Since 1977

AUDITING PROBLEMS OCAMPO/CABARLES/SOLIMAN/OCAMPO

QUIZ NO. 1 SET A OCTOBER 2019

PROBLEM NO.1 PROBLEM NO.2

The following items are included in the PPE section of the Your audit of IWILLSURVIVE COMPANY's property, plant, and
audited statement of financial position of DRUMS CORP. as of equipment disclosed the following adjusted balances at
December 31, 2018: December 31, 2018:
Land P 3,450,000 Debit Credit
Building P13,350,000 Land P 7,500,000
Leasehold improvements P 9,900,000 Buildings 30,000,000
Machinery and Equipment P13,125,000 Accu1nulated depreciation –
Buildings P6,577,500
The following transactions occurred during 2019: Machinery and equipment 22,500,000
1. Land A was acquired for P12,750,000. In connection with Accumulated depreciation -
the acquisition, Drums paid a P765,000 commission to a Machinery and equipment
real estate agent. Costs of P525,000 were incurred to 6,250,000
clear the land. During the course of clearing the land, Delivery equipment 5,750,000
timber and gravel were recovered and sold for P195,000. Accumulated depreciation - 4,230,000
2. Land B an old building was acquired for P7,500,000. On Delivery equipment
the acquisition date, the fair value of the land was
P4,200,000 and the fair value of the building was Depreciation data: Depreciation Method Useful life
P1,800,000. The old building was demolished at a cost of Buildings 150% Declinining bal. 25 years
P615,000 shortly after acquisition. A new building to be Machinery and
used as an owner-occupied property was constructed for Equipment Straight line 10 years
P4,950,000 plus the following costs: Delivery Equipment SYD 4 years
Leasehold
Excavation Fees P570,000 Improvements Straight line -
Architectural design fees P165,000
Building permit fee P 37,500 Transactions during 2019 and other information are as
Imputed interest on funds used during follows:
the construction (stock financing) P127,500 a) On January 2, 2019, IWILLSURVIVE purchased a new
truck for P1,000,000 cash and trade-in of a 2-year-old
The building was completed and occupied on December truck with a cost of P900,000 and a book value of
30, 2019 P270,000. The new truck has a cash price of P1,200,000;
the market-value of the trade-in is not known.
3. Land C was acquired for P9,750,000 with the intention of b) On April 1, 2019, a machine purchased for P575,000 on
selling it within 12months from the date of purchase. April 1, 2014, was stolen. IWILLSURVIVE recovered
4. During December 2019, costs of P1,335,000 were P387,500 from its insurance company.
incurred to improve leased office space. The related lease c) On May 1, 2019, costs of P8,400,000 were incurred to
will terminate on December 31, 2021 and is not expected improve leased office premises. The leasehold
to be renewed. improvements have a useful life of 8 years. The related
5. A group of machines was purchased under a royalty lease terminates on December 31, 2025.
agreement that provides for payment of royalties based d) On July 1, 2019, machinery and equipment were
on units of production for the machines. The invoice price purchased at a total invoice cost of P7,000,000; additional
of the machines was P1,305,000 , freight cost were costs of P125,000 for freight and P625,000 for installation
P49,500, installation costs were P36,000 and royalty were incurred.
payments for 2019 were P262,500 e) IWILLSURVIVE determined that the delivery equipment
comprising the P5,750,000 balance at January 1, 2019,
QUESTIONS: would have been depreciated at a total amount of
Based on the preceding information, determine the balances P900,000 for the year ended December 31, 2019.
of the following PPE items as of December 31, 2019:
1. Land The salvage values of the depreciable assets are immaterial.
a. P24,795,000 c. P23,160,000 The policy of IWILLSURVIVE COMPANY is to compute
b. P25,410,000 d. P22,545,000 depreciation to the nearest month.
QUESTIONS:
2. Buildings Based on -the preceding information, compute the following:
a. P19,815,000 c. P21,322,500 6. Depreciation expense for 2019 on Buildings
b. P19,687,500 d. P21,937,500 a. P1,405,350 c. P1,200,000
b. P 929,700 d. P1,800,000
3. Leasehold improvements
a. P9,900,000 c. P1,335,000 7. Depreciation expense for 2019 on Delivery equipment
b. P0 d. P11,235,000 a. P1,110,000 c. P1,380,000
b. P1,200,000 d. P1,020,000
4. Machinery and Equipment
a. P14,778,000 c. P14,253,000 8. Accumulated depreciation - Buildings, December 31, 2019
b. P14,515,500 d. P14,430,000 a. P7,507,200 c. P7,777,500
b. P7,982,850 d. P8,377,500
5. Land C should be reported in the company's December
31, 2019 statement of financial position under 9. Accumulated depreciation -Machinery and equipment,
a. Property, Plant and Equipment December 31, 2019
b. Inventories a. P8,644,375 c. P8,600,000
c. Non-current assets held for sale b. P8,556,875 d. P8,844,375
d. Investment Property

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EXCEL PROFESSIONAL SERVICES, INC.

10. Accumulated depreciation - Delivery equipment, PROBLEM NO.4

December 31, 2019 During your audit of the records of the Manaoag Corporation
a. P5,430,000 c. P4,710,000 for the year ended December 31, 2019, the following facts
b. P4,620,000 d. P4,800,000 were disclosed:
Raw materials inventory, 1/1/2019 P 720,200
PROBLEM NO.3 Raw materials purchases 5,232,800
The cost goods sold section of the income statement prepared Direct labor 4,900,000
by your client for the year ended December 31 appears as Manufacturing overhead applied
follows: (150% of direct labor) 7,350,000
Finished goods inventory, 1/1/2019 1,240,000
Inventory, January 1 P 200,000 Selling expenses 8,112,800
Purchases 4,000,000 Administrative expenses 7,377,200
Cost of goods available for sale 4,200,000
Inventory, December 31 250,000 Your examination disclosed the following additional
Cost of goods sold P3,950,000 information:
a. Purchases of raw materials
Although the books have been closed, your working paper trial Month Units Unit Price Amount
balance is prepared showing all accounts with activity during Jan. – February 55,000 P17.76 P 976,800
the year. This is the first time your firm has made an March – April 45,000 20.00 900,000
examination. The January 1 and December 31 inventories May – June 25,000 19.60 490,000
appearing above were determined by physical count of the July – August 35,000 20.00 700,000
goods on hand on those dates and no reconciling items were Sept. – October 45,000 20.40 918,000
considered. All purchases are FOB seller. Nov. – Dec. 60,000 20.80 1,248,000
265,000 P5,232,800
In the course of your examination of the inventory cutoff, both
at the beginning and end of the year, you discovered the b. Data with respect to quantities are as follows:
following facts: Explanation Units
Beginning of the Year 1/1/19 12/31/19
1. Invoices totaling P337,500 were entered in the voucher Raw materials 35,000 ?
register in January, but the goods were received during Work in process (80 % completed) - 25,000
December. Finished goods 15,000 40,000
2. December invoices totaling P330,500 were entered in the Sales, 200,000 units
voucher register in December, but goods were not
received until January. c. Raw materials are issued at the beginning of the
manufacturing process. During the year, no returns,
End of the Year spoilage, or wastage occurred. Each unit of finished goods
3. Sales of P1,032,500 (cost of P532,250) were made on contains one unit of raw materials.
account on December 31 and goods delivered at that
time, but all entries relating to the sales were made on d. Inventories are stated at cost as follows:
January 2.  Raw materials – according to the FIFO method
4. Invoices totaling P662,500 were entered in the voucher  Direct labor – at an average rate determined by
register in January, but the goods were received in correlating total direct labor cost with effective
December. production during the period
5. December invoices totaling P450,000 were entered in the  Manufacturing overhead – at an applied rate of 150%
voucher register in December, but the goods were not of direct labor cost
received until January.
6. Invoices totaling P245,000 were entered in the voucher QUESTIONS:
register in January, and the goods were received in Based on the above and the result of your audit, answer the
January, but the invoices were dated December. following:
16. The raw materials inventory as of December 31, 2019 is
QUESTIONS: a. P992,000 c. P 936,000
Based on the preceding information, determine the net b. P888,000 d. P1,040,000
working paper adjustment that should be made for each of the
following accounts: 17. The work in process inventory as of December 31, 2019 is
11. Beginning inventory (debit or credit) a. P1,514,000 c. P1,746,000
a. P 7,000 debit c. P337,500 credit b. P1,496,000 d. P1,776,000
b. P668,000 debit d. P330,500 debit
12. Purchases (debit or credit) 18. The finished goods inventory as of December 31, 2019 is
a. P337,500 credit c. P542,500 debit a. P2,812,000 c. P3,553,130
b. P907,500 debit d. P570,000 debit b. P3,334,000 d. P2,793,600

13. Retained earnings (debit or credit) 19. The cost of goods sold for the year ended December 31,
a. P330,500 credit c. P337,500 debit 2019 is
b. P668,000 debit d. P 7,000 debit a. P14,077,000 c. P16,897,000
b. P14,161,400 d. P13,911,400
14. Accounts receivable (debit or credit)
a. No adjustment c. P500,250 credit 20. An understatement of purchase discount would be
b. P1,032,500 debit d. P1,032,500 credit detected by
a. Verify footings and cross footings of purchases and
15. Sales (debit or credit) disbursement records
a. No adjustment c. P500,250 credit b. Comparing approved purchase orders to receiving
b. P1,032,500 credit d. P1,032,500 debit reports
c. Comparing purchase invoice terms with disbursement
records and checks
d. Verifying the receipt of items ordered and invoiced

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