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OPEN Final Preboard Examination on Audlting Broblems

April 23, 2016
Suggested answers/solutions by OCAMPO/CABARLES

PROBLEM NO. 'll4 - Warriors Corporation

Questlon No. 36/51 - B
Adjusting joumal entry:
Accounts payable 100,000
lnventory 100,000

Quesflon No. 37/52 - B

Adjusting joumal entry:
lnventory 180,000
Accounts payable 180,000

Quesfion No. 3U53 - A

Adjusting joumal entry:
Sales. 420,000
lnventory 210,000
Accounts receivable 420,000
Cost of sales 2r0,000
Question No. 39/54 - A Effect on inventory
Over (Under)
Note 1 100,000
Note 2 (180,000)
Note 3 (210,000) I

Note 4 (1s0,000) !

Note 5
\l^.
! Er L 55\d:=L
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PRC,ts]-Etd N-J. 2|,5 - Sc'-= Crrpo.aton

^_ =-r,- _- !.4^ _
^
Sae cf a:'d and curidine Gain (loss)
Saies proceeds (a) 1,700,000
Less CA ol land end building (P800,0@+P1,050,000) 1,850,000 (150,000)
Sale of eouionent
Sales proceeds (b) 120,000
Less CA of equipment (b) . 1sq,o00 (30,000)
Trade-in of eouipment
Trade-in va{ue (f) 47,A00
Less CA of aquipment (P40,000 - Pl5,000) 25,000 22,000
Net loss (168,000)

Quesflon no. 4A57 - C

Payment to architect 300,000
Payment to city council for approval of building construct 150,000
Payment for safety fence around construction site 50,000
Payment to construction contractor 3,000,000
Payment for safety inspection 30,000
Payment for removal of safety fence 20,000
Cost of the new huilding 3,650,000

Question no. 43/58 - B

Equipment, beginning 700,000
b) Sale of equipment (400,000)
c) Purchase of new equipment - cash (P300,000x.98)+'1,000+3,000I 298,000
f; Purchase of new equipment - trade-in (P103,000 + P47,000) 150,000
f) Equipment traded-in
Equipment, ending

Questlon no. 44/59 - B

Land (donated by president) 1,000,000
Land improvements (P500,000 + P80,000) 580,000
New Building (See no. 42) 3,550,000
Eouipment (See no. 43) 708,009
 PROBLEM NO. 3 - Thunder Company

Quesficn No.4d61 - C
Bills and coins 5,200
Checks 2,900
Collr=ctions on 113117 (1,800)
Undeposited collections, 12131 116 @
8J00

Questron No.47/62 - D
Quesfibn No. 4U63 - D
BANK BOOKS
Unadiusted balances, 12131 I 16 50,200 61,(x]o '
Add (deduct):
Underfooting of cash recaipts joumal 6;400
Unrecorded loan prcceeds
i e,000
Overfooting of cash disbursemsnts joumal i 500
Bank *arge - dishonorcd guatanieed note (5,000)
December BSC charged lo anotterdepositor (1,200) (1,200)
I
Outstanding checks (5,600)
UndepositrJ collections (See no. 46) 6,300
Conected balances
Estimated shortage . (20,000)
Adjusted balances, 12131 I 1 6 49.700 49.700
- (P40,000 + PN,000 - P39,000)

Quesfion No. 49/64 - B

Queston No.5U65-D

PROBLEilI NO.4 - Glippers Company

Quesfon No.51/66-A
EryeaeO cash discounB 300
Divide by percentage of cash diecount
Portion d AR that will be granted cash discounts
_TEM2%
Dnnde by % of total AR estimat€d to take advantage of the discount 10o/o
A.=al-is'eceivable, 1 ?J31 l'l 6 -ffio-
--
I

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iresncr 'cc 5?49'- 3
I
4lmcrce *J" scr.,rc#r accgJrns, 123'1,56
P- lS ,lr-il r >i 9OC,P3l.ffii x 150hj

3.las$mrc. 53168-8
Accowrts receiwbb, 1 2131 I 16
Less; Allorranca for doubtful accounts
-t4E-
150,@

Allowanca for sal€s discounE

Net realizable value, 12131116

Question No. 54/69 - A

Alloryance for douffil accounts, 12tr1116 9,000
Add accounts writlen off 2,200
Total 11,200
Lese: Allowance for doubtful accounts, 1?I31l1S
Bad debt recoveries
Doubtfrrl accounts Gleense fior 2016

Question No. 55/70 - C

 FR0BLEM NO. S " Cavaliers Company
Question No 56/36 - D
Selling price (50,000 x P3U
1,750,000
i ess broker's fees
15 000
Net proceeds
1,735,000
Less cost of investment sold
Net amount in 2016 profit or logs - OK Corp. sh#s
. .1,600,000
135,000
Queslrbn No. 57/37 - C
Transaction costs
FV adj. gain - BA $tores- shares j - ,q_ . {3,133'
[pA 5,000 - (6,000
lriet amou.rt irr 2016 profit or loss - BA Storesshares _ ---fmO-
Question No. 58/38 - A -
l'ransaction cost (commission) (5o,ooo)
lnterest income (P1M x .09)
80,000
FV adjustnrent ftP1M x .9S) - (p92a,164 - ptj0,000ij 105,836
Net amount in 2016 piL - X Corp. bonds (Held for tradir 135,836

Quoslion Nr:. 59/39 - C

Irlet amount in 2016 profit or loss - X Corp bonds (AFS).
lnterest income (p92+,164 x .11 92.416
Qussfion No. 60/40 - C
Net amount in 20i6 profit or loss - X Corp. bonds (l-l'lM):
lnterest incorne (p924,164 x .1) 92.416

PROBLEM NO. 6 - 'l-orontoiRaptors Corp.

Quesfion No. 61/41 - A
Quesllon No 6242 - Ci
Refur to ihe amorlization schedule beiow.
Anla rtza t! cn sch e d u le ( Lo s so r)
Date.
1t.t tI ;i i
Pavment lnterest('10%) Principal (r A
t lJ
q'1j:114 476.514
150.000 28,591 12'l ,409 3{i5,105
150,000 21,3A6 1 28,694 226,41 1
43fl i8 240.00c 13,589 226 411
u :$.. i},l idE tg!-{r1,i2&d(:
I

Fan value of asset

467,100
lnfial direct cost {tDC)
9,414
*4?€-6ir
Using 6%": Cashflow PVF at 6% pV
PV of rentai payments 150,000 2.6730 400,ffi
PV of GRV
PV of MLP
60,000 0.Bse6.- 50,376.-
451,326
PV of URV 30.000 0.8396 _ 25,188-"
476.514
The interest rate ittplicit in the lease is the discount
rale that, at the inception of fhe /ease.
causes the aggregate presentvatue of
{a) the minimum tease payments and (b)rhe uRV to 0e
equal ta tho sum of {i) the FV of the /e€sed asset and (ii)
any initial direct costs ol ffie /essor
Quesfion No 63/43 - .A
Interest expense (see amortization schedule belowj
27,080
Executory cosis
15,000
Depreciation [(P4S j,326 - p60,O0O) / 3J
130,442
L.ease related expenses
172.522
---_+-+.
Questrbn No 64/44 - D
Amoiizati on sched u le (Lessoe)
Date
7t1t15
Earloe$ hlelectfig%l Principal A.A
4ii1.326
6/30/16 150,000 !' 27,080 122,920 328,406
6/30/17 150,000 19,70,i 130,296 199.110
6130/18 210,000 \ 1.890 1 198,1 10
Quesrlon No. 65/45 - D
 PROBLEI/! NO.7 - Heat, lnc
2016
12.31.,r5 Trensactions J-a3]Jg*
Prefeience sllares 90,000 a 180,000 1s0,000 (66/46-A)
e (90,000)
Ordinary shares 1,650,000 b 67,500 171?,500
Subscribed share caPital d 150,000 ',!50 000

Share premiunt b 101,25O 326,250 (67/47-C)

d 225,000
Retained earnings 933,000 e (18,000) {,006,500 (68/48-C)
t (36,000)
s (247,5CIq
h 375,000
Treasury shares c (182,250) (18?,250)
Discount on prdference shares a (30,000) (3!oq9l
3,'168,000 (69/49-D)
{70/50-D)
Journal eotri€s for 201 6

a Land (at appraised value) 150,000

Discount on preference shares 30 000
Preferenr:e shares (12.000 shares x P'l5) 180,00c)

l: Cash (6,'750 shares x P25) 1S8,750

I Ordinary shares (6,750 shares x P10) 6 i,500
I
Share premium - EOP . 101,250

c Treasury shares 182,254

Cash (6,750 shares x P27) 182,250

d Cash 292.500
i Subscriptions rec. t{15,000 shares x P25)- P292,5001 82.500
i
I Subscribed share capital (15,000 shares x P10) 150.000
I
Share premium - EOP 2?5 000
I

I
I
,1ote. Subscrpiions receivabls should be Ptessnled undercurrents assels
I
sr.nce it is currently colhefbla.
t 90.o00
t& e trrelersrce shares (6,0CO shares x P15)
ietained eamirgs 18.000
r- Casn (5.0CO shares x P18) 1ofl.000
li'

f Retained eainings 36,00c

Cash :16 000

Preference shares issued and outstanding, 1/1 A non

Shares issued, 1/3'1 r, * _ .12,00q
Number of shares issued and outstanding, 10/15 r 18,000
Dividends per share . 2.00
Total cash dividends , ' ::*3d60d-
g Retained earnings 247,500
Dividends payable 247 500

Ordinary shares issued and outstanding, '1l1 165,000

Shares iesued, 2/1+ ._6,750
Number of shares issued 171,750
Treasury shares *_ .(6,150)
Number of sheres issued and outstanding, 10/'15 165,000
Dividends per share
Total cash dividends

h Profit or hlss summary

ru 150

375,000
Retained earnings 3 75 000
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oPEN Final Preboard Examination on Financial Accountlng and Reporting

3ill"ff 'if"-ers/sot utions by ocAMp o/cABARLES

Quesfibn No. 1/57 - B
Quesfion No, 2/58 - B
Question No. 3/59 - B
Question No. 4/60 - D
Adiustinq entrv
Rental income (P12,000 x 3/4) 9,000
Unearned Rental income 9,000

Question No. 5/61 - A

Quesfion No. 6/62 - D
Quesllon No.7/63 - C
Cash (P248,000+P2,000-P 1 50,00G.P500) 99,500
Accounts receivable (P80,000 - P5,000) 75,000
Allowance for bad debts (P15,000 - P5,000) (10,000)
lnventories (P120,000 - P4,000) 116,000
Prepaid insurance (P25,000 - P5,000) 20,000
Total cunent assets
_3!91500 _

Quesfion No. 8/64 - A

Accounts payable, 12131 116 25,000
Payments for purchases 300,000
Accounts payable, 12131115 (22,000)
Purchases 303,000
rrventory. 12131115 34,000
- . e-::1 1 2,'31 i'1 5 (30,000)
_t%999_
l-.:::.:- '-: i 5i - 3
3*'+-z e.GertsesrFi02,COGp5,7CO=P5.000) i0.1,300
,'r3f,€S e.xcense (P150.000+P12,000-Pi0,300) 151,700
Deprecration [P103,500+(P75,00GIP22,CC0)-P128,90C 27,600
Amortization expense (P40,000 - P36,000)
Totat operating 3xpenses
4,000 _
----3t1999-
Quesfion No. 10/66 - D
Sales (P685,300+P25,000-P1 8,000) 692,300
Cost of goods sold (See no. 8) (307,000)
Operating expenses (See no. g) (284,600)
Gain on sale of PPE (P27,200 - P22,00Q) 5,200
I Loss on bond retirement [(P120,000-P100,000) - p23,r (3,000)
lnterest expense (P1 1,000+P2,800-p4,000) (9,800)
lncome tax expense (P23,900+P1,600-P1,200) (24,300)
Net in-come
-r' 68,800
Questlon No. 11/67 - D
Quesfion No. 1A68 - B \
Accounts receivable, beg. 100,000
Sales on account 300,000
Accounts written off (12,000)
Accounts receivable, end. (168,000)
Collections
_220,099_
Question No,13/69-D
Questrbn No. 14t70 - B
Quesfion No. lil1 - D
Question No. 16/2 - D

Quesfion No. 17R - C

Cash and cash equivalents (P35,000 + P75,000 + P3S0,000)
_-_lg!p99_
Quesfibn No, 18/4 - C
Gross sales [(Pl 48,000+p70,000+p2,000-pl 60,ooo)+p60,000]
: 120,000

Question No. 19/5 - A

 Quesfibn No.20/6'' D 2,500
Dividend income (P12'500 x '2)
- P6:00)] 5,000
Fair value adjustment gain [10,000 x (P6'50 | ==-
/ Ef{ect on Profit or loss

Question No. 21/7 - C 1,120,000'

Cost
Share of Profit: 50,400
Unadiusted(P252,000x'2)
Amoriizationof

CarrYing amount, 12131 116

- -.-
excess [(Pl'12M - P'84My10]
Dividends received (P56'000 x '2)
ru (28.OOO)
-
22'400

1.131,200

Question No. 2A8'B 31,800

(5,100)
ilT:::ffitlT ou,ing 2016 (P170,100 - P165,000)
(3,300)
Dividends received (15,900)
(P31'800 x 1/l
Unexpired insurance premium refunded 7.500
Life insurance expense _.
Quesfion No. 23/9 'A
--Oerivative 988,020
asset, 1/1/16 (P10M x '06 x 1'6467)
69.161
lmortitrtion up to 7/1/16 (P988,020 x '14 x6l12't {!

Derivative asset, 7/1/16 Jr.sTrEl

Question No. 24/10'D
Quesfion No' 25/11 -C
Questlon No. 26/12'C
Questron No. 27/13'B 441,000
U nadjusted lnventory, 1 2/31 /1 6
38,000
(b) Goods sold in transit - FOB destination
point 51,000
iei cooot purchased - FOB shipping
Adjusted lnventory,l 231/16 _. 530.000

l-'eslc. tta. 2A14 - A

r 42,500
;21t *re-E'5
!+:,*
' . s6,000
;.a!r, -i5e-AS 8r6[dr€
+er *€
-ess'a: lre;tas 3E
iar rgc uceO
-ffi- 52.000
86.500
130,000
}re; isbor 78,000
r Fadory crerhead (Pl30,000 x '6) 294,500
a

Total manufiacturing cost 115,000

Work-in-Pnocess, 1/1
409,500 ,.,
Total cost Placed in Process
136,020
Less work-in-process, 6130 (squeeze)
274,480
Cost of goods manufactured
120,000
Finished goods, 1/1
394,480
Total goods available for sale
112,000
Less finished goods, 6/30 ! !=
zaz,$o
Cost of goods sold (P428,000 x '66)

Quesfon No.29/15'D
Question No. 30/16'D
Quesfion No. 31/17 'C
38,000
Fair value of asset given up (P43,000 - P5'000)
30,000
Carrying amount of asset given uP
8.000
Gain on exchange

Quesfion No.3A18-C
(Cost - P5,000) x7155 = P42'000 an d enorfram the choices.
trr" iiirion to solve for cost of equipment using algebra or tial
il*
-
Quesflon No. 33/19'A
200,000
Carrying value, 8/1/15
(30,000)
Carrying value of asset sold (P25,000 + P5'000) (20.000)
Depreciation fqr the Year
150,000
Carrying value, 7/31/16
Quesfion No. 3420 - A Machine A Machine B
Fair value 1,800,000 1,550,000
Carrying amount, 1A31ho
lncrease (Decrease)
PrL (RL)

Computation of carrying amount, 12n1n6__

Machine A: Machine B:
Carrying amount, 6/30/15 1,800,000 Carryingamount,6/30/15 1,700,000
Depreciation (P3M/1 0 x 6112) (150,000) Depreciation (P2M/10 x 6/1 (100,000)
1,650,000

Quesfion No.3ff21 - C
Quesfion No. 36/22 - D
Land held as potential Plant site 5,000,000
Vacant building to be leased out under an operating le 20,000,000
Building being leased out to a subsidiary 8,000,000
lnvestment properties in the separate FS i'Ed66f6o-
Questlon No. 37/23 - D
Patent amortization (P70,000/20)
-----9,999-
Quesflon Na. 382.4 - A
Quesfion No. 3925 - C
Date of classification as held for sale:
Carrying amount (P1M - P7SO,OOO)
Fair value less costs to sell (P100,000 - P10,000)
lmpairment loss

At December 31, 2016:

Fair value less costs to sell (P150,000 - P16,000) 134,000
Carryi ng amount before remeasurement (9q,0oo)
Gain on reversai of impairment loss 44,000

- -€3-*: S-:*I--,:-E '?re-'-€ 'L?' 'a

--E-!:r-?: s;tsl-.nor:s lPEi5 l,ii - 31!,r - P7CC.CE0) __2,32199!_
l.es:c: \c 22.Q.8 - D
,3ues&on No. 4729 - A
Date Payment lnterest (10%) Principal C.A.
1t1t15 2,070,000
12t31115 388,020 207,000 181,020 't,888,980
12t31116 388,020 188,898 199,122 1,689,858
Question No. 44/30 - A
CA of old liability (P1M + P12OT) 1,120,000
'PV of new liability (Discounted @ 12o/"):
PV of reduced principal (P700,000 x .7118) 498,260
PV of interest (P700,000 x .08 x 2.4018)
Gain on debt extinguishment
lnterest expense - 2016 (P632,761 x .12) _21991_
Quastion No. 45/31 - D
PVF at 1.5%,
flows 20 oeriods Present value
Cash
Principal 1,000,000 0.7425 742,500
lnterest 12,500 17.1686 214,008
lssue price without _99L19!_
lssue price with 1.045,000
lssue price without .
(957,108)
Equity component - conversion feature

Qaesflon No. 46/32 - A

Total expense (120,000 x P.5) 80,000
Payments made lo retailers (25,000)
Liability. 1281118
- 35,000
 Quesfibn No. 48/34 - D
Adjusted RE, 1/1/16 (See no. 47) ' 6,68o,coo
Net income 14,500,000
Dividends - PS (100,000 x P50 x .09) (450,000)
Dividends - OS [(2M - 201 + 500T ) x P1] (2,480,000)
RE,12t31t16 __-g3g9pg9_
--
Questlon No. 49R5 - B
Share premium, 12131 115 7.500,000
Item 1 - Share premium - PS [100T x (P34-P50)] 40o,oo0
Item 3 - Share premium - OS [500,000 x (P17 - P10)] 3,500,000
Item 5 - Sharb premium - TS [10,000 x (P21 - P16)] 50,000
Share premium, 12131 116 11,450,000

Quesflon No. 50/36 - A

Share capital - PS (100,000 x F50) 5,000,000
Share capital - OS (2,500,000 x P10) 25,000,000
Share premium (See no. 49) 11,450,000
Retained earnings (See no. 48) 8,250,000
Treasury shares ('10,000 x Pl6) (160,000)
Totalequity, 12131116 _19f19499_
Quesfion No. 51/37 - C
Retained earnings, beginning 80,000
Net income 60,000
Preference dividends declared (10,000)
Ordinary share dividends declared
Retained earnings, ending

Ouesllon No. 52/38 - C

Ouesflon No 53/39 - C
PS NQ Total
Ja5 < < Aa\n 1n nnn 25,000
-
45 000 30 000 7R nnn
m 300 40,000 1c0"00c

;Lai"lir:!- '*: i4:,j - j

i -:Ia F3-An 7,920,000
-ess r"-?rence equfy
uQuidation value (20,000 x P110) 2,200,000
Dividends (P2M x .12 x 3) 729.O00
Ordinary equity
/Outstanding ordinary shares 20p,000-
Book value per share - ordinary 25.00

Question No. 5il41 - B

Profit 10,000,000
PS dividends (100,000 x P15) (1,500,000)
Profit to OS 8,500,000
A|/A outstanding OS 1,000,000
Basic EPS 8.50

Profit to Q$ WA O/S OS EPS

Basic 8,500,000 1,000,000 8.50
Conversion of bonds 1,950,000 300,000
10,450,000 1,300,000 8.04
Conversion of PS .1,500,009 150,000
11,950,000 1,450,000 8.24

Qaesflon No. 56/42 - A

Cumulative expense, '12131116 (84 x 300 xPZOx2t3) 336,000
Cumulative expense, 1A31n5 (81 x 200 x P20 x 1/3) (108,000)
Compensation expense - 20'16 _4qp99_
Quesfion No.57/43-D !
Queslion No. 5U44 - B
Average accumulated expenditures 475,000
Specific borrowing 400,000
 Ques0rrffi- *'A
Oue!frrfr- 0|C-D 37,490
hIGi GTGflse (see scfredule)
Drp-n KP4N,OOO' P40'000)l/15
24,oQQ
Tdrytsee #
81.490

fstur No. 6?/48 - C

120,000
Canyrng amouflt [P150,0(n - (P150'000 x .05 x 4-]l
Tax base [P150,000 - (P1S,000 x .02 x 4]l 138.m
Temporary difference' Deductible 18.trn.
#
Defened tax assei (P18,000 x .25) 4.500
E=EEI=|::

Quesffon No.63/49'C
Quesfrbn No, 64/50'A
Queslfon No. 65/51 'B
Quesfbn No.66/52'A
Quesfion No. 67/53'D
Qreslion No. 68/5'4 - D
Share caPital 11,500,0@
Retained $amings (P6,580,000' Pl,200,000) 5,380,000
(870.000)
TJeasury shares .#
,r6.010.000
Totalequity
Nofei It e orlginal versionoffhe FFRS forSME$ does not allwthe usd of revaluatlon model.

Quesfion No. 69/55 - A

Quesfion No.70/56'C
Net increase in equitY* 1,390,000
(P1,250,000 + P130,000) (1,3E0,000)
Contributions fum ownert
Distribution8 to owners (DMdends)
Net income br the Year
incraase in liabil'
*
Add incrwse in asse{s ard dbcreas in /IaD#rtes; Dedud deaease in assets and

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