Preweek Auditing Problems 2014 PDF

/ CPA REVIEW SCHOOL OF THE PHILIPPINES AP�PW7501
Mani I a
AUDITING PROBLEMS CPA Review
PROBLEM NO. 1
LAFAYETTE CORPORATION, a ciient, requests that )'•)U compute the appropriate balance of its
estimated liability for product warranty account for a :;tatcment as of June 30, 2014 .
.
Lafayette Corporation manufactur· es television com!)onents and sells them with a 6-month
warranty under which defective components will be n!placed without charge. On December 31,
2013, Estimated Liability for Product warranty had a balance of P620,000. By June 30, 2014,
this balance had been reduced to P120,400 by detits for estimated net cost of components
returned that had been sold in 2013.
The c_orporation started out in 2014 expecting 7% ot -the peso volume bf'�les to be re�rned.
However, due to the introduction of new models dur!ng 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. Eaeh component is stamped with a date at time of sale so
that the warranty may be properly administered. Tttr- following table of percentages indicat:;s
the likely pattern of sales returns during the 6-montl1 period of the warranty, starting with the
•
month following the sale of components.
Percentage of Total
Month Following Sale Returns Expected
30%
20
First
Second
Th ird 20
Fourth through sixth-10% each month• _JO
.!QQ %
Gross sales of components were as follows for the firr.t six months of 2014:
Month Amount tjonth Amount

January Pt!,200,COO A:>ril P3,250,000
February 4,700,000 May 2,400,000
jvlarch .3,900,000 June 1, 900,0(JQ.
.'
foe corporation's warranty also covers the paymem of freight cost on defective components
returned and on the new components sent out <.s replacements. This freight cost rims
approximately 5% of the sales price of the compor.; !nts returned. The manufacturing cos� of
the components is roughly 70% of the sales p; ce, and the salvage value of returned
components averages 10% of their sales pnce. R.:·; urned components on hand at December
::'.l, 2013, werE thus valued in inventory at 1?0/o of th �ir original saies pricE:.
Based o n the given info rmatio n, deter� ine the foUowing:
J. Total estimated returns from the sa1es made du:·lng the first.6 months of 2014
A. Pl ,4 8 1 ,500 B. Pl,651,000 C. P1,42�t,500 D. Pl,553,500 •
2. Tot.al e�timated returns subsequent to June 30, 2014

A. P678,250 B. P648,850 C. P591,850
3. Estimated loss on component replacement (!n P·�rcentage of sales price)

A. 65% B. 75 % C. 70% D. 80%
t J. Req u ired Estimated Liability for Product Warrani¥ oalance at June 30, 2014
A. P301,353 8. P421,753 C. P120,4GO D. P77,847
Hequired adju.;tment to
• · ! •1:�
i1;::bility account
�· P301,353 debit C. P421,-753 -:1ebit ·
6. D. P42I,7S: ::redit
000 0000 0 0
P301,353 credit
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Page l of 14 Pa �es
CPA REVIEW SCI \OOL OF THE PHILIPPINES(CPAR) AP-PW"l50.1
PROBLEM NO. 2
JARAN CO. started operations on September 1, 2010. Jaran's accounts at December 31, 2013,
included the following balances:
Machinery (at cost) p 910,000

Accumulated depreciation - machinery 482,000
Vehicles (at cost; purchased November 21, 2C12) 468,000
Accumulated depreciation - vehicles 196,560
Land (at cost; purchased October 25, 2010) 810,000
Buildinq (at cost; purchased October 25, 201C) 1,857,200
Accumulated depreciation - building 286,140
,")etai/s of mad1ines owned ."it December 31 20131 arc' 2s follows:

� •I:•
• •
Machine Purchase Date Cost Useful Life Residual Value·

1 October 7, 2010 5 years
February 4, 2011·
P430,000 P25,000
2 P480,000 6 years P30,000
Additional information:
" Jaran calculates depreciation to the nearest morn:h and balances the records at month-end.
Recorded amounts are rounded to the nearest pe;o, and the reporting date is December 31.
" Jaran uses straight-line depreciation for all depi ·eciable assets except vehicles1 which are
depreciated on the di mi 1ishing balance at 40% p•!r annum.
The vehicles account b'1lance reflects the total p;1id for two identical delivery vehicles, E:ach
.
"
of which cost P234,000.
" On acquiring the land iind building, Jaran est:m 3ted the building's useful life and residual
value at 20 years and P.10,000, respectively.
The following transactions 1 •ccurred from January 1, ?014:

.,
Jan.
2014
03 Bought a new machine tmachine 3) for a .:ash price of P570,000. Freight charges of
P4,420 and installation costs of P17,58C· were paid in cash. The useful life and
residual value W•'!re estimated at five year'> and P40,CTOO, respectively.
June Bought a second-hand vehicle for P152,Cl00 cash. Repainting costs of P6,550 an·d
four new tires rnstlng P3,450 were paid fer in cash.
22
Aug. Exchanged machine 1 for office furnK:urE that had a fair value of P125,000 at the
The fair value of machine 1 at the date of exchange was
28
date of exchanqe.
The office furniture origincilly cost P360,000 and, to the date of
. exchange, had been depreciated by P24 l .OOO in the previous owner's books. Jar'an
Pll.5,000.
estimated the c-ffice furniture's useful li"e and residual value at eight years and
P5,·100, respectively.
Dec. 31 Recorded depreciation.
2015
April 30 Paid for repairs <ind maintenance on the 111achinery at a cash cost of P9,280.
l"!ay 25 Sold one of the vehicles oought on Noyerr:ber 21; 2012, fdr P6'b:,()00 cash.
June 26 Installed a fence: around the property at '.I cash cost of PSS,000. The fence ha!i an •
·
estimated useful life of 10 y.ears and zerc· residual value. (Debit the cost to a Land
Improvements asset account.-)
Dec. · 31 Recorded depreciation.

.
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REVIEW SCHOOL OF IHE

f'H
_ ILIPPINES (CPAR) AP-PW7501
; PA
Bank s ervice charge�;

totaling Pl,260 were n ei1 ·recorded.
•
Deposit in transit and 2SO ,:;i�d

outstanding checks at Jecember 3 1, 2014, totaled P136,
•
P276,380, respectiVE'.ly.
�:. Various expenses from the ber 20l4 totc1led

company's imprest petty cash fund dated Decem
P16,250, while those dated January 2015 amounted to P5,903. Another disbursem ent om �
�he fund dated Decemb,�r 2014 ng to P3,....oo.
wa� a cash advo ice to an employe e amounti
A replenishment of the petty cash fund was made on January 8, 2015 .
., acco�nts:
The company's trial balance on December 31, 20r4, includes the following
Cash in bank - Tsum1mi Bank P 748,320
Cash i n bank - Earthquake Bank (restricted account for plant
•
expansion, expected to be disbursc>d in 21. 15) 700,000

Petty cash fund 30,000·
Time deposit, placed December 20, 2014, and due March 20, 2015 ·1,000,000
4,000,000
•
Money market placement·_ Prudential Bank

'
•
What is the adjusted P�tly casn fund balance on December 3J., 2014?
·:. P30,00u
1.
A. P4,347 B. Pl0,250 • D. P24,097
2. The petty cash shortage on December 31, 2014, is

A. P 0 B. PS,903 - P3,500 D. P4,347
3. What is the adjusted Cash in bank -Tsunami Bank-balance on December 31, 2014?
·A. PS00,010 B. P748,320 • (. P432,710 D. P429, 110
4. The entry to adjust the Cash in bank - Tsunami 9ank account should include a debit to
A. Accounts receivable for P89:800.
B. Accounts receivable: fo r P86,300.
C. Accounts payable for P228,200.
D. Intere!;t expense for Pl,950.
5. The December 31, 2014, statement or finanCliil position should show "Cash and cash
equivalents" at
A. P 6, 142,960 B. PS,·139,360 ?4,.l42.. 96G D. PS,442,960
ooo<><><>ooc17
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PROBLEM NO. 4
HlATI TEXTILE CORPORATION is in the process of ob.:aining a loan at City Bank. The bank ha's
requested audited financial statements. Hiatt's finan-:'ia! statements have never been audited
before. It has prepared the following comparative 1 inancial statements for the �ars ended
December 31, 2014 and 201::.
HIATT TEXTILE CORP<)RATION

C<>MPARATIVE STATEMENTS OF HNANCIAL POSffiON
December 31. 2014 and 2013
2014 2013
Assets
Current assets:
Cash and cash equivalent:!; Pl,205,000 p 800,000
Accounts receivable 1,960,000 1,480,000 I
'
Allowance for bad debts (185,000) (90,000)
Inventory l,035,000 1,010,000 I
Total current assets . 4,015,000 3.200,0()0 \
I
Noncurrent assets:
Property, plant, and equipment
. '
\
\
835,000 847,500
Accumulated depreciation (608,000) {532,000)
Tot�I noncurrent assets 22·7,000 315,500
\
Total assets P4.242.000 P3,515.500
Page 4of14 Page:;

CPA REVIEW SCHOOL OFTHE PHILIPPINES (CPAR) AP-PW75o1
2016
:1an. OS Overhauled machine 2 at a cash cost of P120,000, after which Jaran estimated �ts
remaining useful life at one additional yea· and revised its residual value to PS0,000.
June 20 Traded in the remaining vehicle bought or1 November 21, 2012, for a new vehicle�. A
trade-in allowance of P37,oqo was received and P233,000 was paid in cash.
Oct. 04 Scrapped the vehicle bought on June 22, 2014, as it had been so badly damagea in
a traffic accident: that it was not worthwhi·e repairing it.
Dec. 31 Recorded depreciation.
1. What should be the d<�preciation expense for tile vehicles for 2014?
A. P140,976 B. P138,976 C. P139,666 O. P140,286 . .
2. What should be the depreciation expense for tr.e machinery for 2014?
• I
A. P242,733 B. P235,000 C. P239,400 D. P266,400
3. What should be the balance of the Accumulated depreciation - Office furniture account at
December 31, 2015?
A. Pl9,933 B. Pl8,267 C. P19,833 D. P58,083
4. Wh�t should be the depreciation expense for trie 111acninery for 2016?
A. P277.708 B. P197,400 • C. P221,400 D. P205,400
5. What should be the total depreciation expense for 2016?

A. P394,060 B. P418,060 0. P403,832
oooO GOouo
C. P409,612
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i?ROBLEM NO. 3
In connection with your audit of the financial statem1�nts of ONOR COMPANY for the year ended
•
l)ecember 31, 2014, you g.:1thered i:he following information.
1. The company maintains its current account 0wit11· Tsun�mi Ban .· ; �h� bank staten,ent on
December 31, 2014, showed a balance of P638,340.
Your audit of the company's accou�t. with Tsunar �i Bank disclosed the
following:
current had t
• A check for P22,500 received from a customer whose account is •
deposited and the � returned by the bank on December 28, 2014. No

entry was
for the return of thr!; check. The customer r:e'Jlaced the check on January 15,
n:��
2015. •
• A check for PS,720 was cleared by the bank as P7,520. The bank made the correction
on January 2, 2015.
• A check for P3,500 representing payment cf an employee advance was received and
deposited on December 27, 2014, but was nc . t recorded until January 3, 2015.
• e
Post-da t dchecks totaling P67,300 were included in the deposits in transit. Tllese •
represent collection:; of current accounts receivable from customers. The checks were
actuallv deposited on January 5, 2015.
V ar io u s debit memos for drafts purchased P. ayment of importation of equipment

for
totalinq P230,000 were not yet record�d. Th�se purchases were previously set up as
•
accounts p a ya ble. �:iaid equipment 2014.

arrived in·Dec�mber
Interest earned on the bank balance for th � 4th quarter of 2014, amounting to Pl,950
•
was not recorded.

•
Page 3 of 14 P: 1ges
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.C.PA l.IBVJEW SCHOOLOF TPE

p lllLIPPINES
�,i��!-l�ties and Shareholders'

' fCPAP.) AP-PW7501.
Equity
.. !l1b1ht1es:
.L\ccounts payable
p 607,000 p 980.500
Shareholders' equity:
Ordinary shares, P20
par value;
150,000 shares authorizE:d;
GS,O?O shares issued am! outstanding 1,300,000 1,300,000
Retained earnings 2.335,000 1.235.000
Total shareholders' equit/ 3,635,000 2,535.000
p1.212.ooo
Tvtal liabilities und shareholders p3.515.500
' equity
HIATT TEXTILE COR PORATI ON

COMPARATIVE INCOME STATEMENTS
th•: Years E n de d [;.-::cember 3�, 2014 and 2013
. . 2014 . . ' •t:• 2013
:::or
P4,500,000
Cost of goods sold
Sales P5,000,000
2.150.000 1,975,000
Gross income 2.525,000
Operating expenses:
2,850.000
Selling expenses 1,150,000 1,025,000

Administrative expenses 600.000 525,000
Total operating expenses 1.750,000 1.550,000
N.:t income Pl.100.000 p 975.000
The 2014 audit revealed the following facts:

.
a. On January 5, 2013, Hialt Textile Corporation hac1 charged .a 5-year insurance premium to
expense. The premium t:ltaled P31,000.
b. 1he amount of loss due to bad debts has steadil't decreased over the last 2 years. Hial't
Textile Corporation has decided to reduce the amc un t of bad debt expense from 2% to l 1/2
% of sales, l)eginning wit h 2014. (A charge of 2c;.> has already been made for 2014.)
••
c. Hiatt Textile Corporatio11 us�s the periodic inv1!ntory system.

in,ventory errors for the la st 2 years.
The following are the
• 1
•
2013 -
Ending inventory overstated by �'75,500
2014 - Ending inventory overstated by P99,cmo
.
d. equipment costing PlS0,000 was acquired o i January 3, 2013. The purchase was
.
An .
recorded by a charge to operating expense. The equipm·ent has a useful life of 10 yec1rs
and a residual value of P25,000. Hiatt Textile Corporation uses the straight -line method in
depreciating its assets.
• •
e. A!isume that the books for 2014 have not y et been closed. Ignore tax implications.
Based on the above information, answer the folk>wing:
l. The December 31, 2014, adjusting entry to" correct the expensing of insurance premium
paid is
A. Prepaid insurance 18,600
Insurance expense 6,200
B. Prepaid insurance
Retained earnings 24,800
R:!tained earni 1gs

18,600
C. Insurance expense
18,600
18,600' it:•
D. Insurance expense 6,200
Page S of 14 Pagfs
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£:Pi\ REYIEW SCHOOLOETHE f IllLIPPINES!CPAHI
. .
AP·PWi'.W.
2. The December 31, 2014, adjusting entry to correcr tne expensing of the equipment
purchased on January 3, 2014, should include a credit to
A. Accumulated depreciation-Pl2,SOO. •
B. Retained earnings-P137,500.
C. Equipment-P12,500.
D. Depreciation expense-P12,500.
3. The December 31, 2014, adjusting entry to co-rect the inventory errors should include a
•
debit to
A. Cost of goods sold-P99,000.
B. Inventory-P23,500.
D. Cost of goods sold-P75,500.

C. Retained earnings-P75,500.
·i. What i$ t 11att':. correct �d net income fo� tne ye;;: ended Gecernber 31, 2013?
€. P786,800
• • ! 11:•
.A. Pl,012,200 B. Pl,212,800 ·
D. Pl,061,�00
5. What is Hiatt's correct2d net income for the year ended December 31, 2014?
!O<>O()C>C>ooe>---------------- -------------
A. Pl,095,200 B. Pl,12�1800 C. Pl,082,800 D. Pl,107,800
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PROBLEM NO. 5
The schedule below shows the account balances of EENEFICIO CORPORATION at the beginning
iJnd end of the year ended December 31, 2014:
DEBITS Dec.31,2014 Dec. 31, 2012�

p
Investment in trading securities
Cash and cash equivalents P222,000 50,000
10,000 40,000
l nventories
Accounts receivable 148,000 100,000
291,000 300,000
Land and builaing

Prepaid insurance 2,500 2,000
195,000 195,000 . .
Equipment • ' • 305,000 170,000
Discount on bonds payable 8,500 9,000
5,000
Cost of goods sold
Treasury shares (at cost) 10,000
539,000
Selling and general expense:s 287,000
lncome taxe s 35,000
Unrealized los�; on trading securities 4,000
Logs on sale ot' equipment 1,000
Total debits • P2.053.000 p876.000
CREDIT�
1\llowance for b ad debts
p 8,000 p 5,000
26,250 22,500
Accumulated depreciation - Building
39,750 27,500
1\ccumulated depreciation - Eq uip m ent
55,000 60,000
1\ccounts pay a ol e
r�otes payable
70,000 20,000
- current
18,000 8,700
Miscelianeous expenses payable
10,000
LOOO
35,000
--axes p ayab le
mE:arned revf nue
9,000
40,ooa· 11:•
•
! 60,000
1-iotes payable - long-term 250,000
250,000
Bon d!> payable - long-term 53,300
47,000
Deferred income tax liabil ity
359,400
capital, P2 par
. \<�t.ainedy share
200,000
r�rdinar
earnings appropriated for
�sury 5,000 10,000
shares
Page 6of14 Pag:_s

•• '11:•
.n.:.:U lfil/JEWSCII.9.QJ.OF THE Pl 111.lP

PINE SCC.PAR! AP-PWIT!Oi
�d for
R�tai1' ed ,.:arnings appropriat
.
po!>stble building expans 23,000
ion 38,000
.
�
Unappropri ted retained ear
nings 34,600 112,000
Patd-:n capital in excess of p<1r
Sales
value 116,000 5,000
898,000
G�in on sale of investment securities 12,000
rotal credits PZ.053. 000 £876.00Q
a) All purchases and sales were on account.
b) Equipment with CJn origim! cost of P lS,000 was solj for PZ,000.
c) Selling and �1eneral exper:ses include the !'allowing:

Building aep re cialion P 3,750
Equipment depreciation 25,250 •
'
Bad debt: expense 4,000

Interest expense 18,000
d) A six-month note payable for PS0,000 w s issued )Ward the � � purchase of new equipment.
e) The long�term note pay<1ble requires the paymem of P::?.0,000 per year plus interest until°
paid.
f) lreasury shar�s were solrl for Pl,000 mor� than th�ir cost.
.
100,000 shares of P2 pc1r ordinary shares outsta 1ding. However, 1,000 of these shares
g) During the year, a 30% stock dividend was declared and issued. At that time, there were
were held as treasury sh<1res at the time and were prohibited from participating in the stoc�
dividend. Market price was PlO per share when th•! stock dividend was declared.
h) Equipment was overhaul0d, extending its useful ·ife, at a cost of P6,000 . The cost was
debited to Accumulated C·epreciation-Equipment.
activities.
i) i3enetlcio has determinec: that its purchases and sales of trading securities are operating
Based on the �riven data,, .:a/cu/ate the fo//owin�1:

' 11:�
., Net income for 2014
A. P45,000 B. PS0, 300 (. P43,500 D. P44,000
") C:ish dividends declarec and paid d�rinq 2014
A. P8, 000 B. PS2.000 • • . .. P7,400 D. P O
�
8. P l l 0,000
.> Proceeas from issuance of ordinary sharc�s in 201 .
A. P l00,000 C. P210,000 D. P269,400
4. Proceeds from sale of trading securities

A. P26,000 3. P38,000 C. P42,000 D. P l4,000
C. PB,000
Accumulated depreciati(ln of equipment sold
A. P?,000
:i.
3.
P l S,000 D. P9,000
Cash paid for purchase 1)f equipment

.
6.
A.. PS0,001) ;:,_ Pl06,000 �. P!S0,000 D. P l00,000
Proceeds from sale of tr·�asury shares

.\. P6,000 C: P4,000
1 •
B. PS,000 D. Pl0,000
i:.. r�et cash provided by operating activities
A. P45,000 '�. P87 ,0 00 C P83,000 D. P89,300 •
c
'.\Jet cash u�ed in investing activities
A. P106,000
I• CJ61,QQQ
. '
1. P99,000 D. P9 3,000
lC. Net cash provided by financing activities
1. ( P182,000
•
A: P188,000 P187,000 D. P106,000
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H'!\ REVIEWSCHOOL OF THE PHILIPPINES(CPAg;
. AP·PW7!>01
PROBLEM 6 i •
The following information i�; based on a first audit of SABILA COMPANY. Thei client has nnt
prepared financial statements for 2012, 2013, or 20 1 4. During these years, no: accounts have
been written off as uncollectible, and the rate of gm;s income on sales has remained const ant
fur each of the three years.
Prior to Ja nuar y 1, 2012, the client used the accrual method of accounting. From January 1,
. .
2012, to December 31, 2014, o nl y cash receipts anc disbursements records were maintained.
When sales on account were made, they were entrred in the subsidiary accounts receivable
ledger. No general ledger postings have been made �;ince December 31, 2011. .
As a result of your 1�xaminat1on, the correct data shovm in the table b ei ow are available:
12131/14 . .
. 12/31/11
hccounts receivable balances: . '
Less than one year air. p 15,400 P28,200
One to two years old 1,200
Two to three years old
. 1,800
Over three years old

800
--- 2,200
Total accoums receivable Pl6,600 P33.000
'inventories Pll.600 Pl8,800

�ccounts payable for i nv en tory purchased p 5,000 PlLOOO
Cash received on accounts receivable in:

201:� 2013 2014
Applied to:
Current year collections P148,f.O O Pl61,800 P208,800
·Accounts of the prior year
Accounts of tvvo years prior
13/00 15,000 16,800
__ f.00 40 0 2,00 0
Total .!:lfill: OO P177.200 P227,600
Cash sales Pl7.f!QQ P26.000 P31.200

Casll disbursements for ..
• • ! 11:•
• inventory purchased P!25,(JQO P141.200 P173,800
1. Tile company's sales n�venue for the three-year period amounted to

A. P658, 200 B. P74,20G c. P625,400 D. P415,300
2. What is the compa ny's total sales revenue for 21)13?

A. P206,400 B. P183,600 c. P268,200 D. P180,400
The aggri:gate amount of purchases for the thrE:e-year period is

.,
c. P434,000
.) .
A. Pl31,000 B. P440,000 D. P446,000
4. What is t11e company's gross p ro fit ratiq in each of the three-year period?
A. 33.3 3% 8. 28.35% C. 35.16% D. 31.15%
.
5. What is tile company'� gross profit for each

of ne three-yea: period?
. 2014
p 80,00 0
2012 2013
A. p 60,933 p 68,200
B. 55,5 J3 60,133 79,000
c. 122,400 137,600 178,800
D ·
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' REVIE W SCHOOE
!J.A OL THE PlilLIPPINES AP·PWOO
CCrA Rl
5· The a!11ount of inver.t
ory to be reported on Bird's December 3 1 , 2014, stateme!i.: of
financial position should
be
A. P2,103,2 00 B. P2,08ft,200 C. P2,122,200 D. Pl,993,200
--------- ------------ -------- 000()()()000 --------� ----------- --- -----
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PRC>BLEMS
You have been asked by a
client to review the records of BABOLS COMPANY, a small
and arrangements have been made for you to review :he accounting records.
manufacturer of precisio n tools and
machines. Your .:lient is interested in buying the business,
Vour .examination reveals the following:

•I
1. BABOLS commenced bu�.iness on April 1, 2011, md nas been reporting on a fiscal year
ending March 3 1 .
.
:
The company has ·never been aur:!ited but the annual statements
prepared by the bookkeeper reflect the follow.ng income before closing and before·
deducting income taxes:
Year Ended Income

March 31 ·Before Taxes
2012 •
p 14 �,200
2013 222,800
2014 207, 160
2. A relatively small numbeir of machines have bt:en shipped on consignment. These

transactions have been recorded as ordinary sa'les and billed as such. On March 31 of eacl1.
year, machines billed and in the hands of consignee! amounted to:
201:' p 13,000
20D None
201£! 11,180
:;ales price was determine<· by adding 30% to co�t· Assume the cnnsiaWd machines are
� olo the following year.
3. On March 30, 2013, two mc1chines were shipped to a customer on a C.O.D. basis. The sale
was not entered until April 5, 2013, when cash was .received for P12,200. The machines
were not included in the inventory at March 31, 2013. (Title passed on March 30, 2013.)
All machines are sold subject to a five-year warran :y.

ultimately to be incurred in connection with the warr<1nty will amount to 112 of 1% of sales.
4. It is estimated that the expense
TI1e company has charged an expense account for warranty costs incurred.
Soles per books and warran�1 costs were.;
WaiTanty Expense
Year Ended For Sales Made In
March 3 1 Sales
p 1,520
2012 2013 2014 Total
P 1,880,00C � 1,520
p 2,620
2012
p 3 ,820
2013 2,020,000 720 3,340
2014 3,590,000 640 3,240 7,700
� a c_f debts have been recorded on ·a direct writeoff bc:�ls� ·· Ex

perience of similar enterprises
indrcat"es that losses will approximate 1/4 of 1 % of sale$! Bad debts written off were:
5.
Bad Debts Incurred on Sales Made In

2012 2013 2014 Total
2012 p 1,500 p 1,500
2013 1,600 p 1,040 2,640
2014 700 • 3,6QO p 3,400 7,700
Page 10of14 Pages

... �,. �·- ---
. '
C:Pr\ REVIEW SCHOOL OF THE FH!LIPPINES (CPAR:

· AP·PWT501
. .
PROBLEM 7
BIRb COMPANY is a manufacturer of small tools. ·ne following information was obtainetl from
the company's accounting records for the year er1ded December 31, 2014:
. .
Inventory at December Jl, 2014 (based on physical count

in Bird's warehouse at cost on December 31. 2014) Pl,870,000 .
1,415,000
Net sales (sales less sales returns)
Accounts payable at December 31, 2014
9,693,400
;/our audit rev,?als the following information:
1. The physical count induded tools billed to a cust•Jmer FOB shipping point on December 31,
2014. These tools cost .)64,000 and were billed ::t P78,500. They were in the shipping <:1rea
waiting to be picked up >y the customer.
�. G Oods shipped FOB shipping point by ·

a vendor were in transit on December 31, 2014 . •
These goods with invoic� cost of P93,000 were sripped on December 29, 2014 .
.:,,. Work in process inventory costing· P27,000 was sent to a job contractor for furt:h°er
processing.
4. Not induded in the phvsical count were goods returned by customers on December Jl,
7, 2015. Credit memos for P67,800 were issued to the customers at that date.
2014. These goods costing P49,000 were inspected and returned to inventory on January
"
In transit to a custome- on December 31, 2014 were tools costing P17,000 shipped FOB
shipping point on December 26, 20i4. A sales in-1oice for �29,400 was issued on January 3,
2015, when Bird Compa.1y was notified bv the cu�:tomer that the tools had been received.
E.. �
At exactly 5:00 pm on December 31, .2014, gcxds costing P31,200 were rec ived from. a •
These were recorded on a receiving r-:port dated January 2, 2015. The relcited
•nvoice was recorded on December 31. 2014, but the goods were not included in the
vendor.
jJhysical co0.mt.
. .
1. �ncluded in the physical �
count were goods tecei1.eQ,from a vendor on De ember 27, 201 . 4
However, die related invoice for P36,000 wa,; not recorded because the accounting
department's copy of the receiving report was los:. •
t.. A monthly freight bill for P32,000 was received on January 3, 2015. It specifically related to
merchandise bought in December 2014, one-half of which was still in the inventory c;t
December 31, 2014. The freight was not included in either the inventory or in accounts
payable at December 31, 2014. · ..
1. Bird's Dece mbe r 31, 2014, inventory should be :ncreased by

A. P216,200 B. P233,200 C. P252,200 D. P123,200
2. Bird's accounts payable balance at December 3J,

2014, should be increased by
A. P68,000 B. Pl 45,000 C. P125,000 D. Pl61,000
3_ The amount of net sa1es to be reported

on Bi:'d's income statement for the year ended
December 31, 2014, shou ld be

B. P9,576,500 C. - P9.591,000 D. P9,595,300
A. P9,547,100
Bird's stctement of r.nanCial position

at Dect:r;iber 31, 2014, �QP.�ld report accounts
payable of
..
Pl,483,000 C. Pl,540,000 D. Pl,431,000

A. Pl,576,000 B.
. . ' '"' . \.
,(L)_HF.VIEW SCllOOI.OF TH"Pl·I! . AP·PW75

• " •IPPINEStCJ1AR) 01
.
eac h year W8re:

6. Comm!ssionr, on sal
e 5 h ave been entered
v1her'l pri.d. ·Commissions payable on March 31 of
·
•
·
2012
p 2,800
2013
1,600
2014 2,240
minutes reveals the man 3ger is e n titled to a bonus of 1h of 1 % c,f

�
the income before deducting i
7· A re iew of the corporate
ncome taxes and th� bonus. The bonuses have never been
r�corded or paid.
Based on the preceding irdormation, determme �he followin g:
.L. C!:>rrect sales for the year ended March 31, 2012. ·
A. Pl,867,000 B. Pl,880,000 (. Pl,870,000 D. Pl,873,000
2. Correct sales for the year ended Ma'l·ch 31, 2012.

A. P2,035,200 B. P2,032,2DO C. P2,042,200 D. P2,045,200
D. P3,590,000
3. Correct sales for the year ended March 31, 2014.
A. P3,569,200 B. P3,566,620 C. P3,578,820
·I. Additional warranty expense for the year ended I' larch 31, 2014.
A. Pl0,133 B. P24,834 (. P6,886 D. P17,833
!'larch 31, ?013.

D. P6,858
'i. Additional bad debt expense for the· year ended
A. P2,473 f.l Pl,�17 (. PS,�117
ti. Additional commission Expense for the year endeJ March 31, 2014.
A. Pl,600 B. P2,240 C. P4,640 D. P640
bonus expen:;e for the year ended

-
I.
. . Manager's March 31, 2014.
A. P902 �i. f'l,i'81 '· . ?2,683 D .• Pl,149
the ye� r e r\jed March 31, 2012.

. '
B
D. Pl26,417
Correct income before income tax for
A. P229,841 3. P228,692 C:. Pl.25,785
9. Correct income before income tax for the year enjed March 31, 2013.
A. P228,692 B. P179,488 C. P125,785 D. P126,417
10 . .Correct income before income tax for the year.enjed March 31, 2014.
-- � --------------------------oooe:><>C>ooo-----------------------------
A. P179,4B8 B. P229,841 • C. 1=180,390 D. P126,417
PROBLEM 9
rt p rodLces 30% of the coun try's milk that is

'
Gl'.TAS, INC. produces milk on its farms.
co:1sumed. Gatas owns 450 fa rm s and has a stock cf 21,000 cows and 10,500 hei fe rs. The
farms produce E: million ki10�1rams of milK a year, anci the average inventory held is 150,000
However, the company is currently holding stocks of 500,000 kilograms ::if
I
kilograms of milk.
\
mi:k in powder form.
At l)ctober 31, 2J14, the nerc are:
21,000 cows (3 years uld), all purchased ori or t·efore November

heifers, ave rage age 1.5 years, purchasec on April 1, 2014
1, 2013
•
7,500
•
3,000 heifers, average age 2 years, purchased en Nove mber 1, 2013
No animals were born or sold 1n the year.
Page 11 of 14 Pag1 s
!,;PA REVIEWSCHOOLOF THEPHILI PPINES(�PAR) AP-Pw7501
The unit fair values less estimated point-of-sale costs :vere:

1-year-old animal at October 31, 2014 P3,200
2-year-old animal at October 31, 20:1.4 4,500;
1.5-year-old animal at October 31, 2014 3,600;
3-year-old animal at October 31, 2014 s,ooo;
1-year-old animal at November 1, 20 1 3 and
April 1, 2014 3,000
2-year-old animal at November .1., 2013 4,000
1he company has had probl· !ms during the year: Cor taminated milk was sold to customers. As
a result, milk consumption has gone down. The ·government has decided to • compensa te
farmers for potential loss i1 i revenue from the sale of milk. This fact was P,Ublished in the
national press on Septembi:r 1, 2014. Gatos receiv =d an official letter on October 10, 2014,
•
stating that PS million wouic be paid to it on January 2, 2015.
The company's bu�1ness is �.pread c�er different part·� of t�e countrv �e ont�: region a�ect�d
by tne contamination was Central V1sayas, where th·� l;>overnment c rta1led m1 lk producti on in
j
,
tile region. The ca ltle were unaffected by the coma•nination and were t1ealthV;. The company
estimates that the future discounted cash flow income from · the cattle in the !Central Visayas
r12qiori amountr:d to P4 milli:m, <.lfter taking 'into acco�int the govemm�nt restrict' ion order. The
company feels that it cannCtt measure the fair value of the cows in the region ! because of .the
problems created by the contamination. There are Ei 000 cows and 2)000 heifers in the region'.
/l,ll these animals had been purchased on Novemb.:r 1, 2013. A ri�al company had offdred
Catas P3 million for these animals after point:'-of-s<11e :osts and furtheri offered P6 million for!the
farn;s themselves in that region. Gatas has. no intention of selling t�e farms at present. ;rhe
company has been applying PAS 41 since November : , 2013.
I region) at November I ·
l. What is tt1e fair value of the cattle (excludinf Central Visayas ·1,
2013? .
A. P93 million B. P64 million :. P63 million D. P48 million
What is the fair value o f the cattle (excluding Crntral Visayas region) at October 31, 2014?
.
2.
A. Pl06. 5 million B. P1 13.25 million C. PlOS.6 million D. PlOS.75 million
3. What is the increase

price cha110e'.'
in fair va1ue of the cattlE (excluding Cent a l �
:
Visaya �i region) due to
A . Pl0.7 million Pl2.8 million G. P9.2 million · [ .
P16.7 million
I
B. ' ••= • D.
I
.
I
•
. .
What is the increase in fair value of the cattle (excluding Central Visayas region) due to
I
4. •
physical ch_a�ge ?
A. P9.2 m1fhon B. Pl l.8 m1!11on
.
�- P18.55 m1!11or
.. I
o. P9.4 mi l li on •
:
.
• .
I
5. On October 31, 2014, [he cattle in the Central V1sayas region wo ld be va1Jed · at�
A. P39 million B. P3 million C. P4 million J D. PS millio n
000000000 � l ;.
!.
·
- - -- - - ---------· ------------- - - ------ - - ------ ---- - - - --
!
--
I
i
PROBL EM 10
MALOX Speci a l ty Company manufactures three moc els of ge�r shift components for bicycles
t iat are sold to oicycle . nanufacturers, ret l
a i e rs ,. and catalog o u tl ets . Since beginn ing
operations in normal absorptio1 costing and ha J assumed a 'first-i n, first
The inventory s at bi e
used
t
1981, Malox has
out cost flo w in its oerpe ua l inventory syste m . b ala nc es of the account
end of Malox's fiscai year, November 30, 2014, are shown below. Th� inventories are stated at
cost before any year-end nd1ustmer.ts . I
P64 7"000 I
I
Work !n procr:ss
Finished goocs
. 11 2,500
Raw material:; 2t'4,000

69,000
"• Factory suppi1es
" .
'\,
Page
'\ 12 of 14 P; ges
J;Pi\ REVIF.WSCHOOL
OFTHEp! ilLIPP!NES AP·
(CPAR! PW75Q1
The following infor
mation re.at
. es to Malox,s inventory and operation
s.
good s ·mventory con

1. The fini•;hed
sists of the it::ms analyzed below.
·
.
Cost NRV
Down tube sh ifter
Standard moclel
p 67, �)00 p 67,000
Click adjustment model 89,000
94,500
Deluxe mo del . 110,000
108,000
Total down tube shifters 270.0JO 266,000
llar end shifte r

.
Standard model · s3 .0 M · 90,050
Click adjustment model 99,(�JO 97.550
Total bar end shifters 182.QOO . 187.600
Head tube shifter

Standard moc:el 78,0 )0 77,650
19'5.0QO
Click adjustment model 117.0)0 119,300
.
P6S0.550
Total head tube shifters 196,950
Total finished goods PM7.0 2Q •
2. One-hall' of the head tube shifter finished goods inventory is held by catalog outlets �n
consignment.
3. Three-quarters of the bar end shifter firiishej goods inventory had been pledged as
collateral for a bank loan.
4. One-hall' of the raw materials balance represents derailleurs acquired at a contracted

price 20 percent above the net realizable valu:!. The net realizable value of the rest of
the raw materials is F'l27,400.
5. The total net realizable value of the work in process inventory is F'lfJe,700.
6. Included in the cost of factory supplies are ob:;olete items with historical cost of P4,200.
The net realizable value of the remaining facto ·y supplies is P65, 900.
7. Malox applies the lower of cost or net realizabl : value method to each of the three types
of shifters in finished goods inventory. For e: ch of the other three inventory accounts,
Malox applies the lower of cost or net reali::able value method to the total of each
inventory account.
8. Consider all amount!; presented above to bE= material in relation to Malox's finanr.ial
statements taken as ;1 whole.
Based on the preceding information, determin� the proper values of the following
·
. on November 30, 2014.
1. Finished goods invento1y

A. P647,000 B. P643,000 1 :. P650,550 D. P654,550
2. Work in process inventory

.A. PlOS,300 8. F> 1 12,soo <' . . • Pt08,700 D. P104,500
:
Raw materials inventor/
Pr. P264,000 B. P227,400 • t:. P242,00U D. P237,400
:t. Factory supplies

A. P64,800 8. P65,900 C:. P61,700 D. P69,000
Page 13 of l<t P;;1:cs

I
•
\:PA RF.V\EW SCHOOL OF THE :JH!LlPPINES (CP�Rl AP-PVy7501
5. Which of the followin�i best describes the PAS � requirement for applying the same co�t •
·
formula to all inventories?

A. When they are purchased from different suppliers.
B. When they are purchased from the' sam� gmgraphic region.
C. When they are similar in nature or use. ·
D. When they sell for the same price. ·
----------------------------- 0000000<1 0 -----------------------------
iPROBLEM ll.
You were engaged by COMET COMPANY to audit it� financial statements for the first time. In
examining the books, you noted that certain adjustments had been overlooked at the end of
:w13 and 2014. You also discovered that other items had been improperly recorded. These
•
omissions and other errors r'or each year are summar ized below: I· •
" 1 2-J!J1-14 12-31-13

- ·· - - - ------ -- ---
.
Salaries Pa}'.able . 780.LOOO _:_ 0
873 66
Interest Receivable 21�000 259,20{)
J�repaid Insurance_____ . 307,800 384,000
1-�dvances from Customers .
561_000 .L400'
470
(Collections from customers had been recorded a.; sales but
.
should have been recognized as advances from customers
because qoods were not sh!QQ_ed until the followi!J.earJ.
.9_l .
_ Machinery 522 000 561i_OO•J
(Capital expenditures hc.d been recorded as repai.·s but should
have been charged to Machinery; the depreciatitm rate is
10% per year, but depreciation in the year of e> penditure
I
is to be recognized at 5%) ·i
•
Required:
-- . What is the total effect of the errors on the 2013 1et income?
°
A. Understated by Pl,236,600 C. Oven ;tated by P80,400

B. Understated by p77�;,soo D. Over:;tated by P165,000
;�. What is the total effect of the errors on the 2014 i1at. irrcome?
A. Understated by P32Cl,100 C. Over:;tated by P324,300
B. Understated by P37G,500 D. Over!;tate!l by P380,700
::. What is the total effect of the errors on the comp<1ny's working capital at Dec. 31, 2014?
A. Understated by P265,800 C. Over�:tated by P820,200
B. Understated by P301,80 0 D. Over!;tated by P l 1 9,400
What is the total effect of the errors on the palanc� of the company's retained earn ngs at . t: j
i
c.. i
C. Unde:·stated by P155,100
Dec. 31, 2 0 14?
•
A. Overstated by P855, 900

13. Overstated by P930,JOO D. Understated by P265,800
the 1�rror in recording capital expenditures on

r:
The necessary adjusting journal entry for
Mach inery as of December 3 1 , 2014 , woul d induc e:
.
it to reta ined earn ings of P535 ,800
A. A cred
reciation of P82, 5 JO .
13_ A credit to Accu mulated Dep
c. A debi t to Depreciation Expense
of P54,300
D. A debit to Mac hinery of P52 2,00 0
--- END -- · .
:i
G�
:I j.
CPA REVIEW SCHOOL OF l H� PHIU PPINE S AP- PW7 501-S QL
t.1 a n 1 I ;,:
AU DIT IN G PR OB LE l\ll S
CPA Review
PRO BLE M NO. 1 - LAF AYE TTE COR PORATIO N
, ----·-- .
nof Estimated L�ss on H :?turns on Sales Warranties
Computatic
..
-
I
�
l
-
.
Sub seq uen t to
:
--
.: 0:.!..
Junu:...3:. 2:.
..: ' .::. 1 4;__
0.:... __ __,.
"':".':"�
-".'
- ---��=:=:
::: ::
--- -
Total
:: :'.'.:".
I ..
I Percentage of
-- -
Parcentagt:: Estimaj f.P.. Estimated

at l ·.Jtal Returns Sub- Returns S1.1b-
Estimated , I Es ti nated sequent to sequent to
Month Sale�; Returns �� :turns 6/30/1 4 6/30/1 4
.janua!"_Y P4.200,000 ?% l P2� 4 00 0 1 0% P29 400
7·
,
1 ,
rebrua!:Y_ 4,700,C:OO I
---r----
March 3,900,� 100 7 !
April
-"----�·-
3,250,000 7 l
May 2,400,C�OO I
I
10
.
June 1 ,900,CIOO 10
! EJ ��
Total estimated returns
__oss percentage on returns
. . . .. . . . . .
. . . .
.... .
P648,850
65%'
I
•
R�g_uired lia . !Y balance . . . . . . .
_ !lili
Le ;s balance, 6/30/1 4 . . . . . . . . . . . .
.. 1 20 400
Total estimated loss on returns . . . E4�11Z�� i R justment to
�uired ad .
. l 11abili�account .
'Estimated loss on component repl3cernent 1 i n perc.:ntage of sales price):
r _ ___ g_ �_st_ of u n it rep la�� en � -- -· -----·· _ __ _ ___ _ ------·---·--

70%
------
.
Add f reight charges on r�turg and replacement 5 . .
.
.
..
'
.
75%
Deduct salva e value or com onents returned •
10
Net loss on components returned -
.
�%
.
Adjusting E11try
Warranty Expense
------- ----r-----+--il
!
rEstimated Liability for Product Warranty •
8 5. B
.
·1 • .0 2. B 3. A ·4.
i='ROBLEM NO . 2 - JARAN CORPORATION
l. 2014 Depreciation exµense - Vehicles:

Beg. Balance
June 22 acquisition
Total (A) Pl40.97E.
... 1014 Depreciation ex :>ense - Machinery:

M�chine 1
2
3
'otal (C) P239.400
:i. Accumulated depreciation - Office furniture Dec. 31, 2015:

(P1 15,000 -· .PS,400 = P:.09,600/8 x 1 4/12) (B) P18.267
Pagt 1 ol 8 Pa; :es

. •t••
CPA REVIEW SCHOOL OF THE f'HI LI P PINES(CPARl AP-PW7501·SQb
4. 2016 Depreciati on expense - Machinery:

Machine 2:
Cost(P480,000 +P120,000) P600,000
ND, Feb. 2009 - Dec. 31, 2015:
368.750
Carrying value, 1/1/16 231,250
Revised residual value (50,000)
Revised remaining l ife 25months
Depreciation
Machine 3
Total (B) �197.400
5. 2016 Depreciation expense:

Buildings P90,360
Machinery 197,�00
Vehicles:
.Old, traded in on June 20, 20l6: • I
Acquired June 22, 2014, scrapped Oct. 4, 2016:
Acquired tl1rough trade in on June 20, 2016:
Office furniture (PllS, 000 - PS,400 = P109,600/8) 13,700

L:a nd improvements (PSS,000/10) 5,SOQ
Total (A) P394.060
PROBLEl\!I NO. 3 - ONOR COMPANY
1. B Petty cash fund per trial balance

Various expenses dated December 2014
Employee cash advance
2.
Adjusted petty cash fund Pl0.250
3. c
A
Book Bank
P638,340
NSF check
Unadjusted balancE·s P748,320
' •1:4
• •
Bank error
Unrecorded cash receipt
Postdated checks
Deposit in transit
Bank debit memos
Interest earned
Bank service charges
Outstanding checks (276.380)
Adjusted balances P432,710 P432.710
4. A Accounts receivable 89,800

Acco unts payable
230,000
1,260
Ca:;h in ban k - · :-sun ami Ban
k 315,610
3,500
Advances to em ployees
•
1,950
Interest income
p 432,710
5. o Cash in ba nk - Tsu nam
i Ban k
10,tso
Petty cas h fund • 1,000,000
nme aeposit • I
4.000,000
Money market placement
., PS.442.960
�- ·
Cash and cash equi·.;alents
•, .'It ·,}
Page 2 of 8 Pagt s
\.
CP1\ REVIEW SCHO O i.
OF T!IE PHIL!PPIN ES(CeAfil_
A,,_
.J:.; ....,
·P
P_._ �
50
u...=
W7 1�_
.0
·f L
PRO BL EM NO. 4 - HIATT
___ ________
TEXTILE CO RPO RATIOf\

__
December 3 1 , :�01 4
AUJUSTING JOURNAL E NTruEs
:--
1 Preeaid insu ranc e .
1 8,60 0 .
i
I
I nsur ance expens e

'
6,200
-
.
r- - i
.
Retaj!)ed -�arni!J£P 24,800

'
--
r-::---
'
2_ Allowance for bad debts 2�.000

.
------
r= · ·-·-
-�
Bad debt exeense

.
25,000 !
;
.
Ir--- . .
'
- - I
l·
'
.
3 Retained earnings .
.
7 5, 500 I
t---
23,500
' '
Cost of goods sold I
lnvento_!Y 99, 000 _.._:
4 ___g_u!Q_ment
E 1 50, 000 i
:
r---
Depreciation expens1�
. .
1 2, 500
,
. . I
137,500
'.
t�
Retained earning·:;
Accumulated depreciation - Equ ipmer.t 25,000 I
1
.
201 3
2014
y
.
I
.
P 1 , 1 00,000 P975,001
J3�<?rted _Q�t_i _r::! �o m�--- _ ___
Pr�aid insurance charged t:J ex _ pense
Decrease in bad debt expe n_·�e rate
-j
..
� !:Jding inventory - overstated: __
'
_Q � s t_ of machine charged to_ :xpense ___ _ _ _ _ _
U nrecorded d�lreciatior: I -----J

Corrected net income
�- .
. .
P1 .oai.f!OQ 1
P1,Q§:l16QQ ___J
i. /.!. �- B 3. c 4. D 5. c
PROBLEM NO . 5 - BENEFICIO CORPOR�TION

1
· ----- ----------------- --------.--=--:-::-----
,--
Sales P 898,000 �
Gain on sale of trading S•:>_ .c _u_ri__s
tie ______
1 2,000 __;
Cost of__oods _g_ sold i._5 39,00�
i-- -_'_
S e
_ i n�
ll_ g_a
_ n_ d_,
�
g e_e_
n_ra
_ l_e_
�xp
�en
__ s_e_s_ ______ ____ ___ _-+-- 1� 2�8� 7� ,0 �0�
0� )--�
I ncome taxes i._35,0001
r- ·
Unrea lized l�ss on trading securities --t
r-- Loss on sale of equipme:__
__ ___ j_,_ 4:--'-,0
-:-0'-0 ..!. -..:'
:.)_
___ .___ __ ___
1 t_ _ _ _ __ ------- - J1 0001 ,
-+ .. -:
-- -
_
1 Net income --- --
=-
p
...L. ;,,,44
��, ,., � o
� o
.
o
�"--- --- �'
-
-- - - _ .
.
-- ---- --
�- ---- --
Answer: D
P 1 12.eoo----
-,
1
�- -
_ f-l!2P�iate9._ retaJ!]_�
j_____Y!:l� 2Q 1�-
L
earning� Dec:...�]_.
rJet income_�se
(__e n_
__ ·�
o .-:-1 >:-- -'-
--+-- 44,000
- -- -- -
. . .
-=-
L_oecrease in appropriation for treasury stock • • I

5,000 -- - -I
.
-· · '.
Increase in a ro riation for ossible bui!din� 8XD.·msion
J1 s .0001
___Stock_�ividend declared .
_I
l59 40Q)
_J;
.
Remaining unappropriated retained earnings

Unappropriated retained earnings. Dec. 3 1 , 20 1 4 , ncludi�
86,600 ·-
1
----
j
net income for 2014* 78,600 :
Assumed cash dividends declared and pa1ddurmg
. 20 14 E].QQQ._ !
Answer: A
Page 3 of 8 Pa� ) S
• I
::Pi\REVIEW SCHOOL OF THE l}HILlP PINES!CPAP,l AP-PW7501 .SOL

.
.3.
I ncrease in ordin�shares P1 59,400 ·1
Less: Stock dividend 59 400
. Par value of additional ordina_ry_shares issued -in
.
I P100.0QO
.
;�014
.
I
I
!
1 000
� ncrease in share ere m i um P1 1 1 ,000
Less: APIC from resale of treaSU!}'. shares at mor � than cost
APIC from shares issued in 2014 EitQ.ooo ·
t-·
Proceeds from issuancE� of ordina!}'. shares in 201 4 J
.1:.2.10])00
r--
Answer: C
._':':Jet decrease in investment in trading securities p 30,000

Less: UnrealLzed loss or'. tradino securities -
_Carrying value of trac1inq secunues sold
4 000
. . ....
26,000
. .
Add: Gain on sale of tradi!J.fl_securities 1 2 000
Eroceeds from �ale of trading securities
_ _
"Na.ooo
Answer: B
�i.
��£___
c
eeds trom�aie-ofeguTpmeri t (see informatio i: "b'1
: Loss on sale of egu iement
P 1.000-i.
1 000
Cost of egt 1 ieme nt sold ·.?ee information "b"�

k value ��ement sold 8,000 .
1 5 000
Aceumulated deereciation of eguiement sold
p 7.QQQ
Answer: A
Ei.
.
·-- --�- - - ·
Net increase in eguiem E nt- P1 35,000

Sal��f��e_ment (see 1nf()rmation .:!Q_
. 1 so.ooo··
. 1 5 000
___
Purchase of eguiement •
-·· -Less: N�� Rayable issued 50 000

'---·
Cash paid -· P16C)]QO
.
Answer: D
., • I
.
Egur
· ment
Bal. 1 2/3 1/'1 3 170,00U 1 5,000 Sa:e
Purchase
(SQUEEZE) 1 50,00Q
Bal. 1 2/3 1/'14 305 0012
'
�
7.
- 3QSt -of treasury shares sold (P1 0,000 - E>5,000)
APIC from sale of trea s ury shares
P5,000
_ P ro ce ed s from sa!e of tn�asU!}'. shares

1 000
_
P6'.ooo .
Answer: A
f
8. CASH FLOWS FROM OPERATING ACTIVITIES
Net income
Depreci ation expense (F'3,750 + P25,250}
I
P 44,000
29,000
I
I
i
Ii
i
! i
_ Gain on sale of trading securities
Proceeds from sale of trading securities (see no . .!.)
(12,000)
38,000'' !'
.
D ��ase i n deferred tax liability (6,300}
___,
�e in net accounts receivable
:
•
(45,000)�
Page 4 of.8 Pag :!s

' . � .
i. I;
:\ \'
;!
.
;,E.�REVIEW SCHOOL Or THE r'HlLIPPINES
ICPAK) AP·PW7501·SOL
[� . _ Decrease in inventor
ies 9 , 00 (1
/
i-··
i-
_ _ lr.c r�1 prepa i d insura nce
Decrease tn accounts
Inc rea se _m acc rue d ex
paya ble
]so0:·
{5,000i
9, 30(1
j
Increase in income tax�s
pens es payable
a able 25,00CJ . I
Decrease m unearned rev
enue ]8 000) -1
Net cas h ·rovided b o )era
ting activities p"ffa 000
Answur: C
:; _ CASH F LOWS FROM INVES TING ACTIV
- -- ----
=-:---;---::--
ITIES
I
r :·:-=:;:-:-:
Purch -no. 6)
ase of equipment (see
!- - - .Overha ul of equipment tsee information " h")
� Sale of equipment (see information •"b")
I__ _ Net cash used in investing activities •
Answer: B
10. CASH FLOWS FROM FINANCING ACTIVITIES
P 8,000
i-L·_
i-:- --Payment of cash dividerids (see no. 2)
Sale of treasury shares (see no. 7)

.
Retirement of notes payable (P6 0,000 - P40,000 1
--------+--'77�
(20, 000)
6�, 000
·
2 1 0 0��0---1
•
..!..-----+-�-=�-=-� -=
0�
P 1 8 000---i
Issuance of ordinary shares (see no. 3)
_J
_ ____
L .-��t cash provided by financing activities

Answer: A
. l,ROBLEM NO . 6 -· SABI L.I\ COMPANY
. \
vable, Jan. TI01'2"" ---.

Total
-4- ;.;; �
-
L ess :-
A- __
cc ou
_ n-ts
_ c-
re_
_ ei- ....;.
...; .;; =-..
----
________ _
Add: Cash sales, 2012 - 2014

Total credit sales
Total sales, 20 1 2 - 2 0_1_

4 , _JL:=:�:=:_
___
____
L_ _ _ _ _
Answer: A
_ __ __ __
__
:� .
[ --
"?
- a
- _
le s_r-
ev
-enue for 20 1 3 (see no. 5)
Answer: A
_ _
:i.
. Accounts payable, Dec. 31 , 2014
_ --��ll]ents to suppliers
Total
Less: Accounts payable, Jan. 1, 201 2
Total purchases, 201 2 -- 2014
__
Answer: D
--------�-
<L
1_) ·---�-----· --
-.
---�---+--=-=-:..!.=.=-= ...J
- ------------ -· ------
-�)ales (see no . _ _ _____
Less: Cost of sales

Inventory, Jan. 1 , 2012
Add: Purchases (�_ e_
e_ o_
n_ 3)�
.� . _____ _
_ _ ___.i.._...__........ ._ _
., ___J ____ __.
Goods available for sale
Less: lnvento , Oec . 3 1 . 201 4
Gross refit
Gross profit ratio (P21 9.400 I P658,200)
Answer: A
• Page 5 of 8 P<a;:es
l�f'i\ REVI EW SCHO OL OF THE I·HJLIPP ! NES
(CPAR"1 AP-PW7501·§0L •
-,) .
1·
'
2012 ·� 2013 2014
p 31 ,200
"
Total
-- Cash sales p 17 , 000 p 26,000 p 74,200
Collections in:
--- 201 2 -
- - 148,800
201 3 - 176,800
2014
- -----
227,600
- AJR, Dec. 31 800 I 1 800 28 200 30 800
--- Total sales 1 83,600 206,400 268,200 658,200
M ultiQ!y_�oss profit ratio 33 1/3% 33 1Q.% 33 1 /3% 33 1/3%
- Gross profit p61 200 p 68,800 p 89,400 P21fil 4QQ i
Answer: D
PROBLEM NO . 7 - BIRD COMPANY
. .
r-·
.
. lnventor.y .'
Accounts
· Payable Net Sales
_Unadjusted bslanc es P1 ,870 , 000 P1 ,41 5,000 P9,693,400
.
. . .
.l\djustments:
1.
f--
•
2.
3.
4.
..
. .
� -- ··
5.
.
6.
.___ �
7.
8.
P2 P1 .�76,QOO
---·
,C\dj usted balances P9,576,5QO

Q�§.2QO
-- ·--·
·1
.
l nvento��er audit P2,086 , 200
lnvento�per count 1 870 000
-
-
Net adjustment - in crec:se p 2l§.2QQ
Answer: A
!_ ..
_
· ---- -
Accounts Qayable Qer audit
Accounts eaya b le per b�oks
.
. .
01''P1 576,000
1 4 1 5 000
1�1,QQQ
-·
Net adjustm ent increase ·- p
Answer: D
4. A 5. B
PROBLEM NO. 8 - BABOLS COMPANY
T SUMMARY INCREASES
COM PUTA 'IONS {DECREASES} IN INCOME
��2 I
i
2013 2014
.
2012 2013 2014
1. Net income a s reported I
P143,200 P222,800 P207,160
i .
I
2. Elimination of profit on
-----+-· 13,000
I
Billed at 130% of cost
-
-- -�nsignments:
I
.
1 1 , 1 80 I
! \
•
580
8 600
Cos i]130°/� 10.000
.
'
I 2 .\
I-
3 000 3.000
To correct COD sale

Profit error
. . \
---
3.
.,' , Adjustment of warran_ly_expe1 ;se: .
I
Sales�boo ks 1 ,880,000 I
1 3 ,000
2.o.zo.000 • , 3,5so,ooo
. I11.1 aQl.
\
.
11 3'006) ·
--
COD sale
Corrections for Consignment:;
12,200· ] 2 20Ql
1 867 ooo.I 2
;
-- Correction for
Corrected sales
04s ToO 3:566&Z..o •
Page 6 of 8 Pa,�es
.G:J.'.J__l !EVIEW SCHOOi. OF
THE P l l JLIPPINES
{J;,_,
PA....
H ._ l
,,._
AP-PW7501 ·SOL
-
___
--- --�ormal warrany

t exeense .
-
--- --- - �
]112 of 1 ·�
1 I
L
9,3 35.
-
Costs charged to e�en se T
0\ l
'10,226 1 7,833
-·
5.
Addition al expen se
Bad debt ad�stments: -
11 52
7 e_I5
_l334QJ
6 886
'
l
{Z/00) J
1 0 1 .13 .T
J:
I
Y. of 1 % of sales
Normal bad debt expen
se,
.
l
Previous write-offs
Q)
4,668
50 l 8,917 I
......
5,1 1 3
t--- L1 !
t-
I
I (2,640) (7}00)
!
Additional e_� e
p nses
a
I
I
Tiit _J
I
6. _.1iU
--
Adiustment fN commis.'>
ions ·
t--- ·�
i
_ _ _ ___
.
--·---
-
r-- � .Adi!!stment for bonus, % 18C,390 I

.
1 % of income before - ,,
126,417 2£9,841
I
.
--
1- l"'I I �
•
of
taxes & bonus
.
.
i9021 J
I
.
P12 .785
INCOME BEFORE INCOME TAxES ----·
1,1 4 9)
. P 2 8.692 P17S488 ,
1. A 2. D 3. B 4. A 5. A 6. D 7. A 8. c 9. A 1 0. A
PRO BLE M NO . 9 - GA
TA S, I N C .
1. C Cows ( 15,000
( 1,000 x P3, 000)
x P4,000) P60,000,000
Heifer�; 3,000.000 .
Fair value, Nov. 1, :�013
P63.000.000
2. A Cows ( 15,000
(1,000 x P4, 500)
x PS, JOO) p 75,000,000
Heifer�;
4,500,000
Heifer�; (7,500 x P3,600)
27.000,000
Fair value, Oct. 3 1 , 2014 Pl06.500.000
3. C
-
Increase in fair valu·� due to price ch�ngc�:
'
Cows .�5,000 x P( 4, :iOO-·l,000) P7,500,000
Heifers 1,000 x P{3,200-3,000) 200,000
Heifers 7,500 x P(3,200-3,000)
1.500,000
Total
P9.200.000
4. B Increase in fair value due to physical change: ·
Cows 15,000 x P(5,-J00-4,500)
P7,�00,000
Heifer�; 1,000 x P(4,500-3,200)
1,300,000
Heifers 7,500 x P(3,600-3,200)
Total
3.000.000
Pll.800,000
5. A
Cows ( 6,000 x P5,0JO)
Fair value of cattle i n Central Visayas:
P30,000,000
Heifers (2,000 x P4, 500)
Total
9,000,000
P39.000.000
PRO BLE M NO. 1 0 - MAL OX COM

PAN Y
FG )NIP RM
Down tube shifters at NRV FS
P266,0:JO
H.::ad tube shifters at cost
Bar end shifters at cost
182,000
195,000 . • I
Work'.. in-proces�; at NRV
Derailleurs at NRV
.P10 8,7 00
Remaicihg items at NRV Pll 0,0 001
Sup plies at cost 127,400
Totals P64,8002
P643.0QO P108,700 P237.400 P64,800
4. A
1. B 2. c 3. D •
5. c
!�PA REVIEW SCHOOL OF THE l ' HILl.PPINESCCPAl l ·
AP-PW7501-SOL
PROBLEM NO 11 ·-
- C O M PANY
COMFT
12-31-14
r]Under)
2013 2014 1 2-31-1 4
Ove
NI NI WC RE
.
·1
.
Failure to rcco
_g_nize sala ries�yable 2013 I .
--
.
' 2014
I
Failure to recognize interest receivable ! 2013 I

.
:�
I
f-- -- ! 20 1 4 I
! 2013
l l
:� Failure to recognize �rep�id insurance I
_ ___,- ------ - .
1 201 4 !
•I
-- ,
Advances from customers recorded
as sales 1 201
2014
3
!
.
._if
.
- charged to repairs·
-
Capital Expenditures
---
2013
�
--!
----- ·
--· ;
j
· --- .
'
! 201.6.
1-.....j_..
j
. _ j Net Effect �f_!he_ Err<?!_�:

- ·
I
.
·
l 165,000 (320,100) 8�0,200 J1 55 ,1Q O) I .
.
. • I
·1 .. D 2. A 3. c 4. c
ADJUSTING JOURNAL ENTRIES:
1 !
Re!ained E a n in-9_?
S ala ries Expe nse
873,600
l
r _
.
.
�.600
S alar i es P ai'.c.ble . 780,000J
.
2 Interest Receivabhi I 2 1 3,000

1--
'
Interest Income 46,200

I
· -- __
R�_!�jn ed -�C!':'.1it:!.9S 259,2CO
3 Pre aid Insurance .307,800

----
lnsurance_�xpense 76,200 .
Retained Earnings 384,000

t-
4 Sales 90,600
Retained Earnings 470,400
-
Mach 1 n err
Advances fro ·n customers 561 , 000 1
5
- ----- -
. .---------------
j 1
·
086,000
�. 500
. .
.
De
_greciation E�ense
.
Repairs Exernse
Accumu lated Deereciation
522,00
1 1 0,700
L
�- Retai ned Earni ngs .
I 535,800
--- EN D •• .'
CPA REVIEW SCHOOL OF T!1E PHIUPPINES AP-PW7 502-S OL
tv; a n.1 , c.
J\U DITIN G PR OB LE M S CP A Re vie w
PROBLEM NO. 1
f��Bala
- MSU, INC.
nce per l)an K staten 1 ent

� t ---".;..;.:..
_
i:--
.!?�p s it s in tra n .s-:-
_
o
_____
\ Qutstand ingshecks --
-
ingrent(h&k--
---
--- - _--=��--------r------
_
---
--.. -
� Error i n recorci
-
l Automatic mort�E?J�EYm ent
\ · -------
----t--
. Bank �ervice ch<!lrge_
•
s _ _ ____ --
-
-
---1--
_
\. Deposit cred1tea to comQany's acco1,mt ir. error
! NSF check
I Balance�r boo ks
-- ---- ------- -
P-·-·�l _ ___________--!l�_.:Bo
��o k--+-=:��
--j
lr-
___ __ __
\_Una�stedj>a la!J_�
_ _ __
;-
! Deposits
-
in tran si t l
- -
--
- ------- --- - - -
i
•
!_outstanding checks
.. ----t--------"1
•
! -�r!·��-)� rec:_grdif1_9_@.�t c neck _____ ....'.-

_i:natic �ortg��1m e n t
- --
--
l
-
I Au� !-
.J...
.J. -----1----
___ _ _ _ _ _ _ _ _" _ _____
•
j
l eposi� crr:Qited to com�any's account
�
l? I
I NSF check ·- -----t-- ----
;1_
L-�j
- -
s l
--------
. ..l�cifu- tecfba �nces--= --�-

--- _______
-
- ------- -
- ---- � -----=
-'---- --:--
'�
· �- _ - --
---,
__ __ __
• -� · ----- -- r----
Ch��king_9_�four:it baj_an1��
_ __
\_Pe!!Y_ cash
•
.. -- -� ___
_
_
I Trea s ury bills

_
- · --- --- __ _ ___ __ •
• ,_ .�-----+------
__.
rTotal cash and cash eq� 1valents -----------'------
__
PROBLEM NO. 2 - PITO-P!TO COMPANY .
--,-- ·---;- Acco u nt

'.J .
C�tegorv R<itio ±
Receivable
Balances
Uncollectible
Rate Amou nt
•-'
o 64°/o T
- -·- '\gin.9_
10 day� I
. 11 to 30 days 1sc:.10
I Past due 31 to 60 days
_:_]I
8% 240.LOOO 5% 12.LOOC1
I
I
lras tdlie61 to 120 days 5°10 150.LOOO 20% 3�000

i Past due 12.i to 180 days ·I 3% i�
!
35%
I
901000 31L50�
ITast_g�� Q�ir_ 18Q.Qcni.s_ . 60,0QQ -- 80% - 48 ooc.
2 °L .
r- ·- - - -
- - '-��<?.':�.-----· --- .. -
.___
- ·-- - _:_ ____ .!.____ ___ _ 4 PJ�0.000. .

-- --- �·-
!
·--·
• • • aa: e --
-+-----
-.- -,
=:]
.... - -
[?,l�ad debt expense
--------:- -
-
· ----- - - -
[_ J Allowance for bad debt'> _J ·
-
1 . Allowance for bad debts1�Jn. 1.L 2014 •
Add: 2014 bad debt expense
�
.
.
Total
l
.
Less: Accounts written of:"
Allowance balance before aqj_ustment_ Dec. 3� 2014 .
Required allowance p�r�i!19

\ Adjustment - inc_r:ease in <1llowance
� - --
___ J
"Page l of 6 Par, �s
PW7502·WL
�!'!\ RF.VIEW AP·
SCllOO!. \lF TllE l'lllLIPP I NES (CPAR ·
I
. 1.
.
• I
---,
f3�°TAceounts receivable - P3,000,000 !
'I
I
I
. '
.I
IL Less: Allowance for bad debts
J Net r�alizab1e vaiue
!
.=-i.
1-= Dec_
..::...: _J
:... :..=-=
1, 2
=-=
0
-= 4--
1-'- -----;--- ::J
-----=--- I
_____
-- ---- -----------+-----'- I
-------ir-- I
4J Bad debt �xpen se reeordet _ P640,00C:J

- --- - - - - - - ---- -----···
j---
! Add: Adjustment to bring t:he allowance balance to thE amount indicated by
-
'
; the aging analysis _j

I
�
f .Correct bad debt expense tor 2014
I.Alternative computatiGn
Q�_ance f?iQad debts, jan. 1 2014 P 54,60 CJ
cco � nts w ritten off - J..58�000
+-"' ::....: ). I
- =..t...:� 1·
- --- --- -· ----- ----
- -
Bad d e bt eY:p��s e (SQUEf��-- - - --- -

-- ---------+-
- --
lowance for bad debts, Dec. 3 1, 2014 f.154:200 i
IJ�-1 Total credit sales for 2014 ·---.----
• I
PROBLEM N O . 3 - GARLA HOME IMPROVEMENT!>
I i t·'� ·� R.e31izable V al ue
, - - ----�- ------...-
!
-· _ _________. ____ _ ...,. ..
Cost Lo wer
-- ----
·
- sid ing _·-··-:_
_ -
. . .... -- ·---niO:Oo o___]_�
P=-
..;..:.;:; ,,
-
68
; :.:;; , ._�
� +---
=-=-
. -= =:.__- -
I
'
Al umi --
num . . . . __ .-
1 o 00 � •I: •
p 168,000
Ccdar !;hake siding_,____ 258 ooo . l 254 400 254 400 ..
�
.
v -,. - -
'- -':::.:04 :... .;L... c::.
.:.
9 .:: _
O --l - ::.:::.
.:.L..;.
-==-
L-J uvered glass doors --t--- 3:-
::-: 0�
-: :--:
36'."-'. - - -
_
I
_
420 000
0 - 5 0
:+ I
j.
- - -
Therm al windows_____ +- - - -
�I
- 4- 20
� 00- 0 -
- - -
non
L-J
i _,P
! I
· - - - - - ----------L___i;
E.
.JM l 2
�
u�
)4� t;J
>1,...i
.3:;i,
__4'
� rmi
��-_J_ ______
3
1i:-·1 1 1\llowance to reduce ir1ventoryto NRV, May 31, 201 ;
--�-�--....L-;
;...; ; :=.,;:
;;.L.. c.;,_
_ ________..1._
� --- ::=J . I I
·
E
.- - c _ A1!owa1�ce balance �;l.!:_ to_��stmer.t
1
PB2,500
-
Re uired allowance bi1lance -

Gain to be recorded
----- '--
---' ---
----
_ __
---- · ---- -
MANGO BANGGO
��--�-��L-��
f-i ----[ I Gain from change i-nf,�ir value of biologiGJI asset - -
/-_)__
8_:_ i I Agriculcural p oduce, <it-'---fair
-- -' va l u�
-=-:: e r
Gai n from cha n e i n f;iir value biologiGJI asset

Gain from chan e in fair value - agricultural produc :--
-----
�·
� ----------+-----J
-
_Gross f�O_!!� on sold rmngo s..

e.::
:..=
+
.
- -- - -
-- - --
- - -
:__
-
_
_: :_
-------+------_J
______
_Ji?_��tf��t_q� !r:i_c�r:i:i� __
!._ .
-
- - - -- ___
.
. ' . .
PROBLEM N O . 4 - ISIDRO MANUFACTURING COl'r1PANY
1.-= i Depr�iation expensE_;.:.fo::.:.r..:2::.:0�1.::.1=-:------ ------+-- ·-"'

--- -- Truck # 1 (F:_�
----
1�'.
so :'.
,o ..:: 0!1·.:.
.C 0� s:.J- ______
_
_
_
______ -l----._:
Truck #� �
22
= 0
,�
�
0� 00 5L-
�/-� -:---- -
--:- :--- ------+---J
Truck # 3 P300 OOOl.�S� �
V:
x..!. L------- -----l--!.._-J
2) I
Truck # 4 P240 0001'5
Truck # s P400 000 'S x i
1h) I
I;
Tota l l1
2. Trade- in value of Truck #3

rj
I'
Book valu e of Truck ·.(r 3 : P300 000
-
Lo
_ s_
s-
{��m
L1lated depreci.�tion,
on trade -i n
1/1 /lO - l/ l/l l
=--------------i__ _._
______,
. ,
�� =:...
L..=.: �
___
-��
r
� EW SCHOOL OF THE PHI LI PPINES (CPAl1.l

AP·PW7502·SOL
:;.-rTrc:;;o;;st::--:--- ---- -----.,----

Truck #4
P220 000
J:r uck # 5
-I
===-
_
__
_
--+- 00
4_
_ ...LQQQ_.-+.---- - --1
truck #6 .Pl,_Q40,0
_QQ__j
___ --
-- 4 20 00
Accumulated depreciation: -- ---1-� -j -
-
·
I
Truck #2
--·-+-- -- -----·- -!
� �.JiCk# �C7M i_-__
12.L.-'
3 1,_ 1_; 4'----
..
1:;. 1.;: 0'-
I
_____r�uck #6, 7/1/13 - 12/ 3 1/14

-+----r-' ---�
.
___._Bo-'-k- value, Dec. 31 2014
_o'-'-
_
-!-�
·t 20 1 3
;- '
Total
20 1 2 2014
Truck # 1
2011
Truck #2
.!----- --....:_:_-+----r-- -__J .
.!.__ __:�----+-�--1'
44 000 .
Truck # 3
• 1
_
--- -- --
Truck # 5
Truck # 4 - - 48i_Q_0_.9_ j___ _
30 000 I
- -
--
Truck #6
Correc�-9.�!�iation
--
i
OtlO 250 500
_
Per client 210 000 225 •
Overstatement
p� --
A -
cc mu
u- -_
la
_ _-__ --
d
_
d_epreci a tio
te_ n
_ _____ -----.---,--�
--��-J�e�n�s-e:::::==========::===:===�--J�
_
\
PROBLEM NO. 5 - MADRIGAL CORPORATION
�s price �·-
!\ --+-
f- i-:--
\ -··-- \ .B_i:_o_!5e 1 ��fE'.��--
___
---- ---
- - -- ----- -- -· -------
�=�
· in value P36�; 670 x 180/360
__ Gain on sale of Floater Co. bonds
-
\?
\' -·:_ Sal��-_eri ce (P240iQQ Q.� 97_ 1h%) •
-- -,.- --
--------+---
l ------+---l
- --
ke _.fe
ge es
·---- -
- _ o_
B r_ _ a'-
r-' __
1- __
Net
Car in value
� Gainc..:
on
� :- sale of Sinker
�� Co. bonds------'-----1
.
--- -- ----
r 3 I --
Floater
-- --
Jan. 1
April
April 1
D_� ·�: _
I Jl
-
1 - 3_
1 ____
Jan. 1
_
Sin ker Jul
I
- 1
Leader Nov. 1 - Dt�c. 31
I
__
Total interest mcom1· �-------�-
.[4:=lJ_unrealized loss on tr?di�g securities
..
l
I·- -· .
Car�inc Value Fair Value
Condu ra Co. ordinar / shares
-1- - --
- - - · - - -- ·
Bobber Co. ordina!Y shares · .�'"

Floater Co. 7 112% bonds •
---i
-
. .
Leade r Co. 8% bone s
Total
I �
5. Floater
Leader
Accrued interest receivable Dec. 31 2Q 14
1 -�
CPI\ REVIEW SCHOO L OF THE PHILIPPINE S (CPAR) AP-PW7502-SOL
PRqBLEM NO. 6 ALTERADO COMPANY -

Polify_1
r-1. 1 .. I
\ Policy 2
. I
!
PoliQt 3
\ Insurance expense �
�1:
r red d n 2
014
-� - �
- t_� i____ u_
� g -_
_
_ _
1
�
-
_
--------
-- ----
�r:
_ota_I depreciation expense .
_ _
_ _ __
L __
! 3. I Bad debt expense

1 4. Interest income
Rental income
· [5. I I Expired rent
PR�BLEM NO. 7 - DONNA MANUFACTURl!iG COM.PA.NY

. .
1---
AJEs.- DECEMBER
----- 3-'-,-
201
.;.c_
1 4 · ----- ---- - � -�----+- -..f-
!.. Machinery
Pat�1ts'---
.. ---- -.,---,----
___
-----&..--.--------+--+---l
Cost of oods sold (Patent amortization)
-�
Patents
L Licensing agree ment 2

.Unearned revenue
.
. --------
3.
- ----
Retained earningtl!!TIY.a ::.i.:..: .:.
rm e.:. n
.:. ::. .:. ::.
.: t.:..:..:: lo
--------·
.s:.: ):
.:: sL ---- -----+---1---· ---l
L_ic
_eQ�.L�9. ag ree m e �.:..:.
1 t..::l:.__
_____
__ _____
Cost of licensing agreement 1

r
Recoverable v<1lue
�-----�Im�pa�ir.:..:.rn�e.:..:.nt�l=o��;s'---------+---}--�
�
�- Rerained earnings (Advertising)
Goodwill
I
.?.:.... _;guipme0!_�----;--------- -----+---lf--_J

------- ----·---:1---l-
Leasehold improvements
_ __ _ _
-��;��::s (��;:;
___
r --- old ) ation expense - 2 14)

0
Retained earnin s __
-+-----1-
.
. ·-
nen ts
Accumu lated depreciation - Leasehold improve1_ ___
_
__
--
6. Retained earni n s
Organ ization costs
Patents
.
1.
2. Licensing agreement 1
Licen sing ag_reement 2
. . .
3.
4.
5.
Leasehold improvements
Retained earnin_g_s debit ·-
.
. .
.
Page 4 of 6 P; 1 ges
'
J�MSCH OOL \)I' T H E Pl i!LlP PlN ES (lPAP .
AP ·PW7602·SQl
NO . 8
pROBLEM - BE NS ON CO RPORA ' . '
TION
!
I 4. I
!
! s. I
-
-
. J
. -r.Jtal
Ordinary '.!ihare caoital
l
I
No . of Share Retained
Ilem
Shares Issued Par Value Premium Earning_�
•
Beginning Balance-1/1/14
40ct_OOO T P2,0)0,000 i P850.LOOO P3,_000 000
--
�
�:5
I
-
I •
Jan. 16
Balance
i:
.
-t
Feb. 10
Balance
I
B alan ce
I '
I
March 1.
l
April
Balance
I
1 -·- l
Balance
1
. . ···�
�.l:!!Y
J
f . '
-·
alanc:e
t=
-
� � g. l
.J?_�lanc_�_1]131/ 14 . T
.i-- -
PROBLEM NO. 9 - STRATA COMPANY
�- 1 _D@usted vouchers pa.yable, Dec. 3 1 , 2014 �_j

[-- I Vouchi�:_
r !.!o s:::
N=.c .·.:_
: -
---
- - - - - - - _
_ ________ _,_
___
_ __
3. Pa ments
Pu rchase
=s- - - -- - -
_y_ouchers_Q 9vableJ.!l_e!L _
- - -- - - ---
- ---+
- --
-
-
-
---+-
-
-
--_--- -----
--+-
P_ l,309,SOQ.:_
. --
-
- -=-·--
- -
----
- -4 -
I·�
� \
t n
\
_
-
Pu rchase discounts lo�.t on paid voucher:;

Purc�ase re u r s
. . . .
.
_
'
EC Purchase discounts lest -

� ==
1-'-- �
vo�
uchers a a
bl�
��-=-=:.:..=�e.:....:....
--------- -
--.- -
I.-----...j._----=-:J
� I
.
PROBLEM NO. 1 0 - MUNTINLUPA COMPA NY
_Ll. . Accounts receivable, April 21

Uncollectible accounts
Collections
Total
Sales, April 1-April 21

Accoun� �ceivabl� Ma __
rch
_ 31 ____ -'---
- - -----+--�
___ Total�ales, Jan. 1-A

Sales,_Jan. 1-March 31
_.._
p_ r_
iI _
21 __________
_ ________ .L_. ____ _J
Page S of 6 Pag<"s
CP A REVIEW SCHOOL OF THE PHILIPPINES (CPAR! AP·PW7502·SOL
. .
. .
I 2.J Purchase:; Jan. 1-March 3 1 •
Payments for AQril QUrc:iases
. '
. . .
Unrecorded purchases
. Pur hase r turn
c e s '
Purchases, Jan. 1-April 1.1 I
I
.
-
3] Net sales . -
P9.L20Qi..OOO
.
!
Cost of sales . . 660 000

Invent� Jan. 1 .
p
5 150 000 !
Net purchase s
available 5 81<t_OOO i
Is 060 ooo}
Goods
Inventory, Dec. 31
for sal e
1750 ooQ) I
I P4,140.000.
. !
j
�ross pro!!L_
r-_
�
_.
rossYf.9f.!.U.9�Q___
- ·--- ost ofsale�! Jan. 1-Ap:il 21 -.-l
n en Ol)j) n . 1
I v
-- - ' -�
L
t
Ne t purcl �-
_a
- -
-- - ------- -------- --
-+ -----j
- -
-----+--
Goods available for sat.:
Co_
__ si �.L
21------�
st_
o_f_
---'o-
- - Estimated invento .L.:...A.C
-'-'-
- �-'-'-'
___ __
__
ril-=
"'-'-"
•• ! •I: •
,. i
------ - · --- · -----.--rt- ,

•
r_
r_-_
1Es- .. te
ma-
ti- rt__
nv�n to__ '_
_!:ess: l
-q_i
Sa vaged inve n
�<?!_
» '.
�
_
ch a nc�e in tra nsit _-------- -----+- --

.
- �-� --
�------
- -1--- - ·
_ ___ _ Jnvento i r_
_!}1_f_ e_:
lo
'" s"' _
s"'-- __________ -
- ---'--
- --
_
PROBLEM NO. 1 1 -- BAIKA::.. COM PANY/OHRID CQ;IJIPANY
/IJ Carrying value of note oayable at Dec. 31., 2.014

..
f·=�I/ .__
1
_
�:;J;�:n�f�:=��,��tpayments
L_ ----�st of ery :..i____________
machi:.:..:11.=
__ _ __
_ _
___
__.
�
--'
_
_ __
'--
_
--
- -
___
-
-
__
----
..1..
__ ____
-+
·_____ J
__J..· ...J
j
.
[i�_-:=J}i1_terest expense 20 ::..:J.3�----
for _
_ ___________
. ______J
[ s. i- / carryi ng value of note <it Oec. 31, 2014
-- E N D --
'
•• ! •1 : 4
CP A REVIEW SCHOOL OF THE PHILI
PPI NE S AP-PW7502
f\Ji a n 1 I .:1
AU DI TI NG PRO BL EM.S
CPA Rev i t�W
PROBLEM NO. 1
. .
-�-h:. bank statemen t for the
ch cking accounr. o f Hs'U, INC. showed a December 31, 2014
� '
i alance of Pl ,<163 _
,212. Information that miaht be u�;.:.ful in preparing a bank reconciliation i!; as
_ -
rol low s:
a) Outstan ding checks 1Nere P13

2,02 5.
o) The Dece mber 31, :'.014 cash
receipts of PS/ ,500 were not deposited in the bank until
Janu ary 2, 201 5. •
• •
c) One check written in payment of rent fol' P2·l,600 was correctly recorded by the bank
but was recorded by MSU as P26,400' disbursement.
d) In accordance with prior authorization, the ,Jank withdrew P45,000 directly from the
checking account as payment on a mortgage note payable. The interest portion of that
payment was P35,000. MSU has made nQ ent;y to record the automatic payment.
e) Bank service charge� of Pl,400 were listed on the bank statement.

f) A depo�;it of P87 ,500 was recorded by the bci lk on December 13, but it did not belong
to MSU. The deposit should have been made :o the checking account of SUM, Inc.
�l) The ba n k statement included a charge of Pt:,500 for an NSF check. The check was
returned with .the hank statement and th;: compan\' will seek payment from the
customc!r.
h)' MSU mciintains a PW,000 petty cash fun� tha : was appropriately reim bursed at the end •
of December.
0
i) ·According to instruction for MSU on Decembe- 30, the bank withd rew Pl,000,000 from
·
the account and purchased Treasury Bills for v1SU. MSU recorded the transaction in i ts
books on December Jl when it received notic1! from the bank.
•
Half of the treasury bills
mature in two months and the other half in six months.
L What is the cash balance per books on December 31, 2014?

A. Pl,354,287 B. Pl,357,887 1 :. Pl,337,287 D. Pl,264,287
2. What is the corrected cash balance. on Decembt::t 31, 2014?

A. Pl,3 04, 7 87 B. Pl,301,187 1 : . Pl, 284·, 187 D . Pl,211,187
J. What amount of cash and cash equivalents shou'd be reported i n the current asset section
of the balance sheet orr December 3 1, ·2014?
A. Pl,821 , 187 B. P2,321,187 t :. Pl,301, 187 D. Pl,874,287
4. If the balance shown en an entity's bank statement is less than the correct cash ba larce
.
and neithu the entity rror th� bank nas made an / errors, there must be •
.
.A . Deposits credited by the bank but not yet rec�r'ded by the entity.
B. Outsta nding checks .
Deposits in transit.
D. Ba n k charges not yet recorded by th.� entity . '
C.
If the cash balance shewn o n a n entity'� accounting records is less than the correct cash
balance and ne1cher the entity nor the (Jank has : 1ade any errors, there must be
:i .
· A. Deposits credited by the bank but noi: yet tec•)rded by the entity.
Deposits in transit.
C Outstanding checks.
B.
000()()()000 i
D. Bank charges not yH recorded by the entity,
I
I
----------------------------- -----------------------------
P,1ge l 01 1 ?. Pagt s
j.
CPf\ REVIEW SCHOOL OF THE PHILI PPINES (CPAR) AP·PW7502
PROBl.EM NO. 2
•
PITO-PITO COMPANY prod:.Jces herbal tea and other slimming products that are sold
throughout the Philippines. 'Nhile the company is experiencing a steady growth ;in sales, it has
become noticeable that collections of accCunts receiva ble from customers are no: longer as fc1st
·
as they used to be.
Pita-Pita Company's product!; are sold on payment ter:ns of 2/10, n/30. In. the past, more than
7�5% of the credit customers have availed of the disccunt by paying within the discount period.
During the year ended Dec.ember 31, 2014, there las been an increase in the number of
customers taking the full 30 days to pay. The com� any estimates that less than 60% of the
customers are taking advaritage of the discount. B:id debt losses as a percentage of gross
credit sales have increased from the 1.�% provided ·n prior years to about 4% in the current
y.:?ar.
.
The deterioration of accounts receivable collections has prompted the company's t:antroller to
•
prepare the following report .
Oecember 31, 2014

ACCOUNTS RECEIVABLE COLLECTIONS
J,. It is normal that some ·eceivables will prove un1 :ollectible. In fact, annual bad debt write-
. . '
offs had b ee n 1 . 5% of ·:otal credit sales for man'1 year�;. However, this rate has increased
'
to· 4% during the current year. • •
•
B. The accounts receivable balance pt December 3 1 , 2014, is P3,000,000. The condition Qf

this balance in terms of age and probability of col1ection is oresented below.
Proportion Probability
of Total Age Categories · of Collection
64% 1 to 10 days 99%
18% 1 1 to 30 days 97.5%
8% Past due 31 to 60 days 95%
�;% Past due 61 to 120 days 80%
::% Fast due 1 2 1 to 180 days 65%
;�% Fast due over 180 days 20%
c. TI1e allowance for bad debts had a credit balano! of P54,600 on January 1, 2014.
D . The P640.. 000 bad debr expense provided durin � the vear is based on the assumption that
4% of total credit sale$ will be uncollectible.
E. Accounts written-off during the year totaled PSB 5,000.
i. What is the required allowance bqlance on Dei:e

mber 3 1 , 2014?
A. P154 ,200 B. P 1 09,6 00 · C. P209,200 D. P55,000
2. What year-e nd adjustment is .

;
necessary tc bring Pito-Pito ompany's ·allowance for
.
indi cated by the aging analysis .
dou btfu l acc oun ts to the bala nce
10,400
A. Bad de bt expens:� . 10,400
Allowance for do ubtfu
l accounts
10,400
l accounts
B. Allowance for do ubtfu 10,400
Bad debt expense 44,600
c. Bacl debt expen� e • 44,
600
for doubtful acco
unts
Allowance 154,200
.
D. Bad debt expense 154,200
'\ Allowa nce for doubtf
ul accounts
\
\;
',
�
. .
·
.cfA.REVIEW SCH OOL or THI-: PH ILI PPINES
.
((P,\Rl
AP·PW7502
What i�; the net rea iiza

bl e va 1 ue of P1to-P1to
3. • •
. •
· �ompany 's accounts receivab le at December

.
31, 2014?
_
A. P2 ,95 5,4 00
B. P2,845,800 D. Pl,6)5,800
( P2, 736,200
�ito��
C.
:l. sho uld report bad debt expense for �D'l.4 of
· ., ,600 B. P595,4 0 0 C. P640,000 D. P684,60C·
5: Pito-Pito's tota l cred!t sales for 2014' is

A. Pl6,000,000 B. D. P14,625 ,009
()()0()()()1)()()
P42,666,66 7 C. P25,600,000
----- ----- -- ---
-- - - - - - - - - - - - - - - - - - - - - - - - - - - - - -- --- --------
PROBLEM NO. 3
Presented below are two independent situations. Answer the questions at the end of :ach
situatiol) .
GARLA HOME IMPROVEMENTS installs replacement siding, windows, and louvered gla � s .doors
for single family homes c.nd condominium comple.<es in Quezon City. The company is 111 the
process of preparing its annual financial statemen� for the fiscal year ended May 31, 2014, and
Jimmy Lansang, controller for GARLA, has gatherea the following data concerning inventory.
At May 31, 2014, the balcince in GARLA's Raw Mat·?rial Inventory account was Pl, 224,000, and
the Allowance to Reduc:� Inventory to NRV ha J a cred it balance of P82,500. Lansa ng
schedule
summarized the relevant inventory cost and rnamet daea at Ma'!" 31•�:1!014, in the
below.
Cost Sales Price Net Realizable Value
Aluminum siding p 210,000 ' 192,000 p 168,000
Cedar shake siding 258,.000 282,000 254,400
. 559,200 504,900
Louvered glass doors 336,000
Thermal windows 420,000 -- 464.400 420 ,000
Pl.224.000 £.l.497.600 Pl.347.300
l. What amount should be reported as Allow2nce to Reduce Inventory to Net Realizable

Value at May 31, 2014?
A. P168,900 B. P45,600 C. P273,600 D. P123,30C
2. What amount of gain or loss should be recorc1ed for the year ended May 3 1, 2014, clue to
the change i n the All owance to Reduce ·Inven1ory to Net Realizable Value?
A. P36,900 gain B. P86,400 loss • C. P40,800 loss D. "P82,500 gain
MANGO BANGGO purchased a mango farm in Aug1 Jst 2014 for P2,250,000. The purchase was
risky because the growinq season was coming to an end, the mangoes must be ha rvesr.ed in
the next few weeks, and Mang" has limited experie;;i �e iQ carrying off a mango harvest.
·
At the end of the first cuarter of operations, Mtngo is feeling pretty good about his early .
. .
.
results. The first harvest was a success;, 30,000 kilos df mangoes were harvested with a value .
of fi90,000 (based on current local commodity pric-:s at the time of harvest). The fair va1ue of
Mango's mango farm has increased by P45,000 a : the end of the quarter. After storing the .
mangoes fo r a short period of time, Mango was abl·: to sell the entire harvest for PlOS,OOC.
'3. What amount of gain should be reco nizea 011 the · change in fair value of Mango's mango
g
farm?
A. PlS0,00 0 B. P45,000 C. P90,000 D. P135,000
4. At-what amount should the mangoes harvested be initially recorded on Mango's books?
0
A. P90,000 B. P105,0 00 C. P60,000 0. PlS0,000
. Pa.ge 3 o� 12 !'a_ges . .
CPA REVIEW �;CH OOL OF TH_� PHIL
· .
IPPI NES (CP.;R) AP·PW7502
5 . What i�; the total eft'ect qn income for the quarter related to Mango's 'biological asset ·and ·
agricultural produce· ? •
• • ' •
000000 ( >00
A. P150,000 B. P45,000 • C. PlS,000 D. P60,000
---- -- -- - -
----- -- --- ------ -- -
. ......-- -- .--- ------ ------- -

- - - -- -
PROBLEM NO. 4
A· depreciation schedule for semi-trucks of ISIDRO MANUFACTURING COM ��NY was rt!quested
by your auditor soon after December 3 1; 2tl14, showing the addrtrons, retirements, _
depreciation, and other data affecting the income of the company in the 4-year period 20 1 � to
·
2014, inclusive.
The followin9 data were a:;certained.
Balance of Trucks dCcount, Jan. 1, 20 1 1

Truck No. 1 purchased Jan. 1 , 2008, c ost P180,000
Truck No. 2 purchased July 1, 2008, cost
Truck No. 3 purch2sed Jan. 1, 2010, cost:
220,000
300,000
Truck No. 4 purch?.sed July 1, 2010, os c t
Balance, Jan. 1, 20 1 1
240,000
P940.000
. .. ' •1: •
The. Accumulated Depreciation-Trucks accoucit p1 eviousfy adjusted to January 1, 2011, and
entered in the ledger, had a balance on that date of P302,000 (depreciation on the four truckS
I ---
1
from the respective dates of purchase, based on c 5-year life, no salvage value). No charges ·
had been made against the account be{ore January 1, 20 1 1 .
Transactions between January 1, 2011, a n d Decer.1ber 3 1, 2014, which were

recorded i n the
ledger, are as follows.
July 1, 20 1 1 Truck N o . � was traded for a larger one (No. 5), the agreed purchase price of
which was 1>400,000. Isidro Mfg. Co. paid the automobile dealer P220,000 cash
on the transaction. The entry was a debit to Trucks and a credit to Cash,
P220,000. 1he transaction has comm :!rcial substance.
Jan. 1, 2012 Truck No. 1 was sold for P35,000 c;:d1; entry debited Cash and credited
Trucks,
P35,000. •
July 1, 2013 A new truck (No. 6) was acquired for P420,000 cash and was charged at that
amount to the Trucks account. (Assur.1e truck No. 2 was not retired .)
July 1, 2013 TrucK No. 4 was ,damaged in a wred . to s�ch an extent that rt was sold as junk
for P7,000 cash. Isidro Mfg. Co.· received P25,000 from the i nsurance company.
The entry made by t:he bookKeeper '"as a debit w Cash, P32,000, and credits to
.
Miscellaneous Income, P7,000, and Trucks, P25,000.
. .
Entries depreciati on had been made at the clos(� of each year as follows: 20 11, P210,00D;
for
; 2014 , P304,000.
· 2012 , PllS,OOO; 2013 , P250 ,500
depreciation expense•for the year ended December 31, 201 1 ?

C P172,000
What is the total
1. A . P l80 0 00
, B. P198,000 • ..
D. P228,000
. of Truck #3 :i n July 1, 2011?

c. (P60I 000)
. t he gai n (loss ) on trade in
What JS
B. P lO I 000
2.
A. (P30 ,000 ) . D. P 190,000
1 ue 0f th e Trucks on De-e mbe r

What is the net book va
31, 2014 ?
3. -C P228 soo . '
B. p ...,� 48 '000
D. P894,000
A. P41 4,0 00
·
ense recorded tor

the 4-year period (2011 -2014 ) is overstated
4. The total depre ciatio n exp
"\..
"' by C. P287, 500 D. P275,500
A. Pl 8S.SOO B. P26 5,5 00
fl�SCHOOLOF THE PHlLl PPjNESfCPAH} AP·PWZ5
. 02
s. Assuming- that the books have n°t been cIost:d

entry on Decem ber 3 1 ' 2014 to
for 2014, what i s the compound jou rnal
·
correct the -
m npany's errors for the 4-year period (2•) 1 1
2014)?
A. Accumulated dep r eciation
Trucks
480,000.
Retaine d earn ings 9,500
Depreciation exp - ense 140,000
· B. Accum ulated depreciatio
n 665,500
Trucks 480,000
Retained earn:ngs 45,500
Dep reciati on t:xpense 140,000
C. Accumulated depreciation 665,500
Trucks 480,000
Reta ined ea rrn ngs 185,500
D . Accum ulated depreciation 665,5 00
Trucks 665, 500
--- - ---- --------- --------- � -- 000()()()()(>0 -------
: -- ------
-------- -----
PROBLEM NO. 5
The state mem of financial :Jositio n of MADRIGAL CORPORATION on December 3 1 , 2013

reports
Trading Securities at fair value 01' P670, 770. Sup Jorting reco rd s of the company show the
following debt and equ ity s�curitie�:

. .
. '· .
p 72,900
Cost
p l,6,350
Security Fair Value
600 Condura Co. ordinary share.5
P240,000 Sinker Co. 7% bonds 238,950 . 232,200
P360,000 Floater C(I. 7 1/2% bonds
•
362 250
-== --
365,670
Total P677,550 P670,770
- lntr-rest on bonds is paid semiannually on· January 1 and July 1.

1
r-
Ma d rigal uses the ,income
. •
approach to r·�cord the acquisition of bonds witi1 accn�ed i nteres'C. The following transacUons
ocamed during 2014.
Jan. 1 Received semiannual in terest on bonds .
. l\pri l 1 Sold P180,000 of the Floater Co. bond� at 102 plus acc ru ed interest. Brokerage
•
fees were P600.
·11av 21 Received dividend of P0.25 per share or. the Condura ordinary shares.
July 1 RE:ceived serni;1nnual intere st on bond:;. Sold "the Sinker Co. bonds at 97 112.
Brokerage fees were P750.
Purchased 300 13obber Co. ordinciry sha;,!:·, at P l 16 pius brokerage fees of P150.
·
.\u�1. 15
. �0v. 1 Purchased P150,000 of 8% Leader Lt). bond s at 101 ! plws accrued interest.
Brokerage fees were P375. Interest.datEs are January 1 and July 1 .
Market prices o f secu rities were: Cond.ira Co. ordinary shares, P l lO; Floater Co.
bonds, 101 3/4 ; Leade r Co. b ncls, 101; Bobber Co. ordinary sha res, P116.7 5 .
Dec. 31
?
1 . What i s the ga in on tr. e sale o f P180,000 Floater Co. bonds o n Apri l 1?

A. Pl,875 B. P165 C. P765 D. P2,610
2. What is the g a in (loss·, on the sale of Sinker Co. bonds on July 1, 2014?
A. Pl,800 B. (PS,700) C. P l , 050 D. (P4,9 50)
3. What is the total interest i n come ' on bonds th<it should pe re ported in M ad rig a l's income
statement for the year ended DecembH 31, 2(1 .4?
A. P25,L.75 B. P27,275 · C. P34,650 D. P:)4,025
CPA REVIEW SCHOOL OF THE PHILIPPINES fCPAR) AP-PW7502
4. What i:> the unreal zed g a i n (loss) on i:racJ ng securities that shouldI be reported in
Madriga1's income statement for the year ecded. December 31, 201� i .
· A. (P8,625) B. P8,100 C. (Pl,845) D. (P6,360)
What is the accrued interest rec;eivable on bo n d s that should be reported in Madrigal's

statem ent of financia1 positio n at Gecember 3 1 2014-:>
5.
A. P12,750 B. P21,900 ·c . P19,500 D. P8,750

----------- -- -··----------- --- oooOOOO•)O ---------------------------- .:
PROBLEM NO. 6
The following list of accounts and their balances ··epresents the unadjusted trial balance of
ALTERADO COMPANY at December 31,' 2014:
Cash P290,900
Equity investments ftrading) 600,000
690,000
p 5,000
Accounts receivable
Allowance for doubtful accounts
547,200
P repaid rent .
Inventory
360,000 .
Plant and equipmem •
•
•
I
1,600,000
Accumulated depreciation - Plant and equiprr ent 147,400
Accour1ts payable 1 1 3,700
Bonds payable 900,000
Ordinary share capital 1, 700,000
Sales 2, 148,000
Cost ol goods sold 1,544,000
Freight-out 1 1 0,000
Salaries and wages ·�xpense 320,000
Interest expense 20,400
Rental income 216,000
Miscellaneous expense 8,900
Insurance expense 110,500
P6.201.900 P6.201.900
Ad d ition a l da ta:
1 . The balance in the :�nsurance expense account contains the premium costs of three
Po l � cy �' re��inin�1 c o� of P25,500. 1-year erm, taken out on May l, 2013;

policies:
P ol 1q· L, onginal c1 1st or P72,0uu, J-year te n, ;:ak�n 0ut on .OdW;>�r 1 2014·

·
Policy 3, original cost of P13,000, 1-yea_r"ter-il, taken out on Ja n ua ry 1 2014 : ;

.
2. S e ptem ber 30, 2014, Alterado received P� 16,000 rent from its lessee for
month lea se beginnin�1 on that d a �� ·
On ei gh teen- .
3. The regular rate o f de prec i a ti o is 10% per Y � ar. Acquisitions and retirem �nts during a •
�
year are depreciated at half this rate. There were no purchases during the year. on
December 3 1, 2013, th e balance of the Plant
and equipment account was P2,400,000.
4.
bookkeeper incorre:tly credited Sales for a receipt on account
On December 28, 201--1, the
in the am oun t of Pl0 0.000.
2014 sala ries and wages accnied but unpa were P4,2 ,000
id 00 .
5. At Decem ber 31 , •
le.
sales will becomE' uncollectib
6. Alterado est.1mates tha( 1 % of
J \l te ra d 0. P�h h
rc �sed as a short-term inve
stment, 600 Pl,000, 7%
August 1, 201 5. Interest payment
bo n d s mai ure on
7. On August 1, 2014 ,
.
pai e
31.
bonds of Alendog Corp . at ·
.
dates are Ju ly 31 an d .Ja nuary
Page 6 of 12 P:>;�e�
.
.
�'.HIL IPPJNES (CPAf.\_,__:
/ AP·PW7502
__
on Ap ril 30, 20 14, A lter

•
s.
· advan 1··e P3 0' 000

ado rented a
•
wareh ou•"
" -· for
rn per month, paying P360, 000
·
1.
0f
What are the adj ustec
bal ahces the tollQwing ·&ccounts
on December 31 ' 20147
A.
Prepaid i�su onCt:,
p 6,000
·
1 1 r� Insu rance expense

S.
- ·
P104,500
c.
0
.
110,500
D.
54,000 56,500
66,000 44 I500
2. What is the tota l
A. p120 I 000
d epreciatio n
· ·
.
expense rnr t r.e year ended Decem ber 31, 2014?

c. . P200,000 D. P160,000
•
B. P240,0 00
3. What i s the bad debt expense for

A. �15,4·80
;
the ear enm: d Decembe r 31, 2014?
B. P25,480 C. P21,480 D. P20,480
4 What �mount of i nterest and rent income shou d be reported in the income statement: for
the year ended Decem ber 31, 2014?
·
Interest income Rental income

P24, 500 P 36,000
B.
A.
17,500 180,000
c. 24,500 180,000
D. 17, �00 36, 000
. • I: •
�
-
•
.
5 . • What adjusting entry is necessary on Dece[Tibe1 '.31, 2014 for the Prepaid rent account:'
A. Rent expense 270,000
Prepaid rent 270,000
B. Prepaid rent 270,000
C. Prepaid rent 240,000 .
Rent expense 240,000

D. Rent expense 240,000
·"
-. . - - - - - - - - - - - ---------------- 0000000<1() -----------------------------
PROBLEM NO. 7
DONNA MANUFACTURING COMPANY was incorporc"ced on January 3 , 2013. The company's

financial statements for its rlrst year of operations were not audited by a CPA. You have been
•
engaged to audit Donna\ financial statements for the year ended December 3 1, 2014.
Presented below is Donna's trial balance (partiai) on )ecember 3 1 , 2014.
. .
p 330 ,00 0
Debit
• I •
Cash
1,275, 000
p 15,000
Accounts receivable
Allowance for bad debts
Inventorie� 1, 1'55,000
Machinery 2,250,000
Equipment 870,000
Accumulated depreciaticin 300,000
·Patents (Information 1) 2, 550,000
Leasehold im provements (Information S) 780,000
?repayments 315,000
Organization costs (Information 6) 870,000
Goodwill (Information 4 ) 720,000
1 ( Information 2 and 3) 1,500,000
Licensing Agreement 2 ( information
Licensing Agreement
2) 1,470,000
Page 7 of 12 P.Jges
CPA REVIEW SCHOOL OF THE l'HILIPPINES(CPA.Wt AP·PW7502
Ii
J
l. �
Patents for Donna's manuf cturing pro ce gs WE�i-� . acquired January 2, tOl4 at a cost
Donna spE:nt an additional PSl0,00�1 i n December 2014 to i m w
ove machir.·ery
covered by the patents and included in the Paten
P2,040,000.
' ts account balance.

• •
The patents had a
remaining legal life of 1:• years.
�:. Donna purchased two licensing agreements on J<1 1uary .3, 2013, which were believed at that
i::ime to have unlimited useful lives. The balance of Licensi ng Agreement 2 was redu ced by
'i'30,000 for the advance collection of revenue from the agreement. .
3. J.n December 2013, an explosion caused a 6tl% reduction in the expected reven �e-
producing value of Licensing Agreement 1. The recoverable amount of LicensrQg
Agreement 1 was determined to be P600,000 at C ecember 31, 2013.
4. The balance i n the Goodwill account inclua·es P 720,000 paid December 31, 2013 for an
advertisi ng program which it is estimated will <1ssist i n increasing Donna's sales over· a
period of four years follcwing the disbursement.
5. The Leasehold Improvement account includes the following:

a.
Donna, us tenant, m. 1de to leased premi�es w Janua! y 2013; and
P450,000 cost of in;provements with a tota l estimated useful life of 12 years , wt-ich
b. movab le assembly-line equipment costing· P330,ooo; which was' M�alled in the ]eased
• premises in December 2014.
Donna paid its rent i n full during 2(}14. A 10-year nonrenewable lease was signed Janu 3ry 1
·
J, 2013 for the leased building that Donna used fc t manufacturing operations.
I
·
The balance in the Organization Costs account lndudes pre-operating costs incu rred during
r· · ---...
6.
the organizational period. . I
I
I
1. What is the carryi ng ar.1ount of the Patents on December 31, 2014?
A. Pl,920,000 B. P2,400 000 1 :. P2, 550,000 D. P2,040,000
�
What is the carrying amount of Licensing agreen1ent 1 on December 31, 2014?

B. P600,000
2.
A. Pl,500,000 i.:. P900,000 D. P2,100,000
What i s the carrying amount of Licensing agreerr ent 2 o n December 3 1 . 20 1 4?

B. Pl,470, 000
3. .
A. P2,1 0CJ,OOO C : . P600,000 . D. Pl ,500,000
'1 . What is the carrying amount of the Leasehold inurovemenrs en December 31, 2014 ?
A. P360,000 B. P780,000 C �. , [>450,000 D. P624,000
�- The net adjustm ent tc· Retained earnings to r��f!eq all the necessary correcti ons from
information 1 to 7 will ;:im ount to
A'. P2,535,000 debit
B. P2,580,000 debit
C. P2,535,000 credit
oooOO O!JOO ---- - - --- -- ··-------- -------- -

D. P2,580,000 credit • •
----- ----
--------- -- -----··---
.
PROBLEM NO. 8
.
CORl?ORJ..TION's statement of financ ial position as
Tr.e share holde rs equity se ct.ron of BENSON
of Dece mber 31., 2013 is as follows:
· . ·
.
Ordi nary shar e capital, I'S par va 1 ue, au
-' res;
·-1 OOO/ 000 sha
thon·zed ' •>
issued, 400,000 shares

•
P2,000,000
.::
�ctlOOl.OfTHE PHll.IPPINES(CP/\!ll
..•·vr
,;I� AP·PW7502
Nov. 27
pate Voucher N o .
Sun Jlier Amount
De:. Q}
p 78,400
797
Duncan �.1,pply Co.
t� 1 1 1 uo1li
11
821
829
l !3ffibutors 19,600
20
..
836
Parker· Sales � w,100
21 842
Mohamed Dealers 17,150
Browen M :rchandising
22 856
22,050
31. 865
Horry Mei :<:lntile 80,850
Barry Tra(lers 78,400
.
E�1Q,55Q
Vouchers Pay�ble (control account)

Cash disbursements
Purchase returns journal
Pl,309, St)O
36, 750*
11: 1 rc
::...
?;:...:. .h
:.a-=
se
.;. -=
s
= jo..:..:.
-= ur al-
n_
.:.!.. ----P-
l,-
64
--5,-
000
I
Voucher Nos. 821 and 836 canceled as §oods were retilrned in December.
�
1. What is the adjusted balance of the Vouchers Jayable account on December 31, 2014?
A. P310,000 B. P306,750 ' C. ?303,800 D. f!>344,250
P 0
2. What is the amount of purchase discounts los: or. unpaid vouchers?
A. P6,200 B. P2,950 C. P3,700 D.
What is the amount ot' pucchase discounts los�

. .
?� P?id vouchers?
0. P41,800
-·
A P28,750 B. PB,000 • 1...: PS,050

.
4. The adjusting entry C·r entries to con:ect the a�ccur1ts will Jnclude
· A. A debit to Purchase Discounts Lost of Pl 1,:�so.
B. A debit to Purcha:>e Discounts Lost of PS,O!iO.
C. A credit to Vouchrrs Payable of P8,000.
D. A credit to Vouch·�rs Payable of P 1 1,250. .
5. In a payables applirntion, checks are; autriori !ed and paid based on matching purchase
.
orders, receiving repore;, and vendor invoices. Partial payments are common. An
appropriate audit procedure for verifying that .1 purchase order has not been paid twic,e is
A. Check register file· by purchase order, corruute total amounts paid by purchase order,
to sort tl1e
compare total amounts paid wi�h purchase order amounts, and investigate any
discrepancies between the total amounts p.iid and purchase order amounts.
E3. Receiving report file by vendor invoice a ;nounts and i nvestigate any discrepancies
between the total amounts received and vendor invoice amounts.
C. Vendor invoice file by purchase order, compute total amounts invoiced by purchase
order, compare total amounts invoiced wit 1 purchase order amounts, and investicate
any cliscreoanc1es betwee:i the tot<:I amou1Es 1:1vo iced and purchase order amounts.
D. Receiving report tile by purchase order, compute 'total amouri�:feceived by PIJrChase
order, compare tota l amounts received wit 1 purchase order amounts, and investigate.
� 000() ()()0<10
any discrepancies between the total amoun�s received and purchase order amounts.
-------------------------- -- -----------------------------
i>ROBLEM NO. 10
On April 21, 2014, a fire d<1maged the office and w.irehouse of MUNTINLUPA COMPANY. The
only accounting record sav�d was the general ledgc�r, from which the trial balance below was
prepared:
Muntiniupa Company
March 3 1 , 2C 14
· Trial Bala nce
Debit �red it
Cash p 180,000
Accounts receivable 400,000
l':lge ; 0 or i :.:. l'. 11;e;,
• I
CPA REVIEWSCHOOL OF THE PHILIPP I NES (CPAR) AP-PW7502
Share premium 850,000

Retained earnings 3.000.000
PS.850.000
.
The following events occurred during 2014:
1. Jan. 5 10,000 shares of authorized and u nissued ordinary share capital were sold fo� PB
per share.
2. Jan. 16 Declared a cash dividend of 20 centavos per share, payable February 1.5 to
shareholder!; of record on February 5 .
3. Feb. 10 20,000 shares of authorized and un ·ssued ordinary share capital were sold for •
P12 per share.
4. March 1 A 30% stock dividend' was declared and is!lued. Market value per share is
currently P l 5 .
5 . April 1 A two-for-one split was carried out. T ne par value of the stock was to be redu(ed •
to P2.50 per share. Market value on �larch 31 was P18 per share.
6. July 1 A 15% stod� dividend was declared a .1 d issued. Market value is currentl'I" PlO per
.
share. •
. . I
I
7. ·Aug. 1
. •
�er s,1ar� was declared, payable September 1 to I

'
shareholder!; of record on August 2 1 .

A cash dividend of 20 centavos
•
Based on the preceding information, determine the balances of the following at December 3 1I
2014.
•
1.. Number of ordinary shares issued and 'OUtstanc.ing

A. 642,850 B. 1,118,000 C., 1,285,700 D . 989,000
2. Ordinary share capital

A. P2,000,000 B. P3,214,250 c. P6,428,500 D. P2,795,000·
3. Share premium
A. P2,277,750 B. Pl ,020,000 c. P3,567,750 D. P2,310,000 .
4. Retained earnings
A. P596,000 B. Pl,853,750 c. P338,860 D. P306,610
5. A feature common to Joth stock splits and stoo : dividends is

A A transfer to earm.:d capital of a corporauon. .
.B. That there is no effect on total sharehoJders' equity.
.
c. An increase in total liabilities of a corporatio 1.

D. A reduction in the contributed capital of a corporation.
. 000000000
- - - - - - ---------------
----- - -
: -- - - ----------------- -- - - -- - -
PROBLEM NO. 9
In the audit process, the fol!owing

data were obtained from the books of the STRATA COMPANY
Al l invoices are subject to terms 2/10, n/30 and are entered net
se Discount colurr n of the voucher register. The accounta nt
which uses a voucher system .
with the discount entered in Purcha
in charge of ttie books went on :
i ave .to attend to his family based in New Jersey. A �esh
�
ed to record th£· transa !Qn � . At year-end, the substitute
accounting graduate has been assign
accountant finds that the unpa id vouch
l l
ers do not .a gree with the Vouchers Pa�ab e contro
er.
account. You are called to adjust the matt •
of December 31, 201

.
A sch edule of u npa id vou chers as

4, al l of which are net of discount, is
\ltesented t
I·; :
o you. .
s
.
Page ') of 1� P:.i;e . . � \
�: PHILIPPIN ES (C�AR)
-
AP·PW502
,
rnventory, December 31, 2013

La nd
750,000
B ui ld i n g 350,000
p 413,000
1 , 100,000
Accumulated depreciati on
• I
Other assets
56,000
Accounts payable
237,000 -.
Ir
Accrued expenses
180,000
�
Ordi ary sha re cap ital, PlOO
Reta ined earnings
par 1,000,000 I
520,000 I
Sales 1,350,000
Purchases 520,000
Operating expense::; 344,000
Totals P3.700.000
P3.700.000
The fo!lqwing data and information have bL�en g:Jth1'red:
I .
21 . The company's year-end is Dec em ber 3 1 . .
\.
l\n examination of ti1e April bank statement a n d cancelled checks revealed that checks
written du ring the period April 1 to 21 toti!ieci P130,000: P57,000 paid to accounts
paid for
payable as of March 3 1 ; P34,000 for April ml:rchandise p u rcha ses ; and P39,000
refund from a
, which consisted
other expenses. Deposits during the same period amour:ited to P129,500
of receipts on account from customers with the exception of <1 P9,500
v en d or for merchandise returned in Jl.i;ril.
• Correspo nden ce with suppliers revealed u"nret1)rded obliga(ions wt Ap ril 21 of P106,000
April merchandise purchases, including P23,00 ) for shipments in transit on that date.
c. foi;
d. Customers acknowledged indebtedr.r.ss ot r- 360,000 ci t April 2 1 , 2014. It was a lso

estimated that custc1mers owed another :Jm 1 . 000 r.hat ;,viii never be acknowledged Ol"
;
recovered. Of the acknowledged indebtedr.es� P6,000 will orobably be unc ollectible.
The insurance company agreed that the fire lo ;s claim sn o u ld be based on the assumiJtion
that the overall gros!; profit ratio for the past two years was in effect during the current
e.
year. Tl1e company'$ audited financial statemrnts disclosed the following informati o n :
20 J.
P5, 30D cioo
2012
Net sales P3,900,000
Net purchases 2,80(J·000 2,350,000
Beginning ir.ventory 500 000 660,000
Ending inventory 750 000 500,000
f.
inventory was a total loss.
Inventory with a cost of P70,000 was sc;lvagec1 and sold for P35,000. The balanGe o-r the
. .
. '
How much is the sale:; for the period J a n ua ry l to April 21, 2014?
.
1.
. A . Pl,430,000 B. Pl,510,0�0 C. Pl,519,500
• D. P l , 506,000
How much is the net '.lurchases for the period anuary 1 to Ap ri l 21, 2014?
B. P660,000 C. P673,500
2. _
-
A. P683,000 D. P650,500
3. How much is the cost of sales for the period JCl 1uc;iry 1 to April 21, 2014?
A. P786,500 B. P835,725 · C. P830,500 D. P828,300
4. How much is the estirnated inventory on Apri l :! 1 , 2014?

A. P579,500 B. P623,500 .:. P587,775 D. P570,000
.
S. How much is the estimated inventory tire loss">

A. P579.500 B. P535,000 C. P477,000 D. P512,000
P;:ige l l Ul 12 I' l�·�s

,, .
.
CPA REVIEW SCHOOL OF THE PHILIP PINES(CPAiU AP·PWZfilli
PROBLEM NO. 11
. . .
The following information pertains to acquisitions of n 1acninery and equipment:
'
On December 31 2012, BAIKAL COMPANY acquire d � pie e of equipm ent from c Seller Compa ny
note, payabl e in full on uE�cem ber 3 1 , 2016.

P1,2oo,ooo credit ratrn g
expected tc1
Baikal's
u
permits it to borrow funds from its several lines o f cre<jit at 10%.
by iss ing a
The equipm ent i s
have a 5-year life and a PlSD,000 salvage value. The present value
of 1 at 10% for 4 period�; is
0.68301.
1. What is the equipment's book value on Decem ber 3°1, 20147

. D. P341,767
A. PSSl,767 B. P630,000 C. P491, 76 7
2.
8. P 99 1 , 7 3 0 C. Pl,200,000
What is the carrying value of the note at December 31, 2014?
A. Pl, 090,903 D. P819,612
a�1 reE�ing to pay the balance in four equ�i install ment; of P60,000 payable each December �: i.
OHRID COMPAl\JY purchased machinery on Decem b :?r 31, 2012, paying PS0,000 down anc
Implicit in the purchase price is an assumed imerest ot 12%.
The iollowing d<1ta are ab$trc.c.ted from the present. val u.e tables: ! •• : •
.
• ·
Present value of 1 at 12%, for 4 periods 0.63552

Present value of an ordinary annuity of 1 at 12%
•
for 4 periods 3 . 03735
J. What is the cost of the machinery purchased on December 31, 2012?

A. P233,083 B. P320,000 C . P 262, 241 D. P290,842
4. How much interest exp1:'!nse should be reported on Ohri d's income statement for the year
8. P 2 1 , 86 9
ended December 31, 2013?
A. P3 8, 13 l C. P 1 7, 29 3 D. P42,707
.
5. What i s the carr'jing value of the note at Decemb � r 3 1 , 2014?
£\. P120,000 !3. C
000000000�
P144, 1 1 0 P99,31 0 D. PlO l,403
--- - ------------------------- ---------- - - - - - - - - - - - - - - - - - - - .
--- E ND ---
. .
. '
CPA R PRE WEEK MAY 2014
<"
PHE WEEI< AUDITING PROBLEMS -:- 7502 ! • J: •
• •
Pl�OHLEM 1 1. A 2. B 3. A 4. c 5. A
PROBLEM 2 1. A 2. c 3. B 4. D 5. A
PROBLE M 3 1. B 2. A 3. B 4. A 5. A
Pl\08LEM 4 1. B 2. A 3. I! 4. A S. A
PROBLEM 5 1. B 2. c 3. fl 4. c 5. B
PR013LEM 6 1. D 2. c 3. D 4. D 5. D
PROBLEM 7 3. D
. .
2. B 4. A 5. A
1. A .
. '
PROBLEM 8 3. A 4. c 5. B
1. c 2. B .
2. B 3. c 4. c
PROBLEM 9 1. B
5. A
2. D 3-. c 4. D 5. D
PROBLEM 10 1. B
l. c 2. B 3. D
PR0!3LEM ii
'

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/ CPA REVIEW SCHOOL OF THE PHILIPPINES AP�PW7501

AUDITING PROBLEMS CPA Review

Month Amount tjonth Amount

Based o n the given info rmatio n, deter� ine the foUowing:

2. Tot.al e�timated returns subsequent to June 30, 2014

3. Estimated loss on component replacement (!n P·�rcentage of sales price)

Machinery (at cost) p 910,000

,")etai/s of mad1ines owned ."it December 31 20131 arc' 2s follows:

Machine Purchase Date Cost Useful Life Residual Value·

The following transactions 1 •ccurred from January 1, ?014:

Dec. 31 Recorded depreciation.

Dec. · 31 Recorded depreciation.

REVIEW SCHOOL OF IHE

Bank s ervice charge�;

Deposit in transit and 2SO ,:;i�d

�:. Various expenses from the ber 20l4 totc1led

expansion, expected to be disbursc>d in 21. 15) 700,000

Money market placement·_ Prudential Bank

A. P4,347 B. Pl0,250 • D. P24,097

2. The petty cash shortage on December 31, 2014, is

HIATT TEXTILE CORP<)RATION

Page 4of14 Page:;

Dec. 31 Recorded depreciation.

A. P242,733 B. P235,000 C. P239,400 D. P266,400

5. What should be the total depreciation expense for 2016?

l)ecember 31, 2014, you g.:1thered i:he following information.

deposited and the � returned by the bank on December 28, 2014. No

V ar io u s debit memos for drafts purchased P. ayment of importation of equipment

accounts p a ya ble. �:iaid equipment 2014.

was not recorded.

.C.PA l.IBVJEW SCHOOLOF TPE

�,i��!-l�ties and Shareholders'

HIATT TEXTILE COR PORATI ON

Selling expenses 1,150,000 1,025,000

The 2014 audit revealed the following facts:

c. Hiatt Textile Corporatio11 us�s the periodic inv1!ntory system.

Based on the above information, answer the folk>wing:

R:!tained earni 1gs

D. Cost of goods sold-P75,500.

DEBITS Dec.31,2014 Dec. 31, 2012�

Land and builaing

Page 6of14 Pag:_s

.n.:.:U lfil/JEWSCII.9.QJ.OF THE Pl 111.lP

a) All purchases and sales were on account.

c) Selling and �1eneral exper:ses include the !'allowing:

Bad debt: expense 4,000

Based on the �riven data,, .:a/cu/ate the fo//owin�1:

4. Proceeds from sale of trading securities

Cash paid for purchase 1)f equipment

Proceeds from sale of tr·�asury shares

Over three years old

'inventories Pll.600 Pl8,800

Cash received on accounts receivable in:

Cash sales Pl7.f!QQ P26.000 P31.200

1. Tile company's sales n�venue for the three-year period amounted to

2. What is the compa ny's total sales revenue for 21)13?

The aggri:gate amount of purchases for the thrE:e-year period is

5. What is tile company'� gross profit for each

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Vour .examination reveals the following:

Year Ended Income

2. A relatively small numbeir of machines have bt:en shipped on consignment. These

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r _ ___ g_ �_st_ of u n it rep la�� en � -- -· -----·· _ __ _ ___ _ ------·---·--