PHILIPPINE COLLEGE OF TECHNOLOGY

COLLEGE OF BUSINESS
Garden Park Village, Bajada, Davao City

Accounting 13
Final Examination

Name:________________________________________ Time of Exam: _________________________________

Course & Year:_________________________________ Date of Exam:__________________________________
Instructor: Heidi Ivy F. Fabelico, Ph.D Permit Number:________________________________

I.TRUE or FALSE. Write T if the statement is true and write F is the statement is false.

1. A transaction cycle is an interlocking set of business transactionas. 1.________________

2. Management assertions are claims made by members of management regarding certain 2.________________
aspects of business.
3. Cash equivalents are any long-term investment securities that have maturity period of 3.________________
90 days or less.
4. Double entry accounting is a method of bookkeeping relying on a one sided accounting 4.________________
entry to maintain financial information
5. A note receivable is also known as a promissory note. 5.________________
6. Work-in-process includes materials intended to be consumed in the production of 6.________________
finished goods.
7. Biological assets change and depreciate naturally and more rapidly than other types 7.________________
of goods.
8. A quoted security is something that are not actively trades and the current price can be 8.________________
Verified by multiple parties.
9. Goodwill provide licensing for invention or other unique processes nd designs. 9.________________
10. Finished goods includes goods ready for sale to customer. 10._______________

II. IDENTIFICATION. Write your correct answer on the space provided. NO ERASURES.

1. The process of matching the balances in an entity’s accounting records for a cash 1._______________________
Account to the corresponding information on bank statement.

2. This states that one should only record revenue. 2.________________________

3. A balance sheet item, that records the value of promissory note that a business 3. _______________________
Is owed and should received payment for.

4. This method migt be used to estimate inventory on hand for purposes of preparing 4.________________________
monthly or quarterly financial statement.

5. A method that is wildly used by merchandising firms to value or estimate ending 5._______________________
Inventory.

6. Refer to a contract that generates a financial asset to one of the parties involved, 6._______________________
And an equity instrument or financial liability to the other entity.

7. A method used for either joint ventures or significant influence investment. 7.______________________

8. An Accounting term that refers to goods that are in various stages of being made 8.______________________
eady for sale.

9. A method of bookkeeping relying on a one sided accounting entry to maintain 9.______________________

Financial information.

10. Popular method to record and report revenue, expenses and income, it is better 10._____________________
than accrual accounting.
III. CASE STUDY (30 Pts)

Case Problem # 1

The following are deficiencies in internal controls over cash:

a. When the cashier isn’t available, Sally prepares both the deposit and opens the mail.
b. The Mail clerk may not prepare a remittance advice for the A/R department if a customer does not
submit a one with a payment.
c. Sometimes, the treasurer’s department does not stop the supporting documents for cash disbursements.
d. Ben handles both the customer correspondence concerning monthly statements and making the bank
deposits.
e. Sam handles incoming mail and also prepares bank reconciliations; however, the bank reconciliations
are not done in a timely manner.

For each deficiency:

 Determine what applicable audit procedure(s) should be conducted to identify whatever any material
misstatement exist.
 Explain why you think procedure is best for this situation.

Consider each deficiency independently of the others. While each deficiency presents potential issues, identify
two that stand out as the worse with your professional knowledge. Explain your rationale also. Also, how
would you implement a change to improve those deficiencies?

Case Problem # 2

Audit Case: You are in the risk assessment phase of your audit. Your client, Fraud-O Corporation,
manufactures products which are extremely small, yet commands a high price in the market. It is in the process
of stock listing in the stock exchange. However, recent developments in the industry indicate product saturation
in late 2014 up to the year under audit (2015) due to a high degree of competition. Because of this, in June
2015, Client management initially expected a decline in revenues and operating margins.

You have known that the basis for determining management compensation and bonuses is the
achievement of a 40 % increase in revenues. The 2015 financial statements were completed by the client in
January 2016. Using analytical procedures, you noted that said performance target was met by the company.
However, you noted a large negative net operating cash inflow in the statement of cash inflows.

Based on the above case, answer the following questions:

1. Which of the following is a fraud risk factor relating to misappropriation of assets?
A. inability to generate positive operating cash inflows
B. inventory items that are small in size but of high value
C. decline in operating margins
D. none, all of the fraud risk factors in the company are related to fraudulent financial reporting
2. Identify a fraud risk factor for Fraud-O Corporation relating to fraudulent financial reporting.
A. high degree of competition or market saturation accompanied by declining margins
B. inventory items that are small in size but of high value
C. poor managerial ability to counter the effect of high degree of competition in the industry
D. large amounts of cash processed
3. After identifying the fraud risk factor, which of the following would be the next logical step in risk
assessment?
A. determine the type of audit procedures to be performed
B. formulate appropriate responses to the assessed risks
C. determine the control risk
D. assess the fraud risk factor as to its magnitude and probability of occurrence
4. The answer for No. 18 is closely related to which of the elements of the fraud triangle?
A. opportunities to commit fraud
B. capability to commit fraud
C. rationalizations
D. pressures or incentive to commit fraud
5. If internal control over the recording of revenues is ineffective, what type of substantive procedures
would you perform?
 A. interim
B. less detailed
C. less effective
D. more detailed
6. Which of the following is correct about internal control?
A. Accounting and internal control systems provide management with conclusive evidence that
objectives are reached.
B. One of the inherent limitations of accounting and internal control systems is the possibility that the
procedures may become inadequate due to changes in conditions, and compliance with procedures
may deteriorate.
C. Most internal controls tend to be directed at non-routine transactions.
D. Management does not consider costs of the accounting and internal control systems.
7. Effective internal control
A. Eliminates risk and potential loss to the organization.
B. Cannot be circumvented by management.
C. Is unaffected by changing circumstances and conditions encountered by the organization.
D. Reduces the need for management to review exception reports on a day-to-day basis