CPAR AUD 2205 1st Final Preboard 140

CPA REVIEW SCHOOL OF THE PHILS.
AUDITING
Auditing Theory the changed engagement, the report issued would be that appropriate for the revised terms of
Theory on Auditing & Attestation Services engagement and would include reference to:
1. Which of the following services provides the lowest level of assurance on a financial I. The original engagement.
statement? II. Any procedures that may have been performed in the original engagement.
A. An audit A. I only. C. Both I and II.
B. A review B. II only. D. Neither I nor II.
C. Neither service provides assurance on financial statements
D. Each service provides the same level of assurance on financial statements 7. An examination of part of an organization's procedures and methods for the purpose of
evaluating efficiency and effectiveness is what type of audit?
2. In an assurance engagement, the responsible party and the intended users A. Compliance audit C. Operational audit
A. should be from the same entity. B. Financial statement audit D Production audit
B. should be from different entities.
C. may be from the same entity or different entities. Client Acceptance & Continuance
D. are both responsible for determining the nature, timing and extent of the procedures to 8. Before accepting an engagement to audit a new client, a CPA is required to obtain
be performed. A. the prospective client’s signature to the engagement letter.
B. an understanding of the prospective client’s industry and business.
3. The subject matter of an assurance engagement can take the following forms, except C. a preliminary understanding of the prospective client’s control environment.
A. the entity’s internal control system. D. the prospective client’s consent to make inquiries of the predecessor auditor, if any.
B. evaluation of capital investment proposal.
C. historical or prospective financial statements. 9. The purpose of an engagement letter is to
D. performance of an entity that could indicate efficiency and effectiveness. A. document the terms of the engagement.
B. emphasize management’s responsibility for approving the audit program.
4. Which of the following is not an assurance engagement? C. document the CPA firm’s responsibility to external users of the audited financial
A. Compilation of financial or other information. statements.
B. Engagements to report on financial information. D. notify the audit staff of an upcoming engagement so that personnel scheduling can be
C. Engagements to report on non-financial information. facilitated.
D. Engagement to provide high or moderate level of assurance.
The Risk-Based Financial Statement Audit
5. Nonassurance engagements include all of the following, except 10. The date of the end of the latest period covered by the financial statements, which is normally
A. compliance audit. the date of the most recent balance sheet in the financial statements subject to audit is the
B. management consulting. A. Date of the auditor’s report.
C. agreed-upon procedures. B. Date of the financial statements.
D. preparation of tax returns where no conclusion is expressed. C. Date the financial statements are issued.
D. Date of approval of the financial statements.
6. An auditor, who, before the completion of the engagement, is requested to change the
engagement to one which provides a lower level of assurance, should consider the 11. An entity’s management is responsible for the preparation and fair presentation of the
appropriateness of doing so. If the auditor concludes that there is reasonable justification to financial statements. Its responsibility includes the following, except
change the engagement and if the audit work performed complies with the PSAs applicable to
May 2022 First & Final Preboard Examination Page 1 of 32
CPA REVIEW SCHOOL OF THE PHILS. AUDITING
A. Selecting and applying appropriate accounting policies. D. verify that the internal auditors’ assessment of control risk is comparable to the
B. Making accounting estimates that are reasonable in the circumstances. independent auditor’s assessment.
C. Assessing the risks of material misstatement of the financial statements.
D. Designing, implementing, and maintaining internal control relevant to the preparation and 16. Which of the following statements is incorrect?
presentation of financial statements. A. In planning attendance at the physical inventory count, the auditor would consider
whether an expert’s assistance is needed.
12. Inherent limitations in an audit stem from the following factors except B. Where attendance at physical inventory count is impracticable, the auditor should
A. use of testing. consider expressing a qualified opinion or a disclaimer of opinion.
B. incompetence of an auditor. C. When inventory is material to the financial statements, the auditor should obtain sufficient
C. accounting and internal control system limitation. appropriate audit evidence regarding its existence and condition by attendance at
D. most audit evidence is persuasive rather than conclusive. physical inventory count unless impracticable.
D. When inventory is situated in several locations, the auditor would consider at which
Planning the Audit & Performing Risk Assessment Procedures locations attendance is appropriate, taking into account the materiality of the inventory
13. Assistants to whom work is delegated need appropriate direction. Direction involves and the assessment of inherent and control risk at different locations.
A. Informing assistants of their responsibilities and the objectives of the procedures they are
to perform. 17. Which of the following procedures would an auditor least likely perform in planning a financial
B. Informing assistants of matters, such as the nature of the entity’s business and possible statement audit?
accounting or auditing problems that may affect the nature, timing, and extent of audit A. Reading the current year interim financial statements.
procedures with which they are involved. B. Coordinating the assistance of entity personnel in data preparation.
C. Both A and B. C. Selecting a sample of vendors’ invoices for comparison to receiving reports.
D. Neither A nor B. D. Discussing matters that may affect the audit with firm personnel responsible for non-
audit services to the entity.
14. Internal auditing can affect the scope of the external auditor’s audit of financial statements by
A. Decreasing the external auditor’s need to perform detailed tests. 18. When considering internal control, an auditor must be aware of the concept of reasonable
B. Allowing the external auditor to limit his/her audit to substantive testing. assurance which recognizes that the
C. Eliminating the need to be on hand during the physical count of inventory. A. cost of internal control should not exceed the benefits expected to be derived therefrom.
D. Limiting direct testing by the external auditor to assertions not directly tested by internal B. separation of incompatible functions is necessary to ascertain that the internal control is
auditing. effective.
C. employment of competent personnel provides assurance that management’s control
15. When assessing internal auditors’ objectivity, an independent auditor should objectives will be achieved.
A. review the internal auditors’ reports to determine that their conclusions are consistent D. establishment and maintenance of internal control is an important responsibility of the
with the work performed. management and not of the auditor.
B. consider the policies that prohibit the internal auditors from auditing areas where they
were recently assigned. 19. Which of the following statements is correct regarding internal control?
C. evaluate the quality of the internal auditors’ working paper documentation and their A. A well-designed internal control environment ensures the achievement of an entity’s
recent audit recommendations. control objectives.
B. An inherent limitation to internal control is the fact that controls can be circumvented by
management override.
C. A well-designed and operated internal control environment should detect collusion D. indicate whether materiality thresholds for planning and evaluation purposes are
perpetrated by two people. sufficiently high.
D. Internal control is a necessary business function and should be designed and operated
to detect all errors and fraud. 25. The auditor ordinarily assesses control risk at a high level for some or all assertions when
A. The entity’s accounting and internal control systems are not effective.
20. The overall attitude and awareness of an entity’s board of directors concerning the B. Evaluating the effectiveness of the entity’s accounting and internal control systems would
importance of internal control usually is reflected in its not be efficient.
A. computer-based controls. C. safeguards over access to assets. C. Either A or B.
B. control environment. D. system of segregation of duties. D. Neither A nor B.
21. The following are control environment factors, except 26. Which of the following should an auditor do when control risk is assessed at the maximum
A. Management’s philosophy and operating style. level?
B. Limiting direct physical access to assets and records. A. Document the assessment.
C. The function of the board of directors and its committees. B. Perform more tests of controls.
D. Management’s control system including the internal audit function, personnel policies and C. Perform fewer substantive tests of details.
procedures and segregation of duties. D. Document the internal control system more extensively.
22. Which of the following can an auditor observe as a general control procedure used by 27. The preliminary assessment of control risk is the process of evaluating the efficiency of an
companies? entity’s accounting and internal control systems in preventing or detecting and correcting
A. Segregation of functional responsibilities. material misstatements.
B. Management philosophy and operating style. The auditor should document in the audit working papers the understanding obtained of the
C. External influences such as bank examiner audits. entity’s accounting and internal control systems and the assessment of control risk.
D. Open lines of communication to the audit committee of the board of directors. There will always be some control risk because of the inherent limitations of any accounting
and internal control systems.
23. Which of the following is a definition of control risk? A. False; False; True. C. True; False; True.
A. The risk that the auditor will not detect a material misstatement. B. False; True; True. D. True; True; False.
B. The risk that the auditor’s assessment of internal controls will be at less than the
maximum level. 28. Which of the following statements best describes an auditor’s responsibility regarding
C. The susceptibility of material misstatement assuming there are no related internal control misstatements?
policies or procedures. A. An auditor has no responsibility to detect material misstatements because an auditor is
D. The risk that a material misstatement will not be prevented or detected on a timely basis not an insurer and an audit does not constitute a guarantee.
by the client’s internal controls. B. An auditor should plan and perform an audit to provide reasonable assurance of
detecting misstatements that are material to the financial statements.
24. An auditor uses assessed control risk to C. An auditor is responsible to detect material errors but has no responsibility to detect
A. evaluate the effectiveness of the entity’s internal controls. material fraud that is concealed through employee collusion or management override of
B. determine the acceptable level of detection risk for financial statement assertions. internal control.
C. identify transactions and account balances where inherent risk is at the maximum.

D. An auditor has no responsibility to detect material misstatements unless analytical 33. The auditor looks for an indication on duplicate sales invoices to see if the invoices have
procedures or tests of transactions identify conditions causing a reasonably prudent been verified. This is an example of
auditor to suspect that the financial statements were materially misstated. A. a test of control.
B. a test of details of balances.
29. A service organization’s internal control may interact with that of the client. The user auditor C. a substantive test of transactions.
A. Is not required to evaluate the service organization’s controls. D. both a test of control and a substantive test of transactions.
B. Should obtain absolute assurance that the service organization’s internal control will
prevent or detect errors or fraud. 34. Which of the following statements about tests of controls is most accurate?
C. Should not consider weaknesses in the service organization’s internal control to be A. Tests of controls should be based upon proper application of an appropriate statistical
weaknesses in the client’s system. sampling plan.
D. Need not be concerned with the service organization’s internal control if the client has B. Tests of controls ordinarily should be performed as of the balance sheet date or during
effective controls related to service organization processing. the period subsequent to that date.
C. Tests of controls include observations of the proper segregation of duties that ordinarily
30. Which of the following questions would not appear in an internal control questionnaire relating may be limited to the normal audit period.
to cash disbursements? D. Auditing procedures cannot concurrently provide both evidence of the effectiveness of
A. Are prelistings made of all cash receipts? internal control procedures and evidence required for substantive tests.
B. Is each check supported by an approved voucher?
C. Are all disbursements except for petty cash made by check?
35. Which of the following is not among the risk assessment procedures that the auditor should
D. Are imprinted and prenumbered checks used and is a check protection device used in
perform in obtaining an understanding of the entity and its environment, including its internal
printing the check amount?
control?
A. Confirmation
31. Which of the following observations, made during the preliminary survey of a local department
B. Analytical procedures
store’s disbursement cycle, reflects a control strength?
C. Observation and inspection
A. Individual department managers use prenumbered forms to order merchandise from
D. Inquiries of management and others within the entity
vendors.
B. The receiving department is given a copy of the purchase order complete with a
description of goods, quantity ordered, and extended price for all merchandise ordered. 36. Which of the following controls may prevent the failure to bill customers for some shipments?
C. The treasurer’s office prepares checks for suppliers based on vouchers prepared by the A. Each sales order should be approved by authorized personnel.
accounts payable department. B. Each sales invoice should be supported by a shipping document.
D. Individual department managers are responsible for the movement of merchandise from C. Sales journal entries should be reconciled to daily sales summaries.
the receiving dock to storage or sales areas as appropriate. D. Each shipment should be supported by a prenumbered sales invoice that is accounted
for.
32. A procedure that involves tracing a transaction from its origination through the company’s
information systems until it is reflected in the company’s financial report is referred to as a(n) 37. Which of the following procedures would an auditor most likely perform to test controls
A. analytical analysis. C. test of a control. relating to management’s assertion about the completeness of cash receipts for cash sales at
B. substantive procedure. D. walk-through. a retail outlet?
A. Inquire about employees’ access to recorded but undeposited cash.
B. Observe the consistency of the employees’ use of cash registers and tapes.
C. Compare the cash balance in the general ledger with the bank confirmation request. C. Observation and inspection of records.
D. Trace deposits in the cash receipts journal to the cash balance in the general ledger. D. Analytical procedures and reperformance.
Risk Responses 42. Auditors may use positive and/or negative forms of confirmation requests. An auditor most
38. A financial statement audit client has an information processing system where all information likely will use
is transmitted, processed, and maintained electronically. Because the company has very little A. The negative form for small balances.
tangible data available, the auditor has decided that it will be impossible to do enough B. The positive form to confirm all balances regardless of size.
substantive testing to reduce the risk of material misstatement to an acceptably low level. C. A combination of the two forms, with the positive form used for trade balances and the
What should the auditor do in that situation? negative form for other balances.
A. Withdraw from the engagement. D. The positive form, when the combined assessed level of inherent and control risk for
B. Express a qualified opinion or disclaim an opinion. related assertions is acceptably low, and the negative form when it is unacceptably high.
C. Perform additional tests of controls to reduce the risk of material misstatement.
D. Recommend that the client convert a portion of the information processing system to a 43. Which of the following procedures would an auditor most likely perform for year-end accounts
manual system so backup documentation can be made available to the auditor. receivable confirmation when the auditor did not receive replies to second requests?
A. Review the cash receipts journal for the month prior to year-end.
Objective Objectives, Procedures, Evidences & Documentation B. Intensify the study of internal control concerning the revenue cycle.
39. During an audit of a company’s stockholders’ equity accounts, the auditor determines whether C. Increase the assessed level of detection risk for the existence assertion.
there are restrictions on retained earnings resulting from loans, agreements, or law. This audit D. Inspect the shipping records documenting the merchandise sold to the debtors.
procedure most likely is intended to verify management’s assertion of
A. Completeness. C. Presentation and disclosure. 44. Which of the following procedures relating to the examination of accounts payable could the
B. Existence. D. Valuation and allocation. auditor delegate entirely to the client’s employees?
A. Prepare a schedule of accounts payable.
40. Significant unexpected fluctuations identified by analytical procedures will usually necessitate B. Test footings in the accounts payable ledger.
a(n) C. Mail confirmations for selected account balances.
A. auditor investigation. D. Reconcile unpaid invoices to vendors’ statements.
B. audit report modification.
C. explanation in the representation letter. 45. The sequence of steps in gathering evidence as the basis of the auditor’s opinion is
D. understanding of the client’s internal control. A. assessment of control risk, tests of controls, and substantive tests.
B. tests of controls, assessment of control risk, and substantive tests.
41. An auditor has identified the controller’s review of the bank reconciliation as a control to test. C. substantive tests, assessment of control risk, and tests of controls.
In connection with this test, the auditor interviews the controller to understand the specific D. assessment of control risk, substantive tests, and tests of controls.
data reviewed on the reconciliation. In addition, the auditor verifies that the bank
reconciliation is properly prepared by the accountant and reviewed by the controller as 46. Which of the following presumptions is correct about the reliability of audit evidence?
evidenced by their respective sign-offs. Which of the following types of audit procedures do A. To be reliable, audit evidence should be convincing rather than persuasive.
these actions illustrate? B. Reliability of audit evidence refers to the amount of corroborative evidence obtained.
A. Confirmation and reperformance. C. Information obtained indirectly from outside sources is the most reliable audit evidence.
B. Inquiry and inspection of records. D. Effective internal control provides more assurance about the reliability of audit evidence.
47. The most reliable type of audit evidence that an auditor can obtain is 52. To provide assurance that each voucher is submitted and paid only once, an auditor most
A. external documents. likely would examine a sample of paid vouchers and determine whether each voucher is
B. physical examination by the auditor. A. approved for authorized purchases. C. stamped “paid” by the check signer.
C. confirmations received directly from third parties. B. prenumbered and accounted for. D. supported by a vendor’s invoice.
D. calculations by the auditor from company records.
53. The size of a sample designed for dual-purpose testing should be
48. Which of the following types of documentary evidence should the auditor consider to be the A. The larger of the samples that would otherwise have been designed for the two separate
most reliable? purposes.
A. Confirmation of an account payable balance mailed by and returned directly to the B. The smaller of the samples that would otherwise have been designed for the two
auditor. separate purposes.
B. A sales invoice issued by the client and supported by a delivery receipt from an outside C. The combined total of the samples that would otherwise have been designed for the two
trucker. separate purposes.
C. A working paper prepared by the client’s controller and reviewed by the client’s treasurer. D. More than the larger of the samples that would otherwise have been designed for the two
D. A check, issued by the company and bearing the payee’s endorsement, that is included separate purposes, but less than the combined total of the samples that would otherwise
with the bank statements mailed directly to the auditor. have been designed for the two separate purposes.
49. During an audit engagement, pertinent data are compiled and included in the audit working Completing the Audit
papers. The working papers primarily are considered to be 54. The following statements relate to the auditor’s responsibilities regarding related parties and
A. evidence supporting financial statements. transactions with such parties. Which is incorrect?
B. a record to be used as a basis for the following year’s engagement. A. A financial statement audit cannot be expected to detect all related party transactions.
C. support for the auditor’s representations as to compliance with relevant PSAs. B. The auditor is responsible for the identification and disclosure of related parties and
D. a client-owned record of conclusions reached by the auditors who performed the transactions with such parties.
engagement. C. Management is required to implement adequate internal control to ensure that
transactions with related parties are appropriately identified in the information system and
Audit Sampling disclosed in the financial statements.
50. Each time an auditor draws a conclusion based on evidence from a sample, an additional D. The auditor should have a sufficient understanding of the entity and its environment to
risk, sampling risk, is introduced. An example of sampling risk is identify events, transactions, and practices that may result in a risk of material
A. Drawing an erroneous conclusion from sample data. misstatement regarding related parties and transactions with such parties.
B. Improperly applying a proper audit procedure to sample data.
C. Properly applying an improper audit procedure to sample data. 55. An auditor is concerned with completing various phases of the audit after the balance sheet
D. Projecting the results of sampling beyond the population tested. date. This subsequent period extends to the date of the
A. Auditor’s report.
51. In a sampling application, the group of items about which the auditor wants to estimate some B. Final review of the audit working papers.
characteristic is called C. Public issuance of the financial statements.
A. Attribute of interest. C. Sample. D. Delivery of the auditor’s report to the client.
B. Population. D. Sampling unit.

56. Which of the following statements concerning the auditor’s responsibility regarding D. An unqualified opinion with a separate explanatory paragraph.
subsequent events is incorrect?
A. The auditor does not have any responsibility to perform audit procedures or make inquiry 60. The auditor shall express an adverse opinion when
regarding the financial statements after the date of the auditor’s report. A. The auditor, having obtained sufficient appropriate audit evidence, concludes that
B. The audit procedures to identify events that may require adjustment of, or disclosure in, misstatements, individually or in the aggregate, are material, but not pervasive, to the
the financial statements should be performed as near as practicable to the date of financial statements.
issuance of the audited financial statements. B. The auditor, having obtained sufficient appropriate audit evidence, concludes that
C. When the auditor becomes aware of events which materially affect the financial misstatements, individually or in the aggregate, are both material and pervasive to the
statements, the auditor should consider whether such events are properly accounted for financial statements.
and adequately disclosed in the financial statements. C. The auditor is unable to obtain sufficient appropriate audit evidence on which to base the
D. The auditor should perform audit procedures designed to obtain sufficient appropriate opinion, but the auditor concludes that the possible effects on the financial statements of
audit evidence that all events up to the date of the auditor’s report that may require undetected misstatements, if any, could be material but not pervasive.
adjustment of, or disclosure in, the financial statements have been identified. D. The auditor is unable to obtain sufficient appropriate audit evidence on which to base the
opinion, and the auditor concludes that the possible effects on the financial statements of
Reports on Audit on Financial Statements undetected misstatements, if any, could be both material and pervasive.
57. The date on which those with the recognized authority assert that they have prepared the
entity’s complete set of financial statements, including the related notes, and that they have 61. Under which of the following circumstances is a disclaimer of opinion inappropriate?
taken responsibility for them is the A. The financial statements fail to contain adequate disclosure concerning related party
A. Date of the auditor’s report. transactions.
B. Date of the financial statements. B. The client refuses to permit its attorney to furnish information requested in a letter of
C. Date the financial statements are issued. audit inquiry.
D. Date of approval of the financial statements. C. The auditor is unable to determine the amounts associated with fraud committed by the
client’s management.
58. A continuing accountant is one who has been engaged to audit, review, or compile and report D. The auditor is engaged after fiscal year-end and is unable to observe physical inventories
on the financial statements of the current period and one or more consecutive periods or apply alternative procedures to verify their balances.
immediately prior to the current period. A continuing accountant who performs the same or a
higher level of service with respect to the financial statements of the current period should Auditing in a CIS Environment
A. Disclaim any assurance on the prior periods’ statements. 62. An affordable yet powerful self-contained general purpose computer which consists typically
B. Reissue the report on the financial statements of a prior period. of a central processing unit (CPU), monitor, keyboard, disk drives, printer cables, and
C. Update his/her report on the financial statements of a prior period. modems is a/an
D. Express an adverse opinion with respect to the prior period’s financial statements. A. Mainframe C. Personal computer
B. On-line computer D. Terminal
59. When a scope limitation has precluded the auditor from obtaining sufficient competent
evidential matter to determine whether certain client acts are illegal, (s)he would most likely 63. An entity installed antivirus software on all its personal computers. The software was
express designed to prevent initial infections, stop replication attempts, detect infections after their
A. Either a qualified opinion or an adverse opinion. occurrence, mark affected system components, and remove viruses from infected
B. Either a disclaimer of opinion or a qualified opinion. components. The major risk in relying on antivirus software is that it may
C. Either an adverse opinion or a disclaimer of opinion. A. Not detect certain viruses.
B. Interfere with system operations. 68. An accountant may perform an agreed-upon procedures engagement regarding prospective
C. Consume too many system resources. financial statements provided that
D. Make software installation too complex. A. The prospective financial statements are also examined.
B. Use of the report is to be restricted to the specified users.
Attestation Services C. Responsibility for the sufficiency of the procedures performed is taken by the accountant.
64. Auditors are often requested to report on interim financial statements. A review of interim D. Negative assurance is expressed on the prospective financial statements taken as a
financial information consists primarily of whole.
A. Vouching and tracing.
B. Confirmation and observation. Governance, Ethics & Quality Management
C. Reconciliation and reperformance. 69. Safeguards created by the profession, legislation or regulation include the following, except
D. Inquiries and analytical procedures. A. Professional standards.
B. Firm-wide and engagement specific safeguards.
65. Which of the following procedures would a CPA ordinarily perform when reviewing the C. Continuing professional development requirements.
financial statements of an entity in accordance with Philippine Standards on Review D. Educational, training and experience requirements for entry into the profession.
Engagements (PSREs)?
A. Compare the financial statements with budgets or forecasts. 70. The accounting firm should establish policies and procedures designed to promote an internal
B. Apply year-end cutoff tests for the sales and purchasing functions. culture based on the recognition that quality is essential in performing engagements. This
C. Obtain an understanding of the entity’s internal control components. may be communicated through the following means except
D. Document whether control risk is assessed at or below the maximum level. A. formal and informal dialogue. C. publication in PICPA newsletter.
B. mission statements. D. training seminars.
66. The date of the review report should
A. Coincide with the balance sheet date.
B. Not be later than the balance sheet date. Auditing Problem
C. Be earlier than the date on which the financial statements were approved by Audit of Cash & Cash Equivalent
management. The next two items are based on the following information.
D. Not be earlier than the date on which the financial statements were approved by You are conducting an audit of the TRALALA COMPANY for the year ended December 31, 2022.
management. The company’s internal control procedures over cash transactions were not adequate. Elma
Noknok, the bookkeeper-cashier, handles cash receipts, maintains accounting records, and
67. When engaged to compile the financial statements of an entity, an accountant is required to prepares the monthly reconciliations of the bank account.
possess a level of knowledge of the entity’s accounting principles and practices. This Elma Noknok prepared the following reconciliation at the end of the year:
requirement most likely will include obtaining a general understanding of the Balance per bank statement P 1,050,000
A. design of the entity’s internal controls implemented. Add: Deposit in transit P 525,750
B. risk factors relating to misstatements arising from illegal acts. Note collected by bank 45,000 570,750
C. internal control awareness of the entity’s senior management. Balance 1,620,750
D. nature of the entity’s business transactions, the form of its accounting records and the Less: Outstanding checks 740,250
accounting basis on which the financial information is to be presented. Balance per general ledger P880,500
In the process of your audit, you gathered the following information:

A. At December 31, 2022, the bank statement and the general ledger showed balances of Cash receipts are summarized weekly. The cash receipts book for December is shown below:
P1,050,000 and P880,500, respectively. Dec. 1 Balance from November 30 P526,348
B. The cut-off bank statement showed a bank charge on January 2, 2023 for P90,000 8 Received on accounts 5,154,960
representing a correction of an erroneous bank credit. 15 Received on accounts 5,489,512
C. Included in the list of the outstanding checks were the following: 22 Received on accounts 931,964
1. A check payable to a supplier, dated December 30, 2022, in the amount of P44,250, 29 Received on accounts 1,177,370
released on January 4, 2023. P13,060,154
2. A check representing advance payment to a supplier in the amount of P111,630, the date
of which is January 3, 2023, and released in December 2022. The cash payments record for December shows the following details:
3. On December 31, 2022, the company received and recorded a customer’s postdated Dec. 1 November service charge P1,800
check in the amount of P150,000. 3 Checks 1,047,300
5 Checks 729,042
Based on the result of your audit, compute the following questions: [1] 8 Checks 3,278,978
10 Checks 3,174,684
71. The adjusted cash to be shown in the statement of financial position as at December 31, 12 Checks 969,778
2022: 19 Checks 724,566
A. P706,380 C. P796,380 22 Checks 738,418
B. P751,380 D. P931,380 31 Checks 1,531,540
31 Balance 862,248
72. The cash shortage as at December 31, 2022: P13,060,154
A. P24,120 C. P174,120
B. P135,000 D. P180,000 Cash on hand on December 31 amounted to P20,000. The transactions per the December bank
statement, which are correctly recorded by the bank, show that deposits amounted to P12,574,184;
checks paid amounted to P11,590,406; service charge for the month was P2,000; and a charge of
The next three items are based on the following information. P20,000 was made against the account because of the return unpaid of customer’s check. The
You are examining the records of ORLANDO COMPANY where internal control is found to be service charge and the returned check were not recorded on the client’s books. The total of
weak. Part of your work includes reconciliation of cash for December 2022. You have determined outstanding checks as of December 31 was found to be P822,100.
that the client’s cash reconciliation as of November 30, 2022, is correct. The following information
is available to you: Questions: [2]
Client’s reconciliation, November 30, 2022
Cash per general ledger P 526,348 73. The cash shortage as of December 31 is
Less: Cash on hand 42,178 A. P 0 C. P218,200
484,170 B. P201,800 D. P221,800
Less: Bank service charge for November 1,800
482,370 74. The adjusted book balance on November 30 is
Add: Outstanding checks 198,200 A. P524,548 C. P1,062,048
Balance per bank P 680,570 B. P840,248 D. P1,283,848

75. The adjusted bank receipts and disbursements for December are June 21 12,000 56,000
A. B. C. D. June 27 18,000
Receipts P12,552,006 P12,552,006 P12,753,806 P12,753,806 June 29 1,000 EC 1,000 EC
Disbursements P12,214,306 P12,236,306 P11,590,406 P12,216,306 June 30 200 SV June 30 3,000
DM
SV – Service Charge DM – Debit Memo
The next five items are based on the following information. EC – Error Corrected CM – Credit Memo
Shown below is the May 31, 2022 bank reconciliation prepared by PANALO CORPORATION’s
staff: The paid checks accompanying this bank statement (all clearing in June) are the following:
Panalo Corporation No. 652 P 8,000
Bank Reconciliation: BPI Acct No. 0021261 No. 653 2,000
May 31, 2022 No. 654 14,000
Bank balance P 652,000 No. 655 4,000
Add: Deposit in transit 10,000 No. 657 12,000
Total P 662,000 No. 658 18,000
Less: Outstanding checks
No. 640 P 10,000 The check register reveals that the last check issued in June is No. 659 for P5,000 and that check
652 8,000 no. 656 is for P2,600. Cash received for the period June 22 through June 30 of P70,000 was
653 2,000 20,000 deposited in the bank on July 1. The bank erroneously charged the company P1,000 on June 29
Adjusted balance P 642,000 but immediately corrected the error on the same date.
Book balance P 570,800 The debit memos on June 13 and June 30 represent customers’ NSF checks returned by the bank.
Add: Proceeds of note receivable collected in May P 70,000 The June 13 NSF check was immediately redeposited without entry. The June 30 NSF check was
Deposit on May 31 not recorded on books until June 2,000 72,000 redeposited on July 1 without entry.
Total P 642,800
Less: Bank service charge 800 Based on the result of your audit, answer the following questions: [3]
Adjusted balance P642,000
The June 2022 bank statement is shown below: 76. What is the total bank receipts in June per bank statement?
Bank of the Philippine Islands A. 77,000 C. 87,000
From May 31, 2022 to June 30, 2022 B. 78,000 D. 88,000
Account No.: 0021261
Date Checks Deposit 77. What is the total bank disbursements in June per bank statement?
June 1 P 8,000 P 10,000 A. 58,000 C. 59,200
June 8 2,000 B. 58,200 D. 63,200
June 11 14,000 20,000
June 13 1,000 DM 1,000 78. What is the total receipts in June per books?
June 16 4,000 A. 88,000 C. 218,000
B. 146,000 D. 220,000
approved purchase order was at P70.

79. What is the total disbursement in June per books? Yankee Co. 83,520 Invoice dated 12/30/2022 was for a sale made on the same
A. 53,000 C. 57,400 date. An additional clause in the sales agreement with
B. 56,400 D. 63,200 Yankee Co. is to install the merchandise sold which the
company is yet to accomplish as of December 31. The
80. What is the balance per books on June 30, 2022? installation service is considered as a separate performance
A. 627,200 C. 729,200 obligation contract and based on pro-rata allocation, you
B. 676,800 D. 732,400 determined that 20% of the invoice price is attributable to
the unearned installation service revenue.
Xylon, Inc. 143,600 The difference was due to the invoice dated 12/30/2022.
Audit of Receivables Goods have not been received by Xylon, Inc. yet as of
The next five items are based on the following information. 12/31/2022. Term of sale is FOB Shipping Point.
You are revisiting the audit working paper presented to you by your audit staff in line with his audit Winnie Co. 326,400 Credit memo for customer returns for damaged goods worth
procedures done in auditing CLAUDIA CORPORATION’s accounts receivable. The following were P18,840 related to the invoice dated 11/17/2022 was
lifted from the said working papers: recorded in January of the following year.
A. CLAUDIA CORPORATION’s accounts receivable subsidiary ledger had the following details: Vicor Corp. 200,000 Invoice dated 12/10/2022 was the sales price of 2,500 units
Customer Invoice date Invoice amount Balance of merchandise delivered to Vicor Corp. on the same date
Zinc, Inc. 12/6/2022 P 127,000 on consignment basis. As of December 31, per Vicor
10/29/2022 84,000 P211,000 Corp.’s reply, 500 units still remained on hand. The
Yankee Co. 12/30/2022 42,000 consignment agreement provides Vicor Corp. a commission
9/27/2022 30,000 of 20% based on sales.
8/20/2022 53,520 125,520 Ursula, Inc. No reply Ursula, Inc. is under liquidation and the amount receivable
Xylon, Inc. 12/30/2022 40,000 from the company is deemed definitely uncollectible.
12/8/2022 80,000
11/25/2022 63,600 183,600 C. The balance of the allowance for doubtful accounts at the beginning of the year was at
Winnie Co. 11/17/2022 138,840 P52,500. During the year, the company wrote off P44,200 receivables and recovered P24,800
10/9/2022 132,000 from the previously written-off accounts. The company’s policy with regard uncollectible
8/20/2022 74,400 345,240 accounts are summarized below:
Vicor Corp. 12/10/2022 250,000 250,000 Age % of collectibility
Ursula, Inc. 9/12/2022 104,400 104,400 0-30 days 99%
Total P 1,219,760 31-60 days 98%
61-90 days 95%
B. The accounts receivables balance were confirmed with the customers. You have noted the 91-120 days 90%
following exceptions: Over 120 days 50%
Balance per
Customer reply Remarks Based on the result of your audit, answer the following questions: [4]
Zinc, Inc. P 197,000 The invoice dated 10/29/2022 was erroneously priced at
P84 per unit. The agreed upon price per the customer’s 81. What is the correct balance of the accounts receivable from Zinc, Inc.?
A. 127,000 C. 207,000 Peejong 12/06/2022 112,000

B. 197,000 D. 211,000 11/29/2022 169,440 281,440
Total P 1,446,720
82. What is the correct balance of the accounts receivable from Vicor Corp.? Additional information:
A. 100,000 C. 160,000 A. You discovered based on your review of subsequent events that Balong recently went
B. 120,000 D. 200,000 bankrupt, thus you suggested that the receivable from the same shall be written off.
B. You also discovered that the invoice dated 12/02/2022 has already been settled by Tisoy per
83. What is the correct balance of the accounts receivable gross of any allowances as of OR number 34675. This amount however has been erroneously posted against Gusoy’s
December 31? subsidiary ledger as a settlement for an invoice dated 11/05/2022 for the same amount.
A. 900,520 C. 984,120 C. The estimated bad debt rates (expected credit loss rates) below are based on the company’s
B. 950,520 D. 1,004,520 receivable collection experience:
Age of accounts Expected credit loss rates
84. What is the correct allowance for bad debts as of December 31, 2022? 0 – 30 days 2%
A. 84,802 C. 85,910 31 – 60 days 5%
B. 85,138 D. 86,310 61 – 90 days 10%
91 – 120 days 20%
85. What is the correct bad debt expense? Over 120 days 50%
A. 156,102 C. 157,210
B. 156,438 D. 157,610 Based on the result of your audit, answer the following questions: [5]
The next five items are based on the following information. 86. Assuming that there were no other entries to the allowance for doubtful accounts, what is the
You are auditing the Accounts Receivable of CRUZ, INC. as of December 31, 2022. You found the correct bad debt expense for the year?
following information in the general journal: A. 92,704 C. 141,984
Accounts receivable P 1,466,720 B. 95,680 D. 144,960
Less: Allowance for doubtful accounts (46,720)
Accounts receivable net P 1,420,000 87. What is the correct allowance for bad debt expense for the year ended December 31, 2022?
The accounts receivable subsidiary ledger had the following details: A. 117,344 C. 153,024
Customer Invoice date Amount Balance B. 120,320 D. 156,000
Gudang 9/12/2022 P 139,200 P 139,200
Tisoy 12/12/2022 153,600 88. What is the net adjustment to the Accounts receivable in the general ledger?
12/02/2022 99,200 252,800 A. 71,360 C. 119,200
Gusoy 11/17/2022 185,120 B. 91,360 D. 172,560
10/08/2022 176,000 361,120
Naning 12/08/2022 160,000 89. What it the carrying value of the company’s accounts receivable as of December 31, 2022?
10/25/2022 44,800 A. 1,255,040 C. 1,275,040
8/20/2022 40,000 244,800 B. 1,258,016 D. 1,295,040
Nanong 9/27/2022 96,000 96,000
Balong 8/20/2022 71,360 71,360
90. What is the necessary adjusting entry to adjust any unlocated difference between the SL and All of the above securities have been purchased in 2021. In 2022, CATABA CO. completed
GL? the following securities transactions:
A. Accounts receivable 20,000 Mar. 1 Sold 45,000 shares of Tomas Co. ordinary shares at P31, less brokerage commission
Other income 20,000 of P13,500.
B. Bad debt expense 20,000 April 1 Bought 5,400 ordinary shares of Westin, Inc. at P45 plus commission, taxes, and
Accounts receivable 20,000 other transaction costs of P4,950.
C. Sales 20,000 The CATABA CO. portfolio of trading securities appeared as follows on December 31, 2022:
Accounts receivable 20,000 Cost Fair Value
D. No necessary entry 90,000 ordinary shares of Gandara Co. P1,638,000 P1,740,000 1
5,400 ordinary shares of Westin, Inc. 247,950 225,000 2
P1,885,950 P1,965,000
Audit of Investments in Securities
1
Net of P19,500 estimated transaction costs that would be incurred on the sale of the
The next two items are based on the following information. securities.
LIPTONG COMPANY buys and sells securities expecting to earn profits on short-term differences 2
Net of P4,500 estimated transaction costs that would be incurred on the sale of the
in price. During 2022, LIPTONG purchased the following trading securities: securities.
Fair Value
Security Cost Dec. 31, 2022 93. What amount of unrealized gain on these securities should be reported in the 2022 income
A P 585,000 P 675,000 statement? [8]
B 900,000 486,000 A. P31,050 C. P79,050
C 1,980,000 2,034,000 B. P36,000 D. P84,000
Before any adjustments related to these trading securities, LIPTONG had net income of
P2,700,000. 94. What is the gain or loss on the sale of Tomas Co. ordinary shares on March 1, 2022? [9]
A. P13,500 C. P130,500
91. What is LIPTONG’s net income after making any necessary trading security adjustments? [6] B. P27,000 D. P144,000
A. P2,286,000 C. P2,700,000
B. P2,430,000 D. P2,844,000 95. What amount should be reported as trading securities in CATABA CO.’s statement of
financial position on December 31, 2022? [10]
92. What would LIPTONG’s net income be if the fair value of security B were P285,000? [7] A. P1,885,950 C. P1,965,000
A. P2,601,000 C. P2,700,000 B. P1,909,950 D. P1,989,000
B. P2,655,000 D. P2,799,000
The next three items are based on the following information. The next five items are based on the following information.
CATABA CO.’s portfolio of trading securities includes the following on December 31, 2021: ROBINDERS, INC. had the following portfolio of financial assets as of December 31, 2022. All the
Cost Fair Value financial assets were acquired in 2022:
45,000 ordinary shares of Tomas Co. P1,431,000 P1,251,000 Financial asset Acquisition Cost
90,000 ordinary shares of Gandara Co. 1,638,000 1,710,000 Elegance Corp. Stocks, 20,000 shares P 590,000
P3,069,000 P2,961,000 Force, Inc. Stocks, 40,000 shares 1,100,000

Grace Co. 10%, P2M bonds 1,973,000 B. 541,948 D. 571,948

Handy Corp. Stocks, 50,000 shares 2,400,000
99. Assuming that the company’s business model regarding debt securities has an objective of
Audit notes: collecting contractual cash flows, what is the correct carrying value of investments that should
A. Elegance Corp. shares were acquired with an intention of generating short-term profits from be presented as non-current?
the share price’s fluctuations. The company paid P29.50 per share, which included the P0.50 A. 4,360,690 C. 4,394,948
per share broker’s fees and commissions. The shares were acquired on February 20, 2022. A B. 4,362,390 D. 4,395,750
P2 per share cash dividends were received on March 30. These dividends were declared by
Elegance Corp. on January 20, 2022 to stockholders as of record date March 1, 2022. 100. Assuming that the company’s business model regarding debt securities has an objective of
B. The company paid P27.50 per share, including P0.50 per share brokers’ fee on the acquisition collecting contractual cash flows, how much in total should be presented in the income
of Force, Inc. on March 1, 2022. These shares were acquired for trading purposes. A P3 per statement in relation to the investments?
share dividends were received from the said shares on May 3, 2022. These dividends were A. 461,948 C. 525,750
declared on April 1 to stockholders as of record date April 20. B. 507,690 D. 537,690
C. Grace Co. bonds which pay semi-annual interest every June 30 and December 31, were
acquired on October 1, 2022 at P1,973,000, when the prevailing effective interest rate on Audit of Property, Plant & Equipment
similar instrument was at 12%. The bonds shall mature on December 31, 2024. The company The next five items are based on the following information.
has a business model of holding debt securities for short-term profits. Information for PANDAY CORPORATION’S Property, Plant and Equipment for 2022 is as follows:
D. Handy Corp. stocks were acquired P48 per share, including P3 per share brokers’ fees and Account balances at January 1, 2022:
commissions on June 30, 2022. Handy Corp. had a total of 200,000 shares outstanding on the Debit Credit
same date. The company received P5 dividends per share form Dee on December 20, 2022. Land P 450,000
E. The following information were deemed relevant at year-end and no entries had been made Building 3,600,000
yet by the company to reflect any of the following information: Accumulated depreciation P789,300
Elegance Corp. Force, Inc. Grace Co. Handy Corp. Machinery and equipment 2,700,000
Net income in 2022 P1,200,000 P1,500,000 P2,000,000 P2,240,000 Accumulated depreciation 750,000
Fair Value P35/sh P25/sh 11% P51/sh Automotive equipment 345,000
Accumulated depreciation 253,800
Questions: [11]
Depreciation method and useful life:
96. What is the correct carrying value of investments that should be presented as current asset?  Building: 150%-declining balance; 25 years
A. 3,543,000 C. 3,665,750
 Machinery and equipment: Straight-line; 10 years
B. 3,664,948 D. 3,765,250
 Automotive equipment: Sum-of-the-years’-digits; 4 years
97. What is the correct carrying value of investments that should be presented as non-current?  Leasehold improvements: Straight-line
A. 2,150,000 C. 2,430,000
B. 2,280,000 D. 2,550,000 The residual value of the depreciable assets is immaterial. It is the company’s policy to compute
depreciation to the nearest month.
98. How much in total should be recognized in the income statement in relation the investments?
A. 261,948 C. 542,750 Transactions during 2022 and other information were as follows:
1. On January 2, 2022, Panday purchased a new car for P30,000 cash and a trade-in of a 2-year Audit of Current Liabilities
old car with a cost of P27,000 and a book value of P8,100. The new car has a cash price of The next five items are based on the following information.
P36,000; the market value of the trade-in is not known. TOROTOT MUSIC EMPORIUM carries a wide variety of musical instruments, sound reproduction
2. On April 1, 2022, a machine purchased for P69,000 on April 1, 2017 was destroyed by fire. equipment, recorded music, and sheet music. To promote the sale of its products, Torotot uses two
Panday recovered P46,500 from its insurance company. promotion techniques—premiums and warranties.
3. On May 1, 2022, costs of P504,000 were incurred to improve leased office premises. The
leasehold improvements have a useful life of 8 years. The related lease, which terminates on PREMIUMS
December 31, 2028, is renewable for an additional 6-year term. The decision to renew will be The premium is offered on the recorded and sheet music. Customers receive a coupon for each
made in 2028 based on office space needs at that time. P10 spent on recorded music and sheet music. Customers may exchange 200 coupons and P200
4. On July 1, 2022, machinery and equipment were purchased at a total invoice cost of for a power bank. Torotot pays P340 for each power bank and estimates that 60% of the coupons
P840,000; additional costs of P15,000 for freight and P75,000 for installation were incurred. given to customers will be redeemed. A total of 6,500 power banks used in the premium program
5. Panday determined that the automotive equipment comprising the P345,000 balance at were purchased during the year and there were 1,200,000 coupons redeemed in 2022.
January 1, 2022 would have been depreciated at a total amount of P54,000 for the year ended
December 31, 2022. WARRANTIES
Musical instruments and sound reproduction equipment are sold with a one-year warranty for
101. What is the depreciation expense on machinery and equipment for 2022? [12] replacement of parts and labor. The estimated warranty cost, based on past experience, is 2% of
A. P306,825 C. P316,500 sales. Replacement parts and labor for warranty work totaled P1,640,000 during 2022.
B. P311,325 D. P357,825 Torotot uses the accrual method to account for the warranty and premium costs for financial
reporting purposes. Torotot’s sales for 2022 totaled P72,000,000—P54,000,000 from musical
102. What is the total depreciation expense for the year ended December 31, 2022? [13] instruments and sound reproduction equipment and P18,000,000 from recorded music and sheet
A. P584,967 C. P593,367 music. The balances in the accounts related to warranties and premiums on January 1, 2022, were
B. P588,867 D. P594,207 as shown below:
Inventory of power banks P 399,500
103. What is the total accumulated depreciation balance on December 31, 2022? [14] Estimated premium claims outstanding 448,000
A. P2,328,567 C. P2,351,967 Estimated liability from warranties 1,360,000
B. P2,333,067 D. P2,360,667
106. How much Warranty expense should be reported in 2022? [17]
104. What is the net gain or loss on asset disposals for 2022? [15] A. P360,000 C. P1,080,000
A. P2,100 net loss C. P12,000 net gain B. P800,000 D. P1,640,000
B. P9,900 net gain D. P12,000 net loss
107. What is the Estimated liability from warranties balance on December 31, 2022? [18]
105. What is the total book value of Panday Corporation’s property, plant, and equipment at A. P240,000 C. P1,080,000
December 31, 2022? [16] B. P800,000 D. P1,920,000
A. P6,108,333 C. P6,135,933
B. P6,117,033 D. P6,140,433 108. How much Premium expense should be reported in 2022? [19]
A. P756,000 C. P1,836,000
B. P840,000 D. P2,189,500

• A shipment of goods invoiced at P182,000 to a customer on December 29, terms FOB

109. What is the Inventory of power banks on December 31, 2022? [20] destination was recorded in 2023. The cost of the related goods amounted to P130,000
A. P399,500 C. P739,500 and were received by the customer on January 4, 2023.
B. P569,500 D. P2,210,000 • The invoice for goods costing P175,000 was received and recorded as purchase on
December 31, 2022. The related goods, shipped FOB Destination, were received on
110. What is the Estimated premium claims outstanding balance on December 31, 2022? [21] January 4, 2023.
A. P364,000 C. P756,000 • Goods valued at P612,800 are on consignment from a vendor. These goods were
B. P672,000 D. P840,000 excluded from the physical count.
Questions: [22]
Audit of Working Capital Accounts
The next five items are based on the following information. Based on the result of your audit, determine the following:
The following accounts were extracted from the unadjusted trial balance of MELCHORA
CORPORATION as of December 31, 2022: 111. Adjusted Cash, ending
Cash P 963,200 A. 668,600 C. 693,400
Accounts receivables 2,254,000 B. 681,000 D. 963,200
Merchandise inventory 6,050,000
Accounts payable 4,201,000 112. Adjusted Accounts Receivable, ending
Accrued expenses 60,400 A. 2,254,000 C. 2,564,000
During your audit, you discovered that the client held its cash records open even after year end. B. 2,548,500 D. 2,908,600
113. Adjusted Inventory, ending

Audit notes:
A. 5,010,000 C. 6,035,000
A. Collections for January 2023 of P654,600 were recorded in the December 2022 cash records.
B. 5,860,000 D. 6,080,000
The receipts of P360,100 represents cash sales with the balance representing collections from
customers who paid within the 5% cash discount period.
114. Adjusted Accounts Payable, ending
B. Accounts payable of P372,400 was paid in January 2023. The payments on which a P12,400
A. 4,243,500 C. 4,615,900
cash discount has been taken were included in the December 31, 2022 check register.
B. 4,398,400 D. 4,790,900
C. Merchandise inventory as stated in the trial balance represented the result of the count
conducted on December 30, 2022 on inventories on hand. The following information were
115. Net adjustment to Cost of Sales
found to be relevant in your audit of inventories:
A. credit by P555,300 C. debit by P57,500
• Goods valued at P275,000 are on consignment with a customer and were not included in
B. credit by P580,000 D. debit by P232,500
the physical count
• Goods costing P217,500 were received from a vendor on January 4, 2023. The related
invoice was received and recorded on January 6, 2023. These goods were shipped by the
Audit of Bonds Payable
vendor on December 31, 2022 under FOB shipping point terms.
• Goods costing P637,500 were shipped on December 31, 2022, and were received by the The next five items are based on the following information.
customer on January 2, 2023. The terms of the invoice were FOB shipping point. The
sales of P815,000 has been recorded in 2022.
Lario Company issued 10-year bonds on January 1, 2018. The company’s year-end is December
31, and financial statements are prepared annually. The amortization and interest schedule below 120. On the basis of the schedule presented, the journal entry to record the issuance of the
reflects the bond issuance and the subsequent interest payments and charges. bonds on January 1, 2018 should include a [27]
A. debit to Cash of P500,000
AMORTIZATION SCHEDULE B. debit to Bond Discount of P28,253
Interest Interest Amount Carrying C. debit to Bond Premium of P28,253
Date Paid Expense Unamortized Value D. credit to Interest Expense of P28,253
01/01/18 -- -- P28,253 P471,747
12/31/18 P 55,000 P 56,610 26,643 473,357
12/31/19 55,000 56,803 24,840 475,160 Audit of Shareholders Equity
12/31/20 55,000 57,019 22,821 477,179 The next five items are based on the following information.
12/31/21 55,000 57,261 20,560 479,440 During May 2020, GUADALUPE, INC. was organized with 900,000 authorized shares of P10 par
12/31/22 55,000 57,533 18,027 481,973 value ordinary shares, and 90,000 of its ordinary shares were issued for P990,000. Net income
12/31/23 55,000 57,837 15,190 484,810 through December 31, 2020, was P37,500.
12/31/24 55,000 58,177 12,013 487,987
12/31/25 55,000 58,558 8,455 491,545 On July 3, 2021, Guadalupe issued 150,000 of its ordinary shares for P1,875,000. A 5% share
12/31/26 55,000 58,985 4,470 495,530 dividend was declared on October 2, 2021, and issued on November 6, 2021, to shareholders of
12/31/27 55,000 59,470* -- 500,000 record on October 23, 2021. The market value of the ordinary shares was P11 per share on the
* Adjustment due to rounding. declaration date. Guadalupe’s net income for the year ended December 31, 2021, was P105,000.
Questions: During 2022, Guadalupe had the following transactions:

a. In February, Guadalupe reacquired 9,000 of its ordinary shares for P9 per share. Guadalupe
116. The bonds were issued at [23] uses the cost method to account for treasury shares.
A. A discount C. Face value b. In June, Guadalupe sold 4,500 of its treasury shares for P12 per share.
B. A premium D. Par value c. In September, each shareholder was issued (for each share held) one right to purchase two
additional ordinary shares for P13 per share. The rights expire on December 31, 2022.
117. What amortization method is used in the amortization schedule presented? [24] d. In October, 75,000 rights issues were exercised when the market value of the ordinary share
A. Bonds outstanding method C. Effective interest method was P14 per share.
B. Declining balance method D. Straight-line method e. In November, 120,000 rights issues were exercised when the market value of the ordinary
share was P15 per share.
118. What is the nominal (stated) interest rate of the bonds issued on January 1, 2018? [25] f. On December 15, Guadalupe declared its first cash dividend to shareholders of P0.30 per
A. 6% C. 11% share, payable on January 10, 2023, to shareholders of record on December 31, 2022.
B. 10% D. 12% g. On December 21, in accordance with the applicable law, Guadalupe formally retired 3,000 of
its treasury shares and had them revert to an unissued basis. The market value of the
119. What is the effective interest rate of the bonds issued on January 1, 2018? [26] ordinary share was P16 per share on this date.
A. 6% C. 11% h. Net income for 2022 was P240,000.
B. 10% D. 12%
121. What are the balances of the Ordinary Share Capital, Share Premium, and Retained 2022
Earnings accounts on December 31, 2020? [28] June 1 Treasury shares 1,600,000
A. P900,000; P37,500; P90,000 C. P990,000; P 0; P37,500 Cash 1,600,000
B. P900,000; P90,000; P37,500 D. P990,000; P37,500; P 0 July 1 Cash 720,000
Treasury shares 720,000
122. What are the balances of the Ordinary Share Capital, Share Premium, and Retained Aug. 1 Cash 513,000
Earnings accounts on December 31, 2021? [29] Treasury shares 513,000
A. P2,520,000; P465,000; P22,500 C. P2,532,000; P465,000; P10,500 Sept. 1 Ordinary shares 10,000
B. P2,520,000; P477,000; P10,500 D. P2,532,000; P477,000; P22,500 Treasury shares 10,000
123. What are the balances of the Ordinary Share Capital, Share Premium, and Retained Omando’s net income for 2022 was P135,000.
Earnings accounts on December 31, 2022? [30]
A. P6,376,500; P1,650,000; P72,750 C. P6,390,000; P1,663,500; P59,250 Questions: [31]
B. P6,363,000; P1,660,500; P190,350 D. P6,393,000; P1,657,500; P13,500
126. What is the Treasury shares balance on December 31, 2022? [32]
124. What amount should be charged to Retained earnings for the cash dividend declared on A. P160,000 C. P200,000
December 15, 2022? B. P190,000 D. P210,000
A. P120,600 C. P191,250
B. P189,900 D. P191,700 127. What is the Ordinary shares balance on December 31, 2022? [33]
A. P2,210,000 C. P2,490,000
125. What is the treasury shares balance on December 31, 2022? B. P2,460,000 D. P2,500,000
A. P13,500 C. P54,000
B. P40,500 D. P81,000
128. What is the Share premium – issuance balance on December 31, 2022? [34]
A. P3,486,000 C. P3,606,000
B. P3,500,000 D. P3,620,000
The next five items are based on the following information.
The shareholders’ equity of the OMANDO COMPANY as of December 31, 2021, was as follows:
129. What is the Share premium – treasury shares balance on December 31, 2022? [35]
Ordinary shares, P10 par, authorized 300,000 shares;
A. P 0 C. P240,000
250,000 shares issued and outstanding P2,500,000
Share premium - issuance 3,500,000 B. P120,000 D. P710,000
Retained earnings 1,740,000
On June 1, 2022, Omando reacquired 40,000 ordinary shares at P40. The following transactions 130. What is the Retained earnings (before appropriation for treasury shares) balance on
occurred in 2022 with regard to these shares. December 31, 2022? [36]
July 1 Sold 15,000 shares at P48. A. P1,597,000 C. P1,732,000
Aug. 1 Sold 19,000 shares at P27. B. P1,718,000 D. P1,859,000
Sept. 1 Retired 1,000 shares.
The following entries were made by the company’s accountant to record the preceding
transactions. Correction of Errors
The next five items are based on the following information. 131. What is the adjusted net loss for 2020?
You are assigned to audit the financial statements of GENERY CORPORATION for the first time A. (95,500) C. (110,900)
for the period ended December 31, 2022. In line with your audit, the following information were B. (95,900) D. (115,900)
made available:
A. A collection for rental amounting to P45,000 of one of its idle properties covering the period 132. What is the adjusted net income for 2021?
July 1, 2021 to June 30, 2022 was received and recorded as rent income in in July 1, 2021. A. 191,200 C. 198,200
B. The following were consistently omitted at each year end. B. 196,200 D. 218,700
2020 2021 2022
Salaries payable 5,500 3,600 9,900 133. What is the adjusted net income for 2022?
Unused office supplies 5,400 9,000 6,100 A. 401,200 C. 419,500
Accrued royalty income 4,000 7,900 5,400 B. 406,200 D. 423,700
C. The following deliveries were made to customers at each year-end, but were recorded as
sales only upon cash collection the following year. All sales were made FOB Shipping Point 134. What is the correct retained earnings ending balance 2022?
and the related inventories were included in the physical count conducted every Dec. 31: A. 901,900 C. 956,900
2020 2021 2022 B. 924,400 D. 1,021,900
Sales price 28,000 30,000 22,000
Cost of goods 15,400 17,400 13,200 135. What is the effect of the errors to the 2022 working capital?
D. A major repair cost improving the operating efficiency of an equipment was incurred at the A. 10,400 under C. 96,500 over
beginning of 2020. The cost amounting to P55,000 was recognized as an outright repairs and B. 23,600 under D. 109,600 over
maintenance expense. The equipment was acquired on January 2014 with a total useful life of
15 years.
E. Dividend amounting to P120,000 was declared on December 20, 2022 to stockholders as of Comprehensive
the same date and were recorded upon payment the following year January 20, 2023. The next five items are based on the following information.
F. The general ledger of the company’s accumulated profits account contained the following On January 1, 2022, IDAHU, INC. issued P100,000, 10%, 10-year bonds when the market rate
information: of interest was 8%. Interest is payable on June 30 and December 31. The following financial
Date Particulars Debit Credit information is available.
01/01/2020 Balance 625,400 Sales P300,000
01/03/2020 Excess over par for ordinary shares issued 120,000 Cost of sales 180,000
12/31/2020 Net loss for the year 177,400 Gross profit 120,000
01/05/2021 FMV of land donated by a majority stockholder 480,000 Interest expense ?
12/31/2021 Net income for the year 214,300 Depreciation expense (14,500)
01/03/2022 Cash dividend payment, declared in 12/20/2021 90,000 Other expenses (82,000)
12/30/2022 Loss on sale of an equipment 22,500 Net income ?
12/31/2022 Net income for the year 421,700 Dec. 31, 2022 Jan. 1, 2022
12/31/2022 Balance 1,571,500 Accounts receivable P55,000 P48,000
Inventory 87,000 93,000
Questions: [37] Accounts payable 60,000 58,000
All purchases of inventory are on account. Other expenses are paid for in cash.
Answer Key
136. What is the carrying value of the bonds on December 31, 2022? [38] 1. B 31. C 61. A 91. B 121. B
A. P100,000 C. P112,661 2. C 32. D 62. C 92. D 122. B
B. P112,233 D. P113,592 3. B 33. A 63. A 93. B 123. C
4. A 34. C 64. D 94. C 124. C
137. What is the interest expense for 2022? [39] 5. A 35. A 65. A 95. D 125. A
A. P4,544 C. P9,069 6. D 36. D 66. D 96. B 126. C
B. P8,641 D. P10,000 7. C 37. B 67. D 97. C 127. C
8. D 38. C 68. B 98. B 128. A
138. How much was paid for inventory purchases? [40] 9. A 39. C 69. B 99. A 129. A
A. P172,000 C. P184,000 10. B 40. A 70. C 100. B 130. C
B. P174,000 D. P186,000 11. C 41. B 71. B 101. B 131. C
12. B 42. A 72. D 102. C 132. B
139. What is Idahu’s net income for 2022? [41] 13. C 43. D 73. D 103. B 133. A
A. P13,500 C. P14,859 14. A 44. A 74. A 104. B 134. A
B. P14,431 D. P23,000 15. B 45. A 75. B 105. C 135. D
16. B 46. D 76. D 106. C 136. C
140. How much was received from customers in 2022? [42] 17. C 47. B 77. D 107. B 137. C
A. P245,000 C. P293,000 18. A 48. A 78. C 108. A 138. A
B. P283,000 D. P307,000 19. B 49. C 79. B 109. B 139. B
20. B 50. A 80. D 110. A 140. C
21. B 51. B 81. B 111. A
22. A 52. C 82. C 112. C
23. D 53. A 83. C 113. C
24. B 54. B 84. B 114. C
25. A 55. A 85. B 115. C
26. A 56. B 86. D 116. A
27. B 57. D 87. B 117. C
28. B 58. C 88. B 118. C
29. D 59. B 89. A 119. D
30. A 60. B 90. C 120. B

Solutions to Selected Problems

1
.Situation 5 – TRALALA CO.
Book Bank
Unadjusted balances P880,500 P1,050,000
Deposit in transit (P525,750 – P150,000 375,750
Customer’s postdated check (150,000)
Note collected by bank 45,000
Outstanding checks (P740,250 – P44,250 – P111,630) (584,370)
Unreleased check 44,250
Released postdated check 111,630
Erroneous bank credit in December (90,000)
Corrected balances 931,380 751,380
SHORTAGE (72. A) (180,000)
Adjusted balances (71. C) P751,380 P751,380
2
.Situation 6 – ORLANDO CO.
Nov. 30 Receipts Disbursements Dec. 31
Unadjusted bank balances P680,570 P12,574,184 P11,612,406 P1,642,348\
Undeposited collections:
Nov. 30 42,178 (42,178)
Dec. 31 20,000 20,000
Outstanding checks:
Nov. 30 (198,200) (198,200)
Dec. 31 822,100 (822,100)
Adjusted bank balances P524,548 P12,552,006 P12,236,306 P840,248
74. B 75. A
Nov. 30 Receipts Disbursements Dec. 31

Unadjusted book balances P526,348 P12,533,806 P12,197,906 P862,248
Bank service charges:
Nov. 30 (1,800) (1,800)
Dec. 31 2,000 (2,000)
Returned NSF check 20,000 (20,000)
Understatement of Dec. receipts 220,000 220,000
Overstatement of Dec. disbursements (1,800) 1,800
Corrected book balances P524,548 P12,753,806 P12,216,306 P1,062,048
Adjusted bank balances 524,548 P12,552,006 12,236,306 840,248
P -- P 201,800 P 20,000 P 221,800
73. D
Book receipts = P13,060,154 – P526,348 = P12,533,806
Understatement of receipts = P12,753,806 – P12,533,806 = P220,000
Book disbursements = P13,060,154 – P862,248 = P12,197,906

Overstatement of disbursements = P12,197,906 – P12,196,106 = P1,800
3
.Situation 4 – PANALO CORPORATION
Proof of cash, June 30, 2022
BANK 76. B 77. D
May 31 Rec. Disb. Jun 30
Unadj. bal. per bank 652,000 88,000 63,200 676,800
DIT, May 10,000 (10,000)
DIT, June 70,000 70,000
OC, May (20,000 (20,000)
OC, June 17,600 (17,600)
Bank error, Jun, corrected in Jun (a) (1,000) (1,000)
Adj. bal. 642,000 147,000 59,800 729,200
BOOK 78. D 79. C 80. C

May 31 Rec. Disb. Jun 30
Unadj. bal. per book 570,800 218,000 56,400 732,400
Unrec. bank cr., May 72,000 (72,000)
Unrec. bank dr.: BSC, May (800) (800)
Unrec. bank dr.: BSC, Jun 200 (200)
Unrec. bank dr.: NSF, Jun 13 (b) 1,000 1,000
Unrec. bank dr.: NSF, Jun 30 3,000 (3,000)
Adj. bal. 642,000 147,000 59,800 729,200
4
.Situation 2 – CLAUDIA CORPORATION
Invoice Adjusted
Customer Invoice date amount Adjustments bal.
Zinc, Inc. 12/6/2022 27,000 127,000 0-30 days
10/29/2022 84,000 (14,000) 70,000 61-90 days
197,000 81. B
Yankee Co. 12/30/2022 42,000 (8,400) 33,600 0-30 days
9/27/2022 30,000 30,000 91-120 days
8/20/2022 53,520 53,520 Over 120 days
117,120
Xylon, Inc. 12/30/2022 40,000 40,000 0-30 days
12/8/2022 80,000 80,000 0-30 days
11/25/2022 63,600 63,600 31-60 days
183,600
Winnie Co. 11/17/2022 138,840 (18,840) 120,000 31-60 days
10/9/2022 132,000 132,000 61-90 days
8/20/2022 74,400 74,400 Over 120 days
326,400
Vicor Corp. 12/10/2022 250,000 (90,000) 160,000 0-30 days 82. B
Ursula, Inc. 9/12/2022 104,400 (104,400) -
1,219,760 984,120
Adjustments
a) Sales 14,000
AR (Zinc, Inc.) 14,000
(84-70) x (84,000/84)
b) Sales 8,400
AR (Yankee Co.) 8,400
Installation service not yet completed
c) Sales returns 18,840
AR (Winnie Co.) 18,840
d) Sales (250,000/2,500) x 500 50,000
Commission expense (2,000 x P100) x 20% 40,000
AR (Vicor Corp.) 90,000
e) Allowance for bad debts 104,400
AR (Ursula, Inc.) 104,400
Required
AR, gross allowance Allowance
0-30 days (Dec invoices) 440,600 1% 4,406
31-60 days (Nov invoices) 183,600 2% 3,672
61-90 days (Oct invoices) 202,000 5% 10,100
91-120 days (Sep invoices) 30,000 10% 3,000
More than 120 days (Aug and earlier) 127,920 50% 63,960
984,120 85,138
83. D 84. A
Allowance for bad debts, beg 52,500

Add: Recoveries 24,800
Total 77,300
Less: Allowance for bad debts, end (85,138)
Recorded write-off (44,200)
Additional write-off per audit (104,400)
Bad debts expense (156,438)
85. D
5
.CRUZ, INC.
Aug &
Dec Nov Oct Sep prior
0-30 31-60 61-90 91-120 > 120
Customer Invoice date Amount days days days days days
Gudang 9/12/2022 139,200 139,200
Tisoy 12/12/2022 153,600 153,600
12/02/2022 99,200 99,200
Gusoy 11/17/2022 185,120 185,120
10/08/2022 176,000 176,000
Naning 12/08/2022 160,000 160,000
10/25/2022 44,800 44,800
8/20/2022 40,000 40,000
Nanong 9/27/2022 96,000 96,000
Balong 8/20/2022 71,360 71,360
Peejong 12/06/2022 112,000 112,000
11/29/2022 169,440 169,440
Total 1,446,720 524,800 354,560 220,800 235,200 111,360
Reconciliation between GL and SL with aging of AR analysis:
0-30 31-60 61-90 91-120 > 120
Per GL Per SL days days days days days
Unadj. bal. 1,466,720 1,446,720 524,800 354,560 220,800 235,200 111,360
(a) WO of AR- (71,360) (71,360) (71,360)
Balong
(b) Posting error - - (99,200) 99,200
Adj. bal. 1,395,360 1,375,360 425,600 453,760 220,800 235,200 40,000
Unrecon. (20,000)
Differences
Adj. bal. 1,375,360
Req. all. % 2% 5% 10% 20% 50%
Req. all. 120,320 8,512 22,688 22,080 47,040 20,000
87. C
Allowance for BD, end 120,320

Less: Allowance for BD, unadj. (46,720)
Add: WO of AR-Balong 71,360
Bad debts expense 144,960
86. D
WO of AR-Balong (71,360)
Unreconciled diff. (dr to Sales) (20,000)
Total adjustments to AR-GL (91,360)
88. C
AR, gross 1,375,360

Allowance for bad debts (120,320)
Amortized cost/carrying value 1,255,040
89. A
90. B
Sales 20,000
Accounts receivable 20,000
6
.Answer is (B).
Net income before trading security adjustment P2,700,000
Unrealized loss (P3,465,000 – P3,195,000) (270,000)
Net income, as adjusted P2,430,000
Fair Value
Security Cost Dec. 31, 2022
A P585,000 P675,000
B 900,000 486,000
C 1,980,000 2,034,000
P3,465,000 P3,195,000
7
.Answer is (D).
Net income before trading security adjustment P2,700,000
Unrealized gain (P3,564,000 FV – P3,465,000 cost) 99,000
Net income, as adjusted P2,799,000
Fair Value
Security Cost Dec. 31, 2022
A P585,000 P675,000
B 900,000 855,000
C 1,980,000 2,034,000
P3,465,000 P3,564,000
8
.Answer is (B).
Unrealized gain (P1,989,000 FV – P1,953,000 CV) P36,000
Carrying Value Fair Value
Dec. 31, 2016 Dec. 31, 2016
Gandara Co. P1,710,000 P1,759,500
Westin, Inc. 243,000 229,500
P1,953,000 P1,989,000
9
.Answer is (C).
Net proceeds (P31 x 45,000 = P1,395,000 – P13,500) P1,381,500
Carrying value 1,251,000
Gain on sale of Tomas Co. ordinary shares P 130,500
10
.Answer is (D).
Trading securities at fair value P1,989,000
11
.ROBINDERS, INC.
96. B
FV 12/2022 CV/Cost
Elegance Corp. shares 700,000 540,000 (29.50-2-0.50) x 20,000 sh
Force, Inc. shares 1,000,000 1,080,000 (27.50-0.50) x 40,000 sh
Grace Co. 10% 2M bonds * 1,964,948 1,923,000 (1,973,000-50,000)
Total 3,664,948 3,543,000
* Grace Co. 10% 2M bonds

Principal (2M x 0.8072) 1,614,433
Interest (100,000 x 3.5052) 350,515
PV 1,964,948
97. C
Investment in Dee shares (assoc.)
Initial cost (6/30/2022) 2,400,000
Share from dividends (250,000)
Share from net income 280,000 (2,240,000 x 6/12) x 25%
Investment in assoc. bal. 2,430,000
98. B
Transaction costs – expense
Elegance Corp. shares (10,000)
Force, Inc. shares (20,000)
Dividend income – Force, Inc. 120,000
Interest income – Grace Co. 50,000
Unrealized holding gain – FA 121,948
Share from net income – Handy Corp. 280,000
Total/net investment income 541,948
99. A
Grace Co. bonds at amortized cost * 1,930,690
Handy Corp. shares – assoc. 2,430,000
Total noncurrent investments 4,360,690
* Grace Co. 10% 2M bonds

Principal (2M x 0.7921) 1,584,187
Interest (100,000 x 3.4651) 346,511
Amortized cost, 12/31/2022 1,930,698
100. B
Transaction costs – expense
Elegance Corp. shares (10,000)
Force, Inc. shares (20,000)
Dividend income – Force, Inc. 120,000
Interest income – Grace Co. 57,690 (1,923,000 x 12% x 3/12)
Unrealized holding gain – FA 80,000 from Elegance Corp. and Force, Inc. only
Share from net income – Handy Corp. 280,000
Total/net investment income 507,690
12
.Answer is (B).
Depreciation expense – Machinery and equipment
Remainder of beginning balance (P2,700,000 – P69,000 = P2,631,000 x 10%) P263,100
Destroyed by fire on April 1, 2022 (P69,000 x 10% x 9/12) 1,725
Purchased July 1, 2022 (P84,000 + P15,000 + P75,000 = P930,000 x 10% x 6/12) 46,500
Total P311,325
13
.Answer is (C).
Depreciation expense for 2022
Machinery and equipment P311,325
Building (P3,600,000 – P789,300 = P2,810,700 BV, 1/1 x 6%) 168,642
Automotive equipment
Depreciation on P345,000 P54,000
Depreciation on car traded in (P27,000 x 2/10) (5,400) P48,600
Purchased on Jan. 2 (P36,000 x 4/10) 14,400 63,000
Leasehold improvements (P504,000/80 months x 8 months) 50,400
Total P593,367
14
.Answer is (B).
Accumulated depreciation, December 31, 2022
Building
Balance, Jan. 1 P789,300
Depreciation for 2022 168,642 P975,942
Machinery and equipment
Depreciation for 2022 311,325
Machine destroyed by fire (P69,000 x 10% x 5 years) (34,500) 1,026,825
Automotive equipment
Traded in Jan. 2, 2022 (P27,000 cost – P8,100 BV) (18,900) 297,900
Leasehold improvements
Total P2,333,067
15
.Answer is (B).
Gain on machine destroyed by fire
Insurance recovery P46,500
Book value (P69,000 – P34,500) (34,500) P12,000
Loss on car traded in
Book value P8,100
Trade in value (P36,000 – P30,000) (6,000) (2,100)
Net gain P9,900
16
.Answer is (C).
Land P450,000
Building 3,600,000
Machinery and equipment (P2,700,000 – P69,000 + P930,000) 3,561,000
Automotive equipment P345,000 + P36,000 – P27,000) 354,000
Leasehold improvements 504,000
Total cost P8,469,000
Accumulated depreciation (2,333,067)
Book value of PPE, Dec. 31, 2022 P6,135,933
17
.Answer is (C).
Sales of musical instruments and sound reproduction equipment P54,000,000
Estimated warranty cost x 2%
Warranty expense for 2022 P1,080,000
18
.Answer is (B).
Estimated liability from warranties, Jan. 1, 2022 P1,360,000
Add: 2022 warranty expense 1,080,000
Total 2,440,000
Less: Actual warranty costs during 2022 1,640,000
Estimated liability from warranties, Dec. 31, 2022 P 800,000
19
.Answer is (A).
Coupons issued (P18,000,000/P10) 1,800,000
Multiply by estimated redemption rate x 60%
Estimated number of coupons to be redeemed 1,080,000
Divide by exchange rate (200 coupons for a power bank) ÷ 200
Estimated number of power banks to be issued 5,400
Multiply by net cost of a power bank (P340 – P200) x P140
Premium expense for 2022 P756,000
20
.Answer is (B).
Inventory of power banks, Jan. 1, 2022 P 399,500
Add: Power banks purchased during 2022 (P340 x 6,500) 2,210,000
Total 2,609,500
Less: Power banks distributed to customers during 2022
(1,200,000/200 = 6,000 x P340) 2,040,000
Inventory of power banks, Dec. 31, 2022 P 569,500
21
.Answer is (A).
Estimated premium claims outstanding, Jan. 1, 2022 P 448,000
Add: 2022 premium expense 756,000
Total 1,204,000
Less: 2022 actual redemptions (1,200,000/200 = 6,000 x P140) 840,000
Estimated premium claims outstanding, Dec. 31, 2022 P364,000
22
.MELCHORA CORPORATION
Acc. Merch. Invty Acc. Accrued Cost of
Cash Rec. Pay. Exp. Sales
Unadj. bal. 963,200 2,254,000 6,050,000 4,201,000 60,400
(a) (654,600) 310,000
(b) 360,000 372,400
(c-1) 275,000 (275,000)
(c-2) 217,500 217,500 –
(c-3) (637,500) 637,500
(c-4) 130,000 (130,000)
(c-5) (175,000) (175,000)
Adj. bal. 668,600 2,564,000 6,035,000 4,615,900 60,400 57,500
111. D 112. C 113. C 114. C 115. A
23
.Answer is (A).
The bonds were sold at a discount of P28,253. The issue price (P471,747) is less than the maturity value (or face
value) of P500,000 on December 31, 2027.
24
.Answer is (C).
The amortization schedule presents an increasing interest charge which characterizes the effective interest method of
amortizing bond premium or discount. Under the straight-line method, the annual interest would have been P57,825.30
(see computation below).
Interest payment P55,000.00
Amortization of discount (P28,253/10) 2,825.30
Total P57,285.30
25
.Answer is (C).
Stated or nominal interest rate (P55,000/P500,000) 11%
26
.Answer is (D).
Effective interest rate (P56,610/P471,747) 12%
27
.Answer is (B).
Cash 471,747
Bond Discount 28,253
Bonds payable 500,000
28
.Answer is (B).
Share Capital Share Retained
Shares Amount Premium Earnings
May 2020 issuance 90,000 P900,000 P90,000
Dec. 31 net income _____ _______ ______ P37,500
Balances, Dec. 31, 2020 90,000 P900,000 P90,000 P37,500
29
.Answer is (B).
Share Capital Share Retained
Shares Amount Premium Earnings
Balances, Jan. 1, 2021 90,000 P 900,000 P 90,000 P37,500
2021
July 31 issuance 150,000 1,500,000 375,000
Oct. 2 share dividend (240,000 x 5%) 12,000 120,000 12,000 (132,000)
Dec. 31 net income _______ _________ ________ 105,000
Balances, Dec. 31, 2021 252,000 P2,520,000 P477,000 P10,500
30
.Answer is (C).
Share Capital Share Retained Treasury Shares
Shares Par Value Premium Earnings Shares Cost
Balances, Dec. 31, 2021 252,000 P2,520,000 P477,000 P10,500
Feb. acquisition of treasury shares 9,000 P81,000
June sale of treasury shares (4,500) (40,500)
Oct. exercise of stock rights
(75,000 x 2) 150,000 1,500,000 450,000
Nov. exercise of stock rights
(2 x 120,000) 240,000 2,400,000 720,000
Dec. 15 share dividend
(P0.30 x 637,500) (191,250)
(3,000) (30,000) 3,000 (3,000) (27,000)
Dec. net income _______ __________________ 240,000 ______ _______
Balances, Dec. 31, 2022 639,000 P6,390,000 P1,663,500 P59,250 1,500 P13,500
31
.OMANDO COMPANY
ADJUSTING JOURNAL ENTRIES December 31, 2022
1. Treasury shares 120,000
Share premium – treasury shares 120,000
2. Share premium – treasury shares 120,000
Retained earnings 127,000
Treasury shares (P760,000 - P513,000) 247,000
3. Share premium – issuance (1,000/250,000 x 14,000
P3,500,000) 16,000
Retained earnings 30,000
Treasury shares (P40,000 [cost] - P10,000)
32
.Answer is (C).
Treasury Shares
Balance per books, Dec. 31, 2022 (P1,600,000 – P720,000 – P513,000 – P10,000) P357,000
AJE No. 1 120,000
AJE No. 2 (247,000)
AJE No. 3 (30,000)
Balance per audit, Dec. 31, 2022 P200,000
33
.Answer is (C).
Ordinary Shares
Balance per books, Dec. 31, 2022 (P2,500,000 – P10,000) P2,490,000
34
.Answer is (A).
Share Premium - Issuance
Balance per books, Dec. 31, 2022 P3,500,000
AJE No. 3 (14,000)
Balance per audit, Dec. 31, 2022 P3,486,000
35
.Answer is (A).
Share Premium – Treasury Shares
Balance per books, Dec. 31, 2022 P0
AJE No. 1 120,0000
AJE No. 2 (120,0000)
Balance per audit, Dec. 31, 2022 P0
36
.Answer is (C).
Retained Earnings
Balance per books, Dec. 31, 2022 (P1,740,000 + P135,000) P1,875,000
AJE No. 2 (127,000)
AJE No. 3 ( 16,000)
Balance per audit, Dec. 31, 2022 P1,732,000
The company’s retained earnings should be appropriated to the extent of the cost of treasury shares.
37
.GENERY CORPORATION
Net Income RE WC
` 2020 2021 2022 2022 2022
Unadj. bal. (177,400) 214,300 421,700 1,571,500
a. Unearned rent inc., 2021 (22,500) 22,500
b. Salaries payable, 2020 (5,500) 5,500
Salaries payable, 2021 (3,600) 3,600
Salaries payable, 2022 (9,900) (9,900) (9,900)
Unused off. supp., 2020 5,400 (5,400)
Unused off. supp., 2021 9,000 (9,000)
Unused off. supp., 2022 6,100 6,100 6,100
Accrued royalty inc., 2020 4,000 (4,000)
Accrued royalty inc., 2021 7,900 (7,900)
Accrued royalty inc., 2022 5,400 5,400 5,400
c. Sales/AR, 2020 28,000 (28,000)
Sales/AR, 2021 30,000 (30,000)
Sales/AR, 2022 22,000 22,000 22,000
EI, 2020 (15,400) 15,400
EI, 2021 (17,400) 17,400
EI, 2022 (13,200) (13,200) (13,200)
d. Repairs expense, 2020 55,000 55,000
Depn expense, 2020-2022 (5,000) (5,000) (5,000) (15,000)
e. 2022 dividend declaration (120,000) (120,000)
f. Share premium (120,000)
FV of land donated (480,000)
Loss on sale of an eq. (22,500)
(110,900) 196,200 401,200 901,900 (109,600)
131. B 132. D 133. D 134. A 135. A
38
.Answer is (C).
Carrying value, Jan. 1, 2022 (Issue Price) P113,592
Premium amortization, Jan. 1 – June 30:
Nominal interest (P100,000 x 5%) P5,000
Effective interest (P113,592 x 4%) (4,544) (456)
Carrying value, June 30, 2022 113,136
Premium amortization, July 1 – Dec. 31:
Nominal interest P5,000
Effective interest (P113,136 x 4%) (4,525) (475)
Carrying value, Dec. 31, 2022 P112,661
39
.Answer is (C).
Interest expense for 2022 (P4,544 + P4,525) P9,069
40
.Answer is (A).
Inventory, Dec. 31, 2022 P 87,000
Cost of goods sold 180,000
Goods available for sale 267,000
Inventory, Jan. 1, 2022 ( 93,000)
Purchases P 174,000
Accounts payable, Jan. 1, 2022 P 58,000
Purchases 174,000
Total 232,000
Accounts payable, Dec. 31, 2019 (60,000)
Cash paid for inventory purchases P 172,000
41
.Answer is (B).
Gross profit P120,000
Interest expense (9,069)
Depreciation expense (14,500)
Other expenses (82,000)
Net income P 14,431
42
.Answer is (C).
Accounts receivable, Jan. 1, 2022 P 48,000
Sales 300,000
Total 348,000
Accounts receivable, Dec. 31, 2022 (55,000)
Cash received from customers P293,000

CPAR AUD 2205 1st Final Preboard 140

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CPAR AUD 2205 1st Final Preboard 140

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CPA REVIEW SCHOOL OF THE PHILS.

May 2022 First & Final Preboard Examination Page 3 of 32

May 2022 First & Final Preboard Examination Page 6 of 32

In the process of your audit, you gathered the following information:

May 2022 First & Final Preboard Examination Page 9 of 32

approved purchase order was at P70.

A. 127,000 C. 207,000 Peejong 12/06/2022 112,000

May 2022 First & Final Preboard Examination Page 13 of 32

Grace Co. 10%, P2M bonds 1,973,000 B. 541,948 D. 571,948

May 2022 First & Final Preboard Examination Page 15 of 32

• A shipment of goods invoiced at P182,000 to a customer on December 29, terms FOB

113. Adjusted Inventory, ending

Questions: During 2022, Guadalupe had the following transactions:

May 2022 First & Final Preboard Examination Page 20 of 32

Solutions to Selected Problems

May 2022 First & Final Preboard Examination Page 21 of 32

Nov. 30 Receipts Disbursements Dec. 31

Book disbursements = P13,060,154 – P862,248 = P12,197,906

BOOK 78. D 79. C 80. C

Allowance for bad debts, beg 52,500

Allowance for BD, end 120,320

AR, gross 1,375,360

* Grace Co. 10% 2M bonds

* Grace Co. 10% 2M bonds

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