D oD ° CPA REVIEW SCHOOL OF THE PHILIPPINES Manila AUDITING PROBLEMS SEPTEMBER 14, 2014 FINAL PREBOARD EXAMINATION ‘SUNDAY, 8:00AM - 11:00AM SETA INSTRUCTIONS: CHOOSE THE BEST ANSWER FOR EACH OF THE FOLLOWING. FULLY SHADE ONLY ONE BOX FOR EACH ITEM. STRICTLY NO ERASURES ALLOWED. PROBLEM NO. 1. In an audit of ISABEL COMPANY for the year ended December 31, 2014, the entity took Its annual physical inventory on November 30, 2014. The entity's inventory which includes raw materials and work in process is on a perpetual basis and 'FIFO/pricing is used. There are no finished goods. ~~ Data pertaining to the November 30, 2014 Inventory are: 8) Direct labor included in the physical inventory amounted to'PS00,000. Overhead was applied at 200% of direct labor. b) The physical inventory on November 30, 2014 revealed that the book inventory of ~ P2,913,500 was understated by P150,000. To avoid distorting the interim financial - statements, the entity decided not to adjust the book inventory until year-end. Di jining to the December 31, 2014 inventory are: a) Total debits during December are P1,235,000 for purchases, P605,000 for direct labor, 1,260,000 for manufacturing overhead expense, and P3,417,500 for cost of sales. b) The cost of sales of P3,417,500 included direct labor of P690,000. ©) A special order started and completed December has excessive scrap loss of P40,000 which was charged to manufacturing overhead expense. > What is the correct amount of physical inventory on November 30, 2014? » A. P2,913,500 B. P2,763,500 C. P3,023,500 —_D, P3,063,500 2. What is the amount of materials issued in December? Ae P1,307,500 B. 2,070,000 C. P1,917,500 D. P1,387,500 ‘Assume that the physical inventory on November 30, 2014 was P2,B85,000. 3. What is the amount of materials induded in the December 31 inventory? A. P1,272,500 B. P1,260,000 P1,232,500 D, P977,500 4. What is the amount of direct labor included in the December 31 inventory? A. P1,190,000 B. P1,105,000 C. P415,000 D. P585,000 5. What is the correct inventory on December 31? A, P2,477,500 B, P3,027,500 C. P2,505,000 D. P2,987,5000 ee eS eee is —— SEPT EM Yeh 19, é3i5 7) QAM eae PROBLEM NO, 2 Mylene Gomez is the cashier of the PANDAY POKPOK COMPANY. You were assigned to verify the cash on hand. You started the count at 9:00am on January 4, 2015 in the presence of Ms. Gomez. Your count revealed the following: Bills Denomination Qty. Denomination Qty. P1,000 2m P50 10 Se 500 4 20 2 & 100 9 Coins No. of rolls Denomination 0 pieces to a roll) Loose P10 2 7 70 5 4 Jeoo 6 . 1 4 2 0 Checks Date Payee Amount, Orly C, Reyes, Manager — Dec. 22, 2014 Panday Pokpok Company —P1,200 Mylene Gomez, Cashier Dec. 29, 2014 Panday Pokpok Company 800 10Us Art Jorge, Janitor Dec. 19, 2014 P700 Rene Tilaoc, Clerk Dec. 21, 2014 500 Peter Chuchay, Clerk Dec. 23, 2014 300 Petty cash vouchers Maker Date Account Charaed Amount M. Borneo, Messenger Dec, 15, 2014 Advances to employees P200 Unli Supplies, Inc. Dec. 18, 2014 Supplies 290 Bagal Express Dec. 19,2014 Freight-in 365 Umited Supplies, Inc. Dee. 20, 2014 Supplies 600 Bino Vallejo, Plumber ‘Dec, 21, 2014 Repairs, 900 Wonder Supermarket Dec. 28, 2014 Miscellaneous expenses 308 Your audit also disclosed the following: a) The balance of Petty cash fund per general ledger Is 18,000. b) Cash sales of January 2, 2015 totaled P27,300 per Sales book, while the Cash Receipts book and bank validated deposit slips showed that only P15,300 was deposited in the bank on January 3, 2015. ©) The following employees’ pay envelopes had been opened and the money removed. Each envelope was marked “Unclaimed.” Tony Cuesta PEGS Gloria Bustamante 495, 6, What is the amount of cash shortage? ~ Ae P6,797 B. 22,097 CG 93,637 D. P5,637 7. What adjusting entry should be made on December 31, 2014 to correct the Sales account? A. Sales 2,000 Cash 2,000 B, Cash 17,300 Sales 17,300 C. Cash 15,300 Sales 15,300 D. No adjusting entry is necessaryt (CPA REVIEW SCHOOL OF THE PHILIPPINES (CPAR) - MANILA FINAL PREBOARD EXAMINATION AUDITING PROBLEMS SEPTEMBER 14, 2014 / SLINDAY / 8:00AM ~ LLOOAM &.- What asting entry should be made on December 31, 2014 for the unclaimed salaries? Cash in bank 1,160 Salaries expense 1,160 B, Cash in bank 1,160 ~ Salaries payable 1,160 C, Salaries expense 1,160 Salaries payable 1,160 D. No adjusting entry is necessary. 9. What is the cashier's total accountabilities? A, P21,160 B, P18,000 c. P20,000 ‘D. Pi9,160 10. The objective of establishing a petty cash fund is to A. Cash checks for employees. B. Account for all cash receipts and disbursements. C. Account for cash sales. D, Facilitate payment of small, miscellaneous items. 000000000 PROBLEM NO. 3 In auditing the records of TORNADO COMPANY for the year ended December 31, 2014, the following data are discovered: 1. Machine A listed at P2,250,000 was acquired on April 1, 2014 in exchange for P2,500,000 face value bonds maturing on April 1, 2024. The accountant recorded the acquisition by a debit to machinery and @ credit to bonds payable for P2,500,000. The bonds are unquoted. Straight-line depreciation was recorded based on a five-year life and amounted to P300,000 for nine months. 2. Machine B listed at P1,600,000 was purchased on January 1, 2014. The entity paid 250,000 down and 125,000 per month for 12 months. The last payment was made on December 30, 2014, Straight-line depreciation based on a five-year life and no residual value was recorded at P350,000 for the year. Freight of P75,000 on Machine B was charged to Freight-in account. Bs Machine C was recorded at P1,500,000 which included the carrying amount of P270,000 of a machine accepted as a trade in. The list price of Machine C was P.1,305,000 and the trade in allowance was P75,000. This transaction took place on December 22, 2014. o 4, “Machine D was acquired on January 10, 2014 in exchange for a past due account receivable 2 of P2,100,000 on which an allowance of 20% was established at the end of 2013. The fair value of the machine on January 10 was estimated at P1,650,000. ‘The machine was recorded by a debit to Machinery and a credit to Accounts receivable for P2,100,000. No depreciation was recorded on Machine D because it was never installed for use. In March, the machine was exchanged for 30,000 shares of the entity having a market value of P60 per share. The Treasury shares account was debited for P2,100,000, the carrying amount of Machine D. 4 “eo 11. Machine A is over(under)depreciated by Ee A. 37,500 B. (P37,500) c. P50,000 D. (P50,000) 12, What is Machine B's carrying value on December 31, 2014? Per Books Per Audit A 1,750,000 1,675,000 B. 1,400,000 1,340,000 c 1,750,000 1,400,000 D. 1,675,000 1,340,000AUDITING PROBLEMS ____ SEPTEMBER 14, 2014/ SUNDAY'/ 8:00AM ~ 11:00AM 13. What amount of loss on exchange should be recognized in connection with the acquisition of Machine C? i A. P75,000 B. 270,000 L£.. P195,000 D. PO 14. What amount of loss on exchange should be recognized in connection with the acquisition of Machine D? | ‘A. 30,000 B, P450,000 cc. P420,000 DFO 35. What Is the cost of the treasury shares acquired in March? A. P1,650,000 B, P2,100,000 P1680,000 D. P1,630,000 ---000000000- PROBLEM NO. 4 BALWARTE COMPANY has been in business for several years. A trial balance prepared by the company’s accountant for December 31, 2014 is shawn below: | Balwarte Company | UNADJUSTED TRIAL BALANCE ~~ December 31, 2014 Debit redit Cash P 60,000 Accounts receivable 150,000 Inventory 360,000 Equipment 2,400,000 Accumulated depreciation ~ equipment P 750,000 Bulldings 3,600,000 ‘Accumulated depreciation — buildings 4,200,000 Patents 1,650,000 | Franchise agreement — 285,000 i Organization costs 306,000 Goodwill 1,035,000 ‘Accounts payable 36,000 ‘Accrued wages payable 15,000 Accrued taxes payable ieee 180,000 jx,» Bonds payable 208) 4,500,000 © Premium on bonds payable Se “105,000 Preference shares (P100 par value) WEE. 300,000 Ordinary shares (P25 par value) q 3,300,000 Share premium ne 660,000 Retained earnings (as of January 1) 1,200,000 Sales 2,700,000 Cost of goods sold 1,200,000 Selling and administrative expenses 900,000 P11,946,000 — P11,946,000 Your audit of the company's intangible assets reveals the following Information: Patents ‘All patents were purchased from another company when Balwarte Company started operations on January 2, 2007. These patents are being amortized over an expected useful life of. 14 years. Improvements made to equipment covered by the patents costing P225,000 were debited to the account on January-3,-2011. Amortization for the years 2011-2013 included ‘zmortization on the P225,000 for the remaining life of the relevant patent. It is determined that the P225,000 should have been expensed in 2011. It Is further determined on December 31, 2013 that one of the patents has a remaining life of only 2 years. This patent was originally assigned a cost of P630,000. Franchise Agreement A franchise agreement was signed on January 1, 2014. Balwarte Company paid P150,000, covering a 5-year period, at the end of which the company may renew the agreement by(CPA REVIEW SCHOOL OF THE PHILIPPINES (CPAP) ~ MANILA FINAL PREBOARD EXAMINATION. AUDITING PROBLEMS. EPTEMBER 14, 2014 / SUNDAY / 8:00AM — 11:00AM paying P150,000. A decision to renew the agreement has not been made on December 31, 2014. The franchise agreement calls for an annual payment of 5% of revenue. An entry debiting the account for 135,000 was made at the time of the cash payment for 2014. Organization Costs Organization costs include the unamortized portion of amounts paid.to promoters for services rendered at the Inception of the company. These fees have been amortized, since inception, over an estimated 40-year life. On December 31, 2014, Balwarte Company made a decision to ‘write off the organization costs against retained eat Goodwill The goodwill account includes the following: P135,000 - Legal fees pald in connection with incorporation. These were charged to the account in January 2007. 600,000 - Excess of cost over assigned net asset values of a company acquired in early 2012, expected to be of value for an indefinite period. 300,000 - Paid to an advertising agency in early 2013 for a major advertising effort expected to benefit Balwarte Company for an indefinite period. 16. What is the corrected balance of Patents on December 31, 2014 (before 2014 amortization)? A, P1,582,500 B. P1,492,500 C. P1,537,500 BD. P1,425,000 17. What is the carrying value of Patents on December 31, 2014? A, P1,121,786 B. P1,166,786 C. 1,009,286 D. 1,144,286 49. What Is the carrying value of Franchise on December 31, 20142 A. P255,000 B. 228,000 -P150,000 D. P120,000 19. What is the carrying value of Organization costs on December 31, 2014? A. P7,650 B. P298,350 Cc. P306,000 D. PO 20. What is the carrying value of Goodwill on December 31, 2014? ‘A. P900,000 B, P435,000 C. P735,000 - 000000000-~ 600,000 PROBLEM NO. 5 "TANYA CO, started operations on October 1, 2010. Its accounts at June 30, 2013 included the following balances: Machinery (at cost) P 196,000 Accumulated depreciation - machinery 95,772 Vehicles (at cost; purchased February 20, 2011) — ‘\« 320,000 Accumulated depreciation - vehicles 178,880 Land (at cost; purchased March 20, 2013) + 150,000 Building (at cost; purchased March 20, 2013) t¢ * 581,200 Accumulated depreciation ~ building . 6,840 Land improvements (at cost; purchased March 20, 2013) 36,000 Accumulated depreciation ~ land improvements 600 Details of machines owned at June 30, 2013 were: Machine Purchase Date Cost Useful Life 1 October 2, 2016 50,000 4 years 2 December 27, 2010 84,000 5 years 3 July 29, 2011 62,000 4 years saso DAY Additional information: 2. Tanya calculates depreciation to the nearest month and balances the records at month-end. Recorded amounts are rounded to the nearest peso, and the reporting date is June 30, b, Tanya uses straight-line depreciation for all depreciable assets except vehicles, which are depreciated on the diminishing balance at 30% p.a. ¢. The vehicles account balance reflects the total paid for four identical delivery vehicles, which cost P80,000 each. G. On acquiring the land and building, Tanya estimated the building's useful life and residual value at 20 years and P34,000 respectively. . The land improvements account balance reflects a payment of P36,000 made on March 20, 2012 for driveways and a car park. On acquiring these land improvements, Tanya estimated their useful fe at 15 years with no residual value. The following transactions occurred from July t, 2013: Aug. 03, 2013 Nov. 15, 2013 Dec. 30, 2013 Mar. 10, 2014 June 30, 2014 Sep. 20, 2014 Dec. 30, 2014 Feb. 08, 2015 June 30, 2015 Purchased a new machine (machine 4) for a cash price of 72,000. Installation costs of P3,600 were also paid. Tanya estimated the useful life and residual value at five years and P7,000 respectively. Paid vehicle repairs of P1,200. Exchanged one of the vehicles for items of fixtures that had a fair value of 34,000 at the date of exchange. The fair value of the vehicle at the date of exchange was P32,000. The fixtures originally cost P100,000 and had been depreciated by P62,000 to the date of exchange in the previous owner’s books. Tanya estimated the fixtures’ useful life and residual value at five years and P5,000 respectively. 55 Sold machine 1 for P10,000 cash. Recorded depreciation expense. ‘Traded in machine 3 for a new machine (machine 5). A trade-in allowance of 20,000 was received for machine 3 and P68,000 was paid in cash. Tanya estimated machine 5's useful life and residual value at six years and P10,000 respectively. Scrapped machine 2, as it was surplus to requirements and no buyer could be found for it, Paid P16,000 to overhaul machine 4, after which machine 4's useful life was estimated at two remaining years and its residual value was revised to 10,000. Recorded depreciation expense. Based on the preceding information, determine the following: 21. Depreciation expense on machinery for the year ended June 30, 2014. ‘A. P53,027 B. P50,420 C. P49,27 D. P41,777 22. Gain on exchange on December 30, 2013. A, P4,012 B. P2,012 cc. P4,000 D. PO 23. Total depreciation expense on all depreciable assets for the year ended June 30, 2014. A, P118,781 B. P125,216 C. Pi11,281 D. P113,489(CPA REVIEW SCHOOL. OF THE PHILIPPINES (CPAR) - MANILA FINAL PREBOARD EXAMINATION ‘AUDITING PROBLEMS ‘SEPTEMBER 14, 2014 ] SUNDAY / 8:00AM — 11:00AM 24.. Gain on trade in of machine no. 3 on September 20, 2014, A, P2,333 B. 23,667 C. P7,667 D. PO 25. Total depreciation expense on all depreciable assets for the year ended June 30, 2015. A. P98,951 B. P109,451 C. P106,551 D. P82,951 . 000000c00-~ PROBLEM NO. 6 You have been asked by the proprietor of the SOMALIA CO. to verify the accountability of the cashler-bookkeeper, who was allowed to take a vacation leave a few days ago. A. The bank reconciliation statements prepared by the cashier-bookkeeper are presented below: November 30, 2014 Balance per bank statement P21,500 Cash on hand 500 Total 22,000 Outstanding checks: No. 2520 P 2,000 2521 1,400 2522 1,900 (3,300) Erroneous bank charge 2,000 Erroneous bank credit (500) Book balance £20,200 December 31, 2014 Balance per bank statement P 135,000 Cash on hand 6,300 Total 141,300 Outstanding checks: No. 2674 31,000 2675 10,300 2676 5.000 (41,300) Erroneous bank charge 3,000 Erroneous bank credit __(600) Book balance 102,400 B.'The Cash in Bank account in the general ledger shows the following debits and credits during December: Cash in Bank De Dec, 1 Bal 20,200 | 4 Checks issued 2,000 2. Received from customers 4,500 | 5 Checks issued 5,200 7 Recelved from customers 5,000 | 14 Checks issued 31,000 12. Received from customers 20,000 | 24 Checks issued 46,000 17. Received from customers 30,000 | 28 Checks issued 7,600 23. Received from customers 9,000 “ 27 Received from customers 70,000 31 Racelved from customers_48,509 | 31 Balance _102,400. Total B198.200 Total 198,200 C. The following summarized transactions were taken from the bank statement for the month of Decernber 2014: Balance, December 1, 2014 P16,500 Total deposits P 173,700(CPA REVIEW SCHOOL OF THE PHILIPPINES (CPAR) - MANILA FINAL PREBOARD EXAMINATION AUDITING PROBLEMS PTEM INDAY / 8:00AM = The total deposits per bank statement include: a. Collection of notes receivable 5,000 b. Correction of November erroneous bank charge 2,000 c. December 10 deposit of Lava, Inc. credited in error to Somalia __600 Total P7,600 Total checks 65,200 The total checks per bank statement include: a. Correction of November erroneous bank credit P 500 b. December check of Nile Co. charged in error to Somalia 3,000 Total P3300 D. Cash on hand per count in the morning of January 2, 2015 amounted to P6,300. E, Before leaving his company for a one-week vacation, the proprietor had left several signed blank checks that the cashier-bookkeeper had cashed for his personal use. 26. What is the adjusted cash balance on November 30, 2014? A. P16,500 B. P13,200 C. P20,200 D. P14,500 27. The amount of unaccounted receipts in December is A. 11,000 B. P13,200 C. P9,000 D. P15,100 28. ‘The amount of unrecorded/unsupported disbursements in December is A, P15,100 B. P10,900 c. P7,000 D. 5,000 29. What is the total cash shortage as of December 31, 2014? ‘A. P26,000 B. P15,100 c. P33,000 D. P7,000 30. What Is the adjusted cash balance on December 31, 20147 A. 102,400 B. P125,000 C. P87,400 D, 111,400 - ---000000000-~ = PROBLEM NO. 7 PATAGO STORAGE underwent a restructuring ih 2014) The company conducted a thorough internal audit, during which the following facts were discovered. The audit occurred during 2014 before any adjusting entries or clasing entries are prepared. ‘Ax Additional printers were acquired at the beginning of 2012 and added to the company’s * office network. The P27,000 cost of the printers was inadvertently recorded as maintenance expense. The printers have five-year useful {ives and no material salvage value. ‘This class of equipment is depreciated by the straight-line method. B. Three weeks prior to the audit, the company pald P'153,000 for storage boxes and recorded the expenditure as office supplies. The error was discovered a week later. C. On December 31,2013, inventory was understated by P336,000 due to @ mistake in the physical Inventory count. The company uses the periodic inventory system. D. Three years earlier, the company recorded a 3% stock dividend (12,000 ordinary shares, P1 par) as follows: ~ Retained earnings ‘Ordinary share capital ‘The shares had a market price at the time of P10 per share. 12,000 12,000 E,, At the end of 2013, the company falled to accrue interest expense that accrued during the last four months of 2013 on bonds payable. The bonds which were issued at face value8 CPA REVIEW SCHOOL OF THE PHILIPPINES (CPAR) - MANILA FINAL PREBOARD EXAMINATION AUDITING PROBLEMS SEPTEMBER 14, 2014 / SUNDAY [ 8:00AM ~ 11:00AM mature In 2018. The following entry was recorded on March 1, 2014, when the semiannual interest was paid Interest expense 540,000 Cash 540,000 F. A three-year insurance policy was purchased at the beginning of 2013 for P648,000. The full premium was debited to insurance expense at the time. Based on the preceding information, determine the following: (Ignore tax ares a 31. The entry to correct the error described in item A should include a A. Credit to accurnulated depreciation — P5,400. - Credit to retained earnings — P16,200. Debit to equipment — P10,800. D. Debit to depreciation expense — P:16,200. 32. The entry to correct the error described in item D should include a A. Debit to retained earnings — P120,000. Br Debit to retained earnings ~ P108,000. C. Credit to ordinary share capital ~ 108,000. D, Debit to share premium - P12,000. 33. The accrued interest payable account balance at December 31, 2014 should be APO B. P540,000 P360,000 D. P180,000 34. The prepaid insurance account balance at December 31, 2014 should be A, 432,000 B. P648,000 C. P216,000 D. PO 35. The adjusting entries to correct the errors described in A to F will increase (decrease) retained earnings by ‘A. (P259,800) B. (P418,200) . P310,800 P316,200 --000000000-~ PROBLEM NO. 8 ‘The following independent cases relate to the audit of liabilities. Answer the questions at the end of each case. “Hercules Company Qn December 31, 2013 Hercules Company has a note payable to bank of 8,400,000. The following are the transactions during 2014 and other information relating to the company’s liabilities: 4, The note payable to bank bears 2 12% interest. It is dated April 1, 2013 and is payable in four equal annual installments beginning Api 2, 2014. Hercules Company made the first principal and interest payment on April 1, 2014, 2. On July 1, 2014, Hercules Company issued for P5,322,000 a 6,000,000 face value not to a wealthy shareholder. The note, dated July 1,.2014, will mature on July 1, 2015. No explicit interest rate is stated in the note and the entire face amount is due on maturity date. 36. What is Hercules Company's total current liabilities on. December 31, 2014? A. P 12,528,000 B. P8,328,000 C. 7,761,000 ~~ D. 7,950,000 37. What is the amount of interest expense to be reported by Hercules Company in 2014? A, P969,000 B. P1,497,000 . P1,158,000 D. P1,347,000(CPA REVIEW SCHOOL OF THE PHILIPPINES (CPAR) - MANILA ern AUDITING PROBLEMS x Lucero Company Lucero Company frequently borrowed from the bank in order to maintain sufifcient operating cash. The following loans were at 2 12% interest rate, with interest payable at maturity, The entity repaid each loan on the scheduled maturity date. Date of Loan. Amount Maturity Date ‘Term of Loan 11/1/2013 P1,500,000 10/31/2014 Lyear | IE 2/1/2014 4,500,000 7/31/2014 6 months | 2} > 5/1/2014 2,400,000 1/31/2015 Qmonths | iy) The entity recorded interest expense when the loans are repaid. As a result, interest expense of 450,000 was recorded in 2014. | | 38. If no correction is made, by whet amount would interest expense for 2014 be understated? ~ A, P162,000 B. P186,000 C, P192,000 D.| P216,000 | Silakbo Company On January 1, 2014, Silakbo Company issued 1,000. convertible bonds. The bonds have a three-year term and are issued at 110 with a fac ‘of P1,000 per bond, giving total proceeds of P1,100,000. Interest is payable annually in arrears at a nominal annual interest rate of 6%. ‘Each bond is convertible at any time up to maturity Into 25 shares of capital with par value of P20. The bonds are converted on December 31, 2014. When the bonds are issued, the prevailing market rate for similar bonds without conversion privilege is 9%. The present value of 1 at 9% for three periocis is 0.77 and the present value of an ordinary annuity of 1 at 9% for three periods is 2.53, 39. What is the equity component of the issuance of the convertible bond on January 1, 20147 A. P178,200 B. P100,000 C. P78,200 D,| P55,238 40. The entry to record the conversion of bonds on December 31, 2014 should include a A. Credit to Share premium — issuance of P622,962. B, Credit to Discount on bonds payable of P22,962. C. Credit to Bond payable of P944,762. D. Debit to Share premium — conversion privilege of P100,000. --000000000- PROBLEM NO. 9 ‘You are examining the financial statements of SALUYOT COMPANY for the year ended December 31, 2014. Your audit of the accounts receivable and other related accounts disclosed the following information: 1, The December 31, 2014, balance In the Accounts Receivable control account is P788,000. 2. The only entries in the Bad Debts Expense account were: a. A credit for P1,296 on December 1, 2014, because customer A remitted In full for the account charged off October 31, 2014. b. A debit on December 31 for the amount of the credit to Allowance for Bad Debts. 3. The Allowance for Bad Debts account is presented below: 8 BDE [pate Particulars Debit | Credit | Balance | Jan. 1 Balance 18,250 t Oct. 34] Uncollectibie: ‘ \ Customer A P1,296 B 3,280 oe © 2.256 | Pe,032 9,218 Dec._31 | 3% of P788,000 __-| 23,640} 32,858eC (CPA REVIEW SCHOOL OF THE PHILIPPINES (CPAR) ~ MANILA FINAL PREBOARD EXAMINATION AUDITING PROBLEMS SEPTEMBER 14, 2014 / SUNDAY / 8:00AM — 11:00AM 4. An aging schedule of the accounts receivable as of December 31, 2014, and the decisions are as shown in the table below: Amount to which the allowance 4A. 42. 45. Net Debit is to be adjusted after adjustments Balance and corrections have been made 372,960 1% 307,280 2% 88,720 3% Over 6 months 24,000 Definitely uncollectible, P4,000; 8,000 is considered to be 50% uncollectible; the remainder is estimated to be 80% collectible P792,960 There is a credit balance in one account receivable (0-1 month) of P8,000; it represents an advance on a sales contract; also there is a credit balance in one of the 1-3 months accounts recelvable of P2,000 for which merchandise will be accepted by the customer. ‘The Accounts Receivable control account is not in agreement with the subsidiary ledger. ‘The differences cannot be located, and the company’s accountant decides to adjust the control to the sum of the subsidiaries after corrections are made. .. The adjustment to correct the entry made on December 1, 2014, is A. Bad debts expense 1,296 Accounts receivable 1,296 B. Bad debts expense 1,296 Allowance for bad debts 1,296 G Accounts receivable 1,296 Allowance for bad debts 1,296 D. No adjusting entry is necessary. The required allowance balance (per aging) on December 31, 2014, is A, P29,354 B, P19,058 CC. P19,858 D. P32,858 The net realizable value of Saluyot’s accounts receivable on December 31, 2014 amounts to A, P779,902 BL P774,142 C. 793,200 D. P788,664 . Saluyot should report bad debt expense for 2014 of A, P13,344 B. P22,344 C. 710,296 D. P33,936 What entry is necessary to adjust the allowance account at December 31, 2014? A. Bad debts expense 10,296 ‘Allowance for bad debts 10,296 B. Bad debts expense 13,800 ‘Allowance for bad debts 13,800 C. Allowance for bad debts 10,296 Bad debts expense 10,296 D. Allowance for bad debts 13,800 Bad debts expense - 13,800 PROBLEM NO. 10 At the beginning of year 4, an entity grants 200 shares each to 500 employees. The grant is conditional upon the employees remaining in the entity's employ until the performance condition described below is satisfiede (CPA REVIEW SCHOOL OF THE PHILIPPINES (CPAR) - MANILA FINAL PREBOARD EXAMINATION 4 | 8:00AM Performance Condition ‘The shares will vest at the end of: ‘* Yearl - if the entity’s earnings increase by 15%. | Year? - if the entity’s earnings increase by more than an average of 11% per year over the two-year period. © Year3 - if the entity’s earings Increase by more than an average of 8% per year over the three-year period. “The shares have a fair value of P15 at the beginning of year 1, which equals the share price at grant date. The entity does not expect to pay dividends over the three-year period. | The following events occurred: Year 1 + 30 employees have left during year 1 and the entity expects, on the basis of a weighted average probability, that a further 40 will leave during year 2. + The entity's earnings have increased by 14% by the end of year 1 and he entity expects that the earnings will continue to increase at a similar rate in year 2, Therefore, the entity expects that the shares will vest at the end of year 2. Year2 + 35 employees have resioned by the end will leave during year 3. «Earnings have increased by only 7% during year 2. Hence, the shares do not vest at the end of year 2 as expected by the end of year 1. The entity expects that by the end of year 3, its earnings will increase by at least 5%, thereby achieving the average of 8% per year. 2 and the entity expects that a further 30 Year 3 «28 employees have resigned by the end of year 3. «The entity’s earnings have increased by 6% during year 3. This results’ in an average increase of 9% per year over the three-year vesting period. Based on the preceding information, determine the following: 46, Cumulative compensation expense at the end of year 1 ‘A, P407,000 B, P645,000 C. P430,000 D. P82,500 47. Cumulative compensation expense at the end of year 2 A. P1,290,000 B. P330,000 C. P810,000 D. P822,000 48.° Cumulative compensation expense at the end of year 3 1A. PA4,221,000 B, P1,290,000 C. P1,215,000 D. P1,500,000 49. The year in which the share options vested to the entity's employees AL Year 1 B. Year 2 C. Year 3 D. Year 4 50. Share options outstanding at the end of year 2 ‘A. P822,000 B. 810,000 cc. P645,000 - --900000000--- PROBLEM NO. 11. You are a senior accountant responsible for the annual audit of INDAY CO. for the year ended December 31, 2014. The information available to you is presented below. You may assume that any pertinent information not presented below has already been checked and found satisfactory. Excerpts from trial balance, December 31, 2014: Debit Credit Retained Earnings 93,000 Allowance for Decline in Value of Inventory 36,500 Share Capital (5,000 shares) . 500,000(CPA REVIEW SCHOOL OF THE PHILIPPINES (CPAR) - MANILA FINAL PREBOARD EXAMINATION AUDITING PROBLEMS - R14, 2014 / SUNDAY /|8:00AM = 11.008 The books have not been closed, but all adjusting entries which the company expects to make have been posted. Their trial balance shows a P60,000 net income for the year. j Ledger details of Retained Earnings: | Retained Earnings 08/06/14 CD 2,000 | 12/31/13 Balance 134,500 10/10/14 3 10,000 | 04/29/14 CR 500 | 12/31/14 J 30,000 | | Note: The balance at 12/31/13 agrees with last year’s working papers. Analysis of selected cash receipts: | | Date Account Credited ‘Amount Explanation 04/29/14 Share Capital P10,000 Sold P100 par shares at 105. Retained earnings 500 10/10/14 Building 530,000 See corollary entry dated 10/10/14. Analysis of selected cash disbursements: Date Account Debited Amount Explanation | 08/06/14 Retained Eamings -P.2,000‘Freak accident to company truck not covered by insurance; repairs by DJ Repairs. | Selected entries in the general journal: Date Entry and Explanation Debit Credit 10/10/14 Accumulated Depreciation 370,000 Retained Eamings 10,000 Building 380,000 Sale of main office building. 12/31/14 Retained Earnings 30,000 Allowance for Decline in Value of Inventory 30,000 Provision to value materials dnventory at lower of cost and net realizable value. Based on the preceding Information, determine the following: $11. Loss on sale of building A. P10,000 B. PO Cc. P220,000 D. P150,000 52. The loss on decline in value of inventories should be charged to ‘A. Retained earnings B. Loss on decline in value of inventories C.Share premium ~ D. Share capital 53. Share capital balance at December 31, 2014 ‘A. 595,000 B. P610,000 €, P500,000 D. P605,000 54. Share premium balance at December 31, 2014 A. P9,500 B. P10,000 cc. P500 D. P10,500 55. Net income for 2014 A. P22,000 B. 20,000 C. P60,000 -200000000- P18,000(CPA REVIEW SCHOOL OF THE PHILIPPINES (CPAR) - MANILA FINAL PREBOARD EXAMINATION AUDITING PROBLEMS ‘SEPTEMBER 14, 2014 /, SUNDAY / 8:00AM — 11:008M PROBLEM NO. 12 MONTE COMPANY was organized on January 2, 2013, with authorized share capital of 50,000 shares of 10%, P200 par value preference and 200,000 shares of P10.par value ordinary. During the company’s first two years of operations, the following equity transactions occurred. 2013 Jan. 2 Sold 10,000 ordinary shares at P16. 2. Sold 3,000 preference shares at P216. © be Mar. 2 Sold ordinary shares as follows: 10,800 shares at P22; 2,700 shares at P25. f July 10. Acquired a nearby piece of land, appraised at P400,000, for 600 preference shares and 27,000 ordinary shares. (Preference share capital was recorded at P216, the balance being assigned to ordinary.) [to Dec, 16 Declared the regular preference cash dividend and a P1.50 ordinary cash dividend, 28 Paid the dividends declared on December 16. 31. The income summary account showed a credit balance of P450,000. too te 2014 Feb. 27 Reacquired 12,000 ordinary shares at P19. June 17 Resold 10,000 treasury shares at P23. July 31 Resoid all of the remaining treasury shares at P18, fc He Sep. 30 Sold 11,000 additional ordinary shares at P21. > Dec. 16 Declared the regular preference cash dividend and an P0.80 ordinary cash dividend. 28 Paid the dividends declared on Dec, 16. 31 The Income summary account showed a credit balance of P425,000. Based on the above information, determine the balances of the following on December 31, 2014: 56. Preference share capital A. P729,600 B. P777,600 c._P720,000 D. P648,000 57. Ordinary share capital A, P615,400 B, P615,000 c. P577,000 D. P966,500 58. Total share premium A. P95,600 B. P447,100 C. P449,100 D. P409,100 39. Unappropriated retained earnings A. P875,000 B. P416,050 ¢, 606,050 D. P604,050 60. Total shareholders’ equity A. 2,388,150 B. P1,892,100 C. P2,376,630 ©. 72,498,150 o- END OF EXAMINATION ~~ -