GENSANTOS FOUNDATION COLLEGE, INC.

Bulaong Extension, General Santos City 9500
BSA/BSMA Department
AUDITING PROBLEMS E.J. SEBUA, CPA
AUDIT OF FINANCIAL STATEMENTS QUIZ

PROBLEM 1. In connection with your audit of the EGG CELL Corporation for the year ended December 31, 2020, the ff. financial
information was presented.

EGG CELL CORPORATION

Statement of Financial Position
December 31, 2020, and 2019
ASSETS 2020 2019
Cash and Cash Equivalents P45,000 P15,000
Accounts receivable 75,000 37,500
Inventory 30,000 22,500
Available for sale securities 285,000 285,000
Property, plant, and equipment (net of accumulated depreciation of P75,000 and P90,000 as
of Dec. 31, 2020, and Dec. 31, 2019, respectively.) 105,000 247,500
Intangible assets, net 15,000 22,500
Total Assets P555,000 P630,000

LIABILITIES
Accounts payable P75,000 P187,500
Income taxes payable 30,000 15,000
Deferred taxes payable 45,000 30,000
Total liabilities 150,000 232,500

EQUITY
Share capital 97,500 97,500
Retained earnings 307,500 300,000
Total equity 405,000 397,500
Total liabilities and equity P555,000 P630,000

EGG CELL CORPORATION

Statement of Financial Performance
For the year ended December 31, 2020
Sales P450,000
Cost of sales (150,000)
Gross profit 300,000
Administrative and selling expenses (30,000)
Interest expense (30,000)
Depreciation of Property, plant and equipment (30,000)
Amortization of intangible asset (7,500)
Dividend income 45,000
Profit before income taxes 247,500
Income tax expense (60,000)
Profit P187,500
Additional information:

 The company pays salaries and other employee dues before the end of each month. All administration and selling expenses
incurred were paid before December 31, 2020.
 Dividend income comprised dividends received from available-for-sale securities. This was received before December 31,
2020. Dividends received were classified under investing activities in last year’s statement of cash flows.
 Equipment with a carrying amount of P112,500 and cost of P157,500 were sold for P112,500.
 The company declared and paid dividends of P180,000 to its shareholders during 2020.

Requirements:

1. Cash collections from customers 2. Cash paid to suppliers and employees

3. Cash paid for income taxes 4. Net cash provided by operating activities
5. Net cash used by investing and financing activities

PROBLEM 2. Panuhot Company was organized on January 1, 2020. On the same date, 25,000, P100 par value, ordinary shares were
issued in exchange for property, plant, and equipment valued at P3,000,000 and cash of P1,000,000. The ff. data summarize the
activities for 2020:

a) Profit for the year ended December 31, 2020 was P1,000,000.

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         GENSANTOS FOUNDATION COLLEGE, INC.
Bulaong Extension, General Santos City 9500
BSA/BSMA Department
AUDITING PROBLEMS E.J. SEBUA, CPA
b) Raw materials on hand on December 31 were equal to 25% of raw materials purchased.
c) Manufacturing costs were distributed as follows:

Materials used 50% Direct labor 30% Factory overhead 20% (including depreciation of
building, P100,000

d) Goods in process remaining in the factory on December 31 were equal to 1/3 of the goods finished and transferred to stock.
e) Finished goods remaining in stock on December 31 were equal to 25% of the cost of goods sold.
f) Operating expenses were 30% of sales.
g) Cost of goods sold was 150% of the operating expenses total.
h) Ninety percent of sales were collected during 2020. The balance was considered collectible.
i) Seventy-five percent of the raw materials purchased were paid for. There were no expense accruals or prepayments at the
end of the year.

Questions:

1. Sales for the year ended December 31, 2020 2. Total manufacturing cost for the year ended Dec. 31,
2020
3. Cash as of December 31, 2020 4. Total current assets as of December 31, 2020
5. Total liabilities and equity as of December 31, 2020

PROBLEM 3. Presented below are SHIFT COMPANY’s comparative statements of financial position and income statements:

SHIFT COMPANY
COMPARATIVE STATEMENTS OF FINANCIAL POSITION
December 31, 2014 and 2013
Assets 2014 2013
Cash P119,000 P98,000
Accounts Receivable 312,000 254,000
Inventory 278,000 239,000
Prepaid expenses 35,000 21,000
Non-trading equity securities 59,000 0
Property, plant and equipment 536,000 409,000
Accumulated Depreciation (76,000) (53,000)
Total assets P1,263,000 P968,000

Liabilities and Shareholder’s Equity

Accounts Payable P212,000 P198,000
Accrued expenses 98,000 76,000
Dividends payable 40,000 0
Notes payable – due 2015 125,000 0
Ordinary share capital 600,000 550,000
Retained earnings 188,000 144,000
Total liabilities and shareholder’s equity P1,263,000 P968,000

SHIFT COMPANY
CONDENSED COMPARATIVE INCOME STATEMENTS
For the years ended December 31, 2014 and 2013
2014 2013
Net sales P3,561,000 P3,254,000
Cost of goods sold 2,789,000 2,568,000
Gross income 772,000 686,000
Expenses 521,000 486,000
Net income P251,000 P200,000
Note: All accounts receivable and accounts payable relate to trade merchandise. The proceeds from the notes payable were used to
finance plant expansion. Ordinary shares were sold to provide additional working capital.

Requirements:

1. Cash collected from AR, assuming all sales are on 2. Total purchases, assuming all purchases of inventory
account are on account.
3. Cash payments made on AP to suppliers 4. Dividends declared
5. Cash payments for dividends 6. Cash receipts not provided by operations
7. Cash payments for assets that were not reflected in 8. Net cash provided by operating activities.

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         GENSANTOS FOUNDATION COLLEGE, INC.
Bulaong Extension, General Santos City 9500
BSA/BSMA Department
AUDITING PROBLEMS E.J. SEBUA, CPA
operations
9. Net cash provided by financing activities 10. Cash payments for expenses

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