ReSA

The Review School of Accountancy

8Tel. No.735-9807 &734-3989

AT'DIIING PROBTEMS 2L .Tuly 2OL2 (Saturday)

First Pre-Board Examination 3:00 P.M. to 5:00 P.M.
MULTIPI,E cHorcE
INS RUCTIONS: SeJ-ect the correct answer for each of the foTlowing
questions. Mark only one answer for each i tem by shading the box
c.:rrespanding to the J-et ter of your choice on the, sheet provided-
sTl\ICyLY lro tR ISURES .eRE ALLOWED. Use pencll no. 2 onl

PR0ELEM 1: ERROR CORRECTION

'l.l!.1
were assi-gned to audit the financial statemen[.s of Anchor Corp. for
:-h": f irst f-ime as of and for the period ended December 31, 20!2.
/ir.rciior Corp. has commenced its operations in 2010 and has reported t:he
i () l,l-owing net incolne: lDlo aoii ui1.
-
j srni+iitlt i{4) 2 010 P3,000,000 flA +M 5,uM
20tL 4,000,000
(cn)
lli:*rtt 2C"t2 5,600,000
fherfcilowinq reflects the resuft of your investigationsl
lii J. C:,1 Ir-.r-ttons o11 a P4C,000 accounts receivable in ?.01?_ has been
{)mi%ion \i,4/
er':^cneously cr-edi teci to notes receitrab.i.,: ,
!v nL$ ,i
b. Purchase of P20, 000 of f ice -_€1;epJ ies i:::s beerr decJ-teci i:o t-he
Purchases account in 2ll:?. (a:,, '-) -....' r:i l ice suppl.ies remainerl
unused by the end cf 2()i2. ffi
J d]/1,
.. The physical counl cf inventories at the end of each year'were
misstateC as follows:
(rp) -L*_'
2014, overstat-ed
TL P20,000 bc Lw)
T 2071, understated 30,000 (5)
2012, overstated 5, C00
d. The fo-l-.1,:wirrq year-er,d .tcrvancc suppl iers for
delj-veries rnade t.he fo1. lowiir.g yea.::: were deb i- l-eLJ L<; i.-i:r,-:ir ;;ses i.lF)on
' payment:
EO (ao)
Tt" 20.].0 P60,000
Du
2011 80,00c L&s
The foLlowing cust omers f o:-
deliveri es ma,lc: the folJ-owing year were cr:edited to sal es upon
receipt of cash.:
20i-o P50,000 (,ro) v? ct
ir
iri
:
20L7 100,000
(m) !P,^

20L2 40,000
f. lnsurance premi-um of P30,000 fo:: the periods 2011 t.o ZAI_1 was
wi
chargerl t.o insurance expense in 2011 upon payment.T Xru )ntt lJ)
s. The foliowing accrued salaries were omitted at *."iIrfftl "115,
tii
tf
010
t
2 60,000 (oo)
pr.
20t2 120,000 erq
h. Rent of P20,000 fof two yea;-.s-,_.Lr 2ltii and ?Al?- was entrrely
crediteci ro income in 2011.
l-, .
U_ fleli loK
rmprovements on builcir.q co)^t,1nq P20l , aL{, irad }:r:en chargeci to
expense on Januar:1' I, '5.),, ^, ^ [1,;.r;',,ar.iri,..] 1,1,.'r-a ; - i. t.c, :.:i' Ii,,'c
vears ]-v *'
Ft rys_ ael?- i.{}i'} rct3 /,.oK) l(l{) ('l')
"1 . On October 1, 2011i--an *qrip*,riEEEl:jL:ir,-r l-,90,000 was ;:ol.cl f or
P40,000. The equipnrent was acquj-r'ed at the beqinning of 2010 and
had an estimated f ife of 3 yea: s. .- r.lre" amoirnt r-ece-ived was
credited to miscellaneous iirc.,rr,c IL W ffrb] "Cii it+W,"; (1+ 5)
t-rom incenti c,n of ooeratiori$, the conpany has @
siiuide.nds amounting to pso0*oca--jo-Z-0lQ, p1-Z.eg--QQO_-!n_2!11 . on
December 15, 20!2 the BoD approved the declaration of za7?- cash
dj.vidends Lotaling to P1.500,000 to st.ockholders as of December
28, 2072 payable on January 31, 201 3. The December 1li
decl"arat.j.on of .divjdends is yet t-r: i-rc rrlc,:lrd.-tij by t:he: coirrl::ijr-i\/.
Adjqgted qEefd aDtr ri ,t d: t ,,r,,., +"i:u.-t
.ii{i"(- {iIs
 KsSA: I he Keview School of Accountancy Page 2 of9
Ilequ i red :
7. Wiial is the adirrstr:d net incorec in 2010?
fr .i. 2.,930,000 , ,,r),000
b. 2,935,00C ,.i. it,(),ri),000
c 2, What i.s t-he rel_r:.a/.rr,. 1.r.'i,i ..rri 1u:;i_utetnl_ ..o f,ir<_: ret_aine<l earnrngs,
beg.i-nning 2A72?
a. 140,000 ,: ,, . ri)/,..)t_j!,)

b. 140,1-,li) :i. .i,i!';,000

3. Whaf j,:,; -he. adjus1,ed net .i-nr-:<;ne Ln ?-01 )'t
b a. .,r 240,00C c. 5,410,0C0
l--. 5,390,000 d. 5,420, C00
0 lVita t s the acJl ust,ed r:eta inecl e;rrrrings, end 2O1r) ;lOf0 flgtl[\C0/ng fq30
c.
,r.
B .1. ti,:62,500 s, a3?., 5oo"'
aoi\ ',nil'"*
lr. 8, 932,500 ri. o,or)2,boo 8't? :l?fl}
DiV lffOot
L ::. WhaI is the ef fect of Lhe errors i..;, 1 irr, ,li) 12 wo::kinq capi ta l ?CII 93q0.
a. i50, 000 overstat-ement i. . 1, 650, 000 over'stat,eme.rrt [\ql
b. 170, 000 overstatement ci. i,61 0,000 o,rer:sLatement
PROBLEM 2: ERROR CORRECTION
Windy's Inc. report-ec1 the fo_l low
2010 Pl,550,000
2t)1L 1, ?50, 000
)r)'l ? 2,000,000
An examination of the accounti.g.ec;ords for Lhe year encieci December
31,2012 reveaLc.i L he fol,1 owinq errors :
a. Saiary acrat :-',,1 iis; ,, l.he en<l of e.:cli eai: were corrsisLr:nt iy omit l-rtrl:
.

I
2 010 P90,000
Iri
,tt
2Otl
)a)1,
1.40,000
b. Tltr-. i.r,r.or,tj rr',i :t,: i, , -,- l: I ertaors we::e made:
-=-l :;i ir:;-:t-iii-r were r:ecor:ded its
Go.ris; r,iera) c:i(i 1-he rroitrrt_. . Invoice price,
j nventor:y Cr-.:.; l- ,
- Sales ir: 1,it.r:r:i.il- l'r-:i:r, sirlpJ.ri ng nl I r I ,rr.rti_ I .r,:orded as S;r i i:S.
Goods were exciudecl f rom thr.: .r,r:)r, i-- r::iiij i;ount-, -ln.rct j-ce Price,
P80,000; Inveni ory Cc;::'i , ,,-i i:, (t(j i;, gp .ryry _4011
December 31, 2.012 l6to irso t'ooo
- Sa1.es in tr:ansit !-OB, ::i:.s t.liL jcn w3r.e nol- rr:.t:-: r. lrr:,1 .::r, :j,,tr t., . (q0) q9"
Goo.ls were e:.:,:: i';,t-:^.:L , ' :',.= i:our:t. In'. ,:.:,,: ijt.t,:t,, p i0C,00, ,. (lOO) i90
rnvenlorr,Cl)T"-ii{0)
- Sales in tl;.ir:.:il I:ri, sir.Lppirrg pcint were not rec:orcjed as (tO) hC

O,1 yj.!l-!1 ,:. On ,Ianuary I n ...01i the company enrer<,.ci inrc a re-,nra-L .agrdernenr- rc,r *!
!Y'utt,ng
eco,,
-:l-li of f ice buil<Jirrg wi t-h Col.rJ Cor6r.
tt1+118';5@,Nill/1ir-l-pa...::"^:inc_ellabJe .
The reni..al, agreemerrt is over. u
,t.ire
ll+O
per:i'or1 anri is nofr-r:.in€rrral-;. Ie- ;;ni,,;., I lgO
oy$n Ld e{d Vrtal was set a L P250, 000 {J6.td o i ..r.,.rr-.ir--..r t,r l {{r
_150
j
t starting ,Jarruary 1, ?-QLI , T'he i:r:i.i r:tr:.rr-1 .,viricii h;lr; a u.selu i I ilr-: ,.;l Lt69.fr{r
lo+f.r*fX,JL
- had a fair of Pi,fj00,c00 iicoir i.hr,*js.,:rr:;;rio. cr,j iirt: i"r...:t:Lyq$t-P
i:"." prevdilirrq
U!€d10f{u^0F T::
iifu'td?Y
'a1uer
j-mplLc:i ic.a"se ra,,' i.:i ., {'.,,'\,,,, .r.rru.rr! 1, t')-,i. trfu}il*,lSl.iq1 ,
il: ':,:r"j""',i.:1,?.,;':::*:;"'i;:';;:,:::;,,,j:'-**:il
" -
.li , ::ri,,,i,{:; ;:i-
{zrn :-en'i- e.xll.:inse.
.,ir.:rLir,,(J
, Po {50q Pft -letr t";rtc t l:v}:':iL
L^ = !6g17c
,;r. 1,435,000 (j. 1,4-15,000
b. 1,460,000 d" 1,4g5,000
C @ iilal is Lhe aci-1ur,;t-ecl net iiir:onie jrr 20il'? XDepfeO'Ot,ffn
a. 1,720,000 c. j,Li:'i,11,)
t- 1t.,684,398 d. 'i ,6,.):r, l..ri (-) (+)
tA
p r'i.r, is
O .he: Jli
r.:r^.J .r)r :.rr...1r+: :^ 2r)1.. ., ilr* ,jlff#
2, L44, jlg , €t!t1. /rfl,
\\-.2 f
,- " c. 2,1.2-/
1,. 2.,232,gg8 rl it,i80,r,r1i.; oi,ffr. 15oKl1}Qlra m&otti li4$'l3a
1',','jl3 xboKttl{111 [de&11 1,11-l,lJf
v

AUDTTING PROBLEMS _ FIRST PRE-BOARD FXAMINATTNN l']iI','-}.{ .).2.i -,.ilt_.

7 RgSA; The Revlew School of Accountancy Page 3 of 9

C, @ i'iira"' i-s the correct carrying value of i.he leased buildinq as of l,{rgq,1gt
f',,r,:,lmber 31, 2A72'? ti6vq10)
;: .. none c. 1.351. tl05 _'\tyy1y)
. -"t\
, 1i-, 10.)
LQL,
OrO
ALJ d. i, 464 , r,55 l, 351, go5
"

$(-cr' ., .., r' is Lhe carrying value of the lease liability, if there are :
b i, lone
as of December 31, 2At2?
c. 7,2L1 ,..05
1 a??
.
?14
\t JJJ, t J/- ci. i,088,t115

PROBLEM 3: CASH/ACCRUAL; SINGI,.E ENTRY

Ubix Cc,i:11)any provided the fo1. lowinq -information ir, line with your at-rd.i-t.
of its i.inancial staternents as of and for the peri od endecl Det:embe : 37 ,
2AL2..
anuary 1, 2Ol FXPL!.{SEg
--- cu,
Accounts rec:ei.vable, riet of P5, 000 - J.ro, ooo D'd , ir'' '
-(q7
--TFtrD:TTO
It b€q' a,+5 L. Eqi, 8oc
aflowance for doubtful accounts
lnventor 460, 000 lgo lrs.
P::epaid Insurance ?0,000 B.Addrts ?]
Land 1, o0o, ooo otl'eu;t'1l-
Bui l-din 4 , 000, 000
Aaa"-".1a Bui Ldi n 1,400,000 \ls3K
uipment l_, 60o, oo0
Accumulated dep::r:r:j-at1on * ent 480,000
Ar:courrts payable 340,000
Accr:ued salaries 40,000
Advances from custcners 180,000
Share capital 5,000,000
Iletained earnin 730,000
Ar.rd i t not-es:
Cash receipts for 20i2 are surn:irari zed a.s fol
Total collections frorn customers P6, C60,000
Sales of equipment on December 31, 2Al2 &Qln,5oK
costing P100,00C with P50, 00C accumulai-t:d
depreciation as of the disposal date. 000
b, Cash disbursemenLs for ?.01?. are sunimarized ar; fo]1cws:
lnsurance premj"uin P160,000
*ltguiLtlt^r^q-
dqnt' Purchase of equi rt il_9{ober 1_._____ 100,000 *7r-\ i
tL,t
Tota I pa1rynenc s de tr: strpp-Liers of -), Lr\r, \-'w\r
1 ')Qn frfrn .

merchandi se
Salaries
Dividencls
780,000
250,000
tbc l[]C'&i
Other ex CNSCS __f I
e,Y-? 35, C00
c, Dividends of 5% were declared on June 30 anri :.'t:,::,,'tfLbef 31, 20\2.
1

6a{
without salvaqe varue. kf Exq
'(ti?
d. All depreci.ab-Le assel,s are deprqc iaLi:d ai i) '; 5 1 1.1 j- rglt i. * .t i iii,. a i. +; i:.

1.,.i.t o IDK
e. Doubi-.fii.i ac(l()l:nt.s are est-imateri to be 5? of t-he curri-:rl- . - ^.^zJ
i.'^^1,,ic
rece,:ivable and 20? of p:a:;L due "r".J;;TE=&fi?q";r'La rcCount-s recei.,'att,,,.' rurhcfl-I , }'rzs'
li)cK
balance at the errct of Lhe ,".r- 1D',r, -Ls est-i*airci P<r.rr-dug"
to be current, r^r-i.th the bal ance being past clue . !B,1Q0f oi. r-he l

accounts rccci vabic *".. 6.iif EG!fDduii;;g ' he year. W

t. Additional data on December 31, 20L2, are as fol.lows: 40
lnve'ntor 490, 000
7so
Prepaid fnsurance
Accounts :able
50/ 000
200,000
E:rl:lp
Accrued salaries 60,000 reU

Advances from customers 100,000

OOllec+roAS 6 roto,oco}
Reqr:ired: A beg lc{o{.
f e.l^ {00K.
11. i{hai, i-s ttie accruaf basis Sales? A e^.1
8 a. 5, 300, 000 c. 6,295,0C0 T hr4"
\oof)
(aq'gF)
-
i-: " 6, 303, 000 d. 6,298 , (tCO IfiJ
E
;
,{
 RsSA: The Review School of Accountancy Page 4 of 9

o l.2. trlhaL is the b;:d deL:t- expeitse l.oi:1.i,

a. 35,000
b. 30. c00
.t.
i,-.,t't
000 v{.0
000

a 13. Wirat, js tiie iirccruili b;lsi,:; {lr:st- i-,i l.t. t ,r-;?

a. 3,140,000 ,. l,ll(l,00ll
:
aS *d
b. 3,i:10,0C0 ,j. 3,0tl0,00lr Bt +{eO
p ar*O
(1. Wnat l: '.lr(- ;t:.rr.l,'ll ir.,si;: ir | q'! (110)
.n,,1 I ,lt , r -. '. -?fr?
C -,,,. ,,54(i,uoo
b. 1,5.16,000 .1. 1,!:)2.,()00
,,rrn','..,nl "'- $;tffi:
8d&'GCJ
A
fl
lY. rdhat i,s l.he I,o[;ll cl].r.rent a::set-s; as o.f Dr".r.:eniber ii, 20i2"? S+kf
e4 Csro)
OS)
N a. 2,850,000 (:. ?,eaa, lluli[J tls r],, ify*
b. 2,880,000 11. '2,92J,f;rrCiifor-:- Sql.'(c&)
ccg,h r{+, 6.rtn
*rr3"
5D
PROBLEM 4: STOCKI{OLDERS' EQUrry ftqlns&--
MaPer:a comparry is a pubJ.ic eni:i,iy wh,:s<: strare:s,rr.) rr:.,,.ie.t28l}.,*ir,,.., ou,rf
tlre-counter market:. on Jariuar!, 1, 2.012, r'vl.lper';r harl 6, 0011 ,000 shares
aut-horizeci orciinary share;s ot €B=-firb
.- va Lrrr,, ,,f wh j,r:h 2, 0C0, 000 sirares
'"--
were 'I.ssued and cut-sfalldrr)9. 'i'h.e .sh.ircht,lrlcrs' <.:rqui.t'y acr:ctiint-s orl
.J.:n,rary 1, .U 0l.l ht'J rl,: I, 1l r;,vj.,.1 t';lla;rr.-c.r':

Ordinarv shar:es cEr rita 1 P1 0,000,000

l!gr:* I:e{\'-,rr-:*9lg1rgt y I]:ele.:_ 7,500,000
Agc unu ijlt e c _glgl1t: 3, ?.!ta , OA0

Tr.rnsactions dur:i.nq the year:;:n<i the cor.'.r'esponcl-irrg entries; marle by lhc

colllpany wcro as Io_1. ].r:rws :
Cash
Pr:e I er ence sha r:e,.;
To recorcl issue of 100,000 sharcs at_ pa4
of 9a convert-ible pref erence share s (p50
Par vaiu<> ). Each PS 1s conve::t'i ble to 2.
o rd j na*r y .slra r es .

Casir
To recorcl l. lie i.:.,c,j,it^";iiiirn of itL),
ordi nary sliares. '['he comp-ra ny int e ncl::
reissue Lhe.same in l.l-re iu1-r.lt:e.
LanC ar-rd Bui lrJi r-..;

?l:e:f ercrili: :;li.: I <,:.:;

Orciin;rry shaL:e-s
To record i ssuance of ?0, AA0 pS and
4 5r 000 OS f.or .l real 6,.ropert y assesserl
Bidq. J$,,,. I

ior taxat:i oi'r purposerj :.rt p500, 000*1an<1; :1,-.'..t(}s'"'. 1F5K

P1, 000,000-bui 1di rrq. ::thar.c:.s a re qr*1
currr:rrt"1.y se11i.nq on thi-q rjate aL : p:l-
!95,:*9!*l?._Q.__** _*$[[__6 :
5ril
co) ra
i,o: <

r,,l tr
Cash
- Psl: l'lu -
*tL * 200, 000

roDF. i-
shares r:eacrtruiretr-l on !-<tl:;-.ria ry I , ;r t- ?2.11 T9 I(6CiK
per share. 5P-19

Accumu] aL e*d EIqI1 1_it 814, Oilc

L:i:: I g,:: I 1:,-l ---,r-t, .i:ii :-* *-"J.,:l i..,: I :.i:,, i
-1 * :(
,-.,- '
:
To i"{}i't.rr'(-.i ijr.,,i:-i .rr-;.it.ir>n of ljir;i:jr.:r: i:,
ki nrl, t- hat i. s I .s fr.r rr,r

Corp. (acqui red by t_ire r:<;rnpany ;1

*t
,ro** i*
1

sliare ) f or eve ry t,wo*hr.irrrlr.eii ]L

shares owned by stockhol cir: r:r. LI(,
m+1e
markeL pr:ice of iiBC Sliare.s c,:r.).,I
this rlate T'ire sl:ares ii ti.:: ,.i r :; : i i.) rr .ri:, 1

on,IanLrar'
-_L_

aIInl.r?lr^ 66aDt Ea.a

7 F.gSA: The Review School of Accountancy Page 5 of9

AddiIi,.:na1 audit firrdinc's:

The fo1. l.owing i,iem-s are yet to be ::ecorcied ry the (:onpany by t-he end of
i l-"o ,70.r I i
j, Or, Decernber i.l , Lne airitp.,r)y cjr:rl a:^r-,cl t,tic year i-y r:ash divldends to Rtouq 51oK
pref ererrce shares ' Pa'yab1e on Janr.r;,r.r, y 7 , 2A13 , to sharehof ders o-f
recorrl on DecenLrer' .11.
b) EFjC Cc:rft. shares wcr:e sell inq ;.:1- i'85 per share on Derccmber: :t, T1.16508s"
?012_
rc made,
c) After-.a11 auclrt :rci1r.:-strrir:rrt.s we you were able to ,'t.*-ira"li
*/ -d
r5;t-;@r*"=*_-tffi
l.i, l C:, 00() wl:r:l; isL '-_ v-L-;r E-*:- ir, _ -:, :'l -
..u1L,,,
ti
\6rOC
t.\. rrl - ,
r-o P1e5,000.
",,1
V
t" dedUcft tr EriE
llequ i red:
1.6. i',trh.;t- is 1-he cor,recl. carrvir-:o ','a Iire .'I l iie Prope::1-y I)l vidends
C i'ayable, if ther er are allY as ,rf iJecet.i.+.r: ..'. , 2012?
:i . 163,12.5 i.: , t: i , 8-t !: :,',

J:;. 814,000 ii " none

b V ., '24 , 9BO , co{) c. 2-4 , 92L , ooa

i,. 24,940,C00 d. Z'i,BBC,OOO

flv ',;r.at is the t-cLal ACclj t-ion;rt Paid-In Capil,allSha::c Premiunr as of

... .,rrllber 31 , ZCl, ?

:i ,, 8,4'i5,A0A c. l)r 14i,OAA

i: 3,71-5,000 d. 8, 855, C00
,r.lliat- i.s the crorr.rcr l\ccirrnu.1.;,rt ed Prof it s - i,rnappropriated a.s of Srfl'50(
B iecenLber -3 1, 2Or2?
.

-&
*qitt"(At+D't
OkoK)
.::.. 5,L45,t25 c. 4,19A,1:21t

i^lhal is ''he t-ctaI Stockhoiciers' Eol:it-\,- as cf Lle':e:rl;'-:r' 31, 20i2? Nt 3?C().

@ .). 2s,'130,125 c.
+,qoT.trE
30, c-?(, i25
?fr.t f,t#f&
i-,' 29,83c,125 3c,23"',725 Tiqnq@is ttq,gF.) .'
^Cl Assurnlng that. on Fe.bruar:y 15, 2.013, 5C,0(l C prefererLcr. .tlFmlftr*
@ r:onvert-ed to or:dinary shares (as,:ume from ..aIII-lary 5r t.ran.saction),
i-lLe entry Lo reccrd the c-:ortverst-rtn wi I I ir:'.rr>-i '"re:
iii. debiL Slrare J)r.enrium at c. r:r'ecilt lll-iare prclnium at Pg A"'ry
f ii,200,000 P2, )-t)O,t)o(' ;P-P IoOK
b. debit to OL:dinary Strares .rL d. credl, - Pref err:rrr:e Shi. at O, ?@k
F50o, ooo P2,5rio, ilo(r tP-* L'l@l<

PROBLEM 5: LIABILITIES
You were assignecl Li-r ;rtrd-1 t LSS Co rp . s v;rrious l.: ;:r-,,i.-l..ity accoirnt."';. The
foliowing schedul e was prcsenleci Lc) you l:y 1-hr.. arornf)any accoL:nt,ant, i n
relat-1.on to yor-ir ar-rcl it:
l\ccount s pa rlil'),'j 000
72%, Note .^---.L-f,.
)dYdLl lu -
L-'.!.
u.lIJI 000
Premir.rms rJ00
Sa 1a ri es 566,40t)
722, Boncls
AudiL notes:
a. Your purchases cut-o1. I proceCt:r'e s r e st: l1,r'-rJ t-o Ll'ie following
f indings :

Purchases,Jourr-,::-1. tlni-;:.:r,::,, : il,r,:<' i)r i.'!.,'.: ;' :

Iteceiwing Suppliers EOB 'Iern,/Remark I

Ilyli,if9__D_el-e I

D"- - 16; 1t',t,.:)"-' I.j(re . 10, 2Al2 P90, 000 Destinat-ir:,n

ir,t;";;-ti;;,-
!

Dec . '20 , 2A i2 Dec . 19 , 2Ai i: I20,000 l

Dec. ?-3, 2072 Dec - '24, 2,0i2 at rv/\- - APt--)
Dec. 28, 2AL2 llec. 26, 2C)72 9t 0(,0 --
llr:c. 30, riO {llrt
-Jan. 2, 2Al3 2012 AP tr"i
9"l:-l:--?!!*.- 2.9 , 2012 60,0(lO
-s_!:pej.t1_Er_": .l
Kdrq: I ne Kevtew Scnool ot Accountancy Page 6 of 9
Purr:hases,J<-,urn;: I ErrLri.r::: :,,l.rr.ri:;lrr Lr ,Ianu;lry :10 ') ( I

Receiving Suppl"iers Amount E'OB Ie Rerarf

Invoice Date I
Jan. 3, 201-l Dec. J0, 201), Pro/loo - Shi ppi nq Po rn J. AP+
Jarr. lt , 2.i)13 Jan. ?,, 2013 1l 0, Ijh j ppinq
Jan. 6, 201 j3 ' {,)(,10 Po t r; L

*qcr,-:-q.-2-q] {
*note.' assume .suppJ iers, iirrrolcc+ date a.9 qtrrrnT
llry[]rie*r.o,.r"
izr<' .:r
. ,,
-)uppl j-. - ,t :11,
' .:
date of goo<ls and endinq -Ll.l./ejj trsries h/e r-e _ ,.ljj-r..i:F+ i-:i:' ; g*
i.nt: f Ltdea,/ e->lr:1 l,Ljeo f rt:n l he t:oult l_ .

b. The 12'i; note payabre Lc thc bank wa:; o.riginatei:;;:r ll,:r.i:ir l, 2lll0
and i.s clue on March 7, '2a73. rntere.st orr the noLe is pr.:yab1r-:
every March l and i nt-erest- i.s yr:t Lo ce accruecl at the end of
the year. On December:.1 1, ?-0I2. the cornpanV has t,he opi,ion r:f
ref inanci.ng the liabiii t y lty r ^r::i.r ii-i,j ;:nr-'t ir,.rr' 1r;r'r.l;-i r,:rm <jebt
securitytot-hesamebanktluel>rr|,l'.,r..:.:.r|l l,'":, . ' 'iir: p roceeds ,:, f
the Loan to be made, as per ila,rt){_iit.:'rii...:ri.t .1 *_:+_.-:;.:!1.:...:,::j*..:f n,:t,i (V :",:.:Ci i:t)', r:,t
the foir markcL r,'alue <,1 Lhe oroor:rtL, 1o i .-r,:ri,;rl r :i r i',I,1{]on fur(nt'i foNl!
-*_-
asa ol. l ater:al . A"s of iitc 1..:r i ---:-l--t\.
+
F,ropert y has . I c L:_ va_l u._ I
...i'r -

. r l, ri' '.
*l::,",..j-j:",
laliii.l I ',: i-:.j1. i:tlipeCted t"o
curraql: qso( ^:'::
materi al iy ciranqe unt:: ..-:rl.iil._inq t.r'ansact__iOn iS 1500 K
completed.
c. ln 207L, Ihe .--ornp)an\r ,st,ar:te<1 a markoti nq proq,ram where a
special l. y ciet-.-i '.il-:.,'rt i:-,.1 .-i -r :rl-r:, j l i;e l i, vt,:i-r i,a) .-'r.i.]j, olilrrt]'s iiir.rrl
;)reSelr[., it,:r (i 1rr.-.iiltr:l I tir:'1:,; i i !:,; l-'-, i it,r:il. 'I:ri: compitr)y i rl, r,l-:r
hal:l . r .:..: i .r' l lt lr,2'.' i[.i)i1 t;:iii.:t'i;ti Ii:[ .i l.i;e:
iil'Cln.rilii:'i I 1..,.:i r:. .'1,,., 1,.:. ..rrir:t:i,t. r:it.;t l- , :,:r ; r'i:: i: r.' '., r ' .

rc l;r i i ,-:r- i r.-r L ire i-r rorjr'.im : *L!+i

h.\. laK.
Sales
2OLL erp 20L2
tt {rqr)
?'1 , 2C)4, AA0 PE , 4QC, 0AA
\i0l- (ro-r)
Tot al cos 1,. o I pr-ern i p .r h;: s cl r-.r r.:/90,0c0 1,160,000
r::
-, '^
( P5 0 per pl ar-e ) UU (11) .
Nurnber of plaLes distrj-but-ed 10,000 27,0A0 -
Iis t. imat ed rrumbe r of plates expect ed i,o
5k
1 , A}C) 5, 000*
be cli str:ibuted in tlie sub:;e ql-lent- ffibE
riocj
The barance of the trrrenriums iiabi.l ii.y account, r'ef_Ler:i s t_he:
*Sruaj at- the enri of the pIqVi(,u:j ylu* i. (l 1i), nc,- entr:y ha<J been
made <luring the cl-lrreni- 1'ear:' al{e,,-r-.r.1.; l-l-,,, :.,r,li ,rcr-:ouni-.
d. Salar:ies payable refie-t.s t-he pr:L-.ir,rlrrc i-rrrij..jeij sjck Ie;rves .-irrrl
vacaL-ion l-eaves irr ,-{.lr. -r:rci or i,:)r' t-..) 2c7i carr:ir:c oveL t.h(] 5{o6{m bq\
current- )rear. No (,'ilt.] v i, ,,:i bee:l ifi.,:i(t Cr-rr'-inq ,a11rl r:urrcnt. .1.::ijf '320 -l.,**
af f ecti ng the salar:i.es p,,iyab1e :r-rcLi:r-.
to cqtfv:o{grl
Employee-s ar:e +l lowe,:
it!-Ltng9--&.]ss- c:e{f1i te.r?i) t to,q_v*ur oi-]EE,
rys
there.af t,e,r, i t shal I exp: re. ir'i-irii-,errnoTer per. pa:Jt exp,r-;e.,"c int+err,ad
oniy \8(t .) of ac:,:umulated ,.iir;-<ecr Leaves are r:ltimat_ely exercise6. io "1J2
SaiaryYar.es increased fcr: i.he current y'e;rr by i0,i.. 1\n ;rnal.i,^r,,.:
of thr: cumul.al,ive unr:s-od sjr:k lear:r...9 arlrJ .,22t:6;i6r,-., .l eave.s a:..r .r.l
foll-ows:
Pri-or to eCtt--teaI"" -..,.i;;-.r".-- t'rl 1OW; r---_:
2 0 1 i-G" s c=-rr i" eci-&eI t o-.tj i z - -.rf--Q "g_v It?trK
"e ,21:O days ',1BB
Prior t o 2012 Ieaves u:;ed i rt ?.Ai? ^

l,eaves earned rn 20i2 i:arr: c,i iiitr- llso-$g3-- *i*;es)__

!-{6()
:"f
rIrI:lr,'_ -3zO{S;"b*EXp;t$I--
e. The bcnds payable weie ls.si:ecl on .iarrirary l, i..01 i 1-o yir:ld :: i 0
ef fective yie-l cl r:at,e. T'he boitds shal L rn.ri,ure orr llecernber: 31, 5'i FV Sp.ie
\rs The r=nt ry nrade t>:r, Lhe c 1 :. enr_ tv.is t-o cleb.it cash for tlrr
3M
L-ash pror-'eeds, credit br.lrt.l1:; 1:,liy.iblr: rir ' ,i.r., r,.a lUe uri th i_ht..
ciifference beinr; charrlr:<i tr:, iilir.t.a:lL rt.,;l 'l'ire cnly ct_hei: s'/qnnuir{Pri 6Plirur{
errtries relatec-i I.o bcrr<11: ii,,l(_i(.i i '. l-rltr ..i,:'.. e o f -
i ssuanr-e were r h,: /(6r.I-=Iiilr :
and December J1 , in-ZTfi:" ;tn<1 ?Ai2
cre.!L r]aynet' i , ev€try ,.lune 3L) :Pts' \{cf
TLre Board cf Dir{jctor-s aplrroverl lhroirqh ii rcsol.utjon, ar)clit.i-<-lrtal
incentivr-: fo key off.ir,:e:rs i.n th,r ft.rrrL rrj ., irL;nus:; whicit shaLL hr:
at- 10,1 of the adju.rreci n..r irra-rrrLe af r,r:r -i..ri rn(-orne i-,1-.{ ,lrr(l aller

AUDITING PROBLEMS _ FIRST PRF-BOARD FYAMINATTT-INI 1A\

 RssA: The R.eview sEool of Accountancy Page 7 of 9
7 ircrirrs, The nct ill:ome of the company be f cr'e anv adjustments
werr:;: made i s at. ?4, 631 , 6?,?,
3,,-qL; : r "-<r:
b 2? . Vlnai- r:: i he acljr.rs.l,eci ba,l-ance c-[ t.hr: account-s p.iyah.;1t: actcount? 92o
'il :, , iO}
.r , c. 73-1 ,0C0 ( c1)
i- ' lrrl-rl' C00 l. ;,J,()C(l Cso)
10 -
r. iir;i,; ntucli f rol, pa1z651e shar I be pr:esenl-ed .ts no$93;r
l.

6 rjl-.tIli{,-i.) '. :)
:t. .1. l:i,0, r,)oi.)
12't-
(-, . l:t,'t l.r
, l) il 0
i,.. 1.r 6001 000 t\
rl .

;l ; . tJfr:rf, rs i-he t-Oi,,i-L p.r:'eril-1 ltm.J c.<1,{)ir:ti.: ,:i 2i^;i):'!

.r. 84C,000 ,:. 1,141r,0)0 IqOOO XGO =ift4Orcf6)
r
/8
b. 1., 040/ 000 d. 1,?"6i.),a)o
2i " i"Jltz'it is t-he co.rreilL b:li.rncr.: r-,f t.h,,: sal.ar j-el. pa.y'ab.lr,, in Lhe f orm
oi ('{-)IllLrerlsdr'eo
ct iiab-i 1,l y lf:or c,'rrnperlsriLecl ;lbsen..:es J
tgb6 xX 352 38, :; $g1ZOO
,l . t) ,:) t.q\) c. trr.?,2rr0 l95o
;;," L:ri r 200 d. i:92, , aOr,)
c @ i'i::.r1. is
1.,,,:.
the cor';:er;1- r;;;r-r'rri.nij valt:e of
,r:riilt.::.: -i l r 2A\2?
j. irr: l.,on,.1s ltay;:b-Le as oi.
1, i't.l ,896 .. )
_r
t lar trQ i)f \')/
t!_
!. . I)t 1 f,a al l
-LJLr l_ I L tj.. 3,Ll.)(:;, -l/9

YO :,t)"'.,1- i...-r t-he

258, 680
',>
61 , 6E2 6
corL€tct-;rrnol.tnl <;f bonus L.J k+ty offitters?
?ioy.(lEgsflq-$-]oJ,t4s:1t1r)B' 3f)0, 000
:(11{
13
f6l - 0,0+B) cl. . 32 1., 000
tur{"
4'b11,b1:1.
Itl ooo
llgo oqc)
B- ()\ oTft l-01)
ruxrunriexl 4p:*
PRoBLEM 6: e4tr 5(pb1fi
qb",^!l
l:-r ilrrc w:.th"r*r"r*?rr16bK'r
yo,i-rr aurJll ol ,-l,lll Tnr:.,s l.i.rt-,rt ii,y b.r ror" r,rl, ,,r.,(kS
xT r
screciri L Ft \^ra ri nraiie a v;t i i aL,.; i::i ii) Vor; : :fit' trr &qt
?$1.{-
A<:cour.ts p.ryat, - r, f r.'l +l;, -,:; ; .iJ.1 tl 1
$,<xf,ti'i
4-
De f er red '_g.:!s
10? Bonds payable
Audi L not-cs :
al . Ar:r:oun1--s; p.:yablc is nct, . i l-l..lr:r .l i, Of lg r-.; f t ile
company' s suppJ i ers ilr':, '.: rr.ii :l
i-O i,1Il OV(rrp ,yfii.lnt rnadr,:. T'i-re:
rjir-ir
aqre€rment with the sui,r:-1 sirpi r; i.,a l 1 :.; {':- I irr) :trl;r.D I I itf ".tt
ie r
rleli,-;er alJilil -ir-;l.r.i nlr.r':ltanr,' ::{ '' -. I i;. : :.,:. . r.... ,:ilsr:t- i.1tr; frP= 5,sb(
OVerlja y'nertl, . lii-1 ale.j .i '",e: I i,tt-.; '!Vtl
I- i:: ili:]ilr: ,Ji:r r'l i tI(., l-,,] ".tI.r.t(: t:tl1!iir i-
(1;.1 i-(] .

h.r. W;rrrarrt j.es payanle !,ra larrc;e ref e_r::,: t.(, t_l-rc romiren]/, g .r(-:(trr.tal :i:
\,iarrilnty expens€s irr t.ho p.revi.or:.s /€rrr- lrlr; i.li-lir:rr enl,ry wa:: nia<le
f rt:' Lhe currerjl i'(-':,:i t'
j
r : rr:t- t;::r.I 1,.-Lt.r .l jnrc -1!: coLra1 . r,/arr'.ltt i i.r;; 01
compan.T's 5rast, ijXir.:,I tr r:,r,,, l.i,l,_:.: ,i).t:-lit:t - i_.tr rh?
i..f.qgls -sa.l.d
coverecl
c(-lwf eg h
by i I I lt,i ;ri rt::.;Lri!**jg!ji.!rJ :j .
,r ',
t,;-,
f o1i.ow-ir,g -i.nf c::rlar- ii,li .jr l,:r d,,.,arir.l.j l:_i:j l_e'r,lrri_ i-:;r ti:.., :;r.i.rl -,tit.( (.::ii:i.,1
program: ' \ tr2oo
__ I |
,80_r a4!6!J
201,2 20Lt
1s'{,
x lqf
it"r* "oG-t&;;;a y Lhr:-;-r-,r;;-
b;'Lr"*,
g1_i:c|- uv_.n"_ pigIlr*e
p oq r arn I - ;-i,,i 6,2A0 r:
?qt(doo
Ac,-u;l wrr--r.tv .o.-, .--;'l,a;- 121ioo -
T r;; ,,;lL-l--plr; , r,(Nr (1t9\oa) -
lJa::ran1,y cosLs (cost of r:epair:_rn.g .,A -n urit r r e,t,r-tl.liccl) in,:tr-i.,i::,-,..,
by 2.4e" dur:ing the curr-.eri1.. vear. =rr-rou-
Defe.rrecl tax Lralance apprcai: t.nq abo.rr-: i s i |:c rc:t:, t. l, ,.r: i lir,
C.
<ie.ferrrecl tax cre;ttecl lry ti,<,t w.ir:r';-rnl-ir:s 1. 1,,ri;i j.ii..y ,i.rr i.it,; trr,r'.,; 1r:.1;;
in fl,otl,rqend ye.tr wh:-ch is !_i{ ,!lg!1q!:!j.b_ie Lrp.on sg..it_tcrnelj. Acl ju..:r.rnenLs ar.e
qilllr$ yet- t-o be rn;rde to the: said account- 1.<; r:efIec.t Lllo tnovr:rr-.nt iir 1-i'rr:
acrcount bal.ance clur inq t_ire yealt. Mor:ccve :., li;rr:,.l.her ,:empor.try
eL:ence ari s ing clr.rri.ng i-he year crr:ai:<, r; by Lh() t:olii6ra;-ry, s
d1 f f
excess tax clepreciat l on over i.i r-rarrr: j a i dsprccj at-i on f <;r l-l-; c
period amortnt.eci t,o P.:1 00, 000. 'L-frc .j r.,i'.)rTrc l.-il;< rat.e j.s .lt, .10:..
10or

lllt\rTtNa h6n Er Ela6 rThcT nn.- n.a

 R.gSA: The R.eview School of Accountancy Page I of I
The b;l Lance of thc l,.onCs r. , . li .i (
t)' , l,
iit;rirIe on Dita-elrnl)e r' )1. , .. | . : . Irr'lli{:} .l
l- ,

and are ..ron vC.rtt i bi e t .: ; r(.i.i n,t I.

.. r.;lt_n oI P]r000
ho;,d LO I U, I'i ) i)u : (i l1'Cl i l:,:r ,' ', illlit.l{iirCe dd Lfl
t-he ell-t-,ct,,i ve rTicti,.i ,.ric -l-

r,v.i t-L. t- hr:

hol"r
convcr^t-.:.b.j ti ty r..p-.i_i.,tn vv;jl..j
:;e i -L ng "tha rcs we L(l
1.f l?-i 1 pilLi.-l lr i r : s.; l-r .
mi;ide by Lhr.r
cl...j-enl- j..ri rE:I.it-iorr l:q.r ,:rr int-e.r:e,::t- L-n
I-)er:emtre. .!.i, as jnterr:s; i- ,:, 'r,-rnbor 3l
Recl,-rj.r-r:ii:
28 . Wit;i I t.:; Lht: c,;r-r.r:cl rsr pJy.ib I e as t-- t lle_.cernber
i, .tiiiil'i
3
,.i. 152, C00 i.,4, gao
ir. 500,80ii ,..1 :1, 100
['\J ,,). i/h,.rt j-.: r.hc t-ot-;l-] <tr: Ir.:r.rr,:rJ i ;i-,r I i
.l , :1,1:{), ?.4C
r 1.-

l l),0C0
, ,:t,
"r D""'?,;l;iLuit,yJi'#i- **d
b. 9Q , ?_tlo , .:0 ,') 4()
zh
$ Wf l s ih,- :,'., :..1 I'r-iint l_i ;.tlr. :.r. l.O br: r.epr:rt.er-1 irr t:,hc ,OY3
::i tl.cli'rcnl of 1.i.n:inc.ial pos i.*-i.()rr I
:i. i, i)6f,, il0C t{P +n}g
^ i , ).?-9, go0
i';. '' , ;-:'t , !;Q(.\, t)f i, 00i)
A *11. Wir,.i. i.:; th,:r cori.cci: !1.r.(.,ciii. l-i) i ai t a h.,. l. rlr::.r :;' cLiu r l-'// ;:l (-'('.)l-l I'i l- -l q
r
a)
r.';:i i- : i. i.;f i itc .i :.:;i.iai-ti-t{:tr a)i I hr: h,:, aJ:i on Jar:ui1r y
-tI , ?.0) i:")
..:. Irt'4,''li|"i
lt. .<lr';.., ll .J. 500, 00rJ
r) r\.:iiiIt: |:riJ i-haL t he bc,n,t.r rrerc (,:(_)ll\rcr i..ed on ,-Ii.l rr i;.1 , '.:'., ',)().^:.lt,
.rr-, 'Itar i"Ot,;i-l C r. ec1.i. t t- r,. r:l i: j .l' U f)l'(:ril i i]lll ;:l 5l
r,
I- r-,;-p l.. l.
l^tii;t+
,i i r'ri 1\
l
.:..: :\.,'t: I SiOrl'?
6P 5M
.1 . 2,-l(",.1i;;9 (-- . ff'?o. t6',lio
L ',-,::l
-11 ,
'' ', ,t (ony, 16
' lti
oc 'l'5M
AssunLi riq lh;rt, t-he boiiCs 'riel:e tt31
rar1..-i rc. il 'ln Jaiil;.,:.. / ' 'sP lEst
' :1.'l
hrh.rii 1-he prcv.tj..L : rr q mit r' l1..ri l- r it i- ,,!. ,y-a+i, ' I |
..:)
:t .

.:;,:,.r:.1 I i i:_i.():i w i. l i)ot_r1. a()Itv(l r fj i 1)]l .')t)1. i i,,i i)

lr: I r,.6,s61.r..:rJ i.r-i Llte,: f-rroI- i t or' l.o:.ts .,r.. r,.:,.,v, ;i:: J:i:.rt,1fe.-';.,, .'.
pu
.:r , \'i , .J ) {)'I_
,),',., 0.Ef -.

: l.?-i ,ft9.1 .1
:,
)fl
,+, Fricc.
of bndr /5,ef i,;i,:J
,r
LbP) *..-Jf..,'i i{,r i.3 '{L l

PROBLEM 7: LIABTLTTIES AND STOCIGIOLDF:RS, EOUITY 4ql sq3

'I'he {:oJ-.i.cr"ling posjt-(ti,-Jlt.ir.L/J r-r-.taj ;,_.1ai-rr;g i,,,i:,, a,rr.jii pr.eitei.r1{t(.1
t.iie .r-lca"drf-.int o,r- D:i a.l.:rrrj. lrr I iqi; ,/,/i. l,;, y.,.),jr ,ju:lr t !_,
1- ir_:;
Slat.lmerLt-S e..5 .r-1 ;ln(l .f .)r' t he p;.rri.()Ci eira1().1 ilcrrtr-_.lrhr.:r. .i1, ll(.t1?,:

( d::il
?2.5?., ttitt^1

'.I-'ff-K*=
lnventori e*s
Prepa yment s
t3ui ).cl.lng
.i,l:,0,000
Accurnu_l-;r t.cd i)epreci.ai-.-i on
F,210,00i)
IIuu-i.urne n t.
_-_a_g*__ f,,t,l.
;;l;i'il;- "-- -- - .
':1
,
_tsg1r*Ujrle,j _p-9,i, ?.1:, "t , l(.)i.)
iibiel i, fli a;
"
_A.r!l!g.i expenseri
lLi- Lr!:.s p;t; hl e._-tla;, r;--- ---- lJ, !)oii"
!l:L-rlj-!- L
Bottt-1s;-l;.ivak;Ir,,titteI)t',-+nhct,t,-rii "-
_.1 i_- _. _ * _ .. __ . . .. _,:-l I , 000, 0t\0
9__ry[4ary shares, p5 y;ar:, 1C0, airtij-air1,i;t;1,;;,;l
iic;r'r zr,:rl t):.t, (lll(tl tSox ,sP-06 {.gDK
l0li, prei'erc,nct--Sili;;**-ru{- i,,, .j1,r, (lil(
'-

alut-heri.led l,sagqrq {0K

-xp
l.r't"trt, rl I .i .,,.nr
f. r !/ I Jir.. i, --lilrYlil DoK - p5 d,Ol(
'.1'ot-;r-1,
i 1l t I r\ir/'
----6,1.]1ir
-i 't t)fi(t
I ' I i\ti !,, i,
Irudi t- nol-e:j :
a. Of the ai'lliiorj:zecj i_.r.jjitijry :i i I ar l:'(:,
:_i , '.., l.') , '.,'F.l i: i-l i. ..; l': u c.
5, CCC of wn.icl-t wclt(.r .r.rij..r.il..l it,,.1 ,: i, i'l-1 g.,tr r. !t
<.i

I I lFlf?rr^
7 fuSA: The Revleru School of Accountancy Page 9 of 9

b. Of the authorized preference shares, 15,0()0 shares were issued

and outstanding.
c. The trading securilies balance, j-ncluded pX ccrp. ordinary shar:gg_
reacquired and were restated at j-ts prevailing fair vafue q1.\)
aL year-end. "f
rl. on December 28, 2a12, Lhe BoD of px corp. declared the annual Rt 4old
cash dividends to preference shares and a 15? stock dividends to cD9 -
ordina::y shares - The sam.e has not beerr ref lr:cted in the company, s
books as of Lhe end of reporring date.
o5#?,*
e. TLre 12eo notes payable to the bank 1s due on December 31, 20L4. eP 11t5D
rnterest ar:e payable annua).1y every December 31. The agreement
i,;ith the bank i-ncludes the maintenance of arr eguity to debt ratio
of.2:1. As of Decemher 31, 2012, the company is in viofation of
thls covenant- on January 15, 2013 the bank gave the company a
grace period up to January 2014 tcL rectify t:he br:eached agreement
dur:ing which the bank wiff not be demandinq payment of the loan,
r. on January 25, 2013, a customer f j..Led a p300,000 Lawsuit against
the company for clamages it suffered when it used an allegecily
ciefective merchandise sold to the same eustomer in 2012. Through
your: letter of audit inquiry, the company lawyers opined lhat it
i.s probable that the company wll1 be lj-able for such damages and
that the extent of iiabiJ-lty will be wlLhin the range of p150,000
to P250,000. on March 7, 20L3, the company agreed to settle out
of cou::t paylng P220,000 to the customer. o{dSfing 6ukEue^1 axrnt
S.Ihe financia-L statement were authorized for issue on April 15,
24i3.
Requir:ed:

C 34. What is the amount of provj-sion, -i tnr_::e are arry to be accrued

as a result of the audit not, AJ
a. None \' \r. t2a,col,
b. 200,000 d. 30c,00()
U 35. What is the total curr:ent i,iabilities to be. reported irt the 2OLZ
statement of f inancial position? t.rtqe4 t
a- 620,400 c. !..:[,J,]i, A0'1daD t ertrriiq{Dr,}
b. 650,000
t
,l . B:ri) ,00C1
36 . What is the total non-curren1, .l iabi. l i.i. ies -o l:re reported jn the
statenent of f i.nancial pos_iti_on? (loie fltg ebtt
a. L,420,000 c. l,0lt0,Ci)0
b. t,200,000 d. 42A I OOC,
37. What- is tire net adjustmerrl !o the ;:01-z nE,i. i'come?
C a. 210,000 c. Z jo,1AC Fr*iE;un ??rK r \
b. z2o,0o} d. 240,0CC -io."grrq(pgs+4\ailuD-S)rguuD)tCIK
$natai
\ +oflI
h qp wnat is the adi usted ba.Iance of ,rccr:mulated pr:of its*
unappr:opriaced as of December 31, 2072? W W( Tg+--
a. BB,5oo {,tlot.y
c. li8, scc qffi (qo1)
h. 128,500 d. 132,500 ffi i;;gFJ grsD
h @. wnat is rhe totar stockholclers' equit-y as of it*,n#?oq, 2ot2?
i 1:3?3;333 i; 1;;13;;,;; B;ffi
. ,5? 6r, eSro +U'45
. sPe+?n
Tbtd, qE txB.E
rq (4q
500 ?l"t{
IaoGk
4ElTIi'G PROBLEMS. FIRST PREBOARD EX!. I RE N EO/ESPEN I LI.A,/JAM E',
SO'JTION GI'IDE

PROBLEM 1:

Nfi.lNcO:UE NET lNCOlylE NET lliCOl"4E P.E. bes WC. end

2010' 2011 i 2OL2 zOLt 2}tt:
Una,djusted Net lrrcome 3,000,000 4,0c0,000 5,60c,000.
a. Balance Sheet Error (no effect to l{l)
b. Unused Office Supplies,2012 , s,p00 5,O00
c. lnventories, 2010 Over (20,000; 20,000
lnventories, 2011 Undr.r 30,000 (3o,o3o) 30,000
lnventoreis, 2012 Over (s,000) (s,000)
d. Advances to suppliers, 2010 6C,rjoU (50,000) -
Advances to suppliers, 201i. 8O,OOC (8O,OOO) 80,000
e. Advances from customers, 2010 (sq0c0) 50;000
Advances from customers, 2011 (i00,000) 1c0,0co (100,0c,0)
Advances from customers, 20.r2 (40,00,J) (40,0o0)
i. Insurance expense, 2011 over , 20,000 20,000 10,c)0
ln.urance expense, J012 unde. (1O,OoO)
g. Salaries payable, 2010 under (6O,O0C) 6o,t0o
- !,iaries payable, 2012 uncer (120,000) (120,000)
h. Unearned rent, 2011 under (l'),000), . 10,000 r10,0Ci0)
i. lnprovement: - Expensed,1/11
,,
200,000 20u,000
Depreciation, under (2011,12012) (40,0u0) (40,0oc) (40,00o)
j. Miscallaneous income (40,ooo) (4(,000)
Correct gain on sale 140,000 - 37,500)
, 2,500 2,500
k. urrecorded Div,dends 1no effect ttr Nl)
Adjsuted balances
1. Ans. A. 3. Ans..B. 2. Ans 5. Ans. d.
i
"
!l\l2o1) Cost of equipmer.r 90,000 .

AD up to lOlLl2ctt (90,000/3)"1.75 52.500

Carrying value as of t0l1/2)!1 ':?'5oo-

het income 2010 as adj: uted 2,930,r00

Dividends decl and 1r;.id in 1010 (900 J00)
N .t incorre 2C11 as adjsuted 4,212,500
DiviCedns dec and f aio in 2011
letained earnings, 2012 beg. (adi)
. (1,200,000)
i,04 2,5C0
Nct income 2012 as aojsr:ted 5,39u,000'
Dividends declared in 2012 (1.500.0c,0)
++J
AE, ending as adjsuted
. 8,932,500
4. Ans. B.

PROBLLM 2:
2010 u 201 f ,it 2012 M
Unadjusted Balances 1,5SO,OOO. .,7SO,UOO ?,OO1,OO0
a. Salaries paya rle, under 2010 (90,0(;0) .9O,OOO
Salaries payaole, under 2J11 (1Jo'000)
s;laries pay rr,e, under 2012 .1,o'ooc
(r40,u00)
b. Lz/3lrt: Sales in transit, Dest
lnventory \excluded)
.
{5O,0OO) q0,U0O'
30,000 I3O,OOO)
L2/31/L2 Sales in transit, Dest
, 6U.0n0
l2/3UL2 Sp
Saels in transrt,
14O,CUO
c. Overstatjmetn in Rentai expense 25O,O0C 25O,OO0
hab)
tJnder in lnterest expese (lease (143,976) (133.373)
Under in Depr (cost/term)
AdjsutedBarances - r"*ru__ffi]*
s. e"rs. a -z-G-8-: e-
""*
PEPICDIC RTNTALS 25O,OOC 5.7590 1.,699,756
I

Ccst ofthe arset 1/1/2n11

t/utt: 1,589,256
L/t/tt: 2so,ooo ",689:7s6 Accum frepr (2 years -L21IOLZ) tSZ.dUf
(253,000) t,439,7S6
7/t/t2: 25O,OOO 143,976 (1c5,024i r,rsr,zsz
Carrylngvalue, Lzlstlzltl -1Ei,6f
1O. Ans. B.
t/7t73: 25o,ooo 133,373 (11G,S:7i r,:rZ,rOS 9. Ans. c
rNote: Depreciotion
is bosed on term, since
'Note: Poyments ore mode ot the beginnir,g of each yeor, thus hy the
there is no tronsler o! ownership.
end of 2072, the liobilie. outstonCing is stiil 1,333it32,
since t.\e next
poyment of the principcl will be due cnly in
Jonuory 20lt
 AUDITING PROBLEMS.
\
JOUTION GL:DE
FIR];T PREBOART I XAM
\
IRT r'.EO/E5I-ENILWJAM E\
PROBLEM 3:

'arm#Hffi#i#*na.-
Accnlar
I ,,;;;;
6io3,oo0 ;;:rl;";lrassume inciucre recovery) 11 A,rs. B.
I Sales Disc;unt

W_,ffi
Recovery
Allorvance for I
| ,,.* fflHr,n

s'ooo
(no rerunc)

write off ,,* i ::::*

Recovery
curren. 3oc ono 5%
Allowance

. pastdue 15,000
38,0fi) Bad debt e,t 12. Ar.s. C.
1OO,C10 20% 2o,ooo
35,000 Errd
lbtal . 35,000
I
AD\'. To SUpp (pR); Ap^lp (ck) I

Beg. (Adv.) Be3inning lnvento y I

110,OoO B"g.(AtyN'p) 4eo,ooo

cash basis 3,28o,ooo I ,,ir.,.* ;.:ilil::;l 3,140,ooo -
Purch. Disc I
Ht;lt* 3,600,0({)
Purch. Ret. I Ending inventorY
_< (490,0.j0)
GOS
refund) 3,110,000 13. Ans. C.
End. (Adv,
l.oo,ooo__8!! aPn'4 --
--.
Sales
6,303,00,0 iash
cos 1,945,000
(3,110,000t
Gross profit AR, net
3,193,000 365,000
Gain on sale of equpment l,rventJry.
490,000
50,100 Prep;,id lns,rrance
lnsur3nce e):pe. lse 50.000
(180,000)
Salaries expense Current Assets
(80c 000) 2,850,C00 15. Ans. A.
Other expenses
(135,fi)o)
Depreciation - Juil<iing
(400,000)
Depreciaitn - t luipment
(160,000)
Depre:iaitorr - 3quipment (new)
(10,()00)
Doubtful accor[i :s expense
(38,u00)
Net lncome
1,520,000 14. a rs. C.

PROBIEM a:
a) Cash
5,40u,000
preference Sahres
5,000,0c0
Share prerrium - pS
400,000 ,

b) Treasury shares
32c,000
Cash
t20,00c'
c) Land
5ri6,557
Buidling
1. r 13.333
Ordinary Sahres
225,000
Share premiunr - OS
preference shares 575,0c0
L,000,000
Share premium - pS ' 10 ),oco
d) Cash
200,00f
Trea:ury Shares
160,000
Share premium - TST
40,000
e) Accumuleted protrts
814,u00
property Div payable
814,000
fl etcumulated profits
540.00u
Cash Div. payabte
I 540,ooo
I

8) At:cumulated profiis
5C,J75
property D.v payable
50,875
h) lncome Summary
3,^,JC.O(to
AccmulateC profits
3,300,00J

A<:cum Profits
16J,000

Accum Profits - approp for TS

150,0c3
 I RE N E J/ESP E N I LLA,/JAM ES

PS OS AptC CCIL Ap-App Ap-unapo TS

heg. Bal IO,OOO,CO( 7,S0,).t00 3,250,000

h\
(320'000)
.) 1,OOO,OOO 225,000 775,0(0
r"'r'wu
4n,0oJ
160'000
e) (814,000)
fl (s4o,o(o)
B)
h1
i)
,lss,ooo) ,
ji3;ili'

--rssueo sn fZO,gOg Zf45pOO -

TS (10,000) -.--
Oslh 2,O35,OOO

PS 6 00o,0oo Pr ooe.rry div (12l3U Z,o:t5,OCO/2oOrp85 864,875 16. Ans.

o5 10,22s,000 16,225,0C0
C.

sh PPS - 500 0oo

shP-0s 8,175,000
Sh P - 6 4o,OCiO 8,715,fi)O ra. nns. a.
contributed cap 17. Ans. B.
ocl -qr4qof
(195,000)
AP-app 16rl,ooo
At--unapp 4,s8s,12s 19. Ans. B.

H= *#i*ffi2o.An:.A.
'upon conversion of 50,000 preference shares
Preierence shares (50,000*50) 2,5rr0,0C0
Sahre premium-pS 200,(t(ro
Ordinary shares (100,000*5)
5r0,000
Share prcmium.Os
2,:00,000 21. nns. t.

PROBLEM 5:
Audit note a:
Accounts Payable, unadjusted 32,J,COO AJE 1) Accounts pa,,able 117,000
Shinments from consignor (g7,OO)) . purchases
Shipments in transi., FOB Destination 1:.7,000
(SU,00 ))
Shipments in transit, FOB Sp (not yer rec.) 20,OOC
Accounts Payable, adjsuted
_gg#d,_ 22, Ars. B.

Audit note b:
Since the companV as the right to refinancc the loai,
or : long ter"n basis, and such right existed is at the
AJt 2) lrrterest Expense 25O,OOO
lnterest payabie 250,000
barance slreet date, a portion af the loan may ncw
be To accrue ir tere<t on flte note:
presented as non-currer, !.
(2, 500,0c0r 1 2%' to tzl
Lxpected proceeds from LT-refin,,ncing: /
FMV cf collateral
2,000,0c0
Multiply by:
8');
Expested proceeds from LT-rcfinancing -_1,500,000
'oy\1.6M will be refinonced r.n o Lr oasts.
r rote Payable - Balance
2,500,o00
To be refinanced - LT
1,6C:.000 23, An:. B,
Short term
___1%q0l_
Audit note c:
Total premiums Cistribut:d irr 20i2
21,00c AJE 3) Premiums payable
Less: Premiums payable end of 2011 420,000
(7,r)o0) ' ,. Pre,niums Lxpen.e
Add: Premius payable end of 2C12 42O,OOO
5,,)00
Premiums exoense in 2012
Multiply by net cost (p50+p2O_p10)
1.9,0n0 iJE 4) Premiums expense 3O0,OOO
Total Premiums Expense in 2012
6q premiums payabte 3OO,OoO
1,14C,000 (5,000rP60)
24, Ars. L.'
Audit note d:
12/31/20L1 ac:rual:
Prior to 2011 leaves carrieC t,:
2012 520 Nt 5) Salaries payablt.(LCA
2012
1011 leaves carried over to
L25O Sala.ies expe-tse
566,4Cr0

2012
Total leaves carried over --- :jli- ,
556,,100
Multiply by: probable leaves gny;
l"cru,d ln 2011, end ---;-ii AJE 6) S:laries Expense j51,2OO
Salari'es payable
{LCA) 651,200
 AUD]TING PRO 3TEMS .
FIRST PREBOAN-IIEXIrrA
SOUTION GUICE
IRENEU/ESpENILTAIAM
ci
12/31/ZO12 accrual:
Prior to 2012 leaves (from
2011 and prior) L,770
Prior to 2012 teaves avaited
Prior to 2011 leaves
in 201 I (i:i;;,
forfeited/exoired ,,^,
Prior to 2 J1.2 eaves, stiil
valid to 2013
2012 leaves cirr;ied over to
2013 1 1^.t
Toral leaves cariied ove, t,
2013
Multiply by: probable leaves Ai%
Accrued in 2011, end -#- t =-
MuhiplT by, c,,.rerrt-salary rate
in 2013 j:3 -
Salarles payable (LCA),2012
*r"fii 25. Ar.r. B.

'Total salaries payable (LC/.), 2011

566,400
Divrde by: Accrued leaves in
2011, end 1. tl6
Daily salary ra.e in 201r.
ltlo
Multiply by: :alary increase rate
in 2012 1t09\
oaily salary rare ln 2012
440
Audit note e:

lY
.*n f,o.vs = FMV (proceeds frcm issuance)
"l
Principal 3,ooo,ooo o.Gi68- 2,03J,518
lnterest 18O,OOO 6.4632 1,163,378
Amortizatirn: 3,193,396

Nominal !nt. Correct lnt. Amortization

r/Ll2017: NE 7) RE, be5
152,271
3,193,895
6/30/2011: 180,000 159,69s (20,30s) 3,173,597
lnt I est Expense , 5,892
L: /3t,',20tr: 180'000 158,680 Pr( filiunl on Bonds payable
LO6,379
rI 180,0oo
(21,320) 3,152,277
6/30/2U12 157,614 (22,386) 3,129,884
12/3\/2012: 180,000 156,494 (23,so6) 3,106,379 26. Ans. D.
Audit note f:
I=10%(Nt-B-Tx)
rx= 30% (Nt - B)
Unadjusted Net lncome
4,637,622
AJE 1)
rl z,ooo
uE i) (2s0,000)
Arr 3)
420,00(
AJE 4)
(300,000)
AJE 5)
566,400
AJE 5)
(651,200)
AJE 7)
45,t,92
Adjusted Net lncome
4,585,714

I = 10% (4,S8S, 214 - B - 30%(4,585,714-8)

B=(321,0C0-.r)/B)
B= (321,o0o/1 07)
Bonur = 30o,0fi, 27. Ans. C.

PROBLEM U:
Audit note a.
Accounts payable, gross of c.edit batancr,
56-5,OCC

Audit note b:
Iterrs sold ,n 2012
6,200 " Total wirranty r:osi: in ZJl.i
Multiply by: 3ll 325,000
3/4 ,\t,ld: EitirnateC *rr=n,, t,.U,
Expected returns for repairs end 2011 323,000
4,65r1 Total Estimated V/ar ranty Expense,
Multiply by avenage repar cost per unit 2011 648,000
(P160*120%) Dir. by: Expeoed -eturns for repairs,
192 *
Est,imated reprrlr cosr per unlt, 2011
201L _ 4,050
Estimated Warr.nty Expense 2012 150
892,800
Add: Estimated Warr.;ab, errd 2011
323,010
Less: Total warranty cost i1 ZO12
(715,000)
Estimated Warrilnty payabte, end 2012
500,800 18. Ans. B.

Audit note c:
Estimated Warra,rW payable, end

Deferred tax asset --30%150.240

'note that torronty povoble is o futt.re deductible o.o;,-:iu-i#q deferred tox osse,
r-
,/IINC PROBLEMS - FIRST PREBOT RD EXAM IR:NEC/ESPENILWJAMES
,6uloru euroe

./ Excess of Tax Depreciatic,n over Financial 20r,C00

Mutliply by tax iate: _ , 30t
Oeferred tax llablity 50,0q, . 29..{rrs. C'
r note thot the excess ol tox depreciation of
finor:to' is o luture toxoble onfiur.l, thus ueating AelerreC tox liobility
"r zte thot deferred tox ossets ond tiobliti:s ore,nt presented o.. ollsetting ort)Unts are ore prcsented os not,current.
balance 56-q,000
Accounts Payable, gross cf debit
adjsuted
Wa, ranties Payable, 50q,800
Total Current Uabilities 1,065,t00 30. Ans. A.

Audit note d:
Proceeds from issuance -,5OO,OOO
Fair value of bonds at 8% yield rate:
Pv factor
,-P incipal 5,OOO,OOO 0.68C6 3,402,9i6
lnterest 500,000 3.9927 1,996,355 5r€9,27:_
APIC - Bond Convercion Privilege _, . 100,729 31. Ans. /..

Amortization:
Nom,na) Correct Amor, iz3i'on
U U2Ot2: 5,399,171
_ 1!t?t/2O!2: SoO,OOO 43'-,942 (58,018) :,,33I,213
L2i3tl2}L3: SoO,OOO 426,497 (73,503) ii,2s/,710

Upon assun,ed conversron: 1/2014:

12r'31/2C13
Carrying value of bonds ,,p trr .,,25;,710
APIC- Bond Conversion Dliv. 100,729
Totrl Par Value or Shares (:i,000*10'50) {2,5t'0,000)
Share Prenrium from conversio _ 2,J58,439 32, Ans. D,

Upon assumr d retirement: tl2Ot4:

Fair value of bonds upon retirlment: PV at 12%
Principal 5,0Oo,0OC 0.1118 3,558,901
ln.erest 510,000 2.4118 1,210,915 1,759,81.7
!

62'ryinE value/Amortize I cosr (12131/2013) __:.25]40

Gain on retirement of bonds - (lSf t97,893 33. An;. B.

PRCBLEM 8: 'l :
lccounts payable 325,)OO
Accrued expenses 7S,0OO
Note payacle - due and demandable 2OO,OOO
Provision 220,{Xn 3(. Ans. C,
(.ashdividenCspayable(1J%*2Or15,OOO) 3O,OO0
Total current liablllties 85O,qJO _ 35. Ans. D.

Bonds payable 1,0CC,009_

liabilities
Total noncurrent 1,000,OC0_ 36 Ans. C. '.

(10.8)*5,00C
rlolding gain on treasury share: q1tJ,OO0)
pro'ision from rosses
rir igation
_ lryL
2012
NLt adjsutement to net income for . ._-. l23O,0OOi, 37. Ans. C.
Accumulated profits, balance 4SF,0UC
Arljustment to net iucome (23C,00C)
D,vidend declaration:
:ash dividends to pS (3O,UO0)
Stock dividends to OS (45,000*159i'10) (67,5C,0)
Appropriation for treasury at cost (40,OOOI-
Accumulatedprofitsunappropriated BB,5{-3giAns.A.

os (5),000+5) 2.so,ooo
PS (15,OOO*20) ,00,00c
Stock dividends payable - OS 33,750
Sh prem -O3 2sO,OtrO
Sh prem - OS (from share diviCends) l3,Zr0
Sh nrem - PS 3SO,OOO
Accumulated p'ofis - approriated 40,000
Accumulated profits - un:rppriateJ gg,5o0
Treasury Stocks at cost (4O,OOO\ I ' '
To:al Stockholders' Equity 1iO6At 39. Ans.A. l