–NOVEMBER 12, 2014

NAME_______________________________________________ DATE________________ SCORE________

INSTRUCTIONS: Read the items that follow and write the letter of your choice, in CAPITAL LETTERS, or the amount required,
if any, on the space provided below. Strictly NO ERASURES allowed.

1 6 11 16 21 26
2 7 12 17 22 27
3 8 13 18 23 28
4 9 14 19 24 29
5 10 15 20 25 30

1. Assurance services may include which of the following?

a. attesting to financial statements
b. examination of the economy and efficiency of governmental operations
c. evaluation of a division’s performance for management
d. tax preparation services
e. A, B, and C only
2. The criteria against which the auditor measures the fairness of financial statement presentation are known as
a. auditing standards. c. generally accepted accounting standards.
b. generally accepted accounting principles. d. governmental accounting principles.
3. Management of a company is responsible for
a. hiring the auditor.
b. preparing the financial statements.
c. the audit workpapers.
d. independence and obtaining evidence.
4. Which one of the following is an example of management expectations for independent auditors?
a. An expert providing a written communication as the product of the engagement.
b. Individuals who perform day-to-day accounting functions on behalf of the company.
c. An active participant in management decision making.
d. An internal source of expertise on financial and other matters.
5. Which one of the following is not a provider of assurance services?
a. CPAs b. internal auditors c. governmental auditors d. AICPA
6. The internal audit profession has emerged and has become active for all of the following reasons except:
a. management’s need for an objective appraisal of organizational or departmental performance
b. increased internal and external emphasis on effective procedures to detect or prevent fraud
c. compliance with Section 404 of the Sarbanes-Oxley Act of 2002
d. the efforts of the American Public Accounting Board
7. Which one of the following statements is not true about internal auditing?
a. Internal auditing is an objective evaluation function.
b. Internal auditing is established within an organization.
c. Internal auditing’s purpose is to provide assurance regarding the company's compliance with stated policies
and procedures.
d. Internal auditing is established as an independent service to regulatory bodies and creditors.
8. An audit which has as its purpose the evaluation of the economy and efficiency with which resources are employed
isknown as a(n)
a. financial audit. c. operational audit.
b. compliance audit. d. governmental audit.
9. The audit committee of the board of directors of a company is responsible for
a. hiring the auditor. c. the audit workpapers.
b. preparing the financial statements. d. independence and obtaining evidence.
10. The PICPA remains a valuable organization because of its continuing involvement in
a. the audit standard setting process. c. education and administration of the CPA exam.
b. regulation and enforcement of the audit profession. d. promulgation of accounting standards.
11. The objective of an operational audit is to
a. evaluate whether laws have been broken by management.
b. evaluate fairness of presentation of financial statements.
–NOVEMBER 12, 2014

c. evaluate compliances with company rules and regulations.

d. evaluate the effectiveness and efficiency with which resources are employed.
12. The primary governing board that performs quality reviews on registered CPA firms that audit public companies is the
a. PCAOB b. GAO c. PICPA d. FASB
13. Congress authorized which of the following organizations to establish generally accepted accounting principles?
a. SEC b. APB c. PICPA d. FASB
14. The public expects auditors to
a. understand and enforce principles that best portray the spirit of FASB concepts.
b. be neutral to preparers and users of financial information.
c. recognize that the public are the primary users of audit services.
d. take more responsibility for the discovery of fraud.
e. all of the above are expectations of the public.
15. CPAs are licensed by the
a. PCAOB. b. PICPA. c. state’s board of accountancy. d. state’s society of CPAs.
16. The Certified Internal Auditor program is administered by the
a. PICPA. b. IIA. c. state’s board of accountancy. d. state’s society of CPAs.
17. The audit agency for the U. S. Congress is the
a. SEC. b. GAO. c. IIA. d. PICPA.
18. The organization that issued the Internal Control, Integrated Framework which serves as the primary criterion for
evaluating the quality of a company’s internal control system is
a. PCAOB b. COSO c. PICPA d. GAO
19. Auditing is a systematic process that includes all of the following except:
a. communicating results to users c. providing important managerial decisions for a client
b. procuring and evaluating evidence d. comparing evidence regarding assertions to certain established criteria
20. As it relates to an audit, materiality is
a. not taken into consideration.
b. related only to the sufficiency of procedures performed.
c. based upon audit fees.
d. determined based upon the importance to a user of the financial statements.

Problem 1

Your audit client, Argao Inc., is a public entity whose shares are traded in the over-the-counter market. At December 31,
2009, Argao had 3,000,000 authorized, P15 par value, ordinary shares, of which 1,000,000 shares were issued and
outstanding. The equity accounts at December 31, 2009 had the following balances.
Ordinary Share Capital P15,000,000
Share Premium 3,750,000
Retained Earnings 3,250,000

Transactions during 2010 and other information relating to the equity accounts are as follows:
1. On January 2, 2010, Argao issued at P65 per share. 70,000 shares of P55 par value, 10% cumulative convertible
preference shares. Argao had 300,000 authorized shares of preference shares. The preference share has a liquidation
value of P60 per share.
2. On February 1, 2010, Argao reaquired 10,000 ordinary shares for P20 per share.
3. On April 30, 2010, Argao sold 250,000, P15 par value, ordinary shares (previously unissued) to the public at P19 per
share.
4. On June 15, 2010, Argao declared a cash dividend of P1 per share on ordinary shares, payable July 15, 2010, to
shareholders of record on July 1, 2010.
5. On November 10, 2010, Argao sold 5,000 treasury shares for P23 per share.
6. On December 15, 2010, Argao declared yearly cash dividend on preference shares, payable January 15, 2011, to
shareholders of record on December 30, 2010.
7. On January 20, 2011, before the books were closed for 2010, Argao became aware that the ending inventories at
December 31, 2009 were understated by P215,000 (after tax effect on profit was P129,000). The appropriate correction
entry was recorded the same day.
8. After correcting the beginning inventory, profit for 2010 was P1,367,050.

Based on the above and the result of your audit, determine the following on December 31, 2010:
21. Share Premium 24. Total equity
22. Unappropriated retained earnings 25. Book value per ordinary share
–NOVEMBER 12, 2014

23. Treasury Shares

Problem 2

The “shareholder’s equity” account of Alegria Corporation, after its initial year of operation in 2010 shows the following:

Date Particulars Debit Credit

Jan. 1 Issued 6,515 shares at par of P159 in exchange for real
property with a market value of P1850,000; authorized
20,000 shares. P1,035,885
Jan 15 Sold 8,615 shares at P184 1,585,160
Mar. 10 Purchased 630 Alegria shares at P151 P95,130
May 15 Loss on sale of machinery 40,000
June 10 Sold 315 treasury shares 53,550
Dec 31 Cash dividend declared payable Jan. 15, 2011 55,645
Dec 31 Profit if the year 356,725

Based on the information presented above and the result of your audit, answer the following:
26. The adjusted share capital as of December 31, 2010 is
27. The total share premium as of December 21, 2010 is
28. The unappropriated retained earnings as of December 31, 2010 is
29. The adjusted total equity on December 31, 2010 is
30. BONUS

Prepared by:
Rodlynne Addun
Jericko Bien Gumafung