You have been assigned to audit the financial statements of JADE ENERGETIC

CORPORATION for the year 2019. The company is a dealer of appliances and has
several branches in Metro Manila. Its main office is located in Makati City. You were
given by the company controller the unadjusted balances of the items to be included in
the company’s statement of financial position and statement of income as of and for the
year ended December 31, 2019. Audit findings are as follows:

I. AUDIT OF CASH

A cash count was conducted by your staff on January 7, 2020. The petty cash fund of
P60,000 maintained by the company on an imprest basis relected a balance of P22,750.
Unreplenished expenses totaled P37,250 of which P9,510 pertains to January 2020.

You were furnished a copy of the company’s bank reconciliation statement with
Chartered Bank as follows:
Balance per bank P277,994
Add: Deposit in transit 248,836
Bank debit memos 712,750
Returned check 63,000
Less: Outstanding checks (174,580)
Book error (72,000)
Balance per books P1,056,000

Your review of the reconciliation statement disclosed the following:

1. Postdated checks totaling P107,400 were included as part of the deposit in transit.
These represent collections from various customers whose accounts have been
outstanding for less than three months. These checks were actually deposited on
January 8, 2020.

2. Included in the deposit in transit is a check from a customer for P63,000 which was
returned by the bank on December 27, 2019 for insufficiency of funds. This account
has been outstanding for over six months. The check was replaced by the customer on
January 15, 2020.

3. The bank debited the account of Jade Energetic for P710,000 as payment of notes
payable including interest of P10,000 due on December 26, 2019. This was not
recorded as of year-end.

4. A check was cleared by the bank as P30,900 but was recorded by the bookkeeper as
P102,900. This was in payment of accounts payable.

5. Bank service charges totaling P2,750 were not recorded.

II. AUDIT OF ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

It is the company’s policy to provide allowance for doubtful accounts as follows:

Less than 3 months P2,500,960 1%

3 to 6 months 843,200 5%
Over 6 months 274,500 10%
Total P3,618,660
 An analysis of the accounts receivable schedule showed that several long outstanding
accounts for more than a year totaling P152,460 should be written-off.

III. AUDIT OF MARKETABLE SECURITIES – TRADING

The company’s equity portfolio as of year-end showed the following:

Total Market Value
Shares Cost per Share
Bacnotan Cement 7,000 P108,500 P16.00
Fil-Estate 10,000 195,000 19.75
Ionics 2,400 49,200 24.00
La Tondena 2,000 67,000 26.00
Selecta 8,000 31,600 1.20
Union Bank 1,600 50,880 27.50
P502,180
The securities are listed in the stock exchange. The company follows the fair value
accounting.

IV. AUDIT OF NOTES RECEIVABLE

The note receivable amounting to P1,300,000 represents a loan granted to a subsidiary.

This is covered by a promissory note with interest at 15% per annum dated November
1, 2019. No interest has been accrued on the note as of December 31, 2019.

V. AUDIT OF PREPAYMENTS

Prepaid expenses account consists of the following:

Prepaid advertising P 640,000
Prepaid insurance 490,000
Prepaid rent 420,000
Unused office supplies 361,000
P1,911,000

Jade Energetic renewed its contract with an advertising agency for the annual
promotion as well as the regular advertisement of its products. It paid a total of
P640,000, P100,000 of which is for the Christmas promotion while the balance is for the
regular promotion and which will run for one year starting on August 1, 2019. Payment
was made on July 20, 2019, and the total amount was reflected as prepaid advertising.

The company leases the main office and store in Iloilo City at a monthly rental of
P140,000. On November 5, 2019, a check for P420,000 was issued in payment of
three-month rental as per renewal contract which was effective on November 1, 2019.
Rental deposit remained at three months and is included under other assets.

The company’s delivery equipment is insured with Fortune Insurance Corporation for a
total coverage of P2.4 million. Total payment made on November 16, 2019 for the
renewal amounted to P490,000 which covers the period from November 1, 2019 to
November 1, 2020. No adjustment has been made as of December 31, 2019.
 To take advantage of volume discount ranging from 10% to 20%, the company buys
office and store supplies on a bulk basis. The staff-in-charge bought supplies worth
P220,000 on June 10, 2019 and included the same in their office supplies inventory. As
at year-end, unused office supplies amount to P102,500.

VI. AUDIT OF INVENTORIES

A physical count of inventories was conducted simultaneously in all stores on December

29 and 30, 2019. Your review of the list submitted by the accountant disclosed the
following:
1. Some deliveries made in December 2019 have not been invoiced and recorded as of
year-end. These items had a selling price of P146,940 with term of 15 days. The
corresponding cost was already deducted from the ending inventory.
2. Goods on consignment to Jade Energetic totaling P356,000 were included in the
inventory list.
3. Some appliances worth P138,500 were recorded twice in the inventory list.
4. Goods costing P153,800 purchased and paid on December 26 was received on
January 4, 2020. The goods were shipped by the supplier on December 28, FOB
shipping point.

VII. AUDIT OF PROPERTY, PLANT AND EQUIPMENT

The company purchased additional equipment worth P268,000 on June 30, 2019. At
the date of purchase, it incurred the following additional costs which were charged to
repairs and maintenance account:
Freight-in P30,400
Installation cost 13,000
Total P43,400

The above equipment has an estimated useful life of ten years and estimated salvage
value of P20,000. Depreciation for the above equipment has been provided based on
original cost.

The company discarded some store equipment on October 1, 2019, realizing no salvage
value. The cost of these equipment amounted to P165,520 with an accumulated
depreciation of P138,620 on December 31, 2019. Depreciation booked from October 1,
2019 to year-end was P10,480. No entry was made on the disposal of the property.

VIII. AUDIT OF ACCRUED EXPENSES

Some expenses for December 2019 were recorded when paid in January 2020 which
included the following:
Electric bills P73,400
Commission of sales agents 57,000
Telephone charges 42,500
Minor repair of delivery equipment 21,340
Water bills 18,760
Total P213,000
IX. AUDIT OF LIABILITIES

Jade Energetic obtained a one-year loan from Chartered Bank amounting to P2.6 million
at an interest rate of 16% per annum on October 1, 2019. Accrued interest on this
loan was not taken up at year-end.

X. OTHER AUDIT FINDINGS

A review of the minutes of meeting showed that a 10% cash dividend was declared to
shareholders of record as of December 15, 2019, payable on January 31, 2020.

Jade Energetic Corporation

UNADJUSTED TRIAL BALANCE
December 31, 2019

Debit Credit
Petty cash fund P 60,000
Cash in bank 1,056,000
Trading securities 483,640
Accounts receivable – trade 3,618,660
Allowance for doubtful accounts P 110,360
Notes receivable 1,300,000
Inventories 7,274,900
Prepaid advertising 640,000
Prepaid insurance 490,000
Prepaid rent 420,000
Office supplies inventory 361,000
Furniture and fixtures 1,298,400
Delivery equipment 2,770,000
Accumulated depreciation 1,177,500
Other assets 548,000
Accounts payable – trade 2,356,320
Notes payable 3,300,000
Accrued expenses 169,040
Bonds payable 5,000,000
Discount on bonds payable 500,000
Ordinary share capital 5,400,000
Retained earnings 792,160
Sales 13,078,000
Cost of goods sold 8,034,000
Operating expenses 3,357,000
Other income 1,453,500
Other charges 625,280

P32,836,880
P32,836,880