Republic of the Philippines

BATANGAS STATE UNIVERSITY

The National Engineering University
Pablo Borbon Campus
Rizal Avenue Ext., Batangas City, Batangas, Philippines 4200
Tel Nos.: (+63 43) 406-8800 / (+63 43) 779 – 8400 loc. 1124
E-mail Address: [email protected] | Website Address: http://www.batstate-u.edu.ph

College of Accountancy, Business, Economics and International Hospitality Management

Name: Score:
Section: Date:
LONG QUIZ II- ACC 313
THEORIES

1. Which of the following is an example of fraudulent financial reporting?

A. Company management changes inventory count tags and overstates ending inventory,
while understating cost of goods sold.
B. The treasurer diverts customer payments to his personal due, concealing his actions by
debiting an expense account, thus overstating expenses.
C. An employee steals inventory and the “shrinkage” is recorded in cost of goods sold.
D. An employee steals small tools from the company and neglects to return them; the cost is
reported as a miscellaneous operating expense.
2. Which of the following best describes what is meant by the term “fraud risk factor?”
A. Factors whose presence indicates that the risk of fraud is high.
B. Factors whose presence often have been observed in circumstances where frauds have
occurred.
C. Factors whose presence requires modification of planned audit procedures.
D. Reportable conditions identified during an audit.

3. Proper segregation of functional responsibilities calls for separation of the functions of

A. Authorization, execution, and payment.
B. Authorization, recording, and custody.
C. Custody, execution, and reporting.
D. Authorization, payment, and recording.

4. After assessing control risk at below the maximum level, an auditor desires to seek a further
reduction in the assessed level of control risk. At this time, the auditor would consider whether
A. It would be efficient to obtain an understanding of the entity’s information system.
B. The entity’s controls have been placed in operation.
C. The entity’s controls pertain to any financial statement assertions.
D. Additional evidential matter sufficient to support a further reduction is likely to be available.

5. Which of the following audit procedures would an auditor most likely perform to test controls
relating to management’s assertion concerning the completeness of sales transactions?
A. Verify that extensions and footings on the entity’s sales invoices and monthly customer
statements have been recomputed.
B. Inspect the entity’s reports of prenumbered shipping documents that have not been recorded
in the sales journal.
C. Compare the invoiced prices on prenumbered sales invoices to the entity’s authorized price
list.
D. Inquire about the entity’s credit granting policies and the consistent application of credit
checks.

6. For effective internal control, the accounts payable department generally should
A. Stamp, perforate, or otherwise cancel supporting documentation after payment is mailed.
B. Ascertain that each requisition is approved as to price, quantity, and quality by an authorized
employee.
C. Obliterate the quantity ordered on the receiving department copy of the purchase order.
D. Establish the agreement of the vendor’s invoice with the receiving report and purchase order

Leading Innovations, Transforming Lives, Building the Nation

 Republic of the Philippines
BATANGAS STATE UNIVERSITY
The National Engineering University
Pablo Borbon Campus
Rizal Avenue Ext., Batangas City, Batangas, Philippines 4200
Tel Nos.: (+63 43) 406-8800 / (+63 43) 779 – 8400 loc. 1124
E-mail Address: [email protected] | Website Address: http://www.batstate-u.edu.ph

College of Accountancy, Business, Economics and International Hospitality Management

7. The usefulness of the standard bank confirmation request may be limited because the bank
employee who completes the form may
A. Not believe that the bank is obligated to verify confidential information to a third party.
B. Sign and return the form without inspecting the accuracy of the client’s bank reconciliation.
C. Not have access to the client’s cutoff bank statement.
D. Be unaware of all the financial

8. An auditor should trace bank transfers for the last part of the audit period and first part of the
subsequent period to detect whether
A. The cash receipts journal was held open for a few days after the year-end.
B. The last checks recorded before the year-end were actually mailed by the year-end.
C. Cash balances were overstated because of kiting.
D. Any unusual payments to or receipts from related parties occurred.

9. In confirming a client’s accounts receivable in prior years, an auditor found that there were many
differences between the recorded account balances and the confirmation replies. These differences,
which were not misstatements, required substantial time to resolve. In defining the sampling unit for
the current year’s audit, the auditor most likely would choose
A. Individual overdue balances.
B. Individual invoices.
C. Small account balances.
D. Large account balances.

10. An auditor should perform alternative procedures to substantiate the existence of accounts
receivable when
A. No reply to a positive confirmation request is received.
B. No reply to a negative confirmation request is received.
C. Collectibility of the receivables is in doubt.
D. Pledging of the receivables is probable.

11. While observing a client’s annual physical inventory, an auditor recorded test counts for several
items and noticed that certain test counts were higher than the recorded quantities in the client’s
perpetual records. This situation could be the result of the client’s failure to record
A. Purchase discounts.
B. Purchase returns.
C. Sales.
D. Sales returns.

12. To gain assurance that all inventory items in a client’s inventory listing schedule are valid, an
auditor most likely would trace
A. Inventory tags noted during the auditor’s observation to items listed in the inventory listing
schedule.
B. Inventory tags noted during the auditor’s observation to items listed in receiving reports and
vendors’ invoices.
C. Items listed in the inventory listing schedule to inventory tags and the auditor’s recorded
count sheets.
D. Items listed in receiving reports and vendors’invoices to the inventory listing schedule.

13. An auditor who physically examines securities should insist that a client representative be present
in order to
A. Detect fraudulent securities.

Leading Innovations, Transforming Lives, Building the Nation

 Republic of the Philippines
BATANGAS STATE UNIVERSITY
The National Engineering University
Pablo Borbon Campus
Rizal Avenue Ext., Batangas City, Batangas, Philippines 4200
Tel Nos.: (+63 43) 406-8800 / (+63 43) 779 – 8400 loc. 1124
E-mail Address: [email protected] | Website Address: http://www.batstate-u.edu.ph

College of Accountancy, Business, Economics and International Hospitality Management

B. Lend authority to the auditor’s directives.

C. Acknowledge the receipt of securities returned.
D. Coordinate the return of securities to the proper locations.
14. In establishing the existence and ownership of a long term investment in the form of publicly
traded stock, an auditor should inspect the securities or
A. Correspond with the investee company to verify the number of shares owned.
B. Inspect the audited financial statements of the investee company.
C. Confirm the number of shares owned that are held by an independent custodian.
D. Determine that the investment is carried at the lower of cost or market.

15. When an auditor is unable to inspect and count a client’s investment securities until after the
balance sheet date, the bank where the securities are held in a safe-deposit box should be asked to
A. Verify any differences between the contents of the box and the balances in the client’s
subsidiary ledger.
B. Provide a list of securities added and removed from the box between the balance sheet
date and the security-count date.
C. Confirm that there has been no access to the box between the balance sheet date and the
security count date.
D. Count the securities in the box so the auditor will have an independent direct
verification.

PROBLEMS
Calapan Company provided the following data at year-end:

2024 2025
Accounts Receivable 1,200,000 1,350,000
Accounts Payable 1,500,000 1,850,000

In 2025, accounts written-off amounted to P100,000. Sales returns amounted to P250,000, of which
an amount of P50,000 was paid to customers.

Cash receipts from customers after the P500,000 discounts totaled P8,000,000.

Purchase returns amounted to P400,000, of which an amount of P100,000 was received from
suppliers.

Cash payments to trade creditors amounted to P5,000,000 after discounts of P200,000.

Requirement: Under the accrual basis of accounting, how much is the:

1. Net Sales
2. Net Purchases

Kitty reported the following data which constitute a condensed description of the business for the
first year of operations ending December 31, 2025.

Cash Sales 500,000

Sales on account 3,000,000
Collection from customers 2,800,000
Cash purchases 300,000
Purchases on account 2,000,000

Leading Innovations, Transforming Lives, Building the Nation

 Republic of the Philippines
BATANGAS STATE UNIVERSITY
The National Engineering University
Pablo Borbon Campus
Rizal Avenue Ext., Batangas City, Batangas, Philippines 4200
Tel Nos.: (+63 43) 406-8800 / (+63 43) 779 – 8400 loc. 1124
E-mail Address: [email protected] | Website Address: http://www.batstate-u.edu.ph

College of Accountancy, Business, Economics and International Hospitality Management

Payment to trade creditors 1,600,000

Salaries paid 650,000
Office supplies paid 200,000
Other expense paid 50,000
Interest received 40,000
Equipment 400,000

The equipment was acquired on January 1 and has an estimated useful life of 10 years with no
residual value.

The following amounts are properly determined on December 31:

Accrued salaries payable 70,000
Office supplies unused 50,000
Accrued interest receivable 10,000
Doubtful accounts 90,000
Ending inventory 4,000,000

3. What is the net income to be reported under accrual basis?

You are auditing the financial statements of Jennie Inc. for the year ended December 31, 2024. The
company only maintains cash receipt and cash disbursement journals and records transactions under
cash basis.

The following summarizes your audit findings:

a. Cash records show the following information:
CASH DISBURSEMENTS
Payments to suppliers P6, 065,200
Payments of operating expenses 2,557,500
Cash refund to customers for sales returns 465,500

CASH RECEIPTS
Collection from customers, excluding recoveries
14,716,800
of pervious written-off
Collections of royalty income 998,500
Collections of previous written-off outstanding
350,500
invoices
Cash refund from suppliers for purchase returns 250,400

b. The following information are relevant regarding the company’s operating expenses and
other income:
Dec. 31, 2024 Dec. 31, 2023
Accrued operating expenses P1,460,000 P1,250,000
Prepaid operating expenses 495,000 630,000
Accrued royalty income 262,500 303,800
c. Receivables from customers, based on outstanding invoices at the beginning of the year is at
P3,500,500 while receivables from customers at the end of the year was at P2,220,100.
P635,000 of the uncollected invoices were written-off during the year while P350,500 of the

Leading Innovations, Transforming Lives, Building the Nation

 Republic of the Philippines
BATANGAS STATE UNIVERSITY
The National Engineering University
Pablo Borbon Campus
Rizal Avenue Ext., Batangas City, Batangas, Philippines 4200
Tel Nos.: (+63 43) 406-8800 / (+63 43) 779 – 8400 loc. 1124
E-mail Address: [email protected] | Website Address: http://www.batstate-u.edu.ph

College of Accountancy, Business, Economics and International Hospitality Management

previously written-off invoices were collected. Customers took advantage of a total of

P750,500 sales discount during the year while sales returns from customers for the year was
at P1,075,600 including the refunds made to the customers. Collections from customers as
of December 31, 2024 for merchandise to be delivered in 2025 was at P1,046,500.
d. P750,000 of the outstanding invoices at the beginning of the year is doubtful of collection
while P580,000 of the outstanding invoices at the end of the year is doubtful of collection.
e. Payables to suppliers of merchandise, based on outstanding supplier invoices at the
beginning of the year was at P1,908,000 while payables to suppliers at the end of the year
was at P2,520,000. Purchase discounts for the year was at P687,500 while purchase returns
for the year was P820,200 which included refunds from the suppliers.
f. Unsold merchandise on hand at the beginning and at the end of the year were at P1,760,900
and P2,125,500, respectively.

4. What is the accrual basis gross sales for the year?

5. What is the correct accrual basis cost of sales for the year?

The retained earnings account of JELLAH Corp. is reproduced below:

RETAINED EARNINGS
Date Item Debit Credit
2016
Jan-01 Balance 81,000
Dec-31 Net Income for year 18,000
2017
Jan-10 Dividends paid 15,000
Mar-06 Stock sold -excess over par 32,000
Dec-31 Net loss for the year 11,200
2018
Jan-09 Dividends paid 15,000
Dec-31 Balance 89,800
P131,000 P131,000
The audit of the December 31, 2018 financial statements of the company reveals the following:
a. Dividends declared on December 10, 2016 and 2017 had not been recorded in the books
until paid.
b. Improvements in buildings and equipment of P9,600 had been charged to expense at the end
of April 2015. Improvements are estimated to have an 8-year life. JELLAH Corp. computes
depreciation to the nearest month and uses the straight line depreciation.
c. The physical inventory of merchandise had been understated by P3,000 at the end of 2016,
and by P4,300 at the end of 2017.
d. Merchandise in transit and to which the company had title at December 31,2017 and 2018
was not included in the year-end inventories. These shipments of P3,800 and P5,500 were
recorded as purchases in January 2018 and 2019, respectively.
e. The company had failed to record sales commissions payable of P2,100 and P1,700 at the
end of 2017 and 2018, respectively.
f. The company had failed to recognize supplies on hand of P1,200 and P2,500 at the end of
2017 and 2018, respectively.
g. The company reported a net loss of P12,400 for the year ended December 31,2018

6. What is the adjusted net income for 2016?

7. What is the adjusted net income for 2017?
8. What is the correct balance of retained earnings as of 2018?

Leading Innovations, Transforming Lives, Building the Nation

 Republic of the Philippines
BATANGAS STATE UNIVERSITY
The National Engineering University
Pablo Borbon Campus
Rizal Avenue Ext., Batangas City, Batangas, Philippines 4200
Tel Nos.: (+63 43) 406-8800 / (+63 43) 779 – 8400 loc. 1124
E-mail Address: [email protected] | Website Address: http://www.batstate-u.edu.ph

College of Accountancy, Business, Economics and International Hospitality Management

The following information pertains to the cash of Rosal Company:

1.
Jul-31 Aug-31
Balance shown on bank statement 2,738 2,696
Balance shown in general ledger
before reconciling the bank account 2,578 2,500
Outstanding checks 863 1,015
Deposit in transit 685 1,245

2.
For August
Deposits shown on bank statement 5,588
Charges shown on bank statement 5,630
Cash receipts shown on company's books 5,398
Cash payments shown on company's books 5,476
3. The bank service charge was P18 in July (recorded by the company during August ) and 24 in
August (not yet recorded by the company)

4. Included with the August bank statement was a check for P500 that had been received on August
25 from a customer on account. The returned check, marked “NSF” by the bank, has not yet been
recorded on the company’s books.

5. During the August, bank collected P750 of bonds interest for Rosal Company and credited the
proceeds to the company’s account. The company earned the interest during the current accounting
period but has not yet recorded it.

6. During August, the company issued a check for P696 for equipment. The check, which cleared
the bank during August, was incorrectly recorded by the company for P896.

Requirement: Compute for the following:

9. Adjusted cash balance for July 31
10. Adjusted receipts for August
11. Adjusted disbursements for August
12. Adjusted cash balance for August 31

You have been asked to audit the records of XYZ Manufacturing Company, a small manufacturer
of precision tools and machines, for the year-ended December 31, 2025. Your examination of sales
among others the following:

Balance before adjustments:

Net Sales 800,000
Cost of sales 500,000
Inventory-SFP 200,000

Additional information:

• Some machines have been shipped on consignment to XYZ’s regular dealers. These

Leading Innovations, Transforming Lives, Building the Nation

 Republic of the Philippines
BATANGAS STATE UNIVERSITY
The National Engineering University
Pablo Borbon Campus
Rizal Avenue Ext., Batangas City, Batangas, Philippines 4200
Tel Nos.: (+63 43) 406-8800 / (+63 43) 779 – 8400 loc. 1124
E-mail Address: [email protected] | Website Address: http://www.batstate-u.edu.ph

College of Accountancy, Business, Economics and International Hospitality Management

transactions have been recorded as ordinary sales and billed as such. As of December 31,
2025, the machines billed and in the hands of consignees amounted to P130,000. Sales price
was determined by adding 30% to cost.
• On December 30,2025, two machines were shipped to a customer on FOB Shipping Point
basis. The sales was entered in the records on January 5, 2026 when cash was received in the
amount of P13,000.
• The inventory as of December 31, 2025 included goods sold during November 2023 for
P6,500 but returned by the customer on December 15, 2025. No entry has been made to adjust
the customer’s account for the goods returned. The goods were included at selling price which
was 103% of cost.

What is the adjusted balance of:

13. Net sales
14. Cost of sales
15. Inventory

ANSWER SHEET
Name: Score:
Section: Date:

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