AUDIT OF ACCOUNTS RECEIVABLE AND RELATED REVENUES

PROBLEM NO. 1

In the audit of BRACKEN COMPANY, the auditor had an appreciation of the following schedule and noted
some comments for possible adjustments:
BRACKEN COMPANY
Accounts Receivable Schedule
31-Dec-17
Customer Balance Current Past Due
56,000.0
1. Love M. Do
56,000.00 - 0
424,000. 172,000.0
2. Strawberry Fields
00 252,000.00 0
350,000. 258,000.0
3. This Boy Company
00 92,000.00 0
374,000. 162,000.0
4. Girl Corporation
00 212,000.00 0
155,000. 155,000.0
5. Ticket To Ride Transport Corp.
00 - 0
148,000. 64,000.0
6. Let It Be Corporation
00 84,000.00 0
9,000.0
7. Hey Jude
0 9,000.00 -
256,000. 176,000.0
8. Get Back Company
00 80,000.00 0
240,000.
9. Yesterday Corporation
00 240,000.00 -
2,012,000.0 1,043,000.0
Totals
0 969,000.00 0

The Accounts Receivable control account balance was determined to be P2,012,000.

The external auditor submitted the following audit comments for possible adjustments:
1. Love M. Do Merchandise found defective; returned by customer on October 31,
2017 for credit, but the credit memo was issued by Beatles only on
January 15, 2018.
2. Strawberry Fields Account is good but usually pays late.
3. This Boy Company
Merchandise worth P160,000 was destroyed while in transit on May
31, 2017, terms FOB Destination. The carrier was billed on June 15,
2017. (See Ticket To Ride Corp. and Yesterday Corp.)

4. Girl Corporation
Customer billed twice in error for P56,800. Balance is collectible.

5. Ticket To Ride Transport Corp. Collected in full on January 31, 2018.

6. Let It Be Corporation
7. Hey Jude
8. Get Back Company
9. Yesterday Corporation
Paid in full on December 30, 2017 but not recorded. Collections
were deposited on January 2, 2018.
Received account confirmation from customer for P65,000.
Investigation revealed an erroneous credit for P56,000. (See Get
Back Company)
Neglected to post P40,000 credit to customers
account.
Customer wants to know reason for receipt of P160,000 credit
memo as their accounts payable balance was P400,000.

REQUIRED:
a. Adjusting entries as of December 31, 2017.
b. Adjusted balance of Accounts Receivable - Trade as of December 31, 2017.

SOLUTION NO. 1

Requirement No. 1

1) Sales returns 56,000

Accounts receivable 56,000

2) None
3) None, this is only misposting. However, the customers' ledger should be adjusted.

4) Sales 56,800
Accounts receivable 56,800

5) Accounts receivable-Nontrade 155,000

Accounts receivable 155,000

6) Cash 148,000
Accounts receivable 148,000

7) None, this is only a misposting. However, the customers' ledger should be adjusted.
8) None, this is only a misposting. However, the customers' ledger should be adjusted.
9) None, this is only a misposting. However, the customers' ledger should be adjusted.

Requirement No. 2

Unadjusted balance 2,012,000

Add (Deduct) adjustments:
No. 1 (56,000)
 No. 4 (56,800)
No. 5 (155,000)
No. 6 (148,000)
Adjusted balance, 12/31/17 1,596,200
PROBLEM NO. 2

The following information is based on the first audit of WOOKI Company.

The client has not prepared financial statements for 2015, 2016, or 2017. During these years, no accounts have
been written off as uncollectible, and the rate of gross profit on sales has remained constant for each of the
three years.
Prior to January 1, 2015, the client used the accrual method of accounting. From January 1, 2015 to December
31, 2017, only cash receipts and disbursements records were maintained. When sales on account were made,
they were entered in the subsidiary accounts receivable ledger. No general ledger postings have been made
since December 31, 2015.

As a result of your examination, the correct data shown below are available:

12/31/2014 12/31/2017
Accounts receivable balances:
Less than one year old 61,600.00 112,800.00
One to two years old 4,800.00 7,200.00
Two to three years old - 3,200.00
Over three years old - 8,800.00

66,400.00 132,000.00

Inventories 146,400.00 124,160.00

Accounts payable for inventory purchased 20,000.00 44,000.00

Cash received on accounts receivable in: 2015 2016 2017

Applied to:
Current year sales 595,200.00 647,200.00 835,200.00
Accounts of the prior year 53,600.00 60,000.00 67,200.00
Accounts of two year prior 2,400.00 1,600.00 8,000.00
Total 651,200.00 708,800.00 910,400.00

Cash sales 68,000.00 104,000.00 124,800.00

Cash disbursements for inventory purchased 750,000.00 728,400.00 581,600.00

REQUIRED:
Based on the above and the result of your audit, compute for the gross profit for the years ended December
31, 2015, 2016 and 2017.

SOLUTION NO. 2

2015 2016 2017 Total

Cash sales 68,000 104,000 124,800 296,800
Sales on account (see computations below) 666,400 721,600 948,000 2,336,000
Total sales 734,400 825,600 1,072,800 2,632,800 100%
Cost of sales 587,520 660,480 858,240 2,106,240 80%
Gross profit 146,880 165,120 214,560 526,560 20%

Computation of total sales from 2015 to 2017 (you may also use "T" account)
Total accounts receivable, 12/31/17 132,000
Total collections from 2015 to 2017 2,270,400
Total 2,402,400
Less total accounts receivable, 12/31/17 66,400
Total sales on account from 2015 to 2017 2,336,000

Computation of total cost of sales from 2015 to 2017 (you may also use "T" account)
Inventories, 12/31/14 146,400
Add purchases for 2015 to 2017
Total accounts payable, 12/31/05 44,000
Total payments for purchases from 2015 to 2017 2,060,000
Total 2,104,000
Less total accounts payable, 12/31/14 20,000 2,084,000
Total goods available for sale 2,230,400
Less inventories, 12/31/17 124,160
Total cost of sales from 2015 to 2017 2,106,240

Note: Since it was mentioned in the problem that the rate of gross profit on sales has remained
 constant for each of the three years, we can compute the GPR from the total sales and cost of sales.

Computation of sales on account for 2015, 2016, and 2017:

Accounts receivable from sales in
2015 2016 2017 Total
Accounts receivable, 12/31/17 3,200 7,200 112,800 123,200
Collections:
2015 595,200 595,200
2016 60,000 647,200 707,200
2017 8,000 67,200 835,200 910,400
Sales on account 666,400 721,600 948,000 2,336,000

Note: Less than one year old = 2017; One to two years old = 2016; Two to three years old = 2015.

AUDIT OF PPE

PROBLEM NO. 1

The Advance Corporation was incorporated on January 2, 2017, but was unable to begin manufacturing
activities until July 1, 2017 because the new factory facilities were not completed until that date.

The Land and Building account at December 31, 2017 follows:

Date Particulars Amount

Jan. 31 Land and building 1,056,000.00
Feb. 28 Cost of removal of old building 75,000.00
May. 2 Partial payment on new construction 630,000.00
May. 2 Legal fees paid 14,700.00
Jun. 1 Second payment on new construction 600,000.00
July. 1 Fire insurance premium 1 year 30,000.00
July. 1 Final payment on new construction 270,000.00
Dec. 31 Asset write-up 500,000.00
3,175,700.00
Dec. 31 Depreciation 2017, at 1% of account balance 31,757.00
3,143,943.00

You were able to gather the following during your audit:

a. To acquire land and building, the company paid P56,000 cash and 10,000 shares of its 9% cumulative
preferred shares, P100 par value per share. The shares were then selling at P110.
b. Legal fees covered the following:
Cost of incorporation 8,750.00
Examination of title covering purchase of the land 4,350.00
Legal work in connection with construction contract 1,600.00
14,700.00

c. Because of a general increase in construction costs after entering into the building contract, the
board of directors increased the value of the building by P500,000, believing such increase is justified
to reflect current market value at the time the building was completed. Retained earnings was credited
for this amount.

d. Estimated useful life of the building is 25 years.

REQUIRED:
1. Prepare the necessary adjusting journal entries as of December 31, 2017.
2. Determine the adjusted balances of the following as of December 31, 2017:
a. Land and building
b. Land
c. Carrying value of building
d. Organization cost, net (presented under Noncurrent
Assets)

SOLUTION NO. 1

1) Land [(10,000 shares x P110) +P98,000] 1,156,000.00

Land and building 1,056,000.00
Additional paid in capital 100,000.00

2) Land 75,000.00
Land and building 75,000.00

3) Organization expenses 8,750.00

Land 4,350.00
Building 1,600.00
Land and building 14,700.00

4) Building 630,000.00
Land and building 630,000.00

5) Building 600,000.00
Land and building 600,000.00

6) Insurance expense (26,000 x 1/2) 15,000.00

 Prepaid insurance 15,000.00
Land and building 30,000.00

7) Building 270,000.00
Land and building 270,000.00

8) Retained earnings 500,000.00

Land and building 500,000.00

Adjusted balances
Land Building
AJE no. 1 1,156,000.00 AJE no. 3 1,600.00
AJE no. 2 75,000.00 AJE no. 4 630,000.00
AJE no. 3 4,350.00 AJE no. 5 600,000.00
AJE no. 7 270,000.00
1,235,350.00 1,501,600.00

9) Land and building 31,757.00

Depreciation expense 1,725.00
Accumulated depreciation 30,032.00

Should be depreciation (1,501,500 / 25 x

6/12) 30,032.00
Recorded depreciation 31,757.00
Overstatement in depreciation expense 1,725.00

Land and building account

Unadjusted balance 3,143,943.00
AJE no. 1 (1,056,000.00)
AJE no. 2 (75,000.00)
AJE no. 3 (14,700.00)
AJE no. 4 (630,000.00)
AJE no. 5 (600,000.00)
AJE no. 6 (30,000.00)
AJE no. 7 (270,000.00)
AJE no. 8 (500,000.00)
AJE no. 9 31,757.00
-

PROBLEM NO. 2
In connection with your audit of the Vice Mining Corporation for the year ended December 31, 2017,
you noted that the company purchased for P11,200,000 mining property estimated to contain
6,500,000 tons of ore. The residual value of the property is P750,000.

Building used in mine operations costs P800,000 and have estimated life of fifteen years with no
residual value. Mine machinery costs P1,600,000 with an estimated residual value P320,000 after its
physical life of 4 years.

Following is the summary of the companys operations for first year of operations.
Tons mined 770,000 tons
Tons sold 640,000 tons
Unit selling price per ton P4.40
Direct labor 580,000
Miscellaneous mining overhead 154,000
Operating expenses (excluding depreciation) 598,000

Inventories are valued on a first-in, first-out basis. Depreciation on the building is to be allocated as
follows: 20% to operating expenses, 80% to production. Depreciation on machinery is chargeable to
production.
QUESTIONS:
Based on the above and the result of your audit, answer the following: (Disregard tax
implications)
1. How much is the depletion for 2017?
a. P768,000 b. P924,000 c. P192,000 d. P1,040,000
2. Total inventoriable depreciation for 2017?
a. P400,000 b. P362,667 c. 391076.92 d. P0
3. How much is the Inventory as of December 31, 2017?
a. P438,000 b. P345,948.05 c. P425,600 d. P418,133
4. How much is the cost of sales for the year ended December 31, 2017?
a. P1,703,128.87 b. P1,753,600 c. P1,702,400 d. P1,672,533
5. How much is the maximum amount that may be declared as dividends at the end of
the companys first year of operations?
a. P1,494,400 b. P1,289,600 c. P1,300,640.36 d. P1,319,467

SOLUTION NO. 2

Question No. 1 - B
Acquisition cost 11,200,000.00
Less residual value 750,000.00
Depletable cost 10,450,000.00
Total estimated reserves 6,500,000
Depletion rate 1.20
Tons mined 770,000
 Depletion for 2017 924,000.00

Question No. 2 - C
Depreciation - Building [(P750,000/6,500,000 tons) x 770,000 tons x 80%] 71,076.92
Depreciation - Machinery [(P1,600,000-P320,000/4] 320,000.00
Total 391,076.92

Question No. 3 - B
Depletion (see no. 1) 924,000.00
Direct labor 580,000.00
Depreciation (see no. 2) 391,076.92
Miscellaneous mining overhead 154,000.00
Total available for sale 2,049,076.92
Divide by tons mined 770,000
Cost per ton 2.66
Unsold tons (800,000 - 640,000) 130,000
Inventory, 12/31/17 345,948.05

Question No. 4 - A
Cost of sales (640,000 tons x P2.66) 1,703,128.87

Question No. 5 - C
Sales (640,000 x P4.4) 2,816,000.00
Less cost of sales (see no. 4) 1,703,128.87
Gross profit 1,112,871.13
Operating expenses (598,000.00)
Depreciation - Building [(P750,000/6,500,000 tons) x 770,000 tons x 20%] 17,769.23
Net income 532,640.36
Realized depletion (640,000 tons x P1.2) 768,000.00
Maximum amount that may be declared as dividends 1,300,640.36

AUDIT OF LIABILITIES

PROBLEM NO. 1
In the audit of the Malaboni Corporations financial statements at December 31, 2015, the chief
accountant of the said corporation provided the following information:
Notes payable:
Arising from purchase of goods 304,000.00
Arising from 5 year-bank loans, on which marketable securities
valued at P1,000,000 have been pledged as security, P500,000 due
on June 30, 2016; P250,000 due on Dec. 31, 2016 750,000.00
Arising from advances by officers, due June 30, 2016 35,000.00
Reserve for general contingencies 56,000.00
Employees income tax withheld 85,000.00
Advances received from customers on purchase orders 45,600.00
Containers deposit 50,000.00
Accounts payable arising from purchase of goods,
net of debit balances of P30,000 170,000.00
Accounts receivable, net of credit balances P40,000 360,000.00
Cash dividends payable 95,000.00
Stock dividends payable 86,400.00
Dividends in arrears on preferred stock, not yet declared 44,000.00
Convertible bonds, due January 31, 2017 1,000,000.00
First mortgage serial bonds, payable in semi-annual installments
of P50,000, due April 1 and October 1 of each year 2,000,000.00
Overdraft with Allied Bank 110,000.00
Cash in bank balance with PNB 390,000.00
Estimated damages to be paid as a result of unsatisfactory
performance on a contract 160,000.00

Estimated expenses on meeting guarantee for service

requirements on merchandise sold 120,000.00
Estimated premiums payable 75,000.00
Deferred revenue 87,000.00
Accrued interest on bonds payable 360,000.00
Common stock warrants outstanding 120,000.00
Common stock options outstanding 210,000.00
Unused letters of credit 400,000.00
Deficiency VAT assessment being contested 500,000.00
Notes receivable discounted 200,000.00

On March 1, 2016, the P400,000 note payable was replaced by an 18-month note for the same
amount. Heats is considering similar action on the P100,000 note payable due on December 31, 2016.
The 2005 financial statements were issued on March 31, 2016.

On December 1, 2015, a former employee filed a lawsuit seeking P200,000 for unlawful dismissal.
Heats attorneys believe that the suit is without merit. No court date has been set.

On January 15, 2016, the BIR assessed Heats an additional income tax of P300,000 for the 2013 tax
year. Heats attorneys and tax accountants have stated that it is likely that the BIR will agree to a
P200,000 settlement.

REQUIRED:
Based on the above and the result of your audit, compute for the following as of December 31, 2015:
1. Total current liabilities
a. P2,500,000 b. P2,100,000 c. P2,300,000 d. P2,400,000
2. Total noncurrent liabilities
a. P3,300,000 b. P2,900,000 c. P3,000,000 d. P3,400,000
3. Total liabilities
a. P5,200,000 b. P5,000,000 c. P5,400,000 d. P5,800,000

SOLUTION NO. 1
Requirement no. 1
Notes payable:
Arising from purchase of goods 304,000.00
Arising from bank loans, on which marketable securities valued
at P1,000,000 have pledged as security, due Dec. 31, 2015 750,000.00
Arising from advances by officers, due June 30, 2015 35,000.00
Employees income tax withheld 85,000.00
Advances received from customers on purchase orders 45,600.00
Containers deposit 50,000.00
Accounts payable arising from purchase of goods (P170,000 + P30,000) 44,000.00
Customers' account with credit balance 40,000.00
Cash dividends payable 95,000.00
Current portion of serial bonds (P50,000 x 2) 86,400.00
Overdraft with Allied Bank 110,000.00
Est. damages to be paid as a result of unsatisfactory performance on a contract 160,000.00
Est. expenses on meeting guarantee for service requirements on
mechandise sold 120,000.00
Estimated premiums payable 75,000.00
Deferred revenue 87,000.00
Accrued interest on bonds payable 360,000.00
Provision - deficiency income tax assessment 120,000.00
TOTAL CURRENT LIABILITIES 2,567,000.00 A

Convertible bonds, due January 31, 2017 1,000,000.00

Noncurrent portion of serial bonds (P2,000,000 - P100,000) 1,900,000.00
TOTAL NONCURRENT LIABILITIES 2,900,000.00 B

TOTAL LIABILITIES (Requirement no. 2) 5,467,000.00 C

PROBLEM NO. 2

In connection with your audit of Terrence Corporations financial statements for the year 2017, you noted the
following liability account balances as of December 31, 2016:

Note payable, bank P 5,600,000 5,450,000.00

Liability under finance lease 430,000 530,000.00
Deferred income taxes 700,000 840,000.00

Transactions during 2017 and other information relating to Terrences liabilities were as follows:

a. The principal amount of the note payable is P5,450,000 and bears interest at 12%. The note is dated April 1,
2016 and is payable in four equal annual installments of P1,362,500 beginning April 1, 2017. The first principal
and interest payment was made on April 1, 2017.

b. The capitalized lease is for a ten-year period beginning December 31, 2014. Equal annual payments of
P100,000 are due on December 31 of each year, and the 14% interest rate implicit in the lease known by
Terrence. The present value at December 31, 2016 of the seven remaining lease payments (due December 31,
2017 through December 31, 2023) discounted at 14% was P530,000.

c. Deferred income taxes are provided in recognition of timing differences between financial and income tax
reporting of depreciation. For the year ended December 31, 2017, depreciation per tax return exceeded book
depreciation by P312,500. Terrences effective income tax rate for 2016 was 32%.

d. On July 1, 2017, Terrence issued for P1,774,000, P2,000,000 face amount of its 10%, P1,000 bonds. The
Bonds were issued to yield 12%. The bonds are dated July 1, 2016 and will mature on July 1, 2026. Interest is
payable annually on July 1. Terrence uses the interest method to amortize bond discount.

QUESTIONS:
Based on the above and the result of your audit, determine the following:
1. Liability under finance lease as of December 31, 2017
a. P381,600 b. P504,200 c. P540,828 d. P530,000
2. Total noncurrent liabilities as of December 31, 2017
a. P5,610,440 b. P5,770,640 c. P5,931,328 d. P5,780,228
3. Current portion of long-term liabilities as of December 31, 2017
a. P1,391,912 b. P1,400,000 c. P1,500,000 d. P1,446,576
4. Accrued interest payable as of December 31, 2017
a. P484,440 b. P432,628 c. P532,628 d. P467,875
5. Total interest expense for the year 2017
a. P512,440 b. P468,068 c. P466,765 d. P521,440

SOLUTION NO. 2
Question No. 1 - B
Liability under capital lease
Balance, 1/1/17 530,000.00
Less principal payment on 12/31/17:
Total payment 100,000.00
Applicable to interest (P530,000 x 14%) 74,200.00 25,800.00
Balance, 12/31/17 504,200.00

Question No. 2 - D
15% Note payable, bank
Balance, 12/31/17 (P5,450,000 - P1,362,500) 4,087,500.00
Less installment due on April 1, 2018 1,362,500.00 2,725,000.00
Liability under capital lease
Balance, 1/1/17 530,000.00
Less principal payment on 12/31/17:
Total payment 100,000.00
Applicable to interest (P530,000 x 14%) 74,200.00 25,800.00
Balance, 12/31/17 504,200.00
Less principal payment due on 12/31/18:
Total payment 100,000.00
Applicable to interest (P504,200 x 14%) 70,588.00 29,412.00 474,788.00
10% bonds payable due 7/1/2026
Carrying value, 7/1/17 1,774,000.00
Add discount amortization:
Effective interest (1,774,000 x 12% x 6/12) 106,440.00
Nominal interest (2,000,000 x 10% x 6/12) 100,000.00 6,440.00 1,780,440.00
Deferred income tax liability 1
Balance, 1/1/17 700,000.00
Provision for deferred income tax (P312,500 x 32%) 100,000.00 800,000.00
Total noncurrent liabilities, 12/31/17 5,780,228.00

Question No. 3 - A
Note payable, bank - due 4/1/18 1,362,500.00
Capital lease liability - principal payment due on 12/31/18 (see no. 2) 29,412.00
 Current portion of long-term liabilities, 12/31/17 1,391,912.00

Question No. 4 - D
Note payable, bank (P4,087,500 x 12% x 9/12) 367,875.00
Bonds payable (P2,000,000 x 10% x 6/12) 100,000.00
Accrued interest payable, 12/31/17 467,875.00

Question No. 5 - C
Note payable, bank
(P5,450,000 x 12% x 3/12) 163,500.00
(P4,087,500 x 12% x 9/12) 122,625.00 286,125.00
Liability under capital lease (see no. 1) 74,200.00
Bonds payable
Nominal (P2,000,000 x 10% x 6/12) 100,000.00
Discount amortization (see no. 2) 6,440.00 106,440.00
Total interest expense for 2017 466,765.00

AUDIT OF SHAREHOLDERS' EQUITY

PROBLEM NO. 1

In connection with the audit of Astig Companys financial statements for the year ended December 31,
2017, your audit senior asked you to analyze the companys stockholders equity section and provide him
with certain figures. The stockholders equity sections of the companys comparative balance sheets as of
December 31, 2017 and 2016 are presented below:

12.31.17 12.31.16

12% Preferred stock, 350,000.00 300,000.00

Common stock, P10* par 1,642,400.00 1,598,400.00
Paid-in capital in excess of par - preferred 53,600.00 36,800.00
Paid-in capital in excess of par - common 257,200.00 235,200.00
Paid-in capital from treasury stock 7,200.00 3,200.00
Retained earnings 1,956,000.00 1,456,000.00
Total stockholders equity P4, 4,266,200.00 3,629,600.00
*Par value after May 31, 2017 stock split.

Courage had 85,000 common stock outstanding as December 31, 2015.

The following stockholders equity transactions were recorded in 2016 and 2017:

2016
May 1 - Sold 7,000 common shares for P24, par value P20.
July 1 - Sold 700 preferred shares for P124, par value P100.

July 31 - Issued an 8% stock dividend on common stock. The market value of common stock was
P30 per share.

Aug. 30 - Declared cash dividends of 12% on preferred stock and P3 per share on common stock.

Dec. 31 - Net income for the year amounted to P1,675,040

2017
Feb. 1 - Sold 2,200 common shares for P30.
May 1 - Sold 600 preferred shares for P128.

May 31 - Issued a 2-for-1 split of common stock. The par value of the common stock was reduced
to P10 per share.

Sep. 1 - Purchased 1,000 common shares for P18 to be held as treasury stock.

Oct. 1 - Declared cash dividends of 12% on preferred stock and P4 per share on common stock.

Nov. 1 - Sold 1,000 shares of treasury stock for P22.

SOLUTION NO. 1

Basic earnings per share for 2016:

Net income for 2016 1,675,040.00
Less preferred stock dividend (300,000 x 12%) 36,000.00
Net income identified with common stock 1,639,040.00
Divide by weighted average number of common shares 193,680.00
 Basic earnings per share 8.46

*Computation of weighted average

No. of shares Mos. o/s Total

Jan. 1 (85,000 x 1.08* x 2**) 183,600.00 12.00 2,203,200.00

May 1 (9,000 x 1.08* x 2**) 15,120.00 8.00 120,960.00
Total 2,324,160.00
Divide by 12.00
Weighted average number of shares for 2016 193,680.00
*Stock dividend issued on 7.31.16
**2-for-1 stock split issued on 5.31.17

Basic earnings per share for 2017

Net income for 2017 (see computation below) 991,520.00
Less preferred stock dividend (see computation below) 39,600.00
Net income identified with common stock 951,920.00
Divide by weighted average number of common shares 163,706.67
Basic earnings per share 5.81

Computation of net income for 2017

Retained earnings, 12/31/17 1,956,000.00
Retained earnings, 12/31/16 1,456,000.00
Increase in retained earnings 500,000.00
Add dividends declared in 2017:
Preferred (P350,000 x 12%) 42,000.00
Common (P1,642,400/P10 = 164,240 - 1,000 treasury shares 652,960.00 694,960.00
 = 163,240 shares x P4)

Net income for 2017 1,194,960.00

**Computation of weighted average

No. of shares Mos. o/s Total

Jan. 1 (79,920 x 2*) 159,840.00 12.00 1,918,080.00

Feb. 1 (2,200 x 2*) 4,400.00 11.00 48,400.00
Sept. 1 (1,000.00) 4.00 (4,000.00)
Nov. 1 1,000.00 2.00 2,000.00
Total 1,964,480.00
Divide by 12.00
Weighted average number of shares for 2017 163,706.67

PROBLEM NO. 2

With your representation, as Managing Partner of the Sy Pee Ey & Co., your firm was engaged in
theaudit of the Altitude Company at the close of the companys first year of operations on December
31, 2017. The company closed its books prior to the time you began your year-end fieldwork.

Your audit and review showed the following stockholders equity accounts in the general
ledger:
Common Stock

8/30/17 CD 550,000.00 01/02/17 CR 6,000,000.00

12/29/17 J 545,000.00

Retained Earnings

12/29/17 J 545,000.00 12/01/17 CR 287,500.00

12/31/17 J 4,000,000.00
 Income Summary

12/31/17 J 26,000.00 12/31/17 J 3,000,000.00

12/31/17 J 4,000,000.00

Based on the other working papers submitted by your audit staff, the following additional
information was forwarded:

From the Articles of Incorporation of Altitude Company:

Authorized capital stock 150,000 shares
Par value per share P100

From the board of directors minutes of meetings, the following resolutions were extracted:
01/02/17 authorized the issuance of 50,000 shares at P120 per share.
08/30/17 authorized the acquisition of 5,000 shares at P110 per share.
12/01/17 authorized the re-issuance of 2,500 treasury shares at P115 per share

12/29/17 Declared a 10% stock dividend, payable January 31, 2018, to stockholders on record as of
January 15, 2018. The market value of the stock on December 29, 2017 was P130 per share.

REQUIRED:
1. Prepare adjusting entries as of December 31, 2017.

2. Based on the above and the result of your audit, determine the adjusted balances of the
following as of December 31, 2017.

A B C D
1. Capital stock 5,995,000 5,545,000 5,000,000 5,475,000
2. APIC 1,012,500 1,000,000 1,155,000 965,000
3. Total retained earnings 3,525,000 3,572,500 3,382,500 3,512,500
4. Treasury stock 250,000 550,000 275,000 -
5. Total stockholders equity 10,012,500 9,215,000 9,737,500 9,262,500

SOLUTION NO. 2

Requirement no. 1
01/02/17 Capital stock [50,000 shares (P120-P100)] 1,000,000
Additional paid-in capital 1,000,000
08/30/17 Treasury stock 550,000
Capital stock 550,000
12-1-2017 Retained earnings 287,500
Treasury stock (2,500 shares x P110) 275,000
APIC from reissuance of treasury stock 12,500
12-29-2017 Retained earnings (P617,500 - P545,000) 72,500
Capital stock 545,000
Stock dividends distributable (4,750 x P100) 75,000
APIC - excess over par value 142,500

Shares issued 50,000

Treasury stock (5,000 -2, 500) (2,500)
Shares outstanding 47,500
Dividend rate (small stock dividend) 10%
Shares to be issued 4,750
Market value per share 130
 Total amount to be charged to RE 617,500
Total par value of stock dividend payable 475,000
APIC - excess over par 142,500

12-31-2017 Retained earnings (2,500 shares x P110) 275,000

Retained earnings appropriated for treasury stock 275,000

Requirement no. 2
Capital stock (P5,995,000-P1,000,000+P550,000-P545,000) 5,000,000 (1) C
Stock dividends distributable 475,000
APIC (P1,000,000+P12,500+P142,500) 1,155,000 (2) C
Retained earnings-appropriated 275,000
Retained earnings (P3,742,500-P287,500-P72,500-P275,000) 3,107,500 (3) C
Total 10,012,500
Treasury stock (P550,000-P275,000) (275,000) (4) C
Total stockholders' equity 9,737,500 (5) C

AUDIT OF INVENTORY
PROBLEM NO. 1
On April 21, 2005, a fire damaged the office and warehouse of Paraaque Company.
The only accounting record saved was the general ledger, from which the trial balance
below was prepared.
Paraaque Company
Trial Balance
31-Mar-05
DEBIT CREDIT DEBIT CREDIT
Cash 180,000.00
Accounts receivable 400,000.00
Inventory, December 31, 2004 750,000.00
Land 350,000.00
Building 1,100,000.00
Accumulated depreciation 413,000.00
Other assets 56,000.00
Accounts payable 237,000.00
Accrued expenses 180,000.00
Common stock, P100 par 1,000,000.00
Retained earnings 520,000.00
Sales 1,350,000.00
Purchases 520,000.00
Operating expenses 344,000.00
Totals 3,700,000.00 3,700,000.00
The following data and information have been gathered:
a. The companys year-end is December 31.
b. An examination of the April bank statement and cancelled checks revealed that
checks written during the period April 1 to 21 totaled P130,000: P57,000 paid to
accounts payable as of March 31, P34,000 for April merchandise purchases, and
P39,000 paid for other expenses. Deposits during the same period amounted to
P129,500, which consisted of receipts on account from customers with the exception
of a P9,500 refund from a vendor for merchandise returned in April.
c. Correspondence with suppliers revealed unrecorded obligations at April 21 of
P106,000 for April merchandise purchases, including P23,000 for shipments in transit
on that date.
d. Customers acknowledged indebtedness of P360,000 at April 21, 2005. It was also
estimated that customers owed another P80,000 that will never be acknowledged or
recovered. Of the acknowledged indebtedness, P6,000 will probably be uncollectible.
e. The insurance company agreed that the fire loss claim should be based on the
assumption that the overall gross profit ratio for the past two years was in effect
during the current year. The companys audited financial statements disclosed the
following information:
2016 2015
Net sales 5,300,000.00 3,900,000.00
Net purchases 2,800,000.00 2,350,000.00
Beginning
inventory 500,000.00 660,000.00
Ending inventory 750,000.00 500,000.00

f. Inventory with a cost of P70,000 was salvaged and sold for P35,000. The balance of
the inventory was a total loss.

QUESTIONS:
Based on the above and the result of your audit, answer the following:
1. How much is the adjusted balance of Accounts Receivable as of April 21, 2005?
a. P400,000 b. P360,000 c. P440,000 d. P354,000
2. How much is the sales for the period January 1 to April 21, 2005?
a. P1,430,000 b. P1,510,000 c. P1,519,500 d. P1,506,000
3. How much is the adjusted balance of Accounts Payable as of April 21, 2005?
a. P286,000 b. P237,000 c. P106,000 d. P343,000
4. How much is the net purchases for the period January 1 to April 21, 2005?
a. P650,500 b. P660,000 c. P673,500 d. P683,000
5. How much is the cost of sales for the period January 1 to April 21, 2005?
a. P786,500 b. P830,500 c. P835,725 d. P828,300
6. How much is the estimated inventory on April 21,
2005?
a. P570,000 b. P623,500 c. P587,775 d. P579,500
7. How much is the estimated inventory fire loss?
a. P579,500 b. P535,000 c. P477,000 d. P512,000

AUDIT OF CASH

PROBLEM NO. 1

You obtained the following information on the current account of Anne Seyo Company during
your examination of its financial statements for the year ended December 31, 2005.

The bank statement on November 30, 2016 showed a balance of P76,500. Among the
bank credits in November was customers note for P25,000 collected for the account of the
company which the company recognized in December among its receipts. Included in the
bank debits were cost of checkbooks amounting to P300 and a P10,000 check which was
charged by the bank in error against Baht Co. account. Also in November you ascertained
that there were deposits in transit amounting to P20,000 and outstanding checks totaling
P42,500.

The bank statement for the month of December showed total credits of P104,000 and total
charges of P51,000. The companys books for December showed total receipts of
P183,900, disbursements of P101,800 and a balance of P121,400. Bank debit memos for
December were: No. 143 for service charges, P400 and No. 145 on a customers returned
check marked DAIF for P6,000.

On December 31, 2005 the company placed with the bank a customers promissory note
with a face value of P30,000 for collection. The company treated this note as part of its
receipts although the bank was able to collect on the note only in January, 2006.
A check for P990 was recorded in the company cash payments books in December as
P9,900.

QUESTIONS:
Based on the application of the necessary audit procedures and appreciation of the above
data, you are to provide the answers to the following:
1. How much is the undeposited collections as of December 31, 2005?
a. P84,900 b. P54,900 c. P44,900 d. P34,900
2. How much is the outstanding checks as of December 31, 2005?
a. P47,990 b. P90,490 c. P99,400 d. P90,790
3. How much is the adjusted cash balance as of November 30, 2005?
a. P54,000 b. P64,000 c. P44,000 d. P39,300
4. How much is the adjusted bank receipts for December?
a. P158,900 b. P128,900 c. P118,900 d. P108,900
5. How much is the adjusted book disbursements for December?
a. P56,490 b. P98,990 c. P107,900 d. P99,290
6. How much is the adjusted cash balance as of December 31, 2005?
a. P156,410 b. P93,910 c. P55,000 d. P48,910

PROBLEM NO. 2

The Cash in Bank account of Dollar Company disclosed a balance of P203,000 as of

December 31, 2005. The bank statement as of December 31, 2005 showed a balance of
P106,000. Upon comparing the bank statement with cash records, the following facts
were developed:

a. The companys account was charged on December 26 for a customers uncollectible

check amounting to P30,000.

b. A two-month, 17% P60,000 customers note dated November 25, discounted on

December 12, was dishonored on December 25, and the bank charged the company
P62,000, which included a protest fee of P2,000.

c. A customers check for P15,400 was entered as P14,500 by both the depositor and
the bank but was later corrected by the bank.

d. Check no. 142 for P12,425 was entered in the cash disbursements journal at
P12,245 and check no. 156 for P3,290 was entered as P32,900.

e. Bank service charges of P1,830 for December were not yet recorded on the books.

f. A bank memo stated that a customers note for P25,000 and interest of P1,000 had
been collected on December 28; and the bank charged P500. (No entry was made on
the books when the note was sent to the bank for collection).

g. Receipts on December 31 for P24,000 were deposited on January 2.

h. The following checks were outstanding on December 31:

No. 123 P3,000 No. 154 P4,000
143 * 2,000 157
6,000
144 7,000 159 7,000
147 3,000 169 5,000
* Certified by the bank in December
i. A deposit of P20,000 was recorded by the bank on December 5, but it should have
been recorded for Dolor Company rather than Dollar Company.

j. Petty cash of P10,000 was included in the Cash in Bank balance.

k. Proceeds from cash sales of P60,000 for December 18 were stolen. The company
expects to recover this amount from the insurance company. The cash receipts were
recorded in the books, but no entry was made for the loss.

l. The December 21 deposit included a check for P20,000 that had been returned on
December 15 marked NSF. Dollar Company had made no entry upon return of the
check. The redeposit of the check on December 21 was recorded in the cash
receipts journal of Dollar Company as a collection on account.

REQUIRED:
Prepare a bank reconciliation and necessary adjusting entries as of December 31, 2005