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Most of the problems are CPALE adapted questions. Good luck!
Problem 1. On January 10, 2021 you started the audit of the financial records of the Squid Game
Company for the year ended December 31, 2020. From your investigation, you discovered the following:

1. The bookkeeper acts also as the cashier. Her December 31, 2020, year-end cash reconciliation
contained the following items:
Cash per ledger, 12-31-2020 61,400
Cash per bank, 12-31-2020 64,850
Checks outstanding 5,220
Vendero Co. check charged by bank in error12-20-2020;
Corrected by bank on 01-05-2021 150
Cash in transit, credited by bank on 01-02-2021 720

2. The cash account balances per ledger as of 12-31-2020 were:

Cash 61,400
Petty cash 150

3. The count of the cash on hand at the close of business on January 10, 2021, including the petty
cash, was as follows:
Currency and coin 385
Expense vouchers 50
Employees’ IOU’s dated 01-05-2021 25
Customers’ checks in payment of acct. 290
750

4. From January 2, 2021 to January 10, 2021, the date of your cash count, total cash receipts
appearing in the cash records were 8,600. According to the bank statement for the period from
January 2, 2021 to January 10, 2021, total deposits were 7,600.

5. On July 5, 2020, cash of 400 was received on account from a customer; the Allowance for
Doubtful Accounts was charged and Accounts Receivable credited.

6. On December 5, 2020, cash of 300 was received on account from a customer, Inventory was
debited and Accounts Receivable was credited.

7. Cash of 730 received during 2020 was not recorded.

8. Checks received from customers from January 2, 2021 to January 10, 2021, totaling 420, were
not recorded but were deposited in the bank.
 9. On July 1, 2020, the bank refunded interest of 20 because a note of the Pascua Company was
paid before maturity. No entry had been made for the refund.

10. In the cashier’s petty cash, there were receipts for collections from customers on January 9,
2021, totaling 850; these were unrecorded and undeposited.

11. In the outstanding checks, there is one for 50 made payable to a trade creditor; investigation
shows that this check had been returned by the creditor on June 14, 2020 and a new check for
100 was issued in its place; the original check for 50 was made in error as to amount.

Requirement:
1. Compute the correct bank balance as of December 31, 2020
Answer:

2. Compute the cash shortage as of December 31, 2020

Answer:

3. Compute the cash shortage for the period January 1, 2021 to January 10, 2021
Answer:

Problem 2. In connection with the general examination of the financial statements of Atypical Company
as at June 30, 2020, the following, among others, were obtained pertaining to the verification of Cash:

1. Entries in the books and bank statement were summarized as follows:

Books Bank
Balance, May 31, 2020 69,200 75,000
Add: Cash receipts/deposits 202,500 297,400
Total 271,700 372,400
Less: Cash disbursements/charges 235,200 228,000
Balance, June 30, 2020 36,500 144,400

2. Undeposited collections, per records kept by the accountant, on May 31, and June 30, 2020
amounted to 3,400 and 6,000, respectively.

3. Deposit column of the bank statement showed the following which could not be traced to the
books:
a. Proceeds of a bank loan credited on June 16, 2020 at discounted amount of 88,000 at
12% for one year.
b. Proceeds from sale of shares of stock amounting to 10,000 (cost 8,000) transmitted
directly by the stock broker to the bank and credited on June 29, 2020.
c. Check of 500 received from a salesman, who liquidated his advance, and deposited on
June 2, 2020 was subsequently charged (under deposit column) by the bank on June 28,
2020 due to “no arrangements”.
 4. Checks outstanding, per records kept by the accountant, as at May 31, and June 30, 2020 were
as follows:
May 31, 2020 June 30, 2020
No. 842 2,500 No. 915 5,500
843 4,200 916 2,500
844 2,000 917 3,000
848 500 918 1,000
Total 9,200 Total 12,000

5. Included among the charges in the June 2020 bank statement were the following:
a. Check of Atypical Company for P1,600, which was charged in error by the bank.
b. Check No. 830 for 1,000 dated May 27, 2020 and paid to “Cash”. This was ascertained to
have been properly recorded in May 2020.
c. Check No. 844 for 200, dated May 31, 2020 and issued to a trade creditor. It was verified
that this disbursement was recorded erroneously in the books at 2,000.
d. Check no. 870 for 4,200, dated June 10, 2020. This was issued to replace Check No. 843,
which was accidentally destroyed by the payee, a trade creditor. While a stop payment
order was issued to the bank on June 5, 2020, when advice was received from payee, no
entry has been made in the books to record cancellation of No. 843.

6. Footing of the June 2020 cash receipts of 202,500 and cash disbursements of 235,200 should be
203,500 and 234,200 respectively.

7. It was found from the confirmation replies received that the balance of 1,000 due from a
customer as at June 30, 2020 was paid on June 18, 2020. However, this could not be traced to
the cash receipts book and deposits made in June 2020.

Requirement:
1. Prepare a reconciliation of the book and bank balances to corrected balances as at May 31, 2020
and a proof of cash receipts and disbursements for the month of June 2020.

2. Prepare adjusting journal entries.

Problem no. 3 You were engaged by Dalere Corporation for the audit of the company’s financial
statements for the year ended December 31, 2020. The company is engaged in the wholesale business
and makes all sales at 25% over cost.
The following were gathered from the client’s accounting records:
SALES PURCHASES
Date Reference Amount Date Reference Amount
Balance forwarded 7,800,000.00 Balance forwarded 4,200,000.00
12/27 SI No. 865 60,000.00 12/28 RR #2059 36,000.00
12/28 SI No. 866 225,000.00 12/30 RR # 2061 105,000.00
12/28 SI No. 867 15,000.00 12/31 RR # 2062 63,000.00
12/31 SI No. 869 69,000.00 12/31 RR # 2063 96,000.00
12/31 SI No. 870 102,000.00 12/31 Closing entry (4,500,000.00)
12/31 SI No. 871 24,000.00 _____0_______
12/31 Closing Entry (8,295,000.00)
______0_____

Note: SI= Sales Invoice RR=Receiving Report

Accounts receivable 750,000

Inventory 900,000
Accounts payable 600,000
You observed the physical inventory of goods in the warehouse on December 31 and were satisfied that
it was properly taken.

When performing sales and purchases cut-off tests, you found that at December 31, the last Receiving
Report which had been used was No. 2063 and that no shipments had been made on any Sales Invoices
whose number is larger than No. 868. You also obtained the following additional information:
1. Included in the warehouse physical inventory at December 31 were goods which had been
purchased and received on Receiving Report No. 2060 but for which the invoice was not
received until the following year. Cost was 27,000.00
2. On the evening of December 31, there were two trucks in the company siding:
 Truck No. XXX 888 was unloaded on January 2 of the following year and received on
Receiving Report No. 2063. The freight was paid by the vendor.
 Truck No. MGM 357 was loaded and sealed on December 31 but leave the company
premises on January 2. This order was sold for 150,000.00 per Sales Invoice No. 868.
3. Temporarily stranded at December 31 at the railroad siding were two delivery trucks enroute to
ABC Trading Corporation. ABC received the goods, which were sold on Sales Invoice No. 866
terms FOB Destination, the next day.
4. Enroute to the client on December 31 was a truckload of goods, which was received on
Receiving Report No. 2064. The goods were shipped FOB Destination and freight of 2,000.00
was paid by the client. However, the freight was deducted from the purchase price of
800,000.00.
Based on the above and the result of your audit, determine the following:
1. Sales for the year ended December 31, 2020
2. Purchases for the year ended December 31, 2020
3. Accounts receivable as of December 31, 2020
4. Inventory as of December 31, 2020
 5. Accounts payable as of December 31, 2020

Problem No. 4 Ramoran Company engaged you to examine its books and records for the fiscal year
ended June 30 2020. The company’s accountant has furnished you not only the copy of trial balance as
of June 30, 2020 but also the copy of company’s Statement of Financial Position and Statement of
Comprehensive Income as at said date. The following data appears in the cost of goods sold section of
the Statement of Comprehensive Income:

Inventory, July 1, 2019 500,000

Add: Purchases 3,600,000
Total goods available for sale 4,100,000
Less inventory, June 30, 2020 700,000
Cost of goods sold 3,400,000

The beginning and ending inventories of the year were ascertained thru physical count except that no
reconciling items were considered. Even though the books have been closed, your working paper trial
balance show all account with activity during the year. All purchases are FOB shipping point. The
company is on a periodic inventory basis.

In your examination of inventory cut-offs at the beginning and end of the year, you took note of the
following:

July 1, 2019
a. June invoices totaling to 130,000.00 were entered in the voucher register in June. The
corresponding goods not received until July.
b. Invoices totaling 54,000.00 were entered in the voucher register in July but the goods received
during June.

June 30, 2020

c. Invoices with an aggregate value of 186,000.00 were entered in the voucher register in July, and
the goods were received in July. The invoices, however, were dated June.
d. June invoices totaling 74,000.00 were entered in the voucher register in June but the goods
were not received until July.
e. Invoices totaling 108,000 (the corresponding goods for which were received in June) were
entered the voucher register, July.
f. Sales on account in the total amount of 176,000 were made on June 30 and the goods delivered
at that time. Book entries relating to the sales were made in June.

Based on the above and the result of your cut-off tests, answer the following:
1. How much is the adjusted inventory as of July 1, 2019?
2. How much is the adjusted Purchases for the fiscal year ended June 30, 2020?
3. How much is the adjusted inventory as of June 30, 2020?
4. How much is the adjusted Cost of Goods Sold for the fiscal year ended June 30, 2020?
5. The necessary compound adjusting journal entry as of June 30, 2020 would include a net
adjustment to Retained Earnings of?
Problem no. 5
The Lou Co. sells direct to retail customers and also to wholesalers. Accounts receivable and an
allowance for bad debts are maintained separately for each division. On January 1, 2020 the balance of
retail accounts receivable was P 209,000 while the bad debts with respect to retail customers was a
credit of P7,600.

The following summary pertains only to retail sales since 2017:

Credit Sales Bad debts written off Bad debts recoveries
2017 1,110,000 26,000 2,150
2018 1,225,000 29,500 3,750
2019 1,465,000 30,000 3,600
2020 1,500,000 31,000 4,200

Bad debts are provided for as percentage of credit sales. The accountant calculates the percentage
annually by using the experience of the three years prior to the current year. The formula is bad debts
written off less recoveries expressed as percentage of the credit sales for the same period. A cash
receipt in 2020 from credit sales to retail customers was P1,380,200.

Based on the above and the result of your audit, answer the following questions:
(1) The percentage to be used to compute the allowance for bad debts on December 31, 2020.
(2) For 2020, the provision for bad debts with respect to credit sales.
(3) The ledger balance of the accounts receivable after necessary adjustments on December 31,
2020.
(4) The ledger balance of the allowance for bad debts after necessary adjustments on December 31,
2020.

Problem no. 6
In connection with your examination of the financial statements of the Maraat Corporation for the year
2020, the company presented to you the Property, Plant and Equipment section of its balance sheet as
of December 31, 2019, which consists of the following:
Land P 400,000
Buildings 3,200,000
Leasehold improvements 2,000,000
Machinery and equipment 2,800,000

The following transactions occurred during 2020:

1. Land site number 5 was acquired for P4,000,000. Additionally, to acquire the land, Maraat
Corporation paid a P240,000 commission to a real estate agent. Costs of P60,000 were incurred
to clear the land. During the course of clearing the land, timber and gravel were recovered and
sold for P20,000.
2. The second tract of land (site number 6) with a building was acquired for P1,200,000. The
closing statement indicated that the land value was P800,000 and the building value was
P400,000. Shortly after acquisition, the building was demolished at a cost of P120,000. The new
building was constructed for P600,000 plus the following costs:
Excavation fees P 44,000
Architectural design fees 32,000
 Building permit fees 4,000
Imputed interest on funds used during construction 24,000
The building was completed and occupied on September 1, 2020.

3. The third tract of land (site number 7) was acquired for P2,400,000 and was put on the market
for resale.
4. Extensive work was done to a building occupied by Maraat Corporation under a lease
agreement. The total cost of the work was P500,000, which consisted of the following:
Particular Amount Useful life
Painting of ceilings P 40,000 one year
Electrical work 140,000 Ten years
Construction of extension to current
working area 320,000 Thirty years

The lessor paid one-half of the costs incurred in connection with the extension to the current
working area.

5. A group of new machines was purchased under a royalty agreement which provides for
payment of royalties based on units of production for the machines. The invoice price of the
machines was P300,000, freight costs were P8,000, unloading charges were P6,000, and royalty
payments for 2020 were P52,000.
Question:
1. Land at year-end is
2. Buildings at year-end is
3. Leasehold improvement at year-end is
4. Machinery and equipment at year-end is

Problem no. 7
Information pertaining to Highland Corporation’s property, plant and equipment for 2020 is presented
below:
Account balances at January 1, 2020:
Debit Credit
Land P 150,000
Buildings 1,200,000
Accumulated depreciation – Buildings P263,100
Machinery and equipment 900,000
Accumulated depreciation – Machinery and equipment 250,000
Automotive equipment 115,000
Accumulated depreciation – Automotive equipment 84,600

Depreciation data:
Depreciation method Useful life
Buildings 150% declining-balance 25 years
Machinery and equipment Straight-line 10 years
Automotive equipment Sum-of-the-years’-digits 4 years
Leasehold improvements Straight-line -
The salvage values of the depreciable assets are immaterial. Depreciation is computed to the nearest
month.

Transactions during 2020 and other information are as follows:

a. On January 2, 2020, Highland purchased a new car for P20,000 cash and trade-in of a 2- year-old car
with a cost of P18,000 and book value of P5,400. The new car has a cash price of P24,000; the market
value of the trade-in is not known.
b. On April 1, 2020, a machine purchased for P23,000 on April 1, 2015, was destroyed by fire, Highland
recovered P15,500 from its insurance company.
c. On May 1, 2020, costs of P168,000 were incurred to improve leased office premises. The leasehold
improvements have a useful life of 8 years. The related lease terminates on December 31, 2026.
d. On July 1, 2020, machinery and equipment were purchased at a total invoice cost of P280,000;
additional costs of P5,000 for freight and P25,000 for installation were incurred.
e. Highland determined that the automotive equipment comprising the P115,000 balance at January 1,
2020, would have been depreciated at a total amount of P18,000 for the year ended December 31,
2020.

Questions:
Based on the information above, answer the following questions:
1. The adjusted balance of Machinery and Equipment (at cost) at December 31, 2020 is:
2. The adjusted balance of Automotive Equipment (at cost) at December 31, 2020 is
3. The adjusted balance of Accumulated Depreciation of Building at December 31, 2020 is:
4. The adjusted balance of Accumulated Depreciation of Machinery and Equipment at December 31,
2020 is:
5. The adjusted balance of Accumulated Depreciation of Automotive Equipment at December 31, 2020
is: 6. The adjusted balance of Accumulated Depreciation of Leasehold Improvements at December 31,
2020 is:
7. The total adjusted balance of Accumulated Depreciation of Property and Equipment at December 31,
2020 is:
8. The total gain(loss) from disposal of assets at December 31, 2020 is:
9. The adjusted book value of Building at December 31, 2020 is:
10. The adjusted book value of Leasehold Improvement at December 31, 2020 is:

Problem no. 8
Information pertaining to Eddie Vic Corporation’s property, plant and equipment for 2020 is presented
below:
Account balances at January 1, 2020
Debit Credit
Land P 1,500,000
Building 12,000,000
Accum. depreciation-building P 2,631,000
Machinery and equipment 9,000,000
Accum. depreciation-Mach. and Eqpt 2,500,000
Automotive Equipment 1,150,000
Accum. depreciation-Automotive Eqpt 846,000

Depreciation method and useful life

 Building – 150% declining balance; 25 years
Machinery and equipment – Straight-line; 10 years
Automotive equipment – Sum-of-the-years’-digits; 4 years
The salvage value of the depreciable assets is immaterial
Depreciation is computed to the nearest month.

Transactions during 2020 and other information:

On January 2, 2020, Eddie Vic purchased a new car for P350,000 cash and trade-in of a 2- year old car
with a cost of P490,000 and a book value of P147,000. The new car has a cash price of P520,000; the
market value of the trade-in is not known.

On April 1, 2020, a machine purchased for P230,000 on April 1, 2015, was destroyed by fire. Eddie Vic
recovered P155,000 from its insurance company.

On July 1, 2020, machinery and equipment were purchased at a total invoice cost of P2,800,000;
additional costs of P50,000 for freight and P250,000 for installation were incurred.

Eddie Vic determined that the automotive equipment comprising the P1,150,000 balance at January 1,
2020, would have been depreciated at a total amount of P180,000 for the year ended December 31,
2005.

Questions
1. Depreciation expense for building at December 31, 2020 is
2. Depreciation expense for machinery and equipment at December 31, 2020 is:
3. Depreciation expense for Automobile equipment at December 31, 2020 is:
4. Total depreciation expense for 2020 is:
5. Total gain on asset disposal for 2020 is:
6. Total accumulated depreciation of building at December 31, 2020 is:
7. Total book value of property, plant, and equipment at December 31, 2020 is:
8. The property, plant and equipment at December 31, 2020 is:
9. The total cost of property, plant and equipment at December 31, 2020 is: a
10. Total accumulated depreciation of property, plant, and equipment at December 31, 2020 is:

Problem no. 9 A herd of 15, 4-year old animals valued at 3,750,000 was held in Marigold Source farms at
January 1, 2020.

The following transactions took place during the year:

On July 1, 2020:
One animal aged 4.5 years was purchased for 260,000
One animal was born

No animal was sold or disposed of.

The per unit fair values less costs to sell were as follows:
4-year old animal on January 1, 2020 250,000
 Newborn animal on July 1, 2020 200,000
4.5-year old animal on July 1, 2020 260,000
Newborn animal on December 31, 2020 205,000
0.5-year old animal on December 31, 2020 220,000
4-year old animal on December 31, 2020 258,000
4.5-year old animal on December 31, 2020 270,000
5-year old animal on December 31, 2020 280,000

Required:
1. The change in fair value less costs to sell showing the portion attributable to physical change
2. The change in fair value less costs to sell showing the portion attributable to price change
3. The carrying cost of the herd as at December 31, 2020

Problem no. 10 ABC Co. uses a calendar year period and reports only on an annual basis. If ABC Co.
changes its business model on May 1, 2018, when is the reclassification date?

END OF EXAM

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