AUDITING PROBLEMS

COMPREHENSIVE EXAMINATION
Instruction: For each of the following items, write the capital letter of the best answer among
the choices on the attached answer sheet. No credit will be given for answers with erasures or
answers written in pencil.
Problem I
In connection with your audit of the Queen Company for the year ended December 31,
2009, you gathered the following data:
Currency and coins on hand
Current account Metrobank
Savings account Citibank
Current account Unionbank
Allied Bank current account No. 01
Allied Bank current account No. 02
Time deposit at PNB 30 days
Certificate of deposit BPI
Payroll bank account BPI
Travelers check
Managers check
Undelivered company check
Postdated check issued
Postdated check received
Money orders
Petty cash fund (P4,000 in currency and expense receipts for P8,000)
Customers Not Sufficient Funds (NSF) checks
Employees post-dated check
l.O.U. from a company officer
Credit memo from a vendor for a purchase return
A check drawn by a supplier dated Dec. 28, 2009 for goods returned by the
Company
T-bills, due March 31, 2010 (purchased Dec. 31, 2009)
T-bills, due Jan. 31, 2010 (purchased Jan. 1, 2009)
Fund for the retirement of long-term debt (includes T-bills amounting to
P2,000,000)
Pension fund
Foreign bank account restricted (in peso equivalent)
Savings deposit in a closed bank (fully insured by the PDIC)
Customers check outstanding for 18 months
Restricted time deposits (expected use in June 2010)
Cash in bond sinking fund
Cash balance to be maintained at all times at Metrobank to ensure future
credit availability

30,000
3,000,000
1,000,000
(100,000)
1,100,000
(100,000)
700,000
800,000
500,000
20,000
100,000
10,000
35,000
40,000
22,000
12,000
25,000
5,000
3,000
10,000
23,000
600,000
500,000
2,500,000
3,000,000
1,500,000
200,000
33,000
1,100,000
1,500,000
500,000

Based on the above data and the result of your audit, determine the following:
1. Correct cash balance at December 31, 2009:
a. 6,244,000
c. 5,744,000
b. 5,921,000
d. 5,211,000
2. Correct cash equivalents at December 31, 2009:
a. 4,100,000
c. 2,100,000
b. 3,300,000
d. 1,300,000
Problem II
In connection with your audit of Den Company, you gathered the following information:
Petty cash fund
Payroll account Bank A

10,000
500,000

Dividend fund Bank B

Value-added tax account Bank B
Cash in sinking fund (earmarked for the payment of Bonds
payable maturing next year)
Change fund
Pension fund
Interest fund Bank B
Contingent fund Bank B
Fire insurance fund Bank B
Cash surrender value of life insurance
Compensating balance restricted as to withdrawals (pertains
to a short-term loan)

400,000
250,000
2,000,000
3,000
4,000,000
150,000
1,500,000
12,000
1,488,000
150,000

3. Based on the above data, the correct cash balance to be reported at December 31, 2009
statement of financial position should be:
a. 1,463,000
c. 1,325,000
b. 3,325,000
d. 1,313,000
Problem III
In connection with your cash audit of the Sheila Company for the year ended December 31,
2009, you gathered the following:
Time of deposit Premyo Bank
120-day Certificate of deposit BRB Bank
Temporary investment in ordinary shares of Triple Company (purchased on
December 15, 2009 and intended to be sold within three months from date
of purchase)
Temporary investment in non-redeemable preference shares of Single
Company (purchased on December 15, 2009 and intended to be sold
within three months from date of purchase)
90-day Time deposit LOL Bank (used as collateral for a 5-year bank loan)
T-bills purchased on July 1, 2009 (will mature within three months from
balance sheet date)

400,000
250,000
600,000
300,000
200,000
500,000

4. As a result of your audit, the correct cash equivalents at December 31, 2009 should be:
a. 400,000
c. 1,000,000
b. 700,000
d. 1,300,000
Problem IV
The following are the cash items of EM Corporation as of December 31, 2009:
Deposit at Metrobank restricted for purchase of equipment
Current account ChinaBank
Outstanding checks
Savings account BPI
Compensating balance Metrobank (unrestricted as to withdrawal)

3,000,000
250,000
290,000
500,000
250,000

The compensating balance represents 10% of the short-term loan from Metrobank.
5. The cash balance to be shown on the statement of financial position of EM Corporation
as of December 31, 2009 should be:
a. 500,000
c. 750,000
b. 710,000
d. 1,000,000
Problem V
6. Based on the following information as of December 31, 2009, compute the correct
balance of Accounts Receivable unassigned:
Gross receivables
Equity in assigned accounts
Subscription receivable collectible on March 31, 2009
Claims for tax refund

800,000
100,000
75,000
25,000

Notes payable bank

Credit balance in a debtors account
Debit balance in a suppliers account
a. 690,000
b. 325,000

300,000
5,000
10,000
c. 315,000
d. 290,000

Problem VI
On November 15, 2009, Nora Company sold merchandise to Vilma Company. Vilma issued
a P1,000,000, 90-day, 12% interest bearing note dated November 15, 2009. On December 15,
2009, Nora discounted the note at Money-Money Bank Company at 15% discount rate. Nora
informed Vilma regarding the discounting arrangement. On maturity date, Vilma dishonored the
note and as a result Money-Money Bank charged Nora Company for the total amount due plus
P7,500 protest fee.
7. As a result of the above transactions, the amount of Noras debit to accounts receivable
account should be:
a. 1,030,000
c. 1,127,500
b. 1,037,500
d. 1,007,500
Problem VII
The following information has been extracted from the books of accounts of Pabz, Inc. for
the year ended December 31, 2009:
Net sales for 2009
Total receipts from customers
Collection of accounts receivables
Accounts receivable, Jan. 1, 2009
Doubtful accounts expense (June 30, 2009)
Allowance for doubtful accounts, Jan. 1, 2009

3,600,000
3,450,000
2,100,000
750,000
5,000
37,500

8. The

Additional information:
Doubtful accounts is based on 5% of Accounts
Receivable balance at the end of the period
Pablo sells its products on cash and credit terms
amount of adjustment for doubtful accounts expense on December 31, 2009 should be:
a. 75,000
c. 7,500
b. 70,000
d. 2,500
Problem VIII
You were engaged by Sarah Corporation to audit its financial statements for 2009. The
business of the Corporation, as provided in its Articles of Incorporation, is buying and selling of
household appliances. In the course of the audit, the following inventory-related items were
provided by the bookkeeper of the client as of December 31, 2009:
Goods on hand (based on physical count of inventory items
under Sarahs possession)
Goods out on consignment, including P1,000 freight-out to
consignees
Goods being held on consignment by the client
Goods out on consignment already sold by the consignee
Goods in the hands of salesmen
Goods held by customers on approval
Goods on hold for shipping instruction
Goods in transit and sold FOB destination
Goods in transit and purchased FOB shipping point
Goods in transit and sold FOB shipping point
Goods in transit and purchased FOB destination
Goods pledged against borrowings

400,000
40,000
12,000
6,000
2,000
3,000
1,000
9,000
7,000
6,000
8,000
10,000

9. The correct inventory balance that should appear among current assets in the statement
of financial position as of December 31, 2009 should be:

a. 472,000
b. 465,000

c. 459,000
d. 460,000

Problem IX
Burgundy Companys inventory records showed the following information for the year 2009:
Goods on hand (based on physical count of inventory items in
the premises of the Company)
Goods under special orders but not yet shipped
Goods sold on installment (subject to repossession in case of
default)
Goods in transit purchased FOB destination
Goods in transit sold FOB shipping point
Goods in transit sold FOB destination (special order)
Goods in transit paid by the buyer on December 27, 2009

300,000
9,000
8,000
7,000
6,000
5,000
5,000

10. The correct amount of inventory at December 31, 2009 is:

a. 291,000
c. 300,000
b. 296,000
d. 304,000
Problem X
Your client, Heart Trading Corporation, requests your assistance in determining the amount
of loss and in filing an insurance claim in connection with a fire on June 15, 2009 that destroyed
some of the company's inventory and accounting records. You were able to obtain the following
information from available records:
a. The last physical inventory was taken on December 31, 2008. At that time, total
inventory (at cost) amounted to P210,789.80.
b. The annual premium of PI,440 on the insurance carried was due and paid on April 1,
2009. The policy, which has a face amount of P155,000 carries an 80% coinsurance
clause.
c. Accounts payable were P110,106.41 on December 31, 2005 and P126,945.37 at the
time the fire occurred.
d. Payments to vendors from December 31, 2008 to the date of the fire totaled
P641.871.56.
e. All sales are on account and accounts receivable were P135,009.18 at December 31,
2008 and P107,145.25 at the date of the fire.
f. Collections on receivables from December 31, 2008 to the date of the fire amounted to
P876,195.50.
g. Almost all the merchandise items are sold at approximately 30% in excess of cost. As at
June 15, 2009, the total cost of inventory items not destroyed by the fire amounted to
P144,882.33.
Based on the above information, determine the following:
11. The amount of recovery due from the insurance company.
a. 82,945
c. 57,644
b. 63,354
d. 72,055
12. The amount of loss incurred by Heart Trading Corporation as a result of fire.
a. 7,701
c. 72,055
b. 8,842
d. 0
Problem XI
On September 15, 2009, a fire damaged the warehouse of Rainbow Company. All inventory
items and many accounting records stored in the warehouse were destroyed. However, a
portion of the inventory could be sold for scrap. The company's backup files provide the
following information:
Inventory, January 1
Cash sales, January 1 Sept. 15
Purchases, January 1 Sept. 15

P 755,000
445,000
2,770,000

Collection of accounts receivable, Jan. 1 Sept. 15

Accounts receivable, Jan. 1
Accounts receivable, Sept. 15
Salvage value of inventory
Gross profit ratio

4,230,000
350,000
530,000
15,000
32%

13. The estimated inventory before fire loss is:

a. 203,600
c. 208,600
b. 223,600
d. 213,400
Problem XII
Indigo Company was organized on January 1, 2008. On December 31, 2009, the company
lost most of its inventory in a warehouse fire just before the year-end count of inventory was
to take place. The company's records disclosed the following data:
2008
Inventory, January 1
Purchases
Purchase returns and allowances
Sales
Sales returns and allowances

0
860,000
46,120
788,000
16,000

2009
204,000
692,000
64,600
836,000
20,000

On January 1, 2009, Shark's pricing policy was changed so that the gross profit rate would
be 3% higher than the one earned in 2008.
Salvaged undamaged merchandise was marked to sell at P24,000 while damaged
merchandise marked to sell at P16,000 had an estimated realizable value of P3,600.
14. Based on the above information, the inventory balance to be reported on the statement
of financial position at December 31, 2009 is:
a. 30,000
c. 27,600
b. 21,840
d. 22,800
Problem XIII
You were engaged by Violet Manufacturing Company to audit its financial statements for
2008. Your audit of Violets inventory revealed that the ending raw materials inventory of
amounted to P345,000 as of December 31, 2008. This total includes an item of raw material
(material Prix) with a cost of P100,000 with an estimated net realizable value of P80,000.
Immediately after the balance sheet date, material Prix was applied to production and the cost
of the finished product where material Prix was applied revealed that its net selling price
exceeds the cost of producing the finished goods.
15. As of December 31, 2008, what amount of raw materials inventory should Violet
Manufacturing Company report?
a. 245,000
c. 325,000
b. 265,000
d. 345,000
Problem XIV
Red Company sells Product A. During the year, the company moved to a new location, the
inventory records for Product A were misplaced. The bookkeeper has been able to gather some
information from the sales records and gives you the data shown below:
June purchases:
Date
1
8
16
23

Qty.
15,000
16,000
17,000
18,000

Unit
Cost
P80
75
81
82

On June 30, 20,000 units were on hand with a total value of P1,638,000. Package has
always used a periodic FIFO inventory costing system. Gross profit on sale for June was

P2,572,000. Gross profit on sales represents 35% of net sales.

provided a 2% discount on all sales. Unit selling price is P125.

Red has consistently

16. What is the unit cost of the beginning inventory?

a. 79.50
c. 86.93
b. 83.04
d. 90.82
Problem XV
In connection with the annual audit of the 2008 financial statements of Green Manufacturing
Company, you noted the Company was organized in 2006 to produce a single product. The
companys production and sales records for the period 2006-2008 are summarized below:
Production
2006
2007
2008

Units
340,000
310,000
270,000

Costs
P1,530,000
1,612,000
1,539,000

Units
200,000
290,000
260,000

Sales
Sales Revenue
P1,870,000
2,300,000
2,210,000

All units produced in a given year are assigned the same average cost.
17. The gross profit in 2008 using FIFO cost flow should be:
a. 808,000
c. 969,000
b. 832,000
d. 1,402,000
Problem XVI
Troll Company, owner of a trading company, engaged your services as auditor. There is a
discrepancy between the company's income and the sales volume. The owner suspects that
the staff is committing theft. You are to determine whether or not this is true. Your investigations
revealed the following:
a. Physical inventory, taken December 31, 2009 under your observation showed that cost
was P255,000 and net realizable value (NRV), P244,000. The inventory on January 1,
2009 showed cost of P390,000 and net realizable value of P375,000. It is the
corporation's practice to value inventory at "lower of cost or NRV." Any loss between
cost and NRV is included in "Other expenses."
b. The average gross profit rate was 40% of net sales.
c. The accounts receivable as of January 1, 2009 were P135,000. During 2009, accounts
receivable written off during the year amounted to P10,000. Accounts receivable as of
December 31, 2009 were P375,000.
d. Outstanding purchase invoices amounted to P325,000 at the end of 2009. At the
beginning of 2009 they were P375.000.
e. Receipts from customers during 2009 amounted to P3,000,000.
f. Disbursements to merchandise creditors amounted to P2,000,000.
18. Based on the above data and the result of your audit, the amount of inventory shortage
as of December 31, 2009 is
a. 95,000
c. 235,000
b. 135,000
d. 269,000
Problem XVII
You were engaged by Rexxar Corporation to audit its financial statements for 2009. In the
course of the audit, the following inventory-related items were provided by the bookkeeper of
the Corporation as of December 31, 2009:
Beginning inventory
Purchases
Freight-in
Purchase returns
Purchase allowances
Departmental transfer-in
Additional markups
Markup cancellation

Cost
1,100,000
15,800,000
400,000
600,000
300,000
400,000

Retail
2,200,000
26,300,000
1,000,000
800,000
700,000
100,000

Markdowns
Markdown cancellation

1,000,000
100,000

Sales
Sales returns
Sales discounts
Employee discounts
Normal losses, brokerage

24,700,000
350,000
200,000
600,000
50,000

19. The correct inventory balance at December 31, 2009 is:

a. 230,000
c. 216,000
b. 213,000
d. 217,000
Problem XVIII
The following transactions of the Abner Company occurred during 2009:
Jan. 2 Purchased 20,000 shares of Bulaga Company for P40 per share plus brokerage
fees of P4,500, classified as trading securities.
Feb. 1 Purchased 20,000 ordinary shares of MTV Company at P125 per share plus
brokerage fees of P19,000, classified as available-for-sale securities.
Apr. 1 Purchased P2,000,000 of RP 7% Treasury Bonds at 102.5 plus accrued interest
of P35,000. In addition, the company paid brokerage fees of P18,000. Abner classified
these bonds as trading securities.
July 1 Received semiannual interest on the RP Treasury Bonds.
Aug. 1 Sold 500,000 of RP Treasury Bonds at 103 plus accrued interest.
Oct. 1 Sold 3,000 shares of MTV at P132 per share.
The market values of the shares and bonds on December 31, 2009, are as follows:
Bulaga Company
MTV
RP Treasury Bonds

P45/sh.
P130/sh.
102

Based on the above information, compute the following:

20. Gain or loss on sale of RP Treasury Bonds
a. 15,000 gain
c. 2,000 loss
b. 2,500 gain
d. 7,500 loss
21. Gain or loss on sale of MTV shares on October 1, 2009
a. 18,150 loss
c. 2,000 gain
b. 18,150 gain
d. 21,000 gain
22. Unrealized gain as a component of income in 2009
a. 92,500
c. 80,000
b. 97,000
d. 74,500
23. Unrealized income as a component of equity as of December 31, 2009
a. 85,000
c. 66,000
b. 68,850
d.
0
Problem XIX
The following items pertain to the Dondon's property, plant and equipment transactions
during 2009:
Cost of land, which included an old apartment building appraised at
P300,000

P5,000,000

Apartment building mortgage assumed by Dondon, including

related accrued interest at the time of purchase
Delinquent property taxes assumed by Dondon
Payments to tenants to vacate the apartment building
Cost of demolishing the apartment building
Net proceeds from sale of salvaged materials
Architects fee for new building
Building permit for new construction
Fee for title search
Survey before construction of new building
Excavation before construction of new building
Payment to building contractor
Assessment by city for drainage project
Cost of grading and leveling
Temporary quarters for construction crew
Temporary building to house tools and materials
Cost of changes during construction to make new building more
energy efficient
Interest cost on specific borrowing incurred during construction
Payment of medical bills of employees accidentally
injured while inspecting building construction
Cost of paving driveway and parking lot
Cost of installing lights in parking lot
Premium for insurance on building during construction
Cost of open house party to celebrate opening of new building
Cost of windows broken by vandals distracted by the celebration
Savings on construction
Interest that could have been earned if the funds used in construction
were invested in marketable securities

150,000
35,000
25,000
60,000
5,000
100,000
50,000
30,000
20,000
150,000
15,000,000
12,000
60,000
70,000
50,000
120,000
450,000
14,000
80,000
12,000
50,000
60,000
15,000
2,000,000
300,000

Based on the above information, determine the following:

24. Cost of land:
a. 5,377,000
b. 5,337,000

c. 5,387,000
d. 5,367,000

25. Cost of building:

a. 16,010,000
b. 16,070,000

c. 16,040,000
d. 16,310,000

Problem XX
On December 31, 2008, ABC Companys balance sheet disclosed the following property and
equipment balances after recording depreciation:
Building
Accumulated depreciation

6,000,000
2,000,000

4,000,000

Equipment
Accumulated depreciation

2,400,000
800,000

1,600,000

The company has adopted the revaluation model for the valuation of its property and
equipment. This has resulted in the recognition in prior periods of an asset revaluation
surplus for the building of P300,000. On December 31, 2007, an independent appraiser
reported the following:
Building
Equipment

Fair value
3,200,000
1,800,000

As of December 31, 2008, the remaining useful lives of these assets are:
Building

25 years

Equipment

4 years

Based on the above data and the result of your audit, compute the following (Ignore income
tax):
26. Amount to be recognized in 2008 profit or loss related to the revaluation of property and
equipment.
a. 800,000
c. 500,000
b. 600,000
d. 300,000
27. Total depreciation in 2008.
a. 200,000
b. 578,000

c. 840,000
d. 1,250,000

28. Amount of revaluation surplus as of December 31, 2009.

a.
0
c. 200,000
b. 150,000
d. 288,000
Problem XXI
On June 1, 2009, May Corp. acquired the rights to a coal mine containing estimated
reserves of 2,000,000 tons of coal. The company estimated that 25,000 tons of coal would be
extracted and sold each month. Cost allocable to coal was P7,000,000.
Also on June 1, 2009, the company purchased an equipment to be used in the production,
costing P190,000 which has an estimated useful life of 10 years. The equipment was expected
to become obsolete after all the coal deposits had been extracted from the mine and only
P10,000 selling price of the equipment could be expected. Production was in full blast since
June 2, 2009.
29. Based on the above and the result of your audit, the amount of depreciation expense for
the year ended December 31, 2009 should be:
a. 10,500
c. 9,000
b. 13,500
d. 15,750
Problem XXII
Luther Corp. has its own research department. However, the company purchases patents
from time to time. The following is a summary of transactions involving patents now owned by
the corporation:
1. During 2001 and 2002, Luther spent a total of P459,000 in developing a new process
that was patented (Patent A) on April 1, 2003; additional legal and other costs of
P50,000 were incurred.
2. A patent (Patent B) developed by Isko Inventor, an inventor, was purchased for
P187,500 on December 1, 2004, on which date it had an estimated useful life of 12 1/2
years.
3. During 2003, 2004, and 2005, research and development activities cost P510,000. No
additional patents resulted from these activities.
4. A patent infringement suit brought by the company against a competitor because of the
manufacture of articles infringing on Patent B was successfully prosecuted at a cost of
P42,600. A decision in the case was rendered in June 2005.
5. On July 1, 2006, Patent C was purchased for P172,800. This patent had 16 years yet to
run.
6. During 2007, Luther expended P180,000 on patent development. However, the
company is still undecided as to how the patent, if approved by the Bureau of Patents,
will generate probable future economic benefits.
Based on the above information, determine the following:
30. Carrying value of Patents as of December 31, 2007.
a. 372,101
c. 652,550
b. 335,975
d. 425,515
31. Patent amortization expenses in 2007.

a. 42,600
b. 28,300

c. 54,250
d. 27,200

Problem XXIII
Mabenta Company purchased a customer list and a formula for a total of P2,000,000.
Mabenta uses the expected cash flow approach for estimating the fair value of these two
intangibles. The appropriate interest rate is 8%. The potential future cash flows from the two
intangibles, and their associated probabilities, are as follows:
Customer List:
Outcome 1 - 20% probability of cash flows of P250,000 (at the end of each year for 5
years).
Outcome 2 - 30% probability of cash flows of PI50,000 (at the end of each year for 4 years).
Outcome 3 - 50% probability of cash flows of P50,000 (at the end of each year for 3 years).
Formula:
Outcome 1 - 10% probability of cash flows of P1,500,000 (at the end of each year for 10
years).
Outcome 2 - 20% probability of cash flows of P500,000 (at the end of each year for 4
years).
Outcome 3 - 70% probability of cash flows of P300,000 (at the end of each year for 3
years).
Based on the above data, compute the following:
32. Costs of customer list.
a. 230,037
b. 438,440

c. 395,042
d. 360,476

33. Estimated fair value of the formula.

a. 309,687
b. 433,485

c. 2,292,500
d. 1,878,915

Problem XXIV
You were engaged by Vista Corporation to audit its financial statements for 2009. The
following items were provided by the accountant of Vista as of December 31, 2009:
Accounts payable trade
Dividends payable (ordinary shares to be distributed as a result of
dividend declaration)
Cash overdraft with ABC Bank
Accrued expenses
Deposits and advances from customers
Income taxes payable
Premium claims outstanding
Estimated expenses of meeting guarantee for service requirement
on merchandise sold
Unreleased company check
Claims for increase in wages and allowances by the employees of
Vista Company, covered by a pending lawsuit
Credit balance in debtors accounts
Acceptances payable
Debit balance in suppliers account
Gift certificates outstanding
Dividends in arrears on cumulative preference shares
Dividends in arrears on non-cumulative preference shares
Bank loan payable due on June 30, 2013
Notes payable in installment (amount due in September 30, 2010
P500,000)
Deferred tax liabilities
Provisions for future operating losses
Bonds payable due on June 30, 2010 and payable out of sinking

2,000,000
500,000
10,000
15,000
10,000
400,000
120,000
100,000
15,000
1,000,000
12,000
20,000
6,000
130,000
600,000
300,000
2,000,000
2,500,000
500,000
1,500,000
5,000,000

10

fund of P4,000,000
34. Assuming that the above data are correct, the amount of current liabilities of Vista
Corporation as of December 31, 2009 should be:
a. 3,826,000
c. 8,332,000
b. 9,832,000
d. none of the above
Problem XXV
The noncurrent liabilities of PBB Company at December 31, 2008 included the following:
Note payable bank
Liability under finance lease
Note payable supplies

P3,600,000
2,623,200
1,500,000

Transactions during 2009 and other information relating to PBBs liabilities were as
follows:
a. The note payable to the bank bears interest at 20% and is dated May 1, 2008. The
principal amount of P3,600,000 is payable in four equal annual installments of P900,000
beginning May 1, 2009. The first principal and interest payment was made on May 1,
2009.
b. The finance lease is for a ten-year period. Equal annual payments of P750,000 are due
on December 31, of each year. The interest rate implicit in the lease is 18%. The
amount of P2,623,200 represents the present value of the six remaining lease payments
(due December 31, 2009 through December 31, 2014) discounted at 18%.
c. The note payable to supplier bears interest at 19% and matures on September 30, 2010.
On February 25, 2010, after the December 31, 2009 balance sheet date, but before the
2009 statements were authorized for issue, PBB Company consummated a
noncancelable agreement with a lender to refinance the 19%, P1,500,000 on a longterm basis, on readily determinable terms that have not yet been implemented. Both
parties are financially capable of honoring the agreement, and there have been no
violations of the agreement's provisions.
d. On April 1, 2009, PBB issued for P7,005,675, P6,000,000 face amount of its 20%,
P100,000 bonds. The bonds were issued to yield 15%. The bonds are dated April 1,
2009 and mature on April 1, 2014. Interest is payable annually on April 1.
Based on the above and the result of your audit, determine the following:
35. Liability under finance lease as of December 31, 2009
a. 1,873,200
c. 1,123,200
b. 2,345,376
d. 2,017,544
36. Carrying amount of bonds payable as of December 31, 2009
a. 7,117,536
c. 6,893,813
b. 7,417,536
d. 6,856,527
37. Total noncurrent liabilities as of December 31, 2009
a. 12,211,357
c. 10,711,357
b. 10,154,190
d. 9,817,014
38. Current portion of long-term liabilities as of December 31, 2009
a. 3,150,000
c. 2,727,832
b. 2,812,824
d. 2,169,864
39. Total interest expense for 2009
a. 2,145,314
b. 2,408,028

c. 1,905,314
d. 1,673,139

Problem XXVI
Moon Corporation operates a retail store and must determine the proper December 31,
2009, year-end accrual for the following expenses:

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The store lease calls for fixed rent of P12,000 per month, payable at the beginning of
the month, and additional rent equal to 6% of net sales over P2,500,000 per
calendar year, payable on January 31, of the following year. Net sales for 2009 are
P4,500,000.
An electric bill of P8,500 covering the period 12/16/09 through 1/15/10 was received
January 22, 2010.
A P4,000 telephone bill was received January 7, 2010, covering:
Service in advance for January 2010
P1,500
Local and toll calls for December 2009
2,500

40. In its December 31, 2009 statement of financial position, Moon Corporation should
report accrued liabilities of
a. 126,750
c. 276,750
b. 138,750
d. None of the above
Problem XXVII
Glad Manufacturing Company leased an equipment to Great Company on April 1, 2009. The
lease is appropriately recorded as a sale by Glad. The lease is for an 8-year period ending
March 31, 2017. The first of 8 equal annual payments of P175,000 (excluding executory costs)
was made on April 1, 2009.
The cost of the equipment to Glad is P940,000. The equipment has an estimated useful life
of 10 years with an unguaranteed residual value of P100,000. At the end of the lease term, the
leased equipment reverts to Glad Manufacturing Company. The interest rate implicit in the
lease is 10%. The present value of an annuity due of P1 at 10% for 8 periods is 5.8684 and the
present value of P1 at 10% for 8 periods is 0.4665.
41. Based on the above information, the cost of sales arising from this lease transaction
amounted to
a. 893,350
c. 1,026,970
b. 940,000
d. 699,750
Problem XXVIII
The following information pertains to stockholders equity accounts of Astra Corporation after
its initial year of operation in 2009:
Jan. 1 Issued 6,000 shares at par of P100 in exchange for land with market value of
P800,000.
Jan. 30 Sold 8,000 shares at P120.
Mar. 15 Purchased 800 of Astra shares at P150.
Mar. 20 Sold a machine with a loss of P40,000.
April 15 Purchased 1,000 of Casper shares at P140.
June 15 Sold 400 treasury shares for P68,000.
Sept. 20 Sold a fully depreciated equipment for P15,000.
Dec. 31 Declared cash dividends of P80,000 payable on January 15, 2010.
Dec. 31 Net income for the year is 316,000.
42. Total stockholders equity as of December 31, 2009 should be
a. 1,764,000
c. 1,944,000
b. 1,919,000
d. 1,904,000
Problem XXIX
The shareholders equity of ABC, Inc. at December 31, 2008 showed 3,000,000 authorized,
P10 par value, ordinary shares, of which 1,000,000 shares were issued and outstanding. The
shareholders' equity accounts at December 31, 2006 had the following balances:

Ordinary share capital

Share premium
Retained earnings

P10,000,000
3,750,000
3,250,000

Transactions during 2009 and other information relating to the shareholders' equity accounts
were as follows:

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a. On January 2, 2009, ABC issued at P54 per share, 50,000 shares of P50 par value, 9%
cumulative convertible preference shares. Each preference share is convertible into two
ordinary shares. ABC had 300,000 authorized shares of preference shares. The
preference share has a liquidation value equal to its par value.
b. On February 1, 2009, ABC reacquired 10,000 ordinary shares for P16 per share.
c. On April 30, 2009, ABC sold 250,000, P10 par value, ordinary-shares (previously
unissued) to the public at P17 per share.
d. On June 15, 2009, ABC declared a cash dividend of P1 per share on ordinary shares,
payable on July 15, 2009, to shareholders of record on July 1, 2009.
e. On November 10, 2009, ABC sold 5,000 treasury shares for P21 per share.
f. On December 15, 2009, ABC declared the yearly cash dividend on preference share,
payable on January 15, 2010, to shareholders of record on December 31, 2009.
g. On January 20, 2010, before the books were closed for 2009, ABC became aware that
the ending inventories at December 31, 2008 were understated by P150,000 (after tax
effect on 2008 profit was P90,000). The appropriate correction entry was recorded the
same day.
h. After correcting the beginning inventory, profit for 2009 was P2,250,000.
Based on the above information and the result of your audit, compute the following as of
December 31, 2009:
43. Share premium
a. 5,500,000
b. 5,525,000

c. 5,700,000
d. 5,725,000

44. Total shareholders equity

a. 22,190,000
b. 24,690,000

c. 24,770,000
d. 24,840,000

45. Book value per share

a. 17.89
b. 17.82

c. 17.71
d. 15.41

Problem XXX
In the course of your audit of SNN Company, you have gathered the following transactions
in relation to the preparation of the Cash Flow Statement for the year ended December 31,
2009:
Net income
Depreciation expense
Amortization of intangible assets
Loss on sale of machinery
Unrealized gain on sale of available-for sale securities
Proceeds from sale of fully depreciated equipment
Purchase of trading securities
Sale of trading securities (cost, P100,000)
Purchase of available-for-sale securities
Sale of available-for-sale securities (cost, P100,000)

550,000
800,000
200,000
30,000
160,000
10,000
500,000
220,000
400,000
30,000

Additional information is as follows:

Fair market value of remaining trading securities on December 31, 2009 is
P260,000.
Fair market value of remaining available-for-sale securities on December 31,
2009 is P380,000.
46. Based on the above information, the amount to be reported as net cash flow provided by
or used in operating activities should be:
a. 1,790,000
c. 1,380,000
b. 1,780,000
d. 1,670,000
Problem XXXI

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In the course of your audit of Bugoy Company, you have gathered the following transactions
in relation to the preparation of the Cash Flow Statement for the year ended December 31,
2009:
Purchased building for P1,000,000 cash and issuing
P500,000 ordinary shares at par value
Proceeds from sale of fully depreciated machinery
Purchased a 3-month Philippine treasury bill
Purchased a noncurrent investment
Cash dividends paid
Sale of 3-month Philippine treasury bill

1,500,000
15,000
1,000,000
2,000,000
500,000
1,100,000

47. Based on the above information, the amount to be reported as net cash flow provided
by/used in investing activities is:
a. 2,985,000
c. 3,115,000
b. 3,515,000
d. 3,615,000
Problem XXXII
Your audit client, Grey Company reported income before taxes of P370,000 for 2008 and
P526,000 for 2009. In the course of the audit, you gathered the following information:
a. The ending inventory for 2008 included 2,000 units erroneously priced at P5.90 per unit.
The correct cost was P9.50 per unit.
b. Merchandise costing P17,500 was shipped to Grey Company, FOB shipping point, on
December 26, 2008. The purchase was recorded in 2008 but the merchandise was
excluded from the ending inventory because it was not received until January 4, 2009.
c. On December 28, 2008, merchandise costing P2,900 was sold for P4,000 to Blue Corp.
Blue had asked Grey to keep the merchandise for it until January 2, when it would come
and pick it up. Because the merchandise was still in the merchandise was still in the
store at year-end, the merchandise was included in the inventory count. The sale was
recorded in December 2008.
d. Red Company sold merchandise costing P1,500 to N, Grey Company. The purchase
was made on December 29, 2008, and the merchandise was shipped on December 30.
Terms were FOB shipping point. Because Blue Company bookkeeper was on vacation,
neither the purchase nor the receipt of goods was recorded on the books until January
2009.
Based on the above information:
48. The December 31, 2008 inventory is understated by:
a. 20,300
c. 23,300
b. 21,800
d. 26,200
49. The net income for 2009 is overstated by:
a.
0
c. 20,700
b. 7,400
d. 21,800
50. Based on the information provided in No. 43, by what amount did the total income before
taxes change for the two years combined?
a. 21,800
c. 4,000
b. 7,200
d.
0
End of Examination
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