SET A

AUDITING PROBLEMS

Page 1 of 6

In your audit of the cash account of Yen Company, you are required to prepare a four column reconciliation of receipts and disbursement and balances using the bank to book method and to submit adjusting journal entries as of September 30, 2012. August 31 September 30 a. Balance per banks P14,010,000 P19,630,000 b. Balance per books ? ? c. Deposits in transit 2,740,000 3,110,000 d. Outstanding checks 4,260,000 3,870,000 e. Bank Collections not in books 1,200,000 1,600,000 f. Bank Service Charges not in books 95,000 64,000 g. Some of the outstanding checks on September 30 includes the following below: Check Date 09.30.12 10.01.12 09.30.12 01.31.12 Payee Hulk Flash Captain America Superman Amount P 150,000 200,000 350,000 150,000 Description Was certified at the request of the payee not yet recorded. Payment for goods received 10.31.12 Check payable to cashier for Petty Cash Payment for goods received 01.29.12

h. Receipts for September, per Bank Statement is P281,070,000 i. September disbursement, per cash journal P___________ j. NSF check from a customer was charged by bank on September 28 and has not been recorded P800,000. k NSF check returned in august and recorded in September P500,000. l. NSF check returned and redeposit by the company as per client advice in September P350,000. No entry was made by the book since the beginning of the collection. m. Check of Yin Company charged by the bank in error P2,010,000 n. Receipts on September 6 paid out in cash for travel expenses P750,000 o. Error in recording customers check on September 20- P165,000 instead of P465,000 p. Error in disbursements journal for September P3,250,000 instead of P325,000 You noted in your audit that the NSF check returned by bank are recorded as a reduction in the cash receipts instead of recording them in cash disbursement journal; redeposit are recorded as regular cash receipts. Based on the information above determine the following: 1. The Cash Balance per ledger on August 31 a. P11,885,000 b. P11,385,000 c. P14,010,000 d. P10,885,000 2. The Book Receipts for the month of September a. P280,590,000 b. P280,640,000 c. P281,140,000 d. P280,290,000 3. The Book Disbursement for the month of September a. P275,806,000 b. P275,056,000 c. P275,456,000 d. P275,106,000 4. The Cash Balance per ledger on September a. P17,069,000 b. P16,719,000 c. P22,569,000 d. P22,719,000 5. The Correct Cash in Bank for the month of September a. P21,030,000 b. P21,230,000 c. P21,380,000 d. P20,880,000 Hilo Corporation had the following long term receivable account balances at December 31, 2011: Notes Receivable from sale of division P 4,500,000 Notes Receivable from officer P1,200,000 Transactions during 2012 and other information relating to Hilos long-term receivables were as follows: 1. The P4,500,000 notes receivable is dated May 1, 2011, bears interest at 9% and represents the balance of the consideration received from the sale of Hilos electronic division to Bangag Corporation. Principal payments of P1,500,000 plus appropriate interest are due on May 1, 2012, 2013 and 2014. The first principal and interest payment was made on May 1. 2012. Collection of the note installments is reasonably assured. 2. The P1,200,000 note receivable is dated December 31, 2011, bears interest at 8% and is due on December 31, 2011. The note is due from Hallow Torete, President of Hilo Corporation, interest is payable annually on December and interest payments were paid on their due dates through December 31, 2012. 3. On April 1, 2012, Hilo sold a patent to Printname, Inc. in exchange for P400,000 non-interest bearing note due April 1, 2014. There was no established exchange price for the patent and the note had no ready market. The prevailing interest for a note of this type at April 1, 2012 was 12%. The present value of 1 for two periods at 12% is 0.797. The patent had a carrying value of P80,000 at January 1, 2012 and the amortization for the year ended December 31, 2012, would have been P16,000. The collection of the notes receivable from Printname is reasonably assured. 4. On July 1, 2012, Hilo sold a parcel of land to Gahaman Company for P400,000 under and installment sale contract, Gahaman made a P120,000 cash down payment on July 1, 2012 and signed a 4 year 11% note for the P280,000 balance. The equal annual payments of principal and interest on the note will be P90,250 payable on July 1, 2013, through July 1, 2016. The land have been sold at an established cash price of P400,000. The cost of the land to Hilo was P300,000. Circumstances are such that the collection of the installments on the note reasonably assured. Based on the preceding information, determine the following: 6. Total long-term receivables at December 31, 2012 a. P4,768,042 b. P3,268,042 c. P3,237,242 d. P3,239,350 7. Total current portion of long-term receivables at December 31, 2012 a. P1,570,000 b. P1,500,000 c. P1,590,250 d. P1,559,450 8. Accrued Interest Receivable at December 31, 2012 a. P195,400 b. P105,400 c. P210.800 d. P224,092 9. Total Interest Income for the year ended December 31, 2012 a. P455,092 b. P320,092 c. P426,400 d. P470,092 10. Unamortized discount at December 31, 2012 on the receivable from sale of patent
SECOND CPA MOCK BOARD EXAMINATIONS SECOND Semester, School Year 2012 - 2013 UNIVERSITY OF SAINT LOUIS TUGUEGARAO

SET A a. P81,200 b. P28,692

AUDITING PROBLEMS c. P10,809 d. P52,508

Page 2 of 6

In 2006, Green Corporation acquired a silver mine in Benguet. Because the mine is located deep in the Benguet Mountains, Green was able to acquire the mine for the low price of P50,000. In 2007, Green constructed a road to the silver mine costing P5,000,000. Improvements to the mine made in 2007 cost P750,000. Because of the improvements to the mine and the surrounding land, it is estimated that the mine can be sold for P600,000 when the mining activities are complete. During 2008, five buildings were constructed near the mine site to house the mine workers and their families. The total cost of the five buildings was P1,500,000. Estimated residual value is P250,000. In 2006, geologist estimated 4 million tons of silver ore could be removed from the mine for refining. During 2009, the first year of operations, only 5,000 tons of silver ore were removed from the mine. However, in 2010, workers mined 1 million tons of silver. During the same year geologist discovered that the mine contained 3 million tons of silver ore in addition to the original 4 million tons. Improvements of P275,000 were made to the mine early in 2010 to facilitate the removal of additional silver. Early in 2010, additional building was constructed at a cost of P225,000 to house the additional workers needed to excavate the added silver. This building is not expected to have any residual value. In 2011, 2.5 million tons of silver were mined and cost of P1,100,000 were incurred at the beginning of the year for improvements to the mine. Based on the above and the result of your audit, determine the following: (Round off depletion and depreciation rates to two decimal places.) Depletion 11. Depletion for year 2009 a. P6,300 12. Depletion for year 2010 a. P1,300,000 13. Depreciation for year 2010 a. P250,000 14. Depletion for year 2011 a. P1,950,000 15. Depreciation for year 2011 a. P525,000 b. P6,500 b. P1,820,000 b. P490,000 b. P2,150,000 b. P625,000 c. P7,250 c. P780,000 c. P180,000 c. P2,425,000 c. P1,225,000 d. P5,550 d. P870,000 d. P210,000 d. P2,275,000 d. P450,000

You were engaged by the First Love Corporation for the audit of the companys financial statements for the year ended December 31, 2012. The company is engaged in the wholesale business and make all sales at 25% over cost. The following were gathered from the clients accounting records: SALES Date Reference Amount Date Balance P 5,200,000 Balance forwarded forwarded Dec. 27 SI No. 965 40,000 Dec. 28 Dec. 28 SI No. 966 150,000 Dec. 30 Dec. 28 SI No. 967 10,0000 Dec. 31 Dec. 31 SI No. 969 46,000 Dec. 31 Dec. 31 SI No. 970 68,000 Dec. 31 Dec. 31 SI No. 971 16,0000 Dec. 31 Closing entry (5,530,000) P -0Note: SI=sales Invoice RR=Receiving Report Account Receivable Inventory Accounts Payable P500,000 P600,000 P400,000 RECEIPTS Reference RR No. 1059 RR No. 1061 RR No. 1062 RR No. 1063 Closing Entry P

Amount P 2,800,000 24,000 70,000 42,000 64,0000 (3,000,000) -0-

When performing sales and purchases cut-off tests, you found that at December 31, the last Receiving Report which had been used was No. 1063 and that no shipments had been made on any Sales Invoices number is larger than No. 968. You also obtained the following additional information: a.) Included in the warehouse physical inventory at December 31, were goods which had been purchased and received on receiving g report No. 1060 but for which the invoice was not received until the following year. Cost was P18,000. b.) At the close business, December 31,2 012,there were two trucks on the company siding: Truck No. CPA 123 was unloaded on January 2 of the following year and received on Receiving Report No. 1063. The freight was paid by the vendor. Truck No. APC 075 was loaded and sealed on December 31 but left the company premises on January 2. This order was sold for P100,000 per Sales Invoice No. 968. c.) Temporarily stranded at December 31 at the railroad siding were two delivery trucks enroute to Failure Trading Corporation. Failure received the goods, which were sold on Sales Invoice No. 966, terms FOB Destination, the next day d.) Enroute to client on December 31 was truck load of goods which was received on Receiving report No. 1064. The goods were shipped FOB Destination, and freight of P2,000 was paid by the client. However, the freight was deducted from the purchase price of P800,000
SECOND CPA MOCK BOARD EXAMINATIONS SECOND Semester, School Year 2012 - 2013 UNIVERSITY OF SAINT LOUIS TUGUEGARAO

SET A

AUDITING PROBLEMS

Page 3 of 6

Based on the above and the result of your audit, determine the following: 16. Sales for the year ended December 31, 2012 a. P5,250,000 b. P5,400,000 17. Purchases for the year ended December 31, 2012 a. P3,000,000 b. P3,018,000 18. Inventory as of December 31, 2012 a. P864,000 b. P968,000 19. Accounts Receivable as of December 31, 2012 a. P350,000 b. P370,000 20. Accounts Payable as of December 31, 2012 a. P418,000 b. P400,000 c. P5,150,000 c. P3,754,000 c. P800,000 c. P220,000 c. P354,000 d. P5,350,000 d. P3,818,000 d. P814,000 d. P120,000 d. P1,218,000

On April 1. 2010, Klootz Corporation purchased 5-year P10,000,000 10% bonds dated January 1, 2010. The bonds were purchased to yield 12%. Interest is payable annually every December 31. Klootz Corporation has the positive intention to hold these bonds to maturity. The issuer paid the interest as scheduled in 2012, 2011 and 2012. During 2012, the issuer of the bonds is in financial difficulties and it becomes probable that the issuer will be put in administration by a receiver. On December 31, 2012, Klootz estimated that none of the interest will be collected and only P8,000,000 of the principal will be collected on maturity date. No cash flows are received during 2013. At the end of 2013, the issuer released from administration and Klootz receives a letter from receiver stating that the issuer will be able to meet its remaining obligations, including interest and repayment of principal. Based on the above and the result of your audit, answer the following: (Round off present value factors to four decimals places and final answers to nearest hundred.) 21. How much was the total amount paid to acquire the investment in bonds on April 1, 2010? a. 9,307,200 b. P9,278,800 c. P9,557,200 d. P9,528,800 22. How much is the carrying amount of the investment in Bonds on December 31, 2010? a. P9,363,900 b. P9,392,300 c. P9,006,700 d. P9,420,600 23. How much should be recognized as impairment loss in 2012? a. P3,284,000 b. P3,141,700 c. P3,972,000 d. P1,622,400 24. How much is the interest income to be recognized in 2013? a. P682,800 b. P1,159,400 c. P765,300 d. P-025. How much should be recognized as reversal of impairment loss in 2013? a. P3,141,700 b. P2,678,100 c. P3,284,000 d. P-0-0 Bongga Company commenced operations on January 1, 2010. During the following year, the company acquired a tract of land, demolished the building on the land and built a new factory. Equipment was acquired for the factory and in September 2011, the plant was ready to commence operation. A grand opening was held on September 18, with the city mayor opening the factory. The first items were ready for sale on September 25. During the period, the following cash inflows and outflows occurred: While searching for a suitable block of land, Bongga placed an option to buy with three real estate agents at a cost of P1,250 each. Payment for option fees Receipt of loan from Bank Payment to settlement agent for title search, stamp, duties and settlement fees Payment for delinquent property taxes assumed by Bongga Company Payment for land Payment for demolition of old building Proceeds from sale of material from old building Payment to architect Payment to City Hall for approval of building construction Payment for safety fence around construction site Payment to construction contractor for factory building Payment for external driveways, parking bays and safety lightning Payment of interest on construction loan Payment for safety inspection on building Payment for equipment Payment of freight and insurance costs on delivery of equipment Payment on installation cost on equipment Payment for safety equipment surrounding the equipment Payment for removal of safety fence Payment for new fence surrounding the factory Payment for advertisements in news paper about the forthcoming factory and its benefits to the community Payment for opening ceremony Payments to adjust equipment to more efficient operating levels subsequent to initial operation 26. The amount to be reported as expense (excluding a. P10,000 b. P81,250 27. What is the cost of the equipment? a. P818,000 b. P913,000 28. What is the cost of the land improvements? a. P936,000 b. P786,000 29. What is the cost of the building? a. P6,306,000 b. P6,230,000
SECOND CPA MOCK BOARD EXAMINATIONS SECOND Semester, School Year 2012 - 2013 UNIVERSITY OF SAINT LOUIS TUGUEGARAO

3,750 3,000,0000 48,000 50,0000 3,000,000 210,000 78,000 750,000 50,000 56,000 5,000,000 730,000 400,000 30,000 570,000 48,000 60,000 140,000 20,000 150,000 10,0000 70,000 95,000

depreciation) on Bonggas income statement is c. P82,500 d. P80,000 c. P773,000 c. P730,000 c. P6,456,000 d. P678,000 d. P880,000 d. P5,906,000

SET A 30. What is the cost of the land? a. P3,381,250 b. P3,231,250

AUDITING PROBLEMS

Page 4 of 6

c. P3,233,750

d. P3,309,250

At the beginning of the year 1, an entity grants 200 shares each to 500 employees. The grant is conditional upon the employees remaining in the entitys employ until the performance condition described below is satisfied. Performance Condition The shares will vest at the end of: Year 1- if the entitys earnings increase by 15% Year 2- if the entitys earnings increase by more than an average of 11% per year over the two-year period. Year 3- if the entitys earnings increase by more than an average of 8% per year over the three-year period. The shares have a fair value of P15 at the beginning of Year1, which equals the share price at grant date. The entity does not expect to pay dividend over the three-year period. The following events occurred: Year 1 30 employees have left during year 1 and the entity expects, on the basis of weighted average probability, that a further 40 will leave during year 2. The entitys earnings have increased by 14% by the end of year 1 and the entity expects that the earnings will continue to increase at a similar rate in year 2. Therefore, the entity expects that the shares will vest at the end of year 2. Year 2

Year 3

35 employees have resigned by the end of year 2 and the entity expects that a further 30 will leave during year 3. Earnings have increase by only 7% during year 2. Hence, the shares do not vest at the end of the year 2 as expected by the end of year 1. The entity expects that by the end of year 3, its earnings will increase by at least 5%, thereby achieving the average of 8% per year. 28 employees have resigned by the end of the year 3 The entitys earnings have increased by 6% during year 3. This results in an average increase of 9% per year over the three year vesting period.

Based on the preceeding information, determine the following: 31. Cumulative compensation expense at the end of year 1 a. P407,000 b. P645,000 c. P430,000 32. Cumulative compensation expense at the end of year 2 a. P1,290,000 b. P330,000 c. P810,000 33. Cumulative compensation expense at the end of year 3 a. P1,221,000 b. P1290,000 c. P1,215,000 34. Share option outstanding at the end of year 2 a. P822,000 b. P810,000 c. P645,000

d. P82,500 d. P822,000 d. P1,500,000 d. P430,000

The following investment related-transaction were completed by Orange Company during 2010: a. Purchased P3,000,000 of Apple company 7% bonds, paying 102.5 plus accrued interest of P52,500. In addition the company paid brokerage fee of p15,000. Orange classified these bonds as trading security. b. Purchased 30,000 shares of Grapes Company ordinary shares at P125 per share plus brokerage fees of P28,500. Orange classified this stock as an available-for-sale-security. c. Received semiannual interest on the Apple Company bonds. d. Sold 4,500 shares of Grapes Company at P132 per share. e. Sold P480,000 of Apple Company 7% bonds at 102, plus accrued interest of P2,790. 35. The Apple Company bonds should be initially measured and recognized a. P3,090,000 b. P3,075,000 c. P3,000,000 36. The realized gain or loss on the sale of Apple company bond is a. P390 gain b. P2,010 loss c. P4,800 loss 37. The 30,000 Grapes Company shares acquired should be initially measured a. P3,778,500 b. P3,750,000 c. P3,721,500 38. The realized gain or loss on the sale of Grapes Company shares is a. P37,225 gain b. P31,500 gain c. P27,225 loss d. P3,142,500 d. P2,400 loss and recognized at d. P3,988,500 d. P31,500 loss

Mango, Inc. sells electric stoves. It uses the perpetual inventory system and allocates cost to inventory on first-in, firstout basis. The companys reporting date is December 31. At December 1, 201, inventory on hand consisted of P350 stoves at P820 each and 43 stoves at P850 each. During the month ended December 31, 2012, the following inventory transactions occurred (all purchased and sales transactions are on credit): 2010 December 1 Sold Stoves for P1,200 each. 2 Five stoves were returned by customers. They had originally cost P820 each and were sold for P1,200 each. 9 Purchased 55 stoves at P910 each. 10 Purchased 76 stoves at P960 each. 15 Sold 86 stoves for P1,350 each 17 Returned one damaged stove to the supplier. This stove had been purchased on December 9. 22 Sold 60 stoves P1,250 each 26 Purchased 72 stoves at P980 each.
SECOND CPA MOCK BOARD EXAMINATIONS SECOND Semester, School Year 2012 - 2013 UNIVERSITY OF SAINT LOUIS TUGUEGARAO

SET A

AUDITING PROBLEMS

Page 5 of 6

39. What is the FIFO cost of Mangos inventory on December 31, 2010? a. P148,930 b. P149,980 c. P133,607 40. What is the cost of goods sold in December 2010? a. P367,230 b. P371,330 c. P366,320 41. What is Mangos gross profit in December 2010? a. P173,770 b. P155,170 c. P177,870

d. P126,280 d. P389,930 d. P183,870

Langka Corporation has been producing quality disposable containers for more than two decades. The companys fiscal year runs from April 1 to March 31. The following information relates to the obligations of Langka as of March 31, 201. Bonds Payable Langka issued P10,000,000 of 10% bonds on July 1 ,2008. The prevailing market rate of interest for these bonds was 12% on the date of issue. The bonds will mature on July 1 ,2018. Interest is paid semiannually on July 1 and January 1. Langka uses the effective interest rate method to amortized bond premium or discount. Notes Payable Langka has signed several long-term notes with financial institutions. The maturities of these notes are given in the schedule below. The total unpaid interest for all these notes amounts to P600,000 on march 31, 2010. Due Date Amount Due April 1, 2010 P 400,000 July 1, 2012 P 600,000 October 1, 2012 P 300,000 January 1, 2011 P 300,000 April 1, 2011-March 31, 2012 P1,200,000 April 1, 2012-March 31, 2013 P1,000,000 April 1, 2013-March 31, 2014 P1,400,000 April 1, 2014-March 31, 2015 P 800,000 April 1, 2015-March 31, 2016 P1,000,000 Estimated Warranties Langka has a one-year product warranty on some selected items in its product line. The estimated warranty liability on sales made during the 2008-2009 fiscal year and still outstanding as of March 31, 2009 amounted to P180,000. The warranty costs on sales made from April 1, 2009, through March 31, 2010, estimated at P520,000. The actual warranty costs incurred during the current 2009-2010 fiscal year are as follows: Warranty claims honored on 2008-2009 sales P180,000 Warranty claims honored on 2009-2010 sales P178,000 Total warranty claims honored P358,000 Other information Trade PayablesAccounts Payable for supplies, goods and services purchased on open account amount to P740,000 as of March 31, 2010. Payroll Related Items Accrued salaries and wages P300,000 Withholding taxes payable 94,000 Other payroll deductions 10,000 Total 404,000 Miscellaneous Accruals Other accruals not separately classified amount to P150,000 as of march 31, 2010 Dividends On March 15, 2010, Langkas board of directors declared a cash dividend of P0.20 per ordinary share and a 10% stock dividend. Both dividends were to be distributed on April 12, 2010, to the shareholders of record at the close of business on March 31, 2010. Data regarding Langka ordinary shares capital as follows: Par Value P 5.00 per share Number of shares issued and outstanding 6,000,000 shares Market Value of ordinary shares: March 15, 2010 March 31, 2010 April 12, 2010 P22.00 per share P21.50 per share P22,50 per share

42. How much was received by Langka from the sale of the bonds on July 1, 2008? a. P8,852,960 b. P10,000,000 c. P10,500,000 d. P10,647,040 43. What is the current portion of Langka notes payable at March 31, 2010? a. P2,800,000 b. P1,600,000 c. P1,300,000 d. P3,800,000 44. The balance of the estimated warranties payable at March 31, 2010? a. P342,000 b. P18,000 c. P520,000 d. P180,000 45. On March 31, 2010, Langkas statement of financial position would report total current liabilities of a. P5,286,000 b. P4,386,000 c. P5,336,000 d. P5,642,000 46. On March 31, 2010, Langkas statement financial position would report total noncurrent liabilities of a. P14,389,350 b. P14,352,217 c. P14,370,783 d. P14,252,960 Pomelo Corporation, a lessor of office equipment, purchased a new equipment for P1,000,000 on December 31, 2009. The equipment was delivered the same day to Suha Corporation, the lessee.
SECOND CPA MOCK BOARD EXAMINATIONS SECOND Semester, School Year 2012 - 2013 UNIVERSITY OF SAINT LOUIS TUGUEGARAO

SET A

AUDITING PROBLEMS

Page 6 of 6

The following information relates to the lease transaction: 1. The leased asset has an estimated useful life of seven years, which is also the lease term. 2. At the expiration of the lease, the equipment will revert to Pomelo at which time it is expected to have a residual value of P120,000 (none of which is guaranteed). 3. Pomelos implicit interest rate is 12%, which is known to Suha Company. 4. Suhas incremental borrowing rate is 14% at December 31, 2009. 5. Lease rentals consist of seven equal annual payments, the first of which was paid on December 31, 2009. 6. Pomelo propery accounts for this lease as a direct financing lease and as a finance lease by Suha. Both lessor and lease are calendar year corporation and depreciate all property, plant and equipment on the straight-line basis. 47. How much is the annual lease payment? a. P195,641.12 b. P185,022.50 c. P135,103.43 d. P142,857.14 48. How much unearned interest income should be recognized by Pomelo and at the inception of the lease? a. P65,724.00 b. P-0c. P120,000.00 d. P415,157.50 49. What is the amount of depreciation expense that Suha should record for 2010? a. P142,857.14 b. P135,103.43 c. P185,022.50 d. P-050. The amount of interest expense that should be recorded by Suha for 2010 is a. P76,070.15 b. P100,000.00 c. P91,284.18 d. P113,487

****END OF EXAMINATION****

SECOND CPA MOCK BOARD EXAMINATIONS SECOND Semester, School Year 2012 - 2013 UNIVERSITY OF SAINT LOUIS TUGUEGARAO