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INSTRUCTIONS: Select the correct answer for each of the following questions. Mark only one
answer for each item by SHADING THE CIRCLE corresponding to the letter of your choice on the
official answer sheet. STRICTLY NO ERASURES/ALTERATIONS ALLOWED. Use pencil only.
AUDITING THEORY
1. To provide for the greatest degree of independence in performing internal auditing functions, an internal auditor most likely should
report to the:
a. Vice-president for Finance. c. Board of directors.
b. Corporate controller. d. Corporate stockholders.
3. According to PSA 200, the specific procedures deemed necessary in the circumstances to achieve the objective of the audit are referred
to as the:
a. Substantive tests c. Audit objectives.
b. Scope of the audit. d. Audit technique.
4. According to PSA 500, an audit involves ascertaining the degree of correspondence between assertions and established criteria. In the
case of financial statement audit, which of the following is not a valid criterion?
a. Accounting standards generally accepted in the Philippines.
b. International Accounting Standards.
c. Other authoritative financial reporting framework.
d. Philippine Standards on Auditing.
5. Inquiry of the entity’s personnel and analytical procedures are the primary bases for the issuance of a (an):
a. Compilation report on financial statements for a nonpublic company in its first year of operations.
b. Auditor’s report on financial statements supplemented with price level information.
c. Review report on comparative financial statements for a nonpublic company in its second years of operations.
d. Management advisory report prepared at the request of the client’s audit committee.
6. Per PSQC 1, which is not a quality control objective to be achieved by a CPA practitioner?
a. Human Resources. c. Acceptance of clients.
b. Leadership Responsibilities. d. Assignment of personnel.
7. The prevailing Philippine Standards on Auditing issued by the AASC are not applicable....
a. Whenever an independent examination of financial statements is conducted for the purpose of expressing an opinion thereon.
b. When special purposes audit are provided by an auditor.
c. Whenever an independent examination of financial statements of not for profit enterprises is conducted for the purpose of expressing an
opinion thereon.
d. When an auditor may judge that a departure leads to more effectively achieve the objective of an audit.
9. Which of the following factors is most important concerning auditor’s responsibility to detect errors and fraud?
a. The susceptibility of the accounting records to intentional manipulations, alterations, and the misapplication of accounting principles.
b. The probability that unreasonable accounting estimates result from unintentional bias or intentional attempts to misstate the financial
statements.
c. The possibility that management fraud, defalcation, and misappropriation of assets may indicate the existence of non-compliance with
laws and regulations.
d. The risk that mistakes, falsifications, and omissions may cause the financial statements to contain material misstatements.
FIRST PRE-BOARD EXAMINATION page 02
10. Warning signs that cause the auditor to question management integrity must be taken seriously and pursued vigorously. Which of the
following may lead the auditor to suspect management dishonesty?
a. The president and chief executive officer of the client corporation has held numerous meetings with the controller for the purpose of
discussing accounting practices that will maximize reported profits.
b. The client has been named as a defendant in a product liability suit.
c. The client has experienced a decrease in revenue from increased import competition.
d. A new government regulation making customer licenses more difficult to obtain may adversely affect the client’s operations.
11. Gerry, CPA has audited the financial statements of Subic Bay Sales for several years and had always been paid promptly for services
rendered. Last year’s audit invoices have not been paid because of its cash flow difficulties, and the current year’s audit is schedule to
commence in a week. With respect to the past due audit fees, Gerry should:
a. Perform the scheduled audit and allow Subic to pay when the cash flow difficulties are alleviated.
b. Perform the scheduled audit only after arranging a definite payments schedule and securing notes signed by Subic.
c. Inform Subic’s management that the past due audit fees are considered an impairment of auditor’s independence, therefore, it must be
paid prior to the issuance of the auditor’s report.
d. Inform Subic’s management that the past due audit fees may be considered a loan on which interest must be imputed for financial
statement purposes.
13. In planning an audit of certain accounts, an auditor may conclude that some specific procedures used to obtain an understanding of an
entity’s internal control structure need not be included in the program because of the auditor’s judgments about materiality and
assessments of:
a. Sampling risk. c. Control risk.
b. Detection risk. d. Audit risk.
15. “There are no violations or possible violations of laws or regulations whose effects should be considered for disclosure in the financial
statements or as a basis for recording a loss contingency.” The foregoing passage most likely is from a (an):
a. Client engagement letter. c. Management representation letter.
b. Report on compliance with laws and regulations. d. Attestation report on an internal control structure.
16. An auditor searching for related party transactions should obtain an understanding of each subsidiary’s relationship to the total entity
because:
a. This may permit the audit of inter-company account balances to be performed as of concurrent dates.
b. This may reveal whether particular transactions would have taken place if the parties had not been related.
c. Intercompany transactions may have been consummated on terms equivalent to arm’s length transactions.
d. Intercompany transactions may have not been adequately disclosed.
17. During 200A, the research staff of Scientific Corp. devoted its entire efforts towards developing a new pollution control device. All costs
which could be attributed directly to the pollution control project were accounted for as deferred charges and classified on the balance
sheet at December 31, 200A, as current asset. In the course of its audit of the corporation’s 200A financial statements, Anton, CPA, found
persuasive evidence that the research conducted to date would not result in a marketable product. Assuming that the deferred research
charges are significantly material in relationship to both income and total assets, Anton should:
a. Issue a “subject to” qualified opinion.
b. Disclaim an opinion.
c. Issue an adverse opinion.
d. Give an unqualified opinion provided that the uncertainty of ultimate realization of the deferred charges is disclosed in the footnotes.
18. Roger, CPA, completed the fieldwork of the audit of ABC’s December 31, 200C, financial statements on March 06, 200D. A subsequent
event requiring adjustment to the 200C financial statements occurred on April 10, 200D and came to Roger’s attention on April 24, 200D.
The management has made the necessary adjustments prior to their issuance of the 200C financial statements. On April 28, 200D, after
Roger extended his procedures to examine the so-called adjustments made by management, he believes the previous report is still
applicable, without disclosure of the event in the auditor’s report, Roger’s report ordinarily should be dated:
a. March 06, 200D. c. April 24, 200D.
b. April 10, 200D. d. April 28, 200D.
FIRST PRE-BOARD EXAMINATION page 03
20. If an auditor wishes to select a random sample that must have a 10% acceptable risk of assessing control risk too low and a tolerable
deviation rate of 10%, the size of the sample he or she must select will decrease as the estimate of the:
a. Population deviation rate increases. c. Population size increases.
b. Population deviation rate decreases. d. Acceptable risk of assessing control risk too low increases.
21. The date of the end of the latest period covered by the financial statements, which is normally the date of the most recent balance
sheet in the financial statements subject to audit is the:
a. Date the financial statements are issued. c. Date of the financial statements.
b. Date of the auditor’s report. d. Date of approval of the financial statements.
22. Which one of the following statements concerning sampling risk and nonsampling risk is correct?
a. Neither sampling risk nor nonsampling risk can be reduced by the auditor.
b. Sampling risk, but not nonsampling risk, can be reduced by the auditor.
c. Nonsampling risk, but not sampling risk, can be reduced by the auditor.
d. Both sampling risk and nonsampling risk can be reduced by the auditor.
23. An accountant may perform an agreed upon procedures engagement regarding prospective financial statements provided that:
a. Use of the report is to be restricted to the specified users.
b. The prospective financial statements are also examined.
c. Responsibility for the sufficiency of the procedures performed is taken by the accountant.
d. Negative assurance is expressed on the prospective financial statements taken as a whole.
25. PSA 620, Using the Work of an Auditor’s Expert, deals with:
a. The auditor’s use of the work of a management’s expert.
b. The auditor’s responsibilities regarding the use of an individual or organization’s work in a field of expertise other than accounting or
auditing when that work is used to assist the auditor in obtaining sufficient appropriate audit evidence.
c. Situations where the engagement team includes a member with expertise in a specialized area of accounting or auditing.
d. How the auditor’s responsibility for the opinion on the entity’s financial statements will be divided between the auditor and the auditor’s
expert.
26. An auditor believes that there is substantial doubt about an entity’s ability to continue as a going concern for a reasonable period of
time. In evaluating the entity’s plans for dealing with the adverse effects of future conditions and events, the auditor most likely would
consider, as a mitigating factor, the entity’s plans to:
a. Repurchase the entity’s stock at a price below its book value.
b. Issue stock options to key executives.
c. Lease rather than purchase operating facilities.
d. Accelerate the due date of an existing mortgage.
27. An entity’s management is responsible for the preparation and fair presentation of the financial statements. Its responsibility includes
the following except:
a. Designing, implementing, and maintaining internal control relevant to the preparation and presentation of financial statements.
b. Making accounting estimates that are reasonable in the circumstances.
c. Selecting and applying appropriate accounting policies.
d. Assessing the risks of material misstatement of the financial statements.
28. Which of the following statements concerning prospective financial statements is correct?
a. Only a financial forecast would normally be appropriate for limited use.
b. Only a financial projection would normally be appropriate for general use.
c. Any type of prospective financial statements would normally be appropriate for limited use.
d. Any type of prospective financial statement would normally be appropriate for general use.
FIRST PRE-BOARD EXAMINATION page 04
29. A continuing accountant is one who has been engaged to audit, review, or compile and report on the financial statements of the current
period and one or more consecutive periods immediately prior to the current period. A continuing accountant who performs the same or a
higher level of service with respect to the financial statements of the current period should:
a. Update his/her report on the financial statements of a prior period.
b. Disclaim any assurance on the prior period’s statements.
c. Reissue the report on the financial statements of a prior period.
d. Express an adverse opinion with respect to the prior period’s financial statements.
30. In performing audit tests, the auditor may use either nonstatistical or statistical sampling. The critical difference between the two types
of sampling is that:
a. The sampling plan for nonstatistical sampling eliminates procedures required for statistical sampling.
b. Statistical sampling enables quantification and control of sampling risk.
c. Nonsampling risk is lower in statistical sampling.
d. Statistical sampling eliminates both sampling and nonsampling risk.
31. The following statements are ordinarily included in a management representation letter, except:
a. The completeness and availability of minutes of stockholders’ and directors’ meetings.
b. Sufficient appropriate audit evidence has been made available to permit the expression of an unqualified opinion.
c. There have been no irregularities involving management or employees who have a significant role in internal control or that could have a
material effect on the financial statements.
d. The financial statements are free of material misstatements, including omissions.
33. A hardware element that takes the computer’s digital information and transforms it into signals that can be sent over ordinary
telephone lines is a (an):
a. Intelligent terminal. c. Terminal emulator.
b. Point of sale terminal. d. Modem.
34. The Philippine Standards on Assurance Engagements (PSAEs) are to be applied in:
a. Assurance engagements dealing with subject matters other than historical financial information.
b. Compilation engagements and agreements to apply agreed upon procedures to information.
c. The audit or review of historical financial information.
d. Assurance engagements dealing with historical financial information.
35. Which of the following procedures most likely would give the greatest assurance that securities held as investments are safeguarded?
a. There is no access to securities between the year end and the date of the auditor’s security count.
b. Proceeds from the sale of investments are received by an employee who does not have access to securities.
c. Investment acquisitions are authorized by a member of the Board of Directors before execution.
d. Access to securities requires the signatures and presence of two designated officials.
36. The auditor is required to complete the administrative process of assembling the final audit file on a timely basis after the date of the
auditor’s report. The time limit within which to complete the assembly of the audit file is ordinarily:
a. Not more than 30 days after the date of the auditor’s report.
b. Not more than 60 days after the date of the auditor’s report.
c. Not more than 90 days after the end of the entity’s reporting period.
d. Not more than 60 days after the date the entity’s financial statements are authorized for issue.
37. Which of the following would not necessarily be a related party transaction?
a. A purchase from another corporation that is controlled by the corporation’s chief shareholder.
b. A loan from the corporation to a major shareholder.
c. Sale of land to the corporation by the spouse of a director.
d. A sale to another corporation with a similar name.
38. An entity installed antivirus software on all its personal computers. The software was designed to prevent initial infections, stop
replication attempts, detect infections after their occurrence, mark affected system components, and remove viruses from infected
components. The major risk in relying on antivirus software is that it may:
a. Consume too many system resources. c. Not detect certain viruses.
b. Interfere with system operations. d. Make software installation too complex.
FIRST PRE-BOARD EXAMINATION page 05
39. The audit step most likely to reveal the existence of contingent liabilities is:
a. A review of vouchers paid during the month following the year end.
b. Accounts payable confirmations.
c. An inquiry directed to legal counsel.
d. Mortgage note confirmation.
40. Which of the following procedures relating to the examination of accounts payable could the auditor delegate entirely to the client’s
employees?
a. Test footings in the accounts payable ledger. c. Prepare a schedule of accounts payable.
b. Reconcile unpaid invoices to vendors’ statements. d. Mail confirmations for selected account balances.
42. To which of the following matters would materiality limits not apply in obtaining written management representations?
a. Reductions of obsolete inventory to net realizable value.
b. The disclosure of compensating balance arrangements involving related parties.
c. Losses from purchase commitments at prices in excess of market value.
d. The availability of minutes of stockholders’ and directors’ meetings.
AUDITING PROBLEMS
Use the following information for questions 43 to 45:
The adjusted trial balance of Villa Corporation on December 31, 2014, includes the following cash and receivables balances:
Cash- Allied Bank 450,000
Currency on hand 160,000
Petty cash fund 10,000
Cash in bond sinking fund 150,000
Notes receivable (including notes discounted with recourse, P 155,000) 365,000
Accounts receivable 856,000
Allowance for doubtful accounts 41,500 814,500
Interest receivable 5,250
Current liabilities reported in the December 31, 2014, statement of financial position included:
Obligations on discounted notes receivable 155,000
Transactions during 2015 included the following:
a. Sales on account were P 7,670,000.
b. Cash collected on accounts totaled P 5,765,000, including accounts of P 930,000 with cash discounts of 2%.
c. Notes received in settlement of accounts totaled P 825,000.
d. Notes receivable discounted as of December 31, 2014 were paid at maturity with the exception of one P 30,000 note on which the
company had to pay the bank P 30,900 which include interest and protest fees. It is expected that recovery will be made on this note early
2015.
e. Customer notes of P 585,000 were discounted with recourse during the year, proceeds from their transfer being P 585,000. (All
discounting transactions were recorded as loans). Of this total, P 480,000 matured during the year without notice of protest.
f. Customer accounts of P 87,200 were written off during the year as worthless.
g. Recoveries of bad debts written off in prior years were P 20,200.
h. Notes receivable collected during the year totaled P 270,000 and interest collected was P 24,500.
i. On December 31, accrued interest on notes receivable was P 6,300.
j. Cash of P 350,000 was borrowed from Allied Bank with accounts receivable of P 400,000 being pledged on the loan. Collections of P
195,000 had been made on these receivables (included in the total given in transaction b), and this amount was applied on December 31,
2015 to payment of accrued interest on the loan of P 6,000 and the balance for the partial payment of the loan.
k. The petty cash fund was reimbursed (meaning that cash was removed from the bank account and placed in the petty cash fund) based on
the following analysis of expenditure vouchers:
Travel expense 1,120
Entertainment expense 780
Postage expense 930
Office supplies expense 1,730
Cash short and over (an income account) 60
l. Cash of P 30,000 was added to bond retirement fund.
m. Currency on hand at December 31, 2015, was P 120,000.
n. Total cash payments for all expenses during the year were P 6,800,000. Charge to general expenses.
o. Uncollectible accounts are estimated to be 5% of the December 31, 2015, Accounts Receivable balance.
FIRST PRE-BOARD EXAMINATION page 06
Based on the above and the result of your audit, answer the following:
43. The total cash to be reported in the company’s December 31, 2015 statement of financial position is:
a. 555,700 c. 574,180
b. 574,300 d. 569,800
44. The doubtful account expense to be recognized for the year ended December 31, 2015 is:
a. 117,010 c. 117,940
b. 91,510 d. 92,440
45. The net trade and other receivables to be reported in the company’s December 31, 2015 statement of financial position is:
a. 2,023,690 c. 2,072,260
b. 2,078,560 d. 2,060,890
46. Raptors Corporation sold a machine on January 01, 2016. The cash price of the machine is P 1,000,000. The buyer signed a deferred
payment contract that provides for a down payment of P 200,000 and an 8-year note bearing interest at 10%. The note is to be paid in 8
equal annual payments inclusive of interest. The payments are made on December 31 of each year, beginning December 31, 2016. In its
December 31, 2016 statement of financial position, what amount should Raptors report as note receivable?
a. 700,000 c. 730,000
b. 720,000 d. 780,000
47. On January 01, 2016, Spurs Co. equipment costing P 380,000 with accumulated depreciation of P 160,000 on the date of sale. Spurs
received as consideration for the sale, a P 400,000 noninterest bearing note, due January 01, 2017. There was no established exchange
price for the equipment and the note had no ready market. The prevailing rate of interest for a note of this type at January 01, 2016 was
10% and 12% on December 31, 2016. In Spurs’ 2016 income statement, how much should be included for interest income?
a. 40,000 c. 30,052
b. 48,000 d. 34,166
48. The Hawks Co. sells P 40,000 of accounts receivable to a factor and receives 94% of the value of the accounts less a 10% commission
based on the gross amount of factored accounts receivable. After the journal entry to record this factoring transaction is made, Hawk’s total
assets will be:
a. Reduced by P 2,400. c. Increased by P 4,000.
b. Increased by P 33,600. d. Reduced by P 4,000.
49. On July 01, 2015, Clip Corporation sold equipment for P 1,000,000. Clip accepted a 10% note receivable for the entire sales price. This
note is payable in two equal installments of P 500,000 plus accrued interest on December 31, 2015 and December 31, 2016. On July 01,
2016, Clip discounted the note at a bank at an interest rate of 12%. Clip’s proceeds from the discounted note were:
a. 484,000 c. 493,500
b. 503,500 d. 517,000
12.01-31.14 01.01-12.15
Receipts, cash records 963,230 292,500
Credits, bank statement 941,010 321,490
Disbursements, cash records 1,008,480 177,570
Charges, bank statement 1,010,410 230,180
In connection with the audit of liabilities, you were able to obtain the following information:
53. Company A is a car manufacturer who gives warranties to its clients at the time of purchase. Under the terms of sale contract,
Company A undertakes to repair manufacturing defects or replace defective parts that become apparent within 5 years from the date of
sale. Based on previous experience, it is probable that there will be some claims under warranties. Estimated cash flows related to the cars
covered by warranty as of the reporting period are as follows:
Likelihood of occurrence Estimated cash flows
Major defects 4% 2,000,000
Minor defects 10% 500,000
No defects 86% 0
Ignoring risks and time value of money, how much should Company A recognize as provision?
a. 0 c. 80,000
b. 50,000 d. 130,000
54. Company 1 runs 2 main divisions: production of wooden accessories and metal accessories. On September 30, 20x1, board of directors
approved formal restructuring plan that involves shifting some production away from metal accessories to wooden accessories due to
current developments of customers’ preferences. Managers have prepared details of restructuring plan and have publicly announced it on
November 30, 20x1. An implantation of the plan should start on February 01, 20x2 and should be completed January 31, 20x3. Managers
have estimated the costs of restructuring as follows:
(1) Carrying amount of redundant machines for metal accessories production – P 2,000,000, revenue from their sale (based on offer
received recently) – P 1,300,000.
(2) New computers in accounting department – P50,000.
(3) Cost of retraining employees from metal accessories – P 100,000.
(4) Cost of severance payments to redundant employees from metal accessories – P 400,000.
What should Company 1 do in its financial statements in relation to this situation?
a. Recognize a provision of P 400,000. c. Recognize a provision of P 1.1 million
b. Recognize a provision of P 200,00. d. Not recognize any provision.
Accounts Receivable
The accounts receivable consists of the following:
Trade accounts receivable 1,950,000
Allowance for uncollectible accounts ( 60,000 )
Claim against shipper for goods lost in transit 90,000
Selling price of unsold goods sent by Pie on consignment
At 130% of cost (included in Pie’s ending inventory at cost) 780,000
Security deposit on lease of warehouse used for storing some inventories 900,000
Total 3,660,000
===========
Based on the result of your audit, determine the adjusted amounts of the following:
55. Cash
a. 1,752,000 c. 2,763,000
b. 1,518,000 d. 1,563,000
58. Inventory
a. 1,590,000 c. 2,190,000
b. 1,020,000 d. 1,353,000
Jan. 01 Issued 500 shares of common stock to the corporation promoters in exchange for property valued at P 170,000 and service valued
at P 70,000. The property had cost the promoters P 90,000 3 years before and was carried on the promoters’ books at P 50,000.
Feb. 23 Issued 10,000 shares of preferred stock with a par value of P 100 per share. The stock was issued at a price of P 150 per share,
and the company paid P 75,000 to an agent for selling the shares.
Mar. 10 Sold 3,000 shares of the common stock for P 390 per share. Issue costs were P 25,000.
Apr. 10 4,000 shares of common stock were sold under stock subscriptions at P 450 per share. No shares are issued until a subscription
contract is paid in full. No cash was received.
July 14 Exchanged 700 shares of common stock and 1,400 shares of preferred stock for a building with a fair market value of P 510,000.
The building was originally purchased for P 380,000 by the investors and has a book value of P 220,000. In addition, 600 shares of
common stock were sold for P 240,000 in cash.
Aug. 03 Received payments in full for half of the stock subscriptions and payments on account on the rest of the subscriptions. Total cash
received was P 1,400,000. Shares of stock were issued for the subscriptions paid in full.
Dec. 01 Declared a cash dividend of P 10 per share on preferred stock, payable on December 31 to stockholders of record on December
15, and a P 20 per share cash dividend on common stock, payable on January 05 of the following year to stockholders of record on
December 15.
66. Total manufacturing cost for the year ended December 31, 2010:
a. 4,166,667 c. 666,667
b. 3,000,000 d. 2,850,000
70. What amount should be reported as Allowance to Reduce Inventory to Net Realizable Value at May 31, 2012?
a. 168,900 c. 273,600
b. 45,600 d. 123,300
71. What amount of gain or loss should be recorded for the year ended May 31, 2012, due to the change in the Allowance to Reduce
Inventory to Net Realizable Value?
a. 36,900 gain c. 40,800 loss
b. 86,400 loss d. 82,500 gain
At the end of the first quarter of operations, Mango is feeling pretty good about his early results. The first harvest was a success; 30,000
kilos of mangoes were harvested with a value of P 90,000 (based on current local commodity prices at the time of harvest). The fair value of
Mango’s mango farm has increased by P 45,000 at the end of the quarter. After storing the mangoes for a short period of time, Mango was
able to sell the entire harvest for P 105,000.
72. What amount of gain should be recognized on the change in fair value of Mango’s mango farm?
a. 150,000 c. 90,000
b. 45,000 d. 135,000
73. At what amount should the mangoes harvested be initially recorded on Mango’s books?
a. 90,000 c. 60,000
b. 105,000 d. 150,000
74. What is the total effect on income for the quarter related to Mango’s biological assets and agricultural produce?
a. 150,000 c. 15,000
b. 45,000 d. 60,000
Additional information:
Japan calculates depreciation to the nearest month and balances the records at month-end. Recorded amounts are rounded to
the nearest peso, and the reporting date is December 31.
Japan uses straight line depreciation for all depreciable assets except vehicles, which are depreciated on the diminishing balance
at 40% per annum.
The vehicles account balance reflects the total paid for two identical delivery vehicles, each of which cost P 234,000.
On acquiring the land and building, Japan estimated the building’s useful life and residual value at 20 years and P 50,000,
respectively.
June 22 Bought a second hand vehicle for P 152,000 cash. Repainting costs of P 6,550 and four new tires costing P 3,450 were
paid for in cash.
August 28 Exchanged machine 1 for office furniture that had a fair value of P 125,000 at the date of exchange. The fair value of
machine 1 at the date of exchange was P 115,000. The office furniture originally cost P 360,000 and, to the date of
exchange, had been depreciated by P 241,000 in the previous owner’s books. Japan estimated the office furniture’s
useful life and residual value at eight years and P 5,400, respectively.
2015
April 30 Paid for repairs and maintenance on the machinery at a cash cost of P 9,280.
May 25 Sold one of the vehicles bought on November 21, 2012 for P 66,000 cash.
June 26 Installed a fence around the property at a cash cost of P 55,000. The fence has an estimated useful life of 10 years and
zero residual value. (Debit the cost to a land improvements asset account).
2016
January 05 Overhauled machine 2 at a cash cost of P 120,000, after which Japan estimated its remaining useful life at one additional
year and revised its residual value to P 50,000.
June 20 Traded in the remaining vehicle bought on November 21, 2012 for a new vehicle. A trade in allowance of P 37,000 was
received and P 233,000 was paid in cash.
October 04 Scrapped the vehicle bought on June 22, 2014, at it had been so badly damaged in a traffic accident that it was not
worthwhile repairing it.
76. What should be the depreciation expense for the machinery for 2014?
a. 242,733 c. 239,400
b. 235,000 d. 266,400
77. What should be the balance of the Accumulated depreciation – Office furniture account at December 31, 2015?
a. 19,933 c. 19,833
b. 18,267 d. 58,083
78. What should be the depreciation expense for the machinery for 2016?
a. 277,708 c. 221,400
b. 197,400 d. 205,400
03.03.07 Manila Co. – Merchandise returned for credit, but the company
is now out of business. 8,000
12.05.09 Goods returned for credit and adjustments on price after the
invoices were paid, credit memos from suppliers not yet received 4,000
63,000
Your next step is to check the invoices in both the paid the and the unpaid invoices files against ledger accounts. In this connection, you
discover an invoice from Atlas Co. of P 45,000 dated December 12, 2009 marked “Duplicate” which was entered in the Purchases Journal in
January 2010. Upon inquiry, you discover that the merchandise covered by this invoice was received and sold, but that 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, 2010.
The inventory analysis summary discloses goods in transit of P 6,000 at December 31, 2009, not taken up by the company under audit
during the year 2009. These goods are included in your adjusted inventory.
80. The Accounts Payable – Trade balance at December 31, 2009 should be:
a. 1,471,000 c. 1,214,000
b. 1,614,000 d. 1,477,000
82. The entry to adjust the Accounts Payable account for those accounts with debit balances should include a debit to Miscellaneous losses
of:
a. 18,000 c. 35,000
b. 23,000 d. 39,000
83. The entry to adjust the Accounts Payable account for those accounts with debit balances should include a debit to:
a. Miscellaneous losses of P 23,000 c. Suppliers’ debit balances of P 18,000
b. Advances to suppliers of P 24,000 d. Purchases of P 21,000
You are performing the audit for the year ended December 31, 2010. During your examination, you discover the following errors:
(a) As a result of errors in the physical count, ending inventories were misstated as follows:
December 31, 2009 14,000 overstated
December 31, 2010 23,000 understated
(b) On December 29, 2010, Doming recorded as a purchase, merchandise in transit which cost P 15,000. The merchandise was shipped FOB
destination and had not arrived by December 31. The merchandise was not included in the ending inventory.
(c) Doming records sales on the accrual basis but failed to record sales on account made near the end of each year as follows:
2008 4,000 2009 5,000 2010 3,500
(f) On July 01, 2009, Doming acquired a three year insurance policy. The three year premium of P 6,000 was paid on that date, and the
entire premium was recorded as insurance expense.
(g) On January 01, 2010, Doming retired bonds with a book value of P 120,000 for P 106,000. The gain was incorrectly deferred and is being
amortized over 10 years as a reduction of interest expense on other outstanding obligations.
84. What is the adjusted net income for the year ended December 31, 2008?
a. 133,000 c. 121,000
b. 117,000 d. 113,000
85. What is the adjusted net income for the year ended December 31, 2009?
a. 151,000 c. 178,000
b. 187,000 d. 179,000
86. What is the adjusted net income for the year ended December 31, 2010?
a. 129,600 c. 104,400
b. 131,000 d. 203,600
A. The bank reconciliation statements prepared by the cashier-bookkeeper are presented below:
November 30, 2009
Balance per bank statement 21,500
Cash on hand 500
Total 22,000
Outstanding checks:
No. 2520 2,000
No. 2521 1,400
No. 2522 1,900 ( 3,300 )
Erroneous bank charge 2,000
Erroneous bank credit ( 500 )
Book balance 20,200
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B. The Cash in Bank account in the general ledger shows the following debits and credits during December:
Cash in Bank
Dec. Dec.
01 Balance 20,200 01 Checks issued 2,000
02 Received from customers 4,500 05 Checks issued 5,200
07 Received from customers 5,000 14 Checks issued 31,000
12 Received from customers 20,000 24 Checks issued 46,000
17 Received from customers 30,000 28 Checks issued 7,600
23 Received from customers 9,000
27 Received from customers 70,000
31 Received from customers 48,500 31 Balance 102,400
Total 198,200 Total 198,200
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D. Cash on hand per count in the morning of January 02, 2010 amounted to P 6,300.
E. Before leaving his company for a one-week vacation, the proprietor had left several signed blank checks that the cashier-bookkeeper had
cashed for his personal use.
- End of Examination -