SIMULATED BOARD EXAMINATION 1
PROBLEM NO. 1
You gathered the following November 30 bank reconciliation from the
cash records of the PRTC Company in connection with your audit of the
company’s financial statements for the year 2020:
Balance per bank
Deposits in transit
Outstanding checks
Balance per books
P 560,000
123,200
( 160,000)
P 523,200
Results for the month of December follow:
Balance December 31
December deposits
December checks
December note collected (not included
in deposits)
December bank service charge
December NSF check, returned by the
bank (recorded by bank as a
charge)
Bank
P692,000
400,000
320,000
Books
P740,000
464,800
248,000
80,000
1,200
-
26,800
-
QUESTIONS:
Based on the above and the result of your audit, answer the following:
1. The deposits in transit as of December 31, 2020 is
a. P 64,800
c. P188,000
b. P268,000
d. P108,000
2. The outstanding checks as of December 31, 2020 is
a. P 72,000
c. P 88,000
b. P116,000
d. P114,800
3. The adjusted cash balance as of December 31, 2020 is
a. P684,800
c. P844,000
b. P792,000
d. P765,200
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XV – Comprehensive Problems – Simulated Board Examination 1
4. From the standpoint of good internal control, the monthly bank
statements should be reconciled by someone under the direction of
the
a. Controller.
c. Credit manager.
b. Treasurer.
d. Cashier.
5. For effective internal control purposes, which of the following
individuals should be responsible for mailing signed checks?
a. Receptionist.
c. Payroll clerk.
b. Accounts payable clerk.
d. Treasurer.
PROBLEM NO. 2
In connection with your examination of the financial statements of
Excel, Inc. for the year ended December 31, 2020, you were able to
obtain certain information during your audit of the accounts receivable
and related accounts.
a. The December 31, 2020 balance in the Accounts Receivable control
accounts is P558,600.
b. An aging schedule of the accounts receivable as of December 31,
2020 is presented below:
Age
60 days & under
61 to 90 days
91 to 120 days
Over 120 days
Net debit
balance
P258,513
204,735
59,886
35,466
Percentage to be applied after
corrections have been made
1 percent
3 percent
6 percent
Definitely uncollectible, P6,300;
the remainder is estimated to be
25% uncollectible.
c. The entries made affecting the Doubtful Accounts Expense account
were:
 A debit on December 31 for the amount of the credit to the
Allowance for Doubtful Accounts.
 A credit for P4,110 on November 30, 2020, and a debit to
Allowance for Doubtful Accounts because of a bankruptcy. The
related sales took place on October 1, 2020.
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XV – Comprehensive Problems – Simulated Board Examination 1
d. The Allowance for Doubtful Accounts schedule is presented below:
Debit
January 1, 2020
November 30, 2020
December 31, 2020
(P558,600 x 5%)
Credit
Balance
P13,125
9,015
P27,930
P36,945
P4,110
e. There is a credit balance in one account receivable (61 to 90 days) of
P7,260; it represents an advance on a sales contract.
QUESTIONS:
Based on the above and the result of your audit, answer the following:
6. How much is the adjusted balance of Accounts Receivable as of
December 31, 2020?
a. P555,450
c. P559,560
b. P540,930
d. P548,190
7. How much is the adjusted balance of the Allowance for Doubtful
Accounts as of December 31, 2020?
a. P19,706
c. P19,583
b. P19,830
d. P19,147
8. How much is the Doubtful Accounts expense for the year 2020?
a. P16,991
c. P16,868
b. P17,115
d. P27,930
9. How much is the net adjustment to the Doubtful Accounts expense
account?
a. P6,952 credit
c. P6,705 credit
b. P6,829 credit
d. P4,110 debit
10. Which account balance is most likely to be misstated if an aging of
accounts receivable is not performed?
a. Sales returns and allowances. c. Sales revenue.
b. Allowance for bad debts.
d. Accounts receivable.
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XV – Comprehensive Problems – Simulated Board Examination 1
PROBLEM NO. 3
Cabarles Bank granted a loan to a borrower on January 1, 2020. The
interest rate on the loan is 12% payable annually starting December
31, 2020. The loan matures in five years on December 31, 2024. The
data related to the loan are:
Principal amount
Direct origination cost
Origination fee received from borrower
P2,000,000
62,744
200,000
The borrower paid the interest due on December 31, 2020. However,
during 2021 the borrower began to experience financial difficulties,
requiring Cabarles to reassess the collectibility of the loan. As of
December 31, 2021, Cabarles expects that only P1,200,000 of the
principal will be recovered.
The P1,200,000 principal amount is
expected to be collected in two equal installments on December 31,
2013 and December 31, 2015. The prevailing interest rates for similar
type of note as of December 31, 2020 and 2021 are 15% and 16%,
respectively.
QUESTIONS:
Based on the above and the result of your audit, determine the
following: (Round off present value factors to four decimal places)
11. The interest income to be recognized in 2020 is
a. P260,784
c. P298,039
b. P279,412
d. P240,000
12. The carrying amount of the loan as of December 31, 2020 is
a. P1,902,516
c. P1,883,528
b. P1,920,783
d. P2,000,000
13. The loan impairment loss to be recognized in 2021 is
a. P1,140,380
c. P1,106,881
b. P1,090,262
d. P1,210,808
14. The interest income to be recognized in 2022 is
a. P114,374
c. P103,154
b. P137,539
d. P124,368
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XV – Comprehensive Problems – Simulated Board Examination 1
15. The carrying amount of the loan as of December 31, 2023 is
a. P478,307
c. P556,704
b. P461,721
d. P445,935
PROBLEM NO. 4
A flood recently destroyed many of the financial records of G. De Leon
Manufacturing Company. Management has hired you to re-create as
much financial information as possible for a month of July. You are
able to find out that the company uses an average cost inventory
valuation system. You also learn that G. De Leon makes a physical
count at the end of each month in order to determine monthly ending
inventory values. By examining various documents you are able to
gather the following information:
Ending inventory at July 31
Total cost of unit available for sale in July
Cost of goods sold during July
Cost of beginning inventory, July 1
Gross profit on sales for July
400,000 units
P950,400
P792,000
P0.35 per unit
P808,000
July purchases
Date
July
5
11
15
16
Units
480,000
400,000
320,000
400,000
Unit Cost
P 0.40
0.41
0.42
0.45
QUESTIONS:
Based on the above and the result of your engagement, you are asked
to provide the following information:
16. Number of units on hand, July 1
a. 280,000
b. 800,000
c. 332,640
d. 98,000
17. Units sold during July
a. 1,480,000
b. 1,532,640
c. 1,298,000
d. 2,000,000
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XV – Comprehensive Problems – Simulated Board Examination 1
18. Unit cost of inventory at July 31
a. P0.396
b. P0.560
c. P0.506
d. P0.492
19. Value of inventory at July 31
a. P202,400
b. P224,000
c. P158,400
d. P196,800
20. In performing an audit on the existence of inventory contained in a
warehouse, an auditor is primarily concerned with
a. Identifying the ownership of the inventory.
b. Locating slow moving items contained in inventory.
c. Observing and testing the number of units on hand.
d. Determining if the value of the inventory is reasonable.
PROBLEM NO. 5
The N. De Leon Company reported profit before taxes of P370,000 for
2009 and P526,000 for 2020. A later audit produced the following
information.
(a) The ending inventory for 2009 included 2,000 units erroneously
priced at P5.90 per unit. The correct cost was P9.50 per unit.
(b) Merchandise costing P17,500 was shipped to the N. De Leon
Company, FOB shipping point, on December 26, 2009.
The
purchase was recorded in 2009, but the merchandise was excluded
from the ending inventory because it was not received until January
4, 2020.
(c) On December 28, 2009, merchandise costing P2,900 was sold for
P4,000 to Kapuso Corp. Kapuso had asked N. De Leon to keep the
merchandise for it until January 2, when it would come and pick it
up. Because the merchandise was still in the merchandise was still
in the store at year-end, the merchandise was included in the
inventory count. The sale was recorded in December 2009.
(d) Kapamilya Company sold merchandise costing P1,500 to N. De
Leon Company. The purchase was made on December 29, 2009,
and the merchandise was shipped on December 30. Terms were
FOB shipping point. Because N. De Leon Company bookkeeper was
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XV – Comprehensive Problems – Simulated Board Examination 1
on vacation, neither the purchase nor the receipt of goods was
recorded on the books until January 2020.
QUESTIONS:
Based on the above and the result of your audit, answer the following:
(Disregard tax implications)
21. The December 31, 2009 Inventory is understated by
a. P26,200
c. P21,800
b. P23,300
d. P20,300
22. The corrected profit before taxes for 2009 is
a. P390,700
c. P377,400
b. P390,300
d. P391,800
23. The profit before taxes for 2020 is overstated by
a. P20,700
c. P21,800
b. P 7,400
d. P
0
24. By what amount did the total profit before taxes change for the 2
years combined?
a. P4,000
c. P7,200
b. P21,800
d. P
0
25. Which of the following audit procedures is not designed primarily to
test for the correctness of purchases and sales cutoff?
a. Observe shipping and receiving areas during physical inventory
observation and relate goods to the last receipt and shipment for
the year. Determine that these are the final entries in the
purchases and sales records for the year.
b. Examine sales and purchases invoices for a few days before and
after year end. Compare with dates of receipt and shipment and
with freight terms to determine that the transactions were
recorded in the proper accounting period.
c. Record last document numbers (sales invoice, voucher, check,
receiving report) for the year and relate to goods in shipping and
receiving areas at year end.
d. Trace client's unit costs to the auditor's copies of audited price
lists.
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XV – Comprehensive Problems – Simulated Board Examination 1
PROBLEM NO. 6
In connection with your audit of Lopez Company’s financial statements,
you were able to gather the following subsidiary account which reflect
the trading securities of the company for the year 2020:
Date
9/01
9/30
10/01
10/15
11/30
12/15
Transactions
Purchase
Cash dividends to
shareholders of
record 9/15,
declared 8/15
Purchase
Sale at P65
Cash collected for
sale made on
11/10, after a 11/1
declaration of P5
cash dividend per
share to
shareholders on
record as of 12/1
Cash dividend
received
Totals
Hugo Corp..
Shares
40,000
Debit
P2,000,000
Credit
P 100,000
100,000
40,000
5,000,000
2,000,000
40,000
6,600,000
.
P7,000,000
300,000
P9,000,000
Lopez, Inc. acquired 30% of Pugo Corporation’s ordinary shares on
January 1, 2009 for P5,000,000.
During 2009, Pugo earned
P2,000,000 and paid dividends of P1,250,000. Lopez’s 30% interest in
Pugo gives Lopez the ability to exercise significant influence over Pugo’s
operating and financial policies. During 2020, Pugo earned P2,500,000
and paid dividends of P750,000 on April 1 and P750,000 on October 1.
On July 1, 2020, Lopez sold half of its investment in Pugo for
P3,300,000 cash.
QUESTIONS:
Based on the above and the result of your audit, answer the following:
26. The gain on sale of 40,000 shares of Hugo Corp. on October 15 is
a. P628,600
c. P 600,000
b. P700,000
d. P2,057,000
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XV – Comprehensive Problems – Simulated Board Examination 1
27. The gain on sale of 40,000 shares of Hugo Corp. on November 10 is
a. P4,400,000
c. P2,000,000
b. P4,800,000
d. P4,600,000
28. The carrying amount of the Company’s investment in Hugo Corp. on
December 31, 2020 is
a. P2,700,000
c. P2,400,000
b. P2,000,000
d. P3,000,000
29. The gain on sale of investment in Pugo Corp. is
a. P1,312,500
c. P687,500
b. P 537,500
d. P612,500
30. The carrying amount of the Company’s investment in Pugo Corp. on
December 31, 2020 is
a. P2,612,500
c. P2,687,500
b. P2,762,500
d. P1,987,500
PROBLEM NO. 7
The property, plant and equipment section of Malvar Corporation’s
statement of financial position at December 31, 2009 included the
following items:
Land
Land improvements
Buildings
Machinery and equipment
P 600,000
280,000
2,200,000
1,920,000
The following transactions occurred during 2020:
a) A tract of land was acquired for P300,000. As of December 31, the
company has not determined its future use.
b) A plant facility consisting of land and building was acquired from
Legend Company in exchange for 40,000 ordinary shares of Malvar.
On the date of acquisition, Malvar’s share had a closing market
price of P37 per share on the Philippine Stock Exchange. The plant
facility was carried on Legend’s books at P220,000 for land and
P640,000 for the building on the date of exchange. Current
appraised values for land and building, respectively, are P460,000
and P1,380,000.
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XV – Comprehensive Problems – Simulated Board Examination 1
c) On May 1, 2020, items of machinery and equipment were
purchased at a total cost of P896,000, inclusive of 12% VAT.
Additional costs of P26,000 for freight and P52,000 for installation
were incurred.
d) Expenditures totaling P190,000 were made for new parking lots,
streets and sidewalks at the corporation’s various plant locations.
These expenditures had an estimated life of 15 years.
e) A machine costing P160,000 on January 1, 2002, was scrapped on
June 30, 2020. Double-declining-balance depreciation has been
recorded on the basis of a 10-year useful life.
f)
A machine was sold for P40,000 on July 1, 2020. Original cost of
the machine was P88,000 on January 1, 2007, and it was
depreciated on a straight-line basis over an estimated useful life of 7
years and a salvage value of P4,000.
QUESTIONS:
Based on the above and the result of your audit, determine the
following:
31. Adjusted balance of Land as of December 31, 2020
a. P 970,000
c. P1,060,000
b. P1,270,000
d. P1,460,000
32. Adjusted balance of Buildings as of December 31, 2020
a. P3,580,000
c. P3,500,000
b. P2,200,000
d. P3,310,000
33. Adjusted balance of Machinery and Equipment as of December 31,
2020
a. P2,646,000
c. P2,550,000
b. P2,472,000
d. P2,710,000
34. Loss on scrapping of machine on June 30, 2020
a. P21,475
c. P24,160
b. P26,845
d. P
0
35. Loss on sale of machine on July 1, 2020
a. P 6,000
c. P4,000
b. P18,000
d. P
0
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XV – Comprehensive Problems – Simulated Board Examination 1
PROBLEM NO. 8
A depreciation schedule for Semitrucks of Ong Manufacturing Company
was requested by your auditor soon after December 31, 2020, showing
the additions, retirements, depreciation and other data affecting the
income of the Company in the 4-year period 2007 to 2020, inclusive.
The following data were ascertained:
Balance of Semitrucks account, Jan. 1, 2007:
Truck No. 1 purchased Jan. 1, 2004, cost
Truck No. 2 purchased July 1, 2004, cost
Truck No. 3 purchased Jan. 1, 2006, cost
Truck No. 4 purchased July 1, 2006, cost
Balance, Jan. 1, 2007
P 180,000
220,000
300,000
240,000
P 940,000
The Semitrucks – Accumulated Depreciation account previously
adjusted to January 1, 2007, and duly entered to the ledger, had a
balance on that date of P302,000 (depreciation on the 4 trucks from
respective date of purchase, based on five-year life, no salvage value).
No charges have been made against the account before January 1,
2007.
Transactions between January 1, 2007, and December 31, 2020, and
their record in the ledger were as follows:
July 1, 2007
Truck No. 3 was traded for larger one (No. 5), the agreed
purchase price of which was P340,000. Ong Mfg. Co.
paid the automobile dealer P150,000 cash on the
transaction. The entry was debit to Semitrucks and a
credit to cash, P150,000.
Jan. 1, 2008 Truck No. 1 was sold for P35,000 cash; entry debited
Cash and credited Semitrucks, P35,000.
July 1, 2009
A new truck (No. 6) was acquired for P360,000 cash and
was charged at that amount to Semitrucks account.
(Assume truck No. 2 was not retired.)
July 1, 2009
Truck No. 4 was damaged in a wreck to such an extent
that it was sold as junk for P7,000 cash. Ong 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 Semitrucks P 25,000.
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XV – Comprehensive Problems – Simulated Board Examination 1
Entries for depreciation had been made for the close of each year as
follows: 2007, P203,000; 2008, P211,000; 2009, P244,500; 2020,
P278,000.
QUESTIONS:
Based on the above and the result of your audit, determine the
following: (Disregard tax implications)
36. The adjusted balance of Semitrucks as of December 31, 2020 is
a. P700,000
c. P730,000
b. P354,000
d. P920,000
37. The 2020 depreciation expense is overstated by
a. P138,000
c. P94,000
b. P174,000
d. P
0
38. The adjusted balance of Accumulated Depreciation - Semitrucks as
of December 31, 2020 is
a. P 34,600
c. P636,000
b. P416,000
d. P566,000
39. The 2009 profit is understated by
a. P23,500
b. P64,500
c. P94,500
d. P
0
40. Assuming the errors were not discovered and corrected, the
December 31, 2020 retained earnings would have been understated
by
a. P64,500
c. P202,500
b. P64,500
d. P
0
PROBLEM NO. 9
On January 1, 2009, Penamante Corporation issued 2,000 of its 5-year,
P1,000 face value, 11% bonds dated January 1 at an effective annual
interest rate (yield) of 9%. Interest is payable each December 31.
Penamante uses the effective interest method of amortization. On
December 31, 2020, the 2,000 bonds were extinguished early through
acquisition in the open market by Penamante for P1,980,000 plus
accrued interest.
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XV – Comprehensive Problems – Simulated Board Examination 1
On July 1, 2009, Penamante issued 5,000 of its 6-year, P1,000 face
value, 10% convertible bonds at par. Interest is payable every June 30
and December 31. On the date of issue, the prevailing market interest
rate for similar debt without the conversion option is 12%. On July 1,
2020, an investor in Penamante’s convertible bonds tendered 1,500
bonds for conversion into 15,000, P1 par value, ordinary shares of
Penamante.
QUESTIONS:
Based on the above and the result of your audit, determine the
following: (Round off present value factors to four decimal places.)
41. The issue price of the 2,000 5-year, P1,000 face value bonds on
January 1, 2009 is
a. P2,155,500
c. P2,000,000
b. P1,844,400
d. P2,147,800
42. The carrying amount of the 2,000 5-year, P1,000 face value bonds
on December 31, 2009 is
a. P1,898,400
c. P2,000,000
b. P2,129,500
d. P2,121,100
43. The gain on early retirement of bonds on December 31, 2020 is
a. P 20,000
c. P112,000
b. P121,200
d. P
0
44. The carrying amount of the 5,000 6-year, P1,000 face value bonds
on December 31, 2009 is
a. P5,000,000
c. P4,732,875
b. P4,615,400
d. P4,605,800
45. The conversion of the 1,500 6-year, P1,000 face value bonds on
July 1, 2020 will increase net share premium by
a. P1,485,000
c. P1,374,600
b. P1,415,054
d. P1,377,697
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XV – Comprehensive Problems – Simulated Board Examination 1
PROBLEM NO. 10
Valdez Corp., organized on June 1, 2009, was authorized to issue
shares as follows:


9% 800,000, P100 par, convertible preference shares
2,500,000, P2.50 par value, ordinary shares
During the remainder of the fiscal year ended May 31, 2020, the
following transactions were completed in the order given:
1) 300,000 preference shares were subscribed for at P105, and
900,000 ordinary shares were subscribed for at P26.
Both
subscriptions were payable 30% upon subscription, the balance in
one payment.
2) The second subscription payment was received, except one
subscriber for 60,000 ordinary shares defaulted on payment. The
full amount paid by this subscriber was returned, and all of the
fully paid shares was issued.
3) 150,000 ordinary shares were reacquired by purchase at P28.
4) Each preference share was converted into four ordinary shares.
5) The treasury shares were exchanged for machinery with a fair
market value of P4,300,000.
6) There was a 2-for-1 share split, and the par value of the new
ordinary shares is P1.25.
7) Profit was P830,000.
QUESTIONS:
Based on the above and the result of your audit, determine the
following as of May 31, 2020:
46. Ordinary share capital
a. P2,550,000
b. P5,100,000
c. P2,100,000
d. P4,200,000
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XV – Comprehensive Problems – Simulated Board Examination 1
47. Total share premium
a. P50,890,000
b. P48,340,000
c. P48,808,000
d. P48,240,000
48. Total contributed capital
a. P53,908,000
b. P53,440,000
c. P55,990,000
d. P53,340,000
49. Total equity
a. P54,270,000
b. P56,820,000
c. P54,738,000
d. P54,170,000
50. When a client company does not maintain its own stock records,
the auditor most likely will
a. Inspect the stock book at year-end and accounting for all
certificate numbers.
b. Review of the corporate minutes for information as to shares
outstanding.
c. Confirm the number of shares outstanding at year-end with the
appropriate state official.
d. Obtain written confirmation from the transfer agent and
registrar concerning the number of shares issued and
outstanding.
SUGGESTED ANSWERS:
1. C
2. C
3. B
4. A
5. D
6. A
7. C
8. C
9. A
10. B
11. A
12. C
13. B
14. A
15. B
16. B
17. D
18. A
19. C
20. C
21. B
22. D
23. C
24. D
25. D
26. B
27. A
28. D
29. D
30. C
699
31. A
32. D
33. C
34. C
35. A
36. D
37. A
38. D
39. A
40. C
41. A
42. B
43. B
44. D
45. C
46. B
47. B
48. B
49. A
50. D