The Review School of Accountancy ‘Wel. No. 735-9807 & 734-3989 = 03 February 2018 (Saturday) Board Examination 3:00 P.M. - 6:00 P.M. MULTIPLE CHOICE INSTRUCTIONS? questions. Ma. Corresponding 4, ling to STRICTLY NO ERASURRS ARE ALLOWED. Selec lect “the correct answer foreach oF the Following tk only one anc only one answer for each item by shading the box fe igtter of your choice on the sheet provided. Use pencil no. 2 only. PROBLEM 1: ERROR Connection You were assigned to audit tne ¢ eeap eee the financial statements of Fritzie Corp. as of Corp.'s finaettod ended becenber 31, 2018. This as the first tine sritzie corp.’ fart Statements are being audited since it started operations 6: The following summarizes your audit findings, a. The followin: 1 ne following is an analysis of the company’s accumated profits Payment of dividend 2018 __ No dividends were declared in 2016. Dividends declared in December 2017 and 2018 were paid on January of the following years. The 2018 dividends were at P500, 000. €, The following items were onitted at each year en 7 2016, Red royalty income | P50, 000 Prepaid advertising BEST of 40,000 d. A three-year fire insurance amounting to P90,000 was paid and recognized as expense on June 30, 2016. The insurance however covers the period July 1, 2016 to June 20, 2019. e. An equipment with a cost of P240,000 was fully expensed in september 30, 2016. Based on your discussions with the management, the cost Should have been capital: zed and depreciated using straight-line method over its eight-year useful life Requirements: 1, What is the adjusted net income in 2016? a. 317,500 ¢. 280,000 b. 147,500 d. 455,500 What is the adjusted net income in 2018? a. 825,000 €. 890,000 a. 835,000 b, 805,000 What is the retroactive adjustment to the retained earnings beginning 2018? a. 417,500 ce. 112,500 b. 317,500 4. 92,500 4. What 1s the adjusted retained earnings on December 31, 20102 a. 827,500 c. 952,51 4. 982,500 b. 852,500 5. What is the effect of the errors in 2018 working capital? a. 20,000 over cc. 520,000 under b. 20,000 under d. 520,000 overReSA: PROBL You were assigned to application for a ban records The Review School of Accountancy Page 2 of 10 2: CASH/ACCRUAL; SINGLE ENTRY audit the financial sta k loan, under cash-basis acco: tements Fever Corporation in Fever Corporation maintains accounting unting, The following were discovered in line wath your investigations: SASH RECEIPT: Cash sales P3, 550,000 Collections on accounts receivable, including recovery of Previously written-off accounts 28, 950,000 Collections on notes receivable-trade 2,980, 000 Interest on notes receivable 260,000 Purchase returns and allowances 420,000 Pi 2,350,000 Payments on accounts payable 17,530, 000 Sales returns and allowances 390, 000 Insurance 700,000 Salaries 10,000,000 Equipment, 800, 000 Other expenses 1,590,000 Dividends 1,000,000 Rr Bng following changes in account belances would have been observed had accrual basis been used. “INCREASES Cash 4,200,000 Accounts receivable 1,980, 000 Allowance for bad debts 111,000, Accounts payable 970,000 Prepaid insurance 200,000 Advances to suppliers 255,000 st receivable 60,000 Equipment 100, 000 Notes receivable-trade 600, 000 Accrued salaries expense 300,000 Inventory 875,000 ¢. Additional information: * Accounts receivable Teretudmzchase Feturns and allowances amounted to 950,000 (ancluding the refunded portion) while the total sales retare and Allowances amounted to 1,280,000 (including the refunded portion). written-off during the year was at 315,000 while recovery of previous write off was at P150,900, Required: Determine the audited balances of the following: 6. Net sales a. 35,870,000 ce. 36,635,000 b. 36,220,000 d. 37,870,000 7. Cost of sales . a. 21,110,000 ce. 21,710,000 b. 21,400,000 d. 21,950,000 8. Depreciation expense "ae 100,000 ©. 900,000 b. 800,000 d. 1,000,000 9. Bad debt expense 2. 265,000 e. 276,000 b. 426,000 a. 271,000 10. Net income’ . a. 2,424,006 c. 2,523,000 b. 2,849,000 d. 2,924,000SA; The Review Sch ool of Ac, co 3 srocuoLERS: gooey NY Page 3 of 10 e following in Yeager accounts of racacn ha been $ of Forge Ine. ‘ken from the Accumulated profits a. Total net poration 2,550,000 150,000 declare SJequt evan: 4. Proceeds feegPEOPertY divided ere 600,000 ©. Total vale Mle Of donated stocks 150, 500 £. Gain ontite Of stock dividends distributed 640,000 5: Unamor ts sGsuey Share transaction 375,000 Al aperottized premium on bonds payable 413,200 i, Bbrepriated ror plant expansion 700, 000 31 Shaze’R, Ekeasury share reissue 415,000 eee excess ot par from issued 215,000 kK. Share iss Ty Ahte issuance expense 45,000 ‘Or remaining treasury shares 200,000 at cost b25/share Additional notes: ‘The equipment declared as dividends had a recoverable value/fai marnot value of 450/00) as of the dave Of duclafation and: P440,000 + The stock dividends distributed was based on a 208 share dividend dectared on 100,000, £25 par value outstanding shares, the market value of shares on the date of declatation was at Bae per shece, + the omy transactions affect tions affecting the treasury shares were those described in item £ and item i. * 11, How much should be the correct debit to retained earnings for the Property dividends upon declaration? a. 600,000 ¢. 440,000 b. 590,000 a. 450,000 12. How much should be recognize in the profit/loss from the settlement. of the property dividends? a. None . 150,000 b. 10,000 4. 160,000 13, How much should be the correct debit to retained earnings for the share dividends? a. 614,400 * c. 480,000 b. 336,000 4. 500,000 14, How much is the correct baiance of the Accumulated retained earnings unappropriated account? a. 400,000 cc. 350,000 b. 410,000 a. 360,000 15. The necessary adjustment involves an adjustment to additional paid in capital in the amount of: a. 320,500 cc. 460,500 b. 365,500 d. 456,500 PROBLEM 4: STOCKHOLDERS’ EQUITY The shareholders’ equity Foxtrot Company'on January 1, 2018 showed the following: Share capital, P50 par, authorized 100,000 2,500, 000 | shares, 50,000 shares issued - Share premium _ 180, 589 Retained earnings _ 7500, ‘The following transactions occurred during the year: a. Reacquired 6,000 shares on February 1, 2018 at P90 per share. b. Reissued 3,000 treasury shares at P120 per share on June 4, 2014. c. Reissued 1,500 treasury shares at P80 per share on September 3, 2014. ee "AUDITING ~ FIRST PRE-BOARD EXAMINATION (BATCH 35) 4 © ra