AUDITING PROBLEMS CPA Review

FIRST SET OF PROBLEMS

PROBLEM 1 – TANYING CORP.

1. B Sales (P1,353,000 + P10,500 Freight) P1,363,500

Sales returns and allowances (11,700)
Sales discounts (2,640)
Net sales P1,349,160

2. C Inventory, Jan. 1 P269,100

Purchases P424,800
Purchase returns and allowances (P424,800 x 6%) (25,488)
Freight in (P16,575 + P1,710) 18,285 417,597
Cost of goods available for sale P686,697

3. D Inventory, Dec. 31, 2015

Per books P 61,650
Goods out on consignment 55,800
Per audit P117,450

4. C Distribution costs:
Sales salaries and commissions (P75,000 + [P9,180 x 3%]) P75,275
Advertising expense (P48,270 + [P5,454 x 2/6]) 50,088
Depreciation expense – Sales/delivery equipment (P18,300 + [P23,400 x 10% x 10/12]) 20,250
Freight expense 10,500
Travel expense – sales representatives 13,680
Miscellaneous selling expenses 8,220
Total P178,013

5. B Administrative expenses:
Legal services P 6,675
Insurance and licenses 23,040
Depreciation expense – office equipment 12,600
Utilities 19,200
Telephone and postage 4,425
Office supplies expense (P6,540 – P3,675) 2,865
Officers’ salaries 109,800
Doubtful accounts expense (P783,000 x 2% = P15,660 – P480) 15,180
Total P193,785

6. A Allowance for doubtful accounts (P783,000 x 2%) P15,660

7. D Net sales P1,349,160

Cost of goods sold (P686,697 – P117,450) (569,247)
Gross income 779,913
Interest revenue (P1,650 + P1,680) 3,330
Dividend revenue 15,450
Gain on sale of assets 23,460
Total income P822,153

8. C Total income P822,153

Distribution costs (178,013)
Administrative expenses (193,785)
Interest expense (13,560)
Loss on sale of equipment (217,800)
Income from continuing operations before tax P218,995

9. B Office supplies inventory P3,675

10. A Income before tax P218,995

Income tax (P218,995 x 30) (65,669)
Income from continuing operations 153,296
Income from discontinued operations, net of tax (P120,000 x 70%) 84,000
Net income P237,296
Page 1 of 15 Pages
AUDITING PROBLEMS

PROBLEM 2 – BUNCHING COMPANY

Accounts Accounts
Cash Receivable Inventory Payable
Per books P963,200 P2,254,000 P6,050,000 P4,201,000
AJE 1 (654,600) 310,000 --- ---
2 360,000 --- --- 372,400
3 a --- --- --- (175,000)
b --- --- 130,000 ---
c --- --- (637,500) ---
d --- --- 217,500 217,500
e --- --- 275,000 ---
Per audit P668,600 P2,564,000 P6,035,000 P4,615,900

(11 – C) (12 – B) (13 – A) (14 – B)

AJES
1. Sales 360,100
Accounts receivable (P294,500 / 95%) 310,000
Sales discounts (P310,000 x 5%) 15,500
Cash 654,600
2. Cash (P372,400 – P12,400) 360,000
Purchase discounts 12,400
Accounts payable 372,400
3. a Accounts payable 175,000
Purchases 175,000
b Inventory 130,000
Cost of sales 130,000
c Cost of sales 637,500
Inventory 637,500
d Purchases 217,500
Accounts payable 217,500
Inventory 217,500
Cost of sales 217,500
e Inventory 275,000
Cost of sales 275,000
f No adjusting entry

15. C Current ratio:

Current assets:
Cash P 668,600
Accounts receivable 2,564,000
Inventory 6,035,000 P9,267,600
Current liabilities:
Accounts payable P4,615,900
Accrued expenses 431,000 5,046,900
1.84

PROBLEM 3 – PAKO COMPANY

16. D Balance, Jan. 1 P1,800,000

June 30 acquisition (P1,080,000 + P48,000) 1,128,000
Sept. 30 sale (150,000)
Dec. 1 trade in: old machine (90,000)
new machine 270,000
Balance, Dec. 31 P2,958,000

17. A Remainder of beginning balance (P1,800,000 – P150,000 – P90,000 =

P1,560,000 x 10%) P156,000
June 30 acquisition (P1,128,000 x 10% x 6/12) 56,400
Sept. 30 sale (P150,000 x 10% x 9/12) 11,250
Dec. 1 trade in: old machine (P90,000 x 10% x 11/12) 8,250
new machine (P270,000 x 10% x 1/12) 2,250
Depreciation expense for 2015 P234,150

Page 2 of 15 Pages
AUDITING PROBLEMS

GENLUNA COPPERMINES, INC.

18. C Depletion rate per ton (P14,580,000 / 1,620,000) P9

Copper ore mined in 2015 (15,000 x 6 months) x 90,000
Depletion for 2015 P 810,000
Depletion per books 1,215,000
Overstatement of depletion expense P405,000

19. D Depreciable cost of machinery (P1,800,000 x 90%) P1,620,000

Estimated copper ore reserve 1,620,000
Depreciation rate per ton P1
Copper ore mined in 2015 90,000
Depreciation expense for 2015 P 90,000
Depreciation per books 120,000
Overstatement of depreciation expense P 30,000

20. D January 1, 2012

Total cost of machine (P300,000 + P3,000 + P12,000) P315,000
Residual value (12,000)
Depreciable cost P303,000
Estimated useful life 10 years
Annual depreciation P30,300

Depreciable cost P303,000

Depreciation, 2012 – 2014 (P30,300 x 3 years) (90,000)
Remaining depreciable cost, Jan. 1, 2015 P212,100
Cost of new parts 37,800
Total P249,900
Remaining useful life (10 years – 3 years) 7 years
Revised annual depreciation P35,700

PROBLEM 4 – HARLINGTON COMPANY

21. A Net income before trading security adjustment P2,700,000

Unrealized loss (P3,465,000 cost – P3,195,000 market value) (270,000)
Net income, as adjusted P2,430,000

22. B Net income before trading security adjustment P2,700,000

Unrealized gain (P3,465,000 cost – P3,564,000 market value) 99,000
Net income, as adjusted P2,799,000

LABADA CO.

23. D Carrying Value Market Value

Ganda Co. P1,710,000 P1,759,500
Waston, Inc. (P135 x 1,800) 243,000 229,500
P1,953,000 P1,989,000

Unrealized gain (P1,989,000 – P1,953,000) P36,000

24. C Net proceeds (P93 x 15,000 = P1,395,000 – P13,500) P1,381,500

Carrying value (1,251,000)
Gain on sale P 130,500

25. B Trading securities at fair value P1,989,000

PROBLEM 5 – SAMSON MFG. CO.

26. C Actual borrowing cost:

Specific borrowing (P5 million x 10%) P500,000
General borrowings:
P25 million x 8% P2,000,000
P15 million x 6% 900,000 2,900,000
Total P3,400,000
Capitalization rate (P2,900,000/P40 million) 7.25%

Page 3 of 15 Pages
AUDITING PROBLEMS

Average expenditures – 2014 P7,250,000

Capitalizable interest – 2014:
Specific borrowing (P5 million x 10%) P500,000
General borrowings (P7,250,000 – P5,000,000 = P2,250,000 x 7.25%) 163,125
Total P663,125

27. B Average expenditures – 2015 P16,163,125

Capitalizable interest – 2015:
Specific borrowing (P5 million 10% x 6/12) P250,000
General borrowings (P16,163,125 – P5,000,000 = P11,163,125 x 7.25% x 6/12) 404,663
Total P654,663

28. A 2014 interest expense (P3,400,000 – P663,125) P2,736,875

29. D 2015 interest expense (P3,400,000 – P654,663) P2,745,337

30. B Accumulated expenditures before interest P19,500,000

Interest capitalized in 2014 and 2015 (P663,125 + P654,663) 1,317,788
Total cost of building P20,817,788

PROBLEM 6
Compensation Cumulative
Expense Compensation
Year Calculation for Period Expense
1 30,000 options x P5 fair value x 1⁄3 P 50,000 P 50,000
2 30,000 options x P5 fair value x 1⁄3 50,000 100,000
3 30,000 options x P5 fair value x 1⁄3 50,000 150,000

31. C 32. C 33. D 34. D 35. D

PROBLEM 7 – BRANDY CO.

36. C Ordinary shares issued and outstanding 72,000

Ordinary shares subscribed 72,000
Total 144,000
Ordinary shares issued to acquire land (24,000)
Ordinary shares originally subscribed 120,000
Par value/share x P10
Total par value P1,200,000
Share premium (P2,850,000 – P450,000) 2,400,000
Total subscription price P3,600,000
* P690,000 FV of land – P240,000 PV

37. D Subscription of 12,000 preference shares @ P120/share P1,440,000

Subscription of 60,000 preference shares @ P100/share 6,000,000
Total 7,440,000
Year-end balance of subscriptions receivable – preference (360,000)
Amount collected from subscribers P7,080,000

38. B Preference Ordinary

Issued P6,600,000 P 720,000
Subscribed 600,000 720,000
Share premium 240,000 2,850,000
Subscriptions receivable (360,000) (1,080,000)
Contributed capital P7,080,000 P3,210,000

CONDESSA CO.

1. Dividends payable – preference (P8 x 60,000) 480,000

Dividends payable – ordinary (P2 x 600,000) 1,200,000
Cash 1,680,000

2. Treasury shares 3,240,000

Cash (P40 x 81,000) 3,240,000

Page 4 of 15 Pages
AUDITING PROBLEMS

3. Land 900,000
Treasury shares (P40 x 21,000) 840,000
Share premium – treasury 60,000

4. Cash (P105 x 15,000) 1,575,000

Preference share capital (P100 x 15,000) 1,500,000
Share premium – preference 75,000

5. Retained earnings (P45 x 54,000*) 2,430,000

Stock dividends payable (P5 x 54,000) 270,000
Share premium – ordinary 2,160,000
* 600,000 – 60,000 treasury shares = 540,000 x 10%

6. Stock dividends payable 270,000

Ordinary share capital 270,000

7. Retained earnings 1,788,000

Dividends payable – preference (P8 x 75,000) 600,000
Dividends payable – ordinary (P2 x 594,000*) 1,188,000
* 540,000 + 54,000

8. Income summary 9,900,000

Retained earnings 9,900,000

Preference share capital (P6,000,000 + P1,500,000) P7,500,000

Ordinary share capital (P3,000,000 + P270,000) 3,270,000
Share premium (P3,750,000 + P60,000 + P75,000 + P2,160,000) 6,045,000
Retained earnings (P3,500,000 – P2,430,000 – P1,788,000 + P9,900,000) (39 – A) 9,182,000
Treasury shares (P3,240,000 – P840,000) (2,400,000)
Total (40 – B) P23,597,000

PROBLEM 8 – CABOOM LABORATORIES

41. D Cost to obtain patent (January 2008) P186,150

2008 amortization (P186,150/17) (10,950)
Carrying value, Dec. 31, 2008 P175,200

42. C Carrying value, Jan. 1, 2009 P175,200

Amortization, 2009-2012 (P10,950 x 4 years) (43,800)
Carrying value, Dec. 31, 2012 P131,400

43. C Carrying value, Jan. 1, 2013 P131,400

Amortization, 2013-2015 (P131,400 x 3/5) (78,840)
Carrying value, Dec. 31, 2015 P 52,560

BARTOLO COMPANY

44. A Cost of patent purchased on Jan. 1, 2014 P4,000,000

2014 amortization (P4,000,000/10) (400,000)
Carrying value, Dec. 31, 2014 3,600,000
2015 amortization (P3,600,000/5) (720,000) P2,880,000
Cost of franchise P960,000
2015 amortization (P960,000/10) (96,000) 864,000
Total carrying value of intangibles P3,744,000

45. B Amortization of patent – 2015 P720,000

Amortization of franchise – 2015 96,000
Payment to Delco (P5,000,000 x 5%) 250,000
Research and development costs 866,000
Total charges against 2015 income P1,932,000

PROBLEM NO. 9 – SAMOA COMPANY/CHILE CO.

46. A Over- (Under-)statement

Understatement of 2014 ending inventory P 48,000
Overstatement of 2015 ending inventory 40,500
Prepaid insurance charged to expense in 2014 (P330,000 ÷ 3) 110,000
Page 5 of 15 Pages
AUDITING PROBLEMS

Unrecorded sale of fully depreciated machinery in 2015 (75,000)

Total effect of errors on net income P123,500
47. D Over- (Under-)statement
Overstatement of 2015 ending inventory P 40,500
Prepaid insurance charged to expense in 2014 (110,000)
Unrecorded sale of fully depreciated machinery in 2015 (75,000)
Total effect on working capital (P144,500)
48. C Over- (Under-)statement
Overstatement of 2015 ending inventory P 40,500
Understatement of depreciation expense in 2014 11,500
Prepaid insurance charged to expense in 2014 (110,000)
Unrecorded sale of fully depreciated machinery in 2015 (75,000)
Total effect on retained earnings (P133,000)
2014 2015
Pretax income P505,000 P387,000
Sales revenue erroneously recognized in 2014 (191,000) 191,000
Understatement of 2014 ending inventory 43,200 (43,200)
Understatement of bond interest expense (1) (7,250) (7,758)
Ordinary repairs erroneously capitalized (42,500) (47,000)
Overstatement of depreciation (2) 4,250 8,950
Corrected pretax income P311,700 P488,992
(1)
Book Value Nominal Effective Discount
Year of Bonds Interest Interest Amortization
2014 P1,175,000 P75,000 P82,250 P7,250
2015 1,182,250 75,000 82,758 7,758
(2)

2014 (P42,500 ÷ 10) P4,250

2015 (P42,500 ÷ 10) P4,250
(P47,000 ÷ 10) 4,700 P8,950

49. C 50. D

PROBLEM NO. 10 – OMEGA COMPANY/DP, INC.

51. C Containers held by customers at Dec. 31, 2014 from deliveries in 2013 P85,000
Containers returned in 2015 from deliveries in 2013 (57,500)
Revenue from container sales P27,500

52. A Liability for returnable containers, Dec. 31, 2014 P325,000

Deliveries in 2015 430,000
Total 755,000
2015 container returns P354,500
2015 container sales 27,500 (382,000)
Liability for returnable containers P373,000

53. C Unearned warranty revenue:

Current (P810 x 270 x 1/3) P72,900
Non-current (P810 x 270 x 2/3) P145,800

54. D Parts P18,000

Labor 36,000
Total warranty expense P54,000

55. B Unearned warranty revenue:

Current (P810 x 270 x 1/3) P72,900
Non-current (P810 x 270 x 1/3) P72,900

PROBLEM 11 – TGR Company

56. D Trade-in – June 30, 2013

Cost P157,200
Accum. depreciation, 1/1/11 – 6/30/13 (P157,200 x 20% x 2.5 yrs.) 78,600

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AUDITING PROBLEMS

Carrying value 78,600

Trade-in value 129,000 P50,400
Sale – Jan. 1, 2014
Cost P132,000
Accum. depreciation, 1/1/11 – 1/1/14 (P132,000 x 20% x 3 yrs.) 79,200
Carrying value 52,800
Net proceeds 71,250 18,450
Sale – October 1, 2015
Cost P120,000
Accum. depreciation, 1/1/11 – 10/1/15 (P120,000 x 20% x 4 9/12) 114,000
Carrying value 6,000
Proceeds 24,000 18,000
Total gain P86,850

57. C Machine acquired on Sept. 30, 2011 (P180,000 + P6,000) P186,000

Machine acquired on June 30, 2012 (P240,000 x 98%) 235,200
Machine acquired on June 30, 2014 (list price) 279,000
Total P700,200

58. C Machine acquired on:

Sept. 30, 2011 (P186,000 x 20% x 4 3/12) P158,100
June 30, 2012 (P235,200 x 20% x 3 6/12) 164,640
June 30, 2013 (P279,000 x 20% x 2 6/12) 139,500
Accumulated depreciation, December 31, 2015 P462,240

59. B
Date of
Acquisition Cost 2011 2012 2013 2014 2015 Total
1/1/11 P157,200 P31,440 P31,440 P15,720 P0 P0 P 78,600
120,000 24,000 24,000 24,000 24,000 18,000 114,000
132,000 26,400 26,400 26,400 0 0 79,200
9/30/11 186,000 9,300 37,200 37,200 37,200 37,200 158,100
6/30/12 235,200 0 23,520 47,040 47,040 47,040 164,640
6/30/13 279,000 0 0 27,900 55,800 55,800 139,500
Correct depreciation P91,140 P142,560 P178,260 P164,040 P158,040 P734,040
Depreciation per client 97,440 154,752 153,802 108,791 82,233 597,018
Over (under)statement P 6,300 P 12,192 (P 24,458) (P 55,249) (P 75,807) (P 137,022)

60. A Depreciation expense (2015) 75,807

Retained earnings (2011 – 2014) 61,215
Accumulated depreciation 137,022

---END---

Page 7 of 15 Pages
AUDITING PROBLEMS

SECOND SET OF PROBLEMS

PROBLEM 1 – AYALA MERCHANTS CORPORATION

ADJUSTING JOURNAL ENRIES

December 31, 2015

1. Operating expenses 27,740

Petty cash fund 27,740
(P37,250 – P9,510)

2. Accounts receivable (P107,400 + P63,000) 170,400

Notes payable 700,000
Finance cost (Interest expense) 10,000
Other charges (Bank service charges) 2,750
Accounts payable 72,000
Cash in bank 811,150

3. Allowance for doubtful accounts 152,640

Accounts receivable (write-off) 152,640

4. Other charges (Unrealized loss – Trading securities) 10,940

Trading securities 10,940
Bacnotan Cement (P16, 7,000) P112,000
Fil-Estate (P19.75 x 10,000) 197,500
Ionics (P24 x 2,400) 57,600
La Tondena (P26 x 2,000) 52,000
Selecta (P1.20 x 8,000) 9,600
Union Bank (P27.50 x 1,600) 44,000
Total market value, Dec. 21, 2015 P472,700
Carrying value, Dec. 31, 2015 483,640
Unrealized loss – trading securities P 10,940

5. Interest receivable 32,500

Other income (Interest income) 32,500
(P1,300,000 x 15% 2/12)

6. Operating expenses (Advertising expense) 325,000

Prepaid advertising 325,000
Christmas promotion P100,000
Regular promotion (P640,000 – P100,000 = P540,000 x 5/12) 225,000
Total P325,000

7. Operating expenses (Rent expense) 280,000

Prepaid rent 280,000
(P420,000 x 2/3 or P140,000 x 2)

8. Operating expenses (Insurance expense) 81,667

Prepaid insurance 81,667
(P490,000 x 2/12)

9. Operating expenses (Office supplies expense) 258,500

Office supplies inventory 258,500
(P361,000 – P102,500)

10. Accounts receivable 146,940

Sales 146,940

11. Cost of goods sold 356,000

Inventories 356,000

12. Cost of goods sold 138,500

Inventories 138,500

Page 8 of 15 Pages
AUDITING PROBLEMS

13. Inventories 153,800

Cost of goods sold 153,800

14. Delivery equipment 43,400

Operating expenses 43,400

15. Operating expenses (Depreciation expense) 2,170

Accumulated depreciation 2,170
(P43,400/10 x 6/12)

16. Accumulated depreciation 10,480

Operating expenses (Depreciation expense) 10,480

17. Accumulated depreciation (P138,620 – P10,480) 128,140

Other charges (Loss) 37,380
Delivery equipment 165,520

18. Operating expenses 213,000

Accrued expenses 213,000

19. Finance cost (Interest expense) 104,000

Interest payable 104,000
(P2.6 million x 16% 3/12)

20. Retained earnings 540,000

Dividends payable 540,000
(P5,400,000 x 10%)

21. Operating expenses (Doubtful accounts expense) 130,317

Allowance for doubtful accounts 130,317

Required
Per Books Adjustments Per Audit % Allowance
Less than 3 months P2,500,960 P146,940
107,400 P2,755,300 1 P27,553
3 to 6 months 843,200 843,200 5 42,160
Over 6 months 274,500 63,000
(152,460) 185,040 10 18,504
P3,618,660 P3,783,540 P88,217

Allowance before adjustment (P110,360 – P152,460) P 42,100 debit

Required allowance 88,217
Adjustment P130,317

1. D Petty cash fund

Per books P60,000
AJE 1 (27,740)
Per audit P32,260

2. D Cash in bank
Per books P1,056,000
AJE 2 (811,150)
Per audit P 244,850

3. D Trading securities
Per books P483,640
AJE 4 (10,940)
Per audit P472,700

4. C Accounts receivable
Per books P3,618,660
AJE 2 170,400
3 (152,460)
10 146,940
Per audit P3,783,540

Page 9 of 15 Pages
AUDITING PROBLEMS

5. D Allowance for doubtful accounts

Per books P110,360
AJE 3 (152,460)
21 130,317
Per audit P 88,217

6. C Notes and interest receivable

Per books P1,300,000
AJE 5 32,500
Per audit P1,332,500

7. A Inventories
Per books P7,274,900
AJE 11 (356,000)
12 (138,500)
13 153,800
Per audit P6,934,200

8. B Prepaid insurance
Per books P490,000
AJE 8 (81,667)
Per audit P408,333

9. A Prepaid rent
Per books P420,000
AJE 7 (280,000)
Per audit P140,000

10. D Prepaid advertising

Per books P640,000
AJE 6 (325,000)
Per audit P315,000

11. D Office supplies inventory

Per books P361,000
AJE 9 (258,500)
Per audit P102,500

12. C Petty cash fund P 32,260

Cash in bank 244,850
Trading securities 472,700
Accounts receivable (P3,783,540 – P88,217) 3,695,323
Notes and interest receivable 1,332,500
Inventories 6,934,200
Prepaid insurance 408,333
Prepaid rent 140,000
Prepaid advertising 315,000
Office supplies inventory 102,500
Total current assets P13,677,666

13. C Property, plant, and equipment (PPE)

Per books P4,068,400
AJE 14 43,400
17 (165,520)
Per audit P3,946,280

14. B Accumulated depreciation

Per books P1,177,500
AJE 15 2,170
16 (10,480)
17 (128,140)
Per audit P1,041,050

15. B Accounts payable

Per books P2,356,320
AJE 2 72,000
Per audit P2,428,320
Page 10 of 15 Pages
AUDITING PROBLEMS

16. A Interest payable

Per books P0
AJE 19 104,000
Per audit P104,000

17. C Accounts payable – trade P2,428,320

Notes payable 2,600,000
Accrued expenses 382,040
Interest payable 104,000
Dividends payable 540,000
Total current liabilities P6,054,360

18. C Sales
Per books P13,078,000
AJE 10 146,940
Per audit P13,224,940

19. C Cost of goods sold

Per books P8,034,000
AJE 11 356,000
12 138,500
13, (153,800)
Per audit P8,374,700

20. D Operating expenses

Per books P3,357,000
AJE 1 27,740
6 325,000
7 280,000
8 81,667
9 258,500
14 (43,400)
15 2,170
16 (10,480)
18 213,000
21 130,317
Per audit P4,621,514

PROBLEM 2 – LUKAS COMPANY

21. A Sales returns and allowance 90,000

Accounts receivable 90,000

Inventory 72,000
Cost of sales 72,000
(P90,000 x 80%)

Net decrease in income (P90,000 – P72,000) P18,000

22. A Sales 30,000

Accounts receivable 30,000

Income overstated by P30,000

23. D Overstatement of receivable Lazaro (P150 x 320 units) P48,000

24. A Correctly stated because the goods are considered sold in 2015.

25. D Accounts payable 135,000

Accounts receivable 135,000

PROBLEM 3 – CROCODILE, INC.

26. B 27. C 28. B 29. B 30. D

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AUDITING PROBLEMS

PROBLEM 4 – SPARK COMPANY

31. B Cash balance, Dec. 31, 2014 P100,000

Sales (SQUEEZE) 920,000
Cash paid for operating expenses (220,000)
Cash paid on accounts payable (471,700)
Collections on notes receivable 25,000
Cash balance, Dec. 31, 2015 P353,300
Units sold (P920,000/P50) 18,400
32. D Accounts payable:
Balance, Dec. 31, 2014 P75,000
Purchases 596,700*
Cash payments on accounts payable (471,700)
Balance, Dec. 31, 2015 P200,000
*Purchases:
Month Unit Cost Units Total Cost
January P32.60 1,500 P48,900
February 32.70 1,500 49,050
March 32.80 1,500 49,200
April 32.90 1,500 49,350
May 33.00 1,500 49,500
June 33.10 1,500 49,650
July 33.20 1,500 49,800
August 33.30 1,500 49,950
September 33.40 1,500 50,100
October 33.50 1,500 50,250
November 33.60 1,500 50,400
December 33.70 1,500 50,550
Total purchases 18,000 P596,700
Or (P32.60 + P33,70)/2 x (1,500 x 12) = P596,700

33. A Inventory, Dec. 31, 2014 (P199,875/P32.50) 6,150

Purchases 18,000
Units sold (18,400)
Inventory, Dec. 31, 2015 5,750
34. C FIFO cost of inventory, Dec. 31, 2015:
December purchases 1,500 x P33.70 P 50,550
November purchase 1,500 x P33.60 50,400
October purchase 1,500 x P33.50 50,250
September purchase 1,250 x P33.40 41,750
5,750 P192,950
35. D Inventory, Jan. 1, 2015 P199,875
Purchases 596,700
Goods available for sale 796,575
Inventory, Dec. 31, 2015 (192,950)
Cost of goods sold P603,625

PROBLEM 5 – ISIDRO MANUFACTURING COMPANY

36. B Depreciation expense for 2012:

Truck #1 (P180,000/5) P 36,000
Truck #2 (P220,000/5) 44,000
Truck #3 (P300,000/5 x ½) 30,000
Truck #4 (P240,000/5) 48,000
Truck #5 (P400,000/5 x ½) 40,000
Total P198,000

37. A Trade-in value of Truck #3 (P400,000-P220,000) P180,000

Book value of Truck #3:
Cost P300,000
A/D, 1/1/11 -0 7/1/12 (P300,000/5 x1.5) (90,000) 210,000
Loss on trade-in P 30,000

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38. A Truck #2 P220,000

Truck #5 400,000
Truck #6 420,000 P1,040,000
Accumulated depreciation:
Truck #2 (fully depreciated 7/1/14) P220,000
Truck #5, 7/1/12 – 12/31/15 (P400,000/5 x 3.5) 280,000
Truck #6, 7/1/14 – 12/31/15 (P420,000/5 x 1.5) 126,000 626,000
Book value, 12/31/15 P414,000

39. C 2012 2013 2014 2015 Total

Truck #1 P36,000 -- -- -- P 36,000
Truck #2 44,000 P44,000 P22,000 -- 110,000
Truck #3 30,000 -- -- -- 30,000
Truck #4 48,000 48,000 24,000 -- 120,000
Truck #5 40,000 80,000 80,000 P80,000 280,000
Truck #6 -- -- 42,000 84,000 126,000
Correct P198,000 P172,000 P168,000 P164,000 P702,000
Per client 210,000 225,000 250,500 304,000 989,500
Over P 12,000 P 53,000 P82,500 P140,000 P287,500

40. B

PROBLEM 6 – NUNAL COMPANY

41. B Outstanding checks, November 30:

Check no. 792 P 7,500
799 21,150
Total P28,650

42. A Outstanding checks, December 31:

Check no. 806 P 57,000
807 78,000
810 21,000
812 48,000
817 33,000
819 21,000
822 36,000
823 39,000
824 87,000
825 6,000
826 33,000
Total P459,000

43. D Deposit in transit, November 30 P25,500

44. A Deposit in transit, November 30 P 25,500

Collections 2,121,900
Total 2,147,400
Deposits 2,033,400
Deposit in transit, December 31 P 114,000

Nov. 30 Receipts Disbursements Dec. 31

Unadjusted book balances P345,000 P2,297,400 P1,228,230 P1,414,170
Bank service charges:
November 30 (150) (150)
December 31 360 (360)
Notes collected by bank:
November 30 30,000 (30,000)
December 31 36,000 36,000
Unrecorded disbursement (815) 18,000 (18,000)
Adjusted book balances P374,850 P2,303,400 P1,246,400 P1,431,810

Nov. 30 Receipts Disbursements Dec. 31

Unadjusted bank balances P342,000 P2,493,900 P1,059,090 P1,776,810
Outstanding checks:
November 30 (28,650) (28,650)
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AUDITING PROBLEMS

December 31 459,000 (459,000)

Deposits in transit:
November 30 25,500 (25,500)
December 31 114,000 114,000
Error corrected (243,000) (243,000)
Erroneous bank charge 36,000 (36,000)
Adjusted bank balances P374,850 P2,303,400 P1,246,440 P1,431,810

45. D 46. C 47. B 48. C 49. D 50. B

PROBLEM 7 – MINA MINING CO.

Depletable/Depreciable Cost Estimated Reserves Depletion/Depreciation

Mineral property P48,450,000 1 150,000 P323
Building 12,000,000 150,000 80
Machinery (1/2) 1,800,000 150,000 12
Machinery (1/2) 1,800,000 150,000 24 2
1
P50,000,000 – P1,550,000
2 (P1,800,000/150,000) x2

51. C Year 1
Depletion Depreciation
Mineral property (P323 x 7,500) P2,422,500
Building (P80 x 7,500) P600,000
Machinery (1/2) (P12 x 7,500) 90,000
Machinery (1/2) (P24 x 7,500) 180,000
P2,422,500 P870,000
52. D Year 5
Depletion Depreciation
Mineral property (P323 x 15,000) P4,845,000
Building (P80 x 15,000) P1,200,000
Machinery (1/2) (P12 x 15,000) 180,000
Machinery (1/2) (P24 x 15,000) 360,000
P4,845,000 P1,740,000
53. C Year 6
Depletion Depreciation
Mineral property (P323 x 15,000) P4,845,000
Building (P80 x 15,000) P1,200,000
Machinery (1/2) (P12 x 15,000) 180,000
Machinery (1/2) (P24 x 7,500) 180,000
P4,845,000 P1,560,000
54. C Year 7
Depletion Depreciation
Mineral property (P323 x 15,000) P4,845,000
Building (P80 x 15,000) P1,200,000
Machinery (1/2) (P12 x 15,000) 180,000
Machinery (1/2) --
P4,845,000 P1,380,000
55. D Year 11
Depletion Depreciation
Mineral property (P323 x 7,500) P2,422,500
Building (P80 x 7,500) P600,000
Machinery (1/2) (P12 x 7,500) 90,000
Machinery (1/2) ---
P2,422,500 P690,000

PROBLEM 8 – HVR Company

56. D Present value of principal (P3,600,000 x 0.7514) P2,705,040

Present value of interest (P3,600,000 x 5% x 2.4860) 447,480
Consultation service fee revenue P3,152,520

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AUDITING PROBLEMS

57. D Interest Principal Total PVF Present Value

12/31/15 (P7.2M x 4%) P288,000 P2,400,000 P2,688,000 0.8772 P2,357,914
12/31/16 (P4.8M x 4%) 192,000 2,400,000 2,592,000 0.7695 1,994,544
12/31/17 (P2.4M x 4%) 96,000 2,400,000 2,496,000 0.6750 1,684,800
Present value of note P6,037,258
Carrying amount of equipment 4,800,000
Gain on sale of equipment P1,237,258

Note receivable from sale of land:

Date Interest Income Carrying Amount
1/1/15 --- P2,181,960*
12/31/15 P218,196 2,400,156
12/31/16 239,844** 2,640,000
* P2,640,000 principal x 0.8265 PVF at 10% for 2 periods.
** P2,640,000 - P2,400,156

Note receivable from consultation:

Effective Nominal Discount Carrying
Date Interest Interest Amortization Amount
1/1/15 --- --- --- P3,152,520
12/31/15 P315,252 P180,000 P135,252 3,287,772
12/31/16 328,777 180,000 148,777 3,436,549
12/31/17 343,451** 180,000 163,451* 3,600,000

* P3,600,000 – P3,436,549 = P163,451

** P163,451 + P180,000 = P343,451

Note receivable from sale of equipment:

Effective Nominal Principal Carrying
Date Interest Interest Amortization Collection Amount
1/1/15 --- --- --- ---- P6,037,258
12/31/15 P845,216 P288,000 P557,216 P2,400,000 4,194,474
12/31/16 587,226 192,000 395,226 2,400,000 2,189,700
12/31/17 306,300* 96,000 210,300 2,400,000 ---

* P2,400,000 – P2,189,700 = P210,300 + P96,000 = P306,300

58. C Note receivable from consultation P3,287,772

Note receivable from sale of equipment 2,189,700
Noncurrent notes receivable, Dec. 31, 2015 P5,477,472

59. C Note receivable from sale of land P2,400,156

Note receivable from sale of equipment (P4,194,474 – P2,189,700) 2,004,774
Total current notes receivable, Dec. 31, 2015 P4,404,930

60. C Note receivable from sale of land P218,196

Note receivable from consultation 315,252
Note receivable from sale of equipment 845,216
Total interest income on notes receivable for 2015 P1,378,664

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