AUDITING (2016 EDITION) SOLUTIONS GUIDE

CTESPENILLA 135 of 155

CHAPTER 10-PROBLEM 2: RCW CORP. Current Noncurrent Current Noncurrent SHE

Asset Asset Liabilities Liabilities

Cash 400,000 400,000

Accounts receivable 800,000 800,000
Allowance for doubtful accounts 50,000 (50,000)
Inventories at cost (NRV is P900,000) 1,000,000 900,000 (100,000)
Land, plant site 500,000 500,000
Land, for speculation at FMV (Note a) 1,200,000 1,200,000
Building 3,800,000 3,800,000
Accumulated depreciation building 2,000,000 (2,000,000)
Equipment 3,400,000 3,400,000
Accumulated depreciation equipment 1,300,000 (1,300,000)
Investment in associate 1,300,000 1,300,000
Prepaid expenses 100,000 100,000
Notes payable 750,000 750,000
Accounts payable 350,000 350,000
Income tax payable 50,000 50,000
Accrued expenses 60,000 60,000
Mortgage payable, P100,000 quarterly 2,000,000 400,000 1,600,000
Estimated liability for damages 140,000 140,000
Retained earnings app. for plant expansion 1,000,000 1,000,000
Retained earnings app. for contingencies 100,000 100,000
Share capital 3,000,000 3,000,000
Share premium 300,000 300,000
Retained earnings, unappropriated 1,350,000 1,350,000
Trademark 150,000 150,000
Secret processes and formulas 200,000 200,000
Bank loan payable June 30, 2015 (Note b) 500,000 500,000
Def. tax asset, net def. tax liability, P50,000 100,000 150,000 50,000
Adjusted balances 2,150,000 7,400,000 1,750,000 2,150,000 5,650,000
1. Ans. 2. Ans. 3. Ans. 4. Ans. 5. Ans.

CHAPTER 10-PROBLEM 3: SCR COMPANY

Current Noncurrent Current Noncurrent SHE
Asset Asset Liabilities Liabilities
Unadjusted balances 6,200,000 11,800,000 2,000,000 2,000,000 14,000,000
Restricted foreign deposit (600,000) 600,000
Investment property at cost (1,000,000) 1,000,000
Loss on inventory write-down (200,000) (200,000)
Treasury shares (600,000) (600,000)
Store supplies 100,000 (100,000)
Financial asset at fair value through profit/loss 800,000 (800,000)
Share premium (500,000) 500,000
Unearned leasehold income -current portion 140,000 (140,000)
Stock dividends payable (300,000) 300,000
Serial bonds payable - current portion 100,000 (100,000)
Adjusted balances 4,700,000 12,500,000 1,740,000 1,460,000 14,000,000
1. Ans. 2. Ans. 3. Ans. 4. Ans. 5. Ans.

CHAPTER 10-PROBLEM 4: ABC COMPANY

Statement of Comprehensive Income (Expenses according to function)
Note #
Net Sales Note 1 12,230,000
Less: Cost of Sales Note 2 (6,560,000)
Gross profit 5,670,000
Share from net income of associate Note 3 170,000
Other income Note 4 210,000
Total income 6,050,000
Less: Operating expenses
Selling expenses Note 5 1,820,000
General and administrative expenses Note 6 850,000
Interest expense 400,000
Unrealized holding loss from financial asset 400,000 (3,470,000)
Net income before tax 2,580,000
Income tax expense (30%) (774,000)
Net income after tax 1,806,000 4. Ans.

Other comprehensive income/loss:

Unrealized holding gain on financial asset, net of tax 140,000
Revaluation surplus, net of tax 350,000
Foreign translation gain, net of tax 70,000 560,000

Total comprehensive income 2,366,000 5. Ans.

Statement of Comprehensive Income (Expenses according to nature)

Note #
Net Sales Note 1 12,230,000
Share from net income of associate Note 3 170,000
Other income Note 4 210,000

CHAPTER 10: FINANCIAL STATEMENTS PRESENTATION

AUDITING (2016 EDITION) SOLUTIONS GUIDE
CTESPENILLA 136 of 155

Total income before expenses 12,610,000 3. Ans

Less: Operating expenses
(Increase)Decrease in inventories Note 7 390,000
Net purchases Note 2 5,140,000
Depreciation 1,200,000
Salaries 900,000
Supplies 600,000
Utilities 400,000
Rent 200,000
Advertising 150,000
Freight-out 250,000
Interest expense 400,000
Unrealized holding loss on financial asset 400,000 (10,030,000)
Net income before tax 2,580,000
Income tax expense (30%) (774,000)
Net income after tax 1,806,000 4. Ans.

Other comprehensive income/loss:

Unrealized holding gain on financial asset, net of tax 140,000
Revaluation surplus, net of tax 350,000
Foreign translation gain, net of tax 70,000 560,000

Total comprehensive income 2,366,000 5. Ans.

SUPPLEMENTARY NOTES:
Note 1: Net Sales
Gross sales 13,000,000
Less: Sales returns and allowances (520,000)
Sales discounts (250,000)
Net Sales 12,230,000

Note 2: Cost of Sales

Raw materials inventory, January 1, 1,150,000
Add: Net purchases
Gross purchases 5,400,000
Add: Freight-in 200,000
Less: Purchase returns and allowances (310,000)
Purchase discounts (150,000) 5,140,000
Raw materials available for use 6,290,000
Less: Raw materials, December 31, (800,000)
Raw materials used 5,490,000
Direct labor (P900,000*30%) 270,000
Factory overhead:
Depreciation (P1,200,000*40%) 480,000
Supplies (P600,000*20%) 120,000
Utilities (P400,000*40%) 160,000 760,000
Total manufacturing cost 6,520,000
Add: Work-in process inventory, January 1,. 920,000
Cost of goods placed into process 7,440,000
Less: Work-in process inventory, December 31 (1,100,000)
Cost of goods manufactured 6,340,000
Add: Finished goods inventory, January 1, 1,200,000
Cost of goods available for sale 7,540,000
Less: Finished goods inventory, December 31, (980,000)
Cost of goods sold 6,560,000 1. Ans.

Note 3: Share from Net Income of Associate

XYZ Inc. Net Income for 2014 850,000
Proportionate share 20%
Share from net income of associate 170,000

Note 4: Other income

Rent income 120,000
Royalty income 90,000
Total other income 210,000

CHAPTER 10: FINANCIAL STATEMENTS PRESENTATION

AUDITING (2016 EDITION) SOLUTIONS GUIDE
CTESPENILLA 137 of 155

Note 5: Selling Expenses

Depreciation (P1,200,000*35%) 420,000
Salaries (P900,000*40%) 360,000
Supplies (P600,000*50%) 300,000
Utilities (P400,000*35%) 140,000
Rent expense 200,000
Advertising expense 150,000
Freight out 250,000
Total selling expenses 1,820,000 2. Ans.

Note 6: General and Administrative Expenses

Depreciation (P1,200,000*25%) 300,000
Salaries (P900,000*30%) 270,000
Supplies (P600,000*30%) 180,000
Utilities (P400,000*25%) 100,000
Total general and administrative expenses 850,000

Note 7: Increase/Decrease in Inventories

Inventories, January 1:
Raw materials 1,150,000
Work-in process 920,000
Finished goods 1,200,000 3,270,000
Inventories, December 31:
Raw materials 800,000
Work-in process 1,100,000
Finished goods 980,000 2,880,000
Decrase in inventories 390,000

CHAPTER 10-PROBLEM 5: UTV CORP.

Noncurrent Current Noncurrent
Current Asset Assets Liabilities Liabilities
Cash and cash equivalents 400,000 400,000
Bank overdraft 100,000 100,000
Accounts receivable 900,000 900,000
Allowance for doubtful accounts 40,000 (40,000)
Raw materials 560,000 560,000
Goods in process 600,000 600,000
Finished goods 1,400,000 1,400,000
Financial assets at fair value through OCI 2,500,000 2,500,000
Land, at fair market value 12/31/14 1,000,000 1,000,000
Building 6,000,000 6,000,000
Accumulated depreciation building 1,600,000 (1,600,000)
Plant and equipment 2,400,000 2,400,000
Accumulated depreciation Plant and Eqpt. 400,000 (400,000)
Patent 800,000 800,000
Goodwill, recognized in Jan. 2013 1,400,000 1,400,000
Note payable, bank due June 30, 2015 1,300,000 1,300,000
Note payable, bank due June 30, 2016 2,100,000 2,100,000
Accounts payable 1,000,000 1,000,000
Employee benefit provisions 180,000 180,000
Warranty liabilities 80,000 80,000
Income tax payable 120,000 120,000
Deferred tax liability 280,000 280,000
Accumulated profits, January 1, 2014 3,600,000
Revaluation surplus on Land, January 1, 2014 360,000
Unrealized gain on financial assets, 1/1/14 280,000
Share capital 5,000,000
Share premium, 1,000,000
Sales 10,000,000
Revaluation surplus on Land during the year 140,000
Unrealized gain on financial asset for the year 100,000
Cost of sales 6,000,000
Selling expenses 1,960,000
Administrative expenses 500,000
Finance cost 100,000
Income tax expense 160,000
Dividend declared and paid
Balances 3,820,000 12,100,000 2,780,000 2,380,000
Net Income 1. Ans. 2. Ans. 3. Ans. 4. Ans.

CHAPTER 10: FINANCIAL STATEMENTS PRESENTATION

AUDITING (2016 EDITION) SOLUTIONS GUIDE
CTESPENILLA 138 of 155

Continued Total Compre.

Net Income Income Accum. Profits SHE
Cash and cash equivalents
Bank overdraft
Accounts receivable
Allowance for doubtful accounts
Raw materials
Goods in process
Finished goods
Financial assets at fair value through OCI
Land, at fair market value 12/31/14
Building
Accumulated depreciation building
Plant and equipment
Accumulated depreciation Plant and Eqpt.
Patent
Goodwill, recognized in Jan. 2013
Note payable, bank due June 30, 2015
Note payable, bank due June 30, 2016
Accounts payable
Employee benefit provisions
Warranty liabilities
Income tax payable
Deferred tax liability
Accumulated profits, January 1, 2014 3,600,000
Revaluation surplus on Land, January 1, 2014 360,000
Unrealized gain on financial assets, 1/1/14 280,000
Share capital 5,000,000
Share premium, 1,000,000
Sales 10,000,000
Revaluation surplus on Land during the year 140,000 140,000
Unrealized gain on financial asset for the year 100,000 100,000
Cost of sales (6,000,000)
Selling expenses (1,960,000)
Administrative expenses (500,000)
Finance cost (100,000)
Income tax expense (160,000)
Dividend declared and paid (1,000,000)
Balances
Net Income 1,280,000 1,280,000 1,280,000
Total Comprehensive Income 1,520,000
Accumulated Profits 3,880,000 3,880,000
Stockholders' Equity 10,760,000
5. Ans. 6. Ans. 7. Ans.

CHAPTER 10-PROBLEM 6: THEODORE COMPANY

1. Ans. P7,485,000.
Sales revenue P7,935,000
Increase in accounts receivable (P1,800,000-P1,350,000) (450,000)
Collections from customers P7,485,000

2. Ans. P2,025,000.
Cost of goods sold P1,800,000
Increase in inventory (P2,700,00-P1,575,000) 1,125,000
Purchases 2,925,000
Increase in accounts payable (P2,250,000-P1,350,000) (900,000)
Cash disbursed for purchases P2,025,000

Operating expenses P1,500,000

(225,000)
Cash paid for operating expenses P1,275,000

3. Ans. P4,185,000.
Collections from customers P7,485,000
Cash disbursed for purchases (2,025,000)
Cash paid for operating expenses (1,275,000)
Cash provided by operating activities P4,185,000

4. Ans. P2,160,000.
Purchase of equipment (P2,700,000)1
Sale of land 495,000
Sale of equipment 45,000
Cash used in investing activities (P2,160,000)

P1,800,000
Add: Cost of equipment sold 900,000
Purchase of equipment P2,700,000

CHAPTER 10: FINANCIAL STATEMENTS PRESENTATION

AUDITING (2016 EDITION) SOLUTIONS GUIDE
CTESPENILLA 139 of 155

Increase in lease-liabilityLand P450,000

225,000
Carrying value of land sold 225,000
Add: Gain on sale of land 270,000
Proceeds from sale of land P495,000

P90,000
Less: Loss on sale of equipment 45,000
Proceeds from sale of equipment 45,000

5. Ans. P1,350,000.
(P1,350,000)

CHAPTER 10-PROBLEM 7: SARI-SARI COMPANY

1. Ans. P920,000.
Net income 790,000
Adj: Non-operating (gain)/loss
Gain on sale of LT investment (P135,000-P100,000) (35,000)
Adj: Non-cash (income)/expenses
Depreciation expense 250,000
Adj: Decrease/(Increase) in Working Capital
Inventory, increase (80,000)
Accounts payable and accrued liabilities, decrease (5,000)
Cash provided by operating activities 920,000

2. Ans. P1,005,000.
Proceeds from sale of Building 350,000
Proceeds from sale of LT Investment 135,000
Purchase of Plant assets (P700,000+600,000-110,000) (1,190,000)
Purchase of Available for sale securities (300,000)
Cash used in investing activities (1,005,000)

3. Ans. P205,000.
Proceeds from share issuance 220,000
Proceeds from short-term bank debt 325,000
Payment of dividends (P500,000-160,000) (340,000)
Cash provided by financing activities 205,000

Summary:
Cash provided by operating activities 920,000
Cash used in investing activities (1,005,000)
Cash provided by financing activities 205,000
Increase in cash for the year 120,000

CHAPTER 10-PROBLEM 8: ABC CORP.

STATEMENT OF CHANGES IN EQUITY Share Capital Reserves Accumulated Treasury Total SHE
Profits-Unapp Shares
January 1, balances 3,000,000 2,540,000 4,000,000 9,540,000
Share issuance 1,000,000 1,000,000
Treasury shares reaquisition (300,000) (300,000)
Treasury shares retirement (100,000) (20,000) 120,000 -
Dividends declaration:
Share dividends (20%*65,000sh)*P50 650,000 (650,000) -
Cash dividends (P12*5,000)+(P3*78,000) (294,000) (294,000)
Appropriations:
Plant expansion 400,000 (400,000) -
Treasury shares 180,000 (180,000) -
Comprehensive income
Net income 1,200,000 1,200,000
Other comprehensive income (200,000) (200,000)
December 31, balances 4,550,000 2,900,000 3,676,000 (180,000) 10,946,000
1. Ans. 2. Ans. 3. Ans. 4. Ans.

CHAPTER 10: FINANCIAL STATEMENTS PRESENTATION

AUDITING (2016 EDITION) SOLUTIONS GUIDE
CTESPENILLA 140 of 155

CHAPTER 10-PROBLEM 9: GLORIA CORPORATION

STATEMENT OF CHANGES IN EQUITY Share Capital Reserves Accumulated Treasury Total SHE
Profits-Unapp Shares
January 1, balances 6,950,000 3,615,000 3,730,000 (270,000) 14,025,000
Prior period adjustment:
Unrecorded 2011-2013 options 200,000 (200,000) -
Overstatement in rent income in 2013 (275,000) (275,000)
Share issuance from exercise of rights 1,050,000 1,260,000 2,310,000
Share issuance from exercise of options 400,000 240,000 640,000
Treasury shares retirement (150,000) (120,000) 270,000 -
Dividends declaration:
Property dividends (10,000sh*P75) (750,000) (750,000)
Cash dividends (P10%*P100*18,000sh) (180,000) (180,000)
Reversal of appropriation
Treasury shares (270,000) 270,000 -
Comprehensive income
Net income 2,600,000 2,600,000
Other comprehensive income 110,000 110,000
December 31, balances 8,250,000 5,035,000 5,195,000 - 18,480,000
1. Ans. 2. Ans. 3. Ans.

MULTIPLE CHOICE EXERCISES:

CHAPTER 10-EXERCISE 1: KALAMANSI INC.
1. Ans. A.
Cash (184,920 101,920) P83,000
Accounts receivable (84,480 4,125) 80,355
Inventory at NRV (90,000*80%) 72,000
Prepaid Insurance 12,000
Total current assets P247,355

2. Ans. A.
Land P167,000
Building, net (375,000 45,000) 330,000
Furniture and fixtures, net (114,600 34,600) 80,000
Total PPE P577,000

3. Ans. C.
Accounts payable P23,595
Interest payable 8,405
Advances 12,000
Short term portion of serial bonds 50,000
Total Current liabilities P94,000
9. c.

4. Ans. C.
Unappropriated retained earnings P295,000
(3,125)
Appropriated for bond treatment 50,000
Total retained earnings P341,875

5. Ans. B.
Share capital (4,000*10) P40,000
Paid-in capital in excess of par 430,00
Total retained earnings 341,875
Total SHE P811,875

CHAPTER 10-EXERCISE 2:ETT INC.

Current Asset Assets Liabilities Liabilities SHE Accum. Profits
Unadjusted balances 8,000,000 3,600,000 3,000,000 200,000 8,400,000 2,000,000
Bank overdraft 200,000 200,000
Allowance for bad debts/bad debt expense (260,000) (260,000) (260,000)
Increase in FMV of financial asset at fair value 150,000 150,000 150,000
Inventory write-down (to NRV which is lower) (100,000) (100,000) (100,000)
Goodwill (200,000) 200,000
Salaries payable/Salaries expense 500,000 (500,000) (500,000)
Mortgage payable 4,000,000 4,000,000
Interest payable 400,000 400,000
Accumulated depreciation on the building (600,000) (600,000) (600,000)
Current tax payable 200,000 (200,000)
Adjusted balances 7,790,000 7,600,000 4,300,000 4,000,000 7,090,000 690,000
1. Ans. D. 2. Ans. B. 3. Ans. D. 4. Ans. B. 5. Ans. C. 6. Ans. C.

CHAPTER 10: FINANCIAL STATEMENTS PRESENTATION

AUDITING (2016 EDITION) SOLUTIONS GUIDE
CTESPENILLA 141 of 155

CHAPTER 10-EXERCISE 3: JACOB CORPORATION

ASSETS
Cash and cash equivalents (325,000+75,000) 400,000
Accounts receivable (275,000+100,000) 375,000
Marketable securities (955,000-600,000) 355,000
Prepayments 50,000
TOTAL CURRENT ASSETS P1,180,000 1. Ans. B.
Land 900,000
Building 600,000
Reserve for depreciation Building (50,000)
Machinery and equipment 330,000
Reserve for depreciation Machinery and equipment (110,000)
TOTAL NONCURRENT ASSETS 1,670,000
TOTAL ASSETS 2,850,000 2. Ans. A.
LIABILITIES AND CAPITAL
Current liabilities (325,000+75,000+100,000+3,000-50,000-100,000) 353,000 3. Ans. B.
Non-current liabilities (250,000+50,000) 300,000 4. Ans. C.
TOTAL LIABILITIES P653,000
Ordinary shares, P25 par, 45,000 shares issued (1,250,000 -125,000) 1,125,000
Share dividends payable (4,000sh*25) 100,000
Share premium (750,000+(4,000sh*(60-25))-((750,000/50,000)*5,000sh) 815,000
TOTAL CONTRIBUTED CAPITAL 2,040,000
Reserve for self insurance 75,000
Reserve for treasury shares 250,000
Accumulated profits (625,000-3,000-100,000-140,000-50,000-250,000) 82,000
Treasury shares (500,000-250,000) (250,000)
TOTAL SHE 2,197,000 5. Ans. A.
TOTAL 2,850,000

CHAPTER 10-EXERCISE 4: REESE CORP.

1. Ans. B.
Cash 775,000
Accounts receivable (net) 2,695,000
Inventory 2,085,000
Total current assets 5,555,000
Note that the installment receivable from customer is classified as current since it is a trade payable.

2. Ans. A.
Accounts payable and accrued liabilities 1,701,000
Income taxes payable (654,000-525,000) 129,000
Total current liabilities 1,830,000

3. Ans. C.
Retained earnings, 1/1/14 3,450,000
Net sales and other revenues 13,360,000
Costs and expenses 11,180,000
Net income before tax 2,180,000
Income tax expense (30%) (654,000)
Net Income for the year 1,526,000
Retained earnings, 12/31/14 4,976,000

CHAPTER 10-EXERCISE 5: TORRES COMPANY

Current Non-current
Cash 1,765,000
Compensating balance (300,000) 300,000 Other Assets
Bond retirement (600,000) 600,000 LT Investment
Contingency fund (500,000) 365,000 1. Ans. D. 500,000 LT Investment

Account receivable 930,007

Credit balance 45,000
Advances to officers (past due) (600,000)
Current portion of past due:
2015: (P100,000 x .917431)) 91,743
Non-current portion:
2016:(P200,000 .84168) 168,336 Other Assets
2017: (P300,000 .77218) 231,654 Other Assets
Mdse. sent on consignment:
(P100,000 125%) (125,000)
Due from consignee:
(P75,000 125% 92% - P3,000) 83,250 425,000 2. Ans. A.

Inventory 750,000
On consignment (P100,000 25%) 25,000 775,000

Investment 763,000
Financial Asset at Fair value through P&L 170,000 3. Ans B. (150,000)
Prepaid expense 30,000 (30,000)
Increase in value of AFS 50,000 633,000 LT Investment
Total 1,765,000 2,432,990
4. Ans. B. 5. Ans. D.

CHAPTER 10: FINANCIAL STATEMENTS PRESENTATION

AUDITING (2016 EDITION) SOLUTIONS GUIDE
CTESPENILLA 142 of 155

CHAPTER 10-EXERCISE 6: KATZ CORP. Other Comp. Total Com. Accumulated

Cost of Sales Net Income Income Income Profits
Sales 53,000,000 53,000,000
Purchases 32,000,000 32,000,000
Sales discount 2,000,000 (2,000,000)
Purchase discount 1,200,000 (1,200,000)
Sales returns and allowance 1,000,000 (1,000,000)
Purchase returns and allowance 800,000 (800,000)
Correction of merchandise inventory,
beginning error, net of income tax credit 400,000 400,000
Merchandise Inventory, January 1 (adjusted) 3,400,000 3,400,000
Merchandise Inventory, December 31 3,500,000 (3,500,000)
Distribution costs 5,000,000 (5,000,000)
General and administrative expenses 4,000,000 (4,000,000)
Interest expense 2,000,000 (2,000,000)
500,000 500,000
1,250,000 1,250,000
700,000 700,000

value through other comprehensive income or

550,000 (550,000)
losses, net of income tax
Investment income equity method 3,000,000 3,000,000
Gain on expropriation of asset 2,000,000 2,000,000
Income tax expense 5,000,000 (5,000,000)
4,800,000 (500,000)
Dividends declared 1,300,000 (1,300,000)
Accumulated profits, January 1, 2014 4,200,000 4,200,000
Cost of Sales 29,900,000 (29,900,000)
Net Income 1. Ans. B. 9,100,000 9,100,000 9,100,000
Other Comprehensive Income 2. Ans. B. 1,400,000 1,400,000
Total Comprehensive Income 3. Ans. B. 10,500,000
Accumulated Profits, Dec. 31, 2014 4. Ans. C. 12,400,000

CHAPTER 10-EXERCISE 7: NAM COMPANY

1. Ans. B.
Net income P925,000
Depreciation (see note below) 375,000
Gain on sale of equipment (P100,000-P87,500) (12,500)
Share from net income of associate (P300,000*25%) (75,000)
Decrease in accounts receivable 100,000
Increase in inventories (337,500)
Increase in accounts payable 150,000
Decrease in income taxes payable (50,000)
Net cash provided by operating activities P1,075,000

Increase in accumulated depreciation (2,912,500-2,600,000) 312,500

Accumulated depreciation of equipment sold (150,000 -87,500) 62,500
Depreciation for 2014 P375,000

2. Ans. D.
Proceeds from sale of equipment P100,000
Loan to Ari Co. (750,000)
Principal collection of loan receivable 93,750
Net cash used in investing activities P556,250

3. Ans. A.
Net cash used in financing activities (Dividends paid) (P250,000)

CHAPTER 10-EXERCISE 8:RAVEN CORPORATION

1. Ans. D.
Sales 10,776,000
Cost of goods sold (6,468,000)
Gross profit 4,308,000
Gain on sale of trading securities 144,000
Total 4,452,000
Selling and administrative expenses (3,444,000)
Unrealized holding loss on trading securities (48,000)
Loss on sale of equipment (12,000)
Net income before tax 948,000
Income taxes (420,000)
Net income after tax 528,000

2. Ans. A.
Accumulated profits, unapp., Jan 1, 2014 1,344,000
Less: Increase in appropriations for expansion (180,000)
Stock dividends declaration (237,600*30%)*P10 (712,800)
Accumulated profits, unapp. Dec. 31 (943,200)
Less: Net income for the year 528,000
Reversal of approp for Treasury 60,000
Cash dividend declaration 96,000

CHAPTER 10: FINANCIAL STATEMENTS PRESENTATION

AUDITING (2016 EDITION) SOLUTIONS GUIDE
CTESPENILLA 143 of 155

3. Ans. C.
Share capital, Dec. 31, 2014 4,312,800
Share premium, Dec. 31, 2014 1,392,000
Total 5,704,800
Less:
Share capital, Dec. 31, 2013 2,400,000
Share premium, Dec. 31, 2013 60,000
2,460,000
Increase in Share capital and share premium 3,244,800
Share dividends (237,600*30%)*10 (712,800)
Share premium from treasury shares reissue (12,000)
Proceeds from issuance of shares 2,520,000

4. Ans. B.
Decrease in Trading securities 360,000
Add:Gain on sale of Trading securities 144,000
Unrealized loss on trading securities (48,000)
Proceeds from sale of Trading securities 456,000

5. Ans. C.
Proceeds from sale of equipment 84,000
Add: Loss on sale of equipment 12,000
Carrying Value of eqiupment sold 96,000

6. Ans. D.
Equipment, end 3,732,000
Equipment, beg 2,040,000
Increase in equipment 1,692,000
Add: Cost of disposed equipment 180,000
Total equipment acquired during the year 1,872,000
Equipment acquired through note issuance (600,000)
Overhaul on equipment (72,000)
Total cash payment made for equipment acquisition] 1,200,000

7. Ans. A.
Decrase in treasury shares (120,000 - 60,000) 60,000
Share premium on treasury shares reissue 12,000
Proceeds from treasury shares reissue 72,000

8. Ans. C.
Net Income 528,000
Non cash expenses/income
Depreciation expense - Bldg 45,000
Depreciaiton expense - Equipment 303,000
Bad debt expense 36,000
Amortization of bond discount 6,000
Income tax benefit (Decrease in Def. tax liab) (75,600)
Non operating income/expense
Loss on sale of equipment 12,000
Changes in working capital
Trading security 360,000
Accounts receivable (576,000)
Inventories 108,000
Prepaid Insurance (6,000)
Accounts payable (60,000)
Accrued expenses 111,600
Income tax payable 300,000
Unearned Income (96,000)
Net cash provided by operating activities 996,000

9. Ans. B.
Purchase of equipment (1,200,000)
Overhaul of equipment (72,000)
Sale of equipment 84,000
(1,188,000)

10. Ans. A.
Payment of serial notes payable (240,000)
Share issuance 2,520,000
Treasury shares reissuance 72,000
Payment of dividends (96,000)
2,256,000

CHAPTER 10: FINANCIAL STATEMENTS PRESENTATION

AUDITING (2016 EDITION) SOLUTIONS GUIDE
CTESPENILLA 144 of 155

CHAPTER 11: ERROR CORRECTION AND CASH;ACCRUAL

DISCUSSION PROBLEMS
CHAPTER 11-PROBLEM 1: SAFARI COMPANY
2012 NI 2013 NI 2014 NI 2014 RE, BEG 2014 RE, END 2014 WC
A. Accrued expense, under 2012 (15,000) 15,000
Accrued expense, under 2013 (7,000) 7,000 (7,000)
Accrued expense, under 2014 (22,000) (22,000) (22,000)
B. Accrued income, under 2012 8,000 (8,000)
Accrued income, under 2013 9,000 (9,000) 9,000
Accrued income, under 2014 5,000 5,000 5,000
C. Prepaid expense, under 2012 16,000 (16,000)
Prepaid expense, under 2013 12,000 (12,000) 12,000
Prepaid expense, under 2014 6,000 6,000 6,000
D. Unearned income, under 2012 (11,000) 11,000
Unearned income, under 2013 (13,000) 13,000 (13,000)
Unearned income, under 2014 (10,000) (10,000) (10,000)
EFFECT OF ERRORS (2,000) 3,000 (22,000) 1,000 (21,000) (21,000)
1. Ans. 2. Ans. 3. Ans. 4. Ans. 5. Ans. 6. Ans.

CHAPTER 11-PROBLEM 2: MASIGLA COMPANY

2012 NI 2013 NI 2014 NI 2014 RE, BEG 2014 RE, END 2014 WC
A. Ending Inventory, over 2012 (50,000) 50,000
Ending Inventory, over 2013 (30,000) 30,000 (30,000)
Ending Inventory, over 2014 (40,000) (40,000) (40,000)
B. Ending Invenotry, under 2012 12,000 (12,000)
Ending Invenotry, under 2013 14,000 (14,000) 14,000
Ending Invenotry, under 2014 8,000 8,000 8,000
C. AR/Sales, under 2012 25,000 (25,000)
AR/Sales, under 2013 22,000 (22,000) 22,000
AR/Sales, under 2014 16,000 16,000 16,000
D. AP/Purchases, under 2012 (15,000) 15,000
AP/Purchases, under 2013 (12,000) 12,000 (12,000)
AP/Purchases, under 2014 (10,000) (10,000) (10,000)
E. Equipment, under/Expense, over per year 200,000 240,000 220,000 440,000 660,000
Depr Expense, under (2012 Equipment) (20,000) (20,000) (20,000) (40,000) (60,000)
Depr Expense, under (2013 Equipment) (24,000) (24,000) (24,000) (48,000)
Depr Expense, under (2014 Equipment) (22,000) (22,000)
EFFECT OF ERRORS 152,000 218,000 134,000 370,000 504,000 (26,000)
1. Ans. 2. Ans. 3. Ans. 4. Ans. 5. Ans. 6. Ans.

CHAPTER 11-PROBLEM 3: AMICI COMPANY

2013 NI 2014 NI 2014 RE, BEG 2014 WC
Unadjusted balances 245,000 310,000
A. Salaries payable, under 2013 (12,000) 12,000 (12,000)
Salaries payable, under 2014 (5,000) (5,000)
Accrued interest income, under 2013 4,000 (4,000) 4,000
Accrued interest income, under 2014 3,000 3,000
Unearned rental income, under 2013 (14,000) 14,000 (14,000)
Unearned rental income, under 2014 (15,000) (15,000)
Prepaid insurance, under 2013 3,000 (3,000) 3,000
Prepaid insurance, under 2014 5,000 5,000
B. Advances from customers, under 2013 (31,000) 31,000 (31,000)
Advances from customers, under 2014 (25,000) (25,000)
C. Advances to suppliers, under 2013 10,000 (10,000) 10,000
Advances to suppliers, under 2014 7,000 7,000
D. Equipment, over/Expense under (each year (60,000) (80,000) (60,000)
Depr Expense, over (on 2013 Equipment) 12,000 12,000 12,000
Depr Expense, over (on 2014 Equipment) 16,000
ADJUSTED BALANCES/EFFECT OF ERRORS 157,000 268,000 (88,000) (30,000)
1. Ans. 2. Ans. 3. Ans. 5. Ans.

CHAPTER 11: ERROR CORRECTION; CASH/ACCRUAL AND SINGLE ENTRY