KRISHELE G.
GOTEJER BSA III-A BA74-Auditing
PROBLEM 2
Working papers:
Adjusting Entries
1 Accounts receivable 44,000
Supplies expense 26,500
Cash 70,500
2 Trading securities 10,000
Holding gain-TS 10,000
3 Bad debts expense 72,500
Allowance for bad debts 72,500
4 Accumulated Depreciation 60,000
Equipment 50,000
Gain on sale of Equipment 10,000
5 Depreciation expense 172,100
Accumulated Depreciation 172,100
6 Insurance expense 7,500
Prepaid expenses 7,500
7 Salaries and wages 13,000
Accrued expenses 13,000
8 Retained Earnings 500,000
Goodwill 500,000
9 Retained Earnings 500,000
Dividends Payable 500,000
10 Retained Earnings 300,000
RE Appropriated for possible loss 300,000
11 Taxes 157,010
Income Tax payable 157,010
MALAYSIAN CORPORATION
WORKING TRIAL BALANCE
June 30,2016
Unadjusted Trial
Balance Adjustments Income Statement Balance Sheet
DR CR DR CR DR CR DR CR
Account
Cash 721,800 70,500 651,300
Marketable
Securities 200,000 10,000 210,000
Accounts Receivable 2,128,000 44,000 2,172,000
Inventory 5,194,300 5,194,300 5,751,900 5,751,900
Investments, long
term 1,200,000 1,200,000
Equipment 1,621,000 50,000 1,571,000
Prepaid Expenses 116,200 7,500 108,700
Goodwill 500,000 500,000 0
Accounts Payable 2,426,400 2,426,400
Accrued Expenses 152,600 13,000 165,600
Accrued Interest
Payable 226,000 226,000
Allowance for bad
debts 36,100 72,500 108,600
Allowance for
deprec. 450,700 60,000 172,100 562,800
Loans Payable 2,500,000 2,500,000
Capital Stock 3,000,000 3,000,000
Additional Paid in
cap. 260,000 260,000
Retained Earnings 1,808,800 500,000
300,000
300,000 708,800
21,602,00 21,602,00
Sales 0 0
Interest Income 140,000 140,000
13,928,00 13,928,00
Purchases 0 0
Salaries and Wages 3,250,000 13,000 3,263,000
Rent, Light and
Water 750,000 750,000
Advertising 400,000 400,000
Supplies 300,000 26,500 326,500
Taxes 250,000 157,010 407,010
Miscellaneous
Expense 1,793,300 1,793,300
Interest Expense 250,000 250,000
Holding gain 10,000 10,000
Bad debt expense 72,500 72,500
Gain on sale of
equip. 10,000 10,000
Deprec. Expense 172,100 172,100
Insurance Expense 7,500 7,500
Dividends Payable 300,000 300,000
Income Tax payable 157,010 157,010
R.E. Appropriated 300,000 300,000
Net income 949,690 949,690
32,602,60 32,602,60 1,662,61 1,662,61 27,513,90 27,513,90 11,664,90 11,664,90
Totals 0 0 0 0 0 0 0 0
MALAYSIAN CORPORATION
AUDITED BALANCE SHEET
JUNE 30,2016
CURRENT ASSETS
Cash 651,300
Marketable Securities 210,000
Accounts Receivable 2,172,000
Allowance for Bad debts (108,600) 2,063,400
Inventories 5,751,900
Prepaid Expenses 108,700 8,785,300
NON CURRENT ASSETS
Investments, Long term 1,200,000
Equipment 1,571,000
Allowance for Depreciation (562,800) 1,008,200 2,208,200
TOTAL ASSETS 10,993,500
LIABILITIES
Accounts Payable 2,426,400
Accrued Expenses 165,600
Accrued Interest Payable 226,000
Loans Payable 2,500,000
Dividends Payable 300,000
Income Tax Payable 157,010 5,775,010
SHAREHOLDER'S EQUITY
Capital Stock 3,000,000
Additional Paid in Capital 260,000
Retained Earnings
AppropriatedMALAYSIAN CORPORATION 300,000
AUDITED INCOME STATEMENT1,658,490
Unappropriated 5,218,490
JUNE 30,2016
Sales LIABILITIES AND SHE
TOTAL 21,602,00010,993,500
Cost of Goods Sold 13,370,400
Operating income 8,231,600
Other income:
Interest income 140,000
Holding Gain 10,000
Gain on sale of non-
current asset 10,000 160,000
Less: Expenses
3,263,00
Salaries and wages 0
Rent, Light and
water 750,000
Advertising 400,000
Supplies 326,500
1,793,30
Miscellaneous exp. 0
Bad debt expense 72,500
Depreciation
expense 172,100
Insurance expense 7,500
Interest expense 250,000 (7,034,900)
Income before taxes 1,356,700
407,01
Income Tax (30%) 0
Net income 949,690
INDEPENDENT AUDITOR’S REPORT
To the Shareholders of Malaysia Corporation
Report on the Audit of the Financial Statements
Qualified Opinion
We have audited the financial statements of the Company, which comprise the statement of financial
position as at June 30, 2016, and the statement of comprehensive income.
In our opinion, except for the effects of the matter described in the Basis for Qualified Opinion section
of our report, the accompanying financial statements present fairly, in all material respects, the
financial position of Malaysia Corporation as at June 30, 2016, and its financial performance and its
statement of comprehensive income for the year then ended in accordance with Philippine Financial
Reporting Standards (PFRSs).
Basis for Qualified Opinion
We conducted our audit in accordance with Philippine Standards on Auditing (PSAs). Our
responsibilities under those standards are further described in the Auditor’s Responsibilities for the
Audit of the Financial Statements section of our report. We are independent of the Company within
the meaning of and have fulfilled our other responsibilities under those relevant ethical requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our qualified opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in
our audit of the financial statements of the current period. These matters were addressed in the
context of our audit of the consolidated financial statements as a whole and in forming our opinion
thereon, and we do not provide a separate opinion on these matters. For each matter below, our
description of how our audit addressed the matter is provided in that context.
Responsibilities of Management and Those Charged with Governance for the Financial
Statements
Management is responsible for the preparation and fair presentation of the financial statements in
accordance with PFRSS, and for such internal control as management determines is necessary to
enable the preparation of financial statements that are free from material misstatement, whether due
Fraud or error In preparing the financial statements, management is responsible for assessing the
Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless management either intends to
liquidate the Company or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial reporting
process.
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole
are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report
that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee
that an audit conducted in accordance with PSAs will always detect a material misstatement when it
exists Misstatements can arise from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken on
the basis of these financial statements
As part of an audit in accordance with PSAS, we exercise professional judgment and maintain
professional skepticism throughout the audit. We also:
• Identify and assess the risks of material misstatement of the financial statements, Whether due
to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit
evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting
a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may
involve collusion, forgery. Intentional omissions, misrepresentations, or the override of internal
control.
• Obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of Expressing an
opinion on the effectiveness of the Company’s internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of
accounting estimates and related disclosures made by management.
• Conclude on the appropriateness of management's use of the going concern basis of
accounting and, based on the audit evidence obtained whether a material uncertainty exists related to
events or conditions that may cast significant doubt on the Company's ability to continue as a going
concern. If we conclude that a material uncertainty exists. we are required to draw attention in our
auditor's report to the related disclosures in the financial statements or, if such disclosures are
inadequate, to modify our opinion Our conclusions are based on the audit evidence obtained up to
the date of our auditor's report. However, future events or conditions may cause the Company to
cease to continue as a going concern.
• Evaluate the overall presentation structure and content of the financial statements including
the disclosures and whether the financial statements represent the underlying transactions and
events in a manner that achieves fair presentation. We communicate with those charged with
governance regarding, among other matters, the planned scope and timing of the audit and
significant audit findings, including any significant deficiencies in internal control that we identity
during our audit.
We also provide those charged with governance with a statement that we have complied with
relevant ethical requirements regarding independence, and to communicate with them all
relationships and other matters that may reasonably be thought to bear on our independence, and
where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters
that were of most significance in the audit of the financial statements of the current period and are
therefore the key audit matters We describe these matters in our auditor's report unless law or
regulation precludes public disclosure about the matter or when, In extremely rare circumstances, we
determine that a matter should not be communicated in our report because the adverse
consequences of doing so would reasonably be expected to outweigh the public interest benefits of
such communication.
P&A GRANT THORNTON
KRISHELE G. GOTEJER
Partner