CPA REVIEW SCHOOL OF THE PHILIPPINES Manila AUDITING PROBLEMS FIRST PRE-BOARD EXAMINATION PROBLEM 1 — SABANTE MANUFACTURING COMPANY LD 2A 3.8 4c 5D PROBLEM 2 — GENESIS RECORDING, INC./PEDRING INDUSTRIES 6. B Salaries of research staff ‘Contracted computer services Allocated from general and administrative expenses {P526,500 x 25%) Depreciation on equipment used on RED projects (P555,000/5) Total R&D expense 7. & Equipment Accumulated depreciation (P555,000/5) Carrying value Patent Amortization (P74,400/10) Carrying value ‘Unearned revenue 8. D Patent A Amortization: 2011 (P408,000/17 x 10/12) 2012 - 2014 (408,000 x 3/17) Patent 8 Amortization: 2012 (P150,000/10 x 6/12) 2013 ~ 2014 {P150,000 x 2/10) Patent C Amortization: 2013 (P144,000/4 x 4/12) 2014 (P144,000 x 4) Total carrying value of Patents, Dec. 31, 2014 9. € Patent B Carrying value, Dec. 31, 2014 Amortization for 2015 (P150,000/10) Carrying value Present value of future cash flows (P20,000 x 2.5771) Impairment loss 10. 4 Patent A Carrying value, Dec. 31, 2014 2015 amortization (P408,000/17) Patent 8 Patent C Carrying value, Dec. 31, 2014 2015 amortization (P144,000/4) Patent D ‘Amortization (P285,000/9.5 x 6/12) Carrying value of patents, Dec. 31, 2015, PROBLEM 3 — BLISS, INC. Proforence Ordinary Shares Shares ‘lan. 1 Balances 2,400,000 1,800,000 Shares = Page 1 of 4 Pages February 35, 2015 234,000 52,500 132,625 111.000 P2025, 555,000 (111,000) ‘B444,000 74,400 (7.440) 266.960 2264.000 408,000 (20,000) 72.000) P316,000 150,000 7,500) 30,000) 112,500 144,000 (12,000) 438.000) 96,000 ‘P524.500 112,500 (45,000) 97,500 SL542 Ba5.058 316,000 (24,000) 282,000 51,542 36,000 £36,000) 60,000 285,000 15.900) 270,000 Para v2 ‘share Retard Treasusy Promium = Esmings ‘Shares 9,900,000 13,500,000, 1,485,000(CPA REVIEW SCHOOL OF THE PHILIPPINES (CPAR) - MANILA FIRST PREBOARD EXAMINATION ROBLEMS. ‘Apt. 30 Cash dividend ‘Sept. 30 Conversion (00,000) 75,000 525,000 et 31 Cash dividend Dec. 21 Subscription P1s0,000 640,000 oc. 31 Net income (307,500) (a7 500) 1 Balances, Dec. 31,2014 -P4800,000 P6750 © Fiso.000 10,365,000 P14,896.000 Pt, 485,000 ne | Feb, 1 Issuance 727,500 (160/000) (96,900) Apr. 16 TSreissued 510,000 (990,000) ‘Ape. 30 Cash dividend 3 ($05,250) May 16 Space stock dv 154.200 (154,200) ‘Oot. 31 Gash dividend (14/88) Dec. 31 Net income — =e wmm Balanoas, Doo. 31,2018 BL@eA0G Soa «~E_— Pies) Peruse Pas aA 2B 13.8 4D 15.8 PROBLEM 4 — PENTAGON COMPANY 16. D Unadjusted cash balance 1,584,000 Gash sales In January 2016 (225,000) Undelivered checks 139,500 Post-dated checks (417,000) ‘Compensating balance — restricted £600,900) Adjusted cash balance 2781500 17. A Unadjusted accounts receivable 1,830,000 Claim against shipper for goods lost in transit (45,000) Selling price of unsold goods out on consignment (330,000) Security deposit on lease of warehouse (450,000) Post-dated checks 127,000 Unrecorded sale ~ goods sold FOB shipping point (P69,000 x 130%) 89,700 Adjusted accounts receivable PLI52.200 18. © Accounts receivable — net 1,151,700 Calm against shipper for goods lost in transit 45,000 ‘Trade and other receivables ~ net P1196,700 19. D Unadjusted inventory 661,500 ‘Goods in transit ~ sold FOB Destination 57,000 ‘Goods in transit ~ purchased FOB shipping point 76,500 Adjusted inventory 2295.00 20. D Cash P 781,500 Trade and other recelvables 1,196,700 Inventories 795,000 Trading securities 300,000 Prepaid insurance 75,000 Cash held as compensating balance 000,000 Total current assets 23,248,200 PROBLEM 5 21.8 DA 23.0 2A 25, B PROBLEM 6 ~ OMPOT COMPANY/MORENO CORPORATION 26. € Containers held by customers at Dec. 31, 2014, from deliveries in 2013 85,000 Containers returned in 2015 from deliveries in 2013 £52,500) ‘Revenue from container sales P22500 27. A Uebility for returnable containers, Dec. 31, 2014 325,000 Deliveries in 2015, 430,000 Total 755,000 | 2015 container retums (354,500) i 2015 container sales (27,500) Uabllity for returnable containers, Dec. 31, 2015 273.000CPA REVIEW SCHOOL OF THE PHILIPPINES (CPAR)- MANILA FIRST PREBOARD EXAMINATION ‘8:00AM is 28. D Balance, Jan. 1, $669 (P270,000 + P180,000) 450,000 Amounts used in 2009 205° (200,000) Increase in provision In 2009 2027 730,000 AB Unused amounts reversed in 2009 20/6 (70,000) Balance of provision, Dec. 31, 2009 2045" ba10,000 Bey ore 29. D Balance of provision from 2098 payable in 2020 180,000 New provision: Minor defects 130,000 Major defects (P100,000 x 20%) 20,000 Provision for warranties — current ‘P330,000 30, B Provision for warranties: ‘B410.000 PROBLEM 7 — KUKURUKUKU CORPORATION 31, Book value, Jan, 1, 2015 (P30,000,000 ~ 6,577,500) P23,422,500 150% declining balance rate (=x 150%) Depreciation expense for 2015 (A) 32. Cost of leasehold improvements Depreciation period, May 1, 2015 - Dec. 31, 2024 Depreciation per month Depreciation, May 1, 2015 - Dec. 31, 2015 (P105,000 x 8 months) (C) 33. Balance, Jan. 1, 2015 6,250,000 Depreciation for 2015 2,594,375 ‘Machine stolen (P575,000/10 x 5) (287,500) Balance, Dec, 31, 2015 (B) PBS56.825 34. Balance, Jan. 1, 2015 4,230,000 Depreciation for 2015 1,200,000 “Truck traded in (900,000 cost ~ P270,000 book value) (630.000) Balance, Dec. 31, 2015 (D} 4,800,000 35, Trade In value (P2,200,000 ~ P1,000,000) 200,000 Book value 270,000 Loss on trade in (€) P.(70,090) PROBLEM 8 ~ ALTERADO COMPANY 36. D Policy 1 25,500 Policy 2 (P72,000 x 3/36) 6,000 Policy 3 13,000 Insurance expense 244.500 Prepaid insurance ~ Policy 2 (P72,000 x 33/36) 66.000 37. € Equipment retired during 2015 (P2,400,000 — P1,600,000 = P800,000 x 5%) 40,000 (P1,600,000 x 20%) 160,000 ‘Total deprectation expense 200.000 38, D Bad debt expense (P2,148,000 — 100,000 = P2,048,000 x 1%) 20.480 39. D Interest income (P500,000 x 7% x $/12) 217.500 Rental income (216,000 x 3/18) 236,000 40, D Expired rent (P30,000 x 8 months) ‘240,000 PROBLEM 9 ~ MUNTINLUPA COMPANY 41. B Sales, April 1-April 2 P 160,000 Sales, Jan, 1-March 31 4,350,000 Total sales, Jan. 1-April 21 (B4.520,000 42. D Purchases, Jan. t-April 21 ‘650,500 43. © Gross profit ratio (P4,140,000/P9,200,000) 356 Cost of sales, Jan. 1-April 21 (P1,510,000 x 55%) 830.500 44, D Estimated inventory, April 21. psz0.000(CPA REVIEW SCHOOL OF THE PHILIPPINES (CPAR) - MANILA. FIRST PREBOARD EXAMINATION AUDITING PROBLEMS _CPERUARY 15, 2025 / SUNDAY’/ 8:00AM — 11:00AM 45, D Estimated inventory 36,000 570,000 Less: Salvaged inventory °35, Merchandise In transit 23.00 __58,000 Inventory fre lass pei2.000 PROBLEM 10 LION, INC. les B Sales during 2015 1,840,000 : Divide by sales price per unit —_P100 : ‘Number of units sold 18.400 units: ‘47. D_ Computation of total purchases during 2015: i 65,20 + P67.40 x (1,500 units x 12) ' 2 oe 66.30 x 18,000 units = 1,193,400 48, € Accounts payable, Dec. 31, 2015 2.400.000 49. A Inventory quantity, Dec. 31, 2015 5.750 50. € Computation of inventory FIFO cost at December 31, 2015: From Quantity ‘Unit Cost Total Cost ! December purchase 1,500 67.40 P101,100 November purchase 4,500 67.20 100,800 ‘October purchase 1,500 67.00 100,500 September purchase (SQUEEZE) 1.250 66.80 83,500 520 PA83,800 PROBLEM 13 — SAXOPHONE COMPANY 51. € Acquisition cost of equipment (cash price equivalent) 2,370,000 52. A Cost of equipment (cash price equivalent) 2,370,000 Less: Down payment 300,000 ‘Amount assigned to note payable 2,070,000 Face value of note 304.160 Discount on note payable, Jan. 1, 2014 P1.034.160 53. D Interest expense for 2014; ‘Camying vaiue of note payable, Jan. 1, 2014 (P3, 104,160 ~ P1,034,160) 2,070,000 Interest rate — 10% Discount amortization for 2014 p.207,000 54. B Interest expense for 2015: Note payable, Jan. 1, 2014 3,104,160 Less: Payment made on Dec. 31, 2014 388,020 Note payable, Dec. 31, 2014 2,716,140 Discount on note payable, Dec. 31, 2014 (P1,034,160 ~ P207,000) £827,160) Carrying velue of note, Dec. 31, 2014 1,888,980 Interest rate XK 10% Discount amortization (Interest expense) for 2015. 188.898 |55. A Carrying value of note, Dec. 31, 2014 P1,888,980 Discount amortization for 2015 188,898 Payment made-on Dec. 31, 2015 — (388,020) Carrying value of note, Dec, 31, 2015 P.G82.858 PROBLEM 12 — TANYA CO. 56.€ 57.8 58. B 53. 60.€