GALANG, RHIA TIFFANY D. MR.

RAMELO GLORIA

BSA191B

PROBLEM NO. 6

Select the best answer for each of the following:

1. In the audit of which of the following general ledger accounts will tests of
controls be particularly appropriate?

ANSWER: d. Sales

2. The purpose of tests of controls over shipping is to determine whether

ANSWER: b. Shipments are billed.

3. The purpose of tests of controls over billing is to determine whether

ANSWER: a. Billed goods have been shipped.

4. An auditor most likely would review an entity’s periodic accounting for the numerical
sequence of shipping documents and invoices to support management’s financial
statement assertion of

ANSWER: d. Completeness

5. Which of the following might be detected by an auditor’s review of the client’s sales cut-
off?

ANSWER: d. Inflated sales for the year

6. An auditor who has confirmed accounts receivable may discover that the sales journal was
held open past year-end if

ANSWER: d. Most of the returned positive confirmations indicate that the debtor owes a
smaller balance than the amount being confirmed.

7. The auditor finds situation in which one person has the ability to collect receivables, make
deposits, issue credit memos and record receipt of payments. The auditor suspects the
individual may be stealing from cash receipts. Which of the following audit procedures would
be most effective in discovering fraud in this scenario?

ANSWER: c. Perform a detailed review of debits to customer discounts, sales returns, or

other debit accounts, excluding cash posted to the cash receipts journal.
8. All of the following are examples of substantive tests to verify valuation of net
accounts receivable except the

ANSWER: b. Inspection of accounts for current versus non-current status in the

statement of financial position.

9. Confirmation, which is a specific type of inquiry, is the process of obtaining a representation

of information or of an existing condition directly from a third party. Two assertions for
which confirmation of accounts receivable balances provides primary evidence are

ANSWER: b. Rights and obligations and existence

10. The negative request form of accounts receivable confirmation may be used when the

ANSWER: a. Low Many Likely

11. Which of the following procedures would an auditor most likely perform for year-end
accounts receivable confirmations when the auditor did not receive replies to second
requests?

ANSWER: d. Inspect the shipping records documenting the merchandise sold to the
debtors.

12. Which of the following is the greatest drawback of using subsequent collections
evidenced only by a deposit slip as an alternative procedure when responses to positive
accounts receivable confirmations are not received?

ANSWER: b. By examining a deposit slip only, the auditor does not know whether the
payment is for the receivable at the balance sheet date or a subsequent transaction.

DO-IT-YOURSELF (DIY) DRILL

Problem No. 1

QUESTIONS:
Based on the above and the result of your audit, answer the following:

1.The adjusted balance of accounts receivable in the 60 days and below category as of
December 31, 2020 is

a. P205,800

b. P189,400
c. P222,200

d. P189,800

2. The adjusted balance of accounts receivable as of December 31, 2020 is

a. P402,400

b. P371,400

c. P403,800

d. P387,400

3. The adjusted allowance for doubtful accounts as of December 31, 2020 is

a. P7,622

b. P7,786

c. P8,372

d. P7,462

4. The entry to adjust the allowance for doubtful accounts will include

a. a debit to doubtful accounts expense of P1,214

b. a debit to allowance for doubtful accounts of P1,378

c. a credit to retained earnings of P1,542

d. a credit to doubtful accounts expense of P7,378

5. To gather audit evidence about the proper credit approval of sales, the auditor would
select a sample of documents from the population represented by the

a. Bill of lading file.

b. Customer order file.

c. Sales invoice file.

d. Subsidiary customers' accounts ledger.

Problem No. 2
QUESTIONS:

Based on the foregoing, answer the following:

6. How much is the adjusted balance of the allowance for doubtful accounts as of
December 31, 2020?

a. P104,400

c. P49,800

b. P77,100

d. P27,300

7. The necessary adjusting journal entry to adjust the allowance for doubtful accounts
as of December 31, 2020 would include a credit to allowance for doubtful accounts of:

a. P27,300

c. P49,800

b. P77,100

d. P22,300

8. An aging analysis of accounts receivable would provide an indication as to the

a. Validity of the accounts.

b. Integrity of the credit grantors.

c. Collectibility of the accounts.

d. Solvency of customers.

9. Which account balance is most likely to be misstated if an aging of accounts receivable is

not performed?

a. Allowance for bad debts.

b. Accounts receivable.

c. Sales returns and allowances.

d. Sales revenue.

10. An auditor selects a sample from the file of shipping documents to determine
whether invoices were prepared. This test is performed to satisfy the audit objective
of

a. Accuracy

c. Control

b. Completeness
d. Existence

PROBLEM NO. 3

QUESTIONS:

Based on the above and the result of your audit, answer the following:

11. The percentage to be used to compute the allowance for bad debts on December
31, 2020 is

a. 1%

c. 2%

b. 1.9%

d. 3%

SOLUTION:

Year Credit sales AR written-off Recoveries Net

2017 1,110,000 26,000 2,150 23,850
2018 1,225,000 29,500 3,750 25,750
2019 1,465,000 30,000 3,600 26,400
3,800,000 85,500 9,500 76,000

Net accounts written off (2017 to 2019) 76,000

Divide by credit sales (2017 to 2019) 3,800,000
Percentage of uncollectible accounts to charge sales 2.00%

12. For 2020, the provision for bad debts with respect to credit sales is

a. P28,802

c. P30,000

b. P45,000

d. P57,604

SOLUTION:

Bad debts expense for 2020 (P1,500,000 x 2%) 30,000

13. The ledger balance of the accounts receivable after necessary adjustments on
December 31, 2020 was a debit of

a. P275,396

c. P303,000

b. P288,000

d. P297,800

SOLUTION:

Accounts receivable, 1/1/20 209,000

Credit sales for 2020 1,500,000
Collections during 2020 (1,380,200)
Accounts written off -202 (31,000)
Accounts receivable, 12/31/20 297,800

14. The ledger balance of the allowance for bad debts after necessary adjustments on
December 31, 2020 was a credit of

a. P10,800

c. P25,800

b. P6,600

d. P31,800

SOLUTION:

Allowance for bad debts, 1/1/20 7,600

Doubtful accounts expense – 2020 30,000

Accounts written off – 2020 (31,000)

Recovery of accounts written off – 2020 4,200

Allowance for bad debts, 12/31/20 10,800