During your audit of the Makati Corporation for the year

ended December 31, 2020, you found the following

information relating to certain inventory transactions from

your observation of the client's physical count and review

of sales and purchases cutoff:

a. Goods costing P180,000 were received from a vendor

on January 3, 2021. The goods were not included in

the physical count. The related invoice was received

and recorded on December 30, 2020. The goods were

shipped on December 31, 2020, terms FOB shipping

point.

b. Goods costing P200,000, sold for P300,000, were

shipped on December 31, 2020, and were received by

the customer on January 2, 2021. The terms of the

invoice were FOB shipping point. The goods were

included in the ending inventory for 2020 and the sale

was recorded in 2021.

c. The invoice for goods costing P150,000 was received

and recorded as a purchase on December 31, 2020.

The related goods, shipped FOB destination were

received on January 2, 2021, but were included in the

physical inventory as goods in transit.

d. A P600,000 shipment of goods to a customer on

December 30, 2020, terms FOB destination, was

recorded as a sale upon shipment. The goods, costing

P400,000 and delivered to the customer on January 6,

2021, were not included in the 2020 ending inventory.

e. Goods valued at P250,000 are on consignment from a

vendor. These goods are included in the physical

inventory.

f. Goods valued at P160,000 are on consignment with a

customer. These goods are not included in the

physical inventory.

QUESTIONS:

Based on the above and the result of your audit, answer

the following:

1. The inventory as of December 31, 2020 is understated

by

a. P230,000 c. P140,000

b. P190,000 d. P290,000

2. The cost of sales for the year ended December 31,

2020 is overstated by

a. P290,000 c. P440,000

b. P110,000 d. P380,000

3. The profit for the year ended December 31, 2020 is

misstated by

a. P190,000 over c. P140,000 under

b. P 10,000 over d. P290,000 under

4. The working capital as of December 31, 2020 is

misstated by

a. P190,000 over c. P140,000 under

b. P 10,000 over d. P290,000 under

5. Purchase cut-off procedures should be designed to test

whether all inventory

a. Owned by the company is in the possession of the

company at year-end.

b. Ordered before year-end was received.

c. Purchased and received before year-end was paid

for.

d. Purchased and received before year-end was

recorded.

6. The audit of year-end inventories should include steps

to verify that the client's purchases and sales cutoffs

were adequate. These audit steps should be designed

to detect whether merchandise included in the physical

count at year-end was not recorded as a

a. Sale in the subsequent period

b. Purchase in the current period

c. Sale in the current period

d. Purchase in the subsequent period