AUDITING

INSTRUCTIONS: Select the best answer for each of the following questions. ALL questions are compulsory and
MUST be attempted. Mark only one answer for each item on the answer sheet provided. Strictly NO ERASURES
ALLOWED. Erasures will render your examination answer sheet INVALID. Use PENCIL NO. 2 only. GOODLUCK!

1. According to PSA 200, professional skepticism includes b. Whether the data were prepared on the cash basis
being alert to all of the following except: or in conformity with GAAP.
a. Audit evidence that contradicts other audit c. Whether the data were developed under a system
evidence obtained. with adequate controls.
b. Information that brings into question the relevance d. Whether the data were processed in an online
of documents. system or a batch entry system.
c. Conditions that may indicate possible fraud.
d. All of the above. 7. When a compensating control exists, the absence of a
key control:
2. Which of the following would not be considered audit a. is still a major concern to the auditor.
evidence? b. could cause a material loss, so it must be tested
a. Invoices received by the company and retained on using substantive procedures.
the company’s IT system in electronic form. c. is magnified and must be removed from the
b. The electronic work paper program package used sampling process and examined in its entirety.
by the auditor to produce the electronic work d. is no longer a concern because there is no longer a
papers. significant deficiency or material weakness.
c. Hard copy minutes of the Board of Directors and
Audit Committee meetings. 8. For effective internal control, the accounts payable
d. Electronic images of the front and back of checks department generally should
that the company has written. a. Stamp, perforate, or otherwise cancel supporting
documentation after payment is mailed.
3. Which of the following statements is correct regarding b. Ascertain that each requisition is approved as to
the auditor's consideration of the possibility of illegal price, quantity, and quality by an authorized
acts by clients? employee.
a. The auditor has a responsibility to plan and perform c. Obliterate the quantity ordered on the receiving
the audit to obtain reasonable assurance that no department copy of the purchase order.
illegal acts have been committed by clients.
b. The auditor's training, experience, and
d. Establish the agreement of the vendor's invoice
understanding of the client should be used to with the receiving report and purchase order.
provide a basis for the determination as to whether
illegal acts have occurred. 9. Which of the following statements is correct concerning
c. If specific information concerning an illegal act materiality in a financial statement audit?
comes to the auditor's attention, the auditor should a. Analytical procedures performed during an audit's
apply audit procedures specifically directed to review stage may change materiality levels.
ascertaining whether an illegal act has occurred. b. If the materiality amount used in evaluating audit
d. If an illegal act has occurred, the auditor should findings increases from the amount used in
express a qualified opinion or an adverse opinion planning, the auditor should apply additional
on the financial statements taken as a whole. substantive tests.
c. The auditor's materiality judgments generally
4. As part of designing and performing procedures to involve quantitative, but not qualitative,
address management override of controls, auditors considerations.
must perform which of the following procedures? d. Materiality levels are generally considered in terms
of the aggregate level of misstatement that could
Examine all journal Review accounting be considered material to all of the financial
entries above materiality estimates for biases statements.
a. Yes Yes
b. No No 10. In using the work of a specialist, an understanding
c. Yes No should exist among the auditor, the client, and the
d. No Yes specialist as to the nature of the work to be performed
by the specialist. Preferably, the understanding should
5. Items documented in an engagement letter about be documented and would include all of the following
which the auditor and client establish an understanding except
include: a. The objectives and scope of the specialist's work.
a. management’s responsibility for ensuring that the b. The specialist's representations as to her or his
company complies with applicable laws and relationship, if any, to the client.
regulations. c. The specialist's understanding of the auditor's
b. management’s responsibility for providing corroborative use of the specialist's findings in
reasonable assurance about whether the financial relation to the representations in the financial
statements are free of material misstatement. statements.
c. the auditor’s responsibility for maintaining effective d. A statement that the methods or assumptions to
ICFR throughout the audit engagement. be used are not inconsistent with those used by the
d. the auditor’s responsibility for signing a client.
management representation letter at the
conclusion of the audit engagement. 11. The ultimate purpose of assessing control risk is to
contribute to the auditor's evaluation of the risk that:
6. Which of the following factors would most likely a. Specific internal control activities are not operating
influence an auditor's consideration of the reliability of as designed.
data when performing analytical procedures? b. The collective effect of the control environment
a. Whether the data were developed in a may not achieve the control objectives.
computerized or a manual accounting system.

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c. Tests of controls may fail to identify activities d. Control risk based on the auditor's sample is
relevant to assertions. greater than the true operating effectiveness of the
d. Material misstatements may exist in the financial client's control activity.
statements.
18. Which of the following characteristics most likely would
12. Which of the following characteristics most likely would be an advantage of using classical variables sampling
heighten an auditor's concern about the risk of rather than probability-proportional-to-size (PPS)
material misstatement arising from fraudulent financial sampling?
reporting? a. The selection of negative balances requires no
a. There is a lack of interest by management in special design considerations.
maintaining an earnings trend. b. The sampling process can begin before the
b. Computer hardware is usually sold at a loss before complete population is available.
being fully depreciated. c. The auditor need not consider the preliminary
c. Management had frequent disputes with the judgments about materiality.
auditor on accounting matters. d. The sample will result in a smaller sample size if
d. Monthly bank reconciliations usually include few errors are expected.
several large checks outstanding.
19. Which of the following matters is an auditor required to
13. Before applying principal substantive tests to an communicate to those charged with governance?
entity's accounts receivable at an interim date, an a. Adjustments that were suggested by the auditor
auditor should: and recorded by management that have a
a. Consider the likelihood of assessing the risk of significant effect on the entity's financial reporting
incorrect rejection too low. process.
b. Project sampling risk at the maximum for tests b. The auditor's consideration of risk factors in
covering the remaining period. assessing the risk of material misstatement arising
c. Ascertain that accounts receivable are immaterial from the misappropriation of assets.
to the financial statements. c. The results of the auditor's analytical procedures
d. Assess the difficulty in controlling the incremental performed in the review stage of the engagement
audit risk. that indicate significant variances from expected
amounts.
14. What is the most likely course of action that an auditor d. Changes in the auditor's preliminary judgment
would take after determining that performing about materiality that were caused by projecting
substantive tests on inventory will take less time than the results of statistical sampling for tests of
performing tests of controls? transactions.
a. Assess control risk at a low level.
b. Perform both tests of controls and substantive tests 20. After considering an entity's negative trends and
on inventory. financial difficulties, an auditor has substantial doubt
c. Perform only substantive tests on inventory. about the entity's ability to continue as a going
d. Perform only tests of controls on inventory. concern. The auditor's considerations relating to
management's plans for dealing with the adverse
15. After making inquiries about credit granting policies, an effects of these conditions most likely would include
auditor selects a sample of sales transactions and management's plans to:
examines evidence of credit approval. This test of a. Increase current dividend distributions.
controls most likely supports management's financial b. Reduce existing lines of credit.
statement assertion(s) of: c. Increase ownership equity.
d. Purchase assets formerly leased.
Rights and obligations Completeness
a. Yes Yes 21. In which of the following situations would an auditor
b. Yes No ordinarily choose between expressing a qualified
c. No Yes opinion or an adverse opinion?
d. No No a. The auditor did not observe the entity's physical
inventory and is unable to become satisfied about
16. Which of the following strategies most likely could its balance by other auditing procedures.
improve the response rate of the confirmations of b. Conditions that cause the auditor to have
accounts receivable? substantial doubt about the entity's ability to
a. Restrict the selection of accounts to be confirmed continue as a going concern are inadequately
to those customers with large balances. disclosed.
b. Include a list of items or invoices that constitute c. There has been a change in accounting principles
the customers' account balances. that has a material effect on the comparability of
c. Explain to customers that discrepancies will be the entity's financial statements.
investigated by an independent third party. d. The auditor is unable to apply necessary
d. Ask customers to respond to the confirmation procedures concerning an investor's share of an
requests directly to the auditor by fax. investee's earnings recognized on the equity
method.
17. As a result of tests of controls, an auditor assesses
control risk too high. This incorrect assessment most 22. Under which of the following circumstances would an
likely occurred because: auditor's expression of an unqualified opinion be
a. Control risk based on the auditor's sample is less inappropriate?
than the true operating effectiveness of the client's a. The auditor is unable to obtain the audited financial
control activity. statements of a significant subsidiary.
b. The auditor believes that the control activity relates b. The financial statements are prepared on the
to the client's assertions when, in fact, it does not. entity's income tax basis.
c. The auditor believes that the control activity will c. There are significant deficiencies in the design and
reduce the extent of substantive testing when, in operation of the entity's internal control.
fact, it will not.

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d. Analytical procedures indicate that many year-end

account balances are not comparable with the prior 28. Which of the following is true?
year's balances. a. The criteria for any audit (an operational audit or a
financial audit) are GAAP.
23. An auditor determines that the entity is presenting b. A financial audit is designed to determine if the
certain supplementary financial disclosures of pension company is acquiring resources at the lowest cost
information that are required by the SEC. Under these and is utilizing its resources in the most useful
circumstances, the auditor should: manner.
a. Add an explanatory paragraph to the auditor's c. External auditors may perform operational audits
report that refers to the required supplementary and internal auditors may perform financial audits.
information. d. Both external and internal auditors can provide
b. State that the audit is not being performed in management advice to the company as long as
accordance with generally accepted auditing they agreed to do so.
standards.
c. Document in the working papers that the required 29. When an accountant compiles projected financial
supplementary information is presented, but statements, the accountant's report should include a
should not apply any procedures to the separate paragraph that:
information. a. Explains the difference between a compilation and
d. Compare the required supplementary information a review.
for consistency with the audited financial b. Documents the assessment of the risk of material
statements. misstatement due to fraud.
c. Expresses limited assurance that the actual results
24. In the first audit of a client, an auditor was not able to may be within the projected range.
gather sufficient evidence about the consistent d. Describes the limitations on the projection's
application of accounting principles between the usefulness.
current and prior year, as well as the amounts of assets
or liabilities at the beginning of the current year. This 30. The objective of a review of interim financial
was due to the client's record retention policies. If the information of a public entity (issuer) is to provide an
amounts in question could materially affect current accountant with a basis for reporting whether
operating results, the auditor would: a. A reasonable basis exists for expressing an
a. Be unable to express an opinion on the current updated opinion regarding the financial statements
year's results of operations and cash flows. that were previously audited.
b. Express a qualified opinion on the financial b. Summary financial statements or pro forma
statements because of a client-imposed scope financial information should be included in a
limitation. registration statement.
c. Withdraw from the engagement and refuse to be c. The financial statements are presented fairly in
associated with the financial statements. accordance with generally accepted accounting
d. Specifically state that the financial statements are principles.
not comparable to the prior year due to an d. Material modifications should be made to conform
uncertainty. with generally accepted accounting principles.

25. Which of the following statements is a basic element of 31. The auditor with final responsibility for an engagement
the auditor's standard report? and one of the assistants have a difference of opinion
a. The disclosures provide reasonable assurance that about the results of an auditing procedure. If the
the financial statements are free of material assistant believes it is necessary to be disassociated
misstatement. B. The auditor evaluated the overall from the matter’s resolution, the CPA firm’s procedures
internal control. should enable the assistant to
b. An audit includes assessing significant estimates a. Refer the disagreement to the AICPA’s Quality
made by management. Review Committee.
c. The financial statements are consistent with those b. Document the details of the disagreement with the
of the prior period. conclusion reached.
c. Discuss the disagreement with the entity’s
26. Which of the following risk assessments or values is management or its audit committee.
least likely to be characteristic of a small business d. Report the disagreement to an impartial peer
audit? review monitoring team.
a. Business risk is low.
b. Control risk is low.
c. Inherent risk is low
d. Detection risk is low.

27. A client follows full PFRSs for its domestic operations

and foreign GAAP for a foreign subsidiary. The foreign
subsidiary is audited by a component auditor, while the
group auditor audits the remainder of the corporation
and issues an audit report on consolidated operations.
Which auditor(s) is (are) responsible for evaluating the
appropriateness of the adjustment of the foreign GAAP
statements to full PFRSs?
Component auditor Group auditor
a. Yes Yes
b. No Yes
c. Yes No
d. No No

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32. Which of the following statements concerning Purchases for 11 months ended Nov. 30 2,700,000
ownership of working papers is incorrect? Purchases for the year ended Dec. 31 3,200,000
a. All working papers made by a CPA and his/her staff Inventory, January 1 350,000
in the course of an examination remain the Inventory, Nov. 30 (per physical count) 380,000
property of such CPA in the absence of any written
or oral agreement between the CPA and the client Your audit disclosed the following information:
to the contrary. a) Shipments received in unsalable
b. Working papers include schedules and memoranda condition and excluded from physical
prepared and submitted by the client of the CPA. inventory. The returns were not
c. All working papers, except reports submitted by a recorded because no credit memos
CPA to his/her client shall be treated confidential were received from vendors:
and privileged. Total at November 30 P 4,000
d. Working papers shall be treated confidential and Total at December 31
privileged and remain the property of the CPA (including the November 30
unless such documents are required to be unrecorded returns) 6,000
produced through subpoena issued by any court, b) Deposit made with vendor and charged
tribunal, or government regulatory or to Purchases in October. The goods
administrative body. were shipped in January 2016. 8,000
c) Deposit made with vendor and charged
33. According to Code of Ethics for Professional to Purchases in November. The
Accountants, all professional accountants: goods were shipped FOB destination
a. should be independent in fact and in appearance at on November 29 and were included
all times. in physical inventory as goods in
b. in public practice should be independent in fact transit. 22,000
and in appearance at all times. d) Shipments received in November and
c. in public practice should be independent in fact included in the physical count at
and in appearance when providing assurance November 30 but recorded as
services. December purchases. 30,000
d. in public practice should be independent in fact e) Due to the carelessness of the receiving
and in appearance when providing auditing, tax, department, a December shipment
and MAS services. was damaged by rain. These goods
were later sold at cost in December. 40,000
34. When a professional accountant in public practice
solicits new work through advertising or other forms of Based on the preceding information, determine the
marketing, there may be potential threats to following:
compliance with the fundamental principles. For
Questions:
example, a __________ to compliance with the principle
of professional behavior is created if services, 36. Adjusted net purchases
achievements or products are marketed in a way that a. Up to November 30: P2,666,000;
is consistent with that principle. Up to December 31: P3,190,000
a. self-interest threat c. familiarity threat
b. self-review threat d. advocacy threat b. Up to November 30: P2,700,000;
Up to December 31: P3,164,000
35. When an auditor tests the internal controls of a c. Up to November 30: P2,696,000;
computerized accounting system, which of the Up to December 31: P3,186,000
following is true of the test data approach? d. Up to November 30: P2,704,000;
a. Test data are coded to a dummy subsidiary so they Up to December 31: P3,184,000
can be extracted from the system under actual
37. Cost of goods sold for 11 months ended November 30,
operating conditions.
2015
b. Test data programs need not be tailor-made by the
a. P2,688,000 c. P2,670,000
auditor for each client's computer applications.
b. P2,666,000 d. P2,692,000
c. Test data programs usually consist of all possible
valid and invalid conditions regarding compliance 38. Gross profit ratio for 11 months ended November 30,
with internal controls. 2015
d. Test data are processed with the client's computer a. 21.58% c. 21.47%
and the results are compared with the auditor's b. 20.94% d. 20.82%
predetermined results.
39. Gross profit for the month of December 2015
a. P92,136 c. P83,760
b. P91,236 d. P88,000
Use the following information for the next five questions.
40. Estimated inventory at December 31, 2015
Katrina, Inc. is an importer and wholesaler of cellphone
a. P491,760 c. P490,000
accessories. Its merchandise is purchased from a number
b. P456,000 d. P455,120
of suppliers and is warehoused until sold to customers.

In conducting your audit of Katrina’s financial statements

for the year ended December 31, 2015, you determined
that the internal control system is functioning effectively.
You observed the physical count of inventory on November
30, 2015.

The following information were obtained from Katrina’s

accounting records:

Sales for 11 months ended November 30 P3,400,000

Sales for the year ended December 31 3,840,000

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Use the following information for the next five questions. You noted the following items relative to the company’s
Intangible assets in connection with your audit of the Five
The cost goods sold section of the income statement
Corporation’s financial statements for the year 2015.
prepared by your client for the year ended December 31
appears as follows:
Franchise
Inventory, January 1 P 80,000
On January 1, 2015, Five signed an agreement to operate
Purchases 1,600,000
as franchisee of Clear Copy Service, Inc. for an initial
Cost of goods available for sale 1,680,000
franchise of P680,000. Of this amount, P200,000 was paid
Inventory, December 31 100,000
when the agreement was signed and the balance was
Cost of goods sold P1,580,000
payable in four annual payments of P120,000 each,
beginning January 1, 2016. The agreement provides that
Although the books have been closed, your working paper
the down payment is not refundable and no future services
trial balance is prepared showing all accounts with activity
are required of the franchisor. The implicit rate for loan of
during the year. This is the first time your firm has made
this type is 14%. The agreement also provides the 5% of
an examination. The January 1 and December 31
the revenue from the franchise must be paid to the
inventories appearing above were determined by physical
franchisor annually. Five’s revenue from the franchise for
count of the goods on hand on those dates and no
2015 was P8,000,000. Five estimates the useful life of the
reconciling items were considered. All purchases are FOB
franchise to be ten years.
shipping point.
Patent
In the course of your examination of the inventory cutoff,
both at the beginning and end of the year, you discovered On July 1, 2015, Five purchased a patent from the inventor,
the following facts: who asked P1,100,000 for it. Five paid for the patent as
follows: cash, P400,000; issuance of 10,000 shares of its
Beginning of the Year own ordinary shares, par P10 (market value, P20 per
share); and a note payable due at the end of three years,
1. Invoices totaling P25,000 were entered in the voucher face amount, P500,000, noninterest-bearing. The current
register in January, but the goods were received interest rate for this type of financing is 12 percent. Five
during December. estimates the useful life of the patent to be ten years.
2. December invoices totaling P13,200 were entered in Trademark
the voucher register in December, but goods were not
received until January. Five purchased for P1,200,000 a trademark for a very
successful soft drink it markets under the name POWER!.
End of the Year The trademark was determined to have an indefinite life. A
competitor recently introduced a product that is in direct
3. Sales of P43,000 (cost of P12,900) were made on competition with the POWER! product, thus suggesting the
account on December 31 and goods delivered at that need for an impairment test. Data gathered by the entity
time, but all entries relating to the sales were made on suggests that the useful life of the trademark is still
January 2. indefinite, but the cash flows expected to be generated by
the trademark have been reduced either to P40,000 per
4. Invoices totaling P15,000 were entered in the voucher year (with a probability of 70%) or to P80,000 per year
register in January, but the goods were received in (with 30% probability). The appropriate risk-free interest
December. rate is 5%. The appropriate risk-adjusted interest rate is
10%.
5. December invoices totaling P18,000 were entered in
the voucher register in December, but the goods were QUESTIONS:
not received until January.
Based on the above and the result of your audit, determine
6. Invoices totaling P12,000 were entered in the voucher the following: (Round off present value factors to 4 decimal
register in January, and the goods were received in places)
January, but the invoices were dated December.
46. Total expenses related to franchise in 2015
Based on the preceding information, determine the net a. P503,914 c. P448,950
working paper adjustment that should be made for each of b. P535,200 d. P454,964
the following accounts: 47. Carrying amount of franchise as of December 31, 2015
41. Retained earnings a. P549,644 c. P538,733
a. P13,200 credit c. P25,000 debit b. P494,680 d. P612,000
b. P11,800 debit d. P38,200 debit 48. Carrying amount of patent as of December 31, 2015
42. Purchases a. P1,045,000 c. P860,310
a. P27,000 debit c. P25,000 credit b. P 955,900 d. P908,105
b. P28,000 debit d. P2,000 debit 49. Total expenses related to the intangible assets in 2015
43. Beginning inventory a. P662,759 c. P733,063
a. P25,000 credit c. P13,200 debit b. P711,709 d. P802,212
b. P38,200 debit d. P11,800 debit 50. The most effective means for the auditor to determine
44. Accounts receivable whether a recorded intangible asset possesses the
a. P43,000 debit c. P30,000 debit characteristics of an asset is to
b. P43,000 credit d. No adjustment a. Vouch the purchase by reference to underlying
documentation.
45. Sales b. Inquire as to the status of patent applications.
a. P43,000 debit c. P30,000credit c. Evaluate the future revenue-producing capacity of
b. P43,000 credit d. No adjustment the intangible asset.
d. Analyze research and development expenditures to
determine that only those expenditures possessing
Use the following information for the next five questions. future economic benefit have been capitalized.

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51. How much is the unadjusted balance per books as of

November 30, 2016?
Use the following information for the next five questions. a. P504,000 c. P430,000
b. P484,000 d. P356,000
You were able to obtain the following information in
connection with your audit of the Cash account of the Syria 52. How much is the unadjusted book receipts for
Company as of December 31, 2016: December, 2016?
November 30 December 31 a. P860,000 c. P735,000
Balances per bank P480,000 P420,000 b. P770,000 d. P738,000
Undeposited 244,000 300,000 53. How much is the unadjusted book disbursements for
collections December, 2016?
Outstanding checks 150,000 120,000 a. P773,000 c. P735,000
d. The bank statement for the month of December b. P700,000 d. P760,000
showed total credits of P240,000. 54. How much is the unadjusted balance per books as of
e. DAIF checks are recorded as a reduction of cash December 31, 2016?
receipts. DAIF checks which are later redeposited are a. P481,000 c. P309,000
then recorded as regular receipts. Data regarding DAIF b. P530,000 d. P539,000
checks are as follows: 55. Cash receipts should be deposited on the day of receipt
1. Returned by the bank in Nov. and recorded by the or the following business day. Select the most
company in Dec., P10,000. appropriate audit procedure to determine that cash is
2. Returned by the bank in Dec. and recorded by the promptly deposited.
company in Dec., P25,000. a. Review cash register tapes prepared for each sale.
3. Returned by the bank in Dec. and recorded by the b. Compare the daily cash receipts totals with the
company in Jan., P29,000. bank deposits.
f. Check of Syrio Company amounting to P90,000 was c. Review the functions of cash handling and
charged to the company’s account by the bank in error maintaining accounting records for proper
on December 31. separation of duties.
d. Review the functions of cash receiving and
g. A bank memo stated that the company’s account was disbursing for proper separation of duties.
credited for the net proceeds of a customer’s note for
P106,000.
Use the following information for the next five questions.
h. The company has hypothecated its accounts receivable
with the bank under an agreement whereby the bank The shareholders’ equity section of the Jerely Corporation’s
lends the company 80% of the hypothecated accounts statement of financial position as of December 31, 2014 is
receivable. The company performs accounting and presented below:
collection of the accounts. Adjustments of the loan are
made from daily sales reports and deposits. 12% Preference share capital, P100 par P 270,000
Ordinary share capital, P20 par 1,598,400
i. The bank credits the company account and increases
Share premium – preference 36,800
the amount of the loan for 80% of the reported sales.
The loan agreement states specifically that the sales Share premium – ordinary 235,200
report must be accepted by the bank before the Share premium – treasury shares 3,200
company is credited. Sales reports are forwarded by Retained earnings 1,585,840
the company to the bank on the first day following the
date of sale. The bank allocates each deposit 80% to Total shareholders’ equity P3,729,440
the payment of the loan, and 20% to the company
account. Thus, only 80% of each day’s sales and 20% Jerely had 65,000 ordinary shares as December 31, 2013.
of each collection deposits are entered on the bank
statement. The company accountant records the The following shareholders’ equity transactions were
hypothecation of new accounts receivable (80% of recorded in 2014 and 2015:
sales) as a debit to Cash and a credit to the bank loan
as of the date of sales. One hundred percent of the 2014
collection on accounts receivable is recorded as a cash May 1 - Sold 9,000 ordinary shares for P24, par value
receipt; 80% of the collection is recorded in the cash P20.
disbursements books as a payment on the loan. In July 1 - Sold 700 preference shares for P124, par
connection with the hypothecation, the following facts value P100.
were determined: Jul. 31 - Issued an 8% share dividend on ordinary
 Included in the undeposited collections is cash shares. The market value of ordinary share
from the hypothecation of accounts receivable. was P30 per share.
Sales were P180,000 on November 30, and Aug. 30 - Declared cash dividends of 12% on
P200,000 at December 31. The balance was made preference shares and P3 per share on
up from collections which were entered on the ordinary shares.
books in the manner indicated above. Dec. 31 - Profit for the year amounted to P1,345,040.
 Collections on accounts receivable deposited in
December, other than deposits in transit, totaled 2015
P725,000. Feb. 1 - Sold 2,200 ordinary shares for P30.
May 1 - Sold 600 preference shares for P128.
j. Interest on the bank loan for the month of December May 31 - Issued a 2-for-1 split of ordinary shares. The
charged by the bank but not recorded in the books, par value of the ordinary share was reduced
amounted to P38,000. to P10 per share.
Sep. 1 - Purchased 1,000 ordinary shares for P18 to
QUESTIONS: be held as treasury shares.
Oct. 1 - Declared and paid cash dividends of 12% on
Based on the above and the result of your audit, answer
preference shares and P4 per share on
the following:
ordinary shares.

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2015 Income before income taxes 560,000

Nov. 1 - Sold 1,000 shares of treasury shares for P22. Provision for income taxes 224 000
Dec. 31 - Profit for the year amounted to P991,520. Net income P 336,000
Bryant is in the process of negotiating a loan for expansion
QUESTIONS: purposes, and the bank has requested audited financial
statements. During the course of the audit, the following
Determine the amounts, as required, in Jerely Corporation’s
additional information was obtained:
comparative financial statements as of and for the years
ended December 31, 2014 and 2015. a. The investment portfolio consists of short-term
investments in marketable equity securities with a total
56. Dividends paid to ordinary shareholders in 2015
market valuation of P55,000 as of November 30, 2014.
a. P652,690 c. P652,960
b. P692,560 d. P656,960 b. Based on an aging of the accounts receivable as of
November 30, 2014, it was estimated that P36,000 of
57. Retained earnings as of December 31, 2015
the receivables will be uncollectible.
a. P1,880,800 c. P1,892,000
b. P1,884,800 d. P1,888,000 c. Inventories at November 30, 2014 did not include work
in process inventory costing P12,000, sent to an
58. Total equity as of December 31, 2015
outside processor on November 29, 2014.
a. P4,175,200 c. P4,182,400
b. P4,171,200 d. P4,157,200 d. A P3,000 insurance premium paid on November 30,
2014 on a policy expiring one year later was charged
59. Basic earnings per share for 2014
to insurance expense.
a. P17.12 c. P 8.56
b. P 8.21 d. P18.49 e. Bryant adopted a pension plan on June 1, 2014 for
eligible employees to be administered by a trustee.
60. Basic earnings per share for 2015
Based upon actuarial computations, the first twelve
a. P7.40 c. P5.86
months' normal pension was estimated at P45,000.
b. P7.34 d. P5.81
f. On June 1, 2014, a production machine purchased for
P24,000 was charged to repairs and maintenance.
Use the following information for the next five questions. Bryant depreciates machines of this type on the
straight-line method over a five-year life with no
Bryant Corporation, a nonpublic entity, was incorporated
salvage value, for financial and tax purposes.
on December 1, 2013, and began operations one week late
closing the books for the fiscal year ended November 30, g. Research and development costs of P150,000 were
2014, the controller prepared the following financial incurred the development of a patent, which Bryant
statements: expects to be granted during the fiscal year ending
November 30, 2015. Bryant initiated a five-year
Bryant Corporation
amortization of the P150,000 total cost during the
Statement of Financial Position
fiscal year ended November 30, 2014.
November 30, 2014
Assets h. During December 2014, a competitor company filed
Current assets: suit against Bryant for patent infringement claiming
Cash P 150,000 P200,000 damages. Bryant's legal counsel believes
Marketable securities , at cost 60,000 that an unfavorable outcome is probable. A reasonable
Accounts receivable 450,000 estimate of the court's award to the plaintiff is P50,000.
Allowance for doubtful accounts ( 59,000) i. The 40% effective tax rate was determined to be
Inventories 430,000 appropriate for calculating the provision for income
Prepaid insurance __15,000 taxes for the fiscal year ended November 30, 2014.
Total current assets 1,046,000 Ignore computation of the deferred portion of income
Property, plant and equipment 426,000 taxes.
Less accumulated depreciation ( 40,000)
Property, plant and equipment, net 386,000 QUESTIONS:
Research and development costs 120,000
Total assets P1,552,000 Based on the above and the result of your audit, determine
the following as of and for the fiscal period ended
Liabilities and Shareholders' equity November 30, 2014:
Current liabilities: 61. Net income
Accounts payable and accrued P 592,000 a. P253,260 c. P235,260
expenses b. P283,260 d. P239,760
Income taxes payable 224,000
Total current liabilities 816,000 62. Current assets
Shareholders' equity: a. P1,084,000 c. P1,079,000
Share capital, P10 par value 400,000 b. P1,061,000 d. P1,073,000
Retained earnings 336,000 63. Total assets
Total shareholders' equity 736,000 a. P1,484,200 c. P1,489,200
Total liabilities and shareholders' equity P1,552,000 b. P1,486,600 d. P1,491,600
Bryant Corporation 64. Total liabilities
Statement of Income a. P833,340 c. P855,840
For the Fiscal Year Ended November 30, 2014 b. P783,340 d. P805,840
Net sales P2,950,000 65. Total equity
Operating expenses: a. P683,260 c. P639,760
Cost of sales 1,670,000 b. P635,260 d. P653,260
Selling and administrative 650,000
Depreciation 40,000
Research and development 30,000 Use the following information for the next five questions.
2,390,000

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Bulls, Inc., a nonpublic enterprise, is negotiating a loan for c. As a result of errors in the physical count, inventories
expansion purposes and the bank requires audited were overstated by P12,000 at December 31, 2014 and
financial statements. Before closing the accounting by P17,500 at December 31, 2015.
records for the year ended December 31, 2015, Bulls' d. On January 1, 2014, the cost of equipment purchased
controller prepared the following comparative financial for P30,000 was debited to repairs and maintenance.
statements for 2015 and 2014: Bulls depreciates equipment of this type by the
Bulls, Inc. straight-line method over a five-year life with no
Statements of Financial Position residual value.
December 31, 2015 and 2014 e. On July 1, 2015, fully depreciated equipment
2015 2014 purchased for P21,000, was sold as scrap for P2,500.
Assets The only entry Bulls made was to debit cash and credit
Cash P 275,000 P150,000 property and equipment for the scrap proceeds. The
Trading securities 78,000 78,000 property and equipment (net) had a current cost of
Accounts receivable 487,000 392,000 P250,000 at December 31, 2015.
Allow. for doubtful accounts (50,000) (32,000)
Inventories 425,000 307,000 f. Advertising and promotion expense for the year ended
Property and equipment 310,000 217,000 December 31, 2014 includes the P25,000 cost of
Accumulated depreciation (150,000) (121,000) printing sales catalogs for a special promotional
Total assets P1,375,000 P 991,000 campaign held in January 2015.
g. Bulls was named as a defendant in a lawsuit in October
Liabilities and Equity 2015. Bulls' counsel is of the opinion that Bulls has a
Accounts payable and good defense, and does not anticipate any impairment
accrued liabilities P 420,000 P347,000 of Bulls' assets or that any significant liability will be
Estimated liability from incurred. Nevertheless, Bulls’ management wished to
lawsuit 100,000 - be conservative and, therefore, established a loss
Share capital, P10 par 260,000 260,000 contingency of P100,000 at December 31, 2015.
Share premium 130,000 130,000
Retained earnings 465,000 254,000 QUESTIONS:
Total liabilities and equity P1,375,000 P 991,000
Based on the above and the result of your audit, compute
for the following: (Disregard income taxes)
Bulls, Inc.
Income Statements 66. Adjusted retained earnings as of January 1, 2015
For the Years Ended December 31, 2015 and 2014 a. P266,000 c. P285,000
2015 2014 b. P297,000 d. P291,000
Net sales P1,580,000 P1,250,000
Operating expenses: 67. Adjusted profit for the year ended December 31, 2015
Cost of sales P 755,000 P 690,000 a. P281,800 c. P287,800
Selling and admin. 485,000 365,000 b. P181,800 d. P306,800
Depreciation 29,000 18,000 68. Adjusted current assets as of December 31, 2015
Est. loss from lawsuit 100,000 - a. P1,226,760 c. P1,154,900
P1,369,000 P1,073,000 b. P1,190,300 d. P1,202,300
Profit P 211,000 P 177,000
69. Adjusted carrying amount of property and equipment
During the course of the audit, the following additional as of December 31, 2015
information was obtained: a. P168,500 c. P178,000
b. P180,500 d. P192,500
a. The trading securities were acquired on December 31,
2014. The securities have a fair value of P67,000 at 70. Adjusted shareholders’ equity as of December 31, 2015
December 31, 2015. a. P962,800 c. P974,800
b. P950,800 d. P862,800
b. In discussion with the company officials, it was
determined that the doubtful accounts expense rate
based on net sales should be reduced to 2% from 3%,
effective January 1, 2015.  - end - 

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