SOLUTION - AUDITING PROBLEMS TEST BANK 1

PROBLEM 1 – TANYING CORP.

1. B Sales (P1,353,000 + P10,500 Freight) P1,363,500

Sales returns and allowances (11,700)
Sales discounts (2,60)
!et sales P1,3",160

2. C #n$entor%, &an. 1 P26",100

Purchases P2,'00
Purchase returns and allowances (P2,'00  6) (25,'')
Freight in (P16,575 + P1,710) 1',2'5 17,5"7
*ost o goods a$ailale or sale P6'6,6"7

3. D #n$entor%, -ec. 31, 2017

Per oos P 61,650
/oods out on consignent 55,'00
Per audit P117,50

. C -istriution costs
Sales salaries and coissions (P75,000 + P",1'0  3) P75,275
 4d$ertising eense (P',270 + P5,5  26) 50,0''
-ereciation eense  Salesdeli$er% e8uient
e8uient (P1',300 + P23,00  10  1012) 20,250
Freight eense 10,500
9ra$el eense  sales reresentati$es 13,6'0
:iscellaneous selling eenses ',220
9otal P17',013

5. B  4dinistrati$e eenses
;egal ser$ices P 6,675
#nsurance and licenses 23,00
-ereciation eense  oice e8uient 12,600
<tilities 1",200
9elehone and ostage ,25
=ice sulies eense (P6,50  P3,675) 2,'65
=icers> salaries 10",'00
-outul accounts eense (P7'3,000  2 ? P15,660  P'0) 15,1'0
9otal P1"3,7'5

6.  A  4llowance or doutul accounts (P7'3,000  2) P15,660

7. D !et sales P1,3",160

*ost o goods sold (P6'6,6"7  P117,50) (56",27)
/ross incoe 77","13
#nterest re$enue (P1,650 + P1,6'0) 3,330
-i$idend re$enue 15,50
/ain on sale o assets 23,60
9otal incoe P'22,153

'. C 9otal incoe P'22,153

-istriution costs (17',013)
 4dinistrati$e eenses (1"3,7'5)
#nterest eense
(13,560)
;oss on sale o e8uient (217,'00)
#ncoe ro continuing oerations eore ta P21',""5

". B =ice sulies in$entor% P3,675

10.  A #ncoe eore ta P21',""5

#ncoe ta (P21',""5  30) (65,66")
#ncoe ro continuing oerations 153,2"6
#ncoe ro discontinued oerations, net o ta (P120,000  70) ',000
!et incoe P237,2"6
 Page 2

PROBLEM 2 – BUNCHING COMPANY 

 4ccounts 4ccounts
*ash @ecei$ale #n$entor% Pa%ale
Per oos P"63,200 P2,25,000 P6,050,000 P,201,000
 4&A 1 (65,600) 310,000 BBB BBB
2 360,000 BBB BB B 372,00
3 a BBB BBB BBB (175,000)
 BBB BBB 130,000 BBB
c BBB BBB (637,500) BBB
d BBB BBB 217,500 217,500
e BBB BBB 275,000 BBB
Per audit P66',600 P2,56,000 P6,035,000 P,615,"00

(11  C) (12  B) (13  A)

 A) (1  B)
 B)

 AJES
1. Sales 360,100
 4ccounts recei$ale (P2",500  "5) 310,000
Sales discounts (P310,000  5) 15,500
*ash 65,600
2. *ash (P372,00  P12,00) 360,000
Purchase discounts 12,00
 4ccounts a%ale 372,00
3. a 4ccounts a%ale 175,000
Purchases 175,000
 #n$entor% 130,000
*ost o sales 130,000
c *ost o sales 637,500
#n$entor% 637,500
d Purchases 217,500
 4ccounts a%ale 217,500
#n$entor% 217,500
*ost o sales 217,500
e #n$entor% 275,000
*ost o sales 275,000
 !o adCu
adCust
stin
ing
g ent
entr%
r%

15. C *urrent ratio

*urrent assets
*ash P 66',600
 4ccounts recei$ale 2,56,000
#n$entor% 6,035,000 P",267,600
*urrent liailities
 4ccounts a%ale P,615,"00
 4ccrued eenses 31,000 5,06,"00
1.'
 Page 3
PROBLEM 3 – PAKO COMPANY 

16. D Dalance, &an. 1 P1,'00,000

&une 30 ac8uisition (P1,0'0,000 + P',000) 1,12',000
Set. 30 sale (150,000)
-ec. 1 trade in old achine ("0,000)
new achine 270,000
Dalance, -ec. 31 P2,"5',000

17.  A @eainder o eginning alance (P1,'00,000  P150,000  P"0 ,000 ?

P1,560,000  10) P156,000
&une 30 ac8uisition (P1,12',000  10  612) 56,00
Set. 30 sale (P150,000  10  "12) 11,250
-ec. 1 trade in old achine (P"0,000  10  1112) ',250
new achine (P270,000  10  112) 2,250
-ereciation eense or 2015 P23,150

GENLUNA COPPERMINES, INC.

1'. C -eletion rate er ton (P1,5'0,000  1,620,000) P"

*oer ore ined in 2017 (15,000  6 onths)  "0,000
-eletion or 2017 P '10,000
-eletion er oos 1,215,000
=$erstateent o deletion eense P05,000

1". D -ereciale cost o achiner% (P1,'00,000  "0) P1,620,000

Astiated coer ore reser$e 1,620,000
-ereciation rate er ton P1
*oer ore ined in 2017 "0,000
-ereciation eense or 2017 P "0,000
-ereciation er oos 120,000
=$erstateent o dereciation eense P 30,000

20. D &anuar% 1, 201

9otal cost o achine (P300,000 + P3,000 + P12,000) P315,000
@esidual $alue (12,000)
-ereciale cost P303,000
Astiated useul lie 10 %ears
 4nnual dereciation P30,300
-ereciale cost P303,000
-ereciation, 2016  201 (P30,300  3 %ears) ("0,000)
@eaining dereciale cost, &an. 1, 2017 P212,100
*ost o new arts 37,'00
9otal P2","00
@eaining useul lie (10 %ears  3 %ears) 7 %ears
@e$ised annual dereciation P35,700

PROBLEM 4 – HARLINGTON COMPANY 

21.  A !et incoe eore trading securit% adCustent P2,700,000

<nrealiEed loss (P3,65,000 cost  P3,1"5,000 aret $alue) (270,000)
!et incoe, as adCusted P2,30,000

22. B !et incoe eore trading securit% adCustent P2,700,000

<nrealiEed gain (P3,65,000 cost  P3,56,000 aret $alue) "",000
!et incoe, as adCusted P2,7"",000

LABADA CO.

23. D *arr%ing alue :aret alue

/anda *o. P1,710,000 P1,75",500
Gaston, #nc. (P135  1,'00) 23,000 22",500
P1,"53,000 P1,"'",000
 <nrealiEed gain (P1,"'",000  P1,"53,000) P36,000
2. C !et roceeds (P"3  15,000 ? P1,3"5,000  P13,500) P1,3'1,500
*arr%ing $alue (1,251,000)
/ain on sale P 130,500
25. B 9rading securities at air $alue P1,"'",000
Page 
PROBLEM 5 – SAMSON MFG. CO.

26. C  4ctual orrowing cost

Seciic orrowing (P5 illion  10) P500,000
/eneral orrowings
P25 illion  ' P2,000,000
P15 illion  6 "00,000 2,"00,000
9otal P3,00,000
*aitaliEation rate (P2,"00,000P0 illion) 7.25
 4$erage eenditures  2016 P7,250,000
*aitaliEale interest  2016
Seciic orrowing (P5 illion  10) P500,000
/ene
/enerral orr
orrowi
owings
ngs (P7,
(P7,25
250,
0,00
0000  P5,00
5,000,
0,00
000
0 ? P2,25
2,250,
0,00
000
0  7.25
7.25)
) 163,
163,12
125
5
9otal P663,125

27. B  4$erage eenditures  2017 P16,163,125

*aitaliEale interest  2017
Seciic orrowing (P5 illion 10  612) P250,000
/eneral orrowings
orrowings (P16,163,125  P5,000,000 ? P11,163,125  7.25  612) 0,663
9otal P65,663

2'.  A 201 interest eense (P3,00,000  P663,125) P2,736,'75

2". D 2015 interest eense (P3,00,000  P65,663) P2,75,337

30. B  4ccuulated eenditures eore

eore interest P1",500,000
#nterest caitaliEed in 2016 and 2017 (P663,125 + P65,663) 1,317,7''
9otal cost o uilding P20,'17,7''

PROBLEM 6
C!"#$%&'($ C)!)*&'(+#
E"#$%# C!"#$%&'($
 Y#&- C&*)*&'($ /- P#-(0
P#-(0 E"#$%#
1 30,000 otions  P5 air $alue  P 50,000 P 50,000

2 30,000 otions  P5 air $alue  50,000 100,000

3 30,000 otions  P5 air $alue  50,000 150,000

31. C 32. C 33. D 3. D 35. D

PROBLEM  – BRANDY CO.

36. C =rdinar% shares issued and outstanding 72,000

=rdinar% shares suscried 72,000
9otal 1,000
=rdinar% shares issued to ac8uire land (2,000)
=rdinar% shares originall% suscried 120,000
Par $alueshare  P10
9otal ar $alue P1,200,000
Share reiu (P2,'50,000  P50,000) 2,00,000
9otal suscrition rice P3,600,000
H P6"0,000 F o land  P20,000 P

37. D Suscrition o 12,000 reerence shares I P120share P1,0,000

Suscrition o 60,000 reerence shares I P100share 6,000,000
9otal 7,0,000
 JearBend alance o suscritions
suscritions recei$ale  reerence (360,000)
 4ount collected ro suscriers P7,0'0,000
3'. B Preerence =rdinar%
#ssued P6,600,000 P 720,000
Suscried 600,000 720,000
Share reiu 20,000 2,'50,000
Suscritions recei$ale (360,000) (1,0'0,000)
*ontriuted caital P7,0'0,000 P3,210,000

Page 5
CONDESSA CO.

1. -i$idends a%ale  reerence (P'  60,000) '0,000

-i$idends a%ale  ordinar% (P2  600,000) 1,200,000
*ash 1,6'0,000

2. 9reasur% shares 3,20,000

*ash (P0  '1,000) 3,20,000

3. ;and "00,000
9reasur% shares (P0  21,000) '0,000
Share reiu  treasur% 60,000

. *ash (P105  15,000) 1,575,000

Preerence share caital (P100  15,000) 1,500,000
Share reiu  reerence 75,000

5. @etained earnings (P5  5,000H) 2,30,000

Stoc di$idends a%ale (P5  5,000) 270,000
Share reiu  ordinar% 2,160,000
H 600,000  60,000 treasur% shares ? 50,000  10

6. Stoc di$idends a%ale 270,000

=rdinar% share caital 270,000

7. @e
@etained earnings 1,7'',000
-i$idends a%ale  reerence (P'  75,000) 600,000
-i$idends a%ale  ordinar% (P2  5",000H) 1,1'',000
H 50,000 + 5,000

'. #ncoe suar% ","00,000

@etained earnings ","00,000

Preerence share caital (P6,000,000 + P1,500,000) P7,500,000

=rdinar% share caital (P3,000,000 + P270,000) 3,270,000
Share reiu (P3,750,000 + P60,000 + P75,000 + P2,160,000) 6,05,000
 A))
@etained earnings (P3,500,000  P2,30,000  P1,7'',000 + P","00,000) (3"  A ",1'2,000
9reasur% shares (P3,20,000  P'0,000) (2,00,000)
9otal (0  B) P23,5"7,000

PROBLEM  – CABOOM LABORATORIES

1. D *ost to otain atent (&anuar% 2010) P1'6,150

2010 aortiEation (P1'6,15017) (10,"50)
*arr%ing $alue, -ec. 31, 2010 P175,200

2. C *arr%ing $alue, &an. 1, 2011 P175,200

 4ortiEation, 2011B201 (P10,"50   %ears) (3,'00)
*arr%ing $alue, -ec. 31, 201 P131,00

3. C *arr%ing $alue, &an. 1, 2015 P131,00

 4ortiEation, 2015B2017 (P131,00  35) (7','0)
*arr%ing $alue, -ec. 31, 2017 P 52,560

BARTOLO COMPANY 

.  A *ost o atent urchased on &an. 1, 2016 P,000,000

2016 aortiEation (P,000,00010) (00,000)
*arr%ing $alue, -ec. 31, 2016 3,600,000
2017 aortiEation (P3,600,0005) (720,000) P2,''0,000
*ost o ranchise P"60,000
2017 aortiEation (P"60,00010) ("6,000) '6,000
 9otal carr%ing $alue o intangiles P3,7,000

5. B  4ortiEation o atent  2017 P720,000

 4ortiEation o ranchise  2017 "6,000
Pa%ent to -elco (P5,000,000  5) 250,000
@esearch and de$eloent costs '66,000
9otal charges against 2017 incoe P1,"32,000

Page 6
PROBLEM NO.  – SAMOA COMPANYCHILE CO.

6.  A =$erB (<nderB)stateent

<nderstateent o 2016 ending in$entor% P ',000
=$erstateent o 2017 ending in$entor% 0,500
Preaid insurance charged to eense in 2016 (P330,000 K 3) 110,000
<nrecorded sale o ull% dereciated achiner% in 2017 (75,000)
9otal eect o errors on net incoe P123,500
7. D =$erB (<nderB)stateent
=$erstateent o 2017 ending in$entor% P 0,500
Preaid insurance charged to eense in 2016 (110,000)
<nrecorded sale o ull% dereciated achiner% in 2017 (75,000)
9otal eect on woring caital (P1,500)
'. C =$erB (<nderB)stateent
=$erstateent o 2017 ending in$entor% P 0,500
<nderstateent o dereciation eense in 2016 11,500
Preaid insurance charged to eense in 2016 (110,000)
<nrecorded sale o ull% dereciated achiner% in 2017 (75,000)
9otal eect on retained earnings (P133,000)
2016 2017
Preta incoe P505,000 P3'7,000
Sales re$enue erroneousl% recogniEed in 2016 (1"1,000) 1"1,000
<nderstateent o 2016 ending in$entor% 3,200 (3,200)
<nderstateent o ond interest eense (1) (7,250) (7,75')
=rdi
=rdina
nar%
r% re
reair
airs erron
rroneo
eous
usll% ca
caita
italiE
liEed (2,
(2,50
500)
0) (7,
(7,00
000)
0)
(2)
=$erstateent o dereciation ,250 ',"50
*orrected reta incoe P311,700 P'',""2
(1)
Doo alue !oinal Aecti$e -iscount
 Jear o Donds #nterest #nterest 4ortiEation
2016 P1,175,000 P75,000 P'2,250 P7,250
2017 1,1'2,250 75,000 '2,75' 7,75'
(2)

2016 (P2,500 K 10) P,250

2017 (P2,500 K 10) P,250
(P7,000 K 10) ,700 P',"50

". C 50. D

PROBLEM NO. 1 – OMEGA COMPANYDP,

COMPANYDP, INC.

51. C *ontainers he
held %
% cu
custoers at
at -e
-ec. 31
31, 20
2016 r
ro de
deli$eries in
in 20
2015 P'5,000
*ontainers returned in 2017 ro deli$eries in 2015 (57,500)
@e$enue ro container sales P27,500

52.  A ;iailit% or returnale containers, -ec. 31, 2016 P325,000

-eli$eries in 2017 30,000
9otal 755,000
2017 container returns P35,500
2017 container sales 27,500 (3'2,000)
;iailit% or returnale containers P373,000

53. C <nearned warrant% re$enue

*urrent (P'10  270  13) P72,"00
!onBcurrent (P'10  270  23) P15,'00

5. D Parts P1',000

 ;aor 36,000
9otal warrant% eense P5,000

55. B <nearned warrant% re$enue

*urrent (P'10  270  13) P72,"00
!onBcurrent (P'10  270  13) P72,"00

Page 7

PROBLEM 11 – TGR C!"&$

56. D 9radeBin  &une 30, 2015

*ost P157,200
 4ccu. dereciation, 1113  63015 (P157,200  20  2.5 %rs.) 7',600
*arr%ing $alue 7',600
9radeBin $alue 12",000 P50,00
Sale  &an. 1, 2016
*ost P132,000
 4ccu. dereciation, 1113  1116 (P132,000  20  3 %rs.) 7",200
*arr%ing $alue 52,'00
!et roceeds 71,250 1',50
Sale  =ctoer 1, 2017
*ost P120,000
 4ccu. dereciation, 1113  10117 (P120,000  20   "12) 11,000
*arr%ing $alue 6,000
Proceeds 2,000 1',000
9otal gain P'6,'50

57. C :achine ac8uired on Set. 30, 2013 (P1'0,000 + P6,000) P1'6,000

:achine ac8uired on &une 30, 201 (P20,000  "') 235,200
:achine ac8uired on &une 30, 2016 (list rice) 27",000
9otal P700,200

5'. C :achine ac8uired on

Set. 30, 2013 (P1'6,000  20   312) P15',100
&une 30, 201 (P235,200  20  3 612) 16,60
&une 30, 2015 (P27",000  20  2 612) 13",500
 4ccuulated dereciation, -eceer 31, 2017 P62,20

5". B
-ate o 
 4c8uisition *ost 2013 201 2015 2016 2017 9otal
112013 P157,200 P31,0 P31,0 P15,720 P0 P0 P 7',600
120,000 2,000 2,000 2,000 2,000 1',000 11,000
132,000 26,00 26,00 26,00 0 0 7",200
"302013 1'6,000 ",300 37,200 37,200 37,200 37,200 15',100
630201 235,200 0 23,520 7,00 7,00 7,00 16,60
6302015 27",000 0 0 27,"00 55,'00 55,'00 13",500
*orrect dereciation P"1,10 P12,560 P17',260 P16,00 P15',00 P73,00
-ereciation er client "7,0 15,752 153,'02 10',7"1 '2,233 5"7,01'
=$er (u
(under)stateent P 6,
6,300 P 12
12,1"2 (P 2
2,5') (P 55
55,2") (P 75
75,'07) (P 13
137,022)

60.  A -ereciation eense (2017) 75,'07

@etained earnings (2013  2016) 61,215
 4ccuulated dereciation 137,022

---END---