Re Sa b42 Aud Final PB Exam Questions Answers Solutions PDF

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Re SA B42 AUD Final PB Exam Questions Answers

Solutions
Accountancy (University of Luzon)
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ReSA
The Review School of Accountancy
Tel. No. 735-9807 & 734-3989
AUDITING 25 September 2021(Saturday)

Final Pre-Board Examination 1:00 P.M. – 4:00 P.M.
MULTIPLE CHOICE
INSTRUCTIONS: Select the correct answer for each of the following
questions. Mark only one answer for each item by shading the box
corresponding to the letter of your choice on the sheet provided.
STRICTLY NO ERASURES ARE ALLOWED. Use pencil no. 2 only.
1. Which of the following best describes assurance services?

B a. Independent professional services that report on the client's
financial statements
b. Independent professional services that improve the quality of
information for decision makers
c. Independent professional services that report on specific written
management assertions
d. Independent professional services that improve the operations of
the client
2. Madrid's Bank has loaned money to Denver's Auto Supply. The loan is
collateralized by inventory. The loan also requires a CPA to observe
the count of the inventory and trace sampled items to the vendor
invoices in order to determine the value of inventory is not misstated.
This service would be
B a. an assurance service engagement. c. a review engagement.
b. an attestation engagement. d. A compilation engagement.
3. A practitioner is engaged to express an opinion on management's

assertion that the square footage of a warehouse offered for sale is
150,000 square feet. The practitioner should refer to which of the
following sources for professional guidance?
I. PSAs III. PSRSs
II. PSAEs IV. PSQC 1
C a. I and II only c. II and IV only

b. II and III only d. I and IV only
4. An auditor has substantial doubt about the entity's ability to continue

as a going concern for a reasonable period of time because of negative
cash flows and working capital deficiencies. Under these circumstances,
the auditor would be most concerned about the
D a. control environment factors that affect the organizational
structure.
b. correlation of detection risk and inherent risk.
c. effectiveness of the entity's internal control activities.
d. possible effects on the entity's financial statements.
5. During an audit of an entity's shareholders' equity accounts, the

auditor determines whether there are restrictions on accumulated
profits resulting from loans and agreements. This audit procedure most
likely is intended to verify management's assertion of
D a. existence or occurrence. c. valuation or allocation.
b. completeness. d. presentation and disclosure.

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ReSA: The Review School of Accountancy Page 2 of 25
6. Evaluate the following cases with respect to the Code of Ethics for
Professional Accountants (Code):
I. Dodong Jonas, CPA (DJ), is the auditor of MCCC Wholesale, Inc. DJ
received a 10% commission from Computer Systems, Inc. for hardware
sold to MCCC Wholesale, Inc. The sale was made based on DJ's
recommendation to MCCC Wholesale that the company needed a new
accounting information system. DJ disclosed the commission to MCCC’s
management. DJ also performs an annual audit for MCCC.
II. Angkol, not a CPA, has a successful bookkeeping practice in Gensan.
He is charging relatively low service fees which resulted in having
more clients. In addition, it is his practice to give gratefulness
gift for successful referrals.
D a. Both Dodong and Angkol violated the Code.
b. Only Dodong violated the Code.
c. Only Angkol violated the Code.
d. Both Dodong and Angkol did not violate the Code.
7. The following first-time candidates had these CPALE ratings:

Examinees CPALE Ratings
Subject Subject Subject Subject Subject Subject
1 2 3 4 5 6
Berlin 90 88 95 74 74 64
Manila 87 68 65 75 81 76
Nairobi 94 71 61 73 86 84
Rio 89 78 64 74 85 82
Tokyo 81 89 73 65 65 77
Statement 1: Only two candidates failed. (True)
Statement 2: One candidate had to retake only one subject. (False)
Statement 3: Two candidates would receive conditional credits. (False)
Statement 4: Only two candidates passed. (True)
B a. Only one statement is correct.
b. Only two statements are correct.
c. Only three statements are correct.
d. All statements are correct.
8. An auditor's special report on financial statements prepared in

conformity with the cash basis of accounting should include a separate
explanatory paragraph before the opinion paragraph that
C a. justifies the reasons for departing from generally accepted
principles.
b. states whether the financial statements are fairly presented in
conformity with a special purpose framework.
c. refers to the note to the financial statements that describes the
special purpose framework.
d. explains how the results of operations differ from financial
statements prepared in conformity with generally accepted
accounting principles.
9. Helsinki Corporation is making a presentation to a perspective investor.

The presentation includes a projection showing that the company's sales
will be between ₱25,000,000 and ₱27,000,000 within the next three years.
Helsinki believes the information will be better received if its CPA
provides an attestation report on the projection. The CPA should insure
that proper disclosure is made to indicate that
C a. the ₱27,000,000 estimate is a best case scenario.
b. the range of the projection is appropriate given the circumstances.
c. the range does not indicate a "best" and "worst" case scenario.
d. projections are limited in their information content due to
uncontrollable changes in the business environment.
10. Which of the following situations provides the greatest threat to an
internal auditor's objectivity?
AUDITING - FINAL PRE-BOARD EXAMINATION (BATCH 42)

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B a. An auditor reviews the procedures for a new electronic data
interchange (EDI) connection to a major customer before it is
implemented.
b. A former purchasing assistant performs a review of bidding
procedures in the purchasing department four months after being
transferred to the internal auditing department.
c. An auditor recommends controls and performance measures for
inclusion in a new contract with an outside service organization
for the processing of payroll and employee benefits.
d. A warehouse employee assists an auditor in verifying the physical
inventory of small motors.
11. Generally, fraud examiners are called when a fraud is already known
or suspected. The term that means a reason to believe a fraud has
occurred is
C a. prediction. c. predication.
b. suspicion. d. admonition.
12. Sierra, CPA, is conducting an audit of a theater company. She is
performing a sampling application to determine the average number of
patrons attending the performance of a musical on a weeknight. She
randomly selects five weeknight performances during the month of
September and calculates an average of 230 patrons per performance,
with an associated precision of 25 patrons. This precision is
determined based on a confidence level of 95 percent.
Statement 1: The exposure to sampling risk is 95 percent. (False)
Statement 2: The precision interval is 205 patrons to 255 patrons.
(True)
Statement 3: There is a 5 percent probability that the true average
number of patrons attending the theater during a
weeknight is between 205 patrons and 255 patrons.
(False)
Statement 4: Because the lower end of the precision interval is
greater than 200 patrons, Sierra would conclude (with
a confidence of 95 percent) that the average number
of patrons attending the theater on a weeknight is
greater than 200. (True)
B a. Only one statement is correct.
b. Only two statements are correct.
c. Only three statements are correct.
d. All statements are correct.
13. An auditor is determining the appropriate sample size for a variables
sampling application. Compared to prior engagements, the auditor
concludes that the population variability has increased. In addition,
the partner on the engagement is requiring lower levels of the risk
of incorrect acceptance than those used in previous audits. What effect
will these changes have on the auditor's determination of sample size?
D a. Both of these changes will decrease sample size.
b. The increase in population variability will increase sample size;
reducing sampling risk will have no effect on sample size.
c. The increase in population variability will increase sample size;
reducing sampling risk will decrease sample size.
d. Both of these changes will increase sample size.
14. Which of the following is not an example of a general control?
B a. The organization's use of the systems development life cycle when
implementing or modifying computerized processing systems
b. The organization's use of check digits to ensure accurate input of
transaction data
c. Periodic and preventative maintenance performed on the computer and
related equipment
d. The existence of appropriate separation of duties within the computer
department

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15. Which of the following would most likely be a weakness in the internal
control of a client that utilizes portable computing devices rather
than a larger computer system?
B a. Employee collusion possibilities are increased because portable
computing devices from one vendor can process the programs of a
system from different vendors.
b. Computer operators may be able to remove hardware and software
components and modify them at an off-site location.
c. Programming errors result in all similar transactions being
processed incorrectly because those transactions are processed
under the same conditions.
d. Certain transactions may be automatically initiated by the
computerized processing system and management's authorization of
these transactions may be implicit in its acceptance of the system
design.
16. Tests of controls in an advanced computerized processing system
D a. can be performed using only actual transactions because testing
simulated transactions does not provide relevant evidence.
b. is impractical because many procedures within the computerized
processing system leave no visible evidence of having been performed.
c. is inadvisable because it may distort the evidence in real-time
systems.
d. can be performed using actual transactions or simulated transactions.
17. Which statement is not true with respect to the evidence that would
be gathered when assessments of control risk are high?
A a. Auditors would be required to perform procedures at interim periods,
rather than at year end.
b. Auditors would be required to rely on external (rather than internal)
forms of evidence.
c. Auditors would be required to confirm a larger number of customer
accounts receivable balances.
d. Auditors would be required to obtain more evidence through direct
personal observation.
18. Which of the following would normally be considered earliest in the
audit examination?
A a. Determination of materiality levels for use during the audit
b. Consideration of the ability of the entity's internal control to
prevent or detect errors
c. Preparation of a written audit plan
d. Evaluation of the type of audit opinion to be issued, based on the
auditor's findings
19. A primary advantage of using computer-assisted audit techniques
(CAATs) packages to audit the financial statements of a client that
uses computerized information systems is that the auditor may
A a. access information stored on computer files even with a limited
understanding of the client's hardware and software features.
b. consider increasing the use of substantive tests of transactions in
place of analytical procedures.
c. substantiate the accuracy of data by using self-checking digits and
hash totals.
d. reduce the level of required tests of controls to a relatively small
amount.
20. While performing interim audit procedures of accounts receivable,
numerous unexpected errors are found resulting in a change of risk
assessment. Which of the following audit responses would be most
appropriate?
D a. Move detailed analytical procedures from year end to interim.
b. Increase the peso threshold of vouching customer invoices.
c. Send negative accounts receivable confirmations instead of positive
accounts receivable confirmations.
d. Use more experienced audit team members to perform year-end testing.

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21. If fictitious credit sales were recorded, and the fictitious accounts
receivable were later directly written off as bad debt expense,
C a. income would be overstated.
b. income would be understated.
c. income would not be misstated.
d. accounts receivable would be understated.
22. The existence of audit risk is recognized by the statement in the
auditor's standard report that the
D a. auditor is responsible for expressing an opinion on the financial
statements, which are the responsibility of management.
b. financial statements are presented fairly, in all material respects,
in conformity with applicable financial reporting framework.
c. audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements.
d. auditor obtains reasonable assurance about whether the financial
statements are free of material misstatement.
23. An auditor who discovers that client employees have committed an illegal
act that has a material effect on the client's financial statements
most likely would withdraw from the engagement if
B a. the noncompliance is a violation of generally accepted accounting
principles.
b. the client does not take the remedial action that the auditor
considers necessary.
c. the illegal act was committed during a prior year that was not
audited.
d. the auditor has already assessed control risk at the maximum level.
24. When auditing financial statements, the minimum work an auditor must
perform in connection with a company's internal control is best
described by which of the following statements.
C a. Perform exhaustive tests of accounting controls and evaluate the
company's control system effectiveness.
b. Determine whether the company's control policies are designed well
enough to prevent material misstatements.
c. Prepare auditing working papers that document the auditor's
understanding of the company's internal control.
d. Design procedures to search for significant deficiencies in the
actual operation of the company's internal control.
25. Generally accepted auditing standards (GAAS) give auditors considerable
discretion to decide the amount of work required to satisfy auditing
standards guiding internal control evaluation and related audit
planning. Which of the descriptions below best expresses the minimum
amount of work permitted by GAAS?
B a. Do not obtain an understanding of client environment, accounting, or
control activities. Do not document the decision to assess control
risk at maximum. Perform 100% substantive audit on all financial
statement transactions and balances.
b. Obtain an understanding of client environment, accounting, and
control activities. Document the decision to assess control risk at
maximum. Perform an extensive but not 100% substantive audit on
financial statement transactions and balances. (x)
c. Obtain an understanding of client environment, accounting, and
control activities, and perform detail tests of controls. Document
the decision to assess control risk below the maximum. Perform
restricted substantive audit on financial statement transactions and
balances, considering the control risk assessment.
d. Obtain an understanding of client environment, accounting, and
control activities, and perform detail tests of controls. Document
the decision to assess control risk at zero. Perform no substantive
audit on financial statement transactions and balances, since zero
control risk means that no errors or fraud can reach the accounts.

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26. Most fraud investigators utilize the fraud triangle theory. A new theory
called the fraud diamond has been proposed. Which of the following is
an element of the fraud diamond and is not an element of the fraud
triangle?
C a. Motive c. Capability
b. Opportunity d. External regulatory influence
27. The confirmation of customers' accounts receivable rarely provides
reliable evidence about the completeness assertion because
C a. many customers merely sign and return the confirmation without
verifying its details.
b. recipients usually respond only if they disagree with the
information on the request.
c. customers may not be inclined to report understatement errors in
their accounts.
d. auditors typically select many accounts with low recorded balances
to be confirmed.
28. Natural Soda Company distributes beverages in the Davao Occidental area.
Which of the following would be the test to determine that shipments
made were actual sales?
D a. Trace bills of lading to the sales journal.
b. Vouch entries made in the sales journal to the bills of lading.
c. Trace entries in the sales journal to accounts receivable subsidiary
ledger.
d. Vouch bills of lading to the customer order documents.
29. Moscow Company has an increase in purchases from specific vendors and
an increase in raw materials inventory for the items purchased from
these vendors. Sales for the company have not increased and are not
forecast to increase. From this information an auditor might suspect
C a. an increase in obsolete raw material inventory.
b. theft of raw material inventory.
c. kickbacks from vendors.
d. poor security over raw material inventory.
30. What course of action should auditors take if, after evaluating
management's plan to mitigate the effect of factors that suggest going-
concern uncertainties, they believe that substantial doubt about going
concern does not exist?
D a. Modify their report on the financial statements to describe
management's plan to mitigate going-concern uncertainties, the
procedures performed by the auditors, and indicate that substantial
doubt about going concern does not exist.
b. Prepare a separate report that describes management's plan to
mitigate going-concern uncertainties, the procedures performed by
the auditors, and indicate that substantial doubt about going concern
does not exist.
c. Require financial statement disclosure of management's plan to
mitigate going-concern uncertainties with no modification to the
auditors' report on the financial statements or no separate report
on going concern.
d. Conclude that substantial doubt about going concern does not exist
and not require financial statement disclosure or modification of
the auditors' report.
31. Assume that Lisbon is auditing the financial statements of Stockholm
Inc. Lisbon completes her fieldwork on February 25 and her report (along
with Stockholm's financial statements) is issued on March 1. On March
3, a hurricane destroys a warehouse that contains a significant amount
of uninsured inventory. Which of the following best describes Lisbon's
responsibility with respect to the effects of this hurricane on
Stockholm's financial statements?
D a. Because the inventory was included in the financial statements
audited by Lisbon, she is required to perform additional procedures
and reissue her report on the revised financial statements.

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b. Because the hurricane occurred after the date of Lisbon's report,
she has no responsibility to perform additional procedures or reissue
her report.
c. Because the hurricane occurred prior to the next fiscal quarter,
Lisbon is required to perform additional procedures and reissue her
report on the revised financial statements
d. Because the hurricane occurred after the release of the financial
statements and Lisbon's report, she has no responsibility to perform
additional procedures or reissue her report.
32. Palermo is auditing the financial statements of Paris Corp., an energy
company. A regulator requires that these financial statements must be
accompanied by supplementary mineral reserve information. If this
required information is materially misstated, what type of report should
Palermo issue?
A a. Unqualified opinion with an other-matter paragraph disclaiming an
opinion on the mineral reserve information
b. Adverse opinion on the financial statements and mineral reserve
information due to the misstatement
c. Unqualified opinion on the financial statements with an other-matter
paragraph expressing an adverse opinion on the mineral reserve
information
d. Qualified opinion on the financial statements and mineral reserve
information due to the misstatement
33. When a previously expressed opinion is updated from qualified to
unmodified, the auditors' report on comparative financial statements
should
D a. not modify the previously expressed opinion or refer to factors
affecting the opinion on the prior-years' financial statements.
b. update the opinion expressed on the prior-years' financial statements
but provide no explanation for the updated opinion.
c. not modify the previously expressed opinion but include a reference
to the footnote describing the factors affecting the opinion on the
prior-years' financial statements.
d. update the previously expressed opinion and explain the reasons for
the change, including a reference to the footnote describing the
change.
34. Evaluate the following statements:
Statement 1: Communicating key audit matters in the auditor’s report
may be a substitute for disclosures in the financial
statements that the applicable financial reporting
framework requires management to make, or that are
otherwise necessary to achieve fair presentation.
(False)
Statement 2: If the auditor considers it necessary to draw users’
attention to a matter presented or disclosed in the
financial statements that, in the auditor’s judgment,
is of such importance that it is fundamental to users’
understanding of the financial statements, the
auditors shall include an other matter paragraph in
the auditor’s report. (False)
D a. Only statement 1 is correct.
b. Both statements are correct.
c. Only statement 2 is correct.
d. Both statements are incorrect.
35. Evaluate the following statements:
Statement 1: Application for CPD program accreditation should be
filed fifteen (15) calendar days before the initial
date of offering. (False)
Statement 2: The Commission on Audit can conduct special audits on
NGOs upon request by proper authorities or as
determined by the Chairman. (True)

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C a. Only statement 1 is correct.
b. Both statements are correct.
c. Only statement 2 is correct.
d. Both statements are incorrect.
PROBLEM 1:
You were assigned to do a substantive test procedure on the inventories of
your audit client, Pharmally Corporation, a supplier of personal protective
equipment.
As a result of your preliminary assessment of audit risk and the result of
your test of controls over inventory shipments and receipts, you decided
to render cut-off procedures on deliveries and receipts of goods several
days before and after the balance sheet date, December 31, 2020. The
inventories reported per books amounting to P234,500 was as a result of a
physical count conducted on the clients’ warehouse on December 30, 2020.
(Hint: All goods delivered on or before the count date has been excluded
from the physical count while all goods received on or before the count
date has been included in the physical count)
Audit notes:
a. All customers are within a 3-5 days delivery area. Gross profit on sales
is at 50% based on cost. The last sales invoice(SI) recorded as sales in
the December Sales Journal is SI No. 20824. The following is a summary
of the cut-off made on sales transactions:
SI No. Shipment
date Amount Remarks
20821 Dec. 20 P26,500 FOB Shipping point
20822 Dec. 21 30,900 FOB Destination (to consignee)
20823 Dec. 30 40,500 FOB Destination (in transit)
20824 Dec. 31 21,000 FOB Shipping point (in transit)
20825 Dec. 31 36,900 FOB Shipping point (in transit)
20826 Jan. 2 23,600 FOB Shipping point
b. All suppliers are within 3-5 days delivery area. The last receiving
report (RR) recorded in the December Purchases Journal was RR No. 68138.
The following is a summary of the cut-off made on purchases
transactions:
RR No. RR Date Amount Remarks
68134 Dec. 15 P16,200 FOB Shipping point
68135 Dec. 26 20,500 FOB Destination (from consignor)
68137 Dec. 31 19,900 FOB Destination
68138 Jan. 2 20,800 FOB Destination (in transit)
68139 Jan. 2 25,500 FOB Shipping Point (in transit)
68140 Jan. 3 22,500 FOB Shipping Point
*RR 68136 were for goods costing P18,000, received on December 30 but
remain unrecorded as the purchase invoice (document) is yet to be
received from the supplier.
c. An excerpt of the company’s trial balance revealed the following
selected account balances relevant to your audit:
Sales P8,671,200
Purchases 4,167,900
Accounts receivable 519,800
Accounts payable 312,400
Net income 1,290,300
Requirements:
36. What is the adjusted balance of inventories as of December 31, 2020?
A a. 268,400 c. 263,400
b. 255,300 d. 227,200

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37. What is the adjusted balance of accounts receivable as of December 31,
2020?
B a. 516,100 c. 525,700
b. 485,300 d. 448,400
38. What is the adjusted balance of accounts payable as of December 31,
2020?
B a. 293,600 c. 271,100
b. 314,600 d. 314,100
39. What is the adjusted net income in 2020?
A a. 1,287,500 c. 1,246,300
b. 1,295,300 d. 1,303,400
40. The objective of your sales cut-off procedure in vouching the entries
in the December Sales Journal to the source document is the gather
evidence about which of the following relevant financial statement
assertion over receivables and sales, respectively?
B a. Completeness and Occurrence c. Completeness and Completeness
b. Existence and Occurrence d. Existence and Valuation
Solution:
PROBLEM 1: PHARMALLY CORPORATION
Accounts Accounts
Inventory Receivable Payable Net Income
Unadjusted balances 234,500 519,800 312,400 1,290,300

December sales entries:
SI 20822 to consignee 20,600 (30,900) (10,300)
SI 20823 in transit FOB Dest. 27,000 (40,500) (13,500)
SI 20824 in transit FOB SP (14,000) (14,000)

January sales entries:
SI 20825 in transit FOB SP (24,600) 36,900 12,300

December purchase entries:
RR 68135 from consignor (20,500) (20,500) -
RR 68136 unrecorded purchases 18,000 (18,000)
RR 68137 19,900 19,900
RR 68138 in transit FOB Dest. (20,800) 20,800

January purchase entries:
RR 68139 in transit FOB SP 25,500 25,500 -

268,400 485,300 314,600 1,287,500
36. Ans. A. 37. Ans. B. 38. Ans. B. 39. Ans. A.
PROBLEM 2:
You were assigned to audit the Property, Plant and Equipment of DOH
Corporation in line with your firm’s continuing engagement to audit its
financial statements as of and for the period ended December 31, 2020.
The following information were deemed relevant in line with your audit:
Accumulated
Balances as of 12/31/2019 Cost Depreciation
Land 1,600,000
Building 4,800,000 1,965,648
Machinery and Equipment 2,400,000 864,000
Automotive Equipment 1,600,000 1,371,429

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Audit notes:
a. The company depreciates its assets using the following depreciation
policies:
Method Useful Life Salvage Value
Building Double declining balance 20 years 10% of Cost
Machinery and Straight-line 10 years 10% of Cost
Equipment
Automotive Sum-of-years digits 6 years None
Equipment
a. The building expansion (right wing) was completed at the beginning of
the year. The total cost of the expansion amounted to P900,000. The
amount was recognized as outright repairs and maintenance expense. You
have ascertained per audit that the cost of the expansion should have
been capitalized and depreciated over the remaining useful life of the
building.
b. A car purchased at the beginning of 2016 with an original cost of
P600,000 was traded in for a new automotive equipment having a cash
price of P920,000 on April 1 of 2020. The company paid additional cash
of P770,000. The new automotive equipment was recorded by the company
at the cash payment made.
c. A machinery was acquired on September 1, on installment basis. The
total installment price is P1,000,000 and is payable five equal annual
installments beginning September 1, 2020. The company issued a non-
interest bearing note for the said machinery. There is no established
price for the machinery. The prevailing market rate of interest for
similar securities on the transaction date was at 10%. The new
machinery has an estimated useful life of 10 years with an estimated
salvage value of 10% based on its cost. The company incurred the
following costs prior to the use of the equipment. Installation and
commissioning, P50,000; Training cost of employees who will operate
the equipment, P40,000; Future dismantling cost expected to be incurred
upon retirement of the asset, P171,257.
d. The beginning balance of the automotive equipment would have been
depreciated at total of P152,381 for the year.
41. What is the correct depreciation expense on the building for 2020?
D a. 399,928 c. 428,261
b. 421,178 d. 403,435
42. What is the gain or loss from the trade in transaction in 2020?
C a. 71,429 c. 78,571
b. 27,143 d. 64,286
43. What is the correct depreciation expense on machinery and equipment for
2020?
C a. 288,000 c. 244,500
b. 245,700 d. 240,000
44. What is the correct depreciation expense on automotive equipment for
2020?
B a. 333,332 c. 285,713
b. 306,667 d. 372,381
45. In line with your audit of the company’s property, plant and equipment,
you requested the client to furnish you with the schedule of repairs
and maintenance expense for the year. This request is consistent to
satisfy which audit objective and to gather evidence regarding which
financial assertion?
A a. To determine whether additional capitalizable cost were otherwise
recognized by the company as outright expense necessary to validate
completeness assertion over PPE.
b. To ascertain the propriety of capitalized expenditures necessary to
validate existence assertion over PPE.

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c. To determine whether additional capitalizable cost were otherwise
recognized by the company as outright expense necessary to validate
existence assertion over PPE.
d. To ascertain the propriety of capitalized expenditures necessary to
validate completeness assertion over PPE.
Solution:
PROBLEM 2: DOH CORPORATION
41. Ans. D.
Depreciation - Building
Beginning Balance, CV 2,834,352
Multiply by: Double declining rate: 10% 283,435

Building Improvement
Cost 900,000
Multiply by: Double declining rate based
on Bldg's remaining life (15yrs*) 13.33% 120,000
Total depreciation expense 403,435

*Note: Through trial and error, one can figure out based on the Accum
Depr.-Bldg balance that the building has already been depreciated for
5 year as of December 31, 2019. Thus the building's remaining life as
of January 1, 2020 is 15 years.
42. Ans. C.
Cash price of new automotive equipment 920,000
Less: Cash payment made (770,000)
Trade in allowance/Fair value of old eqpt. 150,000

Carrying value of old equipment
Cost 600,000
Accum Depr. (1/1/2020) (600K*18/21) (514,286)
Additional Depr in 2020 (600K*2/21)*3/12 (14,286) 71,429
Gain on trade-in 78,571

43. Ans. C.
Depreciation - Machinery and equipment
Beginning Balance (Depreciable Cost:
2.4M*90%) 2,160,000
Divide by: useful life 10 216,000
New machinery (P950,000*90%) 855,000 *
Divide by: useful life 10
Multiply by: 4mos/12mos 4/12 28,500
* PV of installment payments:
Installment price 1,000,000
Divide by: 5 years 5
Installment payment, in advance 200,000

Multiply by: PV of 1 at 10% for 5
periods in advance 4.169865
Cash price equivalent/Initial cost of
the new machine 833,973

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Installation and commissioning 50,000

PV of future retirement cost
(171,257*0.38554) 66,027
Initial cost of the machinery and equipment 950,000

44. Ans. B.
Depreciation - Automotive equipmnet
Depreciation on beginning balance had there been no
transactions 152,381
Less: Full depreciation on old equpment traded out
P600,000*2/21 (57,143)
Add: Correct depreciation for 3 mos. On old equpment
traded out
P600,000*2/21*3/12 14,286
Add: Depreciation for 9 months on new equipment
traded in
P920,000*6/21*9/12 197,143

PROBLEM 3:
You are revisiting the audit working paper presented to you by your audit
staff in line with his audit procedures done in auditing Daughterty
Corporation’s accounts receivable. The following were lifted from the said
working papers:
Audit notes:
A. Daughterty Corporation’s accounts receivable subsidiary ledger had
the following details:
Customer Invoice Invoice Balance
date Amount
BungGo Inc. 12/6/20 127,000
10/29/20 84,000 211,000
Cuzi Co. 12/30/20 48,000

9/27/20 24,000
8/20/20 53,520 125,520
Pacman Inc. 12/30/20 40,000

12/8/20 80,000
11/25/20 63,600 183,600
Isko Co. 11/17/20 138,840

10/9/20 132,000
8/20/20 124,400 395,240
Sotto Corp. 12/10/20 250,000 250,000
Gordon Inc. 9/12/20 74,400 74,400
Total 1,239,760
B. The accounts receivables balance were confirmed with the customers.

You have noted the following exceptions:
Customer Balance Remarks
per reply
BungGo Inc. P175,000 The invoice dated 10/29/20 was
erroneously priced at P84 per unit. The
agreed upon price per the customer’s
approved purchase order was at P48.

lOMoARcPSD|5418963

Cuzi Co. 77,520 Invoice dated 12/30/20 was for a sale
made on the same date. The sales
agreement with Cuzi Co. was at a
special rate as the sale included
installation services which the company
is yet to accomplish as of December 31.
The relative stand-alone service fee
for installation services P10,000 while
the selling price of the merchandise if
sold without the installation services
was at P40,000.
Pacman Inc. 143,600 The difference was due to the invoice
dated 12/30/20 for goods delivered on
the same date. Goods have not been
received by Pacman Inc. yet as of
12/31/20. Term of sale is FOB Buyer’s
Warehouse.
Isko Co. 346,400 Credit memo for customer returns for
damaged goods worth P48,840 related to
the invoice dated 11/17/20 was recorded
in January of the following year.
Sotto Corp. 170,000 Invoice dated 12/10 was the sales price
of 2,500 units of merchandise delivered
to Sotto Corp. on the same date on
consignment basis. As of December 31,
per Sotto Corp.’s reply, 800 units
still remained on hand. The consignment
agreement provides Sotto Corp. a
commission of 10% based on sales.
Gordon Inc. No reply Gordon Inc. is under liquidation and
the amount receivable from the company
is deemed definitely uncollectible.
C. The balance of the allowance for doubtful accounts at the beginning
of the year was at P52,500. During the year, the company wrote-off
P44,200 receivables and recovered P24,800 from the previously
written-off accounts. The company’s policy with regard uncollectible
accounts are summarized below:
Age % of collectibility
0-30 days 99%
31-60 days 98%
61-90 days 95%
91-120 days 90%
Over 120 days 50%
Required:
46. What is the correct balance of the accounts receivable from BungGo Inc.?
A a. 175,000 c. 207,000
b. 197,000 d. 211,000
47. What is the correct balance of the accounts receivable from Sotto Corp.?
D a. 80,000 c. 120,000
b. 170,000 d. 153,000
48. What is the correct balance of the accounts receivable gross of any
allowances as of December 31?
C a. 1,004,520 c. 933,920
b. 900,520 d. 870,520
49. What is the correct allowance for bad debts as of December 31, 2020?
C a. 106,210 c. 107,416
b. 106,310 d. 104,802
50. What is the correct bad debt expense?
A a. 148,716 c. 157,610
b. 156,102 d. 74,316

lOMoARcPSD|5418963

Solution:
PROBLEM 3: DAUGHTERTY CORPORATION
ANALYSIS
Invoice Invoice Adjusted
Customer
date Amount Adjustments Bal.
BungGo Inc. 06/12/2020
127,000 127,000 0-30 days
29/10/2020
84,000 (36,000) 48,000 61-90 days
175,000 46. Ans. A.
Cuzi Co. 30/12/2020

48,000 (9,600) 38,400 0-30 days
27/09/2020
24,000 24,000 91-120 days
20/08/2020
53,520 53,520 Over 120 days
115,920
Pacman Inc. 30/12/2020

40,000 (40,000) - 0-30 days
08/12/2020
80,000 80,000 0-30 days
25/11/2020
63,600 63,600 31-60 days
143,600
Isko Co. 17/11/2020

138,840 (48,840) 90,000 31-60 days
09/10/2020
132,000 132,000 61-90 days
20/08/2020
124,400 124,400 Over 120 days
346,400
Sotto Corp. 10/12/2020

250,000 (97,000) 153,000 0-30 days
47. Ans. D.
Gordon Inc. 12/09/2020
74,400 (74,400) -
1,239,760 933,920
Adjustments
a) Sales 36,000
AR (BungGo Inc.) 36,000

(84-48)*(84,000/84)
b) Sales 9,600
AR (Cuzi Co.) 9,600
Prorata allocation to installation services which is considered a separate
performance oblation contract
- unearned, until
Installation service (10,000/50,000)*48,000 9,600 installation completed
- valid sale upon
Merchandise sold (40,000/50,000)*48,000 38,400 delivery
c) Sales 40,000
AR (Pacman Inc.) 40,000

Not valid sale as it is in-transit FOB Buyer's
Warehouse (Destination)

lOMoARcPSD|5418963
d) Sales returns 48,840
AR (Isko Co.) 48,840
e) Sales (250,000/2,500u)*800u 80,000
Commission expense (1,700u*P100)*10% 17,000
AR (Sotto Corp.) 97,000
e) Allowance for Bad Debt 74,400

AR (Gordon Inc.) 74,400
Required
ADJUSTED AGING SCHEDULE: AR, Gross Allow. Allowance
0-30 Days (December Invoices) 398,400 1% 3,984
31-60 Days (November Invoices) 153,600 2% 3,072
61-90 Days (October Invoices) 180,000 5% 9,000
91-120 Days (September Invoices) 24,000 10% 2,400
More than 120 Days (August and earlier) 177,920 50% 88,960
933,920 107,416
48. Ans. C. 49. Ans. C.
50. Ans. A.
Allowance for bad debts, end 107,416
Add: Write-off of AR per books 44,200
Additional Write-off per audit 74,400
Total 226,016
Less: Allowance for bad debt, beg (52,500)
Recoveries (24,800)
Bad Debt Expense 148,716
PROBLEM 4:
You were assigned to audit the cash account of Robredo Corp. in line with
your firm’s audit of its financial statements for the year ended December
31, 2020. The following resulted from your substantive test procedures:
BANK RECONCILIATION
The cashier prepared the bank reconciliation statement as of December 31,

2020, which included the following information:
Cash per general ledger, December 31, 2020 P293,200
Cash per bank statement, December 31, 2020 628,570
December note receivable collected by the bank on the
company’s behalf, recorded in the books on January 3 141,000
Bank loan proceeds credited by the bank in December,
recorded in the books on January 3 200,000
Customer collection checks returned by the bank marked 100,000
NSF, P10,000 of which has been redeposited and has
cleared the bank as of December 31
Bank service charge for December, recorded in books in
January 3 15,600

lOMoARcPSD|5418963

Outstanding checks, P34,550 of which has been certified 186,500
by the bank
Check of Lobredo Inc., charged by the bank in error on
December 28, 2020; corrected by the bank on 50,900
January 2, 2021 as per the cut-off bank statement
Deposit in transit 54,500
Audit notes:
a. A cash collection from a customer in December amounting to P35,000
was recorded in the books at P3,500.
b. A P2,500 check issued to a supplier in December was recorded in
the books at P25,000.
c. No corrections were made yet per book in reference to these errors.
CASH COUNT
From January 2, 2021, to January 10, 2021, the date of your cash count,
total cash receipts appearing in the cash records (debited to cash) for
the said period amounted to P408,550. During the same period, total bank
credits amounted to P156,790 as per the cut-off bank statement. The
following cash and cash items were on hand at the close of business on
January 10, 2021:
Currencies and coins P4,275
Customers’ checks
Dated January 4, 15,200
Dated January 6, NSF 4,000
Dated January 10 10,775
Postage stamps and other expense 22,250
vouchers paid out of cash receipts
Audit notes:
a. Check deposit on January 5, 2021, amounting to P12,000 was not
yet recorded in the books.
b. Undeposited collections on January 10, 2021 amounting to P25,000
was also not yet recorded in the books.
Requirements:
51. What is the correct cash in bank balance as of December 31, 2020?
C a. 546,200 c. 582,020
b. 453,620 d. 581,600
52. What is the cash shortage as of December 31, 2020?
B a. 1,080 c. 420
b. 580 d. 2,580
53. What is the actual total customer collections from January 2 to January
10?
D a. 67,550 c. 50,160
b. 56,390 d. 104,550
54. What is the cash shortage from undeposited collections from January 2
to January 10?
B a. 340 c. 940
b. 660 d. 910
55. In validating a client-prepared December bank reconciliation statement,

the auditor should primarily trace back outstanding checks to the:
D a. Accounts payable voucher.
b. Cancelled checks returned by the bank for December.
c. Bank statement for December.
d. Cut-off bank statement of January.

lOMoARcPSD|5418963

Solution:
PROBLEM 4: ROBREDO CORP.
Bank Reconciliation 12/31/2020
BANK BOOK
Unadjusted balance 628,570 293,200 Unadjusted balance
Deposit in transit 54,500 341,000 Unrecorded credits
Outstanding check (151,950) (105,600) Unrecorded debits

Book error (note a.,
Bank error 50,900 31,500 understated receipt)
Book error (note b.,
22,500 overstated disb.)
Correct cash balance (51. Ans. C) 582,020 582,600
(580) Shortage (52. Ans. B)
582,020 Adjusted balance
Total receipts per books from Jan. 2 - 10 408,550

Unrecorded credit as of 12/31 recorded in
books in January (341,000)
Book errors in January (audit note a and b) 37,000
Cash collections, per books from Jan. 2 - 10 104,550 53. Ans. D.
January deposits from January collections
Januray bank credits 156,790
Correction of Dec. bank charge error (50,900)
December deposit in transit (54,500) 51,390
Cash and Checks on hand (Depositable) 30,250
Expense vouchers 22,250
Cash OVERAGE from Jan. 2 - Jan. 10 660 54. Ans. B.
PROBLEM 5:
In the course of your audit of Trillanes Inc.’s December 31, 2020
liabilities the following schedule was presented to you by Trillanes:
Accounts payable P225,000
Estimated premiums liability 320,750
Accrued salaries 960,000
Deferred tax liability ?
Total ?
Audit notes:
a. The accounts payable balance is net of a P35,000 advances made to a
supplier for merchandise to be delivered in 2021.
b. The company has a 2-year warranty on its products. The warranty
estimate is at 8% of the peso sales, two-thirds of which is expected
to be incurred during the year of sale and one-third on the year
following the year of sale. The summary of the company’s total
sales and actual warranty costs incurred for the past three years
are presented below (Assume sales were made evenly throughout the
year):
2018 2019 2020
Net Sales P4,000,000 4,525,000 5,275,000
Actual costs paid 127,500 233,750 285,250

lOMoARcPSD|5418963

The company is yet to update its warranty liabilities as of December
31, 2020.
c. The accrued salaries balance reflects the accumulated unused
compensated absences in the prior year (1,200 days unused vacation
and sick leaves). No adjustments were made as of the balance sheet
date to reflect current year adjustments. The company allows each
employee 20 days combined vacation and sick leaves per year of
service. The compensated absences earned for the current year is
exercisable the following year and shall expire in 2 years after
they were earned. 77 0 vacation and sick days were used by the
employees during the current year. The company has 40 employees
(assumed to have been employed throughout the year). The company had
a 10% increase in salary during the current year and is uncertain
as to whether there will be an increase in salary in the following
year. 45 days from the cumulative unused leaves by the end of 2020
were earned in 2018.
d. Apart from the estimated liability for warranties and the accrued
salaries for compensated absences another temporary difference
creating deferred tax for the current year is the excess tax
depreciation over financial deprecation at P250,000 for the current
year. The unadjusted net income before tax and before any audit
adjustments was at P2,400,000. Included in the determination of the
said net income was fines, penalties and surcharges at P95,000 and
dividend income from a domestic corporation at P120,000. Tax rate
was at 30% and is not expected to change in the future.
56. What is the correct warranties expense for 2020?

B a. 423,500 c. 457,500
b. 422,000 d. 421,750
57. What is the correct accrued salaries for compensated absences as of
December 31, 2020?
B a. 1,082,400 c. 948,000
b. 1,042,800 d. 1,147,080
58. What is the current tax expense for the year?
C a. 646,635 c. 637,500
b. 645,000 d. 655,000
59. What is the net deferred tax benefit/expense recognized for the
period?
B a. 9,135 net benefit c. 140,865 net expense
b. 9,135 net expense d. 375,090 net benefit
60. Tracing receiving reports for purchases of merchandise to the
accounts payable voucher and the voucher register supports the audit
objective of:
D a. Determining whether recorded purchases represent valid transactions
which is consistent with auditing the existence/occurrence of
payables and purchases.
b. Determining whether goods received for valid purchases were
eventually recorded which is consistent with auditing the
existence/occurrence of payables and purchases.
c. Determining whether recorded purchases are in fact for goods
actually received consistent with auditing the completeness of
payables and purchases.
d. Determining whether goods received for valid purchases were
eventually recorded which is consistent with auditing completeness
of payables and purchases.

lOMoARcPSD|5418963
Solution:
PROBLEM 5: TRILLANES INC.
56. Ans. B.
Warranty expense 2018 (P4M*8%) 320,000
Less: Actual cost paid in 2018 (127,500)
Estimated warranties payable, 2018 192,500
Warranty expense 2019 (P4.525M*8%) 362,000
Warranty expense 2020 (P5.275M*8%) 422,000
AJE 1:
Warranties Exp. 136,750
Est. Warr. Payable 136,750
57. Ans. B
Accumulated unused leaves, beg 2020 1,200
Additional leaves earne in 2020 (40*20days) 800
Less: Leaves exercised in 2020 (770)
Accumulated unused leaves, end 2020 1,230
Less: Expired leaves (earned in 2018) (45)
Balance 1,185
Multiply by: Current Salary Rate (800*110%) 880 *
Accrued salary for compensated absenses, end 2020 1,042,800
AJE 2:
Salaries Exp. 82,800
Accrued Salaries 82,800
Accrued salaries for compensated absences, beg 960,000
Divide by: number of days 1,200
Prevailing salary rate in 2019 800

58. Ans. C.
Net income before any adjustments 2,400,000
AJE 1: Warranties expense (136,750)
AJE 2: Salaries expense (82,800)
Financial income before tax 2,180,450

lOMoARcPSD|5418963
Non-deductible expense 95,000
Non-taxable income (120,000)
Financial income before temporary differences 2,155,450
FDAAB for the period (note a) 219,550
FTALE for the period (Excess tax depr. over financial) (250,000)
Taxable income 2,125,000

Mulitply by: Current tax rate 30%
Current Tax Expense 637,500
Note a: FDAAB for the period
Warranties payable, end 457,500
Warranties payable, beg (320,750)
Increase in warranties payable (FDA for the period) 136,750
Accrued salaries for CA, end 1,042,800
Accrued salaries for CA, beg (960,000)
Increase in accrued salaries (FDA for the period) 82,800
Total FDA for the year 219,550
59. Ans. B
FDA for the period 219,550

Multiply by: Future tax rate 30%
Deferred tax BENEFIT 65,865
FTA for the period 250,000

Multiply by: Future tax rate 30%
Deferred tax EXPENSE 75,000
Net deferred tax expense 9,135
PROBLEM 6:
The shareholders’ equity section of Duque Company’s statement of
financial position as of December 31, 2019, is as follows:
Ordinary shares, P100, par value; authorized,

200,000 shares; issued 40,000 shares P4,000,000
Preference shares, P50 par value; authorized,
100,000 shares; issued 20,000 1,000,000
Share premium – Ordinary shares 1,800,000
Share premium – Preference shares 600,000
Retained earnings 6,000,000
Total ?
The following transactions occurred during 2016:

Jan. 5 The company issued for P2,350,000, 10,000 ordinary shares and
5,000 preference shares. The company incurred share issue cost
at P150,000. The ordinary shares were currently selling at
P140 per share while the preference shares at P120.

lOMoARcPSD|5418963

Feb. 16 5,000 preference shares were subscribed at P120 per share.
Mar. 25 2,000 previously unissued ordinary shares were issued in
exchange of an equipment having a fair market value of
P500,000.
Apr. 20 Reacquired 4,000 ordinary shares as treasury shares at
P720,000.
Jun. 30 The company declared and paid P5 cash dividends to ordinary
shares and P10 per share cash dividends to preference shares.
Jul. 1 The company declared a 1 for 4 share split on its ordinary
shares. The prevailing fair value of its ordinary shares is
currently at P154 per share before the split.
Jul. 30
Reissued half of the treasury shares at P39 per share.
Aug. 30 A 15% ordinary stock dividend was declared and issued to
ordinary shares. Market value is currently at P40 per share.
Sep. 16 Collected full payments on 80% of the preference shares
subscribed on February 16.
Dec. 31 The company declared and paid P1.25 cash dividends to ordinary
shares and P10 per share cash dividends to preference shares.
Dec. 31 Adjusted net income for the year is at P3,510,000.
61. What is the amount credited to the Share Premium – Preference Shares
account as a result of the share issuance on January 5?
B a. 540,000 c. 645,000
b. 410,000 d. 455,000
62. The entry to record cash dividends on June 30 requires a debit to
retained earnings at:
B a. 560,000 c. 575,000
b. 540,000 d. 585,000
63. The entry to record the reissue treasury shares on July 30 requires a:
B a. Debit to Share premium P48,000
b. Debit to Retained earnings P48,000
c. Debit to Share premium P282,000
d. Debit to Retained earnings P282,000
64. The entry to record the stock dividends on August 30 requires a credit
to share premium at:
D a. None c. 750,000
b. 1,192,500 d. 450,000
65. The entry to record cash dividends on December 31 requires a debit to
retained earnings at:
D a. 597,500 c. 575,000
b. 577,500 d. 587,500
Solution:
PROBLEM 6: DUQUE COMPANY
Entries:
1/5: Cash, net (2,350,000-150,000) 2,200,000
Ordinary shares (10,000*P100) 1,000,000
Share premium - Ordinary Shares 540,000
Preference shares (5,000*P50) 250,000
Share premium - Preference Shares 410,000 61. Ans. B.

lOMoARcPSD|5418963

Computation:
Lump sum issue price 2,200,000
Ordinary Shares (10,000*140) 1,400,000 70% 1,540,000 1,540,
Preference Shares (5,000*120) 600,000 30% 660,000
2,000,000
2/16: Subscription receivable 600,000
Preference share subscribed 250,000
Share premium - Preference 350,000
3/25: Equipment 500,000
Ordinary shares 200,000
Share premium - Ordinary 300,000
4/20: Treasury shares - Ordinary 720,000
Cash 720,000
6/30: Retained earnings 540,000 62. Ans. B.
Cash dividends payable/Cash 540,000

Ordinary Preference
January, balance 40,000 20,000
Jan. 5 issuance 10,000 5,000
Feb. 16 subscription 5,000
Mar. 25 issuance 2,000
Apr. 20 treasury (4,000)
Outstanding and subscribed 48,000 30,000
Cash dividends 5.00 10
Total cash dividends 240,000 300,000 540,000
Memo: From 52,000 ordinary shares issued to 208,000 ordinary shares issued;
7/1: From P100 par to P25 par value per share.
From 4,000 treasury shares to 16,000 treasury shares;
From P180 cost per share to P45 cost per share
7/30: Cash (8,000*39) 312,000
Retained earnings 48,000 63. Ans. B.
Treasury shares 360,000
8/30: Retained earnings (200,000*15%*P40) 1,200,000
Share div. payable/Ordinary shares 750,000
Share premium 450,000 64. Ans. D.

lOMoARcPSD|5418963
Jun 30 Outstanding Ordinary 192,000
Jul 30 Reissue treasury shares 8,000
Aug. 30 Outstanding Ordinary 200,000
9/16: Cash (5,000*P120*80%) 480,000
Subcription receivable 480,000
Preference shares subscribed 200,000
Preference shares 200,000
12/31: Retained earnings 587,500 65. Ans. D.
Cash dividends payable/Cash 587,500

Ordinary Preference
Jun 30 Outstanding and Subs. 192,000 30,000
Jul 30 Reissue treasury shares 8,000
Aug 30 Stock dividends 30,000
Dec 31 Outstanding and Subs 230,000 30,000
Cash dividends 1.25 10.00
Total cash dividends 287,500 300,000 587,500
12/31: Income summary 3,510,000
Retained earnings 3,510,000
PROBLEM 7:
You have been engaged to audit the accounts of Binaythere Company for the
first time in 2020. The company started operations in 2018. During the
audit you discovered the following information:
Year ending December 31,
2018 2019 2020
a. Unadjusted Net Income P520,000 P580,000 P710,000
b. Unrecorded year-end accrued utilities 22,000 19,000 15,000
expenses
c. Unrecorded year-end unused office 9,000 7,000
supplies
d. Year-end cash advances received for 14,000
rent to be earned the following year,
recognized as income upon collection
e. Ending inventory overstated as a
result of over counting items at 50,000 40,000
year-end.
f. Ending inventory understated as a
result of wrong pricing and 14,000 8,000
computational errors
g. Delivery of merchandise to customers
at year-end recorded as sales only
upon collection the following year 25,000 22,000

lOMoARcPSD|5418963

h. Receipt of merchandise from suppliers
at year-end recorded as purchases
only upon payment the following year 12,000 10,000
i. Major repairs on equipment at the
beginning of each year, charged to
repairs expense but should have been 240,000
capitalized. Annual depr. is 10%.
Additional information:
• An 8%, P1,000,000, 5-year bonds payable was issued on January 1,
2020. Interest on the bonds is payable annually. The yield rate on
the bonds on the issuance date was at 10%. The company recorded the
transaction as a debit to cash (based on the 10% yield rate) a credit
to bonds payable at face value with the difference being charged
against the interest expense account. The only other entry made by
the client was the payment of the interest at year-end.
• Dividends declared by the company at each year end but were recorded
only upon payment the following year were: P90,000, P120,000 and
P150,000 for 2018, 2019 and 2020, respectively.
66. Effect of errors to 2020 working capital:
D a. 50,000 overstated c. 50,000 understated
b. 200,000 understated d. 200,000 overstated
67. 2019 Net income
B a. 869,000 c. 820,000
b. 825,000 d. 855,000
68. 2020 Net income
A a. 708,397 c. 453,612
b. 606,243 d. 460,146
69. Retroactive adjustment to the retained earnings beginning 2020?
B a. 207,000 credit c. 24,000 credit
b. 87,000 credit d. 120,000 debit
70. Assuming that the bonds payable were retired on July 1, 2021 at
P1,000,000, what is the gain or loss on early retirement?
A a. 16,567 c. 13,397
b. 56,567 d. 63,397
Solution:
PROBLEM 7: BINAYTHERE COMPANY
2020 RE,
2018 NI 2019 NI 2020 NI beg WC, 2020
A. Unadjusted balances 520,000 580,000 710,000
B. Unrecorded accrued expenses, 2018 (22,000) 22,000
Unrecorded accrued expenses, 2019 (19,000) 19,000 (19,000)
Unrecorded accrued expenses, 2020 (15,000) (15,000)
C. Unrecored unused supplies, 2018 9,000 (9,000)
Unrecored unused supplies, 2020 7,000 7,000
D. Unrecorded unearned income, 2019 (14,000) 14,000 (14,000)
E. Ending Inventory, over 2018 (50,000) 50,000
Ending Inventory, over 2020 (40,000) (40,000)
F. Ending Inventory, under 2019 14,000 (14,000) 14,000
Ending Invenotry, under 2020 8,000 8,000
G. AR/Sales, under 2018 25,000 (25,000)
AR/Sales, under 2019 22,000 (22,000) 22,000

lOMoARcPSD|5418963
H. AP/Purchases, under 2019 (12,000) 12,000 (12,000)
AP/Purchases, under 2020 (10,000) (10,000)

Equipment, under/Expense, over
I. per year 240,000 240,000
Depr Expense, under (2019
Equipment) (24,000) (24,000) (24,000)
Overstatement in interest expense
Note in 2020** 63,397
2019 unrecorded dividend
Note declaration (120,000)
2020 unrecorded dividend
Note declaration/payable (150,000)
AJDUSTED BAL./EFFECT OF ERRORS 482,000 825,000 708,397 87,000 (200,000)

67. Ans. B. 68. Ans. A. 69. Ans. B. 66. Ans. D.
Bonds payable, FMV 1/1/20 (at 8% yield rate)
Principal Amount (P1,000,000*0.620921) 620,921 0.62092132
Interest (P100,000*3.790787) 303,263 924,184 3.79078677
Face value of Bonds payable 1,000,000
Discount/Added from interest expense upon issuance 75,816
** Interest expense per books (80,000 + 75,816) 155,816
Interest expense per audit (924,184*10%) 92,418
Overstatement in Interest Expense 63,397
Amortization Table: 10%, Bonds Payable Nominal Effective Amortization Balance
January 1, 2020 Issue date 924,184
Dec. 31, 2020 Interest payment 80,000 92,418 12,418 936,603
Dec. 31, 2024 Interest payment 80,000 98,182 18,182 1,000,000
70. Ans. A.
Retirement Price 1,000,000

Amortized cost (7/1/2021)
Amortized cost 12/31/2020 936,603
Amortization up to 7/1/2021 (13,660*6/12) 6,830 943,433
Accrued interest (1M*8%*6/12) 40,000
Loss on early retirement 16,567

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Re SA B42 AUD Final PB Exam Questions Answers

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AUDITING 25 September 2021(Saturday)

1. Which of the following best describes assurance services?

3. A practitioner is engaged to express an opinion on management's

C a. I and II only c. II and IV only

4. An auditor has substantial doubt about the entity's ability to continue

5. During an audit of an entity's shareholders' equity accounts, the

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7. The following first-time candidates had these CPALE ratings:

8. An auditor's special report on financial statements prepared in

9. Helsinki Corporation is making a presentation to a perspective investor.

AUDITING - FINAL PRE-BOARD EXAMINATION (BATCH 42)

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AUDITING - FINAL PRE-BOARD EXAMINATION (BATCH 42)

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AUDITING - FINAL PRE-BOARD EXAMINATION (BATCH 42)

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AUDITING - FINAL PRE-BOARD EXAMINATION (BATCH 42)

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AUDITING - FINAL PRE-BOARD EXAMINATION (BATCH 42)

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AUDITING - FINAL PRE-BOARD EXAMINATION (BATCH 42)

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AUDITING - FINAL PRE-BOARD EXAMINATION (BATCH 42)

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Unadjusted balances 234,500 519,800 312,400 1,290,300

SI 20822 to consignee 20,600 (30,900) (10,300)

SI 20823 in transit FOB Dest. 27,000 (40,500) (13,500)

SI 20824 in transit FOB SP (14,000) (14,000)

SI 20825 in transit FOB SP (24,600) 36,900 12,300

RR 68135 from consignor (20,500) (20,500) -

RR 68136 unrecorded purchases 18,000 (18,000)

RR 68137 19,900 19,900

RR 68138 in transit FOB Dest. (20,800) 20,800

RR 68139 in transit FOB SP 25,500 25,500 -

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AUDITING - FINAL PRE-BOARD EXAMINATION (BATCH 42)

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Beginning Balance, CV 2,834,352

Multiply by: Double declining rate: 10% 283,435

on Bldg's remaining life (15yrs*) 13.33% 120,000

Total depreciation expense 403,435

Cash price of new automotive equipment 920,000

Less: Cash payment made (770,000)

New machinery (P950,00090%) 855,000

Commission expense (1,700uP100)10% 17,000