D ‘CPA REVIEW SCHOOL OF THE PHILIPPINES Manila AUDITING PROBLEMS JULY 31, 2011 FIRST PREBOARD EXAMINATION SUNDAY, 8:00AM - 11:00AM SETA INSTRUCTIONS: CHOOSE THE BEST ANSWER FOR EACH OF THE FOLLOWING. FULLY ‘SHADE ONLY ONE BOX FOR EACH ITEM, STRICTLY NO ERASURES ALLOWED. PROBLEM NO. 1. You have been asked to audit the TANYA COMPANY. During the course of your audit, you are asked to prepare comparative data from the company’s inception to the present. You have determined the following: a. Tanya Company's charter became effective on January 2, 2007, when 20,000 shares of P10 ordinary shares and 10,000 shares of 7% cumulative, nonparticipating, preference shares were issued. The ordinary shares were sold at P12 per share, and the preference shares were sold at par value of P100 per share. “ b. Tanya was unable to pay preference dividends at the end of its first year. The owners of the preference shares agreed to accept 2 ordinary shares for every 50 preference shares ‘owned in discharge of the preference dividends due on December 31, 2007. The shares were issued on January 2, 2008. The fair market value was P30 per share for ordinary shares on the date of Issue. c. Tanya Company acquired all the outstanding shares of Akinka Corporation on May 1, 2009, in exchange for 10,000 ordinary shares of Tanya. . Tanya split its ordinary shares 3 for 2 on January 1, 2010, and 2 for 1 on January 1, 2011. e. Tanya offered to convert 20% of the preference shares to ordinary shares on the basis of 2 ordinary shares for 1 preference share. The offer was accepted, and the conversion was made on July 1, 2011. f. No cash dividends were declared on ordinary shares until December 31, 2009. Cash dividends per share of ordinary shares were deciared and paid as follows: June30——- Dec. 32 2009 ~ 3.20 2010, P1.50 P2.50 2011 P1.25 ~P1.00 Based on the preceding information, determine the following: A. The number of ordinary and preference shares outstanding on December 31 of each of the "following years: e 7 Ay 2009 Ordinary Preference Sia A. 30,000 10,000 a 8. 30,200 9,800 c 35,000 10,000 D« 30,400 10,000 we Page 1 of 12 Pages waOrdinary A 45,300 10,000 BP 45,600 10,009, c 76,000 10,000 D. 52,500 9,800 / 3.21 : Ordinary Preference A* 95,200 8,000 B. 49,600 10,000 c 93,200 7,840 D. 93,200 8,000 B. The amount of cash dividends declared and paid to shareholders for each of the following years: a 2010 7” AB, P182,400 B, P83,600 Cc. P159,600 D. P121,600 5. 2011 A. 214,200 B. P217,200 C. P153,200 D. P209,200 ~ -000000000-~ PROBLEM NO. 2 On January 1, 2010, Samson Mfg. Co. began construction of a building to be used as Its office headquarters. The bullding was completed on June 30, 2011. Expenditures on the project were as follows: January 3, 2010 ‘ sor p2,500,000 ha March 31, 2010 17+ 3,000,000 S/tv 8 June 30, 2010 1s 4,000,000 OD. ~P0,604 ? 51, What is the depreciation expense on leasehold improvements for 2011? « . A. P15,786 B. 22,100 C. 36,833 D. 27,625 < 52, What is the total cost of the machinery and equipment acquired on July 1, 2011? : ‘A. 260,000 B. 280,000 . 250,000 D. P290,000 #7 53, Whats the depreciation expense on machinery and equipment for 20337 —, A. 92,000 4 B, 106,500 c. P77,500 D. P8690 PS 54, What isthe book value of the machinery and equipment on December 31,2011? =~ ‘A. P578,800 B. P575,825 C. P773,8257 D. P776,800 rion expense for 2011? A, P219,1t8—-- B. 225,432 C, 210,932 D, P226,216 000000000-~ PROBLEM NO. 13 ‘On January 1, SAMANTHA CO. establishes a petty cash account and designates Orly Reyes as petty cash custodian. The original amount included in the petty cash fund is P5,000. The following disbursements are made from the fund: Office supplies P1,730 Postage 1,120 Entertainment 420 Ee‘The balance in the petty cash box is P1,630. 56. 58. 59. ‘The person responsible, at all times, for the amount of the petty cash fund Is the ‘A. Chairman of the Board of Directors. B. President of the company. C. Petty cash custodian.” D: General cashier. ‘The following are appropriate procedures for controlling the petty cash fund, except A Te moritor variations In different types of expenditures, the petty cash custodian files petty cash vouchers by category of expenditure after replenishing the fund. ip. To replenish the fund, the general cashier issues a company check to the petty cash custodian, rather than cash. C. To udetermine that the fund ts being accounted for satisfactorily, surprise counts of the fund are made from time to time by the Internal auditor or other responsible official. D. Each individual to whom petty cash is paid is required to present signed receipts to the petty cash custodian. ‘The entry to replenish the fund is ‘A. Office supplies expense 1,730 Postage expense 1,120 Entertainment expense 420 Cash 3,270 B. Office supplies expense 1,730 /, Postage expense 1,120 Entertalnment expense 420 Cash over and short 100 Cash 3,370 C. Office supplies expense 1,730 Postage expense 1,120 Entertainment expense 420 Cash over and short 100 Petty cash 3,370 D. Office supplies expense 1,730 Postage expense 1,120 Entertainment expense 420 Petty cash 3,270 The objective of establishing a petty cash fund is to ‘A. Cash checks for employees. B. Account for all cash receipts and disbursements. C. Account for cash sales. D: Facilitate payment of small, miscellaneous items. . What is the effect of not replenishing the petty cash at year-end and not making the appropriate adjusting entry? A. A detailed audit is essential. B. The petty cash custodian should tum over the petty cash to the general cashier. C. Cash will be overstated and expenses understated, D. Expenses will be overstated and cash will be understated. =-- END OF EXAMINATION ---