/

CPA REVIEW SCHOOL OF THE PHILIPPINES

Mani I a

APPW7501

CPA Review

AUDITING PROBLEMS
PROBLEM NO. 1

LAFAYETTE CORPORATION, a ciient, requests that )')U compute the appropriate balance of its

estimated liability for product warranty account for a :;tatcment as of June 30, 2014 .

Lafayette Corporation manufactur es television com!)onents and sells them with a 6-month

warranty under which defective components will be n!placed without charge.

On December 31,

2013, Estimated Liability for Product warranty had a balance of P620,000. By June 30, 2014,
this balance had been reduced to P120,400 by detits for estimated net cost of components
returned that had been sold in 2013.

The

c_orporation started out in

2014

expecting 7% ot -the peso volume

bf'les

to be rerned.

However, due to the introduction of new models dur!ng the year, this estimated percentage of

returns was increased to 10% on May 1. It is assumed that no components sold during a given
month are returned in that month. Eaeh component is stamped with a date at time of sale so

that the warranty may be properly administered.

Tttr- following table of percentages indicat:;s

the likely pattern of sales returns during the 6-montl1 period of the warranty, starting with the

month following the sale of components.

Percentage of Total
Returns Expected

Month Following Sale

First

30%

Th ird

20

20

Second

_JO

Fourth through sixth-10% each month

.!QQ %

Gross sales of components were as follows for the firr.t six months of 2014:

A:>ril

Pt!,200,COO

jvlarch

P3,250,000

2,400,000

May

4,700,000

February

Amount

tjonth

Amount

Month

January

June

.3,900,000

1, 900,0(JQ.

.'

foe corporation's warranty also covers the paymem of freight cost on defective components

returned and on the new components sent out <.s replacements.

approximately 5% of the sales price of

the

compor.; !nts returned.

This freight cost rims

The manufacturing cos of

the components is roughly 70% of the sales p; ce, and the salvage value of returned
components averages 10% of their sales pnce.

R.:; urned components on hand at December

::'.l, 2013, werE thus valued in inventory at 1?0/o of th ir original saies pricE:.
Based o n the given info rmatio n, deter ine the foUowing:
J.

Total estimated returns from the sa1es made du:lng the first.6 months of 2014

A.

Pl ,4 8 1 ,500

B.

Pl,651,000

C.

P1,42t,500

A.

P678,250

B.

P648,850

C.

P591,850

2.

Tot.al etimated returns subsequent to June 30, 2014

3.

Estimated loss on component replacement (!n Prcentage

t J.

A. 65%

B.

75 %

C.

A.

P301,353

8.

P421,753

P301,353 debit

i1;::bility

C.

Req u ired Estimated Liability for Product Warrani

Hequired adju.;tment to

6.

P301,353 credit

account

C.

P421,-753

70%

Page l

of sales price)

Pl,553,500

D. 80%

oalance at June 30, 2014

D. P77,847

P120,4GO

-:1ebit

D. P42I,7S: ::redit
000 0000 0 0

-----------------------------

D.

! 1:

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of 14 Pa es

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CPA REVIEW

SCI \OOL

AP-PW"l50.1

OF THE PHILIPPINES(CPAR)

PROBLEM NO. 2

JARAN CO. started operations on September 1, 2010. Jaran's accounts at December 31, 2013,
included the following balances:

p 910,000

Machinery (at cost)

Accumulated depreciation - machinery

482,000

468,000

Vehicles (at cost; purchased November 21, 2C12)

Accumulated depreciation - vehicles

196,560

Land (at cost; purchased October 25, 2010)

810,000

Buildinq (at cost; purchased October 25, 201C)

Accumulated depreciation - building

,")etai/s of mad1ines owned ."it December 31 20131

Machine

Purchase Date

1
2

October 7, 2010

February 4, 2011

1,857,200
286,140

arc' 2s follows:

I:

Residual Value

Cost

Useful Life

P430,000

5 years

P25,000

P480,000

6 years

P30,000

Additional information:
"

Jaran calculates depreciation to the nearest morn:h and balances the records at month-end.
Recorded amounts are rounded to the nearest pe;o, and the reporting date is December 31.

"

Jaran uses straight-line depreciation for all depi eciable assets except vehicles1 which are
depreciated on the di mi 1ishing balance at 40% p!r annum.

"

The vehicles account b'1lance reflects the total p;1id for two identical delivery vehicles, E:ach
of which cost P234,000.

"

On acquiring the land iind building, Jaran est:m 3ted the building's useful life and residual

value at 20 years and P.10,000, respectively.

The following transactions 1 ccurred from January 1, ?014:

Jan.

.,

2014
03

Bought a new machine tmachine 3) for a .:ash price of P570,000. Freight charges of
P4,420 and installation costs of P17,58C were paid in cash. The useful life and

residual value W'!re estimated at five year'> and P40,CTOO, respectively.

June

22

Bought a second-hand vehicle for P152,Cl00 cash.

Aug.

28

Exchanged machine 1 for office furnK:urE that had a fair value of P125,000 at the

four new tires rnstlng P3,450 were paid fer in cash.

Repainting costs of P6,550 and

The fair value of machine 1 at the date of exchange was

date of exchanqe.
Pll.5,000.
The office furniture origincilly cost P360,000 and, to the date of
. exchange, had been depreciated by P24 l .OOO in the previous owner's books. Jar'an
estimated the c-ffice furniture's useful li"e and residual value at eight years and
P5,100, respectively.

Dec.

31

2015

Recorded depreciation.
Paid for repairs <ind maintenance on the 111achinery at a cash cost of P9,280.

April

30

l"!ay

25 Sold one of the vehicles oought on Noyerr:ber 21; 2012, fdr P6'b:,()00 cash.

June
Dec.

26

Installed a fence: around the property at '.I cash cost of PSS,000. The fence ha!i an
estimated useful life of 10 y.ears and zerc residual value.

Improvements asset

31

account.-)

Recorded depreciation.

(Debit the cost to a Land

. .. ..

; PA

REVIEW SCHOOL OF IHE

:.

.,

AP-PW7501

f'H
_ ILIPPINES (CPAR)

Bank s ervice charge;

totaling Pl,260 were n ei1 recorded.
Deposit in transit and
2SO ,:;id
outstanding checks at Jecember 3 1, 2014, totaled P136,
P276,380, respectiVE'.ly.

ber 20l4 totc1led

Various expenses from the
company's imprest petty cash fund dated Decem
P16,250, while those dated January 2015 amounted to P5,903. Another disbursem ent om
ng to P3,....oo.
he fund dated Decemb,r 2014
wa a cash advo ice to an employe e amounti
A replenishment of the petty cash fund was made on January 8, 2015 .

acconts:
The company's trial balance on December 31, 20r4, includes the following
P 748,320
Cash in bank - Tsum1mi Bank
Cash i n bank - Earthquake Bank (restricted account for plant

expansion, expected to be disbursc>d in 21. 15)

Petty cash fund
Time deposit, placed December 20, 2014, and due March 20, 2015
Money market placement_ Prudential Bank

'

700,000
30,000
1,000,000
4,000,000

1.

What is the adjusted Ptly casn fund balance on December 3J., 2014?
:. P30,00u
A. P4,347
B. Pl0,250

2. The petty cash shortage on December 31, 2014, is

- P3,500
B. PS,903
A. P 0
3.

4.

D. P24,097

D. P4,347

What is the adjusted Cash in bank -Tsunami Bank-balance on December 31, 2014?
D. P429, 110
(. P432,710
A. PS00,010
B. P748,320
The entry to adjust the Cash in bank - Tsunami 9ank account should include a debit to
A. Accounts receivable for P89:800.
B. Accounts receivable: fo r P86,300.
C. Accounts payable for P228,200.
D. Intere!;t expense for Pl,950.

5. The December 31, 2014, statement or finanCliil position should show "Cash and cash
equivalents" at
?4,.l42.. 96G
D. PS,442,960
A. P 6, 142,960
B. PS,139,360
ooo<><><>ooc17
a.a:
-----------------------------

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PROBLEM NO. 4

HlATI TEXTILE CORPORATION is in the process of ob.:aining a loan at City Bank. The bank ha's
requested audited financial statements. Hiatt's finan-:'ia! statements have never been audited
before. It has prepared the following comparative 1 inancial statements for the ars ended
December 31, 2014 and 201::.
HIATT TEXTILE CORP<)RATION
C<>MPARATIVE STATEMENTS OF HNANCIAL POSffiON
December 31. 2014 and 2013

2014

Assets

Current assets:

Cash and cash equivalent:!;

Accounts receivable

Pl,205,000
1,960,000
(185,000)
l,035,000
. 4,015,000

Allowance for bad debts

Inventory

Total current assets

Noncurrent assets:
Property, plant, and equipment
Accumulated depreciation
TotI noncurrent assets
Total assets

. '

Page 4of14 Page:;

835,000
(608,000)
227,000

P4.242.000

2013
p

800,000
1,480,000
(90,000)
1,010,000
3.200,0()0

847,500
{532,000)
315,500
P3,515.500

I
I
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\
I

\
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CPA REVIEW SCHOOL OFTHE

2016

:1an.

AP-PW75o1

PHILIPPINES (CPAR)

OS Overhauled machine 2 at a cash cost of P120,000, after which Jaran estimated ts

remaining useful life at one additional yea and revised its residual value to PS0,000.

June 20 Traded in the remaining vehicle bought or1 November 21, 2012, for a new vehicle. A
trade-in allowance of P37,oqo was received and P233,000 was paid in cash.
Oct.

Dec.

04 Scrapped the vehicle bought on June 22, 2014, as it had been so badly damagea in
a traffic accident: that it was not worthwhie repairing it.
31 Recorded depreciation.

1. What should be the d<preciation expense for tile vehicles for 2014?
A. P140,976
C. P139,666
B. P138,976

2. What should be the depreciation expense for tr.e machinery for 2014?
I

A. P242,733

C. P239,400

B. P235,000

O. P140,286

D. P266,400

3. What should be the balance of the Accumulated depreciation - Office furniture account at
December 31, 2015?
A. Pl9,933
D. P58,083
C. P19,833
B. Pl8,267
Wht should be the depreciation expense for trie 111acninery for 2016?
A. P277.708
B. P197,400
C. P221,400

4.

5. What should be the total depreciation expense for 2016?

A. P394,060
B. P418,060
C. P409,612
------------------------------

oooO GOouo

--------

D. P205,400
0. P403,832

'- --------------------

i?ROBLEM NO. 3

In connection with your audit of the financial statem1nts of ONOR COMPANY for the year ended

l)ecember 31, 2014, you g.:1thered i:he following information.

1. The company maintains its current account 0wit11 Tsunmi Ban .

December 31, 2014, showed a balance of P638,340.

; h bank staten,ent on

Your audit of the company's accout. with Tsunar i Bank disclosed the
following:

A check for P22,500 received from a customer whose account is

current had t
deposited and the returned by the bank on December 28, 2014. No
entry was
for the return of thr!; check. The customer r:e'Jlaced the check on January 15,
2015.

n:

A check for PS,720 was cleared by the bank as P7,520. The bank made the correction
on January 2, 2015.

A check for P3,500 representing payment cf an employee advance was received and
deposited on December 27, 2014, but was nc . t recorded until January 3, 2015.

checks totaling P67,300 were included in the deposits in transit. Tllese

represent collection:; of current accounts receivable from customers. The checks were

Post-da t d

actuallv deposited on January 5, 2015.

V ar io u s debit memos for drafts purchased

P. ayment of importation of equipment

totalinq P230,000 were not yet recordd. Thse purchases were previously set up as
accounts p a ya ble. :iaid equipment
2014.

for

arrived inDecmber

Interest earned on the bank balance for th 4th quarter of 2014, amounting to Pl,950
was not recorded.

Page 3 of 14 P: 1ges
..J :

!i

.C.PA l.IBVJEW SCHOOLOF TPE

p lllLIPPINES

,i!-lties and Shareholders'

'

.. !l1b1ht1es:

AP-PW7501.

fCPAP.)

Equity

.L\ccounts payable

Shareholders' equity:
Ordinary shares, P20

p 607,000

p 980.500

1,300,000
2.335,000
3,635,000

1,300,000
1.235.000
2,535.000

par value;

150,000 shares authorizE:d;

GS,O?O shares issued am! outstanding

Retained earnings
Total shareholders' equit/
Tvtal liabilities und shareholders
' equity

:::or

Cost of goods sold

Sales

p1.212.ooo

p3.515.500

HIATT TEXTILE COR PORATI ON

COMPARATIVE INCOME STATEMENTS
th: Years E n de d [;.-::cember 3, 2014 and 2013
. 2014 . . ' t:
.

Gross income

Operating expenses:

Selling expenses
Administrative expenses
Total operating expenses
N.:t income

P5,000,000
2.150.000
2,850.000

P4,500,000
1,975,000
2.525,000

1,150,000
600.000
1.750,000

1,025,000
525,000
1.550,000

p 975.000

Pl.100.000

The 2014 audit revealed the following facts:

2013

On January 5, 2013, Hialt Textile Corporation hac1 charged .a 5-year insurance premium to
expense. The premium t:ltaled P31,000.

a.

b. 1he amount of loss due to bad debts has steadil't decreased over the last 2 years. Hial't
Textile Corporation has decided to reduce the amc un t of bad debt expense from 2% to l 1/2
% of sales, l)eginning wit h 2014. (A charge of 2c;.> has already been made for 2014.)
Hiatt Textile Corporatio11 uss the periodic inv1!ntory system.
1
in,ventory errors for the la st 2 years.
Ending inventory overstated by '75,500
2013
2014 - Ending inventory overstated by P99,cmo
.

c.

The following are the

d.

equipment costing PlS0,000 was acquired o i January 3, 2013. The purchase was
.
recorded by a charge to operating expense. The equipment has a useful life of 10 yec1rs
and a residual value of P25,000. Hiatt Textile Corporation uses the straight -line method in
depreciating its assets.
.

An

e.

A!isume that the books for

2014 have not y et been closed. Ignore tax implications.

Based on the above information, answer the folk>wing:

l.

The December
paid is

A.

31, 2014, adjusting entry to" correct the expensing of insurance premium

Prepaid insurance

18,600
6,200

Insurance expense

B. Prepaid insurance

Retained earnings

24,800

R:!tained earni 1gs

18,600

C. Insurance expense

18,600' it:

Retained earnings

D. Insurance expense

18,600
18,600

6,200

Retained earnings

6,200
Page S of 14 Pagfs
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;':

:Pi\ REYIEW SCHOOLOETHE f IllLIPPINES!CPAHI

.

APPWi'.W.

2. The December 31, 2014, adjusting entry to correcr tne expensing of the equipment
purchased on January 3, 2014, should include a credit to
A. Accumulated depreciation-Pl2,SOO.
B. Retained earnings-P137,500.

C. Equipment-P12,500.
D. Depreciation expense-P12,500.

3. The December 31, 2014, adjusting entry to co-rect the inventory errors should include a

debit to

A. Cost of goods sold-P99,000.

B. Inventory-P23,500.
C. Retained earnings-P75,500.
D. Cost of goods sold-P75,500.

What i$ t 11att':.

fo tne ye;;: ended Gecernber 31, 2013?

! 11:
D. Pl,061,00
. P786,800

i.

.A. Pl,012,200

5.

What is Hiatt's correct2d net income for the year ended December 31, 2014?

correct

Pl,095,200

A.

net income

B.

B.

Pl,212,800

!O<>O()C>C>ooe>---------------- -------------

Pl,121800

----------------------------

Pl,082,800

C.

D. Pl,107,800

PROBLEM NO. 5
The schedule below shows the account balances of EENEFICIO CORPORATION at the beginning
iJnd end of the year ended December 31, 2014:

Investment in trading securities

Cash and cash equivalents

10,000

Accounts receivable

Land and builaing

Prepaid insurance

Equipment

Discount on bonds payable

Cost of goods sold

'

Treasury shares (at cost)

300,000

2,500
195,000

195,000

2,000

305,000
8,500

170,000

5,000

10,000

9,000

4,000

Logs on sale ot' equipment

CREDIT

1\llowance for b ad debts

Accumulated depreciation - Building

1,000
P2.053.000

p876.000

8,000
26,250
39,750

1\ccumulated depreciation - Eq uip m ent

1\ccounts pay a ol e
current

27,500
60,000

70,000

20,000
8,700

LOOO
40,ooa

10,000

35,000

--axes p ayab le

mE:arned revf nue

1-iotes payable - long-term

250,000

Bon d!> payable - long-term

Deferred income tax liabil ity

47,000

capital, P2 par
. \<t.ainedy share
earnings appropriated for

rrdinar

Page 6of14 Pag:_s

5,000
22,500

55,000
18,000

Miscelianeous expenses payable

shares

100,000

291,000

35,000

lncome taxe s

sury

148,000

539,000

Unrealized los; on trading securities

50,000

40,000

287,000

Selling and general expense:s

Total debits

P222,000

l nventories

rotes payable

Dec. 31, 2012

Dec.31,2014

DEBITS

11:

9,000
60,000
250,000
53,300

359,400

200,000

5,000

10,000

.n.:.:U lfil/JEWSCII.9.QJ.OF THE Pl 111.lP

PINE

Rtai1' ed ,.:arnings appropriat

d for
.
po!>stble building expans
ion
Unappropri ted retained ear
nings
.
Patd-:n capital in excess of p<1r
value

SCC.PAR!

AP-PWIT!Oi

Sales

'11:

Gin on sale of investment securities

23,000

38,000
34,600
116,000

112,000
5,000

898,000
12,000
000

876.00Q

PZ.053.

rotal credits

Additional information:
a) All purchases and sales were on account.

Equipment with CJn origim! cost of P lS,000 was solj for PZ,000.

b)

c) Selling and 1eneral exper:ses include the !'allowing:

P 3,750
Building aep re cialion
Equipment depreciation

25,250
4,000
18,000

Bad debt: expense

Interest expense

'

d) A six-month note payable for PS0,000 w s issued )Ward the

purchase of new equipment.

e) The longterm note pay<1ble requires the paymem of P::?.0,000 per year plus interest until
paid.
lreasury shars were solrl for

f)

Pl,000 mor than

thir cost.
.

g) During the year, a 30% stock dividend was declared and issued. At that time, there were
100,000 shares of P2 pc1r ordinary shares outsta 1ding. However, 1,000 of these shares

were held as treasury sh<1res at the time and were prohibited from participating in the stoc
dividend. Market price was PlO per share when th! stock dividend was declared.

h) Equipment was overhaul0d, extending its useful ife, at a cost of P6,000 .

debited to Accumulated Cepreciation-Equipment.

The cost was

activities.

i)

i3enetlcio has determinec: that its purchases and sales of trading securities are operating

Based on

.,

")

.>

4.
:i.

6.
1

i:..
c

lC.

the riven data,, .:a/cu/ate the fo//owin1:

Net income for

A.

P45,000

2014

B.

PS0, 300

C:ish dividends declarec and paid drinq

B. PS2.000
A. P8, 000

(. P43,500

2014

8. P l l 0,000

Proceeas from issuance of ordinary sharcs in

A. P l00,000

. ..

201

Proceeds from sale of trading securities

A.

P26,000

3.

P38,000

3.

P l S,000
.
Cash paid for purchase 1)f equipment

A.. PS0,001)

;:,_

ret cash provided by operating activities

'. P87 ,0 00
P45,000

1.

P187,000

P4,000

P83,000

I CJ61,QQQ
. '

Net cash provided by financing activities

-----------------------------

D. P l4,000

P42,000

'.\Jet cash ued in investing activities

1. P99,000
A. P106,000

( P182,000

000000000
.

D. P9,000
D. P l00,000
D.

Pl0,000

D. P89,300
D.

P9 3,000

D.

P106,000

----------------------------

Page; uf 14 P;:ig.:;
.

C.

C:

A.

D. P O
D. P269,400

. P!S0,000

Pl06,000

Proceeds from sale of trasury shares

B. PS,000
.\. P6,000

A: P188,000

D. P44,000

C. P210,000

C. PB,000

Accumulated depreciati(ln of equipment sold

A. P?,000

P7,400

' 11:

H'!\ REVIEWSCHOOL OF THE PHILIPPINES(CPAg;

.

APPW7!>01

PROBLEM 6

The following information i; based on a first audit of SABILA COMPANY. Thei client has nnt
prepared financial statements for 2012, 2013, or 20 1 4. During these years, no: accounts have
been written off as uncollectible, and the rate of gm;s income on sales has remained const ant
fur each of the three years.
Prior to Ja nuar y 1, 2012, the client used the accrual method of accounting. From January 1,
2012, to December 31, 2014, o nl y cash receipts anc disbursements records were maintained.
.

When sales on account were made, they were entrred in the subsidiary accounts receivable
ledger. No general ledger postings have been made ;ince December 31, 2011.

As a result of your 1xaminat1on, the correct data shovm in the table b ei ow are available:
.

. '

hccounts receivable balances:

Less than one year air.
One to two years old

Two to three years old

Over three years old

12131/14

12/31/11

p 15,400
1,200

'inventories

2,200

Pl6,600

P33.000

Pll.600

Pl8,800
PlLOOO

ccounts payable for i nv en tory purchased

P28,200
1,800
800

---

Total accoums receivable

5,000

Cash received on accounts receivable in:

Applied to:
Current year collections
Accounts of the prior year

Accounts of tvvo years prior

Total

201:

2013

2014

P148,f.O O
f.00
.!:lfill: OO

Pl61,800
15,000
40 0
P177.200

P208,800
16,800
2,00 0
P227,600

Pl7.f!QQ

P26.000

P31.200

13/00
__

Cash sales
Casll disbursements for

1.
2.
.,
.) .

4.
5.

..

inventory purchased

P!25,(JQO

P141.200

11:

P173,800

Tile company's sales nvenue for the three-year period amounted to

A. P658, 200

c.

P74,20G

P625,400

D. P415,300

What is the compa ny's total sales revenue for 21)13?

c. P268,200
B. P183,600
A. P206,400

D. P180,400

B.

The aggri:gate amount of purchases for the thrE:e-year period is

c. P434,000
B. P440,000
A. Pl31,000

D.

P446,000

What is t11e company's gross p ro fit ratiq in each of the three-year period?
C. 35.16%
D. 31.15%
8. 28.35%
A. 33.3 3%
.

of ne three-yea: period?
What is tile company' gross profit for each

A.
B.

c.
D

2012
p 60,933
55,5 J3

122,400

::

---

. 2014
p 80,00 0
79,000

2013
p 68,200
60,133
137,600

---------

178,800
----

g ;

ooo

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;.!

.....

!'!

t;

' REVIE W SCHOOE

OL THE PlilLIPPINES
!J.A
CCrA

APPWOO

Rl

5 The a!11ount of inver.t

ory to be reported on Bird's December 3 1 , 2014, stateme!i.: of
financial position should
be
A. P2,103,2 00
B.

C. P2,122,200

P2,08ft,200

000()()()000

--------- ------------ --------

D. Pl,993,200

-------- ----------- --- -----

PRC>BLEMS

You have been asked by a

client to review the records of BABOLS COMPANY, a small
manufacturer of precisio n tools and
machines. Your .:lient is interested in buying the business,
and arrangements have been made for you to review :he accounting records.
Vour .examination

1.

reveals the following:

BABOLS commenced bu.iness on April 1, 2011, md nas been reporting on a fiscal year
ending March 3 1 .
The company has never been aur:!ited but the annual statements
.
prepared by the bookkeeper reflect the follow.ng income before closing and before
deducting income taxes:

Income

Year Ended

Before Taxes

p 14 ,200

March 31
2012

222,800

2013

207, 160

2014

2. A relatively small numbeir of machines have bt:en shipped on consignment.

These

transactions have been recorded as ordinary sa'les and billed as such. On March 31 of eacl1.
year, machines billed and in the hands of consignee! amounted to:
p 13,000

201:'

None

20D
201!

:;ales price was determine< by adding 30% to cot

3.

4.

olo the following year.

Assume the cnnsiaWd machines are

On March 30, 2013, two mc1chines were shipped to a customer on a C.O.D. basis. The sale
was not entered until April 5, 2013, when cash was .received for P12,200.

The machines

were not included in the inventory at March 31, 2013. (Title passed on March 30, 2013.)
All machines are sold subject to a five-year warran :y.

ultimately to be incurred in connection with the warr<1nty will amount to 112 of 1% of sales.

It is estimated that the expense

TI1e company has charged an expense account for warranty costs incurred.
Soles per books and warran1 costs were.;
Year Ended
March 3 1

5.

11,180

For Sales Made In

Sales

2012

P 1,880,00C

2013

2,020,000

2014

3,590,000

WaiTanty Expense
2012
1,520

720
640

2014

2013

p 2,620

3,240

p 3 ,820

p 1,520
Total

3,340
7,700

Ex

a c_f debts have been recorded on a direct writeoff bc:ls

perience of similar enterprises
indrcat"es that losses will approximate 1/4 of 1 % of sale$! Bad debts written off were:
.

Bad Debts Incurred on Sales Made In

2012

2012
2013
2014

p 1,500

1,600
700

2013

1,040
3,6QO

Page 10of14 Pages

2014

3,400

Total
1,500
2,640
7,700

... ,.

- ---

'

C:Pr\ REVIEW SCHOOL OF THE FH!LIPPINES (CPAR:

APPWT501

PROBLEM 7
BIRb COMPANY is a manufacturer of small tools. ne following information was obtainetl from
the company's accounting records for the year
er1ded December 31, 2014:
.
.
Inventory at December Jl, 2014 (based on physical count

Pl,870,000 .

in Bird's warehouse at cost on December 31. 2014)

1,415,000

Net sales (sales less sales returns)

Accounts payable at December 31, 2014

9,693,400

;/our audit rev,?als the following information:

1.

The physical count induded tools billed to a custJmer FOB shipping point on December 31,
2014. These tools cost .)64,000 and were billed ::t P78,500. They were in the shipping <:1rea
waiting to be picked up >y the customer.

. G Oods shipped FOB shipping point by

a vendor were in transit on December 31, 2014 .

These goods with invoic cost of P93,000 were sripped on December 29, 2014 .

.:,,.

4.

"

Work in process inventory costing P27,000 was sent to a job contractor for furt:her
processing.
Not induded in the phvsical count were goods returned by customers on December Jl,
2014. These goods costing P49,000 were inspected and returned to inventory on January
7, 2015. Credit memos for P67,800 were issued to the customers at that date.

In transit to a custome- on December 31, 2014

were tools costing P17,000 shipped FOB

shipping point on December 26, 20i4. A sales in-1oice for 29,400 was issued on January 3,

2015, when Bird Compa.1y was notified bv the cu:tomer that the tools had been received.
E..

1.

At exactly 5:00 pm on December 31, .2014, gcxds costing P31,200 were rec ived from. a
These were recorded on a receiving r-:port dated January 2, 2015. The relcited
nvoice was recorded on December 31. 2014, but the goods were not included in the
jJhysical co0.mt.
vendor.

ncluded in the physical

count were goods tecei1.eQ,from a vendor on De ember 27, 201 .

However, die related invoice for P36,000 wa,; not recorded because the accounting
department's copy of the receiving report was los:.

t.. A monthly freight bill for P32,000 was received on January 3, 2015. It specifically related to
merchandise bought in December 2014, one-half of which was still in the inventory c;t
December 31, 2014. The freight was not included in either the inventory or in accounts
..
payable at December 31, 2014.

1.

2.

Bird's Dece mbe r 31, 2014, inventory should be :ncreased by

B. P233,200
C. P252,200

A. P216,200

D. P123,200

2014, should be increased by

Bird's accounts payable balance at December 3J,
C.
P125,000
D. Pl61,000
Pl
45,000
B.
A. P68,000

on Bi:'d's income statement for the year ended

3_ The amount of net sa1es to be reported
be
ld
December 31, 2014, shou

A.

..

P9,547,100

B.

P9,576,500

at
Bird's stctement of r.nanCial position

payable of

A. Pl,576,000

B.

Pl,483,000

C. - P9.591,000

D. P9,595,300

Dect:r;iber 31, 2014, QP.ld

C. Pl,540,000

report accounts

D. Pl,431,000

. .

. \.

. . ' '"'

,(L)_HF.VIEW SCllOOI.OF TH"PlI!

"

6.

2012

p 2,800

2013

1,600

2014

2,240

A re iew of the corporate

minutes reveals the man 3ger is e n titled to a bonus of 1h of 1 % c,f
the income before deducting i
ncome taxes and th bonus. The bonuses have never been
rcorded or paid.

Based
.L.

on the preceding irdormation, determme he followin g:

C!:>rrect sales for the year ended March 31, 2012.

A. Pl,867,000
(. Pl,870,000
B. Pl,880,000

D. Pl,873,000

2. Correct sales for the year ended Ma'lch 31, 2012.

C. P2,042,200
B. P2,032,2DO
A. P2,035,200
3.

D. P2,045,200

D. P3,590,000

Correct sales for the year ended March 31, 2014.

A.

P3,569,200

B.

C.

P3,566,620

P3,578,820

Additional warranty expense for the year ended I' larch 31, 2014.
(. P6,886
A. Pl0,133
B. P24,834

I.

I.

01

Comm!ssionr, on sal
e 5 h ave been entered
v1her'l pri.d. Commissions payable on March 31 of
eac h year W8re:

APPW75

IPPINEStCJ1AR)

'i.

Additional bad debt expense for the year ended

ti.

Additional commission Expense for the year

. .

Manager's
A. P902

A.

A.

f.l

P2,473

Pl,600

B.

Pl,17

P2,240

f'l,i'81

Correct income before income tax for

9.
10 .

A.

3.

P229,841

P228,692

!'larch 31, ?013.

(.

D. P6,858

PS,117

endeJ March 31, 2014.

bonus expen:;e for the year ended

i.

D. P17,833

C.

D. P640

P4,640

March 31, 2014.

' .

?2,683

the ye r e r\jed March 31, 2012.

. '

C:.

B. P179,488

P228,692

D. P126,417

P125,785

income before income tax for the year.enjed March 31, 2014.
C. 1=180,390

B. P229,841
P179,4B8
D. P126,417
-- --------------------------oooe:><>C>ooo-----------------------------

.Correct

A.

C.

Pl,149

D. Pl26,417

Pl.25,785

Correct income before income tax for the year enjed March 31, 2013.

A.

PROBLEM 9

'
rt p rodLces 30% of the coun try's milk that is
Gatas owns 450 fa rm s and has a stock cf 21,000 cows and 10,500 hei fe rs. The

Gl'.TAS, INC. produces milk on its farms.

co:1sumed.

farms produce

E: million ki101rams of milK a year, anci the average inventory held is 150,000

kilograms of milk.

However, the company is currently holding stocks of 500,000 kilograms ::if

mi:k in powder form.

At l)ctober 31, 2J14, the nerc are:

21,000 cows (3 years uld), all purchased ori or tefore November

7,500

heifers, ave rage age 1.5 years, purchasec on April 1, 2014

1,

2013

3,000 heifers, average age 2 years, purchased en Nove mber 1, 2013

No animals were born or sold 1n the year.

Page 11 of 14 Pag1 s

!,;PA REVIEWSCHOOLOF THEPHILI PPINES(PAR)

AP-Pw7501

The unit fair values less estimated point-of-sale costs :vere:

1-year-old animal at October 31, 2014
2-year-old animal at October 31, 20:1.4
1.5-year-old animal at October 31, 2014
3-year-old animal at October 31, 2014
1-year-old animal at November 1, 20 1 3 and
April 1, 2014
2-year-old animal at November .1., 2013

P3,200
4,500;
3,600;

s,ooo;

3,000
4,000

1he company has had probl !ms during the year: Cor taminated milk was sold to customers. As
a result, milk consumption has gone down.
The government has decided to compensa te
farmers for potential loss i1 i revenue from the sale of milk. This fact was P,Ublished in the
national press on Septembi:r 1, 2014. Gatos receiv =d an official letter on October 10, 2014,
stating that PS million wouic be paid to it on January 2, 2015.

The company's bu1ness is .pread cer different part of te countrv e ont: region aectd
by tne contamination was Central V1sayas, where th l;>overnment c rta1led m1 lk producti on in
,
tile region. The ca ltle were unaffected by the comanination and were t1ealthV;. The company
estimates that the future discounted cash flow income from the cattle in the !Central Visayas
r12qiori amountr:d to P4 milli:m, <.lfter taking 'into accoint the govemmnt restrict' ion order. The
company feels that it cannCtt measure the fair value of the cows in the region ! because of .the
problems created by the contamination. There are Ei 000 cows and 2)000 heifers in the region'.
/l,ll these animals had been purchased on Novemb.:r 1, 2013. A rial company had offdred
Catas P3 million for these animals after point:'-of-s<11e :osts and furtheri offered P6 million for!the
farn;s themselves in that region. Gatas has. no intention of selling te farms at present. ;rhe
company has been applying PAS 41 since November : , 2013.

What is tt1e fair value of the cattle (excludinf Central

l.

2.
3.

2013? .

A. P93 million

B.

P64 million

:. P63 million

What is the increase

price cha110e'.'
A . Pl0.7 million

1,

P48 million

D.

fair va1ue of the cattlE (excluding Cent a l

in

B.

Pl2.8 million

5.

I region) at November

Visayas

What is the fair value o f the cattle (excluding Crntral Visayas region) at October 31, 2014?
A. Pl06. 5 million
B. P1 13.25 million
C. PlOS.6 million
D. PlOS.75 million

4.

G. P9.2 million
.

i region) due to

Visaya
' = D.
.

P16.7 million

What is the increase in fair value of the cattle (excluding Central Visayas region) due to
physical ch_age ?
.
B. Pl l.8 m1!11on
A. P9.2 m1fhon
- P18.55 m1!11or
o. P9.4 mi l li on
.

On October 31, 2014,

A. P39 million

[he

.. I

cattle in the Central V1sayas region wo ld be va1Jed at

C. P4 million
J
D. PS millio n

B. P3 million

- - -- - - --------- -------------

000000000

- - ------ - - ------

PROBL EM 10

I
!

---- - - - --

l
!.

--

;.
i

MALOX Speci a l ty Company manufactures three moc els of ger shift components for bicycles
a i e rs ,. and catalog o u tl ets .
Since beginn ing
t iat are sold to oicycle . nanufacturers, ret l
and
costing
ha
absorptio1
normal
assumed
used
a 'first-i n, first
has
Malox
J
1981,
in
operations
of
es
ala
.
the
m
inventory
nc
sys
b
account
The
te
inventory
l
s at bi e
ua
t
oerpe
its
in
w
out cost flo

end of Malox's fiscai year, November 30, 2014, are shown below.
cost before any year-end nd1ustmer.ts .

"

P64 7"000

Finished goocs
Work !n procr:ss
Raw material:;
Factory suppi1es

" .

'\,

'\

11 2,500

2t'4,000
69,000

Page

12 of 14 P; ges

Th inventories are stated at

I

I
I

J;Pi\ REVIF.WSCHOOL

OFTHEp! ilLIPP!NES
(CPAR!

AP
PW75Q1

The following infor

mation re.at
. es to Malox,s inventory and operation
s.

The fini;hed

good s mventory con

sists of the it::ms analyzed below.
.

1.

NRV

Cost

Down tube sh ifter

Standard moclel

p 67,000

p 67, )00

Click adjustment model

Deluxe mo del

89,000
110,000
266,000

94,500
108,000
270.0JO

.
Total down tube shifters

llar end shifte r

Standard model

s3 .0 M
99,(JO
182.QOO .

Click adjustment model

Total bar end shifters

90,050
97.550
187.600

Head tube shifter

Standard moc:el

Click adjustment model

Total head tube shifters

Total finished goods

77,650
119,300
196,950

78,0 )0
117.0)0

19'5.0QO

P6S0.550

PM7.0 2Q

2. One-hall' of the head tube shifter finished goods inventory is held by catalog outlets n
consignment.

3. Three-quarters of the bar end shifter firiishej goods inventory had been pledged as
4.

5.

6.
7.

collateral for a bank loan.

One-hall' of the raw materials balance represents derailleurs acquired at a contracted

price 20 percent above the net realizable valu:!. The net realizable value of the rest of
the raw materials is F'l27,400.
The total net realizable value of the work in process inventory

is F'lfJe,700.

Included in the cost of factory supplies are ob:;olete items with historical cost of P4,200.

The net realizable value of the remaining facto y supplies is P65, 900.

Malox applies the lower of cost or net realizabl : value method to each of the three types

of shifters in finished goods inventory.

For e: ch of the other three inventory accounts,

Malox applies the lower of cost or net reali::able value method to the total of each

inventory account.
8.

Consider all amount!; presented above to bE= material in relation to Malox's finanr.ial

statements taken as ;1 whole.

Based on the preceding information, determin the proper values of the following
. on November 30, 2014.

1.

Finished goods invento1y

A.

P647,000

.A.

PlOS,300

B. P643,000

2. Work in process inventory

:

:t.

F> 1 12,soo

<' . . Pt08,700

B.

P227,400

t:. P242,00U

8.

P65,900

Factory supplies

A.

P64,800

P650,550

8.

Raw materials inventor/

Pr. P264,000

1 :.

C:.

Page 13 of l<t P;;1:cs

P61,700

D.

P654,550

D. P104,500

D. P237,400
D. P69,000

\:PA RF.V\EW SCHOOL OF THE :JH!LlPPINES (CPRl

AP-PVy7501

5. Which of the followini best describes the PAS requirement for applying the same cot
formula to all inventories?
A. When they are purchased from different suppliers.
B. When they are purchased from the' sam gmgraphic region.
C. When they are similar in nature or use.
D. When they sell for the same price.

-----------------------------

0000000<1 0

-----------------------------

iPROBLEM ll.

You were engaged by COMET COMPANY to audit it financial statements for the first time. In
examining the books, you noted that certain adjustments had been overlooked at the end of
:w13 and 2014. You also discovered that other items had been improperly recorded. These
omissions and other errors r'or each year are summar ized below:
- - - -

------ --

Salaries Pa}'.able

Interest Receivable

--.

" 1 2-J!J1-14
780.LOOO

.
Jrepaid Insurance_____
.
1-dvances from Customers
(Collections from customers had been recorded a.; sales but
should have been recognized as advances from customers
because qoods were not sh!QQ_ed until the followi!J.earJ.
.9_l
_ Machinery

(Capital expenditures hc.d been recorded as repai.s but should

have been charged to Machinery; the depreciatitm rate is
10% per year, but depreciation in the year of e> penditure
is to be recognized at 5%)

12-31-13

_:_ 0

873 66

21000

259,20{)

561_000

.L400'
470

384,000

307,800

522 000

561i_OOJ

Required:

-- . What is the total effect of the errors on the 2013 1et income?
A. Understated by Pl,236,600
C. Oven ;tated by P80,400
B. Understated by p77;,soo
D. Over:;tated by P165,000

;. What is the total effect of the errors on the 2014 i1at. irrcome?
A. Understated by P32Cl,100
C. Over:;tated by P324,300
D. Over!;tate!l by P380,700
B. Understated by P37G,500

::. What is the total effect of the errors on the comp<1ny's working capital at Dec. 31, 2014?
A. Understated by P265,800
B. Understated by P301,80 0

c..

C. Over:tated by P820,200
D. Over!;tated by P l 1 9,400

What is the total effect of the errors on the palanc of the company's retained earn ngs at
Dec. 31, 2 0 14?
C. Unde:stated by P155,100
A. Overstated by P855, 900
D. Understated by P265,800
13. Overstated by P930,JOO

r:

. t: j
i

the 1rror in recording capital expenditures on

The necessary adjusting journal entry for
e:
induc
d
woul
,
2014
Mach inery as of December 3 1 ,
.
,800
P535
of
ings
earn
ined
reta
to
it
A. A cred
reciation of P82, 5 JO .
13_ A credit to Accu mulated Dep
of P54,300
c. A debi t to Depreciation Expense
D. A debit to Mac hinery of P52 2,00 0

--- END -- .

:i

:I j.

CPA REVIEW SCHOOL OF l H PHIU PPINE S

AP- PW7 501-S QL

t.1 a n 1 I ;,:

AU DIT IN G PR OB LE l\ll S
PRO BLE M NO. 1

, ------

LAF AYE TTE COR PORATIO N

Computatic

CPA Review

nof Estimated Lss on H :?turns on Sales Warranties

-- -

Parcentagt::

Month

at

March

April

May

June

Total estimated returns

.
. . . .. . . . . .
.

oss percentage on returns

__

. . .

.... .

1 4;__
2:.
Junu:...3:.
.: 0:.!..
..: ' .::.
0.:...

__,.

=:
=:
::: ::
"':".':"
::
".'
:'.'.:".

_
_

--

Percentage of

f.P..

Estimaj
Returns Sub-

l .Jtal

sequent to

Es ti nated
:turns

?% l P2 4 00 0
7

Returns

P4.200,000
4,700,C:OO
3,900, 100
3,250,000
2,400,COO
1 ,900,CIOO

rebrua!:Y_

Estimated ,

Sale;

.janua!"_Y

..
I ..
I

Sub seq uen t to

Total

Estimated
Returns S1.1bsequent to

6/30/1 4

6/30/1 4

P29

1 0%

- ----- -

400

---r---!
-"-----

7
7
10
10

l
I
I

! EJ

P648,850

65%'

Total estimated loss on returns . . . E411Z

Rg_uired lia
_ !lili
. !Y balance . . . . . . .
Le ;s balance, 6/30/1 4 . . . . . . . . . . . .

1 20 400

..

R
uired ad
justment to

11abiliaccount

.
.

'Estimated loss on component repl3cernent 1 i n perc.:ntage of sales price):

en -- - -----

r _ ___ g_ _st_ of u n it rep la

_ __

-----------

_ ___ _

Add f reight charges on rturg and replacement

Deduct salva e value or com onents returned
Net loss on components returned

Warranty Expense

2.

i='ROBLEM NO . 2
l.

.
-

------- ----r-----+--il

rEstimated Liability for Product Warranty

.0

..

'

Adjusting E11try

70%
5
75%
10
%

------

3.

8
.

4.

5.

JARAN CORPORATION

2014 Depreciation exense - Vehicles:

Beg. Balance

June

22 acquisition

Total (A)

Pl40.97E.

... 1014 Depreciation ex :>ense

Mchine 1

'otal (C)

2
3

Machinery:

P239.400

:i. Accumulated depreciation - Office furniture Dec. 31, 2015:

(P1 15,000 - .PS,400

P:.09,600/8

x 1

4/12) (B)

Pagt 1 ol 8 Pa; :es

P18.267

. t

CPA REVIEW SCHOOL OF THE f'HI LI P PINES(CPARl

AP-PW7501SQb

4. 2016 Depreciati on expense - Machinery:

2:
(P480,000 +P120,000)
ND, Feb. 2009 - Dec. 31, 2015:

Machine

P600,000

Cost

Carrying value,

368.750
231,250
(50,000)

1/1/16

Revised residual value

25months

Revised remaining l ife

Depreciation

Machine 3
Total (B)

197.400

5. 2016 Depreciation expense:

P90,360
197,00

Buildings
Machinery

Vehicles:
.Old, traded in on June
Acquired June 22,

20, 20l6:

2014, scrapped Oct. 4, 2016:

20, 2016:

Acquired tl1rough trade in on June

Office furniture (PllS, 000 - PS,400
L:a nd improvements (PSS,000/10)
Total

2.
3.

13,700
5,SOQ

P109,600/8)

P394.060

(A)

PROBLEl\!I NO.
1.

ONOR COMPANY

Petty cash fund per trial balance

Various expenses dated December
Employee cash advance

2014

Adjusted petty cash fund

Pl0.250

Bank
P638,340

Book

NSF check

Unadjusted balancEs

P748,320

Bank error

Unrecorded cash receipt

Postdated checks
Deposit in transit

'

1:4

Bank debit memos

Interest earned
Bank service charges
Outstanding checks

4.

(276.380)

P432,710

Adjusted balances

P432.710

89,800
230,000
1,260

A Accounts receivable
Acco unts payable
Bank service charges

k
Ca:;h in ban k - :-sun ami Ban
Advances to em ployees

315,610
3,500
1,950

Interest income

5.

p 432,710

i Ban k
Cash in ba nk - Tsu nam
Petty cas h fund

nme aeposit
.,

Money market placement

Cash and cash equi.;alents
,

\.

.'It

,}

Page 2 of 8

-
Pagt s

10,tso
1,000,000

4.000,000

PS.442.960

CP1\ REVIEW SCHO O i.

OF

T!IE PHIL!PPIN ES(CeAfil_

_
_
_
_
_
_
__ _
_
_
_
_
....,
P
P_._
A,,_
.J:.;
1

50
u...=
W7
L
_
.0
f

PRO BL EM NO. 4 - HIATT

TEXTILE CO RPO RATIOf\
AUJUSTING JOURNAL E NTruEs
December 3 1 , :01 4

:--

Preeaid insu ranc e

I nsur ance expens e

r- -

Retaj!)ed -arni!JP

24,800

'

i
'

2.000

--

25,000

'

.
-

'

Retained earnings

t---

'

Cost of goods sold

lnvento_!Y

Depreciation expens1

7 5, 500
23,500

I
'

99, 000

J3<?rted _Qt_i _r::! o m--- _ ___

_ pense
Praid insurance charged t:J ex
Decrease in bad debt expe n_e rate
!:Jding inventory - overstated:
_Q s t_ of machine charged to_ :xpense
U nrecorded dlreciatior:
Corrected net income

3. c

1 2, 500

137,500
25,000

201 3

2014

/.!.

_.._:

Retained earning:;
Accumulated depreciation - Equ ipmer.t

1 50, 000

___g_u!Q_ment
E

r---

i.

'

Allowance for bad debts

-----Bad debt exeense

Ir--l

i
I

--

-r-::2_

r=

1 8,60 0
6,200

'.

P975,001

P 1 , 1 00,000

1
I
I

-j

..
__

'

___ _ _ _ _ _

.
.

5. c

4. D

P1

J
----1

.oai.f!OQ

P1,Q:l16QQ

___J

PROBLEM NO . 5 - BENEFICIO CORPORTION

----- ----------------- --------.--=--:-::----,--

Sales
P 898,000
ri_
u_
.c
_s
tie
Gain on sale of trading S:>_
1 2,000
_
__;
Cost of__oods
_g_
sold
i._5 39,00
e
e_
e_
n_
d_,
n_
s_
xp
a
ra
e_
s_
,0
8
2
ll_
_
i n
0

_'_
l_e_
_
g
S
i-- _
g
_
en
_

_
7
_
_
_
_
_ __
_
_
_
_
_
_
-+-1

0
)--
I ncome taxes
i._35,0001
Unrea lized lss on trading securities
4:--'-,0
_,_
j
-:-0'-0
..!. -..:'
:.)_
--t
r-
,
1 t_
r-- Loss on sale of equipme:__
------- - J1 0001
_
_
_
_
_
_
-+ .. -:
=p
44

"-o

Net income

o
o
,
,.,
1

...L. ;,,,
--- '
______

_
___ .___ _

__ ___

_
_
_

-- .

-- -- ---- --

- ---- --

Answer: D

_ f-l!2Piate9._ retaJ!]_
j_____Y!:l

earning Dec:...]_.

2Q 1-

rJet income_
e
o .-:n_
se
(_
1 >:-- -'_
__
--= I
L_oecrease in appropriation for treasury stock
-
Increase in a ro riation for ossible bui!din 8XD.msion
___Stock_ividend declared

--+-.

Remaining unappropriated retained earnings

Unappropriated retained earnings. Dec. 3 1 , 20 1 4 , ncludi
net income for 2014*
Assumed cash dividends declared and
. 20 14
----

Answer: A

pa1ddurmg

Page

of 8 Pa ) S

.
.

-,
P 1 12.eoo---1

44,000
5,000 -- - -I
'.
J1 s .0001
l59 40Q)
86,600
78,600

_I

_J;
1

E].QQQ._ !

::Pi\REVIEW SCHOOL OF THE l}HILlP PINES!CPAP,l

.3.

I ncrease in ordinshares
Less: Stock dividend

. Par value of additional ordina_ry_shares issued -in

ncrease in share ere m i um

Less: APIC from resale of treaSU!}'. shares at
APIC from shares issued in 2014

t-

Proceeds

from

AP-PW7501 .SOL

issuancE of ordina!}'. shares in

;014

I
!

mor than cost

201 4

P1 59,400 1
59 400
P100.0QO
P1 1 1 ,000
1 000

EitQ.ooo

.1:.2.10])00

r--

Answer: C

._':':Jet decrease in investment in trading securities

Less: UnrealLzed loss or'. tradino securities
_Carrying value of trac1inq secunues sold
.
Add: Gain on sale of tradi!J.fl_securities
.
Eroceeds from ale of trading securities

. ....

_ _

Answer:

i.

___

P 1.000-i.
1 000
8,000 .
1 5 000
p 7.QQQ

k value ement sold

Cost of egt 1 ieme nt sold .?ee information "b"

Aceumulated deereciation of eguiement sold

Answer: A

Ei.

___

Net increase in eguiem E ntSalfe_ment (see 1nf()rmation .:!Q_

Purchase of eguiement
.

P1 35,000
. 1 5 000

1 so.ooo

- -Less: N Rayable issued

Cash paid

'---

.,

(SQUEEZE)

Bal.

7.

ment

170,00U

Egur

1 50,00Q
1 2/3 1/'14 305 0012

1 5,000

Sa:e

'

3QSt -of treasury shares sold (P1 0,000 - E>5,000)

APIC from sale of trea s ury shares

_
_ P ro ce ed s from sa!e of tnasU!}'. shares

8.

50 000

16C)]QO

Answer: D

Bal. 1 2/3 1/'1 3

Purchase

"Na.ooo

c
eeds tromaie-ofeguTpmeri t (see informatio i: "b'1
: Loss on sale of egu iement

-- --- - -

30,000
4 000
26,000
1 2 000

P5,000
1 000

P6'.ooo .

Answer: A

CASH FLOWS FROM OPERATING ACTIVITIES

Net income

Depreci ation

expense (F'3,750 + P25,250}

_ Gain on sale of trading securities

Proceeds from sale of trading securities (see no . .!.)

ase i n deferred tax liability

e in net accounts receivable

' .

I
i
i
Ii

(12,000)
38,000''
(6,300}
___,
(45,000)

!'

Page 4 of.8 Pag :!s

P 44,000
29,000
!

i
.

i. I;

:\ \'
;!

;,E.REVIEW SCHOOL Or THE r'HlLIPPINES

[ . _
/

i-
i-

APPW7501SOL

ICPAK)

9 , 00 (1

Decrease in inventor
ies
lr.c r1 prepa i d insura nce
Decrease tn accounts
paya ble
Inc rea se _m acc rue d ex
pens es payable
Increase in income taxs
a able
Decrease m unearned rev
enue
Net cas h rovided b o )era
ting activities

]so0:

{5,000i
9, 30(1
25,00CJ .
]8 000)
p"ffa 000

_ _

Answur: C

:; _

- -- ---=-:---;---::-::-=:;:-:-:
-no. 6)
Purch
ase of equipment (see
Overha
ul of equipment tsee information " h")
.
! Sale of equipment (see information "b")
I__ _ Net cash used in investing activities

Answer: B

10. CASH FLOWS FROM FINANCING ACTIVITIES

P 8,000
i-:- --Payment of cash dividerids (see no. 2)
.
(20, 000)
Retirement of notes payable (P6 0,000 - P40,000 1
, 000
Sale of treasury shares (see no. 7)
6
--------+--'77
0---1
0
1
0
2
Issuance of ordinary shares (see no. 3)
..!..-----+--=-=-
-=
0

_J
P 1 8 000---i
L .-t cash provided by financing activities

__
_
_

Answer: A

. l,ROBLEM NO . 6

SABI L.I\ COMPANY

. \

L_

: .

[
_

____

-4-

_
_
_
_
_
_
_
_

....;.
...;
.;; =-..
;.;;

_JL:=::=:_

_
_
_
_
_
__
_
_
_
_

ev
enue for 20 1 3 (see no. 5)
-"?
a
_
le
s_r-

_ _

:i.

Total
L ess :__
ccc
ei_
nvable, Jan. TI01'2"" ---.
ts
_
_
re_
Aou
Total credit sales
---Add: Cash sales, 2012 - 2014
Total sales, 20 1 2 - 2 0_
1_
4
,
___
_
Answer: A
_

Answer: A

Accounts payable, Dec. 31 , 2014

--ll]ents to suppliers
Total
Less: Accounts payable, Jan. 1, 201 2
Total purchases, 201 2 -- 2014

__

<L

Answer: D

1_
-)ales (see no . _
)

---------------- --.
------+--=-=-:..!.=.=-= ...J

- ------------ - -----_ _____

Less: Cost of sales

Inventory, Jan. 1 , 2012
Add: Purchases (_
3)
e_
e_
o_
n_
.
.
Goods available for sale
Less: lnvento , Oec . 3 1 . 201 4
Gross refit
Gross profit ratio (P21 9.400 I P658,200)

___.i.._...__........
., ___J
._ _

_
_
_ _
_
_
_
_

Answer: A

Page 5 of 8 P<a;:es

__.

_
_
_
_

-1

CASH F LOWS FROM INVES TING ACTIV

ITIES

i-L_

lf'i\
-,) .

REVI EW SCHO OL OF THE IHJLIPP ! NES

(CPAR"1

AP-PW75010L

Cash sales

--

Collections in:

201 2
201 3
2014
- ----AJR,
Dec. 31
-

---

17 , 000

2013

p 31 ,200
-

800
1 83,600
33 1/3%

28 200
268,200
33 1 /3%

1 800
206,400
33 1Q.%

p 89,400

p 68,800

p61 200

2014

p 26,000

--- Total sales

M ultiQ!y_oss profit ratio
Gross
profit
-

Answer:

2012

PROBLEM NO . 7 - BIRD COMPANY

r-

_Unadjusted bslanc es

lnventor.y

P1 ,870 , 000
.

.l\djustments:

f--

1.

2.
3.

..

4.

--

5.

6.
7.
---

!_

.
-

..

P1 .76,QOO

Q.2QO

P2,086 , 200
1 870 000

p 2l.2QQ

Accounts Qayable Qer audit

Accounts eaya b le per boks
Net adjustm ent increase

01''P1 576,000

1 4 1 5 000
11,QQQ

5. B

4. A

PROBLEM NO. 8 - BABOLS COMPANY

1.

2.

Net income a s reported

Elimination of profit on

-- -nsignments:
Billed at 130% of cost

I-

i]130/

To correct COD sale

.,' , Adjustment of warran_ly_expe1 ;se:
Salesboo ks

--

--

10.000
3 000

Profit error

COD sale

Corrections for Consignment:;

Correction for

Corrected sales

COM PUTA 'IONS

I
i

2013

-----+- 13,000

Cos

3.

P9,576,5QO

Answer: A

Answer:

P9,693,400

l nventoer audit
lnventoper count
Net adjustment - in crec:se

----

.___

P2

,C\dj usted balances

-- --

148,800
176,800
227,600
30 800
658,200
33 1/3%
P21fil 4QQ

8.

p 74,200

Net Sales

P1 ,41 5,000

'

"

Total

Accounts
Payable

.'

'

2012

P143,200

2013

P222,800

580

1 3 ,000

2.o.zo.000
12,200

, 3,5so,ooo

. I11.1 aQl.

2 20Ql

ToO 3:566&Z..o

04s

Page 6 of 8 Pa,es

2014

P207,160

1 1 , 1 80
2

3.000

1 867 ooo.I 2
;

SUMMARY INCREASES
{DECREASES} IN INCOME

8 600

1 ,880,000 I
11 3'006)

I
I

2014

---

I
\
I

.\

\
\
I

.G:J.'.J__l !EVIEW SCHOOi. OF

THE P l l JLIPPINES
{J;,_,
PA
....
._ l
H
,,._

--- --- -

1
]112 of 1

Costs charged to e
en
-

t---

5.

6.

t---

Addition al expen se
Bad debt adstments:

se

Y. of 1 % of sales
Previous write-offs

Normal bad debt expen

se,

Additional e_ e
p nses
Adiustment fN commis.'>

9,3 35.

T
0\ l
_l334QJ
7 e_I5
6 886

Q)

ions
-

1 % of income before

(2,640)
_.1iU

INCOME BEFORE INCOME TAxES

1. A

2. D

3. B

4. A

PRO BLE M NO . 9 - GA
TA S, I N C .

1. C

5,1 1 3

--

_ _ ___

.
.

- ,,

Tiit

J:

7. A

......

tI

6. D

8,917 I
(7}00)

----

5. A

J
1 0 1 .13 .T

{Z/00)

l
l

1 7,833

'

-----

taxes & bonus

'10,226

11 52

4,668
50
L1

r-- .Adi!!stment for bonus, %

of
--

AP-PW7501 SOL

_
_
_

t exeense .
--- --ormal warrany

126,417

29,841

P12 .785

P 2 8.692

1- l"'I I
8.

1,1 4 9)

9. A

Cows ( 15,000

x P4,000)
( 1,000 x P3, 000)
Fair value, Nov. 1, :013

'

3.

Cows ( 15,000

x PS, JOO)
(1,000 x P4, 500)
Heifer; (7,500 x P3,600)
Fair value, Oct. 3 1 , 2014
.5,000 x P( 4, :iOO-l,000)
1,000 x P{3,200-3,000)
Heifers 7,500 x P(3,200-3,000)

5. A

1 0. A

P7,500,000
200,000
1.500,000
P9.200.000

Increase in fair value due to physical change:

Cows 15,000 x P(5,-J00-4,500)

Heifer; 1,000 x P(4,500-3,200)
Heifers
Total

P7,00,000
1,300,000
3.000.000
Pll.800,000

7,500 x P(3,600-3,200)

Fair value of cattle i n Central Visayas:

Cows ( 6,000 x P5,0JO)
Heifers

P30,000,000
9,000,000
P39.000.000

(2,000 x P4, 500)

Total

PRO BLE M NO. 1 0 - MAL OX COM

PAN Y

FG
Down tube shifters at NRV
Bar end shifters at cost
H.::ad tube shifters at cost

Work'.. in-proces; at NRV

Derailleurs at NRV

)NIP

P266,0:JO

1. B

FS

.P10 8,7 00
Pll 0,0 001
127,400
P643.0QO

2. c

RM

182,000

195,000 .

Remaicihg items at NRV

Sup plies at cost
Totals

i9021 J

P17S488 ,

Increase in fair valu due to price chngc:

Cows

Total

.
18C,390 I

p 75,000,000
4,500,000
27.000,000
Pl06.500.000

Heifer;

Heifers

4.

P60,000,000
3,000.000 .
P63.000.000

Heifer;

2.

!
_J

3. D

P108,700

4. A

P237.400
5. c

P64,8002
P64,800

!PA REVIEW SCHOOL OF THE l ' HILl.PPINESCCPAl l

11

PROBLEM NO

AP-PW7501-SOL

COMFT
- C O M PANY

2013
NI

f--

Failure to recognize repid insurance

___,-

------

Advances from customers recorded

as sales

-- ,

._if
--!

-----

-- ;

--- .

'

1-.....j_..

. _ j Net Effect f_!he_ Err<?!_:

1

..

! 2013

1 201 4
3
1 201
2014

2013

4. c

3. c

! 201.6.
j

2. A

--

- charged to repairs
Capital Expenditures
--

12-31-14
RE

2013 I
! 20 1 4

--

1 2-31-1 4
WC
I

Failure to recognize interest receivable !

2013
' 2014

Failure to rcco
_g_nize sala riesyable

r]Under)

2014
NI

Ove

165,000 (320,100)

80,200

J1 55 ,1Q O) I

ADJUSTING JOURNAL ENTRIES:

1

1--

--

----

t4
5

Re!ained E a n in-9_?
S ala ries Expe nse
S alar i es P ai'.c.ble
r

.
.

Interest Receivabhi
Interest Income
R_!jn ed -C!':'.1it:!.9S

Pre aid Insurance

.307,800
76,200

90,600
470,400

Retained Earnings
Advances fro n customers

- -----

De
_greciation Eense
Accumu lated Deereciation
Retai ned Earni ngs

'

384,000

Sales

Repairs Exernse

.600
780,000J
259,2CO

lnsurance_xpense
Retained Earnings

Mach 1 n err

2 1 3,000
46,200

__

. .---------------

873,600

j
I

--- EN D

.'

086,000

. 500

561 , 000 1
522,00

1 1 0,700

535,800

CPA REVIEW SCHOOL OF T!1E PHIUPPINES

tv; a n.1 , c.

AP-PW7 502-S OL

J\U DITIN G PR OB LE M S
PROBLEM NO. 1

fBala

CP A Re vie w

MSU, INC.

nce per l)an K staten 1 ent

o
t ---".;..;.:..
i:-.!?p s it s in tra n .s-:\ Qutstand ingshecks
--

_
_
_
_
_
_
_

ingrent(h&k--

---

Error i n recorci

--- - _--=--------r------

----.. -

l Automatic mortE?JEYm ent

----------t-. Bank ervice ch<!lrge_
s _ _ ____ ----1-_
\. Deposit cred1tea
to comQany's acco1,mt ir. error

! NSF

check

I Balancer boo ks
-- ---- ------- -

P--l

_
_
_ __
_
_
_
_

\_Unastedj>a la!J_
! Deposits

___________--!l_.:Bo

o k--+-=:

--j
lr-

_
_

in tran si t

!_outstanding checks
! -r!-) rec:_grdif1_9_@.t c neck
_____
I Au
_i:natic ortg1m e n t
Bank service charges
l?
l eposi crr:Qited to comany's account
I NSF check
-------l
s
. ..lcifu- tecfba nces--= ---

-- -

L-j

-----1---!.J...
.J.

j
I

- --- --- __

PROBLEM NO. 2

--,--

--- _______

'
-

__ __ __

.. -- - ___
_

_ ___ __

--

---,
- r-

__.
.-----+----------------'------

PITO-P!TO COMPANY .

R<itio
'\gin.9_

Ctegorv

- --

--=
-'
-- --:--

,_
_
_

Acco u nt
Receivable
Balances

---;-

__
_

- -----t-- ---;1_

------- -

Chking_9_four:it baj_an1

---

l
i
....'... ----t--------"1

__
__
_ _ _ _ _ _ _ _" _ _

___

\_Pe!!Y_ cash
I Trea s ury bills
rTotal cash and cash eq 1valents

'.J

;-

10 day
. 11 to 30 days
I Past due 31 to 60 days

lras tdlie61 to 120 days

i Past due 12.i to 180 days
ITast_g Qir_ 18Q.Qcni.s_ .

- - '-<?.':.----- --- .. -

--

[?,lad debt expense

[_ J
Allowance for bad debt'>

I
.___

_:_ ____

64/o T
1sc:.10
8%
510
3% i

--------:-

1 . Allowance for bad debts1Jn. 1.L 2014

.
Add: 2014 bad debt expense
Total
Less: Accounts written of:"
Allowance balance before aqj_ustment_ Dec. 3 2014
Required allowance pri!19
\ Adjustment - inc_r:ease in <1llowance

r-

12.LOOC1

3000

35%

31L50

48

80% - - - ---

_:_]I

5%
20%

--

-'

Amou nt

Rate

240.LOOO
150.LOOO
901000
60,0QQ --

2 L .
.!.____ ___ _ 4
PJ0.000
.

Uncollectible

ooc.

--

aa: e
....
-.-,

-+-----

=:]
_J

.
.

"Page l of 6 Par,

--

___ J
s

!'!\ RF.VIEW

SCllOO!. \lF TllE

AP

l'lllLIPP I NES (CPAR

-

f3TAceounts receivable

IL

Less: Allowance for bad debts

2
-=
.=-i.
:...
=-=
1
-=
Dec_
:..=
J Net ralizab1e vaiue
0
-=
1-'1,
4-..::...: _J

j-4J Bad debt xpen se reeordet _

-----=---

-----;---

-------ir--

! Add: Adjustment to bring t:he allowance balance to thE amount indicated by

-

the aging analysis

'

I.Alternative computatiGn

Q_ance f?iQad debts, jan. 1 2014

cco nts w ritten off
-

_j
I

f .Correct bad debt expense tor 2014

- -

::J

P640,00C:J
-- ---- -----------+-----'- I

- --- - - - - - - ---- -----

. 1.
I

---,
!

.I

_____

P3,000,000

'I

. '

PW7502WL

CJ

54,60

J..58000
+-"'
::....: ). I
- =..t...:

1
f.154:200 i

Bad d e bt eY:ps e (SQUEf-----+

lowance for bad debts, Dec. 3 1, 2014

IJ-1 Total credit sales for 2014

PROBLEM N O . 3

- GARLA

---.----

HOME IMPROVEMENT!>

!
I
Cost
i t' R.e31izable V al ue
Lo wer
'
.
=:.__-=
+--=-=, ._

,,
68
; :.:;;
P=..;..:.;:;
.-- ---- sid ing _--:_
Al
o
umi -num
I:
_ 1
00
p 168,000
.
Ccdar !;hake siding_,____
254 400
258 ooo . l
254
4
00 ..
::.:::.
.:.L..;.
-==--l
.:: _
.;L... c::.
.:.
9
:...
O
-':::.:04
,. - 'v 0
-: :--:
36'."-'.
3:::-:
-tL-J uvered glass doors
5
0 0
- Therm al windows_____
420 000
4
20

00
0 +- -

_ _________. ____ _

. . . .

...,.
..
-

. .... -- ---niO:Oo o___]_

__

------...-

_
_

:+

)4
non
L-J
i _,P
t;J
>1,...i
.3:;i,
4'

rmi

-_J_

----L
___i;
E.
.JM
l
- - - - - --

__

_
__
_
_
_

1i:-1 1 1\llowance to reduce ir1ventoryto NRV, May 31, 201 ;

.- - c _ A1!owa1ce balance ;l.!:_ to_stmer.t

_ __

::=J .

'----'
------ ---- -

MANGO BANGGO

f-i ----[ I Gain from change i-nf,ir value of biologiGJI asset

/-_)__

PB2,500

Re uired allowance bi1lance

Gain to be recorded

j.

-....L-;
;...;
;
:=.,;:
;;.L..
c.;,_
_
_
_
_
_
_
_
_
_
..1._

I
I
! I

---L-
-

l u
e
--=-::
-' va
8_:_ i I Agriculcural p oduce, <it-'---fair
Gai n from cha n e i n f;iir value biologiGJI asset
--------+-----J
-Gain from chan e in fair value - agricultural produc :-+

!._ .

- - - --

s..
e.::
_Gross fO_!! on sold rmngo
:..=

_Ji?_tft_q !r:i_cr:i:i

___

PROBLEM N O . 4

1.-= i

_
_
_
_
_
_
_

__

:__
_:
:_
-------+------_J
.
.

'

ISIDRO MANUFACTURING COl'r1PANY

Depriation expensE_;.:.fo::.:.r..:2::.:01.::.1=-:------

s:.J'.
.C 0
:'.
..:: 0!1.:.
--- -- Truck # 1 (F:_
,o
1
so

----

------+-- -"'
-l----._:

_
_
_
_
_
_
_
_
_
_
_
_
_
_
_

:--- ------+---J
--:0
-:00
5L
/-
,
0

22
=
Truck #
S
L------- -----l--!.._-J
2)

V:
x..!.
Truck # 3 P300 OOOl.
Truck # 4 P240 0001'5

Truck # s P400 000 'S x

Tota l

2.

L1lated depreci.tion,
Lo
s_
s_
on trade -i n
=:...
L..=.:

rj
I'

P300 000

1/1 /lO - l/ l/l l

=--------------i__

i
I;
l1

1h)

Trade- in value of Truck #3

Book valu e of Truck .(r 3 :

{m

__
_
_
__,

_._

_
_
_

EW SCHOOL OF THE PHI LI PPINES (CPAl1.l

APPW7502SOL

:;.-rTrc:;;o;;st::--:--- ---- -----.,---Truck #4

P220 000

J:r uck # 5
truck #6
___ --Accumulated depreciation:

===-

---1-

.JiCk# C7M i_-__

1_; 4'----
3 1,_
12.L.-'
1:;.
1.;: 0'-

_____ruck #6, 7/1/13 - 12/ 3 1/14

___._
Bo-'-k- value, Dec. 31 2014
_o'-'-

Truck # 1

20 1 2

2011

Truck #2
Truck # 3

Truck #
4
---Truck # 5

--

44 000

225

210 000

OtlO

_ _____
_

---
-!-

Total

2014

..

.!------....:_:_-+----r--__J .
.
.!.__ __:----+---1'
_

250 500

-----.---,--

MADRIGAL CORPORATION

s price
\ --- \ .B_i:_o_!5e 1 fE'.-=
in value P36; 670
_
__

---- - -- ----- -- - -------

__

\?

\' -:_
.

---Jens-e:::::==========::===:===--J

f- i-:--

--

_ _-__ -_
d_epreci a tio
_
mu
cc
A
n
te_
d
la
u-

PROBLEM NO. 5

!\

20 1 3

'

--

Truck #6

- 48i_Q_0_.9_ j___ _
30 000 I

Correc-9.!iation
Per client
Overstatement

-+----r-'

;-

-j

---+-- -- ------ -!

Truck #2

-I

00
4_
...LQQQ_.-+.---- - --1
_
_
--+.Pl,_Q40,0
_QQ__j
4 20 00

_
__

Gain

on

--+-

---

180/360

sale of Floater Co. bonds

Sal-_eri ce (P240iQQ Q. 97_ 1h%)

--------+---
es
a'o_
ke
B r_
- _
_
r-'
ge
_.fe
_
_
--,.-------+---l
1Net
Car in value
Gainc..:
on
Co. bonds

:- sale of Sinker

-----'-----1
-

I
3
r
I

__

----

--

_
_

--

--

--

Floater
Sin ker
Leader

--- -- ---Jan. 1

April

Jan. 1

April 1

D_ : _
3_
1

Jul

Nov. 1 - Dtc.
Total interest mcom1

_
_
_
_
_

31

--------

.[4:=lJ_unrealized loss on tr?dig securities

Condu ra Co. ordinar / shares
Floater Co. 7 112% bonds
- - - - - --

Bobber Co. ordina!Y shares

Leade r Co. 8% bone s
Total
-

5.

I- -
.'"
-1- - --

Floater
Leader
Accrued interest receivable Dec. 31

Carinc Value

2Q 14

. .

Fair Value

I Jl

---i

1 -

..

CPI\ REVIEW SCHOO L OF THE PHILIPPINE S (CPAR)

AP-PW7502-SOL

PRqBLEM NO. 6 ALTERADO COMPANY

r-1. 1

Polify_1

Insurance expense

Policy 2

PoliQt 3

r red d n 2
014
-

t_ i____
u_
g -_
_
_
_
_

r:
_
ota_
I depreciation expense

1:

_
_
_
_
_
_

__

I Bad debt expense

! 3.
1

..

4.

Interest income
Rental income

[5. I I Expired rent

PRBLEM NO.

DONNA MANUFACTURl!iG COM.PA.NY

AJEs.DECEMBER
,201
3-'1-----.;.c_
4 ----- ---- - -----+- -..f1
Machinery
Pat1ts'---

!..

..

---- -.,---,-----&..-.--------+--+---l

___
-

Cost of oods sold (Patent amortization)

Patents
Licensing agree ment 2
.Unearned revenue

. --------

- ---Retained earningtl!!TIY.a
::.
.: t.:..:..:: lo
):
.:: sL
rm
.s
:.:
::.i.:.
.: .:.
.:. ::.
.:.
e.:. n
eQ.L9. ag ree m e .:..:.
ic
L_
_
1 t..::
l:.__

3.

_
_

--------
_
_
_
_
_

---- -----+---1--- ---l

_
_
_
_
_

Cost of licensing agreement 1

Recoverable v<1lue

-----Impair.:..:.rne.:..:.ntl=o;s'---------+---}--

_ __ _

Rerained earnings (Advertising)

Goodwill

------- -------:1---l.?.:.... _;guipme0!_----;--------- -----+---lf--_J

_

Leasehold improvements

-;::s (;:;

_
_
_

---

6.

1.

2.

3.
4.
5.

old

ation expense - 2 14)

0

Retained earnin s
_
_
nen ts
Accumu lated depreciation - Leasehold improve1_

Retained earni n s
Organ ization costs

Patents
Licensing agreement 1
Licen sing ag_reement 2

Leasehold improvements
Retained earnin_g_s debit
-

-+-----1-

_
_
_
_
_
_

.
.

Page 4 of 6 P; 1 ges
'

--

JMSCH OOL
pROBLEM

NO . 8

\)I' T H E

Pl i!LlP PlN ES (lPAP .

'
BE NS ON CO RPORA
TION

'

! s. I

4. I

Ordinary '.!ihare caoital

No . of
. -r.Jtal

Ilem

Shares Issued

Beginning Balance-1/1/14

40ct_OOO

:5

Jan. 16

Balance

-t

Feb. 10
B alan ce

P2,0)0,000

Earning_

Premium
i

Retained

Share

Par Value

T
i:

Balance

P3,_000

P850.LOOO

000

--

'

March 1.

April

AP PW7602SQl

Balance

Balance

1
J
.l:!!Y

alanc:e

t=

g.

l
.J?_lanc__1]131/ 14

--

'

.i-- -

PROBLEM NO. 9 - STRATA COMPANY

1 _D@usted vouchers pa.yable, Dec. 3 1 , 2014

r !.!
:
..:_
o s:::
N=.c
I Vouchi:_
[--

3.

_,_

_j

_
_
_
_
_
_

_
_
_
_
_
_
_
_
_
_

P_ l,309,SOQ.:_
Pa ments
sPu rchase
=
-----+
-+
-4
_y_ouchers_Q 9vableJ.!l_e!L _
---+. ----Purcase re u r s
Pu rchase discounts lo.t on paid voucher:;
.

--_--- ----- -=--

t n

'

_
-

EC Purchase
discounts lest
I
--.-bl
-=-=:.:..=

v
e.:....:....
==
1-'-
o
uchers a a
I.-----...j._----=-:J
.
PROBLEM NO. 1 0 - MUNTINLUPA COMPA NY

_Ll. .

Accounts receivable, April 21

Uncollectible accounts

Collections
Total

Accoun ceivabl Ma
31
_
_
rch
_
Sales, April 1-April 21

-'---

_
_
_
_

___ Totalales, Jan. 1-A

r_
_.._
p
_
21
iI _

-----+--

Sales,_Jan. 1-March 31

.L_.

_
_
__
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_

Page S

of 6 Pag<"s

_J

_
_
_
_

. .

CP A REVIEW SCHOOL OF THE PHILIPPINES (CPAR!

I 2.J

Purchase:; Jan. 1-March 3 1

Payments for AQril QUrc:iases

. Pur hase r turn

c e s
Purchases, Jan. 1-April 1.1
sales
3] Net
Cost of sales
Invent Jan. 1
available
Inventory, Dec. 31

r-_
L
- ---

ross pro!!L_

'

I
I

sale! Jan. 1-Ap:il 21

n en Ol)j) n . 1

660 000
5 150 000
5 81<t_OOO
1750 ooQ)

_.

'

for sal e

ost of
t

rossYf.9f.!.U.9Q___

I v

Unrecorded purchases

Net purchase s
Goods

APPW7502SOL

-- -

P9.L20Qi..OOO

I
!

Is 060 ooo}
P4,140.000.

-.-l

' -

Ne t purcl -+
-j
-- -- -- -_a

Goods available for sat.:

si .L
__
Co_
st_
o_
f_

21------
ril-=
"'-'-"

Estimated invento .L.:...A.C

___ __
__

---'o-'-'
-'-'-'

-----+-

I:

,. i

------ - --- -----.--rt- ,

r_
r_-_
ma1Esti.. te
q_i
nvn to_
rt__
_ '_
Sa vaged inve n
<?!_
'.
ch a nce in tra nsit _-------- -----+- -- -
_

_!:ess: l

s"' _
s"'-___ _ Jnvento
_!}1_f_
e_:
i r_
lo
'"
_
_
_
_
_
__
_
_
_

PROBLEM NO. 1 1 -- BAIKA::.. COM PANY/OHRID CQ;IJIPANY

/IJ

Carrying

f=I/

value of

note oayable at Dec. 31., 2.014

.__
:;J;:nf:=,tpayments

L_ ----st of

------

1---

'--

_
_ _ __

..

___

:..i____________
ery
machi:.:..:11.=

__.

.
[i_-:=J}i1_terest expense 20 ::..:J.3---for

[ s. i- / carryi ng value of note <it Oec. 31, 2014

--'

J
__J.. ...J
j

-+
_
_
_
_
_

'--- -

_
_
_
..1..
__
__
__
_
_
_
_
_
_
_

_
_
_
__
_
_
_
_
____
. ______J

-- E N D --

'

1 : 4

CP A REVIEW SCHOOL OF THE PHILI

f\Ji

AU DI TI NG PRO BL EM.S

a n 1 I .:1

PPI NE S

AP-PW7502
CPA Rev i tW

PROBLEM NO. 1

--h:.

bank statemen t for the

'
ch cking accounr. o f Hs'U, INC. showed a December 31, 2014
i alance of Pl ,<163 _
,212. Information that miaht be u;.:.ful in preparing a bank reconciliation i!; as
_
rol low s:

Outstan ding checks 1Nere P13

2,02 5.

a)

o) The Dece mber 31, :'.014 cash

receipts of PS/ ,500 were not deposited in the bank until
Janu ary 2, 201 5.

c)

One check written in payment of rent fol' P2l,600 was correctly recorded by the bank
but was recorded by MSU as P26,400' disbursement.

d) In

accordance with prior authorization, the ,Jank withdrew P45,000 directly from the

checking account as payment on a mortgage note payable. The interest portion of that
payment was P35,000. MSU has made nQ ent;y to record the automatic payment.

e)

Bank service charge of

Pl,400 were listed on the bank statement.

A depo;it of P87 ,500 was recorded by the bci lk on December 13, but it did not belong

f)

l)

to MSU. The deposit should have been made :o the checking account of SUM, Inc.
The ba n k statement included a charge of Pt:,500 for an NSF check.
returned with .the hank statement and th;:

The check was

compan\' will seek payment from the

customc!r.

h)' MSU mciintains a PW,000 petty cash fun tha : was appropriately reim bursed at the end
of December.

i)

According to instruction for MSU on Decembe- 30, the bank withd rew Pl,000,000 from

the account and purchased Treasury Bills for v1SU.

MSU recorded the transaction in i ts

books on December Jl when it received notic1! from the bank.

mature in two months and the other half in six months.

2.

J.

Half of the treasury bills

What is the cash balance per books on December 31, 2014?

Pl,354,287
B. Pl,357,887
1 :. Pl,337,287

A.

What is the corrected cash balance. on Decembt::t 31, 2014?

A.

Pl,3 04, 7 87

B.

1 : . Pl, 284, 187

Pl,301,187

D.

Pl,264,287

D . Pl,211,187

What amount of cash and cash equivalents shou'd be reported i n the current asset section

of the balance sheet orr December 3 1, 2014?

A. Pl,821 , 187

4.

B.

P2,321,187

t :.

Pl,301, 187

D.

Pl,874,287

If the balance shown en an entity's bank statement is less than the correct cash ba larce
and neithu the entity rror th bank nas made an / errors, there must be

.A .
B.

Deposits credited by the bank but not yet recr'ded by the entity.

Outsta nding checks .

Deposits in transit.

D. Ba n k charges not yet recorded by th. entity . '

C.

:i .

If the cash balance shewn o n a n entity' accounting records is less than the correct cash

balance and ne1cher the entity nor the (Jank has : 1ade any errors, there must be
A.
Deposits credited by the bank but noi: yet tec)rded by the entity.

Deposits in transit.

C Outstanding checks.
B.

000()()()000

D. Bank charges not yH recorded by the entity,

-----------------------------

P,1ge l

01

-----------------------------

1 ?. Pagt s

j.
APPW7502

CPf\ REVIEW SCHOOL OF THE PHILI PPINES (CPAR)

PROBl.EM NO. 2

COMPANY prod:.Jces herbal tea and other slimming products that are sold
throughout the Philippines. 'Nhile the company is experiencing a steady growth ;in sales, it has
become noticeable that collections of accCunts receiva ble from customers are no: longer as fc1st
as they used to be.

PITO-PITO

Pita-Pita Company's product!; are sold on payment ter:ns of 2/10, n/30. In. the past, more than
75% of the credit customers have availed of the disccunt by paying within the discount period.
During the year ended Dec.ember 31, 2014, there las been an increase in the number of
customers taking the full 30 days to pay. The com any estimates that less than 60% of the
customers are taking advaritage of the discount. B:id debt losses as a percentage of gross
credit sales have increased from the 1.% provided n prior years to about 4% in the current
y.:?ar.

The deterioration of accounts receivable collections has prompted the company's t:antroller to
prepare the following report .

Oecember 31, 2014

ACCOUNTS RECEIVABLE COLLECTIONS

J,.

It is normal that some eceivables will prove un1 :ollectible. In fact, annual bad debt writeoffs had b ee n 1 . 5% of :otal credit sales for man'1 year;. However, this rate has increased
'

to 4% during the current year.

. '

B. The accounts receivable balance pt December 3 1 , 2014, is P3,000,000.

The condition Qf
this balance in terms of age and probability of col1ection is oresented below.
Proportion
of Total
64%
18%
8%
;%
::%
;%

Probability
Age Categories
of Collection
1 to 10 days
99%
1 1 to 30 days
97.5%
Past due 31 to 60 days
95%
Past due 61 to 120 days
80%
Fast due 1 2 1 to 180 days
65%
Fast due over 180 days
20%

c. TI1e allowance for bad debts had a credit balano! of P54,600 on January 1, 2014.

D . The P640.. 000 bad debr expense provided durin the vear is based on the assumption that
4% of total credit sale$ will be uncollectible.

E. Accounts written-off during the year totaled PSB 5,000.

i.

2.

mber 3 1 , 2014?
What is the required allowance bqlance on Dei:e

C.
P209,200
B. P 1 09,6 00
A. P154 ,200

D. P55,000

necessary tc bring Pito-Pito ompany's allowance for

What year-e nd adjustment is
.
.
indi cated by the aging analysis .
dou btfu l acc oun ts to the bala nce
Bad de bt expens:
.
l accounts
Allowance for do ubtfu
l accounts
B. Allowance for do ubtfu
Bad debt expense
c. Bacl debt expen e
unts
for doubtful acco

10,400

A.

'\

\;

',

Allowance
.
D. Bad debt expense
ul accounts
Allowa nce for doubtf

10,400
10,400
10,400
44,600
154,200

44,

600

154,200

.cfA.REVIEW SCH OOL or THI-: PH ILI PPINES

((P,\Rl

What i; the net rea iiza

bl e va 1 ue of P1to-P1to
ember

ompany
Dec
's
at
receivab
accounts
le
31, 2014?

3.

APPW7502

A.

:l.

P2 ,95 5,4 00

ito

sho uld

., ,600

5: Pito-Pito's tota l
A.

B.

C.

P2, 736,200

report bad debt expense for D'l.4 of

B.

C. P640,000

P595,4 0 0

cred!t sales for 2014' is

Pl6,000,000
-----

P2,845,800

B.

()()0()()()1)()()

P42,666,66 7

C.

-- - - - - - - - - - - - - - - - - - - - - - -

P25,600,000

- - - - - - -- --- --------

D. Pl,6)5,800

D. P684,60C

D.

P14,625 ,009

----- -- ---

PROBLEM NO. 3
Presented below are two

situatiol) .

independent

Answer the questions at the end of :ach

situations.

GARLA HOME IMPROVEMENTS installs replacement siding, windows, and louvered gla s .doors
for single family homes c.nd condominium comple.<es in Quezon City. The company is 111 the
process of preparing its annual financial statemen for the fiscal year ended May 31, 2014, and
Jimmy Lansang, controller for GARLA, has gatherea the following data concerning inventory.

At May 31, 2014, the balcince in GARLA's Raw Mat?rial Inventory account was Pl, 224,000, and
Lansa ng
the Allowance to Reduc: Inventory to NRV ha J a cred it balance of P82,500.

schedule
summarized the relevant inventory cost and rnamet daea at Ma'!" 31:1!014, in the
below.
Net Realizable Value
Sales Price
Cost
p 168,000
' 192,000
p 210,000
Aluminum siding
254,400
282,000
258,.000
Cedar shake siding
. 559,200
504,900
336,000
Louvered glass doors
,000
420
420,000
Thermal windows
-- 464.400

l.

2.

.l.497.600

Pl.224.000

Pl.347.300

What amount should be reported as Allow2nce to Reduce Inventory to Net Realizable

Value at May 31, 2014?
D. P123,30C
C. P273,600
B. P45,600
A. P168,900
What amount of gain or loss should be recorc1ed for the year ended May 3 1, 2014, clue to
the change i n the All owance to Reduce Inven1ory to Net Realizable Value?
A.

P36,900 gain

B.

P86,400 loss

C.

P40,800 loss

D. "P82,500 gain

MANGO BANGGO purchased a mango farm in Aug1 Jst 2014 for P2,250,000. The purchase was

risky because the growinq season was coming to an end, the mangoes must be ha rvesr.ed in
the next few weeks, and Mang" has limited experie;;i e iQ carrying off a mango harvest.

At the end of the first cuarter of operations, Mtngo is feeling pretty good about his early .
.

results. The first harvest was a success;, 30,000 kilos df mangoes were harvested with a value .

of fi90,000 (based on current local commodity pric-:s at the time of harvest). The fair va1ue of

Mango's mango farm has increased by P45,000 a : the end of the quarter. After storing the .
mangoes fo r a short period of time, Mango was abl: to sell the entire harvest for PlOS,OOC.

'3. What amount of gain should be reco nizea 011 the change in fair value of Mango's mango
farm?
A. PlS0,00 0

B. P45,000

C.

P90,000

D. P135,000

4. At-what amount should the mangoes harvested be initially recorded on Mango's books?
A. P90,000
B. P105,0 00
C. P60,000
0. PlS0,000

Pa.ge 3 o 12 !'a_ges .

CPA REVIEW ;CH OOL OF TH_ PHIL

IPPI NES (CP.;R)

APPW7502

5 . What i; the total eft'ect qn income for the quarter related to Mango's 'biological asset and

agricultural produce ?

B.

A. P150,000

---- -

-- - -

-----

--

---

'

C.
P45,000
000000 ( >00

------

--

D. P60,000

PlS,000

. ......-- -- .--- ------ ------- -

--

PROBLEM NO. 4
A depreciation schedule for semi-trucks of ISIDRO MANUFACTURING COM NY was rt!quested
_
by your auditor soon after December 3 1; 2tl14, showing the addrtrons, retirements,

depreciation, and other data affecting the income of the company in the 4-year period 20 1 to

2014, inclusive.

The followin9 data were a:;certained.

Balance of Trucks dCcount, Jan. 1, 20 1 1
Truck No. 1 purchased Jan. 1 , 2008, c ost
Truck No. 2 purchased July 1, 2008, cost
Truck No. 3 purch2sed Jan. 1, 2010, cost:

Truck No. 4 purch?.sed July 1, 2010, os

Balance, Jan. 1, 20 1 1

P180,000
220,000
300,000
240,000

P940.000
..

' 1:

The. Accumulated Depreciation-Trucks accoucit p1 eviousfy adjusted to January 1, 2011, and

entered in the ledger, had a balance on that date of P302,000 (depreciation on the four truckS
from the respective dates of purchase, based on c 5-year life, no salvage value). No charges
had been made against the account be{ore January 1, 20 1 1 .

---

Transactions between January 1, 2011, a n d Decer.1ber 3 1, 2014, which were

recorded i n the
ledger, are as follows.

Truck N o . was traded for a larger one (No. 5), the agreed purchase price of
which was 1>400,000. Isidro Mfg. Co. paid the automobile dealer P220,000 cash
on the transaction. The entry was a debit to Trucks and a credit to
P220,000. 1he transaction has comm :!rcial substance.

July 1, 20 1 1

Cash,

Jan. 1, 2012

Truck No. 1 was sold for P35,000 c;:d1; entry debited Cash and credited
Trucks,
P35,000.

July 1, 2013

A new truck (No. 6) was acquired for P420,000 cash and was charged at
amount to the Trucks account. (Assur.1e truck No. 2 was not retired .)

TrucK No. 4 was ,damaged in a wred . to sch an extent that rt was sold as junk
for P7,000 cash. Isidro Mfg. Co. received P25,000 from the i nsurance company.
The entry made by t:he bookKeeper '"as a debit w Cash, P32,000, and credits to
Miscellaneous Income, P7,000, and Trucks, P25,000.
.

July 1, 2013

1.
2.

3.

"\..

depreciati on had been made at the clos( of each year as follows: 20 11, P210,00D;
; 2014 , P304,000.
2012 , PllS,OOO; 2013 , P250 ,500
Entries

that

"'

4.

for

What is the total

A . P l80 0 00

depreciation
B.

expensefor the year ended December 31, 201 1 ?

C P172,000
D. P228,000

P198,000

..

.
of Truck #3 :i n July 1, 2011?
. t he gai n (loss ) on trade in
What JS
c. (P60I 000)
B. P lO I 000
A. (P30 ,000 )

31, 2014 ?
1 ue 0f th e Trucks on De-e mbe r
What is the net book va
-C P228 soo
B. p ..., 48 '000
A. P41 4,0 00

'

D. P 190,000

D. P894,000

the 4-year period (2011 -2014 ) is overstated

ense recorded tor
exp
n
ciatio
depre
The total
by
D. P275,500
C. P287, 500
B. P26 5,5 00
A. Pl 8S.SOO

flSCHOOLOF THE PHlLl PPjNESfCPAH}

APPWZ5
. 02

s. Assuming- that the books have nt been cIost:d

for 2014, what i s the compound jou rnal
entry on Decem ber 3 1 ' 2014 to
correct the

m npany's errors for the 4-year period (2) 1 1

2014)?
A.

Accumulated dep r eciation

Trucks

480,000.
9,500

Retaine d earn ings

Depreciation exp
- ense

140,000

B. Accum ulated depreciatio

n
Trucks

665,500

140,000

Dep reciati on t:xpense

C. Accumulated depreciation

665,500

Trucks

--- - ---- --------- ---------

480,000
185,500

Reta ined ea rrn ngs

D . Accum ulated depreciation
Trucks

480,000
45,500

Retained earn:ngs

665,5 00

--

000()()()()(>0

-------

-- ------

665, 500

-------- -----

PROBLEM NO. 5

reports
The state mem of financial :Jositio n of MADRIGAL CORPORATION on December 3 1 , 2013
the
show
company
the
of
s
d
r
eco
Trading Securities at fair value 01' P670, 770. Sup Jorting r
following debt and equ ity scuritie:
. '

p l,6,350

Security
600 Condura Co. ordinary share.5
P240,000 Sinker Co. 7% bonds
P360,000 Floater C(I. 7 1/2% bonds

238,950 .
362 250
-==
-P677,550

Total

r-

Cost

lntr-rest on bonds is paid semiannually on January 1 and July 1.

approach to rcord the acquisition of bonds witi1 accned i nteres'C.
ocamed during 2014.

Jan.

. l\pri l
11av

July

1
21
1

.\u1.

15

Dec.

31

. 0v.

p 72,900

Fair Value
232,200
365,670

P670,770

Ma d rigal uses the ,income

The following transacUons

Received semiannual in terest on bonds .

Sold P180,000 of the Floater Co. bond at 102 plus acc ru ed interest.

Brokerage

fees were P600.

Received dividend of P0.25 per share or. the Condura ordinary shares.
RE:ceived serni;1nnual intere st on bond:;.
Brokerage fees were P750.

Sold "the Sinker Co. bonds at 97 112.

Purchased 300 13obber Co. ordinciry sha;,!:, at P l 16 pius brokerage fees of P150.

Purchased P150,000 of 8% Leader Lt).

bond s at 101 ! plws accrued interest.

Brokerage fees were P375. Interest.datEs are January 1 and July 1 .

Market prices o f secu rities were: Cond.ira Co. ordinary shares, P l lO; Floater Co.
bonds, 101 3/4 ; Leade r Co. b ncls, 101; Bobber Co. ordinary sha res, P116.7 5 .

1 . What i s the ga in on tr. e sale o f P180,000 Floater Co. bonds o n Apri l 1?

A. Pl,875
B. P165
C. P765
D. P2,610

2. What is the g a in (loss, on the sale of Sinker Co. bonds on July 1, 2014?
A. Pl,800
B. (PS,700)
C. P l , 050
D. (P4,9 50)

3.

What is the total interest i n come ' on bonds th<it should pe re ported in M ad rig a l's income

statement for the year ended DecembH 31, 2(1 .4?

A. P25,L.75
B. P27,275
C. P34,650

D. P:)4,025

AP-PW7502

CPA REVIEW SCHOOL OF THE PHILIPPINES fCPAR)

4.

What

i:>

the

unreal zed g a i n

(loss)

on

i:racJ

ng securities

that shouldI be reported in

i
.

Madriga1's income statement for the year ecded. December 31, 201

5.

A. (P8,625)

B. P8,100

C.

(Pl,845)

What is the accrued interest rec;eivable on bo n d s that should

statem ent of financia1 positio n at Gecember 3 1 2014-:>
c . P19,500
B. P21,900
A. P12,750
----------- -- ------------ ---

oooOOOO)O

D. (P6,360)

be reported in Madrigal's
D. P8,750

----------------------------

.:

PROBLEM NO. 6

The following list of accounts and their balances epresents the unadjusted trial balance of
ALTERADO COMPANY at December 31,' 2014:
Cash
Equity investments ftrading)
Accounts receivable
Allowance for doubtful accounts
Inventory
P repaid rent
Plant and equipmem

Accumulated depreciation - Plant

Accour1ts payable
Bonds payable
Ordinary share capital
Retained earnings
Sales
Cost ol goods sold
Freight-out
Salaries and wages xpense
Interest expense
Rental income
Miscellaneous expense
Insurance expense
Ad d ition a l

1 . The

P290,900
600,000
690,000

and

547,200
360,000
1,600,000

equiprr ent

1,544,000
1 1 0,000
320,000
20,400
8,900
110,500
P6.201.900

da ta:

p 5,000

147,400
1 1 3,700
900,000
1, 700,000
971,800
2, 148,000

216,000

P6.201.900

balance in the :nsurance expense account contains the premium costs of three
policies:
Po l cy ' reinin1 c o of P25,500. 1-year erm, taken out on May l, 2013;
P ol 1q L, onginal c1 1st or P72,0uu, J-year te n, ;:akn 0ut on .OdW;>r 1 2014
Policy 3, original cost of P13,000, 1-yea_r"ter-il, taken out on Ja n ua ry 1 2014 :

2.

3.

4.

5.

S e ptem ber 30, 2014, Alterado received P 16,000

month lea se beginnin1 on that d a

On

rent from its lessee for

ei gh teen-

The regular rate o f de prec i a ti o is 10% per Y ar. Acquisitions and retirem nts during a
year are depreciated at half this rate. There were no purchases during the year. on
and equipment account was P2,400,000.
December 3 1, 2013, th e balance of the Plant

bookkeeper
On December 28, 201--1, the

incorre:tly credited Sales for a receipt on account

in the am oun t of Pl0 0.000.

At Decem ber

31 ,

00
.
id
2014 sala ries and wages accnied but unpa were P4,2 ,000

le.

sales will becomE' uncollectib

Alterado est.1mates tha( 1 % of
stment, 600 Pl,000, 7%
rc sed as a short-term inve
a d 0.
e
r
t
J
\
l
,
2014
1,
August 1, 201 5. Interest payment
7. On August
bo n d s mai ure on
e
pai
at
.
Corp
bonds of Alendog
31.
dates are Ju ly 31 an d .Ja nuary
6.

Ph h

Page 6 of 12
.

P:>;e

s.

'.HIL IPPJNES (CPAf.\_,__:

on Ap ril 30, 20 14, A lter

ado rented a
wareh ou"
" for
advan 1e
rn

1.

What are the adj ustec

bal ahces
A.

P3 0' 000

B.

P360, 000

expense rnr t r.e year ended Decem ber

P240,0 00

c. . P200,000

P104,500
110,500
56,500
44 I500

0
54,000
66,000

d epreciatio n

per month, paying

Insu rance expense

What is the tota l

A. p120 I 000

the tollQwing &ccounts

on December 31 ' 20147

p 6,000

c.
D.

3.

0f

Prepaid isu
1 1
onCt:,
r
-

S.

2.

APPW7502

_
_

31, 2014?
D. P160,000

What i s the bad debt expense for

the ear enm: d Decembe r 31, 2014?
A. 15,480
B. P25,480
D. P20,480
C. P21,480
What mount of i nterest and rent income shou d be reported in the income statement: for
the year ended Decem ber 31, 2014?

Interest income

D.

What adjusting entry is necessary on Dece[Tibe1

A. Rent expense
Prepaid rent
rent

B. Prepaid

Prepaid rent

C.

Prepaid rent
Rent expense
D. Rent expense

"

P 36,000
180,000
180,000
36, 000

P24, 500
17,500
24,500
17, 00

B.
c.

A.

Rental income

Prepaid rent
-. . - - - - - - - - - - - ----------------

I:

'.31, 2014 for the Prepaid rent account:'

270,000
270,000
270,000
270,000
240,000
.
240,000
240,000
240,000

0000000<1()

-----------------------------

PROBLEM NO. 7
DONNA MANUFACTURING COMPANY was incorporc"ced on January 3 , 2013. The company's
financial statements for its rlrst year of operations were not audited by a CPA. You have been
engaged to audit Donna\ financial statements for the year ended December 3 1, 2014.
Presented below is Donna's trial balance (partiai) on )ecember 3 1 , 2014.

p 330 ,00 0
Debit

Cash
Accounts receivable
Allowance for bad debts
Inventorie
Equipment
Accumulated depreciaticin

1)

2, 550,000
780,000
315,000
870,000
720,000
1,500,000
1,470,000

Leasehold im provements (Information S)

?repayments
Organization costs (Information
Goodwill (Information 4 )

6)

1 ( Information 2 and 3)
2)

Licensing Agreement 2 ( information

Licensing Agreement

1,275, 000
1, 1'55,000
2,250,000
870,000

Machinery

Patents (Information

Page 7 of 12

P.Jges

p 15,000

300,000

CPA REVIEW SCHOOL OF THE l'HILIPPINES(CPA.Wt

APPW7502

Ii
J

Additional information:
l.

Patents for Donna's manuf cturing pro ce gs

WEi- . acquired

January 2, tOl4 at a cost

Donna spE:nt an additional PSl0,001 i n December 2014 to i m

covered by the patents and included in the Paten

' ts account balance.
P2,040,000.

remaining legal life of 1: years.

ove machir.ery
The patents had a

:. Donna purchased two licensing agreements on J<1 1uary .3, 2013, which were believed at that
i::ime to have unlimited useful lives. The balance of Licensi ng Agreement 2 was redu ced by
'i'30,000 for the advance collection of revenue from the agreement. .

3. J.n December 2013, an explosion caused a 6tl% reduction in the expected reven eproducing value of Licensing Agreement 1.
The recoverable amount of LicensrQg
Agreement 1 was determined to be P600,000 at C ecember 31, 2013.

The balance i n the Goodwill account incluaes P 720,000 paid December 31, 2013 for an

4.

advertisi ng program which it is estimated will <1ssist i n increasing Donna's sales over a
period of four years follcwing the disbursement.

5. The Leasehold Improvement account includes the following:

a.

b.

Donna, us tenant, m. 1de to leased premies w Janua! y 2013; and

P450,000 cost of in;provements with a tota l estimated useful life of 12 years , wt-ich

movab le assembly-line equipment costing P330,ooo; which was' Malled in the ]eased

premises in December 2014.

Donna paid its rent i n full during 2(}14. A 10-year nonrenewable lease was signed Janu 3ry

J, 2013 for the leased building that Donna used fc t manufacturing operations.

The balance in the Organization Costs account lndudes pre-operating costs incu rred during
.
the organizational period.

6.

r -...

1.

2.

3.

'1 .

What is the carryi ng ar.1ount of the Patents on December 31, 2014?

1 :. P2, 550,000
A. Pl,920,000
B. P2,400 000

1
I

I
I

D. P2,040,000

What is the carrying amount of Licensing agreen1ent 1 on December 31, 2014?

A.

Pl,500,000

B. P600,000

i.:.

P900,000

D.

P2,100,000

What i s the carrying amount of Licensing agreerr ent 2 o n December 3 1 . 20 1 4?

.
A. P2,1 0CJ,OOO
B. Pl,470, 000
C : . P600,000
. D. Pl ,500,000

What is the carrying amount of the Leasehold inurovemenrs en December 31, 2014
C . , [>450,000
B. P780,000
D. P624,000

A. P360,000

The net adjustm ent tc Retained earnings to rf!eq all the necessary correcti ons from
information 1 to 7 will ;:im ount to

A'.

B.

C.

D.

P2,535,000 debit

P2,580,000 debit

P2,535,000 credit

P2,580,000 credit

--------- -- --------

oooOO O!JOO ---- - - --- -- -------- --------

----- ----

PROBLEM NO. 8

CORl?ORJ..TION's statement of financ ial position as

Tr.e share holde rs equity se ct.ron of BENSON

of Dece mber 31., 2013 is as follows:

-'
res;
.
-1 OOO/ 000 sha
thonzed ' >
Ordi nary shar e capital, I'S par va 1 ue, au
issued, 400,000 shares

P2,000,000

.::

ctlOOl.OfTHE PHll.IPPINES(CP/\!ll
..vr
,;I
Nov. 27

pate

De:. Q}

Voucher N o .

11

20
21
22
31.

Purchase returns journal

Amount

p 78,400

Duncan .1,pply Co.

t 1 1 1 uo1li

821

Cash disbursements

Sun Jlier

797

829
836
842
856
865

APPW7502

l !3ffibutors

Parker Sales

19,600

..

w,100

Mohamed Dealers

17,150

Browen M :rchandising

22,050

Horry Mei :<:lntile

80,850

Barry Tra(lers

78,400

E1Q,55Q

Vouchers Payble (control account)

Pl,309, St)O

36, 750*

11:

Pl,64
5,000
al.:.!..
n_
ur
:.
a-=
se
.;. -=
s
=
-=
jo..:..:.
::...
1 rc
?;:...:.
.h

Voucher Nos. 821 and 836 canceled as oods were retilrned in December.
1.

What is the adjusted balance of the Vouchers Jayable account on December 31, 2014?
D. f!>344,250
' C. ?303,800
A. P310,000
B. P306,750

2.

4.

What is the amount of purchase discounts los: or. unpaid vouchers?

C. P3,700
B. P2,950
A. P6,200
What is the amount ot' pucchase discounts los

B. PB,000
A P28,750
.

? P?id vouchers?
PS,050

1...:

D.

P 0

0. P41,800

The adjusting entry Cr entries to con:ect the accur1ts will Jnclude

A debit to Purchase Discounts Lost of Pl 1,:so.

A.

A debit to Purcha:>e Discounts Lost of PS,O!iO.

C. A credit to Vouchrrs Payable of P8,000.
D. A credit to Vouchrs Payable of P 1 1,250.

B.

5. In a payables applirntion, checks are; autriori !ed and paid based on matching purchase
.

An
Partial payments are common.
orders, receiving repore;, and vendor invoices.
appropriate audit procedure for verifying that .1 purchase order has not been paid twic,e is
to sort tl1e
A. Check register file by purchase order, corruute total amounts paid by purchase order,
compare total amounts paid wih purchase order amounts, and investigate any
E3.

C.
D.

discrepancies between the total amounts p.iid and purchase order amounts.
Receiving report file by vendor invoice a ;nounts and i nvestigate any discrepancies

between the total amounts received and vendor invoice amounts.

Vendor invoice file by purchase order, compute total amounts invoiced by purchase
order, compare total amounts invoiced wit 1 purchase order amounts, and investicate
any cliscreoanc1es betwee:i the tot<:I amou1Es 1:1vo iced and purchase order amounts.

Receiving report tile by purchase order, compute 'total amouri:feceived by PIJrChase

order, compare tota l amounts received wit 1 purchase order amounts, and investigate.
any discrepancies between the total amouns received and purchase order amounts.
--------------------------

--

000() ()()0<10

-----------------------------

i>ROBLEM NO. 10
On April 21, 2014, a fire d<1maged the office and w.irehouse of MUNTINLUPA COMPANY. The

only accounting record savd was the general ledgcr, from which the trial balance below was

prepared:

Muntiniupa Company

March 3 1 , 2C 14

Trial Bala nce

Cash

Debit

p 180,000

Accounts receivable

400,000

l':lge ; 0 or i :.:. l'. 11;e;,

I

red it

CPA REVIEWSCHOOL OF THE

AP-PW7502

PHILIPP I NES (CPAR)

850,000

Share premium

3.000.000

Retained earnings

PS.850.000

.
The following events occurred during 2014:
Jan. 5

1.

2. Jan. 16
3. Feb. 10
4. March 1
5 . April 1

6. July 1
7. Aug. 1

10,000 shares of authorized and u nissued ordinary share capital were sold fo PB
per share.
Declared a cash dividend of 20 centavos per share, payable February 1.5 to

shareholder!; of record on February 5 .

20,000 shares of authorized and un ssued ordinary share capital were sold for
P12 per share.

A 30% stock dividend' was declared and is!lued. Market value per share is
currently P l 5 .
A two-for-one split was carried out. T ne par value of the stock was to be redu(ed
to P2.50 per share. Market value on larch 31 was P18 per share.
A 15% stod dividend was declared a .1 d issued. Market value is currentl'I" PlO per
share.

I
I

er s,1ar was declared, payable September 1 to

shareholder!; of record on August 2 1 .

A cash dividend of 20 centavos

'

Based on the preceding information, determine the balances of the following at December 3 1I
2014.

1..

2.

Number of ordinary shares issued and 'OUtstanc.ing

A. 642,850
B. 1,118,000
C., 1,285,700
Ordinary share capital
P2,000,000

A.
3.

4.
5.

B.

P3,214,250

c. P6,428,500

D.

P2,795,000

B.

Pl ,020,000

c. P3,567,750

D.

P2,310,000 .

B.

Pl,853,750

c. P338,860

D. P306,610

Share premium

A.

P2,277,750

Retained earnings

A.

P596,000

D . 989,000

A feature common to Joth stock splits and stoo : dividends is

A A transfer to earm.:d capital of a corporauon.
.
.
.B. That there is no effect on total sharehoJders' equity.
c. An increase in total liabilities of a corporatio 1.
D. A reduction in the contributed capital of a corporation.
. 000000000
- - - - - - ---------------

----- - -

-- - - ----------------- -- - - -- - -

PROBLEM NO. 9

data were obtained from the books of the STRATA COMPANY

In the audit process, the fol!owing

Al l invoices are subject to terms 2/10, n/30 and are entered net
which uses a voucher system .
se Discount colurr n of the voucher register. The accounta nt
with the discount entered in Purcha
i ave .to attend to his family based in New Jersey. A
in charge of ttie books went on :
ed to record th transa !Qn . At year-end, the substitute
accounting graduate has been assign
l
l
ers do not .a gree with the Vouchers Paab e contro
accountant finds that the unpa id vouch
er.
account. You are called to adjust the matt

esh

4, al l of which are net of discount, is

of December 31, 201
A sch edule of u npa id vou chers as
\ltesented t
o you.
.

s
Page ') of 1 P:.i;e

I; :
. \

: PHILIPPIN ES (CAR)

APPW502

rnventory, December 31, 2013

La nd

750,000

B ui ld i n g

350,000

Accumulated depreciati on
Other assets

1 , 100,000

56,000

Accounts payable

-.

237,000

Accrued expenses
Ordi ary sha re cap ital, PlOO
par
Reta ined earnings
Sales

Ir
I

180,000

1,000,000

520,000
1,350,000

Purchases

520,000

Operating expense::;

344,000

Totals

The fo!lqwing data and information have bLen g:Jth1'red:

21 .

p 413,000

P3.700.000

P3.700.000
I

\.

The company's year-end is Dec em ber 3 1 . .

l\n examination of ti1e April bank statement a n d cancelled checks revealed that checks
written du ring the period April 1 to 21 toti!ieci P130,000: P57,000 paid to accounts
paid for
payable as of March 3 1 ; P34,000 for April ml:rchandise p u rcha ses ; and P39,000
consisted
which
,
P129,500
other expenses. Deposits during the same period amour:ited to
refund from a
of receipts on account from customers with the exception of <1 P9,500
v en d or for merchandise returned in Jl.i;ril.

c.

d.

Correspo nden ce with suppliers revealed u"nret1)rded obliga(ions wt Ap ril 21 of P106,000

April merchandise purchases, including P23,00 ) for shipments in transit on that date.

foi;

Customers acknowledged indebtedr.r.ss ot r- 360,000 ci t April 2 1 , 2014.

It was a lso
estimated that custc1mers owed another :Jm 1 . 000 r.hat ;,viii never be acknowledged Ol"
recovered. Of the acknowledged indebtedr.es P6,000 will orobably be unc ollectible.

The insurance company agreed that the fire lo ;s claim sn o u ld be based on the assumiJtion
that the overall gros!; profit ratio for the past two years was in effect during the current
year. Tl1e company'$ audited financial statemrnts disclosed the following informati o n :

e.

20 J.

P5, 30D cioo

Net sales
Net purchases
Beginning ir.ventory
Ending inventory
f.

2012
P3,900,000
2,350,000

2,80(J000

500 000

660,000
500,000

750 000

Inventory with a cost of P70,000 was sc;lvagec1 and sold for P35,000. The
inventory was a total loss.

balanGe o-r the

.

. '

1.

2.

How much is the sale:; for the period J a n ua ry l to April 21, 2014?
C. Pl,519,500
. A . Pl,430,000
B. Pl,510,00
.

D. P l , 506,000

How much is the net '.lurchases for the period anuary 1 to Ap ri l 21, 2014?
B. P660,000
C. P673,500
D. P650,500
_

A. P683,000

3. How much is the cost of sales for the period JCl 1uc;iry 1 to April 21, 2014?
A. P786,500

4.
S.

B.

P835,725

C.

P830,500

How much is the estirnated inventory on Apri l :! 1 , 2014?

.:. P587,775
B. P623,500
A. P579,500
.

How much is the estimated inventory tire loss">

A.

P579.500

B. P535,000

P;:ige

l l Ul

C. P477,000

12 I' ls

D.

P828,300

D. P570,000

D.

P512,000

,, .
.
CPA REVIEW

SCHOOL OF THE PHILIP PINES(CPAiU

PROBLEM NO.

11

APPWZfilli
.

The following information pertains to acquisitions of n 1acninery and equipment:

.
'

Seller Compa ny
On December 31 2012, BAIKAL COMPANY acquire d pie e of equipm ent from
credit ratrn g
Baikal's
note, payabl e in full on uEcem ber 3 1 , 2016.
by iss ing a
expected tc1
s
i
ent
The equipm
permits it to borrow funds from its several lines o f cre<jit at 10%.
of 1 at 10% for 4 period; is
have a 5-year life and a PlSD,000 salvage value. The present value

P1,2oo,ooo

0.68301.

1. What is the equipment's book value on Decem ber 31, 20147

.
C. P491, 76 7
A. PSSl,767
B. P630,000

2.

What is the carrying value of the note at December 31, 2014?

C. Pl,200,000
8. P 99 1 , 7 3 0

A. Pl, 090,903

D.

P341,767

D.

P819,612

COMPAl\JY purchased machinery on Decem b :?r 31, 2012, paying PS0,000 down anc
a1 reEing to pay the balance in four equi install ment; of P60,000 payable each December : i.
Implicit in the purchase price is an assumed imerest ot 12%.

OHRID

The iollowing d<1ta

.

are ab$trc.c.ted from the

present. val u.e tables:

Present value of 1 at 12%, for 4 periods

Present value of an ordinary annuity of 1 at 12%
for 4 periods

0.63552

3 . 03735

J. What is the cost of the machinery purchased on December 31, 2012?

A. P233,083
B. P320,000
C . P 262, 241

4.
5.

D.

P290,842

How much interest exp1:'!nse should be reported on Ohri d's income statement for the year
ended December 31, 2013?
A. P3 8, 13 l
8. P 2 1 , 86 9

C.

P 1 7, 29 3

D. P42,707

C
P144, 1 1 0
000000000

P99,31 0

D.

What i s the carr'jing value of the note at Decemb r 3 1 , 2014?

\. P120,000

!3.

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PlO l,403

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'

<"

CPA R PRE WEEK

MAY 2014

PHE WEEI< AUDITING PROBLEMS -:- 7502

J:

PlOHLEM 1

1. A

2. B

3. A

4. c

5. A

PROBLEM 2

1. A

2. c

3. B

4.

5. A

PROBLE M 3

1. B

2. A

3. B

4. A

5. A

Pl\08LEM 4

1. B

2. A

3. I!

4. A

S. A

PROBLEM 5

1. B

2. c

3.

PR013LEM 6

1. D

2. c

3. D

4.

5. D

PROBLEM 7

1. A

2. B

3. D

4. A

5. A

PROBLEM 8

1. c

2. B

3. A

4. c

5. B

PROBLEM 9

1. B

2. B

3. c

4. c

5. A

PROBLEM 10

1. B

2.

4. D

5. D

PR0!3LEM ii

l. c

'

2. B

3-.

4. c

fl

3. D

. '

5. B