The Reviar School of tTel. No. 735-9807{
AUDITING PROBLEIIIS
I RET{EO/ ESPENI LLA I IA]II ES CASH,AND RECEIVABLES
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PROBLEM 1: You gathered the following information in relation to your audit of SAP CORP.for the.year ended December31, 2008:
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L Traveler's check '/ l/ 2. Bank drafts and money orders 3. Unused postage stamps 4. Employeecheck dated 2009, recorded as 2008 . 5. I,OUfrom a key officer / 6. Current account at PNB Bank 7. Cuirent account at EquitableBank r' B. .Curent account at BPI - fayroll Account 9. I,eFtrictedforeign 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 int 12. .Changefund 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
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18,000) fireasurybills, due 3l3Ll09 (purchasedtzl3Ll0e) Treasury 16. bifls; due tl3Ll0g (purchasedL/l/08) a L7. Other trade accountsreceivable- unassigned -. r/ta. Trade accountsreceivable- factored in 20O8,amount received from factorlngis 1,200,000,factoringnot recordedyet in 2OO8 19. Tradeaccountson whichpost-datedchecksar"eheld (no entries were made on receiptsof checks) 20. Trade r€ceivablesfrom officers drc cr,rmtly ?r, #l*rce patgn€ftsto €*lrfuson F rdre or-ebrs,M 22. Advancesto an associatedcompany 23. Credit balanceson customers'accountdue to salesreturn 24. Interest receivableon investmentin bonds 25. Interest payableon bonds 26. Subscriptlonsreceivablefrom ordinary shares due in 30 days -,i-r 27. Trade note receivables f
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15.
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
**current exchangerate as of December31, 2008 is at P50 for every USDI. 1. What is th€ tota! iash and cashequivalentto be reportedby the comparryas of -DBcember
31, 2008?
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2 . What is the total trade receivables to be reportedas of December31, 20OB? 3. How much is the total other receivablesas of December31, 2008?
PRQBLEI'| 2: You were able to gather the following from the December 31, 2008 trial balance of RHEAINC. in connectionwith your audit of the company: t
Petty cash fund Cash on hand Cash in bank - Metrbbank current Cash'in bank - BDO Acct No. 1 Cash in bank - BDO Acct No. 2 Cash in bank - Coco bank savings Time deposits - BPI
50,000 w 1,500,00p IrTo@ 4,000)0004lbo@
iit3r,3ts3!u'w
4,500,000' 2,ooo,00Q
fuSAr The Review Schoolof 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 "collectionsfor charity" , , with names attached 6,000 n Unreplenishedpetty cash vouchers 6,500 Check drawn by RHEA,payable to the petty cashier. 20,000{ v.d.\44 " "51'aialrat,ht,(_LrIQg_ ' Unused Postage stamps tt1vrut, alttrraq P52,000 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,
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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 2OO8are 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
balancesheet date, The time depositwith BPI was purchasedon lrlorrember1, 2008 and shall rnatureon Noverfiber 1, 2OO9. DeJermine the audted balancesof the following: A r. Petty cashfund a. 30,000 b. 36,000 c, 10,000 d. 24FAO 2. cash.shortage/ov€rage Petty 0 b. 5,5OOshort a. 4,000 short c. 2,0Ooover d. 500 over 8 3 . Cashon hand a. 1,070,000 c. 1,260,000 d. 1,500,000 . b. 1,170,000 9 4. CashIn bank - Metrobankcurrent a. 4,000,000 b. 4,160,000 c. 4,200,000 d. 4,360,000 Cash 5. and cash equivalents to be reportedin the 2006 batancesheet A o. 8,560,000. b. 8,566,000 c. 10,560,000 d, 15,060,000
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A count of the Petty Cash Fund having an imprest balanceof P10,000of Reyes eBAEliEE3i Corp. showedits compositionas follows: Coinsand currency................ '7 Paidvouchers:
P 2,g0q
3,000 11000
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a#r:rnPettY
cash r-eceiPtvoucher
zlt' / The petty cash receipt voucher is for a return of travel expense advance.
?44c_lgqr
' 500,'.
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RgSA:T.heReview School'of Aaountancy e Whatis the pettycashshortage?
d. 1,000
c. 9004
b. 50 0
a.O
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Ad$usud pttttyuh firilz .rt@ pROBLEM 4: A count of the undeposited receipts under the custody of U. Rita, cashier of Ube A S-ptember 30, 20OBshowed the following composition: C*p-, .\ ""
Checks: Date 8fr€ - 3-24-08 9-20-OB 9-27-O8 ";-.9-30-08
DraWer U. Rita TamsCo. JonliInc. UbiCorp-
Payee Cash Ube Corp. Ube Corp MERALCO
2,000^ 4,7OO\ 3,%101. 1'.8OO1
r' / /
voucherspaidout of receipts Cash'disbursements/dvance Total per count Assuming the caShier'sdccountabilityto be P36,940 per the clientrs record, what was the arhountof shofta$e/overageon Septeinber3O,2OO8? a.'P480 shortage
b. P3,22Oshortage c. P3,320overage 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.theraudit procedures revealed the followin$ outstanding checks:
No . 0 2 1 0 0218 0219 o223
.
oz25 4227
P1,418.40 1,560.00 3,039.00 2,?88.52 4,881.60 1,983.48
Cash on hand arnountedto P32,3IO.24which appearedto be the undepositedcollectionper atl undepositedreceiptsin excessof books. The client suspectsthat cashiermisappropriated The receipts. cashier tried to conceal the presefited as undeposited the arnount preparing reconciliation: following the by misappropriation PL97,O54.64
Balanceper books,Octobe131,2006 AdS: Outstandingchecks No. 0223 0225 , 0227 debit Uncrecorded
P2,288.52 ' ' 4,881.60' 9 , 1 5 3 . 60 1.983.48 l;224.O4 P2O7,432.24 32,3LO.24
receipts Less; UndeOosited Balanceper bank,October31, 2006 Unrecordedcredit Corr.ectcash balance, October 31, 2006 1. What is the correct cash balance? b, PI79,498'24 a. P|75,L22.AO
P L 7 5 , t 2 2 . OC I 3.624.00
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cvPl9L,o37'24
2. How much did the cashiermisappropriate? c! P8,417.40 b. P9,153.60 a. P15,171.00
d. Pt99,454.64
\ d. P2,400.00
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PROBLEIL| 6: You obtainedthe followinginformation0n the currentaccountof BUGOYCORP. Duringyour examinationof its financialstatementsfor the year endedDecember31, 2008. The bank statementon November30, 2O08showeda balanceof P918,000. Amongthe bank collected for the account of the .credits in November was customer's note for P3OO,OOO .companywhichthe companyrecognlzedin Decemberamongits receipts. Includedin the bank debitswere cost of checkbooksamountingto P3,600and a P120,000checkwhichwas charged by the bank in irror againstBugoy'saccount. Also in Novemberyou ascertainedthat there were depositsintransit amountingto P240,0O0 and out$tandingcheckstotalingP510,000. The bank statementfor the month of Detembershowedtotal creditsof Pt,248,000and total chargesof P612,000',The company'sbooks for Decembershowedtotal debits of P2,2A6,800, total credits of L.,221,600and a balanceof P1,456,800. Bank debit memos for December were: No. 121 for servicecharges,P4,800and No. 722 on a custorner'sreturned check marked "Referto Drawer"for P72,OOO On December31, 20Q8ihe companyplacedwith the bank a cdstomer'spromissorynote with a face value of P360,OOO for collection. The cgFnany treated this note as part of its receipts althoughthe b5nk was able to collecton the note only in Janua.ry,2009. A check fcir P'11,880was recorded in the company cash payments books in December as P1 1 8 ,800. 1. How mtJchis the undepositedcollectionsas of December31, 2OOg? a. 1,018,800 2.
b. 538,800
c7 658,800
d. 418,800
How much is the outstanding checks as of December 31, ZOO8? a. 575,880 b. 1,192,800 c, 1,085,880 d. 1,089,480
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'lowmuchis the adjustedcashbalanceas of December31, 2008? a. t,876,92O b. 585p3€ c. 66O,OOO d. L,L.26,92O \ PRODtlttl7: Folfowingthe information pertains to the Cash in Bank accoUntof l'tango for Company the month of April, 2O08; a.. Bs*ancesper bank staternentMarch 3t, PZt,560, and April 30, p23,040. b. Balancesof Cash in Bank accountin Company'sbooks::March31, P16,545,and April 30, P22,680. c. Total receipt€per books were F222,190of which P1.210was paid in cash to a creditor on April 16. d. Total chargesin the bank statementduring April were P2L8,97O. e. Undepositedrecciptswere: March31, P9,06Oand April 30, P10,120. ' f. Outstandingcheckswere: March 3li P2$75 and April 30, P1,930,of which a check for P500was certified by the bank on April22. g. NSFchecksreturned, recorde_g!_ag reductionsof cash receiptswere: L1 ReturnedUy e +O .2. Returnedby.Bankin April but recorded.inMay, P860. h. Collectionsby Bank not recordedby companywere P12,150in March,and P11,640in April. i. . Bank servicechargesnot enteredin company'sbookswere: March 3L, P75O,and April 30 P420. J. A checkfor P950of MarangCompanywas chargedto MangoCompanyin error. k. Acheck drawnfor P840was erroneouslyenteredin the.booksas P480. Preparea four-columnreconciliation of receipts,disbursements and bank balancesfor April, 2008, usingthe form wherethe bank and book figuresare ,broughtto correctedbalances. i , :-''. Preparethe journal entriesto adjustth.eCashin Bankaccountat April 30. l
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PROBTEM 8l The following T-accotrntsummarizes.the transactionbaifecting the accounts receivableof Grandia Company for 2008.
nts 7Jan. L balance(after deducting credit baldnceof P3,000)
P53,000
,/Chargesales Chargefor goodsout on consignment subscriptions Shareholders TAccountswritten off but recovered €ash paid on customerfor Jan. 1 credit balance Depositon contract Claimagainstcommoncarrierfor shippingdamages IOUs from employees Cash advance to affiliate Advanceto supplier'
625,000 5,000 3O,000 1,000
- Trade
from customers/ Collections (includingoverpaymentof P5,000) Write offs Merchandise returns Allowanceto customersfor shippingdamages Collections on carrierclaims Collectionon subscription
P620,000r. 3,500(2,500L 1,500r 1,000 15,000
2,500 15,000 x,500 500 10,000 5,000
1. Prepareadjusting entries to correct accounts receivable. (, Z. Wh.atis the correct accounts receivable- trade balance? b. 61,000 c. 59,500 a. 70,000
d. .55,500
for the year 2008, you concludedthat the PROBI.EM9: In your audit of JAMESCOMPANY for doubtful accountsshouldbe adJustedto equal the estimatedamount required allowanc.e basedon agingof the accountsas of December31. Duringyouqaudit,you were ableto gather data:' the'following
Zts" Allowancefor doubtfulaccounts,Jan 1, 2OO8 l(* ' fr'ndr*\ za( Provisionfor doubtful accountsduring (2008 (3a/oof 10M Sales)
P600,000 30O,OOft 375,009 100,bO0 400,000 2,375,OOO
Bad debts written-off in 2@8 +;Recoveryof bad debts written-off during 2O0b Estimateddoubtfulaccountsper aging of accountson December31, 2008 Accountsreceivable,December3'1,2008
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1. Basedon the result of your audit, what is the correctdoubtful accosntsexpensefor the year 20O8? 75,000 b. 300,000 c. 175,O00 a. 375,O00
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2. What is the correct net book value of the receivables? c. 2,000,000 b. L,775,OOO a. 2,375,OOO
D
? 75
,"
L,975,QOO
PBOQIEII l9: From inceptionof operationsto December31, 2008, PDACorporationprovided receivableunder the allowancemethod: prwisions were made for uncollectibfe'accounts bad debts wriften off were charged to the allowanceaccount; at 2o/o of credlt sales; monthly recoveriesof bad debts previouslywritten off were creditedto the allowanceaqcounUand no year-endadjustmentsto the allocationaccountwere made.PDA'susualcreditterms are net 30 days, accountswas P1]$OO0at January1, 2008. During dou The balancein ther allowancefor doubtful ,2008, credit salds totaled.P9,000,000,iDterim provisionsfor doubtful accountswere made at 2o/oof credit sales; P90,000 of .bad debts were written off, and recoveries of accounts . previouslywritten off amountedto P15,000.PDA installeda computerfaciltty in November, ')2008, and an aging of accountsreceivablewas preparedfor the first time as of December31, 2008.A summaryof the agihgis as follows:
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Classificationby Monthof sale Nov-Dec2008 Jul-Oct Jan-June Priorto LlI/O8
Balancein EachCategory P1,140,000 ;-. 600,000 400,000" , ut0.000 __ PL279,AOA
Estimatedo/o Uncollectibl€ L.So/o '8:0" 1 nn,
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35.0
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Further audit procedures revealed that a P16O,OO0customer 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 receivablestotaling P60,000 were written off as of December 31, 2008. Effectivewith the year ended December 31, 2005, PDA adopted the revised accounting standards in recognizingbad debts.
J.. what is the correctbalanceof the allowancefor doubtfulaccountsat year end? a. 254,100 b:256,5A0 c. 296,100^ d. 298,500
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is the correct bad debt expense for the year? 4 2 . a.What 261,500b, 20 1 , 5 0 0 c. 81,500 d. 76,500 3. What is the carryihg value of the accounts receivableat year end? 9, a. 2,013,500 b. 2,10 9 , 5 0 0 e 2,113,5OO, d. 2,370,0O0
PBoq\Eil lli The'balance sheet of DWARFCORP, reported the fotlowing long-term receivables as of December31, 2OO7: i
Notereceivablefrom saleof plant Note receivablefrom officer
P4,500,000 1,200,000
In connectionwtth your audit, you were abie to gather the followingtransactionsduring 2OOg and other informationpertainingto the company'slong-termreceivables: ' a. The note receivableform sale of ptant bears interest at L2o/oper annum. Th-enote is payable in 3 annual installmentsof P1,500,000 interest on the unpaid balanCe ey,ggAoril 1. The initialpllcrpg_|gndinterest(FEyllE\was made_ on April 1, 2008. _Adi-fq[r/i---T1c -""..-'..._*-;='-,: _ -Nur{il{Aev i,lc .. rf ----:*---.-..._._.;= rriq:ZnT--frrg {:., : dt*\^J .[r{ ltr*t' , 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
becember31, 2008.
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,- - <=-. * blofdt${0V a4{Alr.fihJ . - 1,\.6 c. The corporation sold a piece of eQuipmentto 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 establishedexchange 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/ois 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 11olonote for P2,100,000 on July-l, 200€,-"1nadditjgn 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 establishedcash price ol P3,000,00O, and lts cost to the corporation was'P2,25O,0OO. The collection of the installments on ttris note is reasonabryassured. tff -- ut_ 71-:;,, W\
1. ,Howmuch is the totalnoncurrent rlotesreceivables 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 receivableas of December 31,
V
2008? L,945,875
b. 2,L76,975
c. 1,5OO,OOO
d. O
A a. Wn'atis the accruedinterestreceivableas of 'December31, 20Og? 3gs,sao b. 428 , s 3 8 c. 270,000 d. 505,500
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+. What is the correctinterestincomefor the year 20OB? a. 640,500 b. 818,538" c. 683,538 '\
{. d. 756,000
RsSA: The Review School of Accountancy _
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a
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?
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c. Windowdressing d. .Salamifraud 2.
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An auditor susfects that a client's cashieris misappropriatingcash receiptsfor personaluse by lapplng customerchecks receivedin the mail. In attempting to uncoverthis embezzlementscheme,the auditor most likely would comparethe: : a. Dates uncollectibleaccountsare authorizedto be written off with the dates the write-offs are actually recorded. b. Individualbank depositsstipswith the detailsof the m
3.
Which of the followingcontrolsrnost likely wqutd reducethe risk of diversionof customer receiptsby an entity's employees? a. Daily depositof cash receipds. b. Monthlybank reconciliations. remmitanceadvice c. Prenumbered d. A bank lockboxsystem(x)
4.
Soundinternalcontroldictatesthat, imrnediatelyupon receivingchecksfrom customersby mail, a responsilleemployeeshould: a. Add the checksto the daily cashsummary. b. Verify that each check is supported.bya prenurnberedsales invoice. c. necoid th€ checksin ttrb cash receiptsjournal. ' d. Preparea duplicatelistingof checksreceived.(x)
5.
Whichof the fgllowingdescribesthe most effective preventivecontrol to bnsure proper handfingof cash receipt ":*T*:T"nk reconciriationspreparedby an employeenot involvedwith cash coltectbns and then.havethen reviewedby a supervisQf'. b. Use predeterminedtotals of cash receiptsto control,postingroutines. c. Have the ernployeewho receivescustomer'mailprepaie daily bank deposit; have another employeeactually 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'checksin the mailroom, a reEponsibleemployeeshould preparea remittance listing that is forwardedtb the castfier. A copy of the listing should be sent to the: a. .Internal auditor to investigatqthe listing for unusualtransactions. b. Treasurerto comparethe Uttlng with the monthly bank statefnent. c. Accd{.tntsreccivable hoi:kkeeper to update the subsidiary accounts receivry records. (x) ' d. Enlity's'b5nksto compere the listihg with the cashier'sdeposit slip. ,
7;
Checksfrom customersare receivedin the Companymaikoom each day. Whichof the followingcontrols
should ?""1"tJ:Fjti,$"J:t"?i'r:,$*
payments. boxrorcustomer orrice
b. . Forwarelall checks to th€ caghier upon receipt. c. Prdvidt bondtng protection for"mail clerks. d. Req$ffespecifi; mail clerk to list and restrictivelyendorseeach che_ck,(x) 8.
For the most effective internal control, monthly bank statements should be received directly from the banks and reviewedby the a. Controller, b. Cash receiptsaccountant. : cash aisoir,sementaccountant. c. lnternal auditor' (x) d.
As payments arc received,one maiiroornemployee is assignedthe responsibilityof prelistingreceipts and preparihg the deposit slip prigr to forwaiding the receipts,-thedeposit sllp, and the rerhittanceadvices to - accounts reiceivablefor posting. Accounts receivable pcrson$et refoot the depo€it slip, stamp a restrictive endorsementon the back M each check, and the'n forward the receiptsand the deposit slip to the treasury d'epartment.Whichof the followingis a reasonableassessmentof internal control on this process? a, Internal control is adequate. b. Internafcontrolis inadequdtebecausemailroomemployeesshouldnot have accessto cash. , Internal control is inadequatebecausetreasury employeesshoufdpreparethe depositslip, c, d. 'Internal controlis inadequatebecaussof a lack of segregationof duties.(x) ,
9.
10. W
. of the followingassertionsdoes the auditor most likely would like to validate in decidingto render r countS? a. Completeness b. Existence(x) c. Valuation d. Rightsand obligation
RgSA:The ReyiewSchoof,ofAccountancy
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mostlikdly wouldbe indicativeof checkkiting? 11. Whichof the followingcharacteristics a, High turnoverof employeeswho have accessto cash. b. Manylargechecksthat are recordedon.Mondays. c. FrequentATM checkingaccountwithdrawals. - d. Low averagebalancdcomparedto high leveldeposits.(x) 12. Which of the followingaudit procedures'willlikely detect or uncoverkiting activitiesof the client? a. Sendingconfirmationto banks. to sourcedocuments. b. Vouchcheckissuaniesrepresentingdisbursements c. Rendercashcount on a surprisebasis. valldate bank reconciliationssbtements. (x) d. Simulteineously
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13. The usefulneqsof the standardbank tonfirmation request may be timited becausethe bank ernployeewho completesthe form may: a. Not believe that the bank is obligatedto verify confldentialinformatiofrto a third Barity. b. Sign ah retwn the form without inspectingthe accuracyof the client's bank reconciliation. , c. . Not have accesgto'the client's cutolTbank statement. d. Be unawareof afl the fihancialrelationshipsthat the bank'haswith the client. (x) ,. 14. In validating bank reconciliationstatementsof the client, the-auditorshould trace back outstandingchecks to the: ' a. Accountspayablevoucher. b. iancelled-checksreturned by the bank. .c. Bank statement of the current month. d, Cut-offbank statementof the subsequentmonth. (1) 15. In validatingthe bank r€conciliationstatementsof the client, the auditor should trace back the unrecorded debits, like servicechargesto th€l:' a. Accountspayablevoucher. b, Cancelledchecksreturned by the bank. . c. Bank statementof the curent month. (x) d. Cut-off bank statement of the subsequentmonth. 16, The proof of cash statementsis usually preparedby the auditor when: a. - Internat control over.cashis strohg and control risk is placedat the maximum. b. lnterhal control over cash is weak and control risk is place at the maxlmum. (x) c. Cashbalanceis very significant. d. Cash balanceis 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 assessedfevel of control risk below the maximum level? i?. Obsirving an entlty's empbyec prepale tfie scheduleof past due accountsreceivable.(x) b. Sendingconflrmationrequeststo ari entity's prlncipalcustomersto verify the exisfenceof accounts receivable. c. Inspectingan entify's analysisof accountsreceivablefor unusual balances. ,ni6lrectiUre accounts payable to actual uncollecti.pJeaccounts receivable. d. Comp;;i;n "ni'tyi 18. Which of the followingproceduresmost tikely would n
d. rr*tur"rlii!-
20. An auditortests an entity's control of obtainingcreditapproval before shippinggoodsto customersin support of panagemcnt's financial statement assertion of a. Valuationor allocation.(x) b. Completeness. a- ixistence or occurrence d. Rightsand obligations. most likely would assurethat all billed salesare correctly posted to 21. Which of thefollowing internal_contrcils the accountsreceivableledger? a.-, Daily sales summariesare comparedto daily postingsto the agcoufiti receivableledger. (*) b. Eachsales invoiceis supportedby a prenumberedshippingdocument. c, The accountsreceivableledgeris reconcileddaily toe the controlaccountin the,generalledger. d. Eachshipmenton credit is supportedby a prenumberedsalesinvoice. f e fo fl o w i n g a u d i tp ro c e duresw oul d..anaudi tormostti kel yperformtotestcontrolsr elat ingt o 22. W h i c h ,oth manageinent'sassertionconcerningthe completenessof salestransactions? a. Verify that extensionsand footings on the entity's sales invDicesand monthly customer'statemenfs have been recomouted. b, Inspect the entity's reports of prenumberedshippingdocumentsthat have been recordedin the
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salesjournal. (x) Comparethe invoicedpriceson prenumberedsales invoicesto the entity's authorizedprice'list. of ciedit checks. Inquireabout the entityr5creditgrantingpoliciesand-theconsistentapp,lication
23. An auditor's purposein reviewingcredit ratings of customerswith delinquentaccountsreceivablemost likely is to obtainevidenceconcerningmanagement'sassertionsabout (x)a. Valuationor alJocation. b. Presentationand disclosure. Existenceor occurrence c. d. Rightsand obligations. 24. 'loachievegood internalcontrol,whic.hdepartmentshouldperformthe activitiesof matchingshipping documentswith salesordersand preparingdaitysalessummaries? a. B l l l i n g(x ) b. Sh i p p i n g c. Credit d. Safesoroer 25. Whichof the followingwouldthe auditorconsiderto be an incompatibleoperationfor a cashierif the cashierreceivesremittancesfrom the mailroom? Postingthe receiptsto tlle accountsreceivablesubsidiaryledger cards. (x) a. Makingthe daily deppsitat the local bank. b. c. Preparingthe daily deposit. d. Endorsingthe checks. 26. The most likelyresult of ineffectiveinternalcontrolsin the salescycleis that a. Fiititiou. transactions could be recorded, causing an understatement of revenues and an overstatementof receivables. b. tregularities in recdrdingtransactionsin the subsidiaryaccountscould delay the shipmentof goods. Omissionof shippingdocumentscould go undetected,causingan understatenlentof inventory. c. d. Final authorizationof credit memos by personnelin the sales department could permit an employee defalcationscheme. (x) 27. fsr effectiveinternal control, employeesmaintainingthe accountsreceivablesubsidiaryledger should not also approve . a, Employeeovertimewages, b. Credit granted to cuitomers. c. Write-offsof custorneraccounts.(x) . d. eash disbursements. 28. During an audit of the accountsreceivabl€function, you found that the accountsreceivableturnover rate had fallen from 7.3 to 4.3 over the last three y'ears.What is the most likely causeof the decrease? a. An increasein th€ discountoffered for early payment b, A more liberal credit policy (x) A changeform net 30 net 25 c. d. Greatercash Sales 29. Shippingdocumentsshould be traces to and comparedwith sales recordsor invoices6 . a, Determinewhether paymentsare properly appliedto customeraccounts. b. Ensurethilt shipmentsare billed to customers.(x) c. Determinewhether unit pricesbilled are in accordancewith salescontrads. d. Ascertainwhether afl salesare supportedby shippingdocuments.
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30. An auditor noted that the accountCreceivabledepartment is separatefrom other accauntingactivities. Credit is approved by a s€paratecredit department.Control accountsand subsidiaryledgersare balanced monthly: Similarly, accountsare aged monthly. The accountsreceivablemanagerwrites off delinquent accountsafter one year or sooner, if a bankrupt€yor other unusualcircumstanceis involved.Credit rnemorandaare prenumberedand must correlatewlth receivingreiDorts.Which of the following areas could be viewed as an internal control weaknessof the above organization? a. Write-cjffsof delinguentaccounts(x) b. Credit approvals Monthly aging of receivables c. d. Handlingof credit memos
31. Sendingaccountsreceivableconfirmationletters tij the client's customersis consistentwith the auditor's objectiveof validatingclient'sreceivableassertionon: a. ExisteFceand rights (x) b: Completenessand valu€ition and rights Completeness c. d. Existenceand valuation
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32. The auditors'analysisof the clientsaged accountsreceivablescheduleis consistentwith the auditor's objective of validatingclient's receivableassertionon: a. Existence b. Completeness Rightsand obligation c. d. Valuation(x) /5!$.\
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