Auditing Problems - Removal

Multiple Choice
Identify the choice that best completes the statement or answers the question. Strictly, no erasures. Use permanent black ink on
final answers and write your answers in capslock. To pass the subject, you need at least seven correct answers. I really hope you
could make it. God bless!

WAG SUSUKO CORPORATION is selling audio and video appliances. The companys fiscal year ends on
March 31. The following information relates to the obligations of the company as of March 31, 2015:
Notes payable
WAG SUSUKO has signed several long-term notes with financial institutions. The maturities of these notes
are given below. The total unpaid interest for all of these notes amounts to P340,000 on March 31, 2015.
Due date
April 31, 2015
July 31, 2015
September 1, 2015
February 1, 2016
April 1, 2016 March 31, 2017

Amount
P 600,000
900,000
450,000
450,000
2,700,000
P 5,100,000

Estimated warranties
WAG SUSUKO has a one-year product warranty on some selected items. The estimated warranty liability on
sales made during the 2013 2014 fiscal year and still outstanding as of March 31, 2014, amounted to
P252,000. The warranty costs on sales made from April 1, 2014 to March 31, 2015, are estimated at
P630,000. The actual warranty costs incurred during 2014 2015 fiscal year are as follows:
Warranty claims honored on 2013 2014 sales
P 252,000
Warranty claims honored on 2014 2015 sales
285,000
Total
P 537,000
Trade payables
Accounts payable for supplies, goods, and services purchases on open account amount to P560,000 as of
March 31, 2015.
Dividends
On March 10, 2015, WAG SUSUKOS board of directors declared a cash dividend of P0.30 per common
share and a 10% ordinary share dividend. Both dividends were to be distributed on April 5, 2015 to common
stockholders on record at the close of business on March 31, 2015. As of March 31, 2015, WAG SUSUKO
has 5 million, P2 par value, common shares issued and outstanding.
Bonds payable
WAG SUSUKO issued P5,000,000, 12% bonds, on October 1, 2009 at 96. The bonds will mature on October
1, 2019. Interest is paid semi-annually on October 1 and April 1. WAG SUSUKO uses the straight line
method to amortize bond discount.
Based on the foregoing information, determine the adjusted balances of the following as of March 31, 2015:
1. Estimated warranty payable
a. P252,000
b. P345,000

c.

P882,000

d.

P630,000

2. Bond interest payable

a. P300,000
b. P0
3. Total current liabilities
a. P6,445,000
b. P5,105,000

c.

P150,000

d.

P250,000

c.

P5,445,000

d.

P3,945,000

The following accounts were included in the unadjusted trial balance of MAY PAG-ASA COMPANY as of
December 31, 2013:
Cash
P 240,800
Accounts receivable
563,500
Merchandise inventory
1,512,500
Accounts payable
1,050,250
Accrued expenses
107,750
During your audit, you noted that MAY PAG-ASA held its cash books open after year-end. In addition, your
audit revealed the following:
1. Receipts for January 2014 of P163,650 were recorded in the December 2003 cash receipts book. The
receipts of P90,025 represents cash sales and P73,625 represents collections from customers, net of 5%
cash discounts.
2. Payments to suppliers made on January 2014 of P93,100, on which discounts of P3,100 were taken,
were included in the December 2013 check register.
3. Merchandise inventory is valued at P1,512,500 prior to any adjustments. The following information has
been found relating to certain inventory transactions.
a. Goods valued at P68,750 are on consignment with a customer. These goods are not included in
the P1,512,500 inventory figure.
b. Goods costing P54,375 were received from a vendor on January 4, 2014. The related invoice was
received and recorded on January 6, 2014. The goods were shipped on December 31, 2013, terms
FOB shipping point.
c. Goods costing P159,375 were shipped on December 31, 2013, and were delivered to the customer
on January 3, 2014. The terms of the invoice were FOB shipping point. The goods were included
in the 2013 ending inventory even though the sale was recorded in 2013.
d. A P45,500 shipment of goods to a customer on December 30, terms FOB destination are not
included in the year-end inventory. The goods cost P32,500 and were delivered to the customer
on January 3, 2014. The sale was properly recorded in 2014.
e. The invoice for goods costing P43,750 was received and recorded as a purchase on December 31,
2013. The related goods, shipped FOB destination were received on January 4, 2014, and thus
were not included in the physical inventory.
f. Goods valued at P153,200 are on consignment from a vendor. These goods are not included in the
physical inventory.
Based on the above and the result of your audit, determine the adjusted balances of the following as of
December 31, 2013.
4. Cash
a. 240,800
b.
5. Accounts receivable
a. 641,000
b.
6. Merchandise inventory
a. 1,252,500
b.
7. Accounts payable
a. 1,143,250
b.

170,250

c.

167,150

d.

173,350

727,150

c.

637,125

d.

563,500

1,508,750

c.

1,520,000

d.

1,465,000

1,197,725

c.

1,150,875

d.

1,153,975

8. Working capital
a. 1,158,800

b.

1,055,175

c.

1,058,275

d.

1,000,800

Following is the shareholders equity section of KAKAYANIN COMPANYs balance sheet at December 31,
2014:
Ordinary share, P10 par value; authorized 1,500,000 shares;
issued and outstanding 900,000 shares
P9,000,000
Share premium
750,000
Retained earnings
2,700,000
Total shareholders equity
P12,450,000
Transactions during 2015 and other information relating to the shareholders equity accounts were as follows:
On January 26, KAKAYANIN reacquired 75,000 ordinary shares for P11 per share.
On April 4, KAKAYANIN sold 45,000 shares of its treasury share for P14 per share.
On June 1, KAKAYANIN declared a cash dividend of P1 per share, payable on July 15, 2015 to
shareholders of record on July 1, 2015.
On August 15, each shareholder was issued one share right for each share held to purchase two
additional shares for P12 per share. The rights expire on October 31, 2015.
On September 30, 150,000 share rights were exercised when the market value of the share was
P12.50 per share.
On November 2, KAKAYANIN declared a share split-up and charged the par value of the share from
P10 to P5 per share. On November 20, shares were issued for the share split.
On December 5, 60,000 shares were issued in exchange for a secondhand equipment. It originally
cost P600,000, was carried by the previous owner at a book value of P300,000, and was recently
appraised at P390,000.
Net income before tax for 2015 was P720,000.
Nontaxable income for the year amounted to P40,000 and future deductible amount of P30,000 has
been incurred during the year. Tax rate is 30%.
Based on the above and the result of your audit, determine the following as of December 31, 2015:
9. Ordinary Shares
a. P12,600,000
b. P10,800,000
10. Share Premium
a. P1,485,000
b. P1,575,000
11. Unapproriated retained earnings
a. P2,550,000
b. P2,004,000

c.

P10,050,000

d.

P12,300,000

c.

P3,825,000

d.

P1,275,000

c.

P2,016,000

d.

P2,220,000

Auditing Problems - Removal

Answer Section
MULTIPLE CHOICE
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11.

ANS:
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B
A
C
C
A
B
D
B
D
B
C

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1
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1