Auditing Problem - Preweek: Cordillera Career Development College College of Accountancy

CORDILLERA CAREER DEVELOPMENT COLLEGE
COLLEGE OF ACCOUNTANCY
Buyagan, Poblacion, La Trinidad, Benguet
AUDITING PROBLEM – PREWEEK
PROBLEM NO.1
Darjeeling plc is a manufacturing company. It analyses expenses by nature in its income

statement.
The following trial balance has been from the company’s nominal ledger at 30 September 2016.
The following additional information is available:
Note
Sales (1) 4,323,600
Purchases of raw materials 2,056,500
Other expenses 569,900
Wages and salaries 890,400
Cost of developing new product (1) 648,000
Plant and machinery (2)
- Cost 567,000
- Accumulated depreciation at 30 September 2015 402,000
Inventories at 30 September 2015
Raw materials 56,800
Finished goods 105,800
Leased payments (3) 14,000
Retained earnings at 30 September 2015 1,750
Ordinary share capital (P1 shares) 300,000
Ordinary dividends (4) 20,000
Trade and other receivables 245,800
Trade and other payables 156,700
Income tax (6) 30,000
Prepayments and accruals (7) 11,500 17,000
Totals 5,229,300 5,229,300
1.) The amount of P648, 000 relates to development costs correctly capitalized in the
previous year. Following a successful marketing campaign in the current year, the
product was launched on 1 June 2016 and is expected to be produced for a total of three
years, after which time it will become obsolete.
The new product has been so successful that there is a waiting list. By 30 September 2016
cash of P132, 000 had been received in respect of advance orders for this product and
included in sales. All of these orders had been met by 31 December 2016.
2.) Plant and machinery is depreciated using the reducing balance method at a rate of 30%
pa. However, an impairment review carried out at the year end showed that one
specialized machine had become impaired. The machine had cost P100, 000 on 1
October 2012. The finance director has estimated that the fair value of the machine is
now P20, 000 and that costs to sell would be P3, 000. The machine has a value in use
of P23, 000.
3.) On 1 October 2015 Darjeeling plc entered into an operating lease. The lease runs for
four years and the rental is P10, 000 pa, payable annually in advance on 1 October.
Darjeeling plc also had to pay a non-refundable deposit of P4, 000 at the start of the
lease. Costs relating to this should be presented in other expenses.
4.) The ordinary dividend of P20, 000 was paid on 3 August 2016 in respect of the current
financial year.
5.) When preparing the company’s bank reconciliation at 30 September 2016 the financial
controller noted that an amount of P33,000 in respect employer pension contributions
had been paid by standing order on 29 September 2016 but that the nominal ledger
bank account did not reflect this payment.
6.) The income tax liability at 30 September 2015 had been estimated at P30,000 and is
included in the trial balance above. This liability had been settled in June 2016 for
P35,000 but the payment had been posted to other expenses. The income tax liability for
the current year has been estimated at P52,000.
7.) The figures in the trial balance for prepayments and accruals are balances as at 1
October 2015 and relate to prepaid other expenses and accrued purchases. Darjeeling
plc’s finance director has advised that the equivalent figures at 30 September 2016 are
P45,000 and P26,700.
8.) On 30 September 2016, Darjeeling plc held the following inventories at cost:

Finished goods 130,700
Questions:
Based on the above and the result of your audit, you are to provide the answers to the following:
1. How much is the total Revenue for the year ended 30 September 2016?
2. How much is the total impairment loss for the year ended 30 September 2016?
3. How much is the total net profit for the year ended 30 September 2016?
4. How much is the total current assets for the year ended 30 September 2016?
5. How much is the total assets for the year ended 30 September 2016?
6. How much is the total current liabilities for the year ended 30 September 2016?
7. How much is the total equity for the year ended 30 September 2016?
PROBLEM NO.2
Set out below are extracts from Assam plc’s draft financial statements for the year ended 30
September 2016. The financial controller, who has not yet prepared a statement of cash flows,
has also provided some additional information.
Income statement for the year ended 30 September 2016 (extract)
Profit from operations 126, 800

Finance costs ( 20, 000)
Profit before tax 106, 800
Income tax expense ( 35, 000)
Profit for the year 71, 800
Statement of financial position as at 30 September
Assets 2016 2015
Non-current assets
Property, plant and equipment 1,940,250 1,197,600
Current assets
Inventories 98,500 101,500
Trade and other receivables 105,780 156,850
Cash and cash equivalents 200 1,500
204,480 259,850
Total Assets 2,144,730 1,457,450
Equity and Liabilities
Equity
Ordinary share capital (P1 shares) 500,000 300,000
Share premium account 250,000 150,000

Retained earnings 632,670 710,000
1,382,670 1,160,850
Non-current liabilities
5% Irredeemable preference share capital 500,000
(50p shares)
Finance lease liabilities 44,000 50,000
544,000 50,000
Current liabilities
Trade and other payables 123,560 145,600
Finance lease liabilities 17,000 15,000
Bank overdraft 2,500 -
Income tax payable 75,000 86,000
218,060 246,000
Total equity and liabilities 2,144,730 1,457,450
Additional Information:
(1) During the current year the following occurred in relation to property, plant and
equipment:
 Machinery with a carrying amount of P10, 500 was scrapped.

 Other machinery was sold for a profit of P12, 000.
 Total depreciation of P235, 750 was charged.
 Plant with a cash price of P13, 900 was acquired under a finance lease.
 Machinery was purchased outright for cash of P980, 000.
There were no other movements on property, plant and equipment during the year.
(2) The finance costs for the current year include the following:
 Amount paid on 30 September 2016 on the irredeemable preference shares.
 Interest on finance leases.
 Interest on the bank overdraft Accrued bank interest of P450 (2015; P450) is
included in trade and other payables.
The irredeemable preference shares were at par on 1 April 2016. The financial controller
has included these shares under non-current liabilities although he is unsure if this is the
correct treatment.
(3) During the year, Assam plc issued a number of ordinary shares for cash. This was
followed by a 1 for 4 bonus issue of ordinary shares out of retained earnings.
(4) Assam plc’s draft statement of changes in equity for the current year shows that it paid
an interim ordinary dividend.
Questions:
8. How much is the total tax paid for the year ended 30 September 2016?
9. How much is the interest paid for the year ended 30 September 2016?
10. How much is the net cash provided by operating activities for the year ended 30
September 2016?
11. How much is the net cash provided by ( or used ) investing activities for the year ended
30 September 2016?
12. How much is the net cash provided by ( or used ) financing activities for the current year
ended 30 September 2016?
PROBLEM NO.3 (JULY 2014)

The balance sheet below is submitted to you for inspection and review.
TAY, NAY CPA NA AKO Company

Balance Sheet
December 31, 2006
Assets
Cash ……………………………………………………. P 45, 050
Accounts receivable…………………………………… 112, 500
Inventories……………………………………………… 204, 000
Prepaid insurance……………………………………... 8, 800
Land, buildings, and equipment………………………. 376, 800
P 747, 150
Liabilities and Owner’s Equity

Miscellaneous liabilities P 3, 600
Loan payable 76,200
Accounts payable 75,250
Share capital 215,000
Paid-in capital 377,100
P747, 150
In the course of the review, you find the data listed below:
a. The possibility of uncollectible accounts on accounts receivable has not been

considered. It is estimated that uncollectible accounts will total P4, 800.
b. P45, 000 representing the cost of a large-scale newspaper advertising campaign
completed in 2006 has been added to the inventories, since it is believed that this
campaign will benefit sales of 2007. It is also found that inventories include merchandise
of P16, 250 received on December 31 that has not yet been recorded as a purchase.
c. The books show that land, buildings, and equipment have a cost of P556, 800 with
depreciation of P180, 000 recognized in prior years. However, these balances include
fully depreciated equipment of P85, 000 that has been scrapped and is no longer on
hand.
d. Miscellaneous liabilities of P3, 600 represent salaries payable of P9, 500, less
noncurrent advances of P5, 900 made to company officials.
e. Loan payable represents a loan from the bank that is payable in regular quarterly
installments of P6, 250.
f. Tax liabilities not shown are estimated at 18,250.
g. Deferred income tax liability arising from temporary differences totals P44, 550. This
liability was not included in the balance sheet.
h. Share capital consists of 6,250 shares of preference 6% share, par P20 and 9,000
ordinary shares, stated value P10.
i. Share capital had been issued for a total consideration of P283, 600, the amount
received in excess of the par and stated values of the shares being reported as paid-in
capital.
j. Net income and dividends were recorded in paid-in capital.
REQUIRED:
Based on the above information, compute for the following:
1. Accounts receivable (net):

a. P107,700 b. P112,500 c. P114,500 d. P113,000
2. Land, buildings, and equipment (net):

a. P378,800 b. P556,800 c. 376,800 d. P386,800
3. Inventories:
a. P204,000 b. P198,000 c. P159,000 d. P195,00
4. Total current assets:

a. P320,550 b. 330,550 c. P310,00 d. P312,450
5. Current portion of long-term debt:

a. P25,000 b. P51,200 c. P0 d. P76,200
6. Preference shares:
a. P215,000 .b. P90,000 c. P125,000 d. P68,800
7. Paid-in capital in excess of par and stated value:

a. P68,600 b. P90,000 c. P377,100 d. P87,000
8. Retained earnings:
a. P180,000 b. P190,650 c. P180,650 d. P179,650
9. Total assets:
a. P703,250 b. P705,250 c. P710,250 d. P703,000
10. Total current liabilities:

a. P144,250 b. P134,250 c. P138,375 d. P200,000
PROBLEM NO.4
The following is presented to you on December 31, 2009:

Accounts receivable 250,000
Notes receivable 75,000
Property, plant and equipment 640,000
Accumulated depreciation (72,500)
Supplies 50,000
Prepaid Rent 48,000
Additional information:
1. It is estimated that P16, 000 of accounts receivable are not collectible. A provision of
uncollectible has not been recorded.
2. Supplies remaining on December 31, 2009, P37, 000.
3. Property, plant and equipment is at its historical cost with estimated useful life of 20
years and P60, 000 salvage value and was acquired on July 1, 2006.
4. Accrued salaries at year-end, P37, 500.
5. Notes receivable is with 10% interest dated December 31.
6. The prepaid rent was paid on August 1, 2009 covering two-year period.
Compute for the adjusted balance of the following:

1. Accounts receivable
a. 250,000 b. 234,000 c. 266,000 d. 0
2. Prepaid Rent
a. 48,000 b. 10,000 c. 38,000 d. 0
3. Accumulated Depreciation
a. 72,500 b. 101,500 c. 29,000 d. 0
4. Supplies
a. 50,000 b. 37,000 c. 13,000 d. 0
5. Salaries Payable
a. 0 b. 37,500 c. 75,000 d. 18,750
PROBLEM NO.5
WHOLE-HEARTED COMMITMENT, Inc. is a calendar-year corporation. Its financial statements

for the year 2009 and 2010 contained errors as follows:
2009 2010
Ending inventory P 6,000 understated P 10,000 overstated
Depreciation Expense 7,200 understated -
Unearned Revenue 10,000 under -
Prepaid Rent - 16,000 under
QUESTIONS:
Based on the above and the result of your audit, what is the effect of the above errors on the
following:
1. 2009 Net Income
2. 2010 Net Income
3. Accumulated profits end of 2010
4. Working capital in 2009
5. Working capital in 2010
PROBLEM NO.6 (OCTOBER 2011 AND 2013)

You have been asked to audit the Tanya Company. During the course of your audit, you are
asked to prepare comparative data from company’s inception to the present. You have
determined the following:
a. Tanya charter became effective on January 2, 2007 when 20,000 shares of P10 ordinary
shares and 10,000 shares of 7% cumulative, nonparticipating, preference shares were
issued. The ordinary shares were sold at P12 per share, and the preference shares were
sold at par value of P100 per share.
b. Tanya was unable to pay preference dividends at the end of first year. The owners of
preference share agreed to accept 2 ordinary shares for every 50 preference shares
owned in discharge of the preference dividends due on December 31, 2007. The shares
were issued on January 2, 2008. The fair market value was P30 for ordinary shares at
the date of issue.
c. Tanya acquired all the outstanding shares of Akinka Corporation on May 1, 2009 in
exchange for 10,000 ordinary shares of Tanya.l
d. Tanya split its ordinary shares 3 for 2 on January 1, 2010, and 2 for 1 on January 1,
2011.
e. Tanya offered to convert 20% of the preference shares to ordinary shares on the basis
of 2 ordinary shares for 1 preference share. The offer was accepted, and the conversion
was made on July 1, 2011.
f. No cash dividends were declared on ordinary until December 31, 2009. Cash dividends
per share of ordinary shares were declared and paid as follows:
JUNE 30 DEC.31
2009 -- P3.20
2010 P1.50 P2.50
2011 P1.25 P1.00
Based on the preceding information, determine the following:

1. The number of shares outstanding on Dec. 31, 2009
ORDINARY PREFERENCE
A. 30,000 10,000
B. 30,200 9,800
C. 35,000 10,000
D. 30,400 10,000

ORDINARY PREFERENCE
A. 45,300 10,000
B. 45,600 10,000
C. 76,000 10,000
D. 52,500 9,800

ORDINARY PREFERENCE
A. 95,200 8,000
B. 49,600 10,000
C. 93,200 7,840
D. 93,200 8,000
4. The amount of Cash dividend declared and paid to shareholders on 2010

A. P182, 400 B. P83, 600 C. P159, 600 D. P121, 600
5. The amount of Cash dividend declared and paid to shareholders on 2011

A. P214, 200 B. P217, 200 C. P153, 200 D. P209, 200
PROBLEM NO.7
Dominica Corporation reported the following amounts of net income for the years ended
December 31, 2008, 2009, and 2010:
2008 P127, 000
2009 150, 000
2010 128, 500
You are performing the audit for the year ended December 31, 2010.
During your examination, you discover the following errors:
a) As a result of errors in the physical count, ending inventories were misstated as follows:
December 31, 2009 P14, 000 understated

December 31, 2010 P23, 000 overstated
b) On December 29, 2010, Dominica recorded as a purchase, merchandise in transit which

cost P15, 000. The merchandise was shipped FOB Destination and had not arrived by
December 31. The merchandise was not included in the ending inventory.
c) Dominica basis records sales on the accrual basis but failed to record sales on account
made near the end of each year as follows:
2008 P4, 000

2009 5, 000
2010 3, 500
d) The company failed to record accrued office salaries as follows:
December 31, 2008 P10, 000

December 31, 2009 14, 000
e) On March 1, 2009, a 10% stock dividend was declared and distributed. The par value of
the shares amounted to P10, 000 and market value was P13, 000. The stock dividend
was recorded as follows:
Miscellaneous expense 13, 000

Ordinary share capital 10, 000
Retained earnings 3, 000
f) On July 1, 2010, Dominica acquired a three-year insurance policy. The three-year

premium of P6, 000 was paid on that date, and the entire premium was recorded as
insurance expense.
g) On January 1, 2010, Dominica retired bonds with a book value of P120, 000 for P106,
000. The gain was incorrectly deferred and is being amortized over 10 years as a
reduction of interest expense on other outstanding obligations.
1. What is the adjusted net income for the year ended December 31, 2008?
A. P133, 000 C. P121, 000
B. P117, 000 D. P113, 000
A. P159, 000 C. P178, 000
B. P187, 000 D. P179, 000
A. P129, 600 C. P104, 400
B. P131, 000 D. P139, 600
4. What adjusting entry should be made on December 31, 2010, to correct the error
described in item B?
A. Accounts payable 15, 000
Purchases 15, 000
B. Purchases 15, 000
Accounts payable 15, 000
C. Accounts payable 15, 000
Cash 15, 000
D. No adjusting journal entry is necessary.
5. The adjusting entry on December 31, 2009, to correct the error described in item E
should include a debit to
A. Ordinary share capital of P10, 000
B. Retained earnings of P16, 000
C. Share premium of P3, 000
D. Miscellaneous expense of P3, 000
2008 2009 2010

Reported net
Income P127, 000 P150, 000 P128, 500
2009 ending inventory
a. understated - 14, 000 (14, 000)
2010 ending inventory overstated - - (23, 000)
b. 2011 purchase recorded in 2010 - - 15, 000
c. Unrecorded sales on account:
2008 4, 000 (4, 000) -
2009 - 5, 000 (5, 000)
2010 - - 3, 500
d. Unrecorded accrued salaries:
2008 (10, 000) 10, 000 -
2009 - (14, 000) 14, 000
e. Stock dividend charged to expense - 13, 000 -
f. Insurance premium expensed - 5, 000 (2, 000)
g. Deferred gain on bond retirement - - 14, 000
Amortization of deferred gain - - (1, 400)
Adjusted net income P121, 000 P179, 000 P129, 600
1. C 2. D 3. A 4. A
5. B Retained earnings 16, 000

Share premium 3, 000
Miscellaneous expenses 13, 000
PROBLEM NO.8
On January 1, 2007, Penaranda Airlines acquired a new aero plane for a total cost of P20
million. A breakdown of the costs to build the aero plane was given by the manufacturers:
Aircraft body P 6,000,000
Engines 8,000,000
Fitting out of aircraft
Seats 2,000,000
Carpets 100,000
Electrical equipment-passenger seats 400,000
-cockpit 3,000,000
Food preparation equipment 500,000
All costs include installation and labor costs associated with the relevant part.
It is expected that the aircraft will be kept for ten years and then sold. The main value of the
aircraft at that stage is the body and the engines. The expected selling price is P4.2 million, with
the body and engines retaining proportionate value.
Costs in relation to the aircraft over the next 10 years are expected to be as follows:
 Aircraft body. This requires an inspection every year for cracks and wear and tear at a
cost of P20, 000.
 Engines. Each engine has an expected life of four years before being sold for scrap. It is
expected that the engines will be replaced in 2011 for P9 million and again in 2015 for
P12 million. These engines are expected to incur annual maintenance costs of P600,
000. The manufacturer has informed Penaranda Airlines that a new prototype engine
with an extra 10% capacity should be on the market in 2013, and that existing engines
could be upgraded at a cost of P2 million.
 Fittings. Seats are replaced every three years. Expected replacement costs are P2.4
million in 2010 and P3 million in 2016. The repair of torn seats and faulty mechanisms is
expected to cost P200, 000 per annum. Carpets are replaced every five years. They will
be replaced in 2012 at an expected cost of P130, 000, but will not be replaced before the
aircraft is sold in 2017. Cleaning costs per annum amount to P20, 000. The electrical
equipment (such as TV) for each seat has annual repair cost of P30, 000. It is expected
that, with the improvements in technology, the equipment will be totally replaced in 2013
by substantially better equipment at a cost of P700, 000. The electrical equipment in the
cockpit is tested frequently at an expected annual cost of P500, 000. Major upgrades to
the equipment are expected in every two years at expected costs of P500, 000 (in 2009),
P600, 000 (in 2011), P690, 000 (in 2013), and P820, 000 (in 2015). The upgrades will
take into effect the expected changes in technology.
 Food preparation equipment. This incurs annual costs for repair and maintenance of
P40, 000. The equipment is expected to be totally replaced in 2013.
QUESTIONS:
Based on the above and the result of your audit, answer the following:
1. The annual depreciation expense for Aircraft body is
a. 420,000 c. 600,000
b. 180,000 d. 474,000
2. The annual depreciation expense for Engines is

a. 800,000 c. 2,000,000
b. 1,400,000 d. 560,000
3. The annual depreciation expense for Fittings is

a. 550,000 c. 1,043,334
b. 2,253,334 d. 1,053,334
4. The annual depreciation expense for Food preparation equipment is
a. 50,000 c. 83,334
b. 100,000 d. 125,000
5. The annual repairs and maintenance cost is

a. 1,400,000 c. 1,390,000
b. 1,410,000 d. 1,370,000
PROBLEM NO.9
At December 31, 2006 LEBRON CORP.’s noncurrent operating asset and accumulated
depreciation accounts had balances as follows:
Cost AccumDep’n Dep’n Method Life
Land P 390,000
Buildings 3,600,000 796,200 150% declining 25years
Machinery and equipment 2,325,000 588,600 Straight line 10
Delivery equipment 396,000 258,600 150% declining 5
Leasehold improvements 663,000 331,500 Straight line 8
Depreciation is computed to the nearest month and the residual values of the depreciable
assets are considered immaterial.
The following transactions occurred in 2007:

a. On January 6, a facility which included a land and a building structure was acquired from
Wade Corp. for P 1,800,000. The land had a market value of P 360,000.
b. On April 6, the construction of parking lots, streets and sidewalks were completed at the
acquired facility. The company incurred a total cost of P 576,000 on this project. The
expenditures had an estimated useful life of 12 years and are depreciable using the
straight line method.
c. The leasehold improvements were completed on December 31, 2003, and had an
estimated useful life of 8 years. The related lease, which would have expired on
December 31, 2009, was renewable for an additional 5 year term. On February 28,
2007, the company exercised the renewal option.
d. On July 1, machinery and equipment were purchased at a total invoice cost of P
750,000. Additional costs of P 30,000 and P 90,000 for installation were incurred.
e. On August 30, LEBRON purchased a new truck for P 45,000.
f. On September 30, a truck with a cost of P 72,000 and a carrying value of P 24,300 on
the date of sale was sold for P 34,500. Depreciation for the 9 month ended September
30, 2007 was P 7,056.
g. On December 20, a machine with a cost of P 51,000 and a carrying amount of 8,925 at
date of disposition was scrapped without cash recovered.
Requirements: What are the depreciation expenses of the following:
1. Building
a. 168,228 b. 302,400 c. 339,504 d. 254,628
2. Machinery and equipment

a. 319,500 b. 276,000 c. 260,700 d. 232,500
3. Leasehold improvements
a. 47,358 b. 66,300 c. 82,875 d. 110,500
4. Delivery equipment
a. 31,812 b. 43,369 c. 45,720 d. 52,776
Depreciation of Old Buildings (3,600,000-796,200) *6% P 168,228
Depreciation of New Building (1,800,000-360,000) *6% 86,400
Depreciation expense – BUILDINGS 254,628 1.d.
Depreciation of Old Machinery (2,325,000/10) 232,500

Depreciation of New Machinery (870,000/10) *6/12 43,500
Depreciation expense - MACHINERY AND EQUIPMENT 276,000 2.b
Leasehold improvement carrying value (12/31/2006) 331,500

Divide by: Remaining useful life (shorter than the remaining
extended lease term) 5
Depreciation expense – LEASEHOLD IMPROVEMENT 66,300 3.b
Delivery Equipment: Book value, Jan. 1, 2007 137,400

Book value of delivery equipment sold on Sept. 30 (31,356)
Balance subject to depreciation 106,044
Multiply by 150% declining rate (1/5) * 150% 30%
Depreciation on the Remaining Delivery Equipment 31,813
Dep’n on equipment purchased on Aug. 30 (45,000*30%) *4/12 4,500
Dep’n on truck sold on Sept. 30 7,056
Total Depreciation expense – DELIVERY EQUIPMENT 43,369 4.b
PROBLEM NO.10
You are engaged in the examination of the financial statements of the JAMES CORP. for the
year ended December 31, 2007. The accompanying analysis of the Property, Plant and
Equipment, and the related accumulated depreciation accounts have been prepared by the
chief accountant of the client. You have traced the beginning balances of your prior year’s audit
working papers.
Dec.31,200 Additions Retirements Dec. 31,2007

6
COST
Land P 845,000 P 50,000 P 895,000
Buildings 1,240,000 535,000 1,775,000
Machinery and equipment 770,000 80,800 52,000 798,800
P 2,855,000 P 665,800 P 52,000 P 3,468,800
ACCUMULATED DEPRECIATION
Buildings P 620,000 P 49,600 P 669,600
Machinery and equipment 346,500 78,440 424,940
P 966,500 P 128,040* P 1,094,540
*depreciation expense for the year.

All plant assets are depreciated on a straight-line basis (no residual value taken into
consideration) based on the following estimated service lives: building, 25 years, and all other
items, 10 years. The company’s policy is to take one-half year’s depreciation on all assets
additions and disposal for the year.
Your examination revealed the following information:

a. On April 1, the company entered into a 10 years lease contract for machinery with
annual rentals of P 10,000 payable in advance every April 1. The lease is cancelled by
either party (60 days’ written notice is required), and there is no portion to renew the
lease or buy the equipment at the end of the lease. The estimated service life of the
machine is 10 years with no residual value. The company recorded the machine in the
Machinery and equipment account at P 80,800, the present value at the date of the
lease, and depreciated the same in accordance with the company’s depreciation
policy.
b. The company completed the construction of a wing on the plant building on December
31. The service life of the building was not extended by this addition. The lowest
construction bid was P 535,000, the amount recorded by the company in the Building
account. Company personnel actually constructed the wing incurring the following
costs: labor at P 150,000, materials at P 200,000, and reasonably allocated overhead
at P 77,500. These costs were incurred as follows:
January 1, P 50,000 September 1, P 87,500
March 1, 100,000 December 31, 31,115,000
June 30, 75,000
To finance the construction, the company used proceeds from its existing general
borrowings as follows:
10%, 5 year, 600,000 bonds dated and issued January 1, 2006
12%, 3 year, 1,000,000 note dated and issued January 1, 2006
It was ascertained that no depreciation is to be provided to the building for the current
year.
c. On August 1, P 50,000 was paid for paving and fencing a portion of the land owned by
the company and used as parking lot for employees. The expenditure was charged to
the Land account.
d. The amount shown in the machinery and equipment asset retirement column
represents cash received on September 1 upon disposal of a machine purchased in
July 2002 for P 96,000. The company appropriately recorded half-year depreciation on
the equipment for the current year.
e. The government donated land and building appraised at P 200,000 and P 400,000
respectively to the company. The company began operating the asset on September
1, 2007. Since no costs were involved, the transaction was not recorded.
Required:
1. What is the carrying value of the Building?
a. 1,216,400 c. 1,420,000
b. 2,090,000 d. 1,412,400
2. What is the carrying value of the Machinery and Equipment as of December 31,
2007?
a. 349,100 c. 301,100
b. 329,860 d. 377,860
3. What is the net adjustment to the company’s depreciation expense?

a. 3,960 increase c. 6,460 increase
b. 4,040 decrease d. 1,540 decrease
4. How much is the correct gain or loss on the disposal of equipment on September 1?
a. 4,000 gain c. 13,600 gain
b. 5,600 loss d. 15,200 loss
5. Provide for the correcting entries.
PROBLEM NO.10: JAMES CORP.

CORRECT PPE ROLLFORWARD ANALYSIS
Dec.31, 2006 Additions Retirements Dec. 31, 2007
COST
Land P 845,000 P 200,000 P 1,045,000
Land improvement 50,000 50,000
Buildings 1,240,000 850,000 2,090,000
Machinery and equipment 770,000 96,000 674,000
P 2,855,000 P 1,100,000 P 96,000 P 3,859,000
ACCUM. DEPRECIATION
Land improvement 2,500 2,500
Buildings P 620,000 57,600 67,600
Machinery and equipment 346,500 74,400** 48,000**** 372,000
P 966,500 P 134,500 P 48,000 P 1,052,960
*Constructed extension
Total costs incurred P 427,500
Borrowing costs (see comp. below) 22,500 P 450,000
Donated Building at fair value 400,000 P 850,000
Weighted average actual cost (2,400,000 / 12) P 200,000

Multiply by: Capitalization rate (180,000 / 1,600,000) 11.25%
Capitalizable borrowing costs P 22,500
Principal Interest
10% 600,000 60,000
12% 1,000,000 120,000
1,600,000 180,000
Capitalization rate 11.25%
Date Expenditures Mos outs / 12 Average

Jan.1 50,000 1 50,000
1-Mar 100,000 10 / 12 83,333
30-Jun 75,000 6 / 12 37,500
1-Sept 87,500 4 / 12 29,167
Dec.31 115,000 0 -
427,500 Weighted average 200,000
**Building Depreciation:
Depreciation, Old Building (1,240,000 / 25) P 49,600
Depreciation, New Building (400,000 / 25)*6 / 12 8,000 P 57,600
***Machinery Depreciation
Depreciation per books P 78,440
Depreciation on erroneous addition (80,000 / 10)*6 / 12 (4,040) P 74,400***
****Accumulated depreciation on Machinery sold: P 96,000*5 / 10 P 48,000****
Building, total cost 12/31 P 2,090,000

Accumulated depreciation, 12/31 (677,600)
Carrying value, 12/31 P 1,412,400 1. Ans. d.
Machinery and equipment, total cost 12/31 P 674,000
Accumulated depreciation, 12/31 (372,900)
Carrying value 12/31 P 301,100 2. Ans. d.
Depreciation per audit P 134,500
Depreciation per books (128,040)
Carrying value, 12/31 P 6,460 3. Ans. c.
Proceeds from sale P 52,000

Carrying value (96,000*5/10) (48,000)
Gain on sale of equipment P 4,000 4. Ans. a.
PROBLEM NO.11
You obtain the following information to Trinidad Francia Co.’s property, plant and equipment for
2015 in connection with your audit of the company’s financial statements.
December 31, 2015 Cost Accumulated Depreciation

Land 1,000,000 -
Building (construction in progress) 9,000,000 -
Machinery and equipment 3,000,000 1st year – P 1,000,000;
2nd year – P 800,000
Delivery truck 1,152,000 432,000
Depreciation Method Useful Life

Building Straight-line 50 years
Machinery and Sum of the year’s digits ? (age is 2 years)
Equipment
Delivery truck Straight-line 8 years
a. The company began the self-construction of a building on January 1, 2015 and was
completed on December 31, 2016. The following expenditures were made during 2015
and 2016:
January 1, 2015 2,000,000
July 1, 2015 4,000,000
November 1, 2015 3,000,000
July 1, 2016 1,000,000
Total 10,000,000
Trinidad Francia Company had the following loans outstanding during the years 2015 and 2016:
Loan Principal Interest rate
Specific construction loan 2,000,000 10%
General loan 15,000,000 12%
The balance on December 31, 2015 represents the amount expected in 2015 before any
borrowing cost.
b. On January 1, 2016, a delivery truck purchased for P 240,000 on January 1, 2013 was
overhauled at a cost of P 60,000. As a result, the entity estimated that its original useful
life of 8 years would be extended by two years.
c. On July 1, 2016, a new delivery truck was purchased at an invoice cost of P 400,000.
Additional costs of P 20,800 for freight and P 40,000 for installation and testing were
incurred. The delivery truck was put to use on July 26, 2016.
Questions:
1. What is the capitalized borrowing cost in 2015?
a. 200,000 c. 300,000
b. 160,000 d. 500,000
2. What is the cost of the building on December 31, 2016?

a. 10,000,000 c. 11,660,000
b. 11,700,000 d. 11,500,000
3. Assuming that the company is a Small Medium Entity (SME), what is the cost of the
building on December 31, 2016?
a. 10,000,000 c. 11,660,000
b. 11,700,000 d. 11,500,000
4. What is the depreciation expense of the machinery and equipment in 2016?

a. 600,000 c. 900,000
b. 1,500,000 d. 400,000
5. What is the depreciation expense of the delivery truck in 2016?

a. 144,000 c. 138,000
b. 168,000 d. 54,000
6. What is the carrying value of the delivery truck on December 31, 2016?
a. 1,672,800 c. 1,072,800
b. 1,212,000 d. 1,240,800
PROBLEM NO.12
In the course of your examination of the December 31, 2008, financial statements of Charles
Co., you discovered certain errors that had occurred during 2007 and 2008. No errors were
corrected during 2007. The errors are summarized below:
a. Beginning merchandise inventory in 2007 was understated by P 259,200.
b. Merchandise costing P 72,000 was sold for P 120,000 to Russel Co. on December 28,
2007, but the sale was recorded in 2008. The merchandise was shipped FOB shipping
point and was not included in ending inventory. Charles Co. uses the periodic inventory
system.
c. A two-year fire insurance policy was purchased on May 1, 2007, for P 172,800. The
whole amount was charged to Prepaid Insurance. No adjusting entry was prepared in
2007 and 2008.
d. A one-year note receivable of P 288,000 was held by Charles beginning October 1,
2007. Payment of the 10% note and accrued interest was received upon maturity. No
adjusting entry was made on December 31, 2007.
e. Equipment with a 10 year useful life was purchased on January 1, 2007, for P
1,176,000. No depreciation expense was recorded during 2007 or 2008. Assume that
the equipment has no residual value and that Charles uses the straight-line method for
recording depreciation.
f. The company reported a P 1,500,000 net income in 2007 and a P 1,750,000 net income
in 2008.
QUESTION:
Based on the above data, answer the following:
1. What is the correct net income in 2007?
a. 1,452,000 c. 1,324,800
b. 1,332,000 d. 1,192,800
2. What is the net adjustment to the beginning retained earnings account in 2008?
a. 175,200 c. 69,600
b. 127,200 d. 48,000
3. What is the adjusted balance of the net income in 2008?

a. 1,168,800 c. 1,512,400
b. 1,418,800 d. 1,538,800
4. By how much is the December 31, 2008 retained earnings be overstated /

understated by?
a. 379,200 c. 293,200
b. 331,200 d. 203,800
5. What is the net / total error to the December 31, 2008 working capital?
a. 144,000 c. 264,000
b. 121,200 d. 271,200
PROBLEM NO.13
The following are the balance sheets of SHE LOVES YOU Corporation as of December 31,
2010 and 2009, and the statement of income and retained earnings for the year ended
December 31, 2010:
Balance sheets December 31 Increase
2010 2009 (Decrease)
Assets 225,000 180,000 45,000
Accounts receivable, net 295,000 305,000 (10,000)
Inventories 549,000 431,000 118,000
Investment in Hall, Inc., at equity 73,000 60,000 13,000
Land 350,000 200,000 150,000
Plant and equipment 624,000 606,000 18,000
Less: Accumulated depreciation (139,000) (107,000) (32,000)
Patent 16,000 20,000 (4,000)
Total Assets P 1,993,000 P 1,695,000 P 298,000
Liabilities and shareholder’s equity

Accounts payable and accrued expenses 604,000 563,000 41,000
Notes payable, long-term 150,000 - 150,000
Bonds payable 160,000 210,000 (50,000)
Deferred taxes payable 41,000 30,000 11,000
Common stock, P10 par 410,000 400,000 10,000
Additional paid-in capital 196,000 175,000 21,000
Retained earnings 432,000 334,000 98,000
Treasury stock - (17,000) 17,000
Total Liabilities and shareholders’ equity P 1,993,000 P 1,695,000 P 298,000
Statement of Income and Retained Earnings

For the year Ended December 31, 2010
Net Sales 1,950,000
Operating expenses:
Cost of Sales 1,150,000
Selling and administrative expenses 505,000
Depreciation 53,000
1,708,000
Operating income 242,000
Other (income) expense:
Interest expense 15,000
Equity in net income of Hall, Inc. (13,000)
Loss on sale of equipment 5,000
Amortization of patent 4,000
11,000
Income before income taxes 231,000
Income taxes:
Current 79,000
Deferred 11,000
Provision for income taxes 90,000
Net income 141,000
Retained earnings, January 1, 2010 334,000
475,000
Cash dividends paid on August 13, 2010 43,000
Retained earnings, December 31, 2010 432,000
Additional Information:
1. On January 1, 2010, SHE LOVES YOU sold equipment costing P 45,000 with a book
value of P 24,000, for P 19,000 cash.
2. On April 2, 2010, SHE LOVES YOU issued 1,000 shares of common stock for P
23,000 cash.
3. On May 14, 2010, SHE LOVES YOU sold all of its treasury stock for P 25,000 cash.
4. On June 1, 2010, SHE LOVES YOU paid P 50,000 to retire bonds with a face value
(and book value) of P 50,000.
5. On July 2, 2010, SHE LOVES YOU purchased equipment for P 63,000 cash.
6. On December 31, 2010, land with a fair market value of P 150,000 was purchased
through the issuance of a long-term note in the amount of P 150,000. The note bears
interest at the rate of 15% and is due on December 31, 2015.
7. Deferred taxes payable represent temporary differences relating to the use of
accelerated depreciation methods for income tax reporting and straight-line method
for financial statement reporting.
QUESTIONS:
Based on the above, determine the following:
1. Cash collections from customers
a. 1,905,000 b. 1,950,000 c. 1,940,000 d. 1,960,000
2. Cash paid for taxes
a. 79,000 b. 90,000 c. 68,000 d. 101,000
3. Net cash provided by operating activities
a. 134,000 b. 147,000 c. 142,000 d. 141,000
4. Net cash provided by investing activities
a. (44,000) b. 19,000 c. (63,000) d. (38,000)
5. Net cash provided by financing activities
a. (45,000) b. (50,000) c. (27,000) d. (93,000)
PROBLEM NO.14
The I WANT TO HOLD YOUR HAND Company was started by Paul McCartney early in 2011.
Initial capital was acquired by issuing shares of ordinary shares to various investors and by
obtaining a bank loan. The company operates a retail store that sells records, tapes, and
compact discs. Business was so good during the first year of operations that Paul is considering
opening a second store on the other side of the town. The funds necessary for expansion will
come from a new bank loan. In order to approve the loan, the bank requires financial
statements.
Paul asks for your help in preparing the balance sheet and represents you with the following
information for the year ending December 31, 2011:
a. Cash receipts considered of the following:
From customers P 360,000
From issue of ordinary shares 100,000
From bank loan 100,000
b. Cash disbursements were as follows:
Purchase of inventory P 300,000
Rent 15,000
Salaries 30,000
Utilities 5,000
Insurance 3,000
Purchase of equipment and furniture 40,000
c. The bank loan was made on March 31, 2011. A note was signed requiring
payment of interest and principal on March 31, 2012. The interest rate is 12%.
d. The equipment and furniture were purchased on January 3, 2011, and have an
estimated useful life of 10 years with no anticipated salvage value. Depreciation
per year is P 4,000.
e. Inventories on hand at the end of the year cost P 100,000.
f. Amounts owed at December 31, 2011 were as follows:
To suppliers of inventory P 20,000
To the utility company 1,000
g. Rent on the store building is P 1,000 per month. On December 1, 2011, four
months’ rent was paid in advance.
h. Net income for the year was P 76,000.
6. Cash
a. 167,000 b. 560,000 c. 393,000 d. 0
7. Current Assets
a. 663,000 b. 270,000 c. 496,000 d. 103,000
8. Total Assets
a. 306,000 b. 699,000 c. 393,000 d. 532,000
9. Current Liabilities
a. 70,000 b. 100,000 c. 130,000 d. 121,000
10. Shareholders’ equity
a. 411,000 b. 599,000 c. 323,000 d. 176,000
PROBLEM NO.15
You are conducting an audit of STO. TOMAS Company for the year ended December 31, 2003.
The internal control procedures surrounding cash transactions were not adequate. WAKAN
WAKAT, the bookkeeper-cashier, handles cash receipts, maintains accounting records, and
prepares the monthly reconciliation of the bank account.
The bookkeeper-cashier prepared the following reconciliation at the end of the year:
Balance per bank statement 350,000

Add: Deposit in transit 175,250
Note collected by the bank 15,000 190,250
Balance 540,250
Less: outstanding checks 246,750
Balance per general ledger 293,500
In the progress of your audit, you gathered the following:

a. At December 31, 2003, the bank statement and the general ledger showed balances of P
350,000 and P 293,500, respectively.
b. The cut-off bank statement showed a bank charge on January 2, 2004 for P 30,000
representing a correction of an erroneous bank credit.
c. Included in the list of the outstanding check were the following:
1. A check payable to a supplier, dated December 29, 2003, in the amount of P 14,750
released on January 5, 2004.
2. A check representing advance payment to a supplier in the amount of P 37,210, the date
of which is January 4, 2004 and released in December 2003.
d. On December 31, 2003, the company received and recorded customer’s postdated check
amounting to P 50,000.
QUESTIONS:
1. The adjusted deposit in transit as at December 31, 2003.
a. 175,250 c. 225,250
b. 125,250 d. 125,000
2. The adjusted outstanding checks as at December 31, 2003.
a. 298,710 c. 209,540
b. 232,000 d. 194,790
3. The adjusted cash to be presented as at December 31, 2003.
a. 235,460 c. 265,460
b. 250,460 d. 310,460
4. The cash shortage:
a. 45,000 c. 60,000
b. 58,040 d. 8,040
5. The net adjustment to the cash account.
a. 43,040 c. 58,040
b. 60,000 d. 45,000
PROBLEM NO.16
The adjusted trial balance of FORBES Corporation on December 31, 2009, includes the
following cash and receivables balances:
Cash-Allied Bank 450,000
Currency on hand 160,000
Petty cash fund 10,000
Cash in bond sinking fund 150,000
Notes receivable (including notes discounted with recourse, P155,000) 365,000
Accounts receivable, net of allowance for doubtful accounts of P41,500 814,500
Interest receivable 5,250
Current liabilities reported in the December 31, 2009, statement of financial position included:
Obligation on discounted notes receivable P 155,000
Transactions during 2010 included the following:

a. Sales on account were P 7,670,000.
b. Cash collected on accounts totaled P 5,765,000, which included accounts of P 930,000
on which cash discounts of 2% were allowed.
c. Notes received in settlement of accounts totaled P 825,000.
d. Notes receivable discounted as of December 31, 2009, were paid at maturity with the
exception of one P 30,000 note on which the company had to pay the bank P 30,900,
which included interest and protest fees. It is expected that recovery will be made on this
note early 2011.
e. Customer’s notes of P 585,000 were discounted with recourse during the year, proceeds
from their transfer being P 585,000. Of this total, P 480,000 matured during the year
without notice of protest.
f. Customer’s accounts P 87,200 were written off during the year as worthless.
g. Recoveries of doubtful accounts written off in prior years were P 20,200.
h. Notes receivable collected during the year totaled P 270,000 and interest collected was
P 24,500.
i. On December 31, accrued interest on notes receivable was P 6,300.
j. Cash of P 350,000 was borrowed from Allied Bank with accounts receivable of P
400,000 being pledged on the loan. Collections of P 195,000 had been made on these
receivables (included in the total given in transaction b, and this amount was applied on
December 31, 2010, to payment of accrued interest on the loan of P 6,000, and the
balance to the partial payment of the loan.
k. The petty cash fund was reimbursed (meaning that cash was removed from the bank
account and placed in the petty cash fund) based on the following analysis of
expenditures vouchers:
Travel expense 1,120
Entertainment expense 780
Postage expense 930
Office supplies expense 1,730
Cash short and over (an income account) 60
l. Cash of P 30,000 was added to bond retirement fund.

m. Currency on hand at December 31, 2010 was P 120,000.
n. Total cash payments for all expenses during the year were P 6,800,000. Charge to
general expenses.
o. Uncollectible accounts are estimated to be 5% of the December 31, 2010, Accounts
receivable balance.
1. The total cash to be reported in the company’s December 31, 2010 statement of
financial position is
a. 555,700 b. 574,300 c. 574,180 d. 569,800
2. The doubtful accounts expense to be recognized for the year ended December 31,
2010 is
a. 117,010 b. 91,510 c. 117,940 d. 92,440
3. The net accounts receivable as December 31,2010 is

a. 1,713,190 b. 1,730,860 c. 1,738,690 d. 1,756,360
4. The net trade and other receivables to be reported in the company’s December
31,2010 statement of financial position is
a. 2,023,690 b. 2,078,560 c. 2,072,260 d. 2,060,890
5. In determining validity of accounts receivable, which of the following would you

consider most reliable?
a. Direct telephone communication between auditor and debtor.
b. Credits to accounts receivable from the cash receipts book after the close of
business at year end.
c. Documentary evidence that supports the accounts receivable.
d. Confirmation replies received directly from customers.
Cash-Allied Bank, 12/31/09 450,000

Add (deduct) transactions during 2010;
(b) Collections on accounts receivable 5,765,000
(d) Payment on dishonored discounted NR (30,900)
(e) Proceeds from NR discounted 585,000
(g) Recoveries of bad debts written off 20,200
(h) Collections on notes receivable 270,000
(h) Collections on interest receivable 24,500
(j) Loan proceeds from Allied Bank 350,000
(j) Loan repayment – interest and principal (195,000)
(k) Replenishment of petty cash fund (4,500)
(l) Transfer to bond retirement fund (30,000)
(m) Decrease in cash on hand [P160,000-P120,000] (40,000)
(n) Payment for expenses (6,800,000)
Cash-Allied Bank, 12/31/10 444,300
Cash on hand, 12/31/10 120,000
Petty cash fund, 12/31/10 10,000
Total cash, 12/31/10 574,300
Question No. 2 – A
Accounts receivable, 12/31/09 856,000
Add (deduct) transactions during 2010:
(a) Sales on account 7,670,000
(b) Collections on accounts receivable
[(P5,765,000 + (P930,000 x .02)] (5,783,600)
(c) Notes received in settlement of accounts (825,000)
(f) Accounts written off (87,200)
Accounts receivable, 12/31/10 1,830,200
Allowance for doubtful accounts, 12/31/10 (P1,830,200 x 5%) 91,510

(f) Accounts written off 87,200
(g) Recoveries of bad debts written off (20,200)
Allowance for doubtful accounts, 12/31/09 (41,500)
Doubtful accounts expense for 2010 117,010
Question No. 3 – C
Accounts receivable, 12/31/10 1,830,200
Less allowance for doubtful accounts, 12/31/10 91,510
Accounts receivable, net 1,738,690
Question No. 4 – D
Accounts receivable, net (see no.3) 1,738,690
Notes receivable (see below) 285,000
Notes receivable – dishonored (d) 30,900
Interest receivable (i) 6,300
Trade and other receivables, net 2,060,890
Notes receivable, 12/31/09 365,000

Add (deduct) transactions during 2010:
(a) Notes received in settlement of accounts 825,000
(d) Collections and dishonor of discounted notes (155,000)
(e) Collections of discounted notes (480,000)
(h) Collections of notes receivable (270,000)
Accounts receivable, 12/31/10 285,000
Question No. 5 – D
PROBLEM NO.17
The general ledger summarized trial balance of Heat Corporation, a manufacturing company,
includes the following accounts at December 31, 2012:
Debit Credit
Accumulated depreciation –
Building P 120,000
Leased assets 310,000
Plant and equipment 3,726,000
Allowance for doubtful debts 80,000
Bank loans 2,215,000
Building, at cost P 1,030,000
Cash 175,000
Bank overdraft 350,000

Current tax payable 152,000
Debentures 675,000
Deferred tax 420,000
Deposits at call 36,000
Finished goods 1,042,000
Goodwill 2,530,000
Investments in listed companies (AFS) 52,000
Investments revaluation Reserve 25,000
Land, at valuation 250,000
Land revaluation reserve 81,000
Lease liabilities 350,000
Leased assets 775,000
Other loans 575,000
Patents 110,000
Plant and equipment 8,275,000
Prepayments 141,000
Provision for employment benefits 275,000
Provision for restructuring 412,000
Provision for warranty 42,000
Retained earnings 1,481,000
Share capital 3,500,000
Sundry creditors and accruals 715,000
Sundry debtors 320,000
Trade creditors 1,617,000
Trade debtors 1,744,000
Work in progress 151,000__________________________
P 17,121,000 P 17,121,000
a) Bank loans and other are all repayable beyond one year.
b) P 300,000 of the debentures is repayable within one year.
c) Lease liabilities include P 125,000 repayable within one year.
d) Provision for employment benefits includes P 192,000 payable within one year.
e) The planned restructuring is intended to be completed within one year.
f) Provision for warranty includes P 20,000 estimated to be incurred beyond one year.
QUESTIONS:
Based on the above and the results of your audit, answer the following:
1. Total current assets is

a. P 4,019,000 c. P 4,071,000
b. P 3,983,000 d. P 4,035,000
2. Total noncurrent assets is

a. P 8,814,000 c. P 8,891,000
b. P 8,839,000 d. P 8,866,000
3. Total current liabilities is

a. P 3,883,000 c. P 3,921,000
b. P 3,885,000 d. P 3,693,000
4. Total noncurrent liabilities is

a. P 3,913,000 c. P 3,810,000
b. P 4,105,000 d. P 3,915,000
PROBLEM NO.18
Presented below is the unaudit statement of financial position of Maricel Manufacturing

Corporation as of December 31, 2012.
Prepared by the bookkeeper.
Maricel Manufacturing Corporation

Statement of Financial Position
For the year ended December 31, 2012
Assets
Cash P 225,000
Receivable, net 345,000
Inventories 560,000
Prepaid income taxes 40,000
Investments 57,700
Land 450,000
Building 1,750,000
Machinery and Equipment 1,964,000
Goodwill 37,000
Total assets P 5,429,400
Liabilities and Equity

Accounts payable P 133,800
Mortgage payable 900,000
Notes payable 500,000
Lawsuit liability 80,000
Income taxes payable 61,200
Deferred tax liability 28,000
Accumulated depreciation 420,000
Total liabilities 2,123,000
Share capital, P50 par, 40,000 shares issued 2,231,000

Total equity 3,306,400
Total liabilities and equity P 5,429,400
Your firm has been engaged to perform an audit, during which time the following data are found:
 Checks totaling P 14,000 in payment of accounts payable were mailed on December

30,2012 but were not recorded until 2013. Late in December 2012, the bank returned a
customer’s P 2,000 check, marked DAIF, but no entry was made. Cash include P
100,000 restricted for building purposes.
 Included in accounts receivable is a P 30,000 note due on December 31, 2015 from the
company’s president.
 During 2012, the company purchased 500 ordinary shares of a major corporation that
supplies the company with raw materials. The cost of these shares was P 51,300, and
the fair value on December 21, 2012 was P 47,000. The company plans to hold the
shares indefinitely.
 Treasury shares were recorded at cost when the company purchased 200 of its own
shares for P32 per share in May 2012. This amount is own share in May 2012. This
amount is included in investments.
 On December 30,2012, the company borrowed P 500,000 from a bank in exchange for a
10% note payable, maturing on December 30, 2017. Equal principal payments are due
December 30 of each year, beginning in 2012. This note is collateralized by a P 250,000
tract of land acquired as a potential future building site, which is included in land.
 The mortgage payable requires P 50,000 principal payments, plus interest, at the end of
each month. Payments were made on January 31 and February 28, 2012. The balance
of this mortgage is due on June 30, 2013. On March 1, 2012, prior to issuance of the
audited financial statements, the company consummated a noncancelable agreement
with the lender to refinance this mortgage. The new terms require P 100,000 annual
principal payments, plus interest, February 28 of each year, beginning in 2014. The final
payment is due February 28, 2021.
 The lawsuit liability will be paid in 2012.
 The following is an analysis of the deferred tax liability at December 31, 2012:
Deferred taxes related to depreciation P 48,000
Deferred taxes related to lawsuit liability (20,000)
Net deferred tax liability P 28,000
P 25,000 of the deferred taxes related to depreciation that will reverse in 2013.
 The current income tax expense reported in the company’s 2012 income statement was
P 61,200.
 The company is authorized to issue 100,000 shares of P50 par value ordinary shares.
QUESTIONS:
5. The adjusted current assets as of December 31, 2012 is
a. P 984,700 c. P 986,700
b. P 1,012,700 d. P 1,026,700
6. The adjusted total assets as of December 31, 2012 is

a. P 4,944,700 c. P 4,984,700
b. P 4,964,700 d. P 5,004,700
7. The adjusted current liabilities as of December 31, 2012 is

a. P 1,221,000 c. P 421,000
b. P 1,261,000 d. P 426,000
8. The adjusted equity as of December 31, 2012

a. P 3,295,700 c. P 3,300,000
b. P 3,306,400 d. P 3,302,100
9. In a case where an auditor observed that the accounting for a certain material item is not in
conformity with PFRS, and that this fact is prominently disclosed in a note footnote to the
financial statement, the auditor should
a. Express an unqualified opinion and insert a middle paragraph emphasizing the
matter by reference to the footnote.
b. Disclaim an opinion.
c. Not allow the accounting treatment for this item to affect the type of opinion because
the deviation from generally principle was disclosed.
d. Qualify the opinion because of the deviation from PFRS.
PROBLEM NO.19
You were asked by Heat Corporation to audit its financial statements for the year ended
December 31, 2011 and 2012.
While reviewing the entity’s records for 2011 and 2012, you discover that no adjustments have
yet been made for the items listed below.
Item No. 1 - Interest income of P 14,ooo was not accrued at the end of 2011. It was recorded
when received in February 2012.
Item No. 2 - A computer costing P 40,000 was expensed when purchased on July 1, 2011. It
is expected to have a 4-year life with no residual value. The entity typical uses
straight-line depreciation for all fixed assets.
Item No. 3 - Research costs of P 330,000 were incurred early in 2011. They were capitalized
and were to be amortized over a 3-year period. Amortization of P 110,000 was
recorded for 2011 and P 110,000 for 2012.
Item No. 4 - On January 2, 2011, Heat leased a building for 5 years at a monthly rental of P
8,000. On that date, the entity paid the following amounts, which were expensed
when paid.
Security deposit P 20,000
First month’s rent 8,000
Last month’s rent 8,000
P 36,000
Item No. 5 - The entity received P 360,000 from a customer at the beginning of 2011 for
services that is to perform evenly over a 3-year period beginning in 2011. None
of the amount received was reported as unearned revenue at the end of 2011.
QUESTIONS:
10. In relation to Item No. 1, which of the following is correct?

a. The 2011 profit is overstated.
b. The 2012 profit is understated.
c. The December 31, 2011 retained earnings is correctly stated.
d. The December 31, 2012 retained earnings is correctly stated.

a. The 2011 profit is understated by P 40,000.
b. The 2011 profit is correctly stated.
c. The 2012 profit is correctly stated.
d. The December 31, 2012 retained earnings is understated by P 25,000.
12. In relation to Item No. 3, which of the following is incorrect?

a. The 2011 profit is overstated by P 220,000.
b. The 2012 profit is overstated by P 110,000.
c. The December 31, 2011 retained earnings is overstated by P 220,000.
d. The December 31, 2011 retained earnings is overstated by P 110,000.

a. The 2011 profit is understated by P 36,000.
b. The 2011 profit is overstated by P 28,000.
c. The December 31, 2011 retained earnings is understated by P 36,000.
d. The December 31, 2012 retained earnings is understated by P 28,000.
14. In relation to Item No. 5, which of the following is incorrect?

a. The 2011 profit is overstated by P 240,000.
b. The 2012 profit is understated by P 120,000.
c. The December 31, 2011 retained earnings is overstated by P 240,000.
d. The December 31, 2012 retained earnings is correctly stated.
PROBLEM NO.20
Grace Company has an overdue note receivable from Ngitngit Company for P 300,000. The
note was dated January 1, 2008. It has an annual interest rate of 9%, and interest is paid
December 31 of each year. Ngitngit paid the interest on the note on December 31, 2008, but
Ngitngit did not pay the interest due in December of 2009. The current effective interest rate is
6%. On January 1, 2010, grace agrees to the following restructuring arrangement:
 Reduce the principal to P 250,000.
 Forgive the recorded accrued interest.
 Reduce the interest rate to 6%.
 Extend the maturity date of the note to December 31, 2012.
Answer the following:

1. The present value of future cash flows of the restructured loan is
a. 250,000 b. 231,020 c. 233,145 d. 238,613
2. The loss on impairment of loan to be recognized by Grace in 2010 is

a. 95,980 b. 77,000 c. 88,387 d. 93,855
3. The valuation allowance for impaired loans to be recognized on January 1, 2010 is

a. 16,855 b. 11,387 c. 88,387 d. 18,980
4. The interest income to be recognized in 2010 is

a. 20,792 b. 20,983 c. 21,475 d. 15,000
5. The carrying amount of the loan as of December 31, 2010 is

a. 239,128 b. 245,088 c. 236,812 d. 250,000
Question No. 1
Present value of Principal (250,000 x .7722) 193,050
Add present value of int. (250,000 x 6% x 2.5313) 37,970
Present value of expected cash flows 231,020
Question No. 2
Carrying amount of the old liability
Principal 300,000
Add accrued int. (300,000 x 9%) 27,000
Total Carrying amount of the old liability 327,000
Loan impairment 95,980
Question No. 3
New Principal 250,000
Allowance for loan impairment 18,980
Question No. 4 and 5

Date Coll Int. Income Amort PV
1/1/2010 231,020
12/31/2010 25,000 20,792 (5,792) 236,812
PROBLEM NO. 21
Jerely, Inc. had the following noncurrent asset account balances at December 31, 2009:
Patent 1,920,000
Accumulated amortization (240,000)
Deferred tax asset 360,000
Transactions during 2010 and other information relating to the noncurrent assets of Jerely, Inc.
were as follows:
a. The patent was purchased from Grey Company for P 1,920,000 on January 1, 2008,
at which date the remaining legal life was sixteen years. On January 1, 2010, Jerely
determined that the useful life of the patent was only eight years from the date of
acquisition.
b. Deferred tax asset is provided in recognition of temporary differences between
accounting and tax reporting of rent income and warranty liability. For the year ended
December 31, 2010, (1) rent collected in advance decreased by P 200,000, and (2)
product warranty liability increased by P 150,000. Jerely’s income tax rate for 2010
was 35%.
c. On January 3, 2010, in connection with the purchase of a trademark from Cody
Corporation, the parties entered into a noncompetition agreement and a consulting
contract. Jerely paid Cody P 8,000,000, of which three-quarters was for the
trademark and one-quarter was for Cody’s agreement not to compete for a five-year
period in the line of business covered by the trademark. Jerely considers the life of
the trademark to be indefinite. Under the consulting contract, Jerely agreed to pay
Cody P 500,000 annually on January 3 for five years. The first payment was made
on January 3, 2010.
d. On July 1, 2010, Jerely purchased as a long-term investment P 10,000,000 face
value of Dell Corporation original issue of 8% bonds for P 9,230,000. The bonds,
which were priced to yield 10%, pay interest semiannually on January and July 1,
and mature on July 1, 2015.
Answer the following:

1. The total amortization of the intangible assets for the year 2010 is
a. 680,000 b. 610,000 c. 280,000 d. 830,000
2. The carrying amount of the intangible assets as of December 31, 2010 is

a. 8,850,000 b. 7,400,000 c. 9,070,000 d. 9,000,000
3. The carrying amount of the investment in bonds as of December 31, 2010 is
a. 9,230,000 b. 9,291,500 c. 9,353,000 d. 10,000,000
4. The carrying amount of deferred tax assets as of December 31, 2010 is

a. 342,500 b. 310,000 c. 237,500 d. 360,000
5. In testing the reasonableness of interest income, an auditor could most effectively use
analytical tests involving
a. Documentary support of specific entries in the account.
b. The beginning balance in the investments account for fixed income securities.
c. The average monthly balance in the investments account for fixed income securities.
d. The ending balance in the investments accounts for fixed income securities.
PROBLEM NO. 22
You are now in the completion stage of your audit of the Merly Company’s financial statements
for the year ended December 31, 2010.
The next 5 items represent various commitment and contingencies of Merly at December 31,
2010, but prior to the authorization for issue of the 2010 financial statements. For each item,
select from the following list the reporting requirement.
A. Disclosure only
B. Accrual only
C. Both accrual and disclosure
D. Neither accrual and disclosure
1. On December 1, 2010, Merly was awarded damages of P 75,000 in a patent

infringement suit brought against a competitor. The defendant did not appeal the verdict,
and payment was received in January 2011. (C)
2. A former employee of Merly has brought a wrongful-dismissal suit against merly. Merly’s
lawyers believe the suit to be without merit. (D)
3. At December 31, 2010, Merly had an outstanding purchase orders in the ordinary course
of business for purchase of a raw material to be used in its manufacturing process. The
market price is currently higher than the purchase price and is not anticipated to change
within the next year. (D)
4. A government contract completed during 2010 is subject to renegotiation. Although
Merly estimates that it is reasonably possible that a refund of approximately P 200,000 –
P 300,000 may be required by the government, it does not wish to publicize this
possibility. (A)
5. Merly has been notified by a governmental agency that it will be held responsible for the
cleanup of toxic materials at a site where Merly formerly conducted operations. Merly
estimates that it is probable that its share of remedial action will be approximately P
500,000. (C)
PROBLEM NO. 23
Among the accounts balances of Jeffrey Corporation at December 31, 2009 are the following:
Patent, net 2,450,000
Installment contract receivable 7,200,000
Relevant transactions and other information for 2010 were as follows:

a. The patent was purchased from Inventor Company for P 3,150,000 on September 1,
2006. On that date, the remaining legal life was fifteen years, which was also determined
to be the useful life.
b. The installment contract receivable represents the balance of the consideration received
from the sale of a factory building to Feeble Company on March 31, 2008, for P
12,000,000. Feeble made a P 3,000,000 down payment and signed a five-year 13%
note for the P 9,000,000 balance. The first of equal annual principal payment of P
1,800,000 was received on March 31, 2009 together with interest to that date. The note
is collateralized by the factory building with a fair value of P 10,000,000 at December 31,
2010. The 2010 payment was received on time.
c. On January 2, 2010, Jeffrey purchased a trademark from Cool Corporation for P
2,500,000. Jeffrey considers the life of the trademark to be indefinite.
d. On May 1, 2010, Jeffrey sold the patent to Simple Company in exchange for a P
5,000,000 non-interest bearing note due on May 1, 2013. There was no established
exchange price for the patent, and the note had no ready market. The prevailing rate of
interest for a note of this type at May 1, 2010 was 14%. The presnt value of 1 for three
periods at 14% is 0.675. the collection of the note receivable from Simple is reasonably
assured.
e. On July 1, 2010, Jeffrey paid P 18,000,000 for P 750,000 ordinary shares of Pure
Corporation, which represented a 25% investment in Pure. The fair value of all Pure’s
identifiable assets net of liabilities equals their carrying amount of P 64,000,000. The
market price of Pure’s ordinary share on December 31, 2010 was P 26,000 per share.
f. Pure reported profit and paid dividends of:
Profit Dividends per share
Six months ended, 6/30/10 5,760,000 None
Six months ended, 12/31/10 7,040,000 2
Compute for the following:

1. Gain on sale of patent
a. 2,620,000 b. 995,000 c. 925,000 d. 4,075,123
2. Total interest income for 2010

a. 760,500 b. 1.251,000 c. 1,233,000 d. 1,075,500
3. Noncurrent portion of the installment contract receivable as of December 31, 2010

a. 5,400,000 b. 3,600,000 c. 1,800,000 d. 7,200,000
4. Carrying amount of the note receivable from sale of patent as of December 31, 2010
a. 5,000,000 b. 3,690,000 c. 3,375,000 d. 3,847,500
5. The carrying amount of the investment in Pure Corporation as of December 31, 2010
a. 18,800,000 b. 19,025,000 c. 19,060,000 d. 19,500,000
PROBLEM NO. 24
Presented below are unaudited balances of selected accounts of Lakers Corporation as of

December 31, 2012. During the course of your audit of Lakers’ books you obtained additional
information affecting these accounts.
Debit Credit
Cash P 500,000
Accounts receivable 1,300,000
Allow. For doubtful accounts 8,000
Sales, net P 6,750,000
Accounts payable 600,000
Purchases, net 4,350,000
Cars and trucks 1,200,000
Machinery and equipment 950,000
Accumulated depreciation, machinery
and equipment 95,000
a) On December 28, 2012, the company recorded and wrote check payments to creditors
amounting to P 300,000. A number of checks amounting to P 150,000 were mailed on
January 3, 2013.
b) On December 29, 2012, the company purchased and received goods amounting to P
100,000 terms 2/10, n/30. As a policy, the company records purchases in accounts payable
at net amounts. This particular invoice was received and paid on January 3, 2013.
c) On December 26, 2012, a supplier authorized the company to return goods shipped and
billed at P 80,000 on December 3, 2012. The goods were returned on December 28, 2012.
The supplier’s credit memo was credit received and recorded on January 5, 2013.
d) Goods amounting to P 50,000 were invoiced for the account of Kobe Store and recorded on
January 2, 2012 with terms of net 60 days, FOB shipping point. The goods were shipped to
Kobe Store on December 30, 2012.
e) The bank returned on December 29,2012 a customer check for P 5,000 marked “DAIF” but
no entry was made.
f) The company estimates that allowance for uncollectible accounts should be one and one-
half percent (1 ½ ) of the accounts receivable balance as of year-end. No provision has yet
been made for 2012.
g) All cars and trucks were acquired on May 1, 2012 at a total cost of P 1,200,000. The
company estimates the useful life of the cars and trucks as five years and depreciates these
assets based on 150% of declining balance. As a policy, depreciation is computed to the
nearest month and rounded off to the nearest peso. No depreciation has been for cars and
trucks as at December 31, 2012.
QUESTIONS:
15. The adjusted amount of cash as of December 31, 2012 is
a. P 500,000 c. P 650,000
b. P 495,000 d. P 645,000
16. The net realizable value of accounts receivable as of December 31, 2012 is
a. P 1,326,675 c. P 1,329,750
b. P 1,334,675 d. P 1,280,500
17. The adjusted amount of accounts payable as of December 31, 2012 is

a. P 768,000 c. P 618,000
b. P 848,000 d. P 769,600
18. The adjusted carrying amount of property and equipment as of December 31, 2012 is
a. P 1,815,000 c. P 1,695,000
b. P 1,533,500 d. P 1,558,500
19. An auditor selects a sample from the file of shipping documents to determine whether
invoices were prepared. This test is performed to satisfy the audit objective of
a. Accuracy c. Control
b. Completeness d. Existence
PROBLEM NO. 25
In connection with your audit of the Talavera Mining Corporation for the year ended December
31,2006,you note that the company purchased for P10,400,000 mining property estimated to
contain 8,000,000 tons of ore. The residual value of the property is P800,000.
Building used in mine operations costs P800,000 and have estimated life of fifteen years
with no residual value.Mine machinery costs P1,600,000 with an estimated residual value
P320,000 after its physical life of 4 years.
Following is the summary of the company's operation for first year of operations.
Tons mined 800,000 tons

Tons sold 640,000 tons
Unit selling price per ton P4.40
Direct labor 640,000
Miscellaneous mining overhead 128,000
operating expenses (excluding depreciation) 576,000
Inventories are valued first -in,first-out basis.Depreciation on the building is to be

allocated as follows: 20% to operating expenses ,80% to production .Depreciation on machinery
is chargeable to production.
Based on the above and the result of your audit,answer the following .(Disregard tax
implications)
1. How much is the depletion for 2006?

a. P 768,000 c. P 960,000
b. P 192,000 d. P 1,040,000
2. Total inventoriable depreciation for 2006?

a. P 400,000 c. P 362,667
b. P 384,000 d. P 0
3. How much is the inventory as of December 31,2006?

a. P 438, 400 c. P 422,400
b. P 425, 600 d. P 418,133
4. How much is the cost of sales for the year ended December 31,2005?
a. P 1,689,600 c. P 1,753,600
b. P 1,702,400 d. P 1,672,533
5. How much is the maximum amount that may declared as dividends at the company's
first year of operation?
a. P 1,494,900 c. P1,289,600
b. P 1,302,400 d. P1,319,533
SOLUTION :
Question 1
Acquisition cost P10,400,000
Less residual value 800,000
Depletable cost 9,600,000
Divide by total estimated reserves 8,000,000
Depletion rate 1.20
Multiply by tons mined in 2006 800,000
Depletion for 2006 P 960,000
Question 2
Depreciation-Building [(P800,000/8,000,000 tons) ×80%] P 64,000
Depreciation-machinery[(P1,600,000 -P 320,000/4) 320,000
Total depreciation chargeable to production P 384,000
Question 3
Depletion (see no.1) P 960,000
Direct labor 640,000
Depreciation(see no.2) 384,000
Miscellaneous mining overhead 128,000
Total production cost 2,112,000
Divide by tons mined 800,000
Cost per ton 2.64
Unsold tons (800,000-640,000) 160,000
Inventory,12/31/06 P422,000
Question 4
Cost of sales (640,000 tons × P2.64) P 1,689,600
Question 5
Sales (640,000 × P 4.4) P 2,816,000

Less cost of sales ( see no.4) 1,689,600
Gross profit 1,126,400
Operation expenses (576,000)
Depreciation-Building (16,000)
[(P800,000/8,000,000 tons) × 800,000 tons ×20%]
Net income 534,400
Realized depletion(640,000 tons × P1.2) 768,000
Maximum amount that may be declared as dividends P 1,302,400
Answer:1.)C ;2.)B ;3.)C ;4.)A ;5.)B
PROBLEM NO.26
Catanauan Incorporated uses leases as a method of selling its products. In early 2006,
Catanauan completed construction of a passenger ferry for use between Quiapo and
Guadalope . On April 1,2006,the ferry was leased to the Balic-balic Ferry Line on a contract
specifying that ownership of the Ferry will transfer to the lessee at the end of the lease
period.The ferry is expected to be economically useful for 25 years. Annual lease payments do
not include executory costs.Other terms of the agreement are as follows:
Original cost of the Ferry P 1,500,000
Lease payments 225,000
Estimated residual value 78,000
Implicit rate 10%
Date of first lease payment April 1,2006
Lease period 20 years
PV of an ordinary annuity of 1 for 20 periods at 8.5136
10%
PV of an annuity due of 1 for 20 periods at 9.3649
10%
PV of 1 for 20 periods at 10 % 0.1486
Questions:
Based on the above data ,determine the following :
1.Total financial revenue that will be earned by the lessor over the lease term
a.2,459,306 c.2,392,897
b.2,650,849 d.2,584,440
2.Manufacturer's profit that will be earned immediately by the lessor
a. 607,103 c.415,560
b.427,151 d.618,694
3.Liability under finance lease to be reported by the lessee as of December 31,2007
a.1,634,616 c.1,858,063
b.1,845,313 d.1,647,366
4.Amount to be reported under current liabilities as liability under lease by the lessee as of
December 31,2007
a.61,538 c.40,469
b.39,127 d.60,263
5.Depreciation expense to be recognized by the lessee for the year 2006
a.61,221 c.76,091
b.55,127 d.60,873
PROBLEM NO.27
The following information relates to the obligations of Joy Company as of December 31,2010.
 Accounts payable for goods and services on open account amounted to P 35,000 at
December 31,2010.
 On December 15,2010 ,Joy declared a cash dividend of P0.05 per share ,payable on
January 12,2011, to shareholders of records as of December 31,2010.Joy had a 1
million ordinary shares issued and outstanding.
 On December 31,2010,Joy entered into a six-year finance lease on a warehouse and
made the first annual lease payment of P100,000.The incremental borrowing rate was
12%, and the interest rate implicit in the lease ,which was known to joy, was 10%. The
rounded present value factors for an annuity due for six years are 4.6 at 12% and 4.8 at
10%.
 On July 1,2010,Joy issued P500,000,8% bonds for P440,000 to yield 10%.The bonds
pay interest annually every June 30.At December 31,2010,the bonds were trading on
the open market at 86 to yield 12%.Joy uses the effective interest method.
 Joy 's 2010 accounting profit was P850,000 and its taxable profit was P600,000.The
difference is due to P100,000 permanent differences and P150,000 of temporary
differences related to noncurrent assets.At December 31,2010,Joy had cummulative
taxable differences of P300,000 related to noncurrent assets.Joy's effective tax rate is
30%.Joy made no estimated tax payments during the year.
Determine the following:

1. Carrying amount of finance lease liability as of December 31, 2010
a.480,000 b.428,000 c.380,000 d.360,000
2. CArrying amount of bonds payable as of December 31,2 010

a. 446,400 b.444,000 c.442,000 d.430,000
3. Current liabilities as of December 31, 2010

a. 342,200 b.327,000 c.367,000 d.347,000
4. Noncurrent liabilities as of December 31, 2010
a.8 50,000 b. 854,400 c. 895,000 d.902,800
5. Interest expense for the year ended December 31, 2010

a. 92,000 b. 70,000 c.44,000 d.22,000
PROBLEM NO.28
You are engaged in the audit of Uganda Co.,a new client ,at the close of its first Fiscal
year; April 30,2010.The books have been closed prior to the time you began your year-
end field work.
Shown below are the shareholder's equity accounts in the general ledger:
Ordinary Share Capital

________________________________________________________
09/14/09 CD 110,000 05/01/09 CR 1,200,000
04/28/10 J 109,000
Retained Earnings
______________________________________________________________________
04/28/10 J 109,000 02/02/01 CR 52,500
04/30/10 J 800,000
Income Summary
_____________________________________________________________
04/30/10 J 5,200,000 04/30/10 J 6,000,000
04/30/10
Additional information is as follows:

A. From the articles of the incorporation:
Authorized shared capital 30,000 shares
Par value per share P100
B. Director's minutes include the following resolutions:
04/30/09 Authorized the issue of 10,000 shares at P120 per share
09/13/09 Authorized the acquisition of 1,000 shares at P110
02/10/10 Authorized the reissue of 500 treasury shares at P105
04/28/10 Declared a 10% stock dividend ,payable May 31,2010,to
shareholders record as of April 28,2010.The market value of the Uganda Co.stock on
April 28,2010,was P130 per share.
Based on the above information, determine the correct balances of the following
accounts on April30, 2010.
1. Ordinary Share Capital

a. P 1,199,000 b. P1,000,000 c.P1,100,000 d. P900,000
2. Treasury Shares
a. P 110,000 b. P100,000 c.P50,000 d.P55,000
3. Share Premium
a. P 226,000 b. P231,000 c.P228,500 d. P200,000
4. Retained Earnings
a.P 619,000 b. P 800,000 c.P676,500 d. P797,500
5. Stock Dividends Payable

a. P 123,500 b. P 95,000 c.P109,000 d. P0
PROBLEM NO. 28
1.B Ordinary Share Capital 1,000,000
2.D Treasury shares(110 × 500 shares) 55,000
3.C From May 1,2009 (20 × 10,000 shares) 200,000

From stock dividend (130-30 × 9,500 ×10%) 28,500
Total Share Premium 228,500
4.A Net Income 800,000

Sale of Treasury Share (110-105= 5 × 500) (2,500)
Stock Dividends (130 × 950) (123,500)
Appropriation for treasury shares(110 × 500) (55,000)
Retained Earnings 619,000
5.B Stock dividends payable(100 × 950) 95,000
PROBLEM NO.29
In connection with the audit of Siga Company 's financial statements for the year ended
December 31,2004,your audit senior asked you to analyze the company's stockholder's
equity section and provide him with certain figures .The stockholders' equity sections of
the company's comparative balance sheet as of December 31,2004 and 2003 are
presented below:
12.31.04 12.31.03
12% Preferred stock,P 100 par P 330,000 P270,000
Common stock,P10,par 1,643,400 1,598,400
Paid-in Capital in excess of par-preferred 53,600 36,800
Paid-in Capital in excess of par-common 257,200 235,200
Paid-in capital from treasury stock 7,200 3,200
Retained earnings 1,884,800 1,585,840
Total Shareholders' equity P 4,175,200 P 3,729,440
*par value after May 31,2004 stock split.
Siga had 65,000 common stock outstanding as December 31,2002.
The following stockholder's Equity transactions were recorded in 2003 and 2004:
2003
May 1 - Sold 9,000 common shares for P 24, par value P20.
July 1 - Sold 700 preferred shares for P 124,par value P100
July 31 - Issued an 8% stock dividend on common stock .The market
value of the share was P30 per shares.
Aug.30 - Declared cash dividends of 12 % on preferred stock and P3 per
share on common stock.
Dec. 31 - Net income for the year amounted to P 1,345,040.
2004
Feb. 1 - Sold 2,200 common shares for P30
May 1 - Sold 6,000 preferred shares for P128.
May 31 - Issued a 2- for -1 split of common stock. The par value of the
common stock was reduced to P10 per share.
Sep.1 - Purchased 1,000 common shares for P18 to be held a treasury
stock.
Oct. 1 - Declared cash dividends of 12% ON PREFERRED STOCK AND
P 4 per share on common stock.
Nov.1- Sold 1,000 shares of treasury stock for P22.
Questions:
Based on the above and the result of your audit , you are to provide your audit senior
with the following:
1. Weighted average number of common shares for 2003

a.159, 840 b.71,000 c.153, 360 d. 76,680
2. Basic earnings per share for 2003

a.8.77 b.17.12 c.17.54 d.8.56
3. Weighted average number of common shares for 2004

a.163, 707 b.81, 770 c.82,120 d.163,540
4. Net income for 2004

a.991,520 b.298,960 c.995,520 d.445,760
5. Basic earnings per share for 2004

a.6.06 b.5.81 c.11.64 d.1.83
PROBLEM NO.30
You are engaged in the first -time audit of Legarda Company .Legarda Company reports
its shareholder's equity as follows on December 31,2010:
Ordinary share capital,50,000 shares,P100 P5,000,000

par
Share Premium 1,000,000
Memorandum Records :
On January 1, 2009, Granted share options to its 300 employee working in the sales
department.
Additional information and transactions in 2011:

 On January 1,2011, the historical balances of the land and building of Legarda
Company are:
Cost Accumulated Depreciation
Land 10,000,000
Building 60,000,000 18,000,000
The land and the building were appraised on same date and the revaluation revealed the
following:
Sound value
Land 15,000,000
Building 70,000,000
There were no addition or disposals during 2011.Depreciation is computed on a straight

line basis.The estimated life of the building is 20 years.
 On April 1,Sold 25,000 ordinary shares at P105.

 On May 1,Purchased 10,000 ordinary shares at P102 to be held as treasury.
 On August 1, the company declared a P4 per share dividend to the shareholders'
of record August 30,payable on September 5.
 On September 15,the company sold 6,000 treasury shares at P110.
 The unadjusted net income for 2011 was P5,000,000 before taking into
consideration the effect of share-based payment.
Audit notes:
Upon investigation of the share-based payment, the following information were noted:
On January 1,2009,Legarda Company granted share options to each of its 300

employees working in the sales department .The share options vest at the end of a
three- year period provided that the employees remain in the entity's employ and
provided the volume of sales increase by 10% per year .The fair value of each share
options on grant date is P30.
If the sales increase by 10%,each employee will received 200 share options.If the sales
increase by 15% ,each employee will receive 300 share options.
On December 31,2009,the sales increased by 10%,and no employee left the entity.On

December 31,2010,sales increased by 15% and 50 employees left the entity. No option
were exercised yet as of the end of 2011.
Since the Inception of this Share-based payment,no journal entries have yet been
provided by the company.
1. The depreciation of the building for the year ended December 31,2011 should be
a.5,000,000 b. 2,000,000 c.3,000,000 d. 3,500,000
2. How much is the compensation expense that should be recognized for 2011?
a. 1,200,000 b. 2,250,000 c.900,000 d.450,000

3. How much is the adjusted ordinary share capital at the end of 2011?
a. 5,000,000 b. 7,500,000 c. 7,635,000 d. 7,100,000
4. How much is the adjusted balance of share premium end of 2011?
a.1,125,000 b.1,048,000 c.1,173,000 d. 1,000,000
5. How much is the adjusted treasury share at the end of 2011?
a.0 b. 1,020,000 c. 14,740,000 d. 13,482,000

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CORDILLERA CAREER DEVELOPMENT COLLEGE

AUDITING PROBLEM – PREWEEK

Darjeeling plc is a manufacturing company. It analyses expenses by nature in its income

Raw materials 75,800

Profit from operations 126, 800

Share premium account 250,000 150,000

 Machinery with a carrying amount of P10, 500 was scrapped.

PROBLEM NO.3 (JULY 2014)

TAY, NAY CPA NA AKO Company

Liabilities and Owner’s Equity

a. The possibility of uncollectible accounts on accounts receivable has not been

1. Accounts receivable (net):

2. Land, buildings, and equipment (net):

4. Total current assets:

5. Current portion of long-term debt:

7. Paid-in capital in excess of par and stated value:

10. Total current liabilities:

The following is presented to you on December 31, 2009:

Compute for the adjusted balance of the following:

WHOLE-HEARTED COMMITMENT, Inc. is a calendar-year corporation. Its financial statements

1. 2009 Net Income

2. 2010 Net Income

3. Accumulated profits end of 2010

4. Working capital in 2009

5. Working capital in 2010

PROBLEM NO.6 (OCTOBER 2011 AND 2013)

Based on the preceding information, determine the following:

2. The number of shares outstanding on Dec. 31, 2010

3. The number of shares outstanding on Dec. 31, 2011

4. The amount of Cash dividend declared and paid to shareholders on 2010

5. The amount of Cash dividend declared and paid to shareholders on 2011

December 31, 2009 P14, 000 understated

b) On December 29, 2010, Dominica recorded as a purchase, merchandise in transit which

2008 P4, 000

d) The company failed to record accrued office salaries as follows:

December 31, 2008 P10, 000

Miscellaneous expense 13, 000

f) On July 1, 2010, Dominica acquired a three-year insurance policy. The three-year

2008 2009 2010

5. B Retained earnings 16, 000

2. The annual depreciation expense for Engines is

3. The annual depreciation expense for Fittings is

5. The annual repairs and maintenance cost is

The following transactions occurred in 2007:

Requirements: What are the depreciation expenses of the following:

2. Machinery and equipment

Depreciation of Old Machinery (2,325,000/10) 232,500

Leasehold improvement carrying value (12/31/2006) 331,500

Delivery Equipment: Book value, Jan. 1, 2007 137,400

Dec.31,200 Additions Retirements Dec. 31,2007

*depreciation expense for the year.

Your examination revealed the following information:

3. What is the net adjustment to the company’s depreciation expense?

PROBLEM NO.10: JAMES CORP.

Weighted average actual cost (2,400,000 / 12) P 200,000

Capitalization rate 11.25%

Date Expenditures Mos outs / 12 Average

****Accumulated depreciation on Machinery sold: P 96,000*5 / 10 P 48,000****

Building, total cost 12/31 P 2,090,000