Part I Substantive Tests of Transactions, Events and Account Balances

A B C D
1. O O X O
2. O O X O
3. O X O O
4. O O X O
5. O O X O
6. X O O O
7. O O X O
8. O X O O
9. X O O O
10. O X O O
11. O X O O
12. O O X O
13. O O X O
14. BONUS
15. O O O X
16. O O X O
17. O X O O
18. O O X O
19. O X O O
20. X O O O
21. O O X O
22. X O O O
23. X O O O
24. O O X O
25. O X O O
26. X O O O
27. X O O O
28. O O O X
29. X O O O
30. O O O X
31. O O X O
32. O O O X
33. O O X O
34. X O O O
35. O X O O
36. O O O X
37. O O X O
38. O O O X
39. O X O O
 X O O O
41. O O X O
42. O X O O
43. X O O O

Part II Audit Theory

A B C D A B C D
44. X O O O 52. BONUS
45. O O X O 53. O O O X
46. O O X O 54. X O O O
47. O X O O 55. O X O O
48. O X O O 56. X O O O
49. O O O X 57. O X O O
50. X O O O 58. O O X O
51. O O X O 59. O O X O
A. Legend Hotel Palawan, Inc.

1- C
Value 880,000.00
Brokerage 10,000.00
Commission 10,000.00
900,000.00
Less: Dividend on 16,000.00
Cost of DD shares 884,000.00

2- C
LR declared dividends of 2/per share on 16 October.

Shares held 6,000.00

Dividends per share 2.00
Dividend Income 12,000.00

3- B
BLC shares: 6,500 loss + LR shares: 7,500 loss = 14,000 loss

Legend sold 500 BLC shares on 1 Jun

Sold shares 500.00

Selling Price 35
Sold shares value 17,500.00

Value of sold shares

(500/2,200 x 105,600*) 24,000.00

Loss on disposal -6,500.00

*Total value of investment as of 1 Jun

Beg Market Value 88,000
Share dividends
(2000 shares x 10% x P48) 9,600
Remeasurement of existing
shares
(P48 – P44) x 2000 shares 8,000
Value of Total Investment 105,600

Legend sold 2,500 LR shares on 18 Oct

Sold shares value 40,000.00
Less: Commission -5,000.00
Less: Dividends -5,000.00
Consideration received 30,000.00

Value of sold shares

(2,500/6,000 x 90,000*) 37,500

Loss on disposal -7,500

*Value of investment has not changed since the beginning of the period

4- C
WPI in exchange for noncash asset: 50,000 + Noncash asset in exchange for SMPI: 30,000 =
80,000 gain

WPI shares in exchange for noncash asset (land)

Financial asset in exchange for noncash asset
1. FV of noncash given up 65,000.00
2. FV of the land received 80,000.00
3. Cost or BV of asset given up 40,000

FV of financial asset received 65,000.00

Value of shares exchanged

(500/1,000) x P30,000 15,000.00

Gain on exchange 50,000.00

Noncash asset (land) in exchange of SMPI shares

Exchange of noncash asset to financial assets
1. FV of financial asset received 50,000.00
2. FV of land asset given 40,000.00
3. Cost or book value of the land 20,000.00

FV of financial asset given up 50,000.00

Cost of nonfinancial asset 20,000.00

Gain on exchange 30,000.00

5–C
Issuer of equity No of shares MV per share Market Value

WPI 500 50 25,000

LR (6000 – 2500) 3500 15 52,500
BLC (2000 + 200 – 500) 1700 45 76,500
DD 8000 100 800,000
SMPI 1000 60 60,000
1,014,000

B. Astoria Incorporated
6- A
Unrealised gain (P663,000 – P651,000) P12,000

Carrying Value 31/12/18 Fair Value 31/12/18

VECO P570,000 P586,500
PACO 81,000 76,500
P651,000 P663,000

7- C
Net proceeds (P31 x 15,000 = P465,000 – P4,500) P460,500
Carrying value 417,000
Gain on sale of MER P43,500

8- B
Trading securities (see no. 6) P663,000

C. Centro Hotel

9- A.
No entry

10- B

Stock rights 10,000.00

SR value 20.00
200,000.00

11- B

New Shares 5,000.00

Exercise Price 80.00
 400,000.00

12- C

Exercise value 400,000

Stock rights value 200,000
600,000
D. Hue Hotel

13- C
14- BONUS
15- D
16- C

Working Retained
Net Income Capital Earnings
2017 2017 2017
200,000.00 180,000.00 200,000.00
Late recording of purchases -60,000.00 -60,000.00
Late recording of sales 80,000.00 80,000.00 80,000.00
Overstatement in PY inventory -20,000.00 -20,000.00 -20,000.00
200,000.00 240,000.00 200,000.00

17- B
18- C
19- B

Working Retained
Net Income Capital Earnings
2018 2018 2018
160,000.00 260,000.00 360,000.00
Late recording of purchases 60,000.00
Late recording of sales -80,000.00
Overstatement in PY inventory 20,000.00
160,000.00 260,000.00 360,000.00

E. Baker’s Hill Incorporated

20- A
Current account – LBP P900,000
Undeposited collection 350,000
Supplier’s check for goods returned by the company 60,000
Petty cash fund 10,000
Bank of Palawan (410,000-300,000) 110,000
Correct cash balance P1,430,000

F. Ai World

21- C
Cash balance per books, 30 November P94,508
Add: Bank credit 500
Adjusted cash balance (on hand and in bank) 95,008
Less: Adjusted balance balance
Bank balance 30 November P77,750
Less: Outstanding checks
No. 8420 P581
8422 750
8430 1,266
8621 954
8623 1,034
8632 726 5,311 72,439

Cash that should be on hand for deposit P22,569

22- A
Cash that should be on hand for deposit (see no. 17) P22,569
Cash reported 18,972
Amount of theft P3,597

23 A
I. Not listing all outstanding checks.
II. Underfooting outstanding checks shown on the reconciliation.
III. Substracting an item to the bank balance that should be added from the book
balance.
24 C

The cashier is also responsible for preparing the reconciliation.

No one other than the cashier is responsible for tracing cash receipts to the deposits in the
bank.

25 B
Book Bank
Unadjusted balances P94,508 P77,750
Unrecorded credit 500
Outstanding checks (5,311)
Undeposited receipts 18,972
Corrected balances 95,008 91,411
Cash shortage (amount of theft) (3,597) -
Adjusted cash balances 91,411 91,411

H Sheridan Beach Resort, Inc.

26 A
Accounts receivables, 31 Dec 2017 P33,000
Add: Collections, 2015-2017 567,600
Total 600,600
Less: Accounts receivable, 1 Jan 15 16,600
Total credit sales 584,000
Add: Cash sales, 2015-2017 74,200
Total sales, 2015-2017 P658,200

27 A
Sales revenue for 2016 (see no. 26) P206,400

28 D
Accounts payable, 31 Dec 17 P11,000
Add: Payments to suppliers 440,000
Total 451,000
Less: Accounts payable, 1 Jan 15 5,000
Total sales, 2015-2017 P446,000

29 A
Sales P658,200
Less: Cost of sales
Inventory, 1 Jan 2015 P11,600
Add: Purchases (see No. 24) 446,000
GAS 457,600
Less: Inventory 31 Dec 17 18,800 438,800
Gross Profit P219,400

GP Ratio (P219,400 / P658,200) 33 1/3%

30 D

2015 2016 2017 Total

Cash sales P17,000 P26,000 P31,200 P74,200
Collections in:
2015 148,800 - - 148,800
2016 15,000 161,800 - 176,800
2017 2,000 16,800 208,800 227,600
A/R, 31 December 800 1,800 28,200 30,800
Total Sales 183,600 206,400 268,200 658,200
Multiply by GP Ratio 33 1/3% 33 1/3% 33 1/3% 33 1/3%
Gross Profit P61,200 P68,800 P89,400 P219,400

I. Palawan Uno Hotel

31 C
Allowance based on aging analysis

Beginning allowance 65,000

Uncollectible expense during 2018 120,000
Accounts written off -80,000
Additional expense 15,000
Estimated uncollectible accounts per aging 120,000

Expense (120,000 + 15,000) 135,000

J - Home Depot

Inventory Accounts Payable Sales

Unadjusted balances P432,000 P147,000 P2,600,000
Item no 1 (13,000) (13,000)
2 (26,400)
3 25,000
4 23,500 23,500
Adjusted balances P441,100 P157,500 P2,600,000

32 Inventory D

33 Accounts Payable C

34 Sales A

K. Apple Inc.

Cost NRV: if NRV: if sold LCNRV Write

 sold “as as a down
completed
is” product
Raw materials 100,000 45,000 65,000 85,000 -15,000
Supply of Fiberglass (used for iPhone) 40,000 25,000 15,000 25,000 -15,000
Supply of Thin metal sheets (used for
iTablet) 60,000 20,000 50,000 60,000 -

Work in progress 80,000 80,000 65,000 75,000 -5,000

Incomplete iPhone 30,000 20,000 25,000 25,000 -5,000
Incomplete iTablet 50,000 60,000 40,000 50,000 -

Finished goods 160,000 0 170,000 140,000 -20,000

iPhone 80,000 N/A 60,000 60,000 -20,000
iTablet 80,000 N/A 110,000 80,000 -
Total 160,000 0 170,000 140,000 -20,000

Inventories are usually written down to net realisable value on an itemby-item basis. In some
circumstances, however, it may be appropriate to group similar or related items. This may be
the case with items of inventory relating to the same product line that have similar purposes or
end uses and are produced and marketed in the same geographical area and cannot be
practicably evaluated separately from other items in that product line.

35 write down of raw materials- B

The supply of Thin metal sheets is not written down to NRV as the iTablet (FG) to which in will
be eventually included are expected to be sold at or above cost.

36 write down of WIP - D

37 write down of FG - C

38 Adjusted cost of sales - D

Cost of sales, unadjusted P450,000
Writedown of materials (see above table) 15,000
Writedown of WIP (see above) 5,000
Writedown of FG (see above) 20,000
Total 490,000

L. Camarih Furnitures

39- B
Inventory per books, 30 Nov P181,710
 Understatement of book inventory 9,000
Inventory per physical count, 30 Nov 190,710

40- A
Inventory per physical count, 30 Nov P190,710
Pricing errors (6,600)
Footing and extension errors 450
Obsolete materials (750)
Corrected physical inventory 30 Nov P183,810

41- C
Assumed correct physical inventory, 30 Nov P173,100
Direct labor included (30,000)
Overhead included (200% x P30,000) (60,000)
Materials inventory, 30 Nov 83,100
Purchases 74,100
Total materials available 157,200
Materials included in cost of sales:
Cost of sales 205,800
Direct labor included (41,400)
Overhead included (82,800)
Obsolete items included in cost of sales (750) (80,850)
Scrap loss on new product (2,400)
Materials inventory, 31 Dec 73,950

42- B
Direct labor in inventory, 30 Nov P30,000
Direct labor cost incurred in December 36,300
Total 66,300
Charges to cost of sales in December (41,400)
Direct labor in inventory, 31 Dec 24,900

43- A
Materials inventory, 31 Dec P73,950
Direct labor cost 24,900
Overhead (200% x P24,900) 49,800
Inventory, 31 Dec 148,650