AUDITING PROBLEMS TEST BANK - 1

PROBLEM NO. 1

The following are selected unadjusted account balances and adjusting information of
TANYING CORP. for the year ended December 31, 2017.

Retained earnings, January 1 P 1,322,010

Sales salaries and commissions 75,000
Advertising expense 48,270
Legal services 6,675
Insurance and licenses 23,040
Travel expense sales representatives 13,680
Depreciation expense sales/delivery equipment 18,300
Depreciation expense office equipment 12,600
Interest revenue 1,650
Utilities 19,200
Telephone and postage 4,425
Office supplies inventory 6,540
Miscellaneous selling expenses 8,220
Dividends 99,000
Dividend revenue 15,450
Interest expense 13,560
Allowance for doubtful accounts (credit balance) 480
Officers salaries 109,800
Sales 1,353,000
Sales returns and allowances 11,700
Sales discounts 2,640
Gain on sale of assets 23,460
Inventory, January 1 269,100
Inventory, December 31 61,650
Purchases 424,800
Freight in 16,575
Accounts receivable, December 31 783,000
Income from discontinued operations (before income taxes) 120,000
Loss on sale of equipment 217,800
Ordinary shares outstanding 117,000

Adjusting information:

(a) Cost of inventory in the possession of consignees as of December 31, 2017,

was not included in the ending inventory balance.................................................P55,800

(b) After preparing an analysis of aged accounts receivable, a decision was made
to increase the allowance for doubtful accounts to a percentage of the ending
accounts receivable balance.......................................................................................2%

(c) Purchase returns and allowances were unrecorded. They are computed as a
percentage of purchases (not including freight in).......................................................6%

(d) Sales commissions for the last day of the year had not been accrued. Total
sales for the day...................................................................................................P9,180
Average sales commissions as a percent of sales.........................................................3%

(e) No accrual had been made for a freight bill received on January 2, 2018, for
goods received on December 29, 2017..................................................................P1,710
 Page 2

(f) An advertising campaign was initiated November 2, 2017. This amount was
recorded as Prepaid advertising and should be amortized over a six-month
period. No amortization was recorded...................................................................P5,454

Freight charges paid on sold merchandise were netted against sales. Freight
charges on sales during 2017..............................................................................P10,500

(g) Interest earned but not accrued............................................................................P1,680

(h) Depreciation expense on a new forklift purchased March 1, 2017, had not
been recognized. (Assume all equipment will have no salvage value and the
straight-line method is used. Depreciation is calculated to the nearest month.)
Purchase price....................................................................................................P23,400
Estimated life in years.................................................................................................10

(i) A real account is debited upon the receipt of office supplies. Office supplies on hand at
year-end..............................................................................................................P3,675

(j) Income tax rate (on all items)..................................................................................30%

Compute the adjusted balances of the following:

1. Net sales
A. P1,363,500 B. P1,349,160 C. P1,353,000 D. P1,342,500

2. Cost of goods available for sale

A. P684,900 B. P824,697 C. P686,697 D. P779,913

3. Inventory, December 31, 2015

A. P61,500 B. P61,350 C. P56,250 D. P117,450

4. Distribution costs
A. P181,649 B. P167,513 C. P178,013 D. P176,453

5. Administrative expenses
A. P207,345 B. P193,785 C. P194,265 D. P194,595

6. Allowance for doubtful accounts

A. P15,660 B. P16,140 C. P15,180 D. P480

7. Total income
A. P817,143 B. P811,653 C. P779,913 D. P822,153

8. Income from continuing operations before taxes

A. P231,360 B. P436,795 C. P218,995 D. P239,695

9. Office supplies inventory

A. P6,540 B. P3,675 C. P2,865 D. P 0

10. Net income

A. P237,296 B. P210,299 C. P250,289 D. P216,296
 Page 3
PROBLEM NO. 2

The following accounts were included in the unadjusted trial balance of BUNCHING COMPANY
as of December 31, 2017:

Cash......................................................................................P 963,200
Accounts receivable.................................................................2,254,000
Inventory................................................................................6,050,000
Accounts payable....................................................................4,201,000
Accrued expenses......................................................................431,000

During your audit, you noted that Bunching Company held its cash books open after year-end.
In addition, your audit revealed the following:

1. Receipts for January 2018 of P654,600 were recorded in the December 2017 cash receipts
book. The receipts of P360,100 represent cash sales and P294,500 represent collections
from customers, net of 5% cash discounts.

2. Accounts payable of P372,400 was paid in January 2018. The payments, on which
discounts of P12,400 were taken, were included in the December 2017 check register.

3. Merchandise inventory is valued at P6,050,000 prior to any adjustments. The following

information has been found relating to certain inventory transactions:

a. The invoice for goods costing P175,000 was received and recorded as a purchase on
December 31, 2017. The related goods, shipped FOB destination, were received on
January 4, 2018, and thus were not included in the physical inventory.

b. A P182,000 shipment of goods to a customer on December 30, 2017, terms FOB

destination, are not included in the year-end inventory. The goods cost P130,000 and
were delivered to the customer on January 3, 2018. The sale was properly recorded in
2018.

c. Goods costing P637,500 were shipped on December 31, 2017, and were delivered to the
customer on January 3, 2018. The terms of the invoice were FOB shipping point. The
goods were included in the 2017 ending inventory even though the sale was recorded in
2017.

d. Goods costing P217,500 were received from a vendor on January 4, 2018. The related
invoice was received and recorded on January 6, 2018. The goods were shipped on
December 31, 2017, terms FOB shipping point.

e. Goods valued at P275,000 are on consignment with a customer. These goods are not
included in the inventory figure.

f. Goods valued at P612,800 are on consignment from a vendor. These goods are not
included in the physical inventory.

Determine the adjusted balances of the following on December 31, 2017:

11. Cash
A. P963,200 B. P681,000 C. P668,600 D. P693,400

12. Accounts receivable

A. P2,908,600 B. P2,564,000 C. P2,254,000 D. P2,548,500

13. Inventory
A. P6,035,000 B. P6,080,000 C. P5,860,000 D. P5,010,000

14. Accounts payable

A. P4,790,900 B. P4,615,900 C. P4,573,000 D. P4,603,500

15. Current ratio

A. 2.00 B. 1.83 C. 1.84 D. 2.01
 Page 4
PROBLEM NO. 3

The following are independent situations:

The Machinery account of PAKO COMPANY contains the following entries during the year:

Date Item Debit Credit

2017
Jan. 1 Balance P1,800,000
June 30 Purchased four new machines 1,080,000
Installation cost of new machines 48,000
Sept. 30 Proceeds from sale of old machine, cost
P150,000; accumulated depreciation, P105,000 P 66,000
Oct. 31 Repairs of machinery 75,000
Dec. 1 Cash paid for trade-in of old machinescost,
P90,000; accumulated depreciation, P36,000.
Cash price of new machine, P270,000 225,000
Dec. 31 Balance 3,162,000
Total P3,228,000 P3,228,000

16. What is the correct balance of the Machinery account on December 31, 2017?
A. P3,162,000 B. P3,057,000 C. P3,048,000 D. P2,958,000

17. Assuming depreciation is recorded on a monthly basis at 10% a year, how much was the
depreciation charge for 2017?
A. P234,150 B. P300,000 C. P316,200 D. P227,400

On June 30, 2017, the GENLUNA COPPER MINES, INC. purchased a copper mine for
P14,580,000. The estimated capacity of the mine was 1,620,000 tons. Genluna Copper Mines
expects to extract 15,000 tons of ore a month with an estimated selling price of P50 per ton.
Production started immediately after some new machines costing P1,800,000 were bought on
June 30, 2017. These new machines had an estimated useful life of 15 years with a scrap value
of 10% of cost after the ore estimate has been extracted from the property, at which time the
machines will already be useless. Genlunas books show the following expenses for 2017:
Depletion expense...........................................P1,215,000
DepreciationMachinery......................................120,000

18. Recorded depletion expense was

A. Overstated by P270,000.
B. Understated by P270,000.
C. Overstated by P405,000
D. Understated by P405,000.

19. Recorded depreciation expense was

A. Understated by P60,000.
B. Overstated by P60,000.
C. Understated by P30,000.
D. Overstated by P30,000.

BULKAN COMPANY purchased a machine for P300,000 on January 1, 2014, with the following
additional items paid or incurred:

Separation pay for laborer laid off upon acquisition of new machine.....................P3,600
Loss on sale of machine replaced.........................................................................3,900
Transportation in.................................................................................................3,000
Installation cost.................................................................................................12,000
The new machine is estimated to have a useful life of 10 years and a residual value of P12,000.
On January 1, 2017, new parts which cost P37,800 were added to the machine so as to reduce
its fuel consumption, but with no change in its estimated life or residual value.

20. The annual depreciation charge on the machine for 2015 was
A. P34,080 B. P35,494 C. P36,450 D. P35,700
 Page 5
PROBLEM NO. 4

Presented below are unrelated situations.

1. HARLINGTON COMPANY buys and sells securities expecting to earn profits on short-term
differences in price. During 2017, Harlington Company purchased the following trading
securities:
Fair Value
Security Cost Dec. 31, 2017
A P 585,000 P 675,000
B 900,000 486,000
C 1,980,000 2,034,000

Before any adjustments related to these trading securities, Harlington Company had net
income of P2,700,000.

21. What is Harlingtons net income after making any necessary trading security adjustments?
A. P2,430,000 B. P2,286,000 C. P2,934,000 D. P2,700,000

22. What would Harlingtons net income be if the fair value of security B were P855,000?
A. P2,601,000 B. P2,799,000 C. P2,700,000 D. P2,655,000

2. LABADA CO.s portfolio of trading securities includes the following on December 31, 2016:

Cost Fair Value

15,000 ordinary shares of Camias Co. P1,431,000 P1,251,000
30,000 ordinary shares of Ganda Co. 1,638,000 1,710,000
P3,069,000 P2,961,000

All of the above securities have been purchased in 2016. In 2017, Labada Co. completed
the following securities transactions:

Mar. 1 Sold 15,000 shares of Camias Co. ordinary shares at P93, less brokerage
commission of P13,500.

April 1 Bought 1,800 ordinary shares of Waston, Inc. at P135 plus commission, taxes, and
other transaction costs of P4,950.

The Labada Co. portfolio of trading securities appeared as follows on December 31, 2017:
Cost Fair Value
30,000 ordinary shares of Ganda Co. P1,638,000 P1,740,000 1
1,800 ordinary shares of Waston, Inc. 247,950 225,0002
P1,885,950 P1,965,000
1
Net of P19,500 estimated transaction costs that would be incurred on the sale of the securities.
2
Net of P4,500 estimated transaction costs that would be incurred on the sale of the securities.

23. What amount of unrealized gain on these securities should be reported in the 2017
income statement?
A. P31,050 B. P79,050 C. P84,000 D. P36,000

24. What is the gain on the sale of Camias Co. ordinary shares on March 1, 2017?
A. P144,000 B. P27,000 C. P130,500 D. P13,500

25. What amount should be reported as trading securities in Labadas statement of financial
position on December 31, 2017?
A. P1,965,000 B. P1,989,000 C. P1,885,950 D. P1,909,950
 Page 6

PROBLEM NO. 5

On January 1, 2016, SAMSON MFG. CO. began construction of a building to be used as its office
headquarters. The building was completed on June 30, 2017.

Expenditures on the project were as follows:

January 3, 2016 P2,500,000

March 31, 2016 3,000,000
June 30, 2016 4,000,000
October 31, 2017 3,000,000
January 31, 2017 1,500,000
March 31, 2017 2,500,000
May 31, 2017 3,000,000

On January 3, 2016, the company obtained a P5 million construction loan with a 10% interest
rate. The loan was outstanding all of 2016 and 2017. The companys other interest-bearing
debts included a long-term note of P25 million with an 8% interest rate, and a mortgage of P15
million on another building with an interest rate of 6%. Both debts were outstanding during all
of 2016 and 2017. The companys fiscal year-end is December 31.

26. What is the amount of capitalizable interest in 2016?

A. P3,400,000 B. P1,043,750 C. P663,125 D. P500,000

27. What is the amount of capitalizable interest in 2017?

A. P630,625 B. P654,663 C. P361,707 D. P799,663

28. What amount of interest should be expensed in 2016?

A. P2,736,875 B. P2,356,250 C. P2,900,000 D. P 0

29. What amount of interest should be expensed in 2017?

A. P2,769,375 B. P3,038,293 C. P2,600,337 D. P2,745,337

30. What is the total cost of the building (including the interest capitalized in 2016 and 2017)?
A. P24,600,000 B. P20,817,788 C. P20,905,457 D. P20,630,625
 Page 7

PROBLEM NO. 6

At the beginning of year 1, an entity grants to a senior executive 30,000 share options. The
grant is conditional upon the executive remaining in the entitys employ until the end of year 3.

The share options can be exercised if the entitys share price increases from P20 at the
beginning of year 1 to above P30 at the end of year 3. If the share price is above P30 at the
end of year 3, the share options can be exercised at any time during the next five years, i.e., by
the end of year 8.

The entity estimates the fair value of the share options on grant date to be P5 per option. This
estimate takes into account the following market condition:
The possibility that the share price will exceed P30 at the end of year 3, i.e., the share
options become exercisable; and
The possibility that the share price will not exceed P30 at the end of year 3, i.e., the share
options will be forfeited.

The following actual events occurred in years 1 to 3:

Year 1

The share price has increased to P24.

The entitys estimate of the fair value of the options is P4 at the end of year 1. This takes
into account whether the market condition will be satisfied by the end of year 3.

Year 2

The share price has decreased to P22. However, the entity remains optimistic that the
share price target will be met by the end of year 3.
The estimated fair value of the share options is P3. Again, this estimate takes into account
the market condition noted above.

Year 3

The share price only reaches P28 by the end of year 3.

The estimated fair value of the share options is zero, as the market condition has not been
satisfied.

31. Compensation expense for year 1

A. P30,000 B. P40,000 C. P50,000 D. P60,000

32. Compensation expense for year 2

A. P30,000 B. P40,000 C. P50,000 D. P60,000

33. Compensation expense for year 3

A. P 0 B. P30,000 C. P40,000 D. P50,000

34. Share options outstanding at the end of year 2

A. P70,000 B. P80,000 C. P90,000 D. P100,000

35. Cumulative compensation expense for the three-year period

A. P 0 B. P70,000 C. P100,000 D. P150,000
 Page 8
PROBLEM NO. 7

The following independent situations relate to the audit of shareholders equity. Answer the
questions at the end of each situation.

BRANDY CO. was organized at the beginning of the current year. The following shareholders
equity accounts are included in the entitys year-end trial balance.

Preference share capital, P100 par, authorized 100,000 shares,

issued and outstanding, 66,000 shares P6,600,000
Preference share capital subscribed, 6,000 shares 600,000
Share premium preference 240,000
Subscriptions receivable preference 360,000
Ordinary share capital, P10 par value, authorized 200,000 shares,
issued and outstanding, 72,000 shares 720,000
Ordinary share capital subscribed, 72,000 shares 720,000
Share premium ordinary 2,850,000
Subscriptions receivable ordinary 1,080,000

The following current year transactions relate to Brandy Co.s shareholders equity:

Immediately after Brandy Co. was organized, it received subscriptions to 60,000 preference
shares. Subscriptions to ordinary shares were also received on the same date.

During the year, subscriptions were received for an additional 12,000 preference shares at a
price of P120 per share.

Cash payments were received from subscribers at frequent intervals for several months
after subscription. The companys policy is to issue share certificates only upon full
payment of the share subscription.

Also during the current year, Brandy Co. issued 24,000 ordinary shares in exchange for a
tract of land with a fair value of P690,000.

36. What is the total subscription price of the ordinary shares originally subscribed?
A. P4,290,000 B. P3,840,000 C. P3,600,000 D. P4,050,000

37. How much was collected from the subscribers of preference shares?
A. P1,440,000 B. P5,640,000 C. P7,440,000 D. P7,080,000

38. The companys statement of financial position at the end of the current year should report
contributed capital of
Preference Ordinary
A. P7,440,000 P4,290,000
B. 7,080,000 3,210,000
C. 6,480,000 2,490,000
D. 6,840,000 360,000
 Page 9

The following shareholders equity accounts are included in the statement of financial position
of CONDESSA CO. on December 31, 2016.

Preference share capital, 8%, P100 par (200,000 shares authorized,

60,000 shares issued and outstanding) P6,000,000
Ordinary share capital, P5 par (2,000,000 shares authorized,
600,000 shares issued and outstanding) 3,000,000
Share premium 3,750,000
Retained earnings 3,500,000
Total P16,250,000

During 2017, Condessa took part in the following transactions concerning equity.

1. Paid the annual 2016 P8 per share dividend on preference shares and a P2 per share
dividend on ordinary shares. These dividends had been declared on December 31, 2016.

2. Purchased 81,000 shares of its own outstanding ordinary shares for P40 per share.

3. Reissued 21,000 treasury shares for land valued at P900,000.

4. Issued 15,000 preference shares at P105 per share.

5. Declared a 10% stock dividend on the outstanding ordinary shares when the shares are
selling for P45 per share.
6. Issued the stock dividend.

7. Declared the annual 2017 P8 per share dividend on preference shares and the P2 per
share dividend on ordinary shares. These dividends are payable in 2018.

8. Reported net income of P9,900,000 for the current year.

39. What is the retained earnings balance (before appropriation for treasury shares) on
December 31, 2017?
A. P9,182,000 B. P718,000 C. P6,782,000 D. P11,000,000

40. What amount should be reported as total shareholders equity on December 31, 2017?
A. P25,997,000 B. P23,597,000 C. P21,197,000 D. P14,415,000
 Page 10
PROBLEM NO. 8

The following independent situations relate to the audit of intangible assets. Answer the
questions at the end of each situation.
CABOOM LABORATORIES holds a valuable patent (No. 112170) on a device that prevents
certain types of air pollution. Caboom does not manufacture or sell the products and processes
it develops; it conducts research and develops products which it patents, and then assigns the
patents to manufacturers on a royalty basis. The history of Patent No. 112170 is as follows:
Date Activity Cost
2007-2008 Research conducted to develop device P1,259,100
Jan. 2009 Design and construction of a prototype 262,800
Mar. 2010 Testing of models 126,000
Jan. 2010 Legal and other fees to process patent application; patent granted
June 2008 186,150
Nov. 2011 Engineering activity necessary to advance the design of the device
to the manufacturing stage 244,500
April 2013 Research aimed at modifying the design of the patented device 129,000
May 2017 Legal fees paid in a successful patent infringement suit against a
competitor 102,000
Caboom assumed a useful life of 17 years when it received the initial device patent. On
January 1, 2015, it revised its useful life estimate downward to 5 remaining years. Amortization
is computed for a full year if the cost is incurred prior to July 1 and no amortization for the year
if the cost is incurred after June 30. Cabooms reporting date is December 31, 2017.
Compute the carrying value of Patent No. 112170 on each of the following dates:

41. December 31, 2010

A. P180,675 B. P186,150 C. P293,788 D. P175,200
42. December 31, 2014
A. P223,200 B. P52,560 C. P131,400 D. P122,640
43. December 31, 2017
A. P120,560 B. P78,840 C. P52,560 D. P98,550

BARTOLO COMPANY has provided information on intangible assets as follows:

A patent was purchased from Valenzuela Company for P4,000,000 on January 1, 2016.
Bartolo estimates the remaining useful life of the patent to be 10 years. The patent was
carried in Valenzuelas accounting records at a net book value of P4,000,000 when
Valenzuela sold it to Bartolo.
During 2017, a franchise was purchased from Delco Company for P960,000. The contract
which runs for 10 years provides that 5% of revenue from the franchise must be paid to
Delco. Revenue from the franchise for 2017 was P5,000,000. Bartolo takes a full year
amortization in the year of purchase.
The following research and development costs were incurred by Bartolo in 2017:
Materials and equipment P284,000
Personnel 378,000
Indirect costs 204,000
P866,000

Bartolo estimates that these costs will be recouped by December 31, 2020. The materials
and equipment purchased have no alternative uses.
On January 1, 2017, because of recent events in the field, Bartolo estimates that the
remaining life of the patent purchased on January 1, 2016 is only 5 years from January 1,
2017.
44. What is the total carrying value of Bartolos intangible assets on December 31, 2017?
A. P3,744,000 B. P4,864,000 C. P2,880,000 D. P3,681,500
45. What is the total amount of charges against income for 2017?
A. P2,428,000 B. P1,932,000 C. P1,648,000 D. P1,116,000
 Page 11
PROBLEM NO. 9

The following are two (2) unrelated situations.

1. The December 31 year-end financial statements of SAMOA COMPANY contained the

following errors:
Dec. 31, 2016 Dec. 31, 2017
Ending inventory P48,000 understated P40,500 overstated
Depreciation expense P11,500 understated -------

An insurance premium of P330,000 was prepaid in 2016 covering the years 2016, 2017, and
2018. The entire amount was charged to expense in 2016. In addition, on December 31,
2017, a fully depreciated machinery was sold for P75,000 cash, but the sale was not recorded
until 2018. There were no other errors during 2016 and 2017, and no corrections have been
made for any of the errors. Ignore income tax effects.

46. What is the total effect of the errors on Samoas 2016 net income?
A. P123,500 overstatement
B. P27,500 overstatement
C. P192,500 understatement
D. P177,500 understatement

47. What is the total effect of the errors on the amount of Samoas working capital at
December 31, 2017?
A. P75,500 overstatement
B. P40,500 overstatement
C. P225,500 understatement
D. P144,500 understatement

48. What is the total effect of the errors on the balance of Samoas retained earnings at
December 31, 2017?
A. P156,000 understatement
B. P87,000 overstatement
C. P133,000 understatement
D. P85,000 understatement

2. CHILE CO. reported pretax incomes of P505,000 and P387,000 for the years ended
December 31, 2016 and 2017, respectively. However, the auditor noted that the following
errors had been made:

a. Sales for 2016 included amounts of P191,000 which had been received in cash during 2016,
but for which the related goods were shipped in 2017. Title did not pass to the buyer until
2017.

b. The inventory on December 31, 2016 was understated by P43,200.

c. The companys accountant, in recording interest expense for both 2016 and 2017 on bonds
payable, made the following entry on an annual basis:
Interest expense 75,000
Cash 75,000

The bonds have a face value of P1,250,000 and pay a nominal interest rate of 6%. They
were issued at a discount of P75,000 on January 1, 2016, to yield an effective 7% rate.

d. Ordinary repairs to equipment had been erroneously charged to the Equipment account
during 2016 and 2017. Repairs of P42,500 and P47,000 had been incurred in 2016 and
2017, respectively. In determining depreciation charges, Chile applies a rate of 10% to the
balance in the Equipment account at the end of the year.

49. What is the corrected pretax income for 2016?

A. P303,200 B. P225,300 C. P311,700 D. P307,450

50. What is the corrected pretax income for 2017?

A. P480,042 B. P484,292 C. P575,392 D. P488,992
 Page 12

PROBLEM NO. 10

The following are two (2) unrelated situations.

OMEGA COMPANY sells its products in expensive, reusable containers. The customer is charged
a deposit for each container delivered and receives a refund for each container returned within
two years after the year of delivery. Omega accounts for the containers not returned within the
time limit as being sold at the deposit amount. Information for 2017 is as follows:

Containers held by customers at

December 31, 2016,
from deliveries in: 2015 85,000
2016 240,000 325,000
Containers delivered in 2017 430,000
Containers returned in 2017
from deliveries in: 2015 57,500
2016 140,000
2017 157,000 354,500

51. How much revenue from container sales should be recognized for 2017?
A. P127,500 B. P267,500 C. P27,500 D. P85,000

52. What is the total amount of Omega Companys liability for returnable containers at
December 31, 2017?
A. P373,000 B. P400,500 C. P267,500 D. P430,000

DP, INC., a dealer of household appliances, sells washing machines at an average price of
P8,100. The company also offers to each customer a separate 3-year warranty contract for
P810 that requires the company to provide periodic maintenance services and to replace
defective parts. During 2017, DP sold 300 washing machines and 270 warranty contracts for
cash. The company estimates that the warranty costs are P180 for parts and P360 for labor.

Assume sales occurred on December 31, 2017. DPs policy is to recognize income from the
warranties on a straight-line basis. In 2018, DP incurred actual costs relative to 2017 warranty
sales of P18,000 for parts and P36,000 for labor.

53. What liability relative to these transactions would appear on the December 31, 2017,
statement of financial position and how would it be classified?
Current Noncurrent
A. P145,800 P72,900
B. P72,900 P72,900
C. P72,900 P145,800
D. P0 P218,700

54. What amount of warranty expense would be reported for 2017?

A. P18,000 B. P 0 C. P 36,000 D. P54,000

55. What liability relative to the 2017 warranties would be reported on December 31, 2018,
and how would it be classified?
Current Noncurrent
A. P145,800 P72,900
B. P72,900 P72,900
C. P72,900 P145,800
D. P145,800 P0
 Page 13
PROBLEM NO. 11

The TGR Company commenced operations on January 1, 2013. The companys machinery
account is shown below.

Date Particulars Debit Credit Balance

Jan. 1, 2013 Purchase P157,200
120,000
132,000 P409,200
Sept. 30, 2013 Purchase on installment
Payments from Sept. to Dec. 72,000 481,200
Oct. 3, 2013 Freight and installation 6,000 487,200
Dec. 31, 2013 Depreciation P97,440 389,760
2014 Installment payments for acquisition
on Sept. 30, 2013 144,000 533,760
June 30, 2014 Purchase 240,000 773,760
Dec. 31, 2014 Depreciation 154,752 619,008
June 30, 2015 Acquisition trade in of old machine 150,000 769,008
Dec. 31, 2015 Depreciation 153,802 615,206
Jan. 1, 2016 Sale 71,250 543,956
Dec. 31, 2016 Depreciation 108,791 435,165
Oct. 1, 2017 Sale 24,000 411,165
Dec. 31, 2017 Depreciation 82,233 328,932

a) On September 30, 2013, a machine was purchased on an installment basis. The list price
was P180,000, but 12 payments of P18,000 each were made by the company. Only the
monthly payments were recorded in the machinery account starting with September 30,
2013. Freight and installation charges of P6,000 were paid and charged to the machinery
account on October 3, 2013.

b) On June 30, 2015, a machine was purchased for P240,000, 2/10, n/30, and recorded at
P240,000 when paid for on July 5, 2014.

c) On June 30, 2015, the machine acquired for P157,200 was traded for a larger one having a
list price of P279,000. Allowance of P129,000 was received on the old machine, the balance
of the list price being paid in cash and charged to the machinery account.

d) On January 1, 2016, the machine acquired on January 1, 2013 with cost of P132,000 was
sold for P75,000. The cost of removal and crating totaled P3,750.

e) On October 1, 2017, the machine purchased on January 1, 2013 was sold for P24,000 cash.

Assume a 5-year useful life for TGR Companys machinery.

56. What is the total amount of gain on the sale/trade-in of the machinery acquired on
January 1, 2013?
A. P50,400 B. P40,200 C. P36,450 D. P86,850

57. What is the adjusted balance of the Machinery account on December 31, 2017?
A. P694,200 B. P705,000 C. P700,200 D. P703,950

58. What is the adjusted balance of the Accumulated depreciation on December 31, 2017?
A. P465,600 B. P457,140 C. P462,240 D. P397,740

59. What is the correct total depreciation provision for the years 2013-2017?
A. P737,400 B. P734,040 C. P728,940 D. P669,540

60. The entry to correct the depreciation provision for the years 2013-2017 should include a
debit (credit) to
Depreciation Expense Retained Earnings
A. P75,807 P61,215
B. (P18,492) P79,707
C. P18,492 (P79,707)
D. P75,807 P55,249
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