CPA REVIEW ScHCICIt OF TFIE PHILIPPINES

Mani!a

AUDITING PRGH,IEhfiSJ ]ULY 28,2OI3

FIRST PREBOAB.D '!:')iAMII{ATION SUNDAY' 8:00AM - 11:00AM
SET A
CHOOSE Tl'lE BESI' ANSWER FOR EACH OF THE FOLLOWING'
FULLY
INSTRUCTIONS;
SHADE ONLY CNE BOX FOR EACH ITEM" STR,ICTLY NO ERASURES AI-LOWED.

PROBLEi,! NO. 1

HOLLOW Corporation wishes to exchange a rnachlne used in its operations. Hollow has
received the following offers from other cornpanies in the industry.

1. Doro Company offered to exchange a similar machine plus P23,000. (The exchange has
contmercial substance for both parties')

?. Winnie Companl, orfered to exchange a similar machine. (the exchange lacks

commercial substance for both pafties.)
in addition
3. Lilson C.ompany offererl to exchange a slmilar machine, but wanEd P3,000
parties')
to Hollow's rnacirine. f,fhe exchangi lras conrmercial substa,rce for both

In addition, l-itttlout ccntacted Green Corporation, a dealer in machines' To obtain

a new
machine, Hollow mul;t pay P93,00t| in additiln to trading in its old machine'

Mn'e
Hofiow Dpss ptsz,ooo L!Eo+_
_ Green
Machine iost proo"ooo P120,000 P160,099 P130,000
Accum. Depreciation 60,0(10 45,000 71,C00 7!,999 ---0-:
Fair value 92,000 6S,'3OO 92-,000 95,000 185,000
B 1, trn situation 1, the amount of lcss r-)r: Cisposnl of machinery to be recognized by each
company is

A.
B.
#ffi
P8,000
,Pffi
P6,000
c. P31,000 P6,000
D. P8,00{i F -0-

A 2. In situation 3, the amorint of gain/loss on disposal nf machinery to be recognized by each

company is

A.
B.
PsffLiFL*
-u-
P
piffiain
gain F10,000
C. P5,Cr{)0loss P13,000 gain
D. l:8.000 loss P -0'

C 3. The new machine to be acquired through trade in should be recorded on Hollow's books
-!
dL
A. P92,000 B. P93,000 c. P185,000 D. P130'000

D 4. Which of the following amounts should be recorded on Winniek books?

Costof Gainlloss
machine agouired m-&gwi
A. P81,000 F.11,CI00 gain
B. P92,000 PX1,000 gaitt

P.p.op1nf12Fases
 cPA REVIBTV SCHOTfL OF THE PHIUPPINES (CPAR) - MAllIr.A FIRST PREBOARD EXAI'TI,IA7IO'{
AuDrErHGmoBLEtis
--IUIY-LBIOM
c. P92,000 P -CI-
D. P91,000 P -0-

A 5. The gain/loss on t!'ade in to be recognized on Hollouls books is

A" P8,000 loss B. P -0- C. Ftr,000 gain D. P55,000 gain
-ootrOf,ffie.,xro

PROBLETI ilO. 2
The following are two (2) indepenrlent sitrratiqins nelatinE to share-based cornpensation
arrangennents. Answer tte questions at tne end of each situation.

1. HARRY CO. issued share appreciation rights (SAFs) to 20 of its employees. The SARs will
vest at the end of 3 years, prouirieO the em[byees remain vuitfr the ccrrnpany and provided the
average revenue growttr over the period wiil e.x.eeed 5o/o. If the average growth in revenue is
between 5 and 10'percent, each employ€e will receive 1,00C SAP*s. If the average groufifi in
revenue is between'11 and- 15 percent, each will receive ?,e00 SAR.s, If the average gfwth i1
revenue is rnore than 15 percent, the employees will each receive 3,0Cc SAes. Orr the grant
date, each SAR is detemtined to have a fair value of POC. flarry fu. expecLs average revenue
grovrffr rate of I percent durinE the 3-year vesting greriod, and that 6 of its employees will leave
before the vesting period ends.

D 6. Assuming. Sre estlmates do not change Curing Year 1., what arnount sf compensation
exp€nse should be lncluded in Harry Co.k incqrne statr:anent ir Year 1?
A. P,t0c,000 B. P160.0d0 c. P4$0,00J D P240,000

A 7. At the end of Year 2, revenue growth pr'.ojection r:; 1t percent and 16 employees-are
expected te remain in the entiry';empicy" Also, tite lair tialue of each SAR ls F70. What
amount of cornpensatjon expense shium be reponted in HanV Co"k irleome statement in
Year 2?
A. P1,253,333 B. P1,093,333 c. P72.0,00CI D. P1,493,333

A 8. At the end of Year 3, revenue growth was 1.:l percent and 13 emplcyees did not leave *le
company. Further, the fair value of each SAR is P80,, lVhat arncunt of campensation
expense should be reported in l-larry Co.'s incorne staternent in Year 3?
A. P1,386,667 B. P2,8E0,000 c.
PI,70ri,667 D. P1,493,333

2. At the beginning of ye;r L, an entity grants t't .a -,:r;i{rr execertiv'e 3.0(}C} share options,
conditional upon the executive remainlng in the entit;rk ernlrloy llnti! the, enc! oi year 3. The
exercise price is P40. F.lowever, the exercise price tlrrrg's to F3f! if thc: entity"s e-arnings increase
by at least an average oirI0 percent per year ovflr uhe tlriee-y'ear period.
On grant date, fhe entiff estirnates t]mt the fair valr.re of tlie shar* r]ptiolts, with an exercise
price of P30, is F15 per option. if the exercise prace is 94ii, tfre entity estinnates that the share
options have a fair value of P12 lier Gpt;on.

During year 1, the entity's eamings increased {rrr 1? p'.:i,t':'enf., nili{ titt- entity expects that
eamings will continue to increase at tfris rate over tile riFjlt ilyCI !,efliri. The entity therefore
exEts that the elarnings target wrll fie achie'.red, and h'unee the shar* *ntions will have an
exercise price of P3C|.

During year 2n the ent!$s earnings irrcreaserl ir\, 13 r.rtJi,"{rfli'j, and the ent,i$ r:ontinues to expect
that the earnings target wlll be achievsd.

During year 3, the entiQ/s earnings incneased by miv 3 fersr'lri:, and tileref'ore the eamings
target was not achieved. The e-xecutive c*rnp'iuhs three y*firs'senrice, an,C therefore satisfies
the service conditiosr. Because th.e *arnings tarEet w,rs rrot ach:eved, the 3,0C10 vested share
opUons have an exercise price of P40"
 FERST PR.IBQARD El(Ailr[lATroil
CPA REVIEW SCHOOL OFTHE PHIUPPINEi (CPAR)' MAIVITA

B 9. What is the compensation expense in year 2?

A. P12,000 B. Pl5,0oo c. P30,000 D. P40,000

D 10. What is the compensation expense !n l'ear 3?

A'tt''-o-::---------"---?:--:1-:j-Y::rr*o**,I-i-1?:3-11-- D. P6,000

PROBTEM J{O. 3
share capital of 50,000
TANyA CoMpANly was clrganized on January 2, 2a!2, with authorized
of par value ordinary'
shares of L0o/,:, pZOO pui value pt fe*r.* and 20d,000 shares
P10
During the conrpanyk tirst two years opu*tionsn the following equity transactions occurred'
"i
20L2
lan. 2 Sold I0,f)00 ordinary shares at P16'
2 Sold ll,iXi0 preference shares at
p216.
shares at P25'
Mar. Z Sold or,iinifu snares as follows: 1.0,800 shares atP22;2,V00
600 preference shares
July 10 Acquired a nearby pie.e oi6nd, appraised at P'100,000, for
at P216, the
and 27,000 ordinary g..rar"r.-'tirui*?un.. share capital was recorded
balance being assigned to ordinary')
Dec. 16 Declared the regular pr.?ui*..u share dividend and a P1'50 ordinary share
dividend.
28 Paid the dividends declared on December 16'
31 The income summary account showed a credit 'balance of P450,000'

2013
Feb. 27 Reacqulred 12,000 ordinary shares at P19'
June t7 Resold 10,000 treasury shares at P23'
July 3t Resold all of the remaining treasury sharesat P18.
Sep. 30 Sold t'I,Cilt] additional ordinary snare's at P21'
Declarecj ehe regular preference share dividend and an
P0'80 ordinary share
Dec. 16
dividend.
28 Paici the Cividends declared on Dec' 16'
31 The ir,r:r-.me summary account showed a credit balance of P425'000'

Based on the abcsve infot'matian, detennine the balances of the followittg:

C 11. Freference share caPital

D.
A. P72},6AA B. P777,6{JO c. P72o,ooo P648,000

B L2. Ordinary share caPital

A. P61b,400 B. P615,000 c. P577,000 D. P966,500

B 13. Total share Prennium

A. P95,600 B. P47,L00 c. P449,100 D. P409,100

C t4. tlnappropriated retaineri eamlngs

A. igzs)ooo B. P416,050 c. P6o6,o5o D. P604,050

A 15. Total shareholdert" equity

D.
A. P2,388,150 6. P1,892,100 c. P2,376,630 P2,498,150

PROBLEII{ NO, 4
questions at the end of each
The following are two (2) unreiated situations. Answer the
situation.
 cpA REyIEW SCHOOL OF THE PFTIUPPINES (CPAR) - MANITA FIRST PR.EBOARD EXAHIIIATIOTI
AUDmilGIROBLEITS _ _ _* llJtY

1. The December 31 year-end financial statements of SAMOA CCMPANY conkined the

following erors:
Dec. 31. 2012 Dec.31.2Q13.
Ending inventory P48,000 understaterJ P40,500 overstated
Depreciation expense P1 1,500 unelerstated

An insurance premiurn of P330,000 was prepaid !n 20tr2 ccrvering the years 20L2,2013, and
20L4. The entire amount was cnarged to expense in 2032. In addition, on December 31,
2013, a fully depreciated machinery was sold fclr P75,CI*0 cash, but the sale was not recorded
until 20L4. There were no other errors during 2012 and 20L3, and no, corrections have been
made for any of the enors. Ignore income tax effects"

A 16. What is the total effect of the erors on Samoa"s 2013 net in;ornel
A. P123,500 overstatement
B. P27,5O0 overstaternent
C. P192,500 understaternent
D. PL77,500 understatement

D L7. What is the total effecti of the errorc on the amount of Sanroat u.r{'rking capital at
December 31, 2013?
A. P75,500 overstatement
B. P40,500 ovestatement
C. P225,50S underctatement
D. P144,500 understatement
C 18. What is the total effect of the errors on the balance of Samoa's retained earnings at
Decernber 31, 2013?
A. P156,00L understatement
B. !587,000 overstatement
C. F133,000 understatement
D. P85,000 understaternent

2. CHILE C0. reported pretax incomes of P505,0S0 arrci F387,CI00 for the years ended
December 31, 2-012 and 2013, resper:tively. t'lolvevet; ttre auditcr noted tltat the following
erors had been made:

a. Sales for 20i.2 included arnounts of F191,000 r,vhlch had heen receiv*el in cash during 2At2,
but for which the related goods were shipped in 2013. Titie ciid rtrit pass to the buyer unUl
2013.

b. The lnventory on December 31, 70L2, was understated by F'.13,2m

c. The companyt accountant, in recording interest expense for both 2CI12 and 2013 on bonds
payable, made the following entry on an *nrual basis:
Interest expense 75,.10f1
Cash 75.000

The boncls have a face value of P1,250,t1C0 and pay a irorT,inal tnterest rate of 60lo. They
were issued at a discount of P75,0C0 o;t jalrurary 1", 2Ctl.2. to yield an effective interest rate
af 7o/a

d. Ordinary repalrs to equipment had been ermne,ouslg' eharoeci to tir,-r Equipment account
during 201"?. anr! 2013. Repairs of P42,500 and F47,00ti had ':een lncurred in 2012 and
2013, respeetively, trn determining riepreciatlon cnarges, Cnile appries a rate af l$aio to the
balance in the Equipment account at the end of the year.
 cpA REVTEW SCHOOL OF THE pHrrrpprNEs (CPAR) - MANITA FIRST PREBOARD EHilIilATIOI{
AUDmI{G PROBLEMS -. JULY 28.2-01i I SUNDAY / 8:00AM - 11:00AM

C 19. What is the corrected pretax income fcr 2012?

A. P303,200 B. P225,300 C. P311,700 D. P307,450

D 2A. What is the corrected pretax incorne for 2013?

A. P48o,M2 B. P484,292. C. P575,392 D. P488,992
-ooooooooo------

PROBTEM J{O. 5

On January l,2OL2, SAMSON MFG. CO. began construction of a building to be used as its office
headquarters. The building was completed on June 30, 2013.

Eupenditures on the project were as follows:

January 3,20L2 P2,500,000

March 3L,7:0LZ 3,000,000
June 30,2012 4,000,000
Z}tZ
October 3L, 3,000,000
2013
January 31, 1,500,000
March 31,2013 esoo'ooo
May 3tr,2013 3,000,000

On January 3,2O!2, the company obtained a P5 million constl'uction loan with a 10o/o interest
rate. The loan was outstanding all of 2012 anc! 2t)13. The companyt other interest-bearing
debts included a long-term note of P25 million with an Ec./o interest rate, and a mortgage of P15
million on another UunAing with an interest rate of $0,6. Both debts were outstanding during all
of 2012 and 2013. The company's fiscal year-end is December 31'

C 21. What is the amount of capltalizable interest ln 2012?

A. P3,400,000 B. P1,043,750 c. P563,125 D. P500,000

B 22. What is the amount of capitalizable interest in 2013?

A. p630,625 B. P654,663 C. P36L,7A7 D. P799,663

A 23. What amount of interest should be expense.d in 2C12?

A, P2,V36,875 B. P2,356,250 C. P2,900,000 D. P0

D 24. What amount of interest should be expensed in ?CI13?

A. P2,769,375 B" P3,038,29.i C. P2,6AA337 D. P2,745,337

B 25. What is the total cost of the building {including the interest capitalized in 2012 and 2013)?
A *o':::jy-:--------3---'-1?:]iffin*J:-113:3-'.'-'-:L------.1--1'0'630'62s

PROBLEM NO.6

The shareholders' equity section of BENSONI CCRPOMTION's statement of financial position as

of December 31, 201"2 is as follows:

Ordinary share capital, P5 par value; aathorlzed, 2,000,000 shares;

shares
issued, 400,000 P2,000,000
Slrarepremium 850,000
Retained earnings
ffi
 cpA REVIE\I/ SCHOOL OF THE pHIUppINES (CPAR) - MANILA FIRST PREBOARD ExAllrlrATrotl
AUDmilG PROBLEUS JULY 28, 2013 / SUNdAY / 8:00AM - 11:00AM

The following events occurred during 2013:

1. Jan. 5 10,000 shares of authorized and unissued ordinary share capital were sold for P8
per share.

Z. Jan, 16 Declared a cash dividend of 20 centavos per share, payable February 15 to

shareholders of record on February 5.

3. Feb. 10 20,000 shares of authorized and unissued ordinary share capital were sold for
P12 per share.

4, March 1 A 30o/o stock dividend was declared bnd issued. Market value per share is
currently Pl5.

5. April 1 A two-for-one split was carried out. The par value of the stock was to be reduced
to P2.50 per share. Market value on March 31 was P18 per share.
per
6. July 1 A 15o/o stock dividend was declared and issued. Market value is currently P10
share.

7. Aug. 1 A cash dividend of 20 centavcs per share was declared, payable September 1 to
shareholders of record on August 21.

Based on the preceding informaUon, determine the balances of the following at December 31,
2013.

C 26. Number of ordinary shares issued and outstanding

A. 642,850 B. 1,118,000 c. L,285,7A0 D. 989,000

B 27. Ordinary share capital

A. P2,000,000 B. P3,2L4,25O c. P6,428,500 D. P2,795,044

A 28. Share premium

A. P2,277,750 B. P1,020,000 c. P3,567,75O D. P2,310,000

C 29. Retained eamings

A. P596,000 B. P1,853,750 c. P338,860 D. P306,610

B A feature common to both stock splits and stock dividends is

A. A transfer to earned capital of a corporation'
B. That there is no effect on total shareholders' equity'
C. An increase in total liabilities of a corporation'
D. A reduction in the contributed capital of a corporation.
---coo0Ooooo-..--

PROBLEIII NO. 7

LARIO COMPANY issued 10-year bonds on January L, 2AL3. The company's year-end is
December 31, and financial statements are prepared annually. The amoftization and interest
schedule below reflects the bond issuance and the subsequent interest payments and charges.

AMORTIZATION SCHEDULE

Interest Amount
Date
au}LlL3
Interest
re*: ffi* Carrying

pffiqt
tzl3llL3 P 55,000 P56,610 26,643 473,357
rzl3Llt4 55,000 56,803 24,*4A 475,160
 CPA RA/IEW SCHOOL OF THE [-'r'rii ,Ful[tl[$ (CPAR) - MANILA, FIRST PREQOARD EXA]IINATIOI{
AUDmilG PROBLE$S JULY 24 2013 / iUNDAY / 8:00AM - 11;00AM
- -
L2l3Llt5 55,000 57,0t9 22,92L 477,t79
t2l3llt6 5:i,000 57,26L 20,560 479,44A
L2/3Llt7 .i:r,000 57,533 t8,A27 48t,973
L2l3LlL8 55,000 57,837 15,190 484,810
L2/3tlL9 55,000 58,t77 12,013 487,987
L2l3tl20 55,000 58,558 8,455 49t,545
L2l3tl2t 55,000 58,985 4\47A 495,530
t2l3Ll22 55,000 59,470* 500,000
* Adjustment due to rounding.

B 31. lhe bonds were issued at

A. A premium
B. A discount
C. Face value
D. Par value
C 32. What amortization methocl is used in the amortiza&'on schedule presented?
A, Straight-line method
B. Bonds outstanding rnethod
C. Effective interrst method
D. Declining balance methoci

A 33. What is the. noryrirrai (stated) interest rate of the bonds issued on January 1, 2013?
A. tLalo
B. tZo/o
C. LAo/o
D. 6Vo

B 34. What is the effective interest rate of the bcixis issued on January 1,20L3?
A. LLolo
B" 124/o
C. 10Yo
D. 60/o
D 35, On the basis of the $chedule presented, what is the journal entry to record the issuance of
the bonds on.lani.iari t, 2013?
A. Cash 500,000
payabl*
Bonds 500,000
B. Cash 47L,747
Interest expensfi 28,253
Bonds payal.rie 500,000
C. Cash 500,000
' Prernium oi"t bonds payable 28,253
Boncls payable 47L,747
D. Cash 47L,747
Discouni on bonds payable 28,253

T:::",1.1,:*I- _-oooo(xlooo -----u_:o,ooo

PROBLEI,I ilO. 8

In the audit process, the following data were obtalned from the boeik of the SPURS COMPANY
which uses a voucher systern. All invoices are sirbject to terms ilLCI, nl3} and are entered net
with the discount entered in Purcha::e Discount colurnn of the voucher register. The accountant
in charge of the book urent on leave to attend to his farnily based in New Jersey. A fresh
accounting graduate has been assigned to r"ecord the transactions. At year-end, the substitute
accountant finds that the r.rnpaid voucl,1erc do not agree with the Vouchers Payable control
account. You are called to adjrrsff the maffier.
 cpA RryrEw scHoo!- oF THE pHIuppINEs (cpAR) - MA|{ILA HIRST PR,EBOARD EXATf,II{ATIOi|
eUDTIIilG pltOBLE$4S- IULI28J013 / SUNOAY / 8:.00AM -aL@AM

A schedule of unpaid vouchers as of Decernber 31, 2(!:.3, all o;i which are net of discount, is
presented to you.
Date VoucherNo" Supplier Amount
Nov. 27 79V Dunran $upplv Co. P 78,4CI0
DeC. 02 g}} einr;iriti Dict it,,.rtgt5 19,"100
lL gig pai, ; Cales 4.+,I0{)
2A 836 Dealers
Mo*,amed 17,150
21 842 Browen MerchandisinE 22,050
22 856 Hony Mercantile 8C),850
31 865 Bany Traders *-Zglg0
PSSg*1tg
' Pavallillcontrol accoglt)
_Vouchers
Cash disbursernents Ptr,309,500 | Rurcnases journal P1,645,000
Purchase retums joumal 36,750* |

* Voudrer l,los. 821 and 8i6 caneld as g*cls

I
werc returnd in Mmlpr.

Easd on the above and the result of yawr auclit compue for #te tallowing as of Decenfur 31,
2013:

B 36. Adjusted balance of Vouchers payahle

A. P310,000 B. p306,750 c" p303,800 D. P344,250

B 37, Purchase discounts lost on unrrairJ veuclrers

A. P6,200 b. P2,950 c. P3,70[] D" P0

C 38. Purchase discounts lost on paicl vaucners

A. P28,750 B. P8,000 {-. p5,05C E. P41,800
C 39. The adjusting entl or entries to ccrrect tlre accounts will include
A. A debit to Purchase Biseounts Lost of Pi"3.,250.
B. A deblt t"o Purchase Discounts Lost of P5,CI50.
C. A credlt to Vouctrerc Payable of P8,000.
D. A credit to Vouchers Payable of Pl1,25$.
A 40. In a payables application, checks are authorier# and paid Dased on rnatching purchase
orders, receiving reports, and ,renrjon invoices. Partiai peymentt are comnlon. An
appropriite ar"rdit procedure for verifying ttlel a Dur,lhas,: $rdt'r ha' :1o;" lrr:e* paid twlce is
to sort the
A. Check register liNe by purchase order, r:ompute toia! iirncunls pairl by purchase order,
compare total amoi.lnts paid witlr purchase crder emollnts. and investigate any
discrepaneies between the total &rllortrlts rmitJ and ourcliase orrje;- amc,u!"tts.
B. RereivinE report file by vendcr lnv'rlce amounts and irrvertigate arty discrepancies
between the total amerunts rcceived ancl vendcr invoiee &flirilrilts.
C. Vendor invoice flle by purchase order, conrg:,ute total ar,t:ttints invoiced by purchase
order, cornpare total amounts rnvoiced rryith purclr:*se ordei" amounts, and investigate
any discrepancies betyreen the total am$rrrts invoiced and purchase order amounb.
D. Receiving report file by purctiase ordero corrpute total aniounts l'eceived by purchase
order, compare tr:tal amounts received wrth purctrase euder emCIilnts, and investigate

",-1'::t-::-'t::-Y5:"T::ffi fr affi :::::i::"1T"T::*::1-Tamounb

 \
FIRST PREBOARD EXA}III{ATIOI{
cpA RhviEw scHooL oF Tt-lE PI{II.JPPINES (CPAR.) - M,"\NII}.

PROB!-Eltl I{O.9

presented below are ircleperrdent situatir:ns relating to the audit of inventory. Answer the
question/s at the snfl ;:i each s;tuation.

Situation 1
WALASTIK COl,,'lpANy asks you to i"eview its December 31, 2013 inventory values. The
following informatron is given to ycu.

Walastik uses the periodic method of recorcling inventory' A physical count

reveals
1.
P2,348,900 of inventory on hand at December 31, 2013'
purchased on
2. Not lncluded in the physicai count of inventory is P104,200 of merchandise
point
December rs tom Bojie. This merchan<li"se was shipped f.o"b' . shipping .on
in January. The invcic* arrived and recorded on December 31'
December 29 and arrived
3. Inctuded in inventory is merchanclise sold to B';bbly on December 30
f.o.b. destination'
was prepared and
This merchandise was shipped after it r,vas counted. The invoice
recorded as a sale on account for P128,000 on Decemlrer 31. The
merchandise cost
P73,500, and Bubbly received it on January 3.
31 with an
4. Included !n inventor/ was merchandise received from Dsodle on DecemberThe invoice,
invoice price of p156,300. lre mercnandise was shipped f'o.b. Cestlnation'
which has not yet arrived. has not been recorded'
Company' This
5. Not included in inventory is p85,400 of merchandise purchased ftorn.Milky
been counted' The
merchandise was receivecj cn Decernber' 31 after the inventory had
invoice was recelved and recorded cn Deceinirer 30'
6. Included in lnventory was P104,380 cf inventory held by Walastik on consignment from
lerom Co"

7. Included inventory is merchandise sold to Simoun f.o.b. shipping point' fl'i:

in
merchandise was shijped ater it was counted. The invoice was
prepared and recorded
as a sale for pi.g9,000 on Decemher 31. The cost of this merchandise
was P115,200, and
Simoun received the merchandise on January 5.
S.Excludedfrominventory\,{aSacaftonlabeled'.Pleaseacceptforcredit.,,Thiscarton
contains merchandise costing pti,oOo
'books,which
had been sold to a customer for P26,000'
No entry had been made to tire to reJlect the return, but none of the returned
merchandise seemed damaged.
2013?
A 4!, What is the proper inventory balance for Walastik Companyat-December 31,
A. P2,333,g2A B" P2,260,A28 c' ?2;L77,62A
D' P2,3t8'924

Situation 2
ADANTE CO. repottecl the toli,:rwing net inccme flgures
qrithout knowledge of inventory erors'

Yeil BePstred-Ne!-Inrere Errsr.in Endng-lnYexlqry

2008 P500,000 Overstated P50,000
20sti 520,000 Overstated 90,000
2010 540,000 Understated 11.0,000
20il. 560,000 No error
20t2 580,00n Understated 20,000
20L3 600,000 Overstated 100,000

Compute the adjusted net income figure for each of the following
years after considering the
inventory errors.

D 42. 2010
A. P650,000 B. P630,00c c. P560,000 D. P740,000
 CPA REVIEI , SCHOOL OF TllE PHIUPPINES (CPAR) - MANII-A FIRST PR,EEOARD ExAltlIIlATIOll
AuDmilG PROBLEITIS JUIIZ8,20L3 / $UNDAYLS:00AI{ - 11:00AM
-
B 43. 2011
A. P470,000 B. P450,000 c. p670,000 D. P650,000
A 44. 2AL2 -.-
A. P600,000 B. P560,000 c. P580,000 D. P500,000
A 45. 2013
A'
'*9:93.0------.----.3--.133i-:Tl.*r*;:-:-::-1*----"------::-l:oo'o*

PROBI.Ei{ tO. 10

On January 1, SAMANfiA CO. establishes a peth/ cash account anrJ designates Orly Reyes as
petty cash custodlan. 'The original amount included in the petty cash fund is P5,000. The
following dlsbursemenLs are rnade from the fund:

supplies
ffice P1,73i)
Postage 1,120
Enteftainment 42A
The balance in the petty cash box is P1,630,

C 46. The person responsible, at ali tirnes, for the amount of the p€try ca$h fund is the
A. Chainnan of the Eoard of Directors.
B. President of the eompany.
C. Petty cash custo<Jian.
D. General cashier.

A 47. The following are appropriate procedurm for controlling the petty cash fund, except
A. To monltor variatlons in d!fferent types of expenditures, the petty cash custodian files
petty cash vouchers by cateEory of expenditure after rep|enishing the fimd.
B. To replenish the fund, the gerieral cashier issr.ies a contpany check to the petty cash
custodian, rather than cash.
C. To deterrnine that the fund is being accourrted fbr satisfactorily, surprise counts of the
fund are made ftom tirne to tlme hy the irrternai audit*r rtr r.ither responsible official.
D. Each individualtc' whom petry cash is paid is reguir"cd te, present signed receipts to the
petty cash custodian.

B 48. Tlrc entry tc replenish the fund is

A. ffice supplies exBense 1,73S
Postage expense 1,I.20
Enteftainment expertse 42*
Cash 3,270

B. 0ff]ce supplies expense 1"73S

Postage expense 1,125
Entertalnment expense 42$
Cash over and short 100
Cash 3,370

C. Office supplies expense 1,73e

Po,$age expense 1,*2t!
Entertalnment expense 4;0
Cash over and short :t{}CI
Petty ca;ch 3,370

D. Office supplies expense :{,730

Postage expense 1,120
Entertainment expense 42{)
Petty cash 3,270
 cPA REVIEW SCHOOL OFTHE PHIUPPINES (CPAR) - MANIIA F:IRST PRE BOAR.D EXAIIIII{ATION
altDrTIllG PnOBLEITIS
*
IULY 28. 2013 / SUNDAY / 8:00AM 11:Q0AM

D 49. The objective of establishing a petry 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, misceilaneous items.
C 50. What is the effect of not replenishinE the p*fty cash at year-end and not making the
appropriate adjusting entry?
A. A deAiled audit is essenUal.
B. The petty cash custodian should turn over the petty cash to the general cashier.
C. Cash wilt be overstated and expen$es understated.
D. Expenses will be overstated and cash will be understated.

PROBLEM ilO. 11

Delivery Equiprnent account

In making the first audit of the of DELTA CORPORATION as of
December 3L,20L3, you encounter the following facts.

DellveqY EquiPment
Date Particulars Debit Ctedit

LILILL Trucks L,2,3, and 4 P3,200,000

3ltSlLZ Replacement of Truck 3 tjr*- 25,000
7lUtz Truck 5 800,000
TlL)ltz Reconditioning of Truck 4, whlch ivns damaged
35,000
in a collision
gtLtt? Insurance recovery on Truck 4 accideltl P 33,000
600,000
LOlLltZ Sale of Truck 2
4lllt3 Truck 6 1,000,000 150,000
-l-ruck
5l2ll3 Repainting of 4 27,040
720'ooo
6FAI13 Truck 7
LZlLlL3 Cash received on lease of T l'uck 7 zz,ooo

ltccurnu lated DePreciation

Date Particulars Debit Credit

LZl3LltL Depreciationexpense P300,000

LZ|3L|LZ DepreciationexPense 300,000
L2l3LlL3 Depreciationexpense 300,000

Additional in&rmation :

1. On July !,20!2,Truck 3 was traded ln fcrr ii r€w truclg Truck 5, cosUng P850,000; the
selling-party allowed a P50,000 tracie in vahre for the old truck.
2. On April L, 2013, Truck 6 was purchased for P1,000,000; Truck 1 and cash of
P850,000 being given for the new truck"
3. you are instructed by the senior in-charge *f the audit to accept the depreciation rate
of 20o/o by unit basis.
4. Unit cost of Trucks 1 to 4 is at PS00,000 each'

A 51. What is the correct cost of Truck No. 5?

A. P850,000 B. P800,0t!0 c. P900,000 D. P560,000

C 52. S,'hat is the conect depreciatioll exoense for 20L7?

A. P725,000 B. P305,000 c. P605,000 D. P600,000
 cPA REVIE\i/ SCHOOL OF THE PHIUPPiNES (CPAR) " MANTLA EIRST PREBOARD EXAII.IINATIOI{
AUDMNG PROBtEiiS / 8:00AM - 11l00AI'l
IULY 28. 2OL3 I SUNDAY

B 53. What is the correct depreciation expense for 201"3?

A. P552,000 B. P592,000 C. P712,000 D. P300,000

B 54. The entry to correct the depreciation charges fcr the years 2011 through 2013 should
include a credit to Accumulated Depreciatlon ef
A. p645,000 B. p937,000 c, P900,000 D. P292,000

D 55. The balance of the Delivery Equipment account at December 31, 2013 should be
A. P5,770,A0A B. P3,320,000 C. P4,170,000D. P3,370,000
----o@OO0ooo-

PROBLEM NO. 12

The following int'ormation pertains to acquisiti,cns of machinery and equipment:

On December 3r, 2011, BAIKAL COMPAN':' acrJuired a piece of equipment from Seller Company
by issuing a P1,200,000 note, payable in full on December 31, 2015. Baikal's credit rating
permits it to borrow funds from its several lines of credit at 10o/o. The equipment is expected to
have a S-year life and a P150,000 salvage value. The present value of 1 at LAo/o for 4 periods is
0.68301.

A 56. What is the equipmentb book value on Decemb<:r'31, 2013?

A. P55L,767 B. P630,000 C. {'{+9t,767 D. P34L,767

B 57. What is the carrying value of the note at Decernber 3L, 2013?
A. P1,090,903 B, P991,730 C. P1,200,000 D. P819,612

OHRID COMPANY purchased machinery on Deeenrber 31, 20ltr, paying P80,000 down and
agreeing to pay the balance in four equal instailnr*nts of P60,000 payable each December 31.
Implicit in the purchase price is an assumed interest cf 12olo.

The following data are abstracted from the present value tables:

Present value of 1 at LZola for 4 periods 0.63ss2

Present value of an ordinary annuity of L at L2o/o
for 4 periods 3.03735

C 58. What is the cost of the machinery purchaseci orr December 31, 2011?
A. P233,083 B. p320,000 c. p262,24L D. p29A,842

B 59. How much interest expense should be reported on Ohrid's income statement for the year
ended December 31, 2012?
A. P38,131 B. p21,869 C. pL7,293 D. P42,707

D 60. What is the carrying value of the note at Decenrber 31, 2013?
A. P120,000 B. PL44,LLA C. p99,310 D. p101,403
----ooo0O0ooo

---end of examination---