FAR EASTERN UNIVERSITY - MAKATI

Comprehensive Examination in Auditing Problems 1

Page 1 of 10
PROBLEM NO. 1
Your audit disclosed the following information:
You obtained the following information from the balance
sheet of Caloocan Company in connection with your a) Shipments received in unsalable
audit of the Company’s financial statements for the condition and excluded from
year 2016: physical inventory. The returns
Dec. 31, 2016 Dec. 31, 2015 were not recorded because no
Cash P706,600 P200,000 credit memos were received from
Notes receivable 0 50,000 vendors: P 4,000
Inventory ? 399,750 Total at November 30
Accounts payable ? 150,000 Total at December 31
(including the November 30 6,000
All operating expenses are paid by Caloocan with cash unrecorded returns)
and all purchases of inventory are made on account. b) Deposit made with vendor and
Caloocan sells only one product. All sales are cash charged to Purchases in October.
sales which are made for P100 per unit. Caloocan The goods were shipped in 8,000
purchases 1,500 units of inventory per month and January 2016.
values its inventory using periodic FIFO. The unit cost c) Deposit made with vendor and
of inventory during January 2016 was P65.20 and charged to Purchases in
increased P0.20 per month during the year. During November. The goods were
2016, payments to suppliers totaled P943,400 and shipped FOB destination on
operating expenses totaled P440,000. The ending November 29 and were included in
inventory for 2015 was valued at P65.00 per unit. physical inventory as goods in 22,000
transit.
QUESTIONS: d) Shipments received in November and
included in the physical count at
Based on the above and the result of your audit, November 30 but recorded as
determine the following: December purchases. 30,000
e) Due to the carelessness of the
1. Number of units sold during 2016 _______. 18,400
receiving department, a December
2. Accounts payable balance at December 31, 2016 shipment was damaged by rain.
__________. 400,000 These goods were later sold at 40,000
cost in December.
3. Inventory amount at December 31, 2016
___________. 385,900
Based on the preceding information, determine the
4. Which of the following audit procedures would following:
provide the least reliable evidence that the client
Questions:
has legal title to inventories?
a. Confirmation of inventories at locations outside 6. Adjusted net purchases
the client's facilities. a. Up to November 30: P2,666,000;
b. Observation of physical inventory counts. Up to December 31: P3,190,000
c. Examination of paid vendors' invoices. b. Up to November 30: P2,700,000;
d. Analytical review of inventory balances Up to December 31: P3,164,000
compared to purchasing and sales c. Up to November 30: P2,696,000;
activities. Up to December 31: P3,186,000
d. Up to November 30: P2,704,000;
5. An auditor generally tests physical security controls Up to December 31: P3,184,000
over inventory by 7. Cost of goods sold for 11 months ended November
a. Test counts and cutoff procedures. 30, 2015 P2,688,000
b. Examination and reconciliation.
c. Inquiry and observation. 8. Gross profit ratio for 11 months ended November
d. Inspection and recomputation. 30, 2015. 20.94%
9. Gross profit for the month of December 2015.
P83,760
PROBLEM NO. 2
10. Estimated inventory at December 31, 2015.
Katrina, Inc. is an importer and wholesaler of cellphone P491,760
accessories. Its merchandise is purchased from a
number of suppliers and is warehoused until sold to PROBLEM NO. 3
customers.
The cost goods sold section of the income statement
In conducting your audit of Katrina’s financial prepared by your client for the year ended December
statements for the year ended December 31, 2015, you 31 appears as follows:
determined that the internal control system is Inventory, January 1 P 80,000
functioning effectively. You observed the physical Purchases 1,600,000
count of inventory on November 30, 2015. Cost of goods available for sale 1,680,000
Inventory, December 31 100,000
The following information were obtained from Katrina’s Cost of goods sold P1,580,000
accounting records:
Although the books have been closed, your working
Sales for 11 months ended November P3,400,000 paper trial balance is prepared showing all accounts
30 with activity during the year. This is the first time your
Sales for the year ended December 31 3,840,000 firm has made an examination. The January 1 and
Purchases for 11 months ended Nov. 2,700,000 December 31 inventories appearing above were
30 determined by physical count of the goods on hand on
Purchases for the year ended Dec. 31 3,200,000 those dates and no reconciling items were considered.
Inventory, January 1 350,000 All purchases are FOB shipping point.
Inventory, Nov. 30 (per physical 380,000
count)

Page 2 of 10
FEU-MAKATI

In the course of your examination of the inventory

cutoff, both at the beginning and end of the year, you 1. Receipts for January 2017 of P327,300 were
discovered the following facts: recorded in the December 2016 cash receipts
book. The receipts of P180,050 represent cash
Beginning of the Year sales and P147,250 represent collections from
customers, net of 5% cash discounts.
1. Invoices totaling P25,000 were entered in the
voucher register in January, but the goods were
2. Accounts payable of P186,200 was paid in January
received during December.
2017. The payments, on which discounts of
2. December invoices totaling P13,200 were entered P6,200 were taken, were included in the December
in the voucher register in December, but goods 2016 check register.
were not received until January.
3. Merchandise inventory is valued at P3,025,000
End of the Year prior to any adjustments. The following
information had been found relating to certain
3. Sales of P43,000 (cost of P12,900) were made on inventory transactions.
account on December 31 and goods delivered at a. Goods valued at P137,500 are on consignment
that time, but all entries relating to the sales were with a customer. These goods are not included
made on January 2. in the inventory figure.
4. Invoices totaling P15,000 were entered in the b. Goods costing P108,750 were received from a
voucher register in January, but the goods were vendor on January 4, 2017. The related invoice
received in December. was received and recorded on January 6, 2017.
The goods were shipped on December 31,
5. December invoices totaling P18,000 were entered 2016, terms FOB shipping point.
in the voucher register in December, but the goods c. Goods costing P318,750 were shipped on
were not received until January. December 31, 2016, and were delivered to the
6. Invoices totaling P12,000 were entered in the customer on January 3, 2017. The terms of the
voucher register in January, and the goods were invoice were FOB shipping point. The goods
received in January, but the invoices were dated were included in the 2016 ending inventory
December. even though the sale was recorded in 2016.
d. A P91,000 shipment of goods to a customer on
Based on the preceding information, determine the net December 30, terms FOB destination are not
working paper adjustment that should be made for included in the year-end inventory. The goods
each of the following accounts: cost P65,000 and were delivered to the
customer on January 3, 2017. The sale was
11. Retained earnings properly recorded in 2017.
a. P13,200 credit c. P25,000 e. The invoice for goods costing P87,500 was
debit received and recorded as a purchase on
b. P11,800 debit d. P38,200 December 31, 2016. The related goods,
debit shipped FOB destination were received on
January 4, 2017, and thus were not included in
12. Purchases
the physical inventory.
a. P27,000 debit c. P25,000
f. Goods valued at P306,400 are on consignment
credit
from a vendor. These goods are not included in
b. P28,000 debit d. P2,000
the physical inventory.
debit
13. Beginning inventory QUESTIONS:
a. P25,000 credit c. P13,200
debit Based on the above and the result of your audit,
b. P38,200 debit d. P11,800 determine the adjusted balances of the following as of
debit December 31, 2016:
14. Accounts receivable
16. Cash. P334,300
a. P43,000 debit c. P30,000
debit
17. Accounts receivable. P1,282,000
b. P43,000 credit d. No
adjustment
18. Inventory. P3,017,500
15. Sales
a. P43,000 debit c. 19. Accounts payable. P2,307,950
P30,000credit
b. P43,000 credit d. No 20. Current ratio
adjustment a. P2.01 c. P1.84
b. P2.00 d. P1.83
PROBLEM NO. 4
PROBLEM NO. 5
The following accounts were included in the unadjusted
An entity sells a new product. During a move to a new
trial balance of Robert Company as of December 31,
location, the inventory records for the product were
2016:
misplaced. The bookkeeper has been able to gather
some data for the purchases and sales records. The
Cash P 481,600
July purchases are as follows:
Accounts receivable 1,127,000
Inventory 3,025,000
Units Unit cost Total cost
Accounts payable 2,100,500
July 5 10,000 65 650,000
Accrued expenses 215,500
10 12,000 70 840,000
15 15,000 60 900,000
During your audit, you noted that Robert held its cash
25 14,000 55 770,000
books open after year-end. In addition, your audit
revealed the following:

Page 3 of 10
FEU-MAKATI

On July 31, 17,000 units were on hand. The sales for 09 Purchased 55 bicycles at P910 each.
July amounted to P6,000,000 or 60,000 units at P100 13 Purchased 76 bicycles at P960 each.
per unit. Roshe Company has always used a perpetual 15 Sold 86 bicycles for P1,350 each.
FIFO inventory costing system. Gross profit on sales for 16 Returned one damaged bicycles to the
July was P2,400,000. supplier. This bicycle had been purchased on
9 December.
QUESTIONS: 22 Sold 60 bicycles for P1,250 each.
26 Purchased 72 bicycles at P980 each.
21. What was the cost of the inventory on July 31?
29 Two bicycles, sold on 22 December, were
P950,000
returned by a customer. The bicycles were
22. What was the cost of inventory on July 1? badly damaged so it was decided to write
P1,390,000 them off. They had originally cost P910 each.

23. What is the number of units available on July 1? QUESTIONS:

26,000
26. The cost of inventory as of December 31, 2016
24. The procedures involve in the attendance at using moving average method is (Round unit costs
physical inventory counting to the nearest peso) P143,485
a. Serve as risk assessment procedures.
b. Serve as test of controls. 27. The cost of goods sold for the month of December
c. Serve as substantive procedures. using moving average method is (Round unit costs
d. May serve as test of controls or to the nearest peso) P372,725
substantive procedures depending on the
auditor’s risk assessment, planned 28. The cost of inventory as of December 31, 2016
approach and the specific procedures using FIFO method is _______. P148,980
carried out.
29. The cost of goods sold for the month of December
25. In which of the following cases is attendance at using FIFO method is ________. P367,230
physical inventory counting impracticable?
a. Where inventory is held in a location that 30. Which statement is incorrect regarding cost
may pose threats to the safety of the formulas?
auditor. a. Specific identification of cost means that
b. Where the auditor will be inconvenienced specific costs are attributed to identified
because of the difficulty, time and cost involved inventory.
in doing the procedures. b. Under the weighted average cost formula, the
c. Both a and b. cost of each item is determined from weighted
d. Neither a nor b. average of the cost of similar items at the
beginning of a period and the cost of similar
PROBLEM NO. 6 items purchased or produced during the period.
Orang Dampuan Co. wholesales bicycles. It uses the c. The average cost formula may be
perpetual inventory system. The company's reporting calculated on a periodic basis, or as each
date is 31 December. At 1 December 2016, inventory additional shipment is received, depending
on hand consisted of 350 bicycles at P820 each and 43 upon the circumstances of the entity.
bicycles at P850 each. During the month ended 31 d. The FIFO formula assumes that the items
December 2016, the following inventory transactions of inventory that were purchased or
took place (all purchase and sales transactions are on produced last are sold first, and
credit): consequently the items remaining in
inventory at the end of the period are
Dec. 02 Sold 300 bicycles for P1,200 each. those earlier purchased or produced.
03 Five bicycles were returned by a customer.
They had originally cost P820 each and were
sold for P1,200 each.

Page 4 of 10
Page 5 of 10
FEU-MAKATI

PROBLEM NO. 7
You are engaged to examine the financial statements of the Olive Manufacturing Corp. for the year ended December
31, 2016. The following schedules for property, plant, and equipment and related accumulated depreciation accounts
have been prepared by your client. The opening balances agree with your prior year’s audit working papers.
Olive Manufacturing Co.
Analysis of Property, Plant, and Equipment and
Related Accumulated Depreciation Accounts
Year Ended December 31, 2016
Audited Per books
Cost 12-31-15 Additions Retirement 12-31-16
Land P450,000 P100,000 P- P550,000
Buildings 2,400,000 350,000 - 2,750,000
Machinery & equipment 2,770,000 808,000 520,000 3,526,000
P5,620,000 P1,258,000 P520,000 P6,826,000

Audited Per books

Accumulated Depreciation 12-31-15 Additions Retirement 12-31-16
Buildings P1,200,000 P103,000 P - P1,303,000
Machinery & equipment 546,500 313,600 - 860,100
P1,746,500 P416,600 P - P2,163,100

Further investigation revealed the following: 34. The loss on the disposal of the machinery sold for
P520,000 is
a. All depreciable assets are depreciated on the straight-
a. P56,000 c. P152,000
line basis (with no salvage value) based on the
b. P80,000 d. P 0
following estimated lives: Buildings – 25 years, all
other items 10 years. 35. An auditor analyzes repairs and maintenance accounts
primarily to obtain evidence in support of the audit
b. The company entered into a lease contract for a
assertion that all
derrick machine with annual rental of P100,000
a. Noncapitalizable expenditures for repairs and
payable in advance every April 1. The parties to the
maintenance have been recorded in the proper
contract stipulated that a 30-day written notice is
period.
required to cancel the lease. Estimated useful life is
b. Expenditures for property and equipment have
10 years. The derrick was recorded under machinery
been recorded in the proper period.
and equipment at P808,000 and P60,600, applicable to
c. Noncapitalizable expenditures for repairs and
the machine was included in the depreciation expense
maintenance have been properly charged to
during the year.
expense.
c. The company finished construction of a new building d. Expenditures for property and equipment
wing in June 30. The useful life of the main building have not been charged expense.
was not prolonged. The lowest construction bid was
P350,000 which was the amount recorded. Company PROBLEM NO. 8
personnel constructed the building at a total cost of
Espresso Company operates a factory that contains a large
P330,000.
number of machines designed to produce knitted
d. P100,000 was paid for the construction of a parking lot garments. These machines are generally depreciated at
which was completed on July 1, 2016. The 10% per annum on a straight-line basis. In general,
expenditure was charged to land. machines are estimated to have a residual value on
e. The P520,000 equipment under retirement column disposal of 10% of cost. At July 1, 2014, Espresso
represent cash received on October 1, 2016 for a Company had a total of 64 machines, and the balance
machinery bought on October 1, 2012 for P960,000. sheet showed a total cost of P4,200,000 and accumulated
The bookkeeper recorded depreciation expense of depreciation of P1,300,000. During the 2014-2015 period,
P72,000 on this machine in 2016. the following transactions occurred:

f. The company’s president donated land and building 1. On September 1, 2014, a new machine was acquired
appraised at P200,000 and P400,000 respectively to for P150,000. This machine replaced two other
the company to be used as plant site. The company machines. One of the two replaced machine was
began operating the plant on September 30, 2016. acquired on July 1, 2011 for P82,000. It was traded
Since no money was involved, the bookkeeper did not in on the new machine, with Espresso, Inc. making a
make any entry for the above transaction. cash payment of P88,000 on the new machine. The
second replaced machine had a cost of P90,000 on
QUESTIONS: April 1, 2012 and was sold for P73,000.

Based on the above and the result of your audit, answer 2. On January 1, 2015, a machine that had cost of
the following: P40,000 on July 1, 2012 was retired from use and
sold for scrap for P5,000.
31. The carrying amount of the buildings on December 31,
2016 is 3. On January 1, 2015, a machine that had been
a. P1,820,250 c. P1,816,250 acquired on January 1, 2012 for P70,000 was repaired
b. P1,827,400 d. P1,447,000 because its motor had been damaged from
overheating. The motor was replaced at a cost of
32. The carrying amount of the land on December 31, P48,000. It was expected that this would increase the
2016 is life of the machine by an extra two years.
a. P650,000 c. P750,000
b. P450,000 d. P545,000 4. On April 1, 2015, Espresso Company fitted a new form
33. The carrying amount of the property, plant and of arm to a machine used for putting special designs
equipment as of December 31, 2016 is onto garments. The arm cost P12,000. The machine
a. P3,860,750 c. P3,955,750 had been acquired on April 1, 2012 for P100,000. The
b. P3,755,750 d. P3,312,900 arm can be used on a number of other machines when
required and has a 15-year life. It will not be sold

Page 6 of 10
FEU-MAKATI

when any particular machine is retired, but retained

for use on other machines. 44. The 2016 depreciation expense is understated by:
a. P372,000 c. P 92,000
The reporting date is June 30. b. P252,000 d. P292,000

Questions: 45. Which of the following procedures would least likely

lead the auditor to detect unrecorded fixed asset
36. The accumulated depreciation as of September 1, disposals?
2014, of the machine that was acquired on July 1, a. Examine insurance policies.
2011 amounted to _______. P23,370 b. Review repairs and maintenance expense.
c. Review property tax files.
37. The gain (loss) on the sale of the second replaced
d. Scan invoices for fixed asset additions.
machine in (1) on September 1, 2014 amounted to
__________. P2,575
38. The carrying amount of the machine whose motor was PROBLEM NO. 10
replaced on January 1, 2015 after replacement is
January 1, 2016, an entity disclosed the following
__________. P99,100
balances:
39. The new arm fitted to a machine on April 1, 2015
should be depreciated over _______. 15 years Land 4,000,000
Land improvements 1,300,000
40. The depreciation expense on all the machines for the
Buildings 20,000,000
year ending June 30, 2015 would amount to
Machinery and equipment 8,000,000
________. P376,650
During the current year, the following transactions
PROBLEM NO. 9
occurred:
The following information pertain to Teal Company’s  A tract of land was acquired for P2,000,000 cash as a
delivery trucks: building site.
 A plant facility consisting of land and building was
DELIVERY EQUIPMENT acquired in exchange for 200,000 shares of the
Date Particulars Debit Credit entity. On the acquisition date, each share had a
01/01/14 Trucks 1,2,3, and quoted price of P45 on a stock exchange. The plant
4 P3,200,000 facility was carried on the seller’s books at P1,600,000
03/15/15 Replacement of for land and P5,400,000 for the building at the
Truck 3 tires 25,000 exchange date. Current appraised values for the land
07/01/15 Truck 5 800,000 and the building, respectively, are P2,000,000 and
07/10/15 Reconditioning of P8,000,000. The building has an expected life of forty
Truck 4, which years with a P200,000 residual value.
was damaged in a  Items of machinery and equipment were purchased
collision 35,000 at a total cost of P4,000,000. Additional costs incurred
09/01/15 Insurance were freight and unloading P100,000 and installation
recovery on Truck P300,000. The equipment has a useful life of ten
4 accident P33,000 years with no residual value.
10/01/15 Sale of Truck 2 600,000  Expenditures totaling P1,200,000 were made for new
04/01/16 Truck 6 1,000,000 150,000 parking lot, street and sidewalks at the entity’s
05/02/16 Repainting of various plant locations. These expenditures had an
Truck 4 27,000 estimated useful life of fifteen years.
06/30/16 Truck 7 720,000  Research and development costs were P1,100,000 for
the year.
ACCUMULATED DEPRECIATION-DELIVERY  A machine costing P200,000 on January 1, 2009 was
scrapped on June 30, 2016. Straight  line depreciation
EQUIPMENT
had been recorded on the basis of a 10-year life with
Date Particulars Debit Credit
no residual value.
12/31/14 Depreciation expense P300,000
 A machine was sold for P500,000 on July 1, 2016.
12/31/15 Depreciation expense 300,000
Original cost of the machine sold was P700,000 on
12/31/16 Depreciation expense 300,000
January 1, 2013, and it was depreciated on the
a. On July 1, 2015, Truck 3 was traded in for a new straight line basis over an estimated useful life of
truck, Truck 5, costing P850,000; the selling party eight years and a residual value of P50,000.
allowed a P50,000 trade in value for the old truck.
QUESTIONS:
b. On April 1, 2016, Truck 6 was purchased for
P1,000,000; truck 1 and cash of P850,000 being given 46. What is the total cost of land on December 31, 2016?
for the new truck. a. P7,800,000 c. P8,000,000
b. P7,600,000 d. P6,800,000
c. The depreciation rate is 20% by unit basis.
47. What is the total cost of land improvements on
d. Unit cost of trucks 1 to 4 is at P800,000 each. December 31, 2016?
a. P1,200,000 c. P1,300,000
QUESTIONS: b. P3,600,000 d. P2,500,000
Based on the above and the result of your audit, answer 48. What is the total cost of buildings on December 31,
the following: 2016?
41. How much is the net loss on disposal of trucks in a. P28,000,000 c. P27,200,000
2015? P430,000 b. P25,400,000 d. P27,000,000

42. What is the loss on trade-in of Truck 1? P290,000 49. What is total cost of machinery and equipment on
December 31, 2016?
43. What is the adjusted balance of the Delivery a. P12,400,000 c. P11,000,000
Equipment account as of December 31, 2016? b. P11,500,000 d. P11,700,000
P3,370,000

Page 7 of 10
FEU-MAKATI

additional shares and has not declared dividends since July

1, 2015. A comparative balance sheet prepared by the
50. The auditor is least likely to learn of retirements of
accountant of the company is shown below:
equipment through which of the following?
a. Review of the purchase return and allowance BETTER Corporation
account. Balance sheets
b. Review of depreciation.
December 31, 2016 and 2015
c. Analysis of the debits to the accumulated
depreciation account. Assets
d. Review of insurance policy. 2016 2015
Cash P 22,650 P 16,650
PROBLEM NO. 11 Accounts receivable 67,500 48,750
Lodi Department Stores, Inc., constructs its own stores. Merchandise inventory 60,000 42,600
Equipment 45,000 45,000
Additional information follows:
Total assets P195,150 P153,000
Total construction expenditures: Liabilities and Equity
January 2, 2015 P 600,000 Accounts payable P 33,900 P 33,000
May 1, 2015 600,000
Notes payable to bank - 15,000
November 1, 2015 500,000
March 1, 2016 700,000 Share capital (P1 par value) 75,000 75,000
September 1, 2016 400,000 Retained earnings 86,250 30,000
December 31, 2016 500,000
Total Liabilities and Equity P195,150 P153,000
P3,300,000
Outstanding company debt: The following errors were discovered by the auditor who
Mortgage related directly to new store; was engaged in January 2017 to examine the financial
interest rate, 12%; term, 5 years statements of the Corporation:
from beginning of construction P1,000,000 a. Inventory was overstated by P4,500 at the end of
2016.
General liability: b. Accrued liabilities of P1,800 were not recorded at the
Bonds issued just prior to construction end of 2016.
of store; interest rate, 10% for 10 c. Inventory of supplies of P1,050 was not recorded as an
years P 500,000 asset at the end of 2015, and inventory of supplies of
Bonds issued just prior to construction; P450 at the end of 2016 was debited to an expense.
interest rate, 8%, mature in 5 years P1,000,000 d. Accrued income of P1,200 at the end of 2015 was not
Estimated cost of equity capital 14% recorded as receivable.
e. An allowance for doubtful accounts equal to 6% of
QUESTIONS: accounts receivable should be established at the end of
each year. No accounts receivable were written off
51. The capitalization rate for general borrowings is during the two years.
a. 12.0% c. 9.0% f. Depreciation of P1,500 was not recorded in 2015 and
b. 10.0% d. 8.7% depreciation of P3,000 was not recorded in 2016.
52. The capitalizable borrowing cost for 2015 is g. The merchandise inventories at the end of 2015 and
a. P138,850 c. P122,850 2016 did not include merchandise that was then in
b. P127,250 d. P250,000 transit and to which the company had title. These
shipments of P5,250 and P3,250 were recorded as
53. The carrying amount of the building under construction purchases in January 2016 and 2017, respectively.
as of December 31, 2015 is
a. P1,838,850 c. P1,822,850 QUESTIONS:
b. P1,827,250 d. P1,700,000
Answer the following:
54. The capitalizable borrowing cost for 2016 is
a. P255,330 c. P253,938 56. Net adjustment on 2015 net income is
b. P254,321 d. P250,000 a. (P9,675) c. (P2,175)
b. (P4,425) d. (P3,075)
55. Which statement is incorrect regarding capitalization of
borrowing costs? 57. Corrected 2016 net income is
a. Capitalization should commence when a. P59,052 c. P44,025
expenditures are being incurred, borrowing costs b. P44,052 d. P59,025
are being incurred and activities that are necessary 58. Correcting journal entry in early 2017, assuming that
to prepare the asset for its intended use or sale the 2016 accounts are closed, will include a
are in progress. a. Debit to Retained earnings at P14,400
b. Capitalization should be suspended during periods b. Debit to Retained earnings at P6,900
in which active development is interrupted. c. Credit to Allowance for doubtful accounts at P2,925
c. Capitalization should cease when substantially all d. Debit to accumulated depreciation at P4,500
of the activities necessary to prepare the asset for
its intended use or sale are complete. 59. Adjusted total assets on December 31, 2015 is
d. If there are minor modifications outstanding, a. P145,125 c. P150,825
this indicates that substantially all of the b. P156,075 d. P156,057
activities are not yet complete.
60. Adjusted total liabilities and equity on December 31,
PROBLEM NO. 12 2016 is
a. P185,800 c. P188,250
BETTER Corporation started its operations on July 10, b. P182,550 d. P191,050
2015, by issuing ordinary shares amounting to P75,000.
Net income for the remainder of 2015 was P30,000 and for
2016 it was P56,250. BETTER Corporation has not issued

PROBLEM NO. 13

Page 8 of 10
FEU-MAKATI

Less accumulated depreciation ( 40,000)

Knicks Corporation asked you to review its records and
Property, plant and equipment, net 386,000
prepare corrected financial statements. The books of
Research and development costs 120,000
accounts are in agreement with the following statement of
Total assets P1,552,000
financial position:
Knicks Corporation
Statement of Financial Position Liabilities and Shareholders' equity
December 31, 2016 Current liabilities:
Assets Accounts payable and accrued P 592,000
Cash P 40,000 expenses
Accounts 80,000 Income taxes payable 224,000
receivable Total current liabilities 816,000
Notes receivable 24,000 Shareholders' equity:
Inventories 200,000 Share capital, P10 par value 400,000
Total assets P344,000 Retained earnings 336,000
Total shareholders' equity 736,000
Liabilities and Owners’ Equity Total liabilities and shareholders' equity P1,552,000
Accounts payable P 16,000
Notes payable 32,000 Bryant Corporation
Capital stock 80,000 Statement of Income
Retained earnings 216,000 For the Fiscal Year Ended November 30, 2016
Total liabilities and owners’ equity P344,000 Net sales P2,950,000
Operating expenses:
A review of the company’s book s indicates that the Cost of sales 1,670,000
following errors and omissions had not been corrected Selling and administrative 650,000
during the applicable years: Depreciation 40,000
Research and development 30,000
2013 2014 2015 2016
2,390,000
Ending
Income before income taxes 560,000
inventory -
Provision for income taxes 224 000
overstated P - P56,000 P64,000 P -
Ending Net income P 336,000
inventory- Bryant is in the process of negotiating a loan for expansion
understated 48,000 - - 72,000 purposes, and the bank has requested audited financial
Prepaid expense 7,200 5,600 4,000 4,800 statements. During the course of the audit, the following
Unearned additional information was obtained:
income - 3,200 - 2,400
a. The investment portfolio consists of short-term
Accrued
investments in marketable equity securities with a
expense 1,600 600 800 400
Accrued income - 1,000 - 1,200
total market valuation of P55,000 as of November 30,
2016.
No dividends were declared during the years 2013 to 2016 b. Based on an aging of the accounts receivable as of
and no adjustments were made to retained earnings. The November 30, 2016, it was estimated that P36,000 of
company’s books reported the following profit: the receivables will be uncollectible.
2013 P60,000 2015 P52,000 c. Inventories at November 30, 2016 did not include work
2014 44,000 2016 60,000 in process inventory costing P12,000, sent to an
outside processor on November 29, 2016.
QUESTIONS:
d. A P3,000 insurance premium paid on November 30,
Determine the adjusted amounts of the following: 2016 on a policy expiring one year later was charged
(Disregard tax implications) to insurance expense.
61. Net income in 2013. P113,600 e. Bryant adopted a pension plan on June 1, 2016 for
62. Net income (loss) in 2014. (P62,800) eligible employees to be administered by a trustee.
Based upon actuarial computations, the first twelve
63. Net income (loss) in 2015. P44,400 months' normal pension was estimated at P45,000.
64. Net income (loss) in 2016. P196,000 f. On June 1, 2016, a production machine purchased for
P24,000 was charged to repairs and maintenance.
65. Retained earnings as of December 31, 2016. P291,200
Bryant depreciates machines of this type on the
straight-line method over a five-year life with no
PROBLEM NO. 14
salvage value, for financial and tax purposes.
Bryant Corporation, a nonpublic entity, was incorporated
g. Research and development costs of P150,000 were
on December 1, 2015, and began operations one week late
incurred the development of a patent, which Bryant
closing the books for the fiscal year ended November 30,
expects to be granted during the fiscal year ending
2016, the controller prepared the following financial
November 30, 2017. Bryant initiated a five-year
statements:
amortization of the P150,000 total cost during the
Bryant Corporation fiscal year ended November 30, 2016.
Statement of Financial Position
h. During December 2016, a competitor company filed
November 30, 2016
suit against Bryant for patent infringement claiming
Assets P200,000 damages. Bryant's legal counsel believes
Current assets: that an unfavorable outcome is probable. A
Cash P 150,000 reasonable estimate of the court's award to the
Marketable securities , at cost 60,000 plaintiff is P50,000.
Accounts receivable 450,000
Allowance for doubtful accounts ( 59,000) i. The 40% effective tax rate was determined to be
Inventories 430,000 appropriate for calculating the provision for income
Prepaid insurance __15,000 taxes for the fiscal year ended November 30, 2016.
Total current assets 1,046,000 Ignore computation of the deferred portion of income
Property, plant and equipment 426,000 taxes.

Page 9 of 10
FEU-MAKATI

68. Total assets

QUESTIONS: a. P1,484,200 c. P1,489,200
b. P1,486,600 d. P1,491,600
Based on the above and the result of your audit, determine
the following as of and for the fiscal period ended 69. Total liabilities
November 30, 2016: a. P833,340 c. P855,840
b. P783,340 d. P805,840
66. Net income
a. P253,260 c. P235,260 70. Total equity
b. P283,260 d. P239,760 a. P683,260 c. P639,760
b. P635,260 d. P653,260
67. Current assets
a. P1,084,000 c. P1,079,000
b. P1,061,000 d. P1,073,000
 - end - 

Page 10 of 10