AUDITING PROBLEMS CPA Review

PROBLEM NO. 1 – TOY COMPANY

1. A Acquisition cost (P8,297,000 – P297,000 = P8,000,000 x75%) P6,000,000

Reconditioning cost 342,000
Salvaged materials – garage (66,000)
Construction of warehouse 1,013,000
Total cost - Buildings P7,289,000

2. B Land - acquisition cost (P8,000,000 x 25%) P2,000,000

3. B Machinery (P310,000 + P610,000) P920,000

4. C Share premium (P640,000 – P40,000) + (P1,110,000 – P1,000,000)P710,000

5. A Patent (P640,000 – P310,000) P330,000

Franchise 500,000
Total intangibles P830,000

PROBLEM NO. 2 – LAFAYETTE CORPORATION

Computation of Estimated Loss on Returns on Sales Warranties

Subsequent to June 30, 2012
Percentage of Total
Percentage Estimated Estimated
of Total Returns Sub- Returns Sub-
Estimated Estimated sequent to sequent to
Month Sales Returns Returns 6/30/12 6/30/12
January P4,200,000 7% P294,000 10% P29,400
February 4,700,000 7 329,000 20 65,800
March 3,900,000 7 273,000 30 81,900
April 3,250,000 7 227,500 50 113,750
May 2,400,000 10 240,000 70 168,000
June 1,900,000 10 190,000 100 190,000
P1,553,500 P648,850

Total estimated returns............... P648,850 Required liability balance....... P421,753

Loss percentage on returns......... 65%* Less balance, 6/30/12............ 120,400
Total estimated loss on returns. . . P421,753 Required adjustment to
liability account P301,353

*Estimated loss on component replacement (in percentage of sales price):

Cost of unit replacement 70%
Add freight charges on return and replacement 5
75%
Deduct salvage value of components returned 10
Net loss on components returned 65%

Adjusting Entry

Warranty Expense 301,353

Estimated Liability for Product Warranty 301,353

1. D 2. B 3. A 4. B 5. B

Page 1 of 13 Pages
PROBLEM NO. 3 – MALOX SPECIALTY COMPANY

FG WIP RM FS
Down tube shifters at NRV P266,000
Bar end shifters at cost 182,000
Head tube shifters at cost 195,000
Work-in-process at NRV P108,700
Derailleurs at NRV P110,0001
Remaining items at NRV 127,400
Supplies at cost P64,8002
Totals P643,000 P108,700 P237,400 P64,800
1
P264,000 x ½ = P132,000; P132,000/1.2 = P110,000
2
P69,000 – P4,200 = P64,800
1. B 2. C 3. D 4. A 5. C

PROBLEM NO. 4 – GATAS COMPANY

1. C Cows (15,000 x P4,000) P60,000,000

Heifers (1,000 x P3,000) 3,000,000
Fair value, Nov. 1, 2010 P63,000,000
2. A Cows (15,000 x P5,000) P 75,000,000
Heifers (1,000 x P4,500) 4,500,000
Heifers (7,500 x P3,600) 27,000,000
Fair value, Oct. 31, 2011 P106,500,000
3. C Increase in fair value due to price change:
Cows 15,000 x P(4,500-4,000) P7,500,000
Heifers 1,000 x P(3,200-3,000) 200,000
Heifers 7,500 x P(3,200-3,000) 1,500,000
Total P9,200,000
4. B Increase in fair value due to physical change:
Cows 15,000 x P(5,000-4,500) P7,500,000
Heifers 1,000 x P(4,500-3,200) 1,300,000
Heifers 7,500 x P(3,600-3,200) 3,000,000
Total P11,800,000
5. A Fair value of cattle in Central Visayas:
Cows (6,000 x P5,000) P30,000,000
Heifers (2,000 x P4,500) 9,000,000
Total P39,000,000

PROBLEM NO. 5 – MINA MINING CO.

Depletable/Depreciable CostEstimated ReservesDepletion/Depreciation

Mineral propertyP 26,100,0001 120,000 P217.50
Building 1,080,000 120,000 9.00
Machinery (1/2) 900,000 120,000 7.50
Machinery (1/2) 900,000 120,000 15.00 2
1
P27,000,000 – P900,000
2
P900,000/120,000) x 2

1. D Year 1
Depletion Depreciation
Mineral property (P217.50 x 6,000) P1,305,000
Building (P9 x 6,000) P 54,000
Machinery (1/2) (P7.50 x 6,000) 45,000
Machinery (1/2) (P15 x 6,000) 90,000
P1,305,000
P189,000

2. C Year 5

Page 2 of 13 Pages
 Depletion Depreciation
Mineral property (P217.50 x 12,000) P2,610,000
Building (P9 x 12,000) P108,000
Machinery (1/2) (P7.50 x 12,000) 90,000
Machinery (1/2) (P15 x 12,000) 180,000
P2,610,000
P378,000

3. D Year 6
Depletion Depreciation
Mineral property (P217.50 x 12,000) P2,610,000
Building (P9 x 12,000) P108,000
Machinery (1/2) (P7.50 x 12,000) 90,000
Machinery (1/2) (P15 x 6,000) 90,000
P2,610,000
P288,000

4. A Year 11
Depletion Depreciation
Mineral property (P217.50 x 6,000) P1,305,000
Building (P9 x 6,000) P54,000
Machinery (1/2) (P7.50 x 6,000) 45,000
Machinery (1/2) --
P1,305,000
P99,000

5. A Year 1
Depletion Depreciation
Mineral property (P217.50 x 5,000) P1,087,500
Building (P9 x 5,000) P 45,000
Machinery (1/2) (P7.50 x 5,000) 37,500
Machinery (1/2) (P15 x 5,000) 75,000
P1,087,500
P157,500

PROBLEM NO. 6 – DEBBY CORP.

1. B Land (appraised value) P8,700,000

2. A Total purchase price P12,000,000

Less: Land appraisal 8,700,000
Balance of purchase price to be allocated P 3,300,000
Appraisal Value Ratios Allocated Values
Building P3,150,000 315/450 = 0.70 x P3,300,000 P2,310,000
Machinery 1,350,000 135/450 = 0.30 x P3,300,000 990,000
P4,500,000 P3,300,000

Building (allocated value) P2,310,000

Renovations
3,000,000
Capitalized interest (P3,000,000 x 12%) 360,000
Total cost of building P5,670,000

3. D Machinery (allocated value) P990,000

4. C 2012 Depreciation – Building (P5,670,000 x 10%* x ½) P283,500

* 150% x 1/15

5. B 2012 Depreciation – Machinery (P990,000 x 40%* x ½) P198,000

* 200% x 1/5

PROBLEM NO. 7 – FISHING CORPORATION

1. C Sales price of Salmon ordinary shares (P70 x 1,200) P84,000

Page 3 of 13 Pages
 Acquisition cost (P660,000 x 1,200/13,200) 60,000
Gain on sale of Salmon ordinary shares P24,000
2. D

3. C Investment in equity securities 72,000

Dividend income (P1.20 x 60,000 shares) 72,000
4. B Unrealized loss (P3,000,000 – P2,808,000) P192,000

Investment Quantity Cost Fair Value

Salmon Company 12,000 shares P 600,000 P 888,000 1
Tamban, Inc. 60,000 shares 2,400,000 1,920,000 2
Totals P3,000,000 P2,808,000
1
P74 x 12,000 shares
2
P32 x 60,000 shares

5. A
Cost Net Realizable Value Lower
Aluminum siding P 210,000 P 168,000 P 168,000
Cedar shake siding 258,000 254,400 254,400
Louvered glass doors 336,000 504,900 336,000
Thermal windows 420,000 420,000 420,000
P1,224,000 P1,347,300 P1,178,400

PROBLEM NO. 8 – GARLA HOME IPROVEMENTS/MANGO BANGGO

1. B Allowance to reduce inventory to NRV, May 31, 2012

(P1,224,000 – P1,178,400) P45,600

2. A Allowance balance prior to adjustment P82,500

Required allowance balance 45,600
Gain to be recorded P36,900

3. B Gain from change in fair value of biological asset P45,000

4. A Agricultural produce, at fair value P90,000

5. A Gain from change in fair value – biological asset P 45,000

Gain from change in fair value – agricultural produce 90,000
Gross profit on sold mangoes 15,000
Total effect on income P150,000

PROBLEM NO. 9

1.
Cost of trademark P300,000
Less: Accumulated amortization, 20X4 – 20X6 (P300,000/10 x 3 yrs.) 90,000
Carrying value, December 31, 20X6 P210,000
Remaining useful life, 20X7 – 20X9 3 years
Amortization for 20X7 P 70,000
Answer: B

2.
Cost P300,000
Less: Accumulated amortization, 20X4 – 20X7 (P90,000 + P70,000) 160,000
Carrying value, December 31, 20X7 P140,000
Recoverable value 50,000
Impairment loss P 90,000
Answer: A

3.
Probability-weighted expected cash flows:
P400,000 x 5% P 20,000
P200,000 x 20% 40,000

Page 4 of 13 Pages
 P80,000 x 50% 40,000
P20,000 x 25% 5,000
Total P105,000
Add: 6% risk adjustment 6,300
Total P111,300
Present value factor (at 5% for 6 months) 0.95238
Present value of warranties, December 31, 20X2 P106,000
Answer: D

4. It is probable that SME B will successfully defend the court case. Therefore, SME B has a
possible obligation and hence a contingent liability. No amounts are recognized for
contingent liabilities. However, disclosure is necessary.
Answer: D

5.
Cost of investment in entity DD (P28,000 x 101%) P28,280
Fair value less cost to sell (P15,000 x 95%) 14,250
Impairment loss P14,030
Answer: B

6.
Impairment loss P(14,030)
Cash dividends (P2,000 + P250) 2,250
Net P(11,780)
Answer: A

7.
Cost of investment in entity DD (P28,000 x 101%) P28,280
Less: Share of entity DD’s loss (P20,000 x 25%) 5,000
Carrying value, December 31, 20X1 P23,280
Fair value less cost to sell (P15,000 x 95%) 14,250
Impairment loss P 9,030
Answer: C

8.
Share of income, entities BB and CC (P1,250 + P4,500) P5,750
Share of loss, entity DD (5,000)
Impairment loss (9,030)
Net P(8,280)
Answer: A

9.
Cost Fair Value
BB P10,000 P13,000
CC 15,000 29,000
DD 28,000 15,000
P53,000 P57,000

Increase in fair value (P57,000 – P53,000) P4,000

Answer: A

10.
Cost model:
Acquisition cost, including transaction cost (P53,000 + P530) P53,530
Less: Impairment loss 14,030
Carrying value, December 31, 20X1 P39,500

Equity method:
Acquisition cost, including transaction cost P53,530
Cash dividends (P250 + P2,000) (2,250)
Share of income, entities BB and CC (P1,250 + P4,500) 5,750
Share of loss, entity DD (5,000)

Page 5 of 13 Pages
 Impairment loss (9,030)
Carrying value, December 31, 20X1 P43,000

Fair value model:

BB P13,000
CC 29,000
DD 15,000
Carrying value, December 31, 20X1 P57,000
Answer: C

PROBLEM NO. 10 – HIATT TEXTILE CORPORATION

ADJUSTING JOURNAL ENTRIES

December 31, 2012

1. Prepaid insurance (P31,000 x 3/5) 18,600

Insurance expense (P31,000 x 1/5) 6,200
Retained earnings (P31,000 x 4/5) 24,800

2. Allowance for bad debts 25,000

Bad debt expense 25,000
(2% - 1 ½% = ½% x P5,000,000)

3. Retained earnings 75,500

Cost of goods sold (P99,000 – P75,500) 23,500
Inventory 99,000

4. Equipment 150,000
Depreciation expense
(P125,000 x 1/10) 12,500
Retained earnings (P150,000 – P12,500) 137,500
Accumulated depreciation – Equipment 25,000
(P125,000 x 2/10)

2012 2011
Reported net income P1,100,000 P975,000
Prepaid insurance charged to expense (6,200) 24,800
Decrease in bad debt expense rate 25,000
Ending inventory – overstated:
Cost of machine charged to expense 150,000
Unrecorded depreciation (12,500) (12,500)
Corrected net income P1,082,800 P1,061,800

1. A 2. B 3. C 4. D 5. C

PROBLEM NO. 11 – BENEFICIO CORPORATION

1.
Sales P 898,000
Gain on sale of trading securities 12,000
Cost of goods sold (539,000)
Selling and general expenses (287,000)
Income taxes (35,000)
Unrealized loss on trading securities (4,000)
Loss on sale of equipment (1,000)
Net income P 44,000
Answer: D

Page 6 of 13 Pages
2.
Unappropriated retained earnings, Dec. 31, 2011 P112,000
Net income (see no. 1) 44,000
Decrease in appropriation for treasury stock 5,000
Increase in appropriation for possible building expansion (15,000)
Stock dividend declared (100,000 issued – 1,000 treasury =
99,000 outstanding x 30% x P2) (59,400)
Remaining unappropriated retained earnings 86,600
Unappropriated retained earnings, Dec. 31, 2012, including
net income for 2012* 78,600
Assumed cash dividends declared and paid during 2011 P 8,000
Answer: A

3.
Increase in common stock (P359,400 – P200,000) P159,400
Less: Stock dividend (P2 x 99,000 x 30%) 59,400
Par value of additional common stock issued in 2012 P100,000

Increase in share premium (P116,000 – P5,000) P111,000

Less: APIC from resale of treasury stock at more than cost 1,000
APIC from stock issued in 2012 P110,000
Proceeds from issuance of ordinary shares in 2012
(P100,000 + P110,000) P210,000
Answer: C

4.
Net decrease in investment in trading securities P 30,000
Less: Unrealized loss on trading securities 4,000
Carrying value of trading securities sold 26,000
Add: Gain on sale of trading securities 12,000
Proceeds from sale of trading securities P38,000
Answer: B

5.
Proceeds from sale of equipment (see information “b”) P 7,000
Add: Loss on sale of equipment 1,000
Book value of equipment sold 8,000
Cost of equipment sold (see information “b”) 15,000
Accumulated depreciation of equipment sold P 7,000
Answer: A

6.
Net increase in equipment (P305,000 – P170,000) P135,000
Sale of equipment (see information “b”) 15,000
Purchase of equipment 150,000*
Less:Note payable issued 50,000
Cash paid P100,000
Answer: D

* Equipment
Bal. 12/31/10 170,000 15,000 Sale
Purchase
(SQUEEZE) 150,000
Bal. 12/31/11 305,000

7.
Cost of treasury stock sold (P10,000 – P5,000) P5,000
APIC from sale of treasury stock 1,000
Proceeds from sale of treasury stock P6,000

Page 7 of 13 Pages
 Answer: A

8. CASH FLOWS FROM OPERATING ACTIVITIES

Net income P 44,000

Depreciation expense (P3,750 + P25,250) 29,000
Loss on sale of equipment 1,000
Unrealized loss on trading securities 4,000
Amortization of bond discount (P9,000 – P8,500) 500
Gain on sale of trading securities (12,000)
Proceeds from sale of trading securities (see no. 4) 38,000*
Decrease in deferred tax liability (6,300)
Increase in net accounts receivable (45,000)
Decrease in inventories 9,000
Increase in prepaid insurance (500)
Decrease in accounts payable (5,000)
Increase in accrued expenses payable 9,300
Increase in income taxes payable 25,000
Decrease in unearned revenue (8,000)
Net cash provided by operating activities P 83,000
Answer: C

9. CASH FLOWS FROM INVESTING ACTIVITIES

Purchase of equipment (see no. 6) P(100,000)

Overhaul of equipment (see information “h”) (6,000)
Sale of equipment (see information “b”) 7,000
Net cash used in investing activities P(99,000)
Answer: B

10. CASH FLOWS FROM FINANCING ACTIVITIES

Payment of cash dividends (see no. 2) P (8,000)

Retirement of notes payable (P60,000 – P40,000) (20,000)
Sale of treasury stock (see no. 7) 6,000
Issuance of common stock (see no. 3) 210,000
Net cash provided by financing activities P188,000
Answer: A

PROBLEM NO. 12 – CORNETTE MANUFACTURING COMPANY

1.
Cash price P171,000
Freight charges 1,326
Installation cost 5,274
Total cost of machine 3 P177,600
Answer: B
2.
Cash price P45,600
Repainting cost 1,965
New tires 1,035
Total cost of second-hand vehicle acquired P48,600
Answer: D

3. Fair value of the machine given up P34,500

Answer: A

Page 8 of 13 Pages
4.
Cost of machine 1 P129,000
Accumulated depreciation, Oct. 7, 2008 – Aug. 28, 2012
(P129,000 – P7,500 = P121,500/5 x 3 11/12) (95,175)
Carrying value 33,825
Fair value 34,500
Gain on exchange P 675
Answer: D
5.
Depreciation expense for 2012:
Buildings ([P557,160 – P15,000]/20 years) P 27,108
Machinery:
1 ([P129,000 – P7,500]/5 X 8/12) P16,200
2 ([P144,000 – P9,000]/6) 22,500
3 ([P177,600 – P12,000]/5) 33,120 71,820
Vehicles:
Old ([P140,400 – P58,968] x 40%) P32,573
New (P48,600 x 40% x 6/12) 9,720 42,293
Office furniture
([P34,500 – P1,620]/8 x 4/12) 1,370
Total P142,591
Answer: D
6.
Proceeds from sale P19,800
Carrying value, Jan. 1 ([P81,432 – P32,573] x ½) P24,430
Depreciation, Jan. 1 – May 25 (P24,430 x 40% x 5/12) (4,072) (20,358)
Loss on sale P (558)
Answer: A

7.
Depreciation expense for 2013:
Buildings P 27,108
Machinery:
2 P22,500
3 33,120 55,620
Vehicles:
Old – sold on May 25, 2013 P4,072
Old – still on hand on 12/31/13 (P24,430 x 40%) 9,772 9,772
New – ([P48,600 – P9,720] x 40%) 15,552 29,396
Office furniture (P32,880/8) 4,110
Land improvements (P16,500/10 x 6/12) 825
Total P117,059
Answer: B

8.
Total cost of machine 2 (P144,000 + P36,000 cost of overhaul) P180,000
Accumulated depreciation, Feb. 4, 2008 – Jan. 5, 2014:
([P144,000 – P9,000]/6 x 4 11/12) 110,625
Carrying value 69,375
Revised residual value (15,000)
Remaining depreciable cost P 54,375

Revised remaining life (6-4 11/12 +1) 25 months

Revised annual depreciation (P54,375/25 x 12) P26,100
Answer: C

9.
Page 9 of 13 Pages
 Cash paid P69,900
Trade in value of old vehicle 11,100
Total cost of new vehicle P81,000
Answer: A

10.
Depreciation expense for 2014:
Buildings P 27,108
Machinery:
2 P26,100
3 33,120 59,220
Vehicles:
Old – traded-in on June 20
([P24,430 – P9,772] x 40% X 6/12) P 2,932
Acquired June 20 through trade-in
(P81,000 x 40% X 6/12) 16,200
Acquired June 22, 2011, scrapped
Oct. 4, 2013 ([P38,880 – P15,552] x 40% X 9/12) 6,998 26,130
Office furniture 4,110
Land improvements (P16,500/10) 1,650
Total P118,218
Answer: C

PROBLEM NO. 13 – CHELSEE COMPANY

1.
Outstanding checks, December 31 (P49,400 – P1,400 – P8,000) P40,000
Answer: D

Balance December Balance

Nov. 30 Receipts Disb. Dec. 31
Per bank statement P194,000 P1,487,000 P1,325,000 P356,000
Outstanding checks:
Nov. 30 (23,000) (23,000)
Dec. 31 40,000 (40,000)
Deposits in transit:
Nov. 30 11,000 (11,000)
Dec. 31 24,000 24,000
Interest on note discounted
(P90,000 x 6% 60/360) 900 900
NSF checks (4,000) (4,000)
Bank service charge (300) 300
Cancellation of check no. 1434 1,400 (1,400)
Error in recording check no. 1562
(P7,500 – P750) 6,750 (6,750)
Cancellation of check no. 1584 8,000 (8,000)
Counter check drawn by president (2,000) 2,000
Check of Chelsea charge in
error (3,000) 3,000
Postdated check presented for
payment (100,000) 100,000
Per book balances P182,000 P1,496,900 P1,248,850 P430,050

2. A 3. D 4. C

5.
Book Bank
Unadjusted balances P430,050 P356,000
Outstanding checks (40,000)
Deposits in transit 24,000

Page 10 of 13 Pages
 Interest on note discounted (900)
Bank service charge (300)
Cancellation of check no. 1434 1,400
Error in recording check no. 1562 6,750
Cancellation of check no. 1584 8,000
Counter check (2,000)
Check of Chelsea charged in error 3,000
Postdated check presented for payment (100,000)
Adjusted balance P343,000 P343,000
Answer: A

PROBLEM NO. 14 – SABILA COMPANY

1.
Accounts receivable, Dec. 31, 2012 P 33,000
Add: Collections, 2010 – 2012 567,600
Total 600,600
Less:Accounts receivable, Jan. 1, 2010 16,600
Total credit sales 584,000
Add: Cash sales, 2010 – 2012 74,200
Total sales, 2010 – 2012 P658,200
Answer: A
2.
Sales revenue for 2011 (see no. 5) P206,400
Answer: A

3.
Accounts payable, Dec. 31, 2012 P 11,000
Add: Payments to suppliers 440,000
Total 451,000
Less:Accounts payable, Jan. 1, 2012 5,000
Total purchases, 2010 – 2012 P446,000
Answer: D

4.
Sales (see no. 1) P658,200
Less: Cost of sales
Inventory, Jan. 1, 2010 P 11,600
Add: Purchases (see no. 3) 446,000
Goods available for sale 457,600
Less:Inventory, Dec. 31, 2012 18,800 438,800
Gross profit P219,400
Gross profit ratio (P219,400 / P658,200) 33 1/3%
Answer: A

5.
2010 2011 2012 Total
Cash sales P 17,000 P 26,000 P 31,200 P 74,200
Collections in:
2010 148,800 - - 148,800
2011 15,000 161,800 - 176,800
2012 2,000 16,800 208,800 227,600
A/R, Dec. 31 800 1,800 28,200 30,800
Total sales 183,600 206,400 268,200 658,200
Multiply by gross profit ratio 33 1/3% 33 1/3% 33 1/3% 33 1/3%
Gross profit P 61,200 P 68,800 P 89,400 P219,400
Answer: D

Page 11 of 13 Pages
PROBLEM NO. 15 – MABUHAY COMPANY

1.
Sales proceeds (P69 x 4,000) P276,000
Carrying value (P528,250 x 4/8) 264,125
Gain on sale of Toronto shares P 11,875
Answer: C

2.
Sales proceeds (P62 x 4,000) P248,000
Unrealized gain on share sold (P40,000 x 4/10) 16,000
Total P264,000
Carrying value (P630,000 x 4/10) 252,000
Gain on sale of Bulacan shares P 12,000

Or

Sales proceeds P248,000

Cost of Bulacan shares sold (P590,000 x 4/10) 236,000
Gain on sale of Bulacan shares P 12,000
Answer: A

3.
Yemen Corp. stock (P76.60 x 13,000) P 995,800
Toronto, Inc. stock (P68.50 x 4,000) 274,000
Manila Water bonds 205,550
Pasay Co. stock (P55.25 x 15,000) 828,750
Carrying value (Fair value), December 31, 2012 P2,304,100
Answer: C

4.
Bulacan, Inc. stock (P61 x 6,000) P366,000
Jumbo Unlimited, Inc. stock (P27 x 20,000) 540,000
Carrying value (Fair value), December 31, 2012 P906,000
Answer: C

5.
Balance of trading securities, December 31, 2011 P1,477,500
Cost of 3,000 Yemen shares purchased on March 1 229,500
Carrying value of Toronto stock sold on April 15 (264,125)
Cost of Pasay shares purchased on October 30 832,500
Balance before market adjustment P2,275,375
Market value, December 31, 2012 2,304,100
Unrealized gain – Trading Securities P 28,725

Balance of AFS securities, December 31, 2011 P1,180,000

Carrying value of Bulacan stock sold on May 4 (252,000)
Balance before market adjustment P 928,000
Market value, December 31, 2012 906,000
Decrease in unrealized gain – AFS P (22,000)
Balance of unrealized gain – AFS, 12/31/12 (P100,000 – P16,000) 84,000
Unrealized gain to be reported in equity P 62,000

Or
Cost of Bulacan stock (P590,000 x 6/10) P354,000
Cost of Jumbo Unlimited, Inc. stock 490,000
Total cost P844,000
Market value, December 31, 2012 906,000
Unrealized gain – AFS, December 31, 2012 P 62,000
Answer: A

Page 12 of 13 Pages
PROBLEM NO. 16 – BABOLS COMPANY

SUMMARY INCREASES
COMPUTATIONS (DECREASES) IN INCOME
2010 2011 2012 2010 2011 2012
1. Net income as reported P143,200 P222,800 P207,160
2. Elimination of profit on
consignments:
Billed at 130% of cost 13,000 11,180
Cost (/130%) 10,000 8,600
Profit error 3,000 3,000 2,580 (3,000) 3,000 (2,580)
3. To correct COD sale 12,200 (12,200)
4. Adjustment of warranty expense:
Sales per books 1,880,000 2,020,000 3,590,000
Corrections for Consignments (13,000) 13,000 (11,180)
Correction for COD sale 12,200 (12,200)
Corrected sales 1,867,000 1,867,000 2,045,200 3,566,620
Normal warranty expense
(1/2 of 1%) 9,335 10,226 17,833
Costs charged to expense (1,520) (3,340) (7,700)
Additional expense 7,815 6,886 10,133 (7,815) (6,886) (10,133)
5. Bad debt adjustments:
Normal bad debt expense,
¼ of 1% of sales 4,668 5,113 8,917
Previous write-offs (1,500) (2,640) (7,700)
Additional expenses 3,168 2,473 1,217 (3,168) (2,473) (1,217)
6. Adjustment for commissions (2,800) 1,200 (640)
126,417 229,841 180,390
7. Adjustment for bonus, ½ of 1% of income before
taxes & bonus (632) (1,149) (902)
INCOME BEFORE INCOME TAXES P125,785 P228,692 P179,488
1. A 2. D 3. B 4. A 5. A 6. D 7. A 8. C 9. A 10. A

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