University of the Visayas
Applied Auditing
Quiz no:______
Problem 1
In your initial audit of Bulls Finance Co., you find the following ledger account balances.
12%, 25-year Bonds Payable, 2001 issue
01/01/2008
CR
10/01/2012
CD
Treasury Bonds
P 216,000
Bond Premium
01/01/2008
01/01/2012
07/01/2012
CD
CD
P 1,600,000
CR
P 80,000
Bond Interest Expense
P 96,000
96,000
The bonds were redeemed for permanent cancellation on October 1, 2012 at 105 plus accrued interest.
QUESTIONS:
Based on the above and the result of your audit, determine the following:
1.
The adjusted balance of bonds payable as of December 31, 2012 is
a. P1,400,000
b. P1,600,000
c. P1,000,000
d.
P1,384,000
2.
The unamortized bond premium on December 31, 2012 is
a. P80,000
b. P64,000
c.
P56,000
d.
P58,800
3.
The total bond interest expense for the year 2012 is
a. P189,100
b. P182,900
c.
P188,800
d.
P182,800
4.
The gain or loss on partial bond redemption is
a. P1,900 loss
b. P1,900 gain
c.
P18,100 loss
d.
P18,100 gain
Problem 2
In connection with your audit of Ginebra Corporation’s financial statements for the year 2012, you noted the following liability
account balances as of December 31, 2011:
Note payable, bank
Liability under finance lease
Deferred income taxes
P 5,600,000
430,000
700,000
Transactions during 2012 and other information relating to Ginebra’s liabilities were as follows:
a.
The principal amount of the note payable is P5,600,000 and bears interest at 12%. The note is dated April 1, 2011 and is
payable in four equal annual installments of P1,400,000 beginning April 1, 2012. The first principal and interest payment was
made on April 1, 2012.
b.
The capitalized lease is for a ten-year period beginning December 31, 2009. Equal annual payments of P100,000 are due on
December 31 of each year, and the 14% interest rate implicit in the lease known by Ginebra. The present value at December
31, 2011 of the seven remaining lease payments (due December 31, 2012 through December 31, 2011) discounted at 14%
was P430,000.
c.
Deferred income taxes are provided in recognition of timing differences between financial and income tax reporting of
depreciation. For the year ended December 31, 2012, depreciation per tax return exceeded book depreciation by P312,500.
Ginebra’s effective income tax rate for 2011 was 32%.
d.
On July 1, 2012, Ginebra issued for P1,774,000, P2,000,000 face amount of its 10%, P1,000 bonds. The Bonds were issued
to yield 12%. The bonds are dated July 1, 2011 and will mature on July 1, 2021. Interest is payable annually on July 1.
Ginebra uses the interest method to amortize bond discount.
QUESTIONS:
Based on the above and the result of your audit, determine the following:
1. Liability under finance lease as of December 31, 2012
a. P381,600
b. P390,200
c.
P344,828
d.
P330,000
2. Total noncurrent liabilities as of December 31, 2012
a. P5,610,440
b. P5,770,640
c.
P5,931,328
d.
P5,725,268
3. Current portion of long-term liabilities as of December 31, 2012
a. P1,445,372
b. P1,400,000
c. P1,500,000
d.
P1,446,576
4. Accrued interest payable as of December 31, 2012
a. P484,440
b. P432,628
c.
P532,628
d.
P478,000
5. Total interest expense for the year 2012
a. P652,440
b. P707,068
c.
P712,640
d.
P699,760
PROBLEM NO. 3
On January 2, 2011, the Suns, Inc. issued P2,000,000 of 8% convertible bonds at par. The bonds will mature on January 1, 2015
and interest is payable annually every January 1. The bond contract entitles the bondholders to receive 6 shares of P100 par value
common stock in exchange for each P1,000 bond. On the date of issue, the prevailing market interest rate for similar debt without
the conversion option is 10%.
On December 31, 2012, the holders of the bonds with total face value of P1,000,000 exercised their conversion privilege.
addition, the company reacquired at 110, bonds with a face value of P500,000.
The balances in the capital accounts as of December 31, 20011 were:
Common stock, P100 par, authorized 50,000 shares, issued and outstanding,
30,000 shares
Premium on common stock
P3,000,000
500,000
Market value of the common stock and bonds were as follows:
Date
December 31, 2011
December 31, 2012
Bonds
118
110
Common stock
40
42
QUESTIONS:
Based on the above and the result of your audit, answer the following:
1.
2.
a.
How much of the proceeds from the issuance of convertible bonds should be allocated to equity?
P634,000
b. P126,816
c. P221,664
d. P0
a.
How much is the carrying value of the bonds payable as of December 31, 2011?
P2,000,000
b. P1,389,400
c. P1,796,170
d. P1,900,502
a.
How much is the interest expense for the year 2012?
P160,000
b. P138,940
c. P179,617
a.
The entry to record the conversion on December 31, 2012 will include a credit to APIC of
P365,276
b. P400,000
c. P307,893
d. P0
a.
P50,000
3.
4.
5.
How much is the loss on bond reacquisition on December 31, 2012?
b. P96,053
c. P67,362
-end-
d.
d.
P190,050
P0
In