| _CPAREVEWScH001 OF THE PHLPPINES AP-8605 Me i ‘AUDITING PROBLEMS CPA Review | PROBLEM NO. 1 AOI OF vEsTMENTS | ‘The fllowing Investment in Trading Secures account appears Inthe books of CAP, INC. Rate | Explanation obit Credit Jan 1 Balance 5,349,000 31 Sold Robusta ordinary Ps40,920 Mar. 31 Bought Wilma ordinary 365,000 June 30 Dividend on Bulk ordinary 300,000 Duy 31 Sold Buik ordinary 262,500 ‘Aug. 1 Sold Gudo bonds 675,000 | ‘The audit work papers of the preceding year show that the account balance as of January 1, 2019, consisted of re folowing: Robusta Company ordinary: '30,000 shares, purchased in June 2016, P20 per share. 60,000 shares, purchased in August 2017, PL6 per share. 45,000 shares, purchased in May 2018, P22 per share Wilma Company ordinary: 60,000 shares, purchased In January 2018, P33 per share. Bullk Company ordinary: 3,000 shares, purchased in August 2017, P73, per share (par PL00).. Gudo Company 15% bonds: ‘600 bonds, P1,000 each, purchased in July 2018, at par (Interest dates: February 1 and August 1) ‘Your examination discloses the following: 1) On January 31,2019, 30,000 ordinary shares ofthe Robusta Company purchased in May 2038 were sold for P4920. 2) On March 31, 2019, 15,000 ordinary shares of Wilma Company were purchased at P24.25 per share plus brokerage ee, for P365,000. 3) In June 2019, the Bulk Company paid a 100% ordinary share dividend on ordinary shares. 4) In July 2019, CAP, INC. sold to its president, for P125 per share, 3,000 ordinary shares of Bui Company, for which the president gave his check for P262,500 and a letter In which he ‘agreed to pay the balance upon demand ofthe treasurer ofthe company. 5) On August 1, 2019, CAP, INC, sods Gudo Company 15% bonds at 110 pls acd interest. ij 6) The twa market vale ofthe sete at yearend amounted to 4,500,000, | Page of Pagespana ra ens vedtiont: 1. What the gan on ste of auc Company shares on 31, 20197 APP 300b. PISSO0D C. P1500. 265,500 2. What ste gan on sae of Gudo Company bonds on August, 20157 APO e 'B. 45,000 C. P60,000 D. P75,000 2. The asin err for the sal of Robust Company ordinary shares on nua 31,201, thou ices ‘A. Debit to Lass on sale of trading secutties for P19,080. 8. Credit to Gain on sale of trading securties for P19,080. C. Debit to Cash for P640, 920. . Credit to Investment in trading secuties for P660,000. 4, The December 31, 2019, carrying amount (before market adjustment) of CAP, INC.'s investment in trading secures Is AL P4,233,750 8 P4,343,250 c. P4344,500 D. 4,500,000 53, What amount of unrealized galn should be reported In the Income statement for the year ‘ended December 31, 2019? A. PI55,500 'B. P156,750 c 156,000 D. 266,250 PROBLEM NO, 2 [MAGNOLIA CORP. invested its excess cash in equlty securties during 2018. The business mode! for these investments is to profit from trading on price changes. (0) As of December 31, 2018, the equity Investment portfolio consisted of the following: Investment Quantity Sos Fair Value U, Ine. 41,000 shares $0,000 126,000 Poltand Co. 2,000 shares -240,000«=——252,000 ‘Atabang Comp. 2,000 shares 432000 _360000 Totals Peszo00 = Bz38.000 1, In the December 31, 2018, statement of financial position, what should be reported as ‘arying amount ofthe investments? A. P738,000 B. 690,000 cc. 762,000 D. P810,000 2. In the 2018 income statement, what amount should be reported as unrealized gain or loss? ‘A. Unrealized gain of P24,000 'B. Unrealized loss of P24,000 CC. Unrealized loss of P72,000 D. Unrealized gain of P43, 000 (©) During the year 2019, Magnolia Corp. sold 2,000 shares of Polland Co. for P229,200 and purchased 2,000 more shares of LJ, Inc. and 1,000 shares of Dwarfy Company. On December 31, 2019, Magnola’s equity securities portfolio consisted of the following. Investment Quantity Gast Fair Value Utne. 4000shares 90,000 120,000, yine 2000 shores 198,000 240,000 Dwarty Company 3,000 shares 96,000 72,000 ‘Nabang Cor. 2,000 shares _42.000 _132,000 Totals Beis.009 © 4.000 Page 2 of 6 PagerCeapemaya rae oe eT 3. What s the galn or loss onthe sale of Polland Co, Investment? ‘A. Pl0,800 gain B. P10,800 loss C. P22,800gain —D. P22,800 oss 4. What Is the carrying amount ofthe investments on December 31, 20197 ‘A. 816,000 B, a8e,000 (C. 564,000 D. 492,000 5, What amount of unrealized gain or loss should be reported in the income statement for the year ended December 31, 20197 ‘A. P252,000 unrealized gain’ —C._P216,000 unrealized gain B. 252,000 unrealized ios. P216,000 unrealized loss (© During the year 2020, Magnala sold 3,000 shares of LJ, Inc. for P239,400 and 500 shares, of Dwarfy Company at a loss of Pi6,200, On December 31, 2020, Magnolia’s equity investment portfoio consisted ofthe folowing. Investment Quant Gost FaitVolue Dwerty Company Sooshares 48,000 36,000 ‘Nebang Corp. 2000 shares 432.000 482.000 Totals Pasco = Bazs.o09 6. What shouid be reported as loss on sale of trading secures in 20207 ‘A. 120,600 B. P64, 800 C8 600, , 136,900 77. What amount of unrealized gain or loss should be reported inthe income statement for the year ended December 31, 2020? 'A. 360,000 unrealized gain 1B P360,000 unrealized loss C. 48,000 unrealized gain . P48,000 unrealized iss '8, In the December 31, 2020, statement of nancial positon, what should be reported as ‘anying amount of trading securities? |A. 480,000 . 468,000 528,000 . 540,000 PROBLEM NO. 3 ‘Supporting records of MAYON CORPORATION’: trading securities portfolio show the following debt and equity secures: Security ost Fair Value 400 ordinary shares Concave Co. 254500 243,000 800,000 Tipo Co. 7% bonds 796,500 74,000 1,200,000 Turkey Co. 7 ¥% bonds 1.207500 _1.218 900 Totals Pe2sss0 = 235900 Interest dates on the bonds are January 1 and July 1. Mayon Corporation uses the income ‘approach to record the purchase of bonds with accrued interest. During 2019 and 2020, Mayon ‘completed the folowing transactions related to trading securities: 2019 Jan, 1. Received semiannual interest on Bonds. Assume that the appropriate adjusting entry was made on December 31, 2018 ‘April 1. Sold P600,000 of 7 ¥2% Turkey bonds at 102 plus accrued interest. May 21 Received dividend of P1.25 per share on the Concave ordinary share capital. The ‘dividend had not been recorded on the dedaration date. Page 3006 PagesCeaRmanA =e res Wy 1. Recelved semiannual interest on bonds and then sold the 79% Tipo bonds at 97 Ya. ‘Aug. 15. Purchased 200 shares of Newman, Inc. ordinary share capital at S80 per share plus brokerage fees of PS00. Nov. 1 Purchased P500,000 of 8% Toll Co. bonds at 101 plus accrued interest. Brokerage fees ‘were P1,250, Interest dates are January 1 and July 1. Dec. 31 Market prices of secures were: * Concave ordinary shares, P50 7 ¥49% Turkey bonds 101% {8% Tol bonds 301 "Newman ordinary shares 583.75 2019 Jan, 2. Recorded the receipt of semiannual interest on bonds. Feb, 1 Sold the remaining 7 ¥4% Turkey bonds at 101 plus accrued Interest. (QUESTIONS: 11, What s the total interest and dividend income for 20197 A. 125,165. . PoLAI B P164 416 1. 86,804 2. What amount should be reported as gain onsale of trading secures in 20197 ‘A. P2,550 . P8,550 B. 6,000 D. 3,450 3. What amount of unrealized galn or loss should be reported in the income statement for ‘the year ended December 31, 20197 ‘A. P21,200 unrealized gain B. 21,200 unrealized loss © P6,150 unrealized gain . P6150 unrealized loss 4. What Is the canying amount ofthe remaining trading securties on December 31, 20197 ‘A. 1,481,000, C. P1,473,450 B. P1,450,450 D. 1,452,250 5. What s the los on the sale ofthe remalning Turkey bonds on February 1, 20207 AL P4500 c. 13,500 B. P10,500 D. 750 PROBLEM NO. 4 ‘SANTOL CORP. Invested ts excess cash In non-trading equity securities during 2019. On initial recognition, the entity made an irrevocable election to present is securities at far value through other income (FVOCI). As of December 31, 2019, the company’s securities portfolio consisted ofthe following: Investne Company ‘Shares cast Market Value kelly, Inc. 30,000 450,000, 425,000 oy Corp. 0,000 4,500,000 1,510,000 Yogi Enterprises 60,000 2.160.000 2,300,000 Totals a.ti0.000 a.zas.000 During the year 2020, Santo! sold 60,000 shares of Eloy Corp. for P1,700,000 and purchased 60,000 adaltional shares of Kely, Inc. and 30,000 shares of Kongga Company. Page of PagesPAB MANA ppt oe mers | (On December 31, 2020, Santa's portfolio of nantrading equity secures comprised the flowing: Investee Company ‘shares cos ‘Market Value 450,000 500,000 boa Inc. \ 30,000 i rete cm “oom a teen Sow "Sonn “e000 | og aes eo eee | During the year 2021, Santo sold al the Kelly, Inc. shares for 2,300,000 and 15,000 shares of Kongga Company at 2 loss of PS0,000. On December 31, 2021, Santol's porto of non-trading ‘equity secures consisted ofthe following: i Tovestee Company ‘Shares ost Market Value Yogi externa 60,000 2,160,000 'P4,200,000 | Kongga Company 45,000 260.000 20000 | Totals #Za20.000 Hmm | (QUesTrons: { 1. What total amount should be credited to retained earings as a result of the sale of Eloy ‘Corp. securities n 20202 ‘A P200,000 B. 110,000 c. P90,000, . 20,000 2, ‘What unrealized loss on the remaining financial assets should be reported in the 2020, statement of comprehensive income as component of cther comprehensive income? ‘A. 1,600,000 B. 1,640,000 C. 1,415,000. P1,300,000 3. What cumulative amount of unrealized loss should be reported as component of other ‘comprehensive income in the statement of changes In equity on December 31, 2020? ‘A. Pi,#15,000 —B. 1,300,000—C. P335,000 D, 225,000, ‘What unrealized gain on the remaining fiandal assets should be reported in the 2021, ‘Statement of comprehensive income as component of other comprehensive incame? ‘A. 1,960,000" B. P60,000 C. 3,440,000. 3,500,000 5. What cumulative amount of unrealized gain should be reported as component of other ‘comprehensive income in the statement of changes in equity on December 31, 2021? ‘1,505,000 B. PI,960,000—C. P1,480,000". F3,440,000, 1, Which ofthe following isnot one of the audios primary objectives in an audit of trading securities? ‘A. To determine whether securities are authentic. B. To determine whether securities are the property ofthe cent. C. To determine whether securities actually exist. D. To determine whether securities are property dassifed on the balance sheet date. 2. Which of the folowing Is the least effective aut prooadure regarding the existence _assertion for the secures held by the audtee? ‘A. Examination of paid checks ‘sued in payment of secures purchased. B. Vouching al changes during the year to. documents. C. Simuitaneous count of uid assets. . Confirmation from the austodan. i 3. Which ofthe following isthe most effective audlt procedure for verfiation of dividends ‘eamed on investments in equty secures? PROBLEM NO. 5 1 Page of 6 PagesSPAR MANA ar wa ESTES ‘A. Tracing deposited dividend checks to the cash recelpts book. B. Reconcing the amounts received with published dividend records. . Comparing the amaunts received with preceding year dividends recelved. 1. Recomputing selected extensions and footings of dividend schedules and comparing totals tothe general ledger. 4. Inconfirming with an outside agent, suchas a nancial institution, thatthe agent is holding Investment secuntis in the chen’s name, an audtor most key gathers evidence in support (of managements financial statement assertons of estence ard ‘A. Valuation B. Rights and obligations . Completeness . Presentation and disclosure 5, In establishing the existence and ownership of an investment held by a corporation in the {form of publ traded stock, an aueitor should inspect the securties and ‘A. Obtain vntten representations from management confirming that the secures are ‘ropery classified a tracing secures. ‘Inspect the audited financial statements ofthe Investse company. CC. Confirm the number of shares held by an independent custodian. . Determine thatthe investment Is carried at fr valve. {6 An auditor is most likely to vert the interest eamed on bond investment by ‘A. Verifying the receipt and deposit of interest checks. B. Confirming the bord Interest rate withthe Issuer of the bonds. CC. Recomputing the interest eared on the basis of face amount, Interest rate, and pertod hel. D. Testing controls relevant to cash receipts. 77. Which of the fotowing provides the best form of evidence pertaining to the annual vation of an imesoertin kch he independ autor’ cent owns 2 30% voting interes? Market quotations of the investee compary’s stock. E Gomi er wie beter aeons CC. Historical cost ofthe investee company’s assets, 1D. Audited Fneraal statements of the investee company. 1 ener etn ste si hd eee a be ‘A. Confirmation with individual holders of retired bord. B. Confirmation withthe bond trustee. ‘C. Recomputation of interest expense, intrest payable, and amortization of bond discount premium, . Examination and count of the bonds retired during the year. 9 An auditor who physically examines seaites should insist that a dient representative be present in order to ‘A. Detect fraudulent acts. B. Lend authority tothe sucitor’s directves, C. Coordinate the return of secures to the proper locations, D. Adknowledge tne receipt of securities returned. 10, In testing long-term Investments, an auditor ordinarty would use analytical procedures to ‘ascertain the reasonableness of the Classification betvieen current and noncurrent portfolios. Valuation of marketable equity secures, Existence of unrealizad gains oF losses in the portfolio. Completeness of recurled snvestment income. eopp> Page ot 6 Pages