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Auditing Problems Reviewer – Solution

Problem 1
A.

(1,800,000 x 10%)
180,000
Interest income
Capitalized interest
303,320

(10,000)

#21
Interest expense (5,000,000 x 10%)
500,000
Interest income
(125,000)
Capitalized interest
375,000
#22
Actual expenditures
(1.4M+1M+1.2M+1M+0.4M)
5,000,000
Capitalized interest
375,000
Cost of the building
5,375,000
B.
#23
Average expenditures
January 1 (1,400,000 x 12/12)
1,400,000
March 31 (1,000,000 x 9/12)
750,000
July 1 (1,200,000 x 6/12)
600,000
September 20 (1,000,000 x 3/12)
250,000
December 31 (400,000 x 0/12)
Total
3,000,000
Specific borrowing
(1,800,000)
Allocated to general borrowing
1,200,000
Average interest rate*
x 11.11%
Interest on general borrowing 133,320
Interest on specific borrowing

*
2-year note interest
(1,600,000 x 10%)
160,000
5-year note interest
(2,000,000 x 12%)
240,000
Total interest
400,000
Divided by: Total principal
(1,600,000 + 2,000,000)
3,600,000
Average interest rate on general
Borrowings
11.11%
Problem 2
#24
Carrying value of patent, 1/1/13
(1,920,000 – 240,000)
1,680,000
Divided by: Remaining useful life
(6yrs – 2 yrs)
4 years
Amortization for 2013
420,000
Carrying amount, 1/1/13
1,680,000
Amortization for 2013
(420,000)

000 + 65.020.500) Machine 2 (4. net 520.680.820.260.720.000 + 44.500 #29 Land on which trees are planted 3.050.000 x 3/4) 600.000 Biological assets – non-current 7.Carrying amount.000 Biological assets – current 3.920.500.000 #25 Cost of trademark (800.000 Problem 4 #31 Beginning balance 9.000 Land on which palay stalks were planted 2.000 Growing stocks 1.800.000 #30 Inventory of agricultural produce 200.100.000 / 5) 1.000 Property.000.520.800) 5.000 Aug.000 Machine 3 (5.000 Jan.000 #27 Palay stalks 1.000 #33 Beginning balance 4.600.620.000 Agreement with the other party (800.000 / 6) 750.000.700.000 June 22 purchase (1. 12/31/2010 10.632.000 Problem 3 Poultry housing. 2013 460.000) Machinery.000 Depreciation for: Machine 1 (4.500.000 .000 Total amortization expense.000 #26 Amortization expense for: Patent 420.104. 28 exchange (4. 12/31/2010 4.000 #28 Freestanding trees 7.200 + 175.400.000 Breeding stocks 960.000 Accumulated depreciation – Machinery.300.520.500 + 34.041.960.000 / 5 x 39/12) (2.000. plant and equipment 8.500) 1. 3 purchase (5.000 Road in orchard 2. 12/31/2013 1.000 x 1/4 x 1/5) 40.000 #32 Beginning balance 4.

000 Revised residual value (500.965.000 Accumulated depreciation – .807.680.600 #38 Carrying value of Machine 2 at 12/31/2009 (4.500.668.572. #40 Depreciation expense on land Improvements for: 2011 (550.000 – 2.000) Revised depreciable cost 1.600 Depreciation for: Vehicle 1 and 2 [(4.200.500 Overhaul cost 1.051.085.375. 12/31/2010 6.500 Divided by: Remaining useful life years Depreciation expense for Machine 2.000) Carrying value. 12/31/2012 8.612.965.394.600 #37 Accumulated depreciation – Building.600 Proceeds from sale of vehicle 660.720) Carrying value at 5/25/11 678.000 #36 Carrying value of the vehicle sold at 12/31/2010 [(4.861.320 x 40% x 5/12) (135.320 Depreciation from 1/1/11 to 5/25/11 (814.000 / 10 x 6/12) 27.400 Depreciation for 2010 and 2011 [(18.187. 12/31/2010 3.000 / 10) 55.000 *Land is not subject to depreciation.104.100.800.112. 12/31/2011 4.360) x 1/2) 814.600) x 40%) 1. 12/31/2009 2. 12/31/2011 1.620.300.500) 2. 12/31/2010 2.000 – 500.000 Machine 3 1.000 – 3.000 Depreciation expense – Machinery.000 Machine 2 750.812.000 #34 Beginning balance 1.000 – 1.500.000 Loss on sale of vehicle 18.Vehicles.760 Vehicle 3 (1.000 x 40% x 6/12) 324.000 / 5 x 8/12) 540.200 Accumulated depreciation – Building. 2012 453.680.360 #35 Depreciation for: Machine 1 (4.000 / 6 x 2) (1.000 Accumulated depreciation – Vehicles.000) / 20* x 2) 1.500 Depreciation for 2010 and 2011 (4.050.500 2012 (550.125 4 #39 Carrying value of land.

000 #46 Beginning balance 55.353.500 #45 Vincent Corp.550.000 % share of Tomrod 30% Income from associates 141.000 Unrealized gain from Laly Corp.000) Eric Corp.000 x 10%) Total Cash dividend per share Dividend income.000 Dividends received (75. (5.000)+ (200.000 Initial investment 2.000 Income from associate 141.000 / 50.000) Unrealized gain recognized [(132.00 5.500 Problem 5 #41 Unrealized gain (loss) on: Vincent Corp. (180.500 . (10.000)] 42. Beginning balance shares Bonus issue (5.500 x 1. 12/31/2013 47.000 sh x 20) 200.500 Problem 6 #48 to #50 141.000 Net unrealized gain 55.000 5.000 Laly Corp.000 – 160.550.000 500 5. shares (50.000 Equity investments at fair value.000 x 1.000 5. Net income for six months ended 12/31/2013 470.000 – 125.000) 20.000–180.325. (750.000 #42 Vincent Corp.000) (15.000 x 25.500 x #44 Fair value of the old shares (1.000 Eric Corp.Land improvements.000) 775.000 – 700.500) Investment in associate 2. (110. 12/31/2012 82.000 #47 Income from associate Dividend income Total income 146.000 Purchase price of the new shares 1. 12/31/2013 332. 2014 #43 Laly Corp.500 sh x 24) 132.000) 50.000 Net unrealized gain.000–110.5) (112.

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450 x 2.000 200.000 45.438 Divided by: Carrying amount of bonds as of 12/30/2012 (1.500 x (43 – 20)] 34.250 #52 Beginning balance 2.050 Amount Shares 20.000 Retained earnings.000 7% 2 14% Interest expense from 01/01/12 to 06/30/2012 33.600) Profit for the year 600.000 Amount 400.500 630.50) (41. 12/31/12 2.650 900 45.000 January 15 [900 x (55 – 5)] 4.000 31.000 10.000 x (48 – 20) 280.522.000 Amount 187.160.000) 114.000 #51 Beginning balance 5.000 Additional paid-in capital.100.50) (71.125) (900 x 50 x 8%) (3.000 1.250 [2.600 (6.000 March 15 (16.584.000) 3.500 30.500 Shares 900 200 (150) (2.500 April 30 [10.250) September 15 (28.500 x 2.450) (75.Beginning balance January 15 February 1 April 15 April 30 May 1 TOTAL Shares 5.000 / 2) 35.000 / 2) Divided by: Bond face value Semi-annual stated interest rate x Annual stated interest rate #54 Semi-annual interest payment (70.000 May 1 [150 x (58 – 43)] 2.562) .000 8.000 500. 12/31/12 5.50)] 41.000 x (58 – 37.500 February 1 [1.000 Premium amortization from 01/02/12 to 06/30/12 35.025 Problem 7 #53 Semi-annual interest payment (70.

195.000 Ratio of investment sold x 1/2 Carrying amount of investment sold 1.000 x 30%) (150.000 Gain on sale of investment 305.000 Proceeds from sale of investment 1.000 .000 Income from associate 240.000.872 Problem 8 #57 Income from associate.390.500. 12/31/12 2.300 Semi-annual effective interest rate 6% x Annual effective interest rate 12% 2 #55 Interest payment for 07/01/12 to 12/31/2012 35.738 + 1.000 Research and development cost 955.000 x 30%) 300. 2012 (800.000 Dividends received (500.090.500 Depreciation expense 100.000 #58 Acquisition cost 2.000 Income from associate from 01/01/13 to 07/01/2013 (1.218 #56 Interest expense for: 01/01/12 to 06/30/12 33.000 Carrying amount of investment at 07/01/13 2.562) 557.344) Premium amortization from 07/01/12 to 12/31/12 1.562 Total premium amortization for 2012 3.500 Testing for evaluation 337.000 Interest expense for 07/01/12 to 12/31/2012 (555.738 x 12% x 1/2) (33.(555.000.000 Radical modification 217.000 x 30%) 240.090.438 07/01/12 to 12/31/12 33.656 Premium amortization from 01/02/12 to 06/30/12 1.000) Investment in associate.000 #60 Laboratory research 300.000 #59 Beginning balance 2.344 Total interest expense for 2012 66.