CPA REVIEW SCHOOL OF THE PHILIPPINES

Manila

AUDITING
FIRST PRE-BOARD EXAMINATION February 17, 2023

1. B 6. D 11. D 16. B 21. C 26. C 31. A

2. B 7. B 12. B 17. D 22. D 27. B 32. C
3. A 8. D 13. D 18. D 23. D 28. C 33. B
4. A 9. D 14. C 19. D 24. B 29. D 34. C
5. C 10. D 15. C 20. C 25. C 30. A 35. B

36. A 41. C 46. C

37. B 42. D 47. C
38. A 43. A 48. C
39. D 44. C 49. B
40. A 45. B 50. A

Situation 1

51. 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
52. B Land - acquisition cost (P8,000,000 x 25%) P2,000,000
53. B Machinery (P310,000 + P610,000) P920,000
54. C Share premium (P640,000 – P40,000) + (P1,110,000 – P1,000,000) P710,000
55. A Patent (P640,000 – P310,000) P330,000
Franchise 500,000
Total intangibles P830,000

Situation 2

56. A Cost of franchise, Jan. 1, 2023

Down payment P 75,000
Present value of installment payments (P45,000 x 2.91371) 131,116
Total 206,116
Amortization for 2023 (P206,116/10 years) (20,612)
Carrying amount, Dec. 31, 2023 P185,504

57. A Cost of patent, Jan. 2, 2023 P49,200

Amortization for 2023 (P49,200/8 years) (6,150)
Carrying amount, Dec. 31, 2023 P43,050

58. A Cost of trademark, July 1, 2023 P120,000

Amortization for 2023 (P120,000/20 years x 3 6/12) (21,000)
Carrying amount, Dec. 31, 2023 P 99,000

59. A Amortization of franchise P20,612

Amortization of patent 6,150
Amortization of trademark (P120,000/20 years) 6,000
Total amortization for 2023 P32,762

60. C Interest expense (P131,116 x 14%) P 18,356

Franchise fee on revenue from operations (P2,700,000 x 5%) 135,000
Litigation expenses – trademark 30,000
Total P183,356

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CPA REVIEW SCHOOL OF THE PHILIPPINES (CPAR) - MANILA
AUDITING PROBLEMS

Situation 3

61. D Sales price (P125 x 3,000 shares) P375,000

Carrying amount (P219,000 x 3,000/6,000) 109,500
Gain on sale of Bulik shares P265,500

62. C Sales price (P600,000 x 110%) P660,000

Carrying amount 600,000
Gain on sale of Gudo bonds P 60,000

63. A Entry made:

Cash 640,920
Investment in trading securities 640,920

Should be:
Cash 640,920
Loss on sale of trading securities 19,080
Investment in trading securities (P22 x 30,000) 660,000

Adjusting entry:
Loss on sale of trading securities 19,080
Investment in trading securities 19,080

64. B Balance, Jan. 1, 2023 P5,349,000

Jan. 31 sale of Robusta (660,000)
Mar. 31 purchase of Wilma (P24.25 x 15,000) 363,750
July 31 sale of Bulik (109,500)
Aug. 1 sale of Gudo (600,000)
Carrying amount (before market adjustment), Dec. 31, 2023 P4,343,250

65. B Market value, Dec. 31, 2023 P4,500,000

Carrying amount 4,343,250
Unrealized gain on trading securities P 156,750

Situation 4

66. B Retained earnings per books, Dec. 31, 2022 P1,941,000

Understatement of Dec. 31, 2022, ending inventories 63,000
Retained earnings, Jan. 1, 2023, as restated P2,004,000

67. C Retained earnings, Jan. 1, 2023, as restated P2,004,000

Net income 1,350,000
Cash dividends:
Preference shares (P50 x 9% x 30,000 shares) (135,000)
Ordinary shares (P1 x 744,000) (744,000)
Retained earnings, Dec. 31, 2023 P2,475,000

68. D Share premium – preference shares (P4 x 30,000) P120,000

69. C Share premium – ordinary shares:

Balance, December 31, 2022 P 2,250,000
April 29 issuance (P7 x 150,000) 1,050,000
Nov. 12 sale of 10,000 treasury shares (P5 x 3,000) 15,000
Balance, December 31, 2023 P3,315,000

70. C Preference shares (P50 x 30,000) P 1,500,000

Ordinary shares (P10 x 750,000) 7,500,000
Share premium – preference shares 120,000
Share premium – ordinary shares 3,315,000
Retained earnings 2,475,000
Treasury shares (P16 x 3,000 shares) (48,000)
Total shareholders’ equity P14,862,000

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