2011 NATIONAL CPA MOCK BOARD EXAMINATION

In partnership with the Professional Review & Training Center, Inc. and Isla Lipana & Co.

AUDITING PROBLEMS
INSTRUCTIONS: Select the best answer for each of the following questions. Mark only one answer for each item on the answer sheet provided. AVOID ERASURES. Answers with erasures may render your examination answer sheet INVALID. Use PENCIL NO.2 only. GOODLUCK! PROBLEM NO. 1 You were engaged by Quezon Corporation for the audit of the company’s financial statements for the year ended December 31, 2010. The company is engaged in the wholesale business and makes all sales at 25% over cost. The following were accounting records: gathered from the client’s Brooks Trading Corporation. Brooks received the goods, which were sold on Sales Invoice No. 966 terms FOB Destination, the next day. d) Enroute to the client on December 31 was a truckload of goods, which was received on Receiving Report No. 1064. The goods were shipped FOB Destination, and freight of P2,000 was paid by the client. However, the freight was deducted from the purchase price of P800,000. QUESTIONS: Based on the above and the result of your audit, determine the following: 1. Sales for the year ended December 31, 2010 a. P5,250,000 c. P5,400,000 b. P5,150,000 d. P5,350,000 2. Purchases for the year ended December 31, 2010 a. P3,000,000 c. P3,018,000 b. P3,754,000 d. P3,818,000 3. Inventory as of December 31, 2010 a. P864,000 b. P800,000

SALES Date Ref. Amount Balance forwarded P5,200,000 Dec. SI No. 27 965 40,000 Dec. SI No. 28 966 150,000 Dec. SI No. 28 967 10,000 Dec. SI No. 31 969 46,000 Dec. SI No. 31 970 68,000 Dec. SI No. 31 971 16,000 Dec. Closing 31 entry (5,530,00) P Note: SI = Sales Invoice Inventory Accounts receivable Accounts payable

PURCHASES Date Ref. Amount Balance forwarded P2,700,000 Dec. RR No. 27 1057 35,000 Dec. RR No. 28 1058 65,000 Dec. RR No. 29 1059 24,000 Dec. RR No. 30 1061 70,000 Dec. RR No. 31 1062 42,000 Dec. RR No. 31 1063 64,000 Dec. Closing 31 entry (3,000,00) P RR = Receiving Report P600,000 500,000 400,000

c. d.

P968,000 P814,000

4. Accounts receivable as of December 31, 2010 a. P350,000 c. P370,000 b. P220,000 d. P120,000 5. Accounts payable as of December 31, 2010 a. P418,000 c. P 400,000 b. P354,000 d. P1,218,000

You observed the physical inventory of goods in the warehouse on December 31 and were satisfied that it was properly taken. When performing sales and purchases cut-off tests, you found that at December 31, the last Receiving Report which had been used was No. 1063 and that no shipments had been made on any Sales Invoices whose number is larger than No. 968. You also obtained the following additional information: a) Included in the warehouse physical inventory at December 31 were goods which had been purchased and received on Receiving Report No. 1060 but for which the invoice was not received until the following year. Cost was P18,000. b) On the evening of December 31, there were two trucks in the company siding: • Truck No. CPA 123 was unloaded on January 2 of the following year and received on Receiving Report No. 1063. The freight was paid by the vendor. • Truck No. ILU 143 was loaded and sealed on December 31 but leave the company premises on January 2. This order was sold for P100,000 per Sales Invoice No. 968. c) Temporarily stranded at December 31 at the railroad siding were two delivery trucks enroute to

PROBLEM NO. 2 The Bolinao Company values its inventory at the lower of FIFO cost or net realizable value (NRV). The inventory accounts at December 31, 2009, had the following balances. Raw materials Work in process Finished goods P 650,000 1,200,000 1,640,000

The following are some of the transactions that affected the inventory of the Bolinao Company during 2010. Jan. 8 Bolinao purchased raw materials with a list price of P200,000 and was given a trade discount of 20% and 10%; terms 2/15, n/30. Bolinao values inventory at the net invoice price Bolinao repossessed an inventory item from a customer who was overdue in making payment. The unpaid balance on the sale is P15,200. The repossessed merchandise is to be refinished and placed on sale. It is expected that the item can be sold for P24,000 after estimated refinishing costs of P6,800. The normal profit for this item is

Feb. 14

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200. Debit to Cost of Repossessed Goods Sold of P14.000 15. P6. received P25. P6.000 d. P 0 c. The repossessed item was resold P24.000.000 b. Apr. The trademark has 7 years remaining legal life. and credits to Miscellaneous Income. 2010. paid the automobile dealer P150. P4.000 240.000. 2009.000 on account.000 P 940. P885.200 b. 1 purchased Jan. 1. 3 Aug. c. P144.000. P278.000 P140.000. P94. The Semitrucks account consists of the following as of January 1. A reduction of P8.000 (depreciation on the 4 trucks from respective date of purchase. 1 was sold for P35.400 were incurred on the repossessed item. 2010. depreciation and other data affecting the income of the Company in the 4-year period 2007 to 2010.200 c. The entry was debit to Semitrucks and a credit to cash.000. answer the following: (Assume the client is using perpetual inventory system) 6. Goodwill for P1. 30 A sale on account was made of finished goods that have a list price of P59. 2004. The 2010 depreciation expense is a. 2007: Truck cost Truck cost Truck cost Truck cost No.) Truck No.000. (Assume truck No.500. P211.800 d. QUESTIONS: Based on the above and the result of your audit. P200.000 c. P196. 4 purchased July 1. P284.000 12. P150.400 c. 2 purchased July 1.500 c. 1 Refinishing costs of P6.000 cash. 3 was traded for larger one (No. Mar. The journal entries on April 3 will include a a. P50.000 c. P17. inclusive. The goodwill is PROBLEM NO.000 off the list price was granted as a trade-in allowance. P20. P57. Blue Mfg. 2007 and December 31. How much will be recorded as Sales on Aug. P64. P354. P16. 4 On December 31. Truck No. Credit to Profit on Sale of Repossessed Inventory of P3. 3 You requested a depreciation schedule for Semitrucks of Blue Manufacturing Company showing the additions. Probe Corporation acquired the following three intangible assets: c. P244.000 b. P 0 c. entry debited Cash and credited Semitrucks.400. Debit to Cash of P24. P57.400 as is. P8.000 b. and duly entered to the ledger. 2006.500 b. P7. 2009 Entries for depreciation had been made for the close of each year as follows: 2007. 1. 2 was not retired. Transactions between January 1.000 b. P 0 • Page 2 of 6 .500. d. P35. P141. based on five-year life. P23. P104.120 b.000 • The Semitrucks – Accumulated Depreciation account previously adjusted to January 1. and their record in the ledger were as follows: July 1.400 10. P24. It is anticipated that the trademark will be renewed in the future.000 cash and was charged at that amount to Semitrucks account.500 d. The carrying amount of Semitrucks as of December 31.000 b. P184. 30? a. the agreed purchase price of which was P340. Jan. 8 will include a debit to Raw Materials Inventory of a. indefinitely. The entry made by the bookkeeper was a debit to cash. Co.000. P504. P14. The trade-in inventory on Aug. A new truck (No. 2007. 2006.200 b. P51. without problem. determine the following: (Disregard tax implications) 11.000 d.000.000 d. retirements. no salvage A trademark for P300. 20% down.600. 2009 July 1. P138.considered to be P3. No. 1. P203. 5). The 2009 profit is understated by a. P51.400.000 13.600 July 1.000 d. 14 is most likely to be valued at a. d.000 d. The normal profit on this type of inventory is 25% of the sales price. The 2008 profit is understated by a. 2008. No. 30 is most likely to be valued at a. 2008 QUESTIONS: Based on the above and the result of your audit.000 14.000 from the insurance company. Blue Mfg.000. P56. Credit to Repossessed Inventory of P20.400 8. No charges have been made against the account before January 1. The 2007 profit is overstated by a.000. The repossessed inventory on Feb. 6) was acquired for P360. P 180. The trade-in item is to be priced to sell at P6. P31. for value). 3 purchased Jan. 2010 is a. 2004.000. P32. Co.000 PROBLEM NO. 2007.000 cash. P9.000 cash on the transaction.000. The entry on Jan.000 7. 2009. had a balance on that date of P302. P14.000 d.200 and a cost P38.000 300. 2007 Truck No.000 c.000 220. b. 4 was damaged in a wreck to such an extent that it was sold as junk for P7.000 and Semitrucks P 25. 9. No.

000 c.000 Fair values P3.000 22. Total amortization for the year 2010 a.000 in 2012. P220.390.000 was purchased in early January on a one-year installment basis.800.667 b. the following information was assembled about each of the intangible assets: b.857 17.143 d. 15 years) Land P 600.246. P2. P146. for merchandise f.000 c. 2010 a.000 c.000 dated in December but not paid by the bank until January 2011. P1.000. 2010.000 25.515 b.818 b.000 b.000 per year. During the year. 2010.920.000 from the bank and repaid P150.000 PROBLEM NO.400. Carrying amount of Goodwill as of December 31.000 240. c. checks for the down payment and all maturing installments totaled P534.000 120. 2010 a.200 c. P9.000 d. P9.000 b. determine the following: (Disregard income taxes) 21. P120. 2010 Think Positive Company started business and issued share capital. P8.000 1.000 of that amount may prove uncollectible. b) The cash flows expected to be generated by the Nexus Manufacturing reporting unit is P250.000. d.000 c.320. Disbursements paid in cash during the year were as follows: Utilities Salaries Supplies Dividends P120. Unpaid suppliers invoices amounted to P420. P3. P133. On January 2. • Probe’s Nexus Manufacturing Additional information: a.000 shares with P100 par. the trademark is now expected to generate cash flows of just P10. Carrying amount of Customer list as of December 31.620. Impairment loss for the year 2010 a. P9. P 0 Equipment with a cash price of P480. P9.000 b. The equipment has a useful life of 5 years.000 P4. Book values and fair values of the assets and liabilities of the Nexus Manufacturing reporting unit are as follows: Book values P2.000 c.476 b.584 P 0 18.000 b. 72.431. P1.000 P660. P116. 2010 a. d.000 including customers’ deposit of P90.240. Net income for the year ended December 31.580.000 and P30. of P4. for the following considerations: Cash Building (useful life.583.720. P 960.000 A customer list for P220. No record was kept of cash in the bank. determine the following: (Assume that the appropriate discount rate for all items is 6%): 16.770. P 90. The balance in the bank statement on December 31. h. including the original cash investment. P1.646.800.500. g.200.000 in 2011 and P80. P1.000 24.000 d. Purchases of merchandise were paid for by check.000 1. Payments for merchandise purchases in 2010 a. P2. 5 Your audit of Think Positive Company disclosed that your client kept very limited records.000 interest. P1.000. The useful life of trademark still extends beyond the foreseeable horizon.000 but P60.000 ? 1. Probe has exclusive use of the list for 5 years. P 86. before any adjusting entries for the year were made. Collections from sales in 2010 a. P1.000 P7. The company’s collections were deposited weekly. On December 31. P300.000 5.190 d. and this copy was given to the customer when he paid his account.000 d. Shareholders’ equity as of December 31.000 d.416 19.000 Page 3 of 6 .000 c. Think Positive Company borrowed P600. P3.333 c. 2010 showed P906.500. Tickets for accounts receivable totaled P1. Because of market conditions.390.000. P179.000.000. P166. 23.700. During the year. P9.586.450.000. b. e. QUESTIONS: Based on the above and the result of your audit. P3. P 73.080.540.800. a) Because of a decline in the economy.462. d. Accounts receivable were recorded only by keeping a copy of the ticket. P176. nor was a record kept of sales. P1. but most other items were out of cash receipts. but there were checks amounting to P60.000 P9.000.000 1. P4. Cash on hand on December 31.associated with reporting unit. 2010 a.000 An analysis of the bank statements showed total deposits. P141. REQUIRED: Based on the above and the result of your audit.425.180.000 c. P257. was P300.667 d.000 per year for the next 22 years. it is expected that the list will have economic value for just 3 years. 2010 a. P2. Total assets as of December 31.560.000 d. P9.333 An inventory of merchandise taken on December 31.000 of merchandise.800. 2010 a. 2010 was P150. Identifiable assets Goodwill Liabilities c) The cash flows expected to be generated by the customer list are P120.000 180. By contract.436.500 20.000 b.000 c. Carrying amount of Trademark as of December 31.

P833. P368.895 28. The market price of the land is not reliably determinable. P 94.000 (plus interest on the outstanding balance). 2. 2010 December 31. answer the following: 31. P9. d. d.130 P70.000. A debit on December 31 for the amount of the credit to the Allowance for Doubtful Accounts.800 27.765 c. All of the following are examples of substantive tests to verify valuation of net accounts receivable except the a. 2010. An aging schedule of the accounts receivable as of December 31. The correct carrying amount of the notes receivable at December 31. 2010 as part of trade and other receivables.000 32. 2010 Cash Notes receivable Interest income P224. As payment.000 P400.800 b.000 24. P54.000 to Buyer Company.540 35. P182.180 c.780 d.200 P837. P25.100 on November 30. 2010 is overstated by a.140 debit 30. 2010 is a.000 P387. QUESTIONS: • There is a credit balance in one account receivable (61 to 90 days) of P11. Pedro made the following journal entries in relation to the sale of land and the related note receivable: January 1.800 307. P25. The Allowance for Doubtful Accounts schedule is presented below: Debit January 1. • Age 60 days & under 61 to 90 days 91 to 120 days Over 120 days Net debit balance PROBLEM NO. The entity’s working capital at December 31. P25.000. How much is the Doubtful Accounts expense for the year 2010? a. 2010 November 30.895 P55.900 x 5%) P6. P74.000 c. Re-computation of the allowance for bad debts. P14. How much is the adjusted balance of the Allowance for Doubtful Accounts as of December 31. c. Inc. P 0 34.000 c.100 89. The note bears an interest rate of 4% and is to be repaid in three annual installments of P200.800 53. How much is the adjusted balance of Accounts Receivable as of December 31. 2010. P20. The correct interest income for 2010 is a. 2010? a. 6 In connection with your examination of the financial statements of Ringo. 2010? a. The first payment is due on December 31. P14. the remainder is estimated to be 25% uncollectible. P232. 2010.230 c. it represents an advance on a sales contract.476 b. P400.900 c. Based on the above and the result of your audit. A credit for P6.809 d.900. P837.460 b. P41.875 credit b. The related sales took place on October 1. b.495 Pedro reported the notes receivable in its statement of financial position at December 31.PROBLEM NO.900 d. P 0 Page 4 of 6 . P72. P349. P839. 2010 Notes receivable Land Gain on sale of land December 31.615 credit d.920 credit c. and a debit to Allowance for Doubtful Accounts because of a bankruptcy.105 b. P120.868 QUESTIONS: Based on the above and the result of your audit. P20. P345.000 note. • The December 31. 2010 (P837.600 • P41. P50. 33. 2010.936 d. Pedro Company sold land that originally cost P400.098 d. P31.655 d. Comparison of the allowance for bad debts with past records. 2010 balance in the Accounts Receivable control accounts is P837. P103. Inspection of accounts for current versus noncurrent status in the statement of financial position. 7 On January 1. Profit for 2010 is overstated by a.000 P600.000 P200.435 P24.700 13.255 b.100 Credit Balance P19. 29. P20.985 b. b. you were able to obtain certain information during your audit of the accounts receivable and related accounts.475 c. for the year ended December 31. answer the following: 26. The correct gain on sale of land is a. 2010. P21. 2010 and 15% on December 31. P235. Buyer gave Pedro Company a P600.061 P200.000 200.870 b.875 c. P15. Inspection of the aging schedule and credit records of past due accounts.902 d. How much is the net adjustment to the Doubtful Accounts expense account? a. P41. P822. 2010.900 • Two entries made in the Doubtful Accounts Expense account were: 1. 2010 is presented below: Percentage to be applied after corrections have been made 1 percent 2 percent 5 percent Definitely uncollectible. The prevailing rate of interest for notes of this type is 14% on January 1.

500 75. 8 You were able to obtain the following ledger details of Trading Securities in connection with your audit of the IMBC Corporation for the year ended December 31.000 loss b. The P15.000 d. – 2.000 d.270 140.000 b.500 9.700.000 170. The company tax rate is 35%. 01 276.700 Bad debts of P3. 2010: Date Jan. 2010 is overstated by a. Included in this profit are the items of income and expense shown below.500 (4. P102. Additional information a. P 1.000 4. P60. P54. – 7. 39.000 d. 01 May 31 Particulars Purchase of 4WARD Co.000 b. P228.000 The company's draft balance sheet at 30 June 2010 showed the following assets and liabilities: Assets Cash Accounts receivable Allowance for doubtful debts Inventory Prepaid insurance Land Buildings Accumulated depreciation Plant Accumulated depreciation Deferred tax asset.000 when acquired six years ago. The tax depreciation rate for plant (which cost P150.000 loss b.440.000 17. The net gain or loss on sales of 4WARD shares in 2010 is a.200 shares DR P1. (opening balance) Liabilities Accounts payable Provision for annual leave Deferred tax liability (opening balance) Loan P 2.000 202. The unrealized loss on Trading Securities to be recognized in 2010 profit or loss is a.. P52.000 (67. P 60.910 c. During the year.000 1. P48. Depreciation on buildings is not deductible for taxation purposes.500 carried forward from prior years.600 4. 2010. respectively.500) Sep.000 spent (and expensed) on development during the year is not deductible for tax purposes until 30 June 2011. P36. answer the following: 36.500) 150. 15 1. 2010 is a. Page 5 of 6 . The total dividend income to be recognized in 2010 is a.000 gain b. 10 Feb.000 three years ago) is 20%.000 4.910 gain d.000 shares Purchase of BACK Co.000 10. P60.200 15.000 CR Royalty revenue (exempt from taxation) Proceeds on sale of building Entertainment expense (non deductible) Depreciation expense .600 333.000 82. The building sold during the year had cost P100.000 27. 20 Mar.500 70. The gain or loss on sale of 2. P12.500 21. the 4WARD dividends were analyzed as follows: Nature Cash Share Cash Declared 01/02/10 05/02/10 08/01/10 Record 01/15/10 05/15/10 08/30/10 Payment 01/31/10 05/31/10 09/15/10 Rate P20/share 10% P30/share At December 31.000 Aug.000 d.400 BACK shares on March 1. – 6. P142.000 gain c.400 shares Receipt of 4WARD share dividend– Offsetting Credit to retained earnings Sale of 4WARD Stocks – 4.a. P198.000 (59.000 75.600 22.plant Carrying amount of building sold Doubtful debts expense Annual leave expense Insurance expense Development expense P 8.buildings Depreciation expense . Roy Ltd has determined its accounting profit before tax for the year ended 30 June 2010 to be P256.270 From the Philippine Stock Exchange. PROBLEM NO. P 0 e.500 132. P300.500 18.000 with the final balance due on 28 July 2010.000 110.000 540.100) P 17.090 loss c.000 3. The company depreciates buildings at 5% p. f.800 shares Sale of 4WARD Stocks – 1.000 b. straight-line. Roy Ltd has tax losses amounting to P12. the following cash amounts were paid: Annual leave Insurance P52.500 were written off against the allowance for doubtful debts during the year.100 46. Quarterly income tax installments paid during the year were: 28 October 2009 28 January 2010 28 April 2010 P18. QUESTIONS: Based on the above and the result of your audit.000 loss d.200 shares Sale of BACK Co.600 25. 4WARD and BACK shares were selling at P210 and P240 per share. P108. 38.800. P540.000 gain c.176. P 0 40. The carrying amount of Trading Securities as of December 31.000 c. 37. P42.000 c.700 7. P180.000 1. 9 g. h.PROBLEM NO.400 31.

000 c. (ii) c.312. 10 Reproduced below is the draft statement of financial position of Jessie.000 c. Current tax payable a. The freehold property should be depreciated at 2% on its cost of P130 million.000 b.800 105. This first payment was made on 1 April 2009. Its value at 31 March 2010 has been assessed by a qualified surveyor at P12.585 42. It is estimated that they will only realize P4 million in total. P42.500 47. P55.200. d.000 d.400 48.000 4. P237.200 13.000 47. Deferred tax liability a.450 b.000 260.000 has been discovered. Total noncurrent liabilities as of 31 March 2010 a.000 110. P20.500 50. P236. Adjusted profit for the fiscal year ended 31 March 2010 a.310 c.800. P 1. The provision of P12 million represents two annual amounts of P6 million made in the years to 31 March 2009 and 2010. P31. P10. P219.REQUIRED: Compute for the following as of and for the fiscal period ended 30 June 2010: 41. P223.125.500.2 million being the first of four equal annual rental payments for an item of excavating plant.100.000 c.405) (iv) PROBLEM NO.000 (i) The income statement has been charged with P3.800.987. Total current liabilities as of 31 March 2010 a.487.500 c.000 52. P232.900.500 b.800.000 b. The plant had a fair value of P11. P77. P48.210 d.100 356. P42. P18.000 60. P14. P85.000 b.575 (iii) c. Jessie operates some heavy excavating plant which requires a major overhaul every three years.25 each Reserves: Share premium Accumulated profits . P'000 Non-current assets (note (i)) Freehold property Plant Investment property at 1 April 2009 (note (ii)) Current Assets Inventory (note (iii)) Trade receivables and prepayments Cash Total assets Equity and liabilities Capital and Reserves: Ordinary shares of P0. P81.600 14. P54. d. P236. Total shareholders’ equity as of 31 March 2010 a.185 d.710 43. (P19.800. Total noncurrent assets as of 31 March 2010 a.560 b.760 45. a public listed company. During an inventory count on 31 March 2010 items that had cost P6 million were identified as being either damaged or slow moving.000 c. P236. It has not been recorded in Jessie's bookkeeping system. P18. End of Examination Thank you for participating in the 2011 National Mock CPA Board Examinations! Page 6 of 6 . Interest is payable six months in arrears. P9.000 b.000 (vi) 15. P18.5 million. on which sales commission of 10% will be payable.270 (P18.000. Apportionment of issue costs. the leased plant is depreciated at 25% per annum on a straight-line basis and the non-leased plant is depreciated at 20% on the reducing balance basis. P23.700 47. An invoice for materials delivered on 12 March 2010 for P500.2 million at the inception of the lease. P55. P89.at 1 April 2009 (note (v)) Current liabilities Trade payables (note (iii)) Provision for plant overhaul (note (iv)) Income tax payable Suspense account (note (vi)) Total equity and liabilities P'000 (v) 126.085 c. Deferred tax asset a. discounts and premiums can be made on a straight-line basis.000 49. although the materials were included in the inventory count. P42.500 d.000 110. P55.500. Deferred tax expense (benefit) a.500 QUESTIONS: Based on the above and the result of your audit.400 356. Current tax expense a.980) None of the non-current assets have been depreciated for the current year.675.300.780) b. P28.000. The first payment of interest has not been accrued and is due on 1 April 2010.487.000 d.125 d. It is redeemable after four years at a premium of 10%. compute for the following: (Disregard effect of the adjustments on current income tax) 46. P7. P 9.1 April 2009 : Year to 31 March 2010 Non-current liabilities Deferred tax . P11. The deferred tax provision required at 31 March 2010 has been calculated at P22.875 44.200. The overhaul is estimated to cost P18 million and is due to be carried out in April 2011.000 251. P44.000 d. It was issued at a discount of 5% and incurred direct issue costs of P150. c. (P22. as at 31 March 2010.175. P224.960 Jessie adopts the fair value model for its investment property.400 31.200 63.585 b. P12. The suspense account contains the credit entry relating to the issue on 1 October 2009 of a P 15 million 8% loan note. Jessie has been advised that this is a finance lease with an implicit interest rate of 10% per annum.4 million.025 P35.400 150.000 d.460 b.000 18.400.400 12.000 10.

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