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

Since 1977

AUD OCAMPO/OCAMPO/SOLIMAN/UY
FIRST PRE-BOARD EXAMINATION AUGUST 01, 2021

Multiple Choice. Select the letter that corresponds to the best answer. This examination
consists of 70 items (please ignore the extra answer options in the answer sheet
after number 70) and the exam is good for three (3) hours. Good luck!

1. The need for assurance services arises because:

a. there is closeness between a user and the organization or trading partner.
b. there is a potential bias in providing information.
c. economic transactions are less complex than they were a decade ago.
d. most financial statement users today have direct knowledge of a company's
operations.

2. Before accepting an engagement to audit a new client, a CPA is required to obtain

a. an understanding of the prospective client's industry and business.
b. the prospective client's signature to the engagement letter.
c. a preliminary understanding of the prospective client's control environment.
d. the prospective client's consent to make inquiries of the predecessor auditor, if any.

3. Management philosophy and operating style most likely would have a significant
influence on an entity's control environment when:
a. the internal auditor reports directly to management.
b. management is dominated by one individual.
c. accurate management job descriptions delineate specific duties.
d. the audit committee actively oversees the financial reporting process.

4. Which one of the following is considered an adequate documentation in an internal

control system?
a. The accounting clerk initials the bank reconciliation.
b. The mailroom mails commissions checks.
c. Invoices are prepared without sequential numbering.
d. Fixed assets are assigned useful lives at random.

5. Which of the following statements is correct concerning an auditor's assessment of

control risk?
a. Assessing control risk may be performed concurrently during an audit while
obtaining an understanding of the entity's internal control.
b. Evidence about the operation of controls in prior audits may not be considered
during the current year's assessment of control risk.
c. The basis for an auditor's conclusions about the assessed level of control risk should
be documented if the control risk is assessed at the maximum level.
d. The lower the assessed level of control risk, the less assurance the evidence must
provide that the controls are operating effectively.

6. Which of the following tasks could not be performed by generalized audit software?
a. Choosing a sample of accounts receivable for confirmation
b. Footing the bank reconciliation
c. Summarizing data
d. Reading the minutes of the board of directors' meeting

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7. Uncertainties that still exist even if the auditor examines 100 percent of an account
balance is
a. Sampling risk
b. Non-sampling risk
c. Inherent risk
d. Control risk

8. If, when performing analytical procedures, an auditor observes that operating income
has declined significantly between the preceding year and the current year, the auditor
should next:
a. require that the decline be disclosed in the financial statements.
b. consider the possibility that the financial statements may be materially misstated.
c. inform management that a qualified opinion on the financial statements will be
necessary.
d. determine management's responsibility for the decline and discuss the issue with
the audit committee.

9. It refers to the measure of the quantity of audit evidence considered necessary to

achieve the predetermined acceptable level of detection risk:
a. Relevance.
b. Validity.
c. Sufficiency.
d. Appropriateness.

10. The auditor gathers evidential matter in order to

a. detect fraud and irregularity.
b. evaluate management’s stewardship.
c. eliminate detection risk.
d. form an opinion with respect to financial assertions.

11. The auditor’s responsibility for the detection of client’s noncompliance with laws and
regulations is:
a. Greater than for errors or fraud.
b. Less than for errors or fraud.
c. Restricted to information that comes to his attention.
d. The same as it is for errors or fraud.

12. Reasonable assurance means:

a. Gathering of all available corroborating evidence for the auditor to conclude that
there are no material misstatements in the financial statements, taken as a whole.
b. Gathering of the audit evidence necessary for the auditor to conclude that the
financial statements, taken as a whole, are free from any misstatements.
c. Gathering of the audit evidence necessary for the auditor to conclude that the
financial statements are free of material unintentional misstatements.
d. Gathering of the audit evidence necessary for the auditor to conclude that there are
no material misstatements in the financial statements, taken as a whole.

13. The decision as to how much evidence to be accumulated for a given set of
circumstances is.
a. provided by following the generally accepted accounting principles.
b. one requiring professional judgment
c. determined by statistical analysis
d. provided in the Philippines Standards on Auditing.

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14. The Philippine Standards on Auditing issued by the Auditing and Assurance
Standards Council (AASC)
a. are interpretations of generally accepted auditing standards
b. are the equivalent of laws for audit practitioners.
c. must be followed in all situations.
d. are optional guidelines which an auditor may choose not to follow when conducting
an audit.

15. After studying and evaluating a client's existing internal control, an auditor has
concluded that the policies and procedures are well-designed and functioning as
intended. Under these circumstances, the auditor would most likely
a. perform further control tests to the extent outlined in the audit program.
b. determine the control policies and procedures that should prevent or detect errors
and fraud.
c. set acceptable detection risk at a higher level than would be set under conditions of
weak internal control.
d. set acceptable detection risk at a lower level than would be set under conditions of
weak internal control.

16. Which of the following is a component of general controls?

a. Processing controls
b. Output controls
c. Back-up and contingency planning
d. Input controls

17. Which of the following controls prevent and detect errors while transaction data are
processed?
a. Software
b. Application
c. Processing
d. Transaction

18. The auditor's analytical procedures will be facilitated if the client

a. Uses a standard cost system that produces variance reports.
b. Segregates obsolete inventory before the physical inventory count.
c. Corrects material weaknesses in internal control before the beginning of the audit.
d. Reduces inventory balances to the lower of cost or market.

19. Which of the following is an indicator of possible fraudulent financial reporting for
the purpose of inflating earnings?
a. A trend analysis discloses: (1) sales increases of 50 percent and (2) cost of goods
sold increases of 25 percent.
b. A ratio analysis discloses: (1) sales of P50 million and (2) cost of goods sold of P25
million.
c. A cross-sectional analysis of common size statements discloses: (1) the firm's ratio
of cost of goods sold to sales is 0.4 and (2) the industry average ratio of cost of
goods sold to sales is 0.5.
d. A cross-sectional analysis of common size statements discloses: (1) the firm's ratio
of cost of goods sold to sales is 0.5 and (2) the industry average ratio of cost of
goods sold to sales is 0.4.

20. Inherent risk is defined as the susceptibility of an account balance or class of

transactions to error that could be material assuming that there were no related
internal controls. Of the following conditions, which one does not increase inherent
risk?

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a. The client has entered into numerous related party transactions during the year
under audit.
b. Internal control over shipping, billing, and recording of sales revenue is weak.
c. The client has lost a major customer accounting for approximately 30% of annual
revenue.
d. The board of directors approved a substantial bonus for the president and chief
executive officer, and also approved an attractive stock option plan for themselves.

21. Which of the following might be considered a "red flag" indicating possible fraud in
a large manufacturing company with several subsidiaries?
a. The existence of a financial subsidiary.
b. A consistent record of above average return on investment for all subsidiaries.
c. Complex sales transactions and transfers of funds between affiliated companies.
d. Use of separate bank accounts for payrolls by each subsidiary.

22. White Corporation has a few large accounts receivable that total P1,000,000. Black
Corporation has a great number of small accounts receivable that also total
P1,000,000. The importance of an error in any one account is, therefore, greater for
White than for Black. This is an example of the auditor's concept of
a. Account bias.
b. Audit risk.
c. Materiality.
d. Reasonable assurance.

23. There is an inverse relationship between the effectiveness of an entity's internal

control structure and the
a. Reliability of financial statements.
b. Extent of detailed audit tests required.
c. Degree of staff supervision required in the performance of an audit.
d. Fairness of management assertions in the financial statements.

24. In a financial statement audit, audit risk represents the probability that
a. Internal control fails and the failure is not detected by the auditor's procedures.
b. The auditor unknowingly fails to modify an opinion on materially misstated financial
statements.
c. Inherent and control risk cause errors that could be material to the financial
statements.
d. The auditor is not retained to conduct a financial statement audit in the succeeding
year.

25. Under which of the following circumstances would an auditor not be required to depart
from the wording of the standard audit report form?
a. The client does not want to prepare a statement of changes in financial position.
b. The client did not allow the CPA to review the minutes of stockholders' meetings.
c. The client did not allow confirmation of receivables, the CPA applied alternative
auditing procedures and was satisfied as to the receivables.
d. The client does not want to disclose damage to enterprise property caused by fire
which took place after the balance sheet date.

26. Assertions are representations by management that are embodied in financial

statement components. An example of an assertion about existence is whether:
a. All sales transactions for the period are included in the income statement.
b. Capitalized leased property in the balance sheet represents the cost of the
company’s right to the leased asset.
c. Inventories in the balance sheet are available for sale.

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d. Receivables in the balance sheet are stated at net realizable value.

27. A change in accounting principles which has no material effect on the current year's
financial statements but is expected to have a material effect in later years should be
disclosed in
a. A footnote to the financial statements in the first year in which the effect becomes
substantial.
b. The auditor's report for the current year.
c. A footnote to the current financial statements.
d. The auditor's report for the first year in which the effect becomes substantial.

28. Which of the following is the least function of the Board of Accountancy?
a. Determination of the minimum requirements leading to the admission of candidates
to the CPA examinations.
b. Preparation of the contents of the CPA licensure examinations and rating of the
examination papers.
c. Regulation of the practice of accountancy.
d. Supervision over the accredited professional organization of CPAs.

29. The steps that an audit firm should take prior to accepting an audit engagement
include all of the following except
a. Obtaining a thorough understanding of the client's business.
b. Evaluating independence.
c. Assessing the firm's competence to perform the audit.
d. Determining the firm's ability to use due professional care.

30. Before accepting an audit engagement, a successor auditor should make specific
inquiries of the predecessor auditor regarding the predecessor’s
a. Opinion of any subsequent events occurring since the predecessor’s audit report was
issued.
b. Understanding as to the reasons for the change of auditors.
c. Awareness of the consistency in the application of GAAP between periods.
d. Evaluation of all matters of continuing accounting significance.

31. An auditor is planning an audit engagement for a new client in a business unfamiliar
to the auditor. Which is the least useful source of information for the auditor during the
preliminary planning stage, when the auditor is trying to obtain a general
understanding of audit problems that might be encountered?
a. Textbooks and periodicals related to the industry.
b. Audit and Accounting Guides.
c. Financial statements of other entities in the industry.
d. Results of performing substantive tests.

32. A CPA may reduce the audit work on a first-time audit by reviewing the working
papers of the predecessor auditor. The predecessor should permit the successor to
review working papers relating to matters of continuing accounting significance such
as those that relate to
a. Extent of reliance on the work of specialists.
b. Fee arrangements and summaries of payments.
c. Analysis of contingencies.
d. Staff hours to complete the engagement.

33. The essence of the attest function is to

a. Discover fraud and ascertain its extent

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b. Determine whether the financial statements are fairly stated.

c. Assure the consistent application of GAAP.
d. Examine the transactions in sufficient detail to establish their validity.

34. Cruz, Santos, CPAs was hired by RFC, Inc. to prepare unaudited financial
statements. The statement that best describe this engagement is
a. The CPA is performing an accounting service rather than an examination of the
financial statements.
b. The financial statements are representations of both management and the CPA.
c. The CPA must perform the basic accepted auditing standards necessary to determine
that the statements are in conformity with GAAP.
d. The CPA may prepare the statements from the books, but may not assist in adjusting
and closing the books.

35. Philippine Standards on Auditing issued by AASC

a. Apply to independent examination of financial statements of any entity when such
an examination is conducted for the purpose of expressing an opinion thereon.
b. Must not apply to other related activities of auditors
c. Need to be applied on all audit related matters.
d. Require that in no circumstances would an auditor may judge it necessary to depart
from a PSA, even though such a departure may result to more effective achievement
of the objective of an audit.

PROBLEM NO. 1

Diaz Corporation manufactures three models of gear shift components for bicycles that
are sold to bicycle manufacturers, retailers, and catalog outlets. Since beginning
operations in 1977, Diaz has used normal absorption costing and has assumed a first-in,
first-out cost flow in its perpetual inventory system. Except for overhead, manufacturing
costs are accumulated using actual costs. Overhead is applied to production using
predetermined overhead rates.

The balances of the inventory accounts at Dec. 31, 2021 are shown below. The inventories
are stated at cost before any year-end adjustments.

Finished goods P2,588,000

Work-in- 450,000
process
Raw materials 960,000
Factory 276,000
supplies

The following information relates to Diaz’ inventory and operations.

a. The finished goods inventory consists of the items analyzed below.

Cost NRV
Down tube P1,080,000 P1,056,000
shifter
Bar end 728,000 750,400
shifter
Head tube
shifter 780,000 787,800
Total P2,588,000 P2,594,200

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b. One-half of the head tube shifter finished goods inventory is held by catalog outlets on
consignment.

c. Three-quarters of the bar end shifter finished goods inventory has been pledged as
collateral for a bank loan.

d. One-half of the raw materials balance was acquired at a contracted price 20 percent
above the current market price. The replacement cost of the rest of the raw materials
is P509,600.

e. The net realizable value of the work-in-process inventory is P434,800.

f. Included in the cost of factory supplies are obsolete items with a historical cost of
P16,800. The replacement cost of the remaining factory supplies is P263,600.

QUESTIONS:

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

36. The finished goods inventory on Dec. 31, 2021 should be valued at
a. P2,174,000 c. P2,588,000
b. P2,564,000 d. P2,594,200

37. The raw materials inventory on Dec. 31, 2021 should be valued at
a. P880,000 c. P989,600
b. P909,600 d. P960,000

38. The factory supplies inventory on Dec. 31, 2021 should be valued at
a. P246,800 c. P263,600
b. P259,200 d. P276,000

39. The total inventories to be recognized in the statement of financial position as of

Dec. 31, 2021 is
a. P4,138,000 c. P4,218,000
b. P4,167,600 d. P4,247,600

40. An auditor most likely to inspect loan agreements under which an entity’s
inventories are pledged to support management’s financial statement assertion of
a. Existence or occurrence
b. Valuation or allocation.
c. Presentation and disclosure
d. Completeness

PROBLEM NO. 2

The property, plant and equipment section of Petecio Corporation’s statement of financial
position at Dec. 31, 2020 appears as follows:

Land P 800,000
Building P1,500,000
Less: Acc. depreciation 450,000 1,050,000
Equipment P 700,000
Less: Acc. depreciation 400,000 300,000
P2,150,000

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Because of good business conditions, the company decided to move to a more strategic
location in 2021. Transactions on the transfer of location and other information for 2021
are described below:

a. The land and building on the old site were sold for a total of P1,700,000.

b. Equipment, with a depreciated value of P150,000 (original cost of P400,000), was

sold for P120,000.

c. New equipment, with an invoice price of P300,000, was purchased. A 2% discount

was allowed. The hauler was paid P1,000 for delivery of the equipment to the new
site and P3,000 was spent on installation.

d. The land where the company moved to was a gift by the company President. It had
an appraised value of P1,000,000.

e. A new equipment with an invoice cost of P150,000 was purchased. The company
paid P103,000 in cash and was granted a trade-in allowance of P47,000 on a used
equipment which had a cost of P40,000 and accumulated depreciation of P15,000.

f. The entity constructed a new building at its new site and incurred the following costs:

Payment to architect 300,000

Payment to city council for approval of building
construction 150,000
Payment for safety fence around construction site
50,000
Payment to construction contractor 3,000,000
Payment for external driveways, parking bays and
safety lighting 500,000
Payment for safety inspection 30,000
Payment for removal of safety fence 20,000
Payment for new fence surrounding the factory
80,000
Payment for advertisements in the local paper about
the forthcoming factory and its benefits to the local
community 5,000

Payment for opening ceremony 60,000

g. Extraordinary repairs on the old equipment were made after it had been moved to
the new site. The entity paid P50,000 for the repairs.

QUESTIONS:

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

41. The net loss on disposals of property, plant and equipment is

a. P158,000 c. P258,000
b. P180,000 d. P280,000

42. The cost of the new building is

a. P3,530,000 c. P4,050,000

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b. P3,550,000 d. P4,130,000

43. The balance of Equipment as of Dec. 31, 2021 is

a. P686,000 c. P708,000
b. P692,000 d. P754,000

44. The total cost of property, plant and equipment as of Dec. 31, 2021 is
a. P5,258,000 c. P5,838,000
b. P5,758,000 d. P5,888,000

45. Which statement is incorrect regarding audit of property, plant and equipment?
a. An auditor most likely would inspect documents and physically examine assets to
obtain evidence about fixed asset addition.
b. The auditor may conclude that depreciation charges are insufficient by noting large
numbers of fully depreciated assets.
c. When few property and equipment transactions occur during the year the continuing
auditor usually obtains an understanding of internal control and performs extensive
tests of current year property and equipment transactions.
d. Property, plant and equipment is typically judged to be one of the accounts least
susceptible to fraud because the inherent risk is usually low.

PROBLEM NO. 3

In connection with your audit of the Marcial Corporation’s financial statements for the year
2021 you noted the following items relative to the company’s Intangible Assets.

• A patent was purchased from Eumir Company for P4,000,000 on Jan. 2, 2020. Marcial
estimated that the remaining useful life of the patent to be 10 years. The patent was
carried in Eumir’s accounting records at a carrying value of P4,000,000 when Eumir
sold it to Marcial.

• During 2021, a franchise was purchased from Magno Company for P960,000. In
addition, 5% of the revenue from the franchise must be paid to Magno. Revenue from
the franchise for 2021 was P5,000,000. Marcial estimates the useful life of the
franchise to be 10 years and takes full year’s amortization in the year of purchase.

• Marcial incurred research and development costs of P866,000 in 2021. Marcial

estimates that these costs will be recouped by 2023.

• On Jan. 1, 2021, Marcial, because of the recent events in the industry, estimates that
the remaining life of the patent purchased on Jan. 2, 2020, is only 5 years from Jan.
1, 2021.

QUESTIONS:

Based on the given information and the result of your audit, determine the following:

46. Amortization of patent for 2021

a. P400,000 c. P800,000
b. P720,000 d. P900,000

47. Carrying amount of patent as of Dec. 31, 2021

a. P2,400,000 c. P2,880,000
b. P2,700,000 d. P3,200,000

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48. Carrying amount of intangible assets as of Dec. 31, 2021

a. P3,264,000 c. P3,744,000
b. P3,564,000 d. P4,610,000

49. Total expenses to be recognized in 2021

a. P1,066,000 c. P2,012,000
b. P1,932,000 d. P2,112,000

50. Which statement is correct regarding audit of intangible assets?

a. An auditor most likely would review or re-compute amortization and determine
whether the amortization period is reasonable in support of management’s financial
statement assertion of valuation.
b. The most effective means for the auditor to determine whether a recorded intangible
asset possesses the characteristics of an asset is to inquire as to the status of patent
applications.
c. When testing a client's additions to an asset for research and development, the
auditor must remember that such costs should be amortized over the lesser of their
legal lives or useful lives.
d. None of these.

PROBLEM NO. 4

Your audit of Saso Corporation disclosed that your client kept very limited records.
Purchases of merchandise were paid for by check, but most other items were out of cash
receipts. The company’s collections were deposited weekly. No record was kept of cash
in the bank, nor was a record kept of sales. Accounts receivable were recorded only by
keeping a copy of the ticket, and this copy was given to the customer when he paid his
account.

Additional information:

a. On Jan. 2, 2021 Saso Corporation started business and issued share capital, 72,000
shares with P100 par, for the following considerations:

Cash P 600,000
Building (useful life, 15 years) 5,400,000
Land 1,800,000
P7,800,000

b. An analysis of the bank statements showed total deposits, including the original cash
investment, of P4,200,000. The balance in the bank statement on Dec. 31, 2021, was
P300,000, but there were checks amounting to P60,000 dated in December but not
paid by the bank until January 2020. Cash on hand on Dec. 31, 2021 was P150,000
including customers’ deposit of P90,000.

c. During the year, Saso borrowed P600,000 from the bank and repaid P150,000 and
P30,000 interest.

d. Disbursements paid in cash during the year were as follows:

Utilities P120,000
Salaries 120,000
Supplies 240,000

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Dividends
180,000
P660,000

e. An inventory of merchandise taken on Dec. 31, 2021 showed P906,000 of merchandise.

f. Tickets for accounts receivable totaled P1,080,000 but P60,000 of that amount may
prove uncollectible.

g. Unpaid suppliers’ invoices for merchandise amounted to P420,000.

h. Equipment with a cash price of P480,000 was purchased in early January on a one-
year installment basis. During the year, checks for the down payment and all maturing
installments totaled P534,000. The equipment has a useful life of 5 years.

QUESTIONS:

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

51. Payments for merchandise purchases in 2021

a. P2,436,000 c. P2,646,000
b. P2,586,000 d. P3,246,000

52. Collections from sales in 2021

a. P3,000,000 c. P4,320,000
b. P3,720,000 d. P4,920,000

53. Net income for the year ended Dec. 31, 2021
a. P 960,000 c. P1,620,000
b. P1,560,000 d. P1,770,000

54. Shareholders’ equity as of Dec. 31, 2021

a. P8,580,000 c. P9,240,000
b. P9,180,000 d. P9,390,000

55. Total assets as of Dec. 31, 2021

a. P9,390,000 c. P9,540,000
b. P9,450,000 d. P9,583,200

PROBLEM NO. 5

Obiena Corporation is a company engaged in buying and selling manufacturing equipment.

On Jan. 1, 2020, Obiena Corporation sold equipment, with a cash price of P1,500,000.
The cost of the equipment is P750,000. The buyer signed a deferred payment contract
that provides for a down payment of P300,000 and a 5-year note for P1,705,900. The
note is to be paid in 5 equal annual payments of P341,180. The payments include interest
and are made on Dec. 31 of each year, beginning on Dec. 31, 2020.

Obiena Corporation made the following entries in relation to the sale of the equipment and
the related note receivable:

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Jan. 1, 2020

Cash P 300,000
Notes receivable 1,705,900
Cost of goods sold 750,000
Sales P2,005,900
Inventory 750,000

Dec. 31, 2020

Cash P341,180
Notes receivable P341,180

Dec. 31, 2021

Cash P341,180
Notes receivable P341,180

Obiena Corporation reported the notes receivable in its statement of financial position at
Dec. 31, 2020 and 2021 as part of trade and other receivables.

QUESTIONS:

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

56. The interest rate on the note is

a. 10% c. 12%
b. 11% d. 13%

57. Profit for 2020 is overstated by

a. P 49,900 c. P361,900
b. P349,900 d. P505,900

58. Retained earnings as of Dec. 31, 2021 is overstated by

a. Nil c. P241,562
b. P217,973 d. P349,900

59. The working capital as of Dec. 31, 2021 is overstated by

a. Nil c. P776,197
b. P682,360 d. P787,084

60. A logical substantive test for accrued interest receivable would be to

a. Verify the cost, carrying value, and market value of notes receivable.
b. Verify the interest income by a calculation based on the face amount of notes and
the nominal interest rate.
c. Recalculate interest earned and compare it to the amounts received.
d. Compare the interest income with published interest investment records.

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PROBLEM NO. 6

Yulo Corporation made investments equity and debt instruments classified as FA at FVTPL.
An analysis of these investments on Dec. 31, 2020 showed the following:

Instrument Cost Fair value

Floor Textile (6,000 shares) P307,500 P270,000
Vault, Inc. (2,250 shares) 76,500 90,000
Ring Co. 12% Bonds
(P300,000 face value) 269,500 280,600
Total P653,500 P640,600

On Apr. 1, 2021, the company purchased as a temporary investment, P200,000 face

value, 9% Philippine treasury notes for P198,500, which includes accrued interest. The
notes mature on July 1, 2022 and pay interest semiannually on January 1 and July 1. The
notes were sold on Dec. 1, 2021 for P206,500, which includes accrued interest.

On July 1, 2021, the shares of Vault were sold for P70,000. On Dec. 31, 2021, Floor Textile
shares were quoted at P44 per share. Ring bonds were quoted at P950 per P1,000 bond.

QUESTIONS:

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

61. The gain on sale of Philippine Treasury Notes on Dec. 1, 2021 is

a. P 500 c. P 8,000
b. P5,000 d. P12,500

62. The loss on sale of Vault shares on July 1, 2021 is

a. P 0 c. P18,650
b. P6,500 d. P20,000

63. The interest income for the year 2021 is

a. P24,000 c. P37,500
b. P36,000 d. P48,000

64. The carrying amount of the investments at Dec. 31, 2021 is

a. P520,025 c. P549,000
b. P533,500 d. P577,000

65. The net unrealized loss to be recognized in 2021 profit or loss is

a. P 0 c. P 2,800
b. P1,600 d. P15,100

PROBLEM NO. 7

Presented below are unaudited balances of selected accounts of Didal Corporation as of

Dec. 31, 2021. During the course of your audit of Didal’s books you obtained additional
information affecting these accounts.

Debit Credit
Cash P 500,000
Accounts receivable 1,300,000

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EXCEL PROFESSIONAL SERVICES, INC.

Debit Credit
Allow. for doubtful accounts 8,000
Sales, net P6,750,000
Accounts payable 600,000
Purchases, net 4,350,000
Cars and trucks 1,200,000
Machinery and equipment 950,000
Accumulated depreciation,
machinery and equipment 95,000

Additional information:

a) On Dec. 28, 2021, the company recorded and wrote check payments to creditors
amounting to P300,000. A number of checks amounting to P150,000 were mailed on
Jan. 3, 2022.

b) On Dec. 29, 2021, the company purchased and received goods amounting to P100,000
terms 2/10, n/30. As a policy, the company records purchases in accounts payable at
net amounts. This particular invoice was recorded and paid on Jan. 3, 2021.

c) On Dec. 26, 2021, a supplier authorized the company to return goods shipped and
billed at P80,000 on Dec. 3, 2021. The goods were returned on Dec. 28, 2021. The
supplier’s credit memo was received and recorded on Jan. 5, 2021.

d) Goods amounting to P50,000 were invoiced for the account of a customer and recorded
on Jan. 2, 2022 with terms of net 60 days, FOB shipping point. The goods were shipped
on Dec. 30, 2021.

e) The bank returned on Dec. 29, 2021 a customer check for P5,000 marked “DAIF” but
no entry was made.

f) The company estimates that allowance for uncollectible accounts should be one and
one-half percent (1 ½%) of the accounts receivable balance as of year-end. No
provision has yet been made for 2021.

g) All cars and trucks were acquired on May 1, 2021 at a total cost of P1,200,000. The
company estimates the useful life of the cars and trucks as five years and depreciates
these assets based on 150% of declining balance. As a policy, depreciation is computed
to the nearest month and rounded off to the nearest peso. No depreciation has been
recorded for cars and trucks as at Dec. 31, 2021.

QUESTIONS:

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

66. The adjusted amount of cash as of Dec. 31, 2021 is

a. P495,000 c. P645,000
b. P500,000 d. P650,000

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EXCEL PROFESSIONAL SERVICES, INC.

67. The net realizable value of accounts receivable as of Dec. 31, 2021 is
a. P1,280,500 c. P1,329,750
b. P1,326,675 d. P1,334,675

68. The adjusted amount of accounts payable as of Dec. 31, 2021 is

a. P618,000 c. P769,600
b. P768,000 d. P848,000

69. The adjusted carrying amount of property and equipment as of Dec. 31, 2021 is
a. P1,533,500 c. P1,695,000
b. P1,558,500 d. P1,815,000

70. For testing the completeness assertion for accounts payable, the auditor would
a. Gather purchase orders immediately previous to and subsequent to year-end.
b. Examine a sample of cash disbursements made after year end to determine whether
the disbursements were for goods applicable to the previous year.
c. Reconcile vendor's statements with the accounts receivable trial balance.
d. Examine production equipment for useful lives.

End of Examination
(Pleases ignore the extra answer options in the answer sheet after number 70)

Thank you for participating in

Team PRTC Nationwide Online First Pre-Board Examination!

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