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Course/Yr & Sec: Score:

PROBLEM 1

Branzuela Corporation reported the following amounts of net income for the years ended December 31, 2003, 2004 and 2005:

2003 P127,000
2004 150,000
2005 128,500

You are performing the audit for the year ended December 31, 2005. During your examination, you discover the following errors:

a. As a result of errors in the physical count, ending inventories were misstated as follows:

December 31, 2004 P14,000 understated

December 31, 2005 P23,000 overstated

b. On December 29, 2005, Branzuela recorded as a purchase, merchandise in transit, which cost P15,000. The merchandise was shipped FOB
Destination and had not arrived by December 31. The merchandise was not included in the ending inventory.

c. Branzuela records sales on the accrual basis but failed to record sales on account made near the end of each year as follows

2003 P4,000
2004 5,000
2005 3,500

d. The company failed to record accrued office salaries as follows:

December 31, 2003 P10,000

December 31, 2004 14,000

e. On March 1, 2004, a 10% stock dividend was declared and distributed. The par value of the shares amounted to P10,000 and market value was
P13,000. the stock dividend was recorded as follows:

Miscellaneous expense P13,000

Common stock 10,000
Retained earnings 3,000

f. On July 1, 2004, Branzuela acquired a three-year insurance policy. The three-year premium of P6,000 was paid on that date, and the entire
premium was recorded as insurance expense.

g. On January 1, 2005, Branzuela retired bonds with a book value of P120,000 for P106,000. The gain was incorrectly deferred and is being amortized
10 years as a reduction of interest expense on other outstanding obligations.

Questions:

1. What is the adjusted net income for the year ended December 31, 2003?

2. What is the adjusted net income for the year ended December 31, 2004?

3. What is the adjusted net income for the year ended December 31, 2005?

4. What adjusting entry should be made on December 31, 2005 to correct the error described in item B?

5. The adjusting entry on December 31, 2004 to correct the error described in item E should include a debit to

PROBLEM 2

The following balances have been excerpted from REGRET’s Statement of Financial Position as of the year 2016:

January 1 December 31
Accounts Receivable P 200,000 P 300,000
Allowance for bad debts P 20,000 P 30,000
Merchandise Inventory P 380,000 P 330,000
Accounts Payable P 150,000 P 100,000
Accounts Receivable written of P 50,000
Cash received from customers P 1,498,000
Cash paid to trade creditors P 1,200,000
Sales discounts P 20,000
Purchase returns P 10,000
Rental receivables P 70,000 P 80,000

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Rental payable P 60,000 P 35,000
Cash received from tenants P 120,000

Additional Information:

 Collections from customers included customer’s deposit of P 80,000 of which P 20,000 selling price of goods were already shipped
and received by the customer. The shipment of gopds was not recorded by the company although the cost of merchandise was properly
excluded in the count.
 Collection from customers also included P 30,000 payment from customer of accounts receivable in which a check dated January 15, 2017 was
received.
 Collections also included recovery of accounts previously written of amounting to P 8,000
 Included in the payment to trade creditors was a check drawn and recorded by the company to the supplier in December 2016 amounting to P
20,000 which was delivered to the payee on January 10, 2017.
 Also the company did not record payment to supplier amounting to P 30,000

Determine the accrual balance of the following:

6. Net Sales
7. Net Purchases
8. Cost of Sales
9. Rent Income
10. Bad Debt Expense

PROBLEM 3:

You are engaged in the audit of the financial statements of REMORSE Corporation for the year ended December 31, 2016. The following information was
prepared by the bookkeeper:

Cash Receipts
Collection on accounts receivable P 1,513,000
Less: Cash discounts taken P 13,000 P 1,500,000
Cash sales of merchandise P 160,000
Sale of warehouse equipment P 12,000
Insurance proceeds from boiler explosion P 42,000
Sale of land on November 3 P 20,000

Cash disbursements:
Payments to trade creditors P 1,206,000
General and administrative expenses P 204,000
Cash purchases of merchandise P 120,000
Repairs made on warranty contracts P 6,400
Purchase of land on May 1 P 16,000
Purchase on November 10 of 100 shares of NALO Co. stock P 24,000

Supplementary information:

1. The following account balances were taken from the general ledger:
December 31,2015 December 31,2016
Accounts Receivable P 124,000 P 146,000
Inventory P 186,000 P 190,000
Prepaid Gen. and Admin Expenses P 9,600 P 8,400
Accrued Gen. and Admin Expenses P 7,000 P 9,000
Accounts Payable P 382,000 P 410,000

2. Depreciation for 2016 was P 84,000

3. The warehouse equipment sold during 2016 was acquired in 2009 at a cost of P 25,000. The double declining method of depreciation was
used and accumulated charges were P 16,000 at date of sale. If the straight-line method had been used, the accumulated depreciation at date
of sale would have been P 10,000
4. An explosion occurred on January 15, 2016 in which a boiler, not the structural component of a building, was completely destroyed. It was
purchased in January 2008 at a cost of P 48,000, depreciation was recorded by the straight line method and P 20,000 had accumulated at the
date of the explosion.
5. Land was purchased on May 1, 2016 and was used as a storage facility. It was found to be unsuitable for this purpose and was sold on
November 3, 2016.

Based on the above information, compute the adjusted balances of the following accounts as of December 31, 2016:

11. Gross Sales

12. Net Sales
13. Total Purchases
14. Cost of Sales
15. General and Administrative Expenses
16. Total Operating Expenses
17. Gain or loss on sale of land
18. Gain or loss on sale of warehouse equipment

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 19. Gain or loss as a result of January 15, explosion
20. Net Income

Problem 4:
The shareholder’s equity of Breanalyn Corporation at January 1, 2016 appears below:

12% of Preference Shares, P 200 par, 20,000 shares

authorized, P 7,000 shares issued and outstanding P 1,400,000
Share Premium-Preference 175,000
Ordinary Shares, P 100 par, 180,000 shares authorized,
35,000 shares issued and outstanding 3,500,000
Share Premium-Ordinary 1,750,000
Retained Earnings 4,500,000
During 2016, the following transactions occurred:
Jan 5: Issuance of P6,000 shares at P 110 per share for cash. Stock issue costs that were paid by the corporation amounted to P 80,000.
Jan 28: Purchase 5,000 ordinary shares for the treasury at P 200 per share
Feb 2: Shareholders donated 4,000 entity’s own ordinary shares to the corporation
Feb 14: Sold half of the treasury shares acquired last January 29 for P 220 per share
Feb 14: Sold the donated shares at P 220 per share
Jul 15: The Company issued for P 1,100,000 cash, 4,000 preference shares and 1,000 ordinary shares. The preference and ordinary shares have
fair values of P 220 and P 120 per share, respectively on the date of sale.
Oct. 15: Received subscriptions to P 15,000 ordinary shares at P 250 per share
Nov 15: Received cash payment from each subscriber for 40% of the ordinary share subscription price
Nov 27: Received full payment of the 10,000 shares on Oct. 15 and Nov. 15
Dec 31: Closed net income of P1, 000,000 from the income summary account to retained earnings.

Questions:
Based on the above data, answer the following:
21. How much is the Preference share on December 31, 2016 statement of Financial Position?
22. How much is the Ordinary Share on December 31, 2016 statement of Financial Position?
23. How much is the total Share Premium on December 31, 2016 statement of Financial Position?
24. How much is the Retained Earnings – unappropriated on December 31 2016 statement of financial position?
25. How much is the total shareholder’s equity on December 31, 2016 statement of financial position?

Problem 5
Marianne Corporation had the following shareholder’s equity account balances at December 31, 2015:

10% Convertible preference shares (P 100 par value; P 100,000

shares authorized, 40,000 shares issued outstanding) P 4,000,000
Ordinary Shares ( P10 par value; 200,000 shares authorized,84,000 shared issued) 840,000
Subscribed ordinary Shares 100,000
Subscriptions Receivable 52,000
Share Premium 968,000
Retained Earnings 15,000,000
Total: P 20,098,000
Less: Treasury Ordinary Shares, 4000 shares 44,000
Total Shareholder’s equity P 20,904,000

The subscribed ordinary shares account is composed of P 10,000 shares subscribed at P 13 per share. The subscription contract required a cash down
payment equal to 60% of the subscription price, with the balance due on February 1, 2016.
Transaction in 2016:
1. On February 1, 2016, the 8,000 ordinary shares were issued according to subscription contract. Because of default by a subscriber, 2,000
shares were not issued. All payments made by the subscriber were forfeited in favor of the company.
2. On March 1, 2016, 2000 preference shares were converted to ordinary shares. One preference shares is convertible into two ordinary
shares. At the time of conversion, the preference shares had a market value of P 125 while the ordinary shares had a market value of P 25
per share.
3. On April 1, 2016, 92,000 share rights were issued to the ordinary shareholders permitting the purchase of two new shares of ordinary
shares in exchange for one right and P 15 cash. On April 25, 2016, 67,500 stocks right were exercised when the market price of
Marianne’s ordinary share was P 20 per share. Marianne issued new shares to settle the transaction. The remaining 24,500 rights were
not exercised and thus expired.
4. On September 30, 2016, 3,000 treasury shares were reissued at P 20 per share.
5. On January 15, 2017 before the accounting records were closed for 2016, Marianne became aware that the rent income for the year
ended December 31, 2015 was understated by P 400,000. The after tax-efect on the 2015 net income was P 280,000. The appropriate
correcting entry was recorded the same day.
6. After correcting the rent income, net income for 2016 was P 2,500,000.

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 7. Cash dividends are declared for preference and ordinary shares on April 30 and October 31. Semi-annual cash dividends for ordinary
shared are P 1 per share.

Questions:
Based on the above data, determine the following as of December 31, 2016
26. Preference Share Capital
27. Ordinary Share Capital
28. Total Share premium
29. Retained-Earnings- unappropriated
30. Total Shareholder’s equity