p Wid CPA REVIEW SCHOOL OF THE PHILIPPINES = AT Manila AUDITING PROBLEMS CPA Review PROBLEM NO. 1 1h 2009, GREEN CORPORATION acquired a siver mine in Benguet. Because the mine Is located deep in the Benguet mountains, Green was able to ucquire the mine for the low price of 50,000. In 2010, Green constructed a road to the sliver mire costing 95,000,000, Tmprevements and jother developnient costs made in 2010 cost P750,000. Because of the improvements i the mine and the surrounding land, it s estimated that the mine can be sold for P600,000 when the mining activities are compete, i During 2011, fivé bulldings were constructed near the mine site to house the mine workers and their femilies. “The total cost of the five buildings was 1,500,000, Estimated residual value Is P2SC,000. In 2610, geologists estimated 4 milion tons of silver ore could be removed from the. >iine for refining. Dur'ng 2612, the first year of operations, only 5,900 tons of silver ore were removed from the mine. However, in 2013, workers mined 1 million tors of silver, Ouring that same year, geroyists discovered that the mine contained 3 million tons of silver ore in ackdition to the Crigiral 4 million tons, Development costs ot P275,L00 were made to the mine early in 2013 to facilitave the removal of the additional silver, 1 Early in 2013, an additional building was constructed at a cost of P225,000 to house the additionat workers reeded to excavate the added silver. This building is not expected to have. any residual valu >. In 2014, 2.5 million tons of silver were mined and costs of 1,100,000 were incurred at the: beginning of the year for improvements to the mine. Besed on the above an7 the result of your audit, determine the following. (Round off depletion ard depreciation rates to two decimal places.) 1. Depletion for 2012 , A P6,300 BC P6,500 C. P7,250 1D. P5,S50 2. Depletion for 2013 i A. 1,360,000 B. P1,820,C06 €. P780,000 D. 870,000 3. Depreciation for 2013 ‘A. P250,000 8. 490,000 . P180,000 1D, P210,000 ALCL 4. Dep'etion for 2014 ‘A P1,950,000 B. P2,150,000 ©. P2,425,000 ©. P2,275,000 5. Depreciation for 2014 ' ‘A. P525,000 8. 7625; ©. P1,228,000 D. Paso, - sooecenes -000000000- sanenanenciecenewe, 000 PROBLEM NO. 2 In connection wii your audit of the financial statements of ONOR COMPANY ended December 31, 2014, you gathered the following information, 5 te joo 1. The company maintains its current account vit Tsunami Bank. statement December 31, 2014, sowed a balance of P638,340. Haba si ‘Your audit of the company’s acco nt with Tsunami Bank disiosed the following: Page 1 of 14 PagesA check for P22,500 received from a customer whose account is current had been deposited and then retumed by the bunk on December 28, 2014. No entry was made for the retum of this check. The customer replaced the check on January 15, 2015. A 14S @ A check for 5,720 was cleared by the bank as P7,520. The bank made the correction on January 2, 2015. ‘ | fam A check for P3,S00 representing paymerit of an employee aovatce was received and deposited on December 27, 2014, but was not recorded until January 3, 2015. » Post-dated checks toteling P67,300 were included in the deposits in transit. These Fepresent collections of current accounts révelvable from customérs, The checks were actually ceposited on January 5, 2015. _ yet * Verious gebit memos for drafts purchased for payment of imptaton of equipment : totaling P230,0C0 were net yet recorded. ‘These purchases were previously set up as accounts payable. Said equipment arrived in December 2014. Interest earned on the bank balance for the 4° quarter of 2014,|amounting to P1,950 was not recorded. Bank service charges toteling P1,260 were not recorded. + (ete Deposit in transit and outstanding checks at December 31, 2014, totaled P136,250 and 276,380, respectively. Cane) Genet 2. Various expenses from the company’s ‘mprest petty cash fund dated December 2014 totaled P16,250, while those dated January 2015 amounted to P5,902. Another disbursement from the fund dated December 2014 wes a cash advance to an employee pmounting to P3,500. A replenishment of the petty cash fund was made on January 8, 2015. ant, 3 U0 3. The company’s trial balance on December 31, 2024, ircluces the following accounts: ash in bank = Tsunami Bank P 748,320 Cash in bank — Earthquake Bank (restricted account fur plant expansion, expected to be disbursed in 2015) 700,000 Petty cash fund 30,000 Time deposit, placed December 20, 2014, and aue March 20,2015 1,000,000 Money market placement: Prudential Bunk 4,000,000 1. What is the adjusted Petry cash fund balance on’ December 31, 2014? AL 4,347 B, P10,2507 C. 30,000 D. P24,097 2. The petty cash shortage on December 31, 2024, is APO. B, 5,903 C. P3,500 +p. P4347 3. What Is the adjusted Cash in lance on Decethber 31, 2014? A. P500,010.” 8. 748,320 'P432,710 D. P429,110 4. The entry to adjust the Cash in bank - Tsunami Bank account should include a-q6bit to A. Accounts receivable for P89,800. 2 EN eae se sag B, Accounts receivable for P86,300. Be C. Accounts payable for P228,200. an 35010 by po wot OFFSET C, Interest expense for P1,950. « ieee Sed 5. The December 31, 2014, statement of financial position should “Cash and cash equivalents” at PROBLEM NO. :} HIATT TEXTILE OCRPORATION is in the process of cbtaining a loan at City Bank. The bank has requested audited financial statements. Hiztt's finandal statements have never been audited before, It has prepered the following comparative financial statements for the years ended December 31, 2014 and 2013.HIATT TEXTILE CORPORATICN COMPARATIVE STATEMENTS OF FINANCIAL POSITION December 31, 2014 and 2013, 2014 2013 Assets Current assets: Cash and cash equivalents 1,205,000 800,000 Accounts receivabie 1,960,000 1,480,000 : Allowance for bad debts (185,000) (90,009) Inventory 4.935.000 1,020,000 Total current assets 4,015,000 3.200.000 Noncurrent assets: Property, plant, and equipment 835,000 847,500 “Accumulatea depreciation (608,000) $322,002) Total noncurrent assets F —227,000 — 315,500 Total assets 4,242,000 23,515,500 ties ard Shareholders’ Equity P_607,000 B_980,500 Shareholders’ equity: Ordinary shares, P20 par value; 159,090 shares authorized; 65,000 share: issued and outsta. ding 1,300,000 1,300,000 Retained earrings -2:335,000 1.235,000 Total shareholders’ equity 3,635,000 2,838,000 Total liabilities and sharenolders’ equity 4,242,000 23,525,500 HIATT TEXTILE CORPORATION COMPARATIVE INCOME STATEMENTS For the Years Ended December 31, 2014 and 2013 2014 2013 Sales 5,000,000 4,500,000 ‘Cost of goods sold 2,150,000 1,975,000 Gross income * Z218s0,000 2,525,006 Operating expenses: Selling expenses 1,150,000 1,025,000 ‘Administrative expenses "600 000 _'s25,000 Total operating expenses 1,750,600 —1,950,000 Net income P1.100,000 P_975,000 The 2014 aud't revealed the following facts: A on Jenuary §, 2, Ha Ten Corporation had charged a S-year insurance premium to & eee bi The amount of loss due to bac debt: has steady decreased over the Iat"S years. Hiatt '"s ~~ ‘Textile Corporation has decided to reduce "he amount of bad debt expense trom 2% to 1 V4 6 of sales, beginning with 20:4. (A cnerge of 2% has altezdy been madefor 2014) 7% "eT ¢. Hatt Textile Corporaticn uses the pericdic invent em, ing are the inventory errors for the last 2 years, =) fimatehe eee 2013 - Ending inventory overstated by P75,500 '° © Be ses 2014 - Ending inventory overstated by P99,000 "' * : d. An equipment costing P1S0,000 was acquired on January 3, 2013. The purchase was record by a tage operating expecta, The equipment has @ useful fe of 10 years.“ and a residue 25,000. Hiatt le Corporation uses the straight-line method depreciating its assets, ane at 7 oer €. Assume that the books for 2014 nave not yet been closed, Ignore tax implications, AG tees ‘Based on the above information, answor the following: 3 4 The December 31, 2014, adjusting entry to correct the expensing of insurance premiu aid is A. Prepaid insurance 5 18,600 | Insurance expe.ise 1's 6200 | ' Retained earings’; | 24,800 B. Prepaid insurance 18,600 7 Retained earnings 18600 | C. Insurance expense 18,600 Retained eamings . 18,600 1D. Insurance expense 6,200 Retained earnings 6,200 2. The December 31, 2014, adjusting entry to correct the expensing of the equipment Purchased on January 3, 2014, should Include a credit to | A. Accumulated depreciatior—P 12,520, B. Retained earnings—P137,500. C. Equipment—12,500, D. Depreciation expense—P12,500. 3. The December 31, 2614, adjusting entyy to correct the iaventory errors should indude a debit to ‘A. Cost of goods sola—P99,000. B. InventoryP23,500. C. Retained earnings—P75,500. ©, Gost of goods sold—P75,500. 4. What is Hiatt’s correctad net income for the year ended December 31, 2013? 4. P1,912,200 B. P1.212,200 C. F786,500 D. P1,061,800 5. What is Hiatt’s corrected net income for the year ended December 31, 2014? ‘A. P1,095,200 C. P1,082,800 D. P1,107,800 PROBLEM NO. 4 ‘The schedule below shows the account balances of BENEFICIO CORPORATION at the beginning ‘and end of the year ended December 31, 2014: DEEZTS Cash and cash equivalents Investment in trading securities ‘Accounrs receivable Inventories Prepaic insurance Land and building Equipment Discourt on bonds payable ‘Treasury stock (at cost) Cost of gods sold Selling and general expenses Income taxes Unrealized loss on trading securities ? Loss on sale of equipment . oral debits CREDITS ‘Allowance for bad debts Accumulated depreciation ~ Building Accumulated deprecation — Equipment Accounts payable-~ OP @eorv Notes payable - current 1: 70,000 20,000 Miscella wous expenses payable "18,000 + + 8,700 ‘Taxes payable. Ue" -35,000 eu + 10,000 Unearned revenue o "1000 $+ 9/000 Notes aayable ~ iong-term F 40,000 60,000 Bonds payaole - long-term 250,000 250,000 Deferred income tax liability O° 47,000 &wr 53,300 Coniman stock, P2 par 19 of 4 359,400 "+ 200/000 Retained earnings appropriated for, treasury shares. 1 ¢? 5,000 © 10,000 Retained earnings aopropriated Pi Possible building expans’on 38,000 + 23,000 Unappropriated retained earnings 34,600» 112,000 Paid-in capital in excess of par value ' 116,000 """ * 5,000 Sales 898,000 Gain on sale of investment securites : ¢ 2,000 Total credits 2.053.000 p76.000 Additional information: 2) All purchases and sales were on account. b) Equipment with an original cost of P15,000 was sold for P7,000. " . €) Selling and general expenses include the following: ty = Building depreciation 3,750 Equipment depreciation 25,250 Bad debt expense 4,000 interest expense 13,000 yin ) A scmonth note payable for P50,000 was Issued toward the purchase of new equipment. i ” ) The long-term note payable requires the payment of P20,C00 per year plus interest until paid. f) Treasury stock was sold for P1,000 more than their cost." u 9) During the year, a 30% stock dividend was declared and issued. At that time, there were. 100,000 shares of'P2 pa; common stock outstanding. Howe ver, 1,000 of these shares were. held as treasury stock at tne time and were prohibited ‘tom participating in the stock «,, dividend. Marke: price was P10 per share when the stock dividend was declared. ** 9, “87 1) Equipment was overhauled, etending its useful Me, at @ cost of P6,000., The cost was debited to Accumulated Depreciation—Equipment. Bn “er She 1) Beneficio has determinea that its purchases and sales of trading securties Seay ine activities. real Based on the given data, calculate the following: | 1, Net income for 2014 ‘A. P45,000 B. 50,309 C. P43,500 D. P44,000. un (2) Cash dividends declared and paid during 2014 Save) "A. 8,000 B. P52,000 C. 7,460 D. PO al 3.) Proceeds from issuance of common stock in 2014 at Mr isn jh ~ A, P100,600 8. P110,000 C. P210,000 D. P269,400/ 4, Proceeds from sale of trading securities as om ‘A P2€,000 B. P38,000/ c. P42,000 ©. pi4o00 5, Accumulated depreciation of equipment sold a A. 7,000 B. P15,000 c. P8,000 D. 9,000 6, Cash paid for purchase of equipment A, P5C,000 8. P106,000 . P150,000 D. 100,000. 7. Proceeds from sale of treasury stock ‘A. 76,000 B. P5,000 C. P4,000 D, P10,000oyco +> 8. Net casit provided by operating activities A. 45,000 B, 87,000 C. 782,000 9. Net cash used in investing acdvities A. P106,000 B. 99,000 c 61,000 10. Net cash provided by financing activities 4. P188,000 B. P187,000 C P182,000 D. PEE weenennnnnn=====000000200- PROBLEM 5 ‘The following information is besed or a first audit of SAEIL® COMPANY. Tre sleet Tes Te prepared finencial statements for 2017, 2013, or 2C14. During these yer, %e Sts “ae been written off as uncollectible, and the reie o* gross income or sales "as “BmaIres SESE for each of the three years. Prior to January 1, 2012, the client used che agonal method of accourtis fron Jar by 2012, to December 31, 2014, only cash receipts and disbursements Tacos Mes: marares. When sales on account were made, they were sntered in the subsidiary accaurts naw ledger. No general ledger postings have been 1nade since December 34, 2222. As a result of ycur examination, the correct data stown in the table Zelow ars aalave 12/31/14 a2j33/a4 Accuunts receivable balances: Less than one year old PiS,490 FBLn ‘One to two years old 1200 3 Oe Two to three years old a ‘Over three years old ans Tota! accounts receivate i Beso Inventories PASO ‘Accounts payable for inventery purchased P5090 Cash received or accounts receivable in: 2012 2013 Applied to. Current year collections F148,800° P261,800 Accounts of the prior year 13,400 15,000 ‘Accounts of two years prior 809 __4m Total P80 Ee Cash sales PAzZ.000 PRS.200 Cash disbursemants for inventory purchased Pazs.000 Pita Ea = 4. Tha company's sales revenue for the three-year period amourited t> ‘A. P658,200- B. P74,20 C P625,400 D pee 2. What is the company’s total sales revenve for 2013? ‘A. P206,400, B. P183,500 C P288,200 D RSAC 3. The aggregate amount of purchases for the three-year period is ‘A. P131,000 8. P440,000 P434,000 D. Pes. 200 4, What Is the company’s gross profit ratio in exch of the threeyear paring? A. 33.33%. B. 28.35% T. 35.28% DI 5. What is the company's gross profit for each of the three-year periac? 2012 2013 2014 A P60,933 © P68200 = 80.000. B $5,533 60,133 79,000 C 122,400 137,600 «178,800 Dd. 61,200 68,800/ 89,400 jane eowns cones QOCO 20000PROBLEM 6 You have been asked dient records 5; manufacture cf jreccon ots no neh oe Of BABOLS COMPANY, a small tools and wnachines. Your client is interested in buying the busi and arrangements have been made for you to review the accounting records. ae Your examination reveals the following: 1. BABOLS commenced business on April 1, 2011, and has been reporting on a fiscal year ending March 31. The company has never been audited, but the annual statements Prepared by the bookkeeper reflect the following income before closing and bevore deducting income taxes: ‘Year Ended Income. March 31 Before Taxes 2012 P 143,200 i 2013 222/800 i 2014 207,160 i 2. A relatively small number of machines have been shipped on consignment. These transactions have been recorded as ordinary sales and billed as such. On March 31 of each Year, machines billed and in the “ands of consignees ariounted to: 2012 13,000 2013 None 2014 11,180 ‘Sales orice vas determined by adding 30% to cost. Assurre the consigned machines are Sold the following year, 3. On March 30, 2013, two machines were shipped to a custome; on a C.0.D. basis, The sale Wes not entered unl April 5, 2013, when cash was received for P12,200. The machines were not included in the inventory at March 31, 2013. (Tite passed on March 30, 2013.) 4, AI! machines are cold subject to a five-year warranty. It is estimated that the expense ultimately to be incurred in connection with the warranty v ill amount to.¥2 of 1% of sules,. ‘The company has charged an expense account for warranty costs incurred. Sales per books and warranty onsts were: Warranty Expense Year Ended ———for Sates Made In_ March3i —_Saies__ 2012, 203 2014 _Total_ 2012 PTS80,9C0 Hr? P1520 P 1,520 ? 2013 2,020,060 4° 720 P2,620 3,340 2014 3,590,000 "74402" 640 3,240 P3820 7,700 1? 5. Bad debts have been recorded on a direct writeoff basis. Experience of similar enterpnses indicates that losses will approximate ¥4 of 1% of sales. Bad debts written off were: i sles M: 2012 2013 2014 total. 2012 P 1,500 ' P1500 wos 2013 1,600 P:1,040 hy 2,640 53 2014 700 3,600 P 3,400, 7,700 (1885 6. Commissions on sales have been entered when raid. Commissions phyable on March 31 of each year were: F 2012 fy e 2913 - 1,600 Ep 2 BY 2014 22404) EF Hv o 7. A review of th2 corporate minutes reveals the manager is entitled to a bonus of ¥2 of 1% of the income before deducting income taxes and the bonus. The bonuses hava never been recorded or Fic. !- > = x h ee NAS SN See Bt ‘Based on the preceding information, determine the following: 4, Correct sales for the year ended March 31, 2612, ‘A, 1,867,000 8. P1,880,000 P1,8:0,000 1. P1,873,000 2. Comract sales for the yaar ended March 31, 2013, ‘ A, 2,035,209 B. F2,032,200 72,042,200 ©. 2,045,200 3, Correct sales for the year en ‘ed March 31, 2014, A. 5,569,200 B. P3,566,62¢ C. P3,5°8,820 ©, P3,590,009 4, Additional warranty expense for the year ended foes, 2034 A, PL0,133. B, P2434 6,885 D. P17,833 5, Additional baa debt expanse for the yer ended March 31. 2013, AL 2,473, B. P4217 P8917 D. P6858 , Additional commission expense for the year ended March 31, 2014. A, 1,600 8. P2,240 C PH640. D. PE4O 7. Managet’s bonus expense for the year ended March 31, 2014, A, 9902 B. 1,781, C. P2,683 D. P1,149 8, Correct income befcre income tax for tive year ended March 31, 2012, A. P229,841 B. P228,692 C. P125,785, D. P126,417 9. Correct income before inaome tax for tne year ended March 31, 2013. A, P228,692 B. P179,488 C. P125,78S D. P126,417 10. Correct income before income tay for tite year enced March 31, 2014. A, P179,488 B, P229,841 C. P180,390 0. P126,417 s=na===-€00000000- PROBLEM 7 ‘The TGR Company conimencec. operations on January 1, 2010. The company’s machinery ‘account Is shewn below. Date Particulars Debit Creat Balance Jan. 1, 2010 Purchase © PAS7,200 (120,000 © "132,000 409,200 Sept, 30, 2010 Purchase on Instailment Payments from Sept. to Dec. 72,000 481,200 Oct. 3, 2010. Freight and instal'ation 6,000 487, 200 Dec, 31, 2010 Depreciation 97,440 389,760 2011 Installment payn.ents for acquisition on Sept, 30, 201¢ 144,000 533,760 June 30, 2011 Purchase 240,000 773,760 Dec. 31, 2011 Depreciatior. 154,752 619,008 June 30, 2012 Acqulsiticn ~ trade in of old machine 150,000 769,008 Dec. 31,2012 Depreciation 153|802 615,206 Jan. 1, 2013 Sale 71,250 543,956 Dec, 31, 2013 Depreciation 108,791 435,165 Oct. 1, 2014 Sale 24,000 411,165 Dec, 31, 2014 Depreciation 82,233 328,932 The details of the transactions rrs.as foliows; 8) Gn September 30, 2010, a machine was purchased on a oe basis. The list price was 180,000, but 12 payments of P18,000 each were rade by thd company, Only be inonthly paymen's were recorded in he machinery account starting with September 30, 2010, Freight and Installation charges of P6,000 were paid and to the machinery account on October 3, 2010, tors atv yt a aoF Reus |eee ©) On dune 30, 2011, a machine was purchased for 240,000, 2/10, 1/30, and recorded at 'P240,000 when paid for on July 5, 2011, fen ton tene Isa ©) On June 30, 2012, che machine acquired for 157,200 was traded for a larger one having a ‘SS. orice OF 279,000. Allowance of F129,000 vias received on the old machine, the balance (©F the fst price being paid in casi and charged w the machinery account. "few 247 wy 2) On January 3, 2013, the machire acquired on January 1, 2010 with cost of P132,000 was Soi¢ for P75,000. The enst of removal and crating totaled P3,750, SQecS2) O71 Ocnber 4, 2014, the machine purchased on January 1, 2010 was sold for 24,000 cash. ‘Assume a(S-ye3t useful life for TGR Company's machinery. D 1. What 's the total amourt of gain on the sale/trade-in of the machinery acquirea on Janvary 1, 2010? P50 400 B. P40,200 C. 736,450 D. P86,850 ~ 2 What is the adjusted balance of the Machinery account on December 31, 2014? A Read 200 B. P705,C00 C. P700,200 . P703,950 (> Wrets the adjusted balance of the Accumulated depreciation account on December 31, be! 2014? A. PS65,600 B 57,149 ©. P462,240 D. P397,740 DS 4. whats the comect toa Gepreciation provision ‘for the yeers 2010-20147 A 737,400 8. P734,040 C. P728,40 D. P669,540 DS Seep covest the decreciation provision for the years 2010-2014 should include a debt (Cedi) to Retained Earrings A 75,307 61,215 a (P*6,492) P79,707 e P1s,492 (79,707) BD ‘P75,807 PSE,249 -=0——-n--=-000000000--- You have been engaged to audit the financial statements of HABAGAT, INC. for the fiscal ysar ended Dune 30, 2014. “The cost of goods suic section of the income statement prepered by ‘eur dient for the year ended June 30, 2014 appears as follows: Inventory, July 1, 2013 P 75,000 Purchases: 540,000 ‘Goods available for sale 615,000 Inventory, June 30, 2014 405.000 Cost cf goods sold 510.000June 312. 2014 8) Invoices totaling P27,900 were entered i goods nt In the voucher I "ereived In uy, but the invoices fre dated June, tn” ™Ys and the onods were b) une invoices totaling P11,109 were entered in goods were not received until July, *!9 Wu tee cette tees €) Invoices totaling P16,200 (the correspondit Js for which were recelved in June) were entered n the voucher register, July ate) Pe z 0) ‘Sales of P26,400 were made on account on June 30 and the goods were delivered at that time, but all entries relating to the sales were made in July. °°" 1. What Is the adjusted inventory on July 1, 2013? A. PBE,400 B. P94,500 C. P63,600 D. P102,600 2. What is the correct amount of purchases ror te year ended June 30, 2014? AL 584,100 B. P592,200 C. 559,800 ©. 576,000 3. What is the correct Inventory on June 30, 20147 A. P144,000 8. P132,900 . P116,100 .} P135,900 4. The accounts payable balance 0; June 30, 2014 should be increased by A. P44,100 B. 27,900 C. P27,300 D. PS5,200 5. The correct cost of goods sold for the year ended! June 30, 2014 is ‘A. P537,600 D, P507,300 PROBLEM 9 DONNA MANUFACTURING COMPANY was incorporated on January 3, 2013. |*he company’s financial statements for its first year of operations were not audited by a CPA. You have been ‘engaged ‘to audit Donna’s financial statements for the year ended December 31, 2014. Presented below is Donna's trial balance (partial) on December 31, 2014, Debit Credit Cash P 330,000 Accounts receivable 1,275,000 ‘Allowance for bad debts P 15,000 Inventories Nees 1,155,000 Machinery 2,250,000 Equiament han "870,000 Accumulated depreciation 300,000 Patents (Information 1) 2 ot 2,550,000 Leasehold improvements (Infcrmation 5) 780,000 Prepayments 315,000 Organization costs (Information 6) 870,000 ‘Goodwill (Information 4) 720,000 Licensing Agreement 1 (Information 2 and 3)" 1,500,000 Licensing Agreement 2 (information 2) won 1,170,000 ‘Additional information: 1, Patents for Donna's manufacturing process were acquirea January 2, 2014 at cost 2,040,000. Donna spent an additional P510,000 in December 2014 to Improve mathinery covered by the patents ard induded in the Patents account balance. ‘The patents had a remaining legal life of 17 yeers, | 2. Donna purchased two licensing agreements on January 3, 2013, which were believed at that time to have unlimited useful lives. The balance of Licensing Agreement 2 was reduced by 30,000 for the] advance collection of revenue froin.the agreement. VaR IAE TCA yt eo teatyK A SPAREVIEW SCHOOL OPTHEPHILIPPINGS (CPAR) AWG 3. In December 2013, an explosion caused 2 60% reduction in the expected revenue- Producing value of Licensing Agreement 1. The recoverable amount of Licunsing Agreement 1 was determined tc be P60U,000 at December 31, 2013. 4. The balance in the Goodwill account includes P720,000 pald Oecember 31, 2013 for an Av which it ‘s estimzted will assist in increasing Donna’s sales over a Period of four years following the disbursement, shit. t/pwd. av tight = yt om ele 5. The Leasehcld Improvement arcount includes the “ollowing: . @. 450,000 cost of impiovenents with a total estimated useful life of 12 years, which Donna, es tenant, made to leased premises in January 2013; and "07 ust 'b. movable assembly-line equipment costing P330,000, which was installed in the leased premises in December 2014. ‘'* Donna pai its rent in full during 2014, A {0-year nonrenewable lease was signed January 3, 2013 for the leased building that Donna usec for manufacturing operations. 6. The balance in the Organization Costs account includes pre-operating costs incurred during the organizational period, 1, What is the carrying amount of the Patents on Decembe~ 31, 20147 ‘A. 1,920,000 B, P2,400,000 C. P2,550,000 D. P2,040,000 2. What is the carrying arrount of Licensing agreement 1 on Cecember 32, 2014? ‘A. 1,590,000 F. P600,000 Cc. P900.000 D. P2,100,000 3. Whats the carrying amount of Licensing agreement 2 0 1 Deceinber 31, 2014? ‘A. P2,100,000 B. 91,470,060 C. P6OG,000 D. P1,500,000 ‘4. What is the carrying amount of th2 Lezsehold improvements on December 31, 20147 ‘A. P360,000 B. 780,000 C. P450,000 D. P624,C00 5. The net adjustment to Retained eamings to reflect all the necessary corrections from information 1 to 7 will amount to A. P2,535,000 debit 8. 2,530,000 debit C. 2,535,000 credit D. 2,580,000 crecit PROBLEM 10 LAPAYAT CORPORATION, a client, requests that you compute the appropriate balance of its estimated liability for product warranty account for a statement as of June 30, 2014, Lapayet Corporstion manufactures television components and sells them with a 6-rionth warranty under which defective components willbe replaced without charge. Or. December 31, 2013, Estimated Labilty for Product warranty had a balance of P620,000. By June 30, 2014, ‘this balance had been reduced to P120,400 by debits for estimated nents retumed that had been sold in 2013, eee ‘The corporation started out in 2014 expecting 7% of the peso volume of sales to be returned, However, due to the introduction of new models during the year, this estimated percentage of returns was increased to 10% on May 1. It is assumed that no components sold during a given month are returned in that month. Each component is stamped with a date at time of ssle so that the warranty may Le properly administered. The following table of percentages indicates the likely oettern of safes retums during the 6-month period of the warranty, starkrg witr monsh following the sale of comporerts, nty, starting witn thero oO Bo Month Following Sale Percentage of Total First (rth Betums Bxoected | Third 2 ‘ 20 Fourth through sixth—10% eacy month 20 100% Gross sales of components were as follows for the first six months of 2014: Month Amount ‘Menth Amount Jenuary 4,200,000 April 3,250,000 February 4,700,000 May 2,400,000 March 3,900,000 June 1,800,000 ‘The corporation's waranty also covers the payment of freight cost on defective componente returned and on the new components sent out as replacements, This freight cost runs Approximately 5% of the sales pice of the components retumed. The manufacturing costjof the components is “oughly 70% of the sales price, and the salvage value of returned components averages 1% of their sales price. Retumied components on hand at December 31, 2013, were thus vaived in inventory at 10% of their original sales price. Based on the given information, determine the following: 1. Total estimated returns from the sales made during the first 6 months of 2014 A P1,481,500 8, Pi,651,006 C. 1,424,500 ©. P1,553,500 2. Tota! estimated retums subsequent te June 30, 2014 A. P678,250 B. P648,850 C. P591,850 D./ P615,950 3. Estimated loss ori component replacement (in percentage of sales price) | A. 65% B. 75% C. 70% Dd.) 80% 4. Required Estimated Liability for Procuct Warranty balance at June 30, 2014 A. P301,353 B. P421,753 C. P120,400 D. P77,847 5. Required adjustment to liability account A. 301,353 debit C P421,753 debit B. P391,353 credit D. P421,753 credit stosenensenes ~-~=--200000000- PROBLEM 11, ‘The HVR Company induded the following in its notes receivable as of December 31, 2014: Note receivable frora sale of land 2,640,000 Note receivable from consultation 3,500,000 Note receivable from sale of equipment 4, 390,000 The fallowina transactions during 2014 and other information relate to the company’s notes receceivable: 2) On January 1, 2014, HVR Corapeny sold a tract of land to Triple X Company. The land, purchased 10 years ago, was cerried on HVR’s books at >4,500,000. HVR received a oninterest-bearing note for 2,640,090 from Triple X, The note is due on December 31, 2015, There was no established exchange price tor the lana. The prevailing interest rate for this note on January +, 2014 was 10%, 1 b} On January 1, 2014, HVR Company received a 5%, P3,600,000 promissory note in exchange for the consultation services rendered. The note will mature on December 31, 2016, with interest receivable every December 3.. The ‘air value of the services rendered; Is notreadily determi A January 1,20 ‘The prevalliag rate of interest for a ote of this type was 10% on ©) On January 1, 2014, HVR compa \ ¥ fe ny sold an old equipment with a car ar >, P4, tying amount ‘of mae arrare'2.£71200,000 note. The note bears an interest rate of 4% and Is to be HYP received the mecaiments of P2,420,000 (plus interest cn the outstanding balance). Value for the eon et Payment on Devember 31, 2014. There is no established market 2014, 1¢ equipment. The market interest rate for similar notes was 14% on January 1, fetes Round OfF present value factors to four decimal places and final answers to the nearest - i - What amount of consuttation fee revenue should be recogr ied in 2014? ‘A. 3,600,000 B. 2,705,000 C. P4,047,500 a, 3,452,500 2. What amount should be reported as gain on sale of eau , Ipment? AL 934,800 B, 2,400,000 C. P1,162,700 D. 1,237,300 3. The ainount to be reportad as noncurrent notes receivable on December 31, 2014 Is A. P7,482,200 B. P6L37,300 ©. P5,477,500 D.: P7,877,600 4. The amount to be reported as current nctes receivable on December 31, 2014 is ‘A. P4,800,000 %, P2,400,200 C. P4,404,900 D. 7,440,000 5. How much interest income should be recognized in 2014? AL P974,200 B. P756,000 C. P1,378,700 ©.) P1,160,500 iaeteonennnennnnmenmeneOU0NIO-~=e=— PROBLEM 12 | ‘The following fist of accounts and their balances represents the unadjusted ‘rial balance of ALTER ADO COMPANY at December 31, 2014: Cash 290,900 Equity investments (trading) 600,000 ‘Accounts receivable 690,000 Allowance for doubtful accounts 5,000 Inventory c 547,200 Prepaid rent 360,000 Plant ard eq sipment 1,600,000 ‘Accumulateo depreciation ~ Plant and equipment 147,400 ‘Accounts payable 113,700 Bonds payasle 900,000 ‘Ordinary share capital 1,700,000 Retained earnings 971,800 Sales 2,148,000 ‘Cost of goods sold 1,544,000 Freight-out 110,000 Salaries anc wages expense 320,000 Interest expense 20,400 Rental income 216,000 Niscellaneous expense 8,900 Insurance expense —-A10,500 fet 3 P0,201.900 6,204,200) Additional data: 1. The valance in the Insurance expense account contains the premium costs of three policies:oa a ‘SRAREVIEW SCHOO) OF THE PHALIPPINES (CPAR) _ ARPHT6 Policy i, renaining cost of P25,500. L-year term, taken out on May 1, 2013; = <4" Policy 2, original cost of P72,000, 3-year term, taken out on October 1, 2014; < Policy 3, orginal cost of P13,000, 1-year term, taken out on January 1, 2014. te (On September 30, 2014, Alterado received P216,000 rent from its lessee for eighteen morth leese beginning on that date. ‘The reguiar rate of depreciation is 10% per year. Acquisitions and retirements during & year ae depreciated ay half this rate. There were no purchases during the year. On Dene ber 31, 20:3, tre balance of the Plant and ecuipment account was P2,400,000. t. On December 28, 2014, the bookkeeper incorrectly credited Sales for a receipt on account in the amour t of P100,000. | ‘At December 31, 2014, salaries and wages accrued but unpaid were P4,200,000. Atterado estimates that 1% of sales will become uncollectible. . On August i, 2014, Alterado purchased, as 8 short-term investment, 600 P1,0CG, 7% bonds of Alencog Corp. at pur. The borxds mature on August 1, 2015. Interest payment Gates are July 31 and January 31. (On apr 30, 2014, Alteraco rerited a warehouse for P30,000 per month, paying P360,000 wn advance. What are the adjusted balances of the following accounts on December 31, 20147 Prepad insurance Insurance expense A P 6,000 104,500 8 ° 110,500 c 54,000 56,500 D. 66,009 44,500 1. What is the total depreciation expense for the year ended December 31, 20147 A. Pi20,007 B. P240,000 c. 2200,000 D. 160,000 }. What is the bad debt expense for the yea ended December 31, 20147 A P15,480 B. F25,480 C. P21,480 D. 20,480 . What amount of interest and rent income should be repor'ed in the Income statement for the year ended December 31, 20147 Interest inocine Rental income A P24,500 P 36,000 8 17,50¢ 180,000 c 24,500 180,000 D. 17,500 36,000 5. What adjusting entry is necessary on Levember 31, 2014 for the Prepaid rent account? A. Rent expense 270, Prepaid rent | 270,000 B. Prepaid rent 270,000 Prepaid rent RM | 270,000 C. Prepaid rent 240,000 Rent expense 240,000 D. Rent expense 240,000 Prepaid rent 240,000