AUDITING PROBLEMS (CPAR FIRST PREBOARDS, 2018)

Problem 1

During May 2017, GUADALUPE Inc. issued 90,000 of its ₱10 par value ordinary shares for ₱990,000. Net income through December 31, 2017, was
₱37,500.

On July 3, 2018, Guadalupe Inc. issued 150,000 of its ordinary shares for ₱1,875,000. A 5% share dividend was declared on October 2, 2018, and
issued on November 6, 2018, to shareholders of record on October 23, 2018. The market value of the ordinary shares was ₱11 per share on the
declaration date. Guadalupe’s net income was ₱105,000.

During 2019, Guadalupe had the following transactions:

 In February, Guadalupe reacquired 9,000 of its ordinary shares for ₱9 per share. Guadalupe uses the cost method to account for treasury
shares.
 In June, Guadalupe sold 4,500 of its treasury shares for ₱12 per share.
 In September, each shareholder was issued (for each share held) one right to purchase two additional ordinary shares for ₱13 per share. The
rights expire on December 31, 2019.
 In November, 120,000 rights were issues were exercised when the market value of the ordinary share was ₱15 per share.
 On December 15, Guadalupe declared its first cash dividend to shareholders of ₱0.30 per share, payable on January 10, 2020, to
shareholders on record on December 31, 2019.
 On December 21, in accordance with the applicable law, Guadalupe formally retired 3,000 of its treasury shares and had them revert to an
unissued basis. The market value of the ordinary share was ₱16 per share on this date.
 Net income for 2019 was ₱240,000.

1. What are the balances of the following equity accounts on December 31, 2017?
Ordinary Share Premium Retained Earnings
Share Capital
A. ₱900,000 ₱90,000 ₱37,500
B. ₱990,000 ₱0 ₱37,500
C. ₱990,000 ₱37,500 ₱0
D. ₱900,000 ₱37,500 ₱90,000

2. What are the balances of the following equity accounts on December 31, 2018?
Ordinary Share Premium Retained Earnings
Share Capital
A. ₱2,520,000 ₱465,000 ₱22,500
B. ₱2,532,000 ₱465,000 ₱10,500
C. ₱2,520,000 ₱477,000 ₱10,500
D. ₱2,532,000 ₱477,000 ₱22,500

3. What are the balances of the following equity accounts on December 31, 2019?
Ordinary Share Premium Retained Earnings
Share Capital
A. ₱6,363,000 ₱1,660,500 ₱190,350
B. ₱6,390,000 ₱1,663,500 ₱59,250
C. ₱6,393,000 ₱1,657,500 ₱13,500
D. ₱6,376,500 ₱1,650,000 ₱72,750

4. What amount should be charged to Retained Earnings for the cash dividend declared on December 15, 2019?
A. ₱191,250 B. ₱191,700 C. ₱189,900 D. ₱120,600

5. What is the treasury shares balance on December 31, 2019?

A. ₱40,500 B. ₱54,000 C. ₱13,500 D. ₱81,000

Problem 2

At December 31, 2017, certain accounts included in the property, plant and equipment section of the SPEED COMPANY’S statement of financial
position had the following balances:
Land ₱3,000,000
Buildings 24,000,000
Leasehold Improvements 3,500,000
Machinery and Equipment 1,400,000
During 2018 the following transactions ocurred:

Land site number 621 was acquired for ₱2,000,000. Additionally, to acquire the land, Speed paid a ₱60,000 commission to real estate agent. Costs
of ₱15,000 were incurred to clear the land for the intended use but not to make room for the construction of a new building. During the course of
clearing the land, timber and gravel were recovered and sold for ₱5,000.

A second tract of land (site number 622) with a building was acquired from another entity in exchanged for 100,000 Speed ordinary shares. On the
acquisition date, the shares had a closing market price of ₱45 on a stock exchange. Current appraised value for the land and the building,
respectively, are ₱1,200,000 and ₱2,400,000. Shortly after acquisition, the building was demolished at a cost of ₱30,000 to make room for the
construction of new building. A new building was constructed for ₱10,500,000 plus the following costs:
Excavation fees ₱110,000
Architectural design fee 380,000
Building permit fee 10,000
Imputed interest on funds used during construction 60,000
The building was completed and occupied on September 30, 2018.

A third tract of land (site number 623) was acquired for ₱6,000,000 and was classified as held for sale.

Extensive work was done to a building occupied by Speed under a lease agreement that expires on December 31, 2025. The total cost of the was
₱1,250,000, which consisted of the following:
Painting of ceilings ₱100,000 Estimated useful life is one year
Electrical work 350,000 Estimated useful life is ten years
Construction of extension to current working area 800,000 Estimated useful life is 30 years
The lessor paid one-half of the costs incurred in connection with the extension of the current working area.

During December 2018, costs of ₱650,000 were incurred to improve leased office space. The related lease will terminate on December 31, 2020 and
is not expected to be renewed.

A group of new machines were purchased under a royalty agreement which provides for payment of royalties based on units of production for the
machines. The invoice price of the machines was ₱750,000, freight costs were ₱20,000, unloading charges were ₱15,000, and royalty payments for
2018 were ₱130,000.

6. What is the December 31, 2018 balance of the Land account that should be shown as part of property, plant and equipment in the statement of
financial position?
A. ₱6,270,000 B. ₱6,470,000 C. ₱6,570,000 D. ₱12,570,000

7. What is the total cost of buildings on December 31, 2018?

A. ₱35,000,000 B. ₱35,030,000 C. ₱35,040,000 D. ₱37,430,000

8. What is the total cost of the leasehold improvements on December 31, 2018?
A. ₱4,250,000 B. ₱4,900,000 C. ₱5,000,000 D. ₱5,300,000

9. What is the total cost of the machinery and equipment on December 31, 2018?
A. ₱2,170,000 B. ₱2,185,000 C. ₱2,315,000 D. ₱2,415,000

10. How much should be reported as part of expenses (excluding depreciation) in the income statement for the year ended December 31, 2018?
A. ₱130,000 B. ₱190,000 C. ₱230,000 D. ₱290,000

Problem 3

The following data pertain to KUKURUKUKU CORPORATION’s property, plant and equipment for 2018.

Audited balances at December 31, 2017:

DEBIT CREDIT
Land ₱7,500,000
Buildings 30,000,000
Accumulated depreciation - Buildings ₱6,577,500
Machinery and equipment 22,500,000
Accumulated depreciation - Machinery and equipment 6,250,000
Delivery equipment 5.750,000
Accumulated depreciation - Delivery equipment 4,230,000
Depreciation data:
Depreciation Method Useful Life
Buildings 150% Declining balance 25 years
Machinery and Equipment Straight-line 10 years
Delivery Equipment Sum-of-the-years’-digits 4 years
Leasehold Improvements Straight-line -

Transactions during 2018 and other information are as follows:

 On January 2, 2018, KUKURUKUKU purchased a new truck for ₱1,000,000 cash and trade-in of a 2-year truck with a cost of ₱900,000 and
book value of ₱270,000. The new truck has a cash price of ₱1,200,000; the market value of the trade-in is not known.
 On April 1, 2018, a machine purchased for ₱575,000 on April 1, 2013, was stolen. KUKURUKUKU recovered ₱387,500 from its insurance
company.
 On May 1, 2018, costs of ₱8,400,000 were incurred to improve lease office premises. The leasehold improvements have a useful life of 8
years. The related lease terminates on December 31, 2024.
 On July 1, 2018, machinery and equipment were purchased at a total invoice cost of ₱7,000,000; additional costs of ₱125,000 for freight and
₱625,000 for installation were incurred.
 KUKURUKUKU determined that the delivery equipment comprising the ₱5,750,000 balance at January 1, 2018, would have been depreciated
at a total amount of ₱900,000 for the year ended December 31, 2018.

The salvage values of the depreciable assets are immaterial. The policy of KUKURUKUKU is to compute depreciation to the nearest month.

11. Depreciation expense for 2018 on Buildings

A. ₱1,405,350 B. ₱929,720 C. ₱1,200,000 D. ₱1,800,000

12. Depreciation expense for 2018 on Leasehold Improvements

A. ₱700,000 B. ₱1,050,000 C. ₱840,000 D. ₱933,333

13. Accumulated depreciation - Machinery and Equipment, December 31, 2018

A. ₱8,644,375 B. ₱8,556,875 C. ₱8,600,000 D. ₱8,844,375

14. Accumulated depreciation - Delivery Equipment, December 31, 2018

A. ₱5,430,000 B. ₱4,620,000 C. ₱4,710,000 D. ₱4,800,000

15. Gain (loss) on trade in of truck on January 2, 2018

A. (₱200,000) B. ₱200,000 C. (₱70,000) D. ₱70,000

Problem 4

The following independent situations relate to the audit of intangible assets. Answer the following questions at the end of each situation

CABOOM LABORATORIES holds a valuable patent (No. 112170) on a device that prevents certain types of air pollution. Caboom does not
manufacture or sell the products and processes it develops; it conducts research and develops products which it patents, and then assigns the
patents to manufacturers on royalty basis. The history of Patent No. 112170 is as follows:
Date Activity Cost
2008-2009 Research conducted to develop the device ₱1,259,100
Jan 2010 Design and construction of a prototype 262,800
Mar 2010 Testing of models 126,000
Jan 2011 Legal and other fees to process patent application; patent granted on June 2011 186,150
Nov 2012 Engineering activity necessary to advance the design of the device to the manufacturing 244,500
stage
Apr 2014 Research aimed at modifying the design of the patented device 129,000
May 2018 Legal fees paid in a successful patent infringement suit against a competitor 102,000

Caboom assumed a useful life of 17 years when it received the initial device patent. On January 1, 2016, it revised its useful life estimate downward
to 5 remaining years. Amortization is computed for a full year if the cost is incurred prior to July 1 and no amortization for the year if the cost is
incurred after June 30. Caboom’s reporting date is December 31, 2018.

Compute the carrying value of Patent No. 112170 on each of the following dates:

16. December 31, 2011

A. ₱180,675 B. ₱186,150 C. ₱293,788 D. ₱175,200
17. December 31, 2015
A. ₱223,200 B. ₱52,650 C. ₱131,400 D. ₱122,640

18. December 31, 2018

A. ₱120,560 B. ₱78,840 C. ₱52,560 D. ₱98,550

BARTOLO COMPANY has provided information on intangible assets as follows:

 A patent was purchased from Valenzuela Company for ₱4,000,000 on January 1, 2017. Bartolo estimates the remaining useful life of the
patent to be 10 years. The patent was carried in Valenzuela’s accounting records at a net book value of ₱4,000,000 when Valenzuela sold it to
Bartolo.
 During 2018, a franchise was purchased from Delco Company for ₱960,000. The contract which runs for 10 years provides that 5% of revenue
from the franchise must be paid to Delco. Revenue from the franchise for 2018 was ₱5,000,000. Bartolo takes a full year amortization in the
year of purchase.
 The following research and development costs were incurred by Bartolo in 2018:
Materials and equipment ₱284,000
Personnel 378,000
Indirect costs 204,000
₱866,000
Bartolo estimates that these cost will be recouped by December 31, 2021. The materials and equipment purchased have no alternative uses.
 On January 1, 2018, because of recent events in the field, Bartolo estimates that the remaining life of the patent purchased on January 1, 2017
is only 5 years from January 1, 2018.

19. What is the total carrying value of Bartolo’s intangible assets on December 31, 2018?
A. ₱3,744,000 B. ₱4,864,000 C. ₱2,880,000 D. ₱3,681,500

20. As a result of the facts above, compute the total amount of charges against income for the year ended December 31, 2018?
A. ₱2,428,000 B. ₱1,932,000 C. ₱1,648,000 D. ₱1,116,000

Problem 5

At the beginning of year 1, the entity grants 100 shares each to 500 employees, conditional upon the employees remaining in the entity’s employ
during the vesting period. The shares will vest at the end of year 1if the entity’s income increased by more than 18% percent; at the end of year 2 if
the entity ‘s earnings increase by more than an average of 13 percent per year for over the two-year period; and at the end of year 3 if the entity’s
earnings increased by more than an average of 10 percent year over the three-year period. The shares have a fair value of ₱10 per share at the start
of year 1, which equals the share price at grant date.

By the end of year 1, the entity’s earnings have increased by 14 percent; and 20 employees have left. The entity expects that earnings will continue
to increase at a similar rate in year 2, and therefore expects that the shares will vest at the end of year 2. the entity expects, on the basis of weighted
average probability, that a further 30 employees will leave during year 2.

By the end of year 2, the entity’s earnings have increased by only 10 percent and therefore shares don not vest at the end of year 2. 42 employees
have left during the year. The entity expects that further 15 employees will leave during year 3, and that the entity’s earnings will increase by at least
6 percent, thereby achieving the average 10 percent per year.

By the end of year 3, 10 employees have left and the entity’s earnings have increased by 8 percent, resulting in an average of 10.67 percent per
year.

21. What amount of compensation expense should be recognized in year 1?

A. ₱240,000 B. ₱225,000 C. ₱150,000 D. ₱160,000

22. What amount of compensation expense should be recognized in year 2?

A. ₱57,000 B. ₱52,000 C. ₱67,000 D. ₱122,000

23. What amount of compensation expense should be recognized in year 3?

A. ₱151,000 B. ₱216,000 C. ₱156,000 D. ₱146,000

24. What amount should the entity report as share options outstanding at the end of year 2?
A. ₱282,000 B. ₱292,000 C. ₱272,000 D. ₱307,000

25. What amount should the entity report as share options outstanding at the end of year 3?
A. ₱450,000 B. ₱428,000 C. ₱490,000 D. ₱500,000
Problem 6

Presented below are unrelated situations.

HARLINGTON COMPANY buys and sells securities expecting to earn profits on short-term difference in price. During 2018, Harlington Company
purchased the following trade securities:
Fair Value
Security Cost
Dec 31, 2018
A ₱585,000 ₱675,000
B 900,000 486,000
C 1,980,000 2,034,000
Before any adjustments related to these trading securities, Harlington Company had net income of ₱2,700,000.

26. What is Harlington’s net income after making any necessary trading security adjustments?
A. ₱2,430,000 B. ₱2,286,000 C. ₱2,934,000 D. ₱2,700,000

27. What would Harlington’s net income be if the fair value of security B is ₱855,000?
A. ₱2,601,000 B. ₱2,799,000 C. ₱2,700,000 D. ₱2,655,000

LABADA CO.’s portfolio of trading securities includes the following on December 31, 2017:
Cost Fair Value
15,000 ordinary shares of Camias Co. ₱1,431,000 ₱1,251,000
30,000 ordinary shares of Ganda Co. 1,638,000 1,710,000
₱3,069,000 ₱2,961,000
All of the above securities have been purchased in 2017. In 2018, Labada Co. completed the following transactions:
Mar 1 Sold 15,000 shares of Camias Co. ordinary shares for ₱1,381,500.
Apr 1 Bought 1,800 ordinary shares of Waston Inc. at ₱135 plus commission,
taxes and other transaction costs of ₱4,950.
The Labada Co. portfolio of trading securities appeared as follows on December 31, 2018:
Cost Fair Value
30,000 ordinary shares of Ganda Co. ₱1,638,000 ₱1,740,0001
1,800 ordinary shares of Waston Co. 247,950 225,0002
₱1,885,950 ₱1,965,000
1
Net of ₱19,500 estimated transaction costs that would be incurred in the sale of the securities
2
Net of ₱4,500 estimated transaction costs that would be incurred in the sale of the securities

28. What amount of unrealized gain on these securities should be reported in the 2018 income statement?
A. ₱31,050 B. ₱79,050 C. ₱84,000 D. ₱36,000

29. What is the gain on sale of Camias Co. ordinary shares on March 1, 2018?
A. ₱144,000 B. ₱27,000 C. ₱130,500 D. ₱13,500

30. What amount should be reported as trading securities in Labada’s statement of financial position on December 31, 2018?
A. ₱1,965,000 B. ₱1,989,000 C. ₱1,885,950 D. ₱1,909,950

Problem 7

DOMROX Co. Reported the following amounts of net income for the years ended December 31, 2016, 2017 and 2018.
2016 ₱190,500
2017 225,000
2018 192,750
You are performing the audit for the year ended December 31, 2018. During your examination, you discovered the following errors:
 As a result of errors in the physical count, ending inventories were misstated as follows:
December 31, 2017 ₱21,000 understated
December 31, 2018 ₱34,500 overstated
 On December 29, 2018, DOMROX recorded a purchase, merchandise in transit which cost ₱22,500. The merchandise was shipped FOB
Destination and had not arrived by December 31. The merchandise was not included in the ending inventory.
 DOMROX recorded sales on the accrual basis but failed to record sales on account made near the end of the year as follows:
2016 ₱6,000
2017 7,500
 2018 5,250
 The company failed to record accrued office salaries as follows:
December 31, 2016 ₱15,000
December 31, 2017 21,000
 On March 1, 2017, a 10% share dividend was declared and distributed. The par value of the shares amounted to ₱15,000 and market value
was ₱19,500. The share dividend was recorded as follows:
Miscellaneous Expense 19,500
Ordinary Share Capital 15,000
Retained Earnings 4,500
 On July 1, 2017, DOMROX acquired a three-year insurance policy. The three-year premium of ₱9,000 was paid on that date, and the entire
premium was recorded as insurance expense.
 On January 1, 2018, DOMROX retired bonds with a book value of ₱180,000 fir ₱159,000. The gain was incorrectly deferred and as being
amortized over 10 years as a reduction of interest expense on other outstanding obligations.

31. What is the adjusted net income for the year ended December 31, 2016?
A. ₱169,500 B. ₱175,500 C. ₱181,500 D. ₱199,500

32. What is the adjusted net income for the year ended December 31, 2017?
A. ₱238,500 B. ₱267,000 C. ₱268,500 D. ₱280,500

33. What is he adjusted net income for the year ended December 31, 2018?
A. ₱156,600 B. ₱194,400 C. ₱196,500 D. ₱209,400

34. What adjusting entry should be made on December 31, 2018, to correct the error described in the second bullet?
A. Accounts Payable 22,500 C. Accounts Payable 22,500
Purchases 22,500 Cash 22,500
B. Purchases 22,500 D. No adjusting journal entry is necessary
Accounts Payable 22,500

35. The adjusting entry on December 31, 2017, to correct the error described in the fifth bullet should include a debit to:
A. Ordinary share capital of ₱15,000 C. Share premium of ₱4,500
B. Retained earnings of ₱24,000 D. Miscellaneous expense of ₱ 4,500

Problem 8

You have been appointed as auditor of MARULAS Co. Its bookkeeper reports the following statement of financial position amounts as of June 30,
2018.
Current Assets ₱885,900
Other Assets 1,891,800
Current Liabilities 502,260
Other Liabilities 600,000
Shareholders’ Equity 1,675,440

A review of the account balances reveals the following:

A. An analysis of current assets discloses the following:

Cash ₱178,500
Investment Securities - Trading 120,000
Account Receivable 204,900
Inventories, including advertising supplies of ₱10,500 382,500
₱885,900

B. Other assets include the following:

Property, plant and equipment: Depreciated book value (cost, ₱2,325,000) ₱1,663,500
Deposit with a supplier for merchandise ordered for August delivery 32,100
Goodwill recorded on the books to cancel losses incurred by the company in prior years 196,200
₱1,891,800
C. Current liabilities include the following:
Salaries payable ₱37,650
Taxes payable 26,610
Rent payable 23,100
Accounts payable
Total owed to the suppliers on
account ₱333,900
Less: 6 month note received from a
supplier who purchased some used
equipment on June 29, 2018 15,000 318,900
Note payable 96,000
₱502,260

D. Other liabilities include the following:

10% Mortgage note on property, plant and equipment, payable in
semiannual instalments of ₱60,000 through June 30, 2023 ₱600,000

E. Shareholders’ equity includes the following:

Preference shares, 45,000 shares issued and outstanding, ₱20 par value ₱900,000
Ordinary shares, 525,000 shares issued and outstanding, ₱1 par value 525,000
Share preimum 250,440
₱1,675,440

F. Ordinary shares were originally issued for ₱1,485,000 but the losses of the company for the past years were charged against on the share
premium.

36. Total current assets

A. ₱918,000 B. ₱922,500 C. ₱930,000 D. ₱933,000

37. Property, plant and equipment, net of accumulated depreciation

A. ₱1,662,000 B. ₱1,663,500 C. ₱1,891,800 D. ₱2,325,000

38. Total current liabilities

A. ₱517,260 B. ₱549,900 C. ₱637,260 D. ₱642,660

39. Total shareholders’ equity

A. ₱1,317,000 B. ₱1,479,240 C. ₱1,485,000 D. ₱2,385,000

40. Total liabilities and shareholders’ equity

A. ₱1,117,260 B. ₱1,479,240 C. ₱2,595,000 D. ₱2,596,500

Problem 9

The general ledger trial balance of PENTAGON COMPANY includes the following balance sheet accounts at December 31, 2018:
Cash ₱1,584,000
Accounts receivable 1,830,000
Inventory 661,500
Listed investment held for trading purposes at fair value 300,000
Prepaid insurance 75,000
Additional information:

Cash
 The sales book was left open up to January 5, 2019, and cash sales totalling ₱225,000 were considered as sales in December.
 Checks of ₱139,500 in payment of liabilities were prepared before December 31, 2018, recorded in the books, but not mailed or delivered to
payees.
 Post-dated checks totalling ₱117,000 are being held by the cashier as part of cash. The company’s experience shows that post-dated checks
are eventually realized.
 Customer’s check for ₱22,500 deposited with but returned by the bank, ‘NSF’ on December 27,2018. The return was recorded in the
company’s books.
 The cash accounts includes ₱600,000 of compensating balance against a short-term bank loan. The compensating balance is legally restricted
as to withdrawal.
Accounts receivable
The accounts receivable consist of the following:
Trade accounts receivable ₱975,000
Allowance for uncollectible accounts (30,000)
Claim against shipper for goods lost in transit 495,000
Selling price of unsold goods sent by PENTAGON on consignment at 390,000
130% of cost (included in PENTAGON’s ending inventory at cost)
TOTAL ₱1,830,000

Inventory
A physical count of inventory at December 31, 2018, revealed that PENTAGON had inventory on hand at that date with a cost of ₱661,500. The
annual audit disclosed that the following items were excluded from this amount and the related transactions were not recorded.
 Merchandise of ₱91,500 is held by PENTAGON on consignment. The consignor is Falcon Company.
 Merchandise costing ₱57,000 was shipped by PENTAGON, FOB Destination, to a customer on December 31,2018. The customer was
expected to receive the goods on January 6, 2019.
 Merchandise costing ₱69,000 was shipped by PENTAGON, FOB Shipping point, to a customer on December 29, 2018. The customer was
scheduled to receive the goods on January 2, 2019.
 Merchandise costing ₱124,500 shipped by a vendor, FOB Destination, on December 31, 2018, was received by PENTAGON on January 4,
2019.
 Merchandise costing ₱76,500 purchased under FOB Shipping point term was shipped by the supplier on December 31, 2017 and received by
PENTAGON on January 5, 2019.

Based on the above and the result of your audit, determine the adjusted amounts of the following:

41. Cash
A. ₱876,000 B. ₱759,000 C. ₱1,381,500 D. ₱781,500

42. Net accounts receivable

A. ₱1,151,700 B. ₱945,000 C. ₱1,174,200 D. ₱1,131,000

43. Trade and other receivables, net

A. ₱990,000 B. ₱1,219,200 C. ₱1,646,700 D. ₱1,176,000

44. Inventory
A. ₱510,000 B. ₱1,095,000 C. ₱676,500 D. ₱795,000

45. Current assets

A. ₱3,598,200 B. ₱3,703,200 C. ₱4,123,200 D. ₱4,198,200

Problem 10

You are a senior accountant responsible for the annual audit of JERSAMTAN Co. for the year ended December 31, 2018. The information available
to you is presented below. You may assume that any pertinent information not presented below has already been checked and found satisfactory.

Excerpt from trial balance, December 31, 2018:

Debit Credit
Retained Earnings ₱93,000
Allowance for Decline in Value of Inventory 36,500
Share Capital (5,000 shares) 500,000
The books have not been closed, but all adjusting entries which the company expects to make have been posted. The trial balance shows a ₱60,000
net income for the year.

Ledger details of Retained Earnings:

Retained Earnings
08/16/18 CD ₱2,000 12/31/17 Balance ₱134,500
10/10/18 J 10,000 04/29/18 CR 500
12/31/18 J 30,000
Note: The balance at 12/31/17 agrees with last year’s working papers.

Analysis of selected cash receipts:

Date Account Credited Amount Explanation
04/29/18 Share capital ₱10,000 Sold ₱100 par stock at 105.
 Retained earnings 500
10/10/18 Building 530,000 See corollary entry dated 10/10/18

Analysis of selected cash disbursements:

Date Account Debited Amount Explanation
08/06/18 Retained earnings ₱2,000 Freak accident to company truck
not covered by insurance; repairs
by DJ repairs.

Selected entries in the general journal:

Date Entry and Explanation Debit Credit
10/10/18 Accumulated Depreciation 370,000
Retained Earnings 10,000
Building 380,000
Sale of the main building

12/31/18 Retained Earnings 30,000

Allowance for Decline in Value of Inventory 30,000
Provision to value merchandise inventory at
lower of cost and net realizable value

Based on the preceding information, determine the following:

46. Loss on sale of building

A. ₱10,000 B. ₱0 C. ₱220,000 D. ₱150,000

47. The loss on decline in value of inventories should be charged to

A. Retained earnings C. Share premium
B. Loss on decline in value of inventories D. Share capital

48. Share capital balance at December 31, 2018

A. ₱595,000 B. ₱610,000 C. ₱500,000 D. ₱605,000

49. Share premium balance at December 31, 2018

A. ₱9,500 B. ₱20,000 C. ₱50,000 D. ₱18,000

50. Net income for 2018

A. ₱22,000 B. ₱20,000 C. ₱50,000 D. ₱18,000
SOLUTIONS

PROBLEM 1 - GUADALUPE INC.