SOLUTION - AUDITING PROBLEMS TEST BANK 2 PROBLEM 1— AYALA MERCHANTS CORPORATION ADJUSTING JOURNAL ENRIES December 31, 2017 1 10. uw 2, 2B. Operatng expenses Petty cash fund (P37,250 - P9,510) Accounts recehable (P107,400 + P63,090) Notes payeble Finance cost (Interest expense) Other charges (Bank service charges) ‘Accourts payable Cash in bank Allowance for doubtful accounts ‘Accounts recelvable (write-o) Other charges (Unrealized loss — Trading securities) Trading securties Bacnotan Cement (P16, 7,000) 112,000 TiiCstate (P13.75 x 10,000) 197,500 Tonles (P24 x 2,400) 57,600 La Tondena (P26 x 2,000) 52,000 Selecta (P1.20 x 8,000) 9,600 Union Bank (P27.50 x 1,500) 44,000 “Total market valve, Dec. 21, 2017 72,700 Carrying value, Dec. 31, 2017 4831640 Unrealzed loss ~ trading secuntles Pan.940 Interest recelvable ‘Other Income (Interest income) (P1,300,000 x 15% 2/12) Operating expenses (Advertising expense) Prepaid advertising ‘Christmas promotion Regul premoten (940,000 ~P100,000 = P540,00)x5/12) tal Operating expenses (Rent expense) Prepaid rent (P 420,000 x 2/3 or P140,000 x 2) Operating expenses (Insurance expense) Prepaid insurance (P490,000 x 2/12) ‘Operating expenses (Office supplies expense) ‘Office supplies inventory (361,000 — P102,500) ‘Accounts receivable Sales Cost of goods sold Inventories, Cost of goods sold Inventories Inventories Cost of goods sold 27,740 170,400 790,000 10,000 2,750 152,640 19.940 32,500 325,000 100,000 =225,000 325,000 280,000 81,667 258,500 146,940 356,000 136,500 153,800 27,740 72,000 811,150 152,640 10.940 32,500 325,000 258,500 146,940 356,000 138,500 153,80014. 15, 16. 17. 18. 19. 20, 21. L Delivery equipment Operating expenses Operating expenses (Depreciation expense) ‘Accumulated depreciation (P43,400/10 x 6/12) Accumulated depreciation Operating expenses (Depreciation expense) ‘Accumulated depreciation (P138,620 — P10,480) Other charges (Loss) Delivery equipment Operating expenses ‘Accrued expenses Finance cost (Interest expense) Interest payable (P2.6 million x 16% 3/12) Retained earings Dividends payable {P5,400,000 x 10%) Operating expenses (Doubtful accounts expense) ‘Nlowance for doubtful accounts Per Books = Adjustments Less than 3 months 2,500,960 146,940 107,400 3 to 6 months 843,200 Over 6 months 274,500, 63,000 (152,460) Allowance before adjustment (P110,360 ~ P152,460) Required aflowance Adjustment D_ Petty cash fund Per books AE 1 Per aucit D Cash in bank er books AE 2 Per audit D Trading securities er books AE 4 Per audit © Accounts receivable er books AE 2 3 10 Per audit 43,400 2,170 10,480 128,140 37,380 213,000 104,000 ‘540,000 130,317 ‘Per Audit 4 72,755,300 1 943,200 5 —1a5049 10 PATA Page 2 93,400 2,170 10,480 165,520 213,000 104,000 540,000 130,317 Required Alowance 27,553 42/160 18.503 (PRAT P 42,100 debit —BA217 ‘210,417 50,000 (27749) Pi2260 1,056,000 481,150) 284.850 ) 433,640 {ho 249) 422,200 P3,618,660 170,400 (152,460) 46 049) PAZB1 S4010. a 12. 3. 14. 15. ‘Allowance for doubtful accounts Per books AE 3 21 Per audit Notes and interest receivable Per books AE 5 Per audit Inventories Per books AE 2 B Per audit Prepaid insurance Per books AE 8 Per audit Prepaid rent Per books AE 7 Per audit Prepaid advertising Per books ANE 6 Per audit Office supplies inventory Per books AE 9 Per audit Petty cash funcl Cash in bank Trading securities ‘Accounts recsivable (P3,783,540 — P88,217) Notes and interest receivable Inventories Prepaid insurance Prepaid rent Prepaid advertising Office supplies inventary Total current assets Property, plant, and equipment (PPE) Per books AE 14 7 Per audit ‘Accumulated depreciation Per books AE 15 16 Wy Per audit Accounts payable Per books Page 3 P1L0,360 (152/460) 430.317 PBS217 1,300,000 2 nl 7,274,900 (356,000) (138,500) 32,260 244/850 472,700 3,695,323, 1,332,500 6/934,200 ‘408,333, 140,000 315,000 ——102'500 PLB677. 655 P4,068,400 43,400 (165,520) B3.986.280 P1,177,500 2170 (20,480) —(128140) PL041.050 2,356,32016. 7. 18, 19, 20. a. 2. A AE 2 —2om Per audit P2,928,320 Page 4 Interest payable Per books Po AE 19 104,000 Per audit Pids.009 Accounts payable — trade 72,428,320 Notes payable 2/600,000 Accrued expenses 382,040 Interest payable 104,000 Dividends payable 580,000 Total current fabiities P5054 360 Sales Pet Dooks 13,078,000 ANE 10 146,940 Per audit Pi3224 94) Cost of goods sold Per books 8,034,000 AE IL 356,000 2 138,500 3B, {183,800} Per audit ‘Pa74.700 Operating expenses Per books 3,357,000 AE 1 27,740 6 325,000 7 20,000 8 81,667 9 258,500 4 (43/400) 15 2170 16 (10,480) 18 213/000 a 10317 Per audit Pa621 54 PROBLEM 2— LUKAS COMPANY Sales retums and allowance 90,000 “Accounts recelvable ‘90,000 Inventory 72,000 ‘Cost of sales 72,000 4(P90,000 x 80%) Net dacraase in ineome (P90,000 ~ P72,000) P1g.000 Sales 30,000 “Accounts receivable 30,000. Income overstated by 930.000 (Overstatement of receivable Lazaro (P150 x 320 units) P8000 24. 25, Correctly stated because the goods are considered sold in 2017. Accounts payable 135,000 Accounts receivable 135,00026. B 27. 28. B 29. B 30. D Page PROBLEM 4 — SPARK COMPANY 31. B Cash balance, Dec, 31, 2016 100,000 Sales (SQUEEZE) 920,000 Cash paid for operating expenses (220,000) Cash paid on accounts payable (471,700) Collections on notes receivable Cash balance, Dec. 31, 2017 Bsvi00 Units sold (P920,000/P50) 4g.400 32. D Accounts payable: Balance, Dec, 31, 2016 75,000 Purchases 596,700" Cash payments on accounts payable (421.700) Balance, Dec, 31, 2017 ‘P2g0.009 *Purchases: ‘Month nit Cost its TotaLcos January P3260 1,500 48,500 February 32:70 1500 49,050 March 3280 1500 49,200 Agi 3290 1500 49,350 May 33.00 4500 49/500 June 33.10 1500 49,650 Jay 33.20 1500 49,800 ‘August 3330 1500 49,950 September 3340 1500 50,100 October 33.50 1500 50,250 November 3360 1,500 50,400 December 33.70 iso 501550 Total purchases icomo E709 ‘Or (P32.60 + P33,70)/2 x (1,500 x 12) = P596.209 33, A Inventory, Dec. 31, 2016 (P199,875/P32.50) 6,150 Purchases 18,000 Units sold 18,400) Inventory, Dec. 31, 2017 20 34, FIFO cost of inventory, Dec. 31, 2017: December purchases | 1,500 x P33.70 P'50,550 November purchase 1,500 x P33.60 50,400 ‘October purchase 1/500 x P33.50 50,250 September purchase 1.250 x P33.40 —4L750 570 192.950 35. D_ Inventory, Jan. 1, 2017 199,875 Purchases 596.700 Goods available for sale 796,575 Inventory, Dec. 31, 2017 £192,950) Cost of goods sold B03 625PROBLEM 5~ ISIDRO MANUFACTURING COMPANY 36, B_ Depreciation expense for 2014: Truck #1 (P180,000/5) Truck £2 (P220,000/5) Truck £3 (P300,000/5 x vs) Truck £4 (P240,000/5) Truck #5 (P400,000/5 x V2) Total 37, A Trade-in value of Truck #3 (P400,000-P220,000) Book value of Truck #3: Cost ND, 1/1/2013 -0 7/1/2014 (P300,000/5 x1.5) Loss on trade-in 38.A Truck £2 Truck #5 Truck 26 Accumulated depreciation: ‘Truck £2 (fully depreciated 7/1/2016) Truck #5, 7/1/2014 — 12/31/2017 (P400,000/5 x 3.5) ‘Truck £6, 7/1/2016 ~ 12/31/2017 (P420,000/5 x 1.5) Book valle, 12/31/2017 39. 2014 2015 2016 Truck £1 36,000 - ~ Truck £2 44,000 —P#4,000 22,000 Truck £3 30,000 ~ - Truck £4 48,000 48,000 24,000 Truck #5 40,000 80,000 80,000 Truck £6 = = — 42.000 Correct P198,000 172,000 P168,000 Perdient 210.000 225.000 250500 Over Bizeap = Bs3,000 282,509 Page 6 1,040,000 otal P 36,000 110,000 30,000 120,000 280,000 126.009 702,000 SE fistsPage 7 PROBLEM 6—NUNAL COMPANY 41. B Outstanding checks, November 30: Checkno. 792 P7,500 798 21,150 Total 28,650 42. A Outstanding checks, December 31: Checkno. 806 P 57,000 807 78,000 810 21,000 812 48,000 817 33,000 819 21,000 822 36,000 823 39,000 924 87,000 825 6,000 826 33,000 Total 459,000 43. D_ Deposit in transit, November 30 25,500 44. A. Deposit in transit, November 30 25,500 Collections 2,121,900 Total 2147/40 Deposits 2,033,400, Deposit in transit, December 31 P’114,000 Nov.30 Receipts Disbursements Dec. 3 Unadjusted book balances «345,000 P2,297,400 © PL,228,230 1,414,170 Bank service charges: November 30 (150) (150) December 31 360 (360) Notes collected by bank: November 30 30,000 (30,000) December 31 36,000 36,000 Unrecorded disbursement (815) ——_ ___18000__{18,009) Adjusted book balances: Peso Blatt Bleep Bk Nov 30 Receipts Dishursements © Dec i Unadjusted bank balances «342,000 P2,493,900 P:,059,090 1,776,810 Outstanding checks: November 30 (28,650) (28,650) December 31 459,000 (459,000) Deposits in transit: November 30 25,500 (25,500) December 31 114,000 114,000 Error corrected (243/000) (243,000) Erroneous bank charge — 36,000 (35,000) Adjusted bank balances P3740 = PR 307409 = Pi agaa9 = P1431 BID 45. D 46. € 47. 8B 48. € 49. D 50. BPROBLEM 7—MINA MINING CO. Mineral properly 48,450,000" Butlding 12,000,000 Machinery (1/2) 1,800,000 Machinery (1/2) 1,800,000 50,000,000 - P1,550,000 #(P1,800,000/150,000) x 2 1c Mineral property (P323 x 7,500) Buliding (P80 x 7,500) Machinery (1/2) (P12 x 7,500) Machinery (1/2) (P24 x 7,500) 52. D Mineral property (P323 x 15,000) Building (P80 x 15,000) Machinery (1/2) (P12 x 15,000) Machinery (1/2) (P24 x 15,000) 33. Mineral property (P323 x 15,000) Bullding (P80 x 15,000) Machinery (1/2) (P12 x 15,000) Machinery (1/2) (P24 x 7,500) so Mineral property (P323 x 15,000) Building (P80 x 15,000) Machinery (1/2) (P12 x 15,000) Machinery (1/2) 55, D Mineral property (P323 x 7,500) Building (PEO x 7,500) Machinery (1/2) (P12 x 7,500) Machinery (1/2) Page 8 Estimated Reserves 150,000 323 150,000 80 150,000 2 150,000 ore —_n1 ___ Depletion Depreciation 2,422,500 600,000, 90,000 B2,822,500 ‘Paz0,000 ——__Yea§ P1,200,000 180,000 1,200,000 180,000, ——_ ss __180,000 ‘P4845,000 =P S60,000 ——__Yea2__ Depletion Depreciation 4,845,000 P1,200,000 180,000 B3.845,000 21,380.00 ——__Yew 1 __ Depletion Depreciation 2,422,500 600,000, 90,000 P2822,500 620,009Page 9 PROBLEM 8 — HVR Company 56. D_ Present value of principal (P3,600,000 x 0.7514) 2,705,040, Present value of Interest (P3,600,000 x 5% x 2,4860) az s80 Consuttation service fee revenue 23152520 37. D Interest Principal otal BE Present Value 12/31/2017 (P7.2M x 4%) 288,000 2,400,000 P2,698,000 0.8772 P2,357,914 12/31/2018 (P4.8M x 4%) 192,000 2,400,000 2,592,000 0.7695 1,994,544 12/31/2019 (P2.4Mx 4%) 96,000 2,400,000 2,496,000 0.6750 _1.4A4 ROD Present value of note 76,037,258 Carrying amount of equipment 4,800,000 Gain on sale of equipment Bi2a7258 ‘Note receivable trom sale of land: Date Interest Income 1/1/2017 = 2,181,960" 12/31/2017 P218,196 2,400,156 12/31/2018 239/844" 2,640,000, 640,000 principal x 0,8265 PVF at 10% for 2 periods 2,640,000 - P2,400, 156 Effective Nominal Discount Carrying Date Interest Interest = Amattization © Amount 4/1/2017 — = ~ 3,152,520 12/31/2017 315,252 P180,000 135,252 3,287,772 12/31/2018 328,777 180,000 148,777 3,436,549 12/31/2019 343,451°* 180,000 163,451" 3,600,000 + P3,600,000 - 3,436,549 = PL63,451 +7 163,451 + P160,000 = P343,451 ‘Eftectlve Nominal Principal Carrying Date Interest Interest’ © Amartizatinn Collection © Amaunt 41017 — _ = — __P65,037,258 12/31/2017 P845,216 288,000 -—«PSS7,216 ——P2,400,000 4,194,474 42/31/2018 587,226 192,000 395226 2,400,000 2/189,700 12/31/2019 306,300" 96,000 210300 © 2400000 = * P2,400,000— 2,189,700 = P210,300 + P96,000 = P305,300 58. € Note receivable from consultation 3,287,772 Note receivable from sale of equipment =2:189,200 Noncurrent notes receivable, Dec. 31, 2017 PSS7TATZ 59. € Note receivable from sale of land P2,400,156 Note receivable from sale of equipment (P4,194,474 ~ P2,189,700) 2004774 Total current notes receivable, Dec. 31, 2017 Baand‘ox0 60. € Note receivable from sae of land P218,196 Note recelvabie from consuttation 315,252 Note receivable from sale of equipment _B45 216 Total interest income on notes receivable for 2017 BL est ---END---