You are on page 1of 7

Auditing Problems Reviewer – Solutions

Problem 1 – Nos. 1 to 5
Date
Jan. 1
5,026,000 –
146,000 =
4,880,000
20% to land, 80%
to buildings
Jan. 15
Reconditioning cost
Feb. 15
Proceeds from sale
of scrap
Cost of warehouse
March 1
Exchange of stock
with equipment
April 1
Acquisition of
machinery
May 1
Parking lots and
waiting sheds
(360,000 + 76,800)
TOTAL

1.
Land

2.
Buildings

976,0
00

3,904,00
0

4,880,000

236,800

236,800

(36,000)
540,800

504,800

976,0
00

3. Machinery &
Equipment

4,645,6
00

Problem 2
#6
Depletion per ton = 7,000,000/2,000,000 = 3.5/ton
Depletion expense for the year
(25,000 tons x 7 mos. x 3.5)

612,500

#7
Estimated life of the wasting asset
[2,000,000/(25,000 x 12)] = 6 2/3 years
Depreciable cost
(190,000 – 10,000)
180,000
Divided by: Life of the wasting asset 6 2/3 yrs
Annual depreciation
27,000
x 7/12
Depreciation expense, 2010
15,750

4. Land
improvements

5. Total PPE

200,000

200,000

360,000

360,000

560,000

436,800
436,800

436,800
6,618,400

000* . 12/31/2011 2.200 Amortization for 2010 (131.644 Discount on notes payable 130.400) 320. 12/31/2010 (800.000.000 Notes payable 480.000 #11 Carrying value of machinery (900. 12/31/2011 (100.000 Total expenses related to franchise 503.000 Present value of installment payments (120.000 Previous revaluation surplus (150.800 #16 Carrying value of trademark.000) Revaluation surplus.000 Book value of machinery.000 – 64.644 Amortization expense (549.000 #10 Building depreciation (1. 12/31/2010 100.211.000/25) 64.644 / 10) 54.000 #12 Revaluation surplus.644 (16.200 / 8) Carrying value.Problem 3 #8 Fair value of machinery.950 Payment to franchisor (8.536.356 Cash 200.000) Impairment loss.644 Cost of franchise 549.000 Down payment 200.000/4) Total depreciation for 2011 289.644 x 14%) 48.000 x 5%) 400.680 #15 Cost of patent 131.000 – 225.000 x 2.000) 1.000) 675.964 Interest expense (349.000 Carrying value of PPE.000 #9 Decrease in fair value of building 400. 12/31/2010 250.000 Problem 4 #13 Entry: Franchise 549.000 Machinery depreciation (900.000 225.600. 12/31/2010 900. 12/31/2010 114.000 Carrying value of building (1. 12/31/2010 549.964) Carrying value.000 x 3/4) 75.600.914 #14 Cost of franchise Accumulated amortization (54.9137) 349. 12/31/2010 494.

000.500.200.000.200.000 Income tax rate 35% Income tax expense 3.000 20.000 Estimated warranty liability 600.600.000.000 x Problem 8 #20 Loans payable plus interest (5.000 Income tax payable 800.000 Withholding tax payable 100.500. per client 8.000 .000 Total current liabilities. 500.000) Gain on debt extinguishment 300.000 Cash dividends payable 1.000.000.000.000 in excess of taxable sales income 2.000 5.000 Accrual for product liability claim in excess of actual claim (1. per audit 10.100.*When the useful life of a trademark is indefinite.000) Accounts written off (100. Problem 5 #17 Notes payable Trade 3.000 Tax depreciation in excess of book depreciation 800. 12/31/2010 14.000) 6.300.000 1.000 Advances from officers 500.570.000 (5.000 Estimated damages payable by reason of breach of contract 700.000 Estimated premium liability 200.8M) 4.000 Bank loans 2.000 Taxable income.000 20.000 Problem 7 Problem 10 #19 Taxable income.000) Collections from customers (5.000.200.000) 5.000 Bank overdraft 300.000 Building (6M – 1.000 Accrued liabilities 900.000) Reported installment sales income #22 Accounts receivable. 1/1 Credit sales Sales returns (150.000.000.000 Problem 9 #21 General checking account Change fund Currency and coins Money order Bank drafts Total amount of cash 5.000 Carrying values of assets given up: Land 1.000 + 1.000 30.700. no amortization is recognized.000 Problem 6 #18 The best estimate should be recorded at 12/31/2010 because ABC accepted the offer after the 2010 financial statements were issued.085.000 Accounts payable – trade 4.000 15.000.

000 Share in net income (1.000) Net carrying value of inventory 3.050.000 Investment in associate.000 Problem 13 #25 Acquisition cost 2.100 Correct retained earnings 76.000 Cost 1. 12/31 1.850. 12/31/2010 2.000 Unrealized loss. AFS.000) Net income for 2010 45.100 Preference share capital 210.900 Donated capital 20.000) Net income for 2009 32.000) Net realizable value of A/R 1.250.000) Contributed capital 500. 12/31/2010 1.300.900 Problem 15 #29 Balance.550.Accounts receivable.000 Ordinary shares.000 x 30%) 300.000 Premium on preference share 18.500.500. no par 207.000 Problem 12 #24 Market value.000 48. no par 207.000 Subscriptions receivable – OS (10.000 Share warrants outstanding 5.000 Estimated cost of disposal (200.000 Subscribed ordinary shares 50.800.000 Problem 11 #23 Estimated selling price 4.000 Premium on preference share 18.000.000 / 100) shares 2. 7/1/2009 Dividend paid (20. equity.000 Subscribed ordinary shares 50.000 Legal capital 467.000 Estimated future sales returns (50.000 #27 Number of preference shares issued (210.500 .000 Problem 14 #26 8% preference share 210.400 Dividend declared in 2010 (30.100 Average issuance price 109 #28 8% preference share 210.900 Divided by: Number of shares issued 2.900 Total 228. 12/31/2010 200.000 Ordinary shares.000) Estimated uncollectible accounts per aging (250.

000 Reduction of par value (100.000 Fair value of each option x Total compensation expense for 3 yrs 2.500.000 Fair value of each option x 50 Total compensation expense for 3 yrs 2.000 Divided by: Vesting period 3 yrs Compensation expense for 2010 900.000) Share premium after reorganization 1.000 .000 x 25) 2.400.500.000 Deficit charged against share premium (2.000 Expired period x 2/3 Cumulative compensation expense 1.100.000 Compensation expense recognized in 2010 (900.700.900.000) 240 x 50 Problem 17 #31 Share premium before reorganization 1.000 2011 Number of employees expected to exercise the options (300 – 20 – 8 – 32) Number of options to each employee 200 Number of options exercisable 48.600.000 Problem 16 #30 2010 Number of employees expected to exercise the options (300 – 20 – 10) 270 Number of options to each employee x 200 Number of options exercisable 54.Compensation expense for 2011 700.

826 314.826 14.562.224 4.000 Bonds payable retired (1.500 #34 Face value of the remaining bonds 4.000 300.080.123 319.Problem 18 #32 Bonds payable.000.673 4.829 16.500 Retirement price 1. 07/01/10 4.921 13.582.000 300.000 300.844 4.000 300.497.921 313.000 #33 Retirement price with interest Accrued interest (1.873 . 12/31/2010 317.298) Discount on bonds payable.749 1.050 4.000 Loss on bond redemption 161.582.000 x 12% x 3/12) Retirement price without interest 312.483.124 Amortization from July 1 to October 1 (20. 10/01/10 4.937 18.000.000.000 300.000.000) 1.733 4.544.602.124 4.000 Carrying value of the remaining bonds at 12/31/2010 (4.000 300.000 300.602.829 316.000.123 19.375 Carrying value.702 #35 Amortization 12.000 Carrying value.794 15.749 PV/CV/BV 4.000) Adjusted balance of bonds payable 4.511.592.873 x 4/5) (3.682.527.610 4.303 4.391 320.080.470.110.000 (30.937 318.794 315.000 Amortization table Date 01/02/07 07/01/07 01/01/08 07/01/08 01/01/09 07/01/09 01/01/10 07/01/10 01/01/11 Interest paid (FV x nominal rate) Interest expense (PV x effective rate) 300.749 x 3/6) 10. before retirement 5.391 20.499 Ratio of bonds retired x 1/5 Carrying value of bonds retired 918.

000 x 12% x 6/12) 240.749 x 4/5) Total interest expense for 2010 319. Nasa answer key naman na ‘yung sagot  .000 #37 Adjusting entry.599 608.075 256.065 #36 Interest payable for the remaining bonds (4.391 32.Interest expense from 01/01 to 07/01 Interest expense for the retired bonds (320.749 x 1/5 x 3/6) Interest expense for the remaining bonds (320.000.