Solution manual applied auditing by cabrera chapter13 answer

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Solution manual applied auditing by cabrera chapter13   answer

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CHAPTER SUBSTANTIVE TESTS OF PREPAID EXPENSES AND DEFERRED CHARGES 13 13-1 Rights and obligations are tested by examining the insurance policies and confirming the policy with insurance carriers In turn, an auditor tests valuation by recalculating unexpired premiums through evidence obtained from the prior year’s unexpired insurance and from current premiums In addition, to address clerical accuracy, the auditor reconciles premium payments with cash disbursements records, and total expense and unexpired premiums with the general ledger 13-2 Rhan Corporation Rent Expense per client’s record Less: Rent Expense per audit Last month’s rent Nonrefundable payment amortization P60,000 x 1/12 Amount to be deferred Answer: 13-3 P 10,000 1,000 11,000 P 94,000 (c) Brown Company Funded past service cost Amortized past service cost P 59,600 46,700 Deferred pension cost P 12,900 Answer: 13-4 P 105,000 (a) Hansen, Inc Balance of Bond Discount, 1-1-06 Amortized Bond Discount: Nominal Interest Effective Interest Unamortized Bond Discount Answer: (a) P 61,000 P 90,000 93,900 (3,900) P 57,100 13-2 Solutions Manual to Accompany Applied Auditing, 2006 Edition 13-5 Walton Company Prepaid rent for 1/2 year (P36,000 x 1/2) Unexpired P24,000 x 2.5 Total Answer: 13-6 P 18,000 20,000 P 38,000 (d) Miller Corporation The past service cost of P500,000 should be amortized over 10 years that is, from 2006 to 2015 Answer: 13-7 (c) Mabini, Inc Adjusting Journal Entries: a b c d e f Prepaid advertising Advertising expense P12,000 P12,000 Office supplies on hand Office supplies expense 250 Insurance expense Prepaid insurance 350 250 350 Factory supplies on hand Factory supplies expense 1,100 Unexpired subscriptions Subscriptions expense 28 x P1,800 36 1,400 Insurance expense Prepaid insurance x P3,600 36 1,100 1,400 400 400 Substantive Tests of Prepaid Expenses and Deferred Charges g h i j Prepaid closing costs Rent expense 9.5 x P12,000 10 11,400 11,400 Unexpired dues and subscriptions Dues and subscriptions expense x P1,200 12 800 Dues and subscriptions expense Prepaid dues and subscriptions 360 Prepaid vacation expense Vacation expense 13-3 800 360 3,000 3,000 13-4 13-8 Solutions Manual to Accompany Applied Auditing, 2006 Edition Raven Construction Company Requirement (1) Raven Construction Company Insurance Schedule 12-31-06 Policy No 0010 0020 0030 0040 0050 0060 0070 0080 0090 0100 0110 0120 Company Type of Coverage Peso Coverage Atlas Clara Pioneer Fortune Mayon Matino Matalino Maganda Malinis Mabuti Malayan AFLA Fire - Bldgs Fire - Bldgs Fire - Office Product Liability Fire and Theft-Inventory Medical-Officers Delivery Equipment Blanket Position Bond Construction Personnel Officer’s Life Officer’s Life P100,000 150,000 100,000 100,000 65,000 100,000 50,000 30,000 100,000 75,000 50,000 50,000 Period Covered From To 8-1-05 2-1-06 3-1-05 7-1-04 8-1-06 6-1-05 11-1-06 2-1-05 4-1-06 5-1-05 9-1-06 9-1-06 8-1-08 2-1-09 3-1-07 7-1-08 8-1-09 6-1-07 11-1-07 2-1-07 4-1-07 5-1-09 9-1-07 9-1-07 Total Premium P 1,872 2,736 720 768 360 1,200 240 480 195 2,160 120 120 P10,971 Premium Chargeable to Expense Prior to 2006 2006 P 260 300 288 350 220 360 P1,778 Requirement (2) Adjusting Journal Entry: Insurance expense Retained earnings Prepaid insurance P 3,708.25 1,778.00 P 5,486.25 P 624.00 836.00 360.00 192.00 50.00 600.00 40.00 240.00 146.25 540.00 40.00 40.00 P3,708.25 Prepaid 12-31-06 P 988.00 1,900.00 60.00 288.00 310.00 250.00 200.00 20.00 48.75 1,260.00 80.00 80.00 P5,484.75 Substantive Tests of Prepaid Expenses and Deferred Charges 13-9 13-5 Queen Company Requirement (a) Queen Company Insurance Schedule 12.31.06 Policy No Insurance Company 101 102 103 104 105 106 107 Pioneer Pioneer Commonwealth Malayan AFISCO Domestic Philam Fire and extended, factory building Fire and extended, factory building Fire and extended, office building Fire and extended, office building Fire, merchandise Comprehensive delivery equipment Liability, delivery equipment 7/1/05 8/16/06 2/1/02 10/1/03 5/1/06 8/1/06 8/1/06 7/1/08 8/16/09 2/1/07 10/1/08 5/1/07 8/1/07 8/1/07 108 109 110 Filipinas Bankers Fortune Inside theft and burglary Employee fidelity Workmen’s Compensation 11/1/06 3/1/06 9/1/06 11/1/09 3/1/09 9/1/07 Coverage Period Covered From To Amount of Coverage Total Premium Prior to 2006 2006 Prepaid 12.31.06 P 50,000 150,000 25,000 27,000 10,000 15,000 50,000 100,000 20,000 30,000 Payroll total at P0.25 per P100 P 648 1,728 300 480 444 240 360 P 108 235 216 - P 216 216 60 96 296 100 150 P 324 1,512 168 148 140 210 25 250 205 425 650 295 Total 450 900 500 - P 6,050 P 559 Requirement (b) Prepaid insurance Insurance expense Retained earnings To set up prepaid insurance as of 12.31.06 and to correct insurance expense for 2006 and prior years’ profits 3,877 3,008 869 P1,614 P 3,877 ...13-2 Solutions Manual to Accompany Applied Auditing, 2006 Edition 13-5 Walton Company Prepaid rent for 1/2 year (P36,000 x 1/2) Unexpired P24,000 x 2.5 Total Answer: 13-6 P 18,000... Prepaid vacation expense Vacation expense 13-3 800 360 3,000 3,000 13-4 13-8 Solutions Manual to Accompany Applied Auditing, 2006 Edition Raven Construction Company Requirement (1) Raven Construction... The past service cost of P500,000 should be amortized over 10 years that is, from 2006 to 2015 Answer: 13-7 (c) Mabini, Inc Adjusting Journal Entries: a b c d e f Prepaid advertising Advertising

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