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AUDITING PROBLEMS
AUDIT OF CASH AND CASH EQUIVALENTS
PROBLEM NO. 1
The following data were taken from your current working papers in connection with your
audit of the Rizal Companys financial statements for the year ended December 31, 2006.
Cash account consists of the following items:
Petty cash fund
Security Bank checking account
Allied Bank current account
Total per GL
P 25,000
(37,500)
344,250
P331,750
a. The count of the cashiers accountability on January 2, 2007, revealed total bills and
coins of P9,000. Unreplenished vouchers for various expenses totaled P16,000, of
which P3,000 pertains to January 2007.
b. On December 29, 2006, a check for P87,500 was drawn against Security Bank
current account resulting in bank overdraft of P37,500. The check was picked up by
the supplier on January 3, 2007.
c. Bank reconciliation statement prepared by the cashier for the Allied Bank account
follows:
Bank balance
Add: Deposit in transit
Bank service charges
Total
Less: Outstanding checks
Check No.
214
219
225
228
Book balance
@
P310,500
P61,250
1,250
Amount
P 2,500
20,750
6,000
8,500
62,500
373,000
@
28,750
P344,250
All reconciling items were traced to the bank statement. Further investigation indicated
that the deposits in transit include a customers post-dated check amounting to P40,000.
The check represents a collection from account customer for sales made in the middle of
October 2006.
QUESTIONS:
Based on the application of the necessary audit procedures and appreciation of the above
data, you are to provide the answers to the following:
1.
How much is the adjusted balance of petty cash fund as of December 31, 2006?
a. P12,000
b. P13,000
c. P9,000
d. P16,000
2.
How much is the adjusted Allied Bank current account as of December 31, 2006?
a. P336,500
b. P305,500
c. P296,500
d. P330,250
3.
d. P0
d. P358,500
4.
Page 2 of 21
5.
2.
3.
d. P193,350
4.
5.
Page 3 of 21
1. The bookkeeper also acts as the cashier. On December 31, 2006, the bookkeepers
year-end cash reconciliation contains the following items.
Cash per ledger, 12-31-06
Cash per bank, 12-31-06
Outstanding checks
Joe Co. check charge by bank in error
12-20-06; corrected by bank on 1-5-07
Cash in transit, credited by bank on 1-2-07
P736,800
778,200
62,640
1,800
8,640
2. The cash account balances per ledger as of 12-31-06 were: Cash - P736,800; petty
cash - P1,800
3. The count of the cash on hand at the close of business on January 10, 2007, including
the petty cash, was as follows:
Currency and coin
Expense vouchers
Employees IOUs dated 1-5-07
Customers checks in payment of account
P4,620
240
660
3,480
P9,000
4. From January 2, 2007 to January 10, 2007, the date of your cash count, total cash
receipts appearing in the cash records were P103,200. According to the bank
statement for the period from January 2, 2007 to January 10, 2007, total deposits were
P91,200.
5. On July 5, 2006, cash of P4,800 was received from an account customer; the
Allowance for Doubtful Accounts was charged and Accounts Receivable credited.
6. On December 5, 2006, cash of P3,600 was received from an account customer;
Inventory was charged and Accounts Receivable credited.
7. Cash of P8,760 received during 2006 was not recorded.
8. Checks received from customers from January 2, 2007 to January 10, 2007, totaling
P5,040, were not recorded but were deposited in bank.
9. On July 1, 2006, the bank refunded interest of P240 because a note of the Del Pilar
Company was paid before maturity. No entry had been made for the refund.
10. In the cashiers petty cash, there were receipts for collections from customers on
January 9, 2007, totaling P10,200; these were unrecorded and undeposited.
11. In the outstanding checks, there is one for P600 made payable to a trade creditor;
investigation shows that this check had been returned by the creditor on June 14, 2006
and a new check for P1,200 was issued in its place; the original check for P600 was
made in error as to amount.
QUESTIONS:
Based on the above and the result of your audit, answer the following:
1.
2.
3.
d. P724,800
d. P
d. P
Page 4 of 21
4.
Which of the following internal control procedures will most likely prevent the
concealment of a cash shortage resulting from improper write-off of a trade account
receivable?
a. Write-offs must be approved by a responsible officer after review of credit
department recommendations and supporting evidence.
b. Write-offs must be supported by an aging schedule showing that only receivables
overdue for several months have been written off.
c. Write-offs must be approved by the cashier who is in a position to know if the
receivables have, in fact, been collected.
d. Write-offs must be authorized by company field sales employees who are in a
position to determine the financial standing of the customers.
5.
AUDIT OF RECEIVABLES
PROBLEM NO. 4 (RPCPA 5.90)
The December 31, 2005 adjusted trial balance of Aguinaldo Company shows the following:
Accounts receivable
Allowance for bad debts
Debit
P50,000
Credit
P 2,000
Additional information:
QUESTIONS:
Based on the above and the result of your audit, determine the following:
1.
d. P122,200
2.
3.
4.
5.
d. P7,382
A company uses the allowance method for recognizing doubtful accounts. The entry
to record the writeoff of a specific uncollectible account
a. Affects neither net income nor working capital
b. Affects neither net income nor accounts receivable
Page 5 of 21
2002
2003
2004
2005
2006
3,300
9,000
3,000
6,000
24,000
7,200
7,800
27,000
16,200
9,000
30,000
8,400
2002
2003
2004
2005
2006
600
2,400
3,000
3,600
P90,000
810,000
P900,000
REQUIRED:
Based on the above and the result of your audit, you are to provide the answers to the
following:
1.
The average percentage of net doubtful accounts to charge sales that should be used
in setting up the 2006 allowance is
a. 2.50%
b. 2.05%
c. 1.90%
d. 1.77%
2.
d. P43,800
3.
4.
The net realizable value of accounts receivable that should be presented on the
December 31, 2006 balance sheet is
a. P831,600
b. P853,800
c. P868,650
d. P810,000
5.
Page 6 of 21
GOMBURZA Company has P6,000,000 note receivable from sale of plant bearing
interest at 12% per annum. The note is dated April 1, 2005. The note is payable in 3
annual installments of P2,000,000 plus interest on the unpaid balance every April 1.
The initial principal and interest payment was made on April 1, 2006.
How much is the interest receivable as of December 31, 2006?
a. P360,000
b. P540,000
c. P180,000
d. P120,000
2.
GOMBURZA Company sold a tract of land to RI Co. on July 1, 2006, for P4,000,000
under an installment sale contract. RI Co. signed a 4-year 11% note for P2,800,000
on July 1, 2006, in addition to the down payment of P1,200,000. The equal annual
payments of principal and interest on the note will be P902,500 payable on July 1,
2007, 2008, 2009,and 2010. The land had an established cash price of P4,000,000,
and its cost to the company was P3,000,000. The collection of the installments on
this note is reasonably assured.
How much is the noncurrent portion of the note receivable as of December 31, 2006?
a. P2,800,000
b. P1,897,500
c. P2,205,500
d. P2,051,500
3.
4.
5.
d. P26,624
On January 1, 2006, GOMBURZA Company sold land that originally cost P400,000 to
X Company. As payment, X gave GOMBURZA Company a P600,000 note. The note
bears an interest rate of 4% and is to be repaid in three annual installments of
P200,000 (plus interest on the outstanding balance). The first payment is due on
December 31, 2006. The market price of the land is not reliably determinable. The
prevailing rate of interest for notes of this type is 14%.
The gain on sale of land is
a. P5,000
b. P64,320
c. P103,105
d. P82,893
Page 7 of 21
AUDIT OF INVENTORIES
PROBLEM NO. 7 (Kieso, Weygandt and Warfield 10th edition)
Luna Company, a manufacturer of small tools, provided the following information from its
accounting records for the year ended December 31, 2006:
Inventory at December 31, 2006 (based on physical count on
December 31, 2006)
Accounts payable at December 31, 2006
Net sales (sales less sales returns)
P1,520,000
1,200,000
8,150,000
Included in the physical count were tools billed to a customer FOB shipping point on
December 31, 2006. These tools had a cost of P31,000 and were billed at P40,000.
The shipment was on Lunas loading dock waiting to be picked up by the common
carrier.
b.
Goods were in transit from a vendor to Luna on December 31, 2006. The invoice
cost was P71,000, and the goods were shipped FOB shipping point on December 29,
2006.
c.
Work in process inventory costing P30,000 was sent to an outside processor for
plating on December 30, 2006.
d.
Tools returned by customers and held pending inspection in the returned goods area
on December 31, 2006, were not included in the physical count. On January 8, 2007,
the tools costing P32,000 were inspected and returned to inventory. Credit memos
totaling P47,000 were issued to the customers on the same date.
e.
Tools shipped to a customer FOB destination on December 26, 2006, were in transit
at December 31, 2006, and had a cost of P21,000. Upon notification of receipt by the
customer on January 2, 2007, Luna issued a sales invoice for P42,000.
f.
Goods, with an invoice cost of P27,000, received from a vendor at 5:00 p.m. on
December 31, 2006, were recorded on a receiving report dated January 2, 2007. The
goods were not included in the physical count, but the invoice was included in
accounts payable at December 31, 2006.
g.
Goods received from a vendor on December 26, 2006, were included in the physical
count. However, the related P56,000 vendor invoice was not included in accounts
payable at December 31, 2006, because the accounts payable copy of the receiving
report was lost.
h.
On January 3, 2007, a monthly freight bill in the amount of P6,000 was received. The
bill specifically related to merchandise purchased in December 2006, one-half of
which was still in the inventory at December 31, 2006. The freight charges were not
included in either the inventory or accounts payable at December 31, 2006.
QUESTIONS:
Based on the above and the result of your audit, answer the following:
1.
2.
3.
The adjusted Net Sales fro the year ended December 31, 2006 is
a. P8,103,000
b. P8,110,000
c. P8,150,000
d. P8,063,000
4.
When auditing merchandise inventory at year end, the auditor performs a purchase
cutoff test to obtain evidence that
Page 8 of 21
a. All goods purchased before year end are received before the physical inventory
count.
b. All goods owned at year end are included in the inventory balance.
c. No goods held on consignment for customers are included in the inventory
balance.
d. No goods observed during the physical count are pledged or sold.
5.
Which of the following audit procedures would provide the least reliable evidence that
the client has legal title to inventories?
a. Confirmation of inventories at locations outside the client's facilities.
b. Observation of physical inventory counts.
c. Examination of paid vendors' invoices.
d. Analytical review of inventory balances compared to purchasing and sales
activities.
Inventory
Dec. 1-15
Purchases
Dec. 16-31
Purchases
Dec. 1-31
Dec. 31
Sales
Sales price
Product G
100,000 units
at P6.00
140,000 units
at P6.50
60,000 units
at P8.00
210,000 units
P8.00/unit
Product L
60,000 units
at P10.00
90,000 units
at P10.50
Product J
130,000 units
at P0.90
60,000 units
at P1.25
100,000 units
P11.00/unit
90,000 units
P2.00/unit
On December 31, the companys suppliers reduced their prices from the most recent
purchase prices by the following percentages: product G, 20%; product L, 10%; product J,
8%. Accordingly, Jaena decided to reduce its sales prices on all items by 10%, effective
November 1. Jaenas selling cost is 10% of sales price. Products G and L have a normal
profit (after selling costs) of 30% on sales prices, while the normal profit on product J (after
selling cost) is 15% of sales price.
QUESTIONS:
Based on the above and the result of your audit, determine the following:
1.
d. P1,235,000
2.
3.
d. P120,300
4.
The cost of sales, before loss on inventory writedown, for the month of December is
a. P2,597,000
b. P2,044,520
c. P2,587,300
d. P2,416,000
5.
If the perpetual inventory records show lower quantities of inventory that the physical
count an explanation of the difference might be unrecorded
a. Sales.
c. Purchases.
b. Purchase returns.
d. Purchase discounts.
Page 9 of 21
DEBIT
P 324,000
720,000
1,350,000
630,000
1,980,000
CREDIT
P 743,400
100,800
426,600
324,000
1,800,000
936,000
2,430,000
936,000
619,200
P6,660,000
.
P6,660,000
b.
An examination of the April bank statement and cancelled checks revealed that
checks written during the period April 1 to 21 totaled P234,000: P102,600 paid to
accounts payable as of March 31, P61,200 for April merchandise purchases, and
P70,200 paid for other expenses. Deposits during the same period amounted to
P233,100, which consisted of receipts on account from customers with the exception
of a P17,100 refund from a vendor for merchandise returned in April.
c.
d.
e.
The insurance company agreed that the fire loss claim should be based on the
assumption that the overall gross profit ratio for the past two years was in effect
during the current year. The companys audited financial statements disclosed the
following information:
Net sales
Net purchases
Beginning inventory
Ending inventory
f.
2005
P9,540,000
5,040,000
900,000
1,350,000
2004
P7,020,000
4,230,000
1,188,000
900,000
Inventory with a cost of P126,000 was salvaged and sold for P63,000. The balance
of the inventory was a total loss.
QUESTIONS:
Page 10 of 21
Based on the above and the result of your audit, answer the following:
1.
How much is the sales for the period January 1 to April 21, 2006?
a. P2,574,000
b. P2,735,100
c. P2,710,800
d. P2,718,000
2.
How much is the net purchases for the period January 1 to April 21, 2006?
a. P1,188,000
b. P1,212,300
c. P1,170,900
d. P1,229,400
3.
How much is the cost of sales for the period January 1 to April 21, 2006?
a. P1,494,900
b. P1,415,700
c. P1,504,305
d. P1,490,940
4.
d. P1,043,100
d. P858,600
5.
AUDIT OF INVESTMENTS
PROBLEM NO. 10 (Stice, Stice and Skousen 15th edition)
On December 31, 2005, Dagohoy Companys balance sheet showed the following
balances related to its securities accounts:
Trading securities
Available-for-sale securities (AFS)
Interest receivable-Balicasag water bonds
Unrealized gain AFS
P1,773,000
1,416,000
15,000
120,000
Dagohoys securities portfolio on December 31, 2005, was made up of the following
securities:
Security
Classification
Cost
12,000 shares Bohol Corp. stock
Trading
P900,000
9,600 shares Panglao Inc. stock
Trading
660,000
10% Balicasag water bonds (interest payable
semiannually on Jan. 1 and Jul. 1)
Trading
300,000
12,000 shares Pamilacan Inc. stock
Available for
708,000
sale
24,000 shares Loboc Unlimited Inc. stock
Available for
588,000
sale
Market
P915,000
633,900
224,100
756,000
660,000
Mar. 1
Apr. 15
Sold 4,800 shares of the Panglao Inc. stock for P69 per share.
May 4
Sold 4,800 shares of the Pamilacan Inc. stock for P62 per share.
July 1
Oct. 30
The market values of the stocks and bonds on December 31, 2006, are as follows:
Bohol Corp. stock
Panglao Inc. stock
Page 11 of 21
QUESTIONS:
Based on the above and the result of your audit, determine the following:
1.
Gain or loss on sale of 4,800 Panglao Inc. shares on April 15, 2006
a. P14,250 loss
b. P1,200 gain
c. P1,200 loss
d. P14,250 gain
2.
Net realized gain or loss on sale of 4,000 Pamilacan Inc. shares on May 4, 2006
a. P14,400 loss
b. P4,800 gain
c. P14,400 gain
d. P4,800 loss
3.
4.
5.
Cost
P144,000
432,000
Market
P184,000
288,000
158,400
P734,400
163,440
P635,440
Available-for-sale securities:
Security
Candon Products
Pagudpud, Inc.
Batac, Inc.
Total
Shares
32,000
240,000
80,000
Cost
P1,376,000
6,240,000
960,000
P8,576,000
Market
P1,440,000
5,840,000
1,280,000
P8,560,000
Held to maturity:
Cost Book value
12%, 2,000,000 face value, Ilocos bonds (interest
payable annually every Dec. 31)
P1,900,000 P1,926,000
During 2006, the following transactions occurred:
Jan. 1
Mar. 1
May 15
July 1
Page 12 of 21
Dec. 31
31
The market values of the stocks and bonds on December 31, 2006, are as follows:
Vigan, Inc.
Laoag, Inc.
10% Santiago bonds
Candon Products
Pagudpud, Inc.
Batac, Inc.
QUESTIONS:
Based on the above and the result of your audit, determine the following:
1.
2.
Realized gain or loss on sale of 3,200 Batac, Inc. shares on May 15, 2006
a. P9,600 loss
b. P3,200 loss
c. P9,600 gain
d. P3,200 gain
3.
c. P251,120
d. P286,000
4.
The amount that should be reported as unrealized gain in the statement of changes in
equity regarding transfer of Ilocos bonds to available-for-sale?
a. P94,000
b. P123,640
c. P64,360
d. P
0
5.
d. P5,436,894
2.
3.
4.
c. P466,073
d. P457,122
Page 13 of 21
5.
P 216,000
264,000
360,000
288,000
P1,128,000
d. P168,000
Page 14 of 21
3.
4.
5.
c. P37,200
d. P0
c. P61,200
d. P0
Assuming the errors were not discovered and corrected, the December 31, 2006
retained earnings would have been understated by
a. P77,400
b. P243,000
c. P77,400
d. P0
1,280,000 tons
1,024,000 tons
P4.40
1,024,000
204,800
921,600
c. P307,200
d. P1,664,000
d. P0
d. P669,013
4.
How much is the cost of sales for the year ended December 31, 2006?
a. P2,703,360
b. P2,805,760
c. P2,723,840
d. P2,676,053
5.
How much is the maximum amount that may be declared as dividends at the end of
the companys first year of operations?
a. P2,391,040
b. P2,063,360
c. P2,083,840
d. P2,111,147
Page 15 of 21
15
Hired a clown to stand in front of the corporate office for 2 weeks and
hound out pamphlets and candy to create goodwill for the new
enterprise. Clown cost, P18,000; pamphlets and candy, P9,000.
Apr. 1
P 772,200
114,300
P 886,500
July
Dec. 31
QUESTIONS:
Based on the above and the result of your audit, determine the following:
1.
2.
3.
Cost of patent
a. P886,500
b. P772,200
c. P114,300
d. P0
Cost of licenses
a. P270,000
b. P360,000
c. P180,000
d. P0
Cost of trademark
a. P270,000
b. P360,000
c. P180,000
d. P0
4.
5.
Total amount resulting from the foregoing transactions that should be expensed when
incurred
a. P7,380,900
b. P3,569,400
c. P3,596,400
d. P0
A trademark for P540,000. The trademark has 7 years remaining legal life. It is
anticipated that the trademark will be renewed in the future, indefinitely, without
problem.
Page 16 of 21
A customer list for P396,000. By contract, Gregoria has exclusive use of the list for 5
years. Because of market conditions, it is expected that the list will have economic
value for just 3 years.
On December 31, 2006, before any adjusting entries for the year were made, the following
information was assembled about each of the intangible assets:
a) Because of a decline in the economy, the trademark is now expected to generate cash
flows of just P18,000 per year. The useful life of trademark still extends beyond the
foreseeable horizon.
b) The cash flows expected to be generated by the De Jesus Manufacturing reporting unit
is P450,000 per year for the next 22 years. Book values and fair values of the assets
and liabilities of the De Jesus Manufacturing reporting unit are as follows:
Identifiable assets
Goodwill
Liabilities
Book values
P4,860,000
2,700,000
3,240,000
Fair values
P5,400,000
?
3,240,000
c) The cash flows expected to be generated by the customer list are P216,000 in 2007
and P144,000 in 2008.
REQUIRED:
Based on the above and the result of your audit, determine the following: (Assume that the
appropriate discount rate for all items is 6%):
1.
c. P209,142
d. P156,343
c. P323,251
d. P0
d. P216,749
d. P2,632,500
d. P0
AUDIT OF LIABILITIES
PROBLEM NO. 17 (Stice, Stice and Skousen 15th edition)
You were able to obtain the following from the accountant for Paterno Corp. related to the
companys liabilities as of December 31, 2006.
Accounts payable
Notes payable trade
Notes payable bank
Wages and salaries payable
Interest payable
Mortgage notes payable 10%
Mortgage notes payable 12%
Bonds payable
The following additional information pertains to these liabilities.
P 650,000
190,000
800,000
15,000
?
600,000
1,500,000
2,000,000
Page 17 of 21
a. All trade notes payable are due within six months of the balance sheet date.
b. Bank notes-payable include two separate notes payable to Allied Bank.
(1) A P300,000, 8% note issued March 1, 2004, payable on demand. Interest is
payable every six months.
(2) A 1-year, P500,000, 11 % note issued January 2, 2006. On December 30,
2006, Paterno negotiated a written agreement with Allied Bank to replace the note
with a 2-year, P500,000, 10% note to be issued January 2, 2007. The interest
was paid on December 31, 2006.
c. The 10% mortgage note was issued October 1, 2003, with a term of 10 years. Terms
of the note give the holder the right to demand immediate payment if the company fails
to make a monthly interest payment within 10 days of the date the payment is due. As
of December 31, 2006, Paterno is three months behind in paying its required interest
payment.
d. The 12% mortgage note was issued May 1, 2000, with a term of 20 years. The current
principal amount due is P1,500,000. Principal and interest payable annually on April
30. A payment of P220,000 is due April 30, 2007. The payment includes interest of
P180,000.
e. The bonds payable is 10-year, 8% bonds, issued June 30, 1997. Interest is payable
semi-annually every June 30 and December 31.
QUESTIONS:
Based on the above and the result of your audit, answer the following:
1.
d. P215,000
2.
3.
d. P3,998,000
d. P1,960,000
4.
5.
Page 18 of 21
The company started out in 2006 expecting 8% of the peso volume of sales to be returned.
However, due to the introduction of new models during the year, this estimated percentage
of returns was increased to 10% on May 1. It is assumed that no components sold during
a given month are returned in that month. Each component is stamped with a date at time
of sale so that the warranty may be properly administered. The following table of
percentages indicates the like pattern of sales return during the 6-month period of the
warranty, starting with the month following the sale of components.
Month Following Sale
First
Second
Third
Fourth through sixth 10% each month
Percentage of Total
Returns Expected
20%
30
20
30
100%
Gross sales of components were as follows for the first 6 months of 2006:
Month
January
February
March
April
May
June
Amount
P6,480,000
5,940,000
7,380,000
5,130,000
3,600,000
3,240,000
The companys warranty also covers the payment of freight cost on defective components
returned and on the new components sent out as replacements. This freight cost runs
approximately 10% of the sales price of the components returned. The manufacturing cost
of the components is roughly 80% of the sales price, and the salvage value of returned
components averages 15% of their sales price. Returned components on hand at
December 31, 2005, were thus valued in inventory at 15% of their original sales price.
QUESTIONS:
Based on the above and the result of your audit, answer the following:
1.
The total estimated returns for the six-month period ended June 30, 2006 is
a. P2,678,400
b. P2,541,600
c. P3,177,000
d. P2,859,300
2.
The warranty expense for the six-month period ended June 30, 2006 is
a. P2,382,750
b. P2,468,880
c. P2,008,800
d. P1,906,200
3.
The Estimated Liability for Product Warranty as of June 30, 2006 should have a
balance of
a. P1,147,680
b. P855,900
c. P955,126
d. P764,100
4.
The adjusting entry on June 30, 2006 will include a debit to Warranty Expense of
a. P711,450
b. P810,676
c. P888,462
d. P619,650
5.
Page 19 of 21
P4,500,000
750,000
Bonds
118
110
Common stock
40
42
QUESTIONS:
Based on the above and the result of your audit, answer the following: (Round-off present
value factors to four decimal places)
1. How much of the proceeds from the issuance of convertible bonds should be allocated
to equity?
a. P951,000
b. P190,224
c. P332,496
d. P0
2. How much is the carrying value of the bonds payable as of December 31, 2005?
a. P3,000,000
b. P2,084,100
c. P2,694,255
d. P2,850,754
3. How much is the interest expense for the year 2006?
a. P240,000
b. P208,410
c. P269,426
d. P285,075
4. The entry to record the conversion on December 31, 2006 will increase APIC by
a. P547,915
b. P600,000
c. P461,840
d. P0
5. How much is the loss on bond reacquisition on December 31, 2006?
a. P75,000
b. P144,080
c. P101,043
d. P0
AUDIT OF STOCKHOLDERS EQUITY
PROBLEM NO. 20 (Stice, Stice and Skousen 15th edition)
Baltazar Inc. was organized on January 2, 2005, with authorized capital stock of 50,000
shares of 10%, P200 par value preferred, and 200,000 shares of no-par, no stated value
common. During the first 2 years of the company's existence, the following selected
transactions took place:
2005
Jan. 2
2
Mar. 2
Jul. 10
Page 20 of 21
Dec. 16
28
31
2006
Feb. 27
Jun. 17
Jul. 31
Sep. 30
Dec. 16
28
31
QUESTIONS:
Based on the above and the result of your audit, determine the balances of the following
as of December 31, 2006:
1.
2.
3.
4.
5.
Preferred stock
a. P777,600
b. P600,000
c. P720,000
d. P729,600
Common stock
a. P615,000
b. P966,500
c. P735,500
d. P696,100
c. P57,600
d. P95,600
c. P1,892,100
d. P2,376,630
P3,000,000
300,000
450,000
P3,750,000
On June 15, 2005, Lapu-Lapu issued 50,000 shares of its common stock for P6,000,000.
A 5% stock dividend was declared on September 30, 2005 and issued on November 10,
2005 to stockholders of record on October 31, 2005. Market value of common stock was
P110 per share on declaration date. The net income of Lapu-Lapu for the year ended
December 31, 2005 was P475,000.
During 2006, Lapu-Lapu had the following transactions;
March 1
Lapu-Lapu reacquired 3,000 shares of its common stock for P95 per
share.
May 31
Lapu-Lapu sold 1,500 shares of its treasury stock for P120 per share.
August 10
Issued to stockholders one stock right for each share held to purchase two
additional shares of common stock for P125 per share. The rights expire
on December 31, 2006.
September 15 25,000 stock rights were exercised when the market value of common
Page 21 of 21
40,000 stock rights were exercised when the market value of the common
stock was P140 per share.
December 10
December 20
Lapu-Lapu retired 1,000 shares of its treasury stock and reverted them to
an unused basis. On this date, the market value of the common stock
was P150 per share.
December 31
QUESTIONS:
Based on the above and the result of your audit, determine the following as of December
31, 2006:
1.
2.
3.
4.
5.
Common stock
a. P21,400,000
b. P21,300,000
c. P14,800,000
d. P21,250,000
c. P4,632,500
d. P4,592,500
Retained earnings
a. P600,000
b. P565,000
c. P557,000
d. P560,000
Treasury stock
a. P10,000
b. P47,500
c. P50,000
d. P0
When a corporate client maintains its own stock records, the auditor primarily will rely
upon
a. Confirmation with the company secretary of shares outstanding at year-end.
b. Review of the corporate minutes for data as to shares outstanding.
c. Confirmation of the number of shares outstanding at year-end with the appropriate
state official.
d. Inspection of the stock book at year-end and accounting for all certificate
numbers.