Name: Score: /50

Section: Set: A
Subject: ACCTG 410 Date:

Instructions: Encircle the BEST answer for each of the following

questions. Strictly NO ERASURES ALLOWED. Erasures will render your
answers invalid. Solution is REQUIRED. Two (2) points per item. Good
luck and GOD BLESS!

AUDIT CASE No.1

HARLINGTON COMPANY buys and sells securities expecting to earn profits

on short-term differences in price. During 2016, Harlington Company
purchased the following trading securities:
Fair Value
Security Cost Dec. 31, 2016
A P 585,000 P 675,000
B 900,000 486,000
C 1,980,000 2,034,000

Before any adjustments related to these trading securities, Harlington

Company had net income of P2,700,000.

1. What is Harlington’s net income after making any necessary trading

security adjustments?
A. P2,430,000 B. P2,286,000 C. P2,934,000 D. P2,700,000

2. What would Harlington’s net income be if the fair value of security

B were P855,000?
A. P2,601,000 B. P2,799,000 C. P2,700,000 D. P2,655,000

AUDIT CASE No. 2

LABADA CO.’s portfolio of trading securities includes the following on

December 31, 2015:

Cost Fair Value

15,000 ordinary shares of Camias Co. P1,431,000 P1,251,000
30,000 ordinary shares of Ganda Co. 1,638,000 1,710,000
P3,069,000 P2,961,000

All of the above securities have been purchased in 2015. In 2016,

Labada Co. completed the following securities transactions:

Mar. 1 Sold 15,000 shares of Camias Co. ordinary shares at P93, less
brokerage commission of P13,500.
 April 1Bought 1,800 ordinary shares of Waston, Inc. at P135 plus
commission, taxes, and other transaction costs of P4,950.

The Labada Co. portfolio of trading securities appeared as follows on

December 31, 2016:
Cost Fair Value
30,000 ordinary shares of Ganda Co. P1,638,000 P1,740,000 1
1,800 ordinary shares of Waston, Inc. 247,950 225,000 2
P1,885,950 P1,965,000
1
Net of P19,500 estimated transaction costs that would be incurred
on the sale of the securities.
2
Net of P4,500 estimated transaction costs that would be incurred on
the sale of the securities.

3. What amount of unrealized gain on these securities should be reported

in the 2016 income statement?
A. P31,050 B. P79,050 C. P84,000 D. P36,000

4. What is the gain on the sale of Camias Co. ordinary shares on March
1, 2016?
A. P144,000 B. P27,000 C. P130,500 D. P13,500

5. What amount should be reported as trading securities in Labada’s

statement of financial position on December 31, 2016?
A. P1,965,000 B. P1,989,000 C. P1,885,950 D. P1,909,950

AUDIT CASE No. 3

The cost of goods sold section of the section of the statement of

comprehensive income prepared by the accountant of XANDERFORD, INC. in
relation to your audit of its financial statements for the year ended
December 31, 2014 appears below:

Inventory, January 1 P160,000

Purchases 3,200,000
Cost of goods available for sale P3,360,000
Inventory, December 31 (200,000)
Cost of Sales P3,160,000

Audit notes:

1. The inventory balances were based on physical counts conducted on

December 31, of the prior year and current year. No reconciling
items were considered.

2. All purchases were made FOB shipping point.

3. The cut-off procedures at the beginning of the year revealed the

 following information:
a. Invoices totaling P50,000 were entered in the voucher register
in January, but were received in December.
b. December invoices totaling to P26,400 were entered in the
voucher register in December, but the goods were not received
until January.

4. The cut-off procedures at the end of the year revealed the

following information:
a. Sales of P86,000 (cost P25,800) were made on account on
December 31 and the goods were delivered at that time, but all
entries related to the sale was made on January 2.
b. Invoices totaling to P30,000 were entered in the voucher
register in January but the goods were received in December.
c. December invoices at P36,000 were entered in the voucher
register in December, but the goods were not received until
January.
d. Invoices at P24,000 were entered in the voucher register in
January, and the goods were received in January, but the
invoices were dated December.

Required:

6. What is the correct balance of inventory as of December 31, 2014?

A. P286,400 B. P233,600 C. P260,000 D. P236,000

7. What is the adjusted purchases for 2014?

A. P3,150,000 B. 3,304,000 C. P3,180,000 D. P3,204,000

8. What is the correct cost of sales for 2014?

A. P3,104,000 B. 3,130,400 C. P3,106,400 D. P3,180,400

9. What is the effect of the errors to the 2014 net income?

A. P29,600 B. 65,600 C. P145,600 D. P115,600

AUDIT CASE No. 4

On January 1, 2014, CPASOON Company acquired 10% interest in an

investee for P3,000,000. The investment was accounted for using the
cost method.

On January 1, 2015, the entity acquired a further 15% interest in the

investee for P6,750,000. On such date, the carrying amount of the net
assets of the investee was P36,000,000 and the fair value of the 10%
interest was P4,500,000.

The fair value of the net assets of the investee is equal to the
carrying amount except for an equipment whose fair value exceeds
carrying amount by P4,000,000. The equipment has a remaining life of 5
years.
The investee reported net income of P8,000,000 for 2015 and paid
dividend of P5,000,000 on December 31, 2015.

23. What is the gain on remeasurement to equity to be recognized for

2015?
A. P1,500,000 B. P4,500,000 C. P2,250,000 D. -nil-

10. What is the goodwill arising from the acquisition on January 1, 2015?
A. P2,250,000 B. P1,250,000 C. P1,350,000 D. P350,000

11. What is the carrying amount of the investment in associate on

December 31, 2015?
A. P11,250,000 B. P11,800,000 C. P12,000,000 D. 14,300,000

AUDIT CASE No. 5

On January 1, 2016, an entity acquired a 10% interest in an investee for
P3,000,000. The investment was accounted for under the cost method.
During 2016, the investee reported net income of P4,000,000 and paid
dividend of P1,000,000.

On January 1, 2017, the entity acquired a further 15% interest in the

investee for P8,500,000. On such date, the carrying amount of the net
assets of the investee was P36,000,000 and the fair value of the 10%
existing interest was P3,500,000.

The fair value of the net assets of the investee is equal to carrying
amount except for an equipment whose fair value was P4,000,000 greater
than carrying amount. The equipment had a remaining life of 5 years.

The investee reported net income of P8,000,000 for 2017 and paid dividend
of P5,000,000 on December 31, 2017.

12. What amount of investment income should be recognized in 2016?

a. 400,000
b. 100,000
c. 500,000
d. 300,000

13. What is the implied goodwill arising from the acquisition on January
1, 2017?

a. 3,000,000
b. 2,000,000
c. 2,500,000
d. Nil

14. What total amount of income should be recognized by the investor in

2017?

a. 2,000,000
 b. 2,500,000
c. 2,300,000
d. 1,800,000

15. What is the carrying amount of the investment in associate on

December 31, 2017?

a. 12,550,000
b. 12,350,000
c. 11,950,000
d. 12,750,000

Bonus:
Compare Financial Assets at FVPL and Financial Assets at FVOCI. 3 points
What is Equity Method? 2 points
Explain significant influence. 2 points

-END OF EXAMINATION-

You say: “I’m not smart enough.”

God says: I give you wisdom. (1 Cor 1:30)