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PROBLEM3 of a retoil store, Iney oe cocemed obout the ooe Geufrey and ekel ore partners in ihe operalon ot a retoil store. They discrepocy beween iher income and ner volume of sales Althoug r maintain incompinte part of thek saff occounling tecorcs fheir eperience m he DUsiness fold them that there s a possible ey theft mainit or larcery opp on the ve asked you, in connection with your initial audit covering the colendar year 2019 to apply The partnes such tess as you con to determine wheiner ere s ony hdicalion of shortag in the couse of your examination you obfan tne lolowing racis havng a bearing on the probie blem he physicol inventory taken December 31. 201under your observation, amounted to P25.000 co P23.000 market. The invenfory of December 31. 2018, was P38,000 cost, Pa6 so0 o P25.000 cost fin's practice to value inventory of lower Or cosT o nerreaizable value" freating o market value as "other expense b. Using the treatrnent of ioss or decline in Net realizabie value of inventory as menlioned in (a) obbo the average gross profit in recent periods has been 35 percent of net sales. The partne this percentage seems reasonatble and that ihey expected the same results for 2019, since the bove mark up per cent was approxumately the same as in the past. The December 31, 2018. baiance-sheef shows accounts recevable of P48.000. Notes payable to banks and trade accounts payable were combined on ne December 31, 2018 balance sheet. They totaled P26.000 The fim records accounis payabie Q Tne ne gure, as cash discounts are seldom missed. Purchases have been shown net in past income staremeni5. Sales discounts have been freated as deduction from sales in the past. During 2019, accounts were written off in fthe amount ot P8.000 and an account for P6.000 written off in 2018 was collected and recorded as a regular collecfion on account. Unpaid sales sips show that customers owed P55.000 on December 31,. 2019. Unpaid invoices indicate that the firm owed trade creditors P12.000 at the end of 2019. Record of notes outsianding indicates that P10.000 was owed fo banks on December 31, 2019 Sales retfurns amounted fo P3.000 and purchase refums amounted to P4.000. Of the items in the cash records. the following are pertinent: Recepis: P105,000 From customers (after P4.000 discounts) 9,900 From bank loan (net of 60 day. 6% discount) Disbursements: P 70,000 To frade credifors (after P8,000 cash discounts) 12.000 To bank loans 1,000 To customers for refurned goods Questions Gross Sales for calendar year 2019 Net Purchases for calendar year 2019 2 3. Balance of Accounts Payable as of December 31, 2019

PROBLEM 3 Geoffrey and Jekell are partners in the operation of a retail store. They are concomod about the opport accounting records, their experience in the business told them that there is a possible theft or ceny on the discrepancy between their income and their volume of sales Although may maintain Income part of their staff The partners have asked you, in connection with your initial audil covering the calendar year 2019 to apply such tests as you can to determine whether there is any indication of shortage, In the course of your examination you obtain the following facts having a bearing on the problem a. The physical inventory taken December 31, 2019. under your observation, amounted to P25.000 cost. P23.000 market. The inventory of December 31, 2018, was P38.000 cost, P36,500 market. It has been the firm's practice to value inventory at "lower of cost or net realizable value treating any loss or decline in market value as "other expense" b. Using the treatment of "loss or decline in Net realizable value of inventory as mentioned in (a) above. the average gross profit in recent periods has been 35 percent of net sales. The partners inform you that this percentage seems reasonable and that they expected the same results for 2019, since their mark up per cent was approximately the same as in the past. c. The December 31, 2018, balance sheet shows accounts receivable of P48,000. Notes payable to banks and trade accounts payable were combined on the December 31, 2018 balance sheet. They totoled P26.000. The firm records accounts payable at the net figure, as cash discounts are seldom missed. Purchases have been shown net in past income statements. Sales discounts have been treated as deduction from sales in the past. d. During 2019, accounts were written oft in the amount of P8,000 and an account for P6,000 written off in 2018 was collected and recorded as a regular collection on account Unpaid sales slips show that customers owed P55,000 on December 31, 2019 f. Unpaid invoices indicate that the firm owed trade creditors P12.000 at the end of 2019. Record of notes outstanding indicates that P10,000 was owed to banks on December 31, 2019. g Sales returns amounted to P3,000 and purchase returns amounted to P4,000. h. of the items in the cash records, the following are pertinent: Receipts: From customers (after P4,000 discounts) P105,000 From bank loan (net of 60 day. 6% discount) 9.900 Disbursements: To trade creditors (after P8,000 cash discounts) P 70.000 To bank loans 12.000 To customers for returned goods 1,000 Questions: 1. Gross Sales for calendar year 2019 2. Net Purchases for calendar year 2019 3. Balance of Accounts Payable as of December 31, 2019 4. Estimated ending inventory as of December 31, 2019 5. Possible inventory shortage as of December 31, 2019 PROBLEM 3 Geoffrey and Jekell are partners in the operation of a retail store. They are concomod about the opport accounting records, their experience in the business told them that there is a possible theft or ceny on the discrepancy between their income and their volume of sales Although may maintain Income part of their staff The partners have asked you, in connection with your initial audil covering the calendar year 2019 to apply such tests as you can to determine whether there is any indication of shortage, In the course of your examination you obtain the following facts having a bearing on the problem a. The physical inventory taken December 31, 2019. under your observation, amounted to P25.000 cost. P23.000 market. The inventory of December 31, 2018, was P38.000 cost, P36,500 market. It has been the firm's practice to value inventory at "lower of cost or net realizable value treating any loss or decline in market value as "other expense" b. Using the treatment of "loss or decline in Net realizable value of inventory as mentioned in (a) above. the average gross profit in recent periods has been 35 percent of net sales. The partners inform you that this percentage seems reasonable and that they expected the same results for 2019, since their mark up per cent was approximately the same as in the past. c. The December 31, 2018, balance sheet shows accounts receivable of P48,000. Notes payable to banks and trade accounts payable were combined on the December 31, 2018 balance sheet. They totoled P26.000. The firm records accounts payable at the net figure, as cash discounts are seldom missed. Purchases have been shown net in past income statements. Sales discounts have been treated as deduction from sales in the past. d. During 2019, accounts were written oft in the amount of P8,000 and an account for P6,000 written off in 2018 was collected and recorded as a regular collection on account Unpaid sales slips show that customers owed P55,000 on December 31, 2019 f. Unpaid invoices indicate that the firm owed trade creditors P12.000 at the end of 2019. Record of notes outstanding indicates that P10,000 was owed to banks on December 31, 2019. g Sales returns amounted to P3,000 and purchase returns amounted to P4,000. h. of the items in the cash records, the following are pertinent: Receipts: From customers (after P4,000 discounts) P105,000 From bank loan (net of 60 day. 6% discount) 9.900 Disbursements: To trade creditors (after P8,000 cash discounts) P 70.000 To bank loans 12.000 To customers for returned goods 1,000 Questions: 1. Gross Sales for calendar year 2019 2. Net Purchases for calendar year 2019 3. Balance of Accounts Payable as of December 31, 2019 4. Estimated ending inventory as of December 31, 2019 5. Possible inventory shortage as of December 31, 2019

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