5.AUDITING Problem

Problem no.
1
In connection with the audit of the PAKYO COMPANY for the year ended December 31, 2010 you are called upon to verify the accounts payable transactions.
You find that the company does not make use of a voucher register but enters all merchandise purchases in a Purchases Journal, from which posting are
made to a subsidiary accounts payable ledger. The subsidiary ledger balance of P1,500,000 as of December 31, 2010 agrees with the accounts payable
balance in the companys general ledger. An analysis of the account disclosed the following:
Trade creditors, credit balances
P 1,363,000
Trade creditors, debit balances
63,000
Net
P 1,300,000
Estimated warranty on products sold
100,000
Customers deposits
9,000
Due to officers and shareholders for advances
50,000
Goods received on consignment at selling price
(offsetting debit made to Purchases)
41,000
P 1,500,000
A further analysis of the Trade Creditors debit balances indicates:
Date
Items
Amount
Miscellaneous debit balances prior to 2007.
No information available due to loss
of records in a fire.
P 3,000
03/03/07
Manila Co. Merchandise returned for credit,

but the company is now out of business
06/10/09
8,000
07/10/10
Cebu Corp. Merchandise returned but Cebu

says never received
7,000
Jolo Distributors Allowance granted on
defective merchandise after the invoice
was paid
5,000
10/10/10
Bulacan Co Overpayment of invoice
12/05/10
Advance to Zambales Co. This company agrees

to supply certain articles on a cost plus basis
12/05/10
Goods returned for credit and adjustments on
12,000
24,000
price after the invoices were paid; credit memos

from supplier not yet received
4,000
63,000
Your next step is to check the invoices in both the paid and the unpaid invoice files against ledger accounts. In this connection, you discover an invoice from
Atlas Co. of P45,000 dated December 12, 2010 marked Duplicate, which was entered in the Purchase Journal in January 2011. Upon inquiry, you discover
that the merchandise covered by this invoice was received and sold, but the original invoice apparently has not been received.
In the bank reconciliation working papers, there is a notation that five checks totaling P 63,000 were prepared and entered in the Cash Disbursements
Journal of December, but these checks were not issued until January 10, 2011.
The inventory analysis summary discloses good in transit of P 6,000 at December 31, 2010, not taken up by the company under audit during the year 2010.
These goods are included in your adjusted inventory.
1. The Accounts payable Trade balance at December 31, 2010 should be
A. P 1,471,000
C. P 1,214,000
B. P 1,614,000
D. P 1,477,000
2. The net adjustment to Purchases should include a

A. Net debit of P 51,000
B. Net credit of P 41,000
C. Net debit of P 10,000
D. Net debit of P 73,000
3. The entry to adjust the Accounts payable account for those accounts with debit balances should include a debit to
A. P 18,000
C. P 35,000
B. P 23,000
D. P 39,000
4. The entry to adjust the Accounts payable account for those accounts with debit balances should include a debit to
A. Miscellaneous losses if P 23,000
B. Advances to suppliers of P 24,000
C. Suppliers to debit balances of P 18,000
D. Purchases of P 21,000
5. Auditor confirmation of accounts payable balances at the end of the reporting period may be necessary because
A. There is likely to be other reliable external evidence to support the balances

B. Correspondence with the audit clients attorney will reveal all legal action by vendors for non-payment
C. This is a duplication of cutoff test
D. Accounts payable at the end of reporting period may not be paid before the audit is completed.
Problem 2
You were able to obtain the following from the accountant for Maverics Corp. Related to the companys liability as of December 31, 2010.
Accounts payable
Notes payable trade
Notes payable bank
Wages and salaries payable
Interest payable
Mortgage notes payable 10%
Mortgage notes payable 12%
Bonds Payable
P 650,000
190,000
800,000
15,000
?
600,000
1,500,000
2,000,000
The following additional information pertains to these liabilities:

a. All trade notes payable are due within six months of the balance sheet date.
b. Bank notes payable include two separate notes payable Allied Bank.
(1)A P300,000, 8% note issued March 1, 2008, payable on demand. Interest is payable every six months.
(2)A 1-year, P500,000, 11 % note issued January 2, 2010. On December 30, 2010 Mavericks negotiated a written agreement with Allied Bank to
replace the note with 2-year, P500,000, 10% note to be iss7ued January 2, 2011. The interest was paid on December 31, 2010
c. The 10% mortgage note was issued October 1, 2007. With a term of 10 years. Terms of the note give the holder the right to demand immediate
payment of the company fails to make a monthly interest payment within 10 days of the date the payment is due. As of December 31, 2010, Mavericks
is three months behind in paying its required interest payment.
d. The 12% mortgage note was issued may 1, 2001, with a term of 20 years. The current principal amount due is P 1,500,000. Principal and interest
payable annually on April 30, A payment of P220,000 is due April 30, 2011. The payment includes interest of P 180,000.
e. The bonds payable is 10-year, 8% binds, issued June 30, 2001. Interest is payable semi-annually every June 30 and December 31.
Based on the above and the result of your audit, answer the following:
1. Interest payable as of December 31, 2010 is
a. P155,000
b. 143,000
c. 203,000
d. 215,000
2. The portion of the Notes payable bank to be reported under current liabilities as of December 31, 2010 is
a. P 300,000
b. 500,000
c.800,000
d. 0
3. Total current liabilities as of December 31, 2010 is

a. P 3,950,000
b. 4,138,000
c. 3,938,000
4. Total noncurrent liabilities as of December 31, 2010 is
a. P1,760,000
b. 2,560,000
c. 3,960,000
d. 3,998,000
d. 1,960,000
Problem no. 3
In conjunction with your firms examination of the financial statements of PISTONS COMPANY as of December 31, 2010, you obtained from the voucher
register the information shown in the working paper below.
Ite
m
no.
1
Entry
Date
Voucher
Ref.
Description
Amoun
t
Account
Charged
12.18.1
0
12-202
P
20,000
Supplies on
hand
12.18.1
0
12.21.1
0
12.21.1
0
12-204
24,000
Prepaid
insurance
Repairs and
maintenance
Inventory
12.21.1
0
12-219
12.26.1
0
12-221
12.28.1
0
12.28.1
12-230
Supplies, purchased
FOB destination,
23.26.20; received
12.17.10
Auto insurance,
12.15.10 12.20.11
Repairs services;
received 12.20.10
Merchandise, shipped
FOB Shipping point,
11.20.10; received
12.04.10
Payroll, 12.06.10 to
12.20.10 (12 working
days)
Subscription to Tax
Reporting Service for
2011
Utilities for December
2010
2
3
4
12-206
12-214
12-234
24,000
17,000
69,000
Salaries and
wages
5,000
Dues and
subscription
29,000
Utilities
expense
Inventory
111,500
0
9
12.28.1
0
12-243
10
01.02.1
1
01-001
11
01.05.1
1
01-002
12
01.05.1
1
01-003
13
01.05.1
1
01-004
14
01.10.1
1
01-005
15
01.12.1
1
01-006
16
01.12.1
1
01-007
17
01.13.1
1
01-008
18
01.14.1
1
01-009
FOB destination,
12.24.10; received
01.02.11
FOB destination,
12.26.10; received
12.29.10
Legal services;
received 12.28.10
Medical services for
employees for
December 2010
FOB shipping point,
12.29.10; received
01.04.11
Payroll, 12.21.10 to
01.05.11 (12 working
days in total, 4
working days in Jan.
2011
FOB shipping point,
01.02.11; received
01.05.11
Manufacturing
royalties December
2010
FOB destination,
01.03.11; received
01.10.11
Maintenance e
services; received
01.09.11
Interest on bank loan,
10-12-10 to
84,000
Inventory
46,000
Legal and
professional
expense
25,000
Medical
expense
55,000
Inventory
72,000
Salaries and
wages
64,000
Inventory
39,000
Manufacturing
cost
38,000
Inventory
9,000
Repairs and
maintenance
30,000
Interest
Expense
19
01.15.1
1
01-010
20
01.15.1
1
01-011
021.10.11
Manufacturing
equipment installed
on 12.29.10
Dividends declared,
12.15.10
254,000
Machinery and
equipment
160,000
Dividends
payable
Accrues liabilities as December 31, 2010 were as follows:

Accrued payroll
P 48,000
Accrued interest payable
26,667
Dividends payable
160,000
Accrues royalties payable
39,000
The accrues payroll, accrued interest payable, and accrued royalties payable accounts were reversed on January 1, 2011.
REQUIRED:
Prepare adjusting entries as of December 31, 2010 based on your review of the data given above.
PROBLEM NO 4
FEEL NA FEEL, INC. has been producing quality reusable adult diapers for more than two decades. The companys fiscal year runs from April 1 to March 31.
The following information relates to the obligations of Feel Na Feel as of March 31, 2010.
BONDS PAYABLE
Feel Na Feel issued P10,000,000 of 10% bonds on July 1, 2008. The prevailing market rate of interest for these bonds was 12% on the date issue. The bonds
will mature on July 1, 2018. Interest is paid semiannually on July 1 and January 1. Feel Na Feel uses the effective interest rate method to amortize bond
premium
or
discount
NOTES PAYABLE
Feel Na Feel has signed several long-term notes with financial institutions. The maturities of these notes are given in the schedule below. The total unpaid
interest for all of these notes amounts to P600,000 on March 31, 2010
Due Date
Amount Due
April 1, 2010
P
400,000
July 1, 2010
600,000
October 1, 2010
300,000
April 1 2011 - March 31, 2012
300,000
April 1, 2012 March 31, 2013 1,200.000
April 1, 2013 March 31, 2014 1,000,000
April 1, 2014 March 31, 2015
800,000
April 1, 2015 March 31, 2016 1,000,000
P 7,000,000
ESTIMATED WARRANTIES
Feel Na Feel has a one-year product warranty on some selected items in its product line. The estimated warranty liability on sales made during the 20082009 fiscal year and still outstanding as of March 31, 2009 amounted to P180,000. The warranty cost on sales made from April 1 2009, through March
31,2010, are estimated as P520,000. The actual warranty cost incurred during the current 2009-2010 fiscal tear are as follows:
Warranty claims honored on 2008-2009 sales
P 180,000
Warranty claims honored on 2009-2010 sales
178,000
Total warranty claims honored
P 358,000
OTHER INFORMATION
1. TRADE PAYABLES
Accounts payable for supplies, goods and services purchased on open account amount to P740,000 as March 31, 2010
2. PAYROLL RELATED ITEMS
Merchandise, shipped FOB destination, 12.24.10; received 01.02.11
Accrued Salaries and wages
P 300,000
Withholding taxes payable
94,000
Other payroll deductions
10,000
3. MISCELLANEOUS ACCRUALS
Other accruals not separately classified amount to P150,000 as of March 31, 2010
4. DIVIDENDS
On march 15, 2010, Feel Na Feels board of directors declared a cash dividend of P0.20 per common share and a 10% common stock dividend.
Both dividends were to be distributed on April 12, 2010, to the common stockholders of record at the close of business on march 31, 2010. Data
regarding Feel Na Feel common stock are as follows:
Per Value
P 5.00 per share
Number of shares issued and outstanding
6,000,000 shares
Market Values of Common Stock:
March 15, 2010
March 31, 2010
April 12, 2010
P 22.00 per share

21.50 per share
22.50 per share
1. How much was received by Feel Na Feel from the bonds issued on July 1, 2008?
a. P8,852,960
b. 10,000,000
c. 10,500,000
d. 10,647,040
2. On March 31, 2010, Feel Na Feels statements of financial position would report total current liabilities of
a. P5,286,000
b. 4,386,000
c. 5,336,000
d. 5,642,000
3. On March 31, 201, Feel Na Feels statement of financial position would report total noncurrent liabilities of
a. P14,389.350 b. 14,352,217
c. 14,370,783
d. 14,252,960
PROBLEM NO. 5
On January 1, 2009, WIZARDS CORPORATION issued 2,000 of its 5-year, P1,000 face value 11% bonds date January 1 at an effective annual interest rate
(yield) of 9%. Interest is payable each December 31. Wizards uses the effective interest method of amortization. On December 31, 2010. The 2,000 bonds
were extinguished early through acquisition on the Open Market by Wizard for P1,980,000 plus accrued interest. On July 1, 2009, Wizards issued 5,000 of its
P1,000 face value, 10% convertible bonds at pat. Interest is payable every June 30 and December 31. On the date of issue, the prevailing market interest
rate for similar debt without the conversion option is 12%. On July 1, 2010, an investor in Wizards convertible bonds tendered 1,500 bonds for conversion
into 15,000 shares of Wizards common stock, which had a fair value of P105 and a par value of P1 at the date of conversion.
Based on the above and the result of your audit, determine the following: (Round off present value factors to four decimal places.)
1. The issue price on the 2,000 5-year, P1,000 face value bonds in January 1, 2009 is
a. P2,155.500
b. P2,000,000
c. 1,844,400
d. 2,147,800
2. The carrying value of the 2,000 5-year, P1,000 face value bonds on December 31, 2009 is
a. 1,898,400
b. 2,129,500
c. 2,000,000
d. 2,121,100
3. The gain on early retirement of bonds on December 31, 2010 is
a.
P20,000
b. 112,000
c. 121,200
D. 0
4. The carrying value of the 5,000 6 year, P1,000 face value bonds on December 31, 2009 is
a. P4,605,800
b. 5,000,000
c. 4,732.875
d. 4,615,400
5. The conversion of the 1,500 6-years, P1,000 face value bonds on July 1, 2010 will increase APIC by
a. P1,485,000
b. 1,374,000
c. 1,415.054
d. P1,377,697
PROBLEM NO. 6
The following data were obtained from the initial audit of BIBI COMPANY:
15%, 10 year, bonds payable, dated January 1, 2009
Debit
Credit
Cash proceeds from issue on January 1, 2009
Balance
Of 1,000, P1,000 bonds. The market rate of

Interest on the date of issue was 12%
Bond Interest Expense
Cash paid, 1/2/10
Cash paid, 7/1/10
Accrual, 12/31/10
P 1,172,044
P 75,000
75,000
75,000
Accrued Interest on Bonds

Balance, 1/1/10
Accrual, 12/31/10
Treasurer bonds
Redemption price and interest to date on
200 bonds permanently retired on 12/31/10
P1,172.044
P 75,000
150,000
225,000
P 75,000
75,000
P 75,000
150,000
P 265,000
Based on the preceding information, determine the following:

1. Carrying value of bonds payable at December 31, 2010
a. P831,110
b. 800,000
c. 1,151,583
2. Loss on Bond redemption
a. P4,683
b. P19,683
c. 15,000
d. 34,683
3. Accrued Interest on Bonds at December 31, 2010
a. P75,000
b. 135,000
c. 60,000
d. 52,500
4. Bond Interest Expense for the year ended December 31, 2010
a. P150,000
b. 1398,174
c. 69,745
P 265,000
d. 921,266
d. 160,826
PROBLEM 7
NUGGETS CORPORATION manufactures and sells food products and food processing machinery. Its reporting date is December 31. Relevant extracts from its
financial statements at December 31, 2009 are as follows:
Current liabilities
Provision
Provision for warranties
P270,000
Noncurrent liabilities
Provision
Provision for warranties
P180,000
Note 36-Contigent Liabilities
NUGGETS is engaged in the litigation with various parties in relation to allergic reaction t o traces of peanuts alleged to have been found in packets of fruit
gums. NUGGETS strenuously denies the allegation and , as at the same date authorizing the financial statements for issue, is unable to estimate the financial
effect, if any, of any cost or damages that may be [payable to the plaintiffs.
The provision for warranties at December 31, 2009 was calculated using the following assumptions: There was no balance carried forward from the prior
year.
Estimated cost of repairs Products with minor defects
P 1,000,000
Estimated cost of repairs Products with minor defects
P 6,000,000
Expected % of products sold during 2008 having no defects in 2010
80%
Expected & of products sold during 2008 having minor defects in 2010
15 %
Expected & of products sold during 2008 having Major defects in 2010
5%
-those with minor defects
all in 2010
Expected timing of settlement of warranty payments
-those with major defects
40% in 2010
60% in 2010
During the year ended December 31, 2010, the following occurred:
1. In a relation to the warranty provision of P450,000 at December 31, 2009, P200,000 was paid out of the provision. Of the amount paid, P150,000
was for products with minor defects and P50,000 was for products with major defects, all of which related to amounts that had been expected to be
paid in 2010/
2. In calculating its warranty provision for December 31, 2010, NUGGETS made the following adjustment to the assumptions used for the prior year:
Estimated cost of repairs-products with minor defects
no change
Estimated cost if repairs products with major defects
P 5,000,000
Expected % of products sold during 209 having no defects in 2011
85%
Expected % of products sold during 2009 having minor defects in 2011
13%
Expected % of products sold during 2009 having major defects in 2011
2%
-those with minor defects
all in one 2011
Expected timing of settlement of warranty payments
20% in 2011
-those with major defects
80% in 2012
3. NUGGETS determined that part of its plant and equipment needed an overhaul the conveyor belt on one of it s machines would need to be
replaced ion about December 2011 at an estimated cost of P250,000. The carrying amount of the conveyor belt at December 31, 2009 was
P140,000. Its original cost was P200,000
4. NUGGETS was unsuccessful in its defense of the peanut allergy case and was ordered to pay P1,5000,000 to the plaintiffs. As at December 31,
2010, NUGGETS had paid P800,000
5. NUGGETS commenced litigation against one of its adviser for negligent advice given on the original installation of the conveyor belt referred to in
(3) above, in October 2010, the court found in favor of NUGGETS. The hearing for damages had not been scheduled as at the date the financial
statement for 2010 were authorized for issue. NUGGETS estimated that it would receive about P425,000.
6. NUGGETS signed an agreement with Choko Bank to the effect that NUGGETS would guarantee a loan made by Choko Bank to NUGGETS
subsiadiary, ChapaChocks Ltd. ChapaChocs loan with Choko Bank was P3,200,000 as at December 31, 2010. ChapaChocs was in a strong financial
position at 31 December 2010
1. The warranty expense in 2010 is
a. P100,000
b. 400,000
c. 160,000
d. 230,000
2. The provision for warranties as of December 31, 2010 is
a. P580,000
b. 230,000
c. 480,000
d. 410,000
3. The provision for warranties to be reported as current liability as of December 31, 2010 is
a. 220,000
b. 150,000
c. 400,000
d, 330,000
4. The provision for warranties to be reported as noncurrent liability as of December 31, 2010 is
a. P. 80,000
b. P260,000
c. 150,000
d. 330,000
5. Total provisions to be reported in the statement of financial position as of December 31, 2010 is
a. P480,000
b. 410,000
c. 1,180,000
d. 1,360,000
PROBLEM NO 8
Select the best answer for each of the following:
1. In Auditing accounts payable, an auditor procedures most likely will focus primarily on managements assertion of.
a. Existence
c. Completeness
b. Presentation and disclosure
d. Valuation and allocation
2. An auditor performs a test to determine whether all merchandise for which the client was billed was received. The population for this test
consist of all
a. Merchandiser received
c. Canceled checks
b. Vendors invoices
d. receiving reports
3. The primary audit test to determine if accounts payable are valued properly is
a. Confirmation of accounts payable
b. Vouching accounts payable to supporting documentation
4.
5.
6.
7.
8.
c. An analytical procedure
d. Verification that accounts payable was reported as a current liability in the balance sheet.
Which of the following procedures is least likely to be performed before the balance sheet date?
a. Observation of inventory count.
b. Testing of internal control over cash.
c. Search for unrecorded liabilities.
d. Confirmation of receivables.
An audit assistant found a purchase order for a regular supplier in the amount P 5,500 the purchase order was date after receipt of goods. The
purchasing agent had forgotten to issue the purchase order. Also, a disbursement of P450 for materials did not have receiving report. The
assistant wanted to select additional purchase orders for investigation but was unconcerned about lack of receiving report. The audit director
should.
a. Agree with the assistant because the amount of the purchase order exception was considerably larger than the receiving report
exception
b. Agree with the assistant because the cash disbursement clerk had been assured by the receiving clerk that the failure to fill out a report
didnt happen very often.
c. Disagree with the assistant because two problems have an equal risk of loss associated with them
d. Disagree with the assistant because the lack of a receiving report has a greater risk of loss associated with it.
When using confirmation to provide evidence about completeness assertion for account payable, the appropriate population most likely is
a. Vendors with whom the entity has previously done business
b. Amounts recorded in the accounts payable subsidiary ledger
c. Payees of checks drawn in the month after the year end.
d. Invoices filed in the entitys open invoice file.
Which of the following is a substantive test than an auditor is most likely to perform to verify the existence and valuation of recorded accounts
payable?
a. Investigating the open purchase order file to ascertain that pre-numbered purchase orders are used and accounted for.
b. Receiving the clients mail, unopened, for a reasonable period of time after year end to search for unrecorded vendors invoices
c. Vouching selected entries in the accounts payable subsidiary ledger to purchase orders and receiving reports.
d. Confirming accounts payable balances with know suppliers who have zero balances.
Only one of the following four statements which compare confirmation of accounts payable with suppliers and confirmation of accounts
receiving with debtors is false. The false statements is that
a. Confirmation of accounts receiving with debtors is a more widely accepted auditing procedure than us confirmation of accounts payable
with suppliers
b. Statistical sampling techniques are more widely accepted in the confirmation of accounts payable than in the confirmation of accounts
receivable ]
c. As compared with the confirmation of accounts receivable, the confirmation of accounts payable will tend to emphasize accounts with
zero balances at the balance sheet date.
d. It is less likely that the confirmation request sent to the supplier will show the amount owed than that request sent to the debtor will
show the amount date.
9. When title to merchandise in transit has passed to the audit client the auditor engaged in the performance of a purchase cut-off will
encounter the greatest difficulty in gaining assurance with respect to the
a. Quantity
C. Price
b. Quality
d. Terms
10.
11.
Which of the following audit procedures is least likely to detect an unrecorded liability?
a. Analysis and recomputation of interest expense
b. Analysis and recomputation of depreciation expense.
c. Mailing of standard bank confirmation forms.
d. Reading of the minutes of meetings of the board of directors
Unrecorded liabilities are most likely to be found during the review of which of the following documents?
a. Unpaid bills
c. bills of lading
b. Shipping records
d. Unmatched sales invoice
12. Which of the following audit procedures is best for identifying unrecorded trade accounts payable?
a. Reviewing cash disbursement recorded subsequent to the balance sheet date to determine whether the related payables apply to the
prior period.
b. Investigating payables recorded just prior to and just subsequent to the balance sheet date to determine whether they are supported
by receiving reports.
c. Examining unusual relationships between monthly accounts payable balances and recorded cash payments.
d. Reconciling vendors statement to the file of receiving reports to identify items received just prior to the balance sheet date,
13.
In verifying debits to perpetual inventory records of nonmanufacturing firm, the auditor is most interested in examining the purchase
a. Journal
c. Order
b. Requisitions
d. Invoices.
14. Which of the following procedures relating to the examination of accounts payable could the auditor delegate entirely to the clients
employees
a. Test footings in the accounts payable ledger
b. Reconcile unpaid invoices to vendors statements
c. Prepare a schedule of accounts payable
d. Mail confirmation for selected account balances
15. An auditors purpose in reviewing the renewal of a note payable shortly after the balance sheet date most likely is to obtain evidence
concerning managements assertions about
a. Existence
c. Completeness
d. Valuation
16. An auditors program to audit long-term debt should include steps that require
a. Examining bond trust indentures
b. Inspecting the accounts payable subsidiary ledger
c. Investigating credits to the bond interest income account
d. Verifying the existence of the bondholders.
17. In an audit of bonds payable, an auditor expects the trust indenture to include the
a. Auditees debt-to-equity ratio at the same time of issuance
b. Effective yield of the bonds issued
c. Subscription list
d. Description on the collateral
18. In auditing long-term bonds payable, an auditor most likely will
a. Perform analytical procedures on the bond premium and discount accounts
b. Examine documentation of assets purchased with the bond proceeds or liens
c. Com[pare interest with the bond payable amount for reasonableness
d. Confirm the existence of individual bondholders at year-end
19. The audit procedures used to verify accrued liabilities differ from those employed for the verification of accounts payable because
a. Accrued liabilities usually pertain to services of a continuing nature while account payable are the result of completed transaction
b. Accrued liability balances are less material than account payable balances.
c. Evidence supporting accrued liabilities is nonexistent while evidence supporting account payable is readily available
d. Accrued liabilities at year end will become account payable during the following year
20. The auditor is most likely to verify accrued commissions payable in conjunction with the
a. Sales cutoff test.
b. Verification of contingent liabilities.
c. Review of post-balance sheet date disbursements.
d. Examination of trade accounts payable
Suggested Answers
Problem 1
1. D
2. C
3. A
4. B
5. A
Problem 2
1. B
2. A
3. C
4. D
Problem 3
Adjusting entries
Problem 4
1. A
2. A
3. C
Problem 5
1. A
2. B
3. C
Problem 8
1. C
2. B
3. C
4. C
5. D
6. A
7. C
8. B
9. B
10. B
11. A
12. A
13. D
14. C
15. D
16. A
17. D
18. C
19. A
20. A
4. A
5. B
Problem 6
1. D
2. B
3. C
4. C
5. D
6. A
7. C
Problem 7
1. C
2. D
3.
4. A
5. B
Accountancy Department
College of Business and Accountancy
Notre Dame University
Cotabato City, Philippines
CPA MOCK BOARD EXAMINATION
AUDITING PROBLEMS
MR. RONALD GERMO MAMARIL
INSTRUCTION: Select the correct answer for each of the following questions. Mark only one answer for each item by shading the box corresponding to the
letter of your choice on the sheet provided. STRICLY NO ERASURES ALLOWED. Use pencil no. 1 only.
CASE 1: STOCK INVESTMENT IN SAN MIGUEL

1. The Stock Investment showed the following details during year 2008
STOCK INVESTMENT IN SAN MIGUEL
Jan. 1 Audited balance 4,000shares

Feb. 28
Cash dividend
Mar. 31
Bought shares
Apr. 1Sale of rights
June 30
Sale of shares
1.
Debit
P80,000
Credit
2,000
9,000
6,000
10,000
A cash dividend of P0.50 per share were received on Feb. 28. The adjusting entry (assuming the use of the cost method) is:
a. Stock Investment
Dividend income
b. Retained earnings
Dividend income
c. Dividend Income
Stock investment
d. Cash
Dividend income
2,000
2,000
2,000
2,000
2,000
2,000
2,000
2,000
2. On March 15, stock rights were received entitling shareholders to purchase one share for every five held at P15 per share. Market values on this date
were: shares, P20; rights, P5. The adjusting entry to recognize the cost allocated to the rights is:
a. Stock rights
Stock investment
b. Stock rights
Stock investment
c. Stock rights
Stock investment
d. Stock rights
Stock investment
16,000
16,000
20,000
20,000
10,000
10,000
30,000
30,000
3. On March 31, 600 shares were purchased with the partial exercise of these rights. The adjusting entry, after the adjustment in No. 7 above has been
given effect, is
a. Stock investment
Stock rights
b. Stock investment
Stock rights
c. Stock rights
Stock investment
d. Stock rights
Stock investment
18,000
18,000
12,000
12,000
12,000
12,000
15,000
15,000
4. On April 1, the remaining rights were sold for P6, 000. The adjusting entry is:
a. Stock investment
6,000
Gain on sale of rights
6,000
b. Stock investment
6,000
Stock rights
4,000
2,000
c. Stock investment
4,000
Loss on sale of rights 2,000
Stock rights
6,000
d. Stock investment
4,000
4,000
5. On June 30, 460 shares were sold for P10, 000. Using the average cost method, the adjusting entry is:
a. Cash
Stock investment
Gain on sale of stock
b. Stock investment
10,000
7,500
2,500
10,000
10,000
c. Stock investment
d. None of the above
2,500
2,500
CASE 2: HOME OFFICE AND ESPERANZA BRANCH

The following were found in your examination of the interplant accounts between the Home Office and Esperanza Branch.
a. Transfer of fixed assets from Home Office amounting to P53, 960 was not booked by the branch.
b. P10,000 covering marketing expenses of another branch was charged by Home Office to Esperanza.
c. Esperanza recorded a debit note on inventory transfers from Home Office of P75,000 twice.
d. Home Office recorded cash transfer of P65,700 from Esperanza Branch as coming from Upi Branch.
e. Esperanza reversed a previous debit memo from Cotabato Branch mounting to P10,500. Home Office debited that this charge is appropriately Upi
Branchs cost.
f. Esperanza recorded a debit memo from Home Office of P4, 650 as P4,650.
6. The net adjustment in the Home Office books related to the Esperanza Branch current amount is:
a. P75,700
b. 65,700
c. 86,200
d. 94,820
7. The net adjustment in Esperanzas books related to the Home Office account is:
a. P33,335
b. 31,450
c. 20,950
d. 10,450
8. Before the above discrepancies were given effect, the balance in the Home Office books of its Esperanza Branch Current account was debit balance of
P165, 920. The unadjusted balance in the Esperanza Branch books of its Home Office Current account must be:
a. P92,336
b. 98,230
c. 104,500
d. 111,170
page 2
9. The adjusted balance of the reciprocal account is:
a. P84, 807
b. 90, 220
c. 99, 200
d. 109, 120
CASE 3: LEILA MAES FLOWER SHOP (ACCRUAL)
The following information pertains to Leila Mas Flower Shop, a calendar-year sole proprietorship, which maintained its books on the cash basis during
the year.
Leila Mas Flower Shop
TRIAL BALANCE
December 31, 2008
Debit
Credit
Cash
P 102, 400
Accounts receivable
64, 800
Inventory, 12/31/2007
248, 000
Furniture & fixtures
472, 800
Land improvements
180, 000
Accumulated depreciation, 12/31/2007
P129, 600
Accounts payable, 12/31/2007
68, 000
Leila Maes, Drawings
Leila Maes, Capital, 12/31/2007
498, 400
Sales
2, 612, 000
Purchases
1, 220, 400
Salaries
696, 000
Payroll taxes
Insurance
Rent
Utilities
Living expenses
49, 600
34, 800
136, 800
50, 400
52, 000
P3, 308, 000
P3, 309, 000
Leila Maes has developed plans to extend into wholesale flower market and is in the process of negotiating a bank loan to finance the expansion. The
bank is requesting 2008 financial statements prepared on the accrual basis of accounting from Leila Maes. During the course of a review engagement,
Marion, Leila Maes accountant, obtained the following additional information.
1. Amounts due from customers totaled P128, 000 at December 31, 2008.
2. An analysis of the above receivables revealed that an allowance for uncollectible accounts of P15, 200 should be provided.
3. Unpaid invoices for flower purchases totaled P122, 000 and P68, 000, at December 31, 2008, and December 31, 2007, respectively.
4. The inventory totaled P291, 200 based on a physical count of the goods at December 31, 2008. The inventory was priced at cost, which approximates
market value.
5. On May 1, 2008, Leila Mae paid P34, 800 to renew its comprehensive insurance coverage for 1 year. The premium on the previous policy, which
expired on April 30, 2008, was P31, 200.
6. On January 2, 2008, Leila Mae entered into 25-year operating lease for the vacant lot adjacent to Barons retail store for use as a parking lot. As agreed
in the lease, Leila Mae paved and fenced in the lot at a cost P180, 000. The improvements were completed on April 1, 2008, and have an estimated
useful life of 15 years. No provision for depreciation or amortization has been recorded. Depreciation on furniture and fixtures was P48, 000 for 2008.
7. Accrued expenses at December 31, 2007 and 2008, were as follows:
Utilities
Payroll taxes
2000
P3, 600
4, 400
P8, 000
2001
P 6, 000
6, 400
P12, 400
page 3
8. Leila Mae is being sued for P16, 000. The coverage under the comprehensive insurance policy is limited to P1, 000, 000. Leila Maes attorney believes
that an unfavorable outcome is probable and that a reasonable estimate of the settlement is P1, 200, 000.
9. The salaries account includes P16, 000 per month paid to the proprietor. Leila Mae also receives P1, 000 per week for living expenses.
Required: You are to convert the balances of the nine (9) accounts below to the accrual basis.
MULTIPLE CHOICE QUESTIONS:
a
10.
11.
12.
13.
14.
15.
16.
17.
18.
Accounts receivableP64, 800 P63, 200 P128, 000 P192, 800

Inventory
291, 200 248, 000
43, 200 334, 400
Accounts payable 54, 000
68, 000 122, 000 176, 000
Sales
2, 612, 000 2, 548, 800 2, 500, 000 2, 675, 200
Purchases
1, 274, 400 1, 220, 400 1, 166, 400 1, 250, 000
Salaries
888, 000 696, 000 600, 000 504, 000
Payroll taxes
51, 600 47, 600
49, 600
50, 000
Insurance
34, 800
33, 600
36, 000 35, 000
Utilities
50, 400
48, 000
50, 000
52, 800
CASE 4: J& M CO. (BONDS)

The J & M Co. sold P6, 000, 000 of 9% bonds on October 1, 2001, at P5, 747, 280 plus accrued interest. The bonds were dated July 1, 2001; interest
payable semiannually on January 1 and July 1; redeemable after June 30, 2006 to June 30, 2007, at 101, and thereafter until maturity at 100; and convertible
into P10 par value common stock as follows.
Until June 30, 2006, at the rate of 6 shares for each P1, 000 bond.
From July 1, 2006 to June 30, 2009, at the rate of 5 shares for each P1, 000 bond.
After June 30, 2009, at the rate of 4 shares for each P1, 000 bond.
The bonds mature 10 years from their issue date. The company adjusts its books monthly and closes its books as of December 31 each year.
The following transactions occur in connection with the bonds:
2007
July 1 P2, 000, 000 of bonds were converted into stock.
2008
Dec. 31
P1, 000, 000 face value of bonds were reacquired

at 99-1/4 plus accrued interest. These were
immediately retired.
2009
July 1 The remaining bonds were called for redemption
and accrued interest was paid. For purposes of obtaining funds for redemption and business expansion, a P8, 000, 000 issue of 7% bonds was sold at 97.
These bonds are dated July 1, 2009, and are due in 20 years.
19. What are the carrying value of bonds payable at December 31, 2001?
a. P5, 747, 280
b. P6, 000, 000
c. P5, 753, 760

d. P5, 749, 440
20. What is the total interest expense for 2001?

a. P128, 520
b. P 47, 160
c. P141, 480
d. P135, 000
21. In recording the bond conversion on July 1, 200, how much should be credited to the additional paid-in capital account?
a. P1, 796, 320
b. P1, 965, 440
c. P1, 845, 440

d. P1, 865, 440
page 4
22. What is the gain or loss on bond conversion on July 1, 2007?

a. P0
b. P1, 796, 320
c. P1, 865, 440

d. P
34, 560
23. What is the carrying value of the bonds reacquired on December 31, 2008?
a. P989, 200
b. P957, 880
c. P1, 010, 800

d. P 981, 700
24. What is the gain (loss) on bond reacquisition on December 31, 2008?
a. P3, 300
b. (P3, 300)
c. P34, 620
d. P (P34, 620)
25. What is the carrying value of the bonds retired on July 1, 2009?
a. P3, 000, 000
b. P2, 974, 080
c. P2, 873, 640

d. P3, 025, 920
26. What is the gain (loss) on bond retirement on July1, 2009?

a. (P25, 920)
b. P25, 920
c. (P12, 960)
d. P0
CASE 5: BLUE ICE CO. (R/E)

BLUE ICE COMPANYS stockholders equity account balance at December 31, 2008 were as follows:
Common Stock
Additional Paid-in capital
Retained Earnings
800, 000
1, 600, 000
1, 845, 000
The following 2009 transactions and other information relate to the stockholders equity accounts:
a. BLUE ICE had 400, 000 authorized shares of P5 par common stock, of which 160, 000 shares were issued and outstanding.
b. On March 5, 2009, BLUE ICE acquired 5, 000 shares of its common stock for P10 per share to hold as treasury stock. The shares were originally issued
at P15 per share. BLUE ICE uses the cost method to account for treasury stock. Treasury stock is permitted in BLUE ICEs state of incorporation.
c. On July 15, 2009, BLUE ICE declared and distributed a property dividend of inventory. The inventory had a P75, 000 carrying value and a P60, 000 fair
market value.
d. On January 2, 2009, BLUE ICE granted stock options to employees to purchase 20, 000 share of BLUE ICEs common stock at P18 per share, which was
the market on that date. The option may be exercised all 20, 000 options when the market value of the stock was P25 per share. BLUE ICE issued new
shares to settle the transaction.
e. BLUE ICEs net income for 2009 was P240, 000.
Instruction:
Based on the information above and other analysis as necessary, answer the following question.
27. BLUE ICEs Common Stock balance at December 31, 2009 is;
a. P1, 160, 000
b. P900, 000
c. P800, 000
d. P1, 300, 000
28. BLUE ICEs Additional Paid-in capital balance at December 31, 2009 is;
a. P1, 860, 000
c. P2, 000, 000
b. P1, 960, 000
d. P2, 100, 000
29. BLUE ICEs Retained Earnings balance at December 31, 2009 is;
a. P2, 085, 000
b. P2, 010, 000
c. P2, 025, 000

d. P1, 770, 000
30. BLUE ICEs Treasury Stock balance at December 31, 2009 is;
a. P50, 000
b. P75, 000
c. P0
d. P125, 000
page 5
31. BLUE ICEs Stockholders Equity balance at December 31, 2009 is;
a. P4, 910, 000
b. P4, 820, 000
c. P4, 720, 000

d. P4, 735, 000
CASE 6: LETICIAS CO. (PPE)

Information pertaining to LETICIA COMPANYS property, plant and equipment for 2009 is presented below.
Account balances at January 1, 2009:
Debit
6, 000, 000
48, 000, 000
Credit
Land
Buildings
Accum. Depreciation Bldg.
10, 524, 000
Machinery and equipment
36, 000, 000
Accum. Depreciation Mach/Equip.
10, 000, 000
Automotive equipment
4, 600, 000
Accum. Depreciation Auto. Equip.
3, 384, 000
Depreciation data:
Depreciation
Useful
Method
Life
Building
150% declining balance
25 years
Machinery/Equip.
SLM
10 years
Automotive Equip.
SYD
4 years
Leasehold improvements
SLM
Depreciation is computed to the nearest month.
Transactions during 2009 and other information are as follows:
On January 2, 2009, LETICIA purchased a new car for P800, 000 cash and trade-in of a 2-year-old car with a cost of P720, 000 and a book value of P216,
000. The new car has a cash price of P960, 000; market value of the trade-in is not known.
On May 1, 2009, costs of P6, 720, 000 were incurred to improve leased office premises. The leasehold improvements have a useful life of 8 years. The
related lease terminates on December 31, 2008.
On July 1, 2009, machinery and equipment were purchased at a total invoice cost of P11, 200, 000; additional costs of P200, 000 for freight and P1, 000,
000 for installation were incurred.
LETICIA determined that the automotive equipment comprising the P4, 600, 000 balance at January 1, 2009, would have been depreciated at a total
amount of P720, 000 for the year ended December 31, 2009.
Instruction:
Based on the information above and other analysis as necessary, answer the following question:
32. What is the depreciation on building for 2009?

a. P1, 499, 040
b. P2, 880, 000
c. P2, 998, 080

d. P2, 248, 557
33. What is the book value of the building at December 31, 2009?
a. P34, 596, 000
b. P35, 976, 960
c. P34, 477, 920

d. P35, 227, 393
34. What is the depreciation on machinery and equipment for 2009?

a. P4, 128, 000
c. P4, 220, 000
b. P4, 151, 000
d. P4, 197, 000
35. What is the gain on machine destroyed by fire?

a. P620, 000
b. P300, 000
c. P160, 000
d. P460, 000
page 6
36. What is the balance of the accumulated depreciation machinery and equipment at December 31, 2009?
a. P13, 231, 000
b. P13, 777, 000
c. P13, 760, 000

d. P13, 691, 000
37. What is the depreciation on automotive equipment for 2009?

a. P1, 104, 000
b. P816, 000
c. P720, 000
d. P960, 000
38. What is the gain (loss) on car traded in?

a. P (240, 000)
b. P240, 000
c. P (56, 000)
d. P56, 000
39. What is the depreciation on leasehold improvement for 2009?

a. P756, 000
b. P672, 000
c. P560, 000
d. P630, 000
40. What is the book value of leasehold improvements at December 31, 2009?
a. P6, 160, 000
b. P6, 048, 000
c. P6, 090, 000

d. P5, 964, 000
CASE 7: ST. JOHN AND ST. THERESE
Financial Statements for St. John and St. Therese on December 31, 2009 follows:
Income Statements for the year ended 12/31/02
St. John
St. Therese
Sales
750, 000
420, 000
Cost of sales
581, 000
266, 000
Gross Margin
169, 000
154, 000
Depreciation and interest expense 28, 400
16, 200
Other operating expenses
117, 000
128, 400
Net income from operations
23, 600
9, 400
Gain on sale of equipment
3, 000
Gain on bonds
Equity in subsidiarys income
8, 460
.
Net income
35, 060
9, 400
========
========
Statement of Retained Earnings for the year ended 12/31/02
01/01/02 Retained Earnings
Net Income (from above)
Total
Dividends
12/31/02 Balance
48, 000
41, 000
35, 060
9, 400
83, 060
50, 400
(15, 000)
(4, 000)
68, 060
46, 400
=========
========
Balance Sheet as of December 31, 2009

Cash
45, 300
6, 400
Accounts receivable (net)
43, 700
12, 100
Inventories
38, 300
20, 750
Equipment
195, 000
57, 000
Accumulated depreciation
(35, 200)
(18, 900)
Investment in stock of St. John
125, 460
Investment in bonds of St. Therese
44, 000
Patents
.
9, 000
412, 560
130, 350
=========
========
Accounts payable
8, 900
18, 950
Bonds payable
Capital Stock
Additional paid-capital
Retained earnings (from above)
100, 000
154, 000
81, 600
68, 060
412, 560
========
50, 000
15, 000
46, 400
130, 350
=========
page 7
St. John acquired 90% of the common stock of St. Therese for P120, 600 on January 1, 2009.
The following additional information is available in the first year after the acquisition.
1. During 2009, St. John sold merchandise to St. Therese that originally cost St. John P15, 000, and the sale was made for P20, 000. On December 31, 2008,
St. Thereses inventory included merchandise purchased from St. John at a cost to St. Therese of P12, 000.
2. Also, during 2009, St. John acquired P18, 000 of merchandise from St. Therese. St. Therese uses normal markup of 25% above cost. St. Johns ending
inventory includes P10, 000 of the merchandise acquired from St. Therese.
3. St. Therese reduced its intercompany account payable to St. John to a balance of P4, 000 as of December 31, 2009, by making a payment of P1, 000 on
December 30. This P1, 000 payment was still in transit on December 31, 2009.
4. On January 2, 2009, St. Therese acquired equipment from St. John for P7, 000. The equipment was originally purchased by St. John for P5, 000 and had a
book value of P4, 000 at the date of sale to ST. Therese. The equipment had an estimated remaining life of 4 years as of January 2, 2009.
5. On December 31, 2009, St. Therese purchased for P44, 000, 50% of the outstanding bonds issued by St. John. The bonds mature on December 31, 2005,
and were originally issued at par. The bonds pay interest annually on December 31 of each year, and the interest was paid to the prior investor immediately
before St. Thereses purchase of bonds.
QUESTION:
Assume that the combination is accounted for as PURCHASE.
41. What is the eliminating entry for the Equity in subsidiarys income and dividends declared by the subsidiary?
a. Equity in subsidiarys income
8, 460
Investment in stock of St. Therese
8, 460
b. Equity in subsidiarys income
8, 460
Dividends declared St. Therese
3, 600
4, 860
c. Equity in subsidiarys income
12, 060

d. No Eliminating Entry
12, 060
42. What is the eliminating entry for St. Thereses stockholders equity?
a. Capital stock St. Therese
45, 000
Additional paid-in capital St. Therese 13, 500
Retained earnings St. Therese
36, 900
Goodwill
25, 200
120, 600
b. Capital; stock St. Therese
45, 000
36, 900
95, 400
c. Capital stock St. Therese
50, 000
Additional paid-in capital
15, 000
46, 400
Goodwill
14, 060
125, 460
d. Capital stock St. Therese
50, 000
46, 400
111, 400
43. To eliminate the sales made by St. John to St. Therese, the entry is:
a. Sales
Inventory St. Therese (B/S)
Purchases
Inventory St. Therese (I/S)
b. Sales
Cost of sales
Inventory St. Therese
c. Sales
Cost of sales
20, 000
3, 000
20, 000
3, 000
20, 000
17, 000
3, 000
20, 000
3, 000
23, 000
Page 8
d. Retained Earnings
Sales
3, 000
20, 000

Cost of sales
3, 000
20, 000
44. To eliminate the entry made by St. Therese to St. John, the entry is: (assume that Equity in subsidiary income has not been recorded by parent)
a. Sales
18, 000
Inventory
2, 000
Cost of sales
16, 000
b. Sales
18, 000
1, 600
400
Cost of sales
18, 000
Inventory
2, 000
c. Sales
18, 000
Retained earnings
2, 000
Cost of sales
18, 000
Inventory
2, 000
d. Sales
18, 000
Inventory
2, 000
Cost of sales
20, 000
45. To record the items in transit and to eliminate the inter-companys payable/receivable, the entry is:
a. Accounts payable
4, 000
Accounts receivable
4, 000
b. Accounts receivable
4, 000
Cash
1, 000
Accounts payable
5, 000
c. Cash
1, 000
Accounts payable
3, 000
Accounts receivable
4, 000
d. Cash
1, 000
Accounts payable
4, 000
Accounts receivable
5, 000
46. To eliminate the acquisition made by St. Therese from St. John, the entry is:
a. Equipment
2, 000
Accumulate depreciation
1, 000
Gain on sale of equipment
3, 000
b. Gain on sales of equipment
3, 000
Equipment
2, 000
Depreciation expense
c. Gain on sale of equipment
Equipment
d. Gain on sale of equipment
Equipment
250
750
3, 000
2, 000
1, 000
3, 000
2, 000
1, 000
47. The depreciation recorded by St. John at December 31, 2009 is:
a. Overstated by P750
c. Overstated by P1, 750
b. Overstated by P250
d. Understated by P1, 000
48. The entry to eliminate the bonds purchased by St. Therese from St. John is:
a. Bonds payable
50, 000
Investment in bonds of St. John
44, 000
Gain on extinguishments of debt
6, 000
b. Investment of St. John
44, 000
Loss on extinguishments of debt
6, 000
Bonds payable
50, 000
c. Bonds payable
44, 000
44, 000
Retained earnings
6, 000
d. Bonds payable
50, 000
44, 000
Retained earnings
6, 000
page 9
For items 49-50, assume that the combination is accounted for as POOLING OF INTEREST.
49. What is the eliminating entry for the Equity in subsidiarys income and dividends declared by the subsidiary?
a. Equity in subsidiarys income
8, 460

b. Equity in subsidiarys income
Dividends declared St. Therese
c. Equity in subsidiarys income
e. No eliminating Entry
8, 460
8, 460
3, 600
4, 860
12, 060
12, 060
50. What is the eliminating entry for St. Thereses stockholders equity?
a. Capital stock St. Therese
45, 000
36, 900
Goodwill
25, 200
120, 600
b. Capital stock St. Therese
45, 000
36, 900
95, 400
c. Capital stock St. Therese
50, 000
46, 400
Goodwill
14, 060
125, 460
d. Capital stock St. Therese
50, 000
46, 400
111, 400
Page 10
Punongbayan & Araullos Auditing Problems Quiz
EASY
1.
On July 01, 2007, one of FLOYD INC.'S delivery trucks was destroyed in an accident. On that date, the truck's book value was P900,000. On July 15,
2007, FLOYD INC. received and recorded a P42,000 invoice for a new engine installed in the truck in May 2007 and another P6,000 invoice for various
repairs.
What amount should FLOYD INC. use to determine the gain or loss on disposal of the truck?
a.P900,000 b.P942,000
c.P948,000 d.P936,000
2.
Henry Company had the following bank reconciliation at March 31:

Balance per bank statement, March 31
P
93,000
Add deposit in transit
20,600
P
113,600
Less outstanding checks
25,200
Balance per books, March 31
88,400
Data per bank statement for the month of April follow:

Deposits
P
Disbursements
P
116,800
99,400
All reconciliation items at March 31 cleared through the bank in April. Outstanding checks at April 30 totaled P15,000.
What is the amount of cash disbursements per books in April?
a.P 89,200
b.P 99,400
c.P109,600
d.P114,400
3.
BRAND CO. reported P9,000 of net income for 2007. The correct net income however was
overstated by P1,000.
The only other error was with the beginning inventory which must have been:
a.
Understated by P1,000
b.
c.
Overstated by P1,000
d.
P11,000. It was determined that the ending inventory was
4.*
On December 30, 2007, SWIFT CO. shipped to a customer merchandise with selling price of P37,500; terms net 30, FOB Shipping Point. The sale which
is 125% of cost was recorded in January 2007 when the check was received from the customer. Ending inventory was determined by physical count on
December 31, 2007.
As a result of the above transactions, SWIFT CO.s cost of goods sold for the year ended December 31, 2007 was:
a.
b.
c.
d.
Correctly stated
5.
BART Company started operations on January 01, 2008. The following are available as of June 30, 2008:
Purchase of merchandise
P
450,000
Inventory, June 30, 2008
75,000
Goods were sold at 50% above cost; 75% ofsales were on account
Estimated bad debts
1% of credit sales
Collections from charge customers
315,000
Allowance for doubtful accounts, June 30,2008
after write off of uncollectible accounts
3,903.75
The outstanding accounts receivable as of June 30, 2008 were:
a.P110,000
b.P106,875
c.P106,560
d.P285,000
6.
PRIME Co. received from a customer a one year, P500,000 note bearing annual interest of 8%. After holding the note for six months, PRIME discounted
the note at Asian Bank at an effective interest rate of 10%.
At the date of discounting, PRIME should recognize

a.
P 40,000 interest revenue
b.
P23,810 interest revenue
c.
P13,000 interest revenue
d.
P 4,762 interest expense
7.
Information pertaining to Trace Company for the month of August appears below:
Balance per bank statement
P
310,000
Balance per books
187,500
Deposit in transit
70,000
Service charges
2,500
Note collected by bank
75,000
Outstanding checks
?
An analysis of the cancelled checks returned with the bank statement reveals the following:
a.
Check for the purchase of merchandise was drawn for P155,000 but was recorded as P150,000.
b.
The management wrote a check for traveling expenses of P25,000 while out of town. The check was not recorded.
What is the amount of outstanding checks on August 31, 2006?
a.P150,000
b.P140,000
c.P125,000
d.P230,000
8.
The inventory on hand on December 31, 2006 of LEISA CORP. is valued at a cost of P300,000. The following items were not included in the inventory:
a. Purchased goods in transit shipped FOB Destination, with price of P30,000 which included freight charge of P5,000.
b. Goods held on consignment by LEISA CORP. at a sales price of P10,000, excluding a 20% commission on the sales price. Freight paid by LEISA
CORP. was P1,000.
c. Goods sold in transit FOB Destination with invoice price of P49,000 which included freight charge of P4,000 to deliver the goods.
d. Purchased goods in transit FOB Shipping Point with invoice price of P60,000. Freight costs amount to P6,000.
Goods out on consignment with sales price of P30,000. Shipping costs amounts to P3,000.
What is the correct inventory on December 31, 2006 assuming LEISAs selling price is 150% of costs?
a.P419,000
b.P416,000
c.P410,000
d.P 17,500
9.
In analyzing the shareholders equity section of the PEARSON CORP. The following information was abstracted from the accounts at December 31,
2007:
Total income since incorporation
P
7,875,000
Total cash dividends paid
2,437,500
Proceeds from sale of donated stock
843,750
Total value of stock dividends distributed
562,500
Excess of proceeds over cost of treasury stock sold
131,250
What should be the balance of the Retained earnings account as of December 31, 2007?
a.P 4,875,000
b. P 6,218,750 c. P 7,031,250 d. P 10,031,250
10.
Still Trading made investments in available for sale securities. The Unrealized gain or loss account has a debit balance of P38,700 at December 31,
2006. An analysis of the investment account on December 31, 2006 showed the following:
No. of shares
Cost
Market
A common
600 shares
P922,500 P810,000
B common
225 shares
229,500
270,000
C common
2,000 shares
808,500
841,800
On July 01, 2007, the shares of B common were sold for P210,000. On December 31, 2007, A shares were quoted at P1,320 per share and C common
shares were quoted at P414 per share.
How much is the required increase in the Unrealized gain or loss account at the end of 2007?
a.P130,500
b.P111,000
c.P 91,800
d.P 31,800
AVERAGE
1.
While preparing its 2008 financial statements, Dell Corp. discovered computational errors in its 2007 and 2006 depreciation expenses. These errors
resulted in the overstatement of each years income by P25,000 net of income taxes. The following amount were reported in the previously issued
financial statements.
2007
2006
Retained earnings, January 1
700,000
500,000
Net income
150,000
200,000
Retained earnings, December 31
850,000
700,000
Dell Corp. net income is correctly reported at P180,000.
2.
Which of the following amounts should be reported as prior period adjustments and net income in Dell Corp.s 2008 and 2007 comparative financial
statements?
Year
Prior period Adj.
Net Income
a.
2007
150,000
2008
(
50,000)
180,000
b.
2007
(
50,000)
150,000
2008
180,000
c.
2007
(
25,000)
125,000
2008
180,000
d.
2007
125,000
2008
180,000
Henri Company purchased for cash on January 01, 2003, three machines which cost a total of P1,800,000.
Estimated selling prices of the machines were:
Machine 1
P
600,000
Machine 2
Machine 3
750,000
900,000
The machines were believed to have a useful life of 10 years without residual value. The company records depreciation annually on a monthly basis. On
January 01, 2006, Machine 1 was sold for P375,000 cash. The proceeds were credited to the Machinery account.
On July 01, 2007, Machine 3 was traded in for a new machine (No. 4) which had a cash price of P750,000, Henri paying P300,000 for the difference with the
trade in value of the old machine.
What should be the balance of the Accumulated depreciation Machinery on December 31, 2007 after adjustment of the books?
a.P805,500
b.P481,500
c.P337,500
d.P387,500
3.The following data are taken from the shareholders equity section of the balance sheet of FLOOD CORP.
12.31.6
12.41.07
Ordinary shares (P100 par value)
625,000
637,500
Share premium in excess of par
312,500
362,500
Retained earnings
625,000
653,750
During 2007, the company declared and paid cash dividend of P93,750 and also declared and issued a stock dividend. There were no other changes in stock
issued and outstanding during 2007.
Net income for 2006 is:
a. P 28,750
b. P 122,500
c. P 135,000
d. P 185,000
4.
During 2007, Pen Corporation acquired common stock of Rap Company as follows:
LOT
DATE
NO. OF SHARES COST PER SHARE TOTAL COST
A
January 25
800
560
448,000
B
April 5
600
600
360,000
Rap Company issued a 20% stock dividend on February 14, 2007. Common stock rights were issued on October 30, 2007 entitling holders to purchase
one new common share at P450 for each ten shares held. On this date, the rights were being traded at P20 each and the stock ex-rights were being
traded at P620 per share.
On November 8, 2007, Pen sold 500 rights that pertained to Lot A. Sales price was P25 per right. The corporation paid a brokerage fee of P500 on the
sale of the stock rights. Pen exercised the remaining rights on November 11, 2007.
The gain on the sale of right is:
a.P5,208
b.P4,708
c.P3,750
d.P3,250
5.
Use the same information used in Number 4. How many new shares of RPP common were acquired by Peninsula through the exercise of the stock
rights?
a.168 shares
b.140 shares
c.118 shares
d.106 shares
6.
On July 1, 2007, Marcus Company purchased 4,000 of the P1,000 face amount , 8% bonds of Olay Corporation for P3,692,000 to yield 10% per annum.
The bonds which mature on July 1, 2010, pay interest semiannually on January 1 and July 1. Marcus Company classifies the securities as held to
maturity.
What is the investment carrying value at December 31, 2007?
a.P3,975,400
b.P3,741,200
c.P3,716,600
7.
d.P3,667,400
Use the same information in number 6 above. How much is the interest revenue reported by Marcus Companys income statement for year ended
December 31, 2007?
a.P200,000
b.P190,800
c.P184,600
d.P160,000
Use the following information for questions 8 and 9.

Cline Company's December 31 year-end financial statements contained the following errors:
Dec. 31, 2007
Dec. 31, 2008_________
Ending inventory
P3,000 understated
P4,400 overstated
P 800 understated
An insurance premium of P7,200 was prepaid in 2007 covering the years 2007, 2008, and 2009. The prepayment was recorded with a debit to insurance
expense. In addition, on December 31, 2008, fully depreciated machinery was sold for P3,800 cash, but the sale was not recorded until 2009. There were no
other errors during 2007 or 2008 and no corrections have been made for any of the errors. Ignore income tax considerations.
8.
What is the total net effect of the errors on the amount of Cline's working capital at December 31, 2008?
a.Working capital overstated by P2,000.
b.Working capital overstated by P600.
c.Working capital understated by P1,800.
d.Working capital understated by P4,800.
9.
What is the total effect of the errors on the balance of Cline's retained earnings at December 31, 2008?
a.Retained earnings understated by P4,000.
b.Retained earnings understated by P1,800.
c.Retained earnings understated by P1,000.
d.Retained earnings overstated by P1,400.
10.
In your examination of the books and accounts of PLUM Company for the year 2008, you have noted that the entire past due accounts of the company
amounting to P200,000 should be set up as Allowance for Doubtful accounts. On these past due accounts, management with proper recommendation
from the companys legal counsel, has decided to write off accounts with balance totaling P40,000. As of December 31, 2008, the balance of
Allowance for Doubtful Accounts was P125,000.
The additional provision required for the companys doubtful accounts is:
a.P 35,000
b.P 75,000
c.P160,000
d.P200,000
DIFFICULT
Items 1 and 2 are based on the following:
CONCORD CO. purchased real property for P3,225,000 which included P67,500 for realty tax arrears for prior years. A mortgage of P1,500,000 was assumed
by CONCORD CO. on the purchase. Twenty percent of the purchase price should be allocated to the land and the balance to the building.
In order to make the building suitable for the use of CONCORD CO., remodeling costs had to be incurred in the amount of P337,500.
necessitated the demolition of a portion of the building, which resulted in recovery of salvage material sold for P11,250 cash.
This however
Landscaping and parking lot cost the company a total of P120,000 while repairs in the main hall were P16,875.
1.
2.
The cost of the land was:

a.P631,500
b.P645,000
c.P765,000
d.P945,000
The cost of the building was:
a.P2,467,500
b.P2,923,125
c.P2,906,250
d.P4,123,125
3.
On June 30, 2007, COLT INC. had outstanding 10% P250,000 face amount 15 year bonds maturing on June 30, 2017. Interest is paid on June 30 and
December 31, and bond discount and bond issue costs are amortized on these dates. The unamortized balances on June 30, 2007 of bond discount and
bond issue costs were P13,750 and P5,000 respectively. COLT INC. reacquired all of these bonds at 96 on June 30, 2007 and retired them.
Ignoring income taxes, compute for the gain or loss on bond retirement.
a. Loss of P3,750
b. Loss of P8,750
c. Gain of P1,250
d. Gain of P10,000
Items 4 to 6 are based on the following:
You are conducting an audit of the MART CORPORATION for the year ended December 31, 2008. The internal control procedures surrounding cash
transactions were not adequate. Jane Quipit, the bookkeeper-cashier handles cash receipts, maintains accounting records and prepares the monthly
reconciliations of the bank account. She prepared the following reconciliation at the end of the year:
Balance per bank statement
P
315,000
Add :
Deposit in transit
P
157,725
Note collected by bank
13,500
171,225
Balance
P
486,225
Less :
Outstanding checks
222,075
Balance per general ledger
P
264,150
In the process of your audit, you gathered the following:
a.
At December 31, 2008, the bank statement and the general ledger showed balances of P315,000 and P264,150 respectively.
b.
The cut off bank statement showed a bank charge on January 02, 2009 for P35,250 representing a correction of an erroneous bank credit.
c.
Included in the list of outstanding checks were the following:

1. A check payable to a supplier, dated December 29, 2008, in the amount of P13,275, released on January 05, 2009.
2. A check representing advance payment to a supplier in the amount of P33,489, the date of which is January 04, 2009, and released in
December 2008.
d.
On December 31, 2008, the company received and recorded customers postdated
check amounting to P45,000.
4.
Compute the adjusted deposit in transit as of December 31, 2008.

a.P157,725
b.P112,725
c.P202,725
d.P112,500
5.
Compute the adjusted outstanding checks as of December 31, 2008.

a.P222,075
b.P235,350
c.P255,564
d.P175,311
6.
Compute the adjusted cash to be presented in the balance sheet as at Dec. 31, 2008.
a.P211,914
b.P225,414
c.P238,914
d.P279,414
7.
You are reviewing the notes payable and interest expense accounts of Cole Manufacturing Co. as of December 31, 2007 and noted that the company
regularly borrows from the bank in order to finance working capital. The following schedule shows loans with 12% interest rate, with interest payable at
maturity. All loans are repaid at its scheduled maturity date and interest expense is 7recorded when the loans are repaid.
DATE OF LOAN
AMOUNT
MATURITY DATE
TERM OF LOAN
Nov. 01, 2006
P 500,000
Oct. 31, 2007
1 year
Feb. 01, 2007
1,500,000
July 31, 2007
6 months
May 01, 2007
800,000
Jan. 31, 2008
9 months
The client recorded interest expense of P150,000 for 2007. Compute for the correct amount of interest expense that should be reported in the 2007 income
statement.
a. P204,000
b. P212,000
c. P222,000
d. P214,000
Use the following information for questions 8 to 9.
The balance sheet for the Dixie Corporation on December 31, 2007 includes the following
receivables balances:
Notes Receivable
Less notes discounted
P365,000
155,000
P210,000
Accounts Receivable
Less allowance for doubtful accounts
P856,000
41,500
814,500
Selected ransactions during 2008 included the following:

a.
Notes received in settlement of accounts totaled P825,000.
b.
Notes receivable discounted as of December 31, 2007, were paid at
maturity with the exception of one P30,000 note on which the
company had to pay the bank P30,900, which included interest and
protest fees. It is expected that recovery will be made on this note
early 2009.
c.
Customers notes of P600,000 were discounted with recourse during
the year, proceeds from their transfer being P585,000. Of this total,
P480,000 matured during the year without notice of protest.
h.
Notes receivable collected during the year totaled P270,000 and
interest collected was P24,500.
Determine the adjusted balances of the following accounts as of December 31,
2008:
8.
Notes Receivable (including notes receivable discounted).
a. P320,000
b. P365,000
c. P165,000
d. P285,000
9.
Notes Receivable Discounted
a. P155,000
b. P600,000
c. P120,000
d. P105,000
10.
Voltron Inc. reported inventory of P360,000 at December 31, 2006. The following data were gathered to confirm the reported inventory figure.
Inventory, December 31, 2005
P
320,00
Purchases during 2006
1,410,000
Cash sales during 2006
350,000
Shipment received on December 26, 2006 included
in physical inventory but not recorded as purchases
10,000
Deposit made with suppliers, entered as purchased.
goods were not received during 2006
20,000
Collections on accounts receivable during 2006
1,800,000
Accounts receivable, December 31, 2005
250,000
Accounts receivable, December 31, 2006
300,000
Gross profit percentage on sales
40%
What is the estimated inventory shortage at December 31, 2006?

a.P60,000
b.P50,000
c.P40,000
d.P 5,000
CLINCHER
1.
On October 01, 2006, Aguila Company consigned 50 computers at a unit cost of P15,000 to HP Company for sale at P20,000 each and paid P20,000
transportation cost. On December 31, 2006, HP Company reported the sales of 25 computers and returned 10 units. Cost paid by the consignee on the
returned units was P4,000. Amount due to consignor was remitted on the same date. Commission rate as agreed upon was 15%.
What amount of inventory on consignment and net income related to the sold units respectively should Aguila Company report on December 31, 2006?
a.P225,000 and P36,000
b.P231,000 and P32,000
c.P235,000 and P40,000
d.P375,000 and P44,000
Items 2 and 3 are based on the following information:
Some of the information you gathered in the audit of the financial statement of CYNDY CORP. are:
1.
The president is to receive a bonus consisting of a basic amount equivalent to 5% of the companys net income before deduction of bonus but
after deduction of corporate income tax.
2.
In addition, the basic bonus will be increased by the companys tax savings because the total amount of bonus is deductible in computing the
companys taxable income. The tax savings is the difference between the income tax the company would have paid if there were no bonus and
the taxes the company must pay after deducting the bonus.
3.
CYNDY CORPORATION reported a net income of P280,000 in 2007 before deduction of the presidents bonus and the corporate income tax.
4.
The company is subject to a corporate income tax of 35% of its net income after deducting the presidents bonus.
2.
Compute for the total amount of bonus the president should receive in 2007:
a. P 9,100
b. P 9,352
c. P14,387
d. P14,136
3.
Compute for the net profit for 2007 after deducting the presidents bonus and the corporate income tax.
a. P 172,649 b. P 170,886
c. P 170,798
d. P 172,900
4.
CATER COMPANY pays its sales representatives fixed monthly salaries and commissions on net sales. Commissions are computed and paid on a
monthly basis (in the month following the month of sales) net of fixed salaries. However, if the fixed monthly salaries exceed their sales commissions earned
for the month, such excess is not charged back to them. Pertinent data for the month of March 2007 are as follows:
SALES REP
FIXED SALARY
NET SALES COMMISSION RATE
A
P
25,000
P1,000,000
2%
B
35,000
2,000,000
3%
C
45,000
3,000,000
3%
What amount should CATER COMPANY accrue as sales commission payable in March 2007?
a. P 65,000
b. P 70,000
c. P170,000
d. P175,000
5.
On July 1, 2007, Acro Manufacturing Co. issued a five-year note payable with a face amount of P2,500,000 and an interest rate of 10 percent. The
terms of the note require Acro Manufacturing Company to make five annual payments of P500,000 plus accrued interest, with the first payment due June 30,
2008. With respect to the note, the current liabilities section of Acros December 31, 2007, balance sheet should include:
a. P 250,000
b. P 500,000
c. P 625,000 d. P 750,000
1. A CPA firms quality control procedures pertaining to the acceptance of a prospective audit client would most likely include
a.
b.
c.
d.
Inquiry of management as to whether disagreements between the predecessor auditor and the prospective client were resolved satisfactorily.
Consideration of whether sufficient competent evidential matter may be obtained to afford a reasonable basis for an opinion.
Inquiry of third parties, such as the prospective clients bankers and attorneys, about information regarding the prospective client and its management.
Consideration of whether the internal control structure is sufficiently effective to permit a reduction in the required substantive tests.
2. An auditor who has been invited to submit a proposal for an audit engagement is a/an
predecessor auditor
successor auditor
c. principal auditor
d. interim auditor
3. The degree of certainty that the practitioner has attained and wishes to convey is called:
a.
b.
c.
d.
audit risk
assurance
materiality
audit report
4. The information below was taken from the bank transfer schedule prepared during the audit of BAY Co.s financial statements for the year ended
December 31, 2011. Assume all checks are dated and issued on December 30, 2011.
Disbursemen
Receipt
t date
Check From
To
Per
Per
Per
No.
Books Bank
Books
101
Nation Federal
Dec. Jan. 4 Dec. 30
al
30
202 County State
Jan. 3 Jan. 2 Dec. 30
303
404
Which of the above checks might indicate kiting?
#101 and #303.
#202 and #404.
Federa America Dec.

l
n
31
State Republi Jan. 2
c
Jan. 3
Jan. 2
Jan. 2
Jan. 2
date
Per
Bank
Jan. 3
Dec.
31
Jan. 2
Dec.
31
#101 and #404.

#202 and #303.
5. Which of the following is most likely to be effective in detecting kiting?
a.
b.
c.
d.
Bank Confirmation
Bank transfer schedule prepared using only the cash receipts and cash disbursements journals
Comparison of bank cutoff statement to the cash receipts and disbursements records
Receivable confirmation
6. The work-in process inventory of RHODE ISLAND Constructions Co., was completely destroyed by fire on April 1, 2014. You
were able to establish the
physical inventory figures as follows:

Raw materials
Work in process
Finished goods
January 1, 2014
30,000
100,000
140,000
April 1, 2014
60,000
120,000
Sales from January 1 to March 31, were P 300,000. Purchases of raw materials were P 100,000 and freight on purchases, P 10,000. Direct labor during the
period was P 80,000. It was agreed with the insurance adjusters that an average gross profit rate of 32.5% be used and that manufacturing overhead was
45% of direct labor cost.
The value of goods manufactured and completed as of April 1, 2014:
a. P 120,000 b. P
c. P
d. 182,500
180,000
190,000
7. On December 31, 2009, Alcoa Co. purchased equity securities as trading securities. Pertinent data are as follows:
P Company
Q Company
B Company
Total
Fair value
Cost
12/31/11
P 900,000
P 780,000
1,100,000
1,240,000
2,000,000
1,720,000
P4,000,00 P3,740,000
0
12/31/10
P 880,000
1,120,000
1,920,000
P3,920,000
On December 31, 2011, Alcoa transferred its investment in security B from trading to available-for-sale because Alcoa intends to retain security B as a longterm investment.
QUESTION:
What total amount of gain or loss on its securities should be included in Alcoas 2011 profit or loss?
a. P 20,000 gain
b. P 260,000 loss
c. P180,000 loss
d. P180,000 gain
Suggested Solution:
Total fair value, 12/31/11
P3,740,000
Total fair value, 12/31/10
3,920,000
Unrealized loss on trading P 180,000
securities
Summary of reclassifications of financial assets (based on amended PAS 39 par. 50 to 54):
An entity:
a) Shall not reclassify a derivative financial instrument into or out of the FVTPL category while it is held.
b) Shall not reclassify any financial instrument out of the FVTPL category if upon initial recognition it was designated by the entity as at fair value
through profit and loss; and
c) May, if a financial asset is no longer held for the purpose of selling it in the near term (notwithstanding that the financial asset may have been
acquired principally for the purpose of selling it in the near term), reclassify that financial asset out of the FVTPL category only in rare
circumstances (arising from a single event that is unusual and highly unlikely to recur in the near term).
If an entity reclassifies a financial asset out of the FVTPL category, the financial asset shall be reclassified at its fair value on the date of
reclassification. Any gain or loss already recognized in profit or loss shall not be reversed. The fair value of the financial asset on the date of
reclassification becomes its new cost.
An entity shall not reclassify any financial instrument into the FVTPL category after initial recognition.
Since the reason for the transfer of the investment from trading to available for sale is not a rare situation, the investment should be accounted for under its
original classification.
8. Bridgestone Company bought 20% of Spiratone Corporations ordinary shares on January 1, 2011 for P11,400,000. Carrying amount of Spiratones net
assets at purchase date totaled P50,000,000. Fair value and carrying amounts were the same for all items except for plant and inventory, for which fair
values exceed their carrying amount by P10,000,000 and P2,000,000 respectively. The plant has a 5-year life. All inventory was sold during 2011. During
2011, Spiratone reported profit of P30,000,000 and paid a P10,000,000 cash dividend.
QUESTIONS:
What amount should Bridgestone report as net income related to this investment in 2011?
a. P5,200,000
b. P6,200,000
c. P5,400,000
d. P4,200,000
Share of profit (P30,000,000
P6,000,000
20%)
Amortization of excess Inventory
( 400,000)
Amortization of excess Plant ( 400,000)
(P2,000,000/5)
Income from acquisition (see below)
1,000,000
Net investment income
P6,200,000
Acquisition cost
P11,400,000
Less carrying amount of net assets
10,000,000
acquired
(P50,000,000 20%)
Excess
Attributed to :
Undervalued plant asset
(P10,000,000 20%)
Undervalued
(P2,000,000 20%)
Negative goodwill
acquisition)
1,400,000
( 2,000,000)
( 400,000)
inventory
(income
from (P1,000,000)
Any excess of the investors share of the net fair value of the associates identifiable assets, liabilities and contingent liabilities over the cost of the
investment is excluded from the carrying amount of the investment and is instead included as income in the determination of the investors share of the
associates profit and loss in the period in which the investment is acquired. (PAS 28 par. 23)
9. On January 1, 2011, Mazda Motor Corporation created a special building fund by depositing a single sum of P200,000 with an independent trustee. The
purpose of the fund is to provide resources to build an addition to the older office building during the latter part of 2015. The company anticipates a total
construction cost of P1,000,000 and completion by January 1, 2016. The company plans to make equal annual deposit from December 31, 2011 through
2015, to accumulate the P1,000,000. The independent trustee will increase the fund each December 31 at an interest rate of 10%. The accounting
periods of the company and the fund end on December 31.
QUESTION:
How much is the annual deposit to the fund? (Round off present value factors to four decimal places)
a. P163,797
b. P100,944
c. P131,038
d. P111,038
Suggested Solution:
Target amount
P1,000,000
Less future value of P200,000 (P200,000
322,100
1.6105)
Balance
Divide by future value of ordinary
annuity of P1 to 10% for 5 periods
Annual deposit
677,900
6.1051
P 111,038
10. Morningstar Company took out a P10,000,000 insurance policy on the life of its president on January 2, 2009. The companys accounting period is the
calendar year. The annual premium on the policy is P160,000. Data regarding dividends and cash surrender value are given below:
2011
2012
Dividend received on December 31
10,000
12,000
Cash surrender value
84,000
?
Life insurance expense
?
138,000
QUESTIONS:
The life insurance expense in 2011 is
a. P160,000
b. P122,000
c. P150,000
d. P 66,000
Annual premium
Dividend received in 2011
P160,000
(10,000)
Increase in cash surrender

value pertaining to 2011 (28,000)
(P84,000 1/3)
Life insurance expense for P122,000
2011
2011
2012
10,000
12,000
84,000
?
?
138,000
The cash surrender value at December 31, 2012 is
a. P106,000
b. P118,000
c. P 94,000
d. P 96,000
Annual premium
P160,000
Dividend received in 2012
(12,000)
Life insurance expense for (138,000)
2012
Increase in cash surrender 10,000
value for 2012
Cash surrender value, 12/31/11
84,0
00
P94,000
2011
2012
10,000
12,000
84,000
?
?
138,000
Assuming the president dies on July 1, 2012 and the face of the policy is collected on July 31, 2012, the gain on life insurance settlement is
a. P 9,831,000
b. P 9,825,000
c. P 9,819,000
d. P10,000,000
Face amount
P10,000,000
Unexpired insurance (P160,000 (80,000)
6/12)
[P84,000+(P10,000
6/12)]
Gain
on
life
settlement
(89,0
00)
insurance P 9,831,000
13. The following items relate to the acquisition of a new machine by Spar Corporation in 2011:
Invoice price of machinery

P2,000,000
Cash discount not taken
40,000
Freight on new machine
10,000
Cost of removing the old machine
12,000
Loss on disposal of the old machine
150,000
Gratuity paid to operator of the old
70,000
machine who laid off
Installation cost of new machine
60,000
Repair cost of new machine damaged in
the process of
8,000
installation
Testing costs before machine was put into
regular
15,000
operation
Salary of engineer for the duration of the
40,000
trial run
Operating cost during first month of
250,000
regular use
Cash allowance granted because the new
machine
100,000
proved to be inferior quality

QUESTION:
How much should be recognized as cost of the new machine?
a.
b.
c.
d.
P1,985,000
P1,993,000
P1,930,000
P2,025,000
Suggested Solution:
Invoice price of machinery
P2,000,000
Cash discount not taken
(40,000)
Freight on new machine
10,000
Installation cost of new machine
60,000
Testing costs
15,000
Salary of engineer for the duration of
40,000
the trial run
Cash allowance
(100,0000)
Cost of the new machine
P1,985,000
14. In connection with your audit of the Polycom Corporations financial statements for the year 2011 you noted the following items relative to the companys
intangible assets.
A patent was purchased from Polymer Company for P4,000,000 on January 2, 2010. Polycom estimated that the remaining useful life of the patent to
be 10 years. The patent was carried in Polymers accounting records at a carrying value of P4,000,000 when Polymer sold it to Polycom.
During 2011, a franchise was purchased from Safeland Company for P960,000. In addition, 5% of the revenue from the franchise must be paid to
Safeland. Revenue from the franchise for 2011 was P5,000,000. Polycom estimates the useful life of the franchise to be 10 years and takes full years
amortization in the year of purchase.
Polycom incurred research and development costs of P866,000 in 2011. Polycom estimates that these costs will be recouped by December 31, 2014.
On January 1, 2011, Polycom, because of the recent events in the industry, estimates that the remaining life of the patent purchased on January 2,
2010, is only 5 years from January 1, 2011.
QUESTIONS:
Based on the above and the result of your audit, determine the following:
Amortization of patent for 2011
a. P900,000
b. P800,000
c. P720,000
d. P400,000
Cost of patent
P4,000,0
00
Less
amortization
in
2010
400,
(P4,000,000/10)
000
Carrying amount, 1/1/11
P3,600,0
00
Divide by revised remaining useful life
5
Patent amortization for 2011
P
720,0
00
15. On January 2, 2003, Bambino Company spent P480,000 to apply for and obtain a patent on a newly developed product. The patent had an estimated
useful life of 10 years. At the beginning of 2007, the company spent P144,000 in successfully prosecuting an attempted patent infringement. At the
beginning of 2008, the company purchased for P280,000 a patent that was expected to prolong the life of its original patent by 5 years. On July 1,2011, a
competitor obtained rights to a patent that made the companys patent obsolete.
QUESTIONS:
Carrying amount of patent as of December 31, 2007

a. P360,000
b. P240,000
c. P369,600
d. P355,200
Question No. 1
Cost of patent
Less amortization up to 12/31/07 (P480,000
5/10)
Carrying amount of patent, 12/31/07
P480,000
240,000
P240,000
16. Perkins Corporation authorized the sale of P2,000,000 of 12%, 10 year debentures on January 1, 2006. Interest is payable on January 1 and July 1. The
entire issue was sold on April 1, 2006, at 102 plus accrued interest. On April 1, 2011, P1,000,000 of the bond issue was reacquired and retired at 99 plus
accrued interest. On June 30, 2011, the remaining bonds were reacquired at 97 plus accrued interest and refunded with an issue of P1,600,000 of 9%
bonds which were sold at 100.
QUESTIONS:
Based on the above and the result of your audit, determine the following: (Use straight line method to amortize premium or discount)
1. Total cash received from the sale of P2 million bonds on April 1, 2006
a. P2,100,000
b. P2,000,000
c. P2,040,000
d. P2,120,000
Question No. 1
Issue price (P2,000,000
P2,040,000
1.02)
Accrued interest (P2,000,000

12% 3/12)
60,000
Total cash received from sale of P2,100,000

bonds
17. Intel Inc., leases equipment to its customers under noncancelable leases. On January 1, 2011, Intel leased equipment costing P4,000,000 to Asus Co., for
nine years. The rental cost was P440,000 payable in advance semiannually (January 1 and July 1), plus P20,000 semiannually for executor costs. The
equipment had an estimated life of 15 years and sold for P5,330,250 with an estimated unguaranteed residual value of P800,000. The implicit interest
rate is 12 percent.
QUESTIONS:
Based on the foregoing and the result of your audit, compute for the following: (Round off present value factors to four decimal places).
How much is the total interest income from lease that will be earned by Intel, Inc.?
a. P2,869,988
b. P3,389,748
c. P3,675,616
d. P
0
Suggested Solution:
Gross investment in the lease:
Minimum lease payments
(P440,000 18)
Unguaranteed residual value
P7,920,000
800,00 P8,720,000
0
Net investment in the lease:

PV of minimum lease
payments
(P440,000 11.4773)
5,050,012
PV of unguaranteed residual
value
(P800,000 0.3503)
280,240
Total unearned interest income
P5,330,252
P3,389,748
18. At the beginning of 2011, Golem Company grants 100 share options to each of its 200 employees. Each grant is conditional upon the employees working
for the entity over the next three years. The entity estimates that the fair value of each share option is P45.
On the basis weighted average probability, the entity estimated that 25 percent of employees will leave during the three-year period and therefore forfeit
their rights to the share options.
During 2011, 10 employees leave. The entity revises its estimate of total employee departure over the three-year period from 25 percent to 20 percent.
During 2012, a further 8 employees leave. The entity revises its estimate of total employee departure over the three-year period from 20 percent to 15 per
cent. During 2013, a further 6 employees leave.
Questions:
Based on the above and result of the audit, determine the following:
Compensation expense in 2011
a. P 240,000
b. P 225,000
c. P 720,000
d. P
Compensation expense in 2011

(200 employees 100 options P240,00
0
80% P45 1/3)
19. The income statement of BrightStar Corporation for 2011 included the following items:
Interest income
Salaries expense
Insurance expense
P2,101,000
1,650,000
277,200
The following balances have been excerpted from BrightStar Corporations statement of financial position:
12/31/2010
interest P 165,000
Accrued
receivable
Accrued
salaries
payable
Prepaid insurance
92,400
33,000
12/31/2011
P 200,200
195,800
24,200
QUESTIONS:
The cash received for interest during 2011 was

a. P1,900,800
c.
P2,065,800
b. P2,101,000
d. P2,136,200
Question No. 1
Interest income
P2,101,000
Accrued interest receivable, 12/31/10
165,000
Accrued interest receivable, 12/31/11
(200,200)
Cash received for interest during P2,065,800
2011
20. In your audit of Saga Companys statement of comprehensive income for the year ended December 31, 2011, you noted that company reported profit of
P10,000,000. You raised questions about the following amounts that had been included in profit:
Unrealized loss on decline in value of
available
for sale securities
Loss on write-off of inventory due to
a
government ban net of tax
Adjustment of profit of prior year netdebit
Loss from expropriation of property,
net of tax
Exchange
differences
gain
on
translating foreign
operations
Realized revaluation surplus
P 500,000
1,500,000
2,000,000
3,500,000
4,500,000
1,000,000
The loss from expropriation was unusual in occurrence in Sagas line of business.
QUESTIONS:
Saga Companys 2011 statement of comprehensive income should report profit at
a. P9,000,000
b. P6,500,000
c. P7,000,000
d. P8,500,000
Question No. 1
Reported profit
P10,000,000
Unrealized loss on decline in value of
available for
500,000
sale securities
Adjustment of profit of prior year net-debit
2,000,000
Exchange differences gain on translating
foreign
(4,500,000)
operation
Realized revaluation surplus
(1,000,000)
Adjusted profit
P7,000,000
58 | P a g e
PROBLEM 1
Shown below is the bank reconciliation for Orchid Company for
November 2013:
Balance per bank, Nov. 30, 2013 P 150,000
Add: Deposits in transit 24,000
Total 174,000
Less: Outstanding checks P 28,000
Bank credit recorded in error 10,000 38,000
Cash balance per books, Nov. 30, 2013 P 136,000
The bank statement for December 2013 contains the following
data:
Total deposits P 110,000
Total charges, including NSF check of P 8,000
and a service charge of P 400 96,000
All outstanding checks on November 30, 2013, including the
bank credit, were cleared in the bank in December 2013.
There were outstanding checks of P 30,000 and deposits in
transit of P 38,000 on December 31, 2013.
Based on the above result of your audit, answer the following:
1. How much is the cash balance per bank on December 31,
2013?
a. P 154,000 b. P 150,000 c. P 164,000 d. P 172,400
C
2. How much is the December receipts per books?
a. P 124,000 b. P 96,000 c. P 110,000 d. P 148,000
A
3. How much is the December disbursements per books?
a. P 96,000 b. P 79,600 c. P 89,600 d. P 98,000
B
4. How much is the cash balance per books on December 31,
2013?
a. P 150,000 b. P 170,400 c. P 180,400 d. P 162,000
C
5. In auditing bank reconciliation, which of the following is/are
true?
I. The auditor obtains copies of the entitys reconciliation and
agrees the bank balance to the bank confirmation and the
book balance to the general ledger.
II. The auditor note the date on which outstanding items are
shown on subsequent bank statements and obtain
explanations for all material items cleared within the
reasonable time of the date of receipt of the cash or the
drawing of the checks
a. I only
A
PROBLEM 2
b. II only
c. I and II
d. None of the
above
59 | P a g e
On April 1, 2014, Anabelle Co., purchased land and building for
a lump-sum price of P80,000,000. The existing building (with a
remaining useful life of 4 years) was demolished late 2015 to
make way for the construction of a new. The following data
were collected concerning the property at the same date:
Land
P
P
50,000,000
96,000,000
Building
25,000,000
24,000,000
6. Assume that the Anabelle Co., at date of acquisition, has
decided to use the property as owner-occupied property under
cost model, what is the value of the acquired Old Building at
the end of calendar year 2015 in accordance with PAS 16
Property, plant and equipment?
a. P
26,666,667
b. P
24,000,000
c. P
16,000,000
d. P -0-
D
7. Assuming the fair value of the old building and land on fiscal
year ending June 30, 2015 were P13,000,000 and
P44,000,000, respectively, how much is the net impact on the
comprehensive income of Anabelle Co. on the said fiscal year
under revaluation model?
a. P
22,000,000
b. P
23,000,000
c. P 3,000,000
d. P -0-
A
8. Assume Anabelle Co. is a property developer and paid
P2,500,000 to demolish the building on the land, determine
the appropriate amount that the Company should debit to PPE
if its policy is to consider the demolition cost as directly
attributable cost in constructing the new asset.
a. P
24,000,000
b. P 2,500,000
c. P
17,500,000
d. P -0-
D
PROBLEM 3
On December 31, 2013, Nicole Co. identified that its building
with a carrying amount of P2,400,000 has been impaired. In
estimating the recoverable amount, Nicole has determined
that the fair value of the asset is P2,000,000. In estimating the
value in use, Nicole determined the following:
Year
Future cash
Future cash
inflows
outflows
2014
P 1,200,000
P 400,000
60 | P a g e
2015
2016
1,120,000
1,040,000
400,000
320,000
Each years estimated future cash flows include P40,000

representing cash outflows from future restructuring not yet
committed and P20,000 representing cash outflows on
planned improvement and enhancement. Not included in the
estimated future cash flows are costs of day-to-day servicing
of the asset amounting to P8,000 per year. The discount rate
applicable for the computation of the value in use is 10%.
(Round-off PV factors in to 6 decimal places and amounts in
whole number)
9. Assume that the following costs were also estimated for
purposes of computing the fair value less cost to sell:
Transaction taxes P200,000; Legal costs, stamp duty,
commissions, and similar fees P40,000; Cost of dismantling
or removing the asset included in provision for restoration and
decommissioning cost
P20,000; Termination benefits and costs associated with
reducing or reorganizing the business following the disposal of
an asset P60,000. How much is the fair value less costs to
sell?
a. P 1,680,000
b. P 1,740,000
c. P 1,760,000
d. P 2,000,000
C
10. Based on the previous item and information provided
above, how much is the impairment loss?
a. P 407,424
b. P 456,773
c. P 365,472
d. P 412,365
A
PROBLEM 4
You noted the following items relative to the companys
intangible assets in connection with your audit of Familiar
Corporations financial statements for the year 2014.
Franchise - On January 1, 2014, Familiar signed an agreement
to operate as franchisee of Tricky Copy Service, Inc. for an
initial franchise fee of P680,000. Of this amount, P200,000 was
paid when the agreement was signed and the balance was
payable in four annual payments of P120,000 each, beginning
January 1, 2015. The agreement provides that the down
payment is not refundable and no future services are required
of the franchisor. The implicit rate for the loan of this type is
14%. The agreement also provides the 5% of the revenue from
the franchise must be paid to the franchisor. Trickys revenue
from the franchise for 2014 was P8,000,000. Tricky estimates
the useful life of the franchise to be ten years.
Patent - On July 1, 2014, Familiar purchased a patent from the
inventor, who asked P1,100,000 for it. Familiar paid for the
61 | P a g e
patent as follows: cash, P400,000; issuance of 10,000 shares
of its own ordinary shares, par P10 (market value, P20 per
share); and a note payable due at the end of three years, face
amount, P500,000, noninterest-bearing. The current interest
rate for this type of financing is 12%. The total consideration
represents the fair value of the patent. Familiar estimates the
useful life of the patent to be 10 years.
Trademark - Familiar purchased for P1,200,000 a trademark for
a very successful soft drink it markets under the name
POWER!. The trademark was determined to have an indefinite
life. A competitor recently introduced a product that is in direct
competition with the POWER!, thus suggesting the need for an
impairment test. Data gathered by Familiar suggests that the
useful life of trademark is still indefinite, but the cash flows
expected to be generated by the trademark have been
reduced either to P40,000 per year (with a probability of 70%)
or to P80,000 per year (with 30% probability). The appropriate
risk-free interest rate is 5%. The appropriate risk-adjusted
interest rate is 10%.
Based on the above and the result of your audit, determine the
following: (Round off present value factors to 4 decimal places
11. Total expenses related to franchise in 2014
a. P 503,914
b. P 535,200
c. P 448,950
d. P 454,964
A
12. Carrying amount of the patent as of December 31, 2014
a. P 1,045,000
b. P 955,900
c. P 860,310
d. P 908,105
D
13. Total expenses related to the above intangible assets in
2014
a. P 662,759
b. P 711,709
c. P 733,063
d. P 802,212
C
14. In evaluating control risk and effectiveness for intangible
assets, controls should be designed for numerous purposes.
Which of the following is not a usual control for intangible
assets?
a. Ensure decisions are appropriately made as to when to
capitalize or expense research and development expenditures.
b. Develop amortization schedules that reflect the remaining
useful life of patents or copyrights associated with the assets.
c. Identify and account for intangible asset impairment.
d. All of the above are usual controls for intangible assets.
D
PROBLEM 5
62 | P a g e
You have obtained the latest actuarial report prepared for
Renzel Corps pension plan. Information about the actuarial
reports are presented below: From the December 31, 2015
actuarial report
Present value
3,600,000
3,500,000
of defined
benefit
obligation
Fair value of
3,900,000
3,800,000
plan assets at
end of year
Current service 345,000
320,000
cost for year
Benefits paid
240,000
230,000
in year
Contributions
430,000
410,000
paid in year
Discount rate
4.5%
5.0%
at end of year
Assume contributions and benefit payments occurred evenly
throughout the year.
Based on the above information and assumptions determine
the following: (Round of any components in the computation
to the nearest thousands)
15. Net interest cost (income) for 2015
a. (P 23,000)
b. (P 14,000)
c. (P 15,000)
d. P 162,000
A
16. Net amount recognized in OCI for 2015
a. P 113,000
b. P 106,000
c. P 105,000
d. P 0
A
PROBLEM 6
17. Aiza Co. determined that one of its cash-generating units is
impaired. Information on the assets of the CGU is shown
below:
Assets
Carrying Amount
Inventory
P 800,000
Investment property
1,600,000
(at cost model)
Building
2,400,000
Goodwill
1,200,000
It was estimated that the value in use of the CGU is
P3,600,000 and its fair value less costs to sell is P2,400,000.
How much is the carrying amount of the building after the
impairment testing?
a. P 1,680,000
A
b. P 1,120,000
c. P 1,800,000
d. P 2,040,000
63 | P a g e
PROBLEM 7
A recent fire severely damaged EL COMPANYs administration
building and destroyed many of its financial records. You have
been contracted by ELs management to reconstruct as much
financial information as possible for the month of July. You
learned that EL makes a physical inventory count at the end of
each month to determine monthly ending inventory values.
You also find out that the company applies the average cost
method.
You are able to gather the following information by examining
various documents:
Inventory, July 31
150,000 units
Total cost of goods
P 356,400
available for sale in July
Cost of goods sold
P 297,000
during July
P 303,000
Gross profit on sales for 0.35 per unit
July
Cost of inventory, July1
The following are ELs July purchases of merchandise:
Date
Quantity
Unit Cost
July 6
180,000
P 0.40
July 12
150,000
0.41
July 16
120,000
0.42
July 17
150,000
0.45
ELs management has asked you to provide the following
information:
18. Number of units on hand, July 1
a. 450,000
b. 848,571
c. 169,714
d. 300,000
D
19. Units sold during July
a. 600,000
b. 300,000
c. 750,000
d. 450,000
C
20. Unit cost of inventory at July
a. P 0.35
b. P 0.396
c. P 0.419
d. P 0.279
B
21. Value of inventory at July 31
a. P 59,400
b. P 52,500
c. P 62,850
d. P 41,850
A
PROBLEM 8
On January 1, 2013, Zest Airways, Inc. issued P 100,000, 10%
10 year bonds when the market rate of interest was 8%.
Interest is payable on June 30 and December 31. The following
financial information is available:
Sales
P 300,000
Cost of sales
180,000
Gross profit
120,000
Interest expense
?
Depreciation
(14,500)
expense
(82,000)
Other expenses
?
64 | P a g e
Net income
Accounts
receivable
Inventory
Accounts payable
December 31,
January 1, 2013
2013
P 48,000
P 55,000
93,000
87,000
58,000
60,000
All purchases of inventory are on account. Other expenses are
paid for in cash.
22. What is the carrying value of the bonds on December 31,
2013
a. P 100,000
b. P 112,233
c. P 112,661
d. P 113,592
C
23. What is the interest expense for 2013
a. P 4,544
b. P 8,641
c. P 9,069
d. P 10,000
C
24. How much was paid for inventory purchases
a. P 172,000
b. P 174,000
c. P 184,000
d. P 186,000
A
25. What is Zest Airways net income for 2013
a. P 13,500
b. P 14,431
c. P 14,859
d. P 23,000
B
26. How much was received from customers in 2013
a. P 245,000
b. P 283,000
c. P 293,000
d. P 307,000
C
27. On January 1, 2014, SEXY Bank extended a P2,000,000,
zero-interest loan to one of its directors Ms. Nan-Lu Wang. The
loan matures in lump sum on January 1, 2017. The prevailing
market interest for this type of loan is 10%. The loan proceeds
(transaction price) extended to Ms. Nan-Lu Wang is equal to
the face amount of the loan. SEXY Banks personnel failed to
journalize the entry on January 1, 2014, hence, no interest
income was recorded for 2014 related to this loan.
Because of this error, profit or loss for the year ended
December 31, 2014 will be overstated (understated) by
a. P0
D
b.
(P200,000)
c. (P150,263) d. P347,107
PROBLEM 10
On January 1, 2013, Voice Company acquired 100% of the
outstanding shares of Idol Company by issuing 200,000 shares
of its P10 par ordinary with market price of P12 per share. The
book value of Idol Companys net assets was P2,500,000.
Voice Company journalized the said acquisition as follows:
Investment in Subsidiary P2,400,000
Expenses 40,000
Ordinary share capital, P10 par 2,000,000
Share Premium 400,000
Cash 40,000
65 | P a g e
Voice Company paid direct acquisition costs and
issuance/registration costs of shares of P25,000 and P15,000,
respectively (refer to the entry above). The book value of Idol
Companys net assets were the same with their fair value
except for a liability item which was understated by P3,000.
For purposes of preparing the separate financial statement of
Voice Company, the auditor noted the error on the entry
above.
28. The correct journal entry to record the transaction costs in
Voice books includes a debit to
a. Direct acquisition expenses of P40,000
P40,000
c. Investment in Subsidiary of P40,000
b. Share premium
d. Cash P40,000
C
29. The correcting entry on the separate books of Voice
Company includes a credit to?
a. Share premium of P15,000
b. Expenses P40,000
c. Investment in Subsidiary of P25,000
d. No entry needed
B
30. What is the best basis for the correcting entry related to
the error above, if any?
a. IAS 8
B
b. IAS 27
c. IFRS 3
d. Both b and
c
PROBLEM 11
On January 1, 2013 investor KITAKITS acquired a 30% interest
in entity BEH! at a cost of P500,000. Investor KITAKITS has
significant influence over entity BEH! and accounts for its
investment in the associate under the equity method. The
associate has net assets of P1,000,000 at the date of
acquisition, which have a fair value of P1,200,000. During the
year ended December 31, 2013 entity BEH! recognized a posttax profit of P200,000, and paid a dividend of P18,000. Entity
BEH! also recognized foreign exchange losses of P40,000 in
OCI.
On January 1, 2014, entity BEH! has a rights issue that
investor KITAKITS does not participate in. The rights issue
brings in an additional P150,000 in cash, and dilutes investor
KITAKITS's interest in entity BEH! to 25%.
KITAKITS inquired for the proper accounting treatment of the
dilution from his auditor.
31. Determine the net increase (decrease) on comprehensive
income of the dilution on January 1, 2014.
a. (P54,933)
b. (P52,933)
c. (P53,266)
d. (P55,266)
66 | P a g e
B
32. The entry on January 1, 2014 will increase (decrease) the
carrying amount of the investment account by
a. (P90,433) b.
(P52,933)
c. (P37,500) d. P0
B
33. Impairment losses on equity securities classified at
amortized cost under PFRS 9 are recognized in
a. profit or
b. OCI
c. Equity
d. None
loss
D
PROBLEM 12 Earl Company has the following capital
structure at the beginning of 2015:
6% Cumulative, fullyP 600,000
participating preferred stock,
P50 par value, 50,000 shares
authorized, 12,000 shares
issued and outstanding
Common stock, P10 par value,
1,475,000
200,000 authorized; 147,500
issued and outstanding
Additional paid-in capital in
180,000
excess of par preferred
Additional paid-in capital in
1,180,000
excess of par common
Retained earnings (P2,500,000
4,500,000
appropriated for plant
expansion)
7,935,000
During 2015 the following
Earl Company acquired 6,000
transactions occurred: February
preferred shares at P70 per share
11
and 40,000 common shares at
P22 per share. Earl Company is
using the cost-method in
recording treasury shares
March 31
Issued 2,000 preferred treasury

shares at P73 per share
April 7
Issued 15,000 common shares at

P25 per share
July 1
Issued 1,500 preferred treasury

shares at P68 per share & 20,000
common shares at P19 per share
August 15
Retired the remaining preferred
67 | P a g e
and common treasury shares
September 1
Plant expansion was completed
November 22
Board of directors appropriated

P2,000,000 for plant expansion in
Mactan, Cebu. Likewise, the
Board issued a 3-year, 10%
P1,500,000 face value bonds to
partially fund the construction. A
sinking fund was set-up for the
extinguishment of the bonds at
their maturity
December 31
Net income for the period

P1,400,000. Total cash dividend
declared and paid P500,000. No
dividends have been declared in
2014. A property dividend was
likewise declared, the distribution
of which is on January 6, 2016.
The carrying amount of the
property declared as dividend
was P800,000; the fair value of
which was P1,000,000
34. Upon the retirement of the preferred shares, retained

earnings shall be debited by
a. 0
b. 6,500
c. 9,500
d. 12,500
C
35. Upon the retirement of the common shares, retained
earnings shall be debited by
a. 0
b. 14,000
c. 17,000
d. 20,000
D
36. The amount of cash dividends to be distributed to the
common shareholders is
a. 329,800
b. 351,375
c. 355,420
d. 375,000
B
37. The retained earnings appropriated at the end of 2011 is
a. 1.5M
b. 2M
c. 3.5M
d. 6M
B
38. The total stockholders equity at December 31, 2011 is
68 | P a g e
a. 7,538,000
b. 7,738,000
c. 7,118,000
d. 8,038,000
A
PROBLEM 13
Two real estate companies, RK Developers and SV Holdings set
up a separate vehicle (entity DP) for the purpose of acquiring
and operating a shopping center. The contractual agreement
between the parties establishes joint control of the activities
that are conducted by entity DP. The main feature of entity
DPs legal form is that the entity, not the parties, has rights to
the assets and obligations for the liabilities relating to the
arrangement. These activities include the rental of the retail
units, managing the car park, maintaining the center and its
equipment, such as lifts and building the reputation and
customer base for the center as a whole.
The terms of contractual arrangement are such that:
a. Entity DP owns the shopping center. The contractual
arrangement does not specify that the parties have rights to
the shopping center
b. The parties are not liable in respect of the liabilities of entity
DP. If entity DP is unable to pay any of its liabilities, the liability
of each to any third party will be limited to the parties unpaid
contribution.
c. The parties have the right to sell or pledge their interest in
entity DP
d. Each party receives a share of the income from the
shopping center (rental income net of operating costs) in
accordance with its interest in entity DP.
Transactions of the contractual arrangement for 2013 and
2014 follow:
2013:
RK and SV contributed P60M each for interest in the net
assets of entity DP
Organization expenses incurred amounts to P600,000
Entity DP acquired land at a cost of P12M
Constructed building (shopping center) at a cost of P90M
Operating expenses for the year amounts to P6M
Rental income collected from tenants, P60M
Net income or loss is distributed to the venturers in
accordance with their interest
2014:
Operating expenses (including depreciation) incurred for
the year, P21M
Rental income collected for the year, P72M
Each venture receives a share of the income or loss
39. What is the interest of RK Developers in the joint venture
as of December 31, 2013?
a. P60M
b. P87M c. P113.4
d. P86.7M
69 | P a g e
40. What is the interest of SV Holdings in the joint
arrangement as of December 31, 2014?
a. P60M
b. P164.4M
c. P112.2M
d. P86.7M
C
PROBLEM 14
41. On April 1, 2014, Gerald Company engages in the
development of a property, which is expected to take five
years to complete, at a cost of P6M. the statements of
financial position at December 31, 2013 and December 31,
2014, prior to capitalization of interest are as follows:
12/31/14
12/31/13
Development
PP1,200,000
property
Other assets
6,000,000
6,000,000
P
P7,200,000
6,000,000
Loans
5.5%
P 2,500,000
P2,500,000
debenture
stock
Bank loan at
1,200,000
6% per annum
Bank loan at
1,000,000
1,000,000
7% per annum
P
P4,700,000
3,000,000
Shareholders
2,500,000
2,500,000
equity
April 1, July 1, and October 1 2014. The 5.5% debenture stocks
were irredeemable. Expenditure was incurred on the
development as follows: April 1 P600,000; July 1 P400,000;
October 1 P200,000. If all the borrowing were general (i.e.,
the bank loan 6% was not specific to the development) and
would have been avoided but for the development, then the
amount of interest to be capitalized would be (Round-off to 2
decimal % for the general borrowing rate)
A. P42,000
B. P41,580
C. P46,130
D. P0
PROBLEM 15
Kheen Company offers a cash rebate of P1 on each P4 package
of batteries sold during 2013. Historically, 10% of customers
mail in the rebate form. During 2013, 6,000,000 packages of
batteries are sold, and 210,000 P1 rebates are mailed to
customers.
42. What is the rebate expense shown on the 2013 financial
statements?
a. P 600,000
b. P 390,000
c. P 201,000
d. P -0-
70 | P a g e
B
43. What is the rebate liability shown on the 2013 financial
statements?
a. P 600,000
b. P 390,000
c. P 201,000
d. P -0C
PROBLEM 16
44. What earnings figure should be used for determining basic
EPS?
a. Consolidated net profit after tax attributable to parent
b. Consolidated profit after tax
c. A and B
d. None of the choices
A
45. For the year ended December 31, 2013, the following
information relates to AA Ltd.:
- Profit for the year was P900,000
- No preference dividends were declared during the year
- 1,000,000 10% cumulative shares of P1 (classified as equity)
were on issue for the entire year
Earnings used to determine Basic EPS will be?
a. P900,000
b. P800,000
c. P1,000,000
d.
None of the choices
B
46. For the year ending December 31, 2014, the following data
relates to GG Ltd.
1. At January 1, there were 200,000 ordinary shares on issue
2. 100,000 fully paid ordinary shares issued on March 1
3. 25,000 ordinary shares repurchased on August 1
4. 70,000 partly paid ordinary shares issued on October 1, for
P2.00 partly paid to P1.30, with right to
participate in dividends in proportion to the amount paid
relative to the issue price
5. 1,000,000 10% cumulative preference shares of P1.00
(classified as equity) were on issue for the entire year
Which items above will have an impact on the weighted
average number of shares outstanding during the year for
basic EPS?
a. Items 1 to 2 b. Items 1 to 3 c. Items 1 to 4 d. Items 1 to 5
C
47. Following the information in item 46:
70,000 partly paid ordinary shares issued on October 1 for
P2.00 partly paid to P1.30, with right to participate in
dividends in proportion to the amount paid relative to the issue
price.
How are these incorporated into the weighted average
ordinary share calculation for basic EPS?
71 | P a g e
a. Excluded from the calculation as they are not fully paid up
b. Weighted as if they were fully paid up on the date that the
first installment was receivable
c. Weighted based on their paid up portion each partly paid
share would represent 0.65 ordinary shares
d. None of the above
C
48. For the year ending December 31, 2013:
At January 1 there were 800,000 ordinary shares on issue
On March 1 200,000 fully paid ordinary shares were issued
by way of rights issue, providing one share for each four
shares held in return for payment of P1.50
What information is needed to determine whether the rights
issue contains a bonus element?
a. Original issue price
b. Fair value of shares prior to exercise
c. Profit for the year (excluding preference share impact
d. All of the above
B
Use the following information for the next 2 items
IAS 33 requires diluted EPS be calculated where an entity
has on issue potential ordinary shares that are dilutive.
In assessing whether potential ordinary shares are dilutive:
49. What measure of profit do we use?
a. Total profit/loss
b. Profit/loss from continuing operations
c. Profit/loss from discontinuing operations
d. All of the above
B
50. How are different instruments assessed?
a. Assess each independently
b. Depends on accounting policy
c. In series from most dilutive to least dilutive
d. All of the above
C
Page 1 of 5
AP-5901Q
CPA REVIEW SCHOOL OF THE PHILIPPINES
Manila
AUDITING PROBLEMS
AUDIT OF STOCKHOLDERS EQUITY - QUIZZERS
PROBLEM NO. 1
Resolve Corporation began operations on January 1, 2005.
The company was
authorized to issue 60,000 shares of P10 par value common
stock and 120,000 shares of
10%, P100 par value convertible preferred stock.
72 | P a g e
In connection with your audit of the companys financial
statements, you noted the
following transactions involving stockholders equity during
2005:
Jan. 1 Issued 1,500 shares of common stock to the corporation
promoters in
exchange for property valued at P510,000 and services valued
at
P210,000. The property costs P270,000 3 years ago and was
carried on
the promoters books at P150,000.
Jan. 31 Issued 30,000 shares of convertible preferred stock at
P150 per share.
Each share can be converted to five shares of common stock.
The
corporation paid P225,000 to an agent for selling the shares.
Feb. 15 Sold 9,000 shares of common stock at P390 per share.
The corporation
paid issue costs of P75,000.
May 30 Received subscriptions for 12,000 shares of common
stock at P450 per
share.
Aug. 30 Issued 2,100 shares of common stock and 4,200
shares of preferred
stock in exchanged for a building with a fair market value of
P1,530,000.
The building was originally purchased for P1,140,000 by the
investors
and has a book value of P660,000. In addition, 1,800 shares of
common
stock were sold for P720,000 cash.
Nov. 15 Payments in full for half of the subscriptions and
partial payments for the
rest of the subscriptions were received. Total cash received
was
P4,200,000. Shares of stock were issued for the fully paid
subscriptions.
Dec. 1 Declared a cash dividend of P10 per share on preferred
stock, payable
on December 31 to stockholders of record on December 15,
and P20
per share cash dividend on common stock, payable on January
15, 2006
to stockholders of record on December 15.
Dec. 31 Paid the preferred stock dividend.
Net income for the first year of operations was P1,800,000.
QUESTIONS:
following as of December
31, 2005:
1. Common stock
73 | P a g e
a. P264,000 b. P144,000 c. P204,000 d. P186,000
2. Paid-in capital in excess of par value of preferred stock
a. P1,500,000 b. P1,275,000 c. P1,545,000 d. P1,860,000
Page 2 of 5
AP-5901Q
3. Paid-in capital in excess of par value of common stock
a. P8,211,000 b. P11,121,000 c. P10,851,000 d. P10,032,000
4. Retained earnings
a. P1,050,000 b. P1,170,000 c. P1,458,000 d. P930,000
5. Total stockholders equity
a. P17,295,000 b. P15,810,000 c. P16,950,000 d. P17,010,000
SUGGESTED ANSWERS: C, C, C, D, B
PROBLEM NO. 2
The Perseverance Corporation has requested you to audit
its financial statements for the
year 2005. During your audit, Perseverance presented to you
its balance sheet as of
December 31, 2004 containing the following capital section:
Preferred stock P10 par; 60,000 shares authorized
and issued, of which 6,000 are treasury shares
costing P90,000 and shown as an asset P600,000
Common stock, par value P4; 600,000 shares
authorized, of which 450,000 are issued and outstanding
1,800,000
Additional paid in capital (P5 per share on preferred stock
issued in 2000) 300,000
Allowance for doubtful accounts receivable 12,000
Reserve for depreciation 840,000
Reserve for fire insurance 198,000
Retained earnings 2,250,000
P6,000,000
Additional information:
1) Of the preferred stock, 3,000 shares were sold for P18 per
share on August 30, 2005.
Perseverance credited the proceeds to the Preferred Stock
account. The treasury
shares as of December 31, 2004 were acquired in one
purchase in 2004.
2) The preferred stock carries an annual dividend of P1 per
share. The dividend is
cumulative. As of December 31, 2004, unpaid cumulative
dividends amounted to P5
per share. The entire accumulation was liquidated in June,
2005, by issuing to the
preferred stockholders 54,000 shares of common stock.
3) A cash dividend of P1 per share was declared on December
1, 2005 to preferred
74 | P a g e
stockholders of record December 15, 2005. The dividend is
payable on January 15,
2006.
4) At December 31, 2005, the Allowance for Doubtful Accounts
Receivable and Reserve
for Depreciation had balances of P25,000 and P1,050,000,
respectively.
5) On March 1, 2005, the Reserve for Fire Insurance was
increased by P60,000;
Retained Earnings was debited.
6) On December 31, 2005, the Reserve for Fire Insurance was
decreased by P30,000,
which represents the carrying value of a machine destroyed by
fire on that date.
Estimated fire cleanup costs of P6,000 does not appear on the
records.
7) The December 31, 2004 Retained Earnings consists of the
following:
Donated land from a stockholder (Market value on
date of donation) P450,000
Gains from treasury stock transactions 51,000
Earnings retained in business 1,749,000
P2,250,000
Page 3 of 5
AP-5901Q
8) Net income for the year ended December 31, 2005 was
P1,297,500 per companys
records.
QUESTIONS:
adjusted balances of the
following as of December 31, 2005. (Disregard tax
implications)
ABCD
1. Preferred stock
A.555,000 B. 630,000 C. 570,000 D. 600,000
2. Common stock
A. 2,070,000 B.2,016,000 C.1,800,000 D.1,854,000
3. Additional paid in capital
A. 810,000 B. 864,000
C.414,000 D. 804,000
4. Appropriated retained earnings
A. 0 B.303,000 C. 258,000 D 228,000
5. Unappropriated retained earnings
A 2,623,500 B. 2,677,500 C. 2,578,500 D. 2,626,500
6. Treasury stock
A.0
B.36,000 C.45,000 D.90,000
A. 6,316,500 B.3,700,500
C.6,319,500 D.5,812,500
SUGGESTED ANSWERS: D, B, B, B, C, C, A
PROBLEM NO. 3
75 | P a g e
The stockholders equity of Willpower Corporation showed
the following data on
December 31, 2004:
12% preferred stock, P30 par, 135,000 shares issued and
outstanding P4,050,000
Common stock, P50 par, 180,000 shares issued and
outstanding 9,000,000
Premium on preferred stock 1,080,000
Premium on common stock 3,240,000
Retained earnings 1,395,000
The 2005 transactions of the company affecting its
stockholders equity are summarized
chronologically as follows:
1. Issued 27,000 shares of preferred stock at P40.
2. Issued 94,500 shares of common stock at P70.
3. Retired 5,400 shares of preferred stock at P45.
4. Purchased 13,500 shares of its common stock at P80.
5. Split common stock two for one (par value reduce to P25).
6. Reissued 13,500 shares of treasury stock common at P50.
7. Stockholders donated to the company 9,000 shares of
common stock when shares had
a market price of P52. One half of these shares were
subsequently issued for P54.
8. Dividends were paid at the end of the calendar year on the
common stock at P2 per
share and on the preferred stock at the preferred rate.
9. Net income for the year was P2,520,000.
QUESTIONS:
31, 2005:
1. Preferred stock
a. P4,617,000 b. P4,968,000 c. P4,698,000 d. P4,860,000
2. Common stock
a. P15,615,000 b. P13,968,000 c. P13,500,000 d. P13,725,000
3. Additional paid-in capital
a. P6,777,000 b. P6,679,800 c. P6,858,000 d. P6,814,800
Page 4 of 5
AP-5901Q
4. Unappropriated retained earnings
a. P1,749,240 b. P1,711,440 c. P2,251,440 d. P1,684,440
a. P26,949,240 b. P26,958,960 c. P26,922,240 d. P26,940,240
SUGGESTED ANSWERS: C, D, D, B, A
PROBLEM NO. 4
Grit Corp., organized on June 1, 2004, was authorized to issue
stock as follows:
800,000 shares of 9% preferred stock, convertible, P100 par
2,500,000 shares of common stock, P2.50 stated value
During the remainder of the fiscal year ended May 31, 2005,
the following transactions
76 | P a g e
were completed in the order given:
300,000 shares of preferred stock were subscribed for at
P105, and 900,000 shares of
common stock were subscribed for at P26. Both subscriptions
were payable 30% upon
subscription, the balance in one payment.
The second subscription payment was received, except one
subscriber for 60,000
shares of common stock defaulted on payment. The full
amount paid by this subscriber
was returned, and all of the fully paid stock was issued.
150,000 shares of common stock were reacquired by
purchase at P28.
Each share of preferred was converted into four shares of
common stock.
The treasury stock was exchanged for machinery with a fair
market value of
P4,300,000.
There was a 2-for-1 stock split, and the stated value of the
new common stock is
P1.25.
Net income was P830,000.
QUESTIONS:
31, 2005:
1. Common stock
a. P2,550,000 b. P2,100,000 c. P5,100,000 d. P4,200,000
2. Total additional paid-in capital
a. P50,890,000 b. P48,340,000 c. P48,808,000 d. P48,240,000
3. Total contributed capital
a. P53,908,000 b. P53,440,000 c. P55,990,000 d. P53,340,000
a. P54,270,000 b. P54,738,000 c. P56,820,000 d. P54,170,000
SUGGESTED ANSWERS: C, B, B, A
Page 5 of 5
AP-5901Q
PROBLEM NO. 5
The year-end audit of the records of Stamina Farms disclosed
a shortage in cash
amounting to P600,000. The treasurer had concealed the fraud
by increasing inventories
by P300,000, land by P100,000 and accounts receivable by
P200,000.
Faced with prosecution, the treasurer offered to surrender
6,000 Stamina Farms shares
owned by him. The board of directors accepted the offer, with
the agreement that the
treasurer would pay any deficiency between the shortage and
the book value of the
77 | P a g e
shares, after adjusting for the fraud. The corporation would in
turn pay the excess, if any,
of the book value over the shortage.
As of December 31, 2005, there were 40,000 common shares
issued and outstanding with
a par value of P100; Retained earnings as of January 1, 2005
was P1,600,000 and net
income from 2005 operations was P1,400,000.
REQUIRED:
Considering the above information, answer the following:
1. What would be the book value per share for purposes of the
agreement?
a. P175 b. P206 c. P150 d. None of these
2. How much would the company pay the treasurer, if any?
a. P450,000 b. P300,000 c. P636,000 d. None of these
3. Assuming further the company distributes the 6,000 shares
as dividend to the
remaining stockholders, what would be the balance of the
Retained earnings as of
December 31, 2005?
a. P1,950,000 b. P2,100,000 c. P1,764,000 d. None of these
SUGGESTED ANSWERS: A, A, A
End of AP-5901Q
Page 1 of 10
AP-5902
Manila
AUDITING PROBLEMS
AUDIT OF LIABILITIES
PROBLEM NO. 1
In the audit of the Heats Corporations financial statements
at December 31, 2005, the
chief accountant of the said corporation provided the following
information:
Notes payable:
Arising from purchase of goods 304,000
Arising from 5 year-bank loans, on which marketable securities
valued at P600,000 have been pledged as security, P400,000
due
on June 30, 2006; P100,000 due on Dec. 31, 2006 500,000
Arising from advances by officers, due June 30, 2006 50,000
Reserve for general contingencies 400,000
Employees income tax withheld 20,000
Advances received from customers on purchase orders 64,000
Containers deposit 50,000
Accounts payable arising from purchase of goods,
net of debit balances of P30,000 170,000
Accounts receivable, net of credit balances P40,000 360,000
Cash dividends payable 80,000
Stock dividends payable 100,000
78 | P a g e
Dividends in arrears on preferred stock, not yet declared
200,000
Convertible bonds, due January 31, 2007 1,000,000
First mortgage serial bonds, payable in semi-annual
installments
of P50,000, due April 1 and October 1 of each year 2,000,000
Overdraft with Allied Bank 90,000
Cash in bank balance with PNB 390,000
Estimated damages to be paid as a result of unsatisfactory
performance on a contract 160,000
Estimated expenses on meeting guarantee for service
requirements on merchandise sold 120,000
Estimated premiums payable 75,000
Deferred revenue 87,000
Accrued interest on bonds payable 360,000
Common stock warrants outstanding 120,000
Common stock options outstanding 210,000
Unused letters of credit 400,000
Deficiency VAT assessment being contested 500,000
Notes receivable discounted 200,000
On March 1, 2006, the P400,000 note payable was replaced by
an 18-month note for the
same amount. Heats is considering similar action on the
P100,000 note payable due on
December 31, 2006. The 2005 financial statements were
issued on March 31, 2006.
On December 1, 2005, a former employee filed a lawsuit
seeking P200,000 for unlawful
dismissal. Heats attorneys believe that the suit is without
merit. No court date has been
set.
On January 15, 2006, the BIR assessed Heats an additional
income tax of P300,000 for
the 2003 tax year. Heats attorneys and tax accountants have
stated that it is likely that
the BIR will agree to a P200,000 settlement.
Page 2 of 10
AP-5902
REQUIRED:
Based on the above and the result of your audit, compute for
the following as of December
31, 2005:
1. Total current liabilities
a. P2,500,000 b. P2,100,000 c. P2,300,000 d. P2,400,000
2. Total noncurrent liabilities
a. P3,300,000 b. P2,900,000 c. P3,000,000 d. P3,400,000
3. Total liabilities
a. P5,200,000 b. P5,000,000 c. P5,400,000 d. P5,800,000
A,B,C
79 | P a g e
PROBLEM NO. 2
The following information relates to Sonic Companys
obligations as of December 31,
2005. For each of the numbered items, determine the amount
if any, that should be
reported as current liability in Sonics December 31, 2005
balance sheet.
1. Accounts payable:
Accounts payable per general ledger control amounted to
P5,440,000, net of P240,000
debit balances in suppliers accounts. The unpaid voucher file
included the following
items that not had been recorded as of December 31, 2005:
a) A Company P224,000 merchandise shipped on December
31, 2005, FOB
destination; received on January 10, 2006.
b) B, Inc. P192,000 merchandise shipped on December 26,
2005, FOB shipping
point; received on January 16, 2006.
c) C Super Services P144,000 janitorial services for the threemonth period ending
January 31, 2006.
d) MERALCO P67,200 electric bill covering the period
December 16, 2005 to
January 15, 2006.
On December 28, 2005, a supplier authorized Sonic to return
goods billed at P160,000
and shipped on December 20, 2005. The goods were returned
by Sonic on December
28, 2005, but the P160,000 credit memo was not received
until January 6, 2006.
a. P5,923,200 b. P5,712,000 c. P5,601,600 d. P5,841,600
2. Payroll:
Items related to Sonics payroll as of December 31, 2005 are:
Accrued salaries and wages P776,000
Payroll deductions for:
Income taxes withheld 56,000
SSS contributions 64,000
Philhealth contributions 16,000
Advances to employees 80,000
a. P776,000 b. P992,000 c. P832,000 d. P912,000
3. Litigation:
In May, 2005, Sonic became involved in a litigation. The suit is
being contested, but
Sonics lawyer believes it is possible that Sonic may be held
liable for damages
estimated in the range between P2,000,000 and P3,000,000,
and no amount is a better
estimate of potential liability than any other amount.
80 | P a g e
a. P0 b. P2,000,000 c. P3,000,000 d. P2,500,000
Page 3 of 10
D,D,A
AP-5902
4. Bonus obligation:
Sonic Companys president gets an annual bonus of 10% of
net income after bonus
and income tax. Assume the tax rate of 30% and the correct
income before bonus and
tax is P9,600,000. (Ignore the effects of other given items on
net income.)
a. P722,600 b. P395,000 c. P2,240,000 d. P628,000
5. Note payable:
A note payable to the Bank of the Philippine Islands for
P2,400,000 is outstanding on
December 31, 2005. The note is dated October 1, 2004, bears
interest at 18%, and is
payable in three equal annual installment of P800,000. The
first interest and principal
payment was made on October 1, 2005.
a. P800,000 b. P908,000 c. P72,000 d. P872,000
6. Purchase commitment:
During 2005, Sonic entered in a noncancellable commitment
to purchase 320,000 units
of inventory at fixed price of P5 per unit, delivery to be made
in 2006. On December
31, 2005, the purchase price of this inventory item had fallen
to P4.40 per unit. The
goods covered by the purchase contract were delivered on
January 28, 2006.
a. P0 b. P1,600,000 c. P1,408,000 d. P192,000
7. Deferred taxes:
On December 31, 2005, Sonics deferred income tax account
has a 2005 ending credit
balance of P772,800, consisting of the following items:
Caused by temporary differences in accounting Deferred tax
For gross profit on installment sales P376,000 Cr.
For depreciation on property and equipment 576,000 Cr
For product warranty expense 179,200 Dr
P772,800 Cr.
a. P772,800 b. P952,000 c. P196,800 d. P0
8. Product warranty:
Sonic has a one year product warranty on selected items in its
product line. The
estimated warranty liability on sales made during 2004, which
was outstanding as of
81 | P a g e
December 31, 2004, amounted to P416,000. The warranty
costs on sales made in
2005 are estimated at P1,504,000. Actual warranty costs
incurred during the current
2005 fiscal year are as follows:
Warranty claims honored on 2004 sales P 416,000
Warranty claims honored on 2005 sales 992,000
Total warranty claims honored P1,408,000
a. P0 b. P1,504,000 c. P96,000 d. P512,000
9. Premiums:
To increase sales, Sonic Company inaugurated a promotional
campaign on June 30,
2005. Sonic placed a coupon redeemable for a premium in
each package of product
sold. Each premium costs P100. A premium is offered to
customers who send in 5
coupons and a remittance of P30. The distribution cost per
premium is P20. Sonic
estimated that only 60% of the coupons issued will be
redeemed. For the six months
ended December 31, 2005, the following is available:
Packages of product sold 160,000
Premiums purchased 16,000
Coupons redeemed 64,000
a. P1,728,000 b. P1,152,000 c. P1,600,000 d. P576,000
D,D,D,D,D,D
Page 4 of 10
AP-5902
10.Due to Five Six Finance company:
Sonics accounting records show that as of December 31,
2005, P1,280,000 was due
to Five Six Finance Company for advances made against
P1,600,000 of trade accounts
receivable assigned to the finance company with recourse.
a. P0 b. P1,600,000 c. P320,000 d. P1,280,000
D
PROBLEM NO. 3
In conjunction with your firms examination of the financial
statements of Pistons
Company as of December 31, 2005, you obtained from the
voucher register the
information shown in the working paper below.
Item
No.
Entry
Date
Voucher
Ref. Description Amount
82 | P a g e
Account
Charged
1 12.18.05 12-202 Supplies, purchased FOB
destination, 12.15.05;
received, 12.17.05 20,000
Supplies on
hand
2 12.18.05 12-204 Auto insurance, 12.15.05 to
12.15.06 24,000
Prepaid
insurance
3 12.21.05 12-206 Repair services; received
12.20.05 24,000
Repairs and
maintenance
4 12.21.05 12-214 Merchandise shipped FOB
shipping point, 11.20.05;
received, 12.4.05 17,000 Inventory
5 12.21.05 12-219 Payroll, 12.6.05 to 12.20.05
(12 working days) 69,000
Salaries and
wages
6 12.26.05 12-221 Subscription to tax reporting
service for 2006 5,000
Dues and
subscription
expense
7 12.28.05 12-230 Utilities for December 2005 29,000 Utilities
expense
10 01.02.06 01-001 Legal services, received
12.28.05 46,000
Legal and
professional
expense
11 01.02.06 01-002 Medical services for
employees for December
2005 25,000 Medical expense
13 01.10.06 01-004 Payroll, 12.21.05 to 01.05.06
(12 working days in total,
4 working days in Jan.) 72,000
Salaries and
wages
83 | P a g e
15 01.12.06 01-006 Manufacturing royalties,
Dec. 2005 39,000
Manufacturing
costs
Page 5 of 10
AP-5902
Item
No.
Entry
Date
Voucher
Ref. Description Amount
Account
Charged
17 01.13.06 01-008 Maintenance services,
received 1.9.06
9,000 Repairs and
maintenance
18 01.14.06 01-009 Interest on bank loan,
10.12.05 to 1.10.06 30,000 Interest expense
19 01.15.06 01-010 Manufacturing equipment,
installed on 12.29.05 254,000
Machinery and
equipment
20 01.15.06 01-011 Dividends declared,
12.15.05 160,000
Dividends
payable
Accrued liabilities as of December 31, 2005 were as follows:
Accrued payroll 48,000
Accrued interest payable 26,667
Dividends payable 160,000
Accrued royalties payable 39,000
The Accrued payroll, Accrued interest payable, and Accrued
royalties payable accounts
were reversed on January 1, 2006.
REQUIRED:
Prepare adjusting entries as of December 31, 2005 based on
your review of the data given
above.
PROBLEM NO. 4
During your regular annual audit of Rockets Company for the
year ended December 31,
84 | P a g e
2005, you obtain the following evidence and data relative to
your examination of the bonds
payable and related accounts.
From your permanent file working papers:
Client is authorized to issue 20,000 bonds with par value of
P1,000 each. Bonds are dated
May 1, 2002 and are due May 1, 2012. Interest at 12% per
annum is due semiannually
every May 1 and November 1.
The December 31, 2004 balance of P9,500,000 represents
proceeds from issuance of
10,000 bonds on November 2, 2003.
From the clients ledger:
12%, 10-year Bonds Payable
12/31/2004 Balance P9,500,000
07/01/2005 CR 2,100,000
Interest Expense
05/01/2005 CV-120 P600,000 07/01/2005 CR P40,000
11/01/2005 CV-531 720,000
Page 6 of 10
AP-5902
From supporting documents:
CR Cash receipts entry for issuance of 2,000 bonds for a total
of P2,100,000 on
July 1, 2005. Trustees remittance statement attached.
Entry recorded
Cash P2,140,000
Bonds Payable P2,100,000
Interest expense 40,000
CV-120 Cash payment to trustee for November 1, 2004
through April 30, 2005 interest.
Paid check to trustee attached.
CV-531 Cash payment to trustee for May 1, 2005 through
October 31, 2005 interest.
Paid check to trustee attached.
REQUIRED:
1. Adjusting journal entries as of December 31, 2005. Use the
straight line method to
amortize bond discount and premium, if any.
2. Compute for the adjusted balances of the following as of
December 31, 2005:
a. Bonds payable d. Accrued interest
b. Bond discount e. Interest expense
c. Bond premium
Requirement no. 1
1) Discount on bonds payable (P10,000,000 - P9,500,000)
500,000
Bonds payable 500,000
To correct the original entry on issuance of 10,000 bonds
Retained earnings (P500,000 x 14/102) 68,627
85 | P a g e
Interest expense (P500,000 x 12/102) 58,824
Discount on bonds payable 127,451 To record discount
amortization for the prior and current years
2) Bonds payable (P2,100,000 - P2,000,000) 100,000
Premium on bonds payable 100,000
To recognize premium on bonds payable
Premium on bonds payable (P100,000 x 6/82) 7,317
To record premium amortization for the year
3) Retained earnings (P10,000,000 x 12% x 2/12) 200,000
To correct interest exp pertaining to year 2004
4) Interest expense (P12,000,000 x 12% x 2/12) 240,000
To record accrual of interest
Requirement no. 2
a) Bonds payable (P10,000,000 + P2,000,000) 12,000,000
b) Bond discount (P500,000 x 76/102) 372,549
c) Bond premium (P100,000 x 76/82) 92,683
d) Accrued interest (P12,000,000 x 12% x 2/12) 240,000
e) Interest expense
P10,000,000 x 12% 1,200,000
P2,000,000 x 12% x 6/12 120,000
Bond discount amortization (P500,000 x 12/102) 58,824
Bond premium amortization (P100,000 x 6/82) (7,317)
1,371,506
PROBLEM NO. 5
Wizards Company presented to you their records in
connection with the audit of the
companys financial statements for the year ended December
31, 2005. This is the first
time the company has been audited. The company floated a
serial bond issue in 2003.
Your audit showed the following details of the issue and the
accounts as of December 31,
2005:
Total amount P5,000,000
Date of issue October 2, 2003
Proceeds from issue P4,900,000
Interest rate 5% per annum
Interest payment date October 1
Maturity date P1,000,000 annually, starting October 1, 2005
5% Serial Bonds Payable
10/02/2005 VR P1,000,000 10/02/2003 CR P4,900,000
Accrued Interest Payable
01/02/05 P62,500
REQUIRED:
86 | P a g e
1. Adjusting journal entries as of December 31, 2005. Use the
bond outstanding
method to amortize bond discount and premium, if any.
2. Compute for the adjusted balances of the following as of
December 31, 2005:
a. Bonds payable
b. Bond discount
c. Accrued interest payable
d. Bond interest expense
Page 7 of 10
PROBLEM NO. 5 - Wizards Company
Computation of amortization rate
Amount Percent
Bond year From To Outstanding to total
1st 10.02.03 09.30.04 5,000,000 25%
2nd 10.01.04 09.30.05 5,000,000 25%
3rd 10.01.05 09.30.06 4,000,000 20%
4th 10.01.06 09.30.07 3,000,000 15%
5th 10.01.07 09.30.08 2,000,000 10%
6th 10.01.08 09.30.09 1,000,000 5%
20,000,000 100%
Computation of amortization amount
2003 October to December (P100,000 x 25% x 3/12) 6,250
2004 January to September (P100,000 x 25% X 9/12) 18,750
October to December (P100,000 x 25% x 3/12) 6,250 25,000
100,000
Requirement no. 1
a) Bonds payable (P5,000,000 - P1,000,000) 4,000,000
b) Bond discount
Original amount 100,000
Amortization : Prior years (2003 and 2004) 31,250
Current year (2005) 23,750 55,000
45,000
c) Accrued interest (P4,000,000 x 5% x 3/12) 50,000
e) Interest expense
P4,000,000 x 5% 200,000
P1,000,000 x 5% x 9/12 37,500
Bond discount amortization (see letter b above) 23,750
261,250
Requirement no. 2
1) Discount on bonds payable 100,000
Bond payable 100,000
87 | P a g e
2) Retained earnings 31,250
Bond interest expense 23,750
Discount on bonds payable 55,000
3) Accrued interest payable 62,500
Bond interest expense 62,500
4) Bond interest expense 50,000
Period covered
AP-5902
PROBLEM NO. 6
On January 2, 2004, the Suns, Inc. issued P2,000,000 of 8%
convertible bonds at par.
The bonds will mature on January 1, 2008 and interest is
payable annually every January
1. The bond contract entitles the bondholders to receive 6
shares of P100 par value
common stock in exchange for each P1,000 bond. On the date
of issue, the prevailing
market interest rate for similar debt without the conversion
option is 10%.
On December 31, 2005, the holders of the bonds with total
face value of P1,000,000
exercised their conversion privilege. In addition, the company
reacquired at 110, bonds
with a face value of P500,000.
The balances in the capital accounts as of December 31, 2004
were:
Common stock, P100 par, authorized 50,000 shares, issued
and outstanding, 30,000 shares P3,000,000
Premium on common stock 500,000
Market value of the common stock and bonds were as follows:
Date Bonds Common stock
December 31, 2004 118 40
December 31, 2005 110 42
QUESTIONS:
Based on the above and the result of your audit, answer the
following:
1. How much of the proceeds from the issuance of convertible
bonds should be allocated
to equity?
a. P634,000 b. P126,816 c. P221,664 d. P0
B
2. How much is the carrying value of the bonds payable as of
December 31, 2004?
a. P2,000,000 b. P1,389,400 c. P1,796,170 d. P1,900,502
D
3. How much is the interest expense for the year 2005?
a. P160,000 b. P138,940 c. P179,617 d. P190,050
D
88 | P a g e
4. The entry to record the conversion on December 31, 2005
will include a credit to APIC
of
a. P365,276 b. P400,000 c. P307,893 d. P0
A
5. How much is the loss on bond reacquisition on December
31, 2005?
a. P50,000 b. P96,053 c. P67,362 d. P0
C
PROBLEM NO. 7
In connection with your audit of Ginebra Corporations
financial statements for the year
2005, you noted the following liability account balances as of
December 31, 2004:
Note payable, bank P 5,600,000
Liability under finance lease 430,000
Deferred income taxes 700,000
Transactions during 2005 and other information relating to
Ginebras liabilities were as
follows:
a. The principal amount of the note payable is P5,600,000 and
bears interest at 12%.
The note is dated April 1, 2004 and is payable in four equal
annual installments of
P1,400,000 beginning April 1, 2005. The first principal and
interest payment was
made on April 1, 2005.
Page 8 of 10
AP-5902
b. The capitalized lease is for a ten-year period beginning
December 31, 2002. Equal
annual payments of P100,000 are due on December 31 of
each year, and the 14%
interest rate implicit in the lease known by Ginebra. The
present value at December
31, 2004 of the seven remaining lease payments (due
December 31, 2005 through
December 31, 2011) discounted at 14% was P430,000.
c. Deferred income taxes are provided in recognition of timing
differences between
financial and income tax reporting of depreciation. For the year
ended December 31,
2005, depreciation per tax return exceeded book depreciation
by P312,500.
Ginebras effective income tax rate for 2004 was 32%.
d. On July 1, 2005, Ginebra issued for P1,774,000, P2,000,000
face amount of its 10%,
P1,000 bonds. The Bonds were issued to yield 12%. The bonds
are dated July 1,
2004 and will mature on July 1, 2014. Interest is payable
annually on July 1. Ginebra
89 | P a g e
uses the interest method to amortize bond discount.
QUESTIONS:
following:
1. Liability under finance lease as of December 31, 2005
a. P381,600 b. P390,200 c. P344,828 d. P330,000
B
2. Total noncurrent liabilities as of December 31, 2005
a. P5,610,440 b. P5,770,640 c. P5,931,328 d. P5,725,268
D
3. Current portion of long-term liabilities as of December 31,
2005
a. P1,445,372 b. P1,400,000 c. P1,500,000 d. P1,446,576
A
4. Accrued interest payable as of December 31, 2005
a. P484,440 b. P432,628 c. P532,628 d. P478,000
D
5. Total interest expense for the year 2005
a. P652,440 b. P707,068 c. P712,640 d. P699,760
C
PROBLEM NO. 8
1. In auditing accounts payable, an auditors procedures most
likely will focus primarily on
managements assertion of
a. Existence or occurrence
c. Completeness
d. Valuation or
allocation
C
2. An auditor performs a test to determine whether all
merchandise for which the client was
billed was received. The population for this test consists of all
a. Merchandise received
c. Canceled checks
b. Vendors invoices
d. Receiving reports
B
3. The primary audit test to determine if accounts payable are
valued properly is
a. Confirmation of accounts payable
b. Vouching accounts payable to supporting documentation
c. An analytical procedure
d. Verification that accounts payable was reported as a current
liability in the balance
sheet.
B
4. Which of the following procedures is least likely to be
performed before the balance sheet
date?
a. Observation of inventory
c. Search for
unrecorded liabilities
90 | P a g e
b. Testing of internal control over cash d. Confirmation of
receivables
Page 9 of 10
C
AP-5902
5. An audit assistant found a purchase order for a regular
supplier in the amount of P5,500.
The purchase order was dated after receipt of goods. The
purchasing agent had
forgotten to issue purchase order. Also a disbursement of P450
for materials did not have
a receiving report. The assistant wanted to select additional
purchase orders for
investigation but was unconcerned about lack of receiving
report. The audit director
should
a. Agree with the assistant because the amount of the
purchase order exception was
considerably larger than the receiving report exception
b. Agree with the assistant because the cash disbursement
clerk had been assured by
the receiving clerk that the failure to fill out a report didnt
happen very often.
c. Disagree with the assistant because two problems have an
equal risk of loss
associated with them.
d. Disagree with the assistant because the lack of a receiving
report has a greater risk
of loss associated with it.
D
6. When using confirmation to provide evidence about
completeness assertion for accounts
payable, the appropriate population most likely is
a. Vendors with whom the entity has previously done business.
b. Amounts recorded in the accounts payable subsidiary
ledger.
c. Payees of checks drawn in the month after the year end.
d. Invoices filed in the entitys open invoice file.
A
7. Which of the following is a substantive test that an auditor is
most likely to perform to
verify the existence and valuation of recorded accounts
payable?
a. Investigating the open purchase order file to ascertain that
pre-numbered purchase
orders are used and accounted for.
b. Receiving the clients mail, unopened, for a reasonable
period of time after year end
to search for unrecorded vendors invoices.
91 | P a g e
c. Vouching selected entries in the accounts payable
subsidiary ledger to purchase
orders and receiving reports.
d. Confirming accounts payable balances with known suppliers
who have zero
balances.
C
8. Only one of the following four statements, which compare
confirmation of accounts
payable with suppliers and confirmation of accounts receivable
with debtors is false. The
false statement is that
a. Confirmation of accounts receivable with debtors is a more
widely accepted auditing
procedures than is confirmation of accounts payable with
suppliers.
b. Statistical sampling techniques are more widely accepted in
the confirmation of
accounts payable than in the confirmation of accounts
receivable.
c. As compared with the confirmation of accounts receivable,
the confirmation of
accounts payable will tend to emphasize accounts with zero
balances at the
balance sheet date.
d. It is less likely that the confirmation request sent to the
supplier will show the
amount owed than that request sent to the debtor will show
the amount due.
B
9. When title to merchandise in transit has passed to the audit
client the auditor engaged in
the performance of a purchase cut-off will encounter the
greatest difficulty in gaining
assurance with respect to the
a. Quantity b. Quality c. Price d. Terms
B
10. Which of the following audit procedures is least likely to
detect an unrecorded liability?
a. Analysis and recomputation of interest expense.
b. Analysis and recomputation of depreciation expense.
c. Mailing of standard bank confirmation forms.
d. Reading of the minutes of meetings of the board directors.
B
11. Unrecorded liabilities are most likely to be found during the
review of which of the
following documents?
a. Unpaid bills c. Bills of lading
b. Shipping records d. Unmatched sales invoices
A
Page 10 of 10
92 | P a g e
AP-5902
12. Which of the following audit procedures is best for
identifying unrecorded trade accounts
payable?
a. Reviewing cash disbursements recorded subsequent to the
balance sheet date to
determine whether the related payables apply to the prior
period.
b. Investigating payables recorded just prior to and just
subsequent to the balance
sheet date to determine whether they are supported by
receiving reports.
c. Examining unusual relationships between monthly accounts
payable balances and
recorded cash payments.
d. Reconciling vendors statement to the file of receiving
reports to identify items
received just prior to the balance sheet date.
A
13. In verifying debits to perpetual inventory records of a
nonmanufacturing firm, the auditor
is most interested in examining the purchase
a. Journal b. Requisitions c. Orders d. Invoices
D
14. Which of the following procedures relating to the
examination of accounts payable could
the auditor delegate entirely to the clients employees?
a. Test footings in the accounts payable ledger
b. Reconcile unpaid invoices to vendors statements
c. Prepare a schedule of accounts payable
d. Mail confirmations for selected account balances
C
15. An auditors purpose in reviewing the renewal of a note
payable shortly after the balance
sheet date most likely is to obtain evidence concerning
managements assertions about
a. Existence or occurrence
c. Completeness
d. Valuation or allocation.
B
16. An auditors program to audit long term debt should
include steps that require
a. Examining bond trust indentures
b. Inspecting the accounts payable subsidiary ledger.
c. Investigating credits to the bond interest income account.
d. Verifying the existence of the bondholders.
A
17. In an audit of bonds payable, an auditor expects the trust
indenture to include the
a. Auditees debt-to-equity ratio at the time of issuance.
b. Effective yield of the bonds issued.
93 | P a g e
c. Subscription list.
d. Description of the collateral
D
18. In auditing long-term bonds payable, an auditor most likely
will
a. Perform analytical procedures on the bond premium and
discount accounts.
b. Examine documentation of assets purchased with bond
proceeds or liens
c. Compare interest with the bond payable amount for
reasonableness.
d. Confirm the existence of individual bondholders at year-end.
C
19. The audit procedures used to verify accrued liabilities differ
from those employed for the
verification of accounts payable because
a. Accrued liabilities usually pertain to services of a continuing
nature while accounts
payable are the result of completed transactions
b. Accrued liability balances are less material than accounts
payable balances.
c. Evidence supporting accrued liabilities in nonexistence while
evidence supporting
accounts payable is readily available.
d. Accrued liabilities at year-end will become accounts payable
during the following
year.
A
20. The auditor is most likely to verify accrued commissions
payable in conjunction with the
a. Sales cutoff test
b. Verification of contingent liabilities
c. Review of post balance sheet date disbursements
d. Examination of trade accounts payable
A
End of AP-5902
Page 1 of 4
AP-5902Q
Manila
AUDITING PROBLEMS
AUDIT OF LIABILITIES QUIZZERS
PROBLEM NO. 1
Cavaliers Corporation is selling audio and video appliances.
The companys fiscal year
ends on March 31. The following information relates to the
obligations of the company as
of March 31, 2005:
Notes payable
94 | P a g e
Cavaliers has signed several long-term notes with financial
institutions. The maturities of
these notes are given below. The total unpaid interest for all of
these notes amounts to
P340,000 on March 31, 2005.
Due date Amount
April 31, 2005 P 600,000
July 31, 2005 900,000
September 1, 2005 450,000
February 1, 2006 450,000
April 1, 2006 March 31, 2007 2,700,000
P 5,100,000
Estimated warranties
Cavaliers has a one-year product warranty on some selected
items. The estimated
warranty liability on sales made during the 2003 2004 fiscal
year and still outstanding as
of March 31, 2004, amounted to P252,000. The warranty costs
on sales made from April
1, 2004 to March 31, 2005, are estimated at P630,000. The
actual warranty costs incurred
during 2004 2005 fiscal year are as follows:
Warranty claims honored on 2003 2004 sales P 252,000
Warranty claims honored on 2004 2005 sales 285,000
Total P 537,000
Trade payables
Accounts payable for supplies, goods, and services purchases
on open account amount to
P560,000 as of March 31, 2005.
Dividends
On March 10, 2005, Cavaliers board of directors declared a
cash dividend of P0.30 per
common share and a 10% common stock dividend. Both
dividends were to be distributed
on April 5, 2005 to common stockholders on record at the
close of business on March 31,
2005. As of March 31, 2005, Cavaliers has 5 million, P2 par
value, common shares issued
and outstanding.
Bonds payable
Cavaliers issued P5,000,000, 12% bonds, on October 1, 1999
at 96. The bonds will
mature on October 1, 2009. Interest is paid semi-annually on
October 1 and April 1.
Cavaliers uses the straight line method to amortize bond
discount.
QUESTIONS:
Based on the foregoing information, determine the adjusted
balances of the following as of
March 31, 2005:
1. Estimated warranty payable
95 | P a g e
a. P252,000 b. P345,000 c. P630,000 d. P882,000
B
Page 2 of 4
AP-5902Q
2. Unamortized bond discount
a. P110,000 b. P200,000 c. P100,000 d. P90,000
D
3. Bond interest payable
a. P0 b. P300,000 c. P150,000 d. P250,000
B
4. Total current liabilities
a. P6,445,000 b. P5,105,000 c. P5,445,000 d. P3,945,000
C
5. Total noncurrent liabilities
a. P7,700,000 b. P7,590,000 c. P7,500,000 d. P7,610,000
D
SUGGESTED ANSWERS: B, D, B, C, D
PROBLEM NO. 2
Pirates Music Emporium carries a wide variety of music
promotion techniques - warranties
and premiums to attract customers.
Musical instrument and sound equipment are sold in a oneyear warranty for replacement
of parts and labor. The estimated warranty cost, based on past
experience, is 2% of sales.
The premium is offered on the recorded and sheet music.
Customers receive a coupon for
each peso spent on recorded music or sheet music. Customers
may exchange 200
coupons and P20 for an AM/FM radio. Pirates pays P34 for each
radio and estimates that
60% of the coupons given to customers will be redeemed.
Pirates total sales for 2005 were P7,200,000 - P5,400,000
from musical instrument and
sound reproduction equipment and P1,800,000 from recorded
music and sheet music.
Replacement parts and labor for warranty work totaled
P164,000 during 2005. A total of
6,500 AM/FM radio used in the premium program were
purchased during the year and
there were 1,200,000 coupons redeemed in 2005.
The accrual method is used by Pirates to account for the
warranty and premium costs for
financial reporting purposes. The balance in the accounts
related to warranties and
premiums on January 1, 2005, were as shown below:
Inventory of Premium AM/FM radio P39,950
Estimated Premium Claims Outstanding 44,800
Estimated Liability from Warranties 136,000
QUESTIONS:
96 | P a g e
amounts that will be shown
on the 2005 financial statements for the following:
1. Warranty expense
a. P108,000 b. P164,000 c. P144,000 d. P80,000
A
2. Estimated liability from warranties
a. P108,000 b. P136,000 c. P164,000 d. P80,000
D
3. Premium expense
a. P 75,600 b. P108,000 c. P183,600 d. P126,000
A
4. Inventory of AM/FM radio
a. P46,950 b. P77,350 c. P39,950 d. P56,950
D
5. Estimated liability for premiums
a. P75,600 b. P63,450 c. P36,400 d. P44,800
C
SUGGESTED ANSWERS: A, D, A, D, C
Page 3 of 4
AP-5902Q
PROBLEM NO. 3
In the audit process, the following data were obtained from the
books of the Spurs
Company which uses a voucher system. All invoices are
subject to term 2/10, n/30 and
are entered net with the discount entered in the Purchase
Discount column of the voucher
register. The accountant in charge of the books went on leave
to attend to his family
based in New Jersey. A fresh accounting graduate has been
assigned to record the
transactions. At year-end, the substitute accountant finds that
the unpaid vouchers do not
agree with the Vouchers Payable control account. You are
called to adjust the matter.
A schedule of unpaid vouchers as of December 31, 2005, all of
which are net of discount,
is presented to you:
Date Voucher No. Supplier Amount
Nov. 27 797 Duncan Supply Co. P 78,400
Dec. 02 821 Ginobili Distributors 19,600
11 829 Parker Sales 44,100
20 836 Mohamed Dealers 17,150
21 842 Bowen Merchandising 22,050
22 856 Horry Mercantile 80,850
31 865 Jackson Traders 78,400
P340,550
Vouchers Payable (control account)
Cash disbursements P1,309,500 Purchases journal P1,645,000
Purchase returns journal 36,750*
97 | P a g e
* Voucher Nos. 821 and 836 cancelled as goods were returned
in December.
REQUIRED:
31, 2005:
1. Adjusted balance of Vouchers Payable
a. P310,000 b. P306,750 c. P303,800 d. P344,250
2. Purchase discounts lost on unpaid vouchers
a. P6,200 b. P2,950 c. P3,700 d. P0
3. Purchase discounts lost on paid vouchers
a. P28,750 b. P8,000 c. P5,050 d. P41,800
4. Adjusting journal entry or entries to correct the accounts will
include
a. A debit to Purchase Discounts Lost of P11,250.
b. A debit to Purchase Discounts Lost of P5,050.
c. A credit to Vouchers Payable of P8,000.
d. A credit to Vouchers Payable of P11,250.
SUGGESTED ANSWERS: B, B, C, C
PROBLEM NO. 4
In your initial audit of Bulls Finance Co., you find the
following ledger account balances.
12%, 25-year Bonds Payable, 2001 issue
01/01/2001 CR P 1,600,000
Page 4 of 4
AP-5902Q
Treasury Bonds
10/01/2005 CD P 216,000
Bond Premium
01/01/2001 CR P 80,000
Bond Interest Expense
01/01/2005 CD P 96,000
07/01/2005 CD 96,000
The bonds were redeemed for permanent cancellation on
October 1, 2005 at 105 plus
accrued interest.
QUESTIONS:
following:
1. The adjusted balance of bonds payable as of December 31,
2005 is
a. P1,400,000 b. P1,600,000 c. P1,000,000 d. P1,384,000
2. The unamortized bond premium on December 31, 2005 is
a. P80,000 b. P64,000 c. P56,000 d. P58,800
3. The total bond interest expense for the year 2005 is
a. P189,100 b. P182,900 c. P188,800 d. P182,800
4. The gain or loss on partial bond redemption is
a. P1,900 loss b. P1,900 gain c. P18,100 loss d. P18,100 gain
SUGGESTED ANSWERS: A, C, B, A
End of AP-5902Q
Page 1 of 10
98 | P a g e
AP-5903
Manila
AUDITING PROBLEMS
AUDIT OF PROPERTY, PLANT & EQUIPMENT AND
INTANGIBLE ASSETS
PROBLEM NO. 1
The property, plant and equipment section of White
Corporations balance sheet at
December 31, 2004 included the following items:
Land P 2,500,000
Land improvements 560,000
Building 3,600,000
Machinery and equipment 6,600,000
During 2005 the following data were available to you upon
your analysis of the accounts:
Cash paid on purchase of land P10,000,000
Mortgage assumed on the land bought, including interest at
16% 16,000,000
Realtors commission 1,200,000
Legal fees, realty taxes and documentation expenses 200,000
Amount paid to relocate persons squatting on the property
400,000
Cost of tearing down an old building on the land 300,000
Amount recovered from the salvage of the building demolished
600,000
Cost of fencing the property 440,000
Amount paid to a contractor for the building erected 8,000,000
Building permit fees 50,000
Excavation expenses 250,000
Architects fee 100,000
Interest that would have been earned had the money used
during
the period of construction been invested in the money market
600,000
Invoice cost of machinery acquired 8,000,000
Freight, unloading, and delivery charges 240,000
Customs duties and other charges 560,000
Allowances, hotel accommodations, etc., paid to foreign
technicians during instillation and test run of machines
1,600,000
Royalty payment on machines purchased (based on units
produced and sold) 480,000
REQUIRED:
31, 2005:
1. Land
2. Land improvements
3. Building
4. Machinery and equipment
99 | P a g e
5. Total depreciable property, plant and equipment
PROBLEM NO. 2
The following were discovered during your audit of Black
Companys financial statements
for the year ended December 31, 2005:
a. On December 24, 2005, Black purchased an office
equipment for P400,000, terms
2/5, n/15. No entry was made on the date of purchase. The
same was paid on
December 31, 2005 and the accountant debited Office
Equipment and credited cash
for P400,000.
Page 2 of 10
AP-5903
b. Machine C, with a cash price of P128,000, was purchased on
January 2, 2005. The
company paid P20,000 down and P10,000 for 12 months. The
last payment was
made on December 30, 2005. Straight line depreciation, based
on a five-year useful
life and no salvage value, was recorded at P28,000 for the
year. Freight of P4,000 on
machine C was debited to the Freight in account.
c. Machine P with a cash selling price of P360,000 was
acquired on April 1, 2005, in
exchange for P400,000 face amount of bonds payable selling
at 94, and maturing on
April 1, 2015. The accountant recorded the acquisition by a
debit to Machinery and a
credit to Bonds Payable for P400,000. Straight line
depreciation was recorded based
on a five-year economic life and amounted to P54,000 for nine
months. In the
computation of depreciation, residual value of P40,000 was
used.
d. Machine A was acquired on January 22, 2005, in exchange
for past due accounts
receivable of P140,000, on which an allowance of 20% was
established at the end of
2004. The current fair value of the machine on January 22 was
estimated at
P110,000. The machine was recorded by a debit to Machinery
and a credit to
Accounts Receivable for P140,000. No depreciation was
recorded on Machine A,
because it was not installed and never used in operations. On
February 2, 2005,
Machine A was exchanged for 1,000 shares of the companys
outstanding capital
stock with market price of P105 per share. The Treasury Stock
account was debited
100 | P a g e
for P140,000 with the corresponding credit to Machinery.
e. On December 29, 2005, the company exchanged 10,000
shares of Emong, Inc.
common stock, which Black was holding as an investment, for
an equipment from De
Leon Corporation. The common stock of Emong, Inc., which
had been purchased by
Black for P45 per share, had a quoted market value of P50 per
share on the date of
exchange. The equipment had a market value of P470,000.
The transaction was
recorded by a debit to Equipment and a credit to Investment in
Emong, Inc.-Common
for P450,000.
f. On December 30, 2005, Machine M with a carrying amount
of P120,000 (cost
P400,000) was exchanged for a similar asset with a fair value
of P150,000. In
addition, Black paid P20,000 to acquire the new machine. The
exchange, which
lacks commercial substance, was recorded by a debit to
Machinery and a credit to
cash for P20,000.
g. Machine E was recorded at P102,000, which included the
carrying amount of
P22,000 for an old machine accepted as a trade in, and cash of
P80,000. The cash
price of Machine S was P90,000, and the trade in allowance
was P10,000. This
transaction took place on December 31, 2005.
h. Ms. Beauty, the companys president, donated land and
building appraised at
P200,000 and P400,000, respectively, to the company to be
used as plant site. The
company began operating the plant on September 30, 2005.
The building is
estimated to have a useful life of 25 years. Since no money
was involved, no journal
entry was made for the above transaction.
i. On July 1, 2004, the national government granted a parcel of
land located in Baliuag,
Bulacan to Black. On the date of grant, the land had a fair
value of P2,000,000. The
grant required Black to construct a cold storage building on
the site. Black finished
the construction of the building, which has an estimated useful
life of 25 years, on
January 2, 2005. Black appropriately recorded the cost of the
building of P4,000,000
(which include direct materials, direct labor, and indirect cost
and incremental
101 | P a g e
overhead) but failed to provide depreciation in 2005. Unaware
of the accounting
procedures for government grants, the company did not reflect
the grant on its books.
Page 3 of 10
AP-5903
REQUIRED:
As Blacks external auditor, you are required to prepare any
necessary adjusting journal
entries as of December 31, 2005.
PROBLEM NO. 3
The Blue Corporation was incorporated on January 2, 2005,
but was unable to begin
manufacturing activities until July 1, 2005 because the new
factory facilities were not
completed until that date.
The Land and Building account at December 31, 2005
follows:
Date Particulars Amount
Jan. 31 Land and building P 1,098,000
Feb. 28 Cost of removal of old building 60,000
May 02 Partial payment on new construction 700,000
02 Legal fees paid 15,000
June 01 Second payment on new construction 600,000
July 01 Fire insurance premium 1 year 26,000
01 Final payment on new construction 200,000
Dec. 31 Asset write-up 500,000
P 3,199,000
Dec. 31 Depreciation 2005, at 1% of account balance 31,990
P 3,167,010
You were able to gather the following during your audit:
a. To acquire land and building, the company paid P98,000
cash and 10,000 shares of its
9% cumulative preferred shares, P100 par value per share. The
shares were then
selling at P120.
b. Legal fees covered the following:
Cost of incorporation P 9,500
Examination of title covering purchase of the land 4,000
Legal work in connection with construction contract 1,500
P 15,000
c. Because of a general increase in construction costs after
entering into the building
contract, the board of directors increased the value of the
building by P500,000,
believing such increase is justified to reflect current market
value at the time the
building was completed. Retained earnings was credited for
this amount.
d. Estimated useful life of the building is 25 years.
REQUIRED:
102 | P a g e
1. Prepare the necessary adjusting journal entries as of
December 31, 2005.
2. Determine the adjusted balances of the following as of
December 31, 2005:
a. Land and building
b. Land
c. Carrying value of building
d. Organization cost, net (presented under Noncurrent Assets)
Page 4 of 10
AP-5903
PROBLEM NO. 4
In the audit of the books of Green Company for the year
2005, the following items and
information appeared in the Production Machines account of
the auditee:
Date Particulars Debit Credit
2005
Jan. 01 BalanceMachines 1, 2, 3, and 4 at P90,000 each P
360,000
Aug 31 Machine 5
Machine 1
198,000
P 3,000
Sept 30 Machine 6 96,000
Dec 01 Machines 7 and 8 at P216,000 each 432,000
Dec 01 Machine 2 21,000
31 Balance . 1,062,000
P1,086,000 P1,086,000
The Accumulated Depreciation account contained no entries
for the year 2005. The
balance on January 1, 2005 per your audit, was as follows:
Machine 1 P 84,375
Machine 2 39,375
Machine 3 33,750
Machine 4 22,500
Total P 180,000
Based on your further inquiry and verification, you noted the
following:
1. Machine 5 was purchased for cash; it replaced Machine 1,
which was sold on this
date for P3,000.
2. Machine 2 was destroyed by the thickness of engine oil used
leading to explosion on
December 1, 2005. Insurance of P21,000 was recovered.
Machine 7 was to replace
Machine 2.
3. Machine 3 was traded in for Machine 6 at an allowance of
P12,000; the difference
was paid in cash and charged to Production Machine account.
4. Depreciation rate is recognized at 25% per annum.
REQUIRED:
103 | P a g e
Determine the adjusted balance of the Production Machine as
of December 31, 2005 and
Depreciation Expense for the year 2005.
PROBLEM NO. 5
You obtain the following information pertaining to Red Co.s
property, plant, and
equipment for 2005 in connection with your audit of the
companys financial statements.
Audited balances at December 31, 2004:
Debit Credit
Land
Buildings
Accumulated depreciation buildings
Machinery and equipment
Machinery and Equipment
Delivery Equipment
Accumulated Depreciation
Delivery Equipment
P 3,750,000
30,000,000
22,500,000
2,875,000
P 6,577,500
6,250,000
2,115,000
Page 5 of 10
AP-5903
Depreciation Data:
Depreciation Method Useful Life
Buildings
Machinery and Equipment
Delivery Equipment
Leasehold Improvements
150% declining balance
Straight-line
Sum-of-the-years-digits
Straight-line
25 years
10 years
4 years
Transaction during 2005 and other information are as follows:
a. On January 2, 2005, Red purchased a new truck for
P500,000 cash and traded-in a
2-year-old truck with a cost of P450,000 and a book value of
P135,000. The new
truck has a cash price of P600,000; the market value of the old
truck is not known.
b. On April 1, 2005, a machine purchased for P575,000 on April
1, 2000 was destroyed
104 | P a g e
by fire. Red recovered P387,500 from its insurance company.
c. On May 1, 2005, cost of P4,200,000 were incurred to
improve leased office premises.
The leasehold improvements have a useful life of 8 years. The
related lease
terminates on December 31, 2011.
d. On July 1, 2005, machinery and equipment were purchased
at a total invoice cost of
P7,000,000; additional cost of P125,000 for freight and
P625,000 for installation were
incurred.
e. Red determined that the delivery equipment comprising the
P2,875,000 balance at
January 1, 2005, would have been depreciated at a total
amount of P450,000 for the
year ended December 31, 2005.
The salvage values of the depreciable assets are immaterial.
The policy of the Red Co. is
to compute depreciation to the nearest month.
QUESTIONS:
following:
1. How much is the Accumulated depreciation Buildings as of
December 31, 2005?
a. P7,777,500 b. P7,982,850 c. P8,377,500 d. P7,103,700
B
2. How much is the Accumulated depreciation Machinery and
Equipment as of
December 31, 2005?
a. P8,844,375 b. P8,614,375 c. P8,830,000 d. P8,556,875
D
3. How much is the Accumulated depreciation Delivery
Equipment as of December
31, 2005?
a. P2,715,000 b. P2,400,000 c. P2,490,000 d. P2,805,000
B
4. How much is the Accumulated depreciation Leasehold
Improvements as of
December 31, 2005?
a. P420,000 b. P525,000 c. P350,000 d. P630,000
A
5. How much is the net gain (loss) from disposal of assets for
the year ended December
31, 2005?
a. P100,000 b. (P35,000) c. P65,000 d. (P65,000)
C
PROBLEM NO. 6
In connection with your audit of the Josef Mining Corporation
for the year ended December
31, 2005, you noted that the company purchased for
P10,400,000 mining property
105 | P a g e
estimated to contain 8,000,000 tons of ore. The residual value
of the property is
P800,000.
Page 6 of 10
AP-5903
Building used in mine operations costs P800,000 and have
estimated life of fifteen years
with no residual value. Mine machinery costs P1,600,000 with
an estimated residual value
P320,000 after its physical life of 4 years.
Following is the summary of the companys operations for first
year of operations.
Tons mined 800,000 tons
Tons sold 640,000 tons
Unit selling price per ton P4.40
Direct labor 640,000
Miscellaneous mining overhead 128,000
Operating expenses (excluding depreciation) 576,000
Inventories are valued on a first-in, first-out basis. Depreciation
on the building is to be
allocated as follows: 20% to operating expenses, 80% to
production. Depreciation on
machinery is chargeable to production.
QUESTIONS:
following: (Disregard tax
implications)
1. How much is the depletion for 2005?
a. P768,000 b. P960,000 c. P192,000 d. P1,040,000
B
2. Total inventoriable depreciation for 2005?
a. P400,000 b. P362,667 c. P384,000 d. P0
C
3. How much is the Inventory as of December 31, 2005?
a. P438,400 b. P422,400 c. P425,600 d. P418,133
B
4. How much is the cost of sales for the year ended December
31, 2005?
a. P1,689,600 b. P1,753,600 c. P1,702,400 d. P1,672,533
A
5. How much is the maximum amount that may be declared as
dividends at the end of
the companys first year of operations?
a. P1,494,400 b. P1,289,600 c. P1,302,400 d. P1,319,467
C
PROBLEM NO. 7
Transactions during 2005 of the newly organized Pink
Corporation included the following:
Jan. 2 Paid legal fees of P150,000 and stock certificate costs of
P83,000 to
complete organization of the corporation.
106 | P a g e
15 Hired a clown to stand in front of the corporate office for 2
weeks and
hound out pamphlets and candy to create goodwill for the new
enterprise. Clown cost, P10,000; pamphlets and candy,
P5,000.
Apr. 1 Patented a newly developed process with costs as
follows:
Legal fees to obtain patent P 429,000
Patent application and licensing fees 63,500
Total P 492,500
It is estimated that in 6 years other companies will have
developed
improved processes, making the Pink Corporation process
obsolete.
May 1 Acquired both a license to use a special type of
container and a
distinctive trademark to be printed on the container in
exchange for
6,000 shares of Pinks no-par common stock selling for P50 per
share.
The license is worth twice as much as the trademark, both of
which may
be used for 6 years.
Page 7 of 10
AP-5903
July 1 Constructed a shed for P1,310,000 to house prototypes
of experimental
models to be developed in future research projects.
Dec. 31 Incurred salaries for an engineer and chemist involved
in product
development totaling P1,750,000 in 2005.
QUESTIONS:
following:
1. Cost of patent
a. P492,500 b. P429,000 c. P63,500 d. P0
A
2. Cost of licenses
a. P150,000 b. P200,000 c. P100,000 d. P0
B
3. Cost of trademark
a. P150,000 b. P200,000 c. P100,000 d. P0
C
4. Carrying amount of Intangible Assets
a. P712,604 b. P2,477,604 c. P697,604 d. P0
C
5. Total amount resulting from the foregoing transactions that
should be expensed when
incurred
a. P4,100,500 b. P1,983,000 c. P1,998,000 d. P0
C
107 | P a g e
PROBLEM NO. 8
On December 31, 2004, Silver Corporation acquired the
following three intangible assets:
A trademark for P300,000. The trademark has 7 years
remaining legal life. It is
anticipated that the trademark will be renewed in the future,
indefinitely, without
problem.
Goodwill for P1,500,000. The goodwill is associated with
Silvers Hayo Manufacturing
reporting unit.
A customer list for P220,000. By contract, Silver has
exclusive use of the list for 5
years. Because of market conditions, it is expected that the list
will have economic
value for just 3 years.
On December 31, 2005, before any adjusting entries for the
year were made, the following
information was assembled about each of the intangible
assets:
a) Because of a decline in the economy, the trademark is now
expected to generate cash
flows of just P10,000 per year. The useful life of trademark still
extends beyond the
foreseeable horizon.
b) The cash flows expected to be generated by the Hayo
Manufacturing reporting unit is
P250,000 per year for the next 22 years. Book values and fair
values of the assets and
liabilities of the Hayo Manufacturing reporting unit are as
follows:
Book values Fair values
Identifiable assets P2,700,000 P3,000,000
Goodwill 1,500,000 ?
Liabilities 1,800,000 1,800,000
c) The cash flows expected to be generated by the customer
list are P120,000 in 2006
and P80,000 in 2007.
Page 8 of 10
AP-5903
REQUIRED:
following: (Assume that the
appropriate discount rate for all items is 6%):
1. Total amortization for the year 2005
a. P73,333 b. P141,515 c. P116,190 d. P86,857
2. Impairment loss for the year 2005
a. P90,476 b. P133,333 c. P179,584 d. P0
3. Carrying value of Trademark as of December 31, 2005
a. P300,000 b. P257,143 c. P166,667 d. P120,416
4. Carrying value of Goodwill as of December 31, 2005
108 | P a g e
a. P1,500,000 b. P1,431,818 c. P1,425,000 d. P1,462,500
5. Carrying value of Customer list as of December 31, 2005
a. P220,000 b. P146,667 c. P176,000 d. P0
A,B,C,A,B
PROBLEM NO. 9
1. Property, plant and equipment is typically judged to be one
of the accounts least
susceptible to fraud because
a. The amounts recorded on the balance sheet for most
companies are immaterial.
b. The inherent risk is usually low.
c. The depreciated values are always smaller than cost.
d. Internal control is inherently effective regarding this
account.
2. Which is the best audit procedure to obtain evidence to
support the legal ownership
of real property?
a. Examination of corporate minutes and board resolutions
with regard to approvals
to acquire real property.
b. Examination of closing documents, deeds and ownership
documents registered
and on file at the register of deeds.
c. Discussion with corporate legal counsel concerning the
acquisition of a specific
piece of property.
d. Confirmation with the title company that handled the
escrow account and
disbursement of proceeds for the closing of the property.
3. When few property and equipment transactions occur
during the year the continuing
auditor usually obtains and understanding of internal control
and performs
a. Tests of controls
b. Analytical procedures to verify current year additions to
property and equipment
c. A thorough examination of the balances at the beginning of
the year.
d. Extensive tests of current year property and equipment
transactions.
4. Which of the following combinations of procedures is an
auditor most likely to perform
to obtain evidence about fixed asset addition?
a. Inspecting documents and physically examining assets.
b. Recomputing calculations and obtaining written
management representations.
c. Observing operating activities and comparing balances to
prior period balances.
109 | P a g e
d. Confirming ownership and corroborating transactions
through inquiries of client
personnel.
B,B,D,A
Page 9 of 10
AP-5903
5. If an auditor tours a production facility, which of the
misstatements or questionable
practices is most likely to be detected by the audit procedures
specified?
a. Depreciation expense on fully depreciated machinery has
been recognized.
b. Overhead has been overapplied.
c. Necessary facility maintenance has not been performed.
d. Insurance coverage on the facility has lapsed.
6. In testing for unrecorded retirements of equipment, an
auditor is most likely to
a. Select items of equipment from the accounting records and
then locate them
during the plant tour.
b. Compare depreciation journal entries with similar prior-year
entries in search of
fully depreciated equipment.
c. Inspect items of equipment observed during the plant tour
and then trace them to
the equipment subsidiary ledger.
d. Scan the general journal for unusual equipment additions
and excessive debits to
repairs and maintenance expense.
7. Determining that proper amounts of depreciation are
expensed provides assurance
about managements assertions of valuation and
a. Presentation and disclosure. c. Rights and obligations.
b. Completeness. d. Existence or occurrence.
8. The auditor may conclude that depreciation charges are
insufficient by noting
a. Insured values greatly in excess of book values.
b. Large numbers of fully depreciated assets.
c. Continuous trade-in of relatively new assets.
d. Excessive recurring losses on assets retired.
9. An auditor analyzes repairs and maintenance accounts
primarily to obtain evidence in
support of the audit assertion that all
a. Noncapitalizable expenditures for repairs and maintenance
have been recorded in
the proper period.
b. Expenditures for property and equipment have been
recorded in the proper
period.
110 | P a g e
c. Noncapitalizable expenditures for repairs and maintenance
have been properly
charged to expense.
d. Expenditures for property and equipment have not been
charged expense.
10. In violation of company policy, Coatsen Company
erroneously capitalized the cost of
painting its warehouse. An auditor would most likely detect
this when
a. Discussing capitalization policies with Coatsen's controller.
b. Examining maintenance expense accounts.
c. Observing that the warehouse had been painted.
d. Examining construction work orders that support items
capitalized during the year.
11. Additions to equipment are sometimes understated. Which
of the following accounts
would be reviewed by the auditor to gain reasonable
assurance that additions are not
understated?
a. Accounts payable c. Depreciation expense
b. Gain on disposal of equipment d. Repair and maintenance
expense
12. When an auditor interviews the plant manager, he will
most likely seek from the plant
manager information regarding
a. Appropriateness of physical inventory observation
procedures.
b. Existence of obsolete machinery.
c. Deferral of procurement of certain necessary insurance
coverage.
d. Adequacy of the provision for uncollectible accounts.
Page 10 of 10
C,A,A,D,D,D,B
AP-5903
13. The auditor is least likely to learn of retirements of
equipment through which of the
following?
a. Review of the purchase return and allowance account.
b. Review of depreciation.
c. Analysis of the debits to the accumulated depreciation
account.
d. Review of insurance policy riders.
14. Which of the following is not likely a motive for
management to manipulate the timing
and amount of impaired asset writedowns?
a. Steady increases in earnings per share over the past 5
years.
b. Income smoothing.
c. A "big bath."
d. An abnormally unprofitable year.
111 | P a g e
15. There is goodwill involved in the acquisition of a business if
the purchase price paid is
in excess of the proprietorship of the business acquired.
Goodwill might be viewed as the enjoyment of a profit by a
company in excess of the
normal or usual return for the industry as a whole but such
goodwill is not recorded if
it has not been purchased or paid for.
a. False; True. c. True; False.
b. False; False. d. True; True.
16. In auditing intangible assets, an auditor most likely would
review or recompute
amortization and determine whether the amortization period is
reasonable in support
of managements financial statement assertion of
a. Valuation. c. Completeness.
b. Existence or occurrence. d. Rights and obligations.
A,A,D,A
End of AP-5903

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Problem no.

Manila Co. Merchandise returned for credit,

Cebu Corp. Merchandise returned but Cebu

Bulacan Co Overpayment of invoice

Advance to Zambales Co. This company agrees

Goods returned for credit and adjustments on

price after the invoices were paid; credit memos

2. The net adjustment to Purchases should include a

A. There is likely to be other reliable external evidence to support the balances

The following additional information pertains to these liabilities:

3. Total current liabilities as of December 31, 2010 is

Accrues liabilities as December 31, 2010 were as follows:

P 22.00 per share

Of 1,000, P1,000 bonds. The market rate of

Accrued Interest on Bonds

Based on the preceding information, determine the following:

Note 36-Contigent Liabilities

CASE 1: STOCK INVESTMENT IN SAN MIGUEL

Jan. 1 Audited balance 4,000shares

CASE 2: HOME OFFICE AND ESPERANZA BRANCH

P3, 309, 000

Accounts receivableP64, 800 P63, 200 P128, 000 P192, 800

CASE 4: J& M CO. (BONDS)

P1, 000, 000 face value of bonds were reacquired

c. P5, 753, 760

20. What is the total interest expense for 2001?

c. P1, 845, 440

22. What is the gain or loss on bond conversion on July 1, 2007?

c. P1, 865, 440

c. P1, 010, 800

c. P2, 873, 640

26. What is the gain (loss) on bond retirement on July1, 2009?

CASE 5: BLUE ICE CO. (R/E)

c. P2, 025, 000

c. P4, 720, 000

CASE 6: LETICIAS CO. (PPE)

32. What is the depreciation on building for 2009?

c. P2, 998, 080

c. P34, 477, 920

34. What is the depreciation on machinery and equipment for 2009?

c. P4, 220, 000

b. P4, 151, 000

d. P4, 197, 000

35. What is the gain on machine destroyed by fire?

c. P13, 760, 000

37. What is the depreciation on automotive equipment for 2009?

38. What is the gain (loss) on car traded in?

39. What is the depreciation on leasehold improvement for 2009?

c. P6, 090, 000

CASE 7: ST. JOHN AND ST. THERESE

Balance Sheet as of December 31, 2009

Investment in stock of St. Therese

Inventory St. Therese

Investment in stock of St. Therese

Henry Company had the following bank reconciliation at March 31:

Balance per books, March 31

Data per bank statement for the month of April follow:

P11,000. It was determined that the ending inventory was

At the date of discounting, PRIME should recognize

Use the following information for questions 8 and 9.

The cost of the land was:

Included in the list of outstanding checks were the following:

Compute the adjusted deposit in transit as of December 31, 2008.