The University of Manila

College of Business Administration and Accountancy

Integrated CPA Review and Refresher Program
AUDITING PROBLEM

On June 30, 2020, SYZ Mining Inc. purchased a copper mine for P14,580,000. The estimated
capacity of the mine was 1,620,000 tons. SYZ Mining expects to extract 15,000 tons of ore a
month with an estimated selling price of P50 per ton. Production started immediately after some
new machines costing P1,800,000 were bought on June 30, 2020. These new machines had an
estimated useful life of 15 years with a scrap value of 10% of cost after the ore estimated had
been extracted from the property, at which time the machines will already be useless.
SYZ’s books show the following expenses for 2020:

Depletion Expense P1,215,000

Depreciation – machinery 120,000

1. Recorded depletion expense was

a. Overstated by P270,000 c. Understated by P270,000 b. Overstated by
P405,000 d. Understated by P405,000

2. Recorded depreciation expense was

a. Understated by P30,000 c. Overstated by P30,000 b. Understated by
P60,000 d. Overstated by P60,000

Minime Co. holds debts securities within a business model whose objective is achieved both by
collecting contractual cash flows and selling the debt securities. The contractual cash flows are
solely payments of principal and interest on specified dates.
On December 31, 2017, the company purchased 5-year, P1,000,000, 7% bonds for P1,086,565.
The bonds were purchased to yield 5% interest.
The following schedule presents the fair value of the bonds at year-end.

Fair Value
December 31, 2018 P1,065,000
December 31, 2019 1,075,000
December 31, 2020 1,056,000
December 31, 2021 1,030,000
December 31, 2022 1,000,000

3. What amount should be reported as investment in bonds in the statement of financial

position of Minime Co. on December 31, 2019?
a. P1,075,000 c. P1,086,565
b. P1,065,000 d. P1,054,438

4. What amount of unrealized gain should be shown as component of other comprehensive

income in the 2019 statement of comprehensive income?
a. P16,455 c. P20,562
b. P26,455 d. P10,000

5. What amount of unrealized loss should be shown as component of other comprehensive

income in the 2020 statement of comprehensive income?
a. P1,222 c. P14,393
b. P19,340 d. P18,500

6. What amount of unrealized loss should be shown as component of other comprehensive

income in the 2021 statement of comprehensive income?
a. P9,792 c. P8,358
b. P10,982 d. 26,500

7. What amount of unrealized gain should be shown in the 2021 statement of changes in
equity?
a. P10,990 c. P25,233
b. P26,455 d. P16,883

Mamisita Corp. had the following selected information in its December 31, 2020 stockholders'
Equity portion of its balance sheet:
10% reference shares, P100 par value, 50,300 shares authorized, 10, 000 P1,000,00
shares issued and outstanding 0

Ordinary shares, P50 par value, 100,000 shares authorized, 50,000 shares 2,500,000
issued, 5,000 Shares reacquired at P75 per share

Share premium on preference shares 250,000

Share premium on ordinary shares 250,000

Accumulated profits 2,450,000

Transactions in 2021 are as follows:

a. On January 2, the company issued 5,000, P1,000 12% bonds payable with detachable
warrants. One warrant is attached to each P1,000 bond. The bonds which pay
semi-annual interest every June 30 and December 31 were issued at total lump sum of
P5,700,000. On the date of issuance, the bonds were quoted at 105 without the
warrants while each warrant can be sold in the market at P25. Five warrants
surrendered together with P60
exercise price entitle holder to acquire one ordinary share. the Warrants can be exercised
2 years from the date of the issuance.
b. On March 1, 4,000 treasury shares were reissued at P70 per share. The remaining treasury
shares were retired and reverted to unissued basis.
c. On April 15, stock rights were issued to ordinary shareholders. Ten stock rights plus P62 por
share entitle the holder to acquire one additional ordinary share.
d. On June 1, 60% of the warrants issued with the bonds were exercised. e. On August 15,
all but 9,000 stock rights were exercised by the ordinary shareholders. f. Adjusted net
income for the year amounted to P1, 250,000.

Based on the information above, answer the following:

8. The entry to recognize the retirement of the treasury shares on March 1 shall involve a
debit to accumulated profits at:
a. P22,500
b. P20,000
c. P2,500
d. None

9. What is the credit to the share premium account as a result of the exercise of the stock
warrants on June 1?
a. P270,000
b. P276,000
c. P226,000
d. P306,000

10. What is the credit to the share premium account as a result of the exercise of the stock
rights on August 15?
a. P48,000
b. P20,000
c. P45,000
d. None

11. What is the total additional paid in capital as of December 31, 2021?
a. P999,000
b. P1,004,000
c. P1,001,500
d. P953,500

12. What is the total stockholders’ equity as of December 31, 2021?

 a. P8,339,000
b. P8,189,000
c. P8,303,000
d. P8,193,000

Hinyanima Inc. 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 P500,000
Add Purchases 3,600,000
Total Goods Available for Sale 4,100,000
Less inventory, June 30, 2020 700,000
Cost of Goods Sold P3,400,000
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 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 P130,000 were entered in the voucher register in June. The
corresponding goods not received until July.
b. Invoices totaling P54,000 were entered in the voucher register in July but the goods
received during June.
June 30, 2020
c. Invoices with an aggregate value of P86,000 were entered in the voucher register in July,
and the goods received in July. The invoices, however, were date June.
d. June invoices totaling P74,000 were entered in the voucher register in June but the goods
were not received until July.
e. Invoices totaling P108,000 (the corresponding goods for which were received in June)
were entered the voucher register, July.
f. Sales on account in the total amount of P176,000 were made on June 30 and the goods
delivered at that time. Book entries relating to the sales were made in June.

13. How much is the adjusted Inventory as of July 1, 2019?

a. P500,000 c. P630,000
 b. P576,000 d. P370,000

14. How much is the adjusted Purchases for the fiscal year ended June 30,
2020? a. P3,814,000 c. P3,894,000
b. P3,600,000 d. P3,840,000

15. How much is the adjusted Inventory as of June 30, 2020?

a. P784,000 c. P892,000
b. P960,000 d. P548,000
16. How much is the adjusted Cost of Goods Sold for the fiscal year ended June 30,
2020? a. P3,316,000 c. P3,451,000
b. P3,510,000 d. P3,564,000

17. The necessary compound adjusting journal entry as of June 30, 2020 would include a
net adjustment to Retained earnings of
a. P130,000 c. P86,000
b. P184,000 d. P76,000

Yupi Corp. has the following data relating to accounts receivable for the year ended December
31, 2020:

Accounts Receivable, January 1, 2020 P480,000 Allowance for doubtful accounts,

January 1, 2020 19,000 Sales during the year, all on account, terms 2/10, 1/15,
n/60 2,400,000 Cash received from customers during the year 2,560,000 Accounts
written off during the year 17,600

An analysis of cash received from customers during the year revealed that P1,411,200 was
received from customers availing the 10-day discount period, P792,000 from customers availing
the 15-day discount period, P4,800 represented recovery of accounts written-off, and the
balance was received from customers paying beyond the discount period.

The allowance for doubtful accounts is adjusted so that it represents certain percentage of the
outstanding accounts receivable at year end. The required percentage at December 31, 2020 is
125% of the rate used on December 31, 2019.

18. The accounts receivable at December 31, 2020 is

a. P307,200 c. P302,400
b. P270,400 d. P265,600

19. The allowance for doubtful accounts at December 31, 2020 is

 a. P15,360 c. P15,120
b. P13,520 d. P13,280

20. The doubtful accounts expense for the year ended December 31, 2020 is
a. P6,880 c. P8,960
b. P8,720 d. P7,120
On January 1, 2020, Takisa Inc purchased a 5-year bonds that has principal amount of
P1,000,000 and pays annually fixed interest rate of 12% per year. Takisa Inc classified the bond
as available for-sale. Current market interest rates for similar 5-year bonds are also 12%
Because the interest rate is fixed, Takisa Inc is exposed to the risk of declines in fair value of the
bond. To eliminate the risk of declines in fair value due to increases in market interest rates,
Takisa Inc enters into a interest rate swap on January 1, 2020 to exchange the fixed interest
payments in receives on the bond for floating interest rate payments. Takisa Inc designated and
documented the swap as hedging instrument of the bond.
On December 31, 2020, market interest rates have increased to 14%.
21. The carrying amount of the investment in bonds on December 31, 2020
is a. P941,700
b. P1,000,000
c. P956,600
d. P931,300

22. The amount to be recognized in 2020 profit or loss due to charge in the value of the
investment is
a. P68,700
b. P43,400
c. P58,300
d. P0

23. The amount to be recognized as derivative asset on December 31, 2020

is a. P0
b. P58,000
c. P60,700
d. P68,700

24. The net amount to be recognized in 2020 profit or loss related to the investment and
hedging activities is
a. P122,500
b. P134,800
c. P120,000
d. P178,300

You were engaged by Meaty Corp. whose main warehouse is in Baguio City, for the audit of its
financial statements for the year ended December 31, 2020. The company is engaged in the
wholesale business and makes all sales at 20% based on sales.

The following is an excerpt from the company’s unadjusted trial balance

Accounts Receivable 520,000

Inventory 630,000
Accounts payable 410,000

SALES
PURCHASES
Date Reference Amount
Date Reference Amount
Balance forwarded P
2,600,000 Balance forwarded P
1,400,000
Dec. 27 SI No. 1020 20,000
Dec. 28 RR No. 1114 12,000
Dec. 28 SI No. 1021 75,000
Dec. 30 RR No. 1116 35,000
Dec. 28 SI No. 1022 5,000
Dec. 31 RR No. 1117 21,000
Dec. 31 SI No. 1023 50,000
Dec. 31 RR No. 1118 32,000
Dec. 31 SI No. 1024 40,000
Dec. 31 Closing entry (1,500,000)
Dec. 31 SI No. 1025 34,000

Dec. 31 SI No. 1026 8,000

Dec. 31 Closing entry (2,832,000)

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 (RR) that had been used (for goods
physically received as of December 31 was No. 1117mand that no shipments had been made
on any sales invoice (SI) beyond no. 1024. You also obtained the following additional
information:
a. Not included in the warehouse physical inventory at December 31 were goods which had
been purchased and received on RR No. 1115 but were physically segregated awaiting the
receipt of the invoice which was not received until the following year. Cost was P20, 000.
b. On the evening of December 31, there were two trucks in the company’s warehouse. Goods
inside the trucks were not included in the physical count as of December 31: ➢ Truck
number APC 321 was unloaded on January 2 of the following year and received on RR no.
1117. The goods were shipped FOB destination.
➢ Truck number ULI341 was loaded and sealed on December 31 but left the company
premises only on January 2. This order was sold per sales invoice no. 1024. The
goods were shipped FOB shipping point.
c. Sales invoice no. 1021 pertains to a shipment which was temporarily stranded at December
31 enroute to a client’s customer. The client’s customer received the goods which were
 shipped FOB Baguio.
d. Enroute to the client on December 31 was a truckload of goods from a supplier in Batangas
were receive on RR No. 1119. The goods were shipped FOB Batangas, and freight of P2, 000
was prepaid by the said supplier. Invoice price, excluding freight amounted to P54, 000

25. What is the correct purchases of the year ended December 31, 2020? a. b.
1,542,000 b. P1,488,000 c. 1, 522,000 d. 1,574,000,

26. What is the correct inventory balance as of December 31, 2014?

a. 737, 000 b. 759, 000 c. 575, 000 d. P739,000

Champy 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 P500,000
Add Purchases 3,600,000
Total Goods Available for Sale 4,100,000
Less inventory, June 30, 2020 700,000
Cost of Goods Sold P3,400,000
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 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
g. June invoices totaling to P130,000 were entered in the voucher register in June. The
corresponding goods not received until July.
h. Invoices totaling P54,000 were entered in the voucher register in July but the goods
received during June.
June 30, 2020
i. Invoices with an aggregate value of P86,000 were entered in the voucher register in July,
and the goods received in July. The invoices, however, were date June.
j. June invoices totaling P74,000 were entered in the voucher register in June but the goods
were not received until July.
k. Invoices totaling P108,000 (the corresponding goods for which were received in June)
 were entered the voucher register, July.
l. Sales on account in the total amount of P176,000 were made on June 30 and the goods
delivered at that time. Book entries relating to the sales were made in June.

27. How much is the adjusted Inventory as of July 1, 2019?

a. P500,000
b. P630,000
c. P576,000
d. P370,000

28. How much is the adjusted Purchases for the fiscal year ended June 30,
2020? a. P3,894,000
b. P3,600,000
c. P3,014,000
d. P3,840,000

29. How much is the adjusted Inventory as of June 30, 2020?

a. P784,000
b. P960,000
c. P892,000
d. P500,000

30. How much is the adjusted Cost of Goods Sold for the fiscal year ended June 30,
2020? a. P3,316,000
b. P3,510,000
c. P3,970,000
d. P3,564,000

31. The necessary compound adjusting journal entry as of June 30, 2020 would include a
net adjustment to Retained earnings of
a. P130,000
b. P76,000
c. P184,000
d. P54,000

On January 1, 2005, Sambroxo Corporation issued a 10 percent convertible bonds with a face
value of P4,000,000 maturing on December 31, 2014. Each P1,000 bond is convertible into
ordinary shares of Sambroxo at a conversion price of P25 per share. Interest is payable half
yearly in cash. At the date of issue, Sambroxo could have issued nonconvertible debt with a ten
year term bearing a coupon interest rate of 11 per cent. On January 1, 2010, the convertible
bond has a fair value of P4,400,000. Sambroxo makes a tender offer to the holders to
repurchase the bonds for P4,400,000. Th holders of the P2,000,000 bonds accepted the offer.
At the date of repurchase, Sambroxo could have issued non-convertible debt with a five-year
term bearing a coupon interest rate of 8 percent. On December 31, 2010, to induce the holders
of the remaining bonds to convert the bonds promptly, Sambroxo reduces the conversion price
to P20 if the bonds are converted before March 1, 2011 (i.e. within 2 months). The market
price of Sambroxo’s ordinary shares on the date the term are amended is P32 per share. Based
on the above and the result of your audit, answer the following: (Round off present value
factors to 4 decimal places)

32. The proceeds from issuance of convertible bonds to be allocated to the equity
component is
a. P235,520 b. P239,120 c. P136,760 d. P0

33. The carrying amount of the bonds on December 31, 2009 is

a. P3,849,120 b. P3,885,940 c. P3,113,180 d. P4,000,000

34. The amount to be recognized in profit or loss as a result of the repurchase of the bonds
on January 1, 2010 is
a. P200,000 b. P203,880 c. P180,400 d. P237,730

35. The repurchase of the bonds on January 1, 2010 decreased equity by

a. P439,540 b. P37,710 c. P76,630 d. P0
36. The amount to be recognized in profit or loss as a result of the amendment of the terms
on December 31, 2010 is
a. P640,000 b. P10,000 c. P64,000 d. P0

You obtained the following information in the current account of Malaya Corporation, during
your examination of its financial statements for the year ended December 31, 2020.
The bank statement on November 30, 2020 showed a balance of P306,000. Among the bank
credit in November was customer’s note for P100,000 collected for the account of the company
which the company recognized in December among its receipts. Included in the bank debits
were cost of checkbooks amounting P1,200 and a P40,000 check which was charged by the
bank in error against Malaya Corporation account. Also, in November you ascertained that there
were deposits in transit amounting to P80,000 and outstanding checks totaling P170,000.
The banks statement for the month of December showed total credit of P416,000 and total
charges of P204,000. The company’s book for December showed total debits of P735,600, total
credit of P407,200 and a balance of P485,600. Bank debit memos for December were; No. 121
for service charges, P1,600 and No. 122 on a customer’s returned check marked “Refer to
drawer” for P24,000.
On December 31, 2020 the company placed with the bank a customer’s promissory note with a
face value of P120,000 for collection. The company treated this note as part of its receipts
although the bank was able to collect on the note only in January 2021.
A check for P3,960 was recorded in the company cash payment books in December as P39,600.

37. How much is the outstanding checks as of December 31, 2020?

a. P191,960 c. P225, 260
b. P361,960 d. P363,160
 38. How much is the undeposited collections as of December 31, 2020?
a. P219,600 c. P229, 360
b. P179,600 d. P363,160

39. How much is the adjusted cash balance as of November 30, 2020?
a. P216,000 c. P176,000
b. P256,000 d. P157,200

40. How much is the adjusted book disbursements for December?

a. P395,960 c. P225,960
b. P431,600 d. P397,160

41. How much is the adjusted bank receipts for December?

a. P635,600 c. P475,600
b. P515,600 d. P435,600

42. How much is the adjusted cash balance as of December 31, 2020?
a. P375,640 c. P220,000
b. P195,640 d. P355, 400

The ABC Corporation was organized on January 15, 2020 and started operation soon thereafter.
The company cashier who acted also as the bookkeeper had kept the accounting records very
haphazardly. The manager suspects him of defalcation and engaged you to audit his account to
find out the extent of the fraud, if there is any. On November 15, when you started the
examination of the accounts, you find the cash on hand to be P25,700. From inquiry at the
bank, it was ascertained that the balance of the Company’s bank deposit in current account on
the same date was P131,640.
Verification revealed that the check issued for P9,260 is not yet paid by the bank. The
corporation sells at 40% above cost.

Your examination of the available records disclosed the following information:

Share capital issued at par for cash P1,600,000

Real estate purchased and paid in full 1,000,000
Mortgage liability secured by real estate 400,000
Furniture & fixtures (gross) bought on which there
is still balance unpaid of P30,000 145,000
Outstanding notes due to bank 160,000
 Total amount owed to creditors on open account 231,420
Total sales 1,615,040 Total amount still due from customers 426,900
Inventory of merchandise on November 15 at cost 469,600 Expenses paid
excluding purchases 303,780

43. Collection from sales

a. P1,615,040
b. P2,041,940
c. P1,153,600
d. P1,188,140

44. Payments for purchases

a. P922,180
b. P1,207,204
c. P1,391,780
d. P1,854,620

45. Total cash disbursements

a. P3,273,400
b. P2,340,960
c. P2,625,984
d. P2,810,560

46. Unadjusted cash balance

a. P1,007,180
b. P537,580
c. P74,740
d. P722,156

47. Cash shortage

a. P0
b. P389,500
c. P859,100
d. P574,076

You are revisiting the audit working paper presented to you by your audit staff in line with his
audit procedures done in auditing Dindin Inc.’s accounts receivable. The following were lifted
from the said working papers:

Audit notes:
A. Dindin Inc.’s accounts receivable subsidiary ledger had the following details:
Customer Invoice Invoice Balance
date amount

Apple Inc. 12/6/14 127,000

10/29/14 84,000 211,000

Banana Co. 12/30/14 42,000

9/27/14 30,000

8/20/14 53,520 125,520

Carrot Inc. 12/30/14 40,000

12/8/14 80,000

10/25/14 63,600 183,600

Dean Co. 11/17/14 138,840

10/9/14 132,000

8/20/14 74,400 345,240

Ergo Corp. 12/10/14 250,000 250,000

Fox Inc. 9/12/14 104,400 104,400

Total 1,219,760
 B. The accounts receivable balance were confirmed with the customers. You have noted the
following exceptions:
Customer Balance Remarks
per reply

Apple Inc. P 197,000 The invoice dated 10/29/14 was erroneously priced at P84 per
unit. The agreed upon price per the customer’s approved
purchase order was at P70.

Banana Co. 83,520 Invoice dated 12/20/14 was for a sale made on the same date.
A significant clause in the sales agreement with Banana is to
install the merchandise sold which the company is yet to
accomplish as of December 31.

Carrot Inc. 143,600 The difference was due to the invoice dated 12/30/14. Goods
have not been received by Carrot Inc. yet as of 12/31/14.
Term of sale is FOB Destination Point.

Dean Co. 326,400 Credit memo for customer returns for damaged goods worth
P18, 840 related to the invoice dated 11/17/14 was recorded
in January of the following year.

Ergo. Corp. 150,000 Invoice dated 12/10 was the sales price of 2,500 units of
merchandise delivered to Ergo on the same date on
consignment basis. As of December 31, per Ergo Corp.’s reply,
1,000units still remained on hand. The consignment
agreement provides Ergo a commission of 20% based on
sales.

Fox Inc. No reply Fox Inc. is under liquidation and the amount receivable from
the company is deemed definitely uncollectible.

C. The balance of the allowance for doubtful accounts at the beginning of the year was at
P52,500. During the year, the company wrote-off P44, 200 receivables and recovered
P24, 800 from the previously written-off accounts. The company’s policy with regard
uncollectible accounts are summarized below:

Age % uncollectible
0-30 days 1%
31-60 days 2%
61-90 days 5%
91-120 days 10%
Over 120 days 50%

48. What is the correct allowance for bad debts as of December 31,
 2014? a. 86,210
b. 86,310
c. 85,910
d. 85,110

49. What is the correct bad debt expense?

a. 157,210
b. 157,510
c. 157,610
d. 156,410

La Teresita Corporation was recognized in 2009. Its accounting records include only one account
for all intangible assets. The following is a summary of the entries that have been recorded and
posted during the years 2009 and 2010:

1/2/09 Acquired a Franchise without definite useful life P252, 000

10/1 Advance payment on lease expiring on October 1, 2009 168, 000

12/31 Net loss for 2009 including incorporation fee, P6, 000, and related 96,
legal fees of organizing the business, P30, 000 (all incurred in 000
2009)

1/2/10 Acquired patent with a useful life of 10 years 444, 000

3/31 Cost of developing an intangible asset A 450, 000

4/1 Goodwill purchased in a business combination 1, 670,000

7/1 Legal fees for successful defense of patent purchased on ½ 75,900, 000

10/1 Research and development costs on a new project (internally 160, 000
generated intangible B)

Audit notes:
a. It was ascertained by the end of 2009 that the expected annual net cash flows continued
use of the franchise was at P50, 000. By the end of 2010, due to the decline in the
demand for the product related to the franchise the annual net cash flows was expected
 to decrease by 40%.
b. By the end of 2010, it was apparent that the competitor has launched a more superior
system that than protected by the patent, thus it was estimated that the expected
annual net cash flows from the patent shall be cut in half from the acquisition date.
Furthermore, it was also ascertained that the expected annual net cash flows from the
patent shall be at P100, 000.
c. 75% of the development cost for the intangible asset A was incurred after the completion
technical feasibility. The intangible assets A is expected to be useful for 3 years and was
placed in operation on June 30, 2010.
d. Technical feasibility on the intangible asset B is yet to be established by the balance sheet
date December 31, 2010.
e. The appropriate discount rate remained at 12% for both years.

50. Assuming that the company is a Small/Medium entity, what is the carrying value of the
franchise as of December 31, 2010?
a. P149, 029 b. P226, 800 c. P250, 000 d. P201, 600

51. Assuming that the company is Small/Medium entity, what is the total expense to be
recognized in the 2010 income statement in relation to the internally generated
intangibles?
a. P216, 250 b. P328, 750 c. P356, 875 d. P610, 000

The accountant of Ursula Inc. presented to you the following details of its subsidiary ledger in
relation to your audit of the company's accounts receivable balance as of December 31, 2020:
Customer Invoice Date Amount

Kami Inc. December 20 550,000

December 1 1,200,000

October 11 950,000

August 4 420,000

Kers Co. November 20 2,000,000

September 4 900,000

August 2 500,000

Orani Inc. December 10 1,750,000

 October 4 600,000

July 5 500,000

Utah Corp. September 9 2,600,000

July 10 1,250,000

March 5 900,000

Sensi Co. December 1 (500,000)

Audit notes:
a. The company's term is n/60 days.
b. The company's general ledger shows the following balances as of December 31, 2020:
Accounts Receivable P13,650,000
Allowance for doubtful (950,000)
accounts
c. The credit balance of the receivable resulted from Romeo Co.'s overpayment of its
account. The same shall be settled by a delivery of merchandise the following period. d. You
have discovered that Uniform Inc.'s payment of an October 4 invoice amounting to
P600,000 was posted against Whiskey Co.’s account for an invoice Dated December 4 for
the same amount.
e. Discussions with the credit department manager revealed the following appropriate credit
policy:

Accounts receivable age % doubtful of Collection Current 2% 1-60 days past due
5% 61-120 days past due 20% More than 120 days past 50% due

52. How much is the unreconciled difference between the control account the subsidiary
ledger?
a. None
b. 20,000
c. 30,000
d. 10,000

53. What are the correct accounts receivable balance as of December 31,
2020? a. 14,150,000
b. 14,120,000
c. 14,130,000
d. 14,140,000
 54. Assuming that there were no other entries affecting the allowance for bad debts what is
the correct bad debt expense for 2020?
a. 387,500
b. 396,500
c. 378,500
d. 369,500

55. What is the correct amortized cost of the receivable as of December 31,
2020? a. 12,791,500
b. 12,291,500
c. 12,773,500
d. 12,803,500

In the course of your examination of the December 31, 2014, financial statements of Annie
Corp, you discovered certain errors that had occurred during 2013 and 2014. No errors were
corrected during 2013. The errors are summarized below:
a. Beginning merchandise inventory (January 1, 2013) was understated by P 259,200. b.
Merchandise costing P 72,000 was sold for P 120,000 to Naval Company on December 28,
2013, but the sale was recorded in 2014. The merchandise was shipped FOB shipping point
and was not included in ending inventory. Annie Corp. uses the periodic inventory system.
c. A two-year fire insurance policy was purchased on May 1, 2013 for P 172,800. The whole
amount was charged to Prepaid Insurance. No adjusting entry was prepared in 2013 and
2014.
d. A one-year note receivable of P 288,888 was held by Annie Corp. beginning October 1,
2013. Payment of the 10% note and accrued interest was received upon maturity. No
adjusting entry was made on December 31, 2013 in relation to the note.
e. Equipment with a 10 years useful life was purchased on January 1, 2013, for P 1,176,000.
No depreciation expense was recorded during 2013 or 2014. Assume that the equipment
has no residual value and that Annie Corp. uses the straight-line method for recording
depreciation.
f. The company reported a P 1,500,000 net income in 2013 and a P 1,750,000 net income in
2014.

56. What is the net adjustment to the beginning retained earnings account in 2014? a.
69,600 b. 175,200 c. 127,200 d. 48,000

57. What is the effect of the errors to the 2014 working capital?
a. 28,800 b. (28,800) c. 144,000 d. (144,000)

In connection with your audit of Paraluman Corporation, you gathered he following liability and
equity account balances as of December 31, 2009:

11% bonds payable, at face value P10,000,000 Premium on bonds payable

 704,760 Share capital 16,000,000 Share premium 4,590,000 Retained
earnings 4,930,000 Treasury shares, at cost 650,000

Transaction during 2010 and other information relating to the Corporation’s liability and equity
accounts were as follows:

a) The bonds were issued on December 31, 2007, for P10,756,000 to yield 10%. The bonds
mature on December 31, 2022. Interest is payable annually on December 31. The Corporation
uses the effective interest method to amortize bond premium.

b) At December 31, 2009, the Corporation had 4,000,000, P10 par, authorized ordinary shares.

c) On January 15, 2010, the Corporation reissued 30,000 of its 50,000 treasury shares for
550,000. The treasury shares had been acquired on February 28, 2009.
d) On November 2, 2010, the Corporation borrowed P8,000,000 at 9% evidenced by a note
payable to ABC Bank. The note is payable in five equal annual principal installments of
P1,600,000. The first principal and interest payment is due on November 2, 2011.

e) On December 31, 2010, the Corporation owned 20,000 ordinary shares of Awoo Corp. which
represented a 1% ownership interest Pagbilao accounts for this as available for sale securities.
The shares were purchased on May 4, 2009 at P20 per share. The market price was P21 per
share on December 31, 2009, and P18 per share on December 31, 2010.

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

58. How much is the carrying of the bonds payable on December 31, 2010? a.
P10,675,236 b. P10,704,760 c. P9,324,764 d. P10,654,360

59. How much is the treasury shares balance as of December 31, 2010?
a. P200,000 b. P650,000 c. P260,000 d. P100,000

60. How much is the noncurrent portion of the note payable to bank as of December 31,
2010?
a. P6,400,000 b. P1,600,000 c. P8,000,000 d. P0

61. How much is the 2010 total interest expense?

a. P1,220,000 b. P1,190,476 c. P1,249,524 d. P1,187,236

62. How much is the net unrealized loss on available for sale securities as of December 31,
2010?
a. P60,000 b. P40,000 c. P20,000 d. P0

The following information was provided by Jazzy Company as of the fiscal year ended
September 30, 2020:
August 31 September
30
 Loan proceeds directly credited by the bank 200,000 250,000

Note payable payment by the bank 120,000 80,000

Undeposited collections 450,000 ?

Outstanding checks 180,000 ?

Total credits per bank statement 1,955,000

Total debits per bank statement 1,655,000

Total debits per books 1,795,000

Total credits per books 1,800,000

Additional information:
a. A P100,000 collections was erroneously recorded twice in the books in September, the
company discovered the error and corrected the same immediately in September.

b. A P50,000 disbursement check was recorded in the books as P5,000 in August. The
correction was made in September.
c. The bank erroneously credited the company P80,000 in August for a collection of Kare Corp.
The bank corrected the error in September.

d. The unadjusted balance per book in August was at P640,000. The unadjusted balance per
bank in September was at P785,000.

63. What is the correct cash in bank balance as of August 31, 2020?
a. 755,000
b. 720,000
c. 795,000
d. 675,000

64. What is the correct deposit in transit as of September 30?

a. 160,000
b. 340,000
c. 240,000
d. 320,000

65. What are the correct outstanding checks as of September 30?

a. 265,000
b. 140,000
c. 220,000
d. 310,000
 66. What is the correct cash in bank balance as of September 30?
a. 760,000
b. 805,000
c. 725,000
d. 705,000

Pasig Bank granted a loan to a borrower in the amount of P5,000,000 on January 1, 2010. The
interest rate on the loan is 10% payable annually starting December 31, 2010. The loan
matures in five years on December 31, 2014. Pasig Bank incurs P39,400 of direct loan
origination cost and P10,000 of indirect loan origination cost. In addition, Pasig Bank charges
the borrower an 8-point nonrefundable loan origination fee.
67. The carrying amount of the loan as of January 1, 2010 is
a. P5,000,000 b. P5,039,400 c. P4,639,400 d. P4,649,400

68. The effective interest rate of the loan is

a. 10.00% b. 11.94% c. 12.00% d. 9.801%

69. The interest income to be recognized in 2010 is

a. P500,000 b. P556,728 c. P493,861 d. P555,138
70. The carrying amount of the loan as of December 31, 2010 is
a. P5,000,000 b. P4,696,128 c. P5,033,261 d. P4,704,538

The XYZ Company is on a calendar year basis. The following data were found during your audit:
a. Goods in transit shipped FOB destination by a supplier, in the amount of P100,000, had
been excluded from the inventory, and further testing revealed that the purchase had
been recorded.
b. Goods costing P50,000 had been received, included in inventory and recorded as a
purchase. However, upon your inspection the goods were found to be defective and
would be immediately returned.
c. Materials costing P250,000 and billed on December 30, at a selling price of P320,000, had
been segregated in the warehouse for shipment to a customer. The materials had been
excluded from inventory as a signed purchase order had been received from the
customer. Terms, FOB destination.
d. Goods costing P70,000 was out on consignment with Hermie Company. Since the monthly
statement from Hermie Company listed those materials as on hand, the items had been
excluded from the final inventory and invoiced on December 31 at P80,000.
e. The sale of P150,000 worth of materials and costing P120,000 had been shipped FOB
shipment on December 31. However, this inventory was found to be included in the final
inventory. The sale was properly recorded in 2010.
f. Goods costing P100,000 and selling for P140,000 had been segregated, but not shipped
at December 31, and were not included in the inventory. A review of the customer’s
purchase order set forth terms as FOB destination. The sale had not been recorded.
 g. Your client has an invoice from a supplier, terms FOB shipping point but the goods had
not arrived as yet. However, these materials costing P170,000 had been included in the
inventory count, but no entry had been made for their purchase.
h. Merchandise costing P200,000 had been recorded as a purchase but not included as
inventory. Terms of sale are FOB shipping point according to the supplier’s invoice which
had arrived at December 31.

Further inspection of the client’s records revealed the following December 31, 2010 balances;
Inventory P1,100,000; Accounts receivable, P580,000; Accounts payable, P690,000; Net sales,
P5,050,000; Net Purchases, P2,300,00; Net Income, P510,000. Based on the above and the
result of your audit, determine the adjusted balances of the following as of December 31, 2010:
71. Inventory
a. P1,230,000 c. P1,650,000
b. P1,550,000 d. P1,480,000

72. Accounts Payable

a. P540,000 c. P710,000
b. P760,000 d. P810,000

73. Net Sales

a. P4,550,000 c. P4,730,000
b. P4,950,000 d. P4,650,000

74. Net Purchases

a. P2,150,000 c. P2,370,000
b. P2,620,000 d. P2,320,000

75. Net Income

a. P540,000 c. P440,000
b. P290,000 d. P550,000

On December 31, 2018, Maya signed a P2,000,000 note to BPIA Bank. The market interest rate
at that time is 12%. The stated interest rate on the note was 10% payable annually. The note
matures in 5 years. Unfortunately, because of lower sales, Maya’s financial condition worsened.
On December 31, 2020, BPIA Bank determined that it was probable that Maya would pay back
only P1,200,000 of the principal at maturity. However, it was also considered likely that interest
would continue to be paid, based on the P2,000,000 loan. The prevailing interest rate for similar
type of note as of December 31, 2020 is 14%.
76. Amount of cash Maya received from the loan on December 31, 2018
a. P2,000,000 c. P1,555,760
b. P1,855,760 d. P1,134,800

77. Interest income in 2020

a. P235,414 c. P225,414
 b. P230,414 d. P200,000

78. Loan impairment loss in 2020

a. P665,480 c. P616,009
b. P579,458 d. 569,345

79. Interest income in 2021

a. P137,085 c. P239,858
b. P166,146 d. P160,142

Plaridel Inc., is a public enterprise whose shares are traded in the over-the-counter market. At
December 31, 2013, Plaridel had 6,000,000 authorized shares of P10 par value ordinary shares,
of which 2,000,000 shares were issued and outstanding. The shareholders’ equity accounts at
December 31, 2013, had the following balances.
Ordinary shares P20,000,000
Share premium 7,500,000
Retained earnings 6,470,000
Transactions during 2014 and other information relating to the shareholders’ equity accounts
were as follows:
1. On January 5, 2014, Plaridel issued at P54 per share, 100,000 shares of P50 par value,
9% cumulative convertible preference shares. Each share of preference is convertible, at
the option of the holder, into two ordinary shares. Los Angeles had 600,000 authorized
preference shares.
2. On February 1, 2014, Plaridel reacquired 20,000 of its ordinary shares for P16 per share.
Plaridel uses the cost method to account for treasury shares.
3. On April 30, 2014, Plaridel sold 500,000 shares (previously unissued) of P10 par value
ordinary shares to the public at P17 per share.
4. On June 18, 2014, Plaridel declared a cash dividend of P1 per ordinary share, payable on
July 12, 2014, to shareholders of record on July 1, 2014.
5. On November 10, 2014, Plaridel sold 10,000 treasury shares for P21 per share. 6. On
December 14, 2014, Plaridel declared the yearly cash dividend on preference shares,
payable on January 14, 2015, to shareholders of record on December 31, 2014. 7. On
January 20, 2015, before the books were closed for 2014, Plaridel became aware that the
ending inventories at December 31, 2013, were understated by P300,000 (the after tax
effect on 2014 net income was P210,000). The appropriate correcting entry was recorded
the same day.
8. After correcting the beginning inventory, net income for 2014 was P4,500,000.

80. The Retained Earnings balance as of January 1, 2014 is

a. P6,690,000 c. P6,770,000
b. P6,680,000 d. P6,170,000

81. The Retained Earnings balance as of December 31, 2014 is

 a. P8,250,000 c. P8,340,000
b. P8,870,000 d. P7,830,000

82. The share premium from preference shares as of December 31, 2014
is a. P300,000 c. P400,000
b. P100,000 d. P350,000

83. The share premium from ordinary shares as of December 31, 2014 is
a. P11,500,000 c. P11,450,000
b. P11,000,000 d. P11,050,000

84. The total shareholder’s equity as of December 31, 2014 is

a. P49,540,000 c. P49,450,000
b. P49,700,000 d. P49,504,000

On April 1, 2010 Babi Inc. purchased 5-year P10,000,000 10% bonds dated January 1, 2010.
The bonds were purchased to yield 12%. Interest is payable annually every December 31. Babi
Inc. has the positive intention and ability to hold these bonds to maturity. The issuer paid the
interest at scheduled in 2010 and 2011. During 2012, the issuer of the bonds is in financial
difficulties and
it becomes probable that the issuer will be put into administration by a receiver. On December
31, 2012, Babi estimated that bond of the interest will be collected and only P8,000,000 of the
principal will be collected on maturity date. No cash flows are received during 2013. Babi
receives a letter from the receiver stating that the issuer will be able to meet its remaining
obligations, including interest and repayment of principal.
85. How much was the total amount paid to acquire the investment in bonds on April 1,
2010? a. P9,307,200 c. P9,557,200
b. P9,547,200 d. P9,528,800

86. How much is the carrying amount of the investment in bonds on December 31,
2010? a. P9,006,700 c. P9,392,300
b. P9,393,300 d. P9,363,900

87. How much should be recognized as impairment loss in 2012?

a. P3,294,000 c. P3,141,700
b. P3,284,000 d. P1,622,400

88. How much is the interest income to be recognized in 2013?

a. P682,800 c. P1,159,400
b. P745,350 d. P765,300

89. How much should be recognized as reversal of impairment loss in

2013? a. P3,141,700 c. P3,284,000
b. P2,958,100 d. P2,678,100
These are data and information relating to the operation of Maharlika Corp. for the six (6)
months period which started on July 1, 2020:
Cash receipts consisted of the following:
Cash investment P250,000
Collections on sale on account 310,000
Cash Sales 85,000
Proceeds of a notes payable dated October 1, 2020
and due October 1, 2021, discounted at 18% 24,600
Cash disbursement consisted of the following:
Payment for the land and building on July 1, 2020 P240,000
Payment for 20% down payment of furniture and fixtures
purchased on installment on July 1, 2020 4,000
Payment for accounts payable-trade 280,000
Other operating expenses 45,000
A cash count conducted January 1, 2021 disclosed a total of P43,500 is on hand. Of the sales on
account, P4,000 was returned of poor quality and there was a purchase return of P5,000. On
December 31, 2020, there is accrued other operating expenses of P3,500; Accounts receivable
of P66,000; Accounts Payable of P67,000. The land was allocated cost of P40,000. Annual
depreciation, building, 4% and furniture and fixture, 10%. Inventory on December 31, 2020 is
P21,700. Bank statement balance as of December 31, 2020 amounted to P52,000.
90. Interest Expense
a. P1,107 b. P1,250 c. P1,350 d. P4,428

91. Cost of goods sold

a. P321,300 b. P325,300 c. 347,000 d. 320,300

92. Net Sales

a. P463,000 b. P461,000 c. P380,000 d. P376,000

93. Cash shortage as of December 31, 2020

a. P5,100 b. P8,500 c. P7,100 d. 5,400

94. Net Income,

a. P81,093 b. P70,850 c. P80,850 d. P75,850

95. Operating Expenses

a. P58,800 b. P53,500 c. P53,660 d. P55,500
The AVI Corporation included the following in its notes receivable as of December 31,
2016: Notes Receivable from sale of land P2,640,000

Notes Receivable from consultation 3,600,000

Notes Receivable from sale of equipment 4,800,000
The following transactions during 2016 and other information relate to the company’s notes
receivable:
a. On January 1, 2016, AVI Corporation sold a tract of land to Double X Company. The land
purchase 10 years ago, was carried on AVI’s books at P1,500,000. AVI received a
noninterest-bearing note for P2,640,000 from Triple X. The note is due on December 31,
2017. There was no established exchange price for the land. The prevailing interest rate
for this note on January 1, 2016 was 10%.
b. On January 1, 2016, AVI Corporation received a 5%, P3,600,000 promissory note in
exchange for the consultation services rendered. The note will mature on December 31,
2018, with interest receivable every December 31. The fair value of the services
rendered is not readily determinable. The prevailing rate of interest for a note of this
type was 10% on January 1, 2016.
c. On January 1, 2016, AVI Corporation sold an old equipment with a carrying amount of
P4,800,000, receiving P7,200,000 note. The note bears an interest rate of 4% and is to
be repaid in 3 annual installments of P2,400,000 (plus interest on the outstanding
balance). AVI received the first payment on December 31, 2016. There is no established
market value for the equipment. The market interest rate for similar notes was 14% on
January 1, 2016.
Note: Round off present value factors to four decimal places and final answers to the
nearest hundred.
96. What amount of consultation fee revenue should be recognized in 2016? a.
P3,152,500 b. P2,705,000 c. P4,047,500 d. P3,552,500

97. What amount should be reported as gain on sale of equipment?

a. P994,800 b. P1,237,300 c. P1,162,700 d. P1,587,300

98. The amount to be reported as noncurrent notes receivable on December 31, 2016,
is a. P7,482,200 b. P6,037,300 c. P6,477,500 d. P5,477,500

99. The amount to be reported as current notes receivable on December 31, 2016,
is a. P4,800,000 b. P4,404,900 c. P4,464,900 d. P7,440,000

100. How much interest income should be recognized in 2016?

a. P974,200 b. P756,000 c. P1,378,700 d. P1,160,500