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Auditing Practice Problem 2

Cash was overstated by P654,600 of January receipts recorded in December. Accounts receivable was overstated by P294,500 of collections recorded in December. Inventory was overstated by P637,500 of goods shipped in December but recorded in January, and understated by P175,000 of goods received in December but not recorded until January. Accounts payable was understated by P372,400 of payments recorded in December but made in January.

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Jessa Gay Cartagena Torres
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296 views1 page

Auditing Practice Problem 2

Cash was overstated by P654,600 of January receipts recorded in December. Accounts receivable was overstated by P294,500 of collections recorded in December. Inventory was overstated by P637,500 of goods shipped in December but recorded in January, and understated by P175,000 of goods received in December but not recorded until January. Accounts payable was understated by P372,400 of payments recorded in December but made in January.

Uploaded by

Jessa Gay Cartagena Torres
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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PROBLEM NO.

2
The following accounts were included in the unadjusted trial balance of BUNCHING COMPANY
as of December 31, 2017:
Cash......................................................................................P 963,200
Accounts receivable.................................................................2,254,000
Inventory................................................................................6,050,000
Accounts payable....................................................................4,201,000
Accrued expenses......................................................................431,000
During your audit, you noted that Bunching Company held its cash books open after year-end.
In addition, your audit revealed the following:
1. Receipts for January 2018 of P654,600 were recorded in the December 2017 cash receipts
book. The receipts of P360,100 represent cash sales and P294,500 represent collections
from customers, net of 5% cash discounts.
2. Accounts payable of P372,400 was paid in January 2018. The payments, on which
discounts of P12,400 were taken, were included in the December 2017 check register.
3. Merchandise inventory is valued at P6,050,000 prior to any adjustments. The following
information has been found relating to certain inventory transactions:
a. The invoice for goods costing P175,000 was received and recorded as a purchase on
December 31, 2017. The related goods, shipped FOB destination, were received on
January 4, 2018, and thus were not included in the physical inventory.
b. A P182,000 shipment of goods to a customer on December 30, 2017, terms FOB
destination, are not included in the year-end inventory. The goods cost P130,000 and
were delivered to the customer on January 3, 2018. The sale was properly recorded in
2018.
c. Goods costing P637,500 were shipped on December 31, 2017, and were delivered to the
customer on January 3, 2018. The terms of the invoice were FOB shipping point. The
goods were included in the 2017 ending inventory even though the sale was recorded in
2017.
d. Goods costing P217,500 were received from a vendor on January 4, 2018. The related
invoice was received and recorded on January 6, 2018. The goods were shipped on
December 31, 2017, terms FOB shipping point.
e. Goods valued at P275,000 are on consignment with a customer. These goods are not
included in the inventory figure.
f. Goods valued at P612,800 are on consignment from a vendor. These goods are not
included in the physical inventory.

Determine the adjusted balances of the following on December 31, 2017 and compute for the
current ratio.

1. Cash

2. Accounts Receivable

3. Inventory

4. Accounts Payable

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