F1807014

APPLIED AUDITING

PROBLEM #1
The field work pertinent to the audit of the accounts of JASMINE Trading Corporation, a closed corporation, for the year end
December 31, 2016 has been completed by the staff of F. Anastacia and Associates, CPA’s. Shown below are the adjusted trial
balance and certain additional information pertaining thereto appearing in the working papers:
Account title Debits

Credits
Accumulated depreciation 4,728,125
Accounts receivable (including nontrade receivable P800,000 due after one year) 4,100,000
Accounts payable 1,575,500
Accrued expenses 575,750
Allowance for doubtful accounts 562,551
Amortization of bond discount and expenses 52,545
Building, machinery and equipment 32,625,771
Bank overdraft (made within the same bank of the company) 375,561
Cash 1,756,230
Ordinary shares, P100 par value
Authorized, 375,000 shares
Issued – 138,750 shares 13,875,000
Subscribed – 3,750 shares 375,000
Construction in progress 1,652,450
Cost of goods sold 32,256,755
10% Debenture, due January 2026 7,500,000
Inventories
Finished goods 4,652,362
Goods in process 1,162,586
Raw materials 3,525,721
Dividend income 306,230
Investment in affiliated companies 2,625,612 Interest expense 1,762,572 Income tax payable
???
Land 3,455,000
Marketable securities (at cost) available-for-sale 712,500
Mortgage payable (including current portion of P1,500,000) 7,500,000
Operating expenses 3,976,269
Plant Expansion Fund 1,500,000
Preference shares, 7% cumulative, non-participating, authorized and issued, 7,500
shares, P100 par value 7,500,000 Prepaid expenses 375,000 Provision for income tax ???
Reserve for contingencies 1,500,000
Retained earnings 1,147,500
Sales 45,765,206
Subscription receivable (collectible on June 30, 2017) 150,000
Treasury shares (cost 75 shares) 82,500
Unamortized bond discount and expenses 487,550
Excess of issue price over par value of ordinary shares 3,625,000
Valuation allowance: Available-for-sale marketable securities 1,275,500
Unrealized increase (decrease) in fair value of available-for-sale securities 1,275,500 Additional information:
1. Inventories are stated at cost, estimated net realizable value, P9,456,912
2. Investment in affiliated companies, at cost – P2,625,612. These investment are not listed in the stock exchange. On
the basis of audited financial statements of these affiliated companies, the company’s equity in assets of these
affiliates approximates the cost as at December 31, 2016. No dividend declarations have been made by these affiliates
for the last three years.
3. Available-for-sale marketable securities are short-term, at cost, P712,500.
 4. Land, at cost – P3,455,000, Building, machinery and equipment, at cost – P32,625,755. These assets are pledged with
a financing institution to secure the overdraft and mortgage payable. Depreciation charges are computed on the
straight-line method based on the estimated useful lives of the fixed assets

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F1807014

5. The company has received an assessment from the Bureau of Internal Revenue for additional sales tax totalling
P2,670,000 for the years 2012 to 2014. This is being contest by the company’s legal counsel, who is of the opinion
that there is no adequate basis for the assessment. Accordingly, no provision has been made for this assessment.

6. Provision on income tax payable is based on the current tax rate of 30% on net income before tax.
Required:
From the data and information given, prepare the Balance sheet as of December 31, 2016 and Income statement for the year
ended December 31, 2016.

PROBLEM 2: The schedule below shows the account balances of BAMBAM Company at the beginning and end of the year
ended December 31, 2016:
DEBITS Dec. 31, 2016 Dec. 31, 2015
Cash and cash equivalents 676,150 156,750

Investment in trading securities 48,000 128,000

Accounts receivable 464,800 336,400

Inventories 873,630 900,970

Prepaid insurance 7,550 6,300

Land and building 3,585,000 3,585,000

Equipment 2,068,000 1,510,000

Discount on bonds payable 25,500 27,000

Treasury shares 75,000 150,000

Cost of goods sold 1,717,000

Selling and general expenses 861,600

Income taxes 40,770

Unrealized loss on trading securities 12,000

Loss on sale of equipment 3,500

Total debits 10,458,500 6,800,420

CREDITS

Allowance for bad debts 24,000 15,000

Accumulated depreciation – building 602,280 516,240

Accumulated depreciation – equipment 553,190 498,300

Accounts payable 165,000 180,000

Notes payable – current 180,000 60,000

Accrued expenses payable 51,200 26,100

Income taxes payable 40,770 30,500

Unearned revenue 12,000 27,000

Notes payable – noncurrent 180,000 240,000

Bonds payable 750,000 750,000

Deferred tax liability 112,000 139,900

 Ordinary shares, P10 par 4,091,000 3,000,000

Retained earnings appropriated for treasury shares 75,000 150,000

Retained earnings appropriated for possible building expansion 114,000 69,000

Unappropriated retained earnings 118,380 993,380

Share premium 658,680 105,000

Sales 2,695,000

Gain on sale of trading securities 36,000

Total Credits 10,458,500 6,800,420

Additional information:
• All purchases and sales were on account.
• Equipment with an orginal cost of P90,000 was sold for P42,000.
• A six-month note payable for P120,000 was issued in connection with the purchase of new equipment.
• The non-current note payable requires the payment of P60,000 per year, plus interest until paid.
• Treasury shares were sold for P15,000 more than their cost.
• During the year, a 30% stock dividend was declared and issued. At that time, there were 300,000 of P10 par ordinary
shares outstanding. However, 3,000 of these shares were held as treasury shares at that time and were prohibited from
participating in the stock dividend. Market value of ordinary shares was P50 per share when the stock dividend was
declared.
• Equipment was overhauled, extending its useful life, at a cost of P48,000. The cost was debited to Equipment.
Required:
Based on the given data, prepare a Statement of Cash Flow (using indirect method of computing the cash flow from operating
activities)

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