RgSA: The Review Schoo! of Accountancy Page 17 of 25, received on March 30. These dvdends were declared by Aye Corp. on January 20,2015 to stockholders {sot record date Nar 2 2015, , The campany pal P27'50 per share, ching FO.50 per share brokers fee onthe acqulstion of Bee Ine ‘on March 1, 2015. These shares were scqured fr trading purposes. A P3 per share dividends mere ‘Feces! rom the sad shores on May 3, 2035. These dvdends were declared on Apt tte stckolers ‘sof record date Apa 20, © $e0.o, bonds whieh pay sembanrual interest every une 30 and December 31, were acquired on ‘Stabe 1, 2015 a 1,973,000, when he prevaing effective interest ate on sino instrument mas 12%. The bonds shall mate on Becemeer 31,2017, The company has 8 business mode of hokong debt ‘counties fr short term pros 4 Dee Cap, stocks were acauired P48 py shore, including 3 per share brokers" fees and commissions on June 30,2015. Dew Corp: ha a taal 200,000 shares eustanng on Ue same date. The Cornpmy received PS dividends per share form Dee on December 20,2015. {The flowing Information were deemed evant a year-end and no etses had been made yt by the company to reflect ary ofthe Talons infemation ayecap. Bec Inc, Saeco. Dee cap. Net income in 2015 1,200,000 "P1,800,000 "2,000,000 P2,240,000 Fa Vowe Pash p2ish a8 Psiysh Requirements: 1" What Is the urealzesolaing gon/oss to be reported in the 2015 statement of comprehensive income? "312,348, esas b. 51.S48 4 122,730 2. wnat ste correct carrying vale of investments that shoud be presented as current asset? "33.864 548 665,750 &. 3.543,000, 3,765,250. 3. nat ste correct carrying value of investment in Dee Corp shares that shouldbe presented in the 2015 Statement f Franca Postion? ° 3. 2/430,00 © 2,260,000 250,000 ‘8. 2:550,000, 4 Assuming tat te companys business mede! regarding det secures hs on objective of calleting ‘orvactal cashflows, whats the correct carrying vale of tvestnen n See Co Bands tot Should be ‘resented he 2015 acento naa ote? 32,690 4. 1960,360 ‘Gn January 4 2014 ty Corp, acaed 0,000 shares of ABC Corp's 109,000 shares outstanding fr 5,000,000, The book value of ASC enthable net assets on ths date mas at PLAM. Al ho assets carryng cone sppronmated ther fir values exceat for 9 depreciable assets with @ remabing ie of S reac Vee ‘ASC reported total comprehensive income In 2014 at 94,000,000 which was net of a foreign exchange loss ‘ported nas other compreensve los at POOD,000. ABC aso paid Ghidends at PLM atthe ed ot Oe ye, 500,000 of which strom pre-acqustion Resins Eanngs, The fa mark wake of ses on ti te mee P2i0 per share, eauirements: : 1 Whats the carying vate of ys investment in ABC shares as of Oecember 31,2014 sing the propriate secauntngstondoras? 5,058,000 © 5,990,000 25,750,000 5,398,000 2. Assuring that IY Cor. 8 medusszed entity and thatthe company uses the fl valve method in ‘Ranting forts ovesiment 9 ABC, how much toa shld bere in iy Cones eee ‘3 1,750,000 © 1,300,000 ® 450,000 300,000 3 Assuming tat fy Cp, sold 1,000 shoes of Ws ABC shares nxtment on December 31, 2014 at ts revit vl, hon rach tal shoe recap ine oN Se a ee ey 2k ‘406,000 387,600 B. 646,000 243,600 “4. Using the information nthe previous tem, how much sll be the carving va Inverts as of December 3, 20187 era ee ‘a 252000 2,300,000 Bb. 2:357600 4 2261600 5 Assuming tat ABC sed 25,00 shares to othe tke on Becerber 3, 2014 at prevaing far ate met ty Car's paricatin, haw mach shuld be recount nthe panto aso oe 81,200 129,200 » 196,200 6. None ‘AUDTTENG PROBLEMS - PREWEEK HATERIALS CIRENEO7ESPENTLIA) 702 ® :ReSA: The Review School of Accountancy oeapaet 25 Suomen est of Ruel Corson Aa CeeeeE 2016 reported the net pope, plant and ‘seipment at 9,270,000. Details of the amu aay Land at east 1,000,000 Bulg at cast 4,000,000, st 12/31/13, 00,000) 3,200,000 ant at cos 5,200,000, ess eccumiated depreciation ati G.130.000 2.970.000 lah ie 8.270.000 (0 Sree AER, a erection hat yeas cage mae nthe yer of caution or completion and none nthe year ef dapors. » Srseia ie png ees 90,00 binge aes reds of nef part a weston ne Bid yer aaNet cou P00 aan ad Se soe Aaa a 31, Sex me arehouse. The cnstrction ‘wos achieved us the companys om sures oe Talons Porthased mates 180,000, Breet ‘300,000 Superson 5,000 Desig and planning costs 20'000 uated he above fours are 710,000 or materia ai 25,000 fr abor foundations Ate to me being ts dose to a neghtonng propery Aa shen aes. The bulding was brought info mean oer ‘yews (sragheine deprecatn), ons that wore efectivty fost Dove coats re Inca est of 90m Completion and hasan evnate weet Moat Ah the vlaaton (sraighine deprecation steed)” hae eect of the excess depreaaion on revved ne, {@) Perec fr he yar 201 hasnt yet Been accounted fhe he dro tana sre quesrions: [S88cd on the above and the rest of your act, 4. The carrying amount othe new wbrchona 2 950/000 1,000,000 B 3e6.260, a Serse0 2 The caving amount of plank as of Decent 332014 2 1,380,900 © 282.500 b. i37sn0 4. 710;000 3. The tial deoreceuen forthe year ended Cece 3, 2014 18 3. 740,000, © 380,000 & 738.790, & 7650 ‘The revaluation surplus a of December 31a 3. 1720.00 1,800,000 3 17i0,o00 @. "Se0000| Ferner eae not RRQEERDY LANL AND OPMENT eQupment for the year ended Decamber 31,2015, ‘The folowing nfornation were made evalsoe Belonces as of anury 1, 2015 ‘ompany mokes a tanstertoretaed earnings rower the toning of December 3, 3014 is Accumsted Depron Bling 3,150,000 Factory Equipment 3.304000, ‘utomesive Equipment 2.700000, 4 fe company’ proper wae acura pon the cmercanat of pera Ure yer ogo (am iu 208) and serine a lhe caret yn Te deca mee ee wae ‘towing metrods and useul ves. Salvage vale ls assumed tobe oe 10% ot ne ene See ese za pee = ree an crag. i as ae Feira ce i he folloing transactions curred during the ye “SOTTING PROBLEMS - PREWEEK MATERIALS (IRENEO/ESPENILLA) 702 &[RgSA: The Review School of Accountancy Page 19 of 25 1% Anew factory equipment was acquired on June 1, replacing ano factory equoment eriginally acquires '2.P1,500,000, and was deposed onthe same date st P250,000,.The new equapment was acyuied =. 2,000,000 payable 3% down paymer, wth the Balance payable four equal instalments every June 1 starting the next yer. Freight and unloading cost mounted to P50,000. Installation cost amounted to £70,000. The company estates that t wil incur significant smanting cost upen the retirement ofthe same factory equoment. Future esbmated dsmanting costs at P227,081. The market rate of interest that eet a transactions an dis date was at 10% ©. On August 2, anew automotive quent was traced infor an od one which was riginalyacauired st 1,000,000," The company paid P300,000 nthe trade-in. The new automotive equipment had 3 ash rice ofP1,200,000 {_Signicant improvements onthe venting sytem and eecrcal wing sytem ofthe Bling were ‘mage atthe begining of the current year. Total cost ncued were P400,000 forthe venboing system [3h F380, 000 for eects! winng system The improvements have no slvage vale Requirements: 1 What the caret gorVioss on dsposa! f the factory equipment on tune 1? ‘> 284,000 319,000, 250,000 ‘377.200 2. What the coect deprecation expense on the bung for 20157 ‘1,020,000, 108,000 . 978,000 4. 900,000 23. whats the correct cepreison expense onthe factory equipment for 2015? 2. 962.535, 90833 b 938.933, ‘8. 1,065,600 4. Whats the correct depreciation expense en the auarnetive equipment fr 2015? ‘2 935,000 1,016,667 : . $25,000 1. $36,000 PROBLEM 20: AUDIT OF PROPERTY, PLANT AND EQUIPMENT Er anaary 12009, PONICA CORE acu 3 factory equipment at 2 cost of F450,000. The eaupment is being ‘Scprecates ing the saint ine metho overs prjecea well Me of 10 years wa PS0,000 savage valve (on December 34,2040, 2 determination was made thatthe future net each ows expected trom the contin ‘Se of te asset sel be 40,000 per yea! Etmoted stage vale Fema to be P50,000. The aset aso had {a vate les cost oS at 7220,000 on ne sare dae. You ascertained that ths was propery computed ne ‘ar recognition of the mparment was warranted, (he preven interes rates 10%) (on Gecember 31,2012, the ane’ replacement cost nas determined to be P55, 000 with a total Be of 12 years ‘Pom ante of scqantion, Savage value esl existed fo be ot P50,000. You abo ascertained that Hs ‘You nave been asked to asst the company’s accountant nthe application of PAS 36, the standard on mpacment of eset equces: 2 Nati the recovrabe value ef the asset on December 31, 20107 3 26722 ‘213,397 ©°'220,000, ‘4. 320,000 2. Hom much impatment loss should be recognized on December 31, 20107 3133278 5 155,603 150,000, 40 2. wnat ee acet’s coming amount on December 31, 2012, before revaluation? 2 190.082 177.525 © 160,050, 6.12548 4 om much patent recovery shouldbe reported in the 2012 income statement? Tos.958 ‘155,475, a2 998 ‘4. 17450 5. nate te depreciation expense 2014, under the cast method? 2" 30,000, 36,250, ce 37.075 6. 41,695, 6. Whats the depreiauen expense in 2014, under the revaluation method? 237875 36,250 41825 4, 30,000 27. What the balance of any revaluation zurpis a the end of 2024, under the piecemeal realization? 207250 saz 52,500" “a eab00 ‘PROBLEM 24: AUDIT OF INTANGIBLES ‘Fhe Crus Company acqared sverl smal compares atthe end of 2023 and, based on the acquétions, eporte the foowing ntanglbes in ts December 31,2013 statement of fancalpaskon: Z ‘AUDTTiWG PROBLEMS ~ PREWEEK MATERIALS” (ERENEG/ESPENILIA) 702 &ReSA: The Review School of Accountancy Patent 200,000 ooyegne 400,000, ‘Tradename 330,000 omputer software 100/000 Sooawit ‘200000, TOE EoMBRNYS accountant determines the patent has vole, and that tw (Sp December 21, 2014, there are no indctions ‘nformation relate to the other intampe Sea Page 20 of 25 ‘of mpament of potent and computer sofware. The flowing 2 Because of he rampant pracy, the cpyrshts expected to generate cash ows oust FE,00 per year ')- The tradename is expected to generate cashflows of P15,000 per year ©) Tne goodwi s be generated bythe Jade Production ‘ot as a carving amount of Pa, 100,000 excluding goods Requirements; ‘Based on the above ae 2ssocated with Cruz Company'slade Production repating unt P200,000, reporting unt. The cash flows expected to Ber year for the next 25 Years, The reprting the result of your aud, determine the folowing: (Assume thatthe appropriate discount ‘ate fora tems a 58) 2. Total amortization of icangbe assets in 2014 2 30.000 88,750 © 1075300, © 2o,000 22 Total oss on impotent in 2014 a ariaie 42470 & 530/280 & 8370 3 9 Brmeunt of goed an December 3, 014 Se 700 835,000, 300,000, 3. 659,720 ‘Gaming amount of otner tangible esets or Gevember 3, 2014 3 7050.00 7580,000 © Peto/o00 4 Proce? aos Imeangiies 7AN4 Franchise exping on tune 30, 2082 °252,000 30/3 Advance payment on case expirng on October 1, 2016 168,000 12/31 Net oss for 2014 incudig incorporation fo PS0GG end ‘elatea legal fees of erganzng the business: P56 80d wet incurred in 2014) 95,000 YAS Acquired patent wa a use We of 10 years 444;000, 30” Coste cevloping a secret tomas 50,000, 471 Goodnal purchases * 70400 711, Legal fees for success defense of patent purchased on 1/2 75/300 10/1 Research and development costs ona new piece 960,000, Required: Ignoring income tax eet, determine the fooning 1. The unamortzed patent cost ot Becemier 31, 201 2. 399,600 “444,000 5 aan & Sousen 2. The enmotine anche cost at December 31, 2085 2908750 “189,000 2 daos00 4. eso > eating eres 9 One 21, 205 sd me «excess tte Seeman ‘ined amiga e330 « n2a50 3 basco a rims 4 sare ft apstmens onan 31,21, il wae At ame 2015 ha 8 eat 3 Yea S50 PROBLEM 23: AUDIT OF INTANGIBLES ig Sabrina Manufacturing Carporaton was incorporated on January 3, for ts fist year's operations were not examined by 2 CPA. You have bees ‘RGDTTENG PROBLEMS - PREWEEX MATERIALS. (IRENEO/ESPERILIA) 2013. the corporations nancial statements ‘engaged to audit the france) 702 &ReSA: The Review School of Accountancy eee 21 et ae igtements forthe year ended December 31, 2014, and your work is substantially completed. A partial tie balance ofthe companys accounts flows: : Account Tne Great cash ‘counts recevabic ‘Mlowarce Yor doubts accrants Inventories Machinery Eguipment [Accumulated deprecation Patents (Item 1) Leasehold improvements (Item 6) Prepaid expenses ‘Organization expenses (tem 7) Sead tem 5) [censing Agreement —A* ‘item 285), Licensing Agreement - 8 ‘tem 2&4) 49,000 ‘The folowing infrmation relate to eccounts that may yet eure adjustment: em Patents for sabrina's manufacturing process were purchased January 2, 2014, at 2 cos of 68,000. An ‘seaitons!P17,000 mas spent in Gecember 2014 to umprove machinery covered by the patents and charged to {he Patents accoun” The patents hada remaining Wega wry ol 17 Years (On January 3, 2013, Sabrina purchased two lensing agreements; at that time they were beteved to hove Sramtea saful ves. "Te balance in the Licensing Agreement ~ A account induced is purchase price of 6,000 and P2,000 i acqustion expenses. Lkensoig agreement — 6 also was purchased on January 3, 2013, for P30,000 but ft has been roaveed By creat ef P,000 for the advance caBecion of reweave fom the Sorcement seem 3 1p December 2013, an exslosion cused permanent 60 percent reduction inthe expected revenue producing “oe of rang gest =m ann Dury 301, aR aed zane damoge, mh ene He em 4 2S Stuy of Ucensing Agreement -B made by Sabina In Januory 2014 revened thats estate remaining fe ‘Spectancy was omy 10 years as of nary 1, 2018 roms 5 ‘The lance i the Goodwal account eases £24,000 paid December 30, 2013, for an advertiing program, latch is estimated wil asst tn Increasing Sabring's eles over a period of four years folowing the em 6 “ne LrascholdImprovernen account includes (2) the 15,000 cast of improvernens with a total estimated useful [se of 12 years, heh Sobrin, a tenant Made to leased premises Ia Jarry 2013, (0) movable assembiy ine ‘culmant costing P6500, which won mstaled nthe lseed premser in Oxcember 2034, and (c) real eatare {ees of P2300 palé by Sabrina, which under the erm of Ure lane, shoud have been pand by the sandra ‘Strips ts font i fal duit 2014.A TOvyenr nanfanewabie ease was nied January 3° 2013, for the leosed Dutding that Sabrina used in manufacturing operations. stem 7 ‘Th balance nthe Organization Expenses account includes pre-operating costs incurred during the organizations! guests 2 Peters wit have an aucteo balance 36 ot December 21,2034 of 364000 66,000 3 a5,000 461000 2, The adusted balance of Ucensing Agreement ~ A as of December 31, 2014 ie 2. 20,000, 10,000 bo 6. 50,000 3. The adusted balance of Ueensing Agteemeri ~B as of December 31,2014 is 8 as000 . 6000 4. Leasehataimprovernens, net of amerrain,audted balance as of December 31, 2014 3 12,000, © 13,500 5 15,000 6, 26,000 5. The ne a} te Retained earrings ta reflec l the necessary comectins rom Item 1 to 7 will amount to 2. 84,500 debt. ‘83,000 debt B. 84500 creat 6. 55;400 debtReSA: The Review Schoo! of Accountancy Page 22 of 25 XE CPtporation, reported the fllowing balances the habity potion ofits Statement of Financial Poston ‘aS of December 3, 2014: Noncurrent Lables Note Payable, Bank 10% 4,500,000 Bonds Payable, 12% 3,231,652 Finance Lease Latity 2200/00 Aditonat information: ‘Te note payable to the bank was originated on September 1, 2013 and is due annually atthe rate 2FPL.SM every August 31 stating 2014. Interest whichis based on the outstanding balance of the Loan is also payable every August 31 Interests yet to be accrued on the note bythe balance. shot date. Payments on the note and interest during the cutrent your had beet rected appropriately ‘The S year, 12% bonds payable (wth 3 face value of P3M) were issued on January 1, 2014 atthe Drevaling market rate of interest which is 10%. Interest on the bonds ae payabhe semi-annually . every Dune 30 and December 31. The entry mat de by the cent to record the asuance was to debit ‘ash and creat bonds payable forthe taal cash consideration recenea, ‘The Lease Lbilty iin relation to X72's purchase of a machine on December 31,2013. The Imactine was delivered the same day to the company. ‘The lease stipulates that annual payments wil be made fr 5 years starting December 31, 2013. Atthe end ofthe Svea term, the company ‘may purchase the machine. The estimated economic Ife ofthe machine o 12 veers’ Your frshey Investigation reveaied the fiowing te-ms ofthe transaction, “Annual lease payinents "550,000 Purchase option price, 250/000 Estimated far value after § years 750,000 Implicit rate 10% 7 Borrowing rate 12% Entry made: Eaupment 2,750,000 ‘Cash 330,000 Finance Lease Lobilty 2,200,000 Payment on December 3, 2014 fs yet to be recorded, Requirements: 4,” What isthe amount tobe capitalized as an asset forthe lease ofthe machinery? 22,448,656 . 23240,170 2,293,450 6. 2,759,130 2. What isthe carying value of the leased asset as of December 31, 20112 2. 2,264,601 b, 1,958,925 . 2.448,6 4. 2,040,547 3. What isthe correct total noncurrent abilities to be presented inthe 2014 Statement of Financil Postion? 7,336,271 ». 6,193,897 © 5,842,069 4. 6,049,341 4. What is the correct total current Portion of long-term debs tobe presented in the 2014 Statement of Financial Position” 1,896,148 ». 1,500,000 1,860,134 4. 2,005,457 5. What i the total intrest expense to be reported inthe 2014 income statement? 1,062,121 be. 1,009,211 ©. 1,026,097 6. 662,111 ‘PROBLEM 25: AUDIT OF EQUITY ACCOUNTS ferada Square Company Bas the following elected accounts ints shareholders’ equity section as of December 31, 2014 Preference shares, P100 par, 10 percent cumusatve, 100,000 shares issued and outstanding 1,000,999 ‘cia shares, 20,1000 00 shoes autor, 00 00 sare tod snd ustenng 34,000,000 re grein 800,000 secures rms 2e'eec00 ‘ere are no dividends In arrears on the preference shares. During 2015, the folowing transactions occured ‘RaorTaNG PROBLENS ~ PREWEEK MATERIALS CURENEO/ESPENTLIA) 702 @[RgSA: The Review School of Accountancy Page 23 of 25 and Ths board of decors decared a cash dividend train to 2,800,000 tobe pa to preference nary shareholders, Late,» share evidend of 10,000 ordinary shares mere decared on ordinary Shares, The market value f ordinary shares is PGB per ahare on te dae Ue sare dividends wer ectare, Sometime after the above canis were dele ad sete, ne board of rectors declared 3s Broperty dividends one shares of is investment m Bago carp, stocks being held By the comeny 25 {runcel ase tor market value tough prot or tees for every tre erdnary thae OUSTARAIND. Biggs Corp, stocks were ongioly purchased by he company at PL2 per share and have 2 carrying vi based on the far vue os per te las balance sheet dte, at P20 per share. Bingo Corp. shares were ‘tog a P24 when the property dividends ware deloed and were sting at 25 when the property ‘vidends were settled. The company Nad total of 600,000 shares of Bingo Cop. shares. Atte end of 2015, the board dedares a fourfor-one share spl. WIth the spt, Use rumber of orinary shares outhorized to be sued increased to # 000,000. athe dae ofthe share spe, te markt vale ‘Forcnary shore P75 per she. Net earings during 2015 tota 6,000,000 Requires 2" What the corect debit tothe accumulated profits as 2 resto the stock dividends deiered in tem a? ‘2 6,800,000, ‘480,000 000,000 4 2.000;000, 2. What I eft debt to the scumulted profs acount a= est ofthe decoration and distribution ofthe Property dividends inter 0? “o” s0,000,000 6,000,000 B. 12:30/000 5. 12,000,000 3: Whos the aajsted tatance ofthe company’s cumulated prot account tthe end of yer? 2 16400,c00 ‘221600, 000 18 00,000 1. 26,400,000, “4. Whos the balance of te cna shares acount ax of December 3, 20157 ‘16,000,000 1000, 000 8. 18/000;000 20,800,000 ‘PROBLEM 26: AUDIT OF EQUITY ACCOUNTS. In your aud of Spurs Inc. forthe caenor Yeo ended December 31,2015, you dscovere the following charges to the company's Retained Earings account Bates Jonuary 1 7,800,000 Urveinatg oss on farce assets at air value tough ater camprenenave mtome or oar 400,000) inwcrory wes {000) Imgatmect less on Property Pent an Equipment (75e;0003 13% Stoo aviiends decors (100,000 shores outstanding a P100 per) (1500/00) tess on sat of equpment “200/000) Seren rp wre (2500000) 28. onretrement of orinary shares a8 reasury 050,000) (ain on Sle of erry shares as excess ove par 10,000 Sain on premature refemertof bonds, ‘00.000 Unreal gon on finan eet had at vale trough = $00,000 Process ram sale of donated saves Netcare tor yer Reserve for pant expansion - uae noes oT 15% suck aude were cecred‘on Nove 1, 2015 astbutae to sects a of Sezember 2015 dba runry 15, 2086 Spurl sacs eee a 28 oF "The company’s Share prema rom tresury soc ransacton account amounted to P80,000. © Thecomoany’s management cei to change ts inventory costing method am the weighed average {2,0 FIFO bporoac dng the cet year. The rweny Blanes inte ta ee eo te AVEMGE FIFO. Beginning 2,500,000 3,600,000 Ending 41300;000 2'200,000 The compa, however, yet ofc the sau changes carer nel statements, ‘Using the formation above, arsine the allowing 1. What she net edjstment to the retond etnngs acount or the daaration othe stock dividends? ‘3 150,000, ©. 100,000 5 50,000 6. no aajstoment 2. wnat isthe correct net income forthe year 2015? ‘9,200,000 9,100,000 ‘AUDFTING PROBLEMS - PREWEEK HATERIAIS” (RENEO/ESPERTIA) 702 &ReSA: The Review Schoo! of Accountancy Page 24 of 25, 9,000,000 4. 9,300,000 a % Yat the retroactive adjustment tothe retained earnings begining in 2015 as 2 result of the change ‘the inventory cost formal Tom the weighted average to the FIFO appraach? ‘2 100,000 creat 300,000 cred 8. 200,000 creat 4. 100,000 dent What the correct retained earings atthe end of 2015 3. 10,730,000 10,900,000 ® 10/6850,000 4. 11,200,000, ‘kkans Corporaton nas necro ‘inary shares for P27 er sk, FP 28,000, ated 2013. Dunng 2013, tne company issued 100,000 shares of Pt par value . Dung 2013, Ekkans Corporation had a prot of ?280,000 and pad Gidends uring 2014, the company had the following transactions, “V2 pe 10,000 shares of #100 par valve cumustive preference shares at par The preference ‘shares are converte ns five ordinary shares a hod a Onsen rae of Se, 571 sued 3,000 erinary shares for legal service performed. The value of the lege) services "eoP!00.00. The shares ae ave trade on Sac ethane an valoedon Se Yet 7/1 Issue 40,000 orinary shares for P42 per share. 10/1 Repurehosed 16,000 reasury shares for P34 pr share 32/1 Sold 3,0 treasury snares fr 729 per shore. 12/50 Declared and paid» idend of 0.20 per share on ortnary shares and a 6% dividend on the Dreterence shares. uring 2014 Ekta Corporation he rf of P8000. questions ‘ated on the above and the result of your aud, determine the folowing: 4. Total share premium as of December 3, 2014 24,533,000 43077000” . 1733.000 4. “Ssee000| 2, Total retained earnings as of December 31 20k 2. 501000 © 662,000 & 5t6;000, & 23000 3. Total equty os of December 31, 2014 2." 5,535,000 © 5621,000 2. 5,539,000 4. 5,550,000, 4: Basic earrings per sare forthe year 2014 226 e320 8 Teo on 5. Bites eomings per share forthe year 2044 ans 2a Bie 6 190 resented Plow the saterent of feancal poston of Diesel Corporation prepared bythe che eccountant for the current year, 2013, Diesel corporation December 31,2013 Curren assets 435,000 Investments 640,000, Property plant, and equipment 1720/000, Tntanabte asst 305.000 Current tabities 330,000, ise eb “109.00 ‘Shareholders’ equ 770.90 3.100.000, Conscer the ftom ifermanan: ‘GD PROBLENS - PREWEEK MATERIALS (IRENEO/ESPENTLLA) 702 &iRgSA: The Review School of Accountancy Page 25 of 25 1, The curent assets secuon includes: cash P100,000, accounts receivable P170,000 less 10,000 for allowance ‘or doubtful accounts, inventories P180,000, and unearned revenue PS,000.. The eash balance i composed oF P114,000, less a bank overdraft of P14,000" Inventories are stated on the lower of FIFO cost or market. ‘The investments section inches: the cash surrender value ofa We Insurance contract P40,000; vestment 1m inary shares, shert-term (trading) 80,000 and long-term (avallable-or-sole) F270,000; and bond ‘sinking fund P250,000. The cost and fir valu of vestments in ordnary shores are the s¥me. 3. Property, plant, and equipment includes: bulings 1,040,000 less accumulated depreciation 360,000; Sup P,000 ess accumuloted dereciaton 90,000; tnd P500,00; ad and held for fre use Intangible assets include: a franchise P165,000 gooal 100,000; and alscount on bonds payable P40, 000, Current tabities mciue: accounts payable P90,000; notes payable - short term P80,000 end long ~ term 120,000: and taxes oyabte P40, 000. 6. Long - term tabities are compose solely of 10% bonds payable due 2020, 27. Shargholders' equity has: prelerence shares, no par valve, authorized 200,000 shares, issued 70,000 shores ‘or Pa50,000; and ordinary shores, P00 et value, authorized 400,000 shares, Issued 100,000 shares a an fverage pce oF P10. In adaivon, the carporavion has retained earings of P320,000. |S. The company's management does not elect #9 use the far value option for any of ts financial assets abaties QUESTIONS: ‘aseo on the above ans tne recut of your at, compute the adjusted amount ofthe folowing to be reported on {the company's statement of fpandal postion as of December 31,2013) 1. Curren assets . ‘AODETING PROBLEMS - PREWEEK WATERIALS (IRENEO/ESPENTLLA) 702 &“The Review Schoo! of Accountancy AUDITING PROBLEMS ‘Brel. Ne. 735-5007 w 734-3909, TRENEO/ESPENILLA AUDITING PROBLEMS. PREWEEK MATERIALS ‘TABLE OF SPECIFICATION (TOS)FOR AUDITING ‘ce rom PR-BOA Resolution No, 275 suance and Premgetion othe New Tables of Spctications (TOS) the ‘Sct inte oar censure amigo fr CAs 1.0 AUDITING THEORY Lt (Stems) 1.1 denbty and desobe the objectives, nature, elements and types of assurance engagements. Drterenttetetweenassurvee and atetation serves 1.1.2 deni and aesente the nature, philosophy, and objectives of aud and dterenatearong te types of aud and aud 12 (Sens) 12.1 Desert the act process ent ac explain the procedures tat comer pre= engagerert uit lain, supervision and review. 41.22. Performanayti! procedures, cao matrialy and assess aud ks. 13 (Sitens) 12:1 deny inustry, regulatory and ther ete factor, Inciting the appeable nanca ‘reporting ramon, ffetig the Duss erty under ust 1.3.2 deny ond desc the base conceos and ements firteral contol and assess ane evant conto ks 13:3 deny ad evaluate rik of mater mssatment duet fraud and errs 14 ters) 141 Explain he nature and significance of au evidence and deste the derent aut procedures ond technaues a gathering event mater. 15 (antens) TTS: deny the sep in preparing an aude repr 15.2 plan the varus reven ard evsution procedures tet are conducted in pepe the nl 200 report such a vere analyecal review, eenMeton of fled party Wansactons, {Sscovery of subsequent evens, ossessmert of goin concer asompben, 1.6 (4nens) 1T61_Identy and describe the elements of n act report resuting to and aust epnion, 162 Deere between unguslfied and modes dors repr. 1.6.3 ldeny mates tet ntuerce te ars’ apeon 8 mode austrs report. 17 (anens) : 17:1 esrb the aperosch in aucting 2 Computerized lformtion Sytem (CI) endronment 1.72 oer ang assess nara cont 3 CIS enronmene. " 41.73 Desenbe computer assted aut tecnaes 1.9 (anon) 1181 Desenbe eter assurance and no assurance recs ich a¢ spec urpore at ‘rapperens, e008 of crecnent of tran unter, reports on compkance wth ‘oteactul agreements, reports on sommareedfancel statements, xaranaton of prospective arc nformaton, engagements to revew franca tater, peor ‘gree upon procesres regaring Manca formation, ans compison of anc ‘ntomaten 12.0 EVIDENCE ACCUMULATION ANO EVALUATION - SUBSTANTIVE TEST OF TRARSACTIONS AND BALANCES 2:1 AUDIT OF THE REVENUE AND RECEIPT CYCLE (7 Kee) 2.14 Aue of sen and revene ansacions 21.2 Aud of recede Boloces 2.1.3 Aut of cash recap wasnactons/ Aut of cash blancs 22 AUDIT GF EXPENDITURE AND DISBURSEMENT CYCLE (Theme) 2.21 Au of scqusiton nd purchases 222 duct of soya transactions 22.3 uot orcas sburcemene transactions Aut of cash Balances 22.4 ust of ventory blocs 2.25 Auge of tre payable bales 2.26 _ Aud of preps expenses an acd labs 2.3 AUOKT OF MODUCTION ErCLE (Kee) 2234 Aud ck conerson aces 23.2 Aud of ventory balances work hrproces and ished gods 233 buat of cost of goods sla bance 2.4 AUDIT OF THE FINANEING CYCLE (7 Res) 2A Aust of facing eye ansactions 242 huat ron trade tatty talonces 243 Auat finest expense and tance cet baorces 244 tut of equty accounts 255 auort oF nevesTina CYCLE (7 Rens) 2554 Aud of loving transactions 252 hudtol investment occount tances 253 ud of propery, lt ord equprentocount balances . 254 kude of mange occounebaorces[RgSA: The Review School of Accountancy ee ‘EVIDENCE ACCUMULATION & EVALUATION ~ SUBSTANTIVE TEST OF TRANSACTIONS & BALANCES 1 'Sending accounts recehvabieconfaton lees (oe en's customers i consistent wih the audtor’s bjecnve af validating cents receivable assertion on Completeness and valuation Completeness and ngs © Exstence de vast ‘©. Bastence and hts What ection shuld the autos tke i a reply tea postive centration requester fora material amount ‘Snot received fom the custome wit two ree weeks of bung sen on? 2+ Quily the aust eprion due tock of sumer appropri sa evidence , Inorm the entity's interna! aude department © Send out a secong request to he taster 4 Qeaty tne auc pion du to mater misstatement in the nancial statement {Which ofthe folowing procedures ould an our most Mey perform for year-end account confirmations ‘hen the audtor Be net receive ropes to soconsreqoct ‘Review the cash ect ural fer Ue month grist year-end 8. Imensty the stay of nernal conta cancermng the reves cycle 5 Inteae the assessed evel of cet re the enstence sree. {Inspect he shipping records documenting the mecandse sid ts costomers Wich of he foaming scare statement reas ding the use of 3 negative conimation request? ‘3. Unetuned negate contra QUES ately provide igifeant expe endence, Negative confation requests ae fective when detection ak ow Unreturned neaatve contin Cequest dicate that ateratve prcedures ae necessary. Negative confirmation request are effective When unertated 9 atcoet bts ne suspected ‘ads wien of te alloming crourstances woud the ve fe blank orm of cantrmations of eccounts ‘ecevoble mast ily be preteraic ‘ Bestiveconimation? Subsequent oh recups ere uray att very 1 The ecient are hkl onthe confmaions nt deving proper attention to them, Aatyea procedures nacate at few exepoons are expen {6 The combined assessed love ferent is and conor iow, © hin afte floning populations show the audtor star form hen testing forthe completeness of ‘ported sles ofa manuracturng company sto ace srt vd ses e ea te ‘tomers and ae utmateyfecwded a ans = Sec renp, 8 Sirians © Sélessacs 4. Gods pate notes Sties records a woes should be races be 1c to and compared with shipping documents to ‘Ascari that recorded sl pertain goods tat ore atuly Severed asters . Estre tat shpments to attomers abe 5 Beermine whether payments are preety apple to customer accounts, 4. Deterne whether unt pres ied aren cordance wt oes ees The auaeor wants to obtain evidence ia spor tote ean Eineagam and ne comesponding exer of the ete recente bao Se Ses es 0 wc ofthe folowing substan est precedes? 4 aad Trace ene sipping docanets end sates nvles ote err inthe sles journal Trace te aprovedcasomer odes tote shipping documents andi ea nce, © Trace the sates mvc othe daly ses sommes 4 Trace back oul ens he ses ora ee ses cc an ping documents statement assertion of occurence of sles 5. sep tater rons ota fe ent deadornarrenernenn fools rte ne eae etre sac oe soar snl is ts mae Sapte moose ene 1 ant rs ts ef Se et ete me rors se ue Srl nga aman sh us scan Sree oer see a ar eric, Secearauer eta dente Pe eprint tm Cre ae niet awareness oc omens a Scar apiece peat temeeae rea sto Bre neh esa nee eo Se re ecoaanta eae ea ee MED ome cal epee is PRLS = PREWEEK MATERIALS” RENE ESPENTTA) 702 ®IRgSA: The Review Schoo! of Accountancy Page 3 of 25 Several days after the balance sheet date tothe source documents s necessary to athe fedence fegarting the valuation assertion of receable. 10 Your aut ofthe account recenatie Uvough analytical procedures revealed that the acounts receivable ‘urmove rate nad fallen for 75 umes to 4.4 nes fom the prewaus yar. Which ofthe folowing 's 9 vad at ineght rom the sa formation? {There might have ben @ more ioeral ced Pic thus the autor shoul increase sample sie ‘on accounts recevabieconrmation to gather Rrther aut evidence on accor recevable ‘exstence and ight osseton There might have been a more stangent ered Ply hus the auctor shoul gather further _20tevidence n supporto he vluton asseron on accounts receive ‘c__There mgt Rave been 9 tore seingen coat Pl tus the autor should crease sample size on accounts reenable confirmaton to gather farther audt evidence on accounts recente tesstence and rights assertion 4. ‘There mht have been a mare Wera ret Policy thus the autor should gather futher aut ‘evidence Im support of he wahuaton assertion on accounts ecenaBe 11. In gathering evidence regarding the valuation asset ofan aut cents acount receivable, the autor ‘Shou aire mah the managarsent repening te pole of rowing bad debt expense ana te Grresponingatowance ana more inparanty, gather ewencergaring the reasonableness of Sich poy ‘nh ofthe ftemina maybe porabie sure of endence regorang the reasonbleness ofan aud cient = oly a proving bad cee? Subsequent events happening efter the Blanc sheet date bt before the issuance of the ‘raneat statement, storia expenence of the oud cent regarding wing off uncalectble accounts © Gas.getexpenence fuer company sen te same man 12 To gather evden rogarcing the depos n trans a cent prepared bank reconcilation statement, 3 2edtor would examine 3 Nearend bank statement Bonk eonemation rep 5 © Genera tager & GatoW aan statement 13. nvatdaung the bank reconctaton statements of the cnt the autor should trace back the warscorded ‘Sey ke tonace corset the 1. Accounts payabievouher © Cenceted checks returned by the bank, + 4 Gatomrsank statement ofthe subsequent month 1 Invateaing bankrecncton statements of the nt, the autor soul race back outstanding heck 0 Accounts payable vouener. 2B. Canctec cnecxs returned by the bank ©. Gitte bank statement of he subsequent marth, &.Shesatemene oft cent month 25, Inhis auto tne cnt casn in bank acount a6 of and or the period ended June 30,2014, the auditor Fequeste fra cat of bank statement othe fS-cay period ended ty 15,2018. The purpose of the cutoff Sank statement to gather evidence regarding the Proprety of wich o the fling resnehionay tems thine 3° cee 2 1 Deposits wansas and unrecordes bank ces 8. Unrecorde bank debts ond oustanding checks © Unvecorded bank cedes and unrcoreed Bark debts, 15 Deposts n anaes ond outstanding checks, 16. & cas shortage may be conceated by anstersng funds from one locaton to anche or by conver ‘egotabe assets to cash. Because of Us, mh of the foowing Is va bseerening 2 Simultaneous vention Simultaneous contrmatons 2 Smutaneous bank reconcatons 4. Simukancous surprise cosh cour. 17. The proof of cash statements s usualy prepored by the autor when: ‘Interna contre over cas strong and contol sks pace atthe maximum, Coen balance is very signa, Cash balance Is very isnot Interna control over can weak an contr rik is place atthe maximum, 18, Which ofthe following atest of contro ver cash? {Post opering procedures are odscrved, The nancal accountant reviews Uhe monthly Bank reconeition statement. Plycatisestslcet neste 702 & (Cash and checks are safequrced agnne lose or then. ‘PREWEEK WATERIALS(TRENEO/ESPERILLA)RSA: The Review Schoo! of Accountancy Page 4 0f 25, ‘PROBLEM 2: AUDIT OF EXPENDITURE AND DISBURSEMENT CYCLE 1 ToR Rumer wars to obtain evience in suport tothe nancial statement assertion of completeness of inch or cramszctons and the corresponding accounts payable balance. The auditor would Tost Wel 00 ‘hich of he following substantive test procedure> 2 Testack Journal entries tothe purenases journal tothe suppliers sales invoice and shipping ecuments and recewing reports, ‘Trace tre aporoved purchases orders to the receiving report, ‘Send ocounts payable confirmation lete o a sample of supplies whose account balances Femain oustanding as ofthe Baonce sheet date [ice the receiving reports tothe supple sales invoices, then toto the entries in the purchases oarautor t°3c86 2 sample ofthe purchase orcers andthe related receiving reports tothe purchases ‘ural The purpose of this substantive test procedures ost kel to * Betermine that purchases were properly recorded whch le consistent with gathering evidence In ‘support of te completeness assertion over purchases and eecounts peyble Test whether the recorded purchases are for goods scuul eceed a enered which s ‘SSrstent wits gathenna evidence In suppor ofthe occurence ssertion ewer purchases ‘Qustence asserdon over aecounts payable S_etermine that purchases were ropesty recorded whch consistent with gathering evidence in ‘SuPvort ofthe occurrence assertion over purchases ond exstence assertion aver sees bayable ‘4 Tes whether the recorded purchases are fr gods actualy recenved an ordered which is ‘ALLEN wn gathering evidence in support ofthe completeness asserbon ve porroses and > Yigey afte folowing procedures would an autor most lkly do to perform search for unrecorded lies ‘p¢which finance ftement assertion i mostly valated oy she procera? 3. "Youching 2 sample of entries in the purchases Jour just before yearend tothe unmatched {Sexiing report te whic fs consistent m gaierng evidence about We eualones snertey the recorded habits 2 (Comping sample of purchase orders sued just ater yearend withthe yéir-end accounts ayable entries which (5 consistent in gathering evdene, about the, conpatences or Oe fecorded labites © Scanning the cach disbursements entries recorded just after year-end for indications of unusual lwarsacbons which consistent im gathering evidence abot the exstonce ek the ee tabatee ouch a sample of cash disbursements recorded Just after year-end to receiving reports and ‘Sepals, voces which is consstent in gathering evidence about the completeness owe ‘etorded abies, ‘+ Wnich of ne folowing procedures rimay 2 test fr completeness of rade payables of an entity? 3.” Grevlezatorycontrmation of ade payables sappies Sample checking of balances outstanding per’ the acounting records at the end of the counting period forward to payments ta suppliers made Immecitay afer te res oy A Sezountng pared © Sample checking of payments to suppers made immediately ater the end ofthe sccounting 5 In mstng te acount payable balance, te ches controler has provided you wth 9 schedules the {zator and te amcunt owed to each at December 31,2016. Wich ofthe long suse eae hg © Examine spot for set Jarry 2017 payments to creo, craving that hose eating 1 2017 are nt on the senede, 4 Examine suppor sect January 2017 peymens to redtors, acranng that hose eatng te 2016 are on ths seneale when ung crtematons o prone cen dba he cnplterss ass fr acouts pyle, 2oproprate population mest ety would eons cored nthe saa ary ee, Payees of checks drawn in he manth eter the yearn Vendors with whom te entity has prevoudy dane biiness wth Tnveces fed in the entty's open inveice te 1. sa pat toon ti mony emia tr itd rm spre So ie sce te oredr op pal oe hepsi tg acl deg etpebewnpeeg the Suppher ond the recetuig repo. Which othe atoming ts corractFegurdny the Paschenec ey aos [RODETEWG PROBLEMS - PREWEEX HATERIALS (TRENEO/ESPENILIA) 702 @IRgSA: The Review School of Accountancy Page 5 of 25 28, December enres are traced back to the source dacumentsto gather evidence regarding the ‘exstence assertion over payables; January entries are traced back tothe source documents (0 Sather evidence rearing the completeness assertion over payobies. December enres are traced back tothe source documents to gather evidence regrding the ‘completeness assertion over payables; January erties re trace back tothe source documents tw gatner evidence regarding the existence assertion over payabies December eres are raced back to the source documents to gather evidence regarding the ‘lution assertion over poyaies; Januar eis are traced back to the source documents to (ether evidence regoraing the ertence aaservon ovr payaies 44. December and Jonaury entres are traced back othe source documento gather evidence regarding the valuaten assoron over payables. 8. Wich of the otowing aud procedures would most key be appropriate to gather evdence about valuation ‘assertion onthe estimated baby for warranties? ‘2 Inguire about the company poly in determining warranty provisions and develop @ separate Computation of the warranties expense and estimated waranty hablly based on the pocy of the company, >. Youeh seu warranty costs cured to supporting documents such as repair and work orders ©. Youth goods recewed from customers tothe ginal sales snvaice to determane whether such ‘o0c being ratumed are covered by the waranty progam 4 Inquire obout the company’s poey in determining warranty provisions and determine the Feasonableness. of the estimation pabey by comparing. wih Industry experience, historical experience andor subsequent ever 9. _Wnteh of te otoming statements Des explains why the accuracy of payrl calculations and payrall account ‘Sstrbulon serves to avon? "a" Poy impacts reveal atenent of franca postan and statement of comprehensive income Employees wi complain to management tele paychecks do nat reflect wages or salaries famed Payroll passin cas, an account hat highly susceptible o trav. 4. Austingstandordsregure that ess of cash and paral be coordinated. Wniet a he foloning aesroes the Sus role when attenang a en's aventary count? "To count ahinvertory. 1. Toidentty damaged snd obsolete ventory. To supervic the ventory countng terns. 4. Te cbuervethe conduct ofthe very court 2. Inthe auctor’ perspective, whats the ideal Ung of the ventory count procedres? Betore te olonce sheet date ‘Aker te balones shee Sate ‘Several umes curing the period under at. 3. Wen of te folowing procedures cared outa an inventory Count by an autor sa tat pri for overstatement of Invetony? ‘2 Agree tems Dat have been test counted to oventry sheets, 3. Taenary slow moving obsolete mventory tems Ensure completenes of sequence of renumbered ventory sheets at the concusion ofthe 4. Check tha inventory hel Uhr party feaon is ncladed in te count. 4. An usor selects tems for test counts whe observing the physical court of ventores. The autor then ‘raced Uv est counts tote cers inventory Ising. Te procedure most Hee obtained evidence ‘Concerning management's assertion cf ges na caaion b Eestence vatusvon Completeness ‘ ‘An audtr nas occourted fora sequence of ventory tags noted during the observation ofthe physical count ‘nd ie now going to trace tase we Ove final complaton of he ant Of he ventary count shests Te sat Procedures most ky consistent with 2. The audtarscbyeaive of ensuring that ems physical present and observed during the ‘physial coun ae nuded in the fal Inventory schedule proving evidence abou te cent’: Enmoleteness aserton ove the vetoes, , The auditors objecive of ensuring rat ems Physical present and observed during the hyseal court are nuded in the final inventory schedule providing evtence about the cen’: astence and nights sbsertons over the lverres. The sutars ebjecive of ensuring tat Ue ems physiely present and observed dung the Dhysial count ae no obsolete prowding evidence about the lens voluakon sosaton aver he “Karan PRE = EWEEK MATERIALS (TRENEO /ESPENTIIA 702 ro) ¥ReSA: The Review School of Accountancy Page 6 of 25 4 the audtor's objective of ensuing hat Rems phyaly presen ne observed dui the a Du af omned byte the owing Cece abot te hens eae ON PLE Seteruons over the ivetares 6 10 aig assurance that al vad invertry ems pyscaly counted are included the cents ventory isting seheute, on autor most ay woud” e gune ewdence souk _sseton Items ste in the wnventry ting sea o mentary tage and Ue BUGROrs recorded COUN sheets; Exatence. noe a Inventory tags noted curing the auditor's observation to ems std in recing reports and vendors aves, Eaten Items Hated in recenng reports and vendors involces othe inventory Ising schedule; Completeness 4. Inwertory tage noted curing the autor’ observaten to ems sted inthe inventory sing schede! Completeness. 7. To.gain assurance that ll aventory ters n a chen’ Inventory sting schedule ae vai, an autor most ‘2 Trventory tags notes during the austors observation to ems iste int eh inventory isting he " Trventory tags ates uring the autor’ observation to ems hed recenvng reports and vendor invoes, © Tees ited nthe ivetory bstng schedule to nvertry tags andthe autor records count 14 Tee iste receiving reports and vendors voices to the inventory Ising sede 8. An auditor most ely would analyze inventory tum-over rates to obtain evidence concevning management’ ‘Sseron about: Basten and ocurence ©) Rights snd obipation 4. Completeness Which of te folowing auting procedures most ely would provide assurance about a manufacturing ‘enuty's iventary valuation? 3° Obtaning confemation of ventones pledged under loan agrecinents B._Reviewing sipsng and receiving cato procedures for ventres, © Trocng test counts tothe entity's mventery tng 1G. Testing the ertity’scompveation of standard overhead rates, 10. PAS 2, Inventories require that inventories be valued a ower of costo nt realizable value as atthe balance sheet date, wach ofthe followin shal be te auaeore best source of corroborating evidence to deacons {he reasonableness of he cents estimate ofthe inventories ne realcabc velve™ ' Vouching cent estimates to the lat sates invoices for fnehed goods inventory sales and Suopter’ purchase invoices for ram materials purchases ». Benchmarking by comparing chert estates agen ndusry’s Curent pics of similar inventories © Tracing test counts noted during the physical count of ventons othe cents ventory 2. Subsequent events review 11, You were assigned to aust 9 merchandising cents inventor fr the pexod ended December 31, 2016. Aer your complete review ofthe cents interal conta over iventanes, You have asceramed tet the mterna {Control are effective thus maintained tre interest contro scat below the mawimuts level In connector ty this, you decided further, os a substantive test procedure to simply test the reasonablenens athe roseees Inventory Balance by rendering inventory estimation using the gress prt metho of cresting an expectanon ot how much the ches ventory balance shoud be, Which ofthe flontng is correct the setters xpi alc sing the oss pra methoa materia err am the repre Danese Books 2 esult ofthe physical count 8. The audfor should propose to the audt cen to adjust the books to equal the recut of the nalylalprocedure-nventry estimation . The auator should issue quaiied opinion duc to the material misstatement ithe inventory indicate nthe aud report the extent ofthe mater mistatement «The auditor should extend further the aud procedure by rendenng sdaitona tes of details of ‘ceount balance and transactions to ascerta the source of the material matseennere 14. The autor should propose tothe aut cent that an audit adustmerts Reece es a result of your audt procedure and the cient snot wing to make the neceueary edjustneet, ‘communicate the passble implication of the moteral mistatement tothe fype of aut inion ‘you wl be fsting on the financial statements A LE ary emu tw es _ Large amounts of fully depreciated assets. Ce tae ce espace eseoeytinmenans ‘RuDTrING PROBLEWS - PREWEEK WATERIALS (IRENEO/ESPENTLLA) 702 es)ReSA: The Review Schoo! of Accountancy 2 Wich of the ftoweng techn Xe Perspective of the oudtor when testing for the completeness and accuracy ef the deprecation charge fr the year? Page 7 of 25 ne cent eats atthe deprecation charges may have been overstated in the pres 35 wel o> fe urrent year. Which othe areas ‘anh this spi re {folowing observations made conastent wih this suspen? any tg as covered tough the property, plant and equipment records tat tere re oD uly deoected asses that oe st raperons aeater has acovered through inspection of property, plant and equipment records that the ‘SrmBaNY has consteiy inured significant losses on reieent of property, pant aod ‘TRS gusto has ascovered continuous trade-ins of relatively rem ast, Tre Dutoras observed mat the carving vluss of he Broprtics re Sonica n excess of their sured vats, Been aves fr cotecting aude evidence Is generally accepted to be the most efficent Analytica procedures Repertormance © Contematon ©. Physical nepection, 2s part of auditing an aut cents property pant ané equipment account, the audtor requested fromm the ‘lent schedule f propety additions and a schedule of repans and maintenance expense gunng the period [pce aust Which of the otowing corect regarding the bo scheiles? 3 The schedule of propery adations dung the yea s essential in gatherng ewdenence regarding the completeness assertion aver PPE whe the schedule of repairs ad mamtenance expense accounts necessory n gathering evidence regarding the atence terertion over POE b. The schedule of propetyadations during the year easel n gotherng evderence regarding {Be vation seteton over PPE wht the schedule of repairs and martenonce enperse account 'snecessory in gathenng eudence regarding the existence sssetion over Pt The schedule of property adatbons during the years essen gotherng evidenence regarding the existence assertion over PPE wile the Schedule of reps and matenance expense acunt 'snecessery in gathering eudence garding the completeness assctvon over PPE 4. The seneaule of property adatbons during the year and he schedule of reps ad maintenance ‘enpense account necessary n gathering ence regarding tne vlvlionssseton over PPE In testing for unrecorded retvement of equpment, an aor most ely woul! 2." Select ems of equipment fom he aésunting records and then Icate them during the plant . Compare deprecation ounal entries with nla aor year enries in search of hly depreciated ‘auipment A Inspect items of equpment observed during thé plant tour and then trae them tothe ‘oupment subadary leas 7 44. Scan the genera Jounal or usususiequpmentaddtions and eacesive debits ta repairs nd mmantenonce expense lc ofthe following explonations most Hkely would satty an audtor who quewlons management about ‘Sgnificant debs tothe accumdated deprecation occounes? ‘2 Fat assets were vee dunng the year 2. The estimated remaining useful ves of plant assets wet revised upward {The por year deprecation expense was eroncousy unseated 4. Overhead dhcatons were reed at youn Youcung intangible acsets listed in the chent's schedule of intangtle asst adétions during the year tothe decumeaion ofthe pucse ol ianghie abate consent ms the bars obj eakasing ie ‘managements sseron of 3. Valuton and ight B.Completeness and existence € Enistence and vatusten, 4 Bustence and rons 4 auating intangible atet, an auditor mast key wou review or recomputed amortization and determine swrether amortization pert reasonable in supporto anagem’ fnorealtane et ee 2 Encence 5 Completeness Rights and obgation zamnng documertatin of te purchase of angble ats consent withthe oust ebjecne of vatdating the managements assertion Extuence and Vatation .Computerens ona enstence ‘6 fights and vatuavon The auator is unable to iepect and cout en's investment secures until ater the balance sheet ate, {he Bonk where the secures are hed sate depont box shouldbe asked to: 12" erty any oflerences between the contents the box andthe blonces the cents sutsitiry (eager. ‘AaFrING PRODLERS = PREWADK WATERIALS GUREWEG/ESPERGLIA) 702ReSA: The Review School of Accountancy Page 8 of 25 © row abt of securtie anded and remove rom the box eter the Balance sheet date ane 5 Seuntthe secrtios nthe bo» so thatthe autor will have wdepenentverieation. ont na there has ben no acess tthe be between he faance sheet ate ah the 4 Determning mache nwestment carmen far nak Se fn of eden pataing th aml aban of ng term nveimer mich natn saa cst ans 6 SO pee hase 8. Audited financal statements of the investee | cwnpenr | te Roc ostsnsi cnesa Grew larvae stone muri compant sae 4: Mtoe cost ofthe mrs ete se 3. Wii of the flowing would provide the best form of tt evidence pertanng tthe annua! valuation of 3 snvestment a preference soes wich the dependent ators chet ows «30 percent neers 2" ‘Corrente value ft mvestee companys sees 8. Weta! cost of toe mvestecsonpanys eae Auris trancat statements of the reste forneany { Mivket quotanon of te vest compos shares 14. tn testing long-term investments, an audtor eedimanly woul! Use anainical procedures to ascertain the "easonablenens of he 1. Clvsieauen bezmeen curent aod namcarsen potas Valuation of marketatie eauty secures Existence of Unvechzed gms Srfossesm the porto - "metering tet ance the tng stk opts an adr sou 5 nim rar in Scay ese © erty enisterce of option nodes nthe eaty'spayrol records or stock eager 4 Determine that sure wenury stock fe auAtable to cover any nem soee Seed 2 The auc raga or he xamnaton a the rete erage account sould ele a step that res “venfication of the: = asia 2” Mork ate used to charge reamed enring to acount fr 3 efron Slt 8 Aspnes to the Begg blanco est 9 eS An acouns {Cores esuting fon postion of reasury shores 3 the auctor should orainary obtan evidence about tne stackoktes'equty Lansadtons by reewing the © Conceal tock ceraeates . {Treasury shores create books 4 The auoter discovered that tomar Corboraton dees not manta ts own stock reords, the eutor should Cntain writen contrmabon form he transfer agent and retro cancerng 2 Guarantees of aainry shares auctor value The umber of shares sbjeet tp agreements 0 repurchase The number of share wsues and outstanding ir auosnng the bonds payable balance, he audior must heey woud BF Compare nterrst expense withthe bonds payable amount Yr reasonableness 2 berform anaitical procedures on the bond prema armartaton P Enamine documentation of assets purchased meh he bond proceeds fo lens 5, Corte re wnstance of edwdua! bon hekders a yearend 4. oman’ CRN céteries tht be record tess experiag saute To te ehccaaveln rds a He bale ohn tnettonds payabie sccourl, the CPA eagh sure that 12 Becourt on band> payable vs understated Bonds payable are understated © Banas arabe are overstate 5) Pramum on bonds poral AUDITING PROBLEMS ~ PRE WEEK MATERIALS (IREMEO/#SPENILLA) 702 isReSA: The Review School of Accountaney age 9 of 25 Tohowng snd 808 fhe cash accounts of bce Corporation fr the fa ear ended June 30, 2016. The ‘ctowog ean except ofthe company's tial bane sof ne 3 eed ie eee seh sean Petty cash fin, imprest bene "120,000, ‘Cash im bon, Metron 11631,730 ‘vat notes: ‘You rendered cash count on 175 pty cash fund on June 30, The custodian presented to you tents the company’s petty Givens and cans 37.620 ‘disbursement chee payable tothe custodian 46,300 ‘An ofcers persnel check accommodated by the fund 2.000 Manager’ check marked WSF 6,000 Pty sn expense woo: 0 Transporation 4.500 (24 Ofte reais 2300 6/27 Mscabneous 6300 \Uoused postage stamps 1500 ‘An envelop marked "colections for chart" wth tof ‘names and corresponding amounts contributed, Thee Is eager 10 © heer mn ene che oe on Shale seeps sees sacra ty pom no 2S ecteomricreeeasr ty 738 serena ey ons) ememweaty _ G8 soi Pe sa enn sagya8 Deposits in transit oe 167,370 ~ Enea oe eee ny mes) Eesern i ‘The May Dok recencing tums were record nthe Books in June whe the bank charge err in Moy os automata 3c The Dank collected another 300000 fete retest ‘Taah ban credts and debts appearing inthe due bank staternent were at 8,013,800 and P7325, 760 ‘respectively. Moreover, tte receipts per the general lager was at 0,995 3, Reuirements: 1 What tthe petty cash shortage as of une 30,2016? 3. 33,586 © 10,080 © 4.00 4 17;560 2. what i the June depot in transit? 140,100 © 113,400 ; b. 77,100 4. 167,100 2. What the June outstanding checks? 3 264210 © 20910 > 201210 4 291210 ‘4. Wat is ne correct balance of the cash in bank account a of une 30,2016? 3 1,968,430 19464 b. x9i1,030 4 41901,430 PROBLEM 7: AUDIT OF CASH Tee sing te cs account of Cera In. forthe scl yar ened uy 31,2014. The chet has nat Prepared te My 31, bank reconchation, The foiowing infrmotion wee ode ase General Ledger Bank Statement Beainning balnces P0390 172,390 epost 751,680 as rect journal 783,680 Checes earng the bank (708,450) Cash disbursements journal (658,330) duly bank service charge 2.610) Note pad by the bank (183,000) NSF check eg Ending Blonces 560 726,80. ‘PROBLENS = PREWEEK MATERIALS GIRENEO/ESPENTLIA) 702 &ReSA: The Review Schoo! of Accountancy Page 10 of 25 Audit nates: ‘Bank reconcliton in June included the folowing information: Bank statement balence, June, P172,58; Deposits in tans, P18,000,, Oustanding checks, 52,260, and; Balance per general kager ne, iad, 330, ‘Checks Gearing the bank in uly, oustaing bythe end of une was a P5760, ‘Checks clearing the bank in Duy and were recorded in the Ay cash disbursement urna was a PS14,010. + A eck for £31,600 dares the bank, but had not been recorded in the cash dlsbursement urna. Iwas {or @ payment cf an accounts payate ‘check for 11,880 was ertonecusly charged bythe bank to Carera te. Deposits ined 18,000 from June and 733,680 from July The bank charged Camera Inc's account for 8 non suficen-fund check totaling to 9,330. The credit ‘manager concluded thatthe customer itenonaly closed ts account ond the omer lt the thy te ‘heck was tured over toa caestion agency, 1 Anote fr P1740, plus terest, nas pall rect by the bank under an agreement signed four months 2390, The note payable was recorded at 14,000 on Caer Ins bose, Required: Based on your aust procedures an appreciation ofthe above data, ansmer the flowing 4. How much i the total oustanding checks 25 of uly 31? a. ai20, © 29,980 32.480 &. 10.020 2. How much i te deposit in wont as of ay 317 230,000 18,000, &. 2o.900 6, 27,330 = 3 Wats tne correct cash in bank balance as of y 319 320.900, 32.620, inteo ‘9.080 4. Hom much the eas Bank shortage 9s of une 31? 32,000, © 2,200 & None ‘PROBLEM S: AUDIT OF CASH: CASH/ACCRUAL ‘In ine with your aus of Burberry Corporation for the period ended December 31,2016, your aust start rowed you the following aut Notes ‘uct notes 2. Accounts receivables from customers increased during the yearby 4,200,000. Total eiscounts taken by customers was atP1,$80,000 whe total sales returns which inched the customer ‘funds was at P2420,000 b. ‘The allowance for bad debts increase during the yearby PE40,000. During the year he company \rate-off P,120,000 im bad debts. wile recovery of previous write-off (exauded i the cach Collections trom customers) was a P420,600, Advances trom customers decreases during the yee by 1,900,000. 6. Accounts payable to suppers increased during the yearby 3,780,000. Total cscounts taken by the company for purchases was atP1,290,000 while total urcase returns which ina re, supplier refunds was at P1960, 000 © Advances to suppliers increased during the yea by 1,512,000. Inventories increased during the yer by 2,690,000. 19. The equipment account increased by P2,000,000 during the Year while carrying value ofthe uipment sald dung the year may at 61,600,000. h. The accumulated depreciation account increased by P1,000,000 during te year |. the following information had been provides by the company's accountant based on ts cash [ar ateain: ton_astenes Ts 0} [EGasn payments to suppliers 24,490,000, {ican payment of operating expenses |" 50,000-) aR 702 & ‘AuDTTING PROBLEWS ~ PREWERK WATERIALS CR‘The Review Sthoo! of Accountancy Cash payment for acquisition of an Equipment | {Cash collection from isposalof an Equipment { cas refunds receives from purchase returns — {Cas refunds paid for saies returns — Requirements: ‘1 What isthe acrual basis gross sales? 198,750,000 «$6,170,000 . 55,000,000 4. 56,580,000 2. Whae is the accrual Bass gross purchases? 2. 29,368,000, 30,880,000 30,008,000 31,520,000 3. Whats the accrual bass cost of sales? 223,428,000, 24,068,000 24,940,000, @. 25,580,000 44. What i the correct bad debt expense fr the year? 1,540,000 1,960,000 700,000 140,000 5. What i the correct deprecation expense? 2 3,400;000 ‘© 1,600,000 b. 2,000,000 ‘6. 1,400,000 ‘PROBLEM 9: AUDIT OF CASH/ CASHACCRUAL, Fat Som, ues the deact meted to prepare hs statement of cash news esis een 35,000 Recounts recevable 33/000 Inventory 31,000, Property, plant & ecuipment 100,000 UUnamorzea bond aneount 3,500 Cost of goods sold 250/000 ‘Seling expenses 81/500 (Gener! ana admintratve : copenses 137,000 tere expense "4300 Income to expense ae roats lowance for uncollectoe secounts P 1.300 ‘Accumulates deprecision 16500 ‘Trade accounts poyatie | 35/000, Income taxes payable 21,000 Deferred tax tabity 3,300 ‘scalable Bonde poyable $5,000 ‘Share capa 50,000, ‘Share premium 9,100 Recanes eornge 44.700, ‘ates ss0.a00 Prs.r00 + Fad purchase 5,000 In equipment during 2034, 1+ Ford allocates one-third of deprecation expense omunerotve expenses. ‘quesrions: Based on the foregoing, what amounts shows Ford fended December 31,2014 for 1. Cath coleted tom exttomers? 2 535,800 536,000 b's41,600 4. 541,800 2. Cash pald for goods tobe sla? 2. 226,500 £242,500 3.257.500 6. 258,500 3. Cash ald Yor interest? 2. 3.800 © 4,800 Ba300 41.300 4. Cash poi or income taxes? ‘RUDTTINe PROBLENS = PREWEEK MATERIALS” URENEO ESPERITLA) Page 11 of 25 [$000,000] ‘040,000, 30,000. 830,000, 37500 27.300 600 20/900 4000 7,500, 4.600 _pr.700 Beri00 sling expenses and the remainder to generat and (Corp report ints statement of cash flows forthe year 702 &Page 12 of 25, 225,900 5, baat st pi or sting expenses? 181,000 birasoo IK Corp's general ieger showed the eheareatormation ‘counts recvabie 550,000 ‘Mtowance for doubt acounts (eb) "ioe "OM Corp. acoum receivable subd edge’ on the other had shows the folowing componton ‘Customer —"TInvice date “| Invoice Amount "| Yankee 738,000, Invoce dated 09/20/14 was aesoy sete ” ‘revealed tat Yankees payment was enous pores, ny poste {agaist Victory Corps account or an vole dated 1500/14 forthe same amount lon ie 71,800 The aiterence was due tothe invoice dated 12/3/14. Goods have not been received y Xyon In yet of 12/33/ ‘Tenn of sale 1 FO8 Destination, Ntary corp. 121,560. "Amount pe our records appear to be higher, lease check. \usform ine” No reply Uniform Ine funder gion ss a rom the company's deemed cetntely uneatectbie >. Te company’s Policy win regard uncsiectise accounts are sunmarized below: ‘oe SS Uncotecbte OSoay Tk 3160dms ae si-s0ars Se ; 31-120deys tome Over 120 days SO ‘he correct allomance for bad debts as of December 31, 20147 sears eae tis as 2. mats te creck wmorize cos of ie aco recevable a of Oacenber 31, 20167 6 Sasor “Seer S387 & Soa 3. wmatig ie caret bod debt expense forte war? 2 oo arr ents & fooaia 4 _wngt erry to recor th roca eee Between he ener eget ad the sister lege? 7 br sacs wae Ge Recounts recente 2480 br: Boa debt expense 7800 OF econ rcavable 7,480 Dr: Alowanceforbad debts 7.480 Gr hecount recewaes 7800 4. No ery. [RUDFTING PROBLEMS ~ PREWEEK WATERIALS (IRENEO/ESPENILLA) 702 2IReSA The Review School of Accountancy Page 13 of 25 spomiesusun on ome nscvanss mance) : ‘ABC Co. a financing company, extended a laan to X¥Z Corp. amounting toP1OM on Jenuary 2, 202% vecetvabie 5 foe, token oa reso re en AROMA ferciintlons ameter oe The 2011102013 mterests were calcted a8 sched. By the end of 2014, due to ancl dticies being experienced by XYZ, XYZ fale to pay the annual terest {25 scheduled and ABC Co 1s doubt ast he cau of he Fematning terest anc the inca Aer due considerate an comespondence wth X72 campany, ABC estote that ml be bef ecave the folowing amounts at especiveextmated dats? "incurs expected recovery te 100,000 December 31, 2015 7,000,000, December 31,2016 200/000 December 31,2017 2500,000 December 31,2018 Requires TS Ninot the carving wale ofthe loans recehable as of Oecember 31,2014, before impavment? 3 9.821;829 3.02590 c 95I8;694 d, 9,661,890 2. Hom much sinparment loss on the receivables (ncding interest receivable) as of Dee. 31, 20147 Sab 64509 4806899" B.855.481 | What s the corec netbook alu af the reeivabies 2s of December 31, 20147 Pet pe aeasey eS 855481. 5,246,509 44. Assening tha in December 31,2015, amousts were received as estimated, whats the Balance ofthe ‘fecowsoie a2 December 3 20157 3 5sse 30 b 4225,128 4. 2,500,000 229,43 Assuming that Cecember 31,2016, amounts were recawed a estimate, what Is the crret interest ‘come te renagrrea sh 2036? 7 665.975, 702,659, 0, 261,87 «$07.05, Peetaniss prongs te deats ef a sales nd purchses cut rendered by Your auat stain ine with your Soda ot Grace Corporatar's anc statements a an fo the peed ended Decersber 31,2016, The “Tventanes reported per books amounting fo P 339,900 was as result of @ physical count conducted on the ‘Stes marenouse on Gacember 30,2016 2 cstomers ae wanin 3 3-5 days Gevery area. Gross promt on Asst notes 2 te folowing is 2 summary ofthe cio made n sates transactions: 40,450 | F05 Destination (to consignee) — 38 8 Destination {er trant) | 25,300_[FO9 Shp pont (in wens) —Remoig —"— ee [Fos sipping pint in want 8 Destination 08 Shipping point ry ofthe cu-tf madeon purchases transactions: ‘amour Remarke 18,100} FOB Sipping pont ———— 25585 | Fo8 Desonton ron consgrary —| bee 38 14,930 | FOB Desteaton— Tee = 154400 | FOB Destinasan fin ana ———— Recevng Report Date Pana} himeReSA: The Review Schoo! of Accountancy Page 14 of 25 [Re enadsted balance ofthe accounts receivable acount and accounts payable ccOUn 3s of December 31, 2016 were at P395,300 and P20, 700, respectively, Requcements 1. What's the aajsted balance of mventones as of December 21,2016? a"352.580 © 367790 337,600 8 s33ft00 2. atthe adjusted balance of aroun recevable as of December 31,2016? 2. 383,000 396250 309.600 4 39,950 3+ Whats te adjusted balance of accounts payable as of December 31, 20167 a te2800 ve ves0 5 198.200 4 9980 4 Whats the net effect of 1,750 decrease the cuff procedures to the net come in 20162 ®. ‘decrease B. 16,700 decrease e150 oventory,dnuary Purchases Freightin Porehae acount Burchse rete and aowances Departmental wane in Deoormerta nse ut Noes havecown 2.106000 ane cancelation 153,000 tore sown conection Ses058 1219 Sees ssaso.o0e Ses escoun to emtomers 4 staso.t00- Ses cous to employees 245,200 Ses reurs ond ofowances 2238.60 terms spolages Ba? 800 ‘Abnormal spedages (493,812) fes4.240) The loventry as a resut of the said count amounted to 2,811,680. egaremente 1 What the estimates ivetry a of Dacmber 31, 2016 a et pie as reso the anayecal ‘680 548 4.645.950 b. 6.574.705 8. 7,70,908 2 ate ivetry shrane a reso Your antic procedures suming ha te company ses ‘he conservative cont method? a FSi 36807 b ao4933, 4. 53522 3: What the inventory shortage 8 8 ef your anal procedures etsuming ta the company uses the average cont metnod? S392 596,657 ©. 1,056,487 os 4 wnat the invent sorta a reso our any procedures essing tha the cmpany yea the FIFO real cost method? = Cee onze 6 a26202 : ‘aban ROBLENS = PREWEEE WATERIALS”ERENEOESPNTEA) 702 &ReSA The Review School of Accountancy Page 14 of 25 © Pie waded balance of he accounts receivable acount and accounts payable accounts a of December 31, 2016 were et 395,300 and P210, 700, respecte, Requirements 1 Wats te adusted balance of iventones as of December 31,2016? 9352880 © 367,730 > 337,600, 4. 338/800 2 hats the adusted balance of accounts recetvble as of December 31,2016? 3.35300 ‘e 396,250, > 309,600 4 39850 3 What ste adjust balance of accounts payable as of December 31, 20:67 8." 182,800 © 170,050, b. 198,200 6 179850, 4 Whats the net fect of the cuff procedutes tothe net income in 20167 2.1,250 decrease fe 17150 decrease ©, 16,700 gecrease 413,430 cease Cost Reta Pree overory, January 1 1,696,738 + "73516190 Purenaeae 133901,265 - 21/500,000 Freightn "702.000 Purchase asount 1,694,800 Purchase returns and atowances/1.123,200° (1,724,090) Deparemertal raster in 708,000 -4/320,000 Departmental wenster ut 1,884,800 (2,592,000) mancup 516,000 ane cown 2,106,000, Mancup cancelation 103,000 Markdown carceliaten 365,058 Sales 18,630,000 Sales discount to casters 4 4,490,400 ‘Soles dicount to emeloyees "45,200 Sates retars ond slowances 2,235,600 Normal spolages 417,800 ‘Abc spatages (qoses2) “Teed 240 ‘The ientory a5 2 result ofthe said count amounted to 2,811,690. Requirements 1 Wat te eststed inventory a8 of December 31, 2016 a etal pce at 2 ree ofthe anata! Pisa & 4615950 b 6s74 788 ‘ 70948 2 What the inventory shortage 8 ss ot your anal procedures assuming tha the company uses ‘cnservatve con matted? 32612 365,017 904933 sas 3. Wat se inventory shortage a 9 esa ct your arava cedures assuming th the company wees the average cost method? fp saan © 96,637 t Tear 4 3z612 4 What the inventory shatage a 8 re of Your anal rocedures assuming th the company wees he FIFO rea cost metho? £ Sia oes AOS -PNE TRA TROGIR, «= QD tS