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You were engaged by Quezon Corporation for the audit

of the company's financial statements for the year ended

December 31, 2020. The company is engaged in the

wholesale business and makes all sales at 25% over cost.

The following were gathered from the client's accounting

records:

S A L E S P U R C H A S E S

Date Ref. Amount Date Ref. Amount

Balance

forwarded

P5,200,000

Balance

forwarded

P2,700,000

Dec.

27

SI No.

965

40,000

Dec.

27

RR No.

1057

35,000

Dec.

28

SI No.

966

150,000

Dec.

28

RR No.

1058

65,000

Dec.

28

SI No.

967

10,000

Dec.

29

RR No.

1059

24,000

Dec.

31

SI No.

969

46,000

Dec.

30

RR No.

1061

70,000

Dec.

31

SI No.

970

68,000

Dec.

31

RR No.

1062

42,000

Dec.

31

SI No.

971

16,000

Dec.

31

RR No.

1063

64,000

Dec.

31

Closing

entry

(5,530,000)

Dec.

31

Closing

entry

(3,000,000)

P - P -

Note: SI = Sales Invoice RR = Receiving Report

Inventory P600,000

Accounts receivable 500,000

Accounts payable 400,000

You observed the physical inventory of goods in the

warehouse on December 31 and were satisfied that it was

properly taken.

When performing sales and purchases cut-off tests, you

found that at December 31, the last Receiving Report

which had been used was No. 1063 and that no shipments

had been made on any Sales Invoices whose number is

larger than No. 968. You also obtained the following

additional information:

a) Included in the warehouse physical inventory at

December 31 were goods which had been purchased

and received on Receiving Report No. 1060 but for

which the invoice was not received until the following

year. Cost was P18,000.

b) On the evening of December 31, there were two trucks

in the company siding:

Truck No. CPA 123 was unloaded on January 2 of

the following year and received on Receiving

Report No. 1063. The freight was paid by the

vendor.

Truck No. ILU 143 was loaded and sealed on

December 31 but leave the company premises on

January 2. This order was sold for P100,000 per

Sales Invoice No. 968.

c) Temporarily stranded at December 31 at the railroad

siding were two delivery trucks enroute to Brooks

Trading Corporation. Brooks received the goods,

which were sold on Sales Invoice No. 966 terms FOB

Destination, the next day.

d) Enroute to the client on December 31 was a truckload

of goods, which was received on Receiving Report No.

1064. The goods were shipped FOB Destination, and

freight of P2,000 was paid by the client. However, the

freight was deducted from the purchase price of

P800,000.

QUESTIONS:

1. When inventory is material to the financial statements,

the auditor shall obtain sufficient appropriate audit

evidence regarding the existence and condition of

inventory by:

a. Attendance at physical inventory counting, unless

impracticable.

b. Performing audit procedures over the entity's final

inventory records to determine whether they

accurately reflect actual inventory count results.

c. Both a and b.

d. Neither a nor b.

2. Attendance at physical inventory counting involves:

a. Inspecting the inventory to ascertain its existence

and evaluate its condition, and performing test

counts.

b. Observing compliance with management's

instructions and the performance of procedures for

recording and controlling the results of the physical

inventory count.

c. Obtaining audit evidence as to the reliability of

management's count procedures.

d. All of these.

3. The procedures involve in the attendance at physical

inventory counting

a. Serve as risk assessment procedures.

b. Serve as test of controls.

c. Serve as substantive procedures.

d. May serve as test of controls or substantive

procedures depending on the auditor's risk

assessment, planned approach and the specific

procedures carried out.

4. In which of the following cases is attendance at

physical inventory counting impracticable?

a. Where inventory is held in a location that may

pose threats to the safety of the auditor.

b. Where the auditor will be inconvenienced because

of the difficulty, time and cost involved in doing

the procedures.

c. Both a and b.

d. Neither a nor b.

5. If attendance at physical inventory counting is

impracticable, the auditor shall

a. Perform alternative audit procedures to obtain

sufficient appropriate audit evidence regarding the

existence and condition of inventory.

b. Modify the opinion in the auditor's report.

c. Make or observe some physical counts on an

alternative date, and perform audit procedures on

intervening transactions.

d. Do nothing and just rely on the result of physical

inventory counting conducted by the client.

6. Which of the following may provide sufficient

appropriate audit evidence about the existence and

condition of inventory if attendance at physical

inventory counting is impracticable?

a. Inspection of documentation of the subsequent

sale of specific inventory items purchased prior to

the physical inventory counting.

b. Inspection of documentation of the subsequent

sale of specific inventory items purchased after the

physical inventory counting.

c. Both a and b.

d. Neither a nor b.

7. When inventory under the custody and control of a

third party is material to the financial statements, the

auditor shall obtain sufficient appropriate audit

evidence regarding the existence and condition of that

inventory by

a. Requesting confirmation from the third party as to

the quantities and condition of inventory held on

behalf of the entity.

b. Performing inspection or other audit procedures

appropriate in the circumstances.

c. Performing one or both of the procedures in (a)

and (b).

d. Relying only on the written representations made

by the client's management.

8. Which of the following is not one of the independent

auditor's objectives regarding the audit of inventories?

a. Verifying that inventory counted is owned by the

client.

b. Verifying that the client has used proper inventory

pricing.

c. Ascertaining the physical quantities of inventory on

hand.

d. Verifying that all inventory owned by the client is

on hand at the time of the count.

9. An auditor is most likely to inspect loan agreements

under which an entity's inventories are pledged to

support management's financial statement assertion of

a. Existence or occurrence.

b. Completeness.

c. Presentation and disclosure.

d. Valuation or allocation.

10. An auditor selected items for test counts while

observing a client's physical inventory. The auditor

then traced the test counts to the client's inventory

listing. This procedure most likely obtained evidence

concerning

a. Existence. c. Rights.

b. Completeness. d. Valuation.

Based on the given information and the result of your

audit, determine the following:

11. Sales for the year ended December 31, 2020?

12. Purchases for the year ended December 31, 2020?

13. Inventory as of December 31, 2020?

14. Accounts receivable as of December 31, 2020?

15. Accounts payable as of December 31, 2020?