‘i ReSA (es) The Review School of Accountancy ‘Tel. No. 735-9807 & 734-3989 auprTiNe 14 april 2018 (Saturday) Final Pre-Board Examination 8:00-A.M. — 12:00 A.M. MULTIPLE CHOICE INSTRUCTIONS: Select the correct answer for cach of the following questions. Mark only one answer for each item by shading the box corresponding to the letter of your choice on the sheet provided. STRICTLY NO ERASURES ARE ALLOWED. Use pencil no. 2 only. PROBLEM You were assigned to audit the financial statement of Debbie Corp. on January 15, 2018,. for the year ended December 31, 2017. The general ledger Shows Cash account balance of P1,710,600 as at December 31, 2017. ‘The bank reconciliation prepared by the client's cashier included the following items: Cash per bank statement, December 31, 2017 1,866,800 Notes collected by the bank on Debbie Corp.'s, behalf, recorded in the books in January, 2018 200,000 Interest on notes collected by the bank, recorded in thebooks in January, 2018 40,000 Bank service charge for December, recorded in books in January, 2018 15,000 Outstanding checks, including P43,000 certified by the bank 191,970 Customer ‘check deposited in December and returned’ by the bank with the Decenber bank statement, marked SSE”, redeposited in January 4. No entry made in the books for return and reaeposit. 10,500 Check of Dobie Corp., charged by the bank in error on December 28, 2017; corrected by the bank on vanuary 2, 2018 37,000 Deposit in transit 185,000 From January 2, 2018, to January 15, 2018, the date of your cash count, total debits to cash appearing in the books amounted to 350,000. During the sane period, bank credits amounted to 275,000. The following cash and’ cash items were on hand at the close of business on January 15, 2018: . currency 9,800 Customers’ 12,500 checks Postage stanps 4,000 other exponse 7,600 vouchers Audit notes: a. Disbursement check amounting to P54,000 was recorded in the books in Decomber at P45, 000. b. Check deposit on December 2, amounting to P62,000 vas recorded in December ‘as P26,000. : ©. Check deposit on January 5, 2018, amounting to P24,000 was recorded in the books in January as P42,000. Requirements: 1. What is the correct cash in bank balance as of December 31? a. 1,952,100 cc. 1,939,830 : b. 1,860,830" = d._ 1,934,100ReSA: The Review School of Accountancy Page 3. of 14 c. As per Oscar's reply on customer confirmation request, you discovered that the invoice dated 4/26/2017 is, covered by 2 credit memo for a return made by the said customer. You further discovered that while the credit nemo has been appropriately recorded in the general ledger, the company failed to post the same to the subsidiary ledger. 4. As per Great Taste’s reply on custoner confirmation request, you discovered that the invoice dated 8/3/2017 was erroneously priced at P332 per unit, the correct amount should have been £232 per unit. fe. The estimated bad debt rates below are based on the company’s receivable collection experience: Age of accounts & of Collectibility 0-60 days 988 61 - 120 days 908 121 - 180 days 208 over 180 days 508 Required: 6. What is the correct allowance for bad debt expense for the year ended December 31, 20172 a. 236,188 c. 302,008 b. 258,015 a. 270,723 Assuming that there were no other entries to the allowance for doubtful accounts, what is the correct bad debt expense for the year? a. 164,575, c. 189,468 b. © 241,283 a. 228,575 8. What! it the carrying value of the gonpany’s accounts receivable as of December 31, 20177 ‘a. 2,033,425 c. 1,955,325 b. 2,025,925 ds 2,018,172 9. What is the entry to adjust the unlocated difference? ‘a. None b. DR: Sales P7,500 Accounts Rece:vable P7, 500 Bad debt expense P7, 500 Accounts Receivable P7, 500 Sales P78, 500 cr Accounts Receivable 78,500 10. In auditing the client’s accounts receivable account, the auditor rendered sales cut-off by tracing entries several days before and after the balance sheet date from the client’s sales journal te the supporting documents (sales invoice and delivery teceipt). Tracing the Sales Journal Decenber entries to the supporting documents is in support to which accounts receivable assertion? a. Existence b. Valuation c. Completeness . 4. Presentation and Disclosure PROBLEM 3: As part of your audit of receivables of Constance Merchandising, you performed a cut-off test of sales and purchases. Results of the cut-off tests revealed the following: Sales Cutoff:IR@2/X: Ine Keview dcnool or Accountancy Page 5 of 14 ©. Inventory tags noted during the auditor's observation to items listed in receiving reports and vendors’ Gd. Ttems listed in receiving reports and vendors’ invoices to the inventory listing schedule. PROBLEM 4. In line with your audit of Tammy Corp.'s investment accounts as of December 31, 2017, you ascertained the following information: Investment type cv Per books Investment in bonds 8, 000,000 Investment in stocks 6,200,000 Investment property 3,500,000 Audit notes ‘a. The investment in bonds which shall mature on December 31, 2019were acquired in January 1, 2015 when the prevailing market rate of interest was at 12%. Interest at 108 is collectible from the bonds every December 31. The acquisition was recorded by the client as a debit to Investment in bonds at face value with the ditference between the face value and the total consideration given up to interest income. Interest collected fron 2015 to 2017were appropriately recorded. No other entry relating to the investment was made by the Client. Further investigation revealed that the company business model with regard debt security investment has an objective of collecting contractual cash flows. The prevailing market~. rate of interest was at 118, 98 and 9.5% at the end of 2015, 2016, and 2017respectively. b. The investment in stocks is for 40,000 shares of Telecom Corp.'s ordinary shares acquired in April 1, 2016. The- shares were originally acquired at P145 per share. The book value of the net assets of Telecom Corp. on this date was at P20M and its total outstanding: shares was at 160,000. Telecom's depreciable assets with average remaining life of 10 years were understated on this date. ‘The fair value of Telecom Corp.'s shares were at P15 per share at the end of 2016. The Company recorded the remeasurement (from the acquisition cost to fair value) of the investment at the end of 2016 and recognized the same as unrealized holding gain in the 2017 profit/ioss. The only other entry made by the client related to the investment was the receipt of P2 per share dividend by the end of 2016 and P4 per share dividend in 2017 a dividend Further investigation revealed the following relevant information: Telecom Corp. 2016 2017 Net. income for the year 3,800,000 5,200,000, Foreign exchange loss ~ - 400, 000, oc. t Onrealized holding gain 300, 000 = 0cr Fair value 155 per 169 per share’ share c. The investment property was a building-factory converted on June 30, 2017 as a property for lease since the company decided to discontinue its production segment. The factory was originally acquired at P6M on January 1, 2012 and was depreciated using straight-line method over 'a 10 year useful life. The company elected to use the fair value”ReSA: The Review School of Accountancy Page 7 of 14 30, 2017 at a total installment price of P2.4M payable in 3 equal installments starting June 30, 2018. Prevailing market rate of interest on this date was at 8t, Additional freight and handling costs were paid at P138,322. Requirements: Determine the correct depreciation expenses on the following: 21. What is the depreciation expense for the year on the Building? a. 590,490 c. 777,990 b. 613,490 a. 900,000 22.What is the depreciation expense for the year on the Machinery and equipment? a. 1,452,500 c. 1,525,000 b. 1,572,500 4. 1/515,000 23.What is the depreciation expense for the year on the Furniture and fixture? a. 685,455 ©. 609,081 b. 690,909 d. 824,242 24.What is the gain or loss on the exchange transaction on June 30, 20177 ‘a. 190,000; c.. 130,000 b. 250,000 a. 70,000 25.what is the gain or loss on sale of the furniture and fixture in 2017? = a. 278,723 c. 287,273 bd. 245,454 a. 254,545, The accounting records of Wine Ball Corp. which wae organized in 2016 include only one account for alb intangible assets. The following is a sunmary of the items debited to the said account in 2016 and 2017: Date Particulars Amount, Sul. 1, 2016 Franchise (indefinite terin) 1,260,000 oct. 1 Lease advarice payments (2-year 840, 000, term, starting October 1, 2016) Dec. 31 Net loss for 2016 including incorporation fees, P30,000, and related legal fees of organizing 480,000 the business, P150,000. Jan. 2, 2017 Purchased patent (10 year life), 2,220,000 Mar. Cost of developing a recipe 250,000 apr. Purchased goodwill 8,352,000 oul. Legal fee for’ successful defense of the patent purchased in Jan 1, 379, $00 2017 Audit notes: ‘a. On December 31, 2016, the management estimates that the annual net future cash flows from the franchise’s continued use was at P180,000. on December 31, 2017, this estimate was revised due to decline in product, demand to P150, 000 annually. b. On December 31, 2017, the estimated annual net future cash flows from the patents continued use was. at P337,822 over its remaining life. c. The provailing market rate of interest as of December 31, 2016 and 2017 was consistent at 12%.