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/ 12
ReSA: The Review School of Accountancy Page 2 of 13
of 6%. They were issued at a discount of P675,000 on January 1, 2012 to yield an effective
interest rate of 7%
d. Ordinary repairs to equipment hag been charged to the Equipment account during 2013 to 2014.
Repairs of P362,500 and P423,000 had been incurred in 2013 and 2014, respectively. In
determining depreciation charges, Loguses the double declining balance method over 10 a ten
year asset useful life. The rate is being applied to the balance of the asset account at the end of
each year.
7. What is the adjusted pretax income for 20137
a. 2,978,618. b. 2,973,250 c. 2,838,982 . 2,842,750
8. What is the adjusted pretax income for 2014?
3. 4,206,295, b. 4,145,095 c. 4,356,640 J. 4,483,495
PROBLEM 3: The following information pertains to Lot Inc.'s depreciable assets
a. Equipment XYZ was acquired on January 2011 by exchanging an old delivery van originally
costing P225,000 but with a carrying value on the same date at P75,000. The new equipment
had cash purchase price of P450,000 while the old equipment had a market value of P50,000.
The company paid P400,000 on the trade in, which the company had debited to the Equipment
account, the only entry made by the client related to the trade in transaction. The equipment
had been depreciated over its 10 year useful life using the straight-line method. On January 3,
2014, it had been ascertained that the equipment had a 5 year remaining useful life
b. Equipment UVW cost P393,750 and was acquired on January 1, 2012. On the date of acquisition,
the expected useful life was 12 years with no residual value. The straight line depreciation
‘method was used. On January 2, 2014, it was estimated that the remaining life of the asset
would be 6 years and that there would be’an P18,750 residual value. In addition, 150% decining
balance method will be used to fairiy reflect the mode of use of the asset.
©. A building was purchased on January 3, 2011, for P4,500,000. The building was expected to
have a useful life of 20 years with no residual value. The straight-line depreciation method was
used. On January 1, 2014, a change was made to the sum-of-years’ digits method of
depreciation. Total life of the asset was estimated to be at 15 years with P50,000 residual value
9. How much is the adjustment to the accumulated depreciation account and the related depreciation
expense for the current year for the Equipment XYZ?
a. 15,000 and 63,000; c. 165,000 and 56,000
b._ 135,000 and 63,000 d. 135,000 and 56,000
10. How much is the depreciation expense for the current year for the Equipment UVW?
2. 82,031 be 77,344 c. 82,813, 4. 87,500
11. What is the book value of the building at December 31, 2014?
3,346,875 . 3,570,000 ©. 3,236,538 d. 3,244,231
PROBLEM 4: Herb Co.'s financial statements are being audited for the first time since it began operations,
in 2013. Herb’s books showed net income for 2013, 2014 and 2015 at P2,000,000, P2,900,000 and
3,700,000; respectively. The auditor's findings after examination are summarized below
a. Two-year insurance premium payments made in advance by Herb at the beginning of 2013 and in
2015 amounted to P150,000 anc P200,000, respectively. The company charged the same to
insurance expense upon payments.
b. The following accrued expenses (utilities and salaries) at the end of the following years were omitted:
12013
December 31, 2014
[December 31, 2015 —
[47,000
c. The following accru
come were also omitted in the accounting records:
December 31, 2013 i __ 165,000]
[December 31, 2014 7 37,000}
December 31, 2015 171,000}
4. On July 1, 2013, the company completed major improvements on the building being leased from a
real estate company. The said improvement which costs P760,000 was charged to repairs and
‘maintenance expense. The 10-year lease agreement for the said building was dated January 1, 2013.
Requirements:
12. What is the understatement in the 2015 depreciation expense?
a, none b. 76,000 . 80,000 6. 84,444
13, What is the correct net income in 20137
‘2. 2,850,000 b. 2,770,000 . 2,810,000 4. 2,812,000
14, What is the correct net income in 2015?
AP QUEZER t Batch
APQ1 © ReSA: The Review School of Accountancy Page 3 of 13
a. 3,682,000 b. 3,782,000 3,788,000 4. 3,686,000
15. What is the retroactive adjustment to the retamed earnings beginning 2015?
2. 564,000 b. 562,000 =. 604,000 4. 602,000
16, What isthe effect of the errors 19 the December 31, 2015 working capital?
‘8. 24,000 under b. 124,000 under. 24,000 over d._ 124,000 over
PROBLEM S: You were assigned to aucit for the first the time the financial statements of Baby Inc. as of
‘and for the year ended December 31, 2015. Baby inc. is a merchandiser of office and school supplies
‘and has started operations in early 2013. No audit has been made on its financial statements from its
inception. The following was as a result of your audit investigations
‘he retained earnings general edger entries from 201
[Date | Particulars {Deo
12/31/13 | Net Income Te
F7/Ana | Land donated by a
{ stockholder at fair valve
~P600,000 | _P600,0
“400,000 | 1,000,000 |
12/31/14 [Net Income i ~~ | 750,000 | 1,750,000
‘/2/15 | Loss on inventory due to | P50,000 | 1,700,000 |
flood | { 7
[42/31/15 [ Net income 7,000,000
‘Audit notes:
2. The following were omitted at each yor 2nd: __ ey
J 20137 201 2015
—Pi9,000 | 798,000 |
45,000| 50,000]
3,000" 35,000 |
ot
00 |
b. The following equipment acquisitions were erroneously charged to repairs and maintenance
‘expense account each year. It is the company’s policy to depreciated equipment using straight-
line method over 5 years. Moreover, full years depreciation is charged on the year of acquisition,
none on the year of disposal. —
550,000
Equipment acquisitions chi
repairs and maintenance exper
c. Cash dividends declared and paid for each year vs
haraed t
= T 2013[ 2014
{Dividends deciared and paid |" Pi80,000 | Pi50,000
200,000
Requirements:
17. What Is the correct net income in 2012?
‘2. 890,000 b. 850,000 © 990,000 d. 950,000
18, What is the Correct net income in 2015?
‘2. 882,000 . 832,000 682,900 4. 632,000
19. What is the retroactive adjustment to the retained earning beginning balance in 2015?
‘a. 250,000 credit b. 150,000 credit c. 125,900 debit. 195,000 debit
20. What is the adjusted retained carnings at the ena of 2015?
a. 2,187,000 b. 2,227,000 . 2,287,000 4, 2,587,000
21. What is the effect of errors to the 2015 working capital?
'2. 13,000 overstated c. 25,000 understated
b. 15,000 understated d. 23,000 overstated
PROBLEM 6:You were engaged to auoit, for the first time, the financial statements of Annaleisse
Corporation for the period ended December 31, 2016. The company which is into the distribution of
construction materials and supplies in various locations in the Northern Luzon, has started its operations
in 2014, The company reported net income for 2014, 2015 and 2016 at P1,020,000, P1,450,000 and
1,805,000; respectively. Your investigations and inquiries revealed the following information:
a. A three-year rent covering the period 2015 to 2017, amounting to P180,000 for a warehouse in
Pangasinan was paid in advance at the beginning of 2015. The entire amount was charged to rent
‘expense upon payment.
b. Accrued salaries expense at the end of the following years were consistently omitted:
‘AP - QUZZER i (Batch) ReSA: The Review School of Accountancy Page 4 of 13
December 31, 2014 86,000
December 31, 2015 55,000
December 31, 2015 75,000
c. The following are the invoice prices of construction materials and supplies delivered to customers by
the end of each year under FOB Shipping Point term. While the goods were appropriately excluded
from the year-end inventory count, the related invoices were recorded in the sales journal only upon
collection the following year. Gross profit margin is at 40% based on sales.
December 31, 2014 135,000
December 31, 2016 174,000
. The following advance payments to suppliers at the end of each year were recorded in the purchases
journal upon payment. Goods for the said advances however were only received the following yeer.
December 31, 2015 105,000
December 31, 2016 122,000
©. A major overhaul was done on one of the company’s delivery trucks at the beginning of 2015. The
overhaul did not extend the truck’s remaining life which was 5 years but it improved the truck's
operating efficiency and safety. The overhaul cost P250,000 and was charged by the company to
repairs and maintenance expense upon incurrence
22. The correct 2014 net income is.
2. 1,269,000 © 1,174,000
b. 1,155,000 4. 1,069,000
23, The correct 2015 net income is:
1,711,000 1,821,000
b. 1,771,000 d. 1,571,000
24. The corrected 2016 net income i
‘a. 1,926,000 c. 1,806,000
b. 1/916,000 . 1,866,000
25. The restrospective adjustment to retained earnings as a result of your audit in 2016 shall be:
‘a. 370,000 credit c. 250,000 credit
b. 320,000 credit d. 431,000 credit
26. The effect of the errors on 2016 working capital is:
’@. 481,000 understatement ¢. 356,000 understatement
b. 281,000 understatement d. 159,000 understatement
PROBLEM 7: You are auditing the financial statements of Stark Corp. for the year ended December 31,
2016, The company’s income statements indicated the following net income:
2014 P1,200,000
2015 1,490,000
2016 1,325,000
‘An examination of the accounting records for the year ended December 31, 2016 indicates that several
errors were made. The following errors were discovered:
‘a. Unused supplies at the end of each year were consistently omitted
2013P95,000
2014 110,000
2015100,000
2016140,000
‘a. The footings and extensions showed that the inventory on December 31, 2015 was overstated by
80,000.
b. 105,000 worth of inventories were received on January 4, 2017 and were not included in the
physical count as of December 31, 2C16. Upon investigation, however, you discovered that these
goods were shipped by the supplier on December 30, 2014 FOB Shipping point. The invoice for
the goods were recorded in the purchase journal only upon receipt of the goods in 2017,
c. The following advance collections from customers at the end of each year were recorded as cash
sales upon receipt of cash. Goods were delivered to the customers the following year:
2014120,000
2015150,000
2016160,000
d. On July 1, 2014 the company accepted an equipment from Lannister Corp. as a donation. The
donation from Lannister Corp., an unaffiliated company was unconditional. The fair market value
AP = QUZZER 1 (Batch) ReSA: The Review School of Accountancy Page 5 of 13
of the equipment was #240,000 anc has a vermaining useful life of 6 years. Stark Corp. recorded
the equipment at P60,090 wlich was the incidental costs incurred to bring the donated asset to
Its present location and cond.nior necessary for operational use. The asset was then depreciated
over its remaituna Ife using straight-line method without residual value
Required:
27. Wat is the correct depreciation expense on the equipment in 20167
a. None c. 40,000
b. 30,000 é. 50,000
28. What is the correct net income in 20347
a. 1,075,000 = 1,315,000
b. 1,295,000 11335,000
29. What is the correct net income sn 20337
1,330,000 © 1,410,000
>. 1/460,000 @. 11370,000
30. What is the correct net income in 20107
a. 1,435,000 <. 1,500,000
b. 1,290,000 @._ 1°395,000
31, What isthe restrospective adjustiment tc retained earnings as a result of your audit in 2016
2. 130,000 debit 155,000 credit
b. 55,000 debit 4. 50,000 creait
PROBLEM 8: In the course of your eximinstivn of the December 31, 2014, financial statements of
Insular Corp, you discovered certain errors that had occurred during 2013 and 2014. No errors were
corrected duting 2013. The errors re summarized below:
2. Beginning merchandise inventory (January 1, 2013) was understated by P259,200.
b. Merchandise costing P72,000 was suid for 120,000 to Naval Company on December 28, 2013,
but the sale was recorded in 2014, The merchandise was shipped FOB shipping point and was
not included in ending inventory. Insular uses the periodic inventory system,
A two-year fire insurance policy was purchased on May 1, 2013, for P172,800. The whole
‘amount was charged to Prepaid Insurance. No adjusting entry was prepared in 2013 and 2034.
4. Aone-year note receivable of P288,000 was held by Insular beginning October 1, 2013. Payment
of the 10% note and accrued interest was received upon maturity. No adjusting entry was made
‘on December 31, 20
Equipment with 2 10 year useful life was purchased on January 1, 2013, for P1,176,000. No
depreciation expense was recorded during 2013 or 2014. Assume that the equipment has no
residual value and that Insular uses the straight-line method for recording depreciation
1. The company reported a P1,500,006 net income in 2013 and a P1,750,000 net income in 2014.
32, What Is the net adjustment tc the beginning retained earnings account in 2014?
a. 69,600 b. 175,200 127,200. d. 48,000
33. What is the adjusted balance of the net income in 2014?
‘a. 1,168,800 b 1,512,400 ©. 1,538,800. d. 1,418,800,
PROBLEM 9: You were engaged by Kuting Coro. to aucit its financial statements for the first time. In
examining the company's books, you discovered that certain adjustments had been overlooked at the end
of 2013 and 2014. Moreover, you also discovered that other items had been erroneously recorded. The
said omissions and other failures tu" each year are noted below:
2013 2014
Prepaid insurance 256,000 205,200
‘Accrued salaries and wages 582,400 520,000
‘Accrued interest income 172,800 142,000
‘Advances from customers 313,600 374,000
Capital expenditures charged as repairs expense 376,000 348/000
‘Audit notes:
‘a. Collections from custoners had been recorded as sales but should have been recognized as
advances from customers because goods were not shipped until the following year.
b. Capital expenditures had been recorded as repairs but should have been charged to the
Machinery account; the depreciation rate is 10% per year, but depreciation in the year of
expenditures is to be recognized at 5%.
Based on the above and the result of your audit, answer the following:
34, What is the total effect of the errors oni the 2024 net income?
‘2. Understated by 251,000 ©. Understated by 213,400.
b. Overstated by 216,200 4. Overstated by 253,800
‘AP - QUZZER 1 (Batch) APQ1 ReSA: The Review School uf Accountancy Page 6 of 13
35. What is the total effect of the errars ca the company’s working capital as of December 31, 2014?
a. Understated by 202,200 © Understated by 177,200
b. Overstated by 79,600 . Overstated by 546,800
36. If remained unadjusted, what will be the effect of the errors to the company’s December 31, 2014
accumulated profits?
2. Understated by 103,400 ¢ Understated by 177,200
b. Overstated by 620,600 4. Overstated by'570,600
PROBLEM 10:The income statements of ROXAS INC. indicate the following net income
201271,500,000
2013 1,750,000
2014 2,000,000
‘An examination of the accounting records for the year ended December 31, 2014 indicates that several
errors were made. The following errors were discovered
b. Salary accruals on December 31, were consistently omitted
2011P95,000
2012110,000
2013 100,000
2014140,000
. The footings and extensions showed that the inventory on December 31, 2013 was overstated by
190,000.
4. P150,000 worth of inventories were received on January 4, 2015, Upon investigation you
discovered that these goods were shippeo by the supplier on December 30, 2014 FOB Shipping
Point. Further investigation revealed that liability on the item were recorded when the goods
were received.
e. Prepaid insurance were consistentiy omitted at the end of each year:
2011P75,000
2012:100,000
2013.115,000
2014 120,00
1, Interest receivable were not recorded on December 31 of the following years
2012P20,000
2013 25,000
2014 30,000
9. On January 1, 2014 zn equipment costing P400,000 was sold for P220,000. At the date of sale
the equipment had accumulated depreciation of P240,000. The cash received was recorded by
the company as miscellaneous income.
hh. You also discovered that on July 1, 2012, the company completed the construction of the left
wing of its factory bullding incurring a total cost of P750,000, which it had charged to repairs
‘expense. The said building has been used in operations for 5 years as of July 1, 2012 and its life
was unaffected by the extension. The building which had an original cost of P3,000,000 had an
accumulated depreciation of P1,125,000 as of December 31, 2014
Required
37. What is the correct depreciation expense in 20147
‘a. 150,000 200,000
b. 175,000 d. 187,500
3B. What is the correct net income irr 2012?
a. 2,365,000 «2,255,000
b. 2,235,000 d. 2,230,000
39. What is the correct net income in 2013?
‘a. 1,540,000 c. 1,640,000
b. 1,590,000 d. 1,690,000
40. What is the correct net income in 20147
a. 2,100,000 ©. 2,080,000
b. 2,000,000 a 1,95¢,000
AP - QUZZER 1 (Batch) ReSA: The Review School of Accountancy Page 7 of 13
PROBLEM _L1:You are pertorming, for the first time, the audit for the year ended December 31, 2014 of
GKNB CORP. financial statements. The company reported the following amounts of net income for the
years ended December 31, 2032, 2013 and 2014:
2012 381,000
2013 450,000
2014 385,500
uring your examination, you discovered the following errors:
2. You observed that there were errors in the physical count: December 31, 2013 inventories were
understated by P42,000 and December 31, 2014 were overstated by P69,000.
b. On December 30, 2014, GKNB recented on account, merchandise in transit which cost P45,000.
The merchandise was shipped FOB Destination and had not arrived by December 31. The
‘merchandise was not included in the ending inventory.
Accrual sales at each year end were consistently omitted as follows:
2012 12,000
2013 15,000
2014 10,500
d. Accrual of salaries were also consistently omitted as follows:
December 31, 2012 30,000
December 31, 2013 42,000
@ On March 5, 2013, a 10% stock dividend was declared and distributed. The par value of the
shares amounted to P30,000 and market value was P39,000. The stock dividend was recorded as
follows
Other expense 30,000
Ordinary shares 30,000
On July 1, 2013, GKNB paid a three-year rent. The three-year premium of P18,000 was paid on
that date, and the entire premium was recorded as rent expense.
9. On January 1, 2014, GKNB retired bors with a book value of P360,000 for 318,000. The gain
was deferred and ‘amortized over 10 years as a reduction of interest expense on other
outstanding bonds.
41. What is the correct net income in 20127
a. 399,000 b. 363,000 «. 351,000 4. 339,000
42, What is the correct net income in 20137
a. 477,000 b. 498,000 . 528,000 d. 534,000
43. What is the correct net income in 20147
a. 313,200 b. 388,800 <. 393,000 d, 418,800
44. What is the retroactive adjustment to the beginning retained earnings in 2014 to correct the prior
years’ errors?
a. 21,000 cr. b. 21,000 dr. c. 69,000 dr. 4. 69,000 cr.
45. What is the adjusting entry in 2014 to correct the error in item € above?
‘a. Accumulated profits 39,000
‘Other expense 30,000
Share premium 9,000
b. Accumulated profits 30,000
‘Accumulated profits 30,000
. Accumulated profits 9,000
‘Share premium 9,000
4. no adjustment is necessary
PROBLEM 12:You are auditing the financial statements of WWEE Company. The company’s accountant
provided you with the following comparative statements of income and accumulated profits for the years
2014 and 2013:
2014 2013
Sales 6,000,000 4,500,000
Cost of goods sold (2,800,000) (2,400,000)
Gross income 3,200,000” 2,100,000
Operating expenses _(1,500,000) (1,800,000)
Net profit 1,700,000 300,000,
AP - QUZZER 1 (Batch) ReSA: The Review School of Accountancy Page 8 of 13
‘Accumulated profits, bes 1,150,000 1,000,000
Net profit 1,700,000, 300,000
Dividends paid (500,000) __(150,0¢
Accumulated profits, end —2:350,000- 1,150,000
‘Audit notes:
‘a. The management, with your cuncurrence, opined that changing the company’s inventory costing
from FIFO to Weighted Average is justified as it will present a more relevant and reliable financial
information given the prevailing current circumstance. The following summarizes the inventory
costs at year end under both methods
2014 2013
FIFO 625,000 727,500
Weighted Average 715,000 827,500
‘The said change has not been impicmented by the accountant as of the audit period,
b. The company decided to change its method of depreciation from the double declining balance
method to the straight line. The depreciable assets had @ 10 year useful life and has been
depreciated for five years at the end of 2013. The salvage value of the said assets was estimated
to be P50,000. Expenses in the income statements included P350,000 and P437,500 depreciation
expenses in 2014 and 2013, respeczively, computed based on double declining balance method.
c. On August 31, 2013, the company started the construction of a building it plans to use as @
‘second factory. As of the current balance sheet date, the construction is yet to be done. Total
accumulated costs incurred on the construction and recorded in its Construction-in-progress
account, amounted to P1,250,000, wnich excluded a P25,000 borrowing cost in 2013 which has
been charged to expensé. You have ascertained that such berrowing cost should have been
capitalized following the PAS 23. Actual borrowing cost in 2014 amounted to P75,000wnich
havebeen charged to expense
Answer the following questions based on the above information:
46. What is the restated net income in 2013 to be presented in the comparative income statements?
a. 425,000 b. 400,000 . 300,000 4. 275,000
47. What is the correct net income in 20147
‘a. 1,700,000 b. 1,685,000 1,775,000 4. 1,610,000
48, What is the adjusted accumulated profits balance at the beginning of 2014?
a. 1,025,000 b. 1,075,000 1,225,000 4. 1,275,000
49. What is the adjusted accumulated profits at the end of 2014?
a. 2,425,000 b. 2,385,000 ¢. 2,550,000 4. 2,885,000
50. What is the necessary adjusting entry a result of the change described in item ?
‘a. No adjustment necessary
b. Interest expense 25,000
Retained earnings 25,000
. Construction in progress 100,000
Retained earnings 25,000
Interest expense 75,000
4d. Construction in progress 100,000
Interest expense 100,000,
PROBLEM 13:Kris Company presented to you the following income statement in line with the same
company’s audit of the financial statements:
KRIS COMPANY
INCOME STATEMENT
For the Year Ended December 31, 2014
Sales 10,350,000
Cost of Goods Sold _7,050,000__
Gross profit 3,300,000
Operating expenses:
Selling 675,000
Administrative __1,050,000 1,725,000,
1,575,001
Net income
Your audit disclosed the following information
‘+ Accounts receivable decreased P540,009 during the year.
+ Prepaid expenses increased P255,000 during the year.
+ Accounts payable to suppliers of merchandise decreased P412,500 during the year.
‘AP QUEZER i (Batch ReSA: The Review School of Accountancy Page 9 of 13
= Accrued expenses payable decreased P150,000 during the year.
‘+ Administrative expenses include cepreciation expense of P90,000.
+ Inventories decreased by P450,0U0.
Requirements:
51. What is the total amount of cast received f
sstomers during the year?
‘a. 10,980,000 3,810,000
b. 10,350,000 d. 10,477,500
52. What is the total amount of cash paid to suppliers during the year?
‘a. 6,600,000 7,012,500
b. 7,912,500 d. 6,187,500
'53. What is the total amount of cash paid for operating expenses during the year?
a. 1,740,000 c. 2,130,000
b. 1,530,000 4. 2,040,000
54. What is the net amount of cash provided by operating activities?
a. 1,492,500 <. 1,747,500
b. 1,837,500 4. 1575/00
PROBLEM 14:PORTER COMPANY is in lis first year of operation and is using the cash basis of accounting.
The company presented the following cash receipts and disbursement records for 2014:
Cash receipts 384,000
Cash disbursements (247,500)
136,500
The management requested you to compute its income under accrual basis.
The following information are deemed relevant in your analysis:
‘2. Depreciation of plant assets for 2014 computed by the straight-line method is P31,500.
b. Prepaid insurance of P5,400, two-thirds of which relates to 2015, is included in the 2014 cash
disbursement figure. This amount was recognized as insurance expense when it was paid.
. Porter Company received P36,000 in advance rent for space in its building. The entire amount is
included in the cash receipts figure and was recognized as rent revenue when received. However,
21,000 of it was for space that wil be provided in 2035.
4. Employees are due P8,400 at the ert of 2014.
e. Interest amounting to P3,510 fro:n investments is receivable at the end of 2014.
f You estimate that your 2014 fer for accounting services that have not been billed will be P1,500.
Requirements:
55, What is the correct net income under the accrual basis of accounting?
‘a. 88,710 b. 87,210 ©. 77,700 4. 68,190
56. What is the total liabilities to be reperted as of the balance sheet date under the accrual basis?
‘a. 34,500 b. 44,010 c. 40,410 d. 30,900
PROBLEM 15:You are auditing the financial statements of UKG INC. for the year ended December 31,
2014. The company maintains its boos on a semi-accrual and semi-cash basis. Purchases and sales are
Tecognized on an accrual basis while other operating expenses are kept on cash basis. The company
bookkeeper presented to you @ craft cf its income statements for the year under audit:
Sales 600,000
Cost of sales —_—360,000_
Gross profit 240,00
Depreciation expense (29,000)
Other expenses (166,000)
Interest expense 20,000) _
Net income 25,000
‘Your investigation revealed the foliowit.g information:
3. On January 1, 2014, UKG issued P260,000, 10%, 19 year bonds when the market rate of interest
was 8%, Interest is payable on June 30 and December 31.
b. All purchases of inventory are on account and other expenses reflect those expenses paid in cash
during the period.
‘AP ~ QUZZER i (Batch) ReSA: The Review School of Accountancy Page 10 of 13