Question 1

The subject matter of auditing consists of:

Response: Assertions.
Correct answer: Assertions.
Score: 1 out of 1 Yes

Question 2
In forming an opinion on the financial statements,

Response: the auditor should evaluate the conclusions drawn from the audit evidence obtained during
the course of the audit

Correct answer: the auditor should evaluate the conclusions drawn from the audit evidence obtained
during the course of the audit

Score: 1 out of 1 Yes

Question 3
A CPA firm is considered independent when it performs which of the following services for a publicly
traded audit client?

Response: Tax return preparation as approved by the board of directors.

Correct answer: Tax return preparation as approved by the board of directors.
Score: 1 out of 1 Yes

Question 4
Which of the following is not a major emphasis in the design of effective internal control?

Response: Processes are efficient.

Correct answer: Processes are efficient.
Score: 1 out of 1 Yes

Question 5
Management's assertions in the financial statements are of relevant to the audit process because:

Response: they include representations of financial statements in accordance with the applicable

reporting criteria

Correct answer: they include representations of financial statements in accordance with the

applicable reporting criteria

Score: 1 out of 1 Yes

Question 6
The assertion of existence can be audited directionally by considering balances and transactions from:

Response: recorded amounts to evidence regarding the source

Correct answer: recorded amounts to evidence regarding the source
Score: 1 out of 1 Yes

Question 7
The auditor's objectives for the sales and cash collections activities when the client is primarily an e-
commerce business as compared to a "bricks and mortar" business are:

Response: unchanged.
Correct answer: unchanged.
Score: 1 out of 1 Yes

Question 8
What critical event must take place before goods can be shipped in order to assure payment can be
reasonably expected?

Response: Credit approval
Correct answer: Credit approval
Score: 1 out of 1 Yes

Question 9
In the accounts receivable subsidiary ledger the length of time the account has been due can be useful
to the client and the auditor in preparing the:

Response: aged accounts receivable trial balance.

Correct answer: aged accounts receivable trial balance.
Score: 1 out of 1 Yes

Question 10
One of the causes of nonsampling risk is:

Response: ineffective audit procedures.

Correct answer: ineffective audit procedures.
Score: 1 out of 1 Yes

Question 11
Which of the following statements is most correct with concerning the quantification of sampling risk?

Response: Sampling risk can be quantified only when nonprobabilistic selection techniques are used
to select the sample.

Correct answer: Sampling risk can be quantified only when probabilistic selection techniques are
used to select the sample.

Score: 0 out of 1 No

Question 12
Which of the following types of receivables would not deserve the special attention of the auditor?
Response: Each of the other choices would receive special attention.
Correct answer: Each of the other choices would receive special attention.
Score: 1 out of 1 Yes

Question 13
An important statistic to consider when using a statistical sampling audit plan is the population
variability. The population variability is measured by the:

Response: standard deviation.
Correct answer: standard deviation.
Score: 1 out of 1 Yes

Question 14
Absent disputed amounts and minor timing differences, the vendor's statements should reconcile to
the:

Response: accounts payable master file.

Correct answer: accounts payable master file.
Score: 1 out of 1 Yes

Question 15
Which of the following would generally not be a component of the audit of the acquisition and payment
cycle?

Response: Determining the adequacy of the funds available for capital expenditures

Correct answer: Determining the adequacy of the funds available for capital expenditures
Score: 1 out of 1 Yes

Question 16
Which of the following statements about the audit of fixed assets is the least correct?

Response: Manufacturing equipment and current assets are normally audited in the same fashion
regardless of the activity within a particular account.

Correct answer: Manufacturing equipment and current assets are normally audited in the same
fashion regardless of the activity within a particular account.

Score: 1 out of 1 Yes

Question 17
Auditors test the quantity of materials charged to work-in-process by tracing these quantities to:

Response: material requisitions.
Correct answer: material requisitions.
Score: 1 out of 1 Yes
Question 18
The reliability of perpetual inventory master files affects the timing and ________ of the auditor's
physical examination of inventory.

Response: extent
Correct answer: extent
Score: 1 out of 1 Yes

Question 19
Which of the following is not one of the business functions for the payroll and personnel cycle?

Response: Reconciliation of payroll account

Correct answer: Reconciliation of payroll account
Score: 1 out of 1 Yes

Question 20
Which of the following statements regarding the capital acquisition and repayment cycle is most
correct?

Response: Relatively few transactions affect the cycle, and most are highly material.
Correct answer: Relatively few transactions affect the cycle, and most are highly material.
Score: 1 out of 1 Yes

Question 21
The product of inherent risk and control risk is assessed as low. How would an auditor with this
assessment most likely test depreciation expense?

Response: By tagging and tracing transactions through the system

Correct answer: As a ratio of total assets
Score: 0 out of 1 No

Question 22
Balboa, a senior auditor, is the team leader of the audit team assigned in the audit of HCB Company.  
His first assignment as audit assistant was the audit of inventory of HCB Company.   Since then, he
has been a member, and for the last 5 years, the in-charge of the team for the audit of HCB. What
kind of threat to independence, if any, has been created by the foregoing fact?

Response: Familiarity threat.
Correct answer: Familiarity threat.
Score: 1 out of 1 Yes

Question 23
Which of the following is prohibited by the Code of Professional Ethics for CPAs?

Response: Accepting an engagement or employment which one cannot reasonably expect to

complete or discharge with professional competence.
Correct answer: Accepting an engagement or employment which one cannot reasonably expect to
complete or discharge with professional competence.

Score: 1 out of 1 Yes

Question 24
In the audit risk model, if an auditor wanted to keep audit risk at a low level, but there was a
greatinherentrisk of material misstatement and the internal control was ineffective, then procedures
would need to be designed so that

Response: detection risk was at a low level.

Correct answer: detection risk was at a low level.
Score: 1 out of 1 Yes

Question 25
Physicalobservation by an auditor would include

Response: examination of securities certificates.

Correct answer: examination of securities certificates.
Score: 1 out of 1 Yes

Question 26
Which of the following would not be considered a motivation to commit fraud?

Response: Ineffective internal controls.

Correct answer: Ineffective internal controls.
Score: 1 out of 1 Yes

Question 27
In attribute estimation, a 10 percent change in which of the following factors normally will have the
least effect on the size of the statistical sample?

Response: Population size.
Correct answer: Population size.
Score: 1 out of 1 Yes

Question 28
The acceptable risk of assessing control risk too low in relation to the sample size is

Response: inverse.
Correct answer: inverse.
Score: 1 out of 1 Yes

Question 29
The auditor’s judgment regarding whether the financial statements give a “true and fair view” or “are
presented fairly”, in all material respects, is made in the context of:
Response: applicable financial reporting framework
Correct answer: applicable financial reporting framework
Score: 1 out of 1 Yes

Question 30
An explanatory paragraph that describes an uncertainty is as follows:

As discussed in Note X to the financial statements, the company is a defendant in a lawsuit alleging
infringement of certain patent rights and claiming damages.  Discovery proceedings are in progress. 
The ultimate outcome of the litigation cannot presently be determined.  Accordingly, no provision for
any liability that may result upon adjudication has been made in the accompanying financial
statements. What type of opinion should the auditor express in this circumstance?

Response: Unqualified
Correct answer: Unqualified
Score: 1 out of 1 Yes

Question 31
In extreme cases such as situations involving multiple uncertainties that are significant to the financial
statements, the auditor

Response: may consider to express a disclaimer of opinion

Correct answer: may consider to express a disclaimer of opinion
Score: 1 out of 1 Yes

Question 32
A client company has issues that cause substantial doubt regarding the entity's ability to continue as a
going concern.  If this is the only major audit issue, which type of opinion will the auditor usually
refrain from issuing?

Response: Adverse
Correct answer: Adverse
Score: 1 out of 1 Yes

Question 33
In which of the following situations would qualified opinion be inappropriate?

Response: A doubt that is more than substantial about the ability of the company to continue as a
going concern.

Correct answer: A doubt that is more than substantial about the ability of the company to continue
as a going concern.

Score: 1 out of 1 Yes

Question 34
According to Revised Rules on Advertising adopted by the BOA, the following form of advertising or
publicity is prohibited:
Response: Publishing services in billboard (e.g., tarpaulin, streamers, etc.) advertisements.
Correct answer: Publishing services in billboard (e.g., tarpaulin, streamers, etc.) advertisements.
Score: 1 out of 1 Yes

Question 35
Immediate family includes:

Response: spouse.
Correct answer: spouse.
Score: 1 out of 1 Yes

Question 36
Presented below are unaudited balances of selected accounts of Proactive Corporation as of December
31, 2021.  During the course of your audit of Proactive’s books you obtained additional information
affecting these accounts.

  Debit Credit

Cash P 2,000,000  
Accounts receivable 6,000,000  
Inventory 10,000,000  
Accounts payable   P 4,000,000

Sales, net   50,000,000

Additional information:

a)  On December 28, 2021, the entity wrote and recorded checks to creditors totaling P300,000 that
were mailed on January 5, 2022.

b)  Checks in the amount of P250,000 were written to vendors and recorded on December 29, 2021. 
The checks were dated January 5, 2022.

c)  At December 31, 2021, the entity has a P60,000 debit balance in its accounts payable to a
supplier resulting from advance payment. This was offset against the accounts with credit balances.

d)  On December 26, 2021, a supplier authorized the entity to return goods shipped and billed at
P80,000 on December 3, 2021.  The goods were returned on December 28, 2021.  The supplier’s
credit memo was received and recorded on January 5, 2022.

e)  Goods shipped to the entity, f.o.b. seller on December 20, 2021, from a vendor were lost in
transit.  The invoice price was P20,000.  This transaction was not recorded since the common carrier
has acknowledged responsibility for the loss of the merchandise.

f)  The bank returned on December 29, 2021 a customer check for P30,000 marked “DAIF” but no
entry was made.

g)  On December 31, 2021, the company received and recorded customer’s postdated check
amounting to P90,000.

h)  You observed the taking of the physical inventory of the entity on December 30, 2021.   Only
merchandise shipped by the entity to customers up to and including December 30, 2021 have been
eliminated from inventory.  The inventory of P10,000,000 is based on the physical inventory count. All
sales are on account and made on an FOB shipping point basis.

The following sales invoices were entered in the sales books for the month of December 2021 and
January 2022, respectively.

DECEMBER 2021

Sales invoice
  Sales invoice amount
date
Cost Date shipped

1) P150,000 Dec. 21 P100,000 Dec. 31, 2021

2)   100,000 Dec. 31     40,000 Nov. 03, 2021

3)     50,000 Dec. 29      30,000 Dec. 30, 2021

4)   200,000 Dec. 31    120,000 Jan. 03, 2022

Dec. 29, 2021

5) 500,000 Dec. 30 280,000
(shipped to consignee)

JANUARY 2022

6) P300,000 Dec. 31 P200,000 Dec. 30, 2021

7) 200,000 Jan. 02 115,000 Jan. 02, 2022

8) 600,000 Jan. 03 475,000 Dec. 31, 2021

QUESTIONS:

Based on the above and the result of your audit, answer the following:

The adjusted cash as of December 31, 2021 is

Response: P2,430,000
Correct answer: P2,430,000
Score: 1 out of 1 Yes

Question 37
Presented below are unaudited balances of selected accounts of Proactive Corporation as of December
31, 2021.  During the course of your audit of Proactive’s books you obtained additional information
affecting these accounts.

  Debit Credit

Cash P 2,000,000  
Accounts receivable 6,000,000  
Inventory 10,000,000  
Accounts payable   P 4,000,000

Sales, net   50,000,000

Additional information:

a)  On December 28, 2021, the entity wrote and recorded checks to creditors totaling P300,000 that
were mailed on January 5, 2022.

b)  Checks in the amount of P250,000 were written to vendors and recorded on December 29, 2021. 
The checks were dated January 5, 2022.

c)  At December 31, 2021, the entity has a P60,000 debit balance in its accounts payable to a
supplier resulting from advance payment. This was offset against the accounts with credit balances.
d)  On December 26, 2021, a supplier authorized the entity to return goods shipped and billed at
P80,000 on December 3, 2021.  The goods were returned on December 28, 2021.  The supplier’s
credit memo was received and recorded on January 5, 2022.

e)  Goods shipped to the entity, f.o.b. seller on December 20, 2021, from a vendor were lost in
transit.  The invoice price was P20,000.  This transaction was not recorded since the common carrier
has acknowledged responsibility for the loss of the merchandise.

f)  The bank returned on December 29, 2021 a customer check for P30,000 marked “DAIF” but no
entry was made.

g)  On December 31, 2021, the company received and recorded customer’s postdated check
amounting to P90,000.

h)  You observed the taking of the physical inventory of the entity on December 30, 2021.   Only
merchandise shipped by the entity to customers up to and including December 30, 2021 have been
eliminated from inventory.  The inventory of P10,000,000 is based on the physical inventory count. All
sales are on account and made on an FOB shipping point basis.

The following sales invoices were entered in the sales books for the month of December 2021 and
January 2022, respectively.

DECEMBER 2021

Sales invoice
  Sales invoice amount
date
Cost Date shipped

1) P150,000 Dec. 21 P100,000 Dec. 31, 2021

2)   100,000 Dec. 31     40,000 Nov. 03, 2021

3)     50,000 Dec. 29      30,000 Dec. 30, 2021

4)   200,000 Dec. 31    120,000 Jan. 03, 2022

Dec. 29, 2021

5) 500,000 Dec. 30 280,000
(shipped to consignee)

JANUARY 2022

6) P300,000 Dec. 31 P200,000 Dec. 30, 2021

7) 200,000 Jan. 02 115,000 Jan. 02, 2022

 8) 600,000 Jan. 03 475,000 Dec. 31, 2021

QUESTIONS:

Based on the above and the result of your audit, answer the following:

The adjusted accounts receivable as of December 31, 2021 is

Response: P6,320,000
Correct answer: P6,320,000
Score: 1 out of 1 Yes

Question 38
Presented below are unaudited balances of selected accounts of Proactive Corporation as of December
31, 2021.  During the course of your audit of Proactive’s books you obtained additional information
affecting these accounts.

  Debit Credit

Cash P 2,000,000  
Accounts receivable 6,000,000  
Inventory 10,000,000  
Accounts payable   P 4,000,000

Sales, net   50,000,000

Additional information:

a)  On December 28, 2021, the entity wrote and recorded checks to creditors totaling P300,000 that
were mailed on January 5, 2022.

b)  Checks in the amount of P250,000 were written to vendors and recorded on December 29, 2021. 
The checks were dated January 5, 2022.
c)  At December 31, 2021, the entity has a P60,000 debit balance in its accounts payable to a
supplier resulting from advance payment. This was offset against the accounts with credit balances.

d)  On December 26, 2021, a supplier authorized the entity to return goods shipped and billed at
P80,000 on December 3, 2021.  The goods were returned on December 28, 2021.  The supplier’s
credit memo was received and recorded on January 5, 2022.

e)  Goods shipped to the entity, f.o.b. seller on December 20, 2021, from a vendor were lost in
transit.  The invoice price was P20,000.  This transaction was not recorded since the common carrier
has acknowledged responsibility for the loss of the merchandise.

f)  The bank returned on December 29, 2021 a customer check for P30,000 marked “DAIF” but no
entry was made.

g)  On December 31, 2021, the company received and recorded customer’s postdated check
amounting to P90,000.

h)  You observed the taking of the physical inventory of the entity on December 30, 2021.   Only
merchandise shipped by the entity to customers up to and including December 30, 2021 have been
eliminated from inventory.  The inventory of P10,000,000 is based on the physical inventory count. All
sales are on account and made on an FOB shipping point basis.

The following sales invoices were entered in the sales books for the month of December 2021 and
January 2022, respectively.

DECEMBER 2021

Sales invoice
  Sales invoice amount
date
Cost Date shipped

1) P150,000 Dec. 21 P100,000 Dec. 31, 2021

2)   100,000 Dec. 31     40,000 Nov. 03, 2021

3)     50,000 Dec. 29      30,000 Dec. 30, 2021

4)   200,000 Dec. 31    120,000 Jan. 03, 2022

Dec. 29, 2021

5) 500,000 Dec. 30 280,000
(shipped to consignee)

JANUARY 2022
 6) P300,000 Dec. 31 P200,000 Dec. 30, 2021

7) 200,000 Jan. 02 115,000 Jan. 02, 2022

8) 600,000 Jan. 03 475,000 Dec. 31, 2021

QUESTIONS:

Based on the above and the result of your audit, answer the following:

The adjusted inventory as of December 31, 2021 is

Response: P10,180,000
Correct answer: P9,705,000
Score: 0 out of 1 No

Question 39
Presented below are unaudited balances of selected accounts of Proactive Corporation as of December
31, 2021.  During the course of your audit of Proactive’s books you obtained additional information
affecting these accounts.

  Debit Credit

Cash P 2,000,000  
Accounts receivable 6,000,000  
Inventory 10,000,000  
Accounts payable   P 4,000,000

Sales, net   50,000,000

Additional information:

a)  On December 28, 2021, the entity wrote and recorded checks to creditors totaling P300,000 that
were mailed on January 5, 2022.
b)  Checks in the amount of P250,000 were written to vendors and recorded on December 29, 2021. 
The checks were dated January 5, 2022.

c)  At December 31, 2021, the entity has a P60,000 debit balance in its accounts payable to a
supplier resulting from advance payment. This was offset against the accounts with credit balances.

d)  On December 26, 2021, a supplier authorized the entity to return goods shipped and billed at
P80,000 on December 3, 2021.  The goods were returned on December 28, 2021.  The supplier’s
credit memo was received and recorded on January 5, 2022.

e)  Goods shipped to the entity, f.o.b. seller on December 20, 2021, from a vendor were lost in
transit.  The invoice price was P20,000.  This transaction was not recorded since the common carrier
has acknowledged responsibility for the loss of the merchandise.

f)  The bank returned on December 29, 2021 a customer check for P30,000 marked “DAIF” but no
entry was made.

g)  On December 31, 2021, the company received and recorded customer’s postdated check
amounting to P90,000.

h)  You observed the taking of the physical inventory of the entity on December 30, 2021.   Only
merchandise shipped by the entity to customers up to and including December 30, 2021 have been
eliminated from inventory.  The inventory of P10,000,000 is based on the physical inventory count. All
sales are on account and made on an FOB shipping point basis.

The following sales invoices were entered in the sales books for the month of December 2021 and
January 2022, respectively.

DECEMBER 2021

Sales invoice
  Sales invoice amount
date
Cost Date shipped

1) P150,000 Dec. 21 P100,000 Dec. 31, 2021

2)   100,000 Dec. 31     40,000 Nov. 03, 2021

3)     50,000 Dec. 29      30,000 Dec. 30, 2021

4)   200,000 Dec. 31    120,000 Jan. 03, 2022

 Dec. 29, 2021
5) 500,000 Dec. 30 280,000
(shipped to consignee)

JANUARY 2022

6) P300,000 Dec. 31 P200,000 Dec. 30, 2021

7) 200,000 Jan. 02 115,000 Jan. 02, 2022

8) 600,000 Jan. 03 475,000 Dec. 31, 2021

QUESTIONS:

Based on the above and the result of your audit, answer the following:

The adjusted accounts payable as of December 31, 2021 is

Response: P4,550,000
Correct answer: P4,550,000
Score: 1 out of 1 Yes

Question 40
Presented below are unaudited balances of selected accounts of Proactive Corporation as of December
31, 2021.  During the course of your audit of Proactive’s books you obtained additional information
affecting these accounts.

  Debit Credit

Cash P 2,000,000  
Accounts receivable 6,000,000  
Inventory 10,000,000  
Accounts payable   P 4,000,000

Sales, net   50,000,000

Additional information:

a)  On December 28, 2021, the entity wrote and recorded checks to creditors totaling P300,000 that
were mailed on January 5, 2022.
b)  Checks in the amount of P250,000 were written to vendors and recorded on December 29, 2021. 
The checks were dated January 5, 2022.

c)  At December 31, 2021, the entity has a P60,000 debit balance in its accounts payable to a
supplier resulting from advance payment. This was offset against the accounts with credit balances.

d)  On December 26, 2021, a supplier authorized the entity to return goods shipped and billed at
P80,000 on December 3, 2021.  The goods were returned on December 28, 2021.  The supplier’s
credit memo was received and recorded on January 5, 2022.

e)  Goods shipped to the entity, f.o.b. seller on December 20, 2021, from a vendor were lost in
transit.  The invoice price was P20,000.  This transaction was not recorded since the common carrier
has acknowledged responsibility for the loss of the merchandise.

f)  The bank returned on December 29, 2021 a customer check for P30,000 marked “DAIF” but no
entry was made.

g)  On December 31, 2021, the company received and recorded customer’s postdated check
amounting to P90,000.

h)  You observed the taking of the physical inventory of the entity on December 30, 2021.   Only
merchandise shipped by the entity to customers up to and including December 30, 2021 have been
eliminated from inventory.  The inventory of P10,000,000 is based on the physical inventory count. All
sales are on account and made on an FOB shipping point basis.

The following sales invoices were entered in the sales books for the month of December 2021 and
January 2022, respectively.

DECEMBER 2021

Sales invoice
  Sales invoice amount
date
Cost Date shipped

1) P150,000 Dec. 21 P100,000 Dec. 31, 2021

2)   100,000 Dec. 31     40,000 Nov. 03, 2021

 3)     50,000 Dec. 29      30,000 Dec. 30, 2021

4)   200,000 Dec. 31    120,000 Jan. 03, 2022

Dec. 29, 2021

5) 500,000 Dec. 30 280,000
(shipped to consignee)

JANUARY 2022

6) P300,000 Dec. 31 P200,000 Dec. 30, 2021

7) 200,000 Jan. 02 115,000 Jan. 02, 2022

8) 600,000 Jan. 03 475,000 Dec. 31, 2021

QUESTIONS:

Based on the above and the result of your audit, answer the following:

The adjusted net sales for the year ended December 31, 2021 is

Response: P50,200,000
Correct answer: P50,200,000
Score: 1 out of 1 Yes

Question 41
The following trial balance relates to EIM Corporation at 31 March 2021:

  P'000 P'000

  Debit Credit

Closing inventories - 31 March 2021 (note (i)) 18,900  

Land and building – at valuation (note (iii)) 113,400  
Plant and equipment - cost (note (iii)) 64,800  
Accumulated depreciation 1 April 2020 - plant and equipment   30,240

Investment property -valuation 1 April 2020 (note (iii)) 28,800  

Trade receivables 38,700  
Cash in bank   1,620
 Trade payables   21,240

Ordinary shares of P0.25 each   36,000

10% Redeemable preferenceshares of P1 each   18,000

Revaluation reserve (note(iii))   37,800

Retained earnings – 1 April 2020   31,500

Profit or loss summary            .    88,200

  264,600 264,600

The following notes are relevant:

(i)   At 31 March 2021, an inventory list based on a physical count had a total cost of P18.9 million.  
Some damaged goods that had cost P 1.44 million were included in these.  The realizable value of
these goods is expected to be P 1.71 million, provided a remedial work costing P0.81 million is
done beforethey could be sold.

(ii)   Included in the computation of profit or loss are finance costs consisting of interest on overdraft,
the full year's preferencedividend and an ordinary dividend of P0.04 per share that was paid in
September 2020.

(iii)  Non-current assets:

Land and building

A professional valuer submitted a report on 1 April 2020, revaluing the land at P27 million and building
at P86.4 million.  The directors decided to incorporate these values in the accounts.  On that date the
land and building had a carrying value of P75.6 million and the building had a remaining life of 15
years.

Charge depreciation on a straight-line basis.  EIM does not make a transfer to retained earnings in
respect of excess depreciation.

Plant

All plant is depreciated at 12.5% on the reducing balance basis.

Investment property

On 31 March 2021 the investment property was revalued at P24.3 million.  EIM uses the fair value
model.

QUESTIONS:

Based on the above and the result of your audit, answer the following: (Ignore income taxes)

The adjusted profit or loss for the year ended 31 March 2021 is

Response: P78,840,000
Correct answer: P78,840,000
Score: 1 out of 1 Yes

Question 42
The following trial balance relates to EIM Corporation at 31 March 2021:

  P'000 P'000

  Debit Credit

Closing inventories - 31 March 2021 (note (i)) 18,900  

Land and building – at valuation (note (iii)) 113,400  
Plant and equipment - cost (note (iii)) 64,800  
Accumulated depreciation 1 April 2020 - plant and equipment   30,240

Investment property -valuation 1 April 2020 (note (iii)) 28,800  

Trade receivables 38,700  
Cash in bank   1,620

Trade payables   21,240

Ordinary shares of P0.25 each   36,000

10% Redeemable preferenceshares of P1 each   18,000

Revaluation reserve (note(iii))   37,800

Retained earnings – 1 April 2020   31,500

Profit or loss summary            .    88,200

  264,600 264,600
The following notes are relevant:

(i)   At 31 March 2021, an inventory list based on a physical count had a total cost of P18.9 million.  
Some damaged goods that had cost P 1.44 million were included in these.  The realizable value of
these goods is expected to be P 1.71 million, provided a remedial work costing P0.81 million is
done beforethey could be sold.

(ii)   Included in the computation of profit or loss are finance costs consisting of interest on overdraft,
the full year's preferencedividend and an ordinary dividend of P0.04 per share that was paid in
September 2020.

(iii)  Non-current assets:

Land and building

A professional valuer submitted a report on 1 April 2020, revaluing the land at P27 million and building
at P86.4 million.  The directors decided to incorporate these values in the accounts.  On that date the
land and building had a carrying value of P75.6 million and the building had a remaining life of 15
years.

Charge depreciation on a straight-line basis.  EIM does not make a transfer to retained earnings in
respect of excess depreciation.

Plant

All plant is depreciated at 12.5% on the reducing balance basis.

Investment property

On 31 March 2021 the investment property was revalued at P24.3 million.  EIM uses the fair value
model.

QUESTIONS:

Based on the above and the result of your audit, answer the following: (Ignore income taxes)

The comprehensive income for the year ended 31 March 2021 is

Response: P116,640,000
Correct answer: P116,640,000
Score: 1 out of 1 Yes

Question 43
The following trial balance relates to EIM Corporation at 31 March 2021:

  P'000 P'000

  Debit Credit

Closing inventories - 31 March 2021 (note (i)) 18,900  

Land and building – at valuation (note (iii)) 113,400  
Plant and equipment - cost (note (iii)) 64,800  
Accumulated depreciation 1 April 2020 - plant and equipment   30,240

Investment property -valuation 1 April 2020 (note (iii)) 28,800  

Trade receivables 38,700  
Cash in bank   1,620

Trade payables   21,240

Ordinary shares of P0.25 each   36,000

10% Redeemable preferenceshares of P1 each   18,000

Revaluation reserve (note(iii))   37,800

Retained earnings – 1 April 2020   31,500

Profit or loss summary            .    88,200

  264,600 264,600

The following notes are relevant:

(i)   At 31 March 2021, an inventory list based on a physical count had a total cost of P18.9 million.  
Some damaged goods that had cost P 1.44 million were included in these.  The realizable value of
these goods is expected to be P 1.71 million, provided a remedial work costing P0.81 million is
done beforethey could be sold.

(ii)   Included in the computation of profit or loss are finance costs consisting of interest on overdraft,
the full year's preferencedividend and an ordinary dividend of P0.04 per share that was paid in
September 2020.

(iii)  Non-current assets:

Land and building

A professional valuer submitted a report on 1 April 2020, revaluing the land at P27 million and building
at P86.4 million.  The directors decided to incorporate these values in the accounts.  On that date the
land and building had a carrying value of P75.6 million and the building had a remaining life of 15
years.

Charge depreciation on a straight-line basis.  EIM does not make a transfer to retained earnings in
respect of excess depreciation.

Plant

All plant is depreciated at 12.5% on the reducing balance basis.

Investment property

On 31 March 2021 the investment property was revalued at P24.3 million.  EIM uses the fair value
model.

QUESTIONS:

Based on the above and the result of your audit, answer the following: (Ignore income taxes)

The total assets as of 31 March 2021 is

Response: P219,240,000
Correct answer: P219,240,000
Score: 1 out of 1 Yes

Question 44
The following trial balance relates to EIM Corporation at 31 March 2021:

  P'000 P'000

  Debit Credit

Closing inventories - 31 March 2021 (note (i)) 18,900  

 Land and building – at valuation (note (iii)) 113,400  
Plant and equipment - cost (note (iii)) 64,800  
Accumulated depreciation 1 April 2020 - plant and equipment   30,240

Investment property -valuation 1 April 2020 (note (iii)) 28,800  

Trade receivables 38,700  
Cash in bank   1,620

Trade payables   21,240

Ordinary shares of P0.25 each   36,000

10% Redeemable preferenceshares of P1 each   18,000

Revaluation reserve (note(iii))   37,800

Retained earnings – 1 April 2020   31,500

Profit or loss summary            .    88,200

  264,600 264,600

The following notes are relevant:

(i)   At 31 March 2021, an inventory list based on a physical count had a total cost of P18.9 million.  
Some damaged goods that had cost P 1.44 million were included in these.  The realizable value of
these goods is expected to be P 1.71 million, provided a remedial work costing P0.81 million is
done beforethey could be sold.

(ii)   Included in the computation of profit or loss are finance costs consisting of interest on overdraft,
the full year's preferencedividend and an ordinary dividend of P0.04 per share that was paid in
September 2020.

(iii)  Non-current assets:

Land and building

A professional valuer submitted a report on 1 April 2020, revaluing the land at P27 million and building
at P86.4 million.  The directors decided to incorporate these values in the accounts.  On that date the
land and building had a carrying value of P75.6 million and the building had a remaining life of 15
years.

Charge depreciation on a straight-line basis.  EIM does not make a transfer to retained earnings in
respect of excess depreciation.
Plant

All plant is depreciated at 12.5% on the reducing balance basis.

Investment property

On 31 March 2021 the investment property was revalued at P24.3 million.  EIM uses the fair value
model.

QUESTIONS:

Based on the above and the result of your audit, answer the following: (Ignore income taxes)

The total liabilities as of 31 March 2021 is

Response: P40,860,000
Correct answer: P40,860,000
Score: 1 out of 1 Yes

Question 45
The following trial balance relates to EIM Corporation at 31 March 2021:

  P'000 P'000

  Debit Credit

Closing inventories - 31 March 2021 (note (i)) 18,900  

Land and building – at valuation (note (iii)) 113,400  
Plant and equipment - cost (note (iii)) 64,800  
Accumulated depreciation 1 April 2020 - plant and equipment   30,240

Investment property -valuation 1 April 2020 (note (iii)) 28,800  

Trade receivables 38,700  
Cash in bank   1,620

Trade payables   21,240

 Ordinary shares of P0.25 each   36,000

10% Redeemable preferenceshares of P1 each   18,000

Revaluation reserve (note(iii))   37,800

Retained earnings – 1 April 2020   31,500

Profit or loss summary            .    88,200

  264,600 264,600

The following notes are relevant:

(i)   At 31 March 2021, an inventory list based on a physical count had a total cost of P18.9 million.  
Some damaged goods that had cost P 1.44 million were included in these.  The realizable value of
these goods is expected to be P 1.71 million, provided a remedial work costing P0.81 million is
done beforethey could be sold.

(ii)   Included in the computation of profit or loss are finance costs consisting of interest on overdraft,
the full year's preferencedividend and an ordinary dividend of P0.04 per share that was paid in
September 2020.

(iii)  Non-current assets:

Land and building

A professional valuer submitted a report on 1 April 2020, revaluing the land at P27 million and building
at P86.4 million.  The directors decided to incorporate these values in the accounts.  On that date the
land and building had a carrying value of P75.6 million and the building had a remaining life of 15
years.

Charge depreciation on a straight-line basis.  EIM does not make a transfer to retained earnings in
respect of excess depreciation.

Plant

All plant is depreciated at 12.5% on the reducing balance basis.

Investment property

On 31 March 2021 the investment property was revalued at P24.3 million.  EIM uses the fair value
model.
QUESTIONS:

Based on the above and the result of your audit, answer the following: (Ignore income taxes)

The retained earnings balance as of 31 March 2021 is

Response: P104,580,000
Correct answer: P104,580,000
Score: 1 out of 1 Yes

Question 46
You were able to obtain the following information during your audit of PFTF Company:

Reconciling items:

  Nov. 30 Dec. 31

Undeposited collections P200,000 P120,000

Outstanding checks 80,000 60,000

Customer’s notes collected by bank 100,000 120,000

Bank service charges 2,000 3,000

Erroneous bank debits 10,000 20,000

Erroneous bank credits 40,000 30,000

NSF checks not redeposited 5,000 7,000

Customer's check deposited December 10, returned

by bank on December 16 marked NSF, and
redeposited immediately; no entry made on books
 
for return or redeposit 10,000

You noted the following from the December bank statement:

·  Balance as of November 30 – P230,000

·  Receipts – P420,000
·  Disbursements – P500,000
QUESTIONS:

Based on the above and the result of your audit, answer the following:

How much is the unadjusted cash balance per books as of November 30?

Response: P227,000
Correct answer: P227,000
Score: 1 out of 1 Yes

Question 47
You were able to obtain the following information during your audit of PFTF Company:

Reconciling items:

  Nov. 30 Dec. 31

Undeposited collections P200,000 P120,000

Outstanding checks 80,000 60,000

Customer’s notes collected by bank 100,000 120,000

Bank service charges 2,000 3,000

Erroneous bank debits 10,000 20,000

Erroneous bank credits 40,000 30,000

NSF checks not redeposited 5,000 7,000

Customer's check deposited December 10, returned

by bank on December 16 marked NSF, and
redeposited immediately; no entry made on books
 
for return or redeposit 10,000

You noted the following from the December bank statement:

·  Balance as of November 30 – P230,000

·  Receipts – P420,000
·  Disbursements – P500,000

QUESTIONS:

Based on the above and the result of your audit, answer the following:
How much is the unadjusted book receipts for December?

Response: P270,000
Correct answer: P270,000
Score: 1 out of 1 Yes

Question 48
You were able to obtain the following information during your audit of PFTF Company:

Reconciling items:

  Nov. 30 Dec. 31

Undeposited collections P200,000 P120,000

Outstanding checks 80,000 60,000

Customer’s notes collected by bank 100,000 120,000

Bank service charges 2,000 3,000

Erroneous bank debits 10,000 20,000

Erroneous bank credits 40,000 30,000

NSF checks not redeposited 5,000 7,000

Customer's check deposited December 10, returned

by bank on December 16 marked NSF, and
redeposited immediately; no entry made on books
 
for return or redeposit 10,000

You noted the following from the December bank statement:

·  Balance as of November 30 – P230,000

·  Receipts – P420,000
·  Disbursements – P500,000

QUESTIONS:

Based on the above and the result of your audit, answer the following:

How much is the unadjusted book disbursements for December?

Response: P407,000
Correct answer: P407,000
Score: 1 out of 1 Yes

Question 49
You were able to obtain the following information during your audit of PFTF Company:

Reconciling items:

  Nov. 30 Dec. 31

Undeposited collections P200,000 P120,000

Outstanding checks 80,000 60,000

Customer’s notes collected by bank 100,000 120,000

Bank service charges 2,000 3,000

Erroneous bank debits 10,000 20,000

Erroneous bank credits 40,000 30,000

NSF checks not redeposited 5,000 7,000

Customer's check deposited December 10, returned

by bank on December 16 marked NSF, and
redeposited immediately; no entry made on books
 
for return or redeposit 10,000

You noted the following from the December bank statement:

·  Balance as of November 30 – P230,000

·  Receipts – P420,000
·  Disbursements – P500,000

QUESTIONS:

Based on the above and the result of your audit, answer the following:

How much is the unadjusted cash balance as of December 31?

Response: P  90,000
Correct answer: P  90,000
Score: 1 out of 1 Yes
Question 50
You were able to obtain the following information during your audit of PFTF Company:

Reconciling items:

  Nov. 30 Dec. 31

Undeposited collections P200,000 P120,000

Outstanding checks 80,000 60,000

Customer’s notes collected by bank 100,000 120,000

Bank service charges 2,000 3,000

Erroneous bank debits 10,000 20,000

Erroneous bank credits 40,000 30,000

NSF checks not redeposited 5,000 7,000

Customer's check deposited December 10, returned

by bank on December 16 marked NSF, and
redeposited immediately; no entry made on books
 
for return or redeposit 10,000

You noted the following from the December bank statement:

·  Balance as of November 30 – P230,000

·  Receipts – P420,000
·  Disbursements – P500,000

QUESTIONS:

Based on the above and the result of your audit, answer the following:

Which statement is correct regarding proof of cash?

Response: Neither a nor b.
Correct answer: Neither a nor b.
Score: 1 out of 1 Yes

Question 51
Reproduced below is the draft statement of financial position of WinWin, a publicly listed company, as
at 31 March 2021.
  P'000 P'000

Non-current assets (note (i))    

Freehold property   126,000

Plant   110,000

Investment property at 1 April 2020 (note (ii))     15,000

    251,000

Current Assets    
Inventory (note (iii)) 60,400  
Trade receivables and prepayments 31,200  
Cash 13,800 105,400

Total assets   356,400

Equity and liabilities

   

Capital and Reserves:    

Ordinary shares of P0.25 each   150,000

Reserves:    
Share premium 10,000  
Accumulated profits - 1 April 2020 52,500  
: Year to 31 March 2021 47,500 110,000

260,000
   

Non-current liabilities    
Deferred tax - at 1 April 2020 (note (v))   18,700

     
Current liabilities    
Trade payables (note (iii)) 47,400  
Provision for plant overhaul (note (iv)) 12,000  
Income tax payable 4,200 63,600
 Suspense account (note (vi))     14,100

Total equity and liabilities   356,400

(i)  The income statement has been charged with P3.2 million being the first of four equal annual
rental payments for an item of excavating plant.  This first payment was made on 1 April 2020.  The
rate implicit in the lease is 10%.  The plant had a fair value of P11.2 million at the inception of the
lease.

None of the non-current assets have been depreciated for the current year.  The freehold property
should be depreciated at 2% on its cost of P130 million, the leased plant is depreciated at 25% per
annum on a straight-line basis and the non-leased plant is depreciated at 20% on the reducing
balance basis.

(ii)  WinWin adopts the fair value model for its investment property.  At 31 March 2021, a qualified
surveyor assessed its value at P12.4 million.

(iii)  During an inventory count on 31 March 2021 items that had cost P6 million were identified as
being either damaged or slow moving.  It is estimated that they will only realize P4 million in total, on
which sales commission of 10% will be payable.  An invoice for materials delivered on 12 March 2021
for P500,000 has been discovered.  It has not been recorded in WinWin's bookkeeping system,
although the materials were included in the inventory count. 

(iv)  WinWin operates some heavy excavating plant which requires a major overhaul every three
years.  The overhaul is estimated to cost P18 million and is due to be carried out in April 2022.   The
provision of P12 million represents two annual amounts of P6 million made in the years to 31 March
2020 and 2021.

(v)  The deferredtax liability required at 31 March 2021 has been calculated at P22.5 million.

(vi)  The suspense account contains the credit entry relating to the issue on 1 October 2020 of a P 15
million 8% loan note.  It was issued at a discount of 5% and incurred direct issue costs of P150,000. 
It is redeemable after four years at a premium of 10%.  Interest is payable six months in arrears. The
first payment of interest has not been accrued and is due on 1 April 2021. Apportionment of issue
costs, discounts and premiums can be made on a straight-line basis.

QUESTIONS:
Based on the above and the result of your audit, compute for the following: (Disregard effect of the
adjustments on current income tax)

Adjusted profit for the fiscal year ended 31 March 2021

Response: P18,300,000
Correct answer: P18,300,000
Score: 1 out of 1 Yes

Question 52
Reproduced below is the draft statement of financial position of WinWin, a publicly listed company, as
at 31 March 2021.

  P'000 P'000

Non-current assets (note (i))    

Freehold property   126,000

Plant   110,000

Investment property at 1 April 2020 (note (ii))     15,000

    251,000

Current Assets    
Inventory (note (iii)) 60,400  
Trade receivables and prepayments 31,200  
Cash 13,800 105,400

Total assets   356,400

Equity and liabilities

   

Capital and Reserves:    

Ordinary shares of P0.25 each   150,000

Reserves:    
Share premium 10,000  
Accumulated profits - 1 April 2020 52,500  
: Year to 31 March 2021 47,500 110,000

    260,000
 Non-current liabilities    
Deferred tax - at 1 April 2020 (note (v))   18,700

     
Current liabilities    
Trade payables (note (iii)) 47,400  
Provision for plant overhaul (note (iv)) 12,000  
Income tax payable 4,200 63,600

Suspense account (note (vi))     14,100

Total equity and liabilities   356,400

(i)  The income statement has been charged with P3.2 million being the first of four equal annual
rental payments for an item of excavating plant.  This first payment was made on 1 April 2020.  The
rate implicit in the lease is 10%.  The plant had a fair value of P11.2 million at the inception of the
lease.

None of the non-current assets have been depreciated for the current year.  The freehold property
should be depreciated at 2% on its cost of P130 million, the leased plant is depreciated at 25% per
annum on a straight-line basis and the non-leased plant is depreciated at 20% on the reducing
balance basis.

(ii)  WinWin adopts the fair value model for its investment property.  At 31 March 2021, a qualified
surveyor assessed its value at P12.4 million.

(iii)  During an inventory count on 31 March 2021 items that had cost P6 million were identified as
being either damaged or slow moving.  It is estimated that they will only realize P4 million in total, on
which sales commission of 10% will be payable.  An invoice for materials delivered on 12 March 2021
for P500,000 has been discovered.  It has not been recorded in WinWin's bookkeeping system,
although the materials were included in the inventory count. 

(iv)  WinWin operates some heavy excavating plant which requires a major overhaul every three
years.  The overhaul is estimated to cost P18 million and is due to be carried out in April 2022.   The
provision of P12 million represents two annual amounts of P6 million made in the years to 31 March
2020 and 2021.
(v)  The deferredtax liability required at 31 March 2021 has been calculated at P22.5 million.

(vi)  The suspense account contains the credit entry relating to the issue on 1 October 2020 of a P 15
million 8% loan note.  It was issued at a discount of 5% and incurred direct issue costs of P150,000. 
It is redeemable after four years at a premium of 10%.  Interest is payable six months in arrears. The
first payment of interest has not been accrued and is due on 1 April 2021. Apportionment of issue
costs, discounts and premiums can be made on a straight-line basis.

QUESTIONS:

Based on the above and the result of your audit, compute for the following: (Disregard effect of the
adjustments on current income tax)

Total noncurrent assets as of 31 March 2021

Response: P232,200,000
Correct answer: P232,200,000
Score: 1 out of 1 Yes

Question 53
Reproduced below is the draft statement of financial position of WinWin, a publicly listed company, as
at 31 March 2021.

  P'000 P'000

Non-current assets (note (i))    

Freehold property   126,000

Plant   110,000

Investment property at 1 April 2020 (note (ii))     15,000

    251,000

Current Assets    
Inventory (note (iii)) 60,400  
Trade receivables and prepayments 31,200  
Cash 13,800 105,400

Total assets   356,400

 Equity and liabilities
   

Capital and Reserves:    

Ordinary shares of P0.25 each   150,000

Reserves:    
Share premium 10,000  
Accumulated profits - 1 April 2020 52,500  
: Year to 31 March 2021 47,500 110,000

260,000
   

Non-current liabilities    
Deferred tax - at 1 April 2020 (note (v))   18,700

     
Current liabilities    
Trade payables (note (iii)) 47,400  
Provision for plant overhaul (note (iv)) 12,000  
Income tax payable 4,200 63,600

Suspense account (note (vi))     14,100

Total equity and liabilities   356,400

(i)  The income statement has been charged with P3.2 million being the first of four equal annual
rental payments for an item of excavating plant.  This first payment was made on 1 April 2020.  The
rate implicit in the lease is 10%.  The plant had a fair value of P11.2 million at the inception of the
lease.

None of the non-current assets have been depreciated for the current year.  The freehold property
should be depreciated at 2% on its cost of P130 million, the leased plant is depreciated at 25% per
annum on a straight-line basis and the non-leased plant is depreciated at 20% on the reducing
balance basis.
(ii)  WinWin adopts the fair value model for its investment property.  At 31 March 2021, a qualified
surveyor assessed its value at P12.4 million.

(iii)  During an inventory count on 31 March 2021 items that had cost P6 million were identified as
being either damaged or slow moving.  It is estimated that they will only realize P4 million in total, on
which sales commission of 10% will be payable.  An invoice for materials delivered on 12 March 2021
for P500,000 has been discovered.  It has not been recorded in WinWin's bookkeeping system,
although the materials were included in the inventory count. 

(iv)  WinWin operates some heavy excavating plant which requires a major overhaul every three
years.  The overhaul is estimated to cost P18 million and is due to be carried out in April 2022.   The
provision of P12 million represents two annual amounts of P6 million made in the years to 31 March
2020 and 2021.

(v)  The deferredtax liability required at 31 March 2021 has been calculated at P22.5 million.

(vi)  The suspense account contains the credit entry relating to the issue on 1 October 2020 of a P 15
million 8% loan note.  It was issued at a discount of 5% and incurred direct issue costs of P150,000. 
It is redeemable after four years at a premium of 10%.  Interest is payable six months in arrears. The
first payment of interest has not been accrued and is due on 1 April 2021. Apportionment of issue
costs, discounts and premiums can be made on a straight-line basis.

QUESTIONS:

Based on the above and the result of your audit, compute for the following: (Disregard effect of the
adjustments on current income tax)

Total current liabilities as of 31 March 2021

Response: P55,900,000
Correct answer: P55,900,000
Score: 1 out of 1 Yes

Question 54
Reproduced below is the draft statement of financial position of WinWin, a publicly listed company, as
at 31 March 2021.

  P'000 P'000

Non-current assets (note (i))    

Freehold property   126,000

Plant   110,000

Investment property at 1 April 2020 (note (ii))     15,000

    251,000

Current Assets    
Inventory (note (iii)) 60,400  
Trade receivables and prepayments 31,200  
Cash 13,800 105,400

Total assets   356,400

Equity and liabilities

   

Capital and Reserves:    

Ordinary shares of P0.25 each   150,000

Reserves:    
Share premium 10,000  
Accumulated profits - 1 April 2020 52,500  
: Year to 31 March 2021 47,500 110,000

260,000
   

Non-current liabilities    
Deferred tax - at 1 April 2020 (note (v))   18,700

     
Current liabilities    
Trade payables (note (iii)) 47,400  
Provision for plant overhaul (note (iv)) 12,000  
Income tax payable 4,200 63,600

Suspense account (note (vi))     14,100

Total equity and liabilities   356,400

(i)  The income statement has been charged with P3.2 million being the first of four equal annual
rental payments for an item of excavating plant.  This first payment was made on 1 April 2020.  The
rate implicit in the lease is 10%.  The plant had a fair value of P11.2 million at the inception of the
lease.

None of the non-current assets have been depreciated for the current year.  The freehold property
should be depreciated at 2% on its cost of P130 million, the leased plant is depreciated at 25% per
annum on a straight-line basis and the non-leased plant is depreciated at 20% on the reducing
balance basis.

(ii)  WinWin adopts the fair value model for its investment property.  At 31 March 2021, a qualified
surveyor assessed its value at P12.4 million.

(iii)  During an inventory count on 31 March 2021 items that had cost P6 million were identified as
being either damaged or slow moving.  It is estimated that they will only realize P4 million in total, on
which sales commission of 10% will be payable.  An invoice for materials delivered on 12 March 2021
for P500,000 has been discovered.  It has not been recorded in WinWin's bookkeeping system,
although the materials were included in the inventory count. 

(iv)  WinWin operates some heavy excavating plant which requires a major overhaul every three
years.  The overhaul is estimated to cost P18 million and is due to be carried out in April 2022.   The
provision of P12 million represents two annual amounts of P6 million made in the years to 31 March
2020 and 2021.

(v)  The deferredtax liability required at 31 March 2021 has been calculated at P22.5 million.

(vi)  The suspense account contains the credit entry relating to the issue on 1 October 2020 of a P 15
million 8% loan note.  It was issued at a discount of 5% and incurred direct issue costs of P150,000. 
It is redeemable after four years at a premium of 10%.  Interest is payable six months in arrears. The
first payment of interest has not been accrued and is due on 1 April 2021. Apportionment of issue
costs, discounts and premiums can be made on a straight-line basis.

QUESTIONS:

Based on the above and the result of your audit, compute for the following: (Disregard effect of the
adjustments on current income tax)

Total noncurrent liabilities as of 31 March 2021

Response: P42,500,000
Correct answer: P42,500,000
Score: 1 out of 1 Yes

Question 55
Reproduced below is the draft statement of financial position of WinWin, a publicly listed company, as
at 31 March 2021.

  P'000 P'000

Non-current assets (note (i))    

Freehold property   126,000

Plant   110,000

Investment property at 1 April 2020 (note (ii))     15,000

    251,000

Current Assets    
Inventory (note (iii)) 60,400  
Trade receivables and prepayments 31,200  
Cash 13,800 105,400

Total assets   356,400

Equity and liabilities

   

Capital and Reserves:    

Ordinary shares of P0.25 each   150,000

Reserves:    
Share premium 10,000  
Accumulated profits - 1 April 2020 52,500  
: Year to 31 March 2021 47,500 110,000

260,000
   

Non-current liabilities    
Deferred tax - at 1 April 2020 (note (v))   18,700
      
Current liabilities    
Trade payables (note (iii)) 47,400  
Provision for plant overhaul (note (iv)) 12,000  
Income tax payable 4,200 63,600

Suspense account (note (vi))     14,100

Total equity and liabilities   356,400

(i)  The income statement has been charged with P3.2 million being the first of four equal annual
rental payments for an item of excavating plant.  This first payment was made on 1 April 2020.  The
rate implicit in the lease is 10%.  The plant had a fair value of P11.2 million at the inception of the
lease.

None of the non-current assets have been depreciated for the current year.  The freehold property
should be depreciated at 2% on its cost of P130 million, the leased plant is depreciated at 25% per
annum on a straight-line basis and the non-leased plant is depreciated at 20% on the reducing
balance basis.

(ii)  WinWin adopts the fair value model for its investment property.  At 31 March 2021, a qualified
surveyor assessed its value at P12.4 million.

(iii)  During an inventory count on 31 March 2021 items that had cost P6 million were identified as
being either damaged or slow moving.  It is estimated that they will only realize P4 million in total, on
which sales commission of 10% will be payable.  An invoice for materials delivered on 12 March 2021
for P500,000 has been discovered.  It has not been recorded in WinWin's bookkeeping system,
although the materials were included in the inventory count. 

(iv)  WinWin operates some heavy excavating plant which requires a major overhaul every three
years.  The overhaul is estimated to cost P18 million and is due to be carried out in April 2022.   The
provision of P12 million represents two annual amounts of P6 million made in the years to 31 March
2020 and 2021.

(v)  The deferredtax liability required at 31 March 2021 has been calculated at P22.5 million.
(vi)  The suspense account contains the credit entry relating to the issue on 1 October 2020 of a P 15
million 8% loan note.  It was issued at a discount of 5% and incurred direct issue costs of P150,000. 
It is redeemable after four years at a premium of 10%.  Interest is payable six months in arrears. The
first payment of interest has not been accrued and is due on 1 April 2021. Apportionment of issue
costs, discounts and premiums can be made on a straight-line basis.

QUESTIONS:

Based on the above and the result of your audit, compute for the following: (Disregard effect of the
adjustments on current income tax)

Total equity as of 31 March 2021

Response: P236,800,000
Correct answer: P236,800,000
Score: 1 out of 1 Yes

Question 56
Understood Company reported the following amounts in the equity section of its December 31, 2020,
statement of financial position.

Share capital – Preference. 8%, P100 par (10,000 shares authorized, 2,000 shares
P200,000
issued)

Share capital – Ordinary, P5 par (100,000 shares authorized, 20,000 shares issued) 100,000

Share premium 125,000

Retained earnings 450,000

Total P875,000

During 2021, Understood took part in the following transactions concerning equity. 

1.  Paid the annual 2020 P8 per share dividend on preference shares and a P2 per share dividend on
ordinary shares.  These dividends had been declared on December 31, 2020.
2.  Purchase 2,700 shares of its own outstanding ordinary shares for P40 per share.   Understood uses
the cost method.
3.  Reissued 700 treasury shares for land valued at P30,000.
4.  Issued 500 preference shares at P105 per share.
5.  Declared a 10% share dividend on the outstanding ordinary shares when the shares are selling for
P45 per share.
6.  Issued the share dividend.
7.  Declared the annual 2021 P8 per share dividend on preference shares and the P2 per share
dividend on ordinary shares.  These dividends are payable in 2022. 
8.  Profit for 2021 is P330,000.
QUESTIONS:

The entry to record transaction No. 1 would involve

Response: A credit to Cash of P56,000

Correct answer: A credit to Cash of P56,000
Score: 1 out of 1 Yes

Question 57
Understood Company reported the following amounts in the equity section of its December 31, 2020,
statement of financial position.

Share capital – Preference. 8%, P100 par (10,000 shares authorized, 2,000 shares
P200,000
issued)

Share capital – Ordinary, P5 par (100,000 shares authorized, 20,000 shares issued) 100,000

Share premium 125,000

Retained earnings 450,000

Total P875,000

During 2021, Understood took part in the following transactions concerning equity. 

1.  Paid the annual 2020 P8 per share dividend on preference shares and a P2 per share dividend on
ordinary shares.  These dividends had been declared on December 31, 2020.
2.  Purchase 2,700 shares of its own outstanding ordinary shares for P40 per share.   Understood uses
the cost method.
3.  Reissued 700 treasury shares for land valued at P30,000.
4.  Issued 500 preference shares at P105 per share.
5.  Declared a 10% share dividend on the outstanding ordinary shares when the shares are selling for
P45 per share.
6.  Issued the share dividend.
7.  Declared the annual 2021 P8 per share dividend on preference shares and the P2 per share
dividend on ordinary shares.  These dividends are payable in 2022. 
8.  Profit for 2021 is P330,000.

QUESTIONS:

The total share premium as of December 31, 2021 would be

Response: P201,500
Correct answer: P201,500
Score: 1 out of 1 Yes
Question 58
Understood Company reported the following amounts in the equity section of its December 31, 2020,
statement of financial position.

Share capital – Preference. 8%, P100 par (10,000 shares authorized, 2,000 shares
P200,000
issued)

Share capital – Ordinary, P5 par (100,000 shares authorized, 20,000 shares issued) 100,000

Share premium 125,000

Retained earnings 450,000

Total P875,000

During 2021, Understood took part in the following transactions concerning equity. 

1.  Paid the annual 2020 P8 per share dividend on preference shares and a P2 per share dividend on
ordinary shares.  These dividends had been declared on December 31, 2020.
2.  Purchase 2,700 shares of its own outstanding ordinary shares for P40 per share.   Understood uses
the cost method.
3.  Reissued 700 treasury shares for land valued at P30,000.
4.  Issued 500 preference shares at P105 per share.
5.  Declared a 10% share dividend on the outstanding ordinary shares when the shares are selling for
P45 per share.
6.  Issued the share dividend.
7.  Declared the annual 2021 P8 per share dividend on preference shares and the P2 per share
dividend on ordinary shares.  These dividends are payable in 2022. 
8.  Profit for 2021 is P330,000.

QUESTIONS:

The balance of Retained earnings account as of December 31, 2021 would be

Response: P639,400
Correct answer: P639,400
Score: 1 out of 1 Yes

Question 59
Understood Company reported the following amounts in the equity section of its December 31, 2020,
statement of financial position.

Share capital – Preference. 8%, P100 par (10,000 shares authorized, 2,000 shares
P200,000
issued)

Share capital – Ordinary, P5 par (100,000 shares authorized, 20,000 shares issued) 100,000

Share premium 125,000

 Retained earnings 450,000

Total P875,000

During 2021, Understood took part in the following transactions concerning equity. 

1.  Paid the annual 2020 P8 per share dividend on preference shares and a P2 per share dividend on
ordinary shares.  These dividends had been declared on December 31, 2020.
2.  Purchase 2,700 shares of its own outstanding ordinary shares for P40 per share.   Understood uses
the cost method.
3.  Reissued 700 treasury shares for land valued at P30,000.
4.  Issued 500 preference shares at P105 per share.
5.  Declared a 10% share dividend on the outstanding ordinary shares when the shares are selling for
P45 per share.
6.  Issued the share dividend.
7.  Declared the annual 2021 P8 per share dividend on preference shares and the P2 per share
dividend on ordinary shares.  These dividends are payable in 2022. 
8.  Profit for 2021 is P330,000.

QUESTIONS:

The total dividends payable (Preference and Ordinary) as of December 31, 2021 would amount to

Response: P59,600
Correct answer: P59,600
Score: 1 out of 1 Yes

Question 60
Understood Company reported the following amounts in the equity section of its December 31, 2020,
statement of financial position.

Share capital – Preference. 8%, P100 par (10,000 shares authorized, 2,000 shares
P200,000
issued)

Share capital – Ordinary, P5 par (100,000 shares authorized, 20,000 shares issued) 100,000

Share premium 125,000

Retained earnings 450,000

Total P875,000

During 2021, Understood took part in the following transactions concerning equity. 

1.  Paid the annual 2020 P8 per share dividend on preference shares and a P2 per share dividend on
ordinary shares.  These dividends had been declared on December 31, 2020.
2.  Purchase 2,700 shares of its own outstanding ordinary shares for P40 per share.   Understood uses
the cost method.
3.  Reissued 700 treasury shares for land valued at P30,000.
4.  Issued 500 preference shares at P105 per share.
5.  Declared a 10% share dividend on the outstanding ordinary shares when the shares are selling for
P45 per share.
6.  Issued the share dividend.
7.  Declared the annual 2021 P8 per share dividend on preference shares and the P2 per share
dividend on ordinary shares.  These dividends are payable in 2022. 
8.  Profit for 2021 is P330,000.

QUESTIONS:

Total shareholder’s equity as of December 31, 2021 would amount to

Response: P1,199,900
Correct answer: P1,119,900
Score: 0 out of 1 No

Question 61
Synergize Company began operations on January 1, 2021.  The accountant prepared the following:

Statement of Financial Position (Cash Basis)

January 1, 2021

       
Assets   Liabilities and equity

Cash P 49,600 Accounts payable P 28,000

Parts inventory 24,000 Share capital, P100 par 265,600

Equipment 220,000               .

Total assets P293,600 Total liabilities and equity P293,600

The company has developed plans to expand its business is in the process of negotiating a bank loan
to finance the expansion.  The bank is requesting 2021 financial statements prepared on the accrual
basis of accounting.  As the company’s external auditor, you were called upon to assist in preparing
the financial statements.  During the course of your engagement, you obtained the following
information:

Transactions for 2021

Cash sales P232,000

Collections from credit customers 80,000

 Payments on account for parts 80,800

Wages paid to employees 124,000

Payments to the utility company 22,000

·  Uncollected customers' bills totaled P69,800 at December 31, 2021.

·  On March 1, 2021, a supplier advanced the company P40,000 on a 1-year, 12% note payable with
semiannual interest payments to be made on September 1, 2021 and at maturity on March 1, 2022.
·  Unpaid bills to suppliers totaled P11,200 at December 31, 2021.
·  Parts costing P8,000 were on hand at year-end.
·  Wages owed at year-end were P5,600.
·  Utility expense of P1,950 was unpaid at year-end.
·  The P18,000 insurance premium was paid for a 1-year policy effective February 1, 2021.
·  The rent of P3,000 was paid on the first day of every month.
·  The company's equipment, purchased at the time the company was founded, should be depreciated
over its useful life of 10 years using straight-line depreciation with no residual value.
·  The effective tax rate is 40%.  No taxes have been paid.

QUESTIONS:

Based on the above and the result of your engagement, you are asked to provide the following
information under the accrual basis:

The net income for 2021 was

Response: P41,850
Correct answer: P41,850
Score: 1 out of 1 Yes

Question 62
Synergize Company began operations on January 1, 2021.  The accountant prepared the following:

Statement of Financial Position (Cash Basis)

January 1, 2021

       
Assets   Liabilities and equity

Cash P 49,600 Accounts payable P 28,000

Parts inventory 24,000 Share capital, P100 par 265,600

Equipment 220,000               .

 Total assets P293,600 Total liabilities and equity P293,600

The company has developed plans to expand its business is in the process of negotiating a bank loan
to finance the expansion.  The bank is requesting 2021 financial statements prepared on the accrual
basis of accounting.  As the company’s external auditor, you were called upon to assist in preparing
the financial statements.  During the course of your engagement, you obtained the following
information:

Transactions for 2021

Cash sales P232,000

Collections from credit customers 80,000

Payments on account for parts 80,800

Wages paid to employees 124,000

Payments to the utility company 22,000

·  Uncollected customers' bills totaled P69,800 at December 31, 2021.

·  On March 1, 2021, a supplier advanced the company P40,000 on a 1-year, 12% note payable with
semiannual interest payments to be made on September 1, 2021 and at maturity on March 1, 2022.
·  Unpaid bills to suppliers totaled P11,200 at December 31, 2021.
·  Parts costing P8,000 were on hand at year-end.
·  Wages owed at year-end were P5,600.
·  Utility expense of P1,950 was unpaid at year-end.
·  The P18,000 insurance premium was paid for a 1-year policy effective February 1, 2021.
·  The rent of P3,000 was paid on the first day of every month.
·  The company's equipment, purchased at the time the company was founded, should be depreciated
over its useful life of 10 years using straight-line depreciation with no residual value.
·  The effective tax rate is 40%.  No taxes have been paid.

QUESTIONS:

Based on the above and the result of your engagement, you are asked to provide the following
information under the accrual basis:

The total current assets at year-end equaled

Response: P197,700
Correct answer: P197,700
Score: 1 out of 1 Yes

Question 63
Synergize Company began operations on January 1, 2021.  The accountant prepared the following:

Statement of Financial Position (Cash Basis)

January 1, 2021

       
Assets   Liabilities and equity

Cash P 49,600 Accounts payable P 28,000

Parts inventory 24,000 Share capital, P100 par 265,600

Equipment 220,000               .

Total assets P293,600 Total liabilities and equity P293,600

The company has developed plans to expand its business is in the process of negotiating a bank loan
to finance the expansion.  The bank is requesting 2021 financial statements prepared on the accrual
basis of accounting.  As the company’s external auditor, you were called upon to assist in preparing
the financial statements.  During the course of your engagement, you obtained the following
information:

Transactions for 2021

Cash sales P232,000

Collections from credit customers 80,000

Payments on account for parts 80,800

Wages paid to employees 124,000

Payments to the utility company 22,000

·  Uncollected customers' bills totaled P69,800 at December 31, 2021.

·  On March 1, 2021, a supplier advanced the company P40,000 on a 1-year, 12% note payable with
semiannual interest payments to be made on September 1, 2021 and at maturity on March 1, 2022.
·  Unpaid bills to suppliers totaled P11,200 at December 31, 2021.
·  Parts costing P8,000 were on hand at year-end.
·  Wages owed at year-end were P5,600.
·  Utility expense of P1,950 was unpaid at year-end.
·  The P18,000 insurance premium was paid for a 1-year policy effective February 1, 2021.
·  The rent of P3,000 was paid on the first day of every month.
·  The company's equipment, purchased at the time the company was founded, should be depreciated
over its useful life of 10 years using straight-line depreciation with no residual value.
·  The effective tax rate is 40%.  No taxes have been paid.
QUESTIONS:

Based on the above and the result of your engagement, you are asked to provide the following
information under the accrual basis:

The total assets at year-end equaled

Response: P395,700
Correct answer: P395,700
Score: 1 out of 1 Yes

Question 64
Synergize Company began operations on January 1, 2021.  The accountant prepared the following:

Statement of Financial Position (Cash Basis)

January 1, 2021

       
Assets   Liabilities and equity

Cash P 49,600 Accounts payable P 28,000

Parts inventory 24,000 Share capital, P100 par 265,600

Equipment 220,000               .

Total assets P293,600 Total liabilities and equity P293,600

The company has developed plans to expand its business is in the process of negotiating a bank loan
to finance the expansion.  The bank is requesting 2021 financial statements prepared on the accrual
basis of accounting.  As the company’s external auditor, you were called upon to assist in preparing
the financial statements.  During the course of your engagement, you obtained the following
information:

Transactions for 2021

Cash sales P232,000

Collections from credit customers 80,000

Payments on account for parts 80,800

Wages paid to employees 124,000

 Payments to the utility company 22,000

·  Uncollected customers' bills totaled P69,800 at December 31, 2021.

·  On March 1, 2021, a supplier advanced the company P40,000 on a 1-year, 12% note payable with
semiannual interest payments to be made on September 1, 2021 and at maturity on March 1, 2022.
·  Unpaid bills to suppliers totaled P11,200 at December 31, 2021.
·  Parts costing P8,000 were on hand at year-end.
·  Wages owed at year-end were P5,600.
·  Utility expense of P1,950 was unpaid at year-end.
·  The P18,000 insurance premium was paid for a 1-year policy effective February 1, 2021.
·  The rent of P3,000 was paid on the first day of every month.
·  The company's equipment, purchased at the time the company was founded, should be depreciated
over its useful life of 10 years using straight-line depreciation with no residual value.
·  The effective tax rate is 40%.  No taxes have been paid.

QUESTIONS:

Based on the above and the result of your engagement, you are asked to provide the following
information under the accrual basis:

The total equity at year-end was

Response: P307,450
Correct answer: P307,450
Score: 1 out of 1 Yes

Question 65
Synergize Company began operations on January 1, 2021.  The accountant prepared the following:

Statement of Financial Position (Cash Basis)

January 1, 2021

       
Assets   Liabilities and equity

Cash P 49,600 Accounts payable P 28,000

Parts inventory 24,000 Share capital, P100 par 265,600

Equipment 220,000               .

Total assets P293,600 Total liabilities and equity P293,600

The company has developed plans to expand its business is in the process of negotiating a bank loan
to finance the expansion.  The bank is requesting 2021 financial statements prepared on the accrual
basis of accounting.  As the company’s external auditor, you were called upon to assist in preparing
the financial statements.  During the course of your engagement, you obtained the following
information:

Transactions for 2021

Cash sales P232,000

Collections from credit customers 80,000

Payments on account for parts 80,800

Wages paid to employees 124,000

Payments to the utility company 22,000

·  Uncollected customers' bills totaled P69,800 at December 31, 2021.

·  On March 1, 2021, a supplier advanced the company P40,000 on a 1-year, 12% note payable with
semiannual interest payments to be made on September 1, 2021 and at maturity on March 1, 2022.
·  Unpaid bills to suppliers totaled P11,200 at December 31, 2021.
·  Parts costing P8,000 were on hand at year-end.
·  Wages owed at year-end were P5,600.
·  Utility expense of P1,950 was unpaid at year-end.
·  The P18,000 insurance premium was paid for a 1-year policy effective February 1, 2021.
·  The rent of P3,000 was paid on the first day of every month.
·  The company's equipment, purchased at the time the company was founded, should be depreciated
over its useful life of 10 years using straight-line depreciation with no residual value.
·  The effective tax rate is 40%.  No taxes have been paid.

QUESTIONS:

Based on the above and the result of your engagement, you are asked to provide the following
information under the accrual basis:

The total current liabilities at year-end equaled

Response: P88,250
Correct answer: P88,250
Score: 1 out of 1 Yes

Question 66
Your firm has been engaged to examine the financial statements of Sharpen Corporation for the year
2021.  The bookkeeper who maintains the financial records has prepared all the unaudited financial
statements for the corporation.  The client provides you with the information below.
 Sharpen Corporation
Statement of Financial Position
December 31, 2021

Assets   Liabilities

Current assets P1,881,100 Current liabilities P  962,400

Other assets 5,171,400 Long-term liabilities 1,439,500

                 . Capital 4,650,600

  P7,052,500   P7,052,500

·  An analysis of current assets discloses the following:

Cash (restricted in the amount of P400,000 for plant expansion) P   571,000

Investment in land 185,000

Accounts receivable less allowance of P30,000 480,000

Inventories      645,100

  P1,881,100

·  Other assets include:

Prepaid expenses P     47,400

Plant and equipment less accumulated depreciation of P1,430,000 4,130,000

Cash surrender value of life insurance policy 84,000

Unamortized bond discount 49,500

Notes receivable (short term) 162,300

Goodwill 252,000

Land     446,200

   P5,171,400

·  Current liabilities include:

Accounts payable P510,000

Notes payable (due 2023) 157,400

Income tax payable 145,000

Share premium reserve 150,000

  P962,400

·  Long-term liabilities include:

Unearned revenue P   489,500

Dividends payable 200,000

8% bonds payable (due May 1, 2026)     750,000

  P1,439,500

·  Capital includes:

Retained earnings P2,810,600

Share capital, par value P10; authorized 200,0000 shares, 184,000 shares
issued 1,840,000

  P4,650,600

The supplementary information below is also provided.

a.  On May 1, 2021, the company issued at 93.4, P750,000 of bonds to finance plant expansion.  The
long-term bond agreement provided for the annual payment of interest every May 1.  The existing
plant was pledged as security for the loan.  Use straight-line method for discount amortization.

b.  The bookkeeper made the following mistakes:

1.  In 2019, the ending inventory was overstated by P183,000.  The ending inventories for 2020 and
2021 were correctly computed.
2.  In 2021, accrued wages in the amount of P275,000 were omitted from the balance sheet and
these expenses were not charged on the income statement.
3.  In 2021, a gain of P175,000 (net of tax) on the sale of certain plant assets was credited directly to
retained earnings.

c.  You learned on January 28, 2022, prior to completion of the audit, of heavy damage because
recent fire to one of the entity’s two plants; the loss will not be reimbursed by insurance.   The plant
has a carrying amount of P1,200,000 on the date of fire.

QUESTIONS:

Based on the above and the result of the audit, answer the following:

The adjusted current assets as of December 31, 2021 is

Response: P1,505,800
Correct answer: P1,505,800
Score: 1 out of 1 Yes

Question 67
Your firm has been engaged to examine the financial statements of Sharpen Corporation for the year
2021.  The bookkeeper who maintains the financial records has prepared all the unaudited financial
statements for the corporation.  The client provides you with the information below.

Sharpen Corporation
Statement of Financial Position
December 31, 2021

Assets   Liabilities

Current assets P1,881,100 Current liabilities P  962,400

Other assets 5,171,400 Long-term liabilities 1,439,500

                 . Capital 4,650,600

   P7,052,500   P7,052,500

·  An analysis of current assets discloses the following:

Cash (restricted in the amount of P400,000 for plant expansion) P   571,000

Investment in land 185,000

Accounts receivable less allowance of P30,000 480,000

Inventories      645,100

  P1,881,100

·  Other assets include:

Prepaid expenses P     47,400

Plant and equipment less accumulated depreciation of P1,430,000 4,130,000

Cash surrender value of life insurance policy 84,000

Unamortized bond discount 49,500

Notes receivable (short term) 162,300

Goodwill 252,000

Land     446,200

  P5,171,400

·  Current liabilities include:

Accounts payable P510,000

Notes payable (due 2023) 157,400

Income tax payable 145,000

Share premium reserve 150,000

   P962,400

·  Long-term liabilities include:

Unearned revenue P   489,500

Dividends payable 200,000

8% bonds payable (due May 1, 2026)     750,000

  P1,439,500

·  Capital includes:

Retained earnings P2,810,600

Share capital, par value P10; authorized 200,0000 shares, 184,000 shares
issued 1,840,000

  P4,650,600

The supplementary information below is also provided.

a.  On May 1, 2021, the company issued at 93.4, P750,000 of bonds to finance plant expansion.  The
long-term bond agreement provided for the annual payment of interest every May 1.  The existing
plant was pledged as security for the loan.  Use straight-line method for discount amortization.

b.  The bookkeeper made the following mistakes:

1.  In 2019, the ending inventory was overstated by P183,000.  The ending inventories for 2020 and
2021 were correctly computed.
2.  In 2021, accrued wages in the amount of P275,000 were omitted from the balance sheet and
these expenses were not charged on the income statement.
3.  In 2021, a gain of P175,000 (net of tax) on the sale of certain plant assets was credited directly to
retained earnings.

c.  You learned on January 28, 2022, prior to completion of the audit, of heavy damage because
recent fire to one of the entity’s two plants; the loss will not be reimbursed by insurance.   The plant
has a carrying amount of P1,200,000 on the date of fire.

QUESTIONS:

Based on the above and the result of the audit, answer the following:

The adjusted current liabilities as of December 31, 2021 is

Response: P1,659,500
Correct answer: P1,659,500
Score: 1 out of 1 Yes

Question 68
Your firm has been engaged to examine the financial statements of Sharpen Corporation for the year
2021.  The bookkeeper who maintains the financial records has prepared all the unaudited financial
statements for the corporation.  The client provides you with the information below.

Sharpen Corporation
Statement of Financial Position
December 31, 2021

Assets   Liabilities

Current assets P1,881,100 Current liabilities P  962,400

Other assets 5,171,400 Long-term liabilities 1,439,500

                 . Capital 4,650,600

  P7,052,500   P7,052,500

·  An analysis of current assets discloses the following:

Cash (restricted in the amount of P400,000 for plant expansion) P   571,000

Investment in land 185,000

Accounts receivable less allowance of P30,000 480,000

Inventories      645,100

  P1,881,100
·  Other assets include:

Prepaid expenses P     47,400

Plant and equipment less accumulated depreciation of P1,430,000 4,130,000

Cash surrender value of life insurance policy 84,000

Unamortized bond discount 49,500

Notes receivable (short term) 162,300

Goodwill 252,000

Land     446,200

  P5,171,400

·  Current liabilities include:

Accounts payable P510,000

Notes payable (due 2023) 157,400

Income tax payable 145,000

Share premium reserve 150,000

  P962,400

·  Long-term liabilities include:

Unearned revenue P   489,500

Dividends payable 200,000

8% bonds payable (due May 1, 2026)     750,000

  P1,439,500
·  Capital includes:

Retained earnings P2,810,600

Share capital, par value P10; authorized 200,0000 shares, 184,000 shares
issued 1,840,000

  P4,650,600

The supplementary information below is also provided.

a.  On May 1, 2021, the company issued at 93.4, P750,000 of bonds to finance plant expansion.  The
long-term bond agreement provided for the annual payment of interest every May 1.  The existing
plant was pledged as security for the loan.  Use straight-line method for discount amortization.

b.  The bookkeeper made the following mistakes:

1.  In 2019, the ending inventory was overstated by P183,000.  The ending inventories for 2020 and
2021 were correctly computed.
2.  In 2021, accrued wages in the amount of P275,000 were omitted from the balance sheet and
these expenses were not charged on the income statement.
3.  In 2021, a gain of P175,000 (net of tax) on the sale of certain plant assets was credited directly to
retained earnings.

c.  You learned on January 28, 2022, prior to completion of the audit, of heavy damage because
recent fire to one of the entity’s two plants; the loss will not be reimbursed by insurance.   The plant
has a carrying amount of P1,200,000 on the date of fire.

QUESTIONS:

Based on the above and the result of the audit, answer the following:

The adjusted noncurrent liabilities as of December 31, 2021 is

Response: P864,500
Correct answer: P864,500
Score: 1 out of 1 Yes

Question 69
Your firm has been engaged to examine the financial statements of Sharpen Corporation for the year
2021.  The bookkeeper who maintains the financial records has prepared all the unaudited financial
statements for the corporation.  The client provides you with the information below.

Sharpen Corporation
Statement of Financial Position
December 31, 2021

Assets   Liabilities

Current assets P1,881,100 Current liabilities P  962,400

Other assets 5,171,400 Long-term liabilities 1,439,500

                 . Capital 4,650,600

  P7,052,500   P7,052,500

·  An analysis of current assets discloses the following:

Cash (restricted in the amount of P400,000 for plant expansion) P   571,000

Investment in land 185,000

Accounts receivable less allowance of P30,000 480,000

Inventories      645,100

  P1,881,100

·  Other assets include:

Prepaid expenses P     47,400

Plant and equipment less accumulated depreciation of P1,430,000 4,130,000

Cash surrender value of life insurance policy 84,000

Unamortized bond discount 49,500

Notes receivable (short term) 162,300

Goodwill 252,000
 Land     446,200

  P5,171,400

·  Current liabilities include:

Accounts payable P510,000

Notes payable (due 2023) 157,400

Income tax payable 145,000

Share premium reserve 150,000

  P962,400

·  Long-term liabilities include:

Unearned revenue P   489,500

Dividends payable 200,000

8% bonds payable (due May 1, 2026)     750,000

  P1,439,500

·  Capital includes:

Retained earnings P2,810,600

Share capital, par value P10; authorized 200,0000 shares, 184,000 shares
issued 1,840,000

  P4,650,600

The supplementary information below is also provided.

a.  On May 1, 2021, the company issued at 93.4, P750,000 of bonds to finance plant expansion.  The
long-term bond agreement provided for the annual payment of interest every May 1.  The existing
plant was pledged as security for the loan.  Use straight-line method for discount amortization.

b.  The bookkeeper made the following mistakes:

1.  In 2019, the ending inventory was overstated by P183,000.  The ending inventories for 2020 and
2021 were correctly computed.
2.  In 2021, accrued wages in the amount of P275,000 were omitted from the balance sheet and
these expenses were not charged on the income statement.
3.  In 2021, a gain of P175,000 (net of tax) on the sale of certain plant assets was credited directly to
retained earnings.

c.  You learned on January 28, 2022, prior to completion of the audit, of heavy damage because
recent fire to one of the entity’s two plants; the loss will not be reimbursed by insurance.   The plant
has a carrying amount of P1,200,000 on the date of fire.

QUESTIONS:

Based on the above and the result of the audit, answer the following:

The adjusted equity as of December 31, 2021 is

Response: P4,479,000
Correct answer: P4,479,000
Score: 1 out of 1 Yes

Question 70
Your firm has been engaged to examine the financial statements of Sharpen Corporation for the year
2021.  The bookkeeper who maintains the financial records has prepared all the unaudited financial
statements for the corporation.  The client provides you with the information below.

Sharpen Corporation
Statement of Financial Position
December 31, 2021

Assets   Liabilities

Current assets P1,881,100 Current liabilities P  962,400

Other assets 5,171,400 Long-term liabilities 1,439,500

                  . Capital 4,650,600

  P7,052,500   P7,052,500

·  An analysis of current assets discloses the following:

Cash (restricted in the amount of P400,000 for plant expansion) P   571,000

Investment in land 185,000

Accounts receivable less allowance of P30,000 480,000

Inventories      645,100

  P1,881,100

·  Other assets include:

Prepaid expenses P     47,400

Plant and equipment less accumulated depreciation of P1,430,000 4,130,000

Cash surrender value of life insurance policy 84,000

Unamortized bond discount 49,500

Notes receivable (short term) 162,300

Goodwill 252,000

Land     446,200

  P5,171,400

·  Current liabilities include:

Accounts payable P510,000

Notes payable (due 2023) 157,400

Income tax payable 145,000

 Share premium reserve 150,000

  P962,400

·  Long-term liabilities include:

Unearned revenue P   489,500

Dividends payable 200,000

8% bonds payable (due May 1, 2026)     750,000

  P1,439,500

·  Capital includes:

Retained earnings P2,810,600

Share capital, par value P10; authorized 200,0000 shares, 184,000 shares
issued 1,840,000

  P4,650,600

The supplementary information below is also provided.

a.  On May 1, 2021, the company issued at 93.4, P750,000 of bonds to finance plant expansion.  The
long-term bond agreement provided for the annual payment of interest every May 1.  The existing
plant was pledged as security for the loan.  Use straight-line method for discount amortization.

b.  The bookkeeper made the following mistakes:

1.  In 2019, the ending inventory was overstated by P183,000.  The ending inventories for 2020 and
2021 were correctly computed.
2.  In 2021, accrued wages in the amount of P275,000 were omitted from the balance sheet and
these expenses were not charged on the income statement.
3.  In 2021, a gain of P175,000 (net of tax) on the sale of certain plant assets was credited directly to
retained earnings.
c.  You learned on January 28, 2022, prior to completion of the audit, of heavy damage because
recent fire to one of the entity’s two plants; the loss will not be reimbursed by insurance.   The plant
has a carrying amount of P1,200,000 on the date of fire.

QUESTIONS:

Based on the above and the result of the audit, answer the following:

When a subsequent event provides evidence about conditions that existed at the balance sheet date,
the auditor should do which of the following?

Response: Ensure that the financial statements are adjusted to reflect the information, including any
necessary footnote disclosures.

Correct answer: Ensure that the financial statements are adjusted to reflect the information,
including any necessary footnote disclosures.

Score: 1 out of 1