB
shipping point on December 26, 2014. A sales invoice for 29,400 was issued on
January 03, 2015, when Goma company was notified by the customer that the tools
had been received.
➢ At exactly 5:00pm on December 31, 2014, goods costing 31,200 were received from a
vendor. These were recorded on a receiving report dated January 02, 2015. The related
invoice was recorded on December 31, 2014, but the goods were not included in the
physical count.
➢ Included in the physical count were goods received from a vendor on December 27,
2014. However, the related invoice for 36,000 was not recorded because the
accounting department’s copy of the receiving report was lost.
➢ A monthly freight bill for 32,000 was received on January 03, 2015. Its specifically
related to merchandise bought in December 2014, one-half of which was still in the
inventory on December 31, 2014. The freight was not included in either the inventory
or in accounts payable on December 31, 2014.
 1st Semester 2021-2022
Prepared by: Dr. Catherine O. Aquino, CPA
Auditing Problem

Questions:
1. Goma’s December 31, 2014, inventory should be increased by?
a. 216,200
b. 233,200
c. 252,200
d. 123,200
2. Goma’s accounts payable balance on December 31, 2014, should be?
a. 68,000
b. 145,000
c. 125,000
d. 161,000
3. The amount of net sales to be reported on Goma’s income statement for the year ended
December 31, 2014, should be?
a. 9,547,100
b. 9,576,500
c. 9,591,000
d. 9,595,300
4. Goma’s statement of financial position on December 31, 2014, should report accounts
payable of?
a. 1,576,000
b. 1,483,000
c. 1,540,000
d. 1,431,000
5. The amount of inventory to be reported on Goma’s December 31, 2014, statement of
financial position should be.
a. 2,103,200
b. 2,086,200
c. 2,122,200
d. 1,993,200

Problem8. Frilles Company is a wholesale distributor of kitchen utensils. Unadjusted balances

obtained from Frilles’s accounting record are as follows:
Inventory (based on physical count of goods
in Frilles’s warehouse on December 31) 432,000

Accounts payable, December 31:

Vendor Terms Amount
Zonrox, Inc. Net 30 36,000
Yeba Corp. Net 30 28,000
Xak, Inc., Net 30 83,000
Wais Co., Net 30 -
Velma, Inc., Net 30 147,000 Sales 2,600,000

The following additional information was also obtained:

 1st Semester 2021-2022
Prepared by: Dr. Catherine O. Aquino, CPA
Auditing Problem

➢ Goods held on consignment from Zonrox, Inc., the consignor, valued at 13,000 wre
included in the physical count of goods in Frilles’s warehouse on December 31, and
in Accounts Payable balance as of December 31, 2014.
➢ Good costing 26,400 that were purchased from Wais Co. and paid for in December
were sold in the last week of the current year. The sale was properly recorded at
58,000 in December. Because the goods were in the shipping area of Frilles’s
warehouse to be picked up by the customer, they were included in the physical count
on December 31.
➢ Retailers were holding goods costing 25,000 (retail price is 35,700) shipped by
Frilles under consignment term.
➢ Goods were in transit from Velma, Inc. to Frilles on December 31. The cost of these
goods was 23,500, and they were shipped FOB shipping point on December 28.

Based on the preceding information, compute the adjusted balances of the following:
1. Inventory
a. 417,600
b. 416,100
c. 467,500
d. 441,100
2. Accounts Payable
a. 134,00
b. 136,500
c. 157,500
d. 170,500
3. Sales
a. 2,600,000
b. 2,635,700
c. 2,564,300
d. 2,625,000
Problem 9: Cagalitan Corporation, a manufacturer of small tools, provided the following
formation from its accounting records for the year ended December 31, 2015: Inventory on
December 31, 2015 (based on physical count of
Goods in Cagalitan’s plant at cost on December 31, 2015) 1,1750,000
Accounts payable on December 31, 2015 1,200,000 Net sales (sales less sales
returns) 8,500,000

Additional information is as follows:

➢ Included in the physical count were tools billed to a customer FOB shipping point on
December 31, 2015. These tools had a cost of 28,000 and had been billed at 35,000.
The shipment was on Cagalitan’s loading dock waiting to be picked up by the
common carrier.
➢ Goods were on transit from a vendor to Cagalitan on December 31, 2015. The invoice
cost was 50,000 and the goods were shipped FOB shipping point on December 29,
2015.
➢ Work-in-process inventory costing 20,000 was sent to an outside process on December
29, 2015.
 1st Semester 2021-2022
Prepared by: Dr. Catherine O. Aquino, CPA
Auditing Problem

➢ Tools returned by customers and held pending inspection in the returned goods area on
December 31, 2015, were not included in the physical count. On January 08, 2016, the
tools costing 26,000 were inspected and returned to inventory. Credit memos totaling
40,000 were issued to the customers on the same date.
➢ Tools shipped to a customer FOB destination on December 26, 2015, were in transit on
December 31, 2015, and had a cost of 25,000. Upon notification of receipt by the
customer on January 02, 2016, Cagalitan issued a sales invoice for 42,000.
➢ Goods, with an invoice cost 30,000, received from a vendor at 5:00 pm on December
31, 2015, were recorded on a receiving report dated January 02, 2016. The goods were
not included in the physical count, but the invoice was included in accounts payable on
December 31, 2015.
➢ Goods received from a vendor on December 26, 2015, were included in the physical
count. However, the related 60,000 vendor invoice was not included in accounts
payables on December 31, 2015, because the accounts payable copy of the receiving
report was lost.
➢ On January 03, 2016, a monthly freight bill in the amount of 4,000 was received. The
bill specifically related to merchandise purchased in December 2015, one-half of
which was still in the inventory on December 31, 2015. The freight charges were not
included in either the inventory or in accounts payable on December 31, 2015.

Required: Prepare a schedule of adjustments as of December 31, 2015, to the initial amounts
per Cagalitan’s accounting records. Show separately the effect, if any, of each of the eight
transactions on the December 31, 2015, amounts. If the transactions would have no effect on
the initial amount shown, state NONE.

Inventory Accounts Payable Net Sales

Initial amounts 4
Adjustments – increase (decrease) 5
1 6
2 7
3 P1,750,000 P1,200,000 P8,500,000

8 ___________ ___________ ___________ Total adjustments _________

___________ __________ Adjusted amounts P__________ P__________
P__________
 1st Semester 2021-2022
Prepared by: Dr. Catherine O. Aquino, CPA
Auditing Problem

Problem 10. Arrabis Corporation began operations in 2009. On July 15, 2014, a fire broke out
in the company’s warehouse destroying all inventory and many accounting records. The
following information was assembled from the microfilmed records. All sales and purchases
are on account.
January 01, 2014 July 15, 2014
Inventory 287,700 257,780
Accounts Receivable 261,180 245,700
Accounts Payable 176,280 245,700
Collections from customers,
Jan. 01, 2014 – July 15, 2014 1,507,000 Payment to suppliers,
Jan. 01, 2014 – July 2014 975,000 Goods out on consignment on
July 15, 2014, at cost 97,500 Goods in transit on July 15, 2014,
purchased FOR shipping point
(included in the July 15 accounts
payable balance) 34,750

The following is a summary of prior years’ sales and gross profit on sales:
2011 2012 2013
Sales 1,252,000 1,410,000 1,360,000 Gross Profit 375,600 366,600 462,400

Questions:
1. What is the company’s average gross profit ration based on its prior years’ sales?
a. 26%
b. 34%
c. 30%
d. 29%
2. What is the company’s total sales for the period January 01 through July 15 of the
current year?
a. 1,504,200
b. 1,511,000
c. 1,765,380
d. 1,768,780
3. What is the company’s total purchases for the period January 01 through 15 of the
current year?
a. 905,580
b. 912,170
c. 1,044,420
d. 1,009,670
4. What is the company’s estimated inventory on July 15, 2014, before the fire?
a. 186,605
b. 244,430
c. 146,930
d. 279,180

1st Semester 2021-2022

Prepared by: Dr. Catherine O. Aquino, CPA
Auditing Problem

5. What is the inventory fire loss?

a. 146, 930
b. 186,605
c. 132,250
d. 112,180