ACC 140 Auditing and Assurance: Concepts and Applications 1

FINAL COMPREHENSIVE EXAM

Name: _________________________________________ Class number: _________________

Section: _________ Schedule: ______________________ Date: _________________________

GENERAL DIRECTIONS
READ THIS PAGE BEFORE STARTING THE ASSESSMENT

This is an 18-paged multiple-choice test and has a total score of sixty-five (65) points. You have
eighty (80) Minutes to finish this examination.

All things unnecessary for the test must be put in front of LEARNING OBJECTIVE:
the testing area. Use BLACK or BLUE ink ballpen only. Write
all your answers on the designated answer sheet. Further, This assessment measures the
erasures are strictly NOT allowed and will invalidate your competence of the student in
answers. terms of his/her application of
knowledge and skills in Auditing
You may NOT use smart phones or reference materials and Assurance: Concepts and
during the testing session. Only the allowed calculators should Applications 1 (ACC 140).
be used.

Try to answer all questions. In general, if you have some knowledge about a question, it is better to
try to answer it. You will not be penalized for guessing.

Be sure to allocate your time carefully so you can complete the entire test within the exam session.
You may go back and review your answers at any time during the exam session.

Those who are caught cheating or doing acts not allowed during the exam shall be instructed to surrender
their test papers and shall leave the testing room immediately. Subsequently, their papers shall be rated
as ZERO.

This concludes the instruction page.

You may now begin answering.

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 ACC 140 Auditing and Assurance: Concepts and Applications 1
FINAL COMPREHENSIVE EXAM

Name: _________________________________________ Class number: _________________

Section: _________ Schedule: ______________________ Date: _________________________

1. The engagement partner should take responsibility for the direction, supervision, and
performance of the audit engagement in compliance with professional standards and regulatory and legal
requirements, and for the auditor’s report that is issued to be appropriate in circumstances. Supervision
includes the following, except
A. Tracking the progress of the audit engagement.
B. Addressing significant issues arising during the audit engagement, considering their significance,
and modifying the planned approach appropriately.
C. Informing the members of the engagement team of their responsibilities.
D. Identifying matters for consultation or consideration by ore expected engagement team members
during the audit engagement.

2. For audits of financial statements of listed entities, the engagement partner should
A. Determine that an engagement quality control reviewer has been appointed.
B. Discuss significant matters arising during the audit engagement, including those identified during
the engagement quality control review, with the engagement quality control reviewer.
C. Not issue the auditor’s report until the completion of the engagement quality control review.
D. All of the above.

3. The engagement letter documents and confirms the

A B C D
• Auditor’s acceptance of the appointment Yes Yes Yes Yes
• Objective and scope of the audit Yes No Yes Yes
• Extent of the auditor’s responsibilities to the client No Yes No Yes
• Form of any reports Yes No No Yes

4. Which of the following statements would least like appear in an auditor’s engagement letter?
A. Fees for our services based on our regular per diem rates, plus travel and other out-of-pocket
expenses
B. Management is responsible for making all financial records and related information available to
us.
C. Our engagement is subject to the risk that material errors or fraud, if they exist, will not be
detected.

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 ACC 140 Auditing and Assurance: Concepts and Applications 1
FINAL COMPREHENSIVE EXAM

Name: _________________________________________ Class number: _________________

Section: _________ Schedule: ______________________ Date: _________________________

D. After performing our preliminary analytical procedures, we will discuss with you the other
procedures we consider necessary to complete the engagement.

5. The auditor may accept the or continue an audit engagement only when the basis upon which it
is to be performed has been agreed, through
I. Establishing whether the preconditions for an audit are present.
II. Confirming that there is a common understanding between the auditor and management and,
where appropriate, those charged with governance of the terms of the audit engagement.

A. I only
B. II only
C. Both I and II
D. Neither I nor II

6. After considering a client’s internal control, an auditor has concluded that the system is well
designed and is functioning as anticipated. Under these circumstances, the auditor would most likely
A. Cease to perform further substantive tests
B. Not increase the extent of planned substantive tests
C. Increase the extent of anticipated analytical procedures
D. Perform all tests of controls to the extent outlined in the pre-planned audit program.

7. After considering the internal control, an auditor might decide to

A. Increase the extent of tests of controls and substantive tests in areas where internal control is
strong
B. Increase the extent of substantive tests in areas where internal control is weak
C. Reduce the extent of tests of controls in areas where internal control is strong
D. Reduce the extent of both substantive tests and tests of controls in areas where internal control
is strong

8. The auditor would most likely assess control risk at a high level when
A. It would be efficient to perform test of control
B. The entity’s accounting and internal control systems are not reliable.
C. The auditor wishes to rely on the entity’s accounting and internal control systems.
D. The auditor wants to restrict substantive tests.

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 ACC 140 Auditing and Assurance: Concepts and Applications 1
FINAL COMPREHENSIVE EXAM

Name: _________________________________________ Class number: _________________

Section: _________ Schedule: ______________________ Date: _________________________

9. When control risk is assessed at high level, the auditor should document his

Understanding of Conclusion that Basis for concluding that

the internal control control risk is at a control risk is at high
components high level
A. Yes Yes Yes
B. Yes Yes No
C. Yes No No
D. No Yes No

10. The auditor will perform tests of controls when controls are initially assessed as
Low Moderate High
A. Yes Yes Yes
B. Yes No Yes
C. No Yes No
D. Yes Yes No

11. Which of the following types of audit evidence is the most persuasive?
A. Prenumbered purchase order forms.
B. Client worksheets supporting cost allocations.
C. Bank statements obtained from the client.
D. Client representation letter.

12. Which of the following generalizations does not relate to the appropriateness of evidence?
A. Audit evidence from external sources (for example, confirmation received from a third party) is
more reliable than that generated internally.
B. An auditor’s opinion, to be economically useful, is formed within reasonable time and based on
evidence obtained at a reasonable cost.
C. Audit evidence generated internally is more reliable when the related accounting and internal
control systems are effective.
D. Audit evidence obtained directly by the auditor is more reliable than that obtained from the entity.

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 ACC 140 Auditing and Assurance: Concepts and Applications 1
FINAL COMPREHENSIVE EXAM

Name: _________________________________________ Class number: _________________

Section: _________ Schedule: ______________________ Date: _________________________

13. Each of the following might, by itself, form a valid basis for an auditor to decide to omit a test
except for the
A. Difficulty and expense involved in testing a particular item.
B. Assessment of control risk at a low level.
C. Inherent risk involved.
D. Relationship between the cost of obtaining evidence and its usefulness.

14. In which of the following circumstances would the use of the negative form of accounts receivable
confirmation most likely be justified?
A. A substantial number of accounts may be in dispute and the accounts receivable balance arises
from sales to a few major customers.
B. A substantial number of accounts may be in dispute and the accounts receivable balance arises
from sales to many customers with small balances.
C. A small number of accounts may be in dispute and the accounts receivable balance arises from
sales to a few major customers.
D. A small number of accounts may be in dispute and the accounts receivable balance arises from
sales to many customers with small balances.

15. Which of the following statements is correct concerning the use of negative confirmation
requests?
A. Unreturned negative confirmation requests rarely provide significant explicit evidence.
B. Negative confirmation requests are effective when detection risk is low.
C. Unreturned negative confirmation requests indicate that alternative procedures are necessary.
D. Negative confirmation requests are effective when understatements of account balances are
suspected.

16. Which of the following most likely would give the most assurance concerning the valuation and
allocation assertion of accounts receivable?
A. Vouching amounts in the subsidiary ledger to details on shipping documents.
B. Comparing receivable turnover ratios with industry statistics for reasonableness.
C. Inquiring about receivables pledged under loan agreements.
D. Assessing the allowance for uncollectible accounts for reasonableness.

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 ACC 140 Auditing and Assurance: Concepts and Applications 1
FINAL COMPREHENSIVE EXAM

Name: _________________________________________ Class number: _________________

Section: _________ Schedule: ______________________ Date: _________________________

17. Confirmation is “the process of obtaining and evaluating a direct communication from a third party
in response to a request for information about a particular item affecting financial statement
assertions.” Two assertions for which confirmation of accounts receivable balances provides
primary evidence are
A. Completeness and valuation
B. Valuation and rights and obligations
C. Rights and obligations and existence
D. Existence and completeness

18. To gain assurance that all inventory items in a client’s inventory listing schedule are valid, an
auditor most likely would vouch
A. Inventory tags noted during the auditor’s observation to items listed in the inventory listing
schedule.
B. Inventory tags noted during the auditor’s observation to items listed in receiving reports and
vendors’ invoices.
C. Items listed in the inventory listing schedule to inventory tags and the auditor’s recorded count
sheets.
D. Items listed in receiving reports and vendors’ invoices to the inventory listing schedule.

19. An auditor selected items for test counts while observing a client’s physical inventory. The auditor
then traced the test counts to the client’s inventory listing. This procedure most likely obtained
evidence concerning management’s assertion of
A. Rights and obligations C. Existence
B. Completeness D. Valuation

20. Which of the following is an audit procedure that an auditor most likely would perform concerning
litigation, claims, and assessments?
A. Request the client’s lawyer to evaluate whether the client’s pending litigation, claims, and
assessments indicate a going concern problem.
B. Examine the legal documents in the client’s lawyer’s possession concerning litigation, claims, and
assessments to which the lawyer has devoted substantive attention.
C. Discuss with management its policies and procedures adopted for evaluating and accounting for
litigation, claims, and assessments.

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 ACC 140 Auditing and Assurance: Concepts and Applications 1
FINAL COMPREHENSIVE EXAM

Name: _________________________________________ Class number: _________________

Section: _________ Schedule: ______________________ Date: _________________________

D. Confirm directly with the client’s lawyer that all litigation, claims, and assessments have been
recorded or disclosed in the financial statements.

26. Financial statements prepared in accordance with a financial reporting framework designed to
meet the financial Information needs of specific users are referred to as
A. Special purpose financial statements
B. Special purpose framework
C. General purpose financial statements
D. Specific purpose financial statements

27. An auditor's report on financial statements prepared in accordance with the financial reporting
provisions of a contract (that is, a special purpose framework) to comply with the provisions of
that contract should include all of the following, except
A. An opinion as to whether the financial statements are presented fairly, in all material respects, in
accordance with the financial reporting provisions of the contract.
B. A statement that indicates the basis of accounting used.
C. An opinion as to whether the basis of accounting used is appropriate under the circumstances.
D. Reference to the note to the financial statements that describes the basis of presentation.

28. A CPA is permitted to accept a separate engagement (not in conjunction with an audit of financial
statements) to audit an entity's
Schedule of Schedule of
Accounts Receivable Profit Participation
A. Yes No
B. No Yes
C. Yes Yes
D. No No

29. An auditor may express an opinion on an entity's accounts receivable balance even if the auditor
has disclaimed an opinion on the financial statements taken as a whole provided the

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 ACC 140 Auditing and Assurance: Concepts and Applications 1
FINAL COMPREHENSIVE EXAM

Name: _________________________________________ Class number: _________________

Section: _________ Schedule: ______________________ Date: _________________________

A. Report on the accounts receivable is presented separately from the disclaimer of opinion on the
financial statements.
B. Auditor also reports on the current asset portion of the entity's statement of financial position.
C. Use of the report on the accounts receivable is restricted.
D. Report on the accounts receivable discloses the reason for the disclaimer of opinion on the
financial statements.

30. In the auditor's report on Summary Financial statements that are derived from an entity's audited
financial statements, a CPA should indicate that the
A. CPA has audited and expressed an opinion on the complete financial statements.
B. CPA expresses limited assurance that the financial statements are presented in accordance with
PFRS.
C. Summary financial statements are not fairly presented in all material respects.
D. Summary financial statements are prepared in accordance with special purpose financial reporting
framework.

31. In the confirmation of accounts receivable, the auditor would most likely
A. Request confirmation of a sample of the inactive accounts.
B. Seek to obtain positive confirmations for at least 50% of the total peso amount
of the receivables.
C. Require confirmation of all receivables from agencies of the government.
D. Require that confirmation requests be sent within 1 month of the fiscal year-end.

32. Negative confirmation of accounts receivable is less effective than positive confirmation of
accounts receivable because
A. A majority of recipients usually lack the willingness to respond objectively.
B. Some recipients may report incorrect balances that require extensive follow-up.
C. The auditor cannot infer that all nonrespondents have verified their account information.
D. Negative confirmations do not produce evidence that is statistically quantifiable.

33. To reduce the risks associated with accepting fax responses to requests for confirmations of
accounts receivable, an auditor most likely would

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 ACC 140 Auditing and Assurance: Concepts and Applications 1
FINAL COMPREHENSIVE EXAM

Name: _________________________________________ Class number: _________________

Section: _________ Schedule: ______________________ Date: _________________________

A. Examine the shipping documents that provide evidence for the existence assertion.
B. Verify the sources and contents of the faxes in telephone calls to the senders
C. Consider the faxes to be nonresponses and evaluate them as unadjusted differences.
D. Inspect the faxes for forgeries or alterations and consider them to be acceptable if none
are noted.

34. An auditor who has confirmed accounts receivable may discover that the sales journal was held
open past year-end if
A. Positive confirmations sent to debtors are not returned
B. Negative confirmations sent to debtors are not returned.
C. Most of the returned negative confirmations indicate that the debtor owes a larger balance than
the amount being confirmed.
D. Most of the returned positive confirmations indicate that the debtor owes a smaller balance
than the amount being confirmed.

35. Which of the following is the greatest drawback of using subsequent collections evidenced
only by a deposit slip as an alternative procedure when responses to positive accounts receivable
confirmations are not received?
A. Checking subsequent collections can never be used as an alternative auditing
procedure.
B. By examining a deposit slip only, the auditor does not know whether the payment is for the
receivable at the balance sheet date or a subsequent transaction.
C. A deposit slip is not received directly by the auditor
D. A customer may not have made a payment on a timely basis.

Wabwab Company engaged you to examine its books and records for the fiscal year ended June
30, 2020. The company’s accountant has furnished you not only the copy of trial balance as of June 30,
2020 but also the copy of company’s balance sheet and income statement as at said date. The following
data appears in the cost of goods sold section of the income statement:

Inventory, July 1, 2019 P 125,000

Purchases 900,000
Goods available for sale 1,025,000
Inventory, June 30, 2020 175,000

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 ACC 140 Auditing and Assurance: Concepts and Applications 1
FINAL COMPREHENSIVE EXAM

Name: _________________________________________ Class number: _________________

Section: _________ Schedule: ______________________ Date: _________________________

Cost of goods sold P850,000

The beginning and ending inventories of the year were ascertained thru physical count except that no
reconciling items were considered. Even though the books have been closed, your working paper trial
balance show all account with activity during the year. All purchases are FOB shipping point. The
company is on a periodic inventory basis.

In your examination of inventory cut-offs at the beginning and end of the year, you took note of the
following:
July 1, 2019
a. June invoices totaling to P32,500 were entered in the voucher register in June. The
corresponding goods not received until July.
b. Invoices totaling P13,500 were entered in the voucher register in July but the goods received
during June.

June 30, 2020

c. Invoices with an aggregate value of P46,500 were entered in the voucher register in July, and
the goods were received in July. The invoices, however, were date June.
d. June invoices totaling P18,500 were entered in the voucher register in June but the goods were
not received until July.
e. Invoices totaling P27,000 ( the corresponding goods for which were received in June) were
entered the voucher register, July.
f. Sales on account in the total amount of P44,000 were made on June 30 and the goods delivered
at that time. However, book entries relating to the sales were made in July.
QUESTIONS:
Based on the above and the result of your cut-off tests, answer the following:
36. How much is the adjusted Inventory as of July 1, 2019?
a. P125,000 b. P157,500 c. P144,000 d. P92,500

37. How much is the adjusted Purchases for the fiscal year ended June 30, 2020?
a. P973,500 b. P960,000 c. P900,000 d.P978,500
38. How much is the adjusted Inventory as of June 30, 2020?
a. P196,000 b. P223,000 c. P240,000 d. P125,000

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 ACC 140 Auditing and Assurance: Concepts and Applications 1
FINAL COMPREHENSIVE EXAM

Name: _________________________________________ Class number: _________________

Section: _________ Schedule: ______________________ Date: _________________________

39. How much is the adjusted Cost of goods sold for the fiscal year ended June 30, 2020?
a. P877,500 b. P829,000 c. P992,500 d. P891,000

40. The necessary compound adjusting journal entry as of June 30, 2020 would include:
a. A debit to Inventory, 6/30/20 of P21,000.
b. A debit to Purchases of P73,500.
c. A credit to Retained Earnings of P32,500.
d. A credit to Vouchers Payable of P73,500.

41. The auditor of Number Block Company on adoption of PAS 41 has reclassified certain assets as
biological assets. The total value of the forest assets is P6,000,000 which comprises:

Freestanding trees 5,100,000

Land under trees 600,000
Roads in forests _ 300,000
6,000,000

In Number Block Company's statement of financial portion, how much of the forest assets shall be
classified as biological assets?
a. P5,100,000 c. P5,400,000
b. P5,700,000 d. P6,000,000

42. WAPWAP Company is a producer of coffee. The auditor is considering the valuation of its
harvested coffee beans. Industry practice is to value the coffee beans at market value and uses as
reference a local publication "Accounting for Successful Farms".

On December 31, 2020, the entity has harvested coffee beans costing P3,000,000 and with fair value
less cost to sell of P3,500,000 at the point harvest.

Because of long aging and maturation process after harvest, the harvested coffee beans were still on
hand on December 31,2020. On such date, the fair value less cost to sell is P3,900,000 and the net
realizable value is P3,200,000.

The coffee beans inventory shall be measured at

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 ACC 140 Auditing and Assurance: Concepts and Applications 1
FINAL COMPREHENSIVE EXAM

Name: _________________________________________ Class number: _________________

Section: _________ Schedule: ______________________ Date: _________________________

a. 3,000,000 c. 3,200,000
b. 3,500,000 d. 3,900,000

Use the following information for the next two questions.

Rizal Lite Company provided the following data to its auditor:

Value of biological asset at acquisition cost on December 31,2019 P

600,000
Fair valuation surplus on initial recognition at fair value on December 31, 2019 700,000
Change in fair value to December 31, 2020 due to growth and price fluctuation 100,000
Decrease in fair value due to harvest 90,000

43. What is the carrying amount of the biological asset on December 31, 2020?
a. 1,400,000 c. 1300,000
b. 1,310,000 d. 1,490,000
44. What is the gain from change in fair value of biological asset that should be shown in the 2020 income
statement?
a. 100,000 c. 710,000
b. 800,000 d. 10,000

45. Majo Company provided the following data:

Value of biological asset at acquisition cost on

December 31, 2019 600,000
Fair valuation surplus on initial recognition at
Fair value on December 31, 2019 700,000
Change in fair value to December 31, 2020 due
To growth and price fluctuation 100,000
Decrease in fair value due to harvest 90,000

What is the gain from changing in fair value of biological asset that should be reported in the 2020 income
statement?

a. 100,000

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 ACC 140 Auditing and Assurance: Concepts and Applications 1
FINAL COMPREHENSIVE EXAM

Name: _________________________________________ Class number: _________________

Section: _________ Schedule: ______________________ Date: _________________________

b. 800,000
c. 710,000
d. 10,000

46. In auditing inventories, a major objective relates to the existence assertion. Of the following audit
procedures relating to inventories, which does not support the existence assertion?
a. The auditor reviews the client's inventory-taking instructions for such matters as proper arrangement
of goods, separation of consigned goods, and limits on movements of goods during inventory.
b. The auditor observes the client's inventory and performs test counts as appropriate.
c. The auditor confirms inventories not on the premises.
d. The auditor performs a lower of cost or market test for major categories of inventory.

47. In a manufacturing company, which one of the following audit procedures would give the least
assurance of the valuation of inventory at the audit date?
a. Obtaining confirmation of inventories pledged under loan agreements.
b. Testing the computation of standard overhead rates.
c. Examining paid vendors' invoices.
d. Reviewing direct labor rates.

48. When auditing merchandise inventory at year end, the auditor performs a purchase cutoff test to
obtain evidence that
a. No goods held on consignment for customers are included in the inventory balance.
b. No goods observed during the physical count are pledged or sold.
c. All goods owned at year end are included in the inventory balance
d. All goods purchased before year end are received before the physical inventory count.

49. Which of the following items should not be included in a physical inventory?
a. Materials in transit from vendors.
b. Goods in a private warehouse.
c. Goods received for repairs under warranty.
d. Consignment to an agent.

50. You were engaged to conduct an annual examination for the fiscal year ended October 31, 2020.
Because of the expected holiday, you were able to convince your client to take a complete physical

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 ACC 140 Auditing and Assurance: Concepts and Applications 1
FINAL COMPREHENSIVE EXAM

Name: _________________________________________ Class number: _________________

Section: _________ Schedule: ______________________ Date: _________________________

inventory, in which you were present on October 15. Perpetual inventory records are kept and the client
considers a sale to be made in the period in which goods are shipped. You had a sales cutoff test
worksheet prepared. Which item among those listed below will not require an adjusting entry to reconcile
the client's detailed inventory record with the physical inventory?
a. b. c. d.
Date Goods Shipped Oct 31 Nov 2 Oct 14 Oct 10
Transaction Recorded as Sale Nov 2 Oct 31 Oct 16 Oct 19
Date Inventory Control Credited Oct 31 Oct 31 Oct 16 Oct 12

PROBLEM 1
On January 1, 2020 Lablab Corp. acquired 30,000 shares of Bebe Corp's 100,000 shares outstanding
for P5,000,000. The book value of Bebe's identifiable net assets on this date was at P14M. All its assets
carrying value approximated their fair values except for a depreciable assets with a remaining life of 5
years, which was undervalued on this date by P1.6M.

Bebe reported total comprehensive income in 2020 at P4,000,000 which was net of a foreign exchange
loss reported in as other comprehensive toss at P800,000. Bebe also paid dividends at P1.5M at the end
of the year. P500,000 of which is from pre-acquisition Retained Earnings. The fair market value of shares
on this date was at P210 per share.

Requirements:
51. What is the carrying value of Lablab's Investment in Bebe shares as of December 31, 2020 using the
appropriate accounting standards?
a. 5,654,000 c. 5,990,000
b. 5,750,000 d. 5,894,000

52. Assuming that Lablab Corp. is a medium-sized entity and that the company uses the fair value method
in accounting for its investment in Bebe, how much in total should be recognized in Lablab Corp.'s profit
or loss for 2020?
a. 1,750,000 c. 1,300,000
b. 450,000 d. 300,000

53. Assuming that Lablab Corp. sold 18,000 shares of its Bebe shares investment on December 31, 2020
at its prevailing fair value, how much in total should be recognized in the profit or loss as a result of the

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 ACC 140 Auditing and Assurance: Concepts and Applications 1
FINAL COMPREHENSIVE EXAM

Name: _________________________________________ Class number: _________________

Section: _________ Schedule: ______________________ Date: _________________________

transaction?
a. 387,600 c. 406,000
b. 646,000 d. 243,600

54. Using the information in the previous tem, how much shall be the carrying value of any remaining
investments as of December 31, 2020?
a. 2,357,600 c. 2,300,000
b. 2,520,000 d. 2,261,600

55. Assuming that Bebe issued 25,000 shares to other stockholders on December 31, 2020 at prevailing
fair value without Lablab Corp's participation, how much should be recognized in the profit or loss as a
result of the transaction/event?
a. 81,200 c. 129,200
b. 196,200 d. None

56. A continuing audit client's property, plant and equipment and accounts receivable accounts have
approximately the same year-end balance. In this circumstance, when compared to property, plant and
equipment one would normally expect the audit of accounts receivable to require:
a. More audit time.
b. Less audit time.
c. Approximately the same amount of audit time.
d. Similar confirmation procedures.

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 ACC 140 Auditing and Assurance: Concepts and Applications 1
FINAL COMPREHENSIVE EXAM

Name: _________________________________________ Class number: _________________

Section: _________ Schedule: ______________________ Date: _________________________

57. When comparing an initial audit with a subsequent year audit for a particular client, the scope of
audit procedures for which of the following accounts would be expected to decrease the most?
a. Accounts receivable.
b. Cash.
c. Marketable securities.
d. Property, plant and equipment.

58. When performing an audit of the property, plant and equipment accounts, an auditor should expect
which of the following to be most likely to indicate a departure from generally accepted accounting
principles?
a. Repairs have been capitalized to repair equipment that had broken down.
b. Interest has been capitalized for self-constructed assets.
c. Assets have been acquired from affiliated corporations with the related transactions recorded and
described in the financial statements.
d. The cost of freight-in on an acquisition has been capitalized.

59. The most likely technique for the current year audit of goodwill which was acquired three years ago
by a continuing audit client:
a. Confirmation.
b. Observation.
c. Recomputation.
d. Inquiry.

60. For which of the following accounts is it most likely that most of the audit work can be performed in
advance of the balance sheet date?
a. Accounts receivable.
b. Cash.
c. Current marketable securities.
d. Property, plant and equipment.

PROBLEM 2: At December 31, 2017, certain accounts included in the property, plant, and equipment
section of the SPEED COMPANY's statement of financial position had the following balances:

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 ACC 140 Auditing and Assurance: Concepts and Applications 1
FINAL COMPREHENSIVE EXAM

Name: _________________________________________ Class number: _________________

Section: _________ Schedule: ______________________ Date: _________________________

Land P 3,000,000
Buildings 24,000,000
Leasehold improvements 3,500,000
Machinery and equipment 1,400,000

During 2018 the following transactions occurred:

Land site number 621 was acquired for P2,000,000. Additionally to acquire the land, Speed paid a
P60,000 commission to a real estate agent. Costs of P15,000 were incurred to clear the land for the
intended use but not to make room for the construction of a new building. During the course of clearing
the land, timber and gravel were recovered and sold for P5,000.

A second tract of land (site number 622) with a building was acquired from another entity in exchange for
100,000 Speed ordinary shares. On the acquisition date, the shares had a dosing market price of P45
on a stock exchange. Current appraised values for the land and building, respectively, are P1,200,000
and P2,400,000. Shortly after acquisition, the building was demolished at a cost of P30,000 to make room
for the construction of new building. A new building was constructed for P10,500,000 plus the following
costs:

Excavation fees P110,000

Architectural design fees 380,000
Building permit fee 10,000
Imputed interest on funds used during construction 60,000

The building was completed and occupied on September 30, 2018.

A third tract of land (site number 623) was acquired for P6,000,000 and was dassified as held for sale.

Extensive work was done to a building occupied by Speed under a lease agreement that expires on
December 31, 2025. The total cost of the work was P1,250,000, which consisted of the following:

Painting of ceilings P100,000 estimated useful life is one year Her

Electrical work 350,000 estimated useful life is ten years
Construction of extension to current

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 ACC 140 Auditing and Assurance: Concepts and Applications 1
FINAL COMPREHENSIVE EXAM

Name: _________________________________________ Class number: _________________

Section: _________ Schedule: ______________________ Date: _________________________

working area 800,000 estimated useful life is 30 years 1007

The lessor paid one-half of the costs incurred in connection with the extension to the current working
area.

During December 2018, costs of P650,000 were incurred to improve leased office space. The related
lease will terminate on December 31, 2020 and is not expected to be renewed.

A group of new machines was purchased under a royalty agreement which provides for payment of
royalties based on units of production for the machines. The invoice price of the machines was P750,000,
freight costs were P20,000, unloading charges were P15,000, and royalty payments for 2018 were
P130,000.

Questions:
61. What is the December 31, 2018, balance of the Land account that should be shown as part of
property, plant, and equipment in the statement of financial position?
a. P6,270,000 b. P6,470,000 c. P6,570,000 d. P12,570,000

62. What is the total cost of buildings on December 31, 2018?

a. P35,000,000 b. P35,030,000 c. P35,040,000 d. P37,430,000

63. What is the total cost of leasehold improvements on December 31, 2018?
a. P4,250,000 b. P4,900,000 c. P5,000,000 d. P5,300,000

64. What is the total cost of machinery and equipment on December 31, 2018?
a. P2,170,000 b. P2,185,000 c. P2,315,000 d. P2,415,000

65. How much should be reported as part of expenses (excluding depreciation) in the income statement
for the year ended December 31, 2018?
a. P130,000
b. P190,000
c. P230,000
d. P290,000

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