NFJPIA-Region X and CARAGA Council

RFJPIA Cup Level 5 Auditing Problems

ELIMINATION ROUND
EASY ROUND
RFJPIA CUP LEVEL 5 Auditing Problems (EASY QUESTION #1)
You were engaged to examine the accounts of Power Play Inc. as of December 31, 2010. Your audit
disclosed that the cash counted on December 31, 2010 included two customers checks amounting to P5,000 both
dated in January 2011. These checks were recorded in the books in December and were accepted for deposit by
the bank on due dates. The adjusting entry is:
Answer:
Dr. Accounts Receivable
5,000
Cr. Cash
5,000
RFJPIA CUP LEVEL 5 Auditing Problems (EASY QUESTION #2)
As an auditor, you were asked by your client to examine its accounts as of December 31, 2010. Your audit
disclosed that checks with a total of P10,000 as payment to suppliers were prepared and taken up as debits to
accounts payable. One of these checks in the amount of P2,000 was cancelled on January 5, 2011 and replaced
with another for the correct amount of P2,500. No entry was made for the cancellation. The adjusting entry is:
Answer: None. No adjustment is necessary.
RFJPIA CUP LEVEL 5 Auditing Problems (EASY QUESTION #3)
Your audit of Super Club Co. for the year ended December 31, 2010 disclosed that customers checks
amounting to P4,500 were returned during December 2010 by the bank with the notation NSF. Of these checks
P3,000 had been redeposited and cleared by the bank during the month. No entries were made for the return or
redeposit. The adjusting entry is:
Answer:
Dr. Accounts Receivable
1,500
Cr. Cash
1,500
RFJPIA CUP LEVEL 5 Auditing Problems (EASY QUESTION #4)
You were engaged to audit the records of Generation, Inc. as of December 31, 2010. Your audit shows that
goods costing P20,000 were excluded from the ending inventory. The selling price of these goods was P30,000.
The goods were shipped by your client on December 29, 2010, FOB shipping point. The transaction was not
recorded in 2010. The adjusting entry is:
Answer:
Dr. Accounts Receivable
30,000
Cr. Sales
30,000
RFJPIA CUP LEVEL 5 Auditing Problems (EASY QUESTION #5)

Your audit of your client as of December 31, 2010 disclosed that merchandise costing P15,000 were still
included in ending inventory although these were already invoiced and recorded as sales to customers on
December 31. The sales invoices totaling P25,000 were no longer recorded when the goods were delivered on
January 5, 2011. The adjusting entry is:
Answer:
Dr. Cost of Sales
15,000
Cr. Inventory
15,000

AVERAGE ROUND
RFJPIA CUP LEVEL 5 Auditing Problems (AVERAGE QUESTION #1)
Just In Love Corp. decided that the allowance for bad debts should be adjusted to equal the estimated
amount required based on aging the accounts as of December 31. Following data were gathered:
Allowance for bad debts, January 1, 2010
P120,000
Provision for bad debts during 2010 at 2%
60,000
of P3,000,000 sales
Bad debts written off in 2010
75,000
Estimated bad debts per aging of accounts on
80,000
December 31, 2010
What entry is necessary to adjust the bad debts provision?
Answer:
Dr. Allowance for Bad Debts
25,000
Cr. Bad Debts Expense
25,000
RFJPIA CUP LEVEL 5 Auditing Problems (AVERAGE QUESTION #2)
You completed your filed work for 2010 on April 10, 2011. Before issuance of your audit report on April 25,
2011, you were advised that on April 15, 2011 a large receivable from a customer who is facing bankruptcy was
written off as uncollectible. What should you do about this fact?
a. Disclose the loss in the 2010 statements.
b. Adjust the 2010 financial statements.
c. Date your report April 10, 2011.
d. Take up the loss in the 2011 statements.
e. Do nothing.
RFJPIA CUP LEVEL 5 Auditing Problems (AVERAGE QUESTION #3)
The closing inventory of Gandhi Company amounted to P284,000 at December 31, 2010. This total
includes two inventory lines about which the inventory taker is uncertain.
500 items which had cost P15 each and which were included at P7,500. These items were found to
have been defective at the balance sheet date. Remedial work after the balance sheet date cost
P1,800 and they were then sold for P20 each. Selling expenses were P400.
100 items that had cost P10 each but after the balance sheet date, these were sold for P8 each with
selling expenses of P150.
What figure should appear in Gandhis balance sheet for inventory?
Answer: P283,650.
RFJPIA CUP LEVEL 5 Auditing Problems (AVERAGE QUESTION #4)
Cavaliers has a one-year product warranty on some selected items. The estimated warranty liability on
sales made during the 2009 2010 fiscal year and still outstanding as of March 31, 2010, amounted to P252,000.

The warranty costs on sales made from April 1, 2010 to March 31, 2011, are estimated at P630,000. The actual
warranty costs incurred during 2010 2011 fiscal year are as follows:
Warranty claims honored on 2009 2010 sales
P252,000
Warranty claims honored on 2010 2011 sales
285,000
Total
P537,000
Being Cavaliers auditor, determine the adjusted balances of the estimated warranty payable as of March
31, 2011.
Answer: P345,000.
RFJPIA CUP LEVEL 5 Auditing Problems (AVERAGE QUESTION #5)
On January 1, 2010, Rostrum Company purchased debt securities with a face value of P500,000. The
securities mature in 7 years and are to be classified as a held to maturity investment. The securities have a stated
interest rate of 8% and interest is paid semiannually, on January 1 and July 1. The prevailing market interest rate on
these debt securities is 12% compounded semiannually. The following present value factors are taken from the
present value tables:
Present value of 1
12% for 7 periods
0.45235
6% for 14 periods
0.44230
8% for 7 periods
0.58349
4% for 14 periods
0.57748
Present value of an ordinary annuity of 1
12% for 7 periods
4.56376
6% for 14 periods
9.29498
8% for 7 periods
5.20637
4% for 14 periods
10.56312
Determine the fair value of the debt securities on January 1, 2010.
Answer: P407,050.

DIFFICULT ROUND
RFJPIA CUP LEVEL 5 Auditing Problems (DIFFICULT QUESTION #1)
Which of the following subsequent events will be least likely to result in an adjustment to the financial
statements?
a. Culmination of events affecting the realization of accounts receivable owned as of the end of the
period.
b. Culmination of events affecting the realization of inventories owned as of the end of the period.
c. Material changes in the settlement of liabilities which were estimated as of the end of the period.
d. Material changes in the quoted market prices of listed investment securities since the end of
the period.
e. None of the above.
RFJPIA CUP LEVEL 5 Auditing Problems (DIFFICULT QUESTION #2)
All items of income and expense recognized in a period must be included in profit or loss unless a standard
or an interpretation requires otherwise. Therefore, the auditor is unlikely to question the exclusion of the following
from profit or loss, except:
a. Changes in revaluation surplus.

b.
c.
d.
e.

Gains and losses on remeasuring available for sale financial assets.

Gains and losses arising from translating the financial statements of a foreign operation.
The ineffective portion of gains and losses on hedging instruments in a cash flow hedge.
None of the above.

RFJPIA CUP LEVEL 5 Auditing Problems (DIFFICULT QUESTION #3)

On January 1, 2009, Luke Company, a financial services entity which is also involved in real estate
development, has purchased a lot of land in Makati City for P2,000,000 which it intends to develop and eventually
sell. On July 1, 2009, Luke Company purchased 10 passenger vehicles for a total consideration of P2,500,000.
Luke Companys intention was to use the passenger vehicles to transport Luke Companys employees. Luke
Company uses the straight-line depreciation method for the passenger vehicles with no expected salvage value and
an estimated useful life of 8 years.
On December 31, 2010, Luke Company entered in a lease agreement with John Company for its land in
Makati City and its passenger vehicles. Development cost incurred until December 31, 2010 was P700,000. The
fair values of the land in Makati City and the 10 passenger vehicles were P2,950,000 and P2,181,250 respectively.
Assets classified by Luke Company as investment properties are presented at fair value.
At the end of 2011, the fair values of land and 10 passenger vehicles were P3,100,000 and P2,201,250
respectively. The gain (loss) to be reported in 2010 in relation to the reclassification to investment property is:
Answer: P250,000.
RFJPIA CUP LEVEL 5 Auditing Problems (DIFFICULT QUESTION #4)
On January 1, 2009, Luke Company, a financial services entity which is also involved in real estate
development, has purchased a lot of land in Makati City for P2,000,000 which it intends to develop and eventually
sell. On July 1, 2009, Luke Company purchased 10 passenger vehicles for a total consideration of P2,500,000.
Luke Companys intention was to use the passenger vehicles to transport Luke Companys employees. Luke
Company uses the straight-line depreciation method for the passenger vehicles with no expected salvage value and
an estimated useful life of 8 years.
On December 31, 2010, Luke Company entered in a lease agreement with John Company for its land in
Makati City and its passenger vehicles. Development cost incurred until December 31, 2010 was P700,000. The
fair values of the land in Makati City and the 10 passenger vehicles were P2,950,000 and P2,181,250 respectively.
Assets classified by Luke Company as investment properties are presented at fair value.
At the end of 2011, the fair values of land and 10 passenger vehicles were P3,100,000 and P2,201,250
respectively. The revaluation surplus balance at December 31, 2011 is:
Answer: P150,000.
RFJPIA CUP LEVEL 5 Auditing Problems (DIFFICULT QUESTION #5)
The year-end audit of the records of Stamina Farms disclosed a shortage in cash amounting to P600,000.
The treasurer had concealed the fraud by increasing inventories by P300,000, land by P100,000 and accounts
receivable by P200,000.
Faced with prosecution, the treasurer offered to surrender 6,000 Stamina Farms shares owned by him. The
board of directors accepted the offer, with the agreement that the treasurer would pay any deficiency between the
shortage and the book value of the shares, after adjusting for the fraud. The corporation would in turn pay the
excess, if any, of the book value over the shortage. As of December 31, 2010, there were 40,000 common shares
issued and outstanding with a par value of P100; Retained earnings as of January 1, 2010 was P1,600,000 and net
income from 2010 operations was P1,400,000.

Considering the above information, answer the following, what would be the book value per share for
purposes of the agreement?
Answer: P175.

CLINCHER QUESTIONS
RFJPIA CUP LEVEL 5 Auditing Problems (CLINCHER QUESTION #1)
If the auditee has a material amount of treasury stock on hand at year-end, the auditor should
a. Count the certificates at the same time other securities are counted.
b. Count the certificates only if the company had treasury stock transactions during the year.
c. No count the certificates if treasury stock is a deduction from shareholders equity.
d. Count the certificates only if the company classifies treasury stock with other assets.
e. Confirm the transaction with the Securities and Exchange Commission.
RFJPIA CUP LEVEL 5 Auditing Problems (CLINCHER QUESTION #2)
In auditing intangible assets, an auditor most likely would review or recomputed amortization and determine
whether the amortization period is reasonable in support of managements financial statement assertion of:
Answer: Valuation.
RFJPIA CUP LEVEL 5 Auditing Problems (CLINCHER QUESTION #3)
On January 2, 2010, a tract of land that originally cost P800,000 was sold by Heavenly Corporation. The
company received a P1,200,000 note as payment. It bears interest rate of 4% and is payable in 3 annual
installments of P400,000 plus interest on the outstanding balance. The prevailing rate of interest for a note of this
type is 10%. The present value table shows the following present value factors of 1 at 10%.
Present value factor of 1 for 3 periods
0.75132
Present value factor of 1 for 2 periods
0.82645
Present value factor of 1 for 1 period
0.90909
Present value of an ordinary annuity of 1 for 3 periods
2.48685
What is the effective interest income on the note receivable for the year ended December 31, 2010?
Answer: P107,685.
RFJPIA CUP LEVEL 5 Auditing Problems (CLINCHER QUESTION #4)
Which of the following procedures relating to the examination of accounts payable could the auditor
delegate entirely to the clients employees?
a. Test footings in the accounts payable ledger.
b. Reconcile unpaid invoices to vendors statements.
c. Prepare a schedule of accounts payable.
d. Mail confirmations for selected account balances.
e. None of the above.
RFJPIA CUP LEVEL 5 Auditing Problems (CLINCHER QUESTION #5)
On October 31, 2010, Beta Company engaged in the following transactions:
Obtained a P500,000, six-month loan from City Bank, discounted at 12%. The company pledged
P500,000 of accounts receivable as security for the loan.

Factored P1,000,000 of accounts receivable without recourse on a non notification basis with Hype
Company. Hype charged a factoring fee of 2% of the amount of receivables factored and withheld
10% of the amount factored.
What is the total cash received from the financing of receivables?
Answer: P1,350,000.

FINAL ROUND
EASY QUESTIONS
RFJPIA CUP LEVEL 5 Auditing Problems (SPUS) ACE QUESTION
Information pertaining to Trace Company for the month of August appears below:
Balance per bank statement
P310,000
Balance per books
187,500
Deposit in transit
70,000
Service charges
2,500
Note collected by bank
75,000
Outstanding checks
?
An analysis of the cancelled checks returned with the bank statement reveals the following:
Check for the purchase of merchandise was drawn for P155,000 but was recorded as P150,000.
The management wrote a check for traveling expenses of P25,000 while out of town. The check was
not recorded.
What is the amount of outstanding checks on August 31, 2010?
Answer: P150,000.
RFJPIA CUP LEVEL 5 Auditing Problems (NFJPIA) JOKER QUESTION
. Ten Bank granted a loan to a borrower in the amount of P5,000,000 on January 1, 2010. The interest rate
on the loan is 10% payable annually starting December 31, 2010. The loan matures in five years on December 31,
2014. Ten Bank incurs P39,400 of direct loan origination cost and P10,000 of indirect loan origination cost. In
addition, Ten Bank charges the borrower an 8-point nonrefundable loan origination fee. Determine the carrying
amount of the loan as of January 1, 2010,
Answer: P4,639,400.
RFJPIA CUP LEVEL 5 Auditing Problems (FCC)
During an audit of an entitys shareholders equity accounts, the auditor determines whether there are
restrictions on retained earnings resulting from loans, agreements, or law. This audit procedure most likely is
intended to verify what managements assertion?
Answer: Presentation and disclosure
RFJPIA CUP LEVEL 5 Auditing Problems (LC)
On September 1, 2010, Howe Company offered special termination benefits to employees who had
reached the early retirement age specified in the companys pension plan. The termination benefits consisted of
lump sum and periodic future payments. Additionally, the employees accepting the company offer receive the usual

early retirement pension benefits. The offer expired on November 30, 2010. Actual or reasonably estimated
amounts on December 31, 2010 relating to the employees accepting the offer are as follows:
Lump sum payments on January 1, 2011, P475,000
Present value of periodic payments, P155,000
Reduction of accrued pension costs on December 31, 2010 for the terminating employees, P45,000
Howe should report total loss on termination benefits at what amount?
Answer: P585,000.
RFJPIA CUP LEVEL 5 Auditing Problems (SEC)
The following totals are taken from the December 31, 2010, balance sheet of Streamer Company:
Current assets
P350,000
Long-term assets
800,000
Current liabilities
240,000
Long-term liabilities
270,000
Additional information:
Cash of P38,000 has been placed in a fund for the retirement of long-term debt. The cash and longterm debt have been offset and are not reflected in the financial statements.
Long-term assets include P50,000 in treasury shares.
Cash of P14,000 has been set aside to pay taxes due. The cash and taxes payable have been offset
and do not appear in the financial statements.
Advances on salespersons' commissions in the amount of P21,000 have been made. Also, sales
commissions payable total P24,000. The net liability of P3,000 is included in Current Liabilities.
After making any necessary changes, compute for the totals of Streamer's current assets.
Answer: P385,000.
RFJPIA CUP LEVEL 5 Auditing Problems (SMC)
ChingChing has been employed as an accountant by Iran, Inc. for a number of years. She handles all
accounting duties, including the preparation of financial statements. The following is a statement of earned surplus
presented by ChingChing:
Iran, Inc.
STATEMENT OF EARNED SURPLUS 2010
Balance, 1/1/09
P365,000
Increase in 2010 amortization expense
5,000
Gain on sale of trading securities
(3,000)
Interest revenue
2,000
Net income for 2010
150,000
Decreased depreciation due to increased life
13,000
Dividends paid (20% still unpaid)
80,000
Loss on sale of equipment
2,500
Loss on earthquake
83,000
Balance, 12/31/10
P700,500
Based on the foregoing information, determine the amount of net income that ChingChing should report in
its income statement for 2010?
Answer: P77,500.

RFJPIA CUP LEVEL 5 Auditing Problems (SFXC)

Field Companys shareholders equity balances at January 1, 2010 were as follows:
Share capital
P1,500,000
Share premium
3,000,000
Retained earnings
2,000,000
The following 2010 transactions and other information relate to the shareholders equity accounts:
Field had 400,000 authorized shares of P5 par, of which 300,000 shares were issued and
outstanding.
On March 5, 2010, Field acquired 50,000 shares for P10 per share to be held as treasury. The shares
were originally issued at P15 per share. Field uses the cost method to account for treasury share.
On July 15, 2010, Field declared and distributed a property dividend of inventory. The inventory had a
P500,000 carrying value and a P600,000 fair market value.
Fields net income for 2010 was P500,000.
Given the information above and as a result of your audit, Field Company should report total shareholders
equity on December 31, 2010 at what amount?
Answer: P6,000,000.

AVERAGE QUESTIONS
RFJPIA CUP LEVEL 5 Auditing Problems (AKIC) ACE QUESTION
The following information relates to Sonic Companys accounts payable as of December 31, 2010.
Accounts payable per general ledger control amounted to P5,440,000, net of P240,000 debit balances in suppliers
accounts. The unpaid voucher file included the following items that not had been recorded as of December 31,
2010:
A Company P224,000 merchandise shipped on December 31, 2010, FOB destination; received on
January 10, 2011.
B, Inc. P192,000 merchandise shipped on December 26, 2010, FOB shipping point; received on
January 16, 2011.
C Super Services P144,000 janitorial services for the three-month period ending January 31, 2011.
MERALCO P67,200 electric bill covering the period December 16, 2010 to January 15, 2011.
On December 28, 2010, a supplier authorized Sonic to return goods billed at P160,000 and shipped on
December 20, 2010. The goods were returned by Sonic on December 28, 2010, but the P160,000 credit memo was
not received until January 6, 2011. Determine the amount if any, that should be reported as current liability in
Sonics December 31, 2010 balance sheet.
Answer: P5,841,600.
RFJPIA CUP LEVEL 5 Auditing Problems (CTKC) JOKER QUESTION
An audit assistant found a purchase order for a regular supplier in the amount of P5,500. The purchase
order was dated after receipt of goods. The purchasing agent had forgotten to issue purchase order. Also a
disbursement of P450 for materials did not have a receiving report. The assistant wanted to select additional
purchase orders for investigation but was unconcerned about lack of receiving report. The audit director should:
a. Agree with the assistant because the amount of the purchase order exception was considerably
larger than the receiving report exception
b. Agree with the assistant because the cash disbursement clerk had been assured by the receiving
clerk that the failure to fill out a report didnt happen very often.
c. Disagree with the assistant because two problems have an equal risk of loss associated with them.

d. Disagree with the assistant because the lack of a receiving report has a greater risk of loss
associated with it.
e. Neither agree nor disagree as it is the assistants responsibility and it is at his discretion.
RFJPIA CUP LEVEL 5 Auditing Problems (MU)
You were able to gather the following in connection with your audit to the Chona Ann Company for the year
ended December 31, 2010:
1/1/2010
12/31/2010
Accounts receivable
P6,400,000
P4,000,000
Unpaid merchandise invoices
?
2,621,000
Accrued wages
85,000
125,000
Advertising supplies inventory
35,000
75,000
Accrued advertising
14,250
40,000
Prepaid Insurance
25,000
Unexpired insurance
41,000
During the year, Chona Ann Company had the following transactions:
Amount collected from customers
Total payments to suppliers of merchandise
Total payments to suppliers of merchandise of prior years
Wages paid
Advertising paid which includes P40,000 applicable in 2008
Insurance premium paid
What is the net purchases for 2010?
Answer: P11,607,000.

P10,000,000
13,618,000
4,632,000
3,050,000
300,000
125,000

RFJPIA CUP LEVEL 5 Auditing Problems (PCC)

On January 1, 2010, Charmaine Corporation decided to dispose of an item of plant that is carried in its
records at a cost of P900,000, with accumulated depreciation of P160,000. Depreciation on the plant since it was
originally acquired has been charged of P10,000 per month. The plant will continue to be operated until it is sold, at
which time the operations of the plant will be outsourced. The company undertook all the necessary actions to be
able to classify the asset as held for sale. It is estimated that it could sell the plant for its fair value, P720,000,
incurring P20,000 selling costs in the process. The plant has been depreciated at an amount of P10,000 per month.
On March 31, 2010, the plant had not been sold but, due to shortage of this type of plant, there had been
an increase in the fair value to P770,000. On June 30, 2010, Charmaine sold the plant for P785,000 incurring
P25,000 selling costs. The depreciation expense to be recognized in 2010 is:
Answer: P0.
RFJPIA CUP LEVEL 5 Auditing Problems (MSUM)
The following information is available from your client, San Company for the year ended December 31,
2010:
Cash received from customers
P5,000,000
Rent received
100,000
Interest received
50,000
Cash paid to suppliers and employees
3,000,000
Taxes paid
200,000

Interest paid on long-term debt

400,000
Cash dividends paid
500,000
Based on your audit, how much is the net cash provided by operating activities?
Answer: P1,550,000.
RFJPIA CUP LEVEL 5 Auditing Problems (MVC)
In 2010, Mount Corporation acquired land by paying P375,000 down and signing a note with a maturity
value of P5,000,000. On the notes due date, December 31, 2010, Mount owed P200,000 of accrued interest and
P5,000,000 principal on the note. Mount was in financial difficulty and was unable to make any payments. Mount
and the bank agreed to amend the note as follows:
The P200,000 of interest due on December 31, 2010 was forgiven.
The principal of the note was reduced from P5,000,000 to P4,750,000 and the maturity date extended
1 year to December 31, 2011.
Mount would be required to make one interest payment totaling P150,000 on December 31, 2010.
As a result of the troubled debt restructuring, Mount should report a gain, before taxes, in its 2010 income
statement of:
Answer: P300,000.
RFJPIA CUP LEVEL 5 Auditing Problems (JPI)
Taal Company is a calendar year entity. Its financial statements for 2009 and 2010 contained error as
follows:
12/31/09 Inventory understated
P35,000
12/31/10 Inventory understated
10,000
2009 Depreciation overstated
25,000
2010 Depreciation understated
8,000
12/31/09 Prepaid Insurance overstated
5,000
12/31/10 Unearned Rent overstated
4,000
12/31/10 Accrued Salaries understated
20,000
By how much would the retained earnings at December 31, 2008 be under or overstated?
Answer: P 11,000 understated.
RFJPIA CUP LEVEL 5 Auditing Problems (FSUU)
The retained earnings account for Gondola Company shows the following charges and credits for the year
2010:
Balance, 1/1/10
P2,600,000
Loss from fire
50,000
Goodwill impairment
250,000
Stock dividend
700,000
Loss on sale of equipment
200,000
Compensation of 2009 not accrued
500,000
Loss on retirement of preference share
350,000
Share premium
600,000
Gain on early retirement of bonds
100,000
Gain on life insurance settlement
450,000
Prior period error correction credit
400,000
Net income for the year
3,000,000

Treasury share appropriation for 2010

1,000,000
How much is Gondolas unappropriated retained earnings at December 31, 2010?
Answer: P3,500,000.

DIFFICULT QUESTIONS
RFJPIA CUP LEVEL 5 Auditing Problems (SIC) ACE QUESTION
In the course of your examination of the December 31, 2011, financial statements of Aquino Inc., you
discovered certain errors that had occurred during 2010 and 2011. No errors were corrected during 2010. The
errors are summarized below:
Beginning merchandise inventory in 2010 was understated by P259,200.
Merchandise costing P72,000 was sold for P120,000 to James Corp. on December 28, 2010, but the
sale was recorded in 2011. The merchandise was shipped FOB shipping point and was included in
ending inventory. Aquino uses the periodic inventory system.
A two-year fire insurance policy was purchased on May 1, 2010, for P172,800. The whole amount
was charged to Prepaid Insurance. No adjusting entry was prepared in 2010 and 2011.
A one-year note receivable of P288,000 was held by Aquino Inc. beginning October 1, 2010.
Payment of the 10% note and accrued interest was received upon maturity. No adjusting entry was
made on December 31, 2010.
Equipment with a 10 year useful life was purchased on January 1, 2010, for P1,176,000. No
depreciation expense was recorded during 2010 or 2011. Assume that the equipment has no residual
value and that Aquino Inc. uses the straight-line method for recording depreciation.
The company reported a P1,500,000 net income in 2010 and a P1,750,000 net income in 2011.
Based on the information above and as a result of your audit, what is the correct net income in 2010?
Answer: P363,000.
RFJPIA CUP LEVEL 5 Auditing Problems (STC) JOKER QUESTION
The inventory on hand at December 31, 2010 for Fair Company valued at a cost of P947,800. The
following items were not included in this inventory amount:
Purchased goods, in transit, shipped FOB destination invoice price P32,000 which included freight
charges of P1,600.
Goods held on consignment by Fair Company at a sales price of P28,000, including sales
commission of 20% of the sales price.
Goods sold to Garcia Company, under terms FOB destination, invoiced for P18,500 which includes
P1,000 freight charges to deliver the goods. Goods are in transit.
Purchased goods in transit, terms FOB shipping point, invoice price P48,000, freight cost, P3,000.
Goods out on consignment to Manil Company, sales price P36,400, shipping cost of P2,000.
Assuming that the company's selling price is 140% of inventory cost, the adjusted cost of Fair Company's
inventory at December 31, 2010 should be:
Answer: P1,039,300.
RFJPIA CUP LEVEL 5 Auditing Problems (XU)
Atkins bought five identical plots of development land for P2 million in 2010. On January 2, 2012 Atkins
sold three of the plots of land to an investment company, Landbank, for a total of P2.4 million. This price was based

on 75% of the fair market value of P3.2 million as determined by an independent surveyor at the date of sale. The
terms of the sale contained two clauses:
Atkins can re-purchase the plots of land for the full fair value of P3.2 million (the value determined of
the date of sale) any time until December 31, 2014; and
On 1 January 2015, Landbank has the option to require Atkins to re-purchase the properties for P3.2
million. You may assume that Landbank seeks a return on its investments of 10% per annum.
If Atkins recorded the legal form of the transaction instead of its substance, profit for 2012 will be overstated
by:
Answer: P1,440,000.
RFJPIA CUP LEVEL 5 Auditing Problems (COC)
Potter Company is in its first year of operation and is using the cash basis of accounting. The company
presented the following cash receipts and disbursement records for 2010:
Cash receipts
P384,000
Cash disbursements
(247,500)
P136,500
The management requested you to compute its income under accrual basis. The following information are
deemed relevant in your analysis:
Depreciation of plant assets for 2010 computed by straight-line method is P31,500.
Prepaid insurance of P5,400, two-thirds of which relates to 2011, is included in the 2010 cash
disbursement figure. This amount was recognized as insurance expense when it was paid.
Porter Company received P36,000 in advance rent for space in its building. The entire amount is
included in the cash receipts figure and was recognized as rent revenue when received. However,
P21,000 of it was space that will be provided in 2011.
Employees are due P8,400 at the end of 2010.
Interest amounting to P9,510 from investment is receivable at the end of 2010.
You estimate that your 2010 fee for accounting services that have not been billed will be P1,500.
What is the total liabilities to be reported as of the balance sheet date under the accrual basis?
Answer: P30,900.
RFJPIA CUP LEVEL 5 Auditing Problems (IIT)
Upon inspection of the records of Everybody's Company, the following facts were discovered for the year
ended December 31, 2010:
A fire premium of P4,000 was paid and charged as insurance expense in 2010. The fire insurance
policy covers one year from April 1, 2010.
Inventory on January 1, 2010 was understated by P8,000.
Inventory on December 31, 2010 was understated by P12,000.
Business taxes of P5,500 for the fourth quarter of 2010 were paid on January 20, 2011 and charged
as expense in 2011.
On December 5, 2010, a cash advance of P10,000 by a customer was received for goods to be
delivered in January 2011. The P10,000 was credited to sales. The company's gross profit on sales
is 40%.
The net income of Everybody's Company on the income statement for the year ended December
31, 2010, before any adjustments for the above information, is P155,000.
What is the adjusted net income of Everybodys Company for the year ended for the December 31, 2010?
Answer: P144,500.

RFJPIA CUP LEVEL 5 Auditing Problems (LDCU)

On May 6, 2010 a flash flood caused damage to the merchandise stored in the warehouse of Cabanatuan
Company. You were asked to submit an estimate of the merchandise destroyed in the warehouse. The following
data were established:
Net sales for 2009 were P800,000, matched against cost of P560,000.
Merchandise inventory, Jan. 1, 2010 was P200,000, 90% of which was in the warehouse and 10% in
downtown showrooms.
For Jan. 1, 2010 to date of flood, you ascertained invoice value of purchases (all stored in the
warehouse), P100,000; freight inward, P4,000; purchases returned, P6,000.
Cost of merchandise transferred from the warehouse to show-rooms was P8,000, and net sales from
January 1 to May 6, 2010 (all warehouse stock) were P320,000.
Assuming gross profit rate in 2010 to be the same as in the previous year, the estimated merchandise
destroyed by the flood was:
Answer: P46,000.
RFJPIA CUP LEVEL 5 Auditing Problems (BSU)
John Corp. has the following data relating to accounts receivable for the year ended December 31, 2010:
Accounts receivable, January 1, 2010
P480,000
Allowance for doubtful accounts, January 1, 2010
19,200
Sales during the year, all on account, terms 2/10, 1/15, n/60
2,400,000
Cash received from customers during the year
2,560,000
Accounts written off during the year
17,600
An analysis of cash received from customers during the year revealed that P1,411,200 was received from
customers availing the 10-day discount period, P792,000 from customers availing the 15-day discount period,
P4,800 represented recovery of accounts written-off, and the balance was received from customers paying beyond
the discount period.
The allowance for doubtful accounts is adjusted so that it represents certain percentage of the outstanding
accounts receivable at year end. The required percentage at December 31, 2010 is 125% of the rate used on
December 31, 2009. The doubtful accounts expense for the year ended December 31, 2010 is:
Answer: P7,120.
RFJPIA CUP LEVEL 5 Auditing Problems (CMU)
The Evita Company uses cash basis accounting for their records. During 2010, Evita collected P500,000
from its customers, made payments of P200,000 to its suppliers for inventory, and paid P140,000 for operating
costs. Evita wants to prepare accrual basis statements. In gathering information for the accrual basis financial
statements, Evita discovered the following:
Customers owed Evita P50,000 at the beginning of 2010 and P35,000 at the end of 2010.
Evita owed suppliers P20,000 at the beginning of 2010 and P27,000 at the end of 2010.
Evita's beginning inventory was P42,000, and its ending inventory was P44,000.
Evita had prepaid expenses of P5,000 at the beginning of 2010 and P7,400 at the end of 2010.
Evita had accrued expenses of P12,000 at the beginning of 2010 and P19,000 at the end of 2010.
Depreciation for 2008 was P51,000.
Determine the accrual basis net income of Evita Company for the year ended December 31, 2010.
Answer: P84,400.

RFJPIA CUP LEVEL 5 Auditing Problems (MTIM)

Syosset Company is a Philippine corporation that purchases inventory from US manufacturers. A recent
inventory purchase involved the following events:
Nov. 12 Purchased raw materials from Hampton Bays Company, a US manufacturer, amounting to US
250,000, payable in 60 days. Current exchange rate is P50.45. Syosset uses perpetual inventory system
and debits inventory account.
Dec. 31 Made year-end adjusting entry relating to the $250,000 accounts payable to Hampton Bays.
Current exchange rate is P50.89.
Jan. 11 Issued a check amounting to $250,000 in full payment of the accounts payable to Hampton Bays
and recorded a gain amounting to P122,500.
What is the exchange rate of the Philippine peso to US dollar on January 11?
Answer: P50.40.
RFJPIA CUP LEVEL 5 Auditing Problems (LSU)
In confirming with an outside agent, such as financial institutions, that the agent is holding investment
securities in the clients name, an auditor most likely gathers evidence in support of managements financial
statement assertion of existence or occurrence and what other assertion?
Answer: Rights and obligations.