UNIVERSITY OF SAN JOSE RECOLETOS

ACCOUNTANCY and FINANCE DEPARTMENT

ACCTG 11 Auditing Problems II

F I N A L O U T P U T (SET C)
CEDRIC VAL R. NARANJO, CPA, MBA

GENERAL INSTRUCTIONS:
1. Each group will have 8-10 members.
2. Please use MSExcel in preparing the worksheets and the financial statements. The details will be given in the
last part of the problem.
3. All final output should be emailed to ME (cvn_usjr@yahoo.com) on or before 9:00 AM, May 23, 2017 (Tuesday).
Printed copy should be submitted during the regular class schedule on Tuesday. Make sure that the printed
copy is the same with the emailed copy.
4. Peer evaluation will be done in class on Tuesday, May 23, 2017. Everyone is requested to be present.

COMPREHENSIVE PROBLEM

The Securities and Exchange Commission (SEC) approved the application for incorporation of WALANG
FOREVER, INC. on January 1, 2015. SEC has authorized the Company to issue 180,000 common shares, P350
par, and 30,000 cumulative convertible preferred shares, P150 par. The incorporators of the company have fully
complied with the minimum requirement set by the Corporation Code of the Philippines, as to the amount of
shares to be subscribed and paid-up. There were subscriptions of the preferred shares upon incorporation.

Upon establishment of the Corporation, the Head of the Accounting Department prepared the chart of accounts to
be used by the Company.

CODE ACCOUNT TITLE CODE ACCOUNT TITLE

1-0000 Cash and Cash Equivalent 7-0006 Equipment and machinery
1-0001 Petty Cash Fund 7-0007 Accumulated depreciation-equipment and
machinery
1-0002 Cash in Bank BPI 7-0008 Transportation vehicle
1-0003 Cash in Bank Metrobank 7-0009 Accumulated depreciation-Transportation
vehicle
1-0004 90 day Time Deposit, various banks 7-0010 Leasehold improvement
2-0000 Trade Receivables 7-0011 Accumulated amortization- Leasehold
improvement
2-0001 Accounts Receivable 8-0000 Intangibles
2-0002 Trade Notes Receivable 8-0001 Patents
2-0003 Allowance for Doubtful Accounts 8-0002 Franchise
3-0000 Inventories 9-0000 Current Liabilities
3-0001 Merchandise Inventory, beginning 9-0001 Accounts payable
3-0002 Merchandise Inventory, ending 9-0002 Accrued expense
3-0003 Premiums Inventory 9-0003 Estimated Warranties
4-0000 Prepaid Expenses 9-0004 Estimated provision
4-0001 Prepaid Rent 10-0000 Noncurrent Liabilities
4-0002 Prepaid Insurance 10-0001 Notes payable
5-0000 Current Investments 10-0002 Bonds payable
5-0001 Trading investments 11-0000 Equity
5-0002 Financial assets at FVPL 11-0001 Ordinary shares
6-0000 Noncurrent Investments 11-0002 Share premium-ordinary shares
6-0001 Financial assets at FVOCI 11-0003 Convertible preferred shares
6-0002 Financial assets at Amortized Cost 11-0004 Share premium-convertible preferred
shares
7-0000 Property and Equipment 11-0005 Treasury shares
7-0001 Land 11-0006 Share premium-treasury shares
7-0002 Building 11-0007 Retained earnings
7-0003 Accumulated depreciation-Building 11-0008 Revaluation surplus
7-0004 Furniture and fixtures 11-0009 Unrealized gains/losses on FVOCI
7-0005 Accumulated depreciation-Furniture and 11-0010 Subscribed Share Ordinary
Fixtures
11-0011 Subscribed Share Preferred
11-0012 Subscriptions Receivable Ordinary
11-0013 Subscriptions Receivable Preferred
 All cash collected from sales and payment to purchases and expenses are deposited/taken to/from BPI
Account. All other cash receipts and cash disbursement transactions are transacted with Metrobank. At the
end of the year, any amount in excess of P2,000,000 in BPI will be transferred to Metrobank.
On January 1, 2015, the company established a P20,000 petty cash fund from Metrobank.

The following are the transactions of the Company after incorporation.

2015

January 1 Purchased the following items of Property Plant and Equipment

Asset Cost Useful Life Deprn Method
Furniture and Fixtures P 1,500,000 8 years SYD
Equipment and Machinery P 3,750,000 15 years Straight Line
Transportation Vehicle P 2,000,000 10 years 150% declining
Land P 3,500,000

The residual values of the depreciable assets are considered to be immaterial. 70% of the
acquired properties were paid in cash, while the remaining balance will be payable on June 30,
2018, without interest.
January 15 Issued 50,000 new common shares at P340 per share.
January 18 Issued 15,000 convertible preferred shares at P180 per share. Each preferred share is
convertible to 1 common share.
February 1 Received a building as a donation from one of the stockholders. Building has a fair market value
of P8,000,000. The building is to be depreciated over a period of 25 years.
March 30 The company invested in MagbuwagRamo, Inc., by acquiring 2% of its total shares at P1,000
per share. MagbuwagRamo was authorized to issue 10,000 shares, with P100 par value. The
company has the intention to gain from changes of the fair value of this investment, which shall
be included in determining its Net Income for the period.
May 1 After the regulatory bodies granted the authorization to the Company to sell 2,000 10-year-
bond certificates with a face value of P3,000 per certificate, and a coupon rate of 12%, the
Company sold 400 bond certificates to a certain individual at a price that will yield 14% interest
per annum. The bonds will require the issuer to pay interest semiannually, May 1 and
November 1.
June 1 Common shares subscriber paid 40% of their payable to the Company.
June 30 The company invested in 3,000 of 12% P1,000 bonds of Bitterlagiko Corp. The bonds will
mature on June 30, 2020 and pays interest on June 30 and December 31. The bonds yield a
market rate of 10% at the time of purchase. The company is capable and willing to hold these
bonds until maturity. (Round of PV at 2 decimal places)
July 3 Issued 10,000 shares in exchange of a parcel of land. The fair market values of the land and
the common shares at the time of exchange are P3,200,000 and P300/share, respectively.
Sept. 15 Converted 50% of the issued convertible preferred shares.
Oct. 10 Invested in the following investments:
No. of shares Purchase price Transaction costs
Maoykungmaoy 3,600 P675,000 25,000
Sarrynosarry 2,200 P660,000 12,500

Maoykungmaoy is classified as FVPL while Sarrynosarry is classified as FVOCI. Total dividend

income amounted to P17,500 for Maoykungmaoy and P28,000 for Sarrynosarry.
Nov. 29 Paid insurance for 12 months amounting to 40,000. Prepaid insurance is debited.
Dec. Common shares subscriber paid 40% of their payable to the Company.

Income and expense for 2015 are as follows (ignore income taxes):

Sales, 85% collected; bad debts are expected at 2% of

accounts recievables 28,000,000
Purchases, 75% paid; inventory at year end amounted
to P2,850,000 18,500,000
Operating expenses, all paid in cash, excluding year-end
adjustment and excluding accrual of 21,000 5,500,000
Interest income on CIB 12,500

Fair values of investments are as follow:

FV
Magbuwagramo 1000
Maoykungmaoy 320
Sarrynosarry 220
2016

Jan. 3 The Company purchased 30,000 shares of the 300,000 outstanding ordinary shares of
Makaloveliferakosoon Company at P250 per share.
Feb. 14 Collected in full the subscription receivable.
March 13 Reacquired 12,000 common shares at P380 per share.
April 1 The company leased a factory. The leased started on April 1, 2016 and will end March 30, 2022
with a monthly lease of P60,000. On the same date the company paid the following:

Rent for 24 months paid in advance 1,440,000

Permanent fixtures 540,000
Furniture 876,000
Total 2,856,000

The estimated life of the furniture and fixtures is 6 YEARS.

April 20 Declared and paid a cash dividend of P8.00 per share on issued and outstanding shares.
May 1 The company developed an internal patent which has ha useful life of 5 years. Incidental cost of
the patent are as follows:

Research and development 180,000

Cost of licensing a patent 60,000
240,000

Two days after, the Company is being sued by a competitor over this patent and claimed
P250,000 worth of damages. Over the course of the case, the company has incurred legal fees
amounting to 45,000. The decision on the case is yet to be determined in 2018. The legal
counsel, however, that it is probable that the Company will have a cash outflow of P140,000.
June 30 Traded transportation vehicle purchased on January 1, 2016 for a new one. The Company paid
P1,600,000 for the new transportation vehicle and a P1,400,000 trade-in allowance.
July 1 The Company purchased a franchise from JoliMc Company to sell for 10 years for P2,100,000.
The initial fee is payable in P300,000 cash when the contract is signed and the balance in five
equal installments every December 31, evidenced by a noninterest bearing note. The franchisee
could borrow money at 12% of the same note.
July 20 Issued 10,000 ordinary shares at a selling price of P385. Issue costs amounted to P65,000.
Sept. 15 Sold Sarrynosarry shares at a price of P250 per share. On the same date, received 20% stock
dividends on Maoykungmaoy shares.
Oct. 11 Declared a 15% stock dividend on common shares. The fair value of the shares at the time of
declaration is P370 per share.
Nov. 2 Purchased a new equipment costing P1,500,000. Transaction costs amounted to P60,000. The
equipment has a life of 5 years.
Nov. 29 The Company obtained notes payable from Bank of Singles amounting to P2,000,000. The note
is payable on 5 annual installments starting December 1, 2017. Interest on the notes is 8% per
year.
Dec. 1 Paid insurance for 12 months amounting to 21,000. Prepaid insurance is debited.
Dec. 10 In order to entice consumers, the company is offering premiums. A coupon is given to a
customer for every P100 worth of sales. 20 coupons will then to be redeemed for a face towel.
Each face towel costs P12 and the company purchased in cash 15,000 face towels on January
1, 2016. The Company has estimated that the 90% of the coupons given will be redeemed.
210,000 coupons were actually redeemed in 2016.
Dec. 16 Revalued all lands and it was determined that the fair value of all land amounted to
P12,000,000.
Dec. 26 The Company purchased 4,000 in Muragsweetniyadili Company at P65 per share. The shares of
Muragsweetniyadili are not publicly traded and its fair value is not determined. The Company
has irrevocably decided to classify this investment at FVOCI.

Income and expense for 2016 are as follows (ignore income taxes):

Sales, 75% collected; bad debts are expected at 2% of

accounts receivables 28,500,000
Purchases, 80% paid; inventory at year end amounted
to P3,250,000 16,500,000
Operating expenses, all paid in cash, excluding year-end
adjustment and excluding accrual of 35,000 3,650,000
Interest income on CIB 17,500

All receivables, payables and accruals in 2016 were collected except for the following:
Receivables 400,000
Payables 250,000
Fair values of investments are as follow:

FV
Magbuwagramo, received 25,000 dividends 1,210
Maoykungmaoy, received 15,000 dividends 290
Sarrynosarry, did not receive any dividends 320

REQUIRED:

You only need to submit ONE (1) Excel File containing all the requirements stated below. The file format for the
file is ACCTG11_FINALOUTPUT_<FAMILY NAME OF LEADER>_<TIME> (ex:
ACCTG11_FINALOUTPUT_DU_5PM). Please follow the items to be included in each spreadsheet.

1. SPREADSHEET 1: (see format below)

Name: INFORMATION
Content: In this spreadsheet please indicate the following:
SUBJECT:
CLASS TIME:
CLASS DAY:
GROUP LEADER:
GROUP MEMBERS: (if combined, indicate the sched for the members)

2. SPREADSHEET 2:
Name: 2015 JEs
Content: Prepare all the journal entries for the calendar year 2015. Make sure to arrange the
entries in chronological order. Also, include the date of the transaction.

3. SPREADSHEET 3:
Name: 2015 WS
Content: Prepare the worksheet for the calendar year 2015, with the following headings:

ACCOUNT TRIAL BALANCE FINANCIAL POSITION PROFIT OR LOSS

Debit Credit Debit Credit Debit Credit

4. SPREADSHEET 4:
Name: 2015 FS
Content: 2015 Financial Statements (with Note Reference)
a. Statement of Financial Position
b. Statement of Comprehensive Income
c. Statement of Changes in Equity
d. Statement of Cash Flows

5. SPREADSHEET 5:
Name: 2015 Notes
Content: Notes to Financial Statements

6. SPREADSHEET 6:
Name: 2016 JEs
 Content: Prepare all the journal entries for the calendar year 2016. Make sure to arrange the
entries in chronological order. Also, include the date of the transaction.

7. SPREADSHEET 7:
Name: 2016 WS
Content: Prepare the worksheet for the calendar year 2016, with the following headings:

ACCOUNT BEGINNING 2016 ENDING FINANCIAL PROFIT

BALANCE TRANSACTIONS BALANCE POSITION OR LOSS
Dr Cr Dr Cr Dr Cr Dr Cr Dr. Cr.

8. SPREADSHEET 8:
Name: 2016 PPE
Content: 2016 PPE Lapsing Schedule/Rollforward Analysis

9. SPREADSHEET 9:
Name: 2016 INV
Content: 2016 Investment Rollforward Analysis

10. SPREADSHEET 10:

Name: 2016 FS
Content: 2016 Comparative Financial Statements
a. Statement of Financial Position
b. Statement of Comprehensive Income
c. Statement of Changes in Equity
d. Statement of Cash Flows

11. SPREADSHEET 11:

Name: 2016 Notes
Content: 2016 Notes to Financial Statements

12. SPREADSHEET 12:

Name: PPE
Content: Audit Program for PPE

13. SPREADSHEET 13:

Name: Investments
Content: Audit Program for Investments

14. SPREADSHEET 14:

Name: Equity
Content: Audit Program for Equity

POINT SYSTEM:

E-COPY (70%)

A. CONTENT (Correct Answers) 60%

Total Correct Answers/Total Items x 60%
B. DOCUMENTATION 25%
Organization of Working Papers 60%
Utilization of Excel Functionalities (use of formula and link,etc) 40%
C. PARTICIPATION 15%
Peer Evaluation 100%

PRINTED COPY (30%)

A. ORGANIZATION 50%
B. NEATNESS 30%
C. COMPLETENESS 10%
D. PARTICIPATION 10%

- ENJOY AND LEARN -