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ReSA
The Review School of Accountancy
5lTeL No. 73S-9BC7 & 734-3939

l>-.UDITI:tfG -::>ROBL:El-18 21 July 2013 (Sunday)



First Pte-Board Examination 8 : 0 0 AM - 10 : 0 0 AM

MULTIPLE CHOICE
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INSTRU;:.1'I0NS: .~elect the cor.CC'<.-'t c;.nswer -~or each 0.t: the following
quest io1.s. Mdrk on~y one ans~.rEr for each i teiTi by shading the box
corresprncJing to the let+-er or your chcice on the sheet provided.
STRICTLY NO ERASURES _i.i.RE ALLO"H"ED. UEe p211cil no. 2 onJy.
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PROBLEM }_
c:~" ul' . i :1g for ~hP first t_ime t~hs fir:a:~cial statements of Cavalier Corp.
~a~
the pr: 1cJ ended December 31, 2013. C&valier Cotp, a manufacturer of steel
bc;rs d.:.stl buted rr.ain_l_y l.o conscructjon companies, started its operat:ions ir:
2Cll. C:u'fi.: -._ier' :-: ac:::ou:ltailt presen e9 to you the following analysis of its

--------- ---------_ -------r ---.


Ac:cu~c_;lated Profic accoc.r1~:

i Da t~j -~~v::u:.ar!;' _ __j_ D~j t I Credi ..; BaJ ance


~-/_3_:.._/_" ~_
_[IJ"i_1_J_-..]e_t_loss __j____ _ 1 0~-'000 ---t-- ( 1 J5, 000)
I 12/31/12 .01.2 N2t Incornr::; 550,000 445,000
ll/31/~-i L'ayment o1 divL enci::.: __2_0_0-,000 --'-----1----245,000 1

L.::..'__ ------~-+~---------- ---- -------+------'------;


_L3_1_,_~_.= 2013 Net Ir.c:ornL: _____ __B_G_O_,_ooo 1,045,000

3. P.:, costir.q r2l'J: 008 \IC:.S recognized as repair.:; dnd 1"'\c intenance
..:quif"\ent
'?Yt=JP' se l, 2l1J.:.
-::Jn JclyIt was ascertained that the cost should have
bee11 capitalized a11d Cepreci "l.l:ed und'?r stralqht-line over d 5 year
t:sc~ Lul life to zec-0 residual value.

c. Ct.:s-omer cash adva~ces a~ountjng to PSO,OJO and PJ5,000 were received


cit t:~'"' end cf 20'..L a:1ci -"013, r<::s'pectively, ard were recordec by the
_ Lent c:s sale.=;.

The .olluwlng 't:rrurs '-''e>.r-c aJsc ncted 1 vith regard the coJTlpaoy's year-end
i n v ,, , Lory ? urruna r y :

\
~=-~----~--------~-----=r.---_-
U;_dcl-slat:ement_--+----~_?~OO_Q_ ______
___ .?_0_1~:!:._ 2(112
-
2013 I
~l
!_l:::_'-crstatmef1C __ _I Pl2, 300--~
e. Jiviac:nas declareo at ~he e:td ",) 2Cl12 and 2013 ><ere paid a.ud recorded
the foJlowirg year Dvider.ds de(lared in 2013 and paid in 2014 was at

i\equir~:nen L ~:
l. w:1ar LS '::he adj u.sled nee: incorrP ; n 20"11._?
c;. 9~,, G,_IQ -- 11 c .. llO_, 000
0. l15, ('0(.' d. 145,000
2. ~~hsr is 1"112 adjusteD net income ln 2013?
a 02,000 c. 749,000
.b. 'en, ooo d. 759., ooo
3. vJhc;~_ ~-c tl>e rerr,Jact.>ve adjustm'2'l.t t'J the retained ea..:-n:i.ngs be<;inning

,, , OL l' c. 98,00U
d. 78,000
~- v\hsr is the ad'iusted rPtc:dneci earnlngs on December :" 1 , 2013?
a. u,OilO. c:. 746,000
b. ,,J96,000 d. 896,00
5 20U 1vorking capital?
2. c. l49, 000
d. 1.99, coo
~

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PROELEM 2:
t: he co u .r s e o f :r u r f i r s t d 1 d I t o :. the fi.nancial st3tEments of D~l~a Corf.
I r.
for the fiE-:-:c.l veay- ended ,June )o, 201.3,. you "l.Sc~r"-.ained tnat the company
noported t:he fol.:.owiw::r net income:
~fL_,~ca~.-year-e__r::~ed Jcn; 30,-2Q~l -L F900,000 j
1- F.'-scal y8a-c end'=ci ,Jun2 30, '201L -1-- . 570,-000 I
L-Fi~year el~de-;.:\-J~3U,
-----------
-70Ll
-------
720, 000~

follov.ing .Lr!.urrr.ar.ior: w<=:re


-::'he b~:o1gr't to j'c!ur ~ ttentlon as a re.cu: ~- c-!: yo1::
ev1.dence gatherin:J procedur~C:s:
a. The follow_~g items were consistencLv s~itcn at t~9 e~d or ~ f ~~- s ca ~
ye0r:
----=-=---=-~-------==-
f--rl~1scc:
e

~~ P22,
J.O!.foi f
1-~=-- 61 ~'1Pl8,
o~o000
12
suf!plic.:; ,_
~-~ ------- - - - - - - - - - -
l'.ccr~Jerl u+-.ilitiss
L--------:-------_-_------------
------
: Accrue~ __:L~-~-~~,.;t ::x;Jense
COO
-
-------
:?0,000
-----
----~Q, 000 - - - 6, 000
:<2,000

b. A ~hree--y<>ar insu.rance a;nounting to P90, ()_QlJ v;as paia a. .. n chargee tc


insuranc' c::pensc on ,Jar~u.dry 1 L(\ll.
c. The f.o1l:.)win,:T ::;ales !_n transit 3.t cac:, fiscal yE.ar-enc'.: were rococded as
year-end :cales, but were all shipped fOB destinatiort. R'elated
invenlori.;s 'A'~C:re excluded trent the r.:.sc0.l y~ar-e'nd count :~ ince these
were no Longer on ha11d Ln the ree>p'O'ct2..ve co;_m::. dc.tes:
r------ I 6T3o/2011~30/2012 6/ 30/2UJ Jl
I S~l~~--~:transit-+_- ps0-:::_c~J~l--?130, OO'J OO'Jl PB~~
o=;~~~a~f:~~n cos_!__ ___ L_ .. _____ 2J% _L _______ JU% -------~_C"J
d. On July 2012 DPlta CoJ~;J. ent::ered into '' 10 year ware;-::usce lease
agreemer.L ..:ith A.BC Tn~. The \.'arehoc>sc i'l3vin-=J a useful life :)f l':l years
had c fa..r value of DJ:iC 000 TLe ::!1:1\JC.l ,ease payrrer1ts ~f ?c;O, 000,
payab1.2 2'Jer\. JL,ly 1, :Oe<ji'ln~n~~ Ol2 was c~rlrg~~ by the comp;my ;~o rc.:nr
e:<pense '1'he warehouse LeVc?". s Llack t,') PEW Inc. after tr.e ex;Jirc:t2.oc of
the lease Tlo;- implici~ ]c'ase lcJ~,e :<:n;'w-, 1::; bot.b [lcll.ties we:.s at lO't
whi~e ~el(~ Cor~.'~ bnrrc~inq :ace was a~ :2~-

8.equireme:1t s:
6. What j s tl-.e ad-, ust ed net. ir,com-- fc;r ,. r. e f1.-3cal year enC:ed .>une JG I
20:1?
a. 9:59,01)() c. R9G,CJOO

b. C)08, oo~, c:. R7 9 I ()() ()

7. What ~-' the adjusted net iLC(:ffi?-' tor the f is :.:a l ye;c~r ended .._:un:.: ](),
7Gl2?
d. 4 2 (J' 0~0 c. ,;-26,()00
.(J. 50~3, 000 d. ~196,000
8 vJt.at is the> <:VlJust.ed rc.t ir,con;e tor t:,1l' fi_scal year ended Jt...r:e "JC;,
:201:5'
a. no, con r' ti8b "55
b. G3C, 00:1 d. 687,4:_0

9. \tihat is l.he retrcac1:ive adjustment ::o retain"':d e3rninq


fi~ca~ Y8~r ~OJJ~
a. s.nor1 ,, 2''-0CO
t. 20,000 d. 40, ooc
10. What is Lhe CC!rrying value C't the leased wc.rehouse on Jc:lta .-op.'s
oooks as o: Juf'e 3Cl. ;;:ol3?
no:~e c.- .\0 ~, 15 ::'
b. 2 7 6, 5 (' 5 ; d. ,2.5, JOU

PROBLEM ~:
.: .
Scho Company prov _;_ der1 t'h:: ioUCJw _i r" J ~ l' f or:na t ion i.n r2la t.i. c.n ":.:; ycc:r-
audit of its financ:al stateffients fo~ :he perJod enoed Dec2mber l~, ~Oll:
-------- I
B:1lances as of January ~;013 -l
Cas-h----------------------=1 ------- PPC;O,OuGl
J\ccounts rece:...L vat,_ ~e ___ __ _ ~>.: C, 000
1-\ll.m.Jance Lor _dC::0~:.!i:._l_accul:Jt..s ------+--------------------- 12,000
i InJentol iPs --------------------'----------- -----~,::,_12 OOCi
[Prepaid :'..nsu..':...::'_f_'-~------------ _____ L______ ___ ______ __ ___2_~_S-_-~ !

IriNG P ROB'.Ef.'IS- F)RST PP.E-B0ARC' EXAM\NA liON (8ATCH 26:


Page J of 8

';ancc.-~

t~>~:ql~ 1 l-'--c.rne: :::.:3:


1
lJ', 1 C1' ~ _-; t! ;13 g:~2s sales under the ac~~~al ~asis of ac~ounting?
1 L- ~ l_) I 'i' : ()
"' c. 6,J0C,OJi.J
cJ. fi,VO,uOO
cost or c-aJec; '-lncer the c.cc:._ual basi;:; cf accoun:.ing?
c. 3, 110, :JOO
1 ~ '__,'~I uu d. 3, 150,000
the tad aelJt exp-.cnse for 20ll?
8,000
J :;_ j 1 oou
thP total depreciation expense for 2013?
c. sso;ooo
.J!J d. 000,000

1, ,CcJO c. 1 ,.. 4'22_, 000


l ~ .2 ' J ; :: d. :., 425: OOG

PROB:!:..EN 4 AJI: :::.r OF STOCKHOLDERS' QUITY
J
_he si\a :2no~oe.cs' equity o Sie-rra Cc.moa:ty un .;arr..1ary 1, 2013 showed the
follow,~~ accounts:
~-------- ---
i .S;care ca~it.
:;2, f'100 pc.o:-, autho-ize::l 100, Ul/0 shFires, P.5, 000 I 000
j_ c c;_,__~~)_sl_;yl~-~- i~s~d _ _ _ __
Share prL:.r,J ~Jn
- - - - - - - - --------1-------------~
--- ------ __________,____
40C',OOO
Accumuia-ed ~ofits
- -~-----------~------
- - - - - - - )__ 1,5UO,OCO _______
c:~l~ ::olL".vH trans3.cti)ns occur~ed dc.ring the yea.r:
d. ReacqGLr 6,0CO shares o~ ~ebruary 1, 2013 at P90 per share.
:._; Eei~~~Leci J, 000 trc::asury shar9;; al Pl:; f_.~er .sharE: 0:1 Ju:1t-; 4, 2013.
c. 0eclCcC: ~nd d::.stributeu d 4 for 1 ::;r,ctre soli':: up on l\ugv>t l, 2 1 13.

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AUDIT?:NG PROBLEMS FIRST t=>RE:"-EOARD EXAMi.NATIO!'.J (BATCH 26)
ReSA: The Rf\1ew Schooi of Accountancy Pzge ~or n

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rl. Reissu<;J ,-,, fJ(;Q t:_r:-e2su:cy sl:kr<o~3 :-t
~-28 per c:na:c.~ o:-1 S-=ptember 3, 2013
':?. . Isc;,Jed sto::k r:Hl~ts en Septenl-:Jer 30,.: 20:i.3. 'Tvi~) stoc~< right: entitles the
:>tcc:kholdcr to p-nchasP. .:l.' flrlditJ.~.:mal shar~~ for L'3S !JSr sr,;"'l.re. The
:: J.gnts ;hall ex?i.rE.' o:-1 LJecembE.r 31, 2Cl::<.
f. 40, OOG sho.ru ri.yhts were eAerc1sed whP.n t.hr,; mc:rket value of L.ha shares
was at 240 pe~ share on Oct~ber 11, 2013.
-:;J. Decli.lled '3 per shar" cc..sh d:i.vldcnds 0r.. Decembc:r 15, 2013 to
stoc!'J1oldec:o as of Dec<?.mber '11, ?0-iJ payabl.E. Oi1 Jam:ary 15, 201 i.
h. Reporte::i o.n adjustPd net income .:~f '~;40, COO
~<,equirE:!mcnts: Llet:~rncine the balances u:' t:hi:' fo.1\('',;incJ ,.,cccunts as of Cec'"mb":r
.3::., 201.3:
16. Share cc:p.i.~al
a . :, , 'J 0 (1 , ) 0 0 C . LJ f 4~ 0 1 u(J c
b. :.,490,00 c..i. s,'2s0, r,oo
17. Tot:.:. shan~ premiurrt/St'1ctj.t-:.tCJ~ paid in capital
a. "i9S,OC'O c. C75,0:JO
b. 665, 100 d. 710, Q(jQ
18. Il.::cumulatr"d IJrofi1:s-u;~appr.c,priated
a. l, )98,)U0 r:. 1,26J,OOO
b. :;.,0)99,()()() d. 1, . 1 ~8, CJOC

19. Totc1.1. ':'tuc'.holdt:rs' squitv


a. -1 , 43t3, OCU c. 7 "ittl,00()
b 7, sn, ooo rj 7 , .; 0 8 , ,) 0 0

20. Cash dividends payJble


a. ')00,000 c. fi28, occ
b. 622, (J{)() d.' 642, oco

PR8BLEM 5: ,:_;o f r~u~ooration


"
l1Jd t;"1e to.l.lowing stockhulciers' equity c.cccJnt
:::--3lor.ces at lwcunL)'"l' 31, 201L:
?refe:ce~ce . ;1-..(_,r c::~
Share pr.l~n i:_::.[7L fr/.)! prefer2.nc:t~ '3har2~ 9D,OOO
Ordiridry Sttd:.;03 :: r C' () J C
-L :j
:)hare prE'rni,:m .::;:om orr.iir1a1 y sn~_;_es ) '090, Q')(J
F,ccurcmJ.ated p.:nr L Ls " ~' 000, ooc
Un::-ealt.zed 1 o:..:> or: financi.al a.:.s~'t at ~air 7al'J8 throuqh OCI/:=., 245,(\00
Treasury orJ ndry shares ;..70,000
:~-:~1.::: Cor?or.::~tio~-~ s r.-efern::de c;nci ord.i.;"t,c;ry :;hare:> die r.rarled ::;r. f.~; ove~:-tne-
.. .-::::;unter m'lrl-.et. A; Uer~ember .'.l, /01/, G1ori:'l ~ad ()IJ0 aut.h''': --.,; :~t---"res
"ir)i.J, D::'
~~-'~_()() paL, 10'~, C'J!nU.1 :1t .i ve p_ct=~f(~r:~n.ce Sh3res C!.rH"i. ], ()CC, 0()() aut~,:-,(: /:-3 :-JhCJ.rr:?. cf
:::::: l::<;r ordJ.n-:-ti'y" ::;[,:;.n,s 1-.:ir.h a ';toted V~tlue of [S :::l~! sh:o..re.
~~:c:x,sa;~tions dttring 201'3 and other int-ormat;on relatinq t.c the st:ockr.oldors'
:::-:~J 1. ty accc)ur; t s <,-Jere c.s toJ.lows:
a) ()n Janu,lr-y 10, .!013, GolL forrrHL!..y Ci':L.trec': aJJ. the :.:W,clUCl s:-;:-.~e::-; c1 L~.s
treasury ocdinary sl!an;s and. had :. .l.Pm r-evert to ur.j Sci'_,--,--~ tasis. , -'"==
treas1ry ~tack had been acquired on Ja~uary 20, 2012.
o) Golf ownc.j J 0, 000 .shares of Pomeo, Inc. o>::dinary shales ;."Jrchased .:.r,
2012 for P6.'i 9er: share. "-'he Rumec, Inc. shAres \vas ir,clud2d in Golf's
financjal a:ss:::t at ~fa.'.r. ViLLU"; thn;ugh profit or los:c ;JOrt:::oJ.io which
were selL.ncr at P\'>8 per .share a: 1\":e enJ of 201:'. On "''Lnua:-y l':., 2U;J,
wh.,;n the fair .,ralue of Rom-:;c, lr~c 's sr.orec-; v1os a~ PIC, r;oo_:: t~ec:;_ac:ed a.
dividenc' in ki:1d of 0110 s:~.~rc oF t\Yn o, Inc. for ev-2ry r.t'1dred sha.c~s e:t"
Golf ordinL~r.y shares lH:lu oy sr_~--,c.:kho1de::s of record ur. Fel:-rl;ary 28,
20]3. '1"he .-;_i_.,ridend in l<_ind '..Jas rlistributed on ~'Jarch 12. 20~3, vJhen ttH"
tar V<',J.Ut :!I R,)mec, lrh.~. shi.1:ec: l'las at ['75. "
-:) On Apr1l :., ~dJ13, sh3.re .'ights ~ere issued r:o the o1din-=iry st .JCY.~1olders
(1 ::;hare rig!tc for every 1 1'>h::!re iss<lea a!ld ou-.s::andi..1gl pec-:ni-.:ting the
purcha~e o[ one new shc:re o:
ordir1;uy sh::tre ir.-e.xcha<1~e fc.-c four rigr.ts
and PlJ caste.. nn April 25, 201.1, oll b'J~ 160.000 share rights were
e:,ercr.sed Jhf.n the 1narker. pr.".:e cf Golf's ordinary share was 213 per
shar:c. Cc;lf s~tl~e;c1. nt?\o\' c,na:cr~3 t:o Sl::tt1e the t.:ran3ac:r.ion. T:e re'11aininc
' h ts '.vo.te not .. exe.~cr.:;e
' d -1rd d.
rlgt
d) Or, January J,
s '
th~lS e<p.L.ce
2010, (,o:r 'JL:nt.Pc: ::nare o::;~_jons \:o cmployeo;'::; fu1 lhf:
purcr,a:oe ot' 1CO, l!UG .share'; of u~:: ccmpanv':: ::>rdj nary c;r'are dt L)8 ~'-,..
.......
,.,~A: Th~ Revie~ 5chooJ of Accoun~r.cy Page 5 of 8
/'/li~' '
share. ~he uptions had a fai~ value of P2 on the grant date. No entry
., had be'=n made by the cvmpany to re:'lect t~1e options. The options are
exercisaoJ.e within a c:hree-ye;:.r period begi'1ning Januo.ry 1, 2013. On
~Tuly 1, 2U13, the ef1ploye<~S exerci.sed 80, ooo. Golf usea new shares ~0
settle the transaction.
e) On Dece~~er 1?., 2013, Golf declared the yearly cash dividend on
prefc::-red st0ck, payable or. ,Tanuary 14, 2~14, to stock:'lolders of record
on ~c~ember 31, 2013.
t) Aft .:;r_x:~a_I -::_~!_?._adj ustmen_!, the u.1rea lized boldi1g loss <m the finan.::ial
aEset at ~~ir value ascount .had a debit talence of ?135,000 at December
31, ';'Cl?. ,, .
-;, On :ran,:ar~- 1, 2:!14, before the' accounting records were c.l.osed for 2013,
Glorla became aware that tne r~nt insorne for the year ended December 31,
:;.012 '.Jas overst~ted by P500,000. Th~ aft.er tax-e.f't"ect on the 2012 net
incorr.e wac; P275, 000 .. The ap;>ropriate _coiiect.1..ng entry wa~ recorded the
.~; '

same ciay.
h) After all adjusting entries were effected the adjusted .lP.t incL.ne for
2013 1vas ~t F2, 600,000.
3ased on t!11"' .:1bove and the result of vour audit, determine the fnllowing as of
::>ecember 31, /Cl3:
21. The enL:y tn reco1d- the retirement of shares on Jo.nua:.y 10, 2013
~n~oJve~ a deblt to:
3. !)>:dinary shc:res at P?~l1 ,0!JO.
o. Share Qremium at PlOO,OOO .
c. hc.:::umuJatea profi'ts, P30,'i00.
d. Fc;urnul.;,ted prof~ts, 220,000.
22. Tl-Je ent:-y upon s~ttl'3mt:nt of the property dividend on Marc!:: 12 requires
a credit to gain at:
a /0,000 c. 20,000
.. SO,OJO d. none
2J. The <entry to record tlH:o exercl:.k of .share riqhts on Jl.prj:._ 2::, 2013
involves a:
a. credit to Ordinary shares at P1,~00,000.
b. credit en Ordinary share rights outstanding at P1,680,0GO.
c.cr,dit to Share _prern.Lum at ~L, G80,000.
d. dchit to Share premiu~ ~t P1,260,0QO~
"2~. 'I'he entry to r"'cord the ,exercise of share opt:i 011 on July -r, 2013
involves a:
~- credlt ~o Ordinary har8S at P160,DOO.
b. credit to Crciin~ry share op~ions outstanding o.t P160,000.
c. c.~edit t::> Shc.re premi 1 Jm AL 240.0,000.
d. debit to Ordinary share options outstanding at P~00,000.
25. What is tre acijl1 sted bal3.nce O'~ totc.d accumulated profits?
a . j , J 6 5, C 0 0 c . S, :3 6 5, 0 0 C
b. 5, 2G5, 000 d. S, 415,000
26. v-ihat is the tutul.st'Jckhclder~' .equity'~ ..
o.. 18,J7CJ,OC10 c. 18,?.70,000
b 18 l 7 'J f 0 0 I)
I d 0 18 f j 2 0 1 0 0 0
-~

PROBLEM 6: t
You he>:-e assigned t,..., audit c:he var2.ot:s curr"'nt: liabil.ity accounts of Tango
Corp .. a wa::hi.ng machine Inanufac~Irer, for the year ended Decemter 31, 2013.
Upon your request, the follbwing schedule ~as fur~ished to you by the

J:o.udi:: notes:
a. T11e accou:1ts payable .i.nclude a P24o,occ purcoase in t.ransit as of
December- 31 from a ,mpplie:- under FOB Destination term and a P90, 000
debit balance with a supplier resulting from an overpayr'lent.

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AUDrnNG PROBLEMS- FIRST PRE-BOARD EXAMINATION (f:sATCH 26)
ReSA: The R~view Schoo~ of Accountancy Page 6 of 8

b. Thr::: "'~~.t.liddtod
"
v..arranl.:i.":; pay;-ti:)le Lalanr:e v.c.s the accrued ciWOunt jc; trH:'
!U'::..~_,)~s____y~.:.r_:_ I L is the ccmpany' c; polL~y' to carry a. cnree-yeec.:-
vlarr<:'nr v c.n its prodnct~ 3Qai n:_;t manufactu.;:ers defects. Based O!! past
exr:-eri.~~~:~t:::, 60'1-. of un.t::s so.1.d are t.;ltimarely ret.:urned fo.': repairs and
t.hat ::r~: .-;arran-cy cost p(:'r mit ic at. P'300. During .. he cun.ent year
12,000 'Jnl.'-E' were sold. Actual warr;:wt-y cost incurred d~Jring ':he year
vJhich WC\:3 charged t.o >varra.1ty expense was :;;t PJ., 910,000.
The compa 1y also ha:e an on-going prowo:.ic.nal progrc1rn l'lhe::-c:;by eacL
wa3hing m."l.chine sold COW(cS .,..,._._th 5 coupo:-~s. 25 coupons plus p;::, 000 shal"_
ent_j t.le the cc;.stomer/dist:ributor 1:.0 a dryer "''h:i.ch oriqina; J y <~osts
!'6, 000. The dryers can b~ r.eoeemed 2 yr>ar::; after receipt of u-.e coupons
from purr.:hd::;c~::;. Thr:: compuny '"t>ti.mates that 4i.H> of tLe coupons issued
with Ute wa:..;n1.ng machirJ.e-.s sold wiLL uLC_rnately be presented for
rtdempt i.cn. The balance in tle estimated premiums payable account is
t.be acc~!~<::_d .1. ia~il#~--:G:__t:_he~_E'J..or~ar. The beginning inventory of
dr-1er.s v.. .'!!'; at 3v0 utn.ts. Duo.ng the y.:ar0 addition?~L 1, JOO dr:1ers were
acquired. An .;.nve:ntory o:t the remaining dryers on hand at year-end
plar:es 1. he count at 2 Hl <Jnits. ThE:. ;::ede.mption. of r-n~miums for the
current ye2r >.;ere. apprr;p.:ialel y re,~o:r:.ied by t:.he cornpa;1y.
d. Durinq -;>Ol~i, Tr~ngo vJd5 s1..;ed by a cotnl,.iet.it::J.c :tor: PS, 000, OJO 1nf::i;1gement
suJ.t- of a tradE:mark. B<iS8(i on the lega.L coen::"e: s advise, Tanoo
d.Ccrued the sum of P3,000,000 as a prov~sion. On Februa~j lS, 2014, the
Su9.rc:me '.:u1,ct decid2d _i_r; i 1\oi o l.ne p<.rty nlleging tt,e infringement
anJ otde, 2d the defcncian::- t.c p.rty ~.ne :..Jqci.eved pai-ty a sum of
?3, 500, ()0\l. T:1e finar.cL-,L statemen~s 'cf T,_,ngo were approved Ly ~he BUD
fo~ 1.ssue or February 20, 201(.
I
e. The accLued ~alaries Q2yabl, in~1ude PSOO,OOC liability 1or compensated
ao~;encP.s 9cc;;;u~_i._n_~~riviou.: _L_ear and L1 1?588, 785, 10% current year.
bonu3 cc k:ey ()ffice:cs co:nj:m'Ld bas-:::d o;1 a:-1 unadjustPd net ir.come of
P9, COU, QIJO a fte.r bonus a'1d "l.fter ta:. ( .30%)
"
2, 500 cays unusc:J vacdti.on leaves .fro111 20.17 were forw2rded to 2Jl3,
:!:rom whi.ch l, 500 d;3ys we;:-P 2xer:ised. Dy the e0d of the cu:c::nn":: year,
addici~n&l 3,0JO dats . curre~t~y~ar
. lEaves ~erg unused by th~ em~~~yees.
linus Gel leaves can b.s carri.eci ovPr ;: 'ei-l r.s, the.rec fter :i c si:all expire.
.
The comp,1ny also est.i.r:2t.es, ao pet past experience, thar only fC% of
thP. unus~d leaves .;ill ul th,nte:'..y be. exercis~d. Salary rate in 7C 12 was
at 250 J~r day while Sdlary ra~~ in 20JJ is a~ F~75 per ~ay.?a;m2nt oi
salaries .i.ncluding <:;xerci3e (Jf lnavf:s were ar.pr-:.:t,:riate.i..y deb:.c:e(' to
current ye~r sal2ries exp~nse.
Req~,;irenEm"::s:
':'.7. ~vhat i.'; the; r~orrect cestirnated \''d~ :;o;nt.H:'' oayable. as cf !)ecrr:Je:c: 2L
2013?
a. J,1?0,1CO c. 1,20\;,00C
b. 1, 190,000 o. 1, no, ooc
:28. Wha": is thE.~ t~rrect. estimated cremiums pay~ble as of December JJ, 2013?
a. %0,000 c. 2,000.000
b. 990,TJC d. 1, 12 o, oorJ
29. What is the adjuPtf?d liabi.L.ty for compensat~d absences to ::)e u1;luded
_i_n tne acr;ruec! salaries as o:: llocecr.te.:- ~:ll, 2CJl3?
c.. 825,000 --- l, 080, oco
b. 880,080 d. l,!JO,O~O

JC. What is the ~orrect a.ccruc~<i bunus .o bn in:::::..udeci in the

sal3ries payabl~ as of Dcce,;ter JJ, L-.013?
a. S56, no c. 589,439
b. sn, c::::s rl. 59C,09Cl "-'
31. How nt11cr. is the total current. liabJt~.i.ties a.s of December 31, 2CJ '!?
a. 8,2Sl,028 c. 8,_266,729
b. 8, 29J, 439 (;, 8,3J0,09.0

PROBLEM 7:
'Tr1c follovr:i.n; .;_.:::. .::._ln
2x.::erpt c_. :~ Y 3 n .'< e 2 Inc: . ' :3 t r _;_a l >::a lance ]::_I
2G13:

ITING PROBLI:MS- FIRST


--------------- P~E-~OARD
l::XAMINATION (gATCH 26)
.~ -

/"n,~ Review Sch~ol of Acc!>ur.tancy Page 7 of 8

p;!'~~
,~~~~ lJl% -D~~~ 3 yea__=s___ _
-----'----

"' r. t'.cicii 'c: :,_~ :al i; :.ormatpl~oy,-~:ble


~ a. Tr,e N:)tes -Rank .vr,i.ch v-:r>s ,-:ated hpri.J. J., ~009 paysinteres'.:.
a-

f~ a:;:;uc> l.1. . ev,.,ry Aprl~


. l l . As
. ot- "uec:emJ.'er
. .,.o.J.,
- ~)_ () 1 "<~ y a~1.:ee
I J nc.
T h as t h e I

'- ::.ght to reiinil.rce +:he sa.i.-'1 loc:m by i_ssul'ng iJonds, the proceeds of
:"hich shall be Jsed to setde t~e o0l:i.g.3.tjon. On Mc.rch J., 2014 the
cciPpenv issued P:3, lJJO, 0 1 0 bords :,t face value and used tiJL-thirds of
tne prcceeds to settle the notes .Jn Apri_;_ 1, 2014. ThE:: ba.la.1ce of the
m6~ur.i.ng cbligati.on was settled out of working ca~jtal. The 2013
:i~~ncial statPmant were app~cved for issuance by the BOD en April 15,
,' c l4 1
b. Ti.e 12s bends payab~e was issued nn January 1, 2012 wher1 the prevailing
~ar>-.e: rate fer bonds -,.,as .-it Hl~:. T-1e company n~~~orcied the transac-.:io~:
a:o c. c'ebit to ...:ash ior the l:>oJ1d oroceP.':is, i:l credit to tne tunds payable
-'~~-~oUI1L a:: face value, ch:.rging any di::.'ference i:o interE:s-:: expe:1se.
Int2re.;t or. the bo.'as i.s ;-Jayaule Jnnu~lly every [h=cember 11.
c. fhs 9' bonds pa'yati I_ is a se~ ial bond3 'dated January 1, ,)_ Jl3 and
:r,atl.res at Fl, 000,000 ev!IY December 31, starting 2013. Int'2!"E.:St based
c>n th:' outstandiro balar1ce of l:hc bonds a rs paid an;1ually every
:Jecembe.: 31. The rrev?ilinc,; ma!'ki=!t rJte 0 i,1terest on the issuar~ce
.,. date -vvas at lG%. The issnanL:e wa~ reccrced as a debit ~o cash for ;:he
p1oceeds, a credl.t to bonos payable .Jt fa:::e ;alue with ':.he difference
l~E: i;-,g ch2.rged lo j_ntC',rest exiJeu.s-:;. TL'" first prircip.:.J a~d inte::-est
-..:c-~ 12-.:::"::.:i.or, -,.as recordcu :cn.:-2c~l c:t Lh"" cn:.i of the ye'lr.

cJ. -~;-"~ company reported financial i~H.::ornc: befor2 any di :::e:::-ences at


P4,Sil0,000. ~on "taxc:Jt1e income for the year wi'ls c.t t.-11)0,'JJ0 while non
jcc:uct Ucle expenses w,.5 at P800 ,000. The ::ompany als0 repor:.ed. ::he
followi11g tempora::y diffc::rences : Estimated premiun:3 payable, F~'iCiO, uOO;
?:r:epa'..d Ir.sJrance, P40U,OOO; Upearned Income, P~i:Vl,OOO' :,:;timated
warranties payabl2, ;:200, 000; and, Exr:::ess ta2<. <.iepreciat~on vver
fi~an~~ai depreciation, r500,000. Income tax rate i~ constant at 4C~.
?.e~ui-::-e>ment:s:
3~. How much from tr.e 105 "lot0c; payabJ.e shoJld be p:ce3ented as current
1
iability as of Dscemuer 31, JOJ3?
a. NonR c. 2,000,000
b. l,OO.J.OOO d. 3,000,000
33. ;~IY'ltis che correct carryin~ value of ::he 12L Bonds payab::.e as of
Ut:'Cember Jl, 2013?
a. c.,3-i9,~J79 C 5 1 2 4 8, 6 3 s
8. 5,3:6,987 d. 5,173,55;1
34 ~ow muc~ from eh2 9 Ser~a~ 0.
(;
" bond~ pay~ble should presented as
current liat~llti as of Deccmbe::- ~.J_, ?011?
a. 9CJ'),C.09 " ~- l,rJOO,OOO
v. 982, 6~5 d. 1, 973,554
~5. What iE the correct deferred tax liabj~ity as of December 31, 2013?
'"'- 36C,OOG c. 60U,0{)0
b. s40.C1 0J i. 680,000
W~a~ is the current tax payahle as of December 31, 20137
a. 1,7:'0,000 c:. -~1,.~60, OGO
b. 1,800,000 d. 2,200,000

?H.OBLEM 8:
37. Which of t~e
fo1iowiny is an appLopria~~ substantive ~est procedure in
audLci.~g clients' equity t~a~saction?
2
a. Vcuch the authorizatio~ uf the appropriation of ac:cumu~ated o~ofits
for stock r.i.ghts i.ssucnc~ thrnugh t 1;e min 1JtPs of meetrng of the BOD.
o. C.y,firrn throu:Jh"' the sto...:k trar.sfer. agent the appropriation of
a=c~~ulateti profits t0r treasurJ shares.
- V'J':c.h 'the 3Uthorization of the grant of share op::io11S to em':='loyees
co BOD minu~~s af m8etJn~s.
c.. fn::o: ... re that c:a:1r::ellej stock ce.ctificates are destroyed to prevenc
; :, 1 :-; suanc:e.

.. IIP""''o."W"-r"TfL_I,... ._.,ra"n, ~a...&~


_.;._ ___________
LTr.~t:"'i not.:
;-"''---- -------
Ci"\.'\Or\ CV 1\MTI\,/\T!nl\1 (0./\.TrL-! .. Jt:..\
, . :~SA: The Reiiew School ofAcc~um:.mcy

the ,. .
2:;-::u.c:::er!ce;'exist_ence :::f a p\1rc::1:,,.se L..r:1n.sac:tion?
DJ. .:;r~.LS s au thor i. 7.d. t tOil pr(,,_:;.. rJure s 1-v'.i t h per. s o'nne l in 1- ~)l_; ~,.::on t r.) ,'_ J A::
a:1d t:'jr~hds.1 r;g der,art~.lent.
,_<J~ vi ~~~v/ and ev2l ua t e a [ .1 c1t":c~ ~.J rt f):[ rJu.~:c it 35 i nq prc)cedu rc~ .
Det<.;..m.i.ne \vhether 2 sa;npJ.(,o. of cr.i.:ci.r-:s j_n t:he p;_.r:~ha~e "juurn.i' :'..s

.su:;;pcrtE:d b_:' pi:oper.~y exccui~ec~ r:;rc::ha.S(~ o~~:-..::..r.
d. ~J :',_: ,~ ~. ~-c.. yTP~~rYt. fur- s t:~ 1-:~ ct E:d p: ~- (_: h ;.1 ~) i.".! .=-; to sup nor t.. i n ~ : r:.; c E:: i / ~ :--:..:;

c;est LO

i-1. '/:;c-::h a sc-\mp:..e of f.r:7-.t.ies ln ~h..: pu:r..:hase jocrnal to the prenumbereci


re~~'ving repo~t .
.,.eceiving r-=:t ,.) J purr::hasF !rder for s j_ gn s o:
~ nco ..!.sist~Itcies.
c. Dec:erm.ine h'hether a. saiClf'J.e of entries in Lh~ purd:ase journal .'cs
:~uqport~d by (>!:-r:;pE:rl.y exe:ut~~d ~)ur:-r:h'--:se ord::r-.
cl. 'l'r?.:e a sample of proper: 1 fcxec,:te,<J C2:::ei\':i.nq .ceport 1 H'D! c. fiJ.:o of
pre.:-..um~~:::r2d .r c .-_: e ; v .L r: q r:Le
~j ou1na -~-.

'"!(). =.:~c:rn.:.Ji. c-;c.:;.tr.c)l. irttr)rc)\:f:.j \;Jitr_:_':l the qua11ti~.y ('!_ the n~.-?::~hand~~:-:
_~_::i.e rc ~ J. s crD it L. ed t .ccr. tt1~-~ r~t.iP y cf . ;1e ptl rcnct s c: o t (; e 1.. sent -t~ c ~ :~.;:; :
:, ~'fH" 'J ~~era t: L1g clepA r t n.e r. t .:::eq ui .:; i L i c.r.L1g ths gomL .
~- P~rctasing departm~Gt.
~~. AccoL~t!L..::: pav~.. r.:.le :iCF--::~r'~. _r;~e:rLi-.
d. R-..;ct' i. 1ir:q d,c;partmcnt

"


~~~ P~OBLEM- FIRST PRE-BOARD EXIIMINATION (826) IRENEO/ESPE
SOLUTION GUIDE .
PROBLEM 1: CAVALIER CORP.
NET INCOME NET NCOME 'I-liT I"'COME RE, BEG 21Jl.3 RE, ENI"l 2013 WC !013
2011 2012 .2013
Unadjusted balance {105,000) 550,000 800,000 1,045,000
a. Equipme'lt 200,000 200,000 200,000.
Depr<>ciation (20,000) (40,000) (40,000) (60,000) (100,000)
b. Salaries payable 2011 (15,000) 15,000
Salaries pdyable 2013 (21,000 1 (21,000) (21,000)
Prepaid rent 2011 35,000 (35,000)
Prepaid ren 2012 24,0:10 (24 oo::ll 24,000
~
12,000 12,000 12,000
c.
Prepaid rent 2013
Advance~ from cuscomer 2012

(50,0C'CJ) SCJ,OOO (50,000)
Advances from cu~tomer 2013 (35,000) (~5,000) (35,000)
c'. Inventory, 2011 under 20,000 (20,000)
Inventory, 2012 O"er (12,000) -.12,0G8 (12,000)
Inventory, 2013 o~er (5,00Q) (5,000) (5,000)
e. Dividends 2012 (200,000)
Dividends 20B u: o,ooo) (L>O,OOO)
Balances ~.15,000 432,000 749,0()0 (98,000) 946,1)00 il99,000)
----
1. Ans. B 2. An~. C. 3. Ans. r.. :,. Ans. A. 5. Ans. D.
e
PROBLEM Z: DELTA CORP.
NET INCOME NET INCOME [JE"f INCOME RE, BEG "
6/30/2011 G/3oi2o12 5/30/2013 2013
900,000 i70,000 720,000
a. Unused supples 6/30/11 22,000 (22,00'))
Unused suo plies 6/30/12 18,000 (1o,OOC) 18,000
Unused supplies S/30/13 14,JOO
Accrued utilities 6,'30/ll (3Q,OQO) 30,000

.
Accrued util'tie~ 6i30/l2 (32,000) 32.000 (32,000)
Accrued utilities 6/30/13
.
Accrued interest t>xpense 6/30/11 (10,000) 10,000
(28,000)

Accrued interest e>:pense 6/30/12 (6,00U) 6,000 (6,000)


Accrued int2 est expense 6/30/13 :2,0JG/
b. lnsuranc! exp 6/30/11 75,000 75,000
"
ln~urance exp 6/30/12 (30,000) (30,000)
Insurance e;<p 6/30/13 (3G,;00)
c. Sales in transit /30/11 (90;000) 90,00(,
Sal-~s in t:ansit 6/30/12 ~130,000) :i:JO/lOO (BO,OC'lJj
Sales in transit 6/c~0/13 184,0001
Inventory.. und?r 6/i0/11 72,000 (72,000)
Inventory, under 6/30/: 2 100,000 (1CO,OOo: 100,000
Inventory, under 6/3J/13 60,000
d. Rent expense, over 6/30/13 SO,GJO
DerrEciation * '33.795)
Interest on lease liability** ____(:..::2SJ~S)_____
Balances _ ____;9:..;3:.::9~,00::.::.:0:____5:..;2:..;6::!,0=..0~:1 6R7,410 (5,000)
E. Ans. A. 7. An5. C. 8. An~. D. 9. Ans. A.
*
PVof MLP (50,000*6.7590) 337;950 note o: pre5er.t vai;Je [Dctor i~ in advance and iJas?r on the implicit lease rate.
Divide by: le<Jse term _ _ _.,---1_0_ note b: sir,ce Pi! of ML,Y is at least 90% of Ff\11/._jhe transaction if finance lease.
Deprt.'Ciation 33,r''> notP c: depreci11tion is 0ver term since there i~ no trcns{er nf ownership.
CV of Warehouse 6/30/13 J04,155
10. Jl.ns. c:-
**
Carrying value of lease Liab. 7/1/12 287;950 noted: the first pavment is ma1;; in advance, thus /ec.~e liabilityat the beginning
Multiply by: Implicit le3se rate: _ _ __:::::0;::.;%~ is ti-,e PV o[ f.IILP min us the first payment madt"
Interest e:,pense . 28,795

PROBLEM 3: ECHO CIJI'v'PAJ~;Y



Total collec:ions from cu>tomers 6,060,000 Allow3r.ce for bad debts, P.nd 20,000
Add: AR, end l,gross) 400,000 Add: Write-off of AR 18,000
Advances from custom~rs, beg 180,000 T0tal .. 38,000
Write-o~ of AR 18,UOO less: Allowace fur bad debts, bP.g (12,000)
Total G,65!s,OOO , Recc-Jeries of prevtous write-off (5,000)
Less: AR beg (gr0ss) (240,"000) 9ad de'.Jt Exp~nse 21~- 13. Ans. A.
___
Adva'lces from customel"s, end :100,000)
Recoveries of f)revious write-off - (5,0GC) Depreciation- Building (4M'109',) 400,000
Gross Sales- Accrual Basis 6,313,000 11. Ans. B. DP.preci;,~ton- !:quipr.ler.t (1.6M''1Q%) 160,000
l)e~r.- iew Eqot (400K*10%*3/12\ 10000
Totdl D~pr::ciation !:xpense 570,000 14. Ans. B.

AUDITING PROBLEM - FIRST PRE-BCA:ID EXAMINATION \BZ6l IRENEO/ESPENILLA/JAI


SOLUTION GUIDE ~

Total1=ayment3 to ~uppliers ],280,000


Add:Af',end -_______390,0:)0-
Total 3,480,000
Less: A.P, beg (340,000)
Gross/Net Purchases Accrual basis 3,140,00J
Add: Inventory, beg 46fJ,OOC 12. ~ns. C.
CO GAS 3,600,000
Less_:.
.: .':
Inventory, end (490,000)
of Sales

Cost 3,110,000_

-,
Gross/Net Sales 6,313,000
Cost of S;'!les ~10,000)_
Gross. profit 3,203,000
Gain ~rom sale of equipment 50,000
Tot~ I, 3,253,000
Bad 2ebt expense (2J.,000i
Depreciation expense (570,00o;
Insurance (160,000+70,000-SLJ,GOO) (180,000)
Salaries (780,000-40,00:)+60,000) (800,000)
Other, expense (270~000)
Netlnccme 1,4!2,00C 15. Ar.s. b.

PROBLEM 4: SIERRA COMPANY


~hare Capit<Ji Share Prerr~. Sha1 e Prem-1 Accum. 1-'rofi1 Treasury
January 1, bai<Jnces 5,000,000 40C,OCO 1,500,000
a. Treas11ry reacquisition (540,000)
b. Tre~sury reissuance 90.000 "270,000
c. Share split (4:1 split upr
d. Treasury reissuance (15,000) 13~,000
e. Stock rights ISsuance**
f_ Stock rights exercise 500,000 200,000
g. Cash dividends declaration (642,000) ***
h. Net income 540,000
Balances - 5,5001~~ 60C,C'OO 75,000 1,398,000 (135,000)
1F. Ans. A.

*Share split memo: 50,000 sh issued to JUO,COO sh issued; P100 per to P25 par.
3,000 treasury to J.?,OOO treasury; P50 cos! per TS ta Pl2.50 per TS.
**Share rights issue memo: _194,000 share rights were issued w 19.;,ooo s/.ares outstarding.

Share premiurr. 600,000


Share premium- treasury _ _75,000
Total share p;emium 675,000 17. Ans. C.

Accumulated profits- total 1,398,000
Appropriated for treasury (135,000)
Accumulated profits- vnap;Jrop. 1,263,000 18. Ans. C.
"'
Share Capital 5,'i'JO,OUO
Reserves
Share premium 675,000

Accum profits approp. fa~ treacury 135,000 il10,00J
Accumulated profits unaopropriated 1,263,000
Treasury shares at cost 1135,00_0)
Stockholders' Equity 7,438,000 '19,_.\rs. A .

Issued Tre2sury Outstanding


Beg. Balance 50,00() sc,ooo
a. Treas'Jry rea..:quisitio'l 6,000 44,000
b. Treasury reissuance (3,00_0_)__ ___:17,000

Balance before split 50,000 3,000 47,000
~
c. Share S~Jiit (4 for 1 split up) 200,000 12.000 188,000
d. Treasu1y reissuance ~6,000) 1S4,1JOO
f. Stock riehts exercise 20,000 Z14,COO
h. Treasury retirement (Z,OOO) (2_.000) 214,000
Balances at 12/31 21P,OOO 4,0CO 214,000

- - - - - 20. Ans D.
Cash dividends (P3*214,000) ti42,000
:,r PRO~LE.M
-.' . /
~OLUTION GUIDE
S GOLF ClJRPPORATIOfll
. , Entnes:
-; -~ a. Ordinary sh'Jres {30,000*5) 150,000
l Shere premium- OS 90,000 *(3,09D,J00/1,0JC,000}"30,000
Accumulated profits 30,000 Zl. Ans. r:.
Treasury shares 270.000 "
b. Accumulated p;ofits 700,000 *(J .o!Ju,ono;wo) *P70
Dividends payable 700,UOO
~

Accumulated orofits ~0,000 *{1, OUO,J00/1 OC) *(P75 P70)


Dividends payoble 50,000

Dividends payable 750,000


Financial a~1!t at FV thru P&L 680,0CO *at rorrjoing vaft,e which is fair va.'ue last measurement date
Gain on dividends settlement lfJ,OOO Z2. A.1s~A~ .

c. Cash {840,000/41*11 2,i31o,ooo *_1,rJ(lC,OOO sncrre rights wert:: issueJ. 840,000 were exercised.
Ordinary shares 1,050,000
Share premium - OS ::.,260,000 23. Ans. D.

d. Accumulated profits, bey 200,000


Ordinary share optio:.s outstunding'. 200,000

Cash {80,000*3} 640,000


Ordinar; share options outstanding 160,000
Ordinary shares {80,000*5} 400,000

Share prem;'~-m 400,000 Z4. An.;. C.

e. Accumulaed profits 180,000
Dividends nayable 180,000

f. Finar.cial asset at FV through OCI/L 110,000 *renuin:d bC'Iance being P13S,OCO UHL.
UHL/G OCI/L 110,000 .,

g. Accumulated profits, beg 2l5,0CO


Income tax expense 22S,OOfJ
Rent income 500,000

II
h. Income summary 2,500,000
Accumulated omfits 2,600,000

Transaction analysis
PS SH PREM-PS 0~ 51. PREM-O$ Optio'lS OS Accum Prof. UHL-FA TS
Balances, Jan J.. 1,800,000 90.oo; 5,150,000 3,090,000 4,000.000 (245,000) (270,000
a. Treasury retirement (150,01J0 1 (90,000) (30,000) 270,000
b. Property div declaration/pavment (750,000)
c. Share rights exercise 1,050.000 L,2h0,000
C:. Options grant (Prior period error) 200,000 (200,000)
Options exercise 400,00(! 400,000 ;HiO,OO:J)
e. Cash dividenjs to PS (180,000)
f. UHL adjustment (UHGain for t~e year) llO,IJOO
g. Prior period error (:U5,000)
h. Adjsuted 2013 net income 2,600,'JOO
--~--------

Balances 1,800,000 90,008 6,450,000 llO,OOO S,165,000 (135,000)


::s. Ans. A. .
Share Capital
Prefere.1ce snares 1,800,000 ~

Ordinary shares 6,450,000 8,~50,000


Reserves
Share premiurr, PS 90,000
Share premi:.~m -OS 4,pi;;O,OOO
Ordinary share options out:;t;;nding 40,000
Unrealized holdi'lg los~ FA _ _(13S_EOO) 4,655,0')0
Accumulated profits 5,165,000
Stockholders' equi~y 1!1,070,000 26. Ans. A.

PROBLEM 6: TANGO CORP.


Accounts payable, unadjsuted 1,250,900 .t>J[ 1: :kcounts payable " 24u,OOO
P~rchase in"transit. FOB ;:Jest. (240,000) Yt.rchases 240,000
Advances to supf)liers ~.ooo /!dvnnces tn suppliers 90,000
Accounts payable, adjusted 1,100,QOO .~cro;.mcs payato/e 90,0()0
:>UlVIIUN (JUIUE

Estimated warranties payatle, 2012 ~80,000 AJE 3: Warranties expense 250,000


jda'l estimated warratnie; 2013 Estimated warranties paya!J!e 250,000
(12~ooou*60%*P3oo) 2,160,00') -reversal of pr.?vious 1-Yovisiorr and set-up of current year_
Actua: cost incurred in 2:J13 (1,910,000)
Es~,i~ated warranties 1Jay;::ble, 2013
', :: '
1,230,000 27. Ans. 0.
AJE4: Estimcted premiums payabi 400,00C
Estif11atf:!d premiurr.s payable, 201i 1,400,000 Premiurr.s expense. ,1,00,000
Tota! estimated premiums 2013 3,840,000 see computations beww - re~ersal of previous provision and set-up of curer.t year.
. Aqi.ial net cost incurred in 20i3 (4,240,000i ~ec computariono b!?low
: :o-:>' .1
;};~~~P'l~t.ed premiums pay;.~ble, 2013 __ 1,000,000- 28. c.

Totalsales 12,oco. ;; lnven~ory of



~remiums, beg 300
MultYp!y by 5 coupons with 1 unit sold 5 Purchasl:!s fo~ the yc;J_r 1,000
Tot~l:oupons i~suec.i 110,000 Total available :or distribution 1,300
Estm~ted redemption rate: 4f1% Inventory of p~erhiums, end {240)
Tot~ I coupons to be presen:ed for r=demptio,'i' 24,000 Premiums di~ributed 1,060
Divide by exercise rate (25 cot.: pons to 1 premium) 25 Multiply by: Net Cost (P6,000-P2,000) 4,000
Esti.~ateci number of premiums to be rede~:med 960 Actual net cost incurre:l in 2013 4,240,000
Multfply_by net cost of each oremium (P6,080-P2,000 _ _ ~.080
. ll .
Estimated premiums expense in 2013 _ :.:.~~.C'O~

1 ~

Provision for litigation case, unarlj~uted 3,000,0GO A!E 5: Litigation lass 500,000
Addhional provision, <JS 1-Jer "ourt deci:;>on ~oo,u'JU Provision for l.'tigation ca:;e 500,0')()
------
Provis-ion for litigation case, adjusted 1,500,000 *the subsequent 'event is a type 1, adju5 til"/g event.
------
i~'";"

2012 leaves furwarded to 2013 2,500
2012 leaves availed in 201;; _ ____f_hSOJ) AJE 6:

Salaries expen~e ;;so.ooCJ
" 2012 le'lves balance to be forwarded to 2014 1,000 Accrue1 saiaries payable 380,000
2013 additionalleale5 e<Jrned :: 3,000 - reversr.! of previous povisiun and set-up of cu.-rent year.
Total leaves which can be forwarded to 2014 t,OO(J LCA, 2013 880,000
Multiply by: estimated exercise ra:e: 30% LCA, 2012 50(1,000
Estimated leaves to be exercised 3.20:J AJE~ 3SO,:JOO
Multiply by cu~rent salary rat~ in 2013 _____27'i_
Uability for compensated absenses, 2013 _ _8_8.-:0,0;,0 29. "lions. B.

Bonus" 10% (NI-TX-B;


TX = 30% (NI-B)
Unadjusted Net Income 9,JOO,OOO
AJE 1: 240,000
AJE 3: {250,000)
AJE 4: 400,000
AJE 5: (500,000)
AJE 6~ (330,000)
Adjus!ed Net lncor.1e 8,510,000

B" 10% (8,510,000- :!0%(8,51J,OO>; B)- Bj


B =595,700- .07B
1.07B 595,700 =
Bonus.;:S!:6,729 30. AnsA.

Current Liabilities
Accounts payable, adjusted 1,100,000
Estimatedwarranties payable, 2013 1,230,000
Estimated premlums p'lyable, 2013 1,000,000

Liability for compensated absenses. 20: 880,000
Accrued bonus 556,729
Provision for litigation case, arlju~t=d 3,500,000
Total current !:abilities <J,"Z66,729 31. Ans. C.

PROBLEM 7: YANKEE INC.


10% Notes payable, 12/31/13 0alance 4,000,000 nate: ~ince only PlM from the ~one issuance pr0ceeds dur;nq the sub:.:equem evenr was
Refinanced on a long-term basis 2,000,()0(1 used to re[:nance the obligation, tre balance i:; still current
Balance, still short-term 'Z,OOO,OOO 3?. AI"S. C

12% Bor.ds Payable,. proceeds 1/1/2012


PV: Principal: (5,000,00fJ*0.6L09) J,J04,607
PV: lnte:~~~: (600,000*3,790S) 2,214,472

PROBLEM -FIRST PRE-BOA~D EXAMINATION (826) IRENEO/ESPENI,
SOLUTION GUIDE

Amortization t'!Q 1~ Effective Norr.in2\ An 1ortization Balance
,January 1, 2012 proceeds 5,379,079
December 31, 2012 amo 537,908 600,000 (62,092) 5,316,987 "'
December 31, 2013 amo !>31,699 600,000 (ii8,301)[5,248;635] 33. Ans. C.
December 31, 2014 amo 524,869 600,000 ' (75,1:01) 5,173,554
December 31, 2015 a!T'o 517,3~5 600,UOO (1'_',64'>) 5,090,909
December 31. 2016 amo 509,091 600,000 (90,909) 5 000,000
Ill
~.'
9% Bonds Payable, proceeds 6/30/13 ' ~;l
PV: P+int due 12/31/13: 11,000,000+270,00,0)*0.9091 1,154,545
PV: P+int due 1:?/31/14: (1,00C,000+180,0(J0)*0.8264 975,207
PV: P+int due 12/31.115: (1,000,000+SO,OOO)*lJ:/513 8:t8,S33 2,948,6qs

~.

Amortizatio:1 tab\n: Effective NJmir.al Amortitilti:Jn Princ1pal Coli Balan en


Jl
January 1, 2013 proceea: ) ,'}118,685
December 31. 2013 amo 294,869

270,000 24,869 11.aoo,ooo; ~.s-73,554
December 31, 2014 amo 197,355 180,000 1i ,355 (1,000,000; 99o,c;ng
December 31, 2015 amo 99,091 ~o.ooo 9,09::. ( 1,000,000)

Balance as e>f Dec~mbPr 31, 2013 1,973,554


Long term portion (Due 12/31/2015i \990,909)
Current portion (0~1e 12/31/2014) ~-SSz~ 34 An~. ~-

Financial income before any diffuences 4,50C,GOO


Permanent Differenc.:e: Non taxable income (400,0GO)
Permanen~ Difference: Non deductible f.Xp~hse 800,000 Tax r.Jte

~erll'anent diffeJ,ence
Finant:ia: ir.come <her 4,900,000 40% 1,960,000 To.al Lex ~xpense
Temporary Difference: FDA, Qtasset t * 1,500.000
Temporary Differ~nce: FTA, Dtliab ~ * * ~00,000)
Taxable lnorne 5,500,000 "0% 1,200,0('0 Current -,ax Payable
36. Ans. 0.
*Future deductibl~ amount (FDAAB)
Estimated premiums payable soo,ooo
Unearned ircor.1e 8CO,UOO
Estimated warrancies payable 200,000 1,500,000 600,000 Dcfer~ed Tax Asset

**Future taxable am0unt (FTALE)
Prepaid insurance 40G,OOO
Excess tax depredation 500,000 9JfJ,000 40% 360,00C De';,'rred Tax Liability
'{5. Ans. A.

PROBLEM 8: INT:::RNAL CONTROL CONSIDF.RAfiONS AND Sl:'lls{ANTIVE rESTIN'G


37.Ans.C.
38.Ans. c.
39.Ans. D.
40.Ans. D.

..