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Auditing Problems MC Quizzer 02
Auditing Problems MC Quizzer 02
Write the letter that best corresponds to your answer in the booklet that was
given to you. Do not write on the test questions and return it after use. Thank you
and GODBLESS!
The company has a business model of collecting the contractual cash flows for
all their debt security investments, however due to frequent sale and disposal of
investments the management has decided that the business model is no longer
appropriate.
On December 31, 2014, the four million face value debt instrument was disposed
of when the market rate of similar instruments was 11%.
PV factor of 11% after 2 years 0.8116
PV factor of annuity of 11% after 2 years 1.7125
3. What is the amortized cost of the debt instrument on December 31, 2014
a. 6,000,000
b. 6,105,353
c. 6,151,700
d. 6,194,220
4. What is the amount of gain or loss should the company recognize in its 2014
profit or loss as a result of the transfer?
a. None
b. 69,418
c. 78,134
d. 96,330
IMPAIRMENT OF ASSETS (5) REVALUATION SURPLUS (4)
On January 1, 2009, MONICA CORP. acquired a factory equipment at a cost of
P450,000. The equipment is being depreciated using the straight-line method
over its projected useful life of 10 years with P50,000 salvage value.
On December 31, 2010, a determination was made that the future net cash flows
expected from the contributed use of the asset shall be P40,000 per year.
Estimated salvage value remains to be P50,000. The asset also had a fair value
less cost to sell at P220,000 on the same date. You ascertained that this was
properly computed and that recognition of the impairment was warranted. (The
prevailing interest rate is 10%)
You have been asked to assist the company’s accountant in the application of
PAS 36, the standard on Impairment of assets.
5. What is the recoverable amount of the asset on December 31, 2010?
a. 236,722
b. 213,397
c. 220,000
d. 320,000
6. How much impairment loss should be recognized on December 31, 2010?
a. 133,278
b. 156,603
c. 150,000
d. 0
7. What is the asset’s carrying amount on December 31, 2012, before
revaluation?
a. 177,525
b. 190,042
c. 160,050
d. 172,548
8. How much impairment recovery should be reported in the 2012 income
statement?
a. 155,475
b. 99,958
c. 142,975
d. 117,450
9. What is the depreciation expense in 2014, under cost method?
a. 41,625
b. 36,250
c. 37,875
d. 30,000
10. What is the depreciation expense in 2014, under revaluation method?
a. 41,625
b. 36,250
c. 37,875
d. 30,000
11. What is the balance of any revaluation surplus at the end of 2014, under the
piecemeal realization?
a. 63,000
b. 55,125
c. 52,500
d. 47,250
King Company has an overdue note receivable from Kevin Company for P300,000.
The note was dated January 1, 2012. It has an annual interest rate of 9% and interest
is paid December 31 of each year. Kevin paid the interest on the note on December
31, 2012, but Kevin did not pay the interest due in December 2013. The current
effective interest rate is 6%.
On January 1, 2014, King agrees to the following restructuring arrangement:
Reduce the principal to P250,000.
Questions:
Based on the above and the result of your audit, answer for the following: (Round off
present value factors to four decimal places.)
12. The loss on impairment of loans to be recognized by King in 2014 is
a. P95,980 c. P88,387
b. P77,000 d. P18,980
13. The carrying amount of the loan as of December 31, 2014 is
Auditing Problems
Final Examination
Mastery + Accuracy = Speed
a. P239,128 c. P236,812
b. P245,088 d.P250,000
The Cash Receipts Journal shows a total receipts for December of P371, 766.
The Check register reflects total checks issued in December P377,632. A
collection of P5,912 was recorded on company books on December 31 but
was not deposited until January 2, 2015.
The balance per bank statement at December 31, 2014, is P17,516. This
statement shows total receipts of P373,502 and checks paid of P380,284.
c. 377,632
d. 377,596
20. What is the total outstanding checks at December 31?
a. 8,602
b. 9,072
c. 9,042
d. 9,842
21. What is the adjusted bank balance on November 30?
a. 16,690
b. 16,732
c. 16,804
d. 16,774
22. What is the adjusted book receipts for the month of December?
a. 375,724
b. 371,766
c. 371,238
d. 375,766
23. What is the adjusted book balance on December 31?
a. 14,824
b. 14,866
c. 14,908
d. 14,782
LIABILITIES (5)
The following information relates to Sonic Company’s obligations as of
December 31,
2015. For each of the numbered items, determine the amount if any, that
should be reported as current liability in Sonic’s December 31, 2015 balance
sheet.
24. Accounts payable:
Accounts payable per general ledger control amounted to P5,440,000, net of
P240,000 debit balances in suppliers’ accounts. The unpaid voucher file
included the following items that not had been recorded as of December 31,
2005:
a) A Company – P224,000 merchandise shipped on December 31,
2005, FOB destination; received on January 10, 2006.
b) B, Inc. – P192,000 merchandise shipped on December 26, 2005,
FOB shipping point; received on January 16, 2006.
c) C Super Services – P144,000 janitorial services for the three-month
period ending January 31, 2006.
d) MERALCO – P67,200 electric bill covering the period December 16,
2005 to January 15, 2006.
On December 28, 2005, a supplier authorized Sonic to return goods billed at
P160,000 and shipped on December 20, 2005. The goods were returned by
Sonic on December
28, 2005, but the P160,000 credit memo was not received until January 6,
2006.
Auditing Problems- Final Examination Page 6
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25. Payroll:
Items related to Sonic’s payroll as of December 31, 2015 are:
Accrued salaries and wages P 776,000
Payroll deductions for:
Income taxes withheld 56,000
SSS contributions 64,000
Philhealth contributions 16,000
Advances to employees 80,000
a. P776,000 b. P992,000 c. P832,000 d.
P912,000
26. Litigation:
In May, 2015, Sonic became involved in a litigation. The suit is being
contested, but
Sonic’s lawyer believes it is possible that Sonic may be held liable for
damages estimated in the range between P2,000,000 and P3,000,000, and
no amount is a better estimate of potential liability than any other amount.
a. P0 b. P2,000,000 c. P3,000,000 d.
P2,500,000
29. Assuming that the actual residual value is expected to be at P50,000, what
is the depreciation expense to be reported on Raise’s books for the year
2014?
a. None
b. 74,192
c. 79,193
d. 85,000
30. How much is the interest expense to be reported in the income statement
of 2015?
a. None
b. 72,192
c. 67,412
d. 62,153
On January 1, 2018, Dexter, Inc. signs a 10-year noncancelable lease agreement
to lease a storage building from Garr Warehouse Company. Collectibility of lease
payments is reasonably predictable and no important uncertainties surround the
amount of costs yet to be incurred by the lessor. The following information
pertains to this lease agreement.
(a) The agreement requires equal rental payments at the end of each year.
(b) The fair value of the building on January 1, 2018 is P3,000,000; however,
the book value to Garr is P2,500,000.
(c) The building has an estimated economic life of 10 years, with no residual
value. Dexter depreciates similar buildings on the straight-line method.
(d) At the termination of the lease, the title to the building will be transferred
to the lessee.
(e) Dexter's incremental borrowing rate is 11% per year. Garr Warehouse Co.
set the annual rental to insure a 10% rate of return. The implicit rate of the
lessor is known by Dexter, Inc.
(f) The yearly rental payment includes P10,000 of executory costs related to
taxes on the property.
31.What is the amount of the minimum annual lease payment? (Rounded to the
nearest peso.)
a. P188,237
b. P478,236
c. P488,236
d. P498,236
32.Dexter, Inc. would record depreciation expense on this storage building in 2018
of (Rounded to the nearest peso.)
a. P0.
b. P250,000.
c. P300,000.
d. P488,237.
STOCKHOLDERS’ EQUITY (5)
On January 1, 2014, Luzon Company issued a 3-year, P4,000,000, 10%
bonds at P4,250,000. The bonds are convertible to 50,000 ordinary shares
(P50 par value) at any time up to maturity. Interest on the bonds are payable
semi-annually every June 30 and December 31. Similar securities without
conversion option had prevailing market rate of interest at 12%. The issuance
was recorded as a debit to cash and credit to bonds payable for the total cash
proceeds. Semi-annual interest payments were appropriately recorded. On
December 31, 2014, P3,000,000 of the bonds were converted to ordinary
shares. No entry had been made by the company upon the said conversion.
33. What is the equity component of the compound security?
a. 446,693
b. 442,146
c. 554,089
d. 650,349
34. What is the credit to share premium as a result of the conversion of bonds
on December 31, 2014?
a. 1,356,067
b. 1,361,396
c. 1,808,089
d. 965,349
On January 2, 2014, ABC granted 20 of its key executive’s options to acquire
certain number of shares of the company at P50 per share (par value P20 per
share), condition upon the employees staying with the company’s employ up
to December 31, 2017 and condition upon the average increase in sales
volume over the same period by at least 5%. If the average increase in sales
volume over four years is 5% to 9%, each employee get to exercise 1,000
option each; 10% to 14%, each employee get to exercise 2,000 option each;
15% and above, 3,000 option each. At the end of 2014 average increase in
sales volume was 12%. The fair value of the options on the grant date was
ascertained to be at P5. The company expects to maintain the said sales
volume achievement over the next three years, no employee left the company
but it is estimated that 5 employees will actually leave by 2017.
35. How much is compensation expense in 2014?
a. 37,500
b. 50,000
c. 75,000
d. 100,000
36. Assuming that at the end of 2015, 3 employees actually left the company
and it is estimated that additional 5 employees will leave the company by
the end of 2017, and in addition average increase in sales volume for the
year was at 18%, a rate the company expects to maintain over the next
two years, how much is compensation expense in 2015?
a. 37,500
b. 45,000
c. 52,500
d. 40,000
Camby Corporation's balance sheet reported the following:
Common shares outstanding, 5,000 shares, par P30 per share P150,000
Paid-in capital in excess of par
Retained earnings
In March 1, 2013, Mark Company issued 60,000 ordinary shares for P5.25
each; On July 1, 2013 Mark company declared a 10% stock dividend. On
October 1, 2013 Mark Company issued 80,000 stock options. The exercise
price for the option shares was P5.75 wherein average market price of the
shares was P5.40. The net income reported by Mark Company for 2013
was P4,250,000. No dividends were declared in 2013.
38. Basic earnings per share reported in the 2012 income statement is
a. 12.31 b. 10.38 c. 11.41 d. 12.56
39. Diluted earnings per share reported in the 2012 income statement is
b. 12.31 b. 10.38 c. 11.71 d. 11.26
40. Basic earnings per share reported in the 2013 income statement is
c. 9.74 b. 10.11 c. 10.62 d. 11.36
41. Diluted earnings per share reported in the 2013 income statement is
d. 9.68 b. 9.70 c. 9.81 d. 10.55
INVENTORY (2)
You are engaged in an audit of the financial statements of the Oprah Company for
the year ended October 30,2010, and have observed the physical inventory count
on that date.
All merchandise received up to and including October 30, 2010 has been included
in the physical count. The following list of invoices is for purchase of merchandise
and are entered in the purchases journal for the months of October and
November 2010, respectively:
No perpetual inventory records are maintained, and the physical inventory count
is to be used as a basis for the financial statements.
42. What adjusting entry is necessary for the October 25 invoice?
a. Accounts payable 3,900
Purchase 3,900
b. Purchases 3,900
Accounts payable 3,900
c. Inventory, ending 3,900
Cost of sales 3,900
d. No adjusting entry is necessary.
The building has a useful life of 20 years and residual amount of P400,000.
The fair value of the building at December 31, 2011 was P4,120,000 while the
estimated transaction cost on sale was 80,000.
The fair value of the building on December 31, 2012 was P3,750,000 while
the estimated transaction cost on sale was P110,000.
46. If Violet Company uses the cost model, the measurement at recognition
of the building is
b. P149,400
c. P298,600
d. P448,000
SOURCES
PREWEEK MATERIALS RESA 2014
PREWEEK MATERIAL CRC-ACE PRACTICAL ACCTG 1(#48-49)