1: 2 pts each: You were asked to review the records of Tulis Company, a small manufacturer of precision tools and machines. Your client is interested in buying the business, and arrangements have been made for you to review the accounting records. Your examination reveals the following: 1. Tulis Company commenced business on April 1, 2014, and has been reporting on a fiscal year ending March 31. The company has never been audited, but the annual statements prepared by the bookkeeper reflect the following income before closing and before deducting income taxes. Year Ended March 31 Income Before Taxes 2015 2016 2017 71,600 111,400 103,580 2. A relatively small number of machines have been shipped on consignment. These transactions have been recorded as ordinary sales and billed as such. On March 31 of each year, 2015 machines billed and in the hands of consignees amounted to: 6,500 Year Ended March 31 Income Before Taxes 2015 2016 2017 71,600 111,400 103,580 2. A relatively small number of machines have been shipped on consignment. These transactions have been recorded as ordinary sales and billed as such. On March 31 of each year, machines billed and in the hands of consignees amounted to: 2015 2016 2017 6,500 None 5,590 Sales price was determined by adding 30% to cost. Assume that the consigned machines are sold to the following year. 3. On March 30, 2016, two machines were shipped to a customer on a C.O.D. basis. The sale was not entered until April 5, 2016, when cash was received for Php 6,100. The machines were not included in the inventory at March 31, 2016. (Title passed on March 2016). 4. All machines are sold subject to a 5-year warranty. It is estimated that 3. On March 30, 2016, two machines were shipped to a customer on a C.O.D. basis. The sale was not entered until April 5, 2016, when cash was received for Php 6,100. The machines were not included in the inventory at March 31, 2016. (Title passed on March 2016). 4. All machines are sold subject to a 5-year warranty. It is estimated that expense ultimately to be incurred in connection with the warranty will amount to 12 of 1% of sales. The company has charged as expense account for warranty costs incurred. Sales per books and warranty costs were as follows: Warranty Expense for Sale Year ended Sales 2015 Mar. 31 2015 940,000 760 2016 1,010,000 360 2017 1,795,000 320 5. A review of the corporate minutes reveals the manager is entitled to a bonus of of 1% of the income before deducting income taxes and the bonus. The bonus have never been 20 until April 5, 2016, when cash was received for Php 6,100. The machines were not included in the inventory at March 31, 2016. (Title passed on March 2016). 4. All machines are sold subject to a 5-year warranty. It is estimated that expense ultimately to be incurred in connection with the warranty will amount to 12 of 1% of sales. The company has charged as expense account for warranty costs incurred. Sales per books and warranty costs were as follows: ty Expense for Sales Made in 2015 2016 2017 Total 760 760 360 1,310 1,670 320 1,620 1,910 3,850 5. A review of the corporate minutes reveals the manager is entitled to a bonus of of 1% of the income before deducting income taxes and the bonus. The bonus have never been recorded or paid. 6. Bad debts have been recorded on a direct write-off basis. Experience of similar enterprises indicates that Mar. 31 2015 940,000 760 2016 1,010,000 360 2017 1,795,000 320 5. A review of the corporate minutes reveals the manager is entitled to a bonus of of 1% of the income before deducting income taxes and the bonus. The bonus have never been recorded or paid. 6. Bad debts have been recorded on a direct write-off basis. Experience of similar enterprises indicates that losses will approximate of 1% of sales. Bad debts written off were: d Debts Incurred on Sales Made in 2015 2016 2017 Total 750 750 800 520 1,320 350 1,800 1,700 3,850 7. The bank deducts 6% on all contracts financed. Of this amount, 1% is placed in a reserve to the credit of Tulis Company that is refunded to Tulis as finance contracts are paid in full. The reserve established by the bank has 350 1,800 1,700 3,850 7. The bank deducts 6% on all contracts financed. Of this amount, 1% is placed in a reserve to the credit of Tulis Company that is refunded to Tulis as finance contracts are paid in full. The reserve established by the bank has not been reflected in the books of Tulis. The excess of credits over debits (net increase) to the reserve account with Tulis on the books of the bank for each fiscal year were as follows: 2015 3,000 2016 3,900 2017 5,100 Total 12,000 8. Commissions on sales have been entered when paid. Commissions payable on March 31 of each year were as follows: 2015 2016 2017 1,400 800 1,120 After considering the effect of errors discussed from item 2 to item 8, answer the following questions: 8. Commissions on sales have been entered when paid. Commissions payable on March 31 of each year were as follows: 2015 2016 2017 1,400 800 1,120 After considering the effect of errors discussed from item 2 to item 8, answer the following questions: 1. What is the adjusted 2015 net income before taxes? 2. What is the net adjustment to the 2016 net income before taxes? 3. What is the net adjustment to the 2017 net income before taxes? 4. The compound as of March 31, 2017 entry will involve: a. A debit to Warranty expense of Php 5,000 b. A debit to Sales of Php 11,690 C. A debit to Bad debt expense of Php 3,429 d. A debit to Commissions expense of Php 300 5. The compound entry as of March 31, 2017 will be: a. A credit to Retained earnings of Php 1,103 b. A credit to Sales Php 5,590 C. A credit to Bad debt expense of Php 608 d. A debit to Accrued commissions pavable of Php 1,120 Problem 1: 2 pts each: You were asked to review the records of Tulis Company, a small manufacturer of precision tools and machines. Your client is interested in buying the business, and arrangements have been made for you to review the accounting records. Your examination reveals the following: 1. Tulis Company commenced business on April 1, 2014, and has been reporting on a fiscal year ending March 31. The company has never been audited, but the annual statements prepared by the bookkeeper reflect the following income before closing and before deducting income taxes. Year Ended March 31 Income Before Taxes 2015 2016 2017 71,600 111,400 103,580 2. B. A relatively small number of machines have been shipped on consignment. These transactions have been recorded as ordinary sales and billed as such. On March 31 of each year, machines billed and in the hands of consignees amounted to: 2015 2016 2017 6,500 None 5,590 I Sales price was determined by adding 30% to cost. Assume that the consigned machines are sold to the following year. On March 30, 2016, two machines were shipped to a customer on a C.O.D. basis. The sale was not entered vom April5 2016 when cash was received for Php 6,000. The machines were not 2. A relatively small number of machines have been shipped on consignment. These transactions have been recorded as ordinary sales and billed as such. On March 31 of each year, machines billed and in the hands of consignees amounted to: 2015 2016 2017 6,500 None 5,590 3. Sales price was determined by adding 30% +3 cost. Assume that the consigned machines are sold to the following year. On March 30, 2016, two machines were's ed to a customer on a C.O.D. basis. The sale was not entered until April 5, 2016, when cash was received for Php 6,100. The machines were not included in the inventory at March 31, 2016 Title passed on March 2016). 4. All machines are sold subject to a 5-year warranty. It is estimated that expense ultimately to be incurred in connection with the warranty will amount to 1 of 1% of sales. The company has charged as expense account for warranty costs incurred. Sales per books and warranty costs were as follows: Warranty Expense for Sales Made in Year ended Mar 31 Sales 2015 2015 940,000 1760 2016 2017 Tota 760 2016 1,010,000 360 1,310 1,670 2017 1,795,000 320 1,620 1,910 3,850 5. 6. A review of the corporate minutes reveals the manager is entitled to a bonus of % of 1% of the income before deducting income taxes and the bonus. The bonus have never been recorded or paid. Bad debts have been recorded on a direct write-off basis. Experience of similar enterprises indicates that losses will approximate 4 of 1% of s. Bad debts written off were: Bad Debts Incurred on Sales Made in 2015 2016 2017 Tota 2015 750 750 2016 800 520 1,320 2017 350 11,800 1 700 3,850 I 7. The bank deducts 6% on all contracts financed. Of this amount, as is placed in a reserve to the credit of Tulis Company that is refunded to Tu is as finance contracts are paid in full. The reserve established by the bank has not been reflected in the books of Tuls. The excess of credits over debits (net increase to the rserve account with Tulls on the books of the bank for each fiscal year were as follows: 7. The bank deducts 6% on all contracts financed. Of this amount, % is placed in a reserve to the credit of Tulis Company that is refunded to Tulis as finance contracts are paid in full. The reserve established by the bank has not been reflected in the books of Tulis. The excess of credits over debits (net increase) to the reserve account with Tulis on the books of the bank for each fiscal year were as follows: 2015 3,000 2016 3,900 2017 5,100 Total 12,000 8. Commissions on sales have been entered when grid. Commissions payable on March 31 of each year were as follows: 2015 2016 2017 1,400 800 1,120 After considering the effect of errors discussed from item 2 to item 8, answer the following questions: following Problem 1: 2 pts each: You were asked to review the records of Tulis Company, a small manufacturer of precision tools and machines. Your client is interested in buying the business, and arrangements have been made for you to review the accounting records. Your examination reveals the following: 1. Tulis Company commenced business on April 1, 2014, and has been reporting on a fiscal year ending March 31. The company has never been audited, but the annual statements prepared by the bookkeeper reflect the following income before closing and before deducting income taxes. Year Ended March 31 Income Before Taxes 2015 2016 2017 71,600 111,400 103,580 2. A relatively small number of machines have been shipped on consignment. These transactions have been recorded as ordinary sales and billed as such. On March 31 of each year, machines billed and in the hands of consignees amounted to: 2015 2016 2017 6,500 None 5,590 Sales price was determined by adding 30% to cost. Assume that the consigned machines are sold to the following year. 3. On March 30, 2016, two machines were shipped to a customer on a C.O.D. basis. The sale was not entered until April 5, 2016, when cash was received for Php 6,100. The machines were not included in the inventory at March 31, 2016. (Title passed on March 2016). 4. All machines are sold subject to a 5-year warranty. It is estimated that expense ultimately to be incurred in connection with the warranty will amount to of 1% of sales. The company has charged as expense account for warranty costs incurred. Sales per books and warranty costs were as follows: Warranty Expense for Sales Made in Year ended Mar. 31 Sales 2015 2016 2017 Total 2015 940,000 760 MIDTERM EXAM: Major 6: Auditing and Assurance, Concepts and Applications 2 760 2016 1,010,000 360 1,310 1,670 2017 1,795,000 320 1,620 1,910 3,850 5. A review of the corporate minutes reveals the manager is entitled to a bonus of of 1% of the income before deducting income taxes and the bonus. The bonus have never been recorded or paid. 6. Bad debts have been recorded on a direct write-off basis. Experience of similar enterprises indicates that losses will approximate 4 of 1% of sales. Bad debts written off were: Bad Debts Incurred on Sales Made in 2015 2016 2017 Total 2015 750 750 2016 800 520 1,320 2017 350 1,800 1,700 3,850 7. The bank deducts 6% on all contracts financed. Of this amount, %% is placed in a reserve to the credit of Tulis Company that is refunded to Tulis as finance contracts are paid in full. The reserve established by the bank has not been reflected in the books of Tulis. The excess of credits over debits (net increase) to the reserve account with Tulis on the books of the bank for each fiscal year were as follows: 2015 3,000 2016 3,900 2017 5,100 Total 12,000 8. Commissions on sales have been entered when paid. Commissions payable on March 31 of each year were as follows: 2015 2016 1,400 800 2017 1,120 8. Commissions on sales have been entered when paid. Commissions payable on March 31 of each year were as follows: 2015 2016 2017 1,400 800 1,120 After considering the effect of errors discussed from item 2 to item 8, answer the following questions: MIDTERM EXAM: Major 6: Auditing and Assurance, Concepts and Applications 2 1. What is the adjusted 2015 net income before taxes? 2. What is the net adjustment to the 2016 net income before taxes? 3. What is the net adjustment to the 2017 net income before taxes? 4. The compound as of March 31, 2017 entry will involve: A debit to Warranty expense of Php 5,000 b. A debit to Sales of Php 11,690 c. A debit to Bad debt expense of Php 3,429 d. A debit to Commissions expense of Php 300 5. The compound entry as of March 31, 2017 will be: a. A credit to Retained earnings of Php 1,103 b. A credit to Sales Php 5,590 c. A credit to Bad debt expense of Php 608 d. A debit to Accrued commissions payable of Php 1,120 3/3