AUDITING PROBLEMS
FIRST SET OF PROBLEMS
PROBLEM NO. 1
The following are selected unadjusted account balances and adjusting information of
year ended December 31, 2015.
TANYING CORP. for the
Retained earnings, January 1, 2015
Sales salaries and commissions
Advertising expense
Legal services
Insurance and licenses
Travel expense – sales representatives
Depreciation expense – sales/delivery equipment
Depreciation expense – office equipment
Interest revenue
Utilities
Telephone and postage
Office supplies inventory
Miscellaneous selling expenses
Dividends
Dividend revenue
Interest expense
Allowance for doubtful accounts (credit balance)
Officers’ salaries
Sales
Sales returns and allowances
Sales discounts
Gain on sale of assets
Inventory, January 1, 2015
Inventory, December 31, 2015
Purchases
Freight in
Accounts receivable, December 31, 2015
Income from discontinued operations (before income taxes)
Loss on sale of equipment
Ordinary shares outstanding
P 1,322,010
75,000
48,270
6,675
23,040
13,680
18,300
12,600
1,650
19,200
4,425
6,540
8,220
99,000
15,450
13,560
480
109,800
1,353,000
11,700
2,640
23,460
269,100
61,650
424,800
16,575
783,000
120,000
217,800
117,000
Adjusting information:
(a)
Cost of inventory in the possession of consignees as of December 31, 2015,
was not included in the ending inventory balance....................................................................................P55,800
(b)
After preparing an analysis of aged accounts receivable, a decision was made
to increase the allowance for doubtful accounts to a percentage of the ending
accounts receivable balance.............................................................................................................................2%
(c)
Purchase returns and allowances were unrecorded. They are computed as a
percentage of purchases (not including freight in)...........................................................................................6%
(d)
Sales commissions for the last day of the year had not been accrued. Total
sales for the day..........................................................................................................................................P9,180
Average sales commissions as a percent of sales.............................................................................................3%
(e)
No accrual had been made for a freight bill received on January 2, 2016, for
goods received on December 29, 2015.......................................................................................................P1,710
(f)
An advertising campaign was initiated November 2, 2015. This amount was
recorded as “Prepaid advertising” and should be amortized over a six-month
period. No amortization was recorded.......................................................................................................P5,454
Freight charges paid on sold merchandise were netted against sales. Freight
charges on sales during 2015...................................................................................................................P10,500
(g)
Interest earned but not accrued..................................................................................................................P1,680
(h)
Depreciation expense on a new forklift purchased March 1, 2015, had not
been recognized. (Assume all equipment will have no salvage value and the
straight-line method is used. Depreciation is calculated to the nearest month.)
Purchase price...........................................................................................................................................P23,400
Estimated life in years........................................................................................................................................10
(i)
A “real” account is debited upon the receipt of office supplies. Office supplies on hand at
year-end.......................................................................................................................................................P3,675
(j)
Income tax rate (on all items).........................................................................................................................30%
Compute the adjusted balances of the following:
1.
Net sales
A. P1,363,500
2.
Cost of goods available for sale
B.
P1,349,160
C.
Page 1 of 17 Pages
P1,353,000
D.
P1,342,500
AUDITING PROBLEMS
A.
P684,900
B.
P824,697
C.
P686,697
D.
P779,913
3.
Inventory, December 31, 2015
A. P61,500
B.
P61,350
C.
P56,250
D.
P117,450
4.
Distribution costs
A. P181,649
B.
P167,513
C.
P178,013
D.
P176,453
5.
Administrative expenses
A. P207,345
B.
P193,785
C.
P194,265
D.
P194,595
6.
Allowance for doubtful accounts
A. P15,660
B. P16,140
C.
P15,180
D.
P480
7.
Total income
A. P817,143
C.
P779,913
D.
P822,153
8.
Income from continuing operations before taxes
A. P231,360
B. P436,795
C.
P218,995
D.
P239,695
9.
Office supplies inventory
A. P6,540
B.
P3,675
C.
P2,865
D.
P0
Net income
A. P237,296
B.
P210,299
C.
P250,289
D.
P216,296
10.
B.
P811,653
-----------------------------oooOOOooo----------------------------PROBLEM NO. 2
The following accounts were included in the unadjusted trial balance of BUNCHING COMPANY as of December 31,
2015:
Cash......................................................................................................................P 963,200
Accounts receivable...............................................................................................2,254,000
Inventory................................................................................................................6,050,000
Accounts payable...................................................................................................4,201,000
Accrued expenses.....................................................................................................431,000
During your audit, you noted that Bunching Company held its cash books open after year-end. In addition, your
audit revealed the following:
1.
Receipts for January 2016 of P654,600 were recorded in the December 2015 cash receipts book. The receipts
of P360,100 represent cash sales and P294,500 represent collections from customers, net of 5% cash
discounts.
2.
Accounts payable of P372,400 was paid in January 2016. The payments, on which discounts of P12,400 were
taken, were included in the December 2015 check register.
3.
Merchandise inventory is valued at P6,050,000 prior to any adjustments. The following information has been
found relating to certain inventory transactions:
a.
The invoice for goods costing P175,000 was received and recorded as a purchase on December 31, 2015.
The related goods, shipped FOB destination, were received on January 4, 2016, and thus were not included
in the physical inventory.
b.
A P182,000 shipment of goods to a customer on December 30, 2015, terms FOB destination, are not
included in the year-end inventory. The goods cost P130,000 and were delivered to the customer on
January 3, 2016. The sale was properly recorded in 2016.
c.
Goods costing P637,500 were shipped on December 31, 2015, and were delivered to the customer on
January 3, 2016. The terms of the invoice were FOB shipping point. The goods were included in the 2015
ending inventory even though the sale was recorded in 2015.
d.
Goods costing P217,500 were received from a vendor on January 4, 2016. The related invoice was
received and recorded on January 6, 2016. The goods were shipped on December 31, 2015, terms FOB
shipping point.
e.
Goods valued at P275,000 are on consignment with a customer.
inventory figure.
These goods are not included in the
f.
Goods valued at P612,800 are on consignment from a vendor.
physical inventory.
These goods are not included in the
Based on the above and the result of your audit, determine the adjusted balances of the following as of December
31, 2015:
11.
Cash
A. P963,200
B.
P681,000
C.
P668,600
D.
P693,400
12.
Accounts receivable
A. P2,908,600
B.
P2,564,000
C.
P2,254,000
D.
P2,548,500
13.
Inventory
A. P6,035,000
B.
P6,080,000
C.
P5,860,000
D.
P5,010,000
14.
Accounts payable
Page 2 of 17 Pages
AUDITING PROBLEMS
A.
15.
P4,790,900
Current ratio
A. 2.00
B.
P4,615,900
C.
P4,573,000
D.
P4,603,500
B.
1.83
C.
1.84
D.
2.01
-----------------------------oooOOOooo----------------------------PROBLEM NO. 3
The following are independent situations:
The Machinery account of PAKO COMPANY contains the following entries during the year:
Date
2015
Jan.
1
June
30
Sept.
30
Oct.
Dec.
31
1
Dec.
31
Item
Debit
Balance
Purchased four new machines
Installation cost of new machines
Proceeds from sale of old machine, cost
P150,000; accumulated depreciation, P105,000
Repairs of machinery
Cash paid for trade-in of old machines—cost,
P90,000; accumulated depreciation, P36,000.
Cash price of new machine, P270,000
Balance
Total
Credit
P1,800,000
1,080,000
48,000
P 66,000
75,000
225,000
3,162,000
P3,228,000
P3,228,000
16.
What is the correct balance of the Machinery account on December 31, 2015?
A. P3,162,000
B. P3,057,000
C. P3,048,000
17.
Assuming depreciation is recorded on a monthly basis at 10% a year, how much was the depreciation charge
for 2015?
A. P234,150
B. P300,000
C. P316,200
D. P227,400
D.
P2,958,000
On June 30, 2015, the GENLUNA COPPER MINES, INC. purchased a copper mine for P14,580,000. The estimated
capacity of the mine was 1,620,000 tons. Genluna Copper Mines expects to extract 15,000 tons of ore a month
with an estimated selling price of P50 per ton. Production started immediately after some new machines costing
P1,800,000 were bought on June 30, 2015. These new machines had an estimated useful life of 15 years with a
scrap value of 10% of cost after the ore estimate has been extracted from the property, at which time the machines
will already be useless. Genluna’s books show the following expenses for 2015:
Depletion expense...................................................................P1,215,000
Depreciation—Machinery.............................................................120,000
18.
Recorded depletion expense was
A. Overstated by P270,000.
B. Understated by P270,000.
C. Overstated by P405,000
D. Understated by P405,000.
19.
Recorded depreciation expense was
A. Understated by P60,000.
B. Overstated by P60,000.
C. Understated by P30,000.
D. Overstated by P30,000.
BULKAN COMPANY purchased a machine for P300,000 on January 1, 2012, with the following additional items paid
or incurred:
Separation pay for laborer laid off upon acquisition of new machine.....................................................P3,600
Loss on sale of machine replaced..............................................................................................................3,900
Transportation in........................................................................................................................................3,000
Installation cost........................................................................................................................................12,000
The new machine is estimated to have a useful life of 10 years and a residual value of P12,000.
On January 1, 2015, new parts which cost P37,800 were added to the machine so as to reduce its fuel consumption,
but with no change in its estimated life or residual value.
20.
The annual depreciation charge on the machine for 2015 was
A. P34,080
B. P35,494
C. P36,450
D.
P35,700
-----------------------------oooOOOooo----------------------------PROBLEM NO. 4
Presented below are unrelated situations.
1.
HARLINGTON COMPANY buys and sells securities expecting to earn profits on short-term differences in price.
During 2016, Harlington Company purchased the following trading securities:
Fair Value
Security
Cost
Dec. 31, 2016
A
P 585,000
P 675,000
B
900,000
486,000
C
1,980,000
2,034,000
Page 3 of 17 Pages
AUDITING PROBLEMS
Before any adjustments related to these trading securities, Harlington Company had net income of P2,700,000.
21.
What is Harlington’s net income after making any necessary trading security adjustments?
A. P2,430,000
B. P2,286,000
C. P2,934,000
D. P2,700,000
22.
What would Harlington’s net income be if the fair value of security B were P855,000?
A. P2,601,000
B. P2,799,000
C. P2,700,000
D.
2.
P2,655,000
LABADA CO.’s portfolio of trading securities includes the following on December 31, 2015:
Cost
15,000 ordinary shares of Camias Co.
30,000 ordinary shares of Ganda Co.
All of the above securities have been purchased in 2015.
securities transactions:
Fair Value
P1,251,000
1,710,000
P2,961,000
P1,431,000
1,638,000
P3,069,000
In 2016, Labada Co. completed the following
Mar. 1
Sold 15,000 shares of Camias Co. ordinary shares at P93, less brokerage commission of P13,500.
April 1
Bought 1,800 ordinary shares of Waston, Inc. at P135 plus commission, taxes, and other transaction
costs of P4,950.
The Labada Co. portfolio of trading securities appeared as follows on December 31, 2016:
Cost
30,000 ordinary shares of Ganda Co.
P1,638,000
1,800 ordinary shares of Waston, Inc.
247,950
P1,885,950
1
2
Fair Value
P1,740,000 1
225,000 2
P1,965,000
Net of P19,500 estimated transaction costs that would be incurred on the sale of the securities.
Net of P4,500 estimated transaction costs that would be incurred on the sale of the securities.
23.
What amount of unrealized gain on these securities should be reported in the 2016 income statement?
A. P31,050
B. P79,050
C. P84,000
D. P36,000
24.
What is the gain on the sale of Camias Co. ordinary shares on March 1, 2016?
A. P144,000
B. P27,000
C. P130,500
25.
What amount should be reported as trading securities in Labada’s statement of financial position on
December 31, 2016?
A. P1,965,000
B. P1,989,000
C. P1,885,950
D. P1,909,950
D.
P13,500
-----------------------------oooOOOooo----------------------------PROBLEM NO. 5
On January 1, 2014, SAMSON MFG. CO. began construction of a building to be used as its office headquarters. The
building was completed on June 30, 2015.
Expenditures on the project were as follows:
January 3, 2014
March 31, 2014
June 30, 2014
October 31, 2014
January 31, 2015
March 31, 2015
May 31, 2015
P2,500,000
3,000,000
4,000,000
3,000,000
1,500,000
2,500,000
3,000,000
On January 3, 2014, the company obtained a P5 million construction loan with a 10% interest rate. The loan was
outstanding all of 2014 and 2015. The company’s other interest-bearing debts included a long-term note of P25
million with an 8% interest rate, and a mortgage of P15 million on another building with an interest rate of 6%.
Both debts were outstanding during all of 2014 and 2015. The company’s fiscal year-end is December 31.
26.
What is the amount of capitalizable interest in 2014?
A. P3,400,000
B. P1,043,750
C.
P663,125
D.
P500,000
27.
What is the amount of capitalizable interest in 2015?
A. P630,625
B. P654,663
C.
P361,707
D.
P799,663
28.
What amount of interest should be expensed in 2014?
A. P2,736,875
B. P2,356,250
C.
P2,900,000
D.
P0
29.
What amount of interest should be expensed in 2015?
A. P2,769,375
B. P3,038,293
C.
P2,600,337
D.
P2,745,337
30.
What is the total cost of the building (including the interest capitalized in 2014 and 2015)?
A. P24,600,000
B. P20,817,788
C. P20,905,457
D. P20,630,625
-----------------------------oooOOOooo-----------------------------
PROBLEM NO. 6
Page 4 of 17 Pages
AUDITING PROBLEMS
At the beginning of year 1, an entity grants to a senior executive 30,000 share options. The grant is conditional
upon the executive remaining in the entity’s employ until the end of year 3.
The share options can be exercised if the entity’s share price increases from P20 at the beginning of year 1 to
above P30 at the end of year 3. If the share price is above P30 at the end of year 3, the share options can be
exercised at any time during the next five years, i.e., by the end of year 8.
The entity estimates the fair value of the share options on grant date to be P5 per option. This estimate takes into
account the following market condition:
The possibility that the share price will exceed P30 at the end of year 3, i.e., the share options become
exercisable; and
The possibility that the share price will not exceed P30 at the end of year 3, i.e., the share options will be
forfeited.
The following actual events occurred in years 1 to 3:
Year 1
The share price has increased to P24.
The entity’s estimate of the fair value of the options is P4 at the end of year 1. This takes into account whether
the market condition will be satisfied by the end of year 3.
Year 2
The share price has decreased to P22. However, the entity remains optimistic that the share price target will
be met by the end of year 3.
The estimated fair value of the share options is P3. Again, this estimate takes into account the market
condition noted above.
Year 3
The share price only reaches P28 by the end of year 3.
The estimated fair value of the share options is zero, as the market condition has not been satisfied.
Based on the preceding information, determine the following:
31.
Compensation expense for year 1
A. P30,000
B. P40,000
C.
P50,000
D.
P60,000
32.
Compensation expense for year 2
A. P30,000
B. P40,000
C.
P50,000
D.
P60,000
33.
Compensation expense for year 3
A. P 0
B. P30,000
C.
P40,000
D.
P50,000
34.
Share options outstanding at the end of year 2
A. P70,000
B. P80,000
C.
P90,000
D.
P100,000
35.
Cumulative compensation expense for the three-year period
A. P 0
B. P70,000
C.
P100,000
D.
P150,000
-----------------------------oooOOOooo----------------------------PROBLEM NO. 7
The following independent situations relate to the audit of shareholders’ equity. Answer the questions at the end of
each situation.
BRANDY CO. was organized at the beginning of the current year. The following shareholders’ equity accounts are
included in the entity’s year-end trial balance.
Preference share capital, P100 par, authorized 100,000 shares,
issued and outstanding, 66,000 shares
Preference share capital subscribed, 6,000 shares
Share premium – preference
Subscriptions receivable – preference
Ordinary share capital, P10 par value, authorized 200,000 shares,
issued and outstanding, 72,000 shares
Ordinary share capital subscribed, 72,000 shares
Share premium – ordinary
Subscriptions receivable – ordinary
P6,600,000
600,000
240,000
360,000
720,000
720,000
2,850,000
1,080,000
The following current year transactions relate to Brandy Co.’s shareholders’ equity:

Immediately after Brandy Co. was organized, it received subscriptions to 60,000 preference shares.
Subscriptions to ordinary shares were also received on the same date.

During the year, subscriptions were received for an additional 12,000 preference shares at a price of P120 per
share.

Cash payments were received from subscribers at frequent intervals for several months after subscription. The
company’s policy is to issue share certificates only upon full payment of the share subscription.

Also during the current year, Brandy Co. issued 24,000 ordinary shares in exchange for a tract of land with a
fair value of P690,000.
Page 5 of 17 Pages
AUDITING PROBLEMS
36.
What is the total subscription price of the ordinary shares originally subscribed?
A. P4,290,000
B. P3,840,000
C. P3,600,000
D.
P4,050,000
37.
How much was collected from the subscribers of preference shares?
A. P1,440,000
B. P5,640,000
C. P7,440,000
D.
P7,080,000
38.
The company’s statement of financial position at the end of the current year should report contributed
capital of
Preference
Ordinary
A.
P7,440,000
P4,290,000
B.
7,080,000
3,210,000
C.
6,480,000
2,490,000
D.
6,840,000
360,000
The following shareholders’ equity accounts are included in the statement of financial position of CONDESSA CO. on
December 31, 2014.
Preference share capital, 8%, P100 par (200,000 shares authorized,
60,000 shares issued and outstanding)
Ordinary share capital, P5 par (2,000,000 shares authorized,
600,000 shares issued and outstanding)
Share premium
Retained earnings
Total
P6,000,000
3,000,000
3,750,000
3,500,000
P16,250,000
During 2015, Condessa took part in the following transactions concerning equity.
1.
Paid the annual 2014 P8 per share dividend on preference shares and a P2 per share dividend on ordinary
shares. These dividends had been declared on December 31, 2014.
2.
Purchased 81,000 shares of its own outstanding ordinary shares for P40 per share.
3.
Reissued 21,000 treasury shares for land valued at P900,000.
4.
Issued 15,000 preference shares at P105 per share.
5.
Declared a 10% stock dividend on the outstanding ordinary shares when the shares are selling for P45 per
share.
Issued the stock dividend.
6.
7.
Declared the annual 2015 P8 per share dividend on preference shares and the P2 per share dividend on
ordinary shares. These dividends are payable in 2016.
8.
Reported net income of P9,900,000 for the current year.
39.
What is the retained earnings balance (before appropriation for treasury shares) on December 31, 2015?
A. P9,182,000
B. P718,000
C. P6,782,000
D. P11,000,000
40.
What amount should be reported as total shareholders’ equity on December 31, 2015?
A. P25,997,000
B. P23,597,000
C. P21,197,000
D.
P14,415,000
-----------------------------oooOOOooo----------------------------PROBLEM NO. 8
The following independent situations relate to the audit of intangible assets. Answer the 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 a royalty basis. The history
of Patent No. 112170 is as follows:
Date
2005-2006
Jan. 2007
Mar. 2007
Jan. 2008
Nov. 2009
April 2011
May 2015
Activity
Research conducted to develop device
Design and construction of a prototype
Testing of models
Legal and other fees to process patent application; patent granted
June 2008
Engineering activity necessary to advance the design of the device
to the manufacturing stage
Research aimed at modifying the design of the patented device
Legal fees paid in a successful patent infringement suit against a
competitor
Cost
P1,259,100
262,800
126,000
186,150
244,500
129,000
102,000
Caboom assumed a useful life of 17 years when it received the initial device patent. On January 1, 2013, 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, 2015.
Compute the carrying value of Patent No. 112170 on each of the following dates:
Page 6 of 17 Pages
AUDITING PROBLEMS
41.
December 31, 2008
A. P180,675
B.
P186,150
C.
P293,788
D.
P175,200
42.
December 31, 2012
A. P223,200
B.
P52,560
C.
P131,400
D.
P122,640
43.
December 31, 2015
A. P120,560
B.
P78,840
C.
P52,560
D.
P98,550
BARTOLO COMPANY has provided information on intangible assets as follows:

A patent was purchased from Valenzuela Company for P4,000,000 on January 1, 2014. 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 P4,000,000 when Valenzuela sold it to Bartolo.

During 2015, a franchise was purchased from Delco Company for P960,000. 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
2015 was P5,000,000. Bartolo takes a full year amortization in the year of purchase.

The following research and development costs were incurred by Bartolo in 2015:
Materials and equipment
P284,000
Personnel
378,000
Indirect costs
204,000
P866,000
Bartolo estimates that these costs will be recouped by December 31, 2018. The materials and equipment
purchased have no alternative uses.
On January 1, 2015, because of recent events in the field, Bartolo estimates that the remaining life of the
patent purchased on January 1, 2014 is only 5 years from January 1, 2015.

44.
What is the total carrying value of Bartolo’s intangible assets on December 31, 2015?
A. P3,744,000
B. P4,864,000
C. P2,880,000
D.
45.
As a result of the facts above, compute the total amount of charges against income for the year ended
December 31, 2015?
A. P2,428,000
B. P1,932,000
C. P1,648,000
D. P1,116,000
P3,681,500
-----------------------------oooOOOooo----------------------------PROBLEM NO. 9
The following are two (2) unrelated situations. Answer the questions at the end of each situation.
1.
The December 31 year-end financial statements of SAMOA COMPANY contained the following errors:
Dec. 31, 2014
Dec. 31, 2015
Ending inventory
Depreciation expense
P48,000 understated
P11,500 understated
P40,500 overstated
-------
An insurance premium of P330,000 was prepaid in 2014 covering the years 2014, 2015, and 2016. The entire
amount was charged to expense in 2014. In addition, on December 31, 2015, a fully depreciated machinery was
sold for P75,000 cash, but the sale was not recorded until 2016. There were no other errors during 2014 and 2015,
and no corrections have been made for any of the errors. Ignore income tax effects.
46.
What is the total effect of the errors on Samoa’s 2015 net income?
A. P123,500 overstatement
B. P27,500 overstatement
C. P192,500 understatement
D. P177,500 understatement
47.
What is the total effect of the errors on the amount of Samoa’s working capital at December 31, 2015?
A. P75,500 overstatement
B. P40,500 overstatement
C. P225,500 understatement
D. P144,500 understatement
What is the total effect of the errors on the balance of Samoa’s retained earnings at December 31, 2015?
A. P156,000 understatement
B. P87,000 overstatement
C. P133,000 understatement
D. P85,000 understatement
48.
2. CHILE CO. reported pretax incomes of P505,000 and P387,000 for the years ended December 31, 2014 and
2015, respectively. However, the auditor noted that the following errors had been made:
a.
Sales for 2014 included amounts of P191,000 which had been received in cash during 2014, but for which the
related goods were shipped in 2015. Title did not pass to the buyer until 2015.
b.
The inventory on December 31, 2014, was understated by P43,200.
c.
The company’s accountant, in recording interest expense for both 2014 and 2015 on bonds payable, made the
following entry on an annual basis:
Interest expense
75,000
Page 7 of 17 Pages
AUDITING PROBLEMS
Cash
75,000
The bonds have a face value of P1,250,000 and pay a nominal interest rate of 6%. They were issued at a
discount of P75,000 on January 1, 2014, to yield an effective interest rate of 7%.
d.
Ordinary repairs to equipment had been erroneously charged to the Equipment account during 2014 and 2015.
Repairs of P42,500 and P47,000 had been incurred in 2014 and 2015, respectively. In determining depreciation
charges, Chile applies a rate of 10% to the balance in the Equipment account at the end of the year.
49.
What is the corrected pretax income for 2014?
A. P303,200
B. P225,300
C.
P311,700
D.
P307,450
50.
What is the corrected pretax income for 2015?
A. P480,042
B. P484,292
C.
P575,392
D.
P488,992
-----------------------------oooOOOooo----------------------------PROBLEM NO. 10
The following are two (2) unrelated situations. Answer the questions at the end of each situation.
OMEGA COMPANY sells its products in expensive, reusable containers. The customer is charged a deposit for each
container delivered and receives a refund for each container returned within two years after the year of delivery.
Omega accounts for the containers not returned within the time limit as being sold at the deposit amount.
Information for 2015 is as follows:
Containers held by customers at
December 31, 2014,
from deliveries in:
2013
2014
85,000
240,000
Containers delivered in 2015
Containers returned in 2015
from deliveries in:
325,000
430,000
2013
2014
2015
57,500
140,000
157,000
354,500
51.
How much revenue from container sales should be recognized for 2015?
A. P127,500
B. P267,500
C. P27,500
52.
What is the total amount of Omega Company’s liability for returnable containers at December 31, 2015?
A. P373,000
B. P400,500
C. P267,500
D. P430,000
D.
P85,000
DP, INC., a dealer of household appliances, sells washing machines at an average price of P8,100. The company
also offers to each customer a separate 3-year warranty contract for P810 that requires the company to provide
periodic maintenance services and to replace defective parts. During 2015, DP sold 300 washing machines and 270
warranty contracts for cash. The company estimates that the warranty costs are P180 for parts and P360 for labor.
Assume sales occurred on December 31, 2015. DP’s policy is to recognize income from the warranties on a
straight-line basis. In 2016, DP incurred actual costs relative to 2015 warranty sales of P18,000 for parts and
P36,000 for labor.
53.
What liability relative to these transactions would appear on the December 31, 2015, statement of financial
position and how would it be classified?
Current
Noncurrent
A.
P145,800
P72,900
B.
P72,900
P72,900
C.
P72,900
P145,800
D.
P0
P218,700
54.
What amount of warranty expense would be shown on the income statement for the year ended December
31, 2015?
A. P18,000
B. P 0
C. P 36,000
D. P54,000
55.
What liability relative to the 2015 warranties would appear on the December 31, 2016, statement of financial
position and how would it be classified?
Current
Noncurrent
A.
P145,800
P72,900
B.
P72,900
P72,900
C.
P72,900
P145,800
D.
P145,800
P0
-----------------------------oooOOOooo-----------------------------
PROBLEM NO. 11
The TGR Company commenced operations on January 1, 2011. The company’s machinery account is shown below.
Date
Jan. 1, 2011
Sept. 30, 2011
Oct. 3, 2011
Purchase
Particulars
Purchase on installment
Payments from Sept. to Dec.
Freight and installation
Page 8 of 17 Pages
Debit
P157,200
120,000
132,000
72,000
6,000
Credit
Balance
P409,200
481,200
487,200
AUDITING PROBLEMS
Dec. 31, 2011
2012
June 30,
Dec. 31,
June 30,
Dec. 31,
Jan. 1,
Dec. 31,
Oct. 1,
Dec. 31,
2012
2012
2013
2013
2014
2014
2015
2015
Depreciation
Installment payments for acquisition
on Sept. 30, 2011
Purchase
Depreciation
Acquisition – trade in of old machine
Depreciation
Sale
Depreciation
Sale
Depreciation
P97,440
144,000
240,000
154,752
150,000
153,802
71,250
108,791
24,000
82,233
389,760
533,760
773,760
619,008
769,008
615,206
543,956
435,165
411,165
328,932
The details of the transactions are as follows:
a)
On September 30, 2011, a machine was purchased on an installment basis. The list price was P180,000, but
12 payments of P18,000 each were made by the company. Only the monthly payments were recorded in the
machinery account starting with September 30, 2011. Freight and installation charges of P6,000 were paid and
charged to the machinery account on October 3, 2011.
b)
On June 30, 2012, a machine was purchased for P240,000, 2/10, n/30, and recorded at P240,000 when paid for
on July 5, 2012.
c)
On June 30, 2013, the machine acquired for P157,200 was traded for a larger one having a list price of
P279,000. Allowance of P129,000 was received on the old machine, the balance of the list price being paid in
cash and charged to the machinery account.
d)
On January 1, 2014, the machine acquired on January 1, 2011 with cost of P132,000 was sold for P75,000. The
cost of removal and crating totaled P3,750.
e)
On October 1, 2015, the machine purchased on January 1, 2011 was sold for P24,000 cash.
Assume a 5-year useful life for TGR Company’s machinery.
56.
What is the total amount of gain on the sale/trade-in of the machinery acquired on January 1, 2011?
A. P50,400
B. P40,200
C. P36,450
D. P86,850
57.
What is the adjusted balance of the Machinery account on December 31, 2015?
A. P694,200
B. P705,000
C. P700,200
58.
What is the adjusted balance of the Accumulated depreciation account on December 31, 2015?
A. P465,600
B. P457,140
C. P462,240
D. P397,740
59.
What is the correct total depreciation provision for the years 2011-2015?
A. P737,400
B. P734,040
C. P728,940
60.
The entry to correct the depreciation provision for the years 2011-2015 should include a debit (credit) to
Depreciation Expense
Retained Earnings
A.
P75,807
P61,215
B.
(P18,492)
P79,707
C.
P18,492
(P79,707)
D.
P75,807
P55,249
D.
D.
P703,950
P669,540
-----------------------------oooOOOooo-----------------------------
SECOND SET OF PROBLEMS
PROBLEM NO. 1
You have been assigned to audit the financial statements of AYALA MERCHANTS CORPORATION for the year 2015.
The company is a dealer of appliances and has several branches in Metro Manila. Its main office is located in
Makati City. You were given by the company controller the unadjusted balances of the items to be included in the
company’s statement of financial position and statement of income as of and for the year ended December 31,
2015. Audit findings are as follows:
I. AUDIT OF CASH
A cash count was conducted by your staff on January 7, 2016. The petty cash fund of P60,000 maintained by
the company on an imprest basis relected a balance of P22,750. Unreplenished expenses totaled P37,250 of
which P9,510 pertains to January 2016.
You were furnished a copy of the company’s bank reconciliation statement with Chartered Bank as follows:
Balance per bank
Add:
P277,994
Deposit in transit
Bank debit memos
Returned check
248,836
712,750
63,000
Page 9 of 17 Pages
AUDITING PROBLEMS
Less:
Outstanding checks
Book error
Balance per books
(174,580)
(72,000)
P1,056,000
Your review of the reconciliation statement disclosed the following:
1.
Postdated checks totaling P107,400 were included as part of the deposit in transit. These represent
collections from various customers whose accounts have been outstanding for less than three months.
These checks were actually deposited on January 8, 2016.
2.
Included in the deposit in transit is a check from a customer for P63,000 which was returned by the bank on
December 27, 2015 for insufficiency of funds. This account has been outstanding for over six months. The
check was replaced by the customer on January 15, 2016.
3.
The bank debited the account of Ayala Merchants for P710,000 as payment of notes payable including
interest of P10,000 due on December 26, 2015. This was not recorded as of year-end.
4.
A check was cleared by the bank as P30,900 but was recorded by the bookkeeper as P102,900. This was in
payment of accounts payable.
5.
Bank service charges totaling P2,750 were not recorded.
II. AUDIT OF ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
It is the company’s policy to provide allowance for doubtful accounts as follows:
Less than 3 months
3 to 6 months
Over 6 months
Total
P2,500,960
843,200
274,500
P3,618,660
1%
5%
10%
An analysis of the accounts receivable schedule showed that several long outstanding accounts for more than a
year totaling P152,460 should be written-off.
III. AUDIT OF MARKETABLE SECURITIES – TRADING
The company’s equity portfolio as of year-end showed the following:
Bacnotan Cement
Fil-Estate
Ionics
La Tondena
Selecta
Union Bank
Total
Shares
7,000
10,000
2,400
2,000
8,000
1,600
Market Value
Cost
P108,500
195,000
49,200
67,000
31,600
50,880
P502,180
per Share
P16.00
19.75
24.00
26.00
1.20
27.50
The securities are listed in the stock exchange. The company follows the fair value accounting.
IV. AUDIT OF NOTES RECEIVABLE
The note receivable amounting to P1,300,000 represents a loan granted to a subsidiary. This is covered by a
promissory note with interest at 15% per annum dated November 1, 2015. No interest has been accrued on the
note as of December 31, 2015.
V. AUDIT OF PREPAYMENTS
Prepaid expenses account consists of the following:
Prepaid
Prepaid
Prepaid
Unused
advertising
insurance
rent
office supplies
P 640,000
490,000
420,000
361,000
P1,911,000
Ayala Merchants renewed its contract with an advertising agency for the annual promotion as well as the
regular advertisement of its products. It paid a total of P640,000, P100,000 of which is for the Christmas
promotion while the balance is for the regular promotion and which will run for one year starting on August 1,
2015. Payment was made on July 20, 2015, and the total amount was reflected as prepaid advertising.
The company leases the main office and store in Makati City at a monthly rental of P140,000. On November 5,
2015, a check for P420,000 was issued in payment of three-month rental as per renewal contract which was
effective on November 1, 2015. Rental deposit remained at three months and is included under other assets.
The company’s delivery equipment is insured with Fortune Insurance Corporation for a total coverage of P2.4
million. Total payment made on November 16, 2015 for the renewal amounted to P490,000 which covers the
period from November 1, 2015 to November 1, 2016. No adjustment has been made as of December 31, 2015.
To take advantage of volume discount ranging from 10% to 20%, the company buys office and store supplies on
a bulk basis. The staff-in-charge bought supplies worth P220,000 on June 10, 2015 and included the same in
their office supplies inventory. As at year-end, unused office supplies amount to P102,500.
VI. AUDIT OF INVENTORIES
Page 10 of 17 Pages
AUDITING PROBLEMS
A physical count of inventories was conducted simultaneously in all stores on December 29 and 20, 2015. Your
review of the list submitted by the accountant disclosed the following:
1.
Some deliveries made in December 2015 have not been invoiced and recorded as of year-end. These
items had a selling price of P146,940 with term of 15 days. The corresponding cost was already deducted
from the ending inventory.
2.
Goods on consignment to Ayala Merchants totaling P356,000 were included in the inventory list.
3.
Some appliances worth P138,500 were recorded twice in the inventory list.
4.
Goods costing P153,800 purchased and paid on December 26 was received on January 4, 2016.
goods were shipped by the supplier on December 28, FOB shipping point.
The
VII. AUDIT OF PROPERTY, PLANT AND EQUIPMENT
The company purchased additional equipment worth P268,000 on June 30, 2015. At the date of purchase, it
incurred the following additional costs which were charged to repairs and maintenance account:
Freight-in
P30,400
Installation cost
13,000
Total
P43,400
The above equipment has an estimated useful life of ten years and estimated salvage value of P20,000.
Depreciation for the above equipment has been provided based on original cost.
The company discarded some store equipment on October 1, 2015, realizing no salvage value. The cost of
these equipment amounted to P165,520 with an accumulated depreciation of P138,620 as of December 31,
2015. Depreciation booked from October 1, 2015 to year-end was P10,480. No entry was made on the disposal
of the property.
VIII. AUDIT OF ACCRUED EXPENSES
Some expenses for December 2015 were recorded when paid in January 2016. These are as follows:
Electric bills
P73,400
Commission of sales agents
57,000
Telephone charges
42,500
Minor repair of delivery equipment
21,340
Water bills
18,760
Total
P213,000
IX. AUDIT OF LIABILITIES
Ayala Merchants obtained a one-year loan from Chartered Bank amounting to P2.6 million at an interest rate of
16% per annum on October 1, 2015. Accrued interest on this loan was not taken up at year-end.
X. OTHER AUDIT FINDINGS
A review of the minutes of meeting showed that a 10% cash dividend was declared to shareholders of record as
of December 15, 2015, payable on January 31, 2016.
Ayala Merchants Corporation
UNADJUSTED TRIAL BALANCE
December 31, 2015
Debit
Credit
P 60,000
1,056,000
483,640
3,618,660
P 110,360
1,300,000
7,274,900
640,000
490,000
420,000
361,000
1,298,400
2,770,000
1,177,500
548,000
2,356,320
3,300,000
169,040
5,000,000
500,000
5,400,000
792,160
13,078,000
8,034,000
3,357,000
1,453,500
625 ,280
Petty cash fund
Cash in bank
Trading securities
Accounts receivable – trade
Allowance for doubtful accounts
Notes receivable
Inventories
Prepaid advertising
Prepaid insurance
Prepaid rent
Office supplies inventory
Furniture and fixtures
Delivery equipment
Accumulated depreciation
Other assets
Accounts payable – trade
Notes payable
Accrued expenses
Bonds payable
Discount on bonds payable
Ordinary share capital
Retained earnings
Sales
Cost of goods sold
Operating expenses
Other income
Other charges
P32,836,880
Page 11 of 17 Pages
P32,836,880
AUDITING PROBLEMS
Based on the above information, determine the adjusted balances of the following: (Ignore tax implications.)
1.
Petty cash fund
A. P37,250
B.
P60,000
C.
P22,750
D.
P32,260
2.
Cash in bank
A. P522,650
B.
P450,650
C.
P1,056,000
D.
P244,850
3.
Trading securities
A. P403,640
B.
P502,180
C.
P491,240
D.
P472,700
4.
Accounts receivable
A. P3,936,000
B.
P3,618,660
C.
P3,783,540
D.
P3,613,140
5.
Allowance for doubtful accounts
A. P110,360
B. P152,640
C.
P130,316
D.
P88,217
6.
Notes and interest receivable
A. P1,331,960
B.
P1,332,160
C.
P1,332,500
D.
P1,300,000
7.
Inventories
A. P6,934,200
B.
P7,274,900
C.
P7,290,200
D.
P6,780,400
8.
Prepaid insurance
A. P449,167
B.
P408,333
C.
P490,000
D.
P428,750
9.
Prepaid rent
A. P140,000
B.
P0
C.
P420,000
D.
P280,000
10.
Prepaid advertising
A. P325,000
B.
P640,000
C.
P373,334
D.
P315,000
11.
Office supplies inventory
A. P258,500
B.
P117,500
C.
P361,000
D.
P102,500
12.
Total current assets
A. P14,0333,612
B.
P13,523,866
C.
P13,677,666
D.
P13,537,666
13.
Property, plant, and equipment
A. P4,068,400
B.
P2,905,228
C.
P3,946,280
D.
P3,902,880
14.
Accumulated depreciation
A. P1,038,880
B.
P1,041,050
C.
P1,177,500
D.
P1,179,672
15.
Accounts payable
A. P2,525,360
B.
P2,428,320
C.
P2,597,360
D.
P2,356,320
16.
Interest payable
A. P104,000
B.
P16,178
C.
P4,000
D.
P27,644
17.
Total current liabilities
A. P6,803,798
B.
P6,103,798
C.
P6,054,360
D.
P5,603,798
18.
Sales
A. P13,068,440
B.
P13,078,000
C.
P13,224,940
D.
P12,339,500
19.
Cost of goods sold
A. P8,034,000
B.
P8,236,200
C.
P8,018,700
D.
P8,374,700
20.
Operating expenses
A. P4,296,514
D.
P4,621,514
B. P3,357,000
C. P4,341,514
-----------------------------oooOOOooo-----------------------------
PROBLEM NO. 2
To substantiate the existence of the accounts receivable balances as at December 31, 2015 of LUKAS COMPANY,
you have decided to send confirmation requests to customers. Below is a summary of the confirmation replies
together with the exceptions and audit findings. Gross profit on sales is 20%. The company is under the perpetual
inventory method.
Name of
Customer
Concordia
Balance
Per Books
P150,000
Falcon
P30,000
Lazaro
P144,000
Silang
P112,500
Yakal
P135,000
Comments
From Customers
P90,000 was returned on December 30, 2015.
Correct balance as is P60,000.
Your CM representing price adjustment dated
December 28, 2015 cancels this.
You have overpriced us by P150. Correct price
should be P300.
We received the goods only on January 6, 2016.
Balance was offset by our December shipment
of your raw materials.
Page 12 of 17 Pages
Audit Findings
Returned goods were received
December 31, 2015.
The CM was taken up by Lukas
Company in 2016.
The complaint is valid.
Term is shipping point. Shipped
in 2015.
Lukas
Company
credited
accounts payable for P135,000
to record purchases. Yakal is a
supplier.
AUDITING PROBLEMS
21.
If the necessary adjusting journal entry is made regarding the case of Concordia, the net income will
A. Decrease by P18,000.
C. Increase by P18,000.
B. Decrease by P90,000.
D. Increase by P90,000.
22.
The effect on 2015 net income of Lukas Company of its failure to record the CM involving transaction with
Falcon:
A. P30,000 over.
C. P6,000 over.
B. P30,000 under.
D. P6,000 under.
23.
The overstatement of receivable from Lazaro is
A. P96,000
B. P24,000
24.
The accounts receivable from Silang is
A. Correctly stated.
B. P112,500 over.
25.
The adjusting entry to correct the receivable from Yakal is
A. Purchases
Accounts receivable
B. Accounts payable
Purchases
C. Accounts receivable
Accounts payable
D. Accounts payable
Accounts receivable
-----------------------------oooOOOooo-----------------------------
C.
D.
C.
P72,000
D.
P48,000
P112,500 under.
P225,000 under.
135,000
135,000
135,000
135,000
135,000
135,000
135,000
135,000
PROBLEM NO. 3
Palito, CPA, has just accepted an engagement to audit the financial statements of Crocodile, Inc. for the year ending
December 31, 2015. After obtaining an understanding of the client’s design of the accounting and internal control
systems and their operation, he then proceeded in performing test of controls related to production cycle.
The following questions related to test of controls of the production cycle:
26.
Which of the following auditing procedures probably would provide the most reliable evidence concerning the
entity’s assertion of rights and obligations related to inventories:
A. Trace the test counts noted during the entity’s physical count to the entity’s summarization of quantities.
B. Inspect agreements to determine whether any inventory is pledged as collateral or subject to any liens.
C. Select the last few shipping documents used before the physical count and determine whether the
shipments were recorded as sales.
D. Inspect the open purchase order file for significant commitments that should be considered for
disclosure.
27.
Which of the following internal control activities most likely addresses the completeness assertion for
inventory?
A. The work-in-process account is periodically reconciled with subsidiary inventory records.
B. Employees responsible for custody of finished goods do not perform the receiving function
C. Receiving reports are prenumbered and the numbering sequence is checked periodically.
D. There is a separation of duties between the payroll department and inventory accounting personnel.
28.
From the auditor’s point of view, inventory counts are more acceptable prior to the year-end when
A. Internal control is weak.
B. Accurate perpetual inventory records are maintained.
C. Inventory is slow moving.
D. Significant amounts of inventory are held on a consignment basis.
29.
A retailer’s physical count of inventory was higher than that shown by the perpetual records. Which of the
following could explain the difference?
A. Inventory items had been counted but the tags placed on the items had not been taken off and added to
the inventory accumulation sheets.
B. Credit memos for several items returned by customers had not been recorded.
C. No journal entry had been made on the retailer’s books for several items returned to its suppliers.
D. An item purchased FOB shipping point had not arrived at the date of the inventory count and had not
been reflected in the perpetual records.
30.
An auditor will usually trace the details of the test counts made during the observation of physical inventory
counts to a final inventory compilation. This audit procedure is undertaken to provide evidence that items
physically present and observed by the auditor at the time of the physical inventory count are
A. Owned by the client.
B. Not obsolete.
C. Physically present at the time of the preparation of the final inventory schedule.
D. Included in the final inventory schedule.
-----------------------------oooOOOooo-----------------------------
PROBLEM NO. 4
A portion of the SPARK COMPANY’s statement of financial position appears as follows:
Assets:
Cash
Notes receivable
Inventory
Liabilities:
Accounts payable
December 31, 2015
December 31, 2014
P353,300
0
?
P100,000
25,000
199,875
?
75,000
Page 13 of 17 Pages
AUDITING PROBLEMS
Spark Company pays for all operating expenses with cash and purchases all inventory on credit. During 2015, cash
totaling P471,700 was paid on accounts payable. Operating expenses for 2015 totaled P220,000. All sales are cash
sales. The inventory was restocked by purchasing 1,500 units per month and valued by using periodic FIFO. The
unit cost of inventory was P32.60 during January 2015 and increased P0.10 per month during the year. Spark sells
only one product. All sales are made for P50 per unit. The ending inventory for 2014 was valued at P32.50 per
unit.
Based on the preceding information, compute the following:
31.
Number of units sold during 2015
A. 7,066
B. 18,400
C.
4,268
D.
13,400
32.
Accounts payable balance at December 31, 2015
A. P190,100
B. P50,000
C.
P199,100
D.
P200,000
33.
Inventory quantity on December 31, 2015
A. 5,750
B. 2,750
C.
17,084
D.
10,750
34.
Cost of inventory on December 31, 2015
A. P187,450
B. P186,875
C.
P192,950
D.
P189,660
35.
Cost of goods sold for the year ended December 31, 2015
A. P609,125
B. P609,700
C. P606,915
-----------------------------oooOOOooo-----------------------------
D.
P603,625
PROBLEM NO. 5
A depreciation schedule for semi-trucks of ISIDRO MANUFACTURING COMPANY was requested by your auditor soon
after December 31, 2015, showing the additions, retirements, depreciation, and other data affecting the income of
the company in the 4-year period 2012 to 2015, inclusive.
The following data were ascertained.
Balance of Trucks account, Jan. 1, 2012
Truck No. 1 purchased Jan. 1, 2009, cost
Truck No. 2 purchased July 1, 2009, cost
Truck No. 3 purchased Jan. 1, 2011, cost
Truck No. 4 purchased July 1, 2011, cost
Balance, Jan. 1, 2012
P180,000
220,000
300,000
240,000
P940,000
The Accumulated Depreciation—Trucks account previously adjusted to January 1, 2012, and entered in the ledger,
had a balance on that date of P302,000 (depreciation on the four trucks from the respective dates of purchase,
based on a 5-year life, no salvage value). No charges had been made against the account before January 1, 2012.
Transactions between January 1, 2012, and December 31, 2015, which were recorded in the ledger, are as follows.
July 1, 2012
Truck No. 3 was traded for a larger one (No. 5), the agreed purchase price of which was P400,000.
Isidro Mfg. Co. paid the automobile dealer P220,000 cash on the transaction. The entry was a
debit to Trucks and a credit to Cash, P220,000. The transaction has commercial substance.
Jan. 1, 2013
Truck No. 1 was sold for P35,000 cash; entry debited Cash and credited Trucks, P35,000.
July 1, 2014
A new truck (No. 6) was acquired for P420,000 cash and was charged at that amount to the Trucks
account. (Assume truck No. 2 was not retired.)
July 1, 2014
Truck No. 4 was damaged in a wreck to such an extent that it was sold as junk for P7,000 cash.
Isidro Mfg. Co. received P25,000 from the insurance company. The entry made by the bookkeeper
was a debit to Cash, P32,000, and credits to Miscellaneous Income, P7,000, and Trucks, P25,000.
Entries for depreciation had been made at the close of each year as follows: 2012, P210,000; 2013, P225,000;
2014, P250,500; 2015, P304,000.
36.
What is the total depreciation expense for the year ended December 31, 2012?
A. P180,000
B. P198,000
C. P172,000
D.
P228,000
37.
What is the gain (loss) on trade in of Truck #3 on July 1, 2012?
A. (P30,000)
B. P10,000
C. (P60,000)
D.
P190,000
38.
What is the net book value of the Trucks on December 31, 2015?
A. P414,000
B. P348,000
C. P228,500
D.
P894,000
39.
The total depreciation expense recorded for the 4-year period (2012-2015) is overstated by
A. P185,500
B. P265,500
C. P287,500
D. P275,500
40.
Assuming that the books have not been closed for 2015, what is the compound journal entry on December
31, 2015 to correct the company’s errors for the 4-year period (2012-2015)?
A. Accumulated depreciation
629,500
Trucks
480,000
Retained earnings
9,500
Depreciation expense
140,000
B. Accumulated depreciation
665,500
Trucks
480,000
Retained earnings
45,500
Depreciation expense
140,000
C. Accumulated depreciation
665,500
Trucks
480,000
Retained earnings
185,500
Page 14 of 17 Pages
AUDITING PROBLEMS
D.
Accumulated depreciation
665,500
Trucks
-----------------------------oooOOOooo-----------------------------
665,500
PROBLEM NO. 6
The cash account of NUNAL COMPANY shows the following activities:
Date
Nov.
30
Dec.
2
4
15
20
21
31
31
Debit
Balance
November bank charges
November bank credit for notes
receivable collected
NSF check
Loan proceeds
December bank charges
Cash receipts book
Cash disbursements book
P
P 30,000
2,121,900
OR No.
110-120
121-136
137-150
151-165
166-190
191-210
211-232
233-250
251-275
276-300
301-309
310-350
351-390
391-420
421-480
481-500
501-525
526-555
556-611
612-630
-
150
3,900
145,500
180
1,224,000
CASH BOOKS
RECEIPTS
Date
Dec.
1
2
3
4
5
8
9
10
11
12
15
16
17
18
19
22
23
23
23
26
28
28
29
29
29
Totals
Credit
Balance
P345,000
344,850
374,850
370,950
516,450
516,270
2,638,170
1,414,170
PAYMENTS
Amount
P 33,000
63,900
60,000
168,000
117,000
198,000
264,000
231,000
63,000
90,000
165,000
24,000
57,000
27,000
51,000
63,000
96,000
222,000
15,000
114,000
P2,121,900
Check No.
801
802
803
804
805
806
807
808
809
810
811
812
813
814
816
817
818
819
820
821
822
823
824
825
826
Amount
P 6,000
9,000
3,000
9,000
36,000
57,000
78,000
90,000
183,000
21,000
24,000
48,000
60,000
66,000
108,000
33,000
150,000
21,000
12,000
9,000
36,000
39,000
87,000
6,000
33,000
P1,224,000
BANK STATEMENT
Date
Dec.
1
2
3
4
5
8
9
10
11
12
15
16
17
18
19
22
23
23
23
26
28
28
29
29
29
Totals
Check
792
802
804
EC
805
CM 16
799
DM 57
808
803
809
DM 61
813
CM 20
815
816
811
801
814
818
DM 112
821
CM 36
820
Charges
P 7,500
9,000
9,000
243,000
36,000
21,150
3.900
90,000
3,000
183,000
180
60,000
18,000
108,000
24,000
6,000
66,000
150,000
360
9,000
12,000
P1,059,090
Additional information:
1.
2.
3.
4.
5.
DMs 61 and 112 are for service charges.
EC is error corrected.
DM 57 is for an NSF check.
CM 20 is for loan proceeds, net of P450 interest charges for 90 days.
CM 16 is for the correction of an erroneous November bank charge.
Page 15 of 17 Pages
Credits
P 25,500
33,000
63,900
60,000
243,000
285,000
36,000
462,000
231,000
63,000
255,000
24,000
57,000
145,500
141,000
96,000
222,000
15,000
36,000
P2,493,900
AUDITING PROBLEMS
6.
7.
CM 36 is for customers’ notes collected by bank in December.
Bank balance on December 31 is P1,776,810
Based on the preceding information, determine the following:
41.
Outstanding checks at November 30
A. P39,150
B. P28,650
C.
P21,150
D.
P46,650
42.
Outstanding checks at December 31
A. P459,000
B. P477,000
C.
P441,000
D.
P487,650
43.
Deposit in transit at November 30
A. P58,500
B. P145,500
C.
P0
D.
P25,500
44.
Deposit in transit at December 31
A. P114,000
B. P139,500
C.
P132,000
D.
P0
45.
Adjusted book balance at November 30
A. P410,850
B. P345,000
C.
P375,000
D.
P374,850
46.
Adjusted bank receipts for the month of December
A. P2,297,400
B. P2,291,400
C.
P2,303,400
D.
P2,321,400
47.
Adjusted book disbursements for the month of December
A. P1,228,440
B. P1,246,440
C.
P1,210,440
D.
P1,246,620
48.
Adjusted bank balance at December 31
A. P1,449,810
B. P1,674,810
C.
P1,431,810
D.
P1,776,810
49.
Unadjusted bank balance at November 30
A. P555,060
B. P94,560
C.
P1,776,810
D.
P342,000
50.
The
A.
B.
C.
D.
best evidence regarding year-end bank balances is documented in the
Cutoff bank statements.
Bank reconciliations.
Interbank transfer schedule.
Bank deposit lead schedule.
-----------------------------oooOOOooo-----------------------------
PROBLEM NO. 7
MINA MINING CO. has acquired a tract of mineral land for P50,000,000. Mina Mining estimates that the acquired
property will yield 150,000 tons of ore with sufficient mineral content to make mining and processing profitable. It
further estimates that 7,500 tons of ore will be mined the first and last year and 15,000 tons every year in between.
(Assume 11 years of mining operations.) The land will have a residual value of P1,550,000.
Mina Mining builds necessary structures and sheds on the site at a total cost of P12,000,000. The company
estimates that these structures can be used for 15 years but, because they must be dismantled if they are to be
moved, they have no residual value. Mina Mining does not intend to use the buildings elsewhere.
Mining machinery installed at the mine was purchased secondhand at a total cost of P3,600,000. The machinery
cost the former owner P9,000,000 and was 50% depreciated when purchased. Mina Mining estimates that about
half of this machinery will still be useful when the present mineral resources have been exhausted but that
dismantling and removal costs will just about offset its value at that time. The company does not intend to use the
machinery elsewhere. The remaining machinery will last until about one-half the present estimated mineral ore has
been removed and will then be worthless. Cost is to be allocated equally between these two classes of machinery.
51.
What are the estimated depletion and depreciation charges for the 1st year?
Depletion
Depreciation
A.
P4,845,000
P870,000
B.
P4,845,000
P780,000
C.
P2,422,500
P870,000
D.
P2,422,500
P780,000
52.
What are the estimated depletion and depreciation charges for the 5th year?
Depletion
Depreciation
A.
P2,422,500
P1,740,000
B.
P2,422,500
P1,560,000
C.
P4,845,000
P1,560,000
D.
P4,845,000
P1,740,000
53.
What are the estimated depletion and depreciation charges for the 6th year?
Depletion
Depreciation
A.
P2,422,500
P1,560,000
B.
P2,422,500
P1,740,000
C.
P4,845,000
P1,560,000
D.
P4,845,000
P1,740,000
54.
What are the estimated depletion and depreciation charges for the 7th year?
Depletion
Depreciation
A.
P2,422,500
P1,380,000
B.
P2,422,500
P1,560,000
C.
P4,845,000
P1,380,000
D.
P4,845,000
P1,560,000
55.
What are the estimated depletion and depreciation charges for the 11th year?
Page 16 of 17 Pages
AUDITING PROBLEMS
A.
B.
C.
D.
PROBLEM NO. 8
Depletion
Depreciation
P4,845,000
P1,380,000
P4,845,000
P690,000
P2,422,500
P1,380,000
P2,422,500
P690,000
-----------------------------oooOOOooo-----------------------------
The HVR Company included the following in its notes receivable as of December 31, 2015:
Note receivable from sale of land
Note receivable from consultation
Note receivable from sale of equipment
P2,640,000
3,600,000
4,800,000
The following transactions during 2015 and other information relate to the company’s notes receceivable:
a)
On January 1, 2015, HVR Company sold a tract of land to Triple X Company. The land, purchased 10 years ago,
was carried on HVR’s books at P1,500,000. HVR received a noninterest-bearing note for P2,640,000 from Triple
X. The note is due on December 31, 2016. There was no established exchange price for the land. The
prevailing interest rate for this note on January 1, 2015 was 10%.
b)
On January 1, 2015, HVR Company received a 5%, P3,600,000 promissory note in exchange for the consultation
services rendered. The note will mature on December 31, 2017, with interest receivable every December 31.
The fair value of the services rendered is not readily determinable. The prevailing rate of interest for a note of
this type was 10% on January 1, 2015.
c)
On January 1, 2015, HVR Company sold an old equipment with a carrying amount of P4,800,000, receiving
P7,200,000 note. The note bears an interest rate of 4% and is to be repaid in 3 annual installments of
P2,400,000 (plus interest on the outstanding balance). HVR received the first payment on December 31, 2015.
There is no established market value for the equipment. The market interest rate for similar notes was 14% on
January 1, 2015.
Note: Round off present value factors to four decimal places and final answers to the nearest hundred.
56.
What amount of consultation fee revenue should be recognized in 2015?
A. P3,600,000
B. P2,705,000
C. P4,047,500
D.
P3,152,500
57.
What amount should be reported as gain on sale of equipment?
A. P994,800
B. P2,400,000
C. P1,162,700
D.
P1,237,300
58.
The amount to be reported as noncurrent notes receivable on December 31, 2015 is
A. P7,482,200
B. P6,037,300
C. P5,477,500
D.
P7,877,600
59.
The amount to be reported as current notes receivable on December 31, 2015 is
A. P4,800,000
B. P2,400,200
C. P4,404,900
D.
P7,440,000
60.
How much interest income should be recognized in 2015?
A. P974,200
B. P756,000
C.
D.
P1,160,500
P1,378,700
--- END OF EXAMINATION ---
Page 17 of 17 Pages