Practical Auditing - C2 and C3 Suggested Answers

Chapter 2 : Correction of Error Problem 1 Nature of error Net under(over)statement Reported profit(loss) Corrected profit(loss)

Under(Over) statement in Profit of 2012 2013 24,000 ( 2,000) 300,000 (540,000) 324,000 (542,000)

2014 11,000 250,000 251,000

Retained Earnings 01/01/14 22,000

Problem 5 (Dragon Ball Company)

Net under(over)statement Reported Profit Corrected Profit

Under(over)statement in Profit 2012 2013 2014 (43,800) (800) (56,400) 450,000 290,000 440,000 406,200 289,200 383,600

RE, 1/1/14 (44,600)

Problem 7 (Gloria Company) (b) Effect on total assets, December 31, 2013 = 16,000 + 8,000 + 20,000 – 2,000 = P42,000 understated (c) Effect on total assets, December 31, 2014 = 21,000 + 12,000 + 20,000 – 2,000 – 4,000 = P47,000 understated. (d) Effect on total liabilities, December 31, 2014 = 6,400 + 90,000 = 96,400 understated Problem 8 Golden Crest 2013 Profit Net under (overstatement)

(6,504)

Retained earnings, Dec. 31, 2013 (67,804)

Non- current Assets, 12/31/14 (144,189)

Retained earnings January 1, 2013 (76,500)

Problem 9 (Golden Harvest Corporation) Particulars Net understatement (overstatement) Reported profit (loss) Correct profit (loss)

2013 85,667 (250,000) 164,333

2014 22,000 320,000 342,000

2015 25,000 380,000 405,000

2013 P(164,333)

2014 P117,667

2015 422,667

Retained earnings Balance, December 31

Multiple Choice 1. A 2. C 3. A 4. A 5. B 6. A 7. A 8. B 9. B 10. D 11. B 12. B 13.. C 14. B 15. A 16. D 17. C 18. C 19 A 20. A

Chapter 3 : Audit of Cash MULTIPLE CHOICE 1. C 6. B 11. B

2. B 7. C 12. C

3. D 8. C 13. C

4. A 9. C 14. D

5. B 10. D 15. D

Problem 3 Leila Corporation

b.)

Correct cash and cash equivalents

P7,112,300

Problem 4 (Sta. Monica, Inc.)

Correct balance of petty cash fund = P9,500 Problem 5 (Victor Company) (a) Correct amount of petty cash fund

P6,400

(b) Total per count Cashier’s accountability Cash shortage

P11,350 11,500 P 150

Problem 6 (Rainbow Corporation) (a)

Cash shortage

(c)

P 4,000

Correct amount of petty cash fund =

P17,500

Problem 7 Cash shortage

P 802.90

Problem 8 (Da King Company) Cash shortage

P1,247

Correct petty cash fund balance

P5,003

Problem 9 General Company

Cash shortage Correct petty cash fund, December 31

.............................................................. P

84.00

P 2,720.00

Problem 10 (Cisco Systems, Inc.) Adjusted balances (3)

Cash and cash equivalents:

P1,295,212 P1,815,212

Problem 11 (Sunshine Corporation) 1. Cash shortage

(123,500)

3.

Additional cash shortage in January

P 85,000

Problem 12 (Pamela Manufacturing Company) Nov. 30 786,250

Receipts 9,198,720

Disbursements. 8,601,610

Dec. 31 1,383,360

Adjusted balances

Nov. 30 2,441,000

Receipts 2,214,000

Disbursements 1,567,000

Dec. 31 3,088,000

Unadjusted book balances (squeezed)

Nov. 30 2,390,000

Receipts 2,206,000

Disbursements 1,549,000

Dec. 31 3,047,000

Adjusted Balances

Problem 13 (Golden Bells Company)

Problem 14 (Starr Company) (a)

1. 2. 3. 4.

P463,040 P40,560 P696,000 P39,920

Problem 15 Barry Company (1) Deposits in transit, June 30

P 80,000

(2) Outstanding checks, June 30

P 340,000

Adjusted balances

P 50,500

Problem 16 (Rocky Mountain High) (a) (b) (c) (d)

P148,900 P116,200 P921,500 P630,700

Problem 17 1. 2. 3. 4. 5.

A,D C, G. B, F E, H J, N

6. M, P 7. I, L 8. K, O 9. D, H 10. B, F

11. 12. 13. 14. 15.

D, F A, D F, G D, F J, N

16. I, L 17. Not a reconciling item 18. J, N 19. L, N 20. N, O

Problem 18 (Contronics Company) Balances per audit

Petty Cash Fund P9,000

Purchasing Fund P15,000

Problem 19 (Fortune Company) (b) Correct amount of cash

1,287,450

Cash in Bank 192,500

Total P216,500

Supply the required information 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24.

308.40 4,606.60 no shortage 35,000 800 5,700 400 5,300 53,800 838,600 157,950 780,650 or 761,650 (NSF checks may be treated as deduction from receipts) 625,700 or 606,700 (NSF checks may be treated as deduction from receipts) 3,000 92,000 145,600 71,950 1,828,212 imprest system – deposit of collections intact to the bank segregation of duties of custodial function and bookkeeping function 125,250 194,550 255,700 55,000