Naqdown Clincher Question

8/17/2019 Naqdown Clincher Question

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CLINCHER QUESTION No. 1 The following T-account summarizes the transactions aecting the accountsreceivable of FLASH Company for !"#$

Accounts %eceivable&eginning balance after 'e'ucting cre'it

balances of ()*!!! ("!+*!!!

Collections from customers* inclu'ing

,verpayment of ("!*!!!("*#!*!!!

Charge sales"*!*!!!

.rite o/*!!!

Charge to goo's out on consignment *!!!0erchan'ise return*!!

Sharehol'ers1 subscriptions +!*!!!Allowance to customers for shipping 'amages 2*!!!Accounts written-o but recovere' *!!!Collections on carrier claim

*!!!Cash pai' to customer for 3an4 " cre'it &alance*!!!

Collection on subscription#*!!!

5eposit on contract!*!!!

Claim against common carrier for shipping 'amages*!!!6,7s from employees"*!!!Cash a'vance to a8liate!*!!!A'vances to supplier"!*!!!

Au'it notes$a4 6t was ascertaine' that half of the a'9uste' outstan'ing accounts

receivable-tra'e balance are still currently collectible4 The term of sale is

:2!* n:+!4 &ase' on past e;perience* a < of customers whose accountsare still current normally pay within the 'iscount perio'4b4 2!< of the a'9uste' accounts receivable-tra'e is +! 'ays past 'ue an' is

e;pecte' to be only )!< collectible4c4 !< of the a'9uste' accounts receivable-tra'e balance is more than "!

'ays past 'ue an' is e;pecte' to be !< collectible4

5etermine the amortize' cost of the accounts receivable = tra'e4

Answer: P107,537

CLINCHER QUESTION No. 2As part of a preliminary survey of the purchasing function* an au'itor rea'the 'epartment>s policies an' proce'ures manual4 The au'itor conclu'e'that the manual 'escribe' the processing steps well an' containe' anappropriate internal control 'esign4 The ne;t engagement ob9ective was to'etermine the operating eectiveness of internal controls4 .hich proce'urewoul' be most appropriate in meeting this ob9ective?


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a@ (repare a owchart4b@ (repare a system narrative4c@ (erform a test of controls4'@ (erform a substantive test4

Solution: Ca@ 6ncorrect4 Flowcharts are most appropriate for stu'ying internal control

'esign4 The au'it ob9ective is whether the controls are in place an'eective* which in'icates the nee' for a test of controls4

b@ 6ncorrect4 System narratives are most appropriate for stu'ying internalcontrol 'esign4 The au'it ob9ective is whether the controls are in placean' eective* which in'icates the nee' for a test of controls4

c) Correct. Tests of controls, also no!n as co"#liance tests, $el#an au%itor %eter"ine !$et$er controls are &ein' follo!e% an%

are e(ectie. *or instance, a #olic+ "a+ reuire t$at all lar'etransactions &e a##roe% &+ a "ana'er. -s a test of controls,t$e au%itor "a+ sa"#le lar'e transactions an% reie! !$et$er"ana'er a##roal !as o&taine% an% !$et$er t$e #ro#ose%transaction "eets all t$e criteria t$at t$e "ana'er !assu##ose% to erif+.

%) 6ncorrect4 Substantive tests are tests to 'etermine whether anob9ective has been achieve' an' 'o not necessarily test internalcontrols4

CLINCHER QUESTION No. /Eas+)

.hich of the following is not a function of Bnancial management?A4 Financing&4 %is-managementC4 6nternal control54 Capital bu'geting

Answer$ C The correct answer is Dc@ because internal control is a function of thecontroller1s o8ce4 Answers Da@* Db@* an' D'@ are incorrect because thefunctions of Bnancial management inclu'e$ Bnancing* capital* bu'geting*Bnancial management* corporate governance* an' ris management4

CLINCHER QUESTION No. 0&anrupt &an has a -year loan receivable with face value of (hp*!!!*!!! 'ate'

3anuary "* !"# from a borrower that is 'ue on 5ecember 2"* !"E4 6nterest on theloan is payable at "!< every 5ecember 2"4 The borrower pai' the interest that was'ue on 5ecember 2"* !"# but informe' &anrupt on 5ecember 2"* !" thatinterest accrue' in !" an' the interest for !"+ will be pai' on maturity 'ate4 Theborrower will also probably miss the last two years for interest payments because of


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Bnancial 'i8culty4 After that* the borrower will also probably be e;pecte' to pay theloan an' accrue' interest in !" an' !"+ on 5ecember 2"* !"E4 .hat is theloan impairment loss to be recognize' on 5ecember 2"* !"? D%oun' o thepresent value factor to three 'ecimal places@?

-NSER: $#34,566

Carrying amount D*!!!*!!! !!*!!!@

(hp*!!*!!!

(resent value of remaining cashowsG*!!!*!!! D!!*!!! ; @ ;!4/"

"*E!*#!!

6mpairment loss (hp2)/*+!!

CLINCHER QUESTION No. 7Sharon Company uses the installment sales metho' in accounting for itsinstallment sales4 ,n 3anuary "* !"#* Sharon Company ha' an installmentaccount receivable from %owena with a balance of ("E*!!!4 5uring !"#*(#*!!! was collecte' from %owena4 .hen no further collection coul' bema'e* the merchan'ise sol' to %owena was repossesse'4 The merchan'iseha' a fair maret value of (+*!! after the company spent for (+!! forrecon'itioning of the merchan'ise4 The merchan'ise was originally sol' witha gross proBt rate of #!


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c4 To obtain information* an' to summon* e;amine* an' tae testimony ofpersons

'4 To mae assessments an' prescribe a''itional reuirements for ta;a'ministration an' enforcement

-NSER: 9

The CIR has the power to interpret tax laws and decide on tax cases (Sec. 4),to obtain information, and to summon, examine, and take testimon of

persons (Sec. !), and to make assessments and prescribe additionalre"uirements for tax administration and enforcement (Sec. #).


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CLINCHER QUESTION No. 4&ase' on the information as follows* for what ta;able year will a corporationbecome liable for 0C6T?

SMC %egistration 0ay )* !!)

&6% %egistration 3une ")* !"!Start of commercial operations ,ctober "#* !"!

a4 !"b4 !"2c4 !"#'4 !"

-ns!er: C. 0C6T is impose' upon any 'omestic corporation beginningthe fourth ta;able year in which such corporation commence' itsbusiness operations4 For purposes of 0C6T* the ta;able year in which

the business commence' shall be the year in which the 'omesticcorporation registere' with the &ureau of 6nternal %evenue4

CLINCHER QUESTION No. .hich of the following statements woul' the he'ging relationship ualify forhe'ge accounting?

64 At the inception of the he'ge there is formal 'esignation an''ocumentation of the he'ging relationship an' the entity>s rismanagement ob9ective an' strategy for un'ertaing the he'ge4

664 The he'ge is assesse' on an ongoing basis an' 'etermine' actually

to have been highly eective throughout the Bnancial reportingperio's for which the he'ge was 'esignate'46664 The eectiveness of the he'ge can be reliably measure'6I4 The he'ge is e;pecte' to be highly eective4

-ns!er: I, II, III an% I;

ara'ra#$ of I-S 3 *inancial Instru"ents: Reco'nition an%seectiveness in osetting the e;posure to changes in the he'ge'item>s fair value or cash ows attributable to the he'ge' ris4


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b@ T$e $e%'e is e?#ecte% to &e $i'$l+ e(ectie Dsee Appen'i; Aparagraphs AN"!=AN""2A@ in achieving osetting changes in fairvalue or cash ows attributable to the he'ge' ris* consistently withthe originally 'ocumente' ris management strategy for thatparticular he'ging relationship4

For cash ow he'ges* a forecast transaction that is the sub9ect of the he'gemust be highly probable an' must present an e;posure to variations in cashows that coul' ultimately aect proBt or loss4CLINCHER QUESTION No. 3Ouestions use' to interrogate in'ivi'uals suspecte' of frau' shoul'$

a@ A'here to a pre'etermine' or'er4b@ Cover more than one sub9ect or topic4c@ 0ove from the general to the speciBc4'@ 5irect the in'ivi'ual to a 'esire' answer4

Solution: C

a@ 6ncorrect4 The interviewee>s answer may suggest a follow-up uestionthat shoul' be ase' before asing the ne;t planne' uestion4

b@ 6ncorrect4 This may be confusing for the respon'ent4c) Correct. @eneral infor"ation s$oul% &e o&taine% Arst &efore

%etails are sou'$t.%) 6ncorrect4 The interrogator shoul' avoi' lea'ing uestions* that is*

uestions that suggest an answer4

CLINCHER QUESTION No. 16/-era'e) Assume that Stripler 6n'ustries is consi'ering investing in a

pro9ect with the following characteristics$

6nitial investment (!!

*!!!

A''itional investment in woring capital "!*

!!!Cash ows before income ta;es for years " to

"#!*!!!

Pearly ta; 'epreciation )!*

!!!

Terminal value of investment

!*

!!!Cost of capital "!<(resent value of (" receive' after years'iscounte' at "!< !4+"(resent value of an or'inary annuity of (" for years at "!< 24/)"0arginal ta; rate 2!<6nvestment life years


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Assume that all cash ows come at the en' of the year4

.hat is the amount of the after-ta; cash ows in year ?

Answer$ $#127,666Answer Db@ is correct4 The after-ta; cash ows are calculate' by'e'ucting ta; e;pense from the before-ta; cash ows4 Since'epreciation is 'e'uctible for ta; purposes it provi'es a ta; shiel'4 Therefore* income ta;es for year are eual to ("*!!! GD("#!*!!! =()!*!!!@ Q 2!


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Any remaining proBt Dor loss@ was to be allocate' eually among thepartners4

6f partnership net income was ("!!*!!!* how much will be allocate' toCrenshaw?

-ns!er:73,2.76 /-era'e)C Total

Salaries ("*!!!4!!

("*!!!4!!

(2!*!!!4!!

6nterest D)< ; Average@ #*/4!! *)4!! /*+!4!!&onus D "+*++/4!! !4!! "+*++/4!!&alance Deually@ *E#"4! *E#"4! #*+E24!!

()*224!

(#!*/++4!

("!!*!!!4!!

Average Capital D7se Calculator@C$ +!*!!! ; J 0

*!!! ; # J 0!*!!! ; # J 0#*!!! ; J 0 0%:" J *!!

5$ #!*!!! ; J 02*!!! ; # J 02!*!!! ; # J 0*!!! ; J 0 0%:" J 2*!!

D9onus

4! DK6-&@

4! D"!!*!!!-&@ !*!!!-4!&

9 "+*++/

CLINCHER QUESTION No. 1.hich of the following is sub9ect to fringe beneBts ta;?

a4 Compensation of ran an' Ble employeesb4 Compensation of supervisory an' managerial employeesc4 Fringe beneBt of ran an' Ble employees'4 Fringe beneBt of supervisory an' managerial employeese4 C an' 5

-NSER: 59-SIS: Compensation of both ran an' Ble an' supervisory an'managerial employees are sub9ect to .T.4 Fringe beneBts of ran an' Bleemployees are also sub9ect to .T.4 Section 22 of the Ta; Co'e$


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$Imposition of Tax. % & 'nal tax of thirtfour percent (4*) e+ectie -anuar , //01 thirtthree percent (*) e+ectie -anuar , ///1 andthirttwo percent (2*) e+ectie -anuar , 2333 and thereafter, ishereb imposed on the rossedup monetar alue of frine bene'tfurnished or ranted to the emploee (except rank and 'le emploees as

de'ned herein) b the emploer, whether an indiidual or a corporation(unless the frine bene't is re"uired b the nature of, or necessar to thetrade, business or profession of the emploer, or when the frine bene'tis for the conenience or adantae of the emploer).5

CLINCHER QUESTION No. 10

.hich of the following correctly 'escribes prior perio' errors?A4

Mrrors committe' an' 'iscovere' in prior perio's

&4

Mrrors committe' an' 'iscovere' in the current perio'

C4

Mrrors committe' an' 'iscovere' in current an' prior perio's

54

Mrrors committe' in prior perio's but are 'iscovere' only in the current perio'

-ns!er:

(aragraph of 6AS E &ccountin 6olicies, Chanes in &ccountin7stimates and 7rrors states that (rior perio' errors are omissions from*an' misstatements in* the entity>s Bnancial statements for one or more#rior #erio%s arising from a failure to use* or misuse of* reliableinformation that$

a@ was available when Bnancial statements for those perio's wereauthorise' for issueR an'

b@ coul' reasonably be e;pecte' to have been obtaine' an' taen intoaccount in the preparation an' presentation of those Bnancialstatements4

CLINCHER QUESTION No. 17Mective 3anuary !"* beneBts receive' by an employee by virtue of aCollective &argaining Agreement DC&A@ an' pro'uctivity incentive schemescombine' are ta; e;empt* provi'e' that it 'oes not e;cee' ( peremployee per ta;able year4

a4 ( *!!!


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b4 ( "!*!!!c4 ( 2!*!!!'4 ( E*!!!

-NSER: &9-SIS: %evenue %egulations D%%@ "-!"

$8ene'ts receied b an emploee b irtue of a collectie baraininareement (C8&) and productiit incentie schemes proided that thetotal annual monetar alue receied from both C8& and productiitincentie schemes combined do not exceed ten thousand pesos (6hp3,333.33) per emploee per taxable ear.5

CLINCHER QUESTION No. 15Chris (ro'ucts uses a process cost system an' sells a variety of rea'y-to-coo meat pro'ucts4 Four 9oint pro'ucts were recovere' 'uring 0ay !" asfollows$

Ham "*!!!ilos

&acon )*!!!ilos

Salami !! ilosSausag

e

*!!!

ilos

Costs incurre' up to the split-o point were$ (!*!!! for 'irectmaterials* ("*!!! for 'irect labor* an' (/*!!! for factory overhea'applie'4 7sing the physical output metho'* how much 9oint cost woul'pro'uct Ham absorb?

-ns!er: 2,416 /-era'e) Total cost D!*!!!"*!!!/*!!!@ (#*!!!5ivi'e' by total outputD"*!!!)*!!!!!*!!!@

"*!!

Cost per unit (4/"Ham "*!!! 3oint cost = Ham (*/"!

CLINCHER QUESTION No. 14


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An au'it of an organization1s claims 'epartment 'etermine' that a largenumber of 'uplicate payments ha' been issue' 'ue to problems in theclaims processing system4 5uring the e;it conference* the vice presi'ent ofthe claims 'epartment informe' the au'itors that attempts to recover the'uplicate payments woul' be initiate' imme'iately an' that the claims

processing system woul' be enhance' within si; months to correct theproblems4 &ase' on this response* the chief au'it e;ecutive shoul'$a@ A'9ust the scope of the ne;t regularly sche'ule' au'it of the claims

'epartment to assess controls within the claims processing system4b@ 0onitor the status of corrective action an' sche'ule a follow-up

engagement when appropriate4c@ Sche'ule a follow-up engagement within si; months to assess the

status of corrective action4'@ 5iscuss the Bn'ings with the au'it committee an' as the committee

to 'etermine the appropriate follow-up action4

Solution: 9a@ 6ncorrect4 &ecause the Bn'ing is signiBcant* the internal au'it activity

shoul' not wait until the ne;t regularly sche'ule' au'it to assess thestatus of corrective action4

&) Correct. T$e internal au%it actiit+ s$oul% "onitor t$e statusof t$e correctie action. - follo!Bu# en'a'e"ent s$oul% &esc$e%ule% !$en c$an'es to t$e clai"s #rocessin' s+ste" $ae&een suFcientl+ co"#lete% to allo! for testin' of a%euac+an% e(ectieness.

c@ 6ncorrect4 Although management in'icate' that the corrections shoul'be complete' within si; months* this may not be the case4 As a result*

the internal au'it activity shoul' monitor the status of corrective actionan' sche'ule a follow-up engagement when it is appropriate4

'@ 6ncorrect4 Although the Bn'ings shoul' be 'iscusse' with the au'itcommittee because of their signiBcance* the scope an' timing of afollow-up engagement shoul' be 'etermine' by the chief au'ite;ecutive base' on available information4

CLINCHER QUESTION No. 1/-era'e) Assume that 'eman' for a particular pro'uct change' as shown

below from 5" to 54


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.hich of the following coul' cause the change shown in the graph?

A4 A 'ecrease in the price of the pro'uct&4 An increase in supply of the pro'uctC4 A change in consumer tastes54 A 'ecrease in the price of a substitute for the pro'uct

Answer$ C The correct answer is Dc@ because a shift 'eman' coul' result from achange in consumer tastes4 Answer Da@ is incorrect because this woul'

result in movement along the e;isting 'eman' curve4 Answer Db@ isincorrect because a change in supply woul' not aect the 'eman'function4 Answer D'@ is incorrect because a 'ecrease in price of asubstitute woul' result in a shift of the curve to the left4

CLINCHER QUESTION No. 13 Titan Company issue' a convertible bon' on 3anuary "* !"#* that matures in Bveyears4 The bon' can be converte' into or'inary shares at any time4 Titan hascalculate' that the liability an' the euity components of the bon' are(hp2*!!!*!!! for the liability component an' (hp"*!!!*!!! for the euitycomponent* giving a total amount of the bon' of (hp#*!!!*!!!4 The interest rate ofthe bon' is +< an' local ta; legislation allows a ta; 'e'uction for the interest pai'in cash4 .hat is the 'eferre' ta; liability arising on the bon' as at the year en'ing5ecember 2"* !"# if the ta; rate is 2


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Naqdown Clincher Question