NFJPIA-Region X and CARAGA Council

RFJPIA Cup Level 5 Auditing Problems

ELIMINATION ROUND
EASY ROUND
RFJPIA CUP LEVEL 5 Auditing Problems (EASY QUESTION #1)
You were engaged to examine the accounts of Power Play Inc. as of
December 31, 2010. Your audit disclosed that the cash counted on December 31,
2010 included two customers checks amounting to P5,000 both dated in January
2011. These checks were recorded in the books in December and were accepted
for deposit by the bank on due dates. The adjusting entry is:
Answer: Dr. Accounts Receivable 5,000
Cr. Cash 5,000

RFJPIA CUP LEVEL 5 Auditing Problems (EASY QUESTION #2)

As an auditor, you were asked by your client to examine its accounts as of
December 31, 2010. Your audit disclosed that checks with a total of P10,000 as
payment to suppliers were prepared and taken up as debits to accounts payable.
One of these checks in the amount of P2,000 was cancelled on January 5, 2011 and
replaced with another for the correct amount of P2,500. No entry was made for
the cancellation. The adjusting entry is:
Answer: None. No adjustment is necessary.

RFJPIA CUP LEVEL 5 Auditing Problems (EASY QUESTION #3)

Your audit of Super Club Co. for the year ended December 31, 2010
disclosed that customers checks amounting to P4,500 were returned during
December 2010 by the bank with the notation NSF. Of these checks P3,000 had
been redeposited and cleared by the bank during the month. No entries were
made for the return or redeposit. The adjusting entry is:
Answer: Dr. Accounts Receivable 1,500
Cr. Cash 1,500

RFJPIA CUP LEVEL 5 Auditing Problems (EASY QUESTION #4)

You were engaged to audit the records of Generation, Inc. as of December
31, 2010. Your audit shows that goods costing P20,000 were excluded from the
ending inventory. The selling price of these goods was P30,000. The goods were
shipped by your client on December 29, 2010, FOB shipping point. The transaction
was not recorded in 2010. The adjusting entry is:
Answer: Dr. Accounts Receivable 30,000
 Cr. Sales 30,000

RFJPIA CUP LEVEL 5 Auditing Problems (EASY QUESTION #5)

Your audit of your client as of December 31, 2010 disclosed that
merchandise costing P15,000 were still included in ending inventory although
these were already invoiced and recorded as sales to customers on December 31.
The sales invoices totaling P25,000 were no longer recorded when the goods were
delivered on January 5, 2011. The adjusting entry is:
Answer: Dr. Cost of Sales 15,000
Cr. Inventory 15,000

AVERAGE ROUND
RFJPIA CUP LEVEL 5 Auditing Problems (AVERAGE QUESTION #1)
Just In Love Corp. decided that the allowance for bad debts should be
adjusted to equal the estimated amount required based on aging the accounts as
of December 31. Following data were gathered:
Allowance for bad debts, January 1, 2010 P120,000
Provision for bad debts during 2010 at 2% 60,000
of P3,000,000 sales
Bad debts written off in 2010 75,000
Estimated bad debts per aging of accounts on 80,000
December 31, 2010
What entry is necessary to adjust the bad debts provision?
Answer: Dr. Allowance for Bad Debts 25,000
Cr. Bad Debts Expense 25,000

RFJPIA CUP LEVEL 5 Auditing Problems (AVERAGE QUESTION #2)

You completed your filed work for 2010 on April 10, 2011. Before issuance of
your audit report on April 25, 2011, you were advised that on April 15, 2011 a large
receivable from a customer who is facing bankruptcy was written off as
uncollectible. What should you do about this fact?
a. Disclose the loss in the 2010 statements.
b. Adjust the 2010 financial statements.
c. Date your report April 10, 2011.
d. Take up the loss in the 2011 statements.
e. Do nothing.

RFJPIA CUP LEVEL 5 Auditing Problems (AVERAGE QUESTION #3)

The closing inventory of Gandhi Company amounted to P284,000 at
December 31, 2010. This total includes two inventory lines about which the
inventory taker is uncertain.
500 items which had cost P15 each and which were included at P7,500.
These items were found to have been defective at the balance sheet
 date. Remedial work after the balance sheet date cost P1,800 and they
were then sold for P20 each. Selling expenses were P400.
100 items that had cost P10 each but after the balance sheet date, these
were sold for P8 each with selling expenses of P150.
What figure should appear in Gandhis balance sheet for inventory?
Answer: P283,650.

RFJPIA CUP LEVEL 5 Auditing Problems (AVERAGE QUESTION #4)

Cavaliers has a one-year product warranty on some selected items. The
estimated warranty liability on sales made during the 2009 2010 fiscal year and
still outstanding as of March 31, 2010, amounted to P252,000. The warranty costs
on sales made from April 1, 2010 to March 31, 2011, are estimated at P630,000.
The actual warranty costs incurred during 2010 2011 fiscal year are as follows:
Warranty claims honored on 2009 2010 sales P252,000
Warranty claims honored on 2010 2011 sales 285,000
Total P537,000
Being Cavaliers auditor, determine the adjusted balances of the estimated
warranty payable as of March 31, 2011.
Answer: P345,000.

RFJPIA CUP LEVEL 5 Auditing Problems (AVERAGE QUESTION #5)

On January 1, 2010, Rostrum Company purchased debt securities with a face
value of P500,000. The securities mature in 7 years and are to be classified as a
held to maturity investment. The securities have a stated interest rate of 8% and
interest is paid semiannually, on January 1 and July 1. The prevailing market
interest rate on these debt securities is 12% compounded semiannually. The
following present value factors are taken from the present value tables:
Present value of 1
12% for 7 periods 0.45235
6% for 14 periods 0.44230
8% for 7 periods 0.58349
4% for 14 periods 0.57748
Present value of an ordinary annuity of 1
12% for 7 periods 4.56376
6% for 14 periods 9.29498
8% for 7 periods 5.20637
4% for 14 periods 10.56312
Determine the fair value of the debt securities on January 1, 2010.
Answer: P407,050.

DIFFICULT ROUND
RFJPIA CUP LEVEL 5 Auditing Problems (DIFFICULT QUESTION #1)
Which of the following subsequent events will be least likely to result in an
adjustment to the financial statements?
 a. Culmination of events affecting the realization of accounts receivable
owned as of the end of the period.
b. Culmination of events affecting the realization of inventories owned as
of the end of the period.
c. Material changes in the settlement of liabilities which were estimated as
of the end of the period.
d. Material changes in the quoted market prices of listed
investment securities since the end of the period.
e. None of the above.

RFJPIA CUP LEVEL 5 Auditing Problems (DIFFICULT QUESTION #2)

All items of income and expense recognized in a period must be included in
profit or loss unless a standard or an interpretation requires otherwise. Therefore,
the auditor is unlikely to question the exclusion of the following from profit or loss,
except:
a. Changes in revaluation surplus.
b. Gains and losses on remeasuring available for sale financial assets.
c. Gains and losses arising from translating the financial statements of a
foreign operation.
d. The ineffective portion of gains and losses on hedging
instruments in a cash flow hedge.
e. None of the above.

RFJPIA CUP LEVEL 5 Auditing Problems (DIFFICULT QUESTION #3)

On January 1, 2009, Luke Company, a financial services entity which is also
involved in real estate development, has purchased a lot of land in Makati City for
P2,000,000 which it intends to develop and eventually sell. On July 1, 2009, Luke
Company purchased 10 passenger vehicles for a total consideration of P2,500,000.
Luke Companys intention was to use the passenger vehicles to transport Luke
Companys employees. Luke Company uses the straight-line depreciation method
for the passenger vehicles with no expected salvage value and an estimated useful
life of 8 years.
On December 31, 2010, Luke Company entered in a lease agreement with
John Company for its land in Makati City and its passenger vehicles. Development
cost incurred until December 31, 2010 was P700,000. The fair values of the land in
Makati City and the 10 passenger vehicles were P2,950,000 and P2,181,250
respectively. Assets classified by Luke Company as investment properties are
presented at fair value.
At the end of 2011, the fair values of land and 10 passenger vehicles were
P3,100,000 and P2,201,250 respectively. The gain (loss) to be reported in 2010 in
relation to the reclassification to investment property is:
Answer: P250,000.

RFJPIA CUP LEVEL 5 Auditing Problems (DIFFICULT QUESTION #4)

On January 1, 2009, Luke Company, a financial services entity which is also
involved in real estate development, has purchased a lot of land in Makati City for
P2,000,000 which it intends to develop and eventually sell. On July 1, 2009, Luke
Company purchased 10 passenger vehicles for a total consideration of P2,500,000.
Luke Companys intention was to use the passenger vehicles to transport Luke
Companys employees. Luke Company uses the straight-line depreciation method
for the passenger vehicles with no expected salvage value and an estimated useful
life of 8 years.
On December 31, 2010, Luke Company entered in a lease agreement with
John Company for its land in Makati City and its passenger vehicles. Development
cost incurred until December 31, 2010 was P700,000. The fair values of the land in
Makati City and the 10 passenger vehicles were P2,950,000 and P2,181,250
respectively. Assets classified by Luke Company as investment properties are
presented at fair value.
At the end of 2011, the fair values of land and 10 passenger vehicles were
P3,100,000 and P2,201,250 respectively. The revaluation surplus balance at
December 31, 2011 is:
Answer: P150,000.

RFJPIA CUP LEVEL 5 Auditing Problems (DIFFICULT QUESTION #5)

The year-end audit of the records of Stamina Farms disclosed a shortage in
cash amounting to P600,000. The treasurer had concealed the fraud by increasing
inventories by P300,000, land by P100,000 and accounts receivable by P200,000.
Faced with prosecution, the treasurer offered to surrender 6,000 Stamina
Farms shares owned by him. The board of directors accepted the offer, with the
agreement that the treasurer would pay any deficiency between the shortage and
the book value of the shares, after adjusting for the fraud. The corporation would in
turn pay the excess, if any, of the book value over the shortage. As of December
31, 2010, there were 40,000 common shares issued and outstanding with a par
value of P100; Retained earnings as of January 1, 2010 was P1,600,000 and net
income from 2010 operations was P1,400,000.
Considering the above information, answer the following, what would be the
book value per share for purposes of the agreement?
Answer: P175.

CLINCHER QUESTIONS
RFJPIA CUP LEVEL 5 Auditing Problems (CLINCHER QUESTION #1)
If the auditee has a material amount of treasury stock on hand at year-end,
the auditor should
a. Count the certificates at the same time other securities are
counted.
b. Count the certificates only if the company had treasury stock
transactions during the year.
c. No count the certificates if treasury stock is a deduction from
shareholders equity.
 d. Count the certificates only if the company classifies treasury stock with
other assets.
e. Confirm the transaction with the Securities and Exchange Commission.

RFJPIA CUP LEVEL 5 Auditing Problems (CLINCHER QUESTION #2)

In auditing intangible assets, an auditor most likely would review or
recomputed amortization and determine whether the amortization period is
reasonable in support of managements financial statement assertion of:
Answer: Valuation.

RFJPIA CUP LEVEL 5 Auditing Problems (CLINCHER QUESTION #3)

On January 2, 2010, a tract of land that originally cost P800,000 was sold by
Heavenly Corporation. The company received a P1,200,000 note as payment. It
bears interest rate of 4% and is payable in 3 annual installments of P400,000 plus
interest on the outstanding balance. The prevailing rate of interest for a note of
this type is 10%. The present value table shows the following present value
factors of 1 at 10%.
Present value factor of 1 for 3 periods 0.75132
Present value factor of 1 for 2 periods 0.82645
Present value factor of 1 for 1 period 0.90909
Present value of an ordinary annuity of 1 for 3 periods
2.48685
What is the effective interest income on the note receivable for the year
ended December 31, 2010?
Answer: P107,685.

RFJPIA CUP LEVEL 5 Auditing Problems (CLINCHER QUESTION #4)

Which of the following procedures relating to the examination of accounts
payable could the auditor delegate entirely to the clients employees?
a. Test footings in the accounts payable ledger.
b. Reconcile unpaid invoices to vendors statements.
c. Prepare a schedule of accounts payable.
d. Mail confirmations for selected account balances.
e. None of the above.

RFJPIA CUP LEVEL 5 Auditing Problems (CLINCHER QUESTION #5)

On October 31, 2010, Beta Company engaged in the following transactions:
Obtained a P500,000, six-month loan from City Bank, discounted at
12%. The company pledged P500,000 of accounts receivable as
security for the loan.
Factored P1,000,000 of accounts receivable without recourse on a non
notification basis with Hype Company. Hype charged a factoring fee of
2% of the amount of receivables factored and withheld 10% of the
amount factored.
What is the total cash received from the financing of receivables?
Answer: P1,350,000.
 FINAL ROUND
EASY QUESTIONS
RFJPIA CUP LEVEL 5 Auditing Problems (SPUS) ACE QUESTION
Information pertaining to Trace Company for the month of August appears
below:
Balance per bank statement P310,000
Balance per books 187,500
Deposit in transit 70,000
Service charges 2,500
Note collected by bank 75,000
Outstanding checks ?
An analysis of the cancelled checks returned with the bank statement
reveals the following:
Check for the purchase of merchandise was drawn for P155,000 but was
recorded as P150,000.
The management wrote a check for traveling expenses of P25,000 while
out of town. The check was not recorded.
What is the amount of outstanding checks on August 31, 2010?
Answer: P150,000.

RFJPIA CUP LEVEL 5 Auditing Problems (NFJPIA) JOKER QUESTION

. Ten Bank granted a loan to a borrower in the amount of P5,000,000 on
January 1, 2010. The interest rate on the loan is 10% payable annually starting
December 31, 2010. The loan matures in five years on December 31, 2014. Ten
Bank incurs P39,400 of direct loan origination cost and P10,000 of indirect loan
origination cost. In addition, Ten Bank charges the borrower an 8-point
nonrefundable loan origination fee. Determine the carrying amount of the loan as
of January 1, 2010,
Answer: P4,639,400.

RFJPIA CUP LEVEL 5 Auditing Problems (FCC)

During an audit of an entitys shareholders equity accounts, the auditor
determines whether there are restrictions on retained earnings resulting from
loans, agreements, or law. This audit procedure most likely is intended to verify
what managements assertion?
Answer: Presentation and disclosure

RFJPIA CUP LEVEL 5 Auditing Problems (LC)

On September 1, 2010, Howe Company offered special termination benefits
to employees who had reached the early retirement age specified in the
companys pension plan. The termination benefits consisted of lump sum and
periodic future payments. Additionally, the employees accepting the company
offer receive the usual early retirement pension benefits. The offer expired on
November 30, 2010. Actual or reasonably estimated amounts on December 31,
2010 relating to the employees accepting the offer are as follows:
Lump sum payments on January 1, 2011, P475,000
Present value of periodic payments, P155,000
Reduction of accrued pension costs on December 31, 2010 for the
terminating employees, P45,000
Howe should report total loss on termination benefits at what amount?
Answer: P585,000.

RFJPIA CUP LEVEL 5 Auditing Problems (SEC)

The following totals are taken from the December 31, 2010, balance sheet of
Streamer Company:
Current assets P350,000
Long-term assets 800,000
Current liabilities 240,000
Long-term liabilities 270,000
Additional information:
Cash of P38,000 has been placed in a fund for the retirement of long-
term debt. The cash and long-term debt have been offset and are not
reflected in the financial statements.
Long-term assets include P50,000 in treasury shares.
Cash of P14,000 has been set aside to pay taxes due. The cash and
taxes payable have been offset and do not appear in the financial
statements.
Advances on salespersons' commissions in the amount of P21,000 have
been made. Also, sales commissions payable total P24,000. The net
liability of P3,000 is included in Current Liabilities.
After making any necessary changes, compute for the totals of Streamer's
current assets.
Answer: P385,000.

RFJPIA CUP LEVEL 5 Auditing Problems (SMC)

ChingChing has been employed as an accountant by Iran, Inc. for a number
of years. She handles all accounting duties, including the preparation of financial
statements. The following is a statement of earned surplus presented by
ChingChing:
Iran, Inc.
STATEMENT OF EARNED SURPLUS 2010
Balance, 1/1/09 P365,000
Increase in 2010 amortization expense 5,000
Gain on sale of trading securities (3,000)
 Interest revenue 2,000
Net income for 2010 150,000
Decreased depreciation due to
increased life 13,000
Dividends paid (20% still unpaid) 80,000
Loss on sale of equipment 2,500
Loss on earthquake 83,000
Balance, 12/31/10 P700,500
Based on the foregoing information, determine the amount of net income
that ChingChing should report in its income statement for 2010?
Answer: P77,500.

RFJPIA CUP LEVEL 5 Auditing Problems (SFXC)

Field Companys shareholders equity balances at January 1, 2010 were as
follows:
P1,500,0
Share capital 00
3,000,00
Share premium 0
2,000,00
Retained earnings 0
The following 2010 transactions and other information relate to the
shareholders equity accounts:
Field had 400,000 authorized shares of P5 par, of which 300,000 shares
were issued and outstanding.
On March 5, 2010, Field acquired 50,000 shares for P10 per share to be
held as treasury. The shares were originally issued at P15 per share.
Field uses the cost method to account for treasury share.
On July 15, 2010, Field declared and distributed a property dividend of
inventory. The inventory had a P500,000 carrying value and a P600,000
fair market value.
Fields net income for 2010 was P500,000.
Given the information above and as a result of your audit, Field Company
should report total shareholders equity on December 31, 2010 at what amount?
Answer: P6,000,000.
AVERAGE QUESTIONS
RFJPIA CUP LEVEL 5 Auditing Problems (AKIC) ACE QUESTION
The following information relates to Sonic Companys accounts payable as of
December 31, 2010. Accounts payable per general ledger control amounted to
P5,440,000, net of P240,000 debit balances in suppliers accounts. The unpaid
voucher file included the following items that not had been recorded as of
December 31, 2010:
A Company P224,000 merchandise shipped on December 31, 2010,
FOB destination; received on January 10, 2011.
 B, Inc. P192,000 merchandise shipped on December 26, 2010, FOB
shipping point; received on January 16, 2011.
C Super Services P144,000 janitorial services for the three-month
period ending January 31, 2011.
MERALCO P67,200 electric bill covering the period December 16, 2010
to January 15, 2011.
On December 28, 2010, a supplier authorized Sonic to return goods billed at
P160,000 and shipped on December 20, 2010. The goods were returned by Sonic
on December 28, 2010, but the P160,000 credit memo was not received until
January 6, 2011. Determine the amount if any, that should be reported as current
liability in Sonics December 31, 2010 balance sheet.
Answer: P5,841,600.

RFJPIA CUP LEVEL 5 Auditing Problems (CTKC) JOKER QUESTION

An audit assistant found a purchase order for a regular supplier in the
amount of P5,500. The purchase order was dated after receipt of goods. The
purchasing agent had forgotten to issue purchase order. Also a disbursement of
P450 for materials did not have a receiving report. The assistant wanted to select
additional purchase orders for investigation but was unconcerned about lack of
receiving report. The audit director should:
a. Agree with the assistant because the amount of the purchase order
exception was considerably larger than the receiving report exception
b. Agree with the assistant because the cash disbursement clerk had been
assured by the receiving clerk that the failure to fill out a report didnt
happen very often.
c. Disagree with the assistant because two problems have an equal risk of
loss associated with them.
d. Disagree with the assistant because the lack of a receiving
report has a greater risk of loss associated with it.
e. Neither agree nor disagree as it is the assistants responsibility and it is
at his discretion.

RFJPIA CUP LEVEL 5 Auditing Problems (MU)

You were able to gather the following in connection with your audit to the
Chona Ann Company for the year ended December 31, 2010:
1/1/2010 12/31/2010
Accounts receivable P6,400,000
P4,000,000
Unpaid merchandise invoices ?
2,621,000
Accrued wages 85,000 125,000
Advertising supplies inventory 35,000
75,000
Accrued advertising 14,250 40,000
Prepaid Insurance 25,000 -
Unexpired insurance - 41,000
 During the year, Chona Ann Company had the following transactions:
Amount collected from customers
P10,000,000
Total payments to suppliers of merchandise
13,618,000
Total payments to suppliers of merchandise of prior years
4,632,000
Wages paid 3,050,000
Advertising paid which includes P40,000 applicable in 2008
300,000
Insurance premium paid
125,000
What is the net purchases for 2010?
Answer: P11,607,000.

RFJPIA CUP LEVEL 5 Auditing Problems (PCC)

On January 1, 2010, Charmaine Corporation decided to dispose of an item of
plant that is carried in its records at a cost of P900,000, with accumulated
depreciation of P160,000. Depreciation on the plant since it was originally
acquired has been charged of P10,000 per month. The plant will continue to be
operated until it is sold, at which time the operations of the plant will be
outsourced. The company undertook all the necessary actions to be able to
classify the asset as held for sale. It is estimated that it could sell the plant for its
fair value, P720,000, incurring P20,000 selling costs in the process. The plant has
been depreciated at an amount of P10,000 per month.
On March 31, 2010, the plant had not been sold but, due to shortage of this
type of plant, there had been an increase in the fair value to P770,000. On June
30, 2010, Charmaine sold the plant for P785,000 incurring P25,000 selling costs.
The depreciation expense to be recognized in 2010 is:
Answer: P0.

RFJPIA CUP LEVEL 5 Auditing Problems (MSUM)

The following information is available from your client, San Company for the
year ended December 31, 2010:
Cash received from customers P5,000,000
Rent received 100,000
Interest received 50,000
Cash paid to suppliers and employees 3,000,000
Taxes paid 200,000
Interest paid on long-term debt 400,000
Cash dividends paid 500,000
Based on your audit, how much is the net cash provided by operating
activities?
Answer: P1,550,000.
RFJPIA CUP LEVEL 5 Auditing Problems (MVC)
In 2010, Mount Corporation acquired land by paying P375,000 down and
signing a note with a maturity value of P5,000,000. On the notes due date,
December 31, 2010, Mount owed P200,000 of accrued interest and P5,000,000
principal on the note. Mount was in financial difficulty and was unable to make any
payments. Mount and the bank agreed to amend the note as follows:
The P200,000 of interest due on December 31, 2010 was forgiven.
The principal of the note was reduced from P5,000,000 to P4,750,000
and the maturity date extended 1 year to December 31, 2011.
Mount would be required to make one interest payment totaling
P150,000 on December 31, 2010.
As a result of the troubled debt restructuring, Mount should report a gain,
before taxes, in its 2010 income statement of:
Answer: P300,000.

RFJPIA CUP LEVEL 5 Auditing Problems (JPI)

Taal Company is a calendar year entity. Its financial statements for 2009 and
2010 contained error as follows:
12/31/09 Inventory understated P35,000
12/31/10 Inventory understated 10,000
2009 Depreciation overstated 25,000
2010 Depreciation understated 8,000
12/31/09 Prepaid Insurance overstated 5,000
12/31/10 Unearned Rent overstated 4,000
12/31/10 Accrued Salaries understated 20,000
By how much would the retained earnings at December 31, 2008 be under or
overstated?
Answer: P 11,000 understated.

RFJPIA CUP LEVEL 5 Auditing Problems (FSUU)

The retained earnings account for Gondola Company shows the following
charges and credits for the year 2010:
Balance, 1/1/10 P2,600,000
Loss from fire 50,000
Goodwill impairment 250,000
Stock dividend 700,000
Loss on sale of equipment 200,000
Compensation of 2009 not accrued 500,000
Loss on retirement of preference share 350,000
Share premium 600,000
Gain on early retirement of bonds 100,000
Gain on life insurance settlement 450,000
Prior period error correction credit 400,000
Net income for the year 3,000,000
Treasury share appropriation for 2010 1,000,000
 How much is Gondolas unappropriated retained earnings at December 31,
2010?
Answer: P3,500,000.

DIFFICULT QUESTIONS
RFJPIA CUP LEVEL 5 Auditing Problems (SIC) ACE QUESTION
In the course of your examination of the December 31, 2011, financial
statements of Aquino Inc., you discovered certain errors that had occurred during
2010 and 2011. No errors were corrected during 2010. The errors are
summarized below:
Beginning merchandise inventory in 2010 was understated by P259,200.
Merchandise costing P72,000 was sold for P120,000 to James Corp. on
December 28, 2010, but the sale was recorded in 2011. The
merchandise was shipped FOB shipping point and was included in ending
inventory. Aquino uses the periodic inventory system.
A two-year fire insurance policy was purchased on May 1, 2010, for
P172,800. The whole amount was charged to Prepaid Insurance. No
adjusting entry was prepared in 2010 and 2011.
A one-year note receivable of P288,000 was held by Aquino Inc.
beginning October 1, 2010. Payment of the 10% note and accrued
interest was received upon maturity. No adjusting entry was made on
December 31, 2010.
Equipment with a 10 year useful life was purchased on January 1, 2010,
for P1,176,000. No depreciation expense was recorded during 2010 or
2011. Assume that the equipment has no residual value and that Aquino
Inc. uses the straight-line method for recording depreciation.
The company reported a P1,500,000 net income in 2010 and a
P1,750,000 net income in 2011.
Based on the information above and as a result of your audit, what is the
correct net income in 2010?
Answer: P363,000.
RFJPIA CUP LEVEL 5 Auditing Problems (STC) JOKER QUESTION
The inventory on hand at December 31, 2010 for Fair Company valued at a
cost of P947,800. The following items were not included in this inventory amount:
Purchased goods, in transit, shipped FOB destination invoice price
P32,000 which included freight charges of P1,600.
Goods held on consignment by Fair Company at a sales price of P28,000,
including sales commission of 20% of the sales price.
Goods sold to Garcia Company, under terms FOB destination, invoiced
for P18,500 which includes P1,000 freight charges to deliver the goods.
Goods are in transit.
Purchased goods in transit, terms FOB shipping point, invoice price
P48,000, freight cost, P3,000.
 Goods out on consignment to Manil Company, sales price P36,400,
shipping cost of P2,000.
Assuming that the company's selling price is 140% of inventory cost, the
adjusted cost of Fair Company's inventory at December 31, 2010 should be:
Answer: P1,039,300.

RFJPIA CUP LEVEL 5 Auditing Problems (XU)

Atkins bought five identical plots of development land for P2 million in 2010.
On January 2, 2012 Atkins sold three of the plots of land to an investment
company, Landbank, for a total of P2.4 million. This price was based on 75% of the
fair market value of P3.2 million as determined by an independent surveyor at the
date of sale. The terms of the sale contained two clauses:
Atkins can re-purchase the plots of land for the full fair value of P3.2
million (the value determined of the date of sale) any time until
December 31, 2014; and
On 1 January 2015, Landbank has the option to require Atkins to re-
purchase the properties for P3.2 million. You may assume that Landbank
seeks a return on its investments of 10% per annum.
If Atkins recorded the legal form of the transaction instead of its substance,
profit for 2012 will be overstated by:
Answer: P1,440,000.

RFJPIA CUP LEVEL 5 Auditing Problems (COC)

Potter Company is in its first year of operation and is using the cash basis of
accounting. The company presented the following cash receipts and disbursement
records for 2010:
Cash receipts P384,000
Cash disbursements (247,500)
P136,500
The management requested you to compute its income under accrual basis.
The following information are deemed relevant in your analysis:
Depreciation of plant assets for 2010 computed by straight-line method
is P31,500.
Prepaid insurance of P5,400, two-thirds of which relates to 2011, is
included in the 2010 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, P21,000 of it
was space that will be provided in 2011.
Employees are due P8,400 at the end of 2010.
Interest amounting to P9,510 from investment is receivable at the end of
2010.
 You estimate that your 2010 fee for accounting services that have not
been billed will be P1,500.
What is the total liabilities to be reported as of the balance sheet date under
the accrual basis?
Answer: P30,900.
RFJPIA CUP LEVEL 5 Auditing Problems (IIT)
Upon inspection of the records of Everybody's Company, the following facts
were discovered for the year ended December 31, 2010:
A fire premium of P4,000 was paid and charged as insurance expense in
2010. The fire insurance policy covers one year from April 1, 2010.
Inventory on January 1, 2010 was understated by P8,000.
Inventory on December 31, 2010 was understated by P12,000.
Business taxes of P5,500 for the fourth quarter of 2010 were paid on
January 20, 2011 and charged as expense in 2011.
On December 5, 2010, a cash advance of P10,000 by a customer was
received for goods to be delivered in January 2011. The P10,000 was
credited to sales. The company's gross profit on sales is 40%.
The net income of Everybody's Company on the income statement for
the year ended December 31, 2010, before any adjustments for the
above information, is P155,000.
What is the adjusted net income of Everybodys Company for the year ended
for the December 31, 2010? Answer: P144,500.

RFJPIA CUP LEVEL 5 Auditing Problems (LDCU)

On May 6, 2010 a flash flood caused damage to the merchandise stored in
the warehouse of Cabanatuan Company. You were asked to submit an estimate of
the merchandise destroyed in the warehouse. The following data were
established:
Net sales for 2009 were P800,000, matched against cost of P560,000.
Merchandise inventory, Jan. 1, 2010 was P200,000, 90% of which was in
the warehouse and 10% in downtown showrooms.
For Jan. 1, 2010 to date of flood, you ascertained invoice value of
purchases (all stored in the warehouse), P100,000; freight inward,
P4,000; purchases returned, P6,000.
Cost of merchandise transferred from the warehouse to show-rooms was
P8,000, and net sales from January 1 to May 6, 2010 (all warehouse
stock) were P320,000.
Assuming gross profit rate in 2010 to be the same as in the previous year,
the estimated merchandise destroyed by the flood was:
Answer: P46,000.

RFJPIA CUP LEVEL 5 Auditing Problems (BSU)

John Corp. has the following data relating to accounts receivable for the year
ended December 31, 2010:
Accounts receivable, January 1, 2010 P480,000
 Allowance for doubtful accounts, January 1, 2010
19,200
Sales during the year, all on account, terms 2/10, 1/15, n/60
2,400,000 Cash received from customers during the
year 2,560,000
Accounts written off during the year 17,600
An analysis of cash received from customers during the year revealed that
P1,411,200 was received from customers availing the 10-day discount period,
P792,000 from customers availing the 15-day discount period, P4,800 represented
recovery of accounts written-off, and the balance was received from customers
paying beyond the discount period.
The allowance for doubtful accounts is adjusted so that it represents certain
percentage of the outstanding accounts receivable at year end. The required
percentage at December 31, 2010 is 125% of the rate used on December 31,
2009. The doubtful accounts expense for the year ended December 31, 2010 is:
Answer: P7,120.

RFJPIA CUP LEVEL 5 Auditing Problems (CMU)

The Evita Company uses cash basis accounting for their records. During
2010, Evita collected P500,000 from its customers, made payments of P200,000 to
its suppliers for inventory, and paid P140,000 for operating costs. Evita wants to
prepare accrual basis statements. In gathering information for the accrual basis
financial statements, Evita discovered the following:
Customers owed Evita P50,000 at the beginning of 2010 and P35,000 at
the end of 2010.
Evita owed suppliers P20,000 at the beginning of 2010 and P27,000 at
the end of 2010.
Evita's beginning inventory was P42,000, and its ending inventory was
P44,000.
Evita had prepaid expenses of P5,000 at the beginning of 2010 and
P7,400 at the end of 2010.
Evita had accrued expenses of P12,000 at the beginning of 2010 and
P19,000 at the end of 2010.
Depreciation for 2008 was P51,000.
Determine the accrual basis net income of Evita Company for the year ended
December 31, 2010.
Answer: P84,400.

RFJPIA CUP LEVEL 5 Auditing Problems (MTIM)

Syosset Company is a Philippine corporation that purchases inventory from
US manufacturers. A recent inventory purchase involved the following events:
Nov. 12 Purchased raw materials from Hampton Bays Company, a US
manufacturer, amounting to US 250,000, payable in 60 days. Current
 exchange rate is P50.45. Syosset uses perpetual inventory system and debits
inventory account.
Dec. 31 Made year-end adjusting entry relating to the $250,000 accounts
payable to Hampton Bays. Current exchange rate is P50.89.
Jan. 11 Issued a check amounting to $250,000 in full payment of the
accounts payable to Hampton Bays and recorded a gain amounting to
P122,500.
What is the exchange rate of the Philippine peso to US dollar on January 11?
Answer: P50.40.

RFJPIA CUP LEVEL 5 Auditing Problems (LSU)

In confirming with an outside agent, such as financial institutions, that the
agent is holding investment securities in the clients name, an auditor most likely
gathers evidence in support of managements financial statement assertion of
existence or occurrence and what other assertion?
Answer: Rights and obligations.