Accountancy Department College of Business and Accountancy Notre Dame University Cotabato City, Philippines

CPA – MOCK BOARD EXAMINATION AUDITING PROBLEMS MR. RONALD GERMO MAMARIL INSTRUCTION: 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. STRICLY NO ERASURES ALLOWED. Use pencil no. 1 only.
CASE 1: STOCK INVESTMENT IN SAN MIGUEL

1. The Stock Investment showed the following details during year 2008
STOCK INVESTMENT IN SAN MIGUEL Debit P80,000 9,000 10,000 Credit 2,000 6,000

Jan. Feb. Mar. Apr. June 1.

1 28 31 1 30

Audited balance 4,000shares Cash dividend Bought shares Sale of rights Sale of shares

A cash dividend of P0.50 per share were received on Feb. 28. The adjusting entry (assuming the use of the cost method) is: a. Stock Investment Dividend income b. Retained earnings Dividend income c. Dividend Income Stock investment d. Cash Dividend income 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000

2. On March 15, stock rights were received entitling shareholders to purchase one share for every five held at P15 per share. Market values on this date were: shares, P20; rights, P5. The adjusting entry to recognize the cost allocated to the rights is: a. Stock rights Stock investment b. Stock rights Stock investment c. Stock rights Stock investment d. Stock rights Stock investment 16,000 20,000 10,000 30,000 16,000 20,000 10,000 30,000

3. On March 31, 600 shares were purchased with the partial exercise of these rights. The adjusting entry, after the adjustment in No. 7 above has been given effect, is a. Stock investment Stock rights b. Stock investment Stock rights c. Stock rights Stock investment d. Stock rights Stock investment 18,000 12,000 12,000 15,000 18,000 12,000 12,000 15,000

P10. P92.450 8.335 31. b.000 7. Home Office recorded cash transfer of P65.500 7. 460 shares were sold for P10. 650 as P4. None of the above CASE 2: HOME OFFICE AND ESPERANZA BRANCH The following were found in your examination of the interplant accounts between the Home Office and Esperanza Branch.500 10.000 2. d. The net adjustment in the Home Office books related to the Esperanza Branch current amount is: a.820 10.000 6.500. the balance in the Home Office books of its Esperanza Branch Current account was debit balance of P165.450 20.000 twice. The net adjustment in Esperanza’s books related to the Home Office account is: a. Cash Stock investment Gain on sale of stock b.700 from Esperanza Branch as coming from Upi Branch. Using the average cost method. d. On June 30.500 10. the adjusting entry is: a. 104. c. c.000 4. Before the above discrepancies were given effect. Esperanza recorded a debit memo from Home Office of P4. 000. P75. Stock investment Gain on sale of stock c.700 65.000 2.000 2. Transfer of fixed assets from Home Office amounting to P53. c.500 d. The unadjusted balance in the Esperanza Branch books of its Home Office Current account must be: a. 6.000 4. Stock investment Stock rights Gain on sale of rights c.4.000 6. Esperanza reversed a previous debit memo from Cotabato Branch mounting to P10. f.700 86. a. Stock investment Loss on sale of rights Stock rights d.000 covering marketing expenses of another branch was charged by Home Office to Esperanza. b. Stock investment Gain on sale of stock d. On April 1.336 b. 920. Esperanza recorded a debit note on inventory transfers from Home Office of P75.000 4. 960 was not booked by the branch.000 6. Home Office debited that this charge is appropriately Upi Branch’s cost. 000.170 .650.230 c. P33.000 2.200 94. d. 111. Stock investment Gain on sale of rights b.000 5. The adjusting entry is: a.950 10.000 4. 98. Stock investment Gain on sale of rights 6. e.500 2. b. the remaining rights were sold for P6.

No provision for depreciation or amortization has been recorded. 400 Salaries 696. 2007. b. 6. 2008. d. The inventory totaled P291. 600 Insurance 34. Leila Mae paid P34. 2. 000 P3. Leila Mae entered into 25-year operating lease for the vacant lot adjacent to Baron’s retail store for use as a parking lot. 12/31/2007 Leila Mae’s. As agreed in the lease. 807 220 200 120 CASE 3: LEILA MAE’S FLOWER SHOP (ACCRUAL) The following information pertains to Leila Ma’s Flower Shop. Drawings Leila Mae’s. Leila Ma’s Flower Shop TRIAL BALANCE December 31. 200 based on a physical count of the goods at December 31. 309. 612. a calendar-year sole proprietorship. 400 Accounts receivable 64. 000 P3. 90. Amounts due from customers totaled P128. Capital. Marion. 800 Utilities 50. 7. P84. 000 for 2008. The approximates market value. 800 Inventory. respectively. obtained the following additional information. inventory was priced at cost. which expired on April 30. 99. 2008 Debit Cash P 102. 109. 2007 and 2008. c. 1. 12/31/2007 Accounts payable. 400 2. During the course of a review engagement. were as follows: . 600 68. 000 Credit P129. 000 Leila Mae’s has developed plans to extend into wholesale flower market and is in the process of negotiating a bank loan to finance the expansion.page 2 9. 2008. 2008. 2008. 308. at December 31. Leila Mae’s accountant. 000. 000 at December 31. 2008. 000 Payroll taxes 49. which maintained its books on the cash basis during the year. 000 498. 12/31/2007 Sales Purchases 1. On January 2. Leila Mae paved and fenced in the lot at a cost P180. 800 to renew its comprehensive insurance coverage for 1 year. 220. 4. Unpaid invoices for flower purchases totaled P122. An analysis of the above receivables revealed that an allowance for uncollectible accounts of P15. 000 Accumulated depreciation. On May 1. 000. 2008. was P31. 000 and P68. 200 should be provided. Accrued expenses at December 31. 3. 12/31/2007 248. which 5. The improvements were completed on April 1. and have an estimated useful life of 15 years. 2008. 800 Land improvements 180. 400 Living expenses 52. 800 Rent 136. The bank is requesting 2008 financial statements prepared on the accrual basis of accounting from Leila Mae’s. Depreciation on furniture and fixtures was P48. 200. The premium on the previous policy. 000 Furniture & fixtures 472. The adjusted balance of the reciprocal account is: a. and December 31.

11. at P5. Accounts receivableP64. 220. 000 c. 0 0 600 400 000 2 0 0 1 P 6. 16. P8. 000. 2008 Dec. The bonds mature 10 years from their issue date. and convertible into P10 par value common stock as follows. interest payable semiannually on January 1 and July 1. 600 50. 480 d. 440 20. Leila Mae expenses. 2001. P5. 2007. redeemable after June 30. 000. Inventory 291. 600 36. 4. Accounts payable 54.Utilities Payroll taxes 2 0 P3. What are the carrying value of bonds payable at December 31. 200 334. 612. 000 P192. 000. 2009. 000 000 2. Payroll taxes 51. 548. 747. at the rate of 5 shares for each P1. Purchases 1. 2009 July 1 The remaining bonds were called for redemption and accrued interest was paid. b c d 800 P63.  After June 30. 12. 000 of 9% bonds on October 1. 000 600 47. how much should be credited to the additional paid-in capital account? . 000 600. Leila Mae is being sued for P16. 250. 200 400 1. 18. The bonds were dated July 1. 160 c. 2009. 400 1. 000 21. The following transactions occur in connection with the bonds: 2007 July 1 P2. 2001? a. These bonds are dated July 1. 000 bond. 753. 400 000 68. a P8. 400 1. 200. 14. 15. and are due in 20 years. 9. The coverage under the comprehensive insurance policy is limited to P1. 000 bond. 600 49. at the rate of 4 shares for each P1. P135. P6. 000 400 48. 200 P128. 000 52. P141. Utilities 50. 000 800 33. 000 issue of 7% bonds was sold at 97. 31 P1. 274. In recording the bond conversion on July 1. 000 of bonds were converted into stock. 2006 to June 30. What is the total interest expense for 2001? a. 760 d. 2006 to June 30. Sales 2. 19. 400 page 3 8. The salaries account proprietor. 200. 000 6. (BONDS) The J & M Co. 000.  From July 1. 2006. 800 CASE 4: J& M CO. at 101. 000. 13. P 47. 000 43. and thereafter until maturity at 100. 000 face value of bonds were reacquired at 99-1/4 plus accrued interest. 2001. 000 000 696. 17. 000 504. 000 176. 000 bond. 675. The company adjusts its books monthly and closes its books as of December 31 each year. 2009. 000. sold P6. MULTIPLE CHOICE QUESTIONS: a 10. P128. These were immediately retired. Insurance 34. P5. 500. 520 b. includes P16. 280 b. 000. 000 2.  Until June 30. For purposes of obtaining funds for redemption and business expansion. 000 35. 280 plus accrued interest. P5. 400 P12. Leila Mae’s attorney believes that an unfavorable outcome is probable and that a reasonable estimate of the settlement is P1. Salaries 888. 747. at the rate of 6 shares for each P1. also receives 000 per month paid to the P1. 166. 800 200 248. 000 122. 000 50. 000. 000 per week for living Required: You are to convert the balances of the nine (9) accounts below to the accrual basis. 749. 000. 800 2.

873. 440 page 4 22. BLUE ICE had 400. 2009 is. BLUE ICE’s Additional Paid-in capital balance at December 31. 000 shares were issued and outstanding. 2008? a. P 981. 300. 800 d. 000 c. P3. On January 2. P2. e. 000 d. (P25. 620 d. 2009 is. P34. 920) b. P2. 2009? a. 000 c. 100. P 34. P3. P800. Treasury stock is permitted in BLUE ICE’s state of incorporation. 000 shares of its common stock for P10 per share to hold as treasury stock. 000 c. which was the market on that date. 000 b. 960) CASE 5: BLUE ICE CO. (R/E) BLUE ICE COMPANY’S stockholders’ equity account balance at December 31. 160. 320 b. BLUE ICE granted stock options to employees to purchase 20. BLUE ICE’s Common Stock balance at December 31. 010. The shares were originally issued at P15 per share. P2. 620) 25. 2007? a. What is the gain (loss) on bond retirement on July1. (P3. BLUE ICE’s net income for 2009 was P240. What is the gain or loss on bond conversion on July 1. 000 b. 025. 2009? a. P2. 000 b. What is the carrying value of the bonds retired on July 1. 000 b. 845. 920 d. 200 b. P1. above and other analysis as 27. On March 5. 000 28. 2008 were as follows: Common Stock Additional Paid-in capital Retained Earnings The following 2009 transactions stockholders’ equity accounts: 800. 700 24. c. P (P34. P3. 2009. b. 2009 is. 920 26. 000 and other information relate to the a. 000 d. 796. P1. BLUE ICE issued new shares to settle the transaction. On July 15. 440 d. 000. 010. 300) c. 440 d. 440 c. 320 c. 560 23. What is the gain (loss) on bond reacquisition on December 31. P2. What is the carrying value of the bonds reacquired on December 31. P1. P1. 000. 000 1. BLUE ICE’s Retained Earnings balance at December 31. P1. P1. 000 authorized shares of P5 par common stock. 000 . The inventory had a P75. The option may be exercised all 20. a. P900. P1. 080 c. 770.a. 600. 845. 865. P989. 000 share of BLUE ICE’s common stock at P18 per share. 865. 640 d. BLUE ICE declared and distributed a property dividend of inventory. 000 29. BLUE ICE uses the cost method to account for treasury stock. 796. 000 options when the market value of the stock was P25 per share. P2. 000 1. 2009. P0 b. 2008? a. BLUE ICE acquired 5. Instruction: Based on the information necessary. answer the following question. 860. a. 025. 2009. P1. of which 160. P0 c. 300 b. 000 carrying value and a P60. 000 fair market value. 880 c. 000. P1. 974. a. P25. P1. 960. P1. d. 085. (P12. P2. 000 d. 965. P957. P1.

Depreciation – Auto. 000 d. 000 b. P4. 000 CASE 6: LETICIA’S CO. 128. 220. P4. 820. 000 for freight and P1. Accum. The new car has a cash price of P960. Automotive Equip. a. would have been depreciated at a total amount of P720. The leasehold improvements have a useful life of 8 years. 2009 is. 000. 2008. 000 cash and trade-in of a 2-year-old car with a cost of P720. 600. 000. 000 Credit 10. 477. Accum. Depreciation data: Building Machinery/Equip. 2009. 000 b. machinery and equipment were purchased at a total invoice cost of P11. P4. 000 35. (PPE) Information pertaining to LETICIA equipment for 2009 is presented below. 720. 000 c. 000. 000 000. a. Automotive equipment 4. costs of P6. 499. 000 d. P4. 2009 is. plant and Depreciation Method 150% declining balance SLM SYD SLM Useful Life 25 years 10 years 4 years - Depreciation is computed to the nearest month. 000 b. 384. What is the book value of the building at December 31. BLUE ICE’s Stockholders’ Equity balance at December 31. P34. 960 c. P34. BLUE ICE’s Treasury Stock balance at December 31. 080 d. 2009. P0 d. 596. 998. 248. 2009. What is the gain on machine destroyed by fire? . 880. P4. 000. • LETICIA determined that the automotive equipment comprising the P4. 910. 735. 000 c. Depreciation – Bldg. Transactions during 2009 and other information are as follows: • On January 2. P35. 000 and a book value of P216. 2009? a. 976. The related lease terminates on December 31. What is the depreciation on machinery and equipment for 2009? a. P2. 000 COMPANY’S property. 197. 000 page 5 31. P35. 000 3. 000 000.30. 000 balance at January 1. 227. Account balances at January 1. 151. market value of the trade-in is not known. answer the following question: above and other analysis as 32. 000 b. 920 d. P4. 2009. 524. 000 for the year ended December 31. 000 10. Depreciation – Mach/Equip. Machinery and equipment 36. • On July 1. Instruction: Based on the information necessary. 557 33. LETICIA purchased a new car for P800. P75. Leasehold improvements Debit 000. P4. Buildings 48. P1. Accum. 000 c. 393 34. 000 c. P125. Equip. 000. P4. additional costs of P200. 000 600. 200. What is the depreciation on building for 2009? a. P50. P2. 040 b. P2. • On May 1. 000 for installation were incurred. 2009. 720. 2009: Land 6. 000 were incurred to improve leased office premises.

P672. 6. 000 130. 060 9. 000) b. 160. 000 44. P960. P560. John Investment in bonds of St. John and St. 195. 000 Accounts payable Bonds payable Capital Stock . 3. P460. THERESE Financial Statements for St. 000 37. 38. What is the gain (loss) on car traded in? a. 23. JOHN AND ST. 000 39. 060 (15. 000 35. P620.a. 400 (4. P300. P6. 000 c. P (240. Therese 420. P756. 964. 000 c. P240. P630. (35. 000 d. follows: Income Statements for the year ended 12/31/02 St. 000 b. 2009? a. 000 b. 2009? a. 231. 128. 000 b. P56. 266. 154. P6. 090. 400 50. 000 c. 000 b. 000 b. 000 d. P6. 000 d. 000) 68. 000 38. 000 000 000 200 400 400 8. 060 ========= 41. 12. (18. P5. 169. 400 100 750 000 900) 412. 2009 Cash Accounts receivable (net) Inventories Equipment Accumulated depreciation Investment in stock of St. 35. 460 . 16. 048. 000) d. 350 ======== 18. P (56. John Sales Cost of sales Gross Margin Depreciation and interest expense Other operating expenses Net income from operations Gain on sale of equipment Gain on bonds Equity in subsidiary’s income Net income 750. 57. 000 9. 760. 000 9. 104. P13. 000 d. P816. 000 154. P1. 9. 125. P160. 000 page 6 36. 950 50. What is the book value of leasehold improvements at December 31. P13. 900 100. 060 83. What is the depreciation on automotive equipment for 2009? a. What is the balance of the accumulated depreciation – machinery and equipment at December 31. What is the depreciation on leasehold improvement for 2009? a. 000 000 000 400 000 600 000 Therese on December 31. 2009 St. 560 ========= 8. P720. 43. 000 CASE 7: ST. 000 40. 400 ======== Balance Sheet as of December 31. 777. 691. 000) 46. 117. P13. Therese Patents 45. 000 d. 20. 28. P13. 000 c. 000 c. 300 700 300 000 200) 460 . 400 ======== ======== Statement of Retained Earnings for the year ended 12/31/02 01/01/02 Retained Earnings Net Income (from above) Total Dividends 12/31/02 Balance 48. 000 c. 581.

Additional paid-capital Retained earnings (from above) 81. 000 46. John for P7. 460 Dividends declared – St. The bonds pay interest annually on December 31 of each year. Therese 36. 000 3. Therese reduced its intercompany account payable to St. St. Therese 3. 000. Therese 120. 460 Investment in stock of St. John for P5. Therese 13. Capital stock – St. 000. John at a cost to St. and the interest was paid to the prior investor immediately before St. 2009. St. 000 payment was still in transit on December 31. 400 43. 060 Investment in stock of St. The following additional information is available in the first year after the acquisition. This P1. 600 b. 060 Investment in stock of St. Therese 15. Therese (I/S) b. 000 3. 2009. John acquired 90% of the common stock of St. St. Therese purchased for P44. and were originally issued at par. 5. 000 as of December 31. 600 68. Therese’s purchase of bonds. St. Equity in subsidiary’s income 12. 50% of the outstanding bonds issued by St. 060 d. Capital. Therese of P12. 060 412. Therese 13. 400 Investment in stock of St. Therese. Capital stock – St. 000 20. What is the eliminating entry for St. 000 at the date of sale to ST. 400 130. 600 Investment in stock of St. 000. John P15. and the sale was made for P20. 2009. Therese 45. Therese’s stockholders’ equity? a. by making a payment of P1. 000 of the merchandise acquired from St. 4. John’s ending inventory includes P10. Therese. The bonds mature on December 31. Therese 125. The equipment had an estimated remaining life of 4 years as of January 2. Therese that originally cost St. 500 Retained earnings – St. 000 . St. Equity in subsidiary’s income 8. 000 Additional paid-in capital 15. John acquired P18. Therese 8. Therese acquired equipment from St. The equipment was originally purchased by St. 000 Retained earnings – St. 000. 000 Additional paid-in capital – St. 500 Retained earnings – St. Therese 12. Therese for P120. Sales 20. 200 Investment in stock of St. Therese 46. What is the eliminating entry for the Equity in subsidiary’s income and dividends declared by the subsidiary? a. To eliminate the sales made by St. Therese 50. 000 and had a book value of P4. Therese 45. Therese. 2009. 2008. 860 c. the entry is: a. 3. Therese’s inventory included merchandise purchased from St. Therese 46. St. John to a balance of P4. On December 31. 2. On December 31. 000 Additional paid-in capital – St. 2009. 2005. Therese uses normal markup of 25% above cost. St. stock – St. Sales Inventory – St. Therese 111. 400 Goodwill 14. 000 of merchandise from St. 000. 1. 460 b. 400 c. 000 on December 30. John to St. 900 Investment in stock of St. Therese 95. 000 Retained earnings – St. Therese (B/S) Purchases Inventory – St. Capital stock – St. 000 Additional paid-in capital – St. Therese. Equity in subsidiary’s income 8. St. 900 Goodwill 25. 600 on January 1. 41. Also. John sold merchandise to St. On January 2. Therese 36. 350 ========= page 7 St. No Eliminating Entry 42. Therese 50. 560 ======== 15. QUESTION: Assume that the combination is accounted for as PURCHASE. 2009. 460 d. during 2009. During 2009. Therese 4. John. 000 20.

Therese c. 000 d. John. To eliminate the acquisition made by St. The entry to eliminate the bonds purchased by is: a. John. Cash 1. 000 3. 000 Retained earnings 2. 000 Equipment 2. the entry is: (assume that Equity in subsidiary income has not been recorded by parent) a. 000 47.Cost of sales Inventory – St. The depreciation recorded by St. Bonds payable 50. 000 6. John 000 000 000 000 000 44. Understated by P1. 000 Accumulate depreciation 1. Therese to St. 000 3. Sales 18. To record the items in transit and to eliminate the payable/receivable. Accounts receivable 4. 000 48. 600 Retained earnings – St. John Retained earnings St. 000 Equipment 2. Investment in bonds of St. 000 Gain on sale of equipment 3. 000 Accounts receivable 4. 000 Inventory 2. 000 Cash 1. 000 20. 000 b. Therese Cost of sales d. 000 50. 000 Cost of sales 16. 000 Investment in stock of St. 2009 is: a. 000 Depreciation expense 1. Bonds payable 50. the entry is: a. John Gain on extinguishments of debt b. 000 Inventory 2. 000 Inventory 2. c. John 44. Overstated by P750 c. Overstated by P1. 000 Accounts payable 3. 000 23. Equipment 2. Investment in bonds of St. Investment in bonds of St. 000 Cost of sales 18. Sales 18. Sales 18. 000 20. 000 c. Gain on sales of equipment 3. Sales Inventory – St. 000 b. Accounts payable 4. Bonds payable 44. 000 Accounts receivable 4. b. 000 45. Investment of St. 000 44. 000 Accounts payable 4. 000 44. Retained Earnings Sales Inventory – St. 000 Page 8 3. Therese from St. 000 6. 750 b. Therese Cost of sales 17. Loss on extinguishments of debt 6. 000 6. John Retained earnings d. To eliminate the entry made by St. 000 d. the entry is: a. Therese 400 Cost of sales 18. Gain on sale of equipment 3. 000 Accounts payable 5. 000 3. 000 Equipment 2. John at December 31. inter-company’s 000 000 000 000 46. Gain on sale of equipment 3. Therese from St. d. Therese 1. Sales 18. 000 . Cash 1. Bonds payable c. 000 Accumulated depreciation 1. 000 Inventory 2. 000 44. 000 20. 000 Cost of sales 20. 000 Accumulated depreciation 250 Depreciation expense 750 c. Overstated by P250 d. 000 Accounts receivable 5.

000 Retained earnings – St. 400 Investment in stock of St. 900 Investment in stock of St. What is the eliminating entry for the Equity in dividends declared by the subsidiary? a. 000 Additional paid-in capital – St. 000 Retained earnings – St. 000 Additional paid-in capital – St. Therese 36. 860 12. Therese 50. Therese e. 500 Retained earnings – St. Investment in stock of St.page 9 For items 49-50. 900 Goodwill 25. 500 Retained earnings – St. 060 Investment in stock of St. Therese’s stockholders’ equity? a. Equity in subsidiary’s income 8. assume that the combination is accounted for as POOLING OF INTEREST. 400 Goodwill 14. What is the eliminating entry for St. 49. Equity in subsidiary’s income 12. Therese 36. 400 Page 10 . No eliminating Entry subsidiary’s income and 460 460 060 8. Therese 50. Therese 120. Therese 46. Therese 15. Therese 45. Therese c. Dividends declared – St. 000 Additional paid-in capital – St. Therese 111. Therese Investment in stock of St. 460 d. 200 Investment in stock of St. Therese 46. Capital stock – St. 400 c. Therese 45. Investment in stock of St. Therese 13. Capital stock – St. 060 50. Capital stock – St. Therese 125. Equity in subsidiary’s income 8. Therese 13. 600 4. Therese 95. 000 Additional paid-in capital – St. Capital stock – St. Therese b. Therese 15. 600 b. 460 3.

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