AUDITING CPA Board Exam Question

The year-end audit of records of Bravo Inc. disclosed a shortage in cash amounting to 30,000. The
treasurer has concealed the fraud by increasing inventories of 15,000, land by 5,000 and accounts
receivable by 10,000.
Faced with prosecution, the treasurer offered to surrender 300 BFI shares owned by him. The BOD
accepted the offer, with the agreement that the treasurer would pay any deficiency between the
shortage and the book value of the shares, after adjusting for the fraud. The corporation would in turn
pay the treasurer the excess if any, of book value over the shortage.
As of December 31, 2016, there were 2000 ordinary shares issued and outstanding with a par value of
100; Retained earnings as of January 1, 2016 were 80,000 and net income from operations was
70,000.

1. For purpose of the agreement, the book value per share would be
a.
b.
c.
d.

100
150
175
185

Answer:
2000 x 100 = 200,000 + 80,000 + 70,000 = 350,000 / 2000 = 175

2. The corporation would have to pay the treasurer the amount of

a.
b.
c.
d.

18000
22500
120000
32500

Answer:
300 x 175 = 52,500 30,000 = 22,500

3. Assuming the corporation distributed the 300 shares in treasury, as dividend to the remaining
shareholders, the retained earnings balance as of 12/31/2016 would be
a.
b.
c.
d.

97500
102000
120000
107500

Answer:
150000 52500 = 97500

In 2015, Blue Diamonds Corp., acquired a silver mine in Benguet. Because the mine is located deep
in the Benguet, BDC was able to acquire the mine for the 1000 price of 50,000.
In 2016, BDC constructed a road to the silver mine costing 5,000,000. Improvements and other
development costs made in 2016 cost 750,000. Because of the improvements to the mine and the
surrounding land, it is estimated that the mine can be sold for 600,000 when the mining activities are
complete.
During 2017, five buildings were constructed near the mine site to house its mine workers and their
families. The total cost of five buildings was 1,500,000. Estimated residual value is 250,000. In
2016, geologists estimate 4 million tons of silver ore could be removed from the mine for refining.
During 2018, the first year of operations, only 5000 tons of silver ore were removed from the mine.
However, in 2019, workers mined 7 million tons of silver. During that same year, geologists
discovered that the mine contained 3 millions of tons of silver are in addition to the original 4 million
tons. Development costs of 275,000 were made to the mine early in 2019 to facilitate the removal of
the additional silver.
Early in 2019, an additional building was constructed at cost of 225,000 to house the additional
workers needed to excavate the added silver. This building is not expected to have any residual value.
In 2020, 2.5 million tons of silver were mined and costs 1,100,000 were incurred at the beginning of
the year for improvements to the mine.
Based on the above and the result of your audit, determine the following. Round off depletion and
depreciation rates to two decimal places.
1. Depletion for 2018
a. 6.300
2. Depletion for 2019
a.
b.
c.
d.

1,300,000
1,820,000
780,000
870,000

3. Depreciation for 2019

a.
b.
c.
d.

250,000
490,000
180,000
210,000

4. Depletion for 2020

b. 6,500

c. 7,250

d. 5,550

a.
b.
c.
d.

1,950,000
2,150,000
2,425,000
2,275,000

5. Depreciation for 2020

a. 525,000

b. 625,000

c. 1,225,000

d. 450,000

You are engage to audit the books of DINAR COMPANY. From the records of the company, you
gathered the following information.
DC started operations on October 2, 2015, with the owners investing 150,000 cash. Monthly bank
reconciliation statements have not been prepared however, bank statements for October, November
and December were made available to you. Your analysis of these bank statements showed total bank

credits (deposits) of 575,000, including the owners initial investment and a bank loan, details of
which are in the additional data. The bank statement in December 2016 showed an ending balance of
30,200.
Examination of the paid checks disclosed that the checks totaling 4,500 were issued by the company
in December 2015 and were presented for payment early in January 2016. Cash count of the cashiers
accountability amounted to 6,300.
You were told by the cashier that 5,000 of this in checks, were cash sales on December 29, 2015,
deposited on January 3,2016. The balance in currency and coins represents petty cash fund.
Additional data:
1. Accounts receivable subsidiary ledger has a total balance of 70,000 at December 31, 2015.
5,000 of this was ascertained to be uncollected.
2. Supplies unpaid invoices from merchandise totaled 15,000, while an account for store
furnitures bought for 50,000 has an unpaid balance of 5,000.
3. Merchandise inventory of December 31, 2015 amounted to 30,000 but 5,000 of this was
spoiled with no resale value.
4. The bank statement in October showed a bank credit for 98,000 dated October 2, 2015.
Inquiry from the cashier disclosed that the amount represents proceed of a 90-day discounted
bank note. 80,000 of this loan was paid by check in December 2015.
5. Operating expenses paid during the period totaled 180,000, while merchandise purchases
amounted to 250,000.
6. The gross profit rate is 120% of cost.

Required:
1.
2.
3.
4.
5.
6.

Total cash receipts

Cash per books at December 31, 2015
Total cash disbursements
Cash receipts on sales
Cash shortage at December 31, 2015
Adjusted balances per bank reconciliation statement