SOLUTION - AUDITING PROBLEMS TEST BANK 1

PROBLEM 1 – TANYING CORP.

1. B Sales (P1,353,000 + P10,500 Freight) P1,363,500

Sales returns and allowances (11,700)
Sales discounts (2,640)
Net sales P1,349,160

2. C Inventory, Jan. 1 P269,100

Purchases P424,800
Purchase returns and allowances (P424,800 x 6%) (25,488)
Freight in (P16,575 + P1,710) 18,285 417,597
Cost of goods available for sale P686,697

3. D Inventory, Dec. 31, 2017

Per books P 61,650
Goods out on consignment 55,800
Per audit P117,450

4. C Distribution costs:
Sales salaries and commissions (P75,000 + [P9,180 x 3%]) P75,275
Advertising expense (P48,270 + [P5,454 x 2/6]) 50,088
Depreciation expense – Sales/delivery equipment (P18,300 + [P23,400 x 10% x 10/12]) 20,250
Freight expense 10,500
Travel expense – sales representatives 13,680
Miscellaneous selling expenses 8,220
Total P178,013

5. B Administrative expenses:
Legal services P 6,675
Insurance and licenses 23,040
Depreciation expense – office equipment 12,600
Utilities 19,200
Telephone and postage 4,425
Office supplies expense (P6,540 – P3,675) 2,865
Officers’ salaries 109,800
Doubtful accounts expense (P783,000 x 2% = P15,660 – P480) 15,180
Total P193,785

6. A Allowance for doubtful accounts (P783,000 x 2%) P15,660

7. D Net sales P1,349,160

Cost of goods sold (P686,697 – P117,450) (569,247)
Gross income 779,913
Interest revenue (P1,650 + P1,680) 3,330
Dividend revenue 15,450
Gain on sale of assets 23,460
Total income P822,153

8. C Total income P822,153

Distribution costs (178,013)
Administrative expenses (193,785)
Interest expense
(13,560)
Loss on sale of equipment (217,800)
Income from continuing operations before tax P218,995

9. B Office supplies inventory P3,675

10. A Income before tax P218,995

Income tax (P218,995 x 30) (65,669)
Income from continuing operations 153,296
Income from discontinued operations, net of tax (P120,000 x 70%) 84,000
Net income P237,296
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PROBLEM 2 – BUNCHING COMPANY

Accounts Accounts
Cash Receivable Inventory Payable
Per books P963,200 P2,254,000 P6,050,000 P4,201,000
AJE 1 (654,600) 310,000 --- ---
2 360,000 --- --- 372,400
3 a --- --- --- (175,000)
b --- --- 130,000 ---
c --- --- (637,500) ---
d --- --- 217,500 217,500
e --- --- 275,000 ---
Per audit P668,600 P2,564,000 P6,035,000 P4,615,900

(11 – C) (12 – B) (13 – A) (14 – B)

AJES
1. Sales 360,100
Accounts receivable (P294,500 / 95%) 310,000
Sales discounts (P310,000 x 5%) 15,500
Cash 654,600
2. Cash (P372,400 – P12,400) 360,000
Purchase discounts 12,400
Accounts payable 372,400
3. a Accounts payable 175,000
Purchases 175,000
b Inventory 130,000
Cost of sales 130,000
c Cost of sales 637,500
Inventory 637,500
d Purchases 217,500
Accounts payable 217,500
Inventory 217,500
Cost of sales 217,500
e Inventory 275,000
Cost of sales 275,000
f No adjusting entry

15. C Current ratio:

Current assets:
Cash P 668,600
Accounts receivable 2,564,000
Inventory 6,035,000 P9,267,600
Current liabilities:
Accounts payable P4,615,900
Accrued expenses 431,000 5,046,900
1.84
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PROBLEM 3 – PAKO COMPANY

16. D Balance, Jan. 1 P1,800,000

June 30 acquisition (P1,080,000 + P48,000) 1,128,000
Sept. 30 sale (150,000)
Dec. 1 trade in: old machine (90,000)
new machine 270,000
Balance, Dec. 31 P2,958,000

17. A Remainder of beginning balance (P1,800,000 – P150,000 – P90,000 =

P1,560,000 x 10%) P156,000
June 30 acquisition (P1,128,000 x 10% x 6/12) 56,400
Sept. 30 sale (P150,000 x 10% x 9/12) 11,250
Dec. 1 trade in: old machine (P90,000 x 10% x 11/12) 8,250
new machine (P270,000 x 10% x 1/12) 2,250
Depreciation expense for 2015 P234,150

GENLUNA COPPERMINES, INC.

18. C Depletion rate per ton (P14,580,000 / 1,620,000) P9

Copper ore mined in 2017 (15,000 x 6 months) x 90,000
Depletion for 2017 P 810,000
Depletion per books 1,215,000
Overstatement of depletion expense P405,000

19. D Depreciable cost of machinery (P1,800,000 x 90%) P1,620,000

Estimated copper ore reserve 1,620,000
Depreciation rate per ton P1
Copper ore mined in 2017 90,000
Depreciation expense for 2017 P 90,000
Depreciation per books 120,000
Overstatement of depreciation expense P 30,000

20. D January 1, 2014

Total cost of machine (P300,000 + P3,000 + P12,000) P315,000
Residual value (12,000)
Depreciable cost P303,000
Estimated useful life 10 years
Annual depreciation P30,300
Depreciable cost P303,000
Depreciation, 2016 – 2014 (P30,300 x 3 years) (90,000)
Remaining depreciable cost, Jan. 1, 2017 P212,100
Cost of new parts 37,800
Total P249,900
Remaining useful life (10 years – 3 years) 7 years
Revised annual depreciation P35,700