Excel_Professional Services Inc.

Management Firm of Professional Review and Training Center (PRTC)

Manila * Cavite * Laguna * Cebu * Cagayan De Oro * Davao

First Preboard Examination on Auditing Problems

February 20, 2022
Suggested answers/solutions by OCAMPO/OCAMPO

PROBLEM NO. 1 - Baby Em Corporation

C&CE T&OR Inventories PPE Intangibles
Unadjusted balances 2,100,000 4,200,000 5,300,000 7,910,000 2,280,000
Add (deduct) adjustments:
Cash & cash equivalents
Item 1 (90,000) 90,000
Item 2 (360,000) 360,000
Item 3 - OK
Item 4 (33,000)
Item 5 - OK
Item 6 (100,000)
Item 7 (65,000) 65,000
Item 8 (20,000) 20,000
Inventories
Item 1 (52,000)
Item 2 (36,000)
Item 3 - OK
Item 4 104,400 (87,000)
Item 5 - OK
Item 6 (12,000)
Property, plant and equipment
Land held for a currently undetermined future use (1,200,000)
Intangible assets
Costs of training employees (280,000)
Research and development costs (880,000)
Organization costs (310,000)
Adjusted balances 1,432,000 4,479,400 5,113,000 6,710,000 1,170,000
(36-B) (37-D) (38-A) (39-D) (40-C)

PROBLEM NO. 2 - Line Corp.

Question No. 41 - B
Inventory per physical count 32,600 cases
x Unit cost of June 19 purchase 19.70 per case
Inventory of baked beans, 6/30 - at cost 642,220

Question No. 42 - C
Inventory per physical count 1,500 boxes
x Unit cost of June 15 purchase 38.45 per box
Inventory of plain flour, 6/30 - at cost 57,675

Question No. 43 - B
Baked beans Plain flour
Units on hand, June 1 35,000 62,500
Purchases 67,000 35,000
Purchase returns (1,000)
Sales (73,000) (95,000)
Sales returns 5,000
Units on hand, June 30 - per records 34,000 1,500
Units on hand, June 30 - per physical count 32,600 1,500
Shortage 1,400 -
x Unit cost 19.70 -
27,580 -

Question No. 44 - A
Quantity Cost NRV LCN
Baked beans 32,600 642,220 945,400 642,220
Plain flour 1,500 57,675 57,750 57,675
Total 699,895

Question No. 45 - A

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PROBLEM NO. 3 - Ismo Corp.

Question No. 46 - A
Accumulated depreciation, 9/1/21 (P82,000 x .9 x 38/120) 23,370

Question No. 47 - A
Sales proceeds 73,000
Less carrying amount, 9/1/21
Cost 90,000
Acc. Dep. (P90,000 x .9 x 29/120) (19,575) 70,425
Gain (loss) on sale 2,575

Question No. 48 - C
Cost 70,000
Acc. Dep., 1/1/22 (P70,000 x .9 x 3/10) (18,900)
Carrying amount, 1/1/22 51,100
New motor 48,000
Carrying amount, 1/1/22 after replacement 99,100

Question No. 49 - B
Remaining beginning balance
[(P4,200,000 - P82,000 - P90,000 - P40,000 - P70,000) x .9 x .1] 352,620
Traded in, 9/1/21 (P82,000 x .9 x 2/120) 1,230
Sold, 9/1/21 (P90,000 x .9 x 2/120) 1,350
Retired, 1/1/22 (P40,000 x .9 x 6/120) 1,800
Repaired, 1/1/22 - before repair (P70,000 x .9 x 6/120) 3,150
Repaired, 1/1/22 - after repair (P99,100 x .9 x 6/108) 4,955
Acquired, 9/1/21 (P150,000 x .9 x 10/120) 11,250
New arm fitted, 4/1/22 (P12,000 x 3/180) 200
Total depreciation 376,555

Question No. 50 - D

PROBLEM NO. 4 - Peng Corporation

Question No. 51 - B
Present value of the note (P5M x .675) 3,375,000
Carrying amount of patent, 5/1/22 (P3,150,000 x 136/180) (2,380,000)
Gain on sale of patent 995,000

Question No. 52 - B
Legal expenses to obtain patent 720,000
Expense of drawing required by the patent office 102,000
Fees paid to the government patent office 150,000
Cost of patent 972,000

Note: Cost of defending the patent should be expensed

Question No. 53 - B
Metal used in the construction of the machine 480,000
Blueprints used to design the machine 192,000
Wages paid to the employees (P1,800,000 x 60%) 1,080,000
Cost of machine 1,752,000

Question No. 54 - B
Purchase price 100,000
Nonrefundable taxes 5,000
Legal costs incurred to register the trademark 10,500
Cost of trademark 115,500

Question No. 55 - D

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PROBLEM NO. 5 - Mane Corp.

December
Nov. 30 Receipts Disb Dec. 31

Unadjusted bank balances 480,000 240,000 300,000 420,000

Undeposited collections:
November 30 100,000 (100,000)
December 31 140,000 140,000
Outstanding checks:
November 30 (150,000) (150,000)
December 31 120,000 (120,000)
Erroneous bank debit (90,000) 90,000
Deposits with loan payment (P725,000 x 80%) 580,000 580,000
NSF checks:
Returned in Nov., recorded in Dec. 10,000 (10,000)
Returned and recorded in Dec. (25,000) (25,000)
Returned in Dec., recorded in Jan. (29,000) 29,000
Unrecorded bank collection in Dec. (106,000) (106,000)
Anticipated loan proceeds from AR hypothecation
Nov. 30 sales (P180,000 x 80%) 144,000 (144,000)
Dec. 31 sales (P200,000 x 80%) 160,000 160,000
Anticipated loan payment from undeposited collections
Nov. 30 (P100,000 x 80%) (80,000) (80,000)
Dec. 31 (P140,000 x 80%) 112,000 (112,000)
Interest charge for bank loan in Dec. (38,000) 38,000

Unadjusted book balances 504,000 735,000 700,000 539,000

(56 - A) (57 - C) (58 - B) (59 - D)
Question No. 60 - B

PROBLEM NO. 6 - Lodi Corp.

Question No. 61 - C
Accounts receivable, 12/31/21 500,000
Add: Sales on account 3,120,000
Bad debt recoveries 2,160 3,122,160
Total 3,622,160
Less: Accounts collected during the year 3,008,000
Accounts written off 52,000
Bad debt recoveries 2,160 3,062,160
Accounts receivable, 12/31/22 - before write-off of accounts over 180 days 560,000
Less accounts over 180 days (P560,000 x 2%) 11,200
Accounts receivable, 12/31/22 548,800

Question No. 62 - D
Category Aging ratio AR Balance Rate Allowance
Less than 60 days 70% 392,000 2.00% 7,840
Between 61 and 120 days 18% 100,800 15.00% 15,120
Between 121 and 180 days 10% 56,000 50.00% 28,000
Over 180 days* 2% 11,200 -
100% 560,000 50,960

* Since the probability of collection is 0% the account is deemed

Question No. 63 - B
Allowance for doubtful accounts, 12/31/22 50,960
Add accounts written off (P52,000 + P11,200) 63,200
Total 114,160
Less: Allowance for doubtful accounts, 12/31/21 48,000
Bad debt recoveries 2,160 50,160
Doubtful accounts expense for 2022 64,000

Question No. 64 - B

Question No. 65 - C

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PROBLEM NO. 7 - Rasta Corp.

Question no. 66 - D
Wigal Company (9,000 x P1) 9,000
Wigel Company (6,000 x P3) 18,000
Wigul Company (10,500 x P2) 21,000
Total dividend income in 2022 48,000

Question no. 67 - B
Wigal Company (9,000 x P20) 180,000
Wigel Company (6,000 x P22) 132,000
Treasury notes (P120,000 x 1.02) 122,400
CA of FA at FVTPL, 12/31/21 434,400

Question no. 68 - C
Fair value of FA at FVTPL, 12/31/22 (see no. 67) 434,400
Less CA before FV adjustment:
Cost of Wigal Company shares (9,000 x P16) 144,000
Cost of Wigel Company shares (6,000 x P33) 198,000
Cost of Treasury notes (P120,000 x 1.01) 121,200 463,200
Net unrealized gain (loss) (28,800)

Question no. 69 - C
Wigel shares sold, 3/23/22:
Selling price (6,000 shares x P17) 102,000
Less CA of shares sold 132,000 (30,000)
Treasury notes sold, 6/30/07
Selling price (P120,000 x 1.005) 120,600
Less CA of treasury notes 122,400 (1,800)
Gain (loss) on sale (31,800)

Question no. 70 - B
FV of Wigul shares, 12/31/22 (10,500 x P33) 346,500
Less cost of Wigul shares (10,500 x P29) 304,500
Net unrealized gain (loss) in equity 42,000

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