Problem I

You were engaged to audit Albert the Great Corporation. The Company started operations in 2015. The
following is the trial balance of your audit client.
You further noted that ordinary shares with total par value of P4,000,000 and share premium of P470,000
were recorded as sales.

1. How much is the amortized cost of the receivables?

2. How much is the audited balance of total assets?
3. How much is the audited balance of total liabilities?
4. How much is the audited balance of net income?
5. How much is the audited balance of the shareholders equity?

Problem II

You were engaged to audit the inventory account of Raymund Co for the year ended December 31, 2015.
The following are the inventory accounts of your audit client:

Upon careful consideration, you also determined the following data pertaining to each inventory item:

Costs are traced to the general ledger balance of the inventory account. Selling price and cost to complete
are deemed in order.

6. How much is the loss from inventory write down?

7. How much is the net realizable value of the inventory?
8. How much is the audited balance of the allowance for inventory write down?
9. Assuming that the allowance for inventory write down account has a credit balance of P100,000,
how much is the loss from inventory write down?
Problem III
On January 1, 2016, Tin Corporation engaged an independent CPA to perform an audit for the year ended
December 31, 2015. The company uses a periodic inventory system. The CPA did not observe the
inventory count on December 31, 2015, as a result, a special examination was made of the inventory
records.

The financial statements prepared by the company (uncorrected) showed the following: ending inventory,
P72,000; accounts receivable, P60,000; accounts payable, P30,000; sales, P400,000; net purchases,
P160,000, and pretax income P51,000.

The following data were found during the audit:

1. Merchandise received on January 2, 2016, costing P800 was recorded on December 31, 2015. An
invoice on hand showed the shipment was made fob suppliers warehouse on December 31, 2015.
Because the merchandise was not on hand at December 31, 2015, it was not included in the inventory.
2. Merchandise that cost P18,000 was excluded from the inventory, and the related sale for P23,000 was
recorded. The goods had been segregated in the warehouse for shipment; there was no contract for
sale but a tentative order by phone.
3. Merchandise that cost P10,000 was out on consignment for Valentin Distributing Company and was
excluded from the ending inventory. The merchandise was recorded as a sale P25,000 when shipped
to Valentin on December 29, 2015.
4. A sealed packing case containing a product costing P900 was in Tins shipping room when the
physical inventory was taken. It was included in the inventory because it was marked Hold for
customers shipping instructions. Investigation revealed that the customer signed a purchase
contract dated December 18, 2015, but that case was shipped and the customer billed on January 10,
2016. A sale for P1,500 was recorded on December 31, 2015.
5. A special item, fabricated to order for a customer, was finished and in the shipping room on
December 31, 2015. The customer has inspected it and was satisfied. The customer was billed in full
on that sale in the amount of P5,000. The item was included in inventory at cost, P1,000 because it
was shipped on January 4, 2016.
6. Merchandise costing P15,600 was received on December 28, 2015. The goods were excluded from
inventory, and a purchase was not recorded. The auditor located the related papers in the hands of the
purchasing; they indicated, On consignment from Roselyn Company.
7. Merchandise costing P2,000 was received on January 8, 2016, and the related purchase invoice
recorded January 9. The invoice showed the shipment was made on December 29, 2015, fob
destination. The merchandise was excluded from the inventory.
8. Merchandise that cost P6,000 was excluded from the ending inventory and not recorded as a sale for
P7,500 on December 31, 2015. The goods had been specifically segregated. According to the terms
of the contract of sale, ownership will not pass until actual delivery.
9. Merchandise that cost P15,000 was included in the ending inventory. The related purchase has not
been recorded. The goods had been shipped by the vendor fob destination, and the invoice was
received on December 30, 2015. The goods was received on January 5, 2016.
10. Merchandise in transit that cost P7,000 was excluded from inventory because it was not on hand. The
shipment from the vendor was fob shipping point. The purchase was recorded on December 29,
2015, when the invoice was received.
11. Merchandise in transit that cost P13,000 was excluded from inventory because it had not arrived.
Although the invoice had arrived, the related purchase was not recorded by December 31, 2015. The
merchandise shipped fob shipping point by the vendor.
12. Merchandise that cost P8,000 was included in the ending inventory because it was on hand. The
merchandise had been rejected because of incorrect specifications and was being held for return to the
vendor. The merchandise was recorded as a purchase on December 26, 2015.

Required: Determine the following:

10. How much is the audited balance of inventory at year-end?
11. How much is the audited balance of accounts receivable at year-end?
12. How much is the audited balance of accounts payable at year-end?
13. How much is the audited balance of pre-tax income at year-end?
Problem IV

You are auditing the accounts receivable and the related allowance for bad debts account of GRACE INC.

The control account of the aforementioned accounts had the following balances:
Accounts Receivable P1,270,000
Less: Allowance for bad debt (78,000)
Net Book Value P1,192,000
Upon your investigation, you found out the following information:
a. The companys normal sales term is n/30.

b. The allowance for bad debt account had the following details in the general
ledger:

Allowance for Bad Debts

July 31 Write off 24,000 Jan. 1 Balance 30,000
Dec. 31 Provision, per books 72,000
Dec. 31 Balance 78,000

c. The subsidiary ledger balances of the companys accounts receivable as of

December 31, 2015 contained the following information:
Debit balances Credit balances
Under one month P540,000 ABC Co. P12,000
One to six months 552,000 DEF Corp. 21,000
Over six months 228,000 GHI Inc. 27,000
P1,320,000 P60,000

Additional information
The credit balance with ABC Co. was for an overpayment from the customer. The company
delivered additional merchandise to ABC Co. on January 3, 2016 to cover such
overstatement.
The credit balance of DEF Corp. was due to a posting error, the amount should have been
credited to ZYA Corp for a 60 day outstanding receivable.
The credit balance from GHI Inc. was a cash advance for a delivery to be made on January
15, 2016.

d. It was estimated that 1 percent of accounts under one month is doubtful of

collection while 2 percent of accounts one to six months are expected to require an allowance for
doubtful of collection. The accounts over six months are analyzed as follows:

Definitely uncollectible P72,000

Doubtful (estimated to be 50% collectible) 36,000
Apparently good, but slow (estimated to be 90% collectible) 120,000
Total P228,000

Required: Determine the following

14. How much is the gross accounts receivables?
15. How much is the audited balance of the allowance for doubtful accounts?
16. How much is the audited balance of the accounts receivables at amortized cost?
17. How much is the audited doubtful accounts expense?
Problem V

The accountant of ABC Corporation provided you the following post-closing trial balance as part of your
audit of its 2015 financial statements:

Cash P800,000
Accounts receivable 750,000
Allowance for doubtful accounts 50,000
Prepaid expenses 160,000
Inventory 1,000,000
Financial assets at fair value 690,000
Building in process 5,500,000
Patent 200,000
Machinery and equipment 1,500,000
Accumulated depreciation 300,000
Discount on bonds payable 200,000
Accounts payable 900,000
Accrued expenses 150,000
Note payable, 10% 250,000
Bonds payable 2,000,000
Share capital 3,000,000
Retained earnings 4,150,000

Audit notes:
a. The financial assets at fair value include:
DEF Company 1,000 shares P 400,000
ABC Corporation 2,000 shares 250,000
Dividend receivable on DEF Company 40,000
b. The balance of building in process account represents the cost expended to date on a building in
the process of construction. The entity currently rents its factory space. The amount includes
P500,000 which is the acquisition price of the land on which the building is being constructed.
Also included in the Building in process amount is P50,000 which was for the property tax on the
land, half of which was for property taxes prior to the acquisition with the balance applicable for
the current year.
c. The 10% notes payable represents bank loan made on January 1, 2014 with the principal and
interest (compounded annually) being due December 31, 2016. Interest is yet to be accrued on
the loan.
d. The bonds pay 12% interest semi-annually on April 1 and October 1 and mature on April 1, 2014.
Interest is yet to e accrued on the bonds.
e. Forty-thousand shares, P100 par, are authorized, of which 30,000 issued.

Required: Determine the following:

18. How much is the audited total current assets to be reported in the 2015 statement of financial
position?
19. How much is the audited total non-current assets to be reported in the 2015 statement of financial
position?
20. How much is the audited total current liabilities to be reported in the 2015 statement of financial
position?
21. How much is the audited balance of the accumulated profits, unappropriated as of December 31,
2015?
22. How much is the audited balance of the total stockholders equity in the 2015 statement of
financial position?