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EASY QUESTIONS (7 PROBLEMS)

PROBLEM 1

The following information was taken from the records of Crocodile Boutique for the month of December:

Sales 198,000
Sales returns 4,000
Additional markups 20,000
Mark-up cancellations 3,000
Markdowns 18,600
Markdown cancellations 5,600
Freight-in 4,800
Purchases at cost 96,000
Purchases at retail 176,000
Purchase returns at cost 4,000
Purchase returns at retail 6,000
Beginning inventory at cost 60,000
Beginning inventory at retail 93,000

What is the cost of Crocodile’s ending inventory under the retail inventory (average cost) method?
A. P 40,880 C. P 51, 296
B. P 43,070 D. P 43,500

The difference in the calculation of the cost-to-retail percentage applying the conventional retail method
and the average cost method is that average method cost.
A. Excludes beginning inventory
B. Excludes markdowns
C. Includes markups
D. Includes markdowns

PROBLEM 2
Cherry Inc. received dividends from its investments in ordinary shares during the year ended December
31, 2018, as follows:

 A cash dividend of P720, 000 is received from JJ Corporation. (Cherry, Inc. owns a 2% interest in
JJ)
 A cash dividend of P3, 600,000 is received from VV Corporation. (Cherry, Inc. owns a 30%
interest in VV)
 A stock dividend of 18,000 shares from YY Company was received on December 15, 2018, on
which date the quoted market value of YY’s shares was P20.00 per share. Cherry Inc. owns less
than 1% of YY’s ordinary shares.

What amount of dividend income should be reported by Cherry, Inc in its 2018 income statement?
A. P1,080,000 C.P4,320,000
B. P4,680,000 D.P720,000
PROBLEM 3
Omega Company sells its products in expensive, reusable containers. The customer is charged a deposit
for each container delivered and receives a refund for each container returned within two years after the
year of delivery. Omega accounts for the containers not returned within the time limit as being sold at the
deposit amount. Information for 2018 is as follows:

Containers held by customers at December 31, 2017, from deliveries in:


2016 85,000
2017 240,000 325,000

Containers delivered in 2018 430,000

Containers returned in 2018 from deliveries in:


2016 57,500
2017 140,000
2018 157,000 354,500

How much revenue from container sales should be recognized for 2018?
A. P 127,500 C. P27,500
B. P 267,500 D. 85,000

What is the total amount of Omega Company’s liability for returnable containers at December 31, 2018?
A. P 373,000 C. P 267,500
B. P 400,500 D. P 430,000

PROBLEM 4
OHRID Company purchased machinery on December 31, 2018, paying, P80, 000 down and agreeing to
pay the balance in four equal installments of P60, 000 payable each December 31. Implicit in the
purchase price is an assumed interest of 12%.

The following data are abstracted from the present value tables:
Present value of 1 at 12% for 4 periods 0.63552
Present value of an ordinary annuity of at 12% for 4 periods 3.03735

What is the cost of the machinery purchased on December 31, 2018?


A. P233,083 C. P262,241
B. P320,000 D. P290,842

How much interest expense should be reported in Ohrid’s income statement for the year ended December
31, 2019?
A. P38, 131 C. P17,293
B. P21,869 D. P42,707

What is the carrying amount value of the note at December 31, 2020?
A. P120,000 C. P99,310
B. P144,110 D. P101,403
PROBLEM 5
Liton Company buys and sells securities expecting to earn profits on short-term differences in price.
During 2016, Liton Company purchased the following trading securities:

Security Cost Fair Value 12/31/2016


A 195,000 225,000
B 300,000 162,000
C 660,000 678,000

Before any adjustments related to these trading securities, Liton Company had net income of P900, 000.

What is Liton’s net income after making any necessary trading security adjustments?
A. P900,000 C. P762,000
B. P810,000 D. P948,000

What would Liton’s net income be if the fair value of security B were P285, 000.00?
A. P867,000 C. P885,000
B. P900,000 D. P933,000

PROBLEM 6
On November 17, 2018, Bautista Airways entered into a noncancelable commitment to purchase 3,000
barrels of aviation fuel for P9, 000,000 on March 31, 2019. Bautista entered into this purchase
commitment to protect itself against the volatility in the aviation fuel market. By December 31, 2018, the
purchase price of aviation fuel had fallen to P2, 200 per barrel. However, by March 31, 2019, when
Bautista too delivery of the 3,000 barrels, the price of aviation fuel had risen to P3, 100 per barrel.

Based on the above and the result of your audit, answer the following:

The loss on purchase commitment on December 31, 2018 is:


A. P1,500,000 C. P2,400,000
B. P900,000 D. P0

The gain on purchase commitment on March 31, 2019 is:


A. P2,700,000 C. P2,400,000
B. P300,000 D. P0

PROBLEM 7
In connection with your audit of Caloocan Corporation for the year ended December 31, 2018, you
gathered the following:

Current account at Metrobank 2,000,000


Current account at BPI (100,000)
Payroll account 500,000
Foreign bank account – restricted (in equivalent pesos) 1,000,000
Postage stamps 1,000
Employee’s postdated check 4,000
IOU from controller’s sister 10,000
Credit memo from a vendor for a purchase return 20,000
Traveler’s check 50,000
NSF check 15,000
Money Order 30,000
Petty cash fund (P4,000 in currency and expense receipts for P6,000) 10,000
Treasury bills, due 3/30/19 purchased 12/29/18 200,000
Treasury bills, due 1/31/19 purchased 2/1/18 300,000

Compute for the cash and cash equivalents that will be reported on the December 31, 2018 statement of
financial position.
A. P2,784,000 C. P2,790,000
B. P3,084,000 D. P2,704,000

AVERAGE QUESTIONS (7 PROBLEMS)

PROBLEM 1
The equity section of Ronda Corporation’s statement of financial position as of December 31, 2017 is as
follows:

Shareholder’s Equity
Share capital, P5 par value,; authorized, 2,000,000 2,000,000
shares; issued ,400,000 shares
Share premium 850,000
Retained earnings 3,000,000
5,850,000

The following events occurred during 2018:

January 5 10,000 shares were sold for P 9 per share


January 16 Declared a cash dividend of P0.40 per share , payable February 15 to shareholders of
record on February 5
February 10 40,000 shares were issued for P11 per share
May 1 A 40% share dividend was declared and issued. Market value per share is currently P15
April 1 A two-for-one split was carried out. The par value of the share was to be reduced to
P2.50 per share. Market value on March 31 was P18 per share
July 1 A 10% share dividend was declared and issued. Market value is currently P10 per share
August 1 A cash dividend of P0.40 per share was declared , payable September 1 to shareholders
of record on August 21
December 31 Profit for 2018 was P 1,880,000
Based on the above and the result of your audit, answer the following:

1. Number of shares issued and outstanding as of December 31, 2018


A. 2,079,000 C. 1,188,000
B. 1,386,000 D. 346,500
2. Balance of share capital as of December 31, 2018
A. 3,465,000 C. 3,228,750
B. 3,780,000 D. 3,622,500

3. Balance of share premium as of December 31, 2018


A. 2,075,000 C. 1,760,000
B. 2,547,500 D. 3,695,000

4. Balance of retained earnings as of December 31, 2018


A. 381,600 C. 1,094,400
B. 3,362,400 D. 2,001,600

PROBLEM 2

In connection with your audit of the Kent Company, you were asked to prepare comparative data from the
company’s inception to the present. The following were gathered during your audit:

 Kent Company’s charter became effective on January 2, 2014 when 80,000, P10 par value,
ordinary shares and 40,000, 5% cumulative non-participating, preference shares were issued. The
ordinary share was sold at P12 per share and the preference share was sold at its par value of
P100 per share.

 Kent was unable to pay preference dividends at the end of its first year. The owners of the
preference shares agreed to accept 2 ordinary shares for every 50 shares of preference shares
owned in discharge of the preference share dividends due on December 31, 2014. The shares
were issued on January 2, 2015. The fair value was P30 per share for ordinary on the date of
issue.

 Kent Company acquired all outstanding shares of Melvin Corporation on May 1, 2016, in
exchange for 40,000 ordinary shares of Kent.

 Kent split its ordinary shares 3 for 2 on January 1, 2017, and 2 for 1 on January 1, 2018.

 Kent offered to convert 20% of the preference shares to ordinary on the basis of 2 ordinary shares
for 1 preference share. The offer was accepted and the conversion was made on July 1, 2018.

 No cash dividends were declared on ordinary shares until December 31, 2008. Cash dividends per
ordinary share were declared and paid as follows:

December 31 June 30
2016 P 4.00 -
2017 P 5.00 P 3.00
2018 P 2.00 P 2.50

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

1. Outstanding number of ordinary shares as of December 31, 2018


A. 364,800 C. 372,800
B. 684,800 D. 380,800
2. Outstanding number of preference shares as of December 31, 2018
A. 40,000 C. 32,000
B. 24,000 D. 96,000

3. Amount of cash dividends declared and paid to ordinary shareholders for the year 2017
A. P972,800 C. P1,459,200
B. P608,000 D. P1,981,440

4. Amount of cash dividends declared and paid to ordinary shareholders for the year 2018
A. P3,911,040 C. P1,713,600
B. P3,041,600 D. P1,673,600

PROBLEM 3
The December 31 year-end financial statements of Karen Company contained the following errors:

December 31, 2018 December 31, 2019


Ending inventory 48,000 understated 40,500 overstated
Depreciation expense 11,500 understated -

An insurance premium of P 330,000 was prepaid in 2018 covering the years 2018, 2019, and 2020. The
entire amount was charged to expense in 2018. In addition, on December 31, 2019, fully-depreciated
machinery was sold for P 75,000 cash, but the sale was not recorded until 2020. There were no other
errors during 2018 and 2019, and no corrections have been made for any of the errors. Ignore income tax
effects.

Compute for the following:

1. What is the total effect of the errors on Karen’s 2019 net income?
A. 123,500 overstatement
B. 27,500 overstatement
C. 192,500 understatement
D. 177,500 understatement

2. What is the total effect of the errors on the amount of Karen’s working capital at December 31, 2019?
A. 75,500 overstatement
B. 40,500 overstatement
C. 225,500 understatement
D. 144,500 understatement

3. What is the total effect of the errors on the balance of Karen’s retained earnings at December 31, 2019?
A. 156,000 understatement
B. 87,000 overstatement
C. 133,000 understatement
D. 85,000 understatement
PROBLEM 4
Barbados, Inc. has been using the accrual basis of accounting. However, an examination of the records
reveals that some expenses and revenues have been handled on a cash basis by the inexperienced
bookkeeper of the company. Income statements prepared by the bookkeeper reported P 145,000 net
income for 2018 and P185, 000 net income for 2019. Further review of the records reveals that the
following items were handled improperly.

 Rent of P 6,500 was received from a lessee on December 23, 2018. It was recorded as income at that
time even though the rental pertains to 2019.

 Salaries payable on December 31 have been consistently omitted from the records of that date and
have been recorded as expenses when paid in the following year. The salary accruals recorded in this
manner were.

December 31, 2017 5,500


December 31, 2018 7,500
December 31, 2019 4,700

 Invoices for office supplies purchased have been charged to expense accounts when received.
Inventories of supplies on hand at the end of each year have been ignored, and no entry has been
made for them.

December 31, 2017 6,500


December 31, 2018 3,700
December 31, 2019 7,100

Compute for the following:

1. What is the corrected net income for 2018?


A. 133,700 C. 146,700
B. 144,200 D. 139,300

2. What is the corrected net income for 2019?


A. 184,700 C. 185,600
B. 197,700 D. 190,900

PROBLEM 5
In connection with your audit of the cash account of Annie Corp., you gathered the following
information:

Balance per bank, December 1, 2018 145,000


Total bank receipts (credits) in December 346,000
Balance per bank, December 31, 2018 114,500
Outstanding checks, November 30, 2018 (including P12,000 paid by bank in 67,000
December)
Outstanding checks , December 31, 2018 (including checks issued in November) 94, 162
Deposit in transit, November 30, 2018 39, 458
A customer’s check received on December 4, 2018, was returned by bank on
December 7 marked “NSF”. It was redeposited on December 8, 2018. The only
entry made was to take up the collection on December 4, 2018 11, 143

1. What is the total book receipts in December?


A. P 295, 399 C. P 334, 857
B. P 306, 542 D. P 346, 000

2. What is the total bank disbursements in December?


A. P315,500 C. P231,500
B. P376,500 D. P201,000

3. What is the total book disbursements in December?


A. P447,519 C. P403,662
B. P331,519 D. P392,519

PROBLEM 6
Afghanistan Company has been paying regular quarterly dividends to its shareholders. The following
equity transactions are shown in the company’s books:

January 1 P2 par value ordinary shares; (1,600,000 shares outstanding; 3,000,000 shares authorized)
February 15 Issued 100,000 new shares at P5
March 31 Paid quarterly dividends of P2, 550,000
May 13 P2, 000,000 of P1, 000 bonds were converted to ordinary shares at the rate of 100 shares
per P1, 000 bond
June 16 Issued an 11% stock dividend
June 30 Paid quarterly dividends. The dividend per share is the same as that paid in the first
quarter

No other equity transactions occurred after June 30.

1. What is the amount of dividend per share that Afghansitan paid on March 31?
A. P1.50 C. P1.59
B. P0.85 D. P1.70

2. What is the amount of dividend that Afghanistan will have to pay in the third quarter in order to pay
the same dividend rate as that paid in previous quarters?
A. P2,850,000 C. P3,163,500
B. P2,997,000 D. P3.585,300

3. What is the total amount of dividends to be paid during the current year?
A. P10,305,900 C. P13,305,900
B. P12,040,500 D. P12,654,000

PROBLEM 7
Iligan & Associates maintains its records on the cash basis. You have been engaged to convert its cash
basis income statement to the accrual basis. The cash basis income statement, along with additional
information, follows:
Iligan & Associates
Income Statement (Cash Basis)
For the Year Ended December 31, 2018
Cash receipts from customers 2,800,000
Cash payments:
Wages 1,200,000
Taxes 520,000
Insurance 320,000
Interest 200,000 2,240,000
Net Profit 560,000

Additional Information:
December 31, 2017 December 31, 2018
Accounts receivable 240,000 400,000
Wages Payable 160,000 120,000
Taxes Payable 152,000 112,000
Prepaid Insurance 32,000 64,000
Accumulated Depreciation 600,000 760,000
Interest Payable 72,000 24,000

No plant assets were sold during 2018.

How much is the profit before income tax under the accrual basis of accounting?
A. 880,000 C. 720,000
B. 816,000 D. 656,000

DIFFICULT QUESTIONS (7 PROBLEMS)

PROBLEM 1
The HVR Company included the following in its notes receivable as of December 31, 2018:

Note receivable from sale of land P2, 640,000


Note receivable from consultation 3,600,000
Note receivable from sale of equipment 4,800,000

The following transactions during 2018 and other information relate to the company’s notes receivable:

a) On January 1, 2018, HVR Company sold a tract of land to Triple X Company. The land, purchased
10 years ago, was carried on HVR’s books at P1, 500,000. HVR received a noninterest-bearing note
for P2, 640,000 from Triple X. The note is due on December 31, 2019. There was no established
exchange price for the land. The prevailing interest rate for this note on January 1, 2018 was 10%.

b) On January 1, 2018, HVR Company received a 5%, P3, 600,000 promissory note in exchange for the
consultation services rendered. The note will mature on December 31, 2020, with interest receivable
every December 31. The fair value of the services rendered is not readily determinable. The
prevailing rate of interest for a note of this type was 10% on January 1, 2018.

c) On January 1, 2018, HVR Company sold an old equipment with a carrying amount of P4, 800,000,
receiving P7, 200,000 note. The note bears an interest rate of 4% and is to be repaid in 3 annual
installments of P2, 400,000 (plus interest on the outstanding balance). HVR received the first
payment on December 31, 2018. There is no established market value for the equipment. The market
interest rate for similar notes was 14% on January 1, 2018.
Note: Round off present value factors to four decimal places and final answers to the nearest hundred.

1. What amount of consultation fee revenue should be recognized in 2018?


A. P3,600,000
B. P2,705,000
C. P4,047,500
D. P3,152,500

2. What amount should be reported as gain on sale of equipment?


A. P994,800
B. P2,400,000
C. P1,162,700
D. P1,237,300

3. The amount to be reported as noncurrent notes receivable on December 31, 2018 is


A. P7,482,200
B. P6,037,300
C. P5,477,500
D. P7,877,600

4. The amount to be reported as current notes receivable on December 31, 2018 is


A. P4,800,000
B. P2,400,200
C. P4,404,900
D. P7,440,000

5. How much interest income should be recognized in 2018?


A. P974,200
B. P756,000
C. P1,378,700
D. P1,160,500

PROBLEM 2
Supporting records of MAYON CORPORATION’s trading securities portfolio show the following debt
and equity securities:

Security Cost Fair Value

400 ordinary shares Concave Co. P 254,500 P 243,000


P800,000 Tipo Co. 7% bonds 796,500 774,000
P1,200,000 Turkey Co. 7 ½% bonds 1,207,500 1,218,900
Totals P2,258,500 P2,235,900

Interest dates on the bonds are January 1 and July 1. Mayon Corporation uses the income approach to
record the purchase of bonds with accrued interest. During 2018 and 2019, Mayon completed the
following transactions related to trading securities:

2018
Jan. 1 Received semiannual interest on bonds. Assume that the appropriate adjusting entry was made
on December 31, 2017.
April 1 Sold P600,000 of 7 ½% Turkey bonds at 102 plus accrued interest.
May 21 Received dividend of P1.25 per share on the Concave ordinary share capital. The dividend had
not been recorded on the declaration date.
July 1 Received semiannual interest on bonds and then sold the 7% Tipo bonds at 97 ½.
Aug. 15 Purchased 200 shares of Newman, Inc. ordinary share capital at P580 per share plus brokerage
fees of P500.
Nov. 1 Purchased P500,000 of 8% Toll Co. bonds at 101 plus accrued interest. Brokerage fees were
P1,250. Interest dates are January 1 and July 1.
Dec. 31 Market prices of securities were:
Concave ordinary shares P550
7 ½% Turkey bonds 101 ¾
8% Toll bonds 101
Newman ordinary shares P583.75

2019
Jan. 2 Recorded the receipt of semiannual interest on bonds.
Feb. 1 Sold the remaining 7 ½% Turkey bonds at 101 plus accrued interest.

1. What is the total interest and dividend income for 2018?


A. P125,166
B. P164,416
C. P91,417
D. P98,804

2. What amount should be reported as gain on sale of trading securities in 2018?


A. P2,550
B. P6,000
C. P8,550
D. P3,450

3. What amount of unrealized gain or loss should be reported in the income statement for the year ended
December 31, 2018?
A. P21,200 unrealized gain
B. P21,200 unrealized loss
C. P6,150 unrealized gain
D. P6,150 unrealized loss

4. What is the carrying amount of the remaining trading securities on December 31, 2018?
A. P1,481,000
B. P1,450,450
C. P1,473,450
D. P1,452,250

5. What is the loss on the sale of the remaining Turkey bonds on February 1, 2019?
A. P4,500
B. P10,500
C. P13,500
D. P750

PROBLEM 3
The following information is based on a first audit of SABILA COMPANY. The client has not prepared
financial statements for 2016, 2017 or 2018. During these years, no accounts have been written off as
uncollectible, and the rate of gross profit on sales has remained constant for each of the three years.

Prior to January 1, 2016, the client used the accrual method of accounting. From January 1, 2016 to
December 31, 2018, only cash receipts and disbursements records were maintained. When sales on
account were made, they were entered into the subsidiary accounts receivable ledger. No general ledger
postings have been made since December 31, 2015.

As a result of your examination, the correct data shown in the table below are available:

December 31, 2015 December 31, 2018


Accounts receivable balances:
Less than one year old P15,400 P28,200
One to two years old 1,200 1,800
Two to three years old 800
Over three years old 2,200
Total Accounts Receivable P16,600 P33,000

Inventories P 11,600 P 18,800

Accounts payable for inventory purchased P5,000 P11,000

Cash received on accounts receivable:


2016 2017 2018
Applied to:
Current year collections P148, 800 P161,800 P208,800
Accounts of the prior year 13, 400 15,000 16,800
Accounts of two years prior 600 400 2,000
Total P162,800 P177,200 P227,600

Cash sales P 17,000 P26,000 P31,200

Cash disbursements for inventory purchased P 125,000 P141,200 P173,800

1. The company’s sales revenue for the three-year period amounted to:
A. P658, 200 C. P625,400
B. P74,200 D. P415,300

2. What is the company’s total sales revenue for 2017?


A. P206,400 C. P268,200
B. P183,600 D. P180,400

3. The aggregate amount of purchases for the three-year period is:


A. P131,000 C. P434,000
B. P440,000 D. P446,000
4. What is the company’s gross profit ratio in each of the three-year period?
A. 33.33% C. 35.16%
B. 28.35% D. 31.15%

5. What is the company’s gross profit for each of the three-year period?
2016 2017 2018
A. 60,933 68,200 80,000
B. 55,533 60,133 79,000
C. 122,400 137,600 178,800
D. 61,200 68,800 89,400

PROBLEM 4
The following information was obtained in connection with the audit of Pinky Company’s cash accounts
as of December 31, 2018.

Outstanding checks, November 30, 2018 16,250


Outstanding checks, December 31, 2018 12,500
Deposit in transit, November 30, 2018 12,500
Cash balance per general ledger, December 31, 2018 37,500
Actual company collections from its customers during December 152,500
Company checks paid by bank in December 130,000
Bank service charges recorded on company books in December 2,500
Bank service charges per December bank statement 3,250
Deposits credited by bank during December 145,000
November bank service charges recorded on company books in December 1,500

The cash receipts book of December is underfooted by P2, 500.00. The bank erroneously charged the
company’s account for a P 3,750 check of another depositor. The bank error was corrected in January
2019.

1. What is the book balance on November 30, 2018?


A. 16,250 C. 37,500
B. 21,250 D. 35,000

2. What is the bank balance on November 30, 2018?


A. 23,000 C. 43,500
B. 18,500 D. 16,250

3. What is the bank balance on December 31, 2018?


A. 21,500 C. 31,000
B. 26,500 D. 33,250

PROBLEM 5
The following accounts were included in the unadjusted trial balance of BUNCHING COMPANY as of
December 31, 2018:

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

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

1. Receipts for January 2019 of P654, 600 were recorded in the December 2018 cash receipts book. The
receipts of P360, 100 represent cash sales and P294, 500 represent collections from customers, net of
5% cash discounts.

2. Accounts payable of P372, 400 was paid in January 2019. The payments on which discounts of P12,
400 were taken, were included in the December 2018 check register.

3. Merchandise inventory is valued at P6, 050,000 prior to any adjustments. The following information
has been found relating to certain inventory transactions:

 The invoice for goods costing P175, 000 was received and recorded as a purchase on December
31, 2018. The related goods, shipped FOB Destination were received on January 4, 2019, and
thus were not included in the physical inventory.

 A P182, 000 shipment of goods to a customer on December 30, 2018, terms FOB destination, are
not included in the year-end inventory. The goods cost P130, 000 and were delivered to the
customer on January 3, 2019. The sale was properly recorded in 2019.

 Goods costing P637, 500 were shipped on December 31, 2018, and were delivered to the
customer on January 3, 2019. The terms of the invoice were FOB shipping point. The goods were
included in the 2018 ending inventory even though the sale was recorded in 2018.

 Goods costing P217, 500 were received from a vendor on January 4, 2019. The related invoice
was received and recorded on January 6, 2019. The goods were shipped on December 31, 2018,
terms FOB shipping point.

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

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

Based on the above and the result of your audit, determine the adjusted balances of the following as of
December 31, 2018:

1. Cash
A. 963,200 B. 681,000 C. 668,600 D. 693,400

2. Accounts receivable
A. 2,908,600 B. 2,564,000 C. 2,254,000 D. 2,548,500

3. Inventory
A. 6,035,000 B. 6,080,000 C. 5,860,000 D. 5,010,000
PROBLEM 6
In 2014, Joshua Company purchased property with natural resources for P12, 400,000. The property
was relatively close to a large city and had an expected residual value of P3, 000,000. However, P1,
200,000 will have to be spent to restore the land for use. The following information relates to the use
of the property:

a. In 2014, Joshua spent P800, 000 in development costs and P600, 000 in buildings on the property.
Joshua does not anticipate that the buildings will have any utility after the natural resources are
depleted.

b. In 2015 and 2017, P600, 000 and P1, 600,000, respectively, were spent for additional developments
on the mine

c. The tonnage mined and estimated remaining tons for years 2014-2018 are as follows:
Year Tons Extracted Estimated Tons Remaining
2014 0 5,000,000
2015 1,500,000 3,500,000
2016 1,800,000 2,000,000
2017 1,700,000 900,000
2018 900,000 0

Based on the preceding information, calculate the depletion and depreciation for 2017:
Depletion Depreciation
A. 2,891,308 153,000
B. 3,944,000 153,000
C. 2,891,308 274,615
D. 3,944,000 274,615

PROBLEM 7
You have been assigned to the audit of MALAYSIA CO., a manufacturing company. You have been
asked to summarize the transactions for the year ended December 31, 2016, affecting shareholders’ equity
and other related accounts. The shareholders’ equity section of Malaysia’s December 31, 2015, statement
of financial position follows:

Ordinary share capital, P2 par value, 1, 000, 000 shares authorized


, 180,000 shares issued, 177, 580 shares outstanding……………………..P 360,000.00
Share premium – issuance ……………………………………………………..…3, 640, 000.00
Share premium – treasury shares……………………………………………….…….45, 000.00
Retained earnings……………………………………………………………………649, 378.00
Cost of 2, 420 treasury shares……………………………………………………... (145, 200.00)
Total Shareholders’ Equity………………………………………………………P 4, 549, 178.00

You have extracted the following information from the accounting records and audit working papers.
2016

Jan. 15 Malaysia reissued 1, 300 treasury shares for P 40 per share. The 2, 420 treasury shares on hand at
December 31, 2015, were purchased in one block in 2014.
Feb. 1 Sold 180, P 1,000, 9% bonds due February 1, 2026, at 103 with one detachable share warrant
attached to each bond. Interest is payable annually on February 1. The fair market value of the
bonds without the share warrants is 95. The detachable warrants have a fair value of P 50 each
and expire on February 1, 2017. Each warrant entitles the holder to purchase 10 ordinary shares at
P40 per share.

May 6 2,800 ordinary shares were subscribed for at P44 per share. 40% of the subscription was
collected.

May 20 The balance due on 2, 400 shares was received and those shares were issued.

Nov 1 There were 110 share warrants detached from the bonds and exercised.

Malaysia’s net income for 2016 is P 950,000.00

Based on the preceding information, determine the correct December 31, 2016, balance of each of the
following:

1. Ordinary Share Capital


A. P 364, 800 B. P 375, 800 C. P 372,600.00 D. P 367, 000.00

2. Share premium – issuance


A. P 3, 827, 200 B. P 3, 808, 200 c. P 3, 805, 065 d. P 3, 791, 400

3. Share premium – treasury shares


a. P 19,000.00 b. P 45, 000 c. P 187, 200 d. P 192, 800

4. Retained Earnings (before appropriation for treasury shares)


a. P 649, 378 b. P 1, 573, 378 c. P 1, 599, 378 d. P1, 454, 178

5. Treasury Shares
a. P 67, 200 b. P 145, 200.00 c. P93, 200 d. P142, 600

6. Total Shareholder’s Equity


a. P 5, 722, 218 b. P 5, 716, 618 c. P 5, 720, 223 d. P 5, 717, 088

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