AUDITING

INSTRUCTIONS: Select the best answer for each of the following questions. ALL questions are compulsory and
MUST be attempted. Mark only one answer for each item on the answer sheet provided. Strictly NO ERASURES
ALLOWED. Erasures will render your examination answer sheet INVALID. Use PENCIL NO. 2 only. GOODLUCK!

1. According to PSA 200, professional skepticism includes 6. Which of the following factors would most likely
being alert to all of the following except: influence an auditor's consideration of the reliability of
a. Audit evidence that contradicts other audit data when performing analytical procedures?
evidence obtained. a. Whether the data were developed in a
b. Information that brings into question the relevance computerized or a manual accounting system.
of documents. b. Whether the data were prepared on the cash basis
c. Conditions that may indicate possible fraud. or in conformity with GAAP.
d. All of the above. c. Whether the data were developed under a system
with adequate controls.
2. Which of the following would not be considered audit d. Whether the data were processed in an online
evidence? system or a batch entry system.
a. Invoices received by the company and retained on
the companys IT system in electronic form. 7. When a compensating control exists, the absence of a
b. The electronic work paper program package used key control:
by the auditor to produce the electronic work a. is still a major concern to the auditor.
papers. b. could cause a material loss, so it must be tested
c. Hard copy minutes of the Board of Directors and using substantive procedures.
Audit Committee meetings. c. is magnified and must be removed from the
d. Electronic images of the front and back of checks sampling process and examined in its entirety.
that the company has written. d. is no longer a concern because there is no longer a
significant deficiency or material weakness.
3. Which of the following statements is correct regarding
the auditor's consideration of the possibility of illegal 8. For effective internal control, the accounts payable
acts by clients? department generally should
a. The auditor has a responsibility to plan and a. Stamp, perforate, or otherwise cancel supporting
perform the audit to obtain reasonable assurance documentation after payment is mailed.
that no illegal acts have been committed by b. Ascertain that each requisition is approved as to
clients. price, quantity, and quality by an authorized
b. The auditor's training, experience, and employee.
understanding of the client should be used to c. Obliterate the quantity ordered on the receiving
provide a basis for the determination as to whether department copy of the purchase order.
illegal acts have occurred. d. Establish the agreement of the vendor's invoice
c. If specific information concerning an illegal act with the receiving report and purchase order.
comes to the auditor's attention, the auditor
should apply audit procedures specifically directed 9. Which of the following statements is correct concerning
to ascertaining whether an illegal act has occurred. materiality in a financial statement audit?
d. If an illegal act has occurred, the auditor should a. Analytical procedures performed during an audit's
express a qualified opinion or an adverse opinion review stage may change materiality levels.
on the financial statements taken as a whole. b. If the materiality amount used in evaluating audit
findings increases from the amount used in
4. As part of designing and performing procedures to planning, the auditor should apply additional
address management override of controls, auditors substantive tests.
must perform which of the following procedures? c. The auditor's materiality judgments generally
involve quantitative, but not qualitative,
Examine all journal Review accounting considerations.
entries above materiality estimates for biases d. Materiality levels are generally considered in terms
a. Yes Yes of the aggregate level of misstatement that could
b. No No be considered material to all of the financial
c. Yes No statements.
d. No Yes
10. In using the work of a specialist, an understanding
5. Items documented in an engagement letter about should exist among the auditor, the client, and the
which the auditor and client establish an understanding specialist as to the nature of the work to be performed
include: by the specialist. Preferably, the understanding should
a. managements responsibility for ensuring that the be documented and would include all of the following
company complies with applicable laws and except
regulations. a. The objectives and scope of the specialist's work.
b. managements responsibility for providing b. The specialist's representations as to her or his
reasonable assurance about whether the financial relationship, if any, to the client.
statements are free of material misstatement. c. The specialist's understanding of the auditor's
c. the auditors responsibility for maintaining effective corroborative use of the specialist's findings in
ICFR throughout the audit engagement. relation to the representations in the financial
d. the auditors responsibility for signing a statements.
management representation letter at the d. A statement that the methods or assumptions to
conclusion of the audit engagement. be used are not inconsistent with those used by
the client.

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11. The ultimate purpose of assessing control risk is to a. Control risk based on the auditor's sample is less
contribute to the auditor's evaluation of the risk that: than the true operating effectiveness of the client's
a. Specific internal control activities are not operating control activity.
as designed. b. The auditor believes that the control activity
b. The collective effect of the control environment relates to the client's assertions when, in fact, it
may not achieve the control objectives. does not.
c. Tests of controls may fail to identify activities c. The auditor believes that the control activity will
relevant to assertions. reduce the extent of substantive testing when, in
d. Material misstatements may exist in the financial fact, it will not.
statements. d. Control risk based on the auditor's sample is
greater than the true operating effectiveness of the
12. Which of the following characteristics most likely would client's control activity.
heighten an auditor's concern about the risk of
material misstatement arising from fraudulent financial 18. Which of the following characteristics most likely would
reporting? be an advantage of using classical variables sampling
a. There is a lack of interest by management in rather than probability-proportional-to-size (PPS)
maintaining an earnings trend. sampling?
b. Computer hardware is usually sold at a loss before a. The selection of negative balances requires no
being fully depreciated. special design considerations.
c. Management had frequent disputes with the b. The sampling process can begin before the
auditor on accounting matters. complete population is available.
d. Monthly bank reconciliations usually include several c. The auditor need not consider the preliminary
large checks outstanding. judgments about materiality.
d. The sample will result in a smaller sample size if
13. Before applying principal substantive tests to an few errors are expected.
entity's accounts receivable at an interim date, an
auditor should: 19. Which of the following matters is an auditor required to
a. Consider the likelihood of assessing the risk of communicate to those charged with governance?
incorrect rejection too low. a. Adjustments that were suggested by the auditor
b. Project sampling risk at the maximum for tests and recorded by management that have a
covering the remaining period. significant effect on the entity's financial reporting
c. Ascertain that accounts receivable are immaterial process.
to the financial statements. b. The auditor's consideration of risk factors in
d. Assess the difficulty in controlling the incremental assessing the risk of material misstatement arising
audit risk. from the misappropriation of assets.
c. The results of the auditor's analytical procedures
14. What is the most likely course of action that an auditor performed in the review stage of the engagement
would take after determining that performing that indicate significant variances from expected
substantive tests on inventory will take less time than amounts.
performing tests of controls? d. Changes in the auditor's preliminary judgment
a. Assess control risk at a low level. about materiality that were caused by projecting
b. Perform both tests of controls and substantive the results of statistical sampling for tests of
tests on inventory. transactions.
c. Perform only substantive tests on inventory.
d. Perform only tests of controls on inventory. 20. After considering an entity's negative trends and
financial difficulties, an auditor has substantial doubt
15. After making inquiries about credit granting policies, about the entity's ability to continue as a going
an auditor selects a sample of sales transactions and concern. The auditor's considerations relating to
examines evidence of credit approval. This test of management's plans for dealing with the adverse
controls most likely supports management's financial effects of these conditions most likely would include
statement assertion(s) of: management's plans to:
a. Increase current dividend distributions.
Rights and obligations Completeness b. Reduce existing lines of credit.
a. Yes Yes c. Increase ownership equity.
b. Yes No d. Purchase assets formerly leased.
c. No Yes
d. No No 21. In which of the following situations would an auditor
ordinarily choose between expressing a qualified
16. Which of the following strategies most likely could opinion or an adverse opinion?
improve the response rate of the confirmations of a. The auditor did not observe the entity's physical
accounts receivable? inventory and is unable to become satisfied about
a. Restrict the selection of accounts to be confirmed its balance by other auditing procedures.
to those customers with large balances. b. Conditions that cause the auditor to have
b. Include a list of items or invoices that constitute substantial doubt about the entity's ability to
the customers' account balances. continue as a going concern are inadequately
c. Explain to customers that discrepancies will be disclosed.
investigated by an independent third party. c. There has been a change in accounting principles
d. Ask customers to respond to the confirmation that has a material effect on the comparability of
requests directly to the auditor by fax. the entity's financial statements.
d. The auditor is unable to apply necessary
17. As a result of tests of controls, an auditor assesses procedures concerning an investor's share of an
control risk too high. This incorrect assessment most investee's earnings recognized on the equity
likely occurred because: method.

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27. A client follows full PFRSs for its domestic operations

22. Under which of the following circumstances would an and foreign GAAP for a foreign subsidiary. The foreign
auditor's expression of an unqualified opinion be subsidiary is audited by a component auditor, while the
inappropriate? group auditor audits the remainder of the corporation
a. The auditor is unable to obtain the audited financial and issues an audit report on consolidated operations.
statements of a significant subsidiary. Which auditor(s) is (are) responsible for evaluating the
b. The financial statements are prepared on the appropriateness of the adjustment of the foreign GAAP
entity's income tax basis. statements to full PFRSs?
c. There are significant deficiencies in the design and
operation of the entity's internal control. Component auditor Group auditor
d. Analytical procedures indicate that many year-end a. Yes Yes
account balances are not comparable with the prior b. No Yes
year's balances. c. Yes No
d. No No
23. An auditor determines that the entity is presenting
certain supplementary financial disclosures of pension 28. Which of the following is true?
information that are required by the SEC. Under these a. The criteria for any audit (an operational audit or a
circumstances, the auditor should: financial audit) are GAAP.
a. Add an explanatory paragraph to the auditor's b. A financial audit is designed to determine if the
report that refers to the required supplementary company is acquiring resources at the lowest cost
information. and is utilizing its resources in the most useful
b. State that the audit is not being performed in manner.
accordance with generally accepted auditing c. External auditors may perform operational audits
standards. and internal auditors may perform financial audits.
c. Document in the working papers that the required d. Both external and internal auditors can provide
supplementary information is presented, but management advice to the company as long as
should not apply any procedures to the they agreed to do so.
information.
d. Compare the required supplementary information 29. When an accountant compiles projected financial
for consistency with the audited financial statements, the accountant's report should include a
statements. separate paragraph that:
a. Explains the difference between a compilation and
24. In the first audit of a client, an auditor was not able to a review.
gather sufficient evidence about the consistent b. Documents the assessment of the risk of material
application of accounting principles between the misstatement due to fraud.
current and prior year, as well as the amounts of c. Expresses limited assurance that the actual results
assets or liabilities at the beginning of the current may be within the projected range.
year. This was due to the client's record retention d. Describes the limitations on the projection's
policies. If the amounts in question could materially usefulness.
affect current operating results, the auditor would:
a. Be unable to express an opinion on the current 30. The objective of a review of interim financial
year's results of operations and cash flows. information of a public entity (issuer) is to provide an
b. Express a qualified opinion on the financial accountant with a basis for reporting whether
statements because of a client-imposed scope a. A reasonable basis exists for expressing an
limitation. updated opinion regarding the financial statements
c. Withdraw from the engagement and refuse to be that were previously audited.
associated with the financial statements. b. Summary financial statements or pro forma
d. Specifically state that the financial statements are financial information should be included in a
not comparable to the prior year due to an registration statement.
uncertainty. c. The financial statements are presented fairly in
accordance with generally accepted accounting
25. Which of the following statements is a basic element of principles.
the auditor's standard report? d. Material modifications should be made to conform
a. The disclosures provide reasonable assurance that with generally accepted accounting principles.
the financial statements are free of material
misstatement. B. The auditor evaluated the overall 31. The auditor with final responsibility for an engagement
internal control. and one of the assistants have a difference of opinion
b. An audit includes assessing significant estimates about the results of an auditing procedure. If the
made by management. assistant believes it is necessary to be disassociated
c. The financial statements are consistent with those from the matters resolution, the CPA firms procedures
of the prior period. should enable the assistant to
a. Refer the disagreement to the AICPAs Quality
26. Which of the following risk assessments or values is Review Committee.
least likely to be characteristic of a small business b. Document the details of the disagreement with the
audit? conclusion reached.
a. Business risk is low. c. Discuss the disagreement with the entitys
b. Control risk is low. management or its audit committee.
c. Inherent risk is low d. Report the disagreement to an impartial peer
d. Detection risk is low. review monitoring team.

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32. Which of the following statements concerning Sales for 11 months ended November 30 P3,400,000
ownership of working papers is incorrect? Sales for the year ended December 31 3,840,000
a. All working papers made by a CPA and his/her staff Purchases for 11 months ended Nov. 30 2,700,000
in the course of an examination remain the Purchases for the year ended Dec. 31 3,200,000
property of such CPA in the absence of any written Inventory, January 1 350,000
or oral agreement between the CPA and the client Inventory, Nov. 30 (per physical count) 380,000
to the contrary.
b. Working papers include schedules and memoranda Your audit disclosed the following information:
prepared and submitted by the client of the CPA.
a) Shipments received in unsalable
c. All working papers, except reports submitted by a
condition and excluded from physical
CPA to his/her client shall be treated confidential
inventory. The returns were not
and privileged.
recorded because no credit memos
d. Working papers shall be treated confidential and
were received from vendors:
privileged and remain the property of the CPA
Total at November 30 P 4,000
unless such documents are required to be
Total at December 31
produced through subpoena issued by any court,
(including the November 30
tribunal, or government regulatory or
unrecorded returns) 6,000
administrative body.
b) Deposit made with vendor and charged
to Purchases in October. The goods
33. According to Code of Ethics for Professional
were shipped in January 2016. 8,000
Accountants, all professional accountants:
c) Deposit made with vendor and charged
a. should be independent in fact and in appearance at
to Purchases in November. The
all times.
goods were shipped FOB destination
b. in public practice should be independent in fact and
on November 29 and were included
in appearance at all times.
in physical inventory as goods in
c. in public practice should be independent in fact and
transit. 22,000
in appearance when providing assurance services.
d) Shipments received in November and
d. in public practice should be independent in fact and
included in the physical count at
in appearance when providing auditing, tax, and
November 30 but recorded as
MAS services.
December purchases. 30,000
e) Due to the carelessness of the receiving
34. When a professional accountant in public practice
department, a December shipment
solicits new work through advertising or other forms of
was damaged by rain. These goods
marketing, there may be potential threats to
were later sold at cost in December. 40,000
compliance with the fundamental principles. For
example, a __________ to compliance with the
Based on the preceding information, determine the
principle of professional behavior is created if services,
following:
achievements or products are marketed in a way that
is consistent with that principle. Questions:
a. self-interest threat c. familiarity threat
b. self-review threat d. advocacy threat 36. Adjusted net purchases
a. Up to November 30: P2,666,000;
35. When an auditor tests the internal controls of a Up to December 31: P3,190,000
computerized accounting system, which of the b. Up to November 30: P2,700,000;
following is true of the test data approach? Up to December 31: P3,164,000
a. Test data are coded to a dummy subsidiary so they c. Up to November 30: P2,696,000;
can be extracted from the system under actual Up to December 31: P3,186,000
operating conditions. d. Up to November 30: P2,704,000;
b. Test data programs need not be tailor-made by the Up to December 31: P3,184,000
auditor for each client's computer applications. 37. Cost of goods sold for 11 months ended November 30,
c. Test data programs usually consist of all possible 2015
valid and invalid conditions regarding compliance a. P2,688,000 c. P2,670,000
with internal controls. b. P2,666,000 d. P2,692,000
d. Test data are processed with the client's computer
and the results are compared with the auditor's 38. Gross profit ratio for 11 months ended November 30,
predetermined results. 2015
a. 21.58% c. 21.47%
b. 20.94% d. 20.82%
Use the following information for the next five questions. 39. Gross profit for the month of December 2015
Katrina, Inc. is an importer and wholesaler of cellphone a. P92,136 c. P83,760
accessories. Its merchandise is purchased from a number b. P91,236 d. P88,000
of suppliers and is warehoused until sold to customers. 40. Estimated inventory at December 31, 2015
a. P491,760 c. P490,000
In conducting your audit of Katrinas financial statements b. P456,000 d. P455,120
for the year ended December 31, 2015, you determined
that the internal control system is functioning effectively.
You observed the physical count of inventory on November
30, 2015.

The following information were obtained from Katrinas

accounting records:

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Use the following information for the next five questions. Use the following information for the next five questions.
The cost goods sold section of the income statement You noted the following items relative to the companys
prepared by your client for the year ended December 31 Intangible assets in connection with your audit of the Five
appears as follows: Corporations financial statements for the year 2015.
Inventory, January 1 P 80,000
Franchise
Purchases 1,600,000
Cost of goods available for sale 1,680,000 On January 1, 2015, Five signed an agreement to operate
Inventory, December 31 100,000 as franchisee of Clear Copy Service, Inc. for an initial
Cost of goods sold P1,580,000 franchise of P680,000. Of this amount, P200,000 was paid
when the agreement was signed and the balance was
Although the books have been closed, your working paper payable in four annual payments of P120,000 each,
trial balance is prepared showing all accounts with activity beginning January 1, 2016. The agreement provides that
during the year. This is the first time your firm has made the down payment is not refundable and no future services
an examination. The January 1 and December 31 are required of the franchisor. The implicit rate for loan of
inventories appearing above were determined by physical this type is 14%. The agreement also provides the 5% of
count of the goods on hand on those dates and no the revenue from the franchise must be paid to the
reconciling items were considered. All purchases are FOB franchisor annually. Fives revenue from the franchise for
shipping point. 2015 was P8,000,000. Five estimates the useful life of the
franchise to be ten years.
In the course of your examination of the inventory cutoff,
both at the beginning and end of the year, you discovered Patent
the following facts:
On July 1, 2015, Five purchased a patent from the
inventor, who asked P1,100,000 for it. Five paid for the
Beginning of the Year
patent as follows: cash, P400,000; issuance of 10,000
1. Invoices totaling P25,000 were entered in the voucher shares of its own ordinary shares, par P10 (market value,
register in January, but the goods were received P20 per share); and a note payable due at the end of three
during December. years, face amount, P500,000, noninterest-bearing. The
current interest rate for this type of financing is 12
2. December invoices totaling P13,200 were entered in
percent. Five estimates the useful life of the patent to be
the voucher register in December, but goods were not
ten years.
received until January.
Trademark
End of the Year
Five purchased for P1,200,000 a trademark for a very
3. Sales of P43,000 (cost of P12,900) were made on
successful soft drink it markets under the name POWER!.
account on December 31 and goods delivered at that
The trademark was determined to have an indefinite life.
time, but all entries relating to the sales were made
A competitor recently introduced a product that is in direct
on January 2.
competition with the POWER! product, thus suggesting the
4. Invoices totaling P15,000 were entered in the voucher need for an impairment test. Data gathered by the entity
register in January, but the goods were received in suggests that the useful life of the trademark is still
December. indefinite, but the cash flows expected to be generated by
the trademark have been reduced either to P40,000 per
5. December invoices totaling P18,000 were entered in year (with a probability of 70%) or to P80,000 per year
the voucher register in December, but the goods were (with 30% probability). The appropriate risk-free interest
not received until January. rate is 5%. The appropriate risk-adjusted interest rate is
6. Invoices totaling P12,000 were entered in the voucher 10%.
register in January, and the goods were received in
January, but the invoices were dated December. QUESTIONS:
Based on the above and the result of your audit, determine
Based on the preceding information, determine the net the following: (Round off present value factors to 4
working paper adjustment that should be made for each of decimal places)
the following accounts:
46. Total expenses related to franchise in 2015
41. Retained earnings a. P503,914 c. P448,950
a. P13,200 credit c. P25,000 debit b. P535,200 d. P454,964
b. P11,800 debit d. P38,200 debit
47. Carrying amount of franchise as of December 31, 2015
42. Purchases a. P549,644 c. P538,733
a. P27,000 debit c. P25,000 credit b. P494,680 d. P612,000
b. P28,000 debit d. P2,000 debit
48. Carrying amount of patent as of December 31, 2015
43. Beginning inventory a. P1,045,000 c. P860,310
a. P25,000 credit c. P13,200 debit b. P 955,900 d. P908,105
b. P38,200 debit d. P11,800 debit
49. Total expenses related to the intangible assets in 2015
44. Accounts receivable a. P662,759 c. P733,063
a. P43,000 debit c. P30,000 debit b. P711,709 d. P802,212
b. P43,000 credit d. No adjustment
50. The most effective means for the auditor to determine
45. Sales whether a recorded intangible asset possesses the
a. P43,000 debit c. P30,000credit characteristics of an asset is to
b. P43,000 credit d. No adjustment a. Vouch the purchase by reference to underlying
documentation.

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b. Inquire as to the status of patent applications. P725,000.

c. Evaluate the future revenue-producing capacity of
j. Interest on the bank loan for the month of December
the intangible asset.
charged by the bank but not recorded in the books,
d. Analyze research and development expenditures to
amounted to P38,000.
determine that only those expenditures possessing
future economic benefit have been capitalized.
QUESTIONS:
Based on the above and the result of your audit, answer
Use the following information for the next five questions. the following:

You were able to obtain the following information in 51. How much is the unadjusted balance per books as of
connection with your audit of the Cash account of the Syria November 30, 2016?
Company as of December 31, 2016: a. P504,000 c. P430,000
b. P484,000 d. P356,000
November 30 December 31
Balances per bank P480,000 P420,000 52. How much is the unadjusted book receipts for
Undeposited 244,000 300,000 December, 2016?
collections a. P860,000 c. P735,000
Outstanding checks 150,000 120,000 b. P770,000 d. P738,000
d. The bank statement for the month of December 53. How much is the unadjusted book disbursements for
showed total credits of P240,000. December, 2016?
a. P773,000 c. P735,000
e. DAIF checks are recorded as a reduction of cash
b. P700,000 d. P760,000
receipts. DAIF checks which are later redeposited are
then recorded as regular receipts. Data regarding 54. How much is the unadjusted balance per books as of
DAIF checks are as follows: December 31, 2016?
1. Returned by the bank in Nov. and recorded by the a. P481,000 c. P309,000
company in Dec., P10,000. b. P530,000 d. P539,000
2. Returned by the bank in Dec. and recorded by the
company in Dec., P25,000. 55. Cash receipts should be deposited on the day of
3. Returned by the bank in Dec. and recorded by the receipt or the following business day. Select the most
company in Jan., P29,000. appropriate audit procedure to determine that cash is
promptly deposited.
f. Check of Syrio Company amounting to P90,000 was a. Review cash register tapes prepared for each sale.
charged to the companys account by the bank in error b. Compare the daily cash receipts totals with the
on December 31. bank deposits.
c. Review the functions of cash handling and
g. A bank memo stated that the companys account was
maintaining accounting records for proper
credited for the net proceeds of a customers note for
separation of duties.
P106,000.
d. Review the functions of cash receiving and
h. The company has hypothecated its accounts receivable disbursing for proper separation of duties.
with the bank under an agreement whereby the bank
lends the company 80% of the hypothecated accounts
receivable. The company performs accounting and Use the following information for the next five questions.
collection of the accounts. Adjustments of the loan are
The shareholders equity section of the Jerely Corporations
made from daily sales reports and deposits.
statement of financial position as of December 31, 2014 is
i. The bank credits the company account and increases presented below:
the amount of the loan for 80% of the reported sales.
12% Preference share capital, P100 par P 270,000
The loan agreement states specifically that the sales
report must be accepted by the bank before the Ordinary share capital, P20 par 1,598,400
company is credited. Sales reports are forwarded by Share premium preference 36,800
the company to the bank on the first day following the Share premium ordinary 235,200
date of sale. The bank allocates each deposit 80% to Share premium treasury shares 3,200
the payment of the loan, and 20% to the company
Retained earnings 1,585,840
account. Thus, only 80% of each days sales and 20%
of each collection deposits are entered on the bank Total shareholders equity P3,729,440
statement. The company accountant records the
hypothecation of new accounts receivable (80% of Jerely had 65,000 ordinary shares as December 31, 2013.
sales) as a debit to Cash and a credit to the bank loan
as of the date of sales. One hundred percent of the The following shareholders equity transactions were
collection on accounts receivable is recorded as a cash recorded in 2014 and 2015:
receipt; 80% of the collection is recorded in the cash
disbursements books as a payment on the loan. In 2014
connection with the hypothecation, the following facts May 1 - Sold 9,000 ordinary shares for P24, par
were determined: value P20.
Included in the undeposited collections is cash July 1 - Sold 700 preference shares for P124, par
from the hypothecation of accounts receivable. value P100.
Sales were P180,000 on November 30, and Jul. 31 - Issued an 8% share dividend on ordinary
P200,000 at December 31. The balance was made shares. The market value of ordinary share
up from collections which were entered on the was P30 per share.
books in the manner indicated above. Aug. 30 - Declared cash dividends of 12% on
Collections on accounts receivable deposited in preference shares and P3 per share on
December, other than deposits in transit, totaled ordinary shares.
Dec. 31 - Profit for the year amounted to P1,345,040.

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Share capital, P10 par value 400,000

2015 Retained earnings 336,000
Feb. 1 - Sold 2,200 ordinary shares for P30. Total shareholders' equity 736,000
May 1 - Sold 600 preference shares for P128. Total liabilities and shareholders' equity P1,552,000
May 31 - Issued a 2-for-1 split of ordinary shares.
The par value of the ordinary share was Bryant Corporation
reduced to P10 per share. Statement of Income
Sep. 1 - Purchased 1,000 ordinary shares for P18 to For the Fiscal Year Ended November 30, 2014
be held as treasury shares. Net sales P2,950,000
Oct. 1 - Declared and paid cash dividends of 12% on
preference shares and P4 per share on Operating expenses:
ordinary shares. Cost of sales 1,670,000
Nov. 1 - Sold 1,000 shares of treasury shares for Selling and administrative 650,000
P22. Depreciation 40,000
Dec. 31 - Profit for the year amounted to P991,520. Research and development 30,000
2,390,000
QUESTIONS: Income before income taxes 560,000
Provision for income taxes 224 000
Determine the amounts, as required, in Jerely Net income P 336,000
Corporations comparative financial statements as of and Bryant is in the process of negotiating a loan for expansion
for the years ended December 31, 2014 and 2015. purposes, and the bank has requested audited financial
statements. During the course of the audit, the following
56. Dividends paid to ordinary shareholders in 2015
additional information was obtained:
a. P652,690 c. P652,960
b. P692,560 d. P656,960 a. The investment portfolio consists of short-term
57. Retained earnings as of December 31, 2015 investments in marketable equity securities with a
a. P1,880,800 c. P1,892,000 total market valuation of P55,000 as of November 30,
b. P1,884,800 d. P1,888,000 2014.

58. Total equity as of December 31, 2015 b. Based on an aging of the accounts receivable as of
a. P4,175,200 c. P4,182,400 November 30, 2014, it was estimated that P36,000 of
b. P4,171,200 d. P4,157,200 the receivables will be uncollectible.
59. Basic earnings per share for 2014 c. Inventories at November 30, 2014 did not include work
a. P17.12 c. P 8.56 in process inventory costing P12,000, sent to an
b. P 8.21 d. P18.49 outside processor on November 29, 2014.
60. Basic earnings per share for 2015 d. A P3,000 insurance premium paid on November 30,
a. P7.40 c. P5.86
2014 on a policy expiring one year later was charged
b. P7.34 d. P5.81
to insurance expense.

e. Bryant adopted a pension plan on June 1, 2014 for

Use the following information for the next five questions. eligible employees to be administered by a trustee.
Bryant Corporation, a nonpublic entity, was incorporated Based upon actuarial computations, the first twelve
on December 1, 2013, and began operations one week late months' normal pension was estimated at P45,000.
closing the books for the fiscal year ended November 30, f. On June 1, 2014, a production machine purchased for
2014, the controller prepared the following financial
P24,000 was charged to repairs and maintenance.
statements:
Bryant depreciates machines of this type on the
Bryant Corporation straight-line method over a five-year life with no
Statement of Financial Position salvage value, for financial and tax purposes.
November 30, 2014
g. Research and development costs of P150,000 were
Assets incurred the development of a patent, which Bryant
Current assets: expects to be granted during the fiscal year ending
Cash P 150,000 November 30, 2015. Bryant initiated a five-year
Marketable securities , at cost 60,000 amortization of the P150,000 total cost during the
Accounts receivable 450,000 fiscal year ended November 30, 2014.
Allowance for doubtful accounts ( 59,000)
Inventories 430,000 h. During December 2014, a competitor company filed
Prepaid insurance __15,000 suit against Bryant for patent infringement claiming
Total current assets 1,046,000 P200,000 damages. Bryant's legal counsel believes
Property, plant and equipment 426,000 that an unfavorable outcome is probable. A
Less accumulated depreciation ( 40,000) reasonable estimate of the court's award to the
Property, plant and equipment, net 386,000 plaintiff is P50,000.
Research and development costs 120,000
Total assets P1,552,000 i. The 40% effective tax rate was determined to be
appropriate for calculating the provision for income
Liabilities and Shareholders' equity taxes for the fiscal year ended November 30, 2014.
Current liabilities: Ignore computation of the deferred portion of income
Accounts payable and accrued P 592,000 taxes.
expenses
Income taxes payable 224,000 QUESTIONS:
Total current liabilities 816,000
Shareholders' equity:

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Based on the above and the result of your audit, determine

the following as of and for the fiscal period ended During the course of the audit, the following additional
November 30, 2014: information was obtained:
61. Net income a. The trading securities were acquired on December 31,
a. P253,260 c. P235,260 2014. The securities have a fair value of P67,000 at
b. P283,260 d. P239,760 December 31, 2015.
62. Current assets b. In discussion with the company officials, it was
a. P1,084,000 c. P1,079,000 determined that the doubtful accounts expense rate
b. P1,061,000 d. P1,073,000 based on net sales should be reduced to 2% from 3%,
effective January 1, 2015.
63. Total assets
c. As a result of errors in the physical count, inventories
a. P1,484,200 c. P1,489,200
were overstated by P12,000 at December 31, 2014
b. P1,486,600 d. P1,491,600
and by P17,500 at December 31, 2015.
64. Total liabilities d. On January 1, 2014, the cost of equipment purchased
a. P833,340 c. P855,840 for P30,000 was debited to repairs and maintenance.
b. P783,340 d. P805,840 Bulls depreciates equipment of this type by the
65. Total equity straight-line method over a five-year life with no
a. P683,260 c. P639,760 residual value.
b. P635,260 d. P653,260 e. On July 1, 2015, fully depreciated equipment
purchased for P21,000, was sold as scrap for P2,500.
The only entry Bulls made was to debit cash and credit
Use the following information for the next five questions. property and equipment for the scrap proceeds. The
property and equipment (net) had a current cost of
Bulls, Inc., a nonpublic enterprise, is negotiating a loan for
P250,000 at December 31, 2015.
expansion purposes and the bank requires audited
financial statements. Before closing the accounting f. Advertising and promotion expense for the year ended
records for the year ended December 31, 2015, Bulls' December 31, 2014 includes the P25,000 cost of
controller prepared the following comparative financial printing sales catalogs for a special promotional
statements for 2015 and 2014: campaign held in January 2015.
Bulls, Inc. g. Bulls was named as a defendant in a lawsuit in October
Statements of Financial Position 2015. Bulls' counsel is of the opinion that Bulls has a
December 31, 2015 and 2014 good defense, and does not anticipate any impairment
2015 2014 of Bulls' assets or that any significant liability will be
Assets incurred. Nevertheless, Bulls management wished to
Cash P 275,000 P150,000 be conservative and, therefore, established a loss
Trading securities 78,000 78,000 contingency of P100,000 at December 31, 2015.
Accounts receivable 487,000 392,000
Allow. for doubtful accounts (50,000) (32,000) QUESTIONS:
Inventories 425,000 307,000
Based on the above and the result of your audit, compute
Property and equipment 310,000 217,000
for the following: (Disregard income taxes)
Accumulated depreciation (150,000) (121,000)
Total assets P1,375,000 P 991,000 66. Adjusted retained earnings as of January 1, 2015
a. P266,000 c. P285,000
Liabilities and Equity b. P297,000 d. P291,000
Accounts payable and accrued
67. Adjusted profit for the year ended December 31, 2015
liabilities P 420,000 P347,000
a. P281,800 c. P287,800
Estimated liability from
b. P181,800 d. P306,800
lawsuit 100,000 -
Share capital, P10 par 260,000 260,000 68. Adjusted current assets as of December 31, 2015
Share premium 130,000 130,000 a. P1,226,760 c. P1,154,900
Retained earnings 465,000 254,000 b. P1,190,300 d. P1,202,300
Total liabilities and equity P1,375,000 P 991,000
69. Adjusted carrying amount of property and equipment
Bulls, Inc. as of December 31, 2015
Income Statements a. P168,500 c. P178,000
b. P180,500 d. P192,500
For the Years Ended December 31, 2015 and 2014
2015 2014 70. Adjusted shareholders equity as of December 31,
Net sales P1,580,000 P1,250,000 2015
Operating expenses: a. P962,800 c. P974,800
Cost of sales P 755,000 P 690,000 b. P950,800 d. P862,800
Selling and admin. 485,000 365,000
Depreciation 29,000 18,000
Est. loss from lawsuit 100,000 -
P1,369,000 P1,073,000 - end -
Profit P 211,000 P 177,000

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