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PROBLEM 1.

In an audit of SEXY LOVE Company for the year ended December 3 2014, the entity
took its annual physical inventory on November 30, 2014. The entity's inventory which
includes raw materials and work in process is on a perpetual basis and FIFO pricing is
used. There are no finished goods.

Data pertaining to the November 30, 2014 inventory are:

 Direct labor included in the physical inventory amounted to P500,000.


Overhead was applied at 200% of direct labor.

 The physical inventory on November 30, 2014 revealed that the book inventory
of P2,913,500 was understated by P150,000. To avoid distorting the interim
financial statements, the entity decided not to adjust the book inventory until
year-end.

Data pertaining to December 31, 2014 inventory are:


 Total debits during December are P1, 235,000 for purchases, P605,000 for direct
labor, P1,260,000 for manufacturing overhead expense, and P3,417,500 for cost
of sales.

 The cost of sales of 3,417,500 included direct labor of P690,000.

 A special order started and completed December has excessive scrap loss of
P40,000 which was charged to manufacturing overhead expense.

1. What is the correct amount of physical inventory on November 30,2014?


a) P2,913,500
b) P2,763,500
c) P3,023,500
d) P3,063,500
2. What is the amount of materials issued in December?
a) P1,307,500
b) P2,070,000
c) P1,917,500
d) P1,387,500

Assume that the physical inventory on November 30,2014 was P2,885,000.

3. What is the amount of materials included in December 31 inventory?


a) P1,272,500
b) P1,260,000
c) P1,232,500
d) P977,500
4. What is the amount of direct labor included in the December 31 inventory?
a) P1,190,000
b) P1,105,000
c) P415,000

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d) P585,000
5. What is the correct inventory on December 31?
a) P2,477,500
b) P3,027,500
c) P2,505,000
d) P2,987,500

In connection with your audit of the financial statements of Dissa Ex Corporation, you
were provided with the following statement of financial position as of December 31, 2014:

Dissa Ex Corporation
Statement of Financial Position
December 31, 2014
Assets Liabilities
Current assets: Current liabilities:
Cash P Accounts payable P 68,000
250,000
Financial assets at fair
value through P & L 160,000 Other current 40,000
liabilities
Accounts receivable, 427,000 Total P 108,000
net
Inventory 620,000
Other current assets Long-term liabilities 655,000
284,000
Total P Total liabilities P 763,000
1,741,000

Noncurrent assets: Equity:


Property, plant and
equipment, net P Share capital P 1,000,000
1,296,000
Treasury shares 90,000 Retained earnings 1,636,000
Other noncurrent __________
assets 272,000
Total P Total equity P 2,636,000
1,658,000

Total Assets P Total liabilities and P 3,399,000


3,399,000 equity

The following additional information relates to the December 31, 2014, statement of
financial position.

a) Cash includes P80,000 that has been restricted for the purchase of manufacturing
equipment ( a noncurrent asset).

b) Financial assets at fair value include P65,000 of stock that was purchased in order
to give the company significant ownership and a seat on the board of directors of
a major supplier.

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c) Other current assets include a P90,000 advance to the president of the company.
No due date has been set.

d) Long-term liabilities also include bonds payable of P200,000. Of this amount,


P60,000 represents bonds scheduled to be redeemed in 2015.

e) Long-term liabilities also include a P140,000 bank loan. On May 15, 2015, the loan
will become due on demand.

f) On December 21, dividends in the amount of P300,000 were declared to be paid


to shareholders of record on January 25. These dividends have not been reflected
in the financial statements.

g) Cash in the amount of P380,000 has been placed in a restricted fund for the
redemption of preference shares in 2016. Both the cash and the shares have been
removed from the statement of financial position.

h) Property, plant and equipment includes land costing P160,000 that is being held
for investment purposes and that is scheduled to be sold in 2015.

Based on the result of your audit, determine the adjusted amounts of the following
as of December 31, 2014:
6. Total current assets
a) P1,526,000 c) P1,821,000
b) P1,686,000
d) P1,666,000
7. Total noncurrent assets
a) P2,163,000 c) P2,023,000

b) P2,003,000 d) P2,083,000
8. Total current liabilities
a) P548,000 c) P608,000

b) P458,000 d) P598,000
e)
9. Total noncurrent liabilities
a) P515,000 c) P455,000

b) P605,000 d) P465,000

10. Total equity


a) P2,926,000 c) P2,246,000

b) P2,626,000 d) P2,716,000

PROBLEM 5
Jerome Ice Co. started operations on October 1, 2010. Its accounts at June 30, 2013
included the following balances:

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Machinery (at cost) P 196,000
Accumulated depreciation – machinery 95,772
Vehicles (at cost; purchased February 20, 2011) 320,000
Accumulated depreciation – vehicles 178,880
Land (at cost; purchased March 20, 2013) 150,000
Building (at cost; purchased March 20, 2013) 581,200
Accumulated depreciation – building 6,840
Land improvements (at cost; purchased March 20, 2013) 36,000
Accumulated depreciation – land improvements 600

Details of machines owned at June 30, 2013 were:


Machine Purchase Date Cost Useful life Residual Value
1 Oct. 2, 2010 P50,000 4 years P5,000
2 Dec 27, 2010 84,000 5 years 8,000
3 July 29, 2011 62,000 4 years 6,000

Additional information:
 Jerome calculates depreciation to the nearest month and balances the records at
month-end. Recorded amounts are rounded to the nearest peso, and the
reporting date is June 30.
 Jerome uses straight line depreciation for all depreciable assets except vehicles,
which are depreciated on the diminishing balance at 30% p.a.

 The vehicles account balance reflects the total paid for four identical delivery
vehicles, which cost P80,000 each.

 On acquiring the land and building, Jerome estimated the building's useful life
and residual value at 20 years and P34,000 respectively.

 The land improvements account balance reflects a payment of P36,000 made on


March 20, 2012 for driveways and a car park. On acquiring these land
improvements, Jerome estimated their useful life at 15 years with no residual
value.

The following transactions occurred from July 1, 2013:


Aug 3, 2013 Purchased a new machine (machine 4) for a cash price of P72,000.
Installation costs of P3,600 were also paid. Jerome estimated the
useful life and residual value at five years and P7,000 respectively.
Nov. 15,
2013 Paid vehicle repairs of P1,200
Dec 30, 2013 Exchanged one of the vehicles for items of fixtures that had a fair
value of P34,000 at the date of exchange. The fair value of the
vehicle at the date of exchange was P32,000. The fixtures originally
cost P100,000 and had been depreciated by P62,000 to the date of
exchange in the previous owner's books. Jerome estimated the
fixtures' useful life and residual value at five years and P5,000
respectively.
March Sold Machine 1 for P10,000 cash.
10,2014
June 30, Recorded depreciation expense
2014

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Sept. 20, Traded in machine 3 for a new machine (machine 5). A trade-in
2014 allowance of P20,000 was received for machine 3 and P68,000 was
paid in cash. Jerome estimated machine 5's useful life and residual
value at 6 years and P10,000 respectively.
Dec. 30, Scrapped machine 2, as it was surplus to requirements and no buyer
2014 could be found for it.
Feb. 8, 2015 Paid P16,000 to overhaul machine 4, after which machine 4's useful
life was estimated at two remaining years and its residual value was
revised to P10,000.
June 30, Recorded depreciation expense
2015

Based on the preceding information, determine the following:


11. Depreciation expense on machinery for the year ended June 30, 2014.
a) P53,027
b) P50,420
c) P49,277
d) P41,777
12. Gain on exchange on December 30, 2013
a) P4,012
b) P2,012
c) P4,000
d) P0
13. Total depreciation expense on all depreciable assets for the year ended June 30,
2014
a) P118,781
b) 125,216
c) 111,281
d) 113,489
14. Gain on trade in of machine no. 3 on September 20, 2014
a) P2,333
b) P23,667
c) P7,667
d) P0
15. Total depreciation expense on all depreciable assets for the year ended June 30,
2015
a) P98,951
b) 109,451
c) 106,551
d) 82,951

End of examination

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