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Auditing RESA PRE- Board 2023

Accountancy (STI College)

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ReSA - THE REVIEW SCHOOL OF ACCOUNTANCY

CPA Review Batch 45  May 2023 CPALE  22 April 2023  11:45 AM – 02:45 PM

AUDITING FINAL PRE-BOARD EXAMINATION

INSTRUCTIONS: Select the correct answer for each of the questions. Mark only one
answer for each item by shading the box corresponding to the letter of your choice on
the answer sheet provided. STRICTLY NO ERASURES ALLOWED. Use pencil no. 2 only.

1. Which one of the following best describes the assurance process?

a. Proving the accuracy of the books and records
b. Gathering evidence about specific and known assertions
c. Assisting management in the successful operations of the company
d. Assembling and filing tax returns and related supplemental
information

2. Which of the following statements is correct?

a. RA 9298 provides for and governs the supervision, control, and
regulation of the practice of Filipino professional accountants in
the Philippines and abroad.
b. RA 9298 is aligned with the policy of the State to recognize
accountants in revenue generation and development.
c. A CPA, though not a lawyer, can teach law subjects in the BSA program.
d. A person is deemed to be in public practice when he/she is involved
in decision-making requiring professional knowledge in the science
of accounting and the accounting aspects of finance and taxation or
is employed in a position requiring a CPA.

3. The following first-time candidates had these CPALE ratings:

CPALE Ratings
Examinees
Subject 1 Subject 2 Subject 3 Subject 4 Subject 5 Subject 6
Dang 91 87 94 73 74 64
Deng 80 68 67 74 80 75
Ding 77 79 64 74 76 80
Dong 77 76 66 75 76 77
Dung 88 89 65 65 65 78

Of the following statements, how many is/are correct?

1. Dang and Deng failed.
2. Dong earned conditional credits.
3. Dang and Dung passed.
4. Ding had to retake two subjects.

a. One statement only c. Three statements only

b. Two statements only d. All statements are correct.

4. When exercising professional judgment, this refers to the tendency of the CPA to
use an initial piece of information as an anchor against which subsequent
information is inadequately assessed.
a. Availability bias c. Confirmation bias
b. Anchoring bias d. Selective perception

5. Bert, a CPA, is approached by Wally, a client. Wally requests that Bert return
the records provided to Bert by Wally during an audit. Wally still owes Bert the
fees associated with the audit. According to the Code of Ethics, what should
Bert do?
a. Bert should return the records to Wally only after the fee has been
paid.
b. Bert should not return the records to Wally without a court order.
c. Bert should not return the records to Wally because the records now
belong to Bert.
d. Bert should return the records to Wally.

6. Which of the following is least appropriately considered a condition or event

that indicates that there could be substantial doubt about an entity's ability
to continue as a going concern?
a. Issuance of bonds at the prevailing interest rate.
b. Uneconomic long-term commitments.
c. Arrearages in dividends.
d. An uninsured or underinsured catastrophe.

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AUDITING
ReSA Batch 45 - May 2023 CPALE Batch
22 Apr 2023  11:45 AM to 02:45 PM AUD Final Pre-Board Exam
7. Statement I: If the auditor concludes that the identified or suspected non-
compliance has a material effect on the financial statements and has not been
adequately reflected in the financial statements, the auditor shall express a
qualified opinion or disclaim an opinion on the financial statements.

Statement II: If the auditor is precluded by management or those charged with

governance from obtaining sufficient appropriate audit evidence to evaluate
whether non-compliance that may be material to the financial statements has, or
is likely to have, occurred, the auditor shall express a qualified opinion or
adverse opinion on the financial statements based on a limitation on the scope
of the audit.

a. Only statement I is true. c. Both statements are true.

b. Only statement II is true. d. Both statements are false.

8. Which of the following statements is true with respect to the concept of

independence when an auditor prepares and audits those financial statements for
a client?
a. The auditor is not independent.
b. The auditor is independent if he or she can maintain professional
detachment.
c. The auditor can audit the financial statements only if the audit
process does not culminate in expressing an opinion on the financial
statements.
d. The auditor cannot audit the financial statements since a lack of
integrity exists.

9. An auditor plans to apply substantive tests to the details of asset and liability
accounts as of an interim date rather than as of the statement of financial
position (SFP) date. The auditor should be aware that this practice:
a. Eliminates the use of certain statistical sampling methods that would
otherwise be available.
b. Presumes that the auditor will reperform the tests as of the SFP
date.
c. Should be especially considered when there are rapidly changing
economic conditions.
d. Potentially increases the risk that errors that exist at the SFP date
will not be detected.

10. Analytical procedures are required at the planning stage of all audits and as:
a. Tests of control
b. Substantive procedures
c. A part of the final overall review
d. Computer generated procedures

11. Which of the following best describes why auditors are concerned with detecting
related party transactions?
a. The financial statements must often be adjusted for the effects of
material related party transactions.
b. Material related party transactions must be disclosed in the notes
to the financial statements.
c. The substance of related party transactions will differ from their
form.
d. In a related party transaction, one party can exercise significant
influence over the other party.

12. An auditor should request that management provide written representations

regarding uncorrected misstatements in the financial statements that state:
a. The individual and cumulative differences between the auditor's point
estimates and the recorded amounts for uncorrected misstatements.
b. Management's acceptance of responsibility for the auditor's opinion,
if modified due to the uncorrected misstatements.
c. Whether management believes that the effects of uncorrected
misstatements are immaterial, individually and in the aggregate, to
the financial statements as a whole.
d. Management's rationale for not correcting misstatements noted during
the course of the audit.

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AUDITING
ReSA Batch 45 - May 2023 CPALE Batch
22 Apr 2023  11:45 AM to 02:45 PM AUD Final Pre-Board Exam
13. Which of the following factors most likely would lead a CPA to conclude that a
potential audit engagement should not be accepted?
a. There are significant related party transactions that management
claims occurred in the ordinary course of business.
b. Internal control activities requiring the segregation of duties are
subject to management override.
c. Management continues to employ an inefficient system of information
technology to record financial transactions.
d. It is unlikely that sufficient evidence is available to support an
opinion on the financial statements.

14. When a company has changed auditors:

a. The successor auditor has the responsibility to initiate contact with
the predecessor auditor to ask about the client before the engagement
is accepted; the predecessor has no responsibility to initiate this
contact, even when aware of matters bearing on the integrity of
management.
b. The predecessor must respond fully to all inquiries made by the
successor auditor.
c. The successor must discuss with the predecessor auditor matters
bearing on the engagement before accepting the engagement.
d. The successor may choose not to attempt any communication with the
predecessor auditor.

15. Tests for unrecorded assets typically involve tracing from:

a. Source documents to recorded journal entries.
b. Source documents to observations.
c. Recorded journal entries to documents.
d. Recorded journal entries to observations.

16. Which statement is correct concerning the relevance of various types of controls
to a financial statement audit?
a. An auditor may ordinarily ignore the consideration of controls when
using a substantive audit approach.
b. Controls over the reliability of financial reporting are ordinarily
most directly relevant to an audit, but other controls may also be
relevant.
c. Controls over safeguarding assets and liabilities are of primary
importance, while controls over the reliability of financial
reporting may also be relevant.
d. All controls are ordinarily relevant to an audit.

17. Under which circumstance is it likely that the extent of substantive procedures
will be expanded beyond that anticipated in the audit plan?
a. The auditors have determined that controls have been implemented
(placed in operation) but, in accordance with the audit plan, have
performed no tests of controls.
b. Certain controls do not leave a trail of documentary evidence.
c. Deviation rates were greater than zero and approached anticipated
levels.
d. The operating effectiveness of certain controls was found to be less
than expected, although no material misstatements were identified.

18. For effective internal control, which functions should not be assigned to the
company's accounting department?
a. Reconciling accounting records with existing assets
b. Recording financial transactions
c. Signing payroll checks
d. Preparing financial reports

19. Which of the following would the auditors consider a weakness in an IT system?
a. Operators have access to terminals.
b. Programmers are allowed access to the file library.
c. A data control group handles reprocessing of exceptions detected by
the computer.
d. More than one employee is present when the computer facility is in
use.

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AUDITING
ReSA Batch 45 - May 2023 CPALE Batch
22 Apr 2023  11:45 AM to 02:45 PM AUD Final Pre-Board Exam
20. When designing the physical layout of a data processing center, which of the
following would be least likely to be a necessary control that is considered?
a. Design of controls to restrict access
b. Adequate physical layout space for the operating system
c. Inclusions of an adequate power supply system with surge protection
d. Consideration of risks related to other uses of electricity in the
area

21. Which of the following applications of sampling to test controls is most

appropriate?
a. Testing a sample of customer orders for evidence of credit approval.
b. Testing a sample of controls to determine segregation of duties
between inventory control and sales processing duties.
c. Testing a sample of accounts receivable confirmations.
d. Testing a sample of the budget center directors' allocation of annual
budget to sales units.

22. If a subsequent event occurs after the report date but prior to the release date
of an audit report, resulting in management's revision of the financial
statements, then the auditor may do any of the following, except:
a. Maintain the original date of the report and state that the opinion
is limited to the financial statements as they existed prior to the
subsequent event.
b. Perform audit procedures necessary to obtain assurance about the
revised financial statements.
c. Include an additional date in the audit report that is limited to the
revision to the financial statements.
d. Revise the date of the audit report to reflect the necessity of
additional audit procedures.

23. An internal control questionnaire indicates that an approved receiving report is

required to accompany every check request for payment of merchandise. Which of
the following procedures provides the best evidence of operating effectiveness?
a. Select and examine receiving reports and test whether the related
canceled checks are dated no earlier than the receiving reports.
b. Select and examine receiving reports and test whether the related
canceled checks are dated no later than the receiving reports.
c. Select and examine canceled checks and test whether the related
receiving reports are dated no earlier than the checks.
d. Select and examine canceled checks and test whether the related
receiving reports are dated no later than the checks.

24. Which of the following would be least likely to diminish the validity of evidence
obtained through the confirmation of accounts receivable?
a. The confirmations are sent on the client's letterhead.
b. The confirmations are mailed to customers by the internal auditors.
c. The client's mailroom personnel closely monitor and inspect
confirmations during mailing.
d. The return address on the envelope used to send the confirmation
request is that of the client.

25. A receiving department compares inventory items received with copies of purchase
orders. The purchase orders list the vendor’s name and do not list the quantities
of the material ordered. Using the purchase orders, the receiving department is
most likely to detect:
a. Deliveries for which no purchase order was issued.
b. Unapproved sales orders.
c. Partial deliveries.
d. Deliveries of inferior quality than what was expected.

26. A "bill and hold" scheme is most likely to include:

a. Shipment of items to a customer beyond what the customer has ordered.
b. Recording as sales items that the company retains as of year-end.
c. Billing of items that customers hold for future revenue production
purposes.
d. Selling items at substantial discounts near year-end.

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AUDITING
ReSA Batch 45 - May 2023 CPALE Batch
22 Apr 2023  11:45 AM to 02:45 PM AUD Final Pre-Board Exam
27. Which of the following procedures would an auditor most likely perform while
evaluating audit findings at the conclusion of an audit?
a. Obtain assurance from the entity's attorney that all material
litigation has been disclosed in the financial statements.
b. Verify the clerical accuracy of the entity's proof of cash and its
bank cutoff statement.
c. Determine whether reportable conditions have been corrected.
d. Develop an estimate of the total likely misstatement.

28. When a practitioner examines projected financial statements, the practitioner's

report should include a separate paragraph that:
a. Describes the limitations on the usefulness of the presentation.
b. Provides an explanation of the differences between an examination and
a review.
c. States that the accountant is responsible for events and
circumstances for a period not exceeding one year after the report's
date.
d. Disclaims an opinion on whether the assumptions provide a reasonable
basis for the projection.

29. Which of the following shall be included in the firm’s response to circumstances
indicating an engagement team omitted a required audit procedure or the report
may be inappropriate?

I - Respond appropriately to relevant professional standards and applicable

legal and regulatory requirements.

II - When the report is considered inappropriate, consider the implications and

take appropriate action, but avoid obtaining legal advice.

a. I only c. Both I and II

b. II only d. Neither I nor II

30. Statement I: An engagement quality review is an objective evaluation of the

significant judgments made by the engagement team, and the conclusions reached
thereon, performed by the engagement quality reviewer and completed on or after
the date of the engagement report.

Statement II: The engagement quality reviewer may be an employee of the firm.

a. Only statement I is true. c. Both statements are true.

b. Only statement II is true. d. Both statements are false.

31. Statement I: It may be appropriate for the engagement team, in the context of
the firm’s policies or procedures, to consult outside the firm where the firm
lacks appropriate internal resources.

Statement II: The engagement team are not allowed to seek for advisory services
provided by firms, professional and regulatory bodies or commercial organizations
that provide relevant quality control services.

a. Only statement I is true. c. Both statements are true.

b. Only statement II is true. d. Both statements are false.

32. An auditor determines that the management integrity is high, the risk of account
misstatements is low, and the client’s information system is reliable. Which of
the following conclusions can be reached regarding the need to perform direct
tests of account balances?
a. Direct tests should be limited to material account balances, and the
extent of testing should be sufficient to corroborate the auditor’s
assessment of low risk.
b. Direct tests of account balances are not needed.
c. Direct tests of account balances are necessary if audit risk was set
at a low level but are not necessary if audit risk was set at a high
level.
d. Direct tests should be performed on all account balances to
independently verify the correctness of the financial statements.

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AUDITING
ReSA Batch 45 - May 2023 CPALE Batch
22 Apr 2023  11:45 AM to 02:45 PM AUD Final Pre-Board Exam
33. When a client declines to disclose essential information in the financial
statements or notes, the auditor of the financial statements should:
a. Provide the information in the audit report, if practicable, and
qualify the opinion because of a limitation on the scope of the audit.
b. Provide the information in the audit report, if practicable, and
qualify the opinion because of a departure from acceptable financial
reporting framework.
c. Issue a disclaimer of opinion because the client has interfered with
the auditor's function of assessing the adequacy of disclosure.
d. Issue an unqualified opinion, but inform the reader by including the
omitted information in the audit report.

34. The management of Stanley Corporation has decided not to account for a material
transaction in accordance with the provisions of a recent statement of the FRSC.
They have set forth their reasons in note "R" of the financial statements, which
clearly demonstrates that due to unusual circumstances, the financial statements
would otherwise have been misleading. The auditors' report on the financial
statements will probably contain a(an):
a. Qualified opinion. c. Adverse opinion.
b. Unqualified opinion. d. Disclaimer opinion.

35. Statement I: The auditor shall not express an unmodified opinion on a single FS
of a complete set of FS if the auditor has expressed an adverse opinion or
disclaimed an opinion on the complete set of FS as a whole.

Statement II: Expressing an unmodified opinion on a single FS which came from a

complete set of FS that was given an adverse opinion or disclaimer of opinion is
allowed only if a such an unmodified opinion is published separately from the
auditor’s report containing the adverse opinion or disclaimer of opinion.

a. Only statement I is true. c. Both statements are true.

b. Only statement II is true. d. Both statements are false.

PROBLEM 1:
You are auditing the cash in bank balance of Japan Corp. for the period ended December
31, 2022. The accountant of the client furnished the following bank reconciliation
statement information for the months of November and December:

a. Bank loan proceeds in November recorded in the December cash receipts journal,
P150,000.
b. Customer’s direct deposits in December per bank records recorded in the receipts
journal only in January of the following year, P59,000.
c. November bank debits included customer NSF check amounting to P45,000,
acknowledged by the customer and redeposited by the company in December. No entry
has been made by the client for the return or the redeposit neither in November
nor in December.
d. December bank debits included bank service charges amounting to P5,400 and an
P84,000 disbursement check of Japon Corp. erroneously charged by the bank against
the company’s account.
e. November outstanding checks and undeposited collections were at P135,000 and
P210,000, respectively.
f. A P25,000 collection check was recorded in the books at P52,000 in November, the
error was discovered and corrected by the company in December.
g. An P18,000 check on the other hand was recorded twice in the cash disbursements
journal in December, the error was detected and corrected by the company in
January of the following year.
h. Cash balance per books in November was at P620,000 while cash balance per the
bank statement in November was at P623,000.
i. Total bank credits and debits for December were at P2,450,000 and P2,222,000,
respectively, while the total book credits and debits for December were at
P2,190,000 and P2,395,000 respectively.

Requirements: Determine the following as a result of your audit:

36. Undeposited collections by the end of December:
a. 64,000 c. 109,000
b. 103,600 d. 81,600

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AUDITING
ReSA Batch 45 - May 2023 CPALE Batch
22 Apr 2023  11:45 AM to 02:45 PM AUD Final Pre-Board Exam
37. Outstanding checks by the end of December:
a. 147,400 c. 69,400
b. 114,400 d. 64,000

38. Correct cash in bank balance as of December 31:

a. 908,600 c. 896,600
b. 863,600 d. 753,600

PROBLEM 2:
Hokkaido Corporation reported total sales amounting to P68,000,000 for the calendar
year-ended December 31, 2022. As a result of your audit, you have discovered that the
company started a customer loyalty award program which covered the company’s entire
current-year sale. The loyalty program grants customers 1 loyalty point for every P200
purchase. Each point entitles the customer to purchase additional products of the
company at an exchange rate of 1 point equivalent to P10. The company reported cost of
sales for the year at P26,000,000 while the cost of products redeemed in exchange of
the loyalty program credits was at P520,000 which were charged as promotional expense.

The company estimates that 40% of the total customer loyalty award credits granted
during the year will ultimately be forfeited. By the end of the year, 142,800 points
had already been redeemed by the customers.

39. What is the adjusted/corrected sales related to the company’s main goods?
a. 65,960,000 c. 66,019,417
b. 64,600,000 d. 64,761,905

40. What is the correct income from customer loyalty award credit redemptions for
2022?
a. 2,380,000 c. 1,428,000
b. 2,120,000 d. 1,386,408

41. Which of the following audit procedures would the auditor mostly likely include
in his substantive testing audit program for auding trade and other current
liabilities?
a. Sending confirmation letters to suppliers with outstanding balances as at
the end of the year.
b. Vouching entries several days after the balance sheet date in the cash
disbursements journal to supporting documents.
c. Vouching entries several days before the balance sheet date in the
purchases journal or voucher register to supporting documents.
d. Sending confirmation letters to suppliers with significant account
balances as at the end of the year.

PROBLEM 3: AUDIT OF CASH

The following information resulted from your cash count on January 4, 2023 of the petty
cash fund and undeposited collections of Sapporo Co.
Currencies and coins P19,500
Unreplenished petty cash expense vouchers:
12/27/2022 Gasoline and oil 1,500
12/29/2022 Office repairs 2,100
12/31/2022 Miscellaneous 900
1/2/2023 Transportation 1,800
Checks:
12/28/2022 Tokyo Co. – Customer (Collection 4,500
Check) 2,000
12/30.2022 Ken Ortega – Officer (Accommodated 3,900
Check) 1,400
1/3/2023 Osaka Corp – Customer (Collection Check)
1/5/2023 Nico Santos – Employee (Accommodated
Check)
Employees’ IOUs – Supported by duly acknowledged notes 4,000
Postage stamps 1,000

Further investigation revealed that the imprest balance of the petty cash fund is
P15,000 while the undeposited collections as of the count date per records was at
P28,000.

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AUDITING
ReSA Batch 45 - May 2023 CPALE Batch
22 Apr 2023  11:45 AM to 02:45 PM AUD Final Pre-Board Exam
42. What is the cash shortage or overage as a result of the count?
a. 1,400 c. 2,400
b. 600 d. 1,600

43. What is the balance of the petty cash fund as of December 31, 2022?
a. 3,700 c. 1,900
b. 2,300 d. 5,100

44. Which of the following is correct?

a. The auditor renders cash count primarily to gather evidence regarding the
completeness assertion over cash.
b. Checks accommodated by the petty cash fund are acceptable valid support
to the custodian’s accountability whether the said checks are cashable or
not as of the count date.
c. Customer collections checks are acceptable valid support to the
custodian’s accountability whether the said checks are depositable or not
to the bank as of the count date.
d. Cash count shortage arises when the acceptable valid support to the
accountability exceeds the supposed custodian’s accountability.

PROBLEM 4: AUDIT OF RECEIVABLES

You were assigned to audit the loans receivable account of Nara Corp. for the period
ended December 31, 2022. Details regarding a loan transaction with Yokohama Inc. were
as follows:

The three-year, P5M loan was dated January 1, 2021 and pays interest at 10% every
December 31. Yokohama had good financial standings and management estimates revealed
that the 12-months ECL is very insignificant. The proceeds of the loan were consistent
with the yield rate on this date which was 12%.

By the end of 2021, interest was collected. Management’s assessment on Yokohama’s

credit standing did not change.

By the end of 2022, however, while Yokohama was able to pay the interest due, management
concluded that there is a significant increase in Yokohama’s credit risk. As a result,
the management estimated that the present value of the life-time expected credit loss
is P400,000 with a 25% probability of default.

By the end of 2023, Yokohama defaulted on the loan and interest payment. As a result,
certain concessions were entered with the company. These concessions included:
• Interest due in 2023 is forgiven
• While there will be no more interest to be collected on the loan, the
maturity value of is increased to P6M and is due on December 31, 2025.
Market rate of interest prevailing at the end of 2023 was 11%.

45. What is the carrying value of the loans receivable as of December 31, 2021?
a. 4,759,817 c. 4,830,995
b. 4,910,714 d. 5,000,000

46. What is the carrying value of the loans receivable as of December 31, 2022?
a. 4,659,817 c. 4,730,995
b. 4,810,714 d. 4,900,000

47. What is the interest expense in 2023?

a. 579,719 c. 577,286
b. 589,286 d. 604,837

48. What is the impairment loss/bad debt expense in 2023?

a. 716,837 c. 216,837
b. 616,837 d. 604,837

PROBLEM 5: AUDIT OF INVENTORIES

You were assigned to audit the inventory balance of Furano Corp. for the year ended
December 31, 2022. Furano Corp.’s inventory records revealed the following information:

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AUDITING
ReSA Batch 45 - May 2023 CPALE Batch
22 Apr 2023  11:45 AM to 02:45 PM AUD Final Pre-Board Exam
AB-103 AB-203 AB-303 DE-091 DE-092 DE-093
# of Units 12,300 14,900 10,900 500 780 350
Cost per unit P28 P33 P22 P103 P120 P210
Estimated Selling Price 40 45 35 150 180 250
Estimated Cost to Sell 15 10 16 45 80 50
Estimated Profit in % 20% 22% 25% 20% 15% 18%
Your audit investigation revealed that Furano Corp. valued the inventories under the
lower of cost or NRV valuation on a per group basis, grouping together inventories AB-
103, AB-203 and AB-303 as a single group and DE-091, DE-092 and DE-093 as another
group. Inventories in each group however are not necessarily similar in nature, thus
you have suggested the client to use lower of cost or NRV on an individual or item per
item basis.
Required:
49. What is the necessary adjustment to the net income as a result of your audit?
a. 30,800 decrease c. 27,300 decrease
b. 30,800 increase d. 27,300 increase

50. How much should inventory be reported in the 2022 Statement of Financial Position?
a. 1,236,600 c. 1,224,500
b. 1,294,500 d. 1,205,800

51. Which of the following regarding timing of entity’s inventory count is the best
from the auditors’ point of view?
a. Inventory count just after year end.
b. Inventory count at the year-end date.
c. Inventory count just before the year end.
d. All of the timings in A, B and C above are equally good.

PROBLEM 6: AUDIT OF INVENTORIES, TRADE RECEIVABLES AND TRADE PAYABLES

The following resulted from the cut-off procedures rendered by you audit staff in line
with your audit of Otako Corp.’s financial statements for the year ended December 31,
2022.
P U R C H A S E S C U T O F F
Supplier’s Merchandise Invoice
Entry Shipment Receipt Price Remarks
Date Date Date
Dec. 27 Dec. 27 Dec. 29 P3,200 FOB Destination
Dec. 28 Dec. 27 Dec. 29 4,400 On consignment
Dec. 29 Dec. 28 Dec. 30 1,900 FOB Shipping Point
Dec. 29 Dec. 29 Jan. 2 3,900 FOB Shipping Point
Dec. 30 Dec. 30 Jan. 2 4,200 FOB Buyer
Dec. 30 Dec. 31 Jan. 3 3,300 FOB Seller
Dec. 31 Jan. 1 Jan. 3 2,200 FOB Shipping Point
Jan. 2 Jan. 1 Jan. 3 3,500 Bill and hold agreement in December
Jan. 2 Dec. 28 Dec. 29 4,400 FOB Destination
Jan. 3 Jan. 1 Jan. 4 6,000 FOB Shipping Point

S A L E S C U T O F F
Merchandise Invoice
Entry Shipment Price Remarks
Date Date
Dec. 27 Dec. 27 P6,400 FOB Destination
Dec. 28 Dec. 28 9,000 FOB Seller (goods still in transit as of Dec. 31)
Dec. 29 Dec. 28 4,000 On consignment
Dec. 30 Dec. 29 3,900 FOB Shipping Point (goods still in transit as of
Dec. 31)
Dec. 30 Dec. 30 6,000 Under “Sale with repurchase agreement”, where
right of resale is with the buyer and the buyer
has a significant economic incentive to exercise
such right
Jan. 2 Dec. 30 6,500 FOB Seller (goods still in transit as of Dec. 31)
Jan. 2 Dec. 30 5,400 FOB Destination (goods still in transit as of
Dec. 31)
Jan. 3 Jan. 2 8,000 Bill and hold agreement executed in December

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AUDITING
ReSA Batch 45 - May 2023 CPALE Batch
22 Apr 2023  11:45 AM to 02:45 PM AUD Final Pre-Board Exam
Additional audit notes:
a. All sales were made at 40% gross profit based on sales.
b. Inventories amounting to P234,500 were physically counted on December 29.
As such all goods received on or before December 29 were included in the
amount while all deliveries on or before December 29 were excluded from
the amount.
c. Unadjusted trade receivable and payable balances were P193,400 and
P124,800, respectively.
Requirements:
52. What is the adjusted balance of inventories?
a. 236,400 c. 240,400
b. 263,400 d. 252,400

53. What is the adjusted balance of trade receivables?

a. 179,900 c. 205,900
b. 197,900 d. 194,900

54. What is the adjusted balance of trade payables?

a. 125,900 c. 121,900
b. 131,900 d. 118,900

55. What is the net effect of the errors noted in the cut-off procedures to the net
income?
a. 9,000 c. 8,200
b. 7,100 d. 9,300

PROBLEM 7: AUDIT OF PPE

In the audit of the books of Snack Corporation for the year 2021, the following items
and information appeared in the Production Machine account of the client:

Date Particulars Debit Credit

01/01 Balance–Machine 1, 2, 3,
and 4 at P180,000 each P 720,000
02/28 Machine 5 396,000
Machine 1 P 6,000
09/01 Machine 6 192,000
12/01 Machine 7 432,000
The Accumulated Depreciation account contained no entries for the year 2021. The
balance on January 1, 2021 per your audit, was as follows:
Machine 1 P168,750
Machine 2 78,750
Machine 3 67,500
Machine 4 45,000
Based on your further inquiry and verification, you noted the following:
1. Machine 5 was purchased for cash; it replaced Machine 1, which was sold on this
date for P6,000.

2. Machine 2 was destroyed by the thickness of engine oil used leading to explosion on
December 1, 2021. Machine 7 was to replace Machine 2.

3. Machine 3 was traded in for Machine 6 at an allowance of P24,000; the difference

was paid in cash and charged to Production Machine account.

4. Depreciation rate is recognized at 25% per annum.

QUESTIONS:
Based on the above and the result of your audit, answer the following:
56. The adjusting entry to correct the entry made on the sale of Machine 1 will
include a
a. Debit to Accumulated Depreciation P176,250
b. Debit to Cash P6,000
c. Credit to Production Machine P180,000
d. Credit to Gain on Sale of Machine P5,250

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AUDITING
ReSA Batch 45 - May 2023 CPALE Batch
22 Apr 2023  11:45 AM to 02:45 PM AUD Final Pre-Board Exam
57. The adjusting entry to correct the entry made on the destruction of Machine 2
will include a
a. Debit to Accumulated Depreciation P120,000
b. Debit to Loss on Destruction of Machine P101,250
c. Credit to Production Machine P101,250
d. Credit to Cash P432,000

58. The adjusting entry to correct the entry made on trade-in of Machine 3 will
include a
a. Debit to Accumulated Depreciation P67,500
b. Debit to Loss on Exchange P58,500
c. Credit to Production Machine P67,500
d. Credit to Cash P192,000

59. The total depreciation for the year ended December 31, 2021 is
a. P237,000 c. P233,250
b. P232,500 d. P236,250

60. Which of the following might indicate possible overstatement in depreciation

expense in the prior and current years?
a. The company has many fully depreciated assets that are still in records
as they are still being used by the company.
b. The company experiences excessive recurring losses on retirement of
equipment.
c. The company has large purchases of equipment at the beginning of each
year.
d. The company changed depreciation method from straight-line to the
declining balance method for the current year as a result of a change in
the asset’s use.

PROBLEM 8:
The following audit notes relate to your audit staff’s investigation of your audit
client, Atom Corporation’s various real property acquisition:

a. A real property in Baguio City was acquired in January of 2019 for a total
installment price of P10M. 20% of the amount was paid outright as down-payment
with the balance payable in 4 equal installments every December 31, starting
2019. The prevailing market rate of interest on this date was at 10%. The
company incurred real estate broker’s fees and commission amounting to P160,269
and fees for title guarantee and title searches amounting to P80,000. 40% of the
acquisition cost is attributable to the building which had a 12-year estimated
useful life. This property was readily leased out under operating lease to a
hotel management entity. Atom Corporation has no involvement in running of the
hotel or any decisions made; these decisions are all being undertaken by the
hotel management entity. The property had the following FMV:
Year-end Land Building
2019 6,000,000 4,000,000
2020 6,200,000 3,500,000
2021 6,500,000 3,000,000
b. Another real property in Quezon City was acquired in January 2020 in exchange of
a non-monetary asset with a fair market value of P6.5M on the exchange date. The
company received P1.1M cash as a result of the exchange with was considered with
commercial substance. The non-monetary asset had a carrying value in Atom
Corporation books at P6.2M on the date of exchange. 70% of the real estate
acquisition cost is attributed to the building which had a 10-year estimated
useful life. The real estate in Quezon City was readily operated as apartments
for rental which it leased out to tenants under short-term lease. Atom Corporation
is also responsible for providing in-house cleaning services and security
services. It also undertakes to provide internet, telephone and cable services
to the tenants for an additional monthly fee. The additional fee charged for the
services is approximately 20% of the monthly rental. The property was appraised
as follows:
Year-end Land Building
2020 2,000,000 3,800,000
2021 2,000,000 3,500,000

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AUDITING
ReSA Batch 45 - May 2023 CPALE Batch
22 Apr 2023  11:45 AM to 02:45 PM AUD Final Pre-Board Exam
Requirements:
61. Assuming Cost Model is used for the real property in Baguio City, how should the
property be presented in the 2021 Statement of Financial Position?
a. 7,722,000 PPE c. 7,722,000 Investment Property
b. 8,008,000 PPE d. 8,008,000 Investment Property

62. Assuming Fair Market Value Model is used for the real property in Baguio City,
how should the property be presented in the 2021 Statement of Financial Position?
a. 10,000,000 Investment Property c. 9,700,000 PPE
b. 9,500,000 Investment Property d. 9,500,000 PPE

63. Assuming Appraisal Model is used for the real property in Quezon City by the end
of 2021, how much is the amount of revaluation surplus to be reported in the
Shareholders’ Equity Section of the 2021 Statement of Financial Position?
a. None c. 380,000
b. 476,000 d. 856,000

64. Which of the following statements is not typical of property, plant and equipment
as compared to most current asset accounts?
a. A property, plant and equipment cut-off near year-end has more significant
effect on net income
b. Relatively few transactions occur in property, plant and equipment during
the year
c. Auditors normally elect direct substantive testing rather than test of
controls in auditing property, plant and equipment accounts.
d. Property, plant and equipment accounts typically has higher peso value.

PROBLEM 9:
The shareholders’ equity section of Kawaguchico Company’s statement of financial
position as of December 31, 2021, is as follows:
Ordinary shares, P100, par value; authorized, 200,000 shares;
issued 40,000 shares P4,000,000
Preference shares, P50 par value; authorized, 100,000 shares;
issued 20,000 shares 1,000,000
Share premium – Ordinary shares 1,800,000
Share premium – Preference shares 600,000
Retained earnings 6,000,000
Total ?
The following transactions occurred during 2022:
Jan. 5 The company issued for P2,350,000, 10,000 ordinary shares and 5,000
preference shares. The company incurred share issue cost at P150,000. The
ordinary shares were currently selling at P140 per share while the
preference shares at P120.
Feb. 16 5,000 preference shares were subscribed at P120 per share.
Mar. 25 2,000 previously unissued ordinary shares were issued in exchange of an
equipment having a fair market value of P500,000.
Apr. 20 Reacquired 4,000 ordinary shares as treasury shares at P720,000.
Jun. 30 The company declared and paid P5 cash dividends to ordinary shares and P10
per share cash dividends to preference shares.
Jul. 1 The company declared a 1 for 4 share split on its ordinary shares. The
prevailing fair value of its ordinary shares is currently at P154 per share
before the split.
Jul. 30 Reissued half of the treasury shares at P39 per share.
Aug. 30 A 15% ordinary stock dividend was declared and issued to ordinary shares.
Market value is currently at P40 per share.
Sep. 16 Collected full payments on 80% of the preference shares subscribed on
February 16.
Dec. 31 The company declared and paid a cash dividend per share of P1.25 and P10
to ordinary shares and preference shares, respectively.
Dec. 31 Adjusted net income for the year is at P3,510,000.

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AUDITING
ReSA Batch 45 - May 2023 CPALE Batch
22 Apr 2023  11:45 AM to 02:45 PM AUD Final Pre-Board Exam
Required:
65. What is the amount credited to the Share Premium – Preference Shares account as
a result of the share issuance on January 5?
a. 540,000 c. 645,000
b. 410,000 d. 455,000

66. The entry to record the reissue of treasury shares on July 30 requires a:
a. Debit to Share premium P48,000
b. Debit to Retained earnings P48,000
c. Debit to Share premium P282,000
d. Debit to Retained earnings P282,000

67. The entry to record the stock dividends on August 30 requires a credit to share
premium at:
a. 1,200,000 c. 750,000
b. 1,192,500 d. 450,000

68. The entry to record cash dividends on December 31 requires a debit to retained
earnings at:
a. 597,500 c. 575,000
b. 577,500 d. 587,500

PROBLEM 10:
You have been engaged to audit the accounts of Ueno Company for the first time in 2022.
The company started operations in 2020. During the audit you discovered the following
information:

Year ending December 31,

2020 2021 2022
a. Unadjusted Net Income P520,000 P580,000 P710,000
b. Unrecorded year-end accrued utilities expense 22,000 19,000 15,000
c. Unrecorded year-end unused office supplies 9,000 7,000
d. Year-end cash advances received for rent to be
earned the following year, recognized as income
upon collection 14,000
e. Ending inventory overstated as a result of over
counting items at year-end. 50,000 40,000
f. Ending inventory understated as a result of wrong
pricing and computational errors 14,000 8,000
g. Delivery of merchandise to customers at year-end
recorded as sales only upon collection the
following year 25,000 22,000
h. Receipt of merchandise from suppliers at year-
end recorded as purchases only upon payment the
following year 12,000 10,000
i. Major repairs on equipment at the beginning of
each year, charged to repairs expense but should
have been capitalized. Annual depreciation is 10%. 240,000

Requirements: Determine the following:

69. 2022 Net income
a. 645,000 c. 390,000
b. 542,000 d. 620,000

70. Retroactive adjustment to the retained earnings beginning 2022?

a. 207,000 credit c. 24,000 credit
b. 87,000 credit d. 120,000 debit

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AUDITING
ReSA Batch 45 - May 2023 CPALE Batch
22 Apr 2023  11:45 AM to 02:45 PM AUD Final Pre-Board Exam

ANSWERS & SOLUTIONS/CLARIFICATIONS

1 B 26 B 51 B
2 C 27 D 52 A
3 C 28 A 53 B
4 B 29 A 54 C
5 D 30 B 55 D
6 A 31 A 56 A
7 D 32 A 57 A
8 A 33 B 58 B
9 D 34 B 59 C
10 C 35 A 60 A
11 B 36 C 61 C
12 C 37 A 62 B
13 D 38 C 63 D
14 A 39 C 64 A
15 A 40 D 65 B
16 B 41 B 66 B
17 D 42 A 67 D
18 C 43 A 68 D
19 B 44 B 69 A
20 B 45 C 70 A
21 A 46 B
22 A 47 B
23 D 48 D
24 A 49 A
25 A 50 D

PROBLEM 1: JAPAN CORP.

36. C.
37. A.
38. C.

Proof of Cash
November Receipt Disbursement December
Unadjusted balance per bank 623,000 2,450,000 2,222,000 851,000
Undeposited Collections - November 210,000 (210,000)
Undeposited Collections - December 109,000 109,000
Outstanding Check - November (135,000) (135,000)
Outstanding Check - December 147,400 (147,400)
Bank error - December, not yet corrected (84,000) 84,000
Adjusted balances 698,000 2,349,000 2,111,400 896,600

Unadjusted balance per books 620,000 2,395,000 2,190,000 825,000

Unrecorded bank credit - November 150,000 (150,000)
Unrecorde bank credit - December 59,000 59,000
NSF check - November; Redeposited in December (45,000) 45,000
Unrecorded bank debit - December (Bank service charge) 5,400 (5,400)
Error - November, Corrected - December (27,000) (27,000)
Error - December, Not yet corrected (18,000) 18,000
Adjusted balances 698,000 2,349,000 2,150,400 896,600
- -

PROBLEM 2: HOKKAIDO CORPORATION

39. C.
Total reported sales 68,000,000
Allocation of consideration received/recievable:
Main good (Credited to Sales) (68,000,000/70,040,000) 97.0874% 66,019,417
Customer Loyatly Award/Credit (2,040,000/70,040,000) 2.9126% 1,980,583
68,000,000
Total points granted (68,000,000/200) 340,000
*Probable exercise/redemption rate 60%
Estimated number of points to be redeemed 204,000 142,800
*FMV of equivalent goods 10
FMV of Customer Loyalty Award Credit/Points 2,040,000

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AUDITING
ReSA Batch 45 - May 2023 CPALE Batch
22 Apr 2023  11:45 AM to 02:45 PM AUD Final Pre-Board Exam

40. D.
Customer Loyalty Award/Credits 1,980,583
Multiply by:
Actual points redeemed/Estimated points to be redeemed
(142,800points/204,000points) 70%
Income from customer loyalty award credit redemptions 1,386,408

41. B.

PROBLEM 3: SAPPORO CO.

42. A.
Accountability:
Petty Cash Fund (Imprest balance) 15,000
Undeposited collections (per records as of Jan. 4) 28,000
Total 43,000
Valid Supports:
Cash Items (as of Jan 4)
Currencies and coins 19,500
Checks
Customer collection checks 8,400
Accomodated check (Ken Ortega) 2,000 29,900
Noncash Items
Unreplenished petty cash expense vouchers 6,300
Accomodated check (Nico Santos) 1,400
Employee IOUs 4,000 11,700 41,600
SHORTAGE 1,400

43. A.
Petty cash fund, imprest balance 15,000
Unreplenished vouchers (as of Dec. 31) (4,500)
Accomodated check (Nico Santos) (1,400)
Employee IOUs (4,000)
Shortage (1,400)
Petty cash fund, adjusted (Dec. 31) 3,700

Alternative Solution:
Cash items as of Jan. 4 29,900
Less: Undeposited collections (28,000)
Petty cash expense vouchers after Dec. 31 1,800
Petty cash fund, adjusted (Dec. 31) 3,700

44. B.
PROBLEM 4: NARA CORP.
Initial Value of the Loan (FMV at 12%)
PV of Principal (5,000,000*0.71178) 3,558,901 0.711780
PV of Interests (500,000*2.401831) 1,200,916 2.401831
4,759,817
45. C.
46. B.
47. B.
Amortization Table Nominal Int. Effective Int. Amortization Balance Allowance for CLCV
January 1, 2021: Initial FMV 4,759,817 4,759,817
December 31, 2021: 500,000 571,178 71,178 4,830,995 4,830,995
December 31, 2022: 500,000 579,719 79,719 4,910,714 100,000 4,810,714
December 31, 2023: 500,000 589,286 89,286 5,000,000
48. D.
CV of Loans + Accrued Interest 5,500,000
PV of new future cash flows at 12% (2 periods)
(6,000,000*0.7971939) 4,783,163 0.7971939
Allowance for Impairment Loss 716,837
Unadjusted allowance balance (100,000*1.12%) 112,000
Bad debt expense/Impairement Loss 604,837

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AUDITING
ReSA Batch 45 - May 2023 CPALE Batch
22 Apr 2023  11:45 AM to 02:45 PM AUD Final Pre-Board Exam

PROBLEM 5: FURANO CORP.

49. A.
50. D.
AB-103 AB-203 AB-303 DE-091 DE-092 DE-093
# of Units 12,300 14,900 10,900 500 780 350
Cost per unit 28 33 22 103 120 210
Estimated Selling Price 40 45 35 150 180 250
Estimated Cost to Sell 15 10 16 45 80 50
NRV per unit 25 35 19 105 100 200
Lower of cost or NRV, Individual Basis 25 33 19 103 100 200
Lower of cost or NRV, Individual Basis 307,500 491,700 207,100 51,500 78,000 70,000 1,205,800 per audit

AB-103 AB-203 AB-303 DE-091 DE-092 DE-093

# of Units 12,300 14,900 10,900 500 780 350
Cost per unit 28 33 22 103 120 210
Total Cost 344,400 491,700 239,800 51,500 93,600 73,500
Total Cost 1,075,900 218,600
Estimated Selling Price 40 45 35 150 180 250
Estimated Cost to Sell 15 10 16 45 80 50
NRV per unit 25 35 19 105 100 200
Total NRV 307,500 521,500 207,100 52,500 78,000 70,000
Total NRV 1,036,100 200,500
Lower of cost or NRV, Group Basis 1,036,100 200,500 1,236,600 per books
30,800 Inventory overstatment
Net Income overstatement
51. B.
PROBLEM 6: OTAKO CORP.
52. A.
53. B.
54. C.
55. D.
Inventories Receivables Payable Net Income
Unadjusted balances 234,500 193,400 124,800
Purchases cut-off
Goods on consignment (4,400) (4,400) -
Dec. purchase received after Dec. 29 1,900 1,900
Dec. purchase in transit FOB SP 3,900 3,900
Purchase in transit FOB Buyer (4,200) 4,200
Dec. purchase in transit FOB Seller 3,300 3,300
Jan. purchase recorded in Dec. (2,200) 2,200
Dec. Bill and Hold agreement recorded in January 3,500 3,500 -
Dec. purchase recorded in Jan.; Goods received on Dec. 29 4,400 (4,400)
Sales Cut-off
Goods on consignment; Goods delivered before Dec. 29 2,400 (4,000) (1,600)
Sale with repurchase agreement (buyer has sign. econ. Incentive) (6,000) (6,000)
Dec. Sale in transit FOB Seller; Goods delivered on Dec. 30 (3,900) 6,500 2,600
Bill and hold agreement (4,800) 8,000 3,200
ADJUSTED BALANCES 236,400 197,900 121,900 9,300
PROBLEM 6: SNACK CORPORATION
56. A.
Entry Made:
Cash 6,000
Production Machine 6,000

Correct Entry
Cash 6,000
Accum. Depr. (168,750+(180,000*25%*2/12)) 176,250
Production Machine 180,000
Gain on sale 2,250

Adjusting Entry:
Accum Depr 176,250
Production Machine 174,000
Gain on sale 2,250

57. A.
Entry Made:
No entry

Correct Entry:
Impairment loss 60,000
Accum. Depr. (78,750+(180,000*25%*11/12) 120,000
Production Machine 180,000

Adjusting Entry:
Impairment loss 60,000
Accum. Depr. (78,750+(180,000*25%*11/12) 120,000
Production Machine 180,000

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AUDITING
ReSA Batch 45 - May 2023 CPALE Batch
22 Apr 2023  11:45 AM to 02:45 PM AUD Final Pre-Board Exam
58. B.
Entry Made:
Production Machine 192,000
Cash 192,000

Correct Entry:
Produciton Machine (192,000+24,000) 216,000
Accum. Depr. (67,500+(180,000*25%*8/12) 97,500
Loss on trade-in 58,500
Production Machine 180,000
Cash 192,000

Adjusting Entry:
Produciton Machine 24,000
Accum. Depr. (67,500+(180,000*25%*8/12) 97,500
Loss on trade-in 58,500
Production Machine 180,000

59. C.
Machine 1: 180,000*25%*2/12 7,500
Machine 2: 180,000*25%*11/12 41,250
Machine 3:180,000*25%*8/12 30,000
Machine 4: 180,000*25% 45,000
Machine 5: 396,000*25%*10/12 82,500
Machine 6: 216,000*25%*4/12 18,000
Machine 7: 432,000*25%*1/12 9,000
Total Depreciation Expense 233,250

60. A.
PROBLEM 8: ATOM CORPORATION
Acquisition cost:
Down payment (10M*20%) 2,000,000
Balance: (2M*3.168865) 6,339,731 0.683013 3.169865
Total 8,339,731
Directly attributable costs:
Brokers' fees and commissions 160,269
Fee for title guarantee 80,000
Total Initial Cost 8,580,000
Although the property is used as a hotel by the lessee, entity A uses the property to earn rentals,
and so the property meets the definition of ‘investment property’.

61. C.
Under Cost Model
Land (60%*8,580,000) 5,148,000
Building (40%*8,580,000)*11/12 3,146,000
Carrying Value, 12/31/2019 8,294,000

Land (60%*8,580,000) 5,148,000

Building (40%*8,580,000)*10/12 2,860,000
Carrying Value, 12/31/2020 8,008,000

Land (60%*8,580,000) 5,148,000

Building (40%*8,580,000)*9/12 2,574,000
Carrying Value, 12/31/2021 7,722,000

62. B.
Under FMV Model Land Building Total
2019 6,000,000 4,000,000 10,000,000
2020 6,200,000 3,500,000 9,700,000
2021 6,500,000 3,000,000 9,500,000

Acquisition Cost
FMV of non-monetary asset given up 6,500,000
Less: Cash received - 1,100,000
FMV of real property received 5,400,000
The entity provides ancillary services to the tenants other than the right to use the property.
The value of these services represents around 20% of the rental income. Therefore, these services cannot be
viewed as insignificant. The property is classified as property, plant and equipment in the financial statements of the entity.

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AUDITING
ReSA Batch 45 - May 2023 CPALE Batch
22 Apr 2023  11:45 AM to 02:45 PM AUD Final Pre-Board Exam
Under Cost Model
Land (30%*5,400,000) 1,620,000
Building (70%*5,400,000)*9/10 3,402,000
Carrying Value, 12/31/2020 5,022,000

Land (30%*5,400,000) 1,620,000

Building (70%*5,400,000)*8/10 3,024,000
Carrying Value, 12/31/2021 4,644,000

63. D. CV FMV Revaluation Surplus

Land (30%*5,400,000) 1,620,000 2,000,000 380,000
Building (70%*5,400,000)*8/10 3,024,000 3,500,000 476,000
Carrying Value, 12/31/2021 4,644,000 856,000

64. A.

PROBLEM 9: KAWAGUCHICO COMPANY

65. B.
Entries:
1/5: Cash, net (2,350,000-150,000) 2,200,000
Ordinary shares (10,000*P100) 1,000,000
Share premium - Ordinary Shares 540,000
Preference shares (5,000*P50) 250,000
Share premium - Preference Shares 410,000
Computation:
Lump sum issue price 2,200,000
Ordinary Shares (10,000*140) 1,400,000 70% 1,540,000 1,540,000
Preference Shares (5,000*120) 600,000 30% 660,000
2,000,000

2/16: Subscription receivable 600,000

Preference share subscribed 250,000
Share premium - Preference 350,000

3/25: Equipment 500,000

Ordinary shares 200,000
Share premium - Ordinary 300,000

4/20: Treasury shares - Ordinary 720,000

Cash 720,000

6/30: Retained earnings 540,000

Cash dividends payable/Cash 540,000
Ordinary Preference
January, balance 40,000 20,000
Jan. 5 issuance 10,000 5,000
Feb. 16 subscription 5,000
Mar. 25 issuance 2,000
Apr. 20 treasury (4,000)
Outstanding and subscribed 48,000 30,000
Cash dividends 5.00 10
Total cash dividends 240,000 300,000 540,000

7/1: Memo: From 52,000 ordinary shares issued to 208,000 ordinary shares issued; From P100 par to P25 par value per share.
From 4,000 treasury shares to 16,000 treasury shares; From P180 cost per share to P45 cost per share

66. B.
7/30: Cash (8,000*39) 312,000
Retained earnings 48,000
Treasury shares 360,000

67. D.
8/30: Retained earnings (200,000*15%*P40) 1,200,000
Share div. payable/Ordinary shares 750,000
Share premium 450,000
Jun 30 Outstanding Ordinary 192,000
Jul 30 Reissue treasury shares 8,000
Aug. 30 Outstanding Ordinary 200,000

9/16: Cash (5,000*P120*80%) 480,000

Subcription receivable 480,000

Preference shares subscribed 200,000

Preference shares 200,000
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 lOMoARcPSD|46124491

AUDITING
ReSA Batch 45 - May 2023 CPALE Batch
22 Apr 2023  11:45 AM to 02:45 PM AUD Final Pre-Board Exam
68. D.
12/31: Retained earnings 587,500
Cash dividends payable/Cash 587,500
Ordinary Preference
Jun 30 Outstanding and Subs. 192,000 30,000
Jul 30 Reissue treasury shares 8,000
Aug 30 Stock dividends 30,000
Dec 31 Outstanding and Subs 230,000 30,000
Cash dividends 1.25 10.00
Total cash dividends 287,500 300,000 587,500

12/31: Income summary 3,510,000

Retained earnings 3,510,000

PROBLEM 10: UENO COMPANY

69. A.
70. A.
2018 NI 2019 NI 2020 NI 2020 RE, beg
A. Unadjusted balances 520,000 580,000 710,000
B. Unrecorded accrued expenses, 2018 (22,000) 22,000
Unrecorded accrued expenses, 2019 (19,000) 19,000 (19,000)
Unrecorded accrued expenses, 2020 (15,000)
C. Unrecored unused supplies, 2018 9,000 (9,000)
Unrecored unused supplies, 2020 7,000
D. Unrecorded unearned income, 2019 (14,000) 14,000 (14,000)
E. Ending Inventory, over 2018 (50,000) 50,000
Ending Inventory, over 2020 (40,000)
F. Ending Inventory, under 2019 14,000 (14,000) 14,000
Ending Invenotry, under 2020 8,000
G. AR/Sales, under 2018 25,000 (25,000)
AR/Sales, under 2019 22,000 (22,000) 22,000
H. AP/Purchases, under 2019 (12,000) 12,000 (12,000)
AP/Purchases, under 2020 (10,000)
I. Equipment, under/Expense, over per year 240,000 240,000
Depr Expense, under (2019 Equipment) (24,000) (24,000) (24,000)
ADJUSTED BAL./EFFECT OF ERRORS 482,000 825,000 645,000 207,000

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