Manila * Cavite * Laguna * Cebu * Cagayan De Oro * Davao

Since 1977

AP OCAMPO/SOLIMAN/OCAMPO
FIRST PRE-BOARD EXAMINATION FEBRUARY 22, 2021

Multiple Choice. Select the letter that corresponds to the • The entity uses the cost model for all items of
best answer. This examination consists of 70 items and the property, plant and equipment.
exam is good for three (3) hours. Good luck! • The employees pay rent at market rates.
• Fair value less costs to sell of bearer plants,
PROBLEM NO. 1 P460,000.
Presented below is the Assets section of Vic Corporation’s
Intangible assets
statement of financial position as of December 31, 2021.
This line item includes the following:
Cash and cash equivalents P2,100,000
Trade and other receivables 4,200,000 Patents P350,000
Inventories 5,400,000 Trademarks 460,000
Other current assets 500,000 Costs of training employees 280,000
Property, plant and equipment 7,190,000 Research and development costs 880,000
Intangible assets 2,280,000 Organization costs 310,000
Other non-current assets 700,000 P2,280,000
• The costs of training employees resulted in a team of
During the course of your audit, you noted the following.
skilled staff.
• The entity cannot distinguish the research phase from
Cash and cash equivalents
the development phase of its project to create an
The following were included in Cash and cash equivalents: intangible asset.
• Credit card receipts representing sales on Dec. 31,
2021, P90,000. QUESTIONS:
• Cryptocurrencies, P360,000. These are not held for
sale in the ordinary course of business nor for Based on the above and the result of your audit, determine
investment purposes. the adjusted amount of the following as of December 31,
• Cash set aside for payment of income tax, P140,000. 2021:
• Cash surrender value of life insurance policy, P33,000.
• Investment in preference shares acquired on Dec. 28, 1. Cash and cash equivalents
2021, P240,000. The shares are redeemable on Mar. A. P1,912,000
28, 2022. B. P1,672,000
• Customer’s check for P65,000 dated January 2, 2022, C. P1,552,000
received on December 29, 2021. D. P1,312,000

Inventories 2. Trade and other receivables

The following were included in Inventories: A. P4,459,400
• Equipment held for sale in accordance with PFRS 5, at B. P4,442,600
carrying amount, P52,000. Fair value less costs to C. P4,394,400
sell, P48,000. D. P4,369,400
• Goods held on consignment, P36,000.
• Goods out on consignment, P75,000. 3. Inventories
• Goods in transit to customers (shipped FOB seller), A. P5,573,000
P87,000. The related sales on account of P104,400 B. P5,227,000
recorded in 2022. C. P5,217,000
• Goods in transit to customers (shipped FOB buyer), D. P5,213,000
P73,000. The related sales on account of P87,600
recorded in 2022. 4. Property, plant and equipment
• Office supplies, P12,000. A. P5,990,000
B. P5,610,000
Property, plant and equipment C. P5,120,000
D. P4,880,000
This line item includes the following:
Head office building P1,300,000 5. Intangible assets
Factory building 1,450,000 A. P1,680,000
Store building 920,000 B. P1,170,000
Building occupied by employees 870,000 C. P1,090,000
Land held for a currently D. P 810,000
undetermined future use 1,200,000
Delivery vehicles 830,000
Equipment for rental to others under
operating leases 240,000
Bearer plants 380,000
P7,190,000

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EXCEL PROFESSIONAL SERVICES, INC.

PROBLEM NO. 2 c. The unadjusted balance of the accounts payable and

accounts receivable as of December 31, 2021 were at
The following provide the details of a sales and purchases
P210,700, and P395,300, respectively.
cut-off rendered by your audit staff in line with your audit
of Cedric Corporation’s financial statements as of and for
d. On June 30, 2020, the entity entered into a forward
the period ended December 31, 2021. The inventories
contract to purchase on June 30, 2022, a specified
reported per books amounting to P339,900 is based on a
number goods at a fixed price. The contract permits
physical count conducted on the client’s warehouse on
the entity to take physical delivery of the goods or to
December 30, 2021. All customers are a 3-5 days delivery
pay or receive a net settlement in cash, based on the
area. Gross profit on sales is at 40%.
change in fair value of goods. At the end of 2020, the
fair value of the forward contract has increased to
Audit notes:
P380,000. At the end of 2021, the fair value of the
a. The following is a summary of the cut-off made on forward contract has increased to P450,000. The entity
purchases transactions: has a past practice of net settling similar contracts.

December 2021 entries on the purchases journal: QUESTIONS:

Receiving Receiving
Report Report Based on the preceding information and the result of your
No. Date Amount Remarks audit, answer the following:
RR513 Dec. 28 18,100 FOB Shipping
point 6. What is the adjusted balance of inventories as of
RR514 Dec. 29 25,250 FOB Destination December 31, 2021?
(from consignor) A. P339,800
RR515 Dec. 31 14,950 FOB Destination B. P352,550
C. P367,730
RR516 Jan. 2 15,400 FOB Destination
D. P378,820
(in transit)
7. What is the adjusted balance of accounts payable as of
January 2022 entries on the purchases journal:
December 31, 2021?
Receiving Receiving A. P198,200
Report Report B. P182,800
No. Date Amount Remarks C. P179,850
RR517 Jan. 2 12,750 FOB Shipping D. P170,050
point (in transit)
RR518 Jan. 3 16,250 FOB Destination 8. What is the adjusted balance if accounts receivable as
RR519 Jan. 4 20,700 FOB Shipping of December 31, 2021?
point A. P309,600
B. P329,850
b. The following is a summary of the cut-off made on sales C. P353,000
transactions: D. P398,250

December 2021 entries on the sales journal: 9. What is the net effect of the cut-off procedures to the
net income in 2021?
Invoice Invoice Shipment
A. P1,750 decrease
No. date date Amount Remarks
B. P13,430 increase
SI517 Dec. 26 Dec. 27 P38,250 FOB
C. P17,150 decrease
Shipping
D. P24,520 increase
point
SI518 Dec. 27 Dec. 28 40,450 FOB
10. How much should the entity recognize in 2021 profit or
Destination
loss related to the forward contract?
(to
A. P830,000
consignee)
B. P450,000
SI519 Dec. 28 Dec. 29 45,250 FOB C. P 70,000
Destination
D. Nil
(in transit)
SI520 Dec. 29 Dec. 31 25,300 FOB
Shipping PROBLEM NO. 3
point (in
transit) In connection with your audit of Alvin Company’s financial
statements for the year 2021, you noted the following
January 2022 entries on the sales journal: transactions affecting the property and equipment items of
the company:
Invoice Invoice Shipment Amount Remarks
No. date date Jan. 1 Purchased real property for P5,026,000,
SI521 Dec. Dec. 31 43,400 FOB which included a charge of P146,000
31 Shipping representing property tax for 2021 that had
point (in been prepaid by the vendor; 20% of the
transit) purchase price is deemed applicable to land
SI522 Jan. 2 Jan. 2 40,450 FOB and the balance to buildings. A mortgage of
Destination P3,000,000 was assumed by Alvin on the
SI523 Jan. 3 Jan. 3 45,250 FOB purchase. Cash was paid for the balance.
Shipping
point

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EXCEL PROFESSIONAL SERVICES, INC.

Jan. 15 Previous owners had failed to take care of 15. Total property, plant and equipment
normal maintenance and repair requirements A. P6,764,400
on the buildings, necessitating current B. P6,731,200
reconditioning at a cost of P236,800. C. P6,718,092
D. P6,618,400
Feb. 15 Demolished garages in the rear of the
building, P36,000 being recovered on the
lumber salvage. The company proceeded to PROBLEM NO. 4
construct a warehouse. The cost of such
You noted the following items relative to the company’s
warehouse was P540,800, which was
Intangible assets in connection with your audit of the Jun
P90,000 less than the average bids made on
Corporation’s financial statements for the year 2021.
the construction by independent contractors.
Upon completion of construction, city
Franchise
inspectors ordered extensive modifications to
the building as a result of failure on the part On January 1, 2021, Jun signed an agreement to operate
of the company to comply with building as franchisee of V Copy Service, Inc. for an initial franchise
safety code. Such modifications, which could of P680,000. Of this amount, P200,000 was paid when the
have been avoided, cost P76,800. agreement was signed and the balance was payable in four
annual payments of P120,000 each, beginning January 1,
Mar. 1 The company exchanged its own shares with 2022. The agreement provides that the down payment is
a fair value of P320,000 (par P24,000) for a not refundable and no future services are required of the
patent and a new equipment. The equipment franchisor. The implicit rate for loan of this type is 14%.
has a fair value of P200,000. The agreement also provides the 5% of the revenue from
the franchise must be paid to the franchisor annually.
Apr. 1 The new machinery for the new building Jun’s revenue from the franchise for 2020 was P8,000,000.
arrived. In addition, a new franchise was Jun estimates the useful life of the franchise to be ten
acquired from the manufacturer of the years.
machinery. Payment was made by issuing
bonds with a face value of P400,000 and by Patent
paying cash of P144,000. The value of the
franchise is set at P160,000, while the On July 1, 2021, Jun purchased a patent from the
machine’s fair value is P360,000. inventor, who asked P1,100,000 for it. Jun paid for the
patent as follows: cash, P400,000; issuance of 10,000
May 1 The company contracted for parking lots and shares of its own ordinary shares, par P10 (market value,
waiting sheds at a cost P360,000 and P20 per share); and a note payable due at the end of three
P76,800, respectively. The work was years, face amount, P500,000, noninterest-bearing. The
completed and paid for on June 1. current interest rate for this type of financing is 12
percent. Jun estimates the useful life of the patent to be
Dec. 31 The business was closed to permit taking the ten years.
year-end inventory. During this time,
required redecorating and repairs were Trademark
completed at a cost of P60,000. Jun purchased for P1,200,000 a trademark for a very
successful product. The trademark was determined to
QUESTIONS: have an indefinite life. A competitor recently introduced a
product that is in direct competition with the entity’s
Based on the above and the result of your audit, determine product, thus suggesting the need for an impairment test.
the cost of the following: Data gathered by the entity suggests that the useful life of
the trademark is still indefinite, but the cash flows
11. Land expected to be generated by the trademark have been
A. P 940,000 reduced either to P40,000 per year (with a probability of
B. P 976,000 70%) or to P80,000 per year (with 30% probability). The
C. P1,005,200 appropriate risk-free interest rate is 5%. The appropriate
D. P1,052,800 risk-adjusted interest rate is 10%.

12. Buildings QUESTIONS:

A. P4,645,600
B. P4,762,400 16. Total expenses related to franchise in 2021
C. P4,681,600 A. P448,950
D. P5,005,600 B. P454,964
C. P503,914
13. Machinery and equipment D. P535,200
A. P360,000
B. P560,000 17. Carrying amount of franchise as of December 31, 2021
C. P576,615 A. P612,000
D. P659,692 B. P549,644
C. P538,733
14. Land improvements D. P494,680
A. P436,800
B. P360,000 18. Carrying amount of patent as of December 31, 2021
C. P 76,800 A. P1,045,000
D. P 0 B. P 955,900
C. P 908,105
D. P 860,310

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EXCEL PROFESSIONAL SERVICES, INC.

19. Total expenses related to the intangible assets in 2021 QUESTIONS:

A. P662,759
B. P711,709 Based on the above and the result of your audit, answer
C. P733,063 the following:
D. P802,212
21. How much is the adjusted balance of petty cash fund
20. Which statement is correct regarding audit of as of December 31, 2021?
intangible assets? A. P 9,000
A. The most effective means for the auditor to B. P12,000
determine whether a recorded intangible asset C. P13,000
possesses the characteristics of an asset is to D. P16,000
inquire as to the status of patent applications.
B. An auditor most likely would review or re-compute 22. How much is the adjusted Allied Bank current account
amortization and determine whether the as of December 31, 2021?
amortization period is reasonable in support of A. P336,500
management’s financial statement assertion of B. P330,250
valuation. C. P305,500
C. When testing a client's additions to an asset for D. P296,500
research and development, the auditor must
remember that such costs should be amortized 23. How much is the cash shortage as of December 31,
over the lesser of their legal lives or useful lives. 2021?
D. None of these. A. P46,500
B. P 9,000
C. P 6,500
PROBLEM NO. 5 D. P 0
The following data were taken from your current working
24. How much is the adjusted cash as of December 31,
papers in connection with your audit of the Raegan
2021?
Company’s financial statements for the year ended
A. P398,500
December 31, 2021.
B. P367,500
Cash account consists of the following items: C. P358,500
D. P355,500
Petty cash fund P 25,000
Security Bank checking account (37,500)
25. Which statement is correct regarding audit of cash?
Allied Bank current account 344,250
A. The primary purpose of sending a standard
Total per GL P331,750
confirmation request to financial institutions with
a. The count of the cashier’s accountability on January 2, which the client has done business during the year
2022, revealed total bills and coins of P9,000. is to provide the data necessary to prepare a proof
Unreplenished vouchers for various expenses totaled of cash.
P16,000, of which P3,000 pertains to January 2022. B. The general cash account is considered a
significant account in almost all audits even when
b. On December 29, 2021, a check for P87,500 was
the ending balance is immaterial.
drawn against Security Bank current account resulting
C. The starting point for the verification of the
in bank overdraft of P37,500. The check was picked
balance in the general bank account is to obtain a
up by the supplier on January 3, 2022.
cutoff bank statement directly from the bank.
c. Bank reconciliation statement prepared by the cashier D. An auditor will request cutoff bank statement
for the Allied Bank account follows: primarily in order to detect kiting.
Bank balance P310,500
Add: Deposit in transit P61,250
PROBLEM NO. 6
Bank service
charges 1,250 62,500 In connection with the audit of the financial statements of
Total 373,000 Emma Corporation, your audit senior instructed you to
Less: Outstanding examine the company’s accounts receivable.
checks
Check No. Amount Prior to any adjustments you were able to extract the
214 P 2,500 @
following balances from Emma’s trial balance as of Dec.
219 20,750 31, 2021:
225 6,000
228 8,500 28,750 Accounts receivable P442,500
Book balance P344,250 Allowance for doubtful accounts 15,000
@
Check certified by the bank in December 2021. From the schedule of accounts receivable as of Dec. 31,
2021, you determined that this account includes the
All reconciling items were traced to the bank statement.
following:
Further investigation indicated that the deposits in
transit include a customer’s post-dated check Accounts with debit balances:
amounting to P40,000. The check represents a 60 days old and below P238,500
collection from account customer for sales made in the 61 to 90 days 117,200
middle of October 2021. Over 90 days 85,400 P441,100
Advances to officers 16,400
Accounts with credit balance (15,000)
Accounts receivable per GL P442,500

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EXCEL PROFESSIONAL SERVICES, INC.

The credit balance in customer’s account represents

collection from a customer whose account had been 26. In relation to Customer Beh, the necessary adjusting
written-off as uncollectible in 2020. journal entry includes a debit to
A. Claim Against Shipping Company of P16,000
Accounts receivable for more than a year totaling P21,000 B. Sales of P16,000
should be written off. C. Loss of P16,000
D. None of these
Confirmation replies received directly from customers
disclosed the following exceptions: 27. In relation to Customer Deh, the necessary adjusting
journal entry includes
Customer’s a. A debit to Inventory of P18,000.
Customer Comments Audit Findings b. A credit to Cost of Sales of P13,000
Ey The goods sold on The client failed to c. A credit to Sales of P18,000
Dec. 1 were record a credit memo d. None of these
returned on Dec. for P12,000. The
16, 2021. merchandise was 28. The adjusted balance of accounts receivable as of Dec.
included in the ending 31, 2021 is
inventory at cost. A. P371,400
B. P387,400
Beh We do not owe this Investigation revealed C. P402,400
amount *%#@!!! that goods sold for D. P403,800
(censored). We P16,000 were shipped
did not receive any to Beh on Dec. 29, 29. The adjusted allowance for doubtful accounts as of
merchandise from 2021, terms FOB Dec. 31, 2021 is
your company. shipping point. The A. P7,462
goods were lost in B. P7,622
transit and the C. P7,786
shipping company has D. P8,372
acknowledged its
responsibility for the 30. To gather audit evidence about the proper credit
loss of the approval of sales, the auditor would select a sample of
merchandise. documents from the population represented by the
A. Bill of lading file.
Sy I am entitled to a Sy is an employee of B. Customer order file.
10% employee Emma. Starting Nov. C. Sales invoice file.
discount. Your bill 2021, all company D. Subsidiary customers' accounts ledger.
should be reduced employees were
by P1,200. entitled to a special
discount.
PROBLEM NO. 7
Deh We have not yet Merchandise billed for You gathered the following information about investments
sold the goods. P18,000 were in debt and equity instruments of Kristine Corp. in
We will remit the consigned to Deh on connection with your audit of its financial statements for
proceeds as soon Dec. 30, 2021. The the year ended Dec. 31, 2021:
as the goods are goods cost P13,000.
sold. • On April 1, 2019, the entity purchased 5-year
Eh We do not owe you The sale of P1,000,000 10% bonds of June Corp.. The bonds are
P20,000. We merchandise on Dec. dated Jan. 1, 2019. The bonds were purchased to
already paid our 18, 2021 was paid by yield 8%. Interest is payable annually every Dec. 31.
accounts as Eh on Jan. 6, 2022. The entity uses the ‘held for collection’ business model
evidenced by OR # for acquired and originated debt instruments. The
1234. issuer paid the interest as scheduled in 2019 and
2020. During 2021, the issuer of the bonds is in
Ef Reduce your bill by This amount financial difficulties and it becomes probable that the
P1,500 represents freight issuer will be put into administration by a receiver.
paid by the customer On Dec. 31, 2021, the entity estimated that none of
for the merchandise the interest will be collected and only P800,000 of the
shipped on Dec. 17, principal will be collected on maturity date.
2021, terms, FOB
destination-collect. • On April 1, 2021, the entity purchased 25,000
ordinary shares of Brian Corp. at P180 per share
Based on your discussion with Emma’s Credit Manager, which reflected book value as of that date. At the
you both agreed that an allowance for doubtful accounts time of the purchase, Brian had 100,000 ordinary
should be maintained using the following rates: shares outstanding. The entity paid transaction costs
60 days old and below 1% of P67,500. The first quarter statement ending March
61 to 90 days 2% 31, 2021 of Brian recorded profit of P480,000. For
Over 90 days 5% the year ended December 31, 2021, Brian reported
profit of P2,400,000. Brian paid Kristine dividends of
QUESTIONS: P60,000 on June 1, 2021 and again P60,000 on
December 31, 2021. The shares of Brian are selling
Based on the above and the result of your audit, answer at P190 per share on December 31, 2021.
the following:

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EXCEL PROFESSIONAL SERVICES, INC.

QUESTIONS:

Based on the preceding information and the result of your

audit, answer the following:

31. How much was the total amount paid to acquire the
investment in June Corp. bonds on April 1, 2019?
A. P1,076,467
B. P1,079,870
C. P1,101,467
D. P1,104,870

32. The required loss allowance on investment in June

Corp. bonds at Dec. 31, 2021 is
A. P314,160
B. P349,846
C. P365,721
D. Nil

33. How much is the interest income to be recognized in

2022 on investment in June Corp. bonds?
A. P84,125
B. P82,855
C. P54,867
D. Nil

34. The carrying amount of the investment in Brian Corp.

as of December 31, 2021 should be
A. P4,860,000
B. P4,927,500
C. P4,980,000
D. P5,047,500

35. If Kristine Corp. has no significant influence over Brian

Corp., the net amount to be recognized in 2021 profit
or loss related to this investment is
A. P 52,500
B. P120,000
C. P302,500
D. P480,000

End of Examination

Thank you for participating in Team PRTC

Nationwide Online First Pre-Board Examination.

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EXCEL PROFESSIONAL SERVICES, INC.

ANSWER KEY
1. C 6. B 11. B 16. C 21. B 26. D 31. C
2. A 7. B 12. A 17. D 22. D 27. B 32. B
3. D 8. C 13. B 18. C 23. C 28. B 33. C
4. A 9. A 14. A 19. C 24. C 29. B 34. B
5. B 10. C 15. D 20. B 25. B 30. B 35. C

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