The University of Manila

College of Business Administration and Accountancy

Integrated CPA Review and Refresher Program
AUDITING PROBLEM

The following information was provided by Alinsod Corp. as of the fiscal year ended September
30, 2020:

August 31 September 30
Loan proceeds directly credited by the bank 200,000 250,000
Note payable payment by the bank 120,000 80,000
Undeposited collections 450,000 ?
Outstanding checks 180,000 ?
Total credits per bank statement 1,955,000
Total debits per bank statement 1,655,000
Total debits per books 1,795,000
Total credits per books 1,800,000

Additional information:
a. A P100,000 collections was erroneously recorded twice in the books in September, the company
discovered the error and corrected the same immediately in September.

b. A P50,000 disbursement check was recorded in the books as P5,000 in August. The correction
was made in September.

c. The bank erroneously credited the company P80,000 in August for a collection of Kare Corp.
The bank corrected the error in September.

d. The unadjusted balance per book in August was at P640,000. The unadjusted balance per
bank in September was at P785,000.

Questions:
1. What is the correct cash in bank balance as of August 31, 2020?
a. 675,000
b. 755,000
c. 720,000
d. 795,000

2. What is the correct deposit in transit as of September 30?

a. 160,000
b. 240,000
c. 340,000
d. 320,000
 3. What are the correct outstanding checks as of September 30?
a. 265,000
b. 140,000
c. 220,000
d. 310,000

4. What is the correct cash in bank balance as of September 30?

a. 760,000
b. 725,000
c. 705,000
d. 805,000

5. In validating the bank reconciliation statements of the client, the auditor should trace back
the unrecorded debits, like service charges to the:
a. Accounts payable voucher.
b. Cancelled checks returned by the banks
c. Bank statement of the current month
d. Cut-off bank statement of the subsequent month

The accounting staff of ABC Co. submitted an inventory list at December 31, 2020 which showed
a total of P1,500,000. The following information which may or may not be relevant to the
inventory value submitted, are given below:

▪ Excluded from inventory was merchandise costing P24,000 because they were
transferred to the delivery department for packaging on December 28 to be
shipped on January 2, 2021.
▪ The bill of lading and other import documents on a merchandise were delivered
by the bank and the trust receipt accepted by the company on December 26, 2020.
Taxes and duties have been paid on this shipment but the customs broker has not
delivered the merchandised until January 7, 2021. Delivered cot of the shipment
totaled P240,000. This shipment was not included in the inventory in December
2020.
▪ A review of the company’s purchase orders shows a commitment to buy P30,000
worth of merchandise. This was not included in the inventory because the goods
were received on January 3, 2021.
▪ Suppliers invoice for P9,000 worth of merchandise dated December 28, 2020 was
received through the mails on December 30, 2020 although the goods arrived only
on January 4, 2021. Shipment term is F.O.B shipping point. This item was included
in the December 31, 2020 inventory by the company.
▪ Goods valued at P6,000 were received on December 28, 2020 for approval by ABC
Co. the inventory team included this merchandise in the list but did not place any
value on it. On January 4, 2021 the company informed the supplier by long
distance telephone of the acceptance of the goods and the supplier’s invoice was
received on January 7, 2021.
 ▪ On December 27, 2020, an order for P7,500 worth of merchandise was laced.
This was included in the year-end inventory although it was received only on
January 5, 2021. Seller shipped the goods f.o.b. destination.

6. The correct merchandise inventory at December 31, 2020 of ABC Co. is

a. P1,756,500 b. P1,516,500 c. P1,747,500 d. P1,764,000

The HVR Company included the following in its notes receivable as of December 31, 2016:
Notes Receivable from sale of land P2,640,000
Notes Receivable from consultation 3,600,000
Notes Receivable from sale of equipment 4,800,000
The following transactions during 2016 and other information relate to the company’s notes
receivable:
a. On January 1, 2016, HVR Company sold a tract of land to Triple X Company. The land
purchase 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,
2017. There was no established exchange price for the land. The prevailing interest rate
for this note on January 1, 2016 was 10%.
b. On January 1, 2016, HVR Company received a 5%, P3,600,000 promissory note in
exchange for the consultation services rendered. The note will mature on December 31,
2018, 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, 2016.
c. On January 1, 2016, 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, 2016. There is no established
market value for the equipment. The market interest rate for similar notes was 14% on
January 1, 2016.
Note: Round off present value factors to four decimal places and final answers to the nearest
hundred.
7. What amount of consultation fee revenue should be recognized in 2016?
a. P3,600,000 b. P2,705,000 c. P4,047,500 d. P3,152,500

8. 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

9. The amount to be reported as noncurrent notes receivable on December 31, 2016, is

a. P7,482,200 b. P6,037,300 c. P5,477,500 d. P7,877,600

10. The amount to be reported as current notes receivable on December 31, 2016, is
a. P4,800,000 b. P2,400,200 c. P4,404,900 d. P7,440,000
 11. How much interest income should be recognized in 2016?
a. P974,200 b. P756,000 c. P1,378,700 d. P1,160,500

You were assigned to audit the receivables of Aji Company. As instructed by your audit manager,
you have performed a cut-off test of sales. The results of the cut-off test revealed the following:

Recorded as Sales in December 2016

Selling price Cost Terms Shipment Date Received by
Customers
P18,000 P16,500 FOB shipping 12/26/2016 12/29/2016
point
20,000 14,000 Shipped to 12/26/2016 12/29/2016
consignee
8,680 7,240 FOB destination 12/28/2016 01/02/2017
9,000 7,500 FOB shipping 12/30/2016 01/02/2017
point
10,000 7,750 FOB destination 12/31/2016 01/03/2017
7,800 6,100 FOB shipping 12/31/2016 01/02/2017
point
14,000 12,000 Shipped to 12/31/2016 01/02/2017
Consignee

Recorded sales in January 2017

Selling price Cost Terms Shipment Date Received by
customers
P21,000 P18,200 FOB shipping 12/30/2016 01/03/2017
point
10,500 8,800 FOB shipping 12/31/2016 01/03/2017
point
4,500 3,200 FOB destination 01/02/2017 01/03/2017
6,500 5,000 FOB shipping 01/02/2017 01/05/2017
point

A count of all inventories within the premises was made in the morning of December 31, 2016
prior to any shipment made during the day. The total cost of the count was recorded as
inventories of December 31, 2016. Half of the goods shipped to consignee on December 26 are
still unsold at December 31. The agreed commission on consignment sales in 20% of the sales
price.

The unadjusted ledger balances show the following:

Accounts receivables P376,500
Inventories 525,000
Sales 1,520,000
Cost of sales 942,000
Determine the adjusted balances of the following:
A. B. C. D.
12. Accounts receivable 363,320 329,620 361,120 389,320
13. Inventories 524,340 506,800 547,440 549,500
14. Sales 1,504,620 1,508,820 1,522,320 1,551,500
15. Cost of sales 928,360 942,660 917,500 973,560

Ichiban Co. has the following non-trading equity securities on December 31, 2020:

Security # of Cost Fair Value

Shares (12/31/20)
ABC ordinary shares 9,000 P441,00 P46 per share
DEF ordinary shares 30,000 1,080,000 P35 per share
GHI preference 2,400 360,000 P154 per share
shares

Audit notes:

a. The above securities were all bought in 2020. On the initial recognition, Mariah made an
irrevocable election to present gain/loss on the said securities to other comprehensive income.

b. On April 1, 2021, the company sold all of the ABC ordinary share for P65 per share.

c. On May 1, 2021, the company purchased 4,200 ordinary shares of JKL Corp. at P75 per share.
The company incurred brokers' fees amounting to P10, 400.

d. The following additional information in 2021 were deemed relevant:

Dividends Reported Fair Value
Declared Net of shares
Income (12/31/21)
ABC ordinary shares P2.00 per share P900,000 P62 per share
DEF ordinary shares P1.50 per share 1,300,000 P38 per share
GHI preference P1.00 per share 750,000 P145 per share
shares
JKL ordinary shares P0.75 per share 450,000 P77 per share

Requirements:
Based on the results of your audit answer the following:
16. What is the realized gain on sale of ABC ordinary shares in 2021, under PAS 39?
a. 190,000
b. 171,000
c. 144,000
d. None
 17. What is the unrealized holding gain/loss to be reported in the stockholders' equity portion
of the 2021 statement of financial position?
a. 56,400
b. 46,000
c. 66,400
d. 76,800

18. Assuming that the company elected to report gains/losses in the profit or losses instead,
what is the unrealized holding gain/loss to be reported in the 2021 statement of
comprehensive income?
a. 46,000
b. 56, 400
c. 66,400
d. 76,800

19. Assuming that the 4,200 JKL shares acquired in 2021 represent 205 interest on JKL's
outstanding ordinary shares, what is the correct carrying value of the investment in JKL
shares?
a. 871,850
b. 412,250
c. 382,250
d. 401,850

These are data and information relating to the operation of Malaysian Corp. for the six (6) months
period which started on July 1, 2020:
Cash receipts consisted of the following:
Cash investment P250,000
Collections on sale on account 310,000
Cash Sales 85,000
Proceeds of a notes payable dated October 1, 2020
and due October 1, 2021, discounted at 18% 24,600
Cash disbursement consisted of the following:
Payment for the land and building on July 1, 2020 P240,000
Payment for 20% down payment of furniture and fixtures
purchased on installment on July 1, 2020 4,000
Payment for accounts payable-trade 280,000
Other operating expenses 45,000
A cash count conducted January 1, 2021 disclosed a total of P43,500 is on hand. Of the sales on
account, P4,000 was returned of poor quality and there was a purchase return of P5,000. On
December 31, 2020, there is accrued other operating expenses of P3,500; Accounts receivable of
P66,000; Accounts Payable of P67,000. The land was allocated cost of P40,000. Annual
depreciation, building, 4% and furniture and fixture, 10%. Inventory on December 31, 2020 is
P21,700. Bank statement balance as of December 31, 2020 amounted to P52,000.
20. Interest Expense
a. P1,107 b. P1,350 c. P3,600 d. P4,428

21. Cost of goods sold

a. P321,300 b. P320,300 c. 347,000 d. 325,300

22. Net Sales

a. P461,000 b. P465,000 c. P380,000 d. P376,000

23. Cash shortage as of December 31, 2020

a. P0 b. P8,500 c. P7,100 d. 5,100

24. Net Income,

a. P81,093 b. P80,850 c. P75,650 d. P75,850

25. Operating Expenses

a. P58,800 b. P54,850 c. P53,660 d. P53,500

Your audit of Tantoco Company’s property plant and equipment account disclosed the following
data as of December 31, 2015:

Machinery Original Date of Useful life Salvage Depreciation

Cost purchase Value Method
Aye P170,00 2009 10 years P62,000 SYD
Bee 1,020,000 2010 15,000 60,000 Working hours
hours
See 1,600,000 2011 15 years 100,000 Straight-line
Dee 1,600,000 2013 10 years 100,000 Double-declining

You have noted that the client's policy in depreciating asset is to take no depreciation on the year
of purchase and full year's depreciation on the year of disposal.

The following is a summary of the transactions in 2015:

A. On May 5, Machinery Aye was sold for P260,000 cash. The company's bookkeeper
recorded this retirement in the following manner in the cash receipt journal:
Cash 260,000
Machinery 260,000
 B. On December 31, 2015, it was ascertained that Machinery Bee had been used for a
cumulative number of hours of 13,100 hours, 2,100 of which was utilized in 2015.
Starting 2015 however, the management revised its estimate of the total useful life of
Machinery Bee from 15,000 hours to 18,000 hours with the salvage value being revised
to P36,000.

C. On December 31, 2015, before computing for depreciation expense on Asset Sea, the
management decided that the asset's remaining useful life is 10 years from January
1, 2015.

D. On December 31, 2015, it was discovered that the plant asset purchased in 2014 has
been charged to repairs expense in 2014. The asset costa P440,000 and had a useful
life of 10 years with no salvage value. Management has decided to use double
declining balance method for this asset and was referred to as machinery Eff.

Based on the information above and as a result of your audit:

26. What is the adjusted gain on sale of Machinery Aye?
a. 82,000
b. 93,600
c. 87,640
d. 58,000

27. What is the depreciation expense on asset Bee for 2015?

a. 84,000
b. 100,400
c. 134,400
d. 142,800
28. What is the depreciation expense on set See for 2015?
a. 120,000
b. 171,430
c. 130,000
d. 10,550

29. What is the total carrying value of equipment, machineries as of December 31, 2015?
a. 2,436,000
b. 2,544,800
c. 3,044,000
d. 2,788,000

Yambao Inc. had the following selected information in its December 31, 2020 stockholders' Equity
portion of its balance sheet:

10% reference shares, P100 par value, 50,300 shares authorized, 10, 000 shares P1,000,000
issued and outstanding
Ordinary shares, P50 par value, 100,000 shares authorized, 50,000 shares 2,500,000
issued, 5,000 Shares reacquired at P75 per share
 Share premium on preference shares 250,000
Share premium on ordinary shares 250,000
Accumulated profits 2,450,000

Transactions in 2021 are as follows:

a. On January 2, the company issued 5,000, P1,000 12% bonds payable with detachable
warrants. One warrant is attached to each P1,000 bond. The bonds which pay semi-annual
interest every June 30 and December 31 were issued at total lump sum of P5,700,000.
On the date of issuance, the bonds were quoted at 105 without the warrants while each
warrant can be sold in the market at P25. Five warrants surrendered together with P60
exercise price entitle holder to acquire one ordinary share. the Warrants can be exercised
2 years from the date of the issuance.
b. On March 1, 4,000 treasury shares were reissued at P70 per share. The remaining
treasury shares were retired and reverted to unissued basis.
c. On April 15, stock rights were issued to ordinary shareholders. Ten stock rights plus P62
por share entitle the holder to acquire one additional ordinary share.
d. On June 1, 60% of the warrants issued with the bonds were exercised.
e. On August 15, all but 9,000 stock rights were exercised by the ordinary shareholders.
f. Adjusted net income for the year amounted to P1, 250,000.

Based on the information above, answer the following:

30. The entry to recognize the retirement of the treasury shares on March 1 shall involve a
debit to accumulated profits at:
a. 22,500
b. 2,500
c. 20,000
d. None

31. What is the credit to the share premium account as a result of the exercise of the stock
warrants on June 1?
a. 270,000
b. 226,000
c. 276,000
d. 306,000

32. What is the credit to the share premium account as a result of the exercise of the stock
rights on August 15?
a. 20,000
b. 45,000
c. 48,000
d. None

33. What is the total additional paid in capital as of December 31, 2021?
a. 999,000
b. 1,004,000
c. 1,001,500
 d. 953,500

34. What is the total stockholders’ equity as of December 31, 2021?

a. 8,339,000
b. 8,189,000
c. 8,303,000
d. 8,193,000

You auditing Adelaida Corp.'s various liability accounts. The following schedule of liabilities was
presented to you by the company's accountant in relation to your audit:
Accounts payable P460,000
Warranties payable 153, 250
Salaries payable 268,500

Audit notes:
a. You have rendered a purchases cut-off to ascertain the completeness of the company's
accounts payable balance. The following is the summary of the entries 10 days before
and after the balance sheet date and your audit observation:

Purchases Journal Entries: Dec. 20 Dec. 31, 2014:

Receiving Suppliers Amount FOB
Report Date Invoice Date Term/Remark
Dec. 20, 2014 Dec, 19, 2014 60,000 Shipping
Point
Dec, 23, 2014 Dec. 20, 2014 42,000 From
Consignor
Dec. 28, 2014 Dec. 26 2014 45,000 Destination
Jan. 3 2015 Dec. 29, 2014 30,000 Destination

Purchase Journal Entries: January 2 – January 10, 2015

Receiving Suppliers Amount FOB
Report date Invoice date Term/Remark
Jan. 3, 2015 Dec. 28, 2014 P20,000 From Consignee
Jan. 5, 2015 Dec. 3, 2015 55,000 Shipping point
Jan. 6, 2015 Jan. 3, 2015 84,000 Shipping point
note: assume suppliers' invoice date as suppliers' shipment date as supplier’s shipment
date of goods and ending inventories were appropriately established through an inventory
count.

b. The company started its 2-year warranty program for merchandise sold starting 2013.
The company estimates that it will incur P350 in part and labor for repairing each unit of
merchandise. The company further estimates that 70% of the units sold shall be returned
for repairs and that 40% of the warranty costs shall be incurred in the year of sale with
60% to be incurred in the year following the year of sale. The following information is
deemed relevant for your audit:
2013 2014
Number of units sold 1,250 1,410
Actual warranty costs 153,000 250,000
 The balance of the warranty’s payable is the accrued warranty cost at the end of 2013.
Actual warranty coats were charged to current-year warranty expense. Adjusting entry at
the end of 2014 is yet to be made.

c. Salaries payable reflects the probable unused sick leave and vacation leaves in 2013 and
prior to 2013 carried over 2014. No entry had been made during the current year affecting
the salaries payable account. Employees are allowed to carry-over unused leaves over 2
years from year of grant, thereafter, it shall expire. Salary rates increased for the current
year by 10%. An analysis of the cumulative unused sick leave and vacation leaves are as
follows:

Prior to 2013 leaves carried over to 2014 270 days

2013 leaves carried over to 2014 625 days
Prior to 2014 leaves used in 2014 700 days
Leaves earned in 2014 carried over 2015 550 days
From prior to 2014 leaves used in 2014, 200 were earned by employees prior to 2013.

d. The Board of Directors approved through a resolution, additional incentive to key officers
in the form of a bonus which shall be at 10% of the adjusted net income after 30% income
tax and after bonus. The net income of the company before any adjustments were made
is at P2,032,700

Required
35. What is the adjusted balance of the accounts payable account?
a. 485,000
b. 473,000
c. 443,000
d. 388,000

36. What is the balance of warranties payable as of December 31, 2014?

a. 396,750
b. 369,750
c. 284,700
d. 248,700

37. What is the correct balance of the salaries payable in the form of liability for compensated
absences as of December 31, 2014?
a. 212,250
b. 202,500
c. 220,250
d. 222,750

38. What is the correct amount of bonus to key officers?

a. 130,841
b. 133,841
 c. 123,481
d. 132,481

PPB Bank granted a loan to a borrower in the amount of P5,000,000 on January 1, 2010. The
interest rate on the loan is 10% payable annually starting December 31, 2010. The loan matures
in five years on December 31, 2014. PPB Bank incurs P39,400 of direct loan origination cost and
P10,000 of indirect loan origination cost. In addition, PPB Bank charges the borrower an 8-point
nonrefundable loan origination fee.
39. The carrying amount of the loan as of January 1, 2010 is
a. P5,000,000 b. P5,039,400 c. P4,639,400 d. P4,649,400

40. The effective interest rate of the loan is

a. 10.00% b. 11.94% c. 12.00% d. 9.801%

41. The interest income to be recognized in 2010 is

a. P500,000 b. P556,728 c. P493,861 d. P555,138

42. The carrying amount of the loan as of December 31, 2010 is

a. P5,000,000 b. P4,696,128 c. P5,033,261 d. P4,704,538

The accountant of Rodriguez Inc. presented to you the following details of its subsidiary ledger
in relation to your audit of the company's accounts receivable balance as of December 31, 2020:

Customer Invoice Date Amount

Zulu Inc. December 20 550,000
December 1 1,200,000
October 11 950,000
August 4 420,000

Whiskey Co. November 20 2,000,000

September 4 900,000
August 2 500,000

Uniform Inc. December 10 1,750,000

October 4 600,000
July 5 500,000

Tango Corp. September 9 2,600,000

July 10 1,250,000
March 5 900,000

Romeo Co. December 1 (500,000)

Audit notes:
a. The company's term is n/60 days.
b. The company's general ledger shows the following balances as of December 31, 2020:
Accounts Receivable P13,650,000
Allowance for doubtful (950,000)
accounts
c. The credit balance of the receivable resulted from Romeo Co.'s overpayment of its
account. The same shall be settled by a delivery of merchandise the following period.
d. You have discovered that Uniform Inc.'s payment of an October 4 invoice amounting to
P600,000 was posted against Whiskey Co.’s account for an invoice Dated December 4 for
the same amount.
e. Discussions with the credit department manager revealed the following appropriate credit
policy:

Accounts receivable age % doubtful of

Collection
Current 2%
1-60 days past due 5%
61-120 days past due 20%
More than 120 days past 50%
due

Requirements:
43. How much is the unreconciled difference between the control account the subsidiary
ledger?
a. None
b. 20,000
c. 10,000
d. 30,000

44. What are the correct accounts receivable balance as of December 31, 2020?
a. 14,150,000
b. 14,130,000
c. 14,120,000
d. 14,140,000

45. Assuming that there were no other entries affecting the allowance for bad debts what is
the correct bad debt expense for 2020?
a. 387,500
b. 378,500
c. 396,500
d. 369,500

46. What is the correct amortized cost of the receivable as of December 31, 2020?
a. 12,791,500
b. 12,291,500
c. 12,773,500
 d. 12,803,500

Paombong Company purchased P200,000 8% bonds for P184,557 on January 1, 2008. Paombong
classified the bonds as available for sale. Semiannually on July 1 and January 1. The bonds mature
on January 1, 2013. Paombong uses the effective interest method to amortize premium or
discount. On January 2, 2010, the fair value of the bonds did not change from the previous
reporting period end. On this date, Paombong sold the bonds for its fair value after receiving
interest for its liquidity needs.
The market values of the bonds are as follows:
December 31, 2008 P190,449
December 31, 2009 186,363
47. Interest Income for the year 2008
a. P14,869 c. P18,517
b. P16,000 d. P18,456
48. Interest Income for the year 2009
a. P18,775 c. P16,000
b. P15,272 d. P18,701
49. Unrealized gain on available-for-sale securities as of December 31, 2008
a. P3,436 c. P3,375
b. P0 d. 5,892
50. Unrealized gain on available-for-sale securities as of December 31, 2009
a. P8,053 gain c. P3,351 gain
b. P3,486 loss d. P1,806 loss
51. Unrealized gain on available-for-sale securities as of January 2, 2010
a. P6,861 loss c. P4,714 loss
b. P4,849 loss d. P9,416 gain

Maxi Corporation engaged you to examine its books and records for the fiscal year ended June
30, 2020. The company’s accountant has furnished you not only the copy of trial balance as of
June 30, 2020 but also the copy of company’s statement of financial position and statement of
comprehensive income as at said date. The following data appears in the cost of goods sold
section of the statement of comprehensive income:
Inventory, July 1, 2019 P500,000
Add Purchases 3,600,000
Total Goods Available for Sale 4,100,000
Less inventory, June 30, 2020 700,000
Cost of Goods Sold P3,400,000
The beginning and ending inventories of the year were ascertained thru physical count except
that no reconciling items were considered. Even though the books have been closed, your working
paper trial balance show all account with activity during the year. All purchases are FOB shipping
point. The company is on periodic inventory basis.

In your examination of inventory cut-offs at the beginning and end of the year, you took note of
the following:
July 1, 2019
a. June invoices totaling to P130,000 were entered in the voucher register in June. The
corresponding goods not received until July.
b. Invoices totaling P54,000 were entered in the voucher register in July but the goods
received during June.
June 30, 2020
c. Invoices with an aggregate value of P86,000 were entered in the voucher register in July,
and the goods received in July. The invoices, however, were date June.
d. June invoices totaling P74,000 were entered in the voucher register in June but the goods
were not received until July.
e. Invoices totaling P108,000 (the corresponding goods for which were received in June)
were entered the voucher register, July.
f. Sales on account in the total amount of P176,000 were made on June 30 and the goods
delivered at that time. Book entries relating to the sales were made in June.

52. How much is the adjusted Inventory as of July 1, 2019?

a. P500,000 c. P576,000
b. P630,000 d. P370,000

53. How much is the adjusted Purchases for the fiscal year ended June 30, 2020?
a. P3,840,000 c. P3,894,000
b. P3,600,000 d. P3,014,000

54. How much is the adjusted Inventory as of June 30, 2020?

a. P784,000 c. P892,000
b. P500,000 d. P960,000

55. How much is the adjusted Cost of Goods Sold for the fiscal year ended June 30, 2020?
a. P3,316,000 c. P3,510,000
b. P3,970,000 d. P3,564,000

56. The necessary compound adjusting journal entry as of June 30, 2020 would include a net
adjustment to Retained earnings of
a. P130,000 c. P76,000
b. P184,000 d. P54,000

You were asked by Legendary Corporation to audit its financial statements for the year ended
December 31, 2019. As a standard audit procedure, you requested permission to contact the
company’s predecessor auditor. Archer unconditionally gave its permission. You noted the
following in your review of the predecessor auditor’s working papers:

On January 1, 2017, Archer had an inventory of cut seasoning timber which has cost P12 million
two years ago. Die to shortages of these quality of timber its value at January 1, 2017 had risen
to P20 million. It will be a further three years before this timber is sold to a manufacturer of high-
class furniture. On January 2, 2017 Legendary entered into an arrangement mythic bank to sell
the timber for P15 million. Legendary has an option to buy the timber at any time within the next
three years at a cost of P15 million plus accumulated interest at 2% per annum above base rate.
This will be charged from the date of the original sale the base rate for the period of the
transactions is 8%. This transaction was recorded as a regular sales transaction.
Based on your review of the records for 2019 you noted that Archer exercised its option to buy
back the timber on 31 December 2019 and sold it on the same day for a price of P25 million. The
purchase and sale were recorded as regular transactions.

57. The profit for the year ended December 31, 2017 is overstated by
a. P3,000,000 c. P4,500,000
b. P1,500,000 d. P4,200,000
58. The profit for the year ended December 31, 2018 is overstated by
a. P1,650,000 c. P1,296,000
b. P1,500,000 d. P0
59. The profit for the year ended December 31, 2019 is understated by
a. P7,965,000 c. P9,780,000
b. P6,150,000 d. P5,496,000
60. The retained earnings as of December 31, 2019 is misstated by
a. P4,965,000 c. P9,930,000
b. P4,500,000 d. P0

The XYZ Company is on a calendar year basis. The following data were found during your audit:
a. Goods in transit shipped FOB destination by a supplier, in the amount of P100,000, had
been excluded from the inventory, and further testing revealed that the purchase had
been recorded.
b. Goods costing P50,000 had been received, included in inventory and recorded as a
purchase. However, upon your inspection the goods were found to be defective and would
be immediately returned.
c. Materials costing P250,000 and billed on December 30, at a selling price of P320,000, had
been segregated in the warehouse for shipment to a customer. The materials had been
excluded from inventory as a signed purchase order had been received from the customer.
Terms, FOB destination.
d. Goods costing P70,000 was out on consignment with Hermie Company. Since the monthly
statement from Hermie Company listed those materials as on hand, the items had been
excluded from the final inventory and invoiced on December 31 at P80,000.
 e. The sale of P150,000 worth of materials and costing P120,000 had been shipped FOB
shipment on December 31. However, this inventory was found to be included in the final
inventory. The sale was properly recorded in 2010.
f. Goods costing P100,000 and selling for P140,000 had been segregated, but not shipped
at December 31, and were not included in the inventory. A review of the customer’s
purchase order set forth terms as FOB destination. The sale had not been recorded.
g. Your client has an invoice from a supplier, terms FOB shipping point but the goods had
not arrived as yet. However, these materials costing P170,000 had been included in the
inventory count, but no entry had been made for their purchase.
h. Merchandise costing P200,000 had been recorded as a purchase but not included as
inventory. Terms of sale are FOB shipping point according to the supplier’s invoice which
had arrived at December 31.

Further inspection of the client’s records revealed the following December 31, 2010 balances;
Inventory P1,100,000; Accounts receivable, P580,000; Accounts payable, P690,000; Net sales,
P5,050,000; Net Purchases, P2,300,00; Net Income, P510,000. Based on the above and the result
of your audit, determine the adjusted balances of the following as of December 31, 2010:
61. Inventory
a. P1,230,000 c. P1,550,000
b. P1,650,000 d. P1,480,000

62. Accounts Payable

a. P540,000 c. P760,000
b. P710,000 d. P810,000

63. Net Sales

a. P4,550,000 c. P4,730,000
b. P4,650,000 d. P4,970,000

64. Net Purchases

a. P2,150,000 c. P2,370,000
b. P2,320,000 d. P2,420,000

65. Net Income

a. P220,000 c. P540,000
b. P290,000 d. P550,000

You obtained the following information in the current account of Pasay Company, during your
examination of its financial statements for the year ended December 31, 2020.
The bank statement on November 30, 2020 showed a balance of P306,000. Among the bank
credit in November was customer’s note for P100,000 collected for the account of the company
which the company recognized in December among its receipts. Included in the bank debits were
cost of checkbooks amounting P1,200 and a P40,000 check which was charged by the bank in
error against Pasay Co. account. Also, in November you ascertained that there were deposits in
transit amounting to P80,000 and outstanding checks totaling P170,000.
The banks statement for the month of December showed total credit of P416,000 and total
charges of P204,000. The company’s book for December showed total debits of P735,600, total
credit of P407,200 and a balance of P485,600. Bank debit memos for December were; No. 121
for service charges, P1,600 and No. 122 on a customer’s returned check marked “Refer to drawer”
for P24,000.
On December 31, 2020 the company placed with the bank a customer’s promissory note with a
face value of P120,000 for collection. The company treated this note as part of its receipts
although the bank was able to collect on the note only in January 2021.
A check for P3,960 was recorded in the company cash payment books in December as P39,600.

66. How much is the undeposited collections as of December 31, 2020?

a. P339,600 c. P219,600
b. P179,600 d. P363,160

67. How much is the outstanding checks as of December 31, 2020?

a. P191,960 c. P361,960
b. P179,600 d. P363,160

68. How much is the adjusted cash balance as of November 30, 2020?
a. P216,000 c. P176,000
b. P256,000 d. P157,200

69. How much is the adjusted bank receipts for December?

a. P635,600 c. P475,600
b. P515,600 d. P435,600

70. How much is the adjusted book disbursements for December?

a. P395,960 c. P225,960
b. P431,600 d. P397,160

71. How mush is the adjusted cash balance as of December 31, 2020?
a. P625,640 c. P220,000
b. P195,640 d. P375,640

On April 1, 2019, Sasmuan Co. purchased P25,000 ordinary shares of Bacolor Co. at P180 per
share which reflected book value as of that date. At the time of purchase, Bacolor had 100,000
ordinary shares outstanding. The shares are intended as a long-term investment. The first quarter
statement ending March 31, 2019 of Bacolor recorded profit of P480,000. For the year ended
December 31, 2019, Bacolor reported profit of P2,400,000. Bacolor paid Samuan dividends of
P60,000 on June 1, 2019 and gain P60,000 on December 31, 2019. The shares of Bacolor are
selling at P190 per share on December 31, 2019. On April 1, 2020, Sasmuan sold 10,000 ordinary
shares of Bacolor for their fair value of P200 per share. After selling the 10,000 shares, Sasmuan
does not expect to exercise significant influence over Bacorlor, and the shares are classified as
available for sale. For the year ended December 31, 2020 the reported profit of Bacolor was
P2,800,000 and dividends of P60,000 was paid to Sasmuan on August 1, 2020. The shares of
Bacolor are selling at P205 per share on December 31, 2020.
72. How much is the carrying amount of the investment on Bacolor Co. as of December 31,
2019?
a. P4,750,000 c. P4,860,000
b. P4,980,000 d. P4,950,000

73. How much is the loss on sale of the investment in Bacolor Co. on April 1, 2020?
a. P50,000 c. P62,000
b. P98,000 d. P14,000

74. How much is the net amount that should be recognized in 2020 profit or loss regarding
the investment in Bacolor Co.?
a. P185,000 c. P161,000
b. P200,000 d. P173,000

75. How much is the net unrealized gain on available for sale securities as of December 31,
2020?
a. P225,000 c. P54,000
b. P75,000 d. P0

On April 1, 2010 Mon Company 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. Mon
Company has the positive intention and ability to hold these bonds to maturity. The issuer paid
the interest at scheduled in 2010 and 2011. During 2012, the issuer of the bonds is in financial
difficulties and it becomes probable that the issuer will be put into administration by a receiver.
On December 31, 2012, Mon estimated that bond 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. Mon receives a letter from the receiver stating that the issuer will be able to meet its
remaining obligations, including interest and repayment of principal.
76. How much was the total amount paid to acquire the investment in bonds on April 1, 2010?
a. P9,307,200 c. P9,278,800
b. P9,557,200 d. P9,528,800

77. How mush is the carrying amount of the investment in bonds on December 31, 2010?
a. P9,006,700 c. P9,420,600
b. P9,392,300 d. P9,363,900

78. How much should be recognized as impairment loss in 2012?

a. P3,284,000 c. P3,141,700
b. P3,972,000 d. P1,622,400

79. How much is the interest income to be recognized in 2013?

a. P682,800 c. P1,159,400
b. P765,300 d. P0
 80. How much should be recognized as reversal of impairment loss in 2013?
a. P3,141,700 c. P3,284,000
b. P2,678,100 d. P0

On January 1, 2009, Hiji Corporation loaned Aiji Corporation amounting to P2,000,000 and
received a 2-year, 6% P2,000,000 note. The note calls for annual interest to be paid each
December 31. Hiji collected the 2009 interest on schedule. However, on December 31, 2010,
based on the Aiji’s recent financial difficulties, Hiji expects that the 2010 interest, which was
recorded in the books, will not be collected and that only P1,200,000 of the principal will be
recovered. The P1,200,000 principal amount is expected to be collected in two equal installments
on December 31, 2012 and December 31, 2014. The prevailing interest rate for similar type of
note as of December 31, 2010 is 8%.
81. The present value of the expected future cash flows as of December 31, 2010 is
a. P955,380 c. P2,079,060
b. P950,920 d. P1,009,260

82. The loan impairment loss in 2010 is

a. P1,164,620 c. P1,110,740
b. P990,740 d. P40,940

83. How much is the interest income for the year 2011?
a. P0 c. P124,744
b. P57,323 d. P60,556

84. Carrying amount of the loan as of December 31, 2012 is

a. P473,465 c. P1,736,032
b. P534,005 d. P1,134,005

On November 17, 2020, Minime Airways entered into a non-cancelable commitment to purchase
3,000 barrels of aviation fuel for P9,000,000 on March 31, 2021. Minime entered into this
purchase commitment to protect itself against the volatility in the aviation fuel market. By
December 31, 2020, the purchase price of aviation fuel had fallen to P2,200 per barrel. However,
by March 31, 2021, when Minime took delivery of the 3,000 barrels, the price of aviation fuel had
risen to P3,100 per barrel.
85. The loss on purchase commitment on December 31, 2020 is
a. P1,500,000 c. P900,000
b. P2,400,000 d. P0

86. The gain on purchase commitment on March 31, 2021 is

a. P2,700,000 c. P300,000
b. P2,400,000 d. P0
On December 31, 2018, Mr. Kim signed a P2,000,000 note to PPB Bank. The market interest rate
at that time is 12%. The stated interest rate on the note was 10% payable annually. The note
matures in 5 years. Unfortunately, because of lower sales, Mr. Kim’s financial condition worsened.
On December 31, 2020, PPB Bank determined that it was probable that Mr. Kim would pay back
only P1,200,000 of the principal at maturity. However, it was also considered likely that interest
would continue to be paid, based on the P2,000,000 loan. The prevailing interest rate for similar
type of note as of December 31, 2020 is 14%.
87. Amount of cash Mr. Kim received from the loan on December 31, 2018
a. P2,000,000 c. P1,855,760
b. P1,892,960 d. P1,134,800

88. Interest income in 2020

a. P225,414 c. P222,691
b. P230,414 d. P200,000

89. Loan impairment loss in 2020

a. P665,480 c. P616,009
b. P569,345 d. 761,489

90. Interest income in 2021

a. P137,085 c. P239,858
b. P160,142 d. P200,000

Yambao Inc. completed the construction of a building at the end of 2018 for a total cost of P100
million. The building is estimated to be economically useful for 25 years. The building was
constructed for the purpose of earning rentals under operating leases; the tenants began
occupying the building after its completion. The company opted to use the fair value model to
measure the building. An independent valuation was used by the company to estimate the fair
value of the building on an annual basis. According to the expert the fair value of the building at
the end of 2018, 2019, and 2020 were P105 million, P120 million, and P118 million, respectively.
91. How much should be recognized in profit or loss in 2018 as a result of the completion of
the building at the end of 2018
a. P20,000,000 c. P5,000,000
b. P9,000,000 d. P0

92. The depreciation expense in 2019 is

a. P4,000,000 c. P4,800,000
b. P0 d. P4,200,000

93. How much should be recognized in profit or loss in 2019 as a result of the fair value
changes?
a. P20,000,000 c. P15,000,000
b. P19,200,000 d. P0

94. How much should be recognized in profit or loss in 2020 as a result of the fair value
changes?
 a. P3,000,000 c. P18,000,0000
b. P2,000,000 d. P0

95. How much is the carrying amount of the shopping mall on December 31, 2020 if Yambao
used the cost mobile?
a. P100,000,000 c. P96,600,000
b. P118,000,000 d. P92,000,000

Los Angeles Inc., is a public enterprise whose shares are traded in the over-the-counter market.
At December 31, 2013, Los Angeles had 6,000,000 authorized shares of P10 par value ordinary
shares, of which 2,000,000 shares were issued and outstanding. The shareholders’ equity
accounts at December 31, 2013, had the following balances.
Ordinary shares P20,000,000
Share premium 7,500,000
Retained earnings 6,470,000

Transactions during 2014 and other information relating to the shareholders’ equity accounts
were as follows:
1. On January 5, 2014, Los Angeles issued at P54 per share, 100,000 shares of P50 par
value, 9% cumulative convertible preference shares. Each share of preference is
convertible, at the option of the holder, into two ordinary shares. Los Angeles had 600,000
authorized preference shares.
2. On February 1, 2014, Los Angeles reacquired 20,000 of its ordinary shares for P16 per
share. Los Angeles uses the cost method to account for treasury shares.
3. On April 30, 2014, Los Angeles sold 500,000 shares (previously unissued) of P10 par value
ordinary shares to the public at P17 per share.
4. On June 18, 2014, Los Angeles declared a cash dividend of P1 per ordinary share, payable
on July 12, 2014, to shareholders of record on July 1, 2014.
5. On November 10, 2014, Los Angeles sold 10,000 treasury shares for P21 per share.
6. On December 14, 2014, Los Angeles declared the yearly cash dividend on preference
shares, payable on January 14, 2015, to shareholders of record on December 31, 2014.
7. On January 20, 2015, before the books were closed for 2014, Los Angeles became aware
that the ending inventories at December 31, 2013, were understated by P300,000 (the
after tax effect on 2014 net income was P210,000). The appropriate correcting entry was
recorded the same day.
8. After correcting the beginning inventory, net income for 2014 was P4,500,000.

96. The Retained Earnings balance as of January 1, 2014 is

a. P6,680,000 c. P6,770,000
b. P6,260,000 d. P6,170,000

97. The Retained Earnings balance as of December 31, 2014 is

a. P8,520,000 c. P8,340,000
 b. P8,250,000 d. P7,830,000

98. The share premium from preference shares as of December 31, 2014 is
a. P400,000 c. P300,000
b. P100,000 d. P350,000

99. The share premium from ordinary shares as of December 31, 2014 is
a. P11,500,000 c. P11,050,000
b. P11,000,000 d. P10,000,000

100. The total shareholder’s equity as of December 31, 2014 is

a. P49,540,000 c. P49,450,000
b. P49,700,000 d. P49,504,000