/
br(a
TaeA
\tint
' (
f 15.a
1 6 .
L 7 .
-. r/ta.
1 9 .
20.
?r,
2 2 .
23.
24.
25.
26.
2 7 .
P150,0001
90,00q
3,000
12,0O0
30,000
6,OO0,OOO,I
(300,000)
1,500,000r1
60,000
60,000
45,000
10,0004
1,OOO,0OO
30,o001
600,0001
900,o00
2,250,OAO
1,500,00O1
225,AOO
67,500
459-ago
7,125,offi
(675,OO0)
450"OOO
500,000
2,475,OOO
1,OOO,OOO
The Reviar School of
tTel. No. 735-9807{
AUDITING PROBLEIIIS
I RE T{
EO/ ESPEN I LLA I IA]II ES
CASH,AND RECEIVABLES
PROBLEM 1: You gathered the following information in relation to your audit of SAP CORP. for
t h e . y e a r e n d e d D e c e m b e r 3 1 , 2008:
&A*
'/
L
Traveler's check
l/ 2. Bank drafts and money orders
3. Unused postage stamps
4. Employee check dated 2009, recorded as 2008
. 5. I,OU from a key officer
/
6. Current account at PNB Bank
7. Cuirent account at Equitable Bank
r' B. .Curent account at BPI - fayroll Account
9. I,eFtricted foreign bank qccount (in USD)*x
10. Credit memo from a vendor for a purchase return
^11. Customer'S check returned by the bank marked DAUD, return not
{
(
yet recorded in 2008
1 2 . . C h a n g e
f u n d
13. Bond sinking fund t6 be used to settle bonds payable due 2015
14. Petty cash fund (P12,000 in currency and expense vouchers for
18,000)
fireasury bills, due 3l3Ll09 (purchased tzl3Ll0e)
Treasury bifls; due tl3Ll0g (purchased L/l/08)
Other trade accounts receivable
- unassigned
Trade accounts receivable
- factored in 20O8, amount received
from factorlng is 1,200,000, factoring not recorded yet in 2OO8
Trade accounts
on which post-dated
checks
ar"e
held (no entries
were made on receipts of checks)
Trade r€ceivables from officers drc cr,rmtly
#l*rce
patgn€ftsto €*lrfuson
F rdre
or-ebrs,M
Advances
to an associated
company
Credit balances
on customers'account
due to sales return
Interest receivable
on investment in bonds
Interest payable on bonds
Subscriptlons receivable from ordinary shares due in 30 days
-,i-r
Trade note receivables
2 .
1 .
**current exchange rate as of December 31, 2008 is at P50 for every USDI.
What is th€ tota! iash and cash equivalent to be reported by the comparry
as of -DBcember
31, 2008? dw,W
What is the total trade receivables
to be reported
as of December
31, 20OB?
3. How much is the total other receivables
as of December
31, 2008?
PRQBLEI'| 2: You were able to gather the following from the December 31, 2008 trial balance
o f R H E A
I N C . i n c o n n e c t i o n
w i t h y o u r a u d i t o f t h e company:
t
Petty cash fund
Cash on hand
Cash in bank - Metrbbank current
C a s h ' i n b a n k - B D O A c c t N o . 1
C a s h in b a n k - B D O A c c t N o . 2
C a s h in b a n k - C o c o b a n k s a v i n g s
Time deposits - BPI
50,000 w
1,500,00p IrTo@
4,000)000 4lbo@
iit3r,3ts3!u'w
4 , 5 0 0 , 0 0 0 '
2,ooo,00Q
fuSAr The Review School of Amuntancy
The petty cash fund consisted of the iollowing items as of Decembei3l, 2008:
Currency and colns
P10,000q
/ Empfoyees' vales 10.t,
vuivatdt
8,000.'
Currency in an envelope m6rked "collections for charity"
, ,
with names attached
6,000
n Unreplenished petty cash vouchers
6,500
Check drawn by RHEA, payable to the petty cashier.
20,000{
-
' Unused Postage stamps tt1vrut , alttrraq
v.d.\44 " "5 1'aial rat,ht,( _LrIQg_
P 5 2 , 0 0 0
Cash on hand represents undeposited collections as of December 31, ?008 and includes the
follbwing items:
a. Customer's check for P160,000 returned by bank on December 26,20O8 due to
insufficient fund but subsequently redeposited and cleared by the bank on January 3,
zoo9.
b. Customer's check for P80,000 dated January 2,2OgO, received on December 29,2008.
c. A customer check for P90,000 dated June 1, 2008 received on the same date and yet to
be deposited since the same has been missing.
d. Postal money orders received from customers, P100,0O0.
Included among the checks drawn by RHEA against the Metrobank current account and
recorded in December 2OO8 are the following:
a. Check writteri'on Dilcember 29, 2OAA dated January 2, 2OOg, delivered to payee on
December 29, 2OO8,
P160,000.
b. Check written and dated'December 29, 2008 and delivered to payee on January 2,
2OO9,
P200,000.
The credit balance in the BDO Current Account No. 2 represents checks drawrt in excess of the
deposit bal4nce. These checks werb stilt outstanding at December 31, 2008.
The savings account deposit in Coco Bank has been set by the board of directors fior acquisition
of new computers. This account is expected to be disbursed in the next 3 months from the
balance
sheet date,
The time deposit with BPI was purchased
on lrlorrember
1,
1, 2OO9.
DeJermine
the audted balances
of the following:
A r. Petty cash fund
2008 and shall rnature on Noverfiber
a. 30,000
b. 36,000
c, 10,000
d. 24FAO
0 2. Petty cash.shortage/ov€rage
a. 4,000 short
b. 5,5OO
short
c. 2,0Oo
over
d. 500 over
8 3 . C a s h
o n h a n d
a. 1,070,000
. b. 1,170,000
c. 1,260,000
d. 1,500,000
,r
9 4. Cash In bank - Metrobank
current
-
a. 4,000,000
b. 4,160,000
c. 4,200,000
d. 4,360,000
.i
A 5. Cash and cash equivalents
to be reported in the 2006 batance
sheet
o. 8,560,000.
b. 8,566,000
c. 10,560,000
d, 15,060,000
eBAEliEE3i
A count of the Petty Cash Fund having an imprest balance of P10,000 of Reyes
Corp. showed its composition
as follows:
P 2,g0q
7 Coins
and currency...
' Paid vouchers:
'
a#r:rnPettY
cash r-eceiPt
voucher
zlt'/ The petty cash receipt voucher is for a return of travel expense advance.
3,000
11000
?44-c_lgqr
RgSA: T.he Review School'of Aaountancy
e What
is the petty cash
shortage?
b . 5 0 0
' ". i
P a g e 3 o f 6
d . 1 , 0 0 0
a . O
c . 9 0 0 4
Ad$usud
ptttty
uh firilz .rt@
A pROBLEM 4: A count of the undeposited receipts under the custody of U. Rita, cashier
of Ube
-
C*p-,
""
S-ptember 30, 20OB showed the following composition:
.\
<A.se e6?tsttgo eV.
currency and coins
P24,62O^ 1
/
Un'used
postage and documentary stamps
W
/
Checks:
Date
8fr€ - 3-24-08
9-20-OB
9-27-O8
";-.9-30-08
Payee
Cash
Ube Corp.
Ube Corp
MERALCO
DraWer
U. Rita
Tams Co.
Jonli
Inc.
UbiCorp-2,000^
4,7OO\
r'
3,%101.
/
1'.8OO1
Cash'disbursements/dvance
vouchers
paid out of receipts
Total per count
Assuming the caShier's dccountability to be P36,940 per the clientrs record,
arhount of shofta$e/overage
on Septeinber 3O, 2OO8?
/
what was the
a . ' P 4 8 0 s h o r t a g e
b. P3,22O
shortage c. P3,320
overage d. .No sh6rtage/overage
pRo3liEil. 5:
The Victory lrft. had poor internal control over its cash transactions. Data
pertaining to its cash position at October 31, 2008 were as follows:
The casfi book showed a balance of P197 ,O54.64. This included undeposited receipts. A credit
of P3,624.00 on the bank records for a customer deposit made directly through the banks for
payment of account. A PL,224.O0 bank debit also appeared in the bank statement for service
charges for the month of October, TheCe wcre not yet recorded on the bsoks, .The b8I*
statement had a balance of P173,t{18.0O.
Fur.ther audit procedures revealed the followin$ outstanding checks:
Cash on hand arnounted to P32,3IO.24 which appeared to be the undeposited collection per
books. The client suspects
that cashier misappropriated
atl undeposited
receipts in excess of
the arnount presefited as undeposited receipts.
The cashier tried to conceal the
misappropriation
by preparing
the following
reconciliation:
N o . 0 2 1 0
0 2 1 8
0 2 1 9
o223
oz25
4227
Balance
per books, Octobe131, 2006
AdS: Outstanding
checks
No. 0223
0225
,
0227
Uncrecorded
debit
Less; UndeOosited
receipts
Balance
per bank, October
31, 2006
Unrecorded
credit
P 1 , 4 1 8 . 4 0
.
1,560.00
3 , 0 3 9 . 0 0
2,?88.52
4 , 8 8 1 . 6 0
1 , 9 8 3 . 4 8
Corr.ect
cash balance, October 31, 2006
,
1. What is the correct cash balance?
a . P | 7 5 , L 2 2 . A O
b , P I 7 9 , 4 9 8 ' 2 4
c v P l 9 L , o 3 7 ' 2 4
2 . H o w m u c h d i d t h e c a s h i e r m i s a p p r o p r i a t e ?
\
PL97,O54.64
P2,288.52
4 , 8 8 1 . 6 0 '
' '
1 . 9 8 3 . 4 8
9 , 1 5 3 . 6 0
l;224.O4
P2O7,432.24
32,3LO.24
P L 7 5 , t 2 2 . O C I
3.624.00
PIZl-s4a
d. Pt99,454.64
d . P 2 , 4 0 0 . 0 0
a . P 1 5 , 1 7 1 . 0 0
b . P 9 , 1 5 3 . 6 0
c ! P 8 , 4 1 7 . 4 0
QSA; The Review Sciltool.of
Accountahcy
*
Page 4 of 6
PROBLEIL|
6: You obtained
the following
information
0n the current account
of BUGOY
CORP.
During your examination
of its financial
statements
for the year ended December
31, 2008.
The bank statement on November
30, 2O08 showed a balance
of P918,000. Among the bank
.credits in November was customer's note for P3OO,OOO
collected for the account of the
.company
which the company
recognlzed
in December
among its receipts. Included
in the bank
debits were cost of checkbooks
amounting
to P3,600
and a P120,000
check which was charged
by the bank in irror against Bugoy's account. Also in November
you ascertained
that there
were deposits
intransit amounting
to P240,0O0
and out$tanding
checks
totaling P510,000.
The bank statement for the month of Detember showed total credits of Pt,248,000 and total
charges of P612,000', The company's books for December showed total debits of P2,2A6,800,
total credits of L.,221,600
and a balance of P1,456,800. Bank debit memos for December
were: No. 121 for service charges, P4,800 and No. 722 on a custorner's
returned check marked
"Refer to Drawer" for P72,OOO
On December 31, 20Q8 ihe company placed with the bank a cdstomer's promissory note with a
face value of P360,OOO
for collection. The cgFnany treated this note as part of its receipts
although the b5nk was able to collect on the note only in Janua.ry,
2009.
A check fcir P'11,880 was recorded in the company cash payments books in December as
P 1 1 8 , 8 0 0 .
1. How mtJch is the undeposited
collections
as of December
31, 2OOg?
a . 1 , 0 1 8 , 8 0 0
b . 5 3 8 , 8 0 0
c7 658,800
d . 4 1 8 , 8 0 0
2.
How much is the outstanding checks as of December 31, ZOO8?
a . 5 7 5 , 8 8 0
b . 1 , 1 9 2 , 8 0 0
c , 1 , 0 8 5 , 8 8 0
d . 1 , 0 8 9 , 4 8 0
3. How much is the adjusted cash balance as of November 30, 2OO8?
a. 648,000
b, 768,000
c. 528,000
d. 47L,600
4, l'low much is the adjusted
cash balance
as of December
31, 2008?
a . t , 8 7 6 , 9 2 O
b. 585p3€
c. 66O,OOO
d. L,L.26,92O
\
PRODtlttl7:
Folfowing the information pertains to the Cash in Bank accoUnt of l'tango
Company
for the month of April, 2O08;
a.. Bs*ances
per bank staternent March 3t, PZt,560, and April 30, p23,040.
b. Balances
of Cash in Bank account in Company's
books::March
31, P16,545,
and April
30, P22,680.
c. Total receipt€ per books were F222,190 of which P1.210 was paid in cash to a creditor
on April 16.
d. Total charges in the bank statement during April were P2L8,97O.
e. Undeposited
reccipts were: March 31, P9,06O
and April 30, P10,120.
' f. Outstanding
checks were: March 3li P2$75 and April 30, P1,930, of which a check for
P500 was certified by the bank on April22.
g. NSF checks returned, recorde_g!_ag
reductions
of cash receipts were:
L1 Returned Uy e
+O
.2. Returned
by.Bank
in April but recorded.in
May, P860.
h. Collections
by Bank not recorded
by company were P12,150 in March, and P11,640 in
April.
i. . Bank service charges not entered in company's
books were: March 3L, P75O,
and April
30 P420.
J. A check for P950 of Marang
Company
was charged
to Mango
Company
in error.
k. Acheck drawn for P840 was erroneously
entered in the.books
as P480.
Prepare
a four-column
reconciliation
of receipts,
disbursements
and bank balances
for April,
2008, using the form where the bank and book figures are ,brought
to corrected
balances.
Prepare
the journal entries to adjust th.e
Cash in Bank account
at April 30.
i
, :-'
'.
l
RqSA; The Revierr School of AaountaQcy
-
, i
Page 5 of 6
PROBTEM 8l The following T-accotrnt summarizes.the transactionb aifecting the accounts
receivable of Grandia Company for 2008.
7Jan. L balance
(after deducting
credit baldnce
of P3,000)
,/Charge
sales
Charge
for goods out on
consignment
Shareholders
subscriptions
TAccounts written off but recovered
€ash paid on customer
for Jan. 1
credit balance
Deposit
on contract
Claim against
common carrier for
s h i p p i n g d a m a g e s
IOUs from employees
Cash advance to affiliate
A d v a n c e to s u p p l i e r '
- Trade
Collections
from customers/
(including
overpayment
of
P5,000)
Write offs
Merchandise
returns
Allowance
to customers for
shipping
damages
Collections
on carrier claims
Collection
on subscription
nts
P53,000
6 2 5 , 0 0 0
5,000
3O,000
1 , 0 0 0
2 , 5 0 0
1 5 , 0 0 0
x , 5 0 0
500
10,000
5,000
P620,000r.
3,500(-2,500L
1,500r
1,000
15,000
1. Prepare adjusting entries to correct accounts receivable.
(, Z. Wh.at is the correct accounts receivable - trade balance?
a . 7 0 , 0 0 0
b . 6 1 , 0 0 0
c . 5 9 , 5 0 0
d . . 5 5 , 5 0 0
PROBI.EM
9: In your audit of JAMES
COMPANY
for the year 2008, you concluded
that the
allowanc.e
for doubtful accounts should be adJusted
to equal the estimated amount required
based
on aging of the accounts
as of December
31. During youqaudit, you were able to gather
the'following
data:'
l ( * '
Z t s "
fr'ndr*\ za(
Allowance
for doubtful accounts,
Jan 1, 2OO8
P600,000
Provision
for doubtful accounts
during (2008 (3a/o
of 10M Sales)
30O,OOft
Bad debts written-off in 2@8
+;-
375,009
Recovery
of bad debts written-off during 2O0b
100,bO0
Estimated
doubtful accounts
per aging of accounts
on December
31, 2008
400,000
Accounts
receivable,
December
3'1, 2008
2,375,OOO
I
D
1. Based on the result of your audit, what is the correct doubtful accosnts expense for the
year 20O8?
a. 375,O00
b. 300,000
c. 175,O00
I
75,000
? 7 5
2. What is the correct net book value of the receivables?
a. 2,375,OOO
b . L , 7 7 5 , O O O
c. 2,000,000
,"
L,975,QOO
PBOQIEII l9:
From inception of operations
to December
31, 2008, PDA Corporation
provided
for uncollectibfe'accounts
receivable under the allowance method: prwisions were made
monthly at 2o/o
of credlt sales; bad debts wriften off were charged to the allowance account;
recoveries of bad debts previously written off were credited to the allowance aqcounU and no
year-end
adjustments
to the allocation
account
were made. PDA's
usual credit terms are net 30
days,
r allowance
for doubtful accounts
was P1]$OO0 at January 1, 2008. During
The balance
in the allowance
for dou
,2008, credit salds totaled.P9,000,000, iDterim provisions for doubtful accounts were made at
2o/o of credit sales; P90,000 of .bad debts were written off, and recoveries of accounts
. previously written off amounted to P15,000. PDA installed a computer faciltty in November,
')2008, and an aging of accounts receivable
was prepared
for the first time as of December
31,
2008. A summary
of the agihg is as follows:
co"ilis,g'
',,)&.
I
:*',-ffiVtn
Classification
by
Month of sale
Nov-Dec
2008
Jul-Oct
Jan-June
Prior to LlI/O8
Balance
in
Each Category
P1,140,000 ;-.
600,000
400,000 " ,
ut0.000
Estimatedo/o
Uncollectibl€
L . S o / o 1 n n ,
'8:0"
"
Q?to'tco
3 5 . 0 1*''
-fun ''
__ PL279,AOA
RsSA: Ihe Rwkw Sdtool of Aimuntancy
Further audit procedures revealed that a P16O,OO0
customer Credit balance resulUng from
overpayment was included in the "Nov-Dec. 2008'receivables and that based on the review of
collectibility of the account balances in the "prior to t/LlO9" aging categorv, additional
receivables totaling P60,000 were written off as of December 31, 2008.
Effective with the year ended December 31, 2005, PDA adopted the revised accounting
standards in recognizing bad debts.
. . 1
, t , . . , . . .
.
P a c 6 o f 6
4 2 .
9, 3.
P
J.. what is the correct balance
of the allowance
for doubtful accounts
at year end?
a . 2 5 4 , 1 0 0
b:256,5A0
c. 296,100
^
What is the correct bad debt expense for the year?
a . 2 6 1 , 5 0 0
-
b , 2 0 1 , 5 0 0
c . 8 1 , 5 0 0
What is the carryihg value of the accounts receivable at year end?
a . 2 , 0 1 3 , 5 0 0
b . 2 , 1 0 9 , 5 0 0
e 2 , 1 1 3 , 5 O O
,
PBoq\Eil lli
The'balance sheet of DWARF CORP, reported the fotlowing long-term
receivables
as of December
31, 2OO7:
i
Note receivable
from sale of plant
Note receivable
from officer
ey,ggAoril 1. The initial pllcrpg_|gnd interest(FEyllE\was made_
on April 1, 2008.
-Nur{il{Aev
_Adi-fq[r/i---T1c
: dt*\^J .[r{ ltr*t' i,lc . rf frrg {:.,. rriq:ZnT---
----:*---.-..._._.;=
-""..-'..._*-;='-,:_
,b. The note receivable from officer is dated December 3!, 2OO7
, earns interest at .l_o"oZj
per
annum,. and is due on December 31, zd}||.
The 2O08 interest .was received qr
d . 2 9 8 , 5 0 0
d . 7 6 , 5 0 0
d. 2,370,0O0
d . 5 0 5 , 5 0 0
d . 7 5 6 , 0 0 0
P4,500,000
1,200,000
In connection
wtth your audit, you were abie to gather the following transactions
during 2OOg
and other information
pertaining
to the company's
long-term receivables:
' a. The note receivable form sale of ptant bears interest at L2o/o per annum. Th-e note is
payable in 3 annual installments
of P1,500,000
interest on the unpaid balanCe
becember 31, 2008.
-w: c,"rr^t
* blofdt${0V
- 1,\.6
a4{Alr.f ihJ .
,- - <=-.
'
c. The corporation sold a piece of eQuipment to SNOW INC. (on April 1, 2008)in\exctrange
for an P6O0,000 non interest bearing note due on April 1, )Ot&--Th€-note had no ready
market, and there was no established exchange price for the equiprnent. The prevailing
interest rate for a note of this type at April 1, 2006 was 12olo, The present value factor
of 1 for two periods.at LZo/o
is O.797 while the present value factor of ordinary annuity
of 1 for two periods at 1.2016
is 1,690. _ eU hd 40.\^,rJ
d. A tract of land was sold by the corporation to WHITE CO. on July 1, 2008, for
P3,0O0,0O0,
under an installment sale contract. White signed a 4-year 11olo note for
P2,100,000 on July-l, 200€,-"1n
additjgn to the down payment of P900,000. The equal
anRual payments of'principql and interesf'on the note will be P676,875 payable on Jufy
t,'2009, 20LO,2011, aiid 2Ot2. fhe land had an established cash price ol P3,000,00O,
and lts cost to the corporation was'P2,25O,0OO. The collection of the installments on
ttris note is reasonabry assured.
tff -- ut-
W\
_ 71-:;,,
y 1. ,How much is the total noncurrent
rlotes
receivables
as of Decemdi#n,2oo8?
a. 6,778,?:OO
b. 4,832,325
c. 5,278,2AO
,
t. 4,875,363
A 2. How much is the total current portion of long-term notes receivable as of December 31,
2008?
V L,945,875
A a. Wn'at
is the accrued
interest receivable
as of 'December
31, 20Og?
/.
3gs,sao
b . 4 2 8 , s 3 8
c. 270,000
{.
( +. What is the correct interest income for the year 20OB?
b . 8 1 8 , 5 3 8 "
'\
b . 2 , L 7 6 , 9 7 5
c . 1 , 5 O O , O O O
d . O
RsSA: The Review School of Accountancy
.. ,:,,.:,
1,
FaOa 7 cf,f 9
_
' t a
1. Which of the following cash fraud activities involves the postBonement of, the recording of receipts and can be well perpetiated wfiere there is. lack of segregation of duties between recordkeeping and custodial , functions?
3: IitJls,g
t*r
c. Window dressing d. .Salami fraud
2. An auditor susfects that a client's cashier is misappropriating cash receipts for personal use by lapplng customer checks received in the mail. In attempting to uncover this embezzlement scheme, the auditor most likely would compare the: :
a. Dates uncollectible accounts are authorized to be written off with the dates the write-offs are actually recorded.
b. Individual bank deposits stips with the details of the m<inthly bank statements. c. Daily cash summaries with the sums of the cash receipts journal entries.
d. Dat€s checks.are deBosited per bank statements with the dates remittance credits ale ' recorded. (x)
3. Which of the following controls rnost likely wqutd reduce the risk of diversion of customer receipts by an entity's employees?
a. Daily deposit of cash receipds. b. Monthly bank reconciliations. c. Prenumbered remmitance advice d. A bank lockbox system (x)
4. Sound internal control dictates that, imrnediately upon receiving checks from customers by mail, a responsille employee should:
a. Add the checks to the daily cash summary.
b. Verify that each check is supported.by a prenurnbered sales invoice. c. necoid th€ checks in ttrb cash receipts journal.
' d. Prepare a duplicate listing of checks received. (x)
5. Which of the fgllowing describes the most effective preventive control to bnsure proper handfing of cash receipt
":*T*:T"nk reconciriations prepared by an employee not involved with cash coltectbns and then.have then reviewed by a supervisQf'.
b. Use predetermined totals of cash receipts to control,posting routines.
c. Have the ernployee who receives customer'mail prepaie daily bank deposit; have another employee actually make the deposit.
' d. l-lave one employee lssue a prenuarbc{td,ilffaFtfor all cash collections; have another employe€ match daity total of the prefium'btrd receipts to the bank deposits. (x)
6. Upon receipt of customers' checks in the mailroom, a reEponsible employee should prepare a remittance listing that is forwarded tb the castfier. A copy of the listing should be sent to the:
a. .Internal auditor to investigatq the listing for unusual transactions. b. Treasurer to compare the Uttlng with the monthly bank statefnent.
c. Accd{.tnts reccivable hoi:kkeeper to update the subsidiary accounts receivry records. (x) ' , d. Enlity's'b5nks to compere the listihg with the cashier's deposit slip.
7; Checks from customers are received in the Company maikoom each day. Which of the following controls
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b. Forwarel all checks to th€ caghier upon receipt.c. . Prdvidt bondtng protection for" mail clerks.
d. Req$ffe specifi; mail clerk to list and restrictively endorse each che_ck, (x)
8. For the most effective internal control, monthly bank statements should be received directly from the banks and reviewed by the
a. Controller,
b. Cash receipts accountant.
c. cash aisoir,sement accountant. : d. lnternal auditor' (x)
9. As payments arc received, one maiiroorn employee is assigned the responsibility of prelisting receipts and preparihg the deposit slip prigr to forwaiding the receipts,-the deposit sllp, and the rerhittance advices to - accounts reiceivable for posting. Accounts receivable pcrson$et refoot the depo€it slip, stamp a restrictive endorsement on the back M each check, and the'n forward the receipts and the deposit slip to the treasury d'epartment. Which of the following is a reasonable assessment of internal control on this process?
a, Internal control is adequate.
, b. Internaf control is inadequdte because mailroom employees should not have access to cash. c, Internal control is inadequate because treasury employees shoufd prepare the deposit slip, , d. 'Internal control is inadequate becauss of a lack of segregation of duties. (x)
10. W . of the following assertions does the auditor most likely would like to validate in deciding to render r countS?
a. Completeness b. Existence (x) c. Valuation
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11. Which of the following characteristics mostlikdly would be indicative of check kiting? a, High turnover of employees who have access to cash.
b. Many large checks that are recorded on.Mondays. c. Frequent ATM checking account withdrawals.
- d. Low average balancd compared to high level deposits. (x)
12. Which of the following audit procedures'will likely detect or uncover kiting activities of the client? i a. Sending confirmation to banks.
b. Vouch check issuanies representing disbursements to source documents. c. Render cash count on a surprise basis.
d. Simulteineously valldate bank reconciliations sbtements. (x)
13. The usefulneqs of the standard bank tonfirmation request may be timited because the bank ernployee who completes the form may:
a. Not believe that the bank is obligated to verify confldential informatiofr to a third Barity. b. Sign ah retwn the form without inspecting the accuracy of the client's bank reconciliation. , c. . Not have accesg to'the client's cutolT bank statement.
,. d. Be unaware of afl the fihancial relationships that the bank'has with the client. (x)
14. In validating bank reconciliation statements of the client, the-auditor should trace back outstanding checks to the:
' a. Accounts payable voucher.
b. iancelled-checks returned by the bank. .c. Bank statement of the current month.
d, Cut-off bank statement of the subsequent month. (1)
15. In validating the bank r€conciliation statements of the client, the auditor should trace back the unrecorded debits, like service charges to th€l:'
a. Accounts payable voucher.
b, Cancelled checks returned by the bank. . c. Bank statement of the curent month. (x)
d. Cut-off bank statement of the subsequent month. 16, The proof of cash statements is usually prepared by the auditor when:
a. - Internat control over.cash is strohg and control risk is placed at the maximum. b. lnterhal control over cash is weak and control risk is place at the maxlmum. (x) c. Cash balance is very significant.
d. Cash balance is very insignificant. .
17. Which of the following proctdurcs concerning accounts rccelvable would an auditor niost'likely perform to .obtain evidential mattdr in support of an assessed fevel of control risk below the maximum level?
i?. Obsirving an entlty's empbyec prepale tfie schedule of past due accounts receivable. (x)
b. Sending conflrmation requests to ari entity's prlncipal customers to verify the exisfence of accounts receivable.
c. Inspecting an entify's analysis of accounts receivable for unusual balances. d. Comp;;i;n
"ni'tyi ,ni6lrectiUre accounts payable to actual uncollecti.pJe accounts receivable. 18. Which of the following procedures most tikely would n<it be an internal control designed ao ,iua* the risk of
errors in the billing process?
a. Companng control totals for shipping documents with corlesponding totals for salEs invoices. b. Using com.puter programm€d controls on the pricing and mathematical accuracy of sales invoices.. . c. Matching shipping documents with approved sales orders before invoice preparation
d. Reconciling the control.totals for sales invoices with tfie accounfs receivable subsidiary ledger. (x) n of write-offs of unc-ollectible accounts shouJcl be approved in which of the following 19. Prop-er authdrization of write-offs of uncpllectible accounts shouJtt
departments?
a. Accounts receivable. i b. Credit.
' c. Accounts payable.
d. rr*tur"rlii!-
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20. An auditortests an entity's control of obtaining creditapproval before shipping goodsto customers in support of panagemcnt's financial statement assertion of
a. Valuation or allocation. (x) b. Completeness.
a- ixistence or occurrence d. Rights and obligations.
21. Which of thefollowing internal_contrcils most likely would assure that all billed sales are correctly posted to the accounts receivable ledger?
a.-, Daily sales summaries are compared to daily postings to the agcoufiti receivable ledger. (*) b. Each sales invoice is supported by a prenumbered shipping document.
c, The accounts receivableledger is reconciled daily toe the control account in the,general ledger. d. Each shipment on credit is supported by a prenumbered sales invoice.
2 2 . W h i c h , o f t h e f o f l o w i n g a u d i t p r o c e d u r e s w o u l d . . a n a u d i t o r m o s t t i k e l y p e r f o r m t o t e s t c o n t r o l s r e l a t i n g t o manageinent's assertion concerning the completeness of sales transactions?
a. Verify that extensions and footings on the entity's sales invDices and monthly customer'statemenfs have been recomouted.
b, Inspect the entity's reports of prenumbered shipping documents that have been recorded in the
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c. Compare the invoiced prices on prenumbered sales invoices to the entity's authorized price'list. d. Inquire about the entityr5 credit granting policies and-the consistent app,lication of ciedit checks. 23. An auditor's purpose in reviewing credit ratings of customers with delinquent accounts receivable most
likely is to obtain evidence concerning management's assertions about a. Valuation or alJocation.
(x)-b. Presentation and disclosure. c. Existence or occurrence d. Rights and obligations.
24. 'loachieve good internal control, whic.h department should perform the activities of matching shipping documents with sales orders and preparing daity sales summaries?
a . B l l l i n g ( x ) b . S h i p p i n g c. Credit d. Safes oroer
25. Which of the following would the auditor consider to be an incompatible operation for a cashier if the cashier receives remittances from the mailroom?
a. Posting the receipts to tlle accounts receivable subsidiary ledger cards. (x) b. Making the daily deppsit at the local bank.
c. Preparing the daily deposit. d. Endorsing the checks.
26. The most likely result of ineffective internal controls in the sales cycle is that
a. Fiititiou. transactions could be recorded, causing an understatement of revenues and an overstatement of receivables.
b. tregularities in recdrding transactions in the subsidiary accounts could delay the shipment of goods. c. Omission of shipping documents could go undetected, causing an understatenlent of inventory. d. Final authorization of credit memos by personnel in the sales department could permit an employee
defalcation scheme. (x)
27. fsr effective internal control, employees maintaining the accounts receivable subsidiary ledger should not also approve
. a, Employee overtime wages, b. Credit granted to cuitomers. . c. Write-offs of custorner accounts. (x)
d. eash disbursements.
28. During an audit of the accounts receivabl€ function, you found that the accounts receivable turnover rate had fallen from 7.3 to 4.3 over the last three y'ears. What is the most likely cause of the decrease?
a. An increase in th€ discount offered for early payment b, A more liberal credit policy (x)
c. A change form net 30 net 25 d. Greater cash Sales
29. Shipping documents should be traces to and compared with sales records or invoices 6
. a, Determine whether payments are properly applied to customer accounts. l b. Ensure thilt shipments are billed to customers. (x)
c. Determine whether unit prices billed are in accordance with sales contrads. d. Ascertain whether afl sales are supported by shipping documents.
3 0 . An auditor noted that the accountC receivable department is separate from other accaunting activities. Credit is approved by a s€parate credit department. Control accounts and subsidiary ledgers are balanced monthly: Similarly, accounts are aged monthly. The accounts receivable manager writes off delinquent accounts after one year or sooner, if a bankrupt€y or other unusual circumstance is involved. Credit rnemoranda are prenumbered and must correlate wlth receiving reiDorts. Which of the following areas could be viewed as an internal control weakness of the above organization?
a. Write-cjffs of delinguent accounts (x) b. Credit approvals
c. Monthly aging of receivables d. Handling of credit memos
Sending accounts receivable confirmation letters tij the client's customers is consistent with the auditor's objective of validating client's receivable assertion on:
a. ExisteFce and rights (x) b: Completeness and valu€ition
c. Completeness and rights ' )
d. Existence and valuation
The auditors'analysis of the clients aged accounts receivable schedule is consistent with the auditor's objective of validating client's receivable assertion on:
a. Existence b. Completeness c. Rights and obligation d. Valuation (x)
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