Name: Morales, Jonalyn M.

Section: BSA – 3D

PROBLEM NO. 2
You were able to gather the following in connection with your audit of the Bukidnon Company for
the year ended December 31, 2006:

1/1/2006 12/31/2006
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:

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 2006 300,000
Insurance premium paid 125,000

QUESTIONS:

Based on the above and the result of your audit, determine the following:

1. Net sales for 2006

a. P 6,400,000 c. P 7,600,000
b. P12,400,000 d. P14,000,000

2. Net purchases for 2006

a. P11,607,000 c. P13,618,000
b. P15,629,000 d. P16,239,000

3. Wages expense for 2006

a. P3,010,000 c. P3,050,000
b. P3,090,000 d. P3,100,000

4. Advertising expense for 2006

a. P245,750 c. P260,000
b. P285,750 d. P300,000

5. Insurance expense for 2006

a. P 84,000 c. P100,000
b. P109,000 d. P141,000
PROBLEM NO. 3
Your audit of Camiguin Company disclosed that your client kept very limited records. Purchases of
merchandise were paid for by check, but most other items were out of cash receipts. The company’s
collections were deposited weekly. No record was kept of cash in the bank, nor was a record kept of
sales. Accounts receivable were recorded only by keeping a copy of the ticket, and this copy was
given to the customer when he paid his account.

On January 2, 2006 started business and issued common stock, 108,000 shares with P100 par, for
the following considerations:
Cash P 900,000
Building (useful life, 15 years) 8,100,000
Land 2,700,000
P11,700,000

An analysis of the bank statements showed total deposits, including the original cash investment, of
P6,300,000. The balance in the bank statement on December 31, 2006, was P450,000, but there
were checks amounting to P90,000 dated in December but not paid by the bank until January
2007. Cash on hand on December 31, 2006 was P225,000 including customers’ deposit of
P135,000.

During the year, Camiguin Company borrowed P900,000 from the bank and repaid P225,000 and
P45,000 interest.

Disbursements paid in cash during the year were as follows:

Utilities P180,000
Salaries 180,000
Supplies 360,000
Dividends 270,000
P990,000

An inventory of merchandise taken on December 31, 2006 showed P1,359,000 of merchandise.

Tickets for accounts receivable totaled P1,620,000 but P90,000 of that amount may prove
uncollectible.

Unpaid suppliers invoices for merchandise amounted to P630,000.

Equipment with a cash price of P720,000 was purchased in early January on a one-year installment
basis. During the year, checks for the down payment and all maturing installments totaled
P801,000. The equipment has a useful life of 5 years.

QUESTIONS:

Based on the above and the result of your audit, determine the following: (Disregard income taxes)

1. Payments for merchandise purchases in 2006

a. P4,869,000 c. P3,654,000
b. P3,879,000 d. P3,969,000

2. Collections from sales in 2006

a. P6,480,000 c. P5,580,000
b. P7,380,000 d. P4,500,000

3. Net income for the year ended December 31, 2006

a. P2,430,000 c. P2,655,000
b. P1,440,000 d. P2,340,000
4. Stockholders’ equity as of December 31, 2006
a. P13,860,000 c. P14,085,000
b. P12,870,000 d. P13,770,000

5. Total assets as of December 31, 2006

a. P14,175,000 c. P14,374,800
b. P14,085,000 d. P14,310,000

PROBLEM NO. 1
Alcoy Corporation’s post-closing trial balance at December 31, 2006 was as follows:
Alcoy Corporation
Post-Closing Trial Balance
December 31, 2006
Debit Credit
Accounts payable P 495,000
Accounts receivable P 963,000
Reserve for depreciation 360,000
Reserve for doubtful accounts 54,000
Premium on common stock 1,800,000
Gain on sale of treasury stock 450,000
Bonds payable 720,000
Building and equipment 1,980,000
Cash 396,000
Cash dividends payable on preferred stock 7,200
Common stock (P1 par value) 270,000
Inventories 1,116,000
Land 684,000
Available-for-sale securities at fair value 513,000
Trading securities at fair value 387,000
Net unrealized loss on available-for-sale
securities 45,000
Preferred stock (P50 par value) 900,000
Prepaid expenses 72,000
Donated capital 800,000
Stock warrants outstanding 208,000
Retained earnings 415,800
Treasury stock – common, at cost 324,000         
Totals P6,480,000 P6,480,000

At December 31, 2006, Alcoy had the following number of common and preferred shares:
Common Preferred
Authorized 900,000 90,000
Issued 270,000 18,000
Outstanding 252,000 18,000

The dividends on preferred stocks are P0.40 cumulative. In addition, the preferred stock has a
preference in liquidation of P50 per share.

QUESTIONS:

Based on the above and the result of your audit, determine the following as of December 31, 2006:

1. Additional paid-in capital

 a. P3,213,000 c. P3,050,000
b. P3,258,000 d. P2,600,000

2. Total contributed capital

a. P4,428,000 c. P3,770,000
b. P4,220,000 d. P1,170,000

3. Unappropriated retained earnings

a. P415,800 c. P91,800
b. P739,800 d. P37,800

4. Total stockholders’ equity

a. P4,266,800 c. P4,888,800
b. P4,519,800 d. P4,474,800

PROBLEM NO. 2
Your audit client, Argao, Inc., is a public enterprise whose shares are traded in the over-the-counter
market. At December 31, 2005, Argao had 3,000,000 authorized shares of P10 par value common
stock, of which 1,000,000 shares were issued and outstanding. The stockholders’ equity accounts
at December 31, 2005 had a following balances.
Common stock P10,000,000
Additional paid-in capital 3,750,000
Retained earnings 3,250,000

Transactions during 2006 and other information relating to the stockholders’ equity accounts were
as follows:

 On January 2, 2006, Argao issued at P54 per share, 50,000 shares of P50 par value, 9%
cumulative convertible preferred stock. Each share of preferred stock is convertible into two
shares of common stock. Argao had 300,000 authorized shares of preferred stock. The
preferred stock has a liquidation value equal to its par value.

 On February 1, 2006, Argao reacquired 10,000 shares of its common stock for P16 per share.

 On April 30, 2006, Argao sold 250,000 shares (previously unissued) of P10 par value common
stock to the public at P17 per share.

 On June 15, 2006, Argao declared a cash dividend of P1 per share of common stock, payable on
July 15, 2006, to stockholders of record on July 1, 2006.

 On November 10, 2006, Argao sold 5,000 shares of treasury stock for P21 per share.

 On December 15, 2006, Argao declared the yearly cash dividend on preferred stock, payable on
January 15, 2007, to stockholders of record on December 31, 2006.

 On January 20, 2007, before the books were closed for 2006, Argao became aware that the
ending inventories at December 31, 2005 were understated by P150,000 (after tax effect on
2005 net income was P90,000). The appropriate correction entry was recorded the same day.

 After correcting the beginning inventory, net income for 2006 was P2,250,00.

QUESTIONS:

Based on the above and the result of your audit, determine the following as of December 31, 2006:
1. Additional paid-in capital
a. P5,700,000 c. P5,500,000
b. P5,525,000 d. P5,725,000

2. Unappropriated retained earnings

a. P4,125,000 c. P4,045,000
b. P4,035,000 d. P3,955,000

3. Treasury stock
a. P160,000 c. P55,000
b. P 80,000 d. P50,000

4. Total stockholders’ equity

a. P22,190,000 c. P24,690,000
b. P24,770,000 d. P24,840,000

5. Book value per share of common stock

a. P17.89 c. P17.71
b. P17.82 d. P15.41

PROBLEM NO. 1
Atimonan Corporation is selling audio and video appliances. The company’s fiscal year ends on
March 31. The following information relates to the obligations of the company as of March 31,
2006:

Notes payable
Atimonan has signed several long-term notes with financial institutions. The maturities of these
notes are given below. The total unpaid interest for all of these notes amounts to P408,000 on
March 31, 2006.
Due date Amount
April 31, 2006 P 720,000
July 31, 2006 1,080,000
September 1, 2006 540,000
February 1, 2007 540,000
April 1, 2007 – March 31, 2008 3,240,000
P 6,120,000

Estimated warranties
Atimonan has a one-year product warranty on some selected items. The estimated warranty liability
on sales made during the 2004 – 2005 fiscal year and still outstanding as of March 31, 2005,
amounted to P302,400. The warranty costs on sales made from April 1, 2005 to March 31, 2006,
are estimated at P756,000. The actual warranty costs incurred during 2005 – 2006 fiscal year are
as follows:
Warranty claims honored on 2004 – 2005 sales P 302,400
Warranty claims honored on 2005 – 2006 sales 342,000
Total P 644,400

Trade payables
Accounts payable for supplies, goods, and services purchases on open account amount to P672,000
as of March 31, 2006.

Dividends
On March 10, 2006, Atimonan’s board of directors declared a cash dividend of P0.30 per common
share and a 10% common stock dividend. Both dividends were to be distributed on April 5, 2006 to
common stockholders on record at the close of business on March 31, 2006. As of March 31, 2006,
Atimonan has 6 million, P2 par value, common shares issued and outstanding.

Bonds payable
Atimonan issued P6,000,000, 12% bonds, on October 1, 2000 at 96. The bonds will mature on
October 1, 2010. Interest is paid semi-annually on October 1 and April 1. Atimonan uses the
straight line method to amortize bond discount.

QUESTIONS:
Based on the foregoing information, determine the adjusted balances of the following as of March
31, 2006:

1. Estimated warranty payable

a. P414,000 c. P 302,400
b. P756,000 d. P1,058,400

2. Unamortized bond discount

a. P132,000 c. P240,000
b. P108,000 d. P120,000

3. Bond interest payable

a. P360,000 c. P180,000
b. P300,000 d. P 0

4. Total current liabilities

a. P7,734,000 c. P6,534,000
b. P6,126,000 d. P4,734,000

5. Total noncurrent liabilities

a. P9,240,000 c. P9,108,000
b. P9,132,000 d. P9,000,000

PROBLEM NO. 3
Dolores’ Music Emporium carries a wide variety of music promotion techniques - warranties and
premiums – to attract customers.

Musical instrument and sound equipment are sold in a one-year warranty for replacement of parts
and labor. The estimated warranty cost, based on past experience, is 2% of sales.

The premium is offered on the recorded and sheet music. Customers receive a coupon for each peso
spent on recorded music or sheet music. Customers may exchange 200 coupons and P20 for an
AM/FM radio. Dolores pays P34 for each radio and estimates that 60% of the coupons given to
customers will be redeemed.

Dolores’ total sales for 2006 were P57,600,000 – P43,200,000 from musical instrument and sound
reproduction equipment and P14,400,000 from recorded music and sheet music. Replacement
parts and labor for warranty work totaled P1,312,000 during 2006. A total of 52,000 AM/FM radio
used in the premium program were purchased during the year and there were 9,600,000 coupons
redeemed in 2006.

The accrual method is used by Dolores to account for the warranty and premium costs for financial
reporting purposes. The balance in the accounts related to warranties and premiums on January 1,
2006, were as shown below:
 Inventory of Premium AM/FM radio P 319,600
Estimated Premium Claims Outstanding 358,400
Estimated Liability from Warranties 1,088,000

QUESTIONS:
Based on the above and the result of your audit, determine the amounts that will be shown on the
2006 financial statements for the following:

1. Warranty expense
a. P 864,000 c. P1,312,000
b. P1,152,000 d. P 640,000

2. Estimated liability from warranties

a. P 864,000 c. P1,088,000
b. P1,312,000 d. P 640,000

3. Premium expense
a. P 604,800 c. P 864,000
b. P1,468,800 d. P1,008,000

4. Inventory of AM/FM radio

a. P375,600 c. P618,800
b. P319,600 d. P455,600

5. Estimated liability for premiums

a. P604,800 c. P507,600
b. P291,200 d. P358,400