a CPA REVIEW SCHOOL OF THE PHILIPPINES Manta AUD Pnor reson aes ‘ea coun RD EXAMINATION SUNDAY, 8:00AM - 11:00AM SETA INSTRU ; oe —— - On ee CHOOSE THE BEST ANSWER FOR EACH OF THE FOLLOWING. FULLY SHADE FOR EACH ITEM. STRICTLY NO ERASURES ALLOWED. PROBLEM NO. 1 ou fave] been engaged to review the recoras anc prepare corrected financial statements for the VENT Company. The books of accounts are in agreement with the following Statement of Financial Position: SOLVENT Corapany Statement of Financial Position December 31, 2018 (in thouserids) ASSETS Cash 1 P 15,000 Accounts receivable a 30,000 Notes receivable 9,000 Inventory i 8.000 2122.00 LIABILITIES AND SHAREHOLDERS’ EQUITY Accounts payable P 6,000 Notes payable 12/000 Share capital 30,000 Retained earnings —81,000 Biz9.000 A review of the bocks of the company indicates that the following errors and omissions had not been corrected during the applicahie years: Inventory -overvaltiec 2018 Inventory-undervalued 27,000 Prepaid expense 1,800 Prepaid income. ao Accrued expense 150 ‘Accrued income 450 ‘The profits per the books are: 2016. P22,590; 2017, 919,500; and 2018, P16,500. No dividends were declared during these yoers, end no adjustments were made to retained earnings. Ignore possible income tax effects. Page 1 of 12 PagesCPA REVIEW SCHOOL GE THE PHILIPPINES (CPAR) - MANILA FIRST PREBOARD EXAMINATION v it Questions: 1. What is the adjusted net loss for the year ended December 31, 2016? 18,750 B. P21,750 C. P17,550 D. P22,950 2. What is the adjusted net income for the year ended December 31, 2017? A. P21,450 8. P20,850 c. P17,250 ©. P16,650 3. What Is the adjusted net income for the year ended December 31, 2018? ‘A. P70,500 B. P67,500 C. P67,725 D. P66,600 4. What is the adjusted inventory balance on December 31, 2018? A. P75,000 B. P72,000 C. P102,000 1D. P99,000 5. What is Solvent Company's total assets as of December 31, 2018? A. P158,250 B. P159,150 CC. P158,700 ©. P139,200 oe =-=--+-+--000000000- PROBLEM NO. 2 The Neknek Company's December 31, 2017, Statement of Financial Position follows: ASSETS Cash P 1,620,000 Inventory 1,350,000 Prepaid rent 180,000 Machine 1,500,000 Less: Accumulated depreciation (405,000) _1,095,000 4.245.000 LIABILITIES AND SHAREHOLDERS’ EQUITY Accounts payable 1,200,000 Ordinary shares, P30 par ‘300,000 Share premium, 1,545,000 Retained earnings 100,000. 4.245.000 During 2018, the following transactions occured: \ 1. To avoid paying monthly rent of P15,000 tn existing plant facilities, the company decided to buy a tract of land and construct a building of tts own on it, On January 2, 2018, Neknek ‘exchanged 7,000 shares of its ordinary shares to acquire the land; the share was sailing for P75 per share. Construction of the building aiso began on January 2, 2018. At the time, Neknek borrowed funds by issuing a one-year, 71,500,000 note at 12% to help finance the project. Neknek used part of the proceeds of the loan for working capital requirements. The principal and interest on the note are due January 2, 2019. Construction costs (paid in cash) that occurred evenly throughout the year foiale P2,190,000. ‘The building was completed on December 31, 2018 and the move-in to the new duiding was to occur during the next week. 2. On January 2, 2018, Neknek excirangert its one existing machine plus 180,000 for a newer, similar machine with a fair value of Pi,29 000. The exchange was with another company in the same industry. The new miachine is to be depreciated us! 1g straight-line depreciation based on an economic life of 5 years aiid a residual value of P185,000. Page 2 of 12 Pages(CPA REVIEW SCHOOL ae adomaneenoniens "= PPM Cmm)-nawma a imsrontnoanp Eremni | 1 8:008M = 11: 0088 3. Neknek us . 2,400,000: cas prepa nventory system. Neknek sold P1,050,000 of its inventory for nitory 4 beginning accou irchased P1,440,! Inventory on account during the year. ing ints payable, and pur 4. On sul i shared, 2018, Neknek dectared and paid a 7.50 jper share cash dividend to its 5. | Neknek is subject to a 30% income tax rate, and income taxes are accrued at year-end. Required: Compute the adjusted balances of the following at December 31, 2018. 6. Building A. 2,226,000 B. 2,352,000 C. 2,100,000 D. 2,280,000 7. Income before income tax i A. P634,200 B. 906,000 C. P891,000 _D. 1,086,000 8. Cash A. P4,762,500 8. 322,000 C. P2,439,500 D. P2,812,500 9. Retained earnings A. P1228,500 8, P9H6,200 ¢. P956,700 D. P1,082,700 10. Total assets A. P7,836,000 B. P3,926,700 c. P7,444,500 D. 7,318,500 -000000000------=--~ ane PROBLEM NO. 3 s Informatign for PANDAY CORPORATION'S Property, Plant and Equipment for 2018 is as follows: Account balances at January 1, 2018: Debit Land P 450,000 Building 3,600,000 ‘Accumulated depreciation 789,300 Machinery and equioment 2,700,000 Accumulated depreciation 750,000 Automotive equipment 345,000 ‘Accumulated deprecation 283,800 Depreciation method and useful lit Building: 150%-declining balance; 25 years Machinery and equipment: Straightline; 10 years ‘Automotive equipment: Sum-of-the-years-digits; 4 years Leasehold improvements: Straight-line The residual value of the depreciable assets is immaterial. It is the company’s policy to compute Gepreciation to the nearest month.