AcPa12 ‘COMPREHENSIVE PROBLEM You were assigned to audit the financial statements of ISAIAH Company for the year ended December 31, 2020. The fieldwork has been completed and you are now going over your audit findings to summarize your potential adjustments. The client is willing to accept all the necessary adjustments in order for the financial statements to be presented fairly in conformity with generally accepted accounting principles, ‘The following data were taken from your current working papers. Cash account consists of the following items: Petty cash fund P 10,000 PBCom checking account (25,000) PNB current account 137,700 Total per GL 132,700 a. The count of the cashier's accountability on January 2, 2021, revealed total currency and coins of 3,600. Unreplenished vouchers for various expenses totaled P6,400, of which P1,200 pertains to January 2021 b. On December 29, 2020, a check for P35,000 was drawn against PBCom current account resulting in bank overdraft of 15,000. The check was picked up by the supplier on January 3, 2021. c. Bank reconciliation statement prepared by the cashier for the PNB account follows: Bank balance 124,200 Add: Deposit in transit P 24,500 Bank service charges 500 25,000 Total 149,200, Less: Outstanding checks Check No. Amount 567 P1,000 © 589 8,300 617 2,400 626 3,400 11,500 Book balance 137,700 ® Check certified by the bank in December 2020, All reconciling items were traced to the bank statement. Further investigation indicated that the deposits in transit include a customer's post-dated check amounting to P16,000. The check represents a collection from ‘account customer for sales made in the middle of October 2020, Your review of the client’s internal control points out many weaknesses. Accordingly, you did not perform tests of controls and you relied heavily on substantive procedures, Confirmation replies received directly from customers disclosed the following exceptions: Confirmation No. Customer's Comments 5 ‘The goods sold on December 1 were Audit Findings The client failed to record credit (uvert) returned on December 16, 2020. memo no. 23 for P12,000. The merchandise was included in the ending inventory at cost. 15 We do not owe this amount *%#@ Investigation revealed that goods sold (Walter) (bad word). We did not receive any for P16,000 were shipped to Walter merchandise from your company. ‘on December 29, 2020, terms FOB shipping point. The goods were lost in transit and the shipping company hasAcPa12 ‘COMPREHENSIVE PROBLEM 21 (Trinx) 23 (Harley) 34 (Sushi) 67 (Tope) From the schedule of accounts receivable as of December 31, 2020, you determined that this account includes the following: I am entitled to a 10% employee discount. Your bill should be reduced by P1,200. ‘We have not yet sold the goods. We will remit the proceeds as soon as the goods are sold. We do not owe you P20,000. We already paid our accounts as. evidenced by OR # 1234. Reduce your bill by P1,500 Accounts with debit balances: acknowledged its responsibility for the lost of the merchandise. Trinx is an employee of ISAIAH Starting November 2020, all company ‘employees were entitled to a special discount. Merchandise billed for P18,000 were consigned to Harley on December 30, 2020. The goods cost P13,000. ‘The sale of merchandise on December 18, 2020 was paid by Sushi on January 6, 2021. This amount represents freight paid by the customer for the merchandise shipped on December 17, 2020, terms, FOB destination-collect. 60 days old and below 238,500 61 to 90 days, 117,200 Over 90 days 85,400 441,100 Advances to officers 16,400 Accounts with credit balance (15,000) Accounts receivable per GL 442,500 The credit balance in customer’s account represents collection from a customer whose account had been written-off as uncollectible in 2019. Accounts receivable for more than a year totaling P21,000 should be written off. Based on your discussion with Mark, ISAIAH’ Credit Manager, you both agreed that an allowance for doubtful accounts should be maintained using the following rates: 60 days old and below 1% 61 to 90 days 2% Over 90 days 5% The client determines its ending inventory by conducting @ physical count at December 31 of each year. Compilation of physical inventory disclosed that tag numbers 143, 144, and 145 were not included in the inventory list. Further investigation revealed the following: 200 units costing P8 per unit 800 units costing P15 per unit. Goods are held on consignment from Lian Co. Cancelled tag Your review of purchase transactions made a few days before and after December 31, 2020 revealed the following:AcPa12 ‘COMPREHENSIVE PROBLEM a. Merchandise costing P8,000 was received on January 3, 2021. The related invoice was received and recorded on January 5, 2021. The invoice showed that the shipment was made by the vendor on December 27, 2020; FOB destination. b. Merchandise with a cost of P'14,000 was received on December 31, 2020 and the invoice was not recorded, The invoice was discovered at the Purchasing Officer's desk and was stamped "On Consignment” from Kolokoy Company. ©. Merchandise received on January 3, 2021 costing P17,000 was entered in the voucher register on the same day. Shipment was made by the vendor FOB shipping point on December 31, 2020. ‘An analysis of 2020 transactions affecting the FAFVTOCI Securities and related accounts follows: FAFVTOCI Securities Jan, 01 Balance P 240,000 Jan. 02 Purchased 10,000 Helios Co. common shares 250,000 July 01 Purchased P100,000,12% face value Luna Co. bonds 100,000 Sept.08 Purchased 500 ISAIAH Co.’s shares 6,000 Dec. 31 Balance 596,000 a. The January 1 balance represents the cost of 10,000 shares of Helios Co.’s common stock acquired on January 2, 2019. b. On January 2, 2020, ISAIAH purchased 10,000 additional shares of Helios Co.’s common stock for 250,000 when the book value of Helios’s stockholders’ equity was P2,500,000. From Helios Company's financial statements, you were able to obtain the following information: 2019 2020 Net income 100,000 250,000 Dividends 2 170,000 There are no other stockholders’ equity transactions that transpired in 2019 or 2020 for Helios Company other than the above information. At the end of 2020, the Helios Co.’s common share was selling at P26 per share while ISAIAH Co.'s stock was selling at P15 per share. d. Other income includes dividend of P34,000 received from Helios Co. in 2020. e. The client does not intend to hold Luna bonds to maturity. The bonds pay interest semi-annually on July Land January 1. Maturity date is 4 years from the date of purchase. The Luna bonds were selling at par at December 31, 2020. Examination of the equipment and related accumulated depreciation account revealed the following: EQUIPMENT 01/01/2020 Balance P 640,000 04/01/2020 Proceeds from sale of equipment (20,000) 07/01/2020 Cash paid to acquire new equipment 70,000 08/30/2020 Repair of equipment 5,000 12/31/2020 Balance 705,000 ‘Accumulated Depreciation 01/01/2020 Balance P 340,000 12/31/2020 Depreciation ~ 2020 141,000AcPa12 ‘COMPREHENSIVE PROBLEM 12/31/2020 Balance a. On April 1, an equipment costing P50,000, with a carrying value of P20,000 on the date of sale was sold for P10,000. b. Old equipment was traded-in for new equipment with a market value of P75,000. The old equipment ‘was bought for P60,000. The carrying value of this equipment on January 1, 2020 was PS,000. . Annual depreciation is computed at 20%. Salvage values of equipment are immaterial. Examination of subsequent disbursements revealed that expenses for telephone, electricity, and water in 2020 totaling P32,000 were not recorded in the books. On November 2, 2020, ISAIAH Company issued P400,000 face value bonds. The bonds, which will mature on January 1, 2010, pay interest of 12% every January 1. The bonds were issued to give the bondholders a 14% yield. From the minutes of the board of directors’ meetings, you gathered the following information: ‘a. During the year 2020, the company issued 10,000 shares of its P10 par value common stock for P12 ‘each. The entire amount was credited to the common stock account. b. On December 31, 2020, the board of directors declared a 10% stock dividend to stockholders on record as of January 16, 2021 distributable on January 31, 2021. Presented on the next page are the unadjusted balances taken from the working trial balance.AcPa12 ‘COMPREHENSIVE PROBLEM ISAIAH Company December 31, 2020 cash Accounts receivable Allowance for doubtful accounts Interest receivable Advances to officers and employees Inventory FAFVTOCI securities Investment in Associate Equipment Accumulated depreciation Accounts payable Accrued expenses Bank overdraft Customers’ credit balance Interest payable Bonds payable Discount on bonds payable Common stock, P10 par Stock dividends distributable Additional paid-in capital Retained earnings Treasury stocks Net sales Cost of sales Other income Investment income Operating expenses Other expenses Finance cost Debit 132,700 442,500 367,200 596,000 705,000 525,400 276,900 3,045,700 Credit 15,000 481,000 168,175 28,600 416,000 670,000 80,000 90,975 1,053,500 42,450 3,045,700