UGRD-ACTG6481 Auditing and Assurance

Concepts and Application 1

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Started on Tuesday, 15 August 2023, 9:23 PM

State Finished
Completed on Tuesday, 15 August 2023, 10:09 PM
Time taken 45 mins 22 secs
Grade 49.00 out of 50.00 (98%)
Question 1
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Which of the following control procedures would most likely be used to maintain accurate
perpetual inventory records?

Select one:

a.
Independent storeroom count of goods received.

b.
Independent matching of purchase orders, receiving reports, and vendors' invoices.

c.
Periodic independent reconciliation of control and subsidiary records.
d.
Periodic independent comparison of records with goods on hand.
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Question 2
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Proper authorization procedures in the revenue/receipt cycle usually provide for approval of
write-offs by an employee in which of the following departments?

Select one:

a.
Sales

b.
Billing

c.
Accounts receivable

d.
Treasurer
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Question 3
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The adjusted trial balance of Galimuyod Company as of December 31, 2017 shows the
following:

Debit Credit
Accounts receivable P1,000,000
Allowance for bad debts P40,000

Additional information:

· Cash sales of the company represents 10% of gross sales.

· 90% of the credit sales customers do not take advantage of the 2/10, n/30 terms.
· It is expected that cash discount of P6,000 will be taken on accounts receivable outstanding
at December 31, 2018.
· Sales returns in 2018 amounted to P400,000. All returns were from charge sales.
· During 2018, accounts totaling to P44,000 were written off as uncollectible; bad debt
recoveries during the year amounted to P3,000.
· The allowance for bad debts is adjusted so that it represents certain percentage of the
outstanding accounts receivable at year end. The required percentage at December 31, 2018 is
150% of the rate used on December 31, 2017.
Based on the above and the result of your audit, the accounts receivable as of December 31, 2018
is

Select one:

a.
P 300,000

b.
P 333,333
c.
P2,444,000

d.
P3,000,000
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Question 4
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An auditor has accounted for a sequence of inventory tags and is now going to trace information
on a representative number of tags to the inventory summary sheets. Which assertion does this
procedure relate to most directly?
Select one:

a.
legality

b.
completeness

c.
valuation

d.
existence
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Question 5
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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?

Select one:

a.
Reviewing direct labor rates.

b.
Testing the computation of standard overhead rates

c.
Examining paid vendors' invoices.

d.
Obtaining confirmation of inventories pledged under loan agreements
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Question 6
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The auditor tests the quantity of materials charged to work in process by tracing these quantities
to
Select one:

a.
Materials requisition forms

b.
Perpetual inventory records

c.
Receiving reports

d.
Cost ledgers
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Question 7
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An auditor who wishes to substantiate the gross balance of the account "Trade Notes Receivable"
is considering the advisability of performing the four procedures listed below. Which pair of
procedures is best suited to this objective?
I. Age the receivables.
II. Confirm the notes with the makers.
III. Inspect the notes.
IV. Trace a sample of postings from the sales journal to the notes receivable ledger.

Select one:

a.
I and II
b.
I and III

c.
I and IV

d.
II and III
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Question 8
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In connection with your audit of the Salcedo Corporation, you noted that the company’s Notes
Receivable consists of the following:

a. A 4-month note dated November 30, 2018, from AA Company, P200,000; interest rate,
16%; discounted on November 30, 2018 at 16%.

b. A draft drawn payable 30 days after for P900,000 by the BB Company on the Charlie
Company in favor of the Delta Company, endorsed to Salcedo Corp. on December 2, 2018 and
accepted on December 4, 2018.

c. A 90-day note dated November 1, 2018 from E. Dy, P500,000; interest at 16%; the note is
for subscription to 5,000 shares of the preferred stock of Salcedo Corp. at P100 per share.

d. A 60-day note dated May 3, 2018, from CC Company, P600,000; interest rate, 16%;
dishonored at maturity; judgment obtained on October 10, 2018. Collection within the next
twelve months is doubtful.

e. A 90-day note dated January 4, 2018, from Apol Bobads, president of Salcedo, P160,000; no
interest; note not renewed; president confirmed.
f. A 120-day note dated September 14, 2018, from DD Company, P120,000; interest rate,
16%; note is held by bank as collateral.
Based on the above and the result of your audit, the adjusted balance of Notes Receivable as of
December 31, 2018 is

Select one:

a.
P1,020,000

b.
P 900,000

c.
P2,480,000

d.
P1,220,000
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Question 9
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After accounting for a sequence of inventory tags, an auditor traces a sample of tags to the
physical inventory listing to obtain evidence that all items:
Select one:

a.
represented by inventory tags are included in the listing.

b.
included in the listing are represented by inventory tags.

c.
included in the listing have been counted.

d.
represented by inventory tags are bona fide.
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Question 10
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Tracing bills of lading to sales invoices provides evidence that

Select one:

a.
Shipments to customers were invoiced.

b.
Shipments to customers were recorded as sales.

c.
Recorded sales were shipped.

d.
Invoiced sales were shipped.
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Question 11
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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?

Select one:

a.
The auditor observes the client's inventory and performs test counts as appropriate.

b.
The auditor performs a lower of cost or market test for major categories of inventory.

c.
The auditor confirms inventories not on the premises.

d.
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.
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Question 12
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When auditing merchandise inventory at year end, the auditor performs a purchase cutoff test to
obtain evidence that

Select one:

a.
No goods held on consignment for customers are included in the inventory balance.

b.
All goods purchased before year end are received before the physical inventory count.

c.
No goods observed during the physical count are pledged or sold.

d.
All goods owned at year end are included in the inventory balance

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Question 13
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Unless otherwise identified, the notes receivable of the Quirino Company on December 31,
2018, were trade notes receivable. On this date the balance of the account, P3,036,915, consisted
of the following notes all received during the calendar year under audit:

Maker Date Term Rate Amount Remarks

A Co. Oct. 1 6 mos. 18% P 57,416Four notes to settle past due
Oct. 1 12 mos. 18% 100,000account. Current billings are
on a 10 – day credit basis.
Oct. 1 18 mos. 18% 100,000
Oct. 1 24 mos. 18% 100,000
B Co. July 1 36 mos. 18% 500,000This note is for a cash loan
made to this customer. No
interest has been collected to
date.
C Co. Oct. 1 4 mos. 15% 251,636All interest collected on Oct. 1.
Mr. Pogi Feb. 1 Demand 18% 1,000,000Loan approved in minutes
(Company book, Jan. 20. On Aug. 1 this
President) note was pledged as collateral
for a bank loan P500,000.
D Co. Nov. 1 12 mos. 15% 546,387Interest payable at maturity
E, Inc. Dec. 10 90 days 18% Interest payable at maturity
381,476
P3,036,915

All of the above notes are considered good except that of A Company which is somewhat
doubtful. An allowance of 25% should be established against the notes receivable of this
company.
Based on the above and the result of your audit, compute the Adjusted balance of Trade Notes
Receivable as of December 31, 2018.

Select one:
a.
P 927,863

b.
P1,536,915

c.
P1,179,499

d.
P2,036,915

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Question 14
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Which of the following procedures would an auditor most likely rely on to verify management's
assertion of completeness?

Select one:

a.
Observe the client's distribution of payroll checks.

b.
Review standard bank confirmations for indications of kiting.
c.
Confirm a sample of recorded receivables by direct communication with the debtors.

d.
Compare a sample of shipping documents to related sales invoices.

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Question 15
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Unless otherwise identified, the notes receivable of the Quirino Company on December 31,
2018, were trade notes receivable. On this date the balance of the account, P3,036,915, consisted
of the following notes all received during the calendar year under audit:

Maker Date Term Rate Amount Remarks

A Co. Oct. 1 6 mos. 18% P 57,416Four notes to settle past due
Oct. 1 12 mos. 18% 100,000account. Current billings are
on a 10 – day credit basis.
Oct. 1 18 mos. 18% 100,000
Oct. 1 24 mos. 18% 100,000
B Co. July 1 36 mos. 18% 500,000This note is for a cash loan
made to this customer. No
interest has been collected to
date.
C Co. Oct. 1 4 mos. 15% 251,636All interest collected on Oct. 1.
Mr. Pogi Feb. 1 Demand 18% 1,000,000Loan approved in minutes
(Company book, Jan. 20. On Aug. 1 this
President) note was pledged as collateral
Maker Date Term Rate Amount Remarks
for a bank loan P500,000.
D Co. Nov. 1 12 mos. 15% 546,387Interest payable at maturity
E, Inc. Dec. 10 90 days 18% Interest payable at maturity
381,476
P3,036,915

All of the above notes are considered good except that of A Company which is somewhat
doubtful. An allowance of 25% should be established against the notes receivable of this
company.
Based on the above and the result of your audit, compute the Net realizable value of Trade Notes
Receivable as of December 31, 2018.
Select one:

a.
P1,090,145

b.
P 838,509

c.
P1,447,561

d.
P1,947,561
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Question 16
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To best ascertain that a company has properly included merchandise that it owns in its ending
inventory, the auditors should review and test the:
Select one:

a.
purchase invoices received on or around year end.

b.
terms of the open purchase orders.

c.
contractual commitments made by the purchasing department.

d.
purchase cutoff procedures
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Question 17
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Which source document should an auditor use to verify the correct sales date for an item sold
FOB shipping point?
Select one:

a.
Customer's payment document

b.
Sales invoice

c.
Carrier's bill of lading
d.
Customer's purchase order
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Question 18
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Otso Manufacturing Corporation mass produces eight different products. The controller, who is
interested in strengthening internal controls over the accounting for materials used in production,
would be most likely to implement

Select one:

a.
A job order cost accounting system.

b.
An economic order quantity (EOQ) system.

c.
A separation of duties among production personnel.

d.
A perpetual inventory system
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Question 19
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Purchase cutoff procedures should be designed to test that merchandise is included in the
inventory of the client company, if the company:
Select one:

a.
has paid for the merchandise.

b.
has physical possession of the merchandise.

c.
holds legal title to the merchandise.

d.
holds the shipping documents for the merchandise issued in the company's name.
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Question 20
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Tracing copies of computer-prepared sales invoices to copies of the corresponding computer-
prepared shipping documents provides evidence that
Select one:

a.
shipments to customers were properly billed.
b.
no duplicate shipments to customers were made.

c.
sales billed to customers were actually shipped.

d.
entries in the accounts receivable subsidiary ledger were for sales actually shipped.
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Question 21
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An auditor performs a test to determine whether all merchandise for which the client was billed
was received. The population for this test consists of all:
Select one:

a.
canceled checks

b.
vendor's invoices

c.
receiving reports

d.
merchandise received
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Question 22
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Inquiries of warehouse personnel concerning possible obsolete or slow-moving inventory items
provide assurance about management's assertion of:
Select one:

a.
valuation

b.
rights and obligations

c.
existence

d.
completeness
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Question 23
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The auditors will usually trace the details of the test counts made during the observation of the
physical inventory taking to a final inventory schedule. This audit procedure is undertaken to
provide evidence that items physically present and observed by the auditors at the time of the
physical inventory count are:
Select one:

a.
not obsolete

b.
included in the final inventory schedule

c.
owned by the client

d.
physically present at the time of the preparation of the final inventory schedule.
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Question 24
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To gather audit evidence about the proper credit approval of sales, the auditor would select a
sample of documents from the population represented by the

Select one:

a.
Sales invoice file

b.
Bill of lading file

c.
Customer order file

d.
Subsidiary customers' accounts ledger
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Question 25
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The negative form of accounts receivable confirmation request is particularly useful except when

Select one:

a.
Internal control surrounding accounts receivable is considered to be effective.

b.
A large number of small balances are involved.

c.
The auditor has reason to believe the persons receiving the request are likely to give them
consideration.

d.
Individual account balances are relatively large.

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Question 26
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Which of the following items should not be included in a physical inventory?

Select one:

a.
Materials in transit from vendors.

b.
Consignment to an agent.

c.
Goods in a private warehouse.

d.
Goods received for repairs under warranty.

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Question 27
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An auditor performs a test to determine whether all merchandise for which the client was billed
was received. The population for this test consists of all:
Select one:

a.
merchandise received

b.
vendor's invoices

c.
canceled checks

d.
receiving reports
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Question 28
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In verifying debits to perpetual inventory records of a non-manufacturing firm, the auditor would
be most interested in examining the purchase
Select one:

a.
journal

b.
orders

c.
requisitions
d.
invoices
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Question 29
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An auditor is testing sales transactions. One step is to trace a sample of debit entries from the
accounts receivable subsidiary ledger back to the supporting sales invoices. What would the
auditor intend to establish by this step?

Select one:

a.
All sales invoices have been recorded.

b.
Debit entries in the accounts receivable subsidiary ledger are properly supported by sales
invoices.

c.
Sales invoices represent bona fide sales.

d.
All sales invoices have been properly posted to customer accounts.

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Question 30
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In auditing a manufacturing entity, which of the following procedures would an auditor least
likely perform to determine whether slow-moving, defective, and obsolete items included in
inventory are properly identified?
Select one:

a.
tour the manufacturing plant or production facility.

b.
test the computation of standard overhead rates.

c.
compare inventory balances to anticipated sales volume.

d.
review inventory experience and trends.
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Question 31
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To measure how effectively a client employs its assets, an auditor calculates inventory turnover
by dividing the average inventory into:
Select one:
a.
operating income

b.
cost of goods sold

c.
net sales

d.
gross sales
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Question 32
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In determining validity of accounts receivable, which of the following would the auditor consider
most reliable?

Select one:

a.
Credits to accounts receivable from the cash receipts book after the close of business at year end

b.
Confirmation replies received directly from customers

c.
Documentary evidence that supports the accounts receivable balance
d.
Direct telephone communication between auditor and debtor.

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Question 33
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The auditor tests the quantity of materials charged to work in process by tracing these quantities
to
Select one:

a.
receiving reports

b.
perpetual inventory records

c.
material requisitions

d.
cost ledgers
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Question 34
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Unless otherwise identified, the notes receivable of the Quirino Company on December 31,
2018, were trade notes receivable. On this date the balance of the account, P3,036,915, consisted
of the following notes all received during the calendar year under audit:

Maker Date Term Rate Amount Remarks

A Co. Oct. 1 6 mos. 18% P 57,416Four notes to settle past due
Oct. 1 12 mos. 18% 100,000account. Current billings are
on a 10 – day credit basis.
Oct. 1 18 mos. 18% 100,000
Oct. 1 24 mos. 18% 100,000
B Co. July 1 36 mos. 18% 500,000This note is for a cash loan
made to this customer. No
interest has been collected to
date.
C Co. Oct. 1 4 mos. 15% 251,636All interest collected on Oct. 1.
Mr. Pogi Feb. 1 Demand 18% 1,000,000Loan approved in minutes
(Company book, Jan. 20. On Aug. 1 this
President) note was pledged as collateral
for a bank loan P500,000.
D Co. Nov. 1 12 mos. 15% 546,387Interest payable at maturity
E, Inc. Dec. 10 90 days 18% Interest payable at maturity
381,476
P3,036,915

All of the above notes are considered good except that of A Company which is somewhat
doubtful. An allowance of 25% should be established against the notes receivable of this
company.
Based on the above and the result of your audit, compute the Interest income for the year ended
December 31, 2018.
Select one:

a.
P243,749
b.
P 43,185

c.
P253,185

d.
P208,185
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Question 35
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On January 1, 2018, Sinait Company loaned P3,000,000 to Ilocos Company. The terms of the
loan were payment in full on January 1, 2023, plus annual interest payments at 11%. The
interest payment was made as scheduled on January 1, 2019; however, due to financial setbacks,
Ilocos was unable to make its 2020 interest payment. Sinait considers the loan impaired and
projects the following cash flows from the loan as of December 31, 2020 and 2021. Assume that
Sinait accrued the interest at December 31, 2019, but did not continue to accrue interest due to
the impairment of the loan.

Amount projected as of
Date of Flow Dec. 31, 2020 Dec. 31, 2021
December 31, 2021 P 200,000 P 200,000
December 31, 2022 400,000 600,000
December 31, 2023 800,000 1,200,000
December 31, 2024 1,200,000 1,000,000
December 31, 2025 400,000
Your client requested you to determine the Allowance for loan impairment as of December 31,
2021
: (Round-off present value factors to four decimal places)

Select one:

a.
P776,900

b.
P649,442

c.
P554,340

d.
P752,640
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Question 36
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When the objective of the auditor is to evaluate the appropriateness of adjustments to sales, the
best available evidence would normally be

Select one:

a.
Physical evidence obtained by inspection of goods returned for credit.
b.
Oral evidence obtained by discussing adjustment-related procedures with controller personnel.

c.
Documentary evidence obtained by inspecting documents supporting entries to adjustment
accounts.

d.
Analytical evidence obtained by comparing sales adjustments to gross sales for a period of time.

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Question 37
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Presented below is a list of items that may or may not reported as inventory in a company’s
December 31 balance sheet.

1. Goods out on consignment at another company’s store P800,000

2. Goods sold on installment basis 100,000
3. Goods purchased f.o.b. shipping point that are in transit at December 31
120,000
4. Goods purchased f.o.b. destination that are in transit at December 31
200,000
5. Goods sold to another company, for which our company has signed an
agreement to repurchase at a set price that covers all costs related to the
inventory
 300,000
6. Goods sold where large returns are predictable 280,000
7. Goods sold f.o.b. shipping point that are in transit
December 31 120,000
8. Freight charges on goods purchased 80,000
9. Factory labor costs incurred on goods still unsold 50,000
10. Interest cost incurred for inventories that are routinely manufactured
40,000
11. Costs incurred to advertise goods held for resale 20,000
12. Materials on hand not yet placed into production 350,000
13. Office supplies 10,000
14. Raw materials on which a the company has started production, but which
are not completely processed 280,000
15. Factory supplies 20,000
16. Goods held on consignment from another company 450,000
17. Costs identified with units completed but not yet sold 260,000
18. Goods sold f.o.b. destination that are in transit at
December 31 40,000
19. Temporary investment in stocks and bonds that will be resold in the near
future 500,000

How much of these items would typically be reported as inventory in the financial statements?

Select one:

a.
P2,260,000

b.
P2,300,000

c.
P2,220,000

d.
P2,000,000
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Question 38
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An inventory turnover analysis is useful to the auditor because it may detect:
Select one:

a.
inadequacies in inventory pricing.

b.
the existence of obsolete merchandise.

c.
the optimum automatic reorder points.

d.
methods of avoiding cyclical holding cost.
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Question 39
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 Question text
The accuracy of perpetual inventory records may be established in part by comparing perpetual
inventory records with

Select one:

a.
Purchase orders

b.
Purchase requisitions

c.
Receiving reports

d.
Vendor payments
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Question 40
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On January 1, 2018, Sinait Company loaned P3,000,000 to Ilocos Company. The terms of the
loan were payment in full on January 1, 2023, plus annual interest payments at 11%. The
interest payment was made as scheduled on January 1, 2019; however, due to financial setbacks,
Ilocos was unable to make its 2020 interest payment. Sinait considers the loan impaired and
projects the following cash flows from the loan as of December 31, 2020 and 2021. Assume that
Sinait accrued the interest at December 31, 2019, but did not continue to accrue interest due to
the impairment of the loan.

Amount projected as of
Date of Flow Dec. 31, 2020 Dec. 31, 2021
December 31, 2021 P 200,000 P 200,000
December 31, 2022 400,000 600,000
December 31, 2023 800,000 1,200,000
December 31, 2024 1,200,000 1,000,000
December 31, 2025 400,000

Your client requested you to determine the Loan impairment (bad debt expense) for the year
2020
: (Round-off present value factors to four decimal places)

Select one:

a.
P1,542,380

b.
P 882,380

c.
P1,212,380

d.
P1,549,500
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Question 41
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A "bill and hold" scheme is most likely to include:
Select one:

a.
shipment of items to a customer beyond what the customer has ordered.

b.
recording as sales items that the company retains as of year-end.

c.
selling items at substantial discounts near year-end.

d.
billing of items that are held by customers for future revenue production purposes.
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Question 42
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In connection with your audit of the Salcedo Corporation, you noted that the company’s Notes
Receivable consists of the following:

a. A 4-month note dated November 30, 2018, from AA Company, P200,000; interest rate,
16%; discounted on November 30, 2018 at 16%.

b. A draft drawn payable 30 days after for P900,000 by the BB Company on the Charlie
Company in favor of the Delta Company, endorsed to Salcedo Corp. on December 2, 2018 and
accepted on December 4, 2018.

c. A 90-day note dated November 1, 2018 from E. Dy, P500,000; interest at 16%; the note is
for subscription to 5,000 shares of the preferred stock of Salcedo Corp. at P100 per share.
d. A 60-day note dated May 3, 2018, from CC Company, P600,000; interest rate, 16%;
dishonored at maturity; judgment obtained on October 10, 2018. Collection within the next
twelve months is doubtful.

e. A 90-day note dated January 4, 2018, from Apol Bobads, president of Salcedo, P160,000; no
interest; note not renewed; president confirmed.

f. A 120-day note dated September 14, 2018, from DD Company, P120,000; interest rate,
16%; note is held by bank as collateral.
Based on the above and the result of your audit, how much of foregoing notes receivable will be
reported in the current assets section of the balance sheet?

Select one:

a.
P1,220,000

b.
P1,520,000

c.
P2,480,000

d.
P1,680,000
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Question 43
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The adjusted trial balance of Galimuyod Company as of December 31, 2017 shows the
following:
 Debit Credit
Accounts receivable P1,000,000
Allowance for bad debts P40,000

Additional information:

· Cash sales of the company represents 10% of gross sales.

· 90% of the credit sales customers do not take advantage of the 2/10, n/30 terms.
· It is expected that cash discount of P6,000 will be taken on accounts receivable outstanding
at December 31, 2018.
· Sales returns in 2018 amounted to P400,000. All returns were from charge sales.
· During 2018, accounts totaling to P44,000 were written off as uncollectible; bad debt
recoveries during the year amounted to P3,000.
· The allowance for bad debts is adjusted so that it represents certain percentage of the
outstanding accounts receivable at year end. The required percentage at December 31, 2018 is
150% of the rate used on December 31, 2017.
Based on the above and the result of your audit, the allowance for doubtful accounts as of
December 31, 2018 is

Select one:

a.
P180,000

b.
P146,640

c.
P120,000

d.
P 20,000
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Question 44
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In connection with your audit of the Salcedo Corporation, you noted that the company’s Notes
Receivable consists of the following:

a. A 4-month note dated November 30, 2018, from AA Company, P200,000; interest rate,
16%; discounted on November 30, 2018 at 16%.

b. A draft drawn payable 30 days after for P900,000 by the BB Company on the Charlie
Company in favor of the Delta Company, endorsed to Salcedo Corp. on December 2, 2018 and
accepted on December 4, 2018.

c. A 90-day note dated November 1, 2018 from E. Dy, P500,000; interest at 16%; the note is
for subscription to 5,000 shares of the preferred stock of Salcedo Corp. at P100 per share.

d. A 60-day note dated May 3, 2018, from CC Company, P600,000; interest rate, 16%;
dishonored at maturity; judgment obtained on October 10, 2018. Collection within the next
twelve months is doubtful.

e. A 90-day note dated January 4, 2018, from Apol Bobads, president of Salcedo, P160,000; no
interest; note not renewed; president confirmed.

f. A 120-day note dated September 14, 2018, from DD Company, P120,000; interest rate,
16%; note is held by bank as collateral.
Based on the above and the result of your audit, how much is the net interest income from the
foregoing notes receivable for 2018?

Select one:

a.
P 35,093

b.
P19,093

c.
P70,613

d.
P166,613
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Question 45
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The accuracy of perpetual inventory records may be established, in part, by comparing perpetual
inventory records with
Select one:

a.
receiving reports

b.
purchase orders

c.
vendor payments

d.
purchase requisitions
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Question 46
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In connection with your audit of the Salcedo Corporation, you noted that the company’s Notes
Receivable consists of the following:

a. A 4-month note dated November 30, 2018, from AA Company, P200,000; interest rate,
16%; discounted on November 30, 2018 at 16%.

b. A draft drawn payable 30 days after for P900,000 by the BB Company on the Charlie
Company in favor of the Delta Company, endorsed to Salcedo Corp. on December 2, 2018 and
accepted on December 4, 2018.

c. A 90-day note dated November 1, 2018 from E. Dy, P500,000; interest at 16%; the note is
for subscription to 5,000 shares of the preferred stock of Salcedo Corp. at P100 per share.

d. A 60-day note dated May 3, 2018, from CC Company, P600,000; interest rate, 16%;
dishonored at maturity; judgment obtained on October 10, 2018. Collection within the next
twelve months is doubtful.

e. A 90-day note dated January 4, 2018, from Apol Bobads, president of Salcedo, P160,000; no
interest; note not renewed; president confirmed.

f. A 120-day note dated September 14, 2018, from DD Company, P120,000; interest rate,
16%; note is held by bank as collateral.
Based on the above and the result of your audit, the adjusted balance of Interest Receivable as of
December 31, 2018 is

Select one:

a.
P 5,760
b.
P70,613

c.
P19,093

d.
P 0

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Question 47
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An auditor would analyze inventory turnover rates to obtain evidence concerning management’s
assertion about

Select one:

a.
Presentation and disclosure

b.
Valuation or allocation

c.
Completeness

d.
Rights and obligations
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Question 48
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On January 1, 2018, Sinait Company loaned P3,000,000 to Ilocos Company. The terms of the
loan were payment in full on January 1, 2023, plus annual interest payments at 11%. The
interest payment was made as scheduled on January 1, 2019; however, due to financial setbacks,
Ilocos was unable to make its 2020 interest payment. Sinait considers the loan impaired and
projects the following cash flows from the loan as of December 31, 2020 and 2021. Assume that
Sinait accrued the interest at December 31, 2019, but did not continue to accrue interest due to
the impairment of the loan.

Amount projected as of
Date of Flow Dec. 31, 2020 Dec. 31, 2021
December 31, 2021 P 200,000 P 200,000
December 31, 2022 400,000 600,000
December 31, 2023 800,000 1,200,000
December 31, 2024 1,200,000 1,000,000
December 31, 2025 400,000

Your client requested you to determine the Interest income for 2021 assuming the P200,000 was
collected on December 31, 2021 as scheduled
: (Round-off present value factors to four decimal places)

Select one:

a.
P 66,000

b.
P232,938

c.
P195,855

d.
P200,000
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Question 49
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In connection with your audit of the Alcala Manufacturing Company, you reviewed its inventory
as of December 31, 2018 and found the following items:

(a) A packing case containing a product costing P100,000 was standing in the shipping room
when the physical inventory was taken. It was not included in the inventory because it was
marked “Hold for shipping instructions.” The customer’s order was dated December 18, but the
case was shipped and the costumer billed on January 10, 2019.

(b) Merchandise costing P600,000 was received on December 28, 2018, and the invoice was
recorded. The invoice was in the hands of the purchasing agent; it was marked “On
consignment”.

(c) Merchandise received on January 6, 2019, costing P700,000 was entered in purchase
register on January 7. The invoice showed shipment was made FOB shipping point on
December 31, 2018. Because it was not on hand during the inventory count, it was not included.

(d) A special machine costing P200,000, fabricated to order for a particular customer, was
finished in the shipping room on December 30. The customer was billed for P300,000 on that
date and the machine was excluded from inventory although it was shipped January 4, 2019.
(e) Merchandise costing P200,000 was received on January 6, 2019, and the related purchase
invoice was recorded January 5. The invoice showed the shipment was made on December 29,
2018, FOB destination.

(f) Merchandise costing P150,000 was sold on an installment basis on December 15. The
customer took possession of the goods on that date. The merchandise was included in inventory
because Alcala still holds legal title. Historical experience suggests that full payment on
installment sale is received approximately 99% of the time.

(g) Goods costing P500,000 were sold and delivered on December 20. The goods were
included in the inventory because the sale was accompanied by a purchase agreement requiring
Alcala to buy back the inventory in February 2019.
Based on the above and the result of your audit, how much of these items should be included in
the inventory balance at December 31, 2018?

Select one:

a.
P 800,000

b.
P1,050,000

c.
P1,650,000

d.
P1,300,000
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Question 50
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Unless otherwise identified, the notes receivable of the Quirino Company on December 31,
2018, were trade notes receivable. On this date the balance of the account, P3,036,915, consisted
of the following notes all received during the calendar year under audit:

Maker Date Term Rate Amount Remarks

A Co. Oct. 1 6 mos. 18% P 57,416Four notes to settle past due
Oct. 1 12 mos. 18% 100,000account. Current billings are
on a 10 – day credit basis.
Oct. 1 18 mos. 18% 100,000
Oct. 1 24 mos. 18% 100,000
B Co. July 1 36 mos. 18% 500,000This note is for a cash loan
made to this customer. No
interest has been collected to
date.
C Co. Oct. 1 4 mos. 15% 251,636All interest collected on Oct. 1.
Mr. Pogi Feb. 1 Demand 18% 1,000,000Loan approved in minutes
(Company book, Jan. 20. On Aug. 1 this
President) note was pledged as collateral
for a bank loan P500,000.
D Co. Nov. 1 12 mos. 15% 546,387Interest payable at maturity
E, Inc. Dec. 10 90 days 18% Interest payable at maturity
381,476
P3,036,915

All of the above notes are considered good except that of A Company which is somewhat
doubtful. An allowance of 25% should be established against the notes receivable of this
company.
Based on the above and the result of your audit, compute the Accrued interest income as of
December 31, 2018.
Select one:

a.
P253,185
b.
P 78,749

c.
P198,749

d.
P243,749