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CPA REVIEW SCHOOL OF THE PHILIPPINESFinal Preboard Examination on Auditing ProblemsSuggested answers/solutions

PROBLEM NO. 1Hangover Company

Proof of CashFor the month of July, 200

!eginning "e#ei$ts %isb Ending

&nad'usted ban( balan#es )),*0 +), 00 ++,-. ) , 0utstanding #he#(s

June 1*,+*2 1*,+*2July , + 1 , +

%e$osits in transitJune -, ) 1-, )

July 2,2- 2,2-3SF #he#( rede$osited 4 July 1*+2 1*+25ithdrawal error 4 July 1- ) - )

Ad'usted ban( balan#es )*, . + ,* 0 ++,) 2 )2, ++(1) (2) (3) (4)

&nad'usted boo( balan#es )2, 0 + ,-0* ++, 0 )0,-0*!an( ser6i#e #harges

June 1 ) 1 )July + 1 +

7nterest earnedJune -,0 * 1-,0 *July -, )0 -, )0

%ire#t de$ositsJune )+ 1)+July )+ )+

!oo( errorsJune 1 . 1 .July *.2 1*.2

Ad'usted boo( balan#es )*, . + ,* 0 ++,) 2 )2, ++

4 4 4 4

8 !28 A-8 %*8 A

8 C

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Question No. 6 - BP9 of 3ote 1P220,000 x 08 2)* , 0:ess #ost of land 2 ,000;ain on sale ), 0

Amortization schedule:7nterest in#ome Carrying amount

Jan8 , 200 , 0%e#8 - , 200 , ..,. .%e#8 - , 200) 20,0 220,000

Question No. 7 - ,

Question No. " - A3" 4 / /0 sale ?P220,00041P , 0 @P , 20,03" 4 / /0) sale 1P 0-, 0 x *> +0,*-=otal interest in#ome in 200) .0,**)

Question No. 1# - $

Carrying amount, / /0) 13" / /0) sale 0-, 0 Add dis#ount amortiBation in 200)

Effe#ti6e interest 1P 0-, 0 x *> +0,*-3ominal interest 1P)00,000 x 2> 2*,000 *),*-

Carrying amount, 2/- /0) before #olle#tion of $rin#i$al *., *0:ess $rin#i$al amount re#ei6ed 200,000

Carrying amount, 2/- /0) -*., *0

PROBLEM NO. 2 Carlos &no Com$any

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Question No. 11 - B A##ounts re#ei6able, 2/- /0) $er boo(s *0,000 Add #redits to a##ounts re#ei6able in 200)

A##ounts written off ,000Sales returns *,000Cash re#ei$ts from #ustomers 2,*00,000

Sales dis#ounts 2,000 2,*2*,000=otal 2, )*,000:ess other debits to a##ounts re#ei6able in 200)

A##ounts re#ei6able, 2/- /0 0,000Erroneous debit to A" for sales returns -,200 -,200

;ross sales for 200) 2,* 0, 00

Question No. 12 - $ A##ounts $ayable, 2/- /0) ) ,000 Add debits to a##ounts $ayable in 200)

Pur#hase returns 2,000Cash $ayments to trade #reditors ,)00,000 ,) 2,000

=otal ,+ 0,000

:ess a##ounts $ayable, 2/- /0 200,000;ross $ur#hases for 200) , 0,000:ess $ur#hase returns 2,0003et $ur#hases for 200) , ) ,000

Question No. 13 - A7n6entory, 2/- /0 0,000

Add net $ur#hases for 200) , ) ,000=otal goods a6ailable for sale ,+* ,000:ess #ost of sales for 200) ?1P2,* 0, 004P*,000 x 1.)0/ ,)00 ,* ),0 07n6entory, 2/- /0) 2) ,.20

Question No. 14 - $Estimated in6entory, 2/- /0) 2) ,.20Physi#al in6entory, 2/- /0) ) ,000Estimated in6entory shortage .-,.20

Question No. 1% -

Question No. 16 - &nder1o6er

7tem a ?2,000 units x 1P.8 04P 8.0 +,2007tem b +, 007tem # 12,.00

7tem d , 003et understatement 2-,-00

Question No. 17 - $Question No. 1! - B

200 200)&nad'usted net in#ome -+0,000 2),000

Add1dedu#t ad'ustments7tem a +,200 1+,2007tem b +, 00 1 +, 007tem # 12,.00 2,.007tem d 4 4

2 , 00 12 , 00 (1!)Corre#ted net in#ome -. , 00 0*,200

(17)Question No. 1" - $

200 200) =otalriginally re$orted net in#ome -+0,000 2),000 .),000

Corre#ted net in#ome -. , 00 0*,200 .),000%ifferen#e 12 , 00 2 , 00 4

Question No. 2# - $

PROBLEM NO. ! 4 J D ! "etail Store

PROBLEM NO. " 4 "emy Com$any

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Question No. 21 - B=otal $ro#eeds 20), 00:ess a##rued interest 1P200,000 x .> x / 2 +, 003et $ro#eeds ..,000:ess #ost of treasury notes

=otal amount $aid . , 00:ess a##rued interest 1P200,000 x .> x -/ 2 *, 00 .*,000

;ain on sale of treasury notes ,000

Question No. 22 - BSales $ro#eeds +0,000Carrying 6alue .0,000"ealiBed loss on sale of S4 art shares 120,000

Question No. 23 - 7nterest in#ome on 9irgo Co8 bonds 1P-00,000 x 2> -),0007nterest in#ome on Phil8 tresury notes 1P200,000 x .> x / 2 2,000=otal * ,000

Question No. 24 - $ Asia =extile Common 1),000 shares x P** 2)*,0009irgo Co8 !onds 1P-00,000/P ,000 x P. 0 2 ,000Carrying 6alue, 2/- /0) *.,000

Question No. 2% - =rading se#urities, / /0) )*0,)00Pur#hase of Phil8 treasury notes, */ .*,000Carrying 6alue of S4 art shares sold, +/ 1.0,000Sale of Phil8 treasury notes, 2/ 1 .*,000=rading se#urities, 2/- /0) before mar(4to4mar(et 0,)00F9 of trading se#urities, 2/- /0) *.,000

&nrealiBed loss on =S ,)00

Question no. 26 - ASil(o Com$any 1-,000 x P -,000

onroe Com$any 12,000 x P- ),000!ar#lay Com$any 1-, 00 x P2 +,000=otal di6idend in#ome in 200 ),000

Question no. 27 - ASil(o Com$any 1-,000 x P20 )0,000

onroe Com$any 12,000 x P22 **,000

=reasury notes 1P*0,000 x 802 *0, 00=otal F9 of trading se#urities, 2/- /0 **, 00

Question no. 2! - Cost of Sil(o Com$any 1-,000 x P ) * ,000Cost of onroe Com$any 12,000 x P-- )),000Cost of =reasury notes 1P*0,000 x 80 *0,*00=otal *,*00=otal F9 of trading se#urities, 2/- /0 **, 00&nrealiBed loss on trading se#urities .,)00

Question no. 2" - $onroe shares sold, -/2-/0)

Selling $ri#e 12,000 shares x P + -*,000:ess C9 of shares sold **,000 1 0,000

=reasury notes sold, )/-0/0)Selling $ri#e 1P*0,000 x 800 *0,200:ess C9 of treasury notes *0, 00 1)00

=otal realiBed loss 1 0,)00

Question no. 3# - A

PROBLEM NO. # 4 Johnnie ar(eting Com$any

PROBLEM NO. $ 4 Jose Com$any

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!1 C!alan#e, 2/- /0 2,*00,000=otal #ost of building wing --0,000%onated building *00,000=otal -, -0,000:ess a##umulated de$re#iation

!alan#e, 2/- /0 ,200,000%e$re#iation for 200)

ain building 1P2,*00,000/2 .),000-,+ 0*,000 ,- -,+ 0

Carrying 6alue, 2/- /0) , ),2 0

riginal life 2:ess ex$ired life

28 0 Additional ex$ired life 1from Jan8 to June 08 0 -

"emaining life of main building on )/-0/0) 2

!2 A:and, 2/- /0 * 0,000%onated land 200,000Carrying 6alue, 2/- /0) ) 0,000

!! APro#eeds from sale 20,000

:ess boo( 6alue on the date of sale 1 0/ /0)Cost .)0,000 A##umulated de$re#iation 1P.)0,000/ 0 x * 1- *,000 +),000

:oss on sale ),000

!" C !alan#e !alan#e

Cost 28- 80 Additions "etirements 28- 80):and * 0,000 200,000 4 ) 0,000:and im$ro6ements 4 00,000 4 00,000!uildings 2,*00,000 +-0,000 4 -, -0,000

a#hinery D e ui$ment 2,++0,000 4 .)0,000 , 0,000=otal ,)20,000 ,0-0,000 .)0,000 ,).0,000

A##umulated de$re#iation:and im$ro6ements 4 ,000 ,000!uildings ,200,000 -,+ 0 ,- -,+ 0

a#hinery D e ui$ment *), 00 2 -,000 - *,000 * , 00=otal ,+*), 00 -+ ,+ 0 - *,000 ,+-*,2 0

Carrying 6alue:and * 0,000 ) 0,000:and im$ro6ements 4 . ,000!uildings ,200,000 , ),2 0

a#hinery D e ui$ment 2,22-, 00 ,-.*, 00-, +-, 00 !%#%'#(

!# A

PROBLEM NO. ' 4 3a$oleon anufa#turing Com$any

!uilding wing 1P--0,000/ 2 G x )/ 2%onated building 1P*00,000/2 x -/ 2

Age on 2/- /0 1P ,200,000/P2,*00,000 x 2 yrs

G

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Question No. 36 - ASemitru#( 3o8 2 1fully de$re#iated as of +/ /0 4Semitru#( 3o8 1P-*0,000/ ) ,000Semitru#( 3o8 ) 1P-)0,000/ +2,000Should be de$re#iation ex$ense for 200) *0,000%e$re#iation ex$ense $er boo(s 2+ ,000

6erstatement - ,000

Question No. 37 - $Cost, 2/- /0)

Semitru#( 3o8 1sold, / /0* 4Semitru#( 3o8 2 1a# uired, +/ /00 220,000Semitru#( 3o8 - 1traded4in, +/ /0- 4Semitru#( 3o8 * 1damaged and sold, +/ /0 4Semitru#( 3o8 1a# uired, +/ /0- -*0,000Semitru#( 3o8 ) 1a# uired, +/ /0 -)0,000 .20,000

A##umulated de$re#iation, 2/- /0)Semitru#( 3o8 2 1fully de$re#iated as of +/ /0 220,000Semitru#( 3o8 1P-*0,000 x -8 / 2- ,000Semitru#( 3o8 ) 1P-)0,000 x 8 / 0 ,000 )),000

Carrying amount, 2/- /0) - *,000

Question No. 3! - AQuestion No. 3" - BQuestion No. 4# - A

3et in#omeo6er 1under

200-&nre#orded loss on trade4in

=rade4in 6alue 1P-*0,000 4 P 0,000 .0,000Carrying 6alue 1P-00,000 x -8 / 2 0,000 20,000

6erstatement of de$re#iation ex$enseSemitru#( 3o8 1P 0,000/ -),000Semitru#( 3o8 2 1P220,000/ **,000Semitru#( 3o8 - 1P-00,000/ x ) / 2 -0,000Semitru#( 3o8 * 1P2*0,000/ * ,000Semitru#( 3o8 1P-*0,000/ x ) / 2 -*,000Should be de$re#iation ex$ense .2,000%e$re#iation ex$ense $er boo(s 20-,000 1 ,000 .,000 (3!)

200*&nre#orded loss on sale

Sales $ro#eeds - ,000Carrying 6alue 1P 0,000 x / -),000 ,000

6erstatement of de$re#iation ex$enseSemitru#( 3o8 2 1P220,000/ **,000Semitru#( 3o8 * 1P2*0,000/ * ,000

Semitru#( 3o8 1P-*0,000/ ) ,000Should be de$re#iation ex$ense )0,000%e$re#iation ex$ense $er boo(s 2 ,000 1 ,000 1 0,000 (3")

200&nre#orded loss on dis$osal

Sales $ro#eeds +,0007nsuran#e $ro#eeds 2 ,000=otal -2,000Carrying 6alue 1P2*0,000 x 2/ .),000 )*,000

Erroneous #redit to is#ellaneous 7n#ome +,0006erstatement of de$re#iation ex$enseSemitru#( 3o8 2 1P220,000/ x ) / 2 22,000Semitru#( 3o8 * 1P2*0,000/ x ) / 2 2*,000

Semitru#( 3o8 1P-*0,000/ ) ,000Semitru#( 3o8 ) 1P-)0,000/ x ) / 2 -) ,000Should be de$re#iation ex$ense 0,000%e$re#iation ex$ense $er boo(s 2**, 00 1.*, 00 12-, 00 (4#)

200)6erstatement of de$re#iation ex$ense 1see no8 -) 1 - ,000

3et understatement of "etained Earnings as of 2/- /0) 1202, 00

PROBLEM NO. ) 4 atador Cor$oration

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Question no. 41 - A

Pro'e#ted benefit obligation, / /0) .,200,000!enefits $aid to retirees 1+ 0,0007nterest #ost 1P.,200,000 x 0> .20,000

11!##Pro'e#ted benefit obligation, 2/- /0) .,* ,000

Question no. 42 - A

,0007nterest #ost 1P.,200,000 x 0> .20,000Ex$e#ted return on $lan assets 1.00,000

AmortiBation of deferred gain 1) ,0003et benefit ex$ense +-,000

Question no. 43 -

Fair 6alue of $lan assets, January 0,0+0,000Em$loyer #ontributions 0,000

A#tual return on $lan assets ..0,000!enefits $aid to retirees 1+ 0,000Fair 6alue of $lan assets, 2/- /0) , -0,000

Question no. 44 - B

Ex#ess o6er #orridor 1P) ,000 x 0 ) 0,000

Corridor 1P 0,0+0,000 x 0> ,00+,000&nre#ogniBed gain, / /0) ,) +,000 AmortiBation of deferred gain 4 200) 1) ,000Ex#ess a#tual o6er ex$e#ted return on $lan assets

1P..0,000 4 P.00,000 .0,000&nre#ogniBed gain, 2/- /0) ,) 2,000

Question no. 4% - $

Jan8 , 200) %e#8 - , 200)

%ebit Fair 6alue of $lan assets 0,0+0,000 , -0,000

Credit Pro'e#ted benefit obligation .,200,000 .,* ,000&nre#ogniBed gain ,) +,000 ,) 2,000

0, +,000 , *0,000

Pre$aid 1A##rued benefit #ost 1+ +,000 1 0,000

PROBLEM NO. & 4 ESH Cor$oration

Current ser6i#e #ost (s'ueeze)

Current ser6i#e #ost (see no. 41)

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2(($12.!1.(# Tran*a+,-on* 12.!1.($

Preferred sto#( 4 1 1# 0,000 0,000 "$ !Common sto#( * ,000 2 (1 ),000 )-,-20 "' A

" 1# *,000$ (1 ,-20

Additional $aid in #a$ital -2,000 1 1# ,000 , . ,) 0 ") !2 (1 20,000" 1# .),000# (1 2+,) 0# !1 2,000

"etained earnings 220,000 ! 1# 1-,+ 0 +*,+ ) #( %# (1 1 --,000

& 1# 1 ,*.* 12 !1 00,000

=reasury sto#( 4 #ommon 1+ ,000 " 1# 1 +,200 1)*,-00 "& A# !1 2+,.00

,02 ,000 ,**.,* )

Journal entries for 2006 affecting stockholders' equity accounts:

1 1# Cash 1 ,)00 shares x P ,0000,000

AP7C 4 ex#ess o6er $ar 6alue of $referred ,000

2 (1 Cash 1-,000 shares x P*2 2),000),000

AP7C 4 ex#ess o6er $ar 6alue of #ommon 20,000

! 1# "etained earnings -,+ 0%i6idends $ayable 4 #ommon -,+ 0

(22## 3##) * +#.1% " 1# =reasury sto#( +,200

Cash 1*00 shares x P*- +,200

" 1# Cash 12,000 shares x P 0 00,000*,000

AP7C 4 ex#ess o6er $ar 6alue of #ommon .),000

# (1 "etained earnings 12),)00 x 0> x P 0 --,000Sto#( di6idends $ayable 4 #ommon 12),)00 x 0> x P2 ,-20

AP7C 4 ex#ess o6er $ar 6alue of #ommon 2+,) 0

# !1 Cash 1+00 shares x P + -.,.00

2+,.00 AP7C 4 treasury sto#( 2,000

$ (1 Sto#( di6idends $ayable 4 #ommon ,-20Common sto#( ,-20

& 1# "etained earnings ,*.*%i6idends $ayable 4 $referred 1 0,000 x > *,000%i6idends $ayable 4 #ommon 12.,.)0 x P *,*.*

12 !1 7n#ome summary 00,000"etained earnings 00,000

PROBLEM NO. 1( 4 ;inebra Cor$oration

Preferred sto#( 1 ,)00 shares x P 0

Common sto#( 1-,000 shares x P2

Common sto#( 12,000 shares x P2

=reasury sto#( ? 1-00 shares x P*- @ P ,000