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Question 1
An auditor who discovers that a client’s employees paid small bribes to municipal officials would MOST likely withdraw from the engagement if: Response: Management fails to take the appropriate remedial action. Feedback: CORRECT! Management’s failure to take the appropriate remedial action is particularly problematic since it may affect the auditor’s ability to rely on management representation and may therefore lead to withdrawal. Correct answer: Management fails to take the appropriate remedial action. Score: 1 out of 1 Yes
Question 2
These provide additional evidence about conditions that existed at the balance sheet date and affected the estimates part of the financial statement preparation process. Response: Adjusting events Feedback: CORRECT! They are also known as Type I events and may require adjusting amounts in the financial statements. Correct answer: Adjusting events Score: 1 out of 1 Yes
Question 3
Which of the following procedures would an auditor MOST likely perform in obtaining evidence about subsequent events? Response: Investigate changes in long-term debt occurring after year-end. Feedback: CORRECT! The auditor obtains evidence about subsequent events to determine unusual events that may happen. Changes in long-term debt occurring after year-end may require disclosure in the notes. The changes need to be disclosed because they are material, and the stockholders need to be aware of them. Correct answer: Investigate changes in long-term debt occurring after year- end. Score: 1 out of 1 Yes
Question 4
Confirmation is most likely to be a relevant form of evidence about assertions on accounts receivable when the auditor has concerns about the receivables’:
Response: Existence Feedback: CORRECT! A confirmation addresses whether the entity replying to the confirmation believes that a debt exists. Correct answer: Existence Score: 1 out of 1 Yes
Question 5
As the acceptable level of detection risk decreases, an auditor may: Response: Postpone the planned timing of substantive tests from interim dates to the year-end. Feedback: CORRECT! Postponement of interim substantive tests to year-end decreases detection risk by reducing the risk for the period after the performance of those tests; other approaches to decreasing detection risk include changing to more effective substantive tests and increasing their extent. Correct answer: Postpone the planned timing of substantive tests from interim dates to the year-end. Score: 1 out of 1 Yes
Question 6
Which of the following procedures should an auditor generally perform regarding subsequent events? Response: Compare the latest available interim financial statements with the financial statements being audited. Feedback: CORRECT! The professional standards state that, generally, the auditor should compare the latest available interim financial statements with the financial statements being audited. Correct answer: Compare the latest available interim financial statements with the financial statements being audited. Score: 1 out of 1 Yes
Question 7
Which of the following is an audit procedure that an auditor would MOST likely perform concerning litigation, claims, and assessments? Response: Discuss its policies and procedures adopted for evaluating and accounting for litigation, claims, and assessments with management.
Feedback: CORRECT! An auditor who lacks independence must disclaim an opinion, not qualify an opinion. Correct answer: The auditor lacks independence from the audited entity. Score: 1 out of 1
Question 1
Using the information in Case No. 1, what is the cashier’s accountability (correct cash balance before shortage) on April 15, 20x1? Response: P252, Feedback: CORRECT! The cash balance can be computed as follows: Cash balance, December 31, 20X
P32,
Collections 5,654, Disbursements
Cash balance, April 15, 20X (Accountability)
P252,
Score: 1 out of 1 Yes
Question 2
Using the information in Case No. 5, what is the accumulated depreciation – machinery and equipment on December 31, 20x6? Response: P8,556, Feedback: CORRECT! To compute the accumulated depreciation, determine first the depreciation expense recognized in the previous years and 20x6. The accumulated depreciation in 20x6 is already given. Machinery and equipment, Jan. 1, 201F
P22,500,
Less: Machine stolen 575, Balance
P21,925,
Depreciation rate 10%
P2,192,
Machine stolen (P575,000 x 10% x 3/12)
Machine purchased July 1 (P7,750,000 x 10% x 6/12)
Depreciation expense in 20x
P2,594,
Remember to depreciate the stolen machine and the newly acquired machine during 20x6 since they will also be depreciated. Balance, Jan. 1, 20x
P6,250,
Depreciation for 20x6 2,594, Machine stolen (P575,000/10 x 5) (287,500) Balance, Dec. 31, 20x
P8,556,
Score: 1 out of 1
Question 3
Using the information in Case No. 2, what is the balance of the Allowance for Bad Debts account on December 31, 20x1 (before year-end adjustment)? Response: P226, Feedback: CORRECT! This amount pertains to the balance of allowance before adjustment for the bad debts expense during the year. Allowance for bad debts, Jan. 1
P143,
Add: Bad debts expense (P15,000,000 x 2%)
Using the information in Case No. 3, what is the correct inventory on June 30, 20x2? Response: P144, Feedback: CORRECT! The inventory balance as of June 30, 20x2 is computed as follows: P105,000 + P27,900 +P11,100 = P144,000. The two (2) items were included since they are still in transit as of June 30, 20x2. Since all purchases are shipped to the FOB shipping point, the goods are already owned by Hamilton. Score: 1 out of 1 Yes
Question 7
Using the information in Case No. 4, what amount of unrealized gain should be shown as a component of other comprehensive income in the 20x3 statement of comprehensive income? Response: P26, Feedback: CORRECT! This amount is computed as follows: Fair value, December 20x
P1,075,
Carrying value, Dec. 20x Fair value, 20x
P1,065,
Premium amortization, 2019 (16,455) 1,048, Unrealized gain P26, An amortization table can also be used as a reference to determine the unrealized gain. Score: 1 out of 1
Question 8
Using the information in Case No. 1, what is the amount of cash shortage chargeable against the cashier?
Response: P168, Feedback: CORRECT! The amount can be computed as follows: Total Accountability 252, Cash in Bank, April, 15, 20X1 (84,250) Cash shortage chargeable to the cashier
P168,
Score: 1 out of 1 Yes
Question 9
Using the information in Case No. 2, what is the net realizable value (NRV) of Gibas Corporation’s accounts receivable on December 31, 20x1? Response: P3,970, Feedback: CORRECT! This is computed by deducting the required allowance from the accounts receivable balance. Accounts receivable (P4,600,000 – P120,000)
P4,480,
Required allowance 509, Net realizable value
P3,970,
The P120,000 should be deducted because it was already written off. Score: 1 out of 1 Yes
Question 10
Using the information in Case No. 5, what is the accumulated depreciation – delivery equipment on December 31, 20x6? Response: P4,800, Feedback: CORRECT! To determine the accumulated depreciation, compute first the depreciation expense recognized in 20x6. Depreciation on Jan. 1, 20x6, P900,
Item (a) Short term obligation P200, Item (b) Short-term notes payable 4,200, 0 Item (c) Long-term obligation (becomes current) 1,500, 0 Item (d) Current portion of long-term debt 500, Item (e) Debt callable on demand 600, Total current liabilities P7,000, 00 Score: 1 out of 1 Yes
Question 2
Using the information in Case No. 9, what is the corrected net income for 20x4? Response: P135, Feedback: CORRECT! This is the corrected net income after all the adjustments were made. 20x3 20x Unadjusted balances P39,000 P33, Inventory-overstated 20x2 42, 20x3 (48,000) 48, Inventory-understated 20x4 54, Prepaid expenses omitted 20x2 (4,200) 20x3 3, (3,000)
20x 3, Deferred revenues omitted 20x2 2, 20x (1,800) Accrued expenses omitted 20x 450 20x3 (600) 600 20x (300) Accrued revenues omitted 20x2 (750) 20x 900 Adjusted balances P33,300 P135, Score: 1 out of 1
Question 3
Using the information in Case No. 9, what is Harlequin Company’s total assets as of December 31, 20x4? Response: P316, Feedback: CORRECT! This is the adjusted balance of total assets. Unadjusted balance P258, Adjustments: Inventory 54, Prepaid Expenses 3, Accrued revenue 900
CORRECT! This is the adjusted balance of retained earnings. Only those errors that occurred in 20x4 affect retained earnings as of December 31, 20x4. The errors in 20x4 have the same effect on retained earnings and net income. 20x4 NI 20x4 RE Unadjusted balances P33,000 P162, Inventory- understated 20x4 54,000 54, Prepaid expenses omitted 20x4 3,600 3, Deferred revenues omitted 20x4 (1,800) (1,800) Accrued expenses omitted 20x4 (300) (300) Accrued revenues omitted 20x4 900 900 Adjusted balances P135,000 P218, Score: 1 out of 1
Question 7
Using the information in Case No. 8, what amount of noncurrent liabilities would Luca report in its March 31, 20x3 statement of financial position? Response: P14,370, Feedback: CORRECT! This is the amount of noncurrent liabilities, including the bonds payable and the noncurrent portion of notes payable. All other liabilities are classified as current. Bonds Payable P8,970,
4 Noncurrent portion of notes payable (P7,000,000 – P1,600,000) 5,400, Total noncurrent liabilities P14,370, The carrying value of bonds payable is computed as follows: Carrying value, December 31, 20x P8,952, 7 Discount amortization, Jan 1 – Mar 31, 20x3 (P37,133 x 3/6) 18, Carrying value, March 31, 20x3 P8,970, The amortization table is shown below: Date Interes t paid (5%) Interes t expens e (6%) Discount Amortizati on Balance 07/01/ x
x
x
12/31/20x
x
x
Score: 1 out of 1
Question 8
Using the information in Case No. 9, what is the corrected net income for 20x3? Response: P33, Feedback: CORRECT! This is the corrected net income after all the adjustments were made. 20x2 20x Unadjusted balances P45, P39, 0 Inventory-overstated 20x2 (42,000) 42, 20x (48,
Inventory-understated 20x1 (36,000) Prepaid expenses omitted 20x1 (5,400) 20x2 4, (4,200) 20x 3, Deferred revenues omitted 20x (2,400) 2, Accrued expenses omitted 20x 1, 20x (450) 450 20x (600) Accrued revenues
omitted 20x2 750 (750) Adjusted balances (P35,100) P33, Score: 1 out of 1
Question 10
Using the information in Case No. 8, how much was received by Luca from the sale of bonds on July 1, 20x1? Round off the present value factor in five (5) decimal places. Response: P8,852, Feedback: CORRECT! The requirement is to compute the proceeds from the sale of bonds. This is calculated by determining the present value of principal and interest payments. PV of principal (P10,000,000 x 0.31180) P3,118, 0 PV of interest payments (P500,000 x 11.46992) 5,734, Proceeds P8,852, Score: 1 out of 1
Question 1
Using the information in Case No. 10, what is the preference share capital on December 31, 20x2? Response: P1,954, Feedback:
CORRECT! The following are the transactions involving share premium during 20x1: Share premium 20x Jan. 1 P9,000, Sep. 30 Conversion 525, Dec. 21 Subscription 840, Balance, Dec. 31
P10,365,
Score: 1 out of 1
Question 4
Using the information in Case No. 9, what amount should the entity report as share options outstanding at the end of year 2? Response: P282, Feedback: CORRECT! The share options outstanding are equal to the cumulative compensation expense for the period: P10 x 423 x 100 x 2/ = P282,000. Score: 1 out of 1
Question 5
Using the information in Case No. 10, what is the share premium on December 31, 20x2? Response: P10,838, Feedback: CORRECT! The following are the transactions involving share premium: SP 20x Jan. 1 P9,000, Sep. 30 525,
Dec. 21 840, Balances, Dec. 31
P10,365,
20x Feb. 1 (36,900) Apr. 15 510, Balances, Dec. 31
P10,838,
Score: 1 out of 1
Question 6
Using the information in Case No. 9, what amount should the entity report as share options outstanding at the end of year 3? Response: P428, Feedback: CORRECT! The share options outstanding are equal to the cumulative compensation expense for the period. P10 x 428 x 100 = P428, Score: 1 out of 1
Question 7
Using the information in Case No. 9, what is the amount of compensation expense to be recognized in year 2? Response: P57, Feedback: CORRECT! This is the compensation expense in year 2. (P10 x 423 x 100 x 2/3) – P225,000 = P57, Score: 1 out of 1
Question 8
Using the information in Case No. 10, what is the balance of retained earnings before an appropriation for treasury shares on December 31, 20x2?
