Professional Documents
Culture Documents
ANSWERS SECTION
A
0
1
1
1
2
1
3
1
0
2
1
2
2
2
3
2
0
3
1
3
2
3
3
3
0
4
1
4
2
4
3
4
0
5
1
5
2
5
3
5
0
6
1
6
2
6
3
6
0
7
1
7
2
7
3
7
0
8
1
8
2
8
3
8
0
9
1
9
2
9
3
9
1
0
2
0
3
0
4
0
PROBLEM 1
You have been engaged to audit the December 31, 2014, financial statements of Dont Panic
Company. Your audit disclosed the following:
Cash in Bank
1. Checks totaling P30,000 in payment of accounts payable were mailed on December 31,
2014, but were not recorded until 2015.
2. Late in December 2014, the bank returned a P4,000 customers check marked NSF but no
entry was made. The check is for Invoice No. 14344 dated December 10, 2014.
3. Cash in bank includes P200,000 restricted for the acquisition of equipment.
4. On December 31, 2014, the bank credited Dont Panic for P1,000,000 in exchange for a 16%
note payable maturing December 31, 2019. Equal principal payments are due December 31
of each year, beginning in 2015. This note is collateralized by a P500,000 tract of land
acquired as a future plant site, which is included in noncurrent investments.
Accounts Receivable
1. Included in accounts receivable is a P35,000 note due on December 31, 2017 from the
president of Dont Panic Company.
2. Dont Panic Company determines the allowance for bad debts by applying certain
percentages to the accounts receivable aging as follows:
Days past invoice date
0-30
31-60
61-90
Over 90
Amount
P396,000
85,000
30,000
20,000
No provision for bad debts has been recorded for the current year.
Inventories
The P250,000 inventory total, which was based on a physical count at December 31, 2014, was
priced at cost. Subsequently, it was determined that the inventory cost was overstated by P50,000.
At December 31, 2014, its net realizable value approximated the adjusted cost.
Mortgage Payable
The mortgage payable requires P300,000 principal payments, plus interest, at the end of each
month. Payments were made on January 31 and February 28, 2015. The balance of this mortgage
was due on June 30, 2015. On March 1, 2015, prior to issuance of the audited financial statements,
Dont Panic Company consummated a noncancelable agreement with the lender to refinance his
mortgage. The new terms require P200,000 annual principal payments plus interest, on February 28
of each year, beginning in 2016.
Presented below are the working balance sheet and working profit and loss statement for Dont
Panic Company:
DONT PANIC COMPANY
Working Balance Sheet
December 31, 2014
CURRENT ASSETS
Cash in bank
Trading securities
Accounts receivable
Allowance for bad debts
Inventories
Prepayments
NON-CURRENT ASSETS
Land held for future plant site
Cash restricted for acquisition of equipment
500,000
500,000
4,400,000
2,500,000
1,500,000
8,400,000
(850,000)
7,550,000
-
Accumulated depreciation
Officer's note receivable
TOTAL ASSETS
300,000
102,600
566,000
(15,250)
250,000
362,800
1,566,150
9,616,150
265,000
35,000
300,000
CURRENT LIABILITIES
Accounts payable
Note payable- current
Mortgage payable- current
Accrued expenses and others
NON-CURRENT LIABILITIES
Note payable
Mortgage payable
1,800,000
Total liabilities
2,100,000
SHAREHOLDER'S EQUITY
Ordinary shares (P100 par, 100,000 shares
authorized, 40,000 shares issued and outstanding)
Share premium
Retained earnings
4,000,000
462,000
3,054,150
7,516,150
9,616,150
10,800,000
7,560,000
3,240,000
10,200
3,250,200
1,550,000
Net income
1,700,200
NET INCOME
Retained earnings, January 1
1,700,200
1,353,950
3,054,150
For items 1-15, select the answer that best corresponds to the audited balance as of December 31,
2014, of each of the following items based on the information given in the problem. Ignore tax
effects.
1. Cash in bank
a. P1,266,000
b. P1,096,000
c. P1,066,000
d. P66,000
c. P527,000
d. P535,000
c. P15,000
d. P29,900
4. Inventories
a. P200,000
b. P250,000
c. P300,000
d. P230,000
5. Investment property
a. P500,000
b. Nil
c. P700,000
d. P300,000
6. Land
a. P5,100,000
b. P4,400,000
c. P4,900,000
d. P3,900,000
7. Accounts payable
a. P235,000
b. P265,000
c. P295,000
d. P205,000
c. P1,000,000
d. Nil
c. P1,200,000
d. P200,000
c. P800,000
d. Nil
c. P7,614,000
d. P7,610,000
c. P1,554,800
d. P1,565,000
c. P1,685,200
d. P1,635,200
PROBLEM 2
Keep Calm Company was organized on January 2, 2013, with authorized share capital of P50,000
shares of 10%, P200 par value preference and 200,000 shares of P10 par value ordinary. During the
companys first two years of operations, the following equity transactions occurred.
2013
January 2
March 2
July 10
Dec. 16
Dec. 28
Dec. 31
Declared the regular preference cash dividend and a P1.50 ordinary cash dividend.
Paid the dividends declared on December 16.
The income summary account showed a credit balance of P450,000.
2014
Feb. 27
June 17
July 31
Sept. 30
Dec. 16
Dec. 28
Dec. 31
Based on the above information, determine the balances of the following on December 31, 2014:
16. Preference share capital
a. P729,600
b. P777,600
c. P720,000
d. P648,000
c. P577,000
d. P966,500
b. P447,100
c. P449,100
d. P409,100
c. P606,050
d. P604,050
c. P2,376,630
d. P2,498,150
PROBLEM 3
You have been engaged to audit the financial statements of Perfect Ko To Company for the fiscal
year ended June 30, 2014. The cost of goods sold section of the income statement prepared by your
client for the year ended June 30, 2014, appears as follows:
75,000
540,000
615,000
105,000
510,000
Although the books have been closed, your working paper trial balance is prepared showing all
accounts with activity during the year. The July 1 and June 30 inventories appearing above were
determined through physical count and no reconciling items were considered. All purchases are
FOB shipping point. The company uses the periodic inventory system.
In the course of your examination of inventory cutoff, both at the beginning and end of the year, you
discovered the following facts:
July 1, 2013
a. June invoices totaling P19,500 were entered in the voucher register in June, but the goods
were not received until July.
b. Invoices totaling P8,100 were entered in the voucher register in July, but the goods were
received during June.
June 30, 2014
a. Invoices totaling P27,900 were entered in the voucher register in July, and the goods were
received in July, but the invoices were dated June.
b. June invoices totaling P11,100 were entered in the voucher register in June but the goods
were not received until July.
c. Invoices totaling P16,200 (the corresponding goods for which were received in June) were
entered in the voucher register, July.
d. 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.
21. What is the adjusted inventory on July 1, 2013
a. P86,400
b. P94,500
c. P63,600
d. P102,600
22. What is the correct amount of purchases for the year ended June 30, 2014?
a. P584,100
b. P592,200
c. P559,800
d. P576,000
23. What is the correct inventory on June 30, 2014?
a. P144,000
b. P132,900
c. P116,100
d. P135,900
24. The accounts payable balance on June 30, 2014 should be increased by
a. P44,100
b. P27,900
c. P27,300
d. P55,200
25. The correct cost of goods sold for the year ended June 30, 2014 is
a. P537,600
b. P553,800
c. P526,500
d. P507,300
PROBLEM 4
Rak Na Ituuu Company issued 10-year bonds on January 1, 2014. The companys year-end is
December 31, and financial statements are prepared annually. The amortization and interest
schedule below reflects the bond issuance and the subsequent interest payments and charges.
AMORTIZATION SCHEDULE
Date
01/01/14
12/31/14
12/31/15
12/31/16
12/31/17
12/31/18
12/31/19
12/31/20
12/31/21
12/31/22
12/31/23
Interest Paid
P55,000
55,000
55,000
55,000
55,000
55,000
55,000
55,000
55,000
55,000
Interest expense
P56,610
56,803
57,019
57,261
57,533
57,837
58,177
58,558
58,985
59,470
b. A discount
Amount Unamortized
P28,253
26,643
24,840
22,821
20,560
18,027
15,190
12,013
8,455
4,470
-
c. Face value
Carrying Value
P471,747
473,357
475,160
477,179
479,440
481,973
484,810
487,987
491,545
495,530
500,000
d. Par value
d. Declining
balance
28. What is the nominal interest rate of the bonds issued on January 1, 2014?
a. 11%
b. 12%
c. 10%
d. 6%
29. What is the effective interest rate of the bonds issued on January 1, 2014?
a. 11%
b. 12%
c. 10%
d. 6%
30. On the basis of the schedule presented, what is the journal entry to record the issuance of
the bonds on January 1, 2014?
a. Cash
Bonds payable
P500,000
b. Cash
Interest expense
Bonds payable
P471,747
28,253
c. Cash
Premium on bonds
Bonds payable
P500,000
d. Cash
Discount on bonds
Bonds payable
P471,747
28,253
P500,000
P500,000
P 28,253
471,747
P500,000
PROBLEM 5
You have been asked by a client to review the records of Babols Company, a small manufacturer of
precision tools and machines. Your client is interested in buying the business and arrangements
have been made for you to review the accounting records.
Your examination reveals the following:
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 before deducting
income taxes:
Year Ended
March 31
2012
2013
2014
Income
Before Taxes
P143,200
222,800
207,160
On March 30, 2013, two machines were shipped to a customer on a cash on delivery basis.
The sale was not entered until April 5, 2013, when cash was received for P12,200. The
machines were not included in the inventory at March 31, 2013. (Title passed on March 30,
2013.)
All machines are sold subject to a five-year warranty. It is estimated that that the expense
ultimately to be incurred in connection to the warranty will amount to of 1% of sales. The
company has charged an expense account for warranty costs incurred.
Warranty Expense for Sales Made In
Year Ended March 31
2012
2013
2014
Sales
P1,880,000
2,020,000
3,590,000
2012
P1,520
720
640
2013
P2,620
3,240
2014
P3,280
Total
P1,520
3,340
7,700
Bad debts have been recorded on a direct writeoff basis. Experience of similar enterprises
indicates that losses will approximate of 1% of sales. Bad debts written off were:
2012
P1,500
1,600
700
2013
2014
P1,040
3,600
P3,400
Total
P1,500
2,640
7,700
Commissions on sales have been entered when paid. Commissions payable on March 31 of
each year were:
2012
P2,800
2013
1,600
2014
2,240
c. P1,870,000
d. P1,873,000
27. Correct sales for the year ended March 31, 2013.
a. P2,035,000
b. P2,032,200
c. P2,042,200
d. P2,045,200
28. Correct sales for the year ended March 31, 2014.
a. P3,569,200
b. P3,566,620
c. P3,578,820
29. Additional warranty expense for the year ended March 31, 2014
a. P10,133
b. P24,834
c. P6,886
d. P3,590,000
d. P17,833
30. Additional bad debt expense for the year ended March 31, 2013
a. P2,473
b. P1,217
c. P8,917
d. P6,858
31. Additional commission expense for the year ended March 31, 2014
a. P1,600
b. P2,240
c. P4,640
d. P640
32. Managers bonus expense for the year ended March 31, 2014
a. P902
b. P1,781
c. P2,683
d. P1,149
33. Correct income before income tax for the year ended March 31, 2012
a. P229,841
b. P228,692
c. P125,785
d. P126,417
34. Correct income before income tax for the year ended March 31, 2013
a. P228,692
b. P179,488
c. P125,785
d. P126,417
35. Correct income before income tax for the year ended March 31, 2014
a. P179,488
b. P229,841
c. P180,390
d. P126,417
PROBLEM 6
Presented below are Comoros Companys comparative statements of financial position and income
statements:
COMOROS COMPANY
Comparative Statement of Financial Position
December 31, 2014 and 2013
ASSETS
Cash
Accounts receivable
Inventory
Prepaid expenses
Total current assets
2014
P
119,000
312,000
278,000
35,000
744,000
2013
P
59,000
536,000
(76,000)
519,000
98,000
254,000
239,000
21,000
612,000
409,000
(53,000)
356,000
1,263,000
968,000
212,000
98,000
40,000
350,000
198,000
76,000
274,000
125,000
125,000
475,000
274,000
600,000
188,000
788,000
550,000
144,000
694,000
1,263,000
968,000
COMOROS COMPANY
Condensed Comparative Income Statements
For the Years Ended, December 31, 2014 and 2013
2014
Net sales
Cost of goods sold
Gross income
Expenses
Net income
3,561,000
(2,789,000)
772,000
(521,000)
251,000
2013
P
3,254,000
(2,568,000)
686,000
(486,000)
200,000
d. P2,750,000
d. P2,814,000
c. P207,000
d. P107,000
c. P50,000
d. P125,000
b. P0
fin.