CHAPTER 10 Pre-Board Examinations

PB Examination No. 1
INSTRUCTIONS: SELECT THE CORRECT RESPONSE TO EACH NUMBERED QUESTIONS.
USE THE SPECIAL ANSWER SHEET AND DRAW A VERTICAL LINE ACROSS THE LETTERED
BOX THAT CORRESPONDS TO YOUR CHOICE. STRICTLY NO ERASURES ARE ALLOWED.
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Problem 1
You have been engaged for the audit of the Letecia Company for the year ended December
31, 2007. The Letecia Company i engaged in the !ho"ea"e chemica" buine and ma#e
a"" a"e at 2$% over cot.
&o""o!ing are portion of the c"ient' a"e and purchae account for the ca"endar
year 2007.
SALES
Date (eference )mount *a".
&or!ard
Date (eference )mount
12+31 C"oing entry , -..,/-0 , -$/,320
12+27 01 2 .-$ $,1.$
12+2/ .-- 1.,270
12+2/ .-7 1,302
12+31 .-. $,/31
12+31 .70 7,.22
4444444 12+31 .71 2,010
, -..,/-0 , -..,/-0
PURCHASES
*a".
&or!ard
Date (eference )mount Date (eference )mount
, 3-0,300 12+31 C"oing entry , 3/$,33-
12+2/ (( 2 10$. 3,100
12+30 10-1 /,.-$
12+31 10-2 3,/-1
12+31 10-3 /,120 4444444
, 3/$,33- , 3/$,33-
01 5 0a"e 1nvoice
(( 5 (eceiving (eport
You oberved the phyica" inventory of good in the !arehoue on December 31,
2007 and !ere atified that it !a proper"y ta#en.
6hen performing a a"e and purchae cutoff tet, you found that at December 31,
2007, the "at receiving report that had been ued 7o. 10-3 and that no hipment have
been made on any a"e invoice !ith number "arger than 7o. .-/. You a"o obtained the
fo""o!ing additiona" information8
1
1. 1nc"uded in the !arehoue phyica" inventory at December 31, 2007, !ere chemica"
that had been purchaed and received on receiving report 7o. 10-0 but for !hich an
invoice !a not received unti" 200/. Cot !a ,2,1/3.
2. 1n the !arehoue at December 31, 2007, !ere good that had been o"d and paid for by
the cutomer but !hich !ere not hipped out unti" 200/. They !ere a"" o"d on a"e
invoice 7o. .-$ and !ere not inventoried.
3. 9n the evening of December 31, 2007, there !ere t!o car on the Letecia Company
iding8
:a; Car *(3/1-2 !a un"oaded on <anuary 2, 200/, and received on receiving report 7o.
10-3. The freight !a paid by the vendor.
:b; Car *)=73123 !a "oaded and ea"ed on December 31, 2007, and !a !itched off
the company' iding on <anuary 2, 200/. The a"e price !a ,12,700 and the
freight !a paid by the cutomer. Thi order !a o"d on a"e invoice 7o. .-/.
3. Temporari"y tranded at December 31, 2007, on a rai"road iding !ere t!o car of
chemica" en route to the > ,u"p and ,aper Co. They !ere o"d on a"e invoice 7o. .--
and the term !ere &9* detination.
$. =n route in the Letecia Company on December 31, 2007, !a a truc#"oad of materia"
that !a received on receiving report no. 10-3. The materia" !a hipped &9*
detination and freight of ,7$ !a paid by the Letecia Company. ?o!ever, the freight
!a deducted from the purchae price of ,.7$.
-. 1nc"uded in the phyica" inventory !ere chemica" e@poed to rain !hi"e in tranit and
deemed una"ab"e. Their invoice cot !a ,1,2$0, and freight charge of ,3$0 had been
paid on the chemica".
Questions:
1. The inventory at year+end i undertated by8
a. , 23,.7- b. , 32,0.- c. , 33,-.- d. , 33,713
2. The adAuted a"e at year+end i8
a. , --3,/17 b. , -77,$17 c. , -/0,$.0 d. , 712,$-0
3. The adAuted purchae at year+end i8
a. , 377,22- b. , 37.,30. c. , 3/3,1-3 d. , 3/7,$2.
3. The cot of a"e at year+end i overtated by8
a. , 31,$13 b. , $0,..1 c. , $2,$.1 d. , -3,-0.
$. The a"e at year+end i overtated by8
a. , 1.,270 b. , 22,333 c. , 3$,033 d. , 30,120
Problem 2
2
During the audit of a ne! c"ient, Cia"ette Company, for the year ended December 31, 2007,
you "earned of the fo""o!ing tranaction bet!een Cia"ette Company and another c"ient,
financier, 1nc.8
1. Cia"ette comp"eted contruction of a !arehoue bui"ding on it o!n "and in <une, 200-
at a cot of ,2 mi""ion. Contruction !a financed by a contruction "oan from the
Capita" Deve"opment *an#.
2. 9n <u"y 1, 200-, &inancier, 1nc. bought the bui"ding from Cia"ette for ,2 mi""ion, !hich
Cia"ette ued to dicharge it contruction "oan.
3. 9n <u"y 1, 200-, &inancier, 1nc. borro!ed ,2 mi""ion from Capita" Deve"opment *an#,
to be repaid Buarter"y over four year p"u interet at .%. ) mortgage !a p"aced on
the bui"ding to ecure the "oan, and Cia"ette igned a a guarantor of the "oan.
3. 9n <u"y 1, 200-, Cia"ette igned a noncance"ab"e 20+year "eae of the bui"ding from
&inancier, 1nc. The "eae pecified that Cia"ette !ou"d pay ,232,700 per year for 20
year, payab"e in advance on each <u"y 1, and granted an option e@erciab"e at the end
of the 20+year period, permitting Cia"ette to either :a; purchae the bui"ding for
,230,000 or :b; rene! the "eae for an additiona" 1$ year at ,30,000 per year and
purchae the bui"ding for ,20,000 at the end of the rene!a" period. The "eae
pecified that ,12,000 of the annua" payment !ou"d be for inurance, ta@e, and
maintenance for the fo""o!ing 12 monthC if the "eae hou"d be rene!ed, ,10,000 of
each annua" payment !ou"d be for inurance, ta@e and maintenance.
$. The bui"ding ha a uefu" "ife of 30 year and i to be depreciated under the traight+
"ine method :aume no a"vage va"ue;.
-. Cia"ette and financier negotiated the "eae for a return of 10%. You determine that
the preent va"ue of a"" future "eae payment i appro@imate"y eBua" to the a"e price
and that the a"e+and+"eaebac# tranaction i in rea"ity on"y in financing arrangement.
Instructions: &or the December 31, 2007, ba"ance heet of Cia"ette company, prepare
chedu"e computing the ba"ance for the fo""o!ing item8
Questions:
-. The prepaid inurance, ta@e, and maintenance at December 31, 2007 i8
a. , 0 b. , -,000 c. , 10,000 d. , 12,000
7. The cot of the !arehoue bui"ding at December 31, 2007 i8
a. , 2,720,000 b. , 2,1/0,000 c. , 2,1.2,000 d. , 2,000,000
/. The current "iabi"itie ariing from the "eae at December 31, 2007 i8
a. , $.,137 b. , 133,.23 c. , 230,700 d. , 232,700
.. The "ong+term "iabi"itie ariing from the "eae at December 31, 2007 i8
a. , 1,7-.,300 b. , 1,71$,$30 c. , 1,-$-,3/3 d. , 1,$70,-07
10. The accumu"ated depreciation of the !arehoue bui"ding at December 31, 2007 i8
a. , $0,000 b. , $3,/00 c. , 7$,000 d. , /2,200
Problem 3
3
Charmaine Corporation !a incorporated on <anuary 1, 2000, and began operation one
!ee# "ater. Charmaine i a nonpub"ic enterprie. Charmaine Corporation' contro""er
prepared the fo""o!ing financia" tatement for the 11 month ended 7ovember 30, 200$8
*a"ance 0heet
7ovember 30, 200$
)00=T0
Current )et8
Cah 1$0,000.00
Dar#etab"e ecuritie, at cot -0,000.00
)ccount receivab"e 3$0,000.00
)""o!ance for doubtfu" account :$.,000.00;
1nventorie 330,000.00
,repaid e@pene 1$,000.00
Tota" current aet 1,03-,000.00
,roperty, p"ant and eBuipment 32-,000.00
)ccumu"ated depreciation :30,000.00;
9ther )et 120,000.00
Tota" aet 1,$$2,000.00
L1)*1L1T1=0 E 0T9CF?9LD=(0' =GH1TY
Current Liabi"itie
)ccount payab"e E accrued e@pene $.2,000.00
1ncome ta@ payab"e 0
Tota" current "iabi"itie $.2,000.00
0toc#ho"der' =Buity
Common toc#, ,10 par va"ue 300,000.00
(etained earning --0,000.00
Tota" toc#ho"der' =Buity /3-,000.00
Tota" "iabi"itie E 0toc#ho"der' =Buity 1,$$2,000.00
0tatement of 1ncome
&or the year ended 7ovember 30, 200$
7et a"e 2,.$0,000.00
Cot E e@pene8
Cot of a"e 1,-70,000.00
0e""ing and )dminitrative -$0,000.00
Depreciation 30,000.00
(eearch and Deve"opment 30,000.00
2,3.0,000.00
1ncome before income ta@e $-0,000.00
Tranaction for the month of December 200$8
1. ,urchaed merchandie from )begai" 1ndutrie, ,3$0,000. Term8 Le $%, 10%, &9*
hipping point, 2I10, nI30. )begai" 1ndutrie paid ,2,000 for the tranportation cot.
1t i the po"icy of the company to record the purchae at net of dicount.
2. Co""ected ,1$0,000 account receivab"e "e 2% dicount.
4
3. 0o"d merchandie on account to *ing 0upp"ie, ,300,000. Term8 &9* detination,
3I10, nI30. Charmaine Corporation paid the freight for ,3,000. The company record
thee a"e at net of dicount.
3. Charmaine Corporation iued chec# for ,100,000 a partia" payment of the account to
)begai" 1ndutrie.
$. ,aid variou operating e@pene, ,21$,000.
-. Co""ected in fu"" the account of *ing 0upp"ie !ithin the dicount period.
7. Charmaine Corporation iued chec# for fu"" payment of account to )begai" 1ndutrie
20 day after the invoice date.
/. =nding inventory, ,$00,000.
)dditiona" 1nformation8
a. 1ncome ta@ rate i 3$%.
b. The invetment portfo"io conit of hort+term invetment in mar#etab"e
eBuity ecuritie !ith a tota" mar#et va"uation of ,7$,000 a of December 31, 200$.
b. ) ,1$,000 inurance premium paid on 7ovember 30, 2003, on a po"icy e@piring one year
"ater !a charged inurance e@pene.
c. 9n <une 1, 2002, a machine purchaed for ,3$,000 !a charged to repair and
maintenance. Charmaine depreciate machine of thi type on the traight+"ine method
over a five year "ife, !ith no a"vage va"ue, for financia" and ta@ purpoe.
d. During 7ovember 200$, a competitor company fi"ed uit againt Charmaine for
patent infringement c"aiming ,200,000 in damage. Charmaine Corporation' "ega"
coune" be"ieve that an unfavorab"e outcome i probab"e. ) reaonab"e etimate of the
court' a!ard to the p"aintiff i ,$0,000.
Questions:
11. Cah
a. , $1,230 b. , -2,7-$ c. , -/,7$0 d. , 70,2$0
12. Dar#etab"e =Buity 0ecuritie
a. , $0,000 b. , -0,000 c. , 7$,000 d. , /0,000
13. ,roperty, ,"ant, E =Buipment
a. , 3./,7$0 b. , 3..,$00 c. , 32-,000 d. , 371,000
13. Tota" Current )et
a. , /..,7$0 b. , /03,./0 c. , //3,7$0 d. , .0/,7$0
1$. )ccount payab"e and other
a. , $.2,000 b. , -32,000 c. , 773,77$ d. , 7-$,-00
5
1-. (etained earning + beg
a. , 100,000 b. , 123,07$ c. , 13$,070 d. , 13-,700
17. 0a"e
a. , 3,1.0,000 b. , 3,23/,000 c. , 3,237,000 d. , 3,301,000
1/. 0e""ing and admin e@pene
a. , .3-,73$ b. , .3$,3/$ c. , .37,73$ d. , .3-,3/$
1.. (eearch and Deve"opment cot
a. , 0 b. , 30,000 c. , 3$,000 d. , $0,000
20. Depreciation
a. , 30,000 b. , 3.,000 c. , 71,$00 d. , 72,2$0
Problem 4
The Janea Company engaged Dr. Co"ieo, a C,), in 2007 to e@amine it boo# and
record and to ma#e !hatever adAutment are neceary.
The C,)' e@amination dic"oed the fo""o!ing8
a. ,rior to any adAutment, the (etained =arning account i reproduced be"o!8
(=T)17=D =)(717K0
*a"ance
Date ,articu"ar Debit Credit Debit Credit
200$
<an. 1 *a"ance $/0,000
Dec. 31 7et income for the year 310,000 /.0,000
200-
<an 31 Dividend paid 130,000 7$0,000
)pr. 3 ,aid in capita" in e@ce of par .0,000 /30,000
)ug. 30 Kain on retirement of preferred
0toc# at "e than iue price -3,$00 .03,$00
Dec. 31 7et "o for the year 20$,000 -..,$00
2007
<an 31 Dividend paid 100,000 $..,$00
Dec. 31 7et "o for the year 1-$,$00 333,000
b. Dividend had been dec"ared on December 31, 200$ and 200- but had not been
entered in the boo# unti" paid.
c. The company purchaed a machine !orth ,3-0,000 on )pri" 30, 2003. The company
charged the purchae to e@pene. The machine ha an etimated uefu" "ife of 3 year.
The company ue the traight "ine method and reidua" va"ue are deemed immateria".
d. The company received at tranportation eBuipment a donation from one of it
toc#ho"der on 0eptember 30, 200-. The eBuipment !a ued to de"iver good to
cutomer. The eBuipment cot ,7$0,000 and ha a remaining "ife of 3 year on the
date of donation. The eBuipment ha a fair va"ue of ,230,000 and ,30,000 !a incurred
6
for regitering the tranfer of o!nerhip. The company did not record the donation on it
boo#. The e@pene paid re"ated to the donated eBuipment !ere charged to e@pene.
e. The phyica" inventory of merchandie had been undertate by ,-3,000 and by
,33,$00 at the end of 200$ and 2007, repective"y.
f. The merchandie inventoried at the end of 200- and 2007 did not inc"ude
merchandie that !a then in tranit hipped &9* hipping point. Thee eBuipment of
,33,300 and ,32,-00 !ere recorded a purchae in <anuary 2007 and 200/,
repective"y.
Questions
*aed on the above audit finding, the adAuted ba"ance of the fo""o!ing are8 :Diregard
ta@ imp"ication;
21. (etained earning, 12I31I03
a. , /-0,000 b. , /$0,.00 c. , 7.0,.00 d. , 7-0,.00
22. 7et income for 200$
a. , 373,100 b. , 3-.,/00 c. , 2$3,000 d. , 21$,/00
23. (etained earning, 12I31I0$
a. , .7-,700 b. , .73,000 c. , /-0,700 d. , 720,700
23. 7et "o for 200-
a. , 37.,000 b. , 3$.,700 c. , 33.,700 d. , 2-.,700
2$. (etained earning, 12I31I0-
a. , 331,000 b. , 311,000 c. , 3/1,000 d. , 3.$,000
2-. (etained earning, 12I31I07
a. , 3-2,700 b. , 332,700 c. , 302,700 d. , 2$3,000
Problem 5
You have been engaged to audit the financia" tatement of CuaAotor Corporation for the
ca"endar year 2007. The company !a organiLed on <anuary 2, 200- and ha not been
audited before.
The fo""o!ing item re"ating to eBuity and income tatement account appear in your
6or#ing *a"ance 0heet :6*0; and 6or#ing 1ncome 0tatement :610;
6*0+ December 31, 20078 *a"ance ,er *oo#
Long+ term "iabi"itie ,230,/00
Capita" 0toc# iued $-0,000
)dditiona" ,aid in capita" 100,000
(eva"uation increment+ Land .0,000
(etained =arning $3,000
610+ Year ended December 31, 2007
1ncome before ta@ 1$0,000
,roviion for income ta@ 3$,000
1ncome before e@traordinary item 10$,000
=@traordinary item:net of ta@; 77,000
7
7et income 2/,000
&o""o!ing are your audit finding8
1. Long+ term "iabi"itie+ Thi conit
Dortgage payab"e ,1/0,000
)ccrued interet on mortgage payab"e 10,/00
(eerve for genera" contingencie $0,000
Tota" ,230,/00
The company mortgage it "and to the ,hi"ippine 7ationa" *an# for ,1/0,000 on
0eptember 1, 2007. The mortgage "iabi"ity i payab"e in 1/ emi+annua" inta""ment of
,10,000 p"u accrued interet of 1/% to date. The firt inta""ment due Darch 1, 2003.
The reerve for genera" contingencie !a et up by reo"ution of the *oard of Director
on December 27, 2007. it purpoe i to provide for poib"e future "oe due to the
ri# of an impending buine receion. ) correponding charge !a made to genera"
contingency "oe !hich i c"aified a an e@traordinary item.
2. Capita" 0toc# iued+ The company i authoriLed to iue 10,000 hare of ,100 par
va"ue common toc#. Your ana"yi of the capita" toc# iued account ho!8
2007 D=0C(1,T197 )D9H7T
<an. 1 *a"ance, 3,$00 hare iued ,3$0,000
Dar. 1 0o"d $00 hare at ,120 per hare -0,000
7ov. 1 )ement on toc#ho"der ,10 per hare $0,000
Dec. 31 *a"ance , $-0,000
3. )dditiona" paid in capita" + The account ba"ance repreent the fair va"ue of property
donated to the company in 200-. There !a no manager' chec# account in 200-.
3. (eva"uation increment :Land; 5 Land !a !ritten up to appraied va"ue on December
of 2007. The appraied va"ue of ,.0,000 !a determined by the company engineer. The
property !a acBuired in 200- at a cot of ,30,000.
$. (etained earning, December 31, 2007 5 )na"yi of the retained earning account
for 2007 ho!8
*a"ance, <anuary 1, 2007 ,1/,000
7et income 5 2007 2/,000
Kain on a"e of treaury toc# /,000
*a"ance, December 31, 2007 ,$3,000
-. 9verIHndertatement 5 The fo""o!ing overIundertatement !ere dicovered in the
coure of your audit8
200- 2007
1nventory, end 3,000 under 10,000 under
Depreciation e@pene 2,$00 under 2,000 under
)ccrued e@pene payab"e end 1,000 under 1,-00 over
8
7. =@traordinary item 5 =@traordinary item conit of8
Kenera" contingency "oe ,$0,000
6rite+off of obo"ete inventory 20,000
Lo due to earthBua#e 30,000
Tota" 110,000
Le8 Ta@ aving, 30% 33,000
=@traordinary item, net of ta@ 77,000
/. ,roviion for income ta@ + The income ta@ rate i 30%. There are no permanent
difference bet!een financia" and ta@ab"e income.
(eBuired8 &or each item be"o!, determine the amount per audit that hou"d appear in your
!or#ing ba"ance heet and !or#ing income tatement. )ume that c"ient approve a""
adAutment.
Questions
27. Capita" toc# iued
a. , $/0,000 b. , $$0,000 c. , $10,000 d. , $00,000
2/. )dditiona" paid+in capita"
a. , 1-/,000 b. , 1$0,000 c. , 110,000 d. , 100,000
2.. Long+term "iabi"itie
a. , 230,000 b. , 1.0,/00 c. , 1/0,000 d. , 1-0,000
30. Current portion of "ong+term debt
a. , /0,000 b. , 20,000 c. , 10,000 d. , 0
31. (eva"uation increment 5 Land
a. , .0,000 b. , $0,000 c. , 30,000 d. , 0
32. (etained earning, 12I31I200-
a. , 21,/$0 b. , 20,/00 c. , 1/,3$0 d. , 1/,000
33. =@traordinary item :net of ta@;
a. , 0 b. 32,000 c. 30,000 d. 2/,000
33. 1ncome before ta@
a. , .-,-00 b. 13-,-00 c. 133,-00 d. 120,300
3$. ,roviion for income ta@
a. , 30,./0 b. , 30,3/0 c. , 3-,120 d. , 2/,./0
3-. 7et income
a. , -7,-20 b. , $3,220 c. , 32,2/0 d. , 23,2/0
37. (etained earning, 12I31I2007
a. , /$,.70 b. 72,220 c. -3,0/0 d. 37,720
9
Problem 6
9n <anuary 1, 200-, FaLoo Company acBuired a factory eBuipment at a cot of ,1$0,000.
The eBuipment i being depreciated uing the traight "ine method over it proAected uefu"
"ife of 10 year. 9n December 31, 2007, a determination !a made that the aet'
recoverab"e amount !a on"y ,.-,000. )ume that thi !a proper"y computed and that
recognition of the impairment !a !arranted. 9n December 31, 200/, the aet'
recoverab"e amount !a determined to be ,111,000 and management be"ieve that the
impairment "o previou"y recogniLed hou"d be revered. You have been a#ed to ait
the company' accountant in the app"ication of ,)0 3-, the tandard on impairment of
aet.
Questions:
3/. ?o! much impairment "o hou"d be recogniLed on December 31, 2007M
a. ,0 b. ,.,000 c. ,23,000 d. ,$3,000
3.. 6hat i the aet' carrying amount on December 31, 200/M
a. ,/3,000 b. ,/-,300 c. ,.0,000 d. ,.-,000
30. 6hat !ou"d have been the aet' carrying amount at December 31, 200/,
had the impairment not been recogniLed in 2007M
a. ,/3,000 b. ,/-,300 c. ,.-,000 d. ,10$,000

31. ?o! much impairment recovery hou"d be reported in the 200/ income
tatement of FaLoo CompanyM
a. ,0 b. ,-,000 c. ,21,000 d. ,27,000
Problem 7
Dar# Company ha a department that perform machining operation on part that are o"d
to contractor. ) group of machine had an aggregate carrying amount of ,3,-.0,000 on
December 31, 200-. Thi group of machinery ha been determined to contitute a cah
generating unit for purpoe of app"ying ,)0 3-, 1mpairment of )et. ) cah generating
unit a defined in thi tandard i the ma""et identifiab"e group of aet that generate
cah inf"o! that are "arge"y independent of the cah inf"o! from other aet or group of
aet.
,reented be"o! are data about future e@pected cah inf"o! and outf"o! baed on the
diminihing productivity e@pected of the machinery a it age and the increaing cot that
!i"" be incurred to generate output from the machine.
Cot, =@c"uding
Year (evenue Depreciation
2007 ,2,2$0,000 , /30,000
200/ 2,300,000 1,2-0,000
200. 1,.$0,000 1,-$0,000
2010 -00,000 3$0,000
Tota" ,7,200,000 ,3,200,000
The fair va"ue of the machinery in thi cah generating unit, net of etimated dipoition
cot, i determined to amount to ,2,$3$,000. The company dicount the future cah f"o!
of thi cah generating unit by uing a $% dicount rate.
10
The fo""o!ing are "ifted from the preent va"ue tab"e8
,reent va"ue of 1 at $% for8
1 period 0..$23/
2 period 0..0703
3 period 0./-3/3
3 period 0./2270
$ period 0.7/3$3
Questions:
32. ?o! much impairment "o hou"d be recogniLed at December 31, 200-M
a. , 0 b. , 223,327 c. , .30,$73 d. , 1,1$$,000
Problem
9n <anuary 1, 2007, Kreg Corporation contracted !ith Dega Contruction Company to
contruct a bui"ding for ,30,000,000 on "and that Kreg purchaed evera" year ago. The
contract provide that Kreg i to ma#e five payment in 2007, !ith the "at payment
chedu"ed for date of comp"etion. The bui"ding !a comp"eted on December 31, 2007.
Kreg made the fo""o!ing payment during 20078
<anuary 1 , 3,000,000
Darch 31 /,000,000
<une 30 12,200,000
0eptember 30 /,/00,000
December 31 7,000,000
Tota" , 30,000,000
Kreg had the fo""o!ing debt outtanding at December 31, 20078
a. ) 12%, 3+year note <anuary 1, 2007, !ith interet compounded
Buarter"y. *oth principa" and interet are payab"e on December
31, 2010. Thi "oan re"ate pecifica""y to the bui"ding proAect. , 17,000,000
b. ) 10%, 10+year note dated December 31, 2003, !ith imp"e
interetC interet payab"e annua""y on December 31 12,000,000
c. ) 12%, $+year note dated December 31, 200$, !ith imp"e interetC
interet payab"e annua""y on December 31 13,000,000

Kreg adopt the a""o!ed a"ternative treatment of capita"iLing borro!ing cot under ,)0 238
*orro!ing Cot.
The fo""o!ing preent and future va"ue factor are ta#en from the preent and future va"ue
tab"e8
3% 12%
&uture va"ue of 1 for8
3 period 1.12$$1 1.$73$2
1- period 1.-0371 -.1303.
,reent va"ue of 1 for8
3 period 0.///3. 0.-3$$2
1- period 0.-2317 0.1-312
11
Questions:
33. The amount of interet to be capita"iLed during 2007 i
a. , 0 b. , 2,133,-/0 c. , 2,277,710 d. , $,013,-/0
33. The amount of interet that !ou"d be e@pened for 2007 i
a. , 0 b. , 2,277,720 c. , 2,73$,.-0 d. , $,013,-/0
Problem !
0yde" Company !a organiLed on <anuary 1, 2007, 2$,000 hare of ,100 par va"ue
ordinary hare being iued in e@change for property, p"ant, and eBuipment va"ued at
,3,000,000 and cah of ,1,000,000. The fo""o!ing data ummariLe activitie for the year.
1. 7et income for the period ending December 31, 2007 !a ,1,000,000.
2. (a! materia" on hand on December 31 !ere eBua" to 2$% of ra! materia" purchaed.
3. Danufacturing cot !ere ditributed a fo""o!8
Dateria" ued $0%
Direct "abor 30%
&actory overhead 20% :inc"ude depreciation of bui"ding, ,100,000;
3. Kood in proce remaining in the factory on December 31 !ere eBua" to 33 1I3% of the
good finihed and tranferred to toc#.
$. &inihed good remaining in toc# !ere eBua" to 2$% of the cot of good o"d.
-. =@pene !ere 30% of a"e.
7. Cot of good o"d !a 1$0% of e@pene tota".
/. 7inety percent of a"e !ere co""ected. The ba"ance !a conidered co""ectib"e.
.. 0eventy five percent of the ra! materia" purchaed !ere paid for. There !ere no
e@pene accrua" or prepayment at the end of the year.
Questions:
3$. 0a"e at year+end i8
a. , 3,000,000 b. , $,000,000 c. , 2,222,222 d. , 2,200,000
3-. Cot of good o"d at year+end i8
a. , 2,2$0,000 b. , 1,/00,000 c. , 1,200,000 d. , ---,--7
37. ,urchae at year+end i8
a. , 2,300,000 b. , 2,000,000 c. , 1,/00,000 d. , 1,$00,000
3/. Cah receipt at year+end i8
a. , 2,./0,000 b. , 3,000,000 c. , 3,-00,000 d. , $,$00,000
3.. Cot of good o"d rate i8
a. $-.2$% b. 3$% c. 30% d. 23%
$0. ,eriodic or cyc"e of e"ected inventory item are made at variou time during the year
rather than a ing"e inventory count at year end, !hich of the fo""o!ing i neceary if
the auditor p"an to oberve inventorie at interim dateM
a. Comp"ete recount by independent team are performed.
b. ,erpetua" inventory record are integrated !ith production accounting record.
c. Hnit cot record are integrated !ith production accounting record.
d. 1nventory ba"ance are rare"y at "o! "eve".
12
+++=nd of =@amination+++
Answer and Solution to the Problem
Answer -
1. b 2. a 3. d 3. d $. c
Solution Problem 1
(a) Adjustment to the Physical Inventory of 12.31.0
Item 3a ! "oods received #er $$ % 10&3 P '(120
Item 3) ! "oods sold #er *I % +&' (P12(00 , 12-.) 10(1&0
Item / 00 "oods sold #er *I % +&& 1-(/1&
Item & ! 1ost of dama2ed chemicals ( 1(&00)
Amount to )e added to the Physical Inventory P32(0+&
()) 3etecia 1om#any
Audit 4or5in2 Pa#er Adjustin2 6ntries
7ecem)er 31( 200
(1) *ales 1-(3
Accounts $eceiva)le 1-(3
8o adjust for unshi##ed 2oods:
Invoice 9o. +&+::::::.. P -('/1
+0::::::.. (+22
+1::::::. 2(010
P1-(3
(2) 1ost of *ales 2(1'3
;ouchers Paya)le 2(1'3
8o ta5e u# cost of chemicals #urchased and received #er $$ %
10&0 )ut not recorded.
(3) Inventory '(120
1ost of *ales '(120
8o include in the 6I merchandise received #er $$% 10&3.
(/) Inventory 10(1&0
1ost of *ales 10(1&0
8o include in the 6I the cost of merchandise sold #er *I % +&'
(12(00,12-.)< 2oods considered sold in 2003.
(-) *ales 1+(20
Inventory 1-(/1&
Accounts $eceiva)le 1+(20
1ost of *ales 1-(/1&
8o reverse entry made on *I % +&&< ( 2oods in transit sold =>?
destination). 1ost @ P1+(20,120.)
(&) 1laim $eceiva)le ! 8ruc5in2 1om#any 1(&00
Inventory 1(&00
8o set u# claim for unsalea)le chemicals from the truc5in2
com#any . (P1(2-0 A P3-0)
Answer -
-. b 7. d /. b .. c 10. c
Solution Problem 2
a. 1om#utation of #re#aid insurance( taBes and maintenance:
Paid for the #eriod Culy 1( 200 to Cune 30( 200' P12(000
3ess eB#ired #ortion at 12.31.0 (1,2) (&(000)
Pre#aid #ortion at 12.31.0 P &(000
). 1om#utation of cost of )uildin2 less acc. de#r.
1ost( Culy 1( 200& P2(000(000
3ess accumulated de#reciation to 12.31.0&
P2(000(000 , /0 @ P-0(000 B 1 D years -(000
13
?uildin2 cost less acc. de#r. P1(+2-(000
c. 1om#utation of 1urrent 3ia)ilities Arisin2 from the 3ease:
>ri2inal lease )alance (#resent value) P2(000(000
3ease #ayment ( Culy 1( 200& P2/2(00
3ess maintenance fee to &.30.0 12(000 230(00
3ease )alance( Culy 1( 200& P1(&+(300
3ease #ayment( Culy 1( 200 P2/2(00
3ess maintenance fee to &.30.0' 12(000
?alance a##lica)le to lease P230(00
Interest( 10. from .1.0& to .1.0 (P1(&+(300 B 10.) 1&(+30
?alance a##lica)le to lease -3(0
3ease )alance( Culy 1( 200 P1(1-(-30
Payment due on lease ! Culy 1( 200' P230(00
3ess interest at 10. from .1.0 0 .1.0' (10. B P1(1-(-30 (11(--3)
1urrent #ortion of lease lia)ility P -+(1/
Accrued interest #aya)le( .1.0 0 12.31.0 (P11(--3 , 2) '-(&
8otal 1urrent lia)ilities arisin2 from lease P1//(+23
d. 1om#utation of lon20term lia)ilities arisin2 from lease:
3ease )alance( Culy 1( 200 (refer to letter c) P1(1-(-30
3ess current #ortion of lease lia)ility (refer to letter c) (-+(1/)
3on20term lia)ilities arisin2 from the lease P1(&-&(3'3
Answer
11. c 12. c 13. a 13. a 1$. b 1-. b
17. b 1/. c 1.. b 20. b
Solution Problem 3
Additional Information:
1ost of sales 2+-(2&-.00
Accounts #aya)le 2+3(2&-.00 ;aluation AlloEance 1-(000.00
1ash 2(000.00 FnrealiGed holdin2 2ain 1-(000.00
1ash 1/(000.00 Insurance eB#ense 13(-0.00
*ales 3(000.00 $etained earnin2s 0 )e2 '(+3.00
Accounts $eceiva)le 1-0(000.00 Income taB #aya)le /('13.00
Accounts receiva)le 2+1(000.00 Pro#erty #lant H eIui# /-(000.00
*ellin2 and Admin eB# 3(000.00 $etained earnin2s 0 )e2 2+(2-0.00
*ales 2+1(000.00 Income taB #aya)le 1-(-0.00
1ash 3(000.00
$etained earnin2s 0 )e2 1-(112.00
Accounts #aya)le 100(000.00 Income taB #aya)le '(13'.00
1ash 100(000.00 7e#reciation +(000.00
Accum. 7e#reciation 32(2-0.00
*ellin2 and admin eB# 21-(000.00
1ash 21-(000.00 *ellin2 and admin eB# -0(000.00
AP and others -0(000.00
1ash 2+1(000.00
Accounts receiva)le 2+1(000.00
Accounts #aya)le 1+3(2&-.00
*ellin2 and admin eB# -(+-'.00
1ash 1++(2-0.00
1ost of sales /30(000.00
Inventory /30(000.00
Inventory -00(000.00
1ost of sales -00(000.00
Net Sales 3,238,000.00 3,238,000.00
14
Cost of sales 1,895,265.00 1,895,265.00
Gross profit 1,342,735.00 1,342,735.00
Other Operating ino!e " 15,000.00 15,000.00
#otal 1,342,735.00 1,357,735.00
Selling an$ a$!in 873,985.00 63,750.00 937,735.00
%epreiation 40,000.00 9,000.00 49,000.00
& ' % 30,000.00 30,000.00
(no!e fro! operations 398,750.00 341,000.00
)ro*ision for ino!e ta+ " 119,350.00
Net ino!e 398,750.00 221,650.00
&etaine$ ,arnings " -eg 100,000.00 15,112.00 38,187.00 123,075.00
&etaine$ ,arnings " en$ 498,750.00 344,725.00
Cash 68,750.00 68,750.00
.ar/eta-le se0rities 60,000.00 15,000.00 75,000.00
1o0nts reei*a-le 300,000.00 300,000.00
1llo2ane for 3% 459,000.005 459,000.005
(n*entories 500,000.00 500,000.00
)repai$ e+penses 15,000.00 15,000.00
)ropert6 plant ' e70ip 426,000.00 45,000.00 471,000.00
10!. %epreiation 440,000.005 32,250.00 472,250.005
Other 1ssets 120,000.00 120,000.00
1,390,750.00 1,418,500.00
1) ' others 592,000.00 50,000.00 642,000.00
(no!e ta+ pa6a-le " 8,138.00 139,913.00 131,775.00
Co!!on sto/ 300,000.00 300,000.00
&etaine$ earnings 498,750.00 344,725.00
1,390,750.00 1,418,500.00
Answer
21. a 22. c 23. b 23. a 2$. d 2-. d
Solution Problem 4
200- 200& 200
Fnadjusted net income,(loss) 310(000 (20-(000) (1&-(-00)
Adjustments:
JcK ! 7e#reciation (120(000) (120(000) (/0(000)
JdK ! 6rror in char2in2 to eB#ense 30(000
7e#reciation (20(000) ('0(000)
JeK ! Fnderstatement of inv. ! 200- &/(000 (&/(000)
Fnderstatement of inv. 0 200 //(-00
JfK ! Fnderstatement of inv. 0 200& /3(/00 (/3(/00)
Fnderstatement of inv. ! 200 32(&00
Fnder. of #urchases ! 200& (/3(/00) /3(/00
Fnder. of #urchases ! 200 LLLLLLLLLLL LLLLLLLLLLL (32(&00)
Adjusted 9et income 2-/(000 (3+(000) (2/1(000)
Plus: $etained 6arnin2s ! )e2 unadj. -'0(000
Prior #eriod adjustment
6rror in char2in2 to eB#ense 3&0(000
Fnrecorded de#reciation ('0(000)
$etained 6arnin2s ! )e2 adjusted '&0(000 +/(000 /+-(000
3ess: 7ividends (1/0(000) (100(000) LLLLLLLLL
$etained earnin2s ! end +/(000 /+-(000 2-/(000
Answer
27. d 2/. a 2.. d 30. b 31. d 32. c
33. a 33. a 3$. d 3-. a 37. a
15
Solution Problem 5
3on20term lia)ility 20(000
Mort2a2e Paya)le ! current 20(000
3on20term lia)ility 10('00
Interest #aya)le 10('00
3on20term lia)ility -0(000
6Btraordinary item 3-(000
Income taB #aya)le 1-(000
1a#ital stoc5 10(000
API1 10(000
1a#ital stoc5 -0(000
API1 -0(000
API1 100(000
API1 0 7onated ca#ital 100(000
$evaluation increment /0(000
3and /0(000
"ain on sale '(000
API1 ! 8* '(000
?e2. Inventory /(000
$etained earnin2s 0 )e2 2('00
Income taB #aya)le 1(200
Inventory 10(000
1ost of sales 10(000
$etained earnin2s ! )e2 1(-0
Income taB #aya)le -0
7e#reciation 2(000
Accum. 7e#reciation /(-00
$etained earnin2s ! )e2 00
Income taB #aya)le 300
6B#enses 1(000
Accrued eB#enses 1(&00
6B#enses 1(&00
3oss on inventory 20(000
3oss on dama2es /0(000
6Btraordinary items /2(000
Income taB #aya)le 1'(000
Fnadjusted 9I 1-0(000
Fnder )e2. Inv. ( /(000)
Fnder endin2 invent. 10(000
Fnder de#reciation ( 2(000)
Fnder A6 ! )e2 1(000
>ver A6 ! end 1(&00
3oss on inventory(20(000)
3oss on dama2es (/0(000)
Income )efore taB +&(&00
Provision 2'(+'0
9et income &(&20
Answer
3/. c 3.. a 30. d 31. c
Solution Problem 6
3'. $ecovera)le amount +&(000
1arryin2 value 120(000
Im#airment 3oss 2/(000
3+. 1arryin2 value ! 12,31,0 +&(000
7e#reciation ! 200' 12(000
1arryin2 value ! 12.31,0' '/(000
/0. Nistorical cost 1-0(000
7e#reciation ! 200& to 200' /-(000
1arryin2 value had no im#airment )een made 10-(000
16
/1. 1arryin2 value had no im#airment )een made 10-(000
1arryin2 value Eith im#airment '/(000
$e#lacement cost 111(000
Im#airment loss (10-(000 ! '/(000) 21(000
PA* 3& #rovides that Jan im#airment loss reco2niGed for an asset in #rior years should )e reversed if there has
)een a chan2e in the estimate used to determine the assetOs recovera)le amount since the last im#airment loss
Eas reco2niGed.K
8his means that the recovera)le amount of an asset that has #reviously )een im#aired turns out to )e hi2her than
the assetOs current carryin2 value( the carryin2 amount of the asset should )e increased to its neE recovera)le
amount.
NoEever( the standard further #rovides that Jthe increased carryin2 amount of an asset due to a reversal of an
im#airment loss shall not eBceed the carryin2 amount that Eould have )een determined( had no im#airment loss
)een reco2niGed for the asset in #rior years.K
Answer -
32. c
Solution - Problem 7
=air mar5et value 0 2(-3-(000
Cash (nflo2 Cash O0tflo2 Net Cash flo2 )8 fators 8al0e in 9se
2,250,000.00 840,000.00 1,410,000.00 0.95238 1,342,855.80
2,400,000.00 1,260,000.00 1,140,000.00 0.90703 1,034,014.20
1,950,000.00 1,650,000.00 300,000.00 0.86384 259,152.00
600,000.00 450,000.00 150,000.00 0.82270 123,405.00
2,759,427.00
$ecovera)le amount 2(-+(/2
1arryin2 value 3(&+0(000
Im#airment loss +30(-3
Answer
33 c 33. c
Solution Problem 8
1om#utation of Avera2e Accumulated 6B#enditures:
/(000(000 B 12,12 @ /(000(000
'(000(000 B +,12 @ &(000(000
12(200(000 B &,12 @ &(100(000
'('00(000 B 3,12 @ 2(200(000
(000(000 B 0,12 @ 0
1'(300(000
1om#utation of Interest Potentially 1a#italiGa)le (Avoida)le Interest)
*#ecific )orroEin2 !
=uture value 0 1(000(000 B 1.12--1 @ 1+(133(&0
Present value 1(000(000 2(133(&0
"eneral )orroEin2
2(''0(000,2&(000(000 @ 11.0' B 1(300(000 1//(0/0
2(2(10
Actual Interest 1ost !
*#ecific )orroEin2 2(133(&0
"eneral )orroEin2
12(000(000 B 10. 1(200(000
1/(000(000 B 12. 1(&'0(000
-(013(&0
Interest to )e ca#italiGed is P 2(2(10 Ehich is the loEer )etEeen the Interest Potentially 1a#italiGa)le and the
Actual Interest 1ost.
17
8otal interest cost -(013(&0
1a#italiGed interest 2(2(10
Interest eB#ense ! 200 2(3-(+&0
Answer -
3$. a 3-. b 37. b 3/. c 3.. b $0. b
Solution Problem 9
*ales (1(000(000,2-.) /(000(000
1ost of 2oods sold (/-. B /(000(000) (1('00(000)
"ross income 2(200(000
6B#enses (30. B /(000(000) (1(200(000)
9et income 1(000(000
1ost of 2oods sold (1-0. B 30.) /-.
9et income (100. 0 /-. 0 30.) 2-.
Computation:
Purchases (1(-00(000,-.) 2(000(000
$aE materials ! 7ecem)er 31 -00(000
$aE materials used (-0. B 3(000(000) 1(-00(000
7irect la)or (30. B 3(000(000) +00(000
=actory overhead (20. B 3(000(000) &00(000
8otal manufacturin2 cost 3(000(000
"oods in #rocess ! 7ecem)er 31 (1,3 B 2(2-0(000) -0(000
1ost of 2oods manufactured 2(2-0(000
=inished 2oods ! 7ecem)er 31 (2-. B 1('00(000) /-0(000
1ost of 2oods sold 1('00(000
1ash recei#ts:
1ash investment 1(000(000
1ollections (+0. B /(000(000) 3(&00(000 /(&00(000
1ash dis)ursements:
Purchases (-. B 2(000(000) 1(-00(000
7irect la)or +00(000
=actory overhead (&00(000 ! 100(000) -00(000
>#eratin2 eB#enses 1(200(000 /(100(000
1ash )alance ! 7ecem)er 31 -00(000
18
PB Examination No. 2
INSTRUCTIONS: SELECT THE CORRECT RESPONSE TO EACH NUMBERED QUESTIONS.
USE THE SPECIAL ANSWER SHEET AND DRAW A VERTICAL LINE ACROSS THE LETTERED
BOX THAT CORRESPONDS TO YOUR CHOICE. STRICTLY NO ERASURES ARE ALLOWED.
======================================================================
Problem 1
1n reconci"ing the cah in ban# account of Charmaine Company !ith the ban# tatement
ba"ance for the month of <u"y 2007, the fo""o!ing data are ummariLed8
Cah in ban#8
*a"ance, <une 30 1,000,000
*oo# debit for <u"y inc"uding <une CD for note co""ected, ,300,000 3,000,000
*oo# credit for <u"y inc"uding <une 70& of ,100,000 and ervice
charge of ,3,000 3,-00,000
*an# tatement for <u"y8
*a"ance, <une 30 1,-$0,000
*an# debit for <u"y inc"uding ervice charge of ,1,000 and <une
outtanding chec# of ,/$3,000 2,$00,000
*an# credit for <u"y inc"uding CD for ban# "oan of ,$00,000 and
<une depoit in tranit of ,300,000 3,$00,000
Questions:
1. Depoit in tranit at <u"y 31 i8
a. , 1,1$0,000 b. , 1,100,000 c. , .00,000 d. , /$0,000
2. 9uttanding chec# at <u"y 31 i8
a. , 1,/$1,000 b. , 1,.$3,000 c. , 1,.$1,000 d. , 1,/-1,000
3. Cah ba"ance at <une 30 i8
a. , 1,/3-,000 b. , 1,-$0,000 c. , 1,1.-,000 d. , 1,200,000
3. Cah ba"ance at <u"y 31 i8
a. , 1,$..,000 b. , 1,/3-,000 c. , 1,/..,000 d. , 2,300,000
$. )n entity' interna" contro" tructure reBuire for every chec# reBuet that there be an
approved voucher, upported by a prenumbered purchae order and prenumbered
receiving report. To determine !hether chec# are being iued for unauthoriLed
e@penditure, an auditor mot "i#e"y !ou"d e"ect item for teting from the popu"ation of
a""
a. ,urchae order.
b. Cance"ed chec#.
c. (eceiving report.
d. )pproved voucher.
19

Problem 2
KaLe Company e"" direct"y to cutomer. 9n <anuary 1, 200-, the ba"ance of account
receivab"e !a ,2$0,000 !hi"e a""o!ance for doubtfu" account !a a credit of ,20,000.
The fo""o!ing data are avai"ab"e ince 20038
Credit a"e 6rite+off (ecoverie
2003 1,100,000 2-,000 2,000
2003 1,200,000 2.,000 3,000
200$ 1,$00,000 30,000 3,000
200- 3,000,000 30,000 $,000
Doubtfu" account are provided for a a percentage of credit a"e. The accountant
ca"cu"ate the percentage annua""y by uing the e@perience of the three year prior to the
current year. The formu"a i account !ritten off "e recoverie e@preed a a percentage
of the credit a"e for the period. Cah receipt in 200- from credit a"e amounted to
,2,-1$,000.
Questions:
-. 6hat i the percentage to be ued in computing the a""o!ance for doubtfu" account on
December 31, 200-M
a. 1.-3% b. 1.7$% c. 2.00% d. 2.17%
7. ?o! much i the proviion for doubtfu" account for 200-M
a. , -$,100 b. , -0,000 c. , $2,$00 d. , 3/,.00
/. 6hat i the "edger ba"ance of account receivab"e on December 31, 200-M
a. , -1$,000 b. , -00,000 c. , $33,.00 d. , 3/$,000
.. 6hat i the "edger ba"ance of the a""o!ance for doubtfu" account after neceary
adAutment on December 31, 200-M
a. , 2/,.00 c. , 32,$00 c. , 3$,000 d. , 3$,100
10. 6hich of the fo""o!ing contro" mot "i#e"y !ou"d he"p enure that a"" credit a"e
tranaction of an entity are recordedM
a. The bi""ing department upervior end copie of approved a"e order to the
credit department foe comparion to authoriLed credit "imit and current cutomer
account.
b. The accounting department upervior independent"y reconci"e the account
receivab"e ubidiary "edger to the account receivab"e contro" account month"y.
c. The accounting department upervior contro" the mai"ing of month"y tatement to
cutomer and invetigate any difference reported by cutomer.
d. The bi""ing department upervior matche prenumbered hipping document !ith
entrie in the a"e Aourna".
Problem 3
Detro Company ha e@perience a critica" cah f"o! prob"em "arge"y occaioned by co""ection
prob"em !ith cutomer. ConeBuent"y, it ha become invo"ved in a number of
tranaction re"ating to note receivab"e. The fo""o!ing tranaction occurred during a period
ending December 318
20
Day 1 (eceived a ,200,000, .0+day, 12% interet bearing note from =&, a
cutomer, in ett"ement of an account.
1 (eceived a ,300,000, i@ month, 12% interet bearing note from D7, a
cutomer, in ett"ement of an account.
<u"y 30 =& defau"ted on the ,200,000 note.
)ug. 1 Dicounted the D7 note at the ban# at 1$%.
0ept. 1 (eceived a one+year noninteret bearing note from D<, a cutomer, in
ett"ement of a ,120,000 account receivab"e. The face of the note !a
,132,000.
2/ Co""ected the defau"ted =& note p"u accrued interet 12% per annum on the
tota" amount due.
9ct. 1 (eceived a ,$00,000, .0+day note from (0, a cutomer. The note !a in
payment for good purchaed and !a interet bearing at 12%.
7ov. 1 D7 defau"ted on the ,300,000 note. Detro Company paid the ban# the tota"
amount due p"u a ,12,000 protet fee and other ban# charge.
Dec. 30 Co""ected (0 note in fu"".
31 Co""ected from D7 in fu"" inc"uding interet on tota" amount due at 12% ince
defau"t date.
Questions:
11. ,roceed in the dicounting of note on )ugut 1 i8
a. , 323,07$.00 b. , 30-,07$.00 c. , 323,300.00 d. , 2.7,312.$0
12. ,roceed in the co""ected note on 0eptember 2/ of =& that !a defau"ted i8
a. , 210,120.00 b. , 20-,000.00 c. , 203,000.00 d. , 202,000.00
13. ,roceed of (0 note that !a co""ected on December 30 i8
a. , $1$,000.00 b. , $00,000.00 c. , 3/$,000.00 d. , 3$0,000.00
13. ,roceed of D7 note that !a co""ected on December 31 i8
a. , 31/,000.00 b. , 323,000.00 c. , 33-,-00.00 d. , 33-,000.00
1$. 6hich of the fo""o!ing i not a tep in an auditor' deciion to ae contro" ri# at
be"o! the ma@imumM
a. =va"uate the effectivene of the interna" contro" procedure !ith tet of contro".
b. 9btain an undertanding of the entity' accounting ytem and contro" environment.
c. ,erform tet of detai" of tranaction to detect materia" mitatement in the
financia" tatement.
d. Conider !hether contro" procedure can have a pervaive effect on financia"
tatement aertion.
Problem 4
De"i Company i a !ho"ea"e ditributor of automotive rep"acement part. 1nitia" amount
ta#en from accounting record on December 31, 200- are a fo""o!8
1nventory at December 31 :baed on phyica" count on December; 1,2$0,000
)ccount payab"e 1,000,000
0a"e .,000,000
21
)dditiona" information i a fo""o!8
1. ,art he"d on conignment from NY> to De"i, the conignee, amounting to ,1-$,000,
!ere inc"uded in the phyica" count on December 31, 200-, and in account payab"e at
December 31, 200-.
2. ,20,000 of part !hich !ere purchaed and paid for in December 200-, !ere o"d in
the "at !ee# of 200- and appropriate"y recorded a a"e of ,2/,000. The part !ere
inc"uded in the phyica" count on December 31, 200-, becaue the part !ere on the
"oading doc# !aiting to be pic#ed up by the cutomer.
3. ,art in tranit on December 31, 200-, to cutomer, hipped &9* hipping point, on
December 2/, 200-, amounted to ,33,000. The cutomer received the part on
<anuary -, 2007. 0a"e of ,30,000 to the cutomer for the part !ere recorded by De"i
on <anuary 2, 2007.
3. (etai"er !ere ho"ding ,210,000 at cot and ,2$0,000 at retai", of good on
conignment from De"i, at their tore on December 31, 200-.
$. Kood !ere in tranit from a vendor to De"i on December 31, 200-. The cot of
good !a ,2$,000, and they !ere hipped &9* hipping point on December 2., 200-.
Questions:
1-. The inventory at year+end i8
a. , 1,320,000 b. , 1,300,000 c. , 1,2.0,000 d. , 1,270,000
17. The account payab"e at year+end i8
a. , 1,1.0,000 b. , 1,1-$,000 c. , /-0,000 d. , /3$,000
1/. 7et a"e at year+end i8
a. , /,.-0,000 b. , .,033,000 c. , .,000,000 d. , .,030,000
1.. 6hich of the fo""o!ing Buetion !ou"d mot "i#e"y be inc"uded in an interna" contro"
Buetionnaire concerning the comp"etene aertion for purchaeM
a. 1 an authoriLed purchae order reBuired before the receiving department can accept
a hipment or the voucher payab"e department can record a voucherM
b. )re purchae reBuiition prenumbered and independent"y matched !ith vendor
invoiceM
c. 1 the unpaid voucher fi"e periodica""y reconci"ed !ith inventory record by an
emp"oyee !ho doe not have acce to purchae reBuiitionM
d. )re purchae order, receiving report, and voucher prenumbered and periodica""y
accounted forM
Problem 5
9n )pri" 30, 200-, a fire damaged the office of )maLe Company. The fo""o!ing ba"ance
!ere gathered from the genera" "edger on Darch 31, 200-8
)ccount receivab"e .20,000
1nventory 5 <anuary 1 1,//0,000
)ccount payab"e .$0,000
0a"e 3,-00,000
,urchae 1,-/0,000
)dditiona" information8
22
1. )n e@amination of the )pri" ban# tatement and cance"ed chec# !ritten during the
period )pri" 1+30 a fo""o!8
)ccount payab"e a of Darch 31 230,000
)pri" merchandie hipment /0,000
=@pene 1-0,000
Depoit during the ame period amounted to ,330,000 !hich conited of co""ection
from cutomer !ith the e@ception of ,20,000 refund from a vendor for merchandie
returned in )pri".
2. Cutomer ac#no!"edgement indebtedne of ,1,030,000 at )pri" 30, 200-.
Cutomer o!ed another ,30,000 that !i"" never be recovered. 9f the ac#no!"edge
indebtedne, ,30,000 may prove unco""ectib"e.
3. Correpondence !ith upp"ier revea"ed unrecorded ob"igation at )pri" 30 of
,330,000 for )pri" merchandie hipment, inc"uding ,100,000 for hipment in tranit on
that date.
3. The average gro profit rate i 30%.
$. inventory !ith a cot of ,2-0,000 !a a"vaged and o"d for ,130,000. The ba"ance
of the inventory !a a tota" "o.
Questions:
20. 0a"e from <anuary 1 to )pri" 30, 200- i8
a. , 3,220,000 b. , 3,200,000 c. , 3,-00,000 d. , 3,3/0,000
21. ,urchae from <anuary 1 to )pri" 30, 200- i8
a. , 2,100,000 b. , 2,020,000 c. , 1,./0,000 d. , 1,-/0,000
22. &ire "o on )pri" 30, 200- i8
a. , 1,200,000 b. , 1,330,000 c. , 1,330,000 d. , 1,130,000
23. ,eriodic or cyc"e of e"ected inventory item are made at variou time during the year
rather than a ing"e inventory count at year end, !hich of the fo""o!ing i neceary if
the auditor p"an to oberve inventorie at interim dateM
a. Comp"ete recount by independent team are performed.
b. ,erpetua" inventory record are integrated !ith production accounting record.
c. Hnit cot record are integrated !ith production accounting record.
d. 1nventory ba"ance are rare"y at "o! "eve".
23. Tracing bi"" of "ading to a"e invoice provide evidence that
a. 0hipment to cutomer !ere recorded a a"e.
b. (ecorded a"e !ere hipped.
c. 1nvoiced a"e !ere hipped.
d. 0hipment to cutomer !ere invoiced.
Problem 6
The management of <=77Y Company ha engaged you to ait in the preparation of year+
end :December 31; financia" tatement. *aed on your e@amination, the fo""o!ing
pertinent information !ere gathered8
23
a. The company' year+end inventory of 33,$00 unit i baed on a phyica" count ta#en on
December 31 !hich ha been underta#en under your obervation.
b. During the month of December, a"e tota"ed 13/,-30 unit inc"uding 30,000 unit
hipped on conignment to *)0)7 Corporation.
c. ) "etter received from the *)0)7 Corporation indicate that a of December 31, it ha
o"d 1$,200 unit and !a ti"" trying to e"" the remainder.
d. Your revie! of the December purchae order to variou upp"ier dic"oed the
fo""o!ing8
a. 3,200 unit !ere hipped on <anuary 2, 2003 and received on <anuary $, 2003,
under &9* detination.
b. 3,-00 unit !ere hipped on December 17, 2003 and received on December 22,
2003, under &9* detination.
c. 7,.00 unit !ere hipped on <anuary $, 2003 and received on <anuary 7, 2003,
under &9* hipping point.
d. /,000 unit !ere hipped on December 2., 2003 and received on <anuary 2, 2003,
under &9* hipping point.
e. 3,-00 unit !ere hipped on <anuary 3, 2003 and received on <anuary -, 2003,
under &9* detination.
f. 3,$00 unit !ere hipped on <anuary $, 2003 and received on <anuary 7, 2003,
under &9* detination.
e. <=77Y Company ue the Opaing of "ega" tit"eP for inventory recognition.
Questions:
2$. 1nventory ba"ance in unit to be reported on December 31, 2003
a. 7-,300 unit b. $$,100 unit c. $1,$00 unit d. 33,-00 unit
2-. Tota" unit avai"ab"e for a"e to be reported on December 31, 2003
a. 1$7,330 unit b. 1-$,330 unit c. 1-/,.-0 unit d. 1.0,130 unit
27. Cot of a"e in unit to be reported on December 31, 2003
a. 1$3,/30 unit b. 13/,-30 unit c. 12$,330 unit d. 113,/30 unit
2/. 1nventory "eve" in unit on 7ovember 30, 2003
a. 17/,$30 unit b. 1-/,.-0 unit c. 1-$,330 unit d. 1$7,330 unit
2.. ,urchae for the month i
a. 3,-00 unit b. 11,-00 unit c. 1-,200 unit d. 1.,700 unit
Problem 7
The income tatement and a chedu"e reconci"ing cah f"o! from operating activitie to net
income are provided be"o! :, in 000; for )baAero Computer.
)baAero Computer
1ncome 0tatement
&or the year ended Dec. 31, 2003
0a"e 30$
24
Cot of good o"d 1/$
Kro profit 120
0a"arie e@pene 31
1nurance e@pene 1.
Depreciation e@pene 11
Lo on a"e of "and $ 7-
1ncome before ta@ 33
1ncome ta@ e@pene 22
7et 1ncome 22
)baAero Computer
1ncome 0tatement
&or the year ended Dec. 31, 2003
7et income 22
)dAutment for 7oncah effect8
Depreciation e@pene 11
Lo on a"e of "and $
Decreae in account receivab"e -
1ncreae in inventory : 13;
Decreae in account payab"e : /;
1ncreae in a"arie payab"e $
Decreae in prepaid inurance .
1ncreae in income ta@ payab"e 20
7et cah f"o! from operation $7
Questions:
30. The cah received from cutomer during the reporting period i8
a. , 31. b. , 311 c. , 30$ d. , 2..
31. The cah paid to upp"ier of good during the reporting period i8
a. , 213 b. , 20- c. , 1./ d. , 1.0
32. The cah paid to emp"oyee during the reporting period i8
a. , 3- b. , 31 c. , 3- d. , 11
33. The cah paid for inurance during the reporting period i8
a. , 10 b. , 11 c. , 1. d. , 2/
33. The cah paid for income ta@e during the reporting period i8
a. , 32 b. , 22 c. , 1/ d. , 2
Problem
1n your audit of the December 31, 200/, financia" tatement of )*=LL9, 17C., you found
the fo""o!ing inventory+re"ated tranaction.
a. Kood coting ,2$,000 are on conignment !ith a cutomer. Thee good
!ere not inc"uded in the phyica" count on December 31, 200/.
b. Kood coting ,1-,$00 !ere de"ivered to )be""o, 1nc. on <anuary 3, 200.. The
invoice for thee good !a received and recorded on <anuary 10, 200.. The invoice
ho!ed the hipment !a made on December 2., 200/, &9* hipping point.
25
c. Kood coting ,21,-30 !ere hipped &9* hipping point on December 31,
200/, and !ere received by the cutomer on <anuary 2, 200.. )"though the a"e !a
recorded in 200/, thee good !ere inc"uded in the 200/ ending inventory.
d. Kood coting ,/,-3$ !ere hipped to a cutomer on December 31, 200/,
&9* detination. Thee good !ere de"ivered to the cutomer on <anuary $, 200., and
!ere not inc"uded in the inventory. The a"e !a proper"y ta#en up in 200..
e. Kood coting ,/,-00 hipped by a vendor under &9* detination term, !ere
received on <anuary 3, 200., and thu !ere not inc"uded in the phyica" inventory.
*ecaue the re"ated invoice !a received on December 31, 200/, thi hipment !a
recorded a a purchae in 200/.
f. Kood va"ued at ,$1,000 !ere received from a vendor under conignment
term. Thee good !ere not inc"uded in the phyica" count.
g. )be""o, 1nc. recorded a a 200/ a"e a p-3,300 hipment of good to a
cutomer on December 31, 200/, &9* detination. Thi hipment of good coting
,37,$00 !a received by the cutomer on <anuary $, 200., and !a not inc"uded in the
ending inventory figure.
,rior to any adAutment, )be""o, 1nc.' ending inventory i va"ued at ,33$,33- and the
reported net income for the year i ,1,-3/,723.
Questions:
3$. The correct inventory amount to be reported in the financia" tatement of
)be""o, 1nc. for the year ended December 31, 200/ i
a. , $$3,-31 b. , $17,131 c. , $11,3$1 d. , 3/-,20-
3-. The adAuted net income for the year 200/ i
a. , 1,712,-0/ b. , 1,-/$,/0/ c. , 1,-32,$2/ d. , 1,-31,/2/
Problem !
The )*=(K)0, 17C., reported net income before ta@e of ,/33,-00 for 2007 and ,.-$,300
for 200/. The company ta#e it annua" phyica" count of inventory every December 31.
Your audit revea"ed the fo""o!ing information8
a. The price ued for 1, $00 unit inc"uded in the 2007 ending inventory !a ,10.. The
correct cot !a ,1.0 per unit.
a. Kood coting ,23,-00 !a received from a vendor on <anuary $, 200/. the
hipment !a made on December 2-, 2007, under &9* hipping point term. The
purchae !a recorded in 2007 but the hipment !a not inc"uded in the 2007, ending
inventory.
b. Derchandie coting p-3,7$0 !a o"d to a cutomer on December 2., 2007.
)*=(K)0 !a a#ed by the cutomer to #eep the merchandie unti" <anuary 3, 200/,
!hen the cutomer !ou"d come and pic# it up. )"though the a"e !a proper"y recorded
in 2007, the merchandie !a inc"uded in the ending inventory.
c. ) upp"ier o"d merchandie va"ued at ,13,000 to )berga, 1nc. The merchandie
!a hipped &9* hipping point on December 2., 2007, and !a received by )berga on
26
December 31, 2007. The purchae !a recorded in 200/ and the merchandie !a not
inc"uded in the 2007 ending inventory.
Questions:
37. )dAuted net income of 2007 i
a. , 1,0/7,3$0 b. , .-$,.$0 c. , .//,700 d. , .23,.$0
3/. )dAuted net income of 200/ i
a. , 1,03$,7$0 b. , //$,0$0 c. , /33,0$0 d. , 7$$,$$0
Problem 1"
)"ang Corporation ue the phyica" inventory ytem. You oberved the ta#ing of a
phyica" inventory on December 31, 2007. The tota" inventory cot per c"ient' "it i
,37-,000.
Tet of inventory pricing and Buantitie revea"ed the fo""o!ing8
a. ) revie! of Buantitie in the inventory "it !ith thoe in the origina" inventory tag
dic"oed that one inventory item hou"d be 10 doLen intead of 10 unit. The price per
c"ient "it i ,100 per unit.
b. 1nventory inc"ude ,$0,000 !orth of good received on conignment from (ecta
Company. &reight and other hipping charge tota"ing ,$,000 !hich !ere incurred by
)"ang Corporation !ere recorded a de"ivery e@pene. Thee are to be deducted from
)"ang' payment to (ecta !hen conigned good are o"d.
c. To acertain that there !a a proper cut+off, you revie!ed purchae and a"e
tranaction a fe! day before and after December 31, 2007. You revie! dic"oed the
fo""o!ing8
a. ,urchae invoice for ,1$,000 phyica""y counted on December 31, 2007, !a
recorded in <anuary 200/ voucher regiter.
b. Kood !ith an invoice price of ,1/,000 :cot ,12,000; hipped to a cutomer &9*
detination on December 2/, 2007, !ere in tranit on December 31, 2007. 7o entry
!a made to record the a"e.
c. Derchandie coting ,73,$00 !a conigned to )"berca Corporation on December 23,
2007 )"ang record conignment hipment on a memorandum bai and bear the
cot of hipping to conignee. ) of December 31, 2007, )"berca reported a"e
tota"ing ,30,000 ince December 23, and c"aimed ,-,000 a commiion of 20% of
a"e. )"berca a"o c"aimed reimburement of ,3,000 for freight paid on December
2007 and ,$00 for advertiing e@pene to be borne by )"ang. 7o entry ha been
made on )"ang' boo# for the conignment a"e and the cot incurred by )"berca.
You have verified that a of December 31, 2007, the cot of conigned good
amount to ,$.,-00.
?aving been appointed auditor on"y in Day 200/, you !ere unab"e to phyica""y oberve the
ta#ing of c"ient' inventory on December 31, 2007. ?o!ever, you adopted a"ternative
mean to verify thi item. Through inBuiry and revie! of the inventory ummary heet and
record, you became a!are that the beginning inventory !a undertated by ,1$,000.
9ther than thi, you !ere atified a to the genera" accuracy of the opening inventory.
Questions:
27
3.. 1nventorie received from conignor !i""
a. 7ot be recorded but inc"uded in the inventorie tota".
b. 7ot be recorded but inc"uded in the note to the ba"ance heet
c. *e recorded !ith a debit to inventorie.
d. =ither recorded or not recorded.
30. The hipping charge on the good received on conignment !a treated a
a. 9ther receivab"e c. De"ivery charge
b. Deduction to account payab"e d. 7one of the above
31. 6hich of the fo""o!ing cot incurred by )"berca Corporation hou"d be
capita"iLed by )"ang a part of the conigned goodM
a. &reight charge c. )dvertiing charge
b. Conignment commiion d. 7one of the above
32. ?o! much of the cot incurred by )"berca Corporation hou"d be charged to
operating e@peneM
a. , 10,$00 b. , 7,300 c. , -,$00 d. , -,000
33. 6hat i the cot of conignment a"e that hou"d be reported by )"ang in
connection !ith the a"e of conigned good by )"bercaM
a. , 1/,.00 b. , 1-,.00 c. , 1$,700 d. , 13,.00
33. The inventorie on conignment !i"" be ho! a 2007 ba"ance of
a. , -7,-00 b. , -3,/00 c. , -2,/00 d. , $.,-00
3$. The 2007 inventorie !i"" be
a. , 311,/00 b. , 30/,-00 c. , 33/,300 d. , 312,$00
3-. The undertatement in beginning inventory !i"" reu"t to
a. 7et income decreae c. (etained earning decreae
b. (etained earning increae d. 7et income increae
Problem 11
The fo""o!ing information i baed on a firt audit of (ue"" Company. The c"ient ha not
prepared financia" tatement for 200$, 200- or 2007. During thee year, no account
have been !ritten off a unco""ectib"e, and the rate of gro profit on a"e ha remained
contant for each of the three year.
,rior to <anuary 1, 200$, the c"ient ued the accrua" method of accounting. &rom <anuary 1,
200$, to December 31, 2007, on"y cah receipt and diburement record !ere
maintained. 6hen a"e on account !ere made, they !ere entered in the ubidiary
account receivab"e "edger. 7o genera" "edger poting have been made ince December 31,
2003.
) a reu"t of your e@amination, the correct data ho!n in the tab"e be"o! are avai"ab"e8
12I31I03 12I31I07
)ccount receivab"e ba"ance8
Le than one year o"d , 1$,300 , 2/,200
9ne to t!o year o"d 1,200 1,/00
T!o to three year o"d /00
9ver three year o"d 2,200
28
Tota" account receivab"e , 1-,-00 , 33,000
1nventorie , 11,-00 ,1/,/00
)ccount payab"e for inventory purchaed , $,000 ,11,000
Cah received on account receivab"e in8
200$ 200- 2007
)pp"ied to8
Current year co""ection ,13/,/00 ,1-2,/00 ,20/,/00
)ccount of the prior year 13,300 1$,000 1-,/00
)ccount of t!o year prior -00 300 2,000
Tota" ,1-2,/00 ,177,200 ,227,-00
Cah a"e , 17,000 , 2-,000 , 31,200
Cah diburement for
1nventory purchaed ,12$,000 ,131,200 ,173,/00
Guetion8
37. The company' a"e revenue for the three+year period amounted to
a. , 73,200 b. , 31$,300 c. , -2$,300 d. , -$/,200
3/. The aggregate amount of purchae for the three+year period i
a. , 131,000 b. , 333,000 c. , 330,000 d. , 33-,000
3.. 6hat i the company' gro profit ratio in each of the three+year periodM
a. 33.33% b. 2/.3$% c. 3$.1-% d. 31.1$%
$0. 6hat i the company' gro profit for each of the three+year periodM
200$ 200- 2007
a. , -0,.33 , -/,200 , /0,000
b. $$,$33 -0,133 7.,000
c. 122,300 137,-00 17/,/00
d. -1,200 -/,/00 /.,300
+++=nd of =@amination+++
29
Answer and Solution to the Problem
Answer
1. b 2. a 3. c 3. c $. b
Solution Problem 1
a. Bank reconciliation June 30
3oo/ -alane 1,000,000
1$$: Cre$it !e!o for note ollete$ 300,000
#otal 1,300,000
;ess: NS< he/ 100,000
Ser*ie harge 4,000 104,000
1$=0ste$ -oo/ -alane 1,196,000
3an/ -alane 1,650,000
1$$: %eposit in transit 400,000
#otal 2,050,000
;ess: O0tstan$ing he/s 854,000
1$=0ste$ -an/ -alane 1,196,000
Bank reconciliation July 31
3oo/ -alane 1,400,000
1$$: Cre$it !e!o for -an/ loan 500,000
#otal 1,900,000
;ess: Ser*ie harge 1,000
1$=0ste$ -oo/ -alane 1,899,000
3an/ -alane 2,650,000
1$$: %eposit in transit 1,100,000
Total 3,750,000
;ess: O0tstan$ing he/s 1,851,000
1$=0ste$ -an/ -alane 1,899,000
-. Adjusting entries, July 31
1. Cash in -an/ 500,000
3an/ loan pa6a-le 500,000
2. 3an/ ser*ie harge 1,000
Cash in -an/ 1,000
Computation of deposit in transit July 31
%eposit in transit > ?0ne 30 400,000
1$$: %eposits $0ring ?0l6:
3oo/ $e-its 4,000,000
;ess: ?0ne re$it !e!o for note ollete$ 300,0003 ,700,000
#otal 4,100,000
;ess: %eposits re$ite$ -6 -an/ $0ring ?0l6:
3an/ re$its 3,500,000
;ess: ?0l6 re$it !e!o for -an/ loan 500,000 3,000,000
%eposit in transit > ?0l6 31 1,100,000
Computation of outstanding checks July 31
O0tstan$ing he/s, ?0ne 30 854,000
1$$: Che/s $ra2n -6 o!pan6 $0ring ?0l6:
3oo/ re$its 3,600,000
;ess: ?0ne $e-it !e!os for
NS< he/ 100,000
Ser*ie harge 4,000 104,000 3,496,000
#otal 4,350,000
;ess: Che/s pai$ -6 -an/ $0ring ?0l6:
3an/ $e-its 2,500,000
;ess: ?0l6 ser*ie harge 1,000 2,499,000
O0tstan$ing he/s, ?0l6 31 1,851,000
30
Answer
6. c 7. b 8. b 9. c 10. d
Solution Problem 2
22 23 24 !otal
&. 4riteoff 2&(000 2+(000 30(000 '-(000
3ess: $ecoveries 2(000 3(000 /(000 +(000
9et Eriteoff 2/(000 2&(000 2&(000 &(000
&(000
Percenta2e to )e used in com#utin2 the alloEance @ 0000000000000 @ 2.
3('00(000
. 1redit sales for 200- 3(000(000
Multi#ly )y )ad de)t #ercenta2e 2.
Provision for dou)tful accounts &0(000
'. Accounts receiva)le ! Canuary 1( 200- 2-0(000
Add: 1redit sales for 200- 3(000(000
$ecoveries -(000 3(00-(000
8otal 3(2--(000
3ess: 1ollections in 200- 2(&1-(000
4riteoff /0(000 2(&--(000
Accounts receiva)le ! 7ecem)er 31( 200- &00(000
+. AlloEance for dou)tful accounts ! Canuary 1 20(000
Add: 7ou)tful accounts for 200- &0(000
$ecoveries -(000 &-(000
8otal '-(000
3ess: 4riteoff /0(000
AlloEance for dou)tful accounts ! 7ecem)er 31 /-(000
Answer
11. b 12. a 13. a 13. c 1$. c
Solution Problem 3
May 1 9otes receiva)le 200(000
Accounts receiva)le 200(000
1 9otes receiva)le 300(000
Accounts receiva)le 300(000
Culy 30 Accounts receiva)le 20&(000
9otes receiva)le 200(000
Interest income (200(000 B 12. B +0,3&0) &(000
Au2. 1 1ash 30&(0-
9ote receiva)le discounted 300(000
Interest income &(0-
Princi#al 300(000
Interest (300(000 B 12. B &,12) 1'(000
Maturity value 31'(000
3ess: 7iscount (31'(000 B 1-. B 3,12) 11(+2-
9et #roceeds 30&(0-
*e#t. 1 9otes receiva)le 132(000
Accounts receiva)le 120(000
Interest income 12(000
2' 1ash 210(120
Accounts receiva)le 20&(000
Interest income (20&(000 B 12. B &0,3&0) /(120
>ct. 1 9otes receiva)le -00(000
*ales -00(000
9ov. 1 Accounts receiva)le 330(000
(31'(000 A 12(000)
1ash 330(000
9otes receiva)le discounted 300(000
31
9otes receiva)le 300(000
7ec. 30 1ash -1-(000
9otes receiva)le -00(000
Interest income (-00(000 B 12. B +0,3&0) 1-(000
31 1ash 33&(&00
Accounts receiva)le 330(000
Interest income (330(000 B 12. B 2,12) &(&00
Answer
1-. b 17. c 1/. d 1.. d
Solution Problem 4
Inventory Accounts #aya)le 9et sales
Fnadjusted 1(2-0(000 1(000(000 +(000(000
1 ( 1&-(000) ( 1&-(000) 0
2 ( 20(000) 0 0
3 0 0 ( /0(000)
/ 210(000 0 0
- 2-(000 2-(000 0 LLL
1(300(000 '&0(000 +(0/0(000
Answer
20. b 21. a 22. a 23. b 23. d
Solution Problem 5
20. Accounts receiva)le ! A#ril 30( 200- 1(0/0(000
4riteoff &0(000
1ollections (//0(000 ! 20(000) /20(000
8otal 1(-20(000
3ess: Accounts receiva)le ! March 31( 200- +20(000
*ales for A#ril &00(000
*ales u# to March 31( 200- 3(&00(000
8otal sales /(200(000
21. Accounts #aya)le ! A#ril 30 for A#ril shi#ments 3/0(000
Payment for A#ril merchandise shi#ments '0(000
Purchases of A#ril /20(000
Purchases u# to March 31( 200- 1(&'0(000
8otal #urchases 2(100(000
22. Inventory ! Canuary 1 1(''0(000
Purchases 2(100(000
3ess: Purchases return 20(000 2(0'0(000
"oods availa)le for sale 3(+&0(000
3ess: 1ost of sales (/(200(000 B &0.) 2(-20(000
Inventory ! A#ril 30 1(//0(000
3ess: "oods in transit 100(000
*alva2e value 1/0(000 2/0(000
=ire loss 1(200(000
Answer
2$. a 2-. d 27. d 2/. a 2.. b
Solution Problem 6
Inventory ! 9ov. (sIueeGed fi2ure) 1'(-30 P Physical count /3(-00
Purchases (3(&00 A '(000) 11(&00 >ut on consi2nment 2/('00
8otal "oods Availa)le for *ale 1+0(130 In0transit (d) '(000
6ndin2 inventory &(300P Adjusted endin2 inv. &(300
1ost of sales 113('30
32
Answer Problem 7
30. ) 31. ) 32. c 33. a 3/. d
Solution
P 0 assumed amount
Accounts $eceiva)leLLL Accounts #aya)leLLL
)e2. )al. 10P collection 311 (sIueeGed fi2ure) #ayment 20& )e2. )al. 10 P
*ales 30- LLL (sIueeGed #urchases 1+'
31- 311 fi2ure) LLL LLL
end. )al / P 20& 20'
end )al. 2
Inventory ! )e2 10 P
Purchases 1+' (sIueeGed fi2ure)
8"A* 20'
Inventory ! end 23 P
1>* 1'-
*alaries insurance Income taBes
1ash #aid ! sIueeGed fi2ure 36 1 2
Pre#aid eB#ense ! )e2 P 10
Accrued eB#enses ! end P 1- P 30
Pre#aid eB#ense ! end P ( 1)
Accrued eB#enses ! )e2 P (10) LL P (10)
6B#enses ! I* /1 1+ 22
Answer
3-. c 3&. c
Solution Problem 8
Inventory 9I 0 200'
Fnadjusted )alance //-(3/& 1(&/'(23
A ! Fnderstatement of inventory 2-(000 2-(000
? ! understatement of inventory 1&(-00 1&(-00
0 >verstatement of #urchases (1&(-00)
1 ! >verstatement of inventory (21(&/0) (21(&/0)
7 ! Fnderstatement of inventory '(&/- '(&/-
6 ! >verstatement of #urchases '(&00
= 0 0 0
" ! Fnderstatement of inventory 3(-00 3(-00
0 >verstatement of sales LLLLLLLL (&/(300)
Adjusted )alance -11(3-1 1(&/2(-2'
Answer
3. d 3'. )
Solution Problem 9
200 200'
9et Income 0 unadjusted '/3(&00 +&-(/00
A ! Fnderstatement of 200 endin2 inventory 121(-00 (121(-00)
? ! Fnderstatement of 200 endin2 inventory 23(&00 (23(&00)
1 ! >verstatement of 200 endin2 inventory (&/(-0) &/(-0
7 ! Fnderstatement of 200 endin2 inventory 1/(000 (1/(000)
0 Fnderstatement of 200 #urchases (1/(000) 1/(000
Adjusted )alance +23(+-0 ''-(0-0
33
Answer Problem 1
3+. ) /0. a /1. a /2. c /3. c //. c
/-. a /&. d
Solution
a Inventory 11(000
1ost of sales 11(000
) 1ost of sales -0(000
Inventory -0(000
>ther $eceiva)le -(000
7elivery eB#enses -(000
c0a 1ost of sales 1-(000
Accounts #aya)le 1-(000
c0) Inventory 12(000
1ost of sales 12(000
c0c Inventory /(-00
1ost of sales /(-00
Accounts $eceiva)le 30(000
*ales 30(000
1ost of sales 1/(+00
Inventory (/(-00 ! -+(&00) 1/(+00
1ommission eB#ense -(000
Advertisin2 -00
Accounts receiva)le &(-00
Inventory 3(200
1ost of sales '00
Accounts $eceiva)le /(000
-+(&00,/(-00 B /(000 @ 3(200
Answer
/. d /'. d /+. a -0. d
Solution Problem 11
P 0 sIueeGed fi2ure
Accounts $eceiva)le ! 3 yrsLLLLLL Accounts Paya)le LLLLL
200/ 1&(&00 1ollection -&(&00 #ayment //0(000 200/ -(000
*ales -'/(000P LLLLLLL LLLLLLL #urchases //&(000 P
&00(&00 -&(&00 //0(000 /-1(000
200 33(000 200 11(000
1ash sales 0 /(200
1redit sales 0 -'/(000
8otal sales &-'(200
*ales &-'(200
1>*
?e2. Inv. 11(&00
Purchases //&(000
6ndin2 inventory (1'('00) /3'('00
"ross #rofit 21+(/00 33.33.
200- 200& 200
1urrent year collection 1/'('00 1&2('00 20'('00
2'(200
1ash sales 31(200
8otal *ales 2&'(200
Q "P rate 33.33.
"ross #rofit '+(/00

34