Republic of the Philippines

Eastern Visayas State University – Tanauan Campus

BUSINESS, ENTRPRENEURSHIP, AND MANAGEMENT DEPARTMENT
Tanauan, Leyte
_________________________________________________________________________________________________
AUDITING Final Pre-board Examination
2nd Sem/ 2021-2022 May 25, 2022

Instruction: Select the correct answer for each of the following questions. Mark
only one answer for each item by shading the box corresponding to your choice on
the answer sheet provided. Strictly no erasure is allowed.

-000-

THEORETICAL

1. Which statement is incorrect regarding the characteristics of a CIS

organizational structure?
a. Certain data processing personnel may be the only ones with a detailed
knowledge of the interrelationship between the source of data, how it is
processed and the distribution and use of the output.
b. Many conventional controls based on adequate segregation of incompatible
functions may not exist, or in the absence of access and other controls,
may be less effective.
c. Transaction and master file data are often concentrated, usually in
machine-readable form, either in one computer installation located
centrally or in a number of installations distributed throughout an entity.
d. Systems employing CIS methods do not include manual operations since the
number of persons involved in the processing of financial information is
significantly reduced.

2. System characteristics that may result from the nature of CIS processing
include, except
a. Absence of input documents.
b. Lack of visible transaction trail.
c. Lack of visible output.
d. Difficulty of access to data and computer programs.

3. The development of CIS will generally result in design and procedural

characteristics that are different from those found in manual systems. These
different design and procedural aspects of CIS include, except:
a. Consistency of performance.
b. Programmed control procedures.
c. Vulnerability of data and program storage media
d. Multiple transaction update of multiple computer files or databases.

4. An audit report should be dated as of the

a. date the report is delivered to the entity audited.
b. date the financial statements were approved by the client management.
c. balance sheet date of the latest period reported on.
d. date a letter of audit inquiry is received from the entity’s attorney of
record.

5. If a company’s external auditor expresses an unqualified opinion as a result of

the audit of the company’s financial statements, readers of the audit report
can assume that
a. The external auditor found no fraud.
b. The company is financially sound, and the financial statements are
accurate.
c. Internal control is effective.

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 d. All material disagreements between the company and external auditor about
the application of accounting principles were resolved in the
satisfaction of the external auditor.

6. A statement that the auditor’s responsibility is to express an opinion on the

financial statements is contained in the:
a. Opening paragraph c. Opening and scope paragraph
b. Scope paragraph d. Opinion paragraph

7. A statistical sampling technique that will minimize sample size whenever a low
deviation rate is expected
a. Ratio-estimation sampling. c. Stratified mean-per-unit sampling.
b. Difference-estimation sampling. d. Stop-or-go sampling.

8. For which of the following audit tests would an auditor most likely use
attribute sampling?
a. Making an independent estimate of the amount of a FIFO inventory.
b. Examining invoices in support of the valuation of fixed asset additions.
c. Selecting accounts receivable for confirmation of account balances.
d. Inspecting employee timecards for proper approval by supervisors.

9. In addition to evaluating the frequency of deviations in tests of controls, an

auditor also considers certain qualitative aspects of the deviations. The
auditor most likely will give broader consideration to the implications of a
deviation if it is
a. The only deviation discovered in the sample.
b. Identical to a deviation discovered during the prior year’s audit.
c. Caused by an employee’s misunderstanding of instructions.
d. Initially concealed by a forged document.

10. Which of the following types of evidence would an auditor most likely
examine to determine whether controls are operating as designed?
a. Confirmations of receivables verifying account balances.
b. Letters of representations corroborating inventory pricing.
c. Attorneys’ responses to the auditor’s inquiries.
d. Client records documenting the use of computer programs.

11. Which of the following procedures concerning accounts receivable is an

auditor most likely to perform to obtain evidential matter in support of an
assessed level of control risk below the maximum level?
a. Sending confirmation requests to an entity’s principal customers to
verify the existence of accounts receivable.
b. Inspecting an entity’s analysis of accounts receivable for unusual
balances.
c. Comparing an entity’s uncollectible accounts expense to actual
uncollectible accounts receivable.
d. Observing an entity’s employee prepare the schedule of past due accounts
receivable.

12. An auditor is least likely to test controls that provide for

a. Classification of revenue and expense transactions by product line
b. Approval of the purchase and sale of trading securities
c. Segregation of the functions of recording disbursements and reconciling
the bank account
d. Comparison of receiving reports and vendors’ invoices with purchase
orders

13. In a small company that doesn't employ an adequate number of employees to

permit proper division of responsibilities, effective internal control can be
strengthened by
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 a. Direct participation by the owner of the business in the record keeping
activities of the business.
b. Employment of temporary personnel to aid in the separation of duties.
c. Delegation of full, clear-cut responsibility to each employee for the
functions assigned to each.
d. Engaging a CPA to perform monthly "write up" work.

14. Which of the following is true of the communication to management of

material weaknesses in accounting and internal control?
a. Communication must be in writing.
b. Oral communication of material weaknesses, when appropriate, would be
documented in the audit working papers.
c. The communication should indicate that the auditor had extensively
examined the accounting and internal control system of the client.
d. The auditors should indicate in the communication that the examination is
primarily designed to determine whether the accounting and internal
control is adequate.

15. Which statement is incorrect regarding audit evidence?

a. Audit evidence is all the information used by the auditor in arriving at
the conclusions on which the audit opinion is based.
b. Audit evidence includes the information contained in the accounting
records underlying the financial statements and other information.
c. Audit evidence is cumulative in nature.
d. Auditors are expected to address all information that may exist.

16. Accounting records least likely include

a. The records of initial entries and supporting records.
b. The general and subsidiary ledgers.
c. Work sheets and spreadsheets supporting cost allocations.
d. Comparable data about competitors (benchmarking).

17. Other information that the auditor may use as audit evidence least likely
includes
a. Minutes of meetings.
b. Confirmations from third parties.
c. Information obtained by the auditor from such audit procedures as
inquiry, observation, and inspection.
d. Adjustments to the financial statements that are not reflected in formal
journal entries.

18. Which statement is correct regarding the sufficiency and appropriateness of

audit evidence?
a. Sufficiency is the measure of the quality of audit evidence.
b. Appropriateness is the measure of the quantity of audit evidence; that
is, its relevance and its reliability in providing support for, or
detecting misstatements in, the classes of transactions, account
balances, and disclosures and related assertions.
c. The quantity of audit evidence needed is affected by the risk of
misstatement (the greater the risk, the more audit evidence is likely to
be required) and by the quality of such audit evidence (the higher the
quality, the less may be required).
d. Merely obtaining more audit evidence may compensate for its poor quality.

19. Which of the following statements is incorrect regarding relevance of audit

evidence?
a. A given set of audit procedures may provide audit evidence that is
relevant to certain assertions, but not others.
b. The auditor often obtains audit evidence from different sources or of a
different nature that is relevant to the same assertion.
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 c. Obtaining audit evidence relating to a particular assertion is a
substitute for obtaining audit evidence regarding another assertion.
d. None of the above.

20. Which of the following generalizations in assessing the reliability of audit

evidence is incorrect?
a. Audit evidence is more reliable when it is obtained from independent
sources outside the entity.
b. Audit evidence that is generated internally is not affected by the
effectiveness of the controls imposed by the entity.
c. Audit evidence obtained directly by the auditor is more reliable than
audit evidence obtained indirectly or by inference.
d. Audit evidence is more reliable when it exists in documentary form.

21. Which statement is incorrect regarding audit evidence?

a. The auditor should obtain sufficient appropriate audit evidence to be
able to draw reasonable conclusions on which to base the audit opinion.
b. Accounting records alone do not provide sufficient audit evidence.
c. The auditor uses professional judgment and exercises professional
skepticism in evaluating the quantity and quality of audit evidence, and
thus its sufficiency and appropriateness, to support the audit opinion.
d. The matter of difficulty or expense involved is a valid basis for
omitting an audit procedure for which there is no alternative.

22. Which statement is considered correct?

a. There are currently fundamental differences between the IAASB
International pronouncements and the equivalent AASC Philippine
pronouncements.
b. The main purpose of the AASC in adopting IAASB’s Standards and Practice
Statements is to attain uniformity of the local GAAS with the IAASB’s
pronouncements.
c. The ASPC is currently the body authorized to establish and promulgate
GAAS in the Philippines.
d. The technical pronouncements adopted and issued by AASC do not correspond
to the technical pronouncements issued by the IAASB.

23. Which of the following entities is not represented in the ASPC?

a. BIR
b. BOA
c. COA
d. ACPAPP

24. Issuance of final Philippine Standards and Practice Statements, as well as

interpretations requires approval of
a. Majority of the members of the AASC
b. At least 5 members of the AASC
c. At least 10 members of the AASC
d. All members of the AASC

25. Which statements(s) is/are true regarding pronouncements issued by the AASC?
a. Philippine Pronouncements that are Philippine specific and are not
adopted from International Pronouncements will be numbered consecutively
with suffix “RP”.
b. Philippine Pronouncements that are Philippine specific and are not
adopted from International Pronouncements will be numbered consecutively
with suffix “Ph”.
c. Philippine standards and practice statements adopted from International
pronouncements will use different numbers as their counterpart
international pronouncements.
d. All of the above.
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26. When planning and performing audit procedures and evaluating and
reporting the results thereof, the auditor should
a. Search for errors that would have a material effect and for fraud that
would have either material or immaterial effect on the financial
statements.
b. Consider the risk of misstatements in the financial statements resulting
from fraud or error.
c. Search for fraud that would have a material effect and for errors that
would have either material or immaterial effect on the financial
statements.
d. Consider the risk of material misstatements in the financial statements
resulting from fraud or error.

27. Mix and Associates, CPAs, issued an unqualified opinion on the financial
statements of Glass Corp. for the year ended December 31, 2021. It was
determined later that Glass' treasurer had embezzled P300,000 from Glass during
2021. Glass sued Mix because of Mix's failure to discover the embezzlement. Mix
was unaware of the embezzlement. Which of the following is Mix's best defense?
a. Mix had no actual knowledge of the embezzlement.
b. The audit was performed in accordance with GAAS.
c. The financial statements were presented in conformity with GAAP.
d. The treasurer was Glass' agent and, therefore, Glass was responsible for
preventing the embezzlement.

28. A type of fraud in which an employee takes assets from an organization for
personal gain.
a. Defalcation
b. Secret reserve
c. Window dressing
d. Fraudulent financial reporting

29. The term “fraud” refers to an intentional act by one or more individuals
among management, those charged with governance, employees, or third parties,
involving the use of deception to obtain an unjust or illegal advantage. Which
statement is correct regarding fraud?
a. Auditors make legal determinations of whether fraud has actually
occurred.
b. Misstatement of the financial statements may not be the objective of some
frauds.
c. Fraud involving one or more members of management or those charged with
governance is referred to as “employee fraud”.
d. Fraud involving only employees of the entity is referred to as
“management fraud”.

30. Which of the following statements is not correct?

a. An annual audit once carried out can act as a deterrent to fraud and
errors.
b. The auditor is not and cannot be held responsible for the prevention of
fraud and error.
c. An adequate internal control system will eliminate the possibility of
frauds or errors.
d. The responsibility for the prevention of fraud and error rests with both
those charged with governance and the management of the entity through
the implementation of adequate internal control systems.

31. Those persons who are CPA and who hold a valid certificate issued by the
BOA, whether they be in public practice, industry, commerce, the public sector,
or education.

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 a. Professional accountant.
b. Accountant.
c. Certified Public Accountant.
d. Professional accountant in public practice.

32. Close family does not include

a. Non-dependent child
b. Spouse
c. Parent
d. Sibling

33. It is an entity under common control, ownership or management with the firm
or any entity that a reasonable and informed third party having knowledge of
all relevant information would reasonably conclude as being part of the firm
nationally or internationally.
a. Sister firm
b. Network firm
c. Affiliate firm
d. None of these

34. What is “publicity”?

a. It is the approach to a potential client for the purpose of offering
professional services.
b. It is the communication to the public of facts about a professional
accountant which are not designed for the deliberate promotion of that
professional accountant.
c. It is the communication to the public of information as to the services
or skills provided by professional accountants in public practice with a
view of procuring professional business.
d. All of the above statement describes publicity.

35. The Code of Ethics recognizes that the objectives of the accountancy
profession are to work to the highest standards of professionalism, to attain
the highest levels of performance and generally to meet the public interest
requirement. These objectives require four basic needs to be met, which does
not include
a. Objectivity
b. Credibility
c. Professionalism
d. Quality of service

SITUATIONAL

PROBLEM 1:
You are conducting an audit of the MART CORPORATION for the year ended December
31, 2020. The internal control procedures surrounding cash transactions were not
adequate. Jane Quipit, the bookkeeper-cashier handles cash receipts, maintains
accounting records, and prepares the monthly reconciliations of the bank account.
She prepared the following reconciliation at the end of the year:

Balance per bank statement P 315,000

Add : Deposit in transit P 157,725
Note collected by bank 13,500 171,225
Balance P 486,225
Less : Outstanding checks 222,075
Balance per general ledger P 264,150

In the process of your audit, you gathered the following:

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a. On December 31, 2020, the bank statement and the general ledger showed balances
of P315,000 and P264,150 respectively.
b. The cut off bank statement showed a bank charge on January 02, 2021 for P35,250
representing a correction of an erroneous bank credit.
c. Included in the list of outstanding checks were the following:
a. A check payable to a supplier, dated December 29, 2020, in the amount of
P13,275, released on January 05, 2021.
b. A check representing advance payment to a supplier in the amount of
P33,489, the date of which is January 04, 2021, and released in December
2020.
c. On December 31, 2020, the company received and recorded customer’s
postdated check amounting to P45,000.

36. Compute the adjusted deposit in transit as of December 31, 2020.

a. 157,725 b. 112,725 c.202,725 d.112,500

37. Compute the adjusted outstanding checks as of December 31, 2020.

a. 222,075 b. 235,350 c. 255,564 d. 175,311

38. Compute the adjusted cash to be presented in the balance sheet as at Dec. 31,
2020.
a. 211,914 b. 252,414 c. 238,914 d. 279,414

PROBLEM 2:
Resilience Corporation is selling audio and video appliances. The company's
fiscal year ends on March 31. The following information relates the obligations
of the company as of March 31, 2020:

Notes payable
Resilience has signed several long-term notes with financial institutions. The
maturities of these notes are given below. The total unpaid interest for all
these notes amounts to P340,000 on March 31, 2020.

Due date Amount

April 31, 2020 P 600,000
July 31, 2020 900,000
September 1, 2020 450,000
February 1, 2021 450,000
April 1, 2021 - March 31, 2022 2,700,000
Total P 5,100,000

Estimated warranties
Resilience has a one-year product warranty on some items. The estimated warranty
liability on sales made during the 2018 - 2019 fiscal year and still outstanding
as of March 31, 2019, amounted to P252,000. The warranty costs on sales made on
April 1, 2019 to March 31, 2020, are estimated at P630,000. The actual warranty
costs incurred during 2019 - 2020 fiscal year are as follows:

Warranty claims honored on 2018 - 2019 sales P 252,000

Warranty claims honored on 2019 - 2020 sales 285,000
Total P 537,000

Trade payable
Accounts payable for supplies, goods and services purchases on open account
amount to P560,000 as of March 31, 2020.

Dividends

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On March 10, 2020, Resilience board of directors declared a cash dividend of
P9.30 per common share and a 10% common stock dividend. Both dividends were to be
distributed on April 5, 2020, to common stockholders on record at the close of
business on March 31, 2020. As of March 31, 2020, Resilience has 5 million, P2
par value, common shares issued and outstanding.

Bonds payable
Resilience issued P5,000,000, 12% bonds on October 1, 2014, at 96. The bonds will
mature on October 1, 2024. Interest is paid semi-annually on October 1 and April
1. Resilience uses the straight-line method to amortize bond discount.

Based on the foregoing information, determine the adjusted balances of the

following as of March 31, 2020:

39. Estimated warranty payable

a. 262,000 b. 345,000 c. 630,000 d. 882,000

40. Unamortized bond discount

a. 110,000 b. 200,000 c. 100,000 d. 90,000

41. Bond interest payable

a. 0 b. 300,000 c. 150,000 d. 250,000

42. Total current liabilities

a. 6,445,000 b. 5,105,000 c. 5,445,000 d. 3,815,000

43. Total non-current liabilities

a. 7,700,000 b. 7,590,000 c. 7,500,000 d. 7,610,000

PROBLEM 3:
The financial statements of Determination Company include the following:
December 31, 2020 December 31, 2021
Accounts receivable P 900,000
Allowance for doubtful accounts 45,000
Sales P 7,500,000
Cash collected from customers 6,540,000

Among the cash collections was the recovery of P15,000 receivable from a customer
whose account had been written off as worthless in 2020. During 2021, it was
necessary to write-off uncollectible, customers' accounts at P75,000. On December
1, 2021, a customer settled his account by issuing a 12% six-month note for
P300,000.

On December 31, 2021, the accounts receivable included P450,000 at past due
accounts. After careful study, the management estimated that the probable loss on
past due accounts is 20% and that in addition, 5% of the current accounts may
prove uncollectible.

44. What is the balance of accounts receivable on December 31, 2021?

a. 1,500,000 b. 1,800,000 c. 1,485,000 d. 1,470,000

45. What is the balance of allowance for doubtful accounts before adjustment on
December 31, 2013?
a. 15,000 debit b. 45,000 credit c. 30,000 debit d. 60,000 debit

46. How much is the required allowance for doubtful accounts on December 31,
2013?
a. 185,000 b. 90,000 c. 127,500 d. 142,500

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47. How much increase in allowance for doubtful accounts is required on December
31, 2013?
a. 127,500 b. 157,500 c. 97,500 d. 142,500

48. The adjusting entry to record the doubtful accounts expense for 2003 is:
a. Doubtful accounts expense 127,500
Allowance for doubtful accounts 127,500

b. Retained earnings 142,500

Allowance for doubtful accounts 142,500

c. Doubtful accounts expense 97,500

Allowance for doubtful accounts 97,500

d. Doubtful accounts expense 157,500

Allowance for doubtful accounts 157,500

PROBLEM 4:
On January 1, 2019, MONICA Corp. acquired a factory equipment at a cost of
P450,000. The equipment is being depreciated using the straight-line method over
its projected useful life of 10 years with P50,000 salvage value.

On December 31, 2020, a determination was made that the future net cash flows
expected from the continued use of the asset shall be P40,000 per year. Estimated
salvage value remains to be P50,000. The asset also had a fair value less cost to
sell at P220,000 on the same date. You ascertained that this was properly
computed, and that recognition of the impairment was warranted. (The prevailing
interest rate is 10%)

On December 31, 2022, the asset’s replacement cost was determined to be P555,000
with a total life of 12 years from date of acquisition. Salvage value is still
estimated to be at P50,000. You also ascertained that this valuation is
reasonable in the circumstance.

You have been asked to assist the company’s accountant in the application of PAS
36, the standard on impairment of assets.

49. What is the recoverable value of the asset on December 31, 2020?
a. 236,722 b. 213,397 c. 220,000 d. 320,000

50. How much impairment loss should be recognized on December 31, 2020?
a. 133,278 b. 156,603 c. 150,000 d. 0

51. What is the asset’s carrying value on December 31, 2022, before revaluation?
a. 177,525 b. 190,042 c. 160,050 d. 172,548

52. How much impairment recovery should be reported in the 2022 income
statement?
a. 155,475 b. 99,958 c. 142,975 d. 117,450

53. What is the depreciation expense in 2024, under the cost method?
a. 41,625 b. 36,250 c. 37,875 d. 30,000

54. What is the depreciation expense in 2024, under the revaluation method?
a. 41,625 b. 36,250 c. 37,875 d. 30,000

55. What is the balance of any revaluation surplus at the end of 2024, under the
piecemeal realization?
a. 63,000 b. 55,125 c. 52,500 d. 47,250

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PROBLEM 5:
You were assigned to audit the Sans Corp.’s Stockholders’ Equity accounts and the
related capital transactions for its first year of operations ended December 31,
2021. In studying the transactions, you came across the following entries made by
the client.

Date Particulars Debit Credit

Jan. 15 Land 500,000 500,000
Ordinary shares
To record the issuance of 50,000 shares of
Ordinary in exchange of a real property

Mar. 1 Subscription receivable 420,000

Ordinary shares 420,000
To record the subscription of 20,000 shares
of ordinary at P21 per share subscription price.

Jun. 1 Ordinary shares 125,000

Cash 125,000
To record the acquisition of 5,000 shares
of the company’s own ordinary shares.

Aug. 15 Cash 252,000

Subscription receivable 252,000
To record the collection for the full
payment of 60% of the subscribed shares on March 1.

Sept. 2 Cash 40,000

Ordinary shares 40,000
To record the reissuance if half of the
shares reacquired on June 1.

Dec. 29 Accumulated profits 750,000

Share premium 750,000
To record the grant of 10 employees 5,000
share appreciation rights on the grant date
computed as: (10*5,000*15)

Audit notes:
a. The company was authorized to issue 100,000 shares of ordinary at P10 par
value.
b. The real property received on January 15, were fairly valued at P1,800,000, 30%
of which is distributed to the land with the balance to the building which the
company intends to use as a factory site.
c. The company declared a 4 for 1 share split up on August 31.
d. The share appreciation rights were granted to 10 of its key employees provided
that the employee stays with the company for 5 years from the date of grant and
provided further that average revenue growth rate over the five-year period is
at 10%, each employee will receive 3,000 SAR each; if the average revenue
growth rate is 20%, each employee will receive 4,000 SAR each; if the average
revenue growth rate is 30%, each employee will receive 5,000 SAR each. By the
end of the year, it was ascertained by the management that three of the
employees will leave the company before the fifth year and projects that the
average revenue growth rate shall be around 25% over the five-year period. The
prevailing fair value if the stock appreciation rights by the end of the year
was P15.
e. On December 30, the Board of Directors approved a P1 per share cash dividends
to stockholders of record as of December 20 payable on January 39 of the
subsequent year.
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f. After all the necessary adjusting entries, you ascertain that the correct net
income for the year is at P1,500,000.

56. What is the balance of the ordinary share account as of December 31, 2021?
a. 557,500 c. 700,000
b. 620,000 d. 1,000,000

57. What is the correct balance of the Stock Appreciation Rights Payable as of
December 31, 2021?
a. 90,000 c. 84,000
b. 105,000 d. 420,000

58. How much is the cash dividends payable as of December 31, 2021?
a. 238,000 c. 270,000
b. 248,000 d. 280,000

59. What is the total Additional Paid in Capital balance as of December 31,
2021?
a. 1,300,000 c. 1,520,000
b. 1,497,500 d. 1,790,000

60. What is the Accumulated profit, unappropriated balance as of December 31,

2021?
a. 1,500,000 c. 1,145,000
b. 1,447,500 d. 1,207,500

PROBLEM 6:
You are auditing the financial statements of WWEE Company. The company’s
accountant provided you with the following comparative statements of income and
accumulated profits for the years 2014 and 2013:
2014 2013
Sales 6,000,000 4,500,000
Cost of sales (2,800,000) (2,400,000)
Gross income 3,200,000 2,100,000
Operating expenses (1,500,000) (1,800,000)
Net profit 1,700,000 300,000

Accumulated profits, beg. 1,150,000 1,000,000

Net profit 1,700,000 300,000
Dividends paid (500,000) (150,000)
Accumulated profits, end 2,350,000 1,150,000

Audit notes:
a. The management, with your concurrence, opined that changing the company’s
inventory costing from FIFI to Weighted average is justified as it will present
more relevant financial information given the prevailing current circumstance.
The following summarizes the inventory costs at year-end under both methods:

2014 2013
FIFO 625,000 727,500
Weighted Average 715,000 827,500

The said change has not been implemented by the accountant as of the
audit period.

b. The company decided to change its method of depreciation from the double
declining balance method to the straight-line. The depreciable assets had a 10
year useful life and have been depreciated for five years at the end of 2013.
The salvage value of the said assets was estimated to be P50,000. Expenses in

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 the income statements included P350,000 and P437,500 depreciation expenses in
2014 and 2013, respectively, computed based on double declining balance method.

c. On august 31, 2013, the company started the construction of a building it plans
to sue as a second factory. As of the current balance sheet date, the
construction is yet to be done. Total accumulated costs incurred on the
construction and recorded in its Construction-in-progress account, amounted to
P1,250,000, which excluded a P25,000 borrowing cost in 2013 which has been
charged to expense. You have ascertained that such borrowing cost should have
been capitalized following the PAS 23. Actual borrowing cost in 2014 amounted
to P75,000 which have been charged to expense.

Answer the following questions based on the above information:

61. What is the restated net income in 2013 to be presented in the comparative
income statement?
a. 425,000 b. 400,000 c. 300,000 d. 275,000

62. What is the correct net income in 2014?

a. 1,700,000 b. 1,685,000 c. 1,775,000 d.
1,610,000

63. What is the adjusted accumulated profits balance at the beginning of 2014?
a. 1,025,000 b. 1,075,000 c. 1,225,000 d.
1,275,000

64. What is the adjusted accumulated profits balance at the end of 2014?
a. 2,245,000 b. 2,385,000 c. 2,550,000 d.
2,885,000

65. What is the necessary adjusting entry as a result of the change described in
item c?
a. No adjustment necessary

b. Interest expense 25,000

Retained Earnings 25,000

c. Construction in progress 100,000

Retained Earnings 25,000
Interest expense 75,000

d. Construction in Progress 100,000

Interest expense 100,000

PROBLEM 7:
An analysis of incomplete records of Journey Corporation produced the following
information applicable to 2021:

ACCOUNT INCREASES
Cash 4,200,000
Accounts receivable 1,400,000
Accounts payable 400,000
Prepaid insurance 200,000

ACCOUNT DECREASES
Inventory 1,000,000
Equipment 100,000
Notes receivable 600,000
Accrued salaries payable 300,000

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Summary of cash transactions were as follows:

RECEIPTS:
Cash sales 3,000,000
Collections on accounts receivable 30,000,000
Collections on notes receivable 2,400,000
Interest on notes receivable 200,000
Purchase returns and allowances 500,000

DISBURSEMENTS:
Cash purchases 1,000,000
Payments on accounts payable 16,500,000
Sales returns and allowances
400,000
Insurance 700,000
Salaries 10,000,000
Equipment 800,000
Other expenses 1,500,000
Dividends 1,000,000

Additional information:
a. Total purchase returns and allowances amounted to P800,000.
b. Total sales returns and allowances amounted to P1,200,000.

Determine the audited balances of the following:

66. Net sales
a. 35,800,000 c. 36,600,000
b. 36,200,000 d. 37,000,000
67. Net purchases
a. 17,900,000 c. 17,400,000
b. 17,700,000 d. 17,000,000
68. Cost of sales
a. 18,000,000 c. 18,700,000
b. 18,400,000 d. 18,900,000
69. Depreciation expense
a. 100,000 c. 900,000
b. 800,000 d. 1,000,000
70. Net income
a. 5,000,000 c. 5,200,000
b. 5,150,000 d. 5,900,000

END OF EXAMINATION

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