ACCT 152 (AUDITING 2) Quiz December 6, 2018 Instructor: T.S.

Pendang
NAME OF STUDENT: _______________________________________

Instructions: Write your name on the blank above. Write the letter of your choice on the answer sheet provided on the last page
PART A:

1. Which of the following is the best audit procedure for determining unrecorded liabilities as of reporting date?
a. Examine a sample of cash disbursements in the period subsequent to year end.
b. Examination of confirmation requests returned by creditors whose accounts appear on a subsidiary trial balance of accounts payable
c. Examine unusual relationships between monthly accounts payable balances and recorded purchases.
d. Examine a sample of invoices a few days prior to and subsequent to year end to ascertain whether they have been properly recorded

2. Which of the following procedures relating to examination of accounts payable, could the auditor delegate entirely to the client’s
employees?
a. Mail confirmation for selected account balances c. Prepare a schedule of accounts payable
b. Reconcile unpaid invoices to vendors’ statements d. Test footings in the accounts payable ledger

3. To test the audit objective for validity of long-term debt, which of the following procedures is the best procedure that the auditor could
make?
a. Recompute interest payable
b. Obtain analysis of notes payable and reconcile to the general ledger
c. Review interest expense for payments to debt holders not listed on the debt analysis schedule
d. Examine copies of new notes agreements

4. Two months before year end, the bookkeeper erroneously recorded the receipt of a long-term bank loan by debiting cash and
crediting sales. Which of the following is the most effective procedure for detecting this type of error?
a. Analyze the notes payable journal c. Prepare year end bank reconciliation
b. Analyze bank confirmation information d. Prepare a year end bank transfer schedule

5. An auditor’s purpose in reviewing the renewal of a note payable shortly after the reporting date, is most likely is to obtain evidence
concerning management’s assertion about
a. Existence or occurrence c. Presentation and disclosure
b. Completeness d. Valuation or allocation

6. An auditor obtains evidence of shareholder’s equity transactions for a publicly traded company by reviewing the entity’s
a. Minutes of board of directors’ meetings c. Cancelled stock certificates
b. Registrar’s records of interbank transfers d. Treasury stock certificate book

7. Which of the following is least likely in the audit of capital stock?

a. Account for the proceeds from stock issues c. Reconcile shares outstanding with the general ledger
b. Evaluate compliance with stock option plans d. Examine all outstanding stock certificates for completeness

8. Changes in Share capital accounts should normally be approved by?

a. The audit committee c. The board of directors
b. The stockholders d. The president

9. In auditing retained earnings, which of the following item is of least concern to the auditor, even if it was not approved by the BOD?
a. Changes in retained earnings due to closing of net income c. Issuance of redeemable preference shares
b. Issuance of convertible debt securities d. Declaration of 20% stock dividends

10. Which of the following procedures is not a procedure to validate the existence or occurrence of shareholders’ equity accounts?
a. Review authorization and terms of share issues c. Obtain schedules and reconcile to the general ledger accounts
b. Perform analytical procedures on capital accounts d. Confirm shares outstanding with registrar and transfer agents

PART B. PROBLEM SOLVING. Write the letter of your choice on the answer sheet provided on the last page. Show computations.
Correct answers will not get any points if not amply supported by computations. Round off to 2 decimal places.
Instructions: Show all computations. Encircle your final answer to the question.

Problem 1. (resa preweek materials, prob 16 page 15)

XYZ, Inc. reported the following balances on its Statement of Financial Position as of December 31, 2018:
Accounts payable P1,250,000
Estimated Premiums Liability ?
Accrued Compensated Absence 360,000

Additional information:

a. Purchases cut-off showed the following:

December 2018 Purchases entries

Receiving report Receiving report date Invoice date/Shipment Amount Remarks
number date
771 Dec 23 Dec 20 P20,000 FOB destination
772 Dec 26 Dec 22 50,000 FOB destination
773 Dec 30 Dec 27 70,000 On consignment
774 Jan 2 Dec 28 55,000 FOB shipping point
775 Jan 3 Dec 29 60,000 FOB destination
776 Jan 4 Dec 30 80,000 FOB shipping point

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ACCT 152 (AUDITING 2) Quiz December 6, 2018 Instructor: T.S. Pendang
January 2019 Purchases entries
Receiving report Receiving report date Invoice date/Shipment Amount Remarks
number date
777 Jan 4 Dec 29 P40,000 FOB destination
778 Jan 4 Dec 30 50,000 FOB shipping point
779 Jan 5 Dec 30 70,000 On consignment
780 Jan 6 Jan 2 75,000 FOB shipping point

Inventory has been correctly set-up based on inventory count conducted on December 31, 2018 with appropriate reconciliation and
adjustments

b. The company started a Premiums Promotional Plan at the beginning of 2017. Under the plan, customers are given a frying pan for
every 30 pcs of product label presented plus P40. Redemption period is within 2 years from the date of purchase. The company
acquired in 2017, 20,000 units of frying pan at P100 per pan. 3,500 pans remained on hand at the end of 2017. Additional 15,000
units were purchased in 2018, where ending inventory was 6,000 units . Sales in 2017 and 2018 were 1,500,000 units and 1,800,000
units, respectively. The company estimates that only 60% of the product labels will be presented for redemption. The premiums
liability per books, represented the balance of the premiums liability at the end of 2017. Adjustments are yet to be made for the
current year for the said liability account.

c. Key officers of the company are given incentives in the form of 10% of net income after bonus but before tax of 40%. The unadjusted
net income of the company reported per books for 2018 was P5,450,000.

For nos. 1-4.

1. What is the correct balance of the Accounts Payable-trade as of December 31, 2018?
a. P1,100,000 b. P1,120,000 c. P1,170,000 d. P1,220,000

2. What is the balance of the Estimated Premiums Liabilities as of December 31, 2017?
a. P810,000 b. P1,350,000 c. P2,220,000 d. P3,700,000

3. What is the correct Premiums Expense to be reported in 2018?

a. P990,000 b. P1,800,000 c. P2,160,000 d. P3,600,000

4. What is the correct amount of Accrued Bonus to key officers as of December 31, 2018?
a. P333,450 b. 356,569 c. P366,773 d. P371,901

Problem 2. Resa preweek prob 25, page 21

ICSYV Corp. reported the following balances on its Statement of Financial Position as of December 31, 2018:
Noncurrent liabilities
Notes Payable 10% – Bank 4,500,000
Bonds Payable 12% 3,231,652
Finance Lease Liability 2,200,000

Additional information:
a. The note payable to the bank was originated on September 1, 2017 and is due annually at the rate of P1,500,000 every August 31
starting 2018. Interest which is based on outstanding balance of the loan is also payable every August 31. Interest is yet to be
accrued on the note by the balance sheet date. Payments on the note and interest during the current year had been recorded
appropriately.

b. The 5-year, 12% bonds payable (with face value of P3M) were issued on January 1, 2018 at the prevailing market interest rate of 10%.
Interest on the bonds are payable semi-annually every June 30 and December 31. The entry made by the client to record the
issuance was to debit cash and credit bonds payable for the total cash consideration received.

c. The lease liability is in relation to ICSYV’s purchase of a machine on December 31, 2017. The machine was delivered the same day
to the company. The lease stipulates that annual payments will be made for 5 years starting December 31, 2017. At the end of the
5-year term, the company may purchase the machine. The estimated economic life of the machine 12 years. Your further
investigation revealed the following terms of transactions:
Annual lease payments P550,000
Purchase option price 250,000
Estimated fair value value after 5 years 750,000
Implicit rate 10%
Borrowing rate 12%

Entry made:
Equipment P2,750,000
Cash 550,000
Finance lease liability 2,200,000

For nos. 5-8.

5. What is the amount to be capitalized as an asset for the lease of the machinery?
a. P2,240,170 b. P2,293,450 c. P2,448,656 d. P2,759,130

6. What is the correct total noncurrent liabilities to be presented in the 2018 Statement of Financial Position?
a. 5,842,069 b. P6,049,341 c. P6,193,897 d. 7,336,271

7. What is the correct total current portion of the long-term debts to be presented in the 2018 Statement of Financial Position?
a. P1,500,000 b. P1,896,148 c. P1,860,134 d. P2,005,457

8. What is the total interest expense to be reported in the 2018 income statement?
a. P662,111 b. P1,009,211 c. P1,026,097 d. P1,062,111

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ACCT 152 (AUDITING 2) Quiz December 6, 2018 Instructor: T.S. Pendang
Problem 3. Roque prob 7-24 page 588
You are auditing Julia Corp. The company’s lawyer revealed the following situations. The company’s financial statements for the period
December 31, 2018 are authorized for issue on March 20, 2019.
a. Julia is involved in a lawsuit resulting from a dispute with a customer. On January 28, 2019, judgement was rendered against Julia in
the amount of P2 million. Julia plans to appeal the judgement and is unable to predict the outcome though management believes
that it will not have a material adverse effect on the company.

b. On April 25, 2019, the BIR is still in the process of examining Julia’s tax returns for 2016 and 2017, but has not proposed a deficiency
assessment. Management feels that an assessment is reasonable possible with an uncertain estimate of P2M settlement.

c. On January 5, 2019, inventory amounting to P1M, purchased FOB shipping point from a foreign country was detained at the border
due to political unrest in the foreign country. Julia’s lawyers have stated that it is probable that Julia will be able to obtain the
shipment.

d. On November 1, 2018, a lawsuit was filed by a disgruntled customer who discovered a safety hazard in one of the purchased products.
Julia’s lawyers believe it is probable that the company will be liable for P3M.

e. On December 5, 2018, Julia initiated a lawsuit seeking P1M in damages from a patent infringement. It is probable that the court will
judge in favor of Julia.

For nos. 9-10.

9. How much should be the provision recorded with respect to the above situations?
a. P500,000 b. P1,500,000 c. P2,000,000 d. P2,500,000

10. Which of the above situations require disclosure?

a. A, B and D b. A and D only c. A only d. D only

Problem 4. (resa final preboard 16 sep 2018,prob 6, page 7)

Paper Company reported the following information in their statement of financial position as of December 31, 2017:
Ordinary shares, P10 par value, 500,000 shares authorized, 300,000 shares issued P3,000,000
Preference shares, P20 par value, 200,000 shares authorized, 100,000 shares issued 2,000,000
Share premium, ordinary shares 2,400,000
Share premium, preference shares 1,000,000
Accumulated profits 3,890,000

The ff. transactions occurred in 2018:

 The company reacquired 50,000 ordinary shares on January 20, for P1,075,000.
 Issuance of 40,000 ordinary shares and 20,000 preference share were made on March 15, for a lumpsum price of P1,600,000.
Market prices for ordinary and preference shares are P21 and P33, respectively.
 On April 3, the company sold 20,000 of the treasury shares at P16 per share
 The company issued stock rights to its ordinary shareholders on June 20. 10 rights entitles the shareholder to acquire 1 ordinary
share at an exercise price of P15 per share. The rights will expire on October 1.
 On July 30, the company retired 20,000 of the treasury shares and reverted them to unissued basis
 On September 30, all but 60,000 stock rights were exercised
 The company declared on December 20, payable to stockholders as of December 31, P2 cash dividends to ordinary shares and
P4 cash dividends to preference shares. The dividends are payable on January 20, 2019.
 Net income for the period was P1,654,000.

For nos 10-12

10. What is correct debit to the Accumulated profits account as a result of the cash dividends declaration on December 20?
a. P1,100,000 b. 1,150,000 c. P1,190,000 d. P1,600,000

11. What is the balance of the Share premium – ordinary shares account as of December 31, 2018?
a. P2,861,000 b. P3,021,000 c. P2,736,000 d. P2669,000

12. What is the total shareholders’ equity as of December 31, 2018?

a. P14,014,000 b. P14,229,000 c. P14,064,000 d. P14,149,000

Problem 5. Cab 17-18 modified

Potpourri, Inc. has decided to raise additional capital by issuing P200,000 face value bonds with a coupon rate of 10%. Investment
bankers determined that detachable warrants be issued as well, in order to make the bonds more attractive. One share warrant is issued
for every P100 of bond sold. The warrants entitle the bondholder to purchase 1 ordinary share, with par P100 for P110. The market value
of the bonds ex-warrant at the time of issuance is 95, while the market value of the warrants is P5. The bonds and warrants were issued
at 105.

For nos. 13-15.

13. How much is the amount allocated to the warrants?
a. P10,000 b. P10,500 c. P15,000 d. 20,000

14. How much is the amount allocated to the bonds payable?

a. P200,000 b. P199,500 c. 190,000 d. 210,000

15. How much is the discount on bonds payable?

a. P500 b. P10,000 c. P-0- d. Premium 10,000

Problem 6. Roq Prob 8-7 page 634.

Baba, Inc. has the following balances as of December 31, 2017:
Ordinary shares, P10 par, authorized 300,000 shares, 250,000 shares issued P2,500,000
Share premium-ordinary shares 3,500,000
Retained earnings 1,740,000

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ACCT 152 (AUDITING 2) Quiz December 6, 2018 Instructor: T.S. Pendang

Transactions for 2018 are as follows. The following entries were made by the company’s bookkeeper to record the transactions.
June 1 Reacquired 40,000 ordinary shares at P40.
Treasury shares 1,600,000
Cash 1,600,000

July 1 Sold 15,000 of 40,000 shares in June 1 at P48.

Cash 720,000
Treasury shares 720,000

Aug 1 Sold 19,000 of the shares in June 1 at P27.

Cash 513,000
Treasury shares 513,000

Sept 1 Retired 1,000 of the shares in June 1.

Ordinary shares 10,000
Treasury shares 10,000

Baba’s net income for 2018 was P135,000

For nos. 16-20. Determine the correct balances of the ff. as of December 31, 2018
16. Treasury shares
a. P160,000 b. P190,000 c. P200,000 d. P210,000

17. Ordinary shares

a. P2,500,000 b. P2,490,000 c. P2,460,000 d. 2,210,000

18. Share premium – ordinary shares

a. P3,486,000 b. P3,500,000 c. P3,606,000 d. P3,620,000

19. Share premium – treasury shares

a. P-0- b. P120,000 c. P240,000 d. P710,000

20. Retained earnings (before appropriation for treasury shares)

a. P1,597,000 b. 1,718,000 c. P1,732,000 d. P1,859,000

-end-

Fold and crease heavily on the dotted line below, then detach when submitting your test questionnaire.

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NAME OF STUDENT: __________________________________________ Quiz 7 Auditing 2 (TSPendang)

Score: / 50pts Date: December 6, 2018

Instructions: No visible erasures allowed below. Write only the letters of your choice when your answer is final. Write supporting
solutions on a one whole yellow sheet of paper. As much as possible, please write your solutions in sequence. Label and encircle the
amount corresponding to your answer to each question. Detach this answer sheet then submit along with the test questionnaire and
yellow papers containing your supporting solutions.

Part A Part B
1._____ 6.______ 1._____ 6.______ 11.______ 16.______
2._____ 7.______ 2._____ 7.______ 12.______ 17.______
3._____ 8.______ 3._____ 8.______ 13.______ 18.______
4._____ 9.______ 4._____ 9.______ 14.______ 19.______
5._____ 10._____ 5._____ 10._____ 15.______ 20.______