Accountancy Department

College of Business and Accountancy

Notre Dame University
Cotabato City, Philippines
CPA MOCK BOARD EXAMINATION
AUDITIN P!"B#$%& %!' !"NA#D $!%" %A%A!I#
IN&T!UCTI"N( Select the correct answer for each of the following
questions. Mark only one answer for each item by shading the box
corresponding to the letter of your choice on the sheet provided.
STRI!" #$ %R&S'R%S &!!$(%). 'se pencil no. * only.
CA&$ )( &T"C* IN+$&T%$NT IN &AN %IU$#
*. The Stock Investment showed the following details during year +,,-
ST$. I#/%STM%#T I# S&# MI0'%!
)ebit redit
1an. * &udited balance 23,,,shares 4-,3,,,
5eb. +- ash dividend +3,,,
Mar. 6* 7ought shares 83,,,
&pr. * Sale of rights 93,,,
1une 6, Sale of shares *,3,,,
*. & cash dividend of 4,.:, per share were received on 5eb. +-. The
ad;usting entry <assuming the use of the cost method= is>
a. Stock Investment +3,,,
)ividend income +3,,,
b. Retained earnings +3,,,
)ividend income +3,,,
c. )ividend Income +3,,,
Stock investment +3,,,
d. ash +3,,,
)ividend income +3,,,
+. $n March *:3 stock rights were received entitling shareholders to
purchase one share for every five held at 4*: per share. Market values
on this date were> shares3 4+,? rights3 4:. The ad;usting entry to
recogni@e the cost allocated to the rights is>
a. Stock rights *93,,,
Stock investment *93,,,
b. Stock rights +,3,,,
Stock investment +,3,,,
c. Stock rights *,3,,,
Stock investment *,3,,,
d. Stock rights 6,3,,,
Stock investment 6,3,,,
6. $n March 6*3 9,, shares were purchased with the partial exercise of
these rights. The ad;usting entry3 after the ad;ustment in #o. A above
has been given effect3 is
a. Stock investment *-3,,,
Stock rights *-3,,,
b. Stock investment *+3,,,
Stock rights *+3,,,
c. Stock rights *+3,,,
Stock investment *+3,,,
d. Stock rights *:3,,,
Stock investment *:3,,,
2. $n &pril *3 the remaining rights were sold for 493 ,,,. The ad;usting
entry is>
a. Stock investment 93,,,
0ain on sale of rights 93,,,
b. Stock investment 93,,,
Stock rights 23,,,
0ain on sale of rights +3,,,
c. Stock investment 23,,,
!oss on sale of rights +3,,,
Stock rights 93,,,
d. Stock investment 23,,,
0ain on sale of rights 23,,,
:. $n 1une 6,3 29, shares were sold for 4*,3 ,,,. 'sing the average cost
method3 the ad;usting entry is>
a. ash *,3,,,
Stock investment A3:,,
0ain on sale of stock +3:,,
b. Stock investment *,3,,,
0ain on sale of stock *,3,,,
c. Stock investment +3:,,
0ain on sale of stock +3:,,
d. #one of the above
CA&$ ,( -"%$ "..IC$ AND $&P$!AN/A B!ANC-
The following were found in your examination of the interplant accounts
between the Bome $ffice and %speran@a 7ranch.
a. Transfer of fixed assets from Bome $ffice amounting to 4:63 89, was not
booked by the branch.
b. 4*,3,,, covering marketing expenses of another branch was charged by
Bome $ffice to %speran@a.
c. %speran@a recorded a debit note on inventory transfers from Bome $ffice
of 4A:3,,, twice.
d. Bome $ffice recorded cash transfer of 49:3A,, from %speran@a 7ranch as
coming from 'pi 7ranch.
e. %speran@a reversed a previous debit memo from otabato 7ranch mounting
to 4*,3:,,. Bome $ffice debited that this charge is appropriately 'pi
7ranchCs cost.
f. %speran@a recorded a debit memo from Bome $ffice of 423 9:, as 4239:,.
9. The net ad;ustment in the Bome $ffice books related to the %speran@a
7ranch current amount is>
a. 4A:3A,,
b. 9:3A,,
c. -93+,,
d. 823-+,
A. The net ad;ustment in %speran@aCs books related to the Bome $ffice
account is>
a. 466366:
b. 6*32:,
c. +,38:,
d. *,32:,
-. 7efore the above discrepancies were given effect3 the balance in the
Bome $ffice books of its %speran@a 7ranch urrent account was debit
balance of 4*9:3 8+,. The unad;usted balance in the %speran@a 7ranch
books of its Bome $ffice urrent account must be>
a. 48+3669
b. 8-3+6,
c. *,23:,,
d. ***3*A,
page +
8. The ad;usted balance of the reciprocal account is>
a. 4-23 -,A
b. 8,3 ++,
c. 883 +,,
d. *,83 *+,

CA&$ 0( #$I#A %A$1& .#"2$! &-"P 3ACC!UA#4
The following information pertains to !eila MaCs 5lower Shop3 a
calendarDyear sole proprietorship3 which maintained its books on the cash
basis during the year.
!eila MaCs 5lower Shop
TRI&! 7&!&#%
)ecember 6*3 +,,-
)ebit redit
ash 4 *,+3 2,,
&ccounts receivable 923 -,,
Inventory3 *+E6*E+,,A +2-3 ,,,
5urniture F fixtures 2A+3 -,,
!and improvements *-,3 ,,,
&ccumulated depreciation3 *+E6*E+,,A 4*+83 9,,
&ccounts payable3 *+E6*E+,,A 9-3 ,,,
!eila MaeCs3 )rawings
!eila MaeCs3 apital3 *+E6*E+,,A 28-3 2,,
Sales +3 9*+3 ,,,
4urchases *3 ++,3 2,,
Salaries 9893 ,,,
4ayroll taxes 283 9,,
Insurance 623 -,,
Rent *693 -,,
'tilities :,3 2,,
!iving expenses :+3 ,,,
463 6,-3 ,,, 463 6,83 ,,,
!eila MaeCs has developed plans to extend into wholesale flower market
and is in the process of negotiating a bank loan to finance the expansion. The
bank is requesting +,,- financial statements prepared on the accrual basis of
accounting from !eila MaeCs. )uring the course of a review engagement3 Marion3
!eila MaeCs accountant3 obtained the following additional information.
*. &mounts due from customers totaled 4*+-3 ,,, at )ecember 6*3 +,,-.
+. &n analysis of the above receivables revealed that an allowance for
uncollectible accounts of 4*:3 +,, should be provided.
6. 'npaid invoices for flower purchases totaled 4*++3 ,,, and 49-3 ,,,3 at
)ecember 6*3 +,,-3 and )ecember 6*3 +,,A3 respectively.
2. The inventory totaled 4+8*3 +,, based on a physical count of the goods
at )ecember 6*3 +,,-. The inventory was priced at cost3 which
approximates market value.
:. $n May *3 +,,-3 !eila Mae paid 4623 -,, to renew its comprehensive
insurance coverage for * year. The premium on the previous policy3 which
expired on &pril 6,3 +,,-3 was 46*3 +,,.
9. $n 1anuary +3 +,,-3 !eila Mae entered into +:Dyear operating lease for
the vacant lot ad;acent to 7aronCs retail store for use as a parking
lot. &s agreed in the lease3 !eila Mae paved and fenced in the lot at a
cost 4*-,3 ,,,. The improvements were completed on &pril *3 +,,-3 and
have an estimated useful life of *: years. #o provision for depreciation
or amorti@ation has been recorded. )epreciation on furniture and
fixtures was 42-3 ,,, for +,,-.
A. &ccrued expenses at )ecember 6*3 +,,A and +,,-3 were as follows>
+ , , , + , , *
'tilities 463 9,, 4 93 ,,,
4ayroll taxes 23 2,, 93 2,,
4-3 ,,, 4*+3 2,,
page 6
-. !eila Mae is being sued for 4*93 ,,,. The coverage under the
comprehensive insurance policy is limited to 4*3 ,,,3 ,,,. !eila MaeCs
attorney believes that an unfavorable outcome is probable and that a
reasonable estimate of the settlement is 4*3 +,,3 ,,,.
8. The salaries account includes 4*93 ,,, per month paid to the proprietor.
!eila Mae also receives 4*3 ,,, per week for living expenses.
!e5uired( "ou are to convert the balances of the nine <8= accounts below to
the accrual basis.
M'!TI4!% B$I% G'%STI$#S>
a b c d
*,. &ccounts receivable4923 -,, 4963 +,, 4*+-3 ,,, 4*8+3 -,,
**. Inventory +8*3 +,, +2-3 ,,, 263 +,, 6623 2,,
*+. &ccounts payable :23 ,,, 9-3 ,,, *++3 ,,, *A93 ,,,
*6. Sales +3 9*+3 ,,, +3 :2-3 -,, +3 :,,3 ,,, +3 9A:3 +,,
*2. 4urchases *3 +A23 2,, *3 ++,3 2,, *3 *993 2,, *3 +:,3 ,,,
*:. Salaries ---3 ,,, 9893 ,,, 9,,3 ,,, :,23 ,,,
*9. 4ayroll taxes :*3 9,, 2A3 9,, 283 9,, :,3 ,,,
*A. Insurance 623 -,, 663 9,, 693 ,,, 6:3 ,,,
*-. 'tilities :,3 2,, 2-3 ,,, :,3 ,,, :+3 -,,
CA&$ 6( 78 % C"' 3B"ND&4
The 1 F M o. sold 493 ,,,3 ,,, of 8H bonds on $ctober *3 +,,*3 at 4:3
A2A3 +-, plus accrued interest. The bonds were dated 1uly *3 +,,*? interest
payable semiannually on 1anuary * and 1uly *? redeemable after 1une 6,3 +,,9
to 1une 6,3 +,,A3 at *,*3 and thereafter until maturity at *,,? and
convertible into 4*, par value common stock as follows.
'ntil 1une 6,3 +,,93 at the rate of 9 shares for each 4*3 ,,, bond.
5rom 1uly *3 +,,9 to 1une 6,3 +,,83 at the rate of : shares for each
4*3 ,,, bond.
&fter 1une 6,3 +,,83 at the rate of 2 shares for each 4*3 ,,, bond.
The bonds mature *, years from their issue date. The company ad;usts its
books monthly and closes its books as of )ecember 6* each year.
The following transactions occur in connection with the bonds>
+,,A
1uly * 4+3 ,,,3 ,,, of bonds were converted into stock.
+,,-
)ec. 6* 4*3 ,,,3 ,,, face value of bonds were reacquired
at 88D*E2 plus accrued interest. These were
immediately retired.
+,,8
1uly * The remaining bonds were called for redemption
and accrued interest was paid. 5or purposes of obtaining funds for redemption
and business expansion3 a 4-3 ,,,3 ,,, issue of AH bonds was sold at 8A. These
bonds are dated 1uly *3 +,,83 and are due in +, years.
*8. (hat are the carrying value of bonds payable at )ecember 6*3 +,,*I
a. 4:3 A2A3 +-, c. 4:3 A:63 A9,
b. 493 ,,,3 ,,, d. 4:3 A283 22,
+,. (hat is the total interest expense for +,,*I
a. 4*+-3 :+, c. 4*2*3 2-,
b. 4 2A3 *9, d. 4*6:3 ,,,
+*. In recording the bond conversion on 1uly *3 +,,3 how much should be
credited to the additional paidDin capital accountI
a. 4*3 A893 6+, c. 4*3 -2:3 22,
b. 4*3 89:3 22, d. 4*3 -9:3 22,
page 2
++. (hat is the gain or loss on bond conversion on 1uly *3 +,,AI
a. 4, c. 4*3 -9:3 22,
b. 4*3 A893 6+, d. 4 623 :9,
+6. (hat is the carrying value of the bonds reacquired on )ecember 6*3 +,,-I
a. 48-83 +,, c. 4*3 ,*,3 -,,
b. 48:A3 --, d. 4 8-*3 A,,
+2. (hat is the gain <loss= on bond reacquisition on )ecember 6*3 +,,-I
a. 463 6,, c. 4623 9+,
b. <463 6,,= d. 4 <4623 9+,=
+:. (hat is the carrying value of the bonds retired on 1uly *3 +,,8I
a. 463 ,,,3 ,,, c. 4+3 -A63 92,
b. 4+3 8A23 ,-, d. 463 ,+:3 8+,
+9. (hat is the gain <loss= on bond retirement on 1uly*3 +,,8I
a. <4+:3 8+,= c. <4*+3 89,=
b. 4+:3 8+, d. 4,
CA&$ 9( B#U$ IC$ C"' 3!:$4
7!'% I% $M4&#"CS stockholdersC equity account balance at )ecember 6*3
+,,- were as follows>
ommon Stock -,,3 ,,,
&dditional 4aidDin capital *3 9,,3 ,,,
Retained %arnings *3 -2:3 ,,,
The following +,,8 transactions and other information relate to the
stockholdersC equity accounts>
a. 7!'% I% had 2,,3 ,,, authori@ed shares of 4: par common stock3 of which
*9,3 ,,, shares were issued and outstanding.
b. $n March :3 +,,83 7!'% I% acquired :3 ,,, shares of its common stock
for 4*, per share to hold as treasury stock. The shares were originally
issued at 4*: per share. 7!'% I% uses the cost method to account for
treasury stock. Treasury stock is permitted in 7!'% I%Cs state of
incorporation.
c. $n 1uly *:3 +,,83 7!'% I% declared and distributed a property dividend
of inventory. The inventory had a 4A:3 ,,, carrying value and a 49,3 ,,,
fair market value.
d. $n 1anuary +3 +,,83 7!'% I% granted stock options to employees to
purchase +,3 ,,, share of 7!'% I%Cs common stock at 4*- per share3
which was the market on that date. The option may be exercised all +,3
,,, options when the market value of the stock was 4+: per share. 7!'%
I% issued new shares to settle the transaction.
e. 7!'% I%Cs net income for +,,8 was 4+2,3 ,,,.
Instruction( 7ased on the information above and other analysis as
necessary3 answer the following question.
+A. 7!'% I%Cs ommon Stock balance at )ecember 6*3 +,,8 is?
a. 4*3 *9,3 ,,, c. 4-,,3 ,,,
b. 48,,3 ,,, d. 4*3 6,,3 ,,,
+-. 7!'% I%Cs &dditional 4aidDin capital balance at )ecember 6*3 +,,8 is?
a. 4*3 -9,3 ,,, c. 4+3 ,,,3 ,,,
b. 4*3 89,3 ,,, d. 4+3 *,,3 ,,,
+8. 7!'% I%Cs Retained %arnings balance at )ecember 6*3 +,,8 is?
a. 4+3 ,-:3 ,,, c. 4+3 ,+:3 ,,,
b. 4+3 ,*,3 ,,, d. 4*3 AA,3 ,,,
6,. 7!'% I%Cs Treasury Stock balance at )ecember 6*3 +,,8 is?
a. 4:,3 ,,, c. 4,
b. 4A:3 ,,, d. 4*+:3 ,,,
page :
6*. 7!'% I%Cs StockholdersC %quity balance at )ecember 6*3 +,,8 is?
a. 423 8*,3 ,,, c. 423 A+,3 ,,,
b. 423 -+,3 ,,, d. 423 A6:3 ,,,
CA&$ ;( #$TICIA1& C"' 3PP$4
Information pertaining to !%TII& $M4&#"CS property3 plant and
equipment for +,,8 is presented below.
&ccount balances at 1anuary *3 +,,8>
)ebit redit
!and 93 ,,,3 ,,,
7uildings 2-3 ,,,3 ,,,
&ccum. )epreciation J 7ldg. *,3 :+23 ,,,
Machinery and equipment 693 ,,,3 ,,,
&ccum. )epreciation J MachE%quip. *,3 ,,,3 ,,,
&utomotive equipment 23 9,,3 ,,,
&ccum. )epreciation J &uto. %quip. 63 6-23 ,,,
)epreciation data>
)epreciation 'seful
Method !ife
7uilding *:,H declining balance +: years
MachineryE%quip. S!M *, years
&utomotive %quip. S") 2 years
!easehold improvements S!M D
)epreciation is computed to the nearest month.
Transactions during +,,8 and other information are as follows>
K $n 1anuary +3 +,,83 !%TII& purchased a new car for 4-,,3 ,,, cash and
tradeDin of a +DyearDold car with a cost of 4A+,3 ,,, and a book value of
4+*93 ,,,. The new car has a cash price of 489,3 ,,,? market value of the
tradeDin is not known.
K $n May *3 +,,83 costs of 493 A+,3 ,,, were incurred to improve leased office
premises. The leasehold improvements have a useful life of - years. The
related lease terminates on )ecember 6*3 +,,-.
K $n 1uly *3 +,,83 machinery and equipment were purchased at a total invoice
cost of 4**3 +,,3 ,,,? additional costs of 4+,,3 ,,, for freight and 4*3 ,,,3
,,, for installation were incurred.
K !%TII& determined that the automotive equipment comprising the 423 9,,3 ,,,
balance at 1anuary *3 +,,83 would have been depreciated at a total amount of
4A+,3 ,,, for the year ended )ecember 6*3 +,,8.
Instruction( 7ased on the information above and other analysis as
necessary3 answer the following question>
6+. (hat is the depreciation on building for +,,8I
a. 4*3 2883 ,2, c. 4+3 88-3 ,-,
b. 4+3 --,3 ,,, d. 4+3 +2-3 ::A
66. (hat is the book value of the building at )ecember 6*3 +,,8I
a. 4623 :893 ,,, c. 4623 2AA3 8+,
b. 46:3 8A93 89, d. 46:3 ++A3 686
62. (hat is the depreciation on machinery and equipment for +,,8I
a. 423 *+-3 ,,, c. 423 ++,3 ,,,
b. 423 *:*3 ,,, d. 423 *8A3 ,,,
6:. (hat is the gain on machine destroyed by fireI
a. 49+,3 ,,, c. 4*9,3 ,,,
b. 46,,3 ,,, d. 429,3 ,,,
page 9
69. (hat is the balance of the accumulated depreciation J machinery and
equipment at )ecember 6*3 +,,8I
a. 4*63 +6*3 ,,, c. 4*63 A9,3 ,,,
b. 4*63 AAA3 ,,, d. 4*63 98*3 ,,,
6A. (hat is the depreciation on automotive equipment for +,,8I
a. 4*3 *,23 ,,, c. 4A+,3 ,,,
b. 4-*93 ,,, d. 489,3 ,,,
6-. (hat is the gain <loss= on car traded inI
a. 4 <+2,3 ,,,= c. 4 <:93 ,,,=
b. 4+2,3 ,,, d. 4:93 ,,,
68. (hat is the depreciation on leasehold improvement for +,,8I
a. 4A:93 ,,, c. 4:9,3 ,,,
b. 49A+3 ,,, d. 496,3 ,,,
2,. (hat is the book value of leasehold improvements at )ecember 6*3 +,,8I
a. 493 *9,3 ,,, c. 493 ,8,3 ,,,
b. 493 ,2-3 ,,, d. 4:3 8923 ,,,
CA&$ <( &T' 7"-N AND &T' T-$!$&$
5inancial Statements for St. 1ohn and St. Therese on )ecember 6*3 +,,8
follows>
Income Statements for the year ended *+E6*E,+
St. 1ohn St. Therese
Sales A:,3 ,,, 2+,3 ,,,
ost of sales :-*3 ,,, +993 ,,,
0ross Margin *983 ,,, *:23 ,,,
)epreciation and interest expense +-3 2,, *93 +,,
$ther operating expenses **A3 ,,, *+-3 2,,
#et income from operations +63 9,, 83 2,,
0ain on sale of equipment 63 ,,,
0ain on bonds
%quity in subsidiaryCs income -3 29, .
#et income 6:3 ,9, 83 2,,
LLLLLLLL LLLLLLLL
Statement of Retained %arnings for the year ended *+E6*E,+
,*E,*E,+ Retained %arnings 2-3 ,,, 2*3 ,,,
#et Income <from above= 6:3 ,9, 83 2,,
Total -63 ,9, :,3 2,,
)ividends <*:3 ,,,= <23 ,,,=
*+E6*E,+ 7alance 9-3 ,9, 293 2,,
LLLLLLLLL LLLLLLLL
7alance Sheet as of )ecember 6*3 +,,8
ash 2:3 6,, 93 2,,
&ccounts receivable <net= 263 A,, *+3 *,,
Inventories 6-3 6,, +,3 A:,
%quipment *8:3 ,,, :A3 ,,,
&ccumulated depreciation <6:3 +,,= <*-3 8,,=
Investment in stock of St. 1ohn *+:3 29,
Investment in bonds of St. Therese 223 ,,,
4atents . 83 ,,,
2*+3 :9, *6,3 6:,
LLLLLLLLL LLLLLLLL
&ccounts payable -3 8,, *-3 8:,
7onds payable *,,3 ,,,
apital Stock *:23 ,,, :,3 ,,,
&dditional paidDcapital -*3 9,, *:3 ,,,
Retained earnings <from above= 9-3 ,9, 293 2,,
2*+3 :9, *6,3 6:,
LLLLLLLL LLLLLLLLL
page A
St. 1ohn acquired 8,H of the common stock of St. Therese for 4*+,3 9,, on
1anuary *3 +,,8.
The following additional information is available in the first year after the
acquisition.
*. )uring +,,83 St. 1ohn sold merchandise to St. Therese that originally cost
St. 1ohn 4*:3 ,,,3 and the sale was made for 4+,3 ,,,. $n )ecember 6*3 +,,-3
St. ThereseCs inventory included merchandise purchased from St. 1ohn at a cost
to St. Therese of 4*+3 ,,,.
+. &lso3 during +,,83 St. 1ohn acquired 4*-3 ,,, of merchandise from St.
Therese. St. Therese uses normal markup of +:H above cost. St. 1ohnCs ending
inventory includes 4*,3 ,,, of the merchandise acquired from St. Therese.
6. St. Therese reduced its intercompany account payable to St. 1ohn to a
balance of 423 ,,, as of )ecember 6*3 +,,83 by making a payment of 4*3 ,,, on
)ecember 6,. This 4*3 ,,, payment was still in transit on )ecember 6*3 +,,8.
2. $n 1anuary +3 +,,83 St. Therese acquired equipment from St. 1ohn for 4A3
,,,. The equipment was originally purchased by St. 1ohn for 4:3 ,,, and had a
book value of 423 ,,, at the date of sale to ST. Therese. The equipment had an
estimated remaining life of 2 years as of 1anuary +3 +,,8.
:. $n )ecember 6*3 +,,83 St. Therese purchased for 4223 ,,,3 :,H of the
outstanding bonds issued by St. 1ohn. The bonds mature on )ecember 6*3 +,,:3
and were originally issued at par. The bonds pay interest annually on )ecember
6* of each year3 and the interest was paid to the prior investor immediately
before St. ThereseCs purchase of bonds.
=U$&TI"N(
&ssume that the combination is accounted for as 4'RB&S%.
2*. (hat is the eliminating entry for the %quity in subsidiaryCs income and
dividends declared by the subsidiaryI
a. %quity in subsidiaryCs income -3 29,
Investment in stock of St. Therese -3 29,
b. %quity in subsidiaryCs income -3 29,
)ividends declared J St. Therese 63 9,,
Investment in stock of St. Therese 23 -9,
c. %quity in subsidiaryCs income *+3 ,9,
Investment in stock of St. Therese *+3 ,9,
d. #o %liminating %ntry
2+. (hat is the eliminating entry for St. ThereseCs stockholdersC equityI
a. apital stock J St. Therese 2:3 ,,,
&dditional paidDin capital J St. Therese *63 :,,
Retained earnings J St. Therese 693 8,,
0oodwill +:3 +,,
Investment in stock of St. Therese *+,3 9,,
b. apital? stock J St. Therese 2:3 ,,,
&dditional paidDin capital J St. Therese *63 :,,
Retained earnings J St. Therese 693 8,,
Investment in stock of St. Therese 8:3 2,,
c. apital stock J St. Therese :,3 ,,,
&dditional paidDin capital *:3 ,,,
Retained earnings J St. Therese 293 2,,
0oodwill *23 ,9,
Investment in stock of St. Therese *+:3 29,
d. apital stock J St. Therese :,3 ,,,
&dditional paidDin capital J St. Therese *:3 ,,,
Retained earnings J St. Therese 293 2,,
Investment in stock of St. Therese ***3 2,,
26. To eliminate the sales made by St. 1ohn to St. Therese3 the entry is>
a. Sales +,3 ,,,
Inventory J St. Therese <7ES= 63 ,,,
4urchases +,3 ,,,
Inventory J St. Therese <IES= 63 ,,,
b. Sales +,3 ,,,
ost of sales *A3 ,,,
Inventory J St. Therese 63 ,,,
c. Sales +,3 ,,,
Inventory J St. Therese 63 ,,,
ost of sales +63 ,,,
4age -
d. Retained %arnings 63 ,,,
Sales +,3 ,,,
Inventory J St. Therese 63 ,,,
ost of sales +,3 ,,,
22. To eliminate the entry made by St. Therese to St. 1ohn3 the entry is>
<assume that %quity in subsidiary income has not been recorded by parent=
a. Sales *-3 ,,,
Inventory +3 ,,,
ost of sales *93 ,,,
b. Sales *-3 ,,,
Investment in stock of St. Therese *3 9,,
Retained earnings J St. Therese 2,,
ost of sales *-3 ,,,
Inventory +3 ,,,
c. Sales *-3 ,,,
Retained earnings +3 ,,,
ost of sales *-3 ,,,
Inventory +3 ,,,
d. Sales *-3 ,,,
Inventory +3 ,,,
ost of sales +,3 ,,,
2:. To record the items in transit and to eliminate the interDcompanyCs
payableEreceivable3 the entry is>
a. &ccounts payable 23 ,,,
&ccounts receivable 23 ,,,
b. &ccounts receivable 23 ,,,
ash *3 ,,,
&ccounts payable :3 ,,,
c. ash *3 ,,,
&ccounts payable 63 ,,,
&ccounts receivable 23 ,,,
d. ash *3 ,,,
&ccounts payable 23 ,,,
&ccounts receivable :3 ,,,
29. To eliminate the acquisition made by St. Therese from St. 1ohn3 the entry
is>
a. %quipment +3 ,,,
&ccumulate depreciation *3 ,,,
0ain on sale of equipment 63 ,,,
b. 0ain on sales of equipment 63 ,,,
%quipment +3 ,,,
&ccumulated depreciation +:,
)epreciation expense A:,
c. 0ain on sale of equipment 63 ,,,
%quipment +3 ,,,
&ccumulated depreciation *3 ,,,
d. 0ain on sale of equipment 63 ,,,
%quipment +3 ,,,
)epreciation expense *3 ,,,
2A. The depreciation recorded by St. 1ohn at )ecember 6*3 +,,8 is>
a. $verstated by 4A:, c. $verstated by 4*3 A:,
b. $verstated by 4+:, d. 'nderstated by 4*3 ,,,
2-. The entry to eliminate the bonds purchased by St. Therese from St. 1ohn
is>
a. 7onds payable :,3 ,,,
Investment in bonds of St. 1ohn 223 ,,,
0ain on extinguishments of debt 93 ,,,
b. Investment of St. 1ohn 223 ,,,
!oss on extinguishments of debt 93 ,,,
7onds payable :,3 ,,,
c. 7onds payable 223 ,,,
Investment in bonds of St. 1ohn 223 ,,,
Retained earnings 93 ,,,
d. 7onds payable :,3 ,,,
Investment in bonds of St. 1ohn 223 ,,,
Retained earnings 93 ,,,
page 8
5or items 28D:,3 assume that the combination is accounted for as 4$$!I#0 $5
I#T%R%ST.
28. (hat is the eliminating entry for the %quity in subsidiaryCs income and
dividends declared by the subsidiaryI
a. %quity in subsidiaryCs income -3 29,
Investment in stock of St. Therese -3 29,
b. %quity in subsidiaryCs income -3 29,
)ividends declared J St. Therese 63 9,,
Investment in stock of St. Therese 23 -9,
c. %quity in subsidiaryCs income *+3 ,9,
Investment in stock of St. Therese *+3 ,9,
e. #o eliminating %ntry
:,. (hat is the eliminating entry for St. ThereseCs stockholdersC equityI
a. apital stock J St. Therese 2:3 ,,,
&dditional paidDin capital J St. Therese *63 :,,
Retained earnings J St. Therese 693 8,,
0oodwill +:3 +,,
Investment in stock of St. Therese *+,3 9,,
b. apital stock J St. Therese 2:3 ,,,
&dditional paidDin capital J St. Therese *63 :,,
Retained earnings J St. Therese 693 8,,
Investment in stock of St. Therese 8:3 2,,
c. apital stock J St. Therese :,3 ,,,
&dditional paidDin capital J St. Therese *:3 ,,,
Retained earnings J St. Therese 293 2,,
0oodwill *23 ,9,
Investment in stock of St. Therese *+:3 29,
d. apital stock J St. Therese :,3 ,,,
&dditional paidDin capital J St. Therese *:3 ,,,
Retained earnings J St. Therese 293 2,,
Investment in stock of St. Therese ***3 2,,
4age *,