3.

What is the total retro active adjustment to retained earnings beginning in 2019 s a result of your
audit?

a. P 585,000 c. P 900,000

b. 480,000 d. 420,000

Solution:

Rent expense for the year (840,000 x 3/24) 105,000

Net loss for 2018 480,000

Total retro active adjustment to retained earnings beg. 585,000

4. What is the total amount chargeable to expense for the current year 2019as a result of your audit?

a. P 3,479,000 c. P 3,049,500

b. 2,861,500 d. 3,059,500

Solution:

Franchise – indefinite term 1,260,000

Less: Recoverable cost

Legal fees of organizing the business 150,000

Div.: Prevailing market rate of interest 12% (1,250,000)

Impairment loss 10,000

Rent expense (840,000/2) 420,000

Amortization (2,220,000/10 years) 222,000

Cost of developing a recipe 2,250,000

Legal fees for successful defense of the patent 349,500

Add: Carrying value of the patent 1,998,000

Less: Recoverable cost (337,822 x 5.328) 1,800,000 198,000

Total amount chargeable to expense 3,449,500