AUDITING PROBLEMS

PROBLEM 1: Abam Corporation is selling audio and video appliances. The companys fiscal year ends on
March 31. The following information relates the obligations of the company as of March 31, 2007.

Notes payable
Abam has signed several long- term notes with financial institutions. The maturities of these notes are
given below. The total unpaid interest for all of these notes amount to P340,000 on March 31, 2007.

Due date Amount

April 31, 2007 P 600,000
July 31, 2007 900,000
September 1, 2007 450,000
February 1, 2008 450,000
April 1, 2008- March 31, 2011 2,700,000
P5,100,000
Estimated warranties:
Abam has one year product warranty on some selected items. The estimated warranty liability on sales
made during the 2005-2006 fiscal year and still outstanding as of March 31, 2006, amounted to P252,000.
The warranty costs on sales made from April 1, 2006 to March 31, 2007 are estimated at P630,000. The
actual warranty costs incurred during 2006- 2007 fiscal year as follows:

Warranty claims honored on 2005- 2006 P252,000

Warranty claims honored on 2006- 2007 sales 285,000
Total P537,000

Trade payables
Accounts payable for supplies, goods and services purchases on open account amount to P560,000 as of
March 31, 2007.

Dividends
On march 10, 2007, Abams board of directors declared a cash dividend of P0.30 per common share and a
10% common stock dividend. Both dividends were to be distributed on Aptil 5, 2007 to common
stockholders on record at the close of business on March 31, 2007. As of March 31, 2007, Abams has 5
million, P2 par value common stock shares issued and outstanding.

Bonds payable
Abams issued P5,000,000, 12% bonds, on October 1, 2001 at 96. The bonds will mature on October 1,
2011. Interest is paid semi- annually on October 1 and April 1. Abams uses straight line method to
amortize bond discount.

Based on the forgoing information, determine the adjusted balances of the following as of March 31, 2007:

Questions
1. Estimated warranty payable
a. P252,000 b. P345,000 c. P630,000 d. P882,000

2. Unamortized bond discount

a. P110,000 b. P200,000 c. P100,000 d. P90,000

3. Bond interest payable

a. P0 b. P300,000 c. P150,000 d. P250,000

4. Total current liabilities

a. P6,445,000 b. P5,105,000 c. P5,445,000 d. P3,945,000

5. Total noncurrent liabilities

a. P7,700,000 b. P7,590,000 c. P7,500,000 d. P7,610,000
PROBLEM 2: On January 1, 2007, Arcenith Corporation engaged an independent CPA to perform an audit
for the year ended December 31, 2006. The company uses a periodic inventory system. The CPA did not
observe the inventory count on December 31, 2006, as a result, a special examination was made of the
inventory records.

The financial statements prepared by the company (uncorrected) showed the following: ending inventory,
P72,000; accounts receivable, P60,000; accounts payable, P30,000; sales, P400,000; net purchases,
P160,000, and pretax income P51,000.

The following data were found during the audit:

1. Merchandise received on January 2, 2007, costing P800 was recorded on December 31, 2006. An
invoice on hand showed the shipment was made fob suppliers warehouse on December 31, 2006.
Because the merchandise was not on hand at December 31, 2006, it was not included in the inventory.

2. Merchandise that cost P18,000 was excluded from the inventory, and the related sale for P23,000 was
recorded. The goods had been segregated in the warehouse for shipment; there was no contract for
sale but a tentative order by phone.

3. Merchandise that cost P10,000 was out on consignment for Valentin Distributing Company and was
excluded from the ending inventory. The merchandise was recorded as a sale P25,000 when shipped
to Valentin on December 29, 2006.

4. A sealed packing case containing a product costing P900 was in Arceniths shipping room when the
physical inventory was taken. It was included in the inventory because it was marked Hold for
customers shipping instructions. Investigation revealed that the customer signed a purchase contract
dated December 18, 2006, but that case was shipped and the customer billed on January 10, 2007. A
sale for P1,500 was recorded on December 31, 2006.

5. A special item, fabricated to order for a customer, was finished and in the shipping room on December
31, 2006. The customer has inspected it and was satisfied. The customer was billed in full on that
sale in the amount of P5,000. The item was included in inventory at cost, P1,000 because it was
shipped on January 4, 2007.

6. Merchandise costing P15,600 was received on December 28, 2006. The goods were excluded from
inventory, and a purchase was not recorded. The auditor located the related papers in the hands of
the purchasing; they indicated, On consignment from Roselyn Company.

7. Merchandise costing P2,000 was received on January 8, 2007, and the related purchase invoice
recorded January 9. The invoice showed the shipment was made on December 29, 2006, fob
destination. The merchandise was excluded from the inventory.

8. Merchandise that cost P6,000 was excluded from the ending inventory and not recorded as a sale for
P7,500 on December 31, 2006. The goods had been specifically segregated. According to the terms
of the contract of sale, ownership will not pass until actual delivery.

9. Merchandise that cost P15,000 was included in the ending inventory. The related purchase has not
been recorded. The goods had been shipped by the vendor fob destination, and the invoice was
received on December 30, 2006. The goods was received on January 5, 2007.

10. Merchandise in transit that cost P7,000 was excluded from inventory because it was not on hand. The
shipment from the vendor was fob shipping point. The purchase was recorded on December 29, 2006,
when the invoice was received.

11. Merchandise in transit that cost P13,000 was excluded from inventory because it had not arrived.
Although the invoice had arrived, the related purchase was not recorded by December 31, 2006. The
merchandise shipped fob shipping point by the vendor.
12. Merchandise that cost P8,000 was included in the ending inventory because it was on hand. The
merchandise had been rejected because of incorrect specifications and was being held for return to the
vendor. The merchandise was recorded as a purchase on December 26, 2006.

Question:
Based on your analysis and the information above, answer the following:

6. The adjusted balance of inventory at year-end is:

a. P 101,900 b. P 102,000 c. P 102,800 d. P 120,400

7. The adjusted balance of accounts receivable at year-end is:

a. P 10,500 b. P 12,000 c. P 35,000 d. P 37,000

8. The adjusted balance of accounts payable at year-end is:

a. P 43,000 b. P 35,000 c. P 30,000 d. P 22,000

9. The adjusted balance of Sales at year-end is:

a. P 377,000 b. P 352,000 c. P 350,500 d. P 347,000

10. The adjusted balance of Net Purchases at year-end is:

a. P 152,000 b. P 165,000 c. P 173,000 d. P 181,000

Problem 3: You are making an audit of the Darwin Corporation for the past calendar year. The balance of
the Petty Cash account at December 31, 2006 was P1,300. Your count of the imprest cash count made at
8:30 am on January 3, 2007, in the presence of the petty cash custodian, revealed:

Currency and coins 571.38

Checks:

Date Maker Bank

12/28/06 Macky, vice-president PNB 360.00

12/29/06 Andy, employee DBP 60.00

12/31/06 Bobot, customer RCBC 153.80

01/02/07 Neil, customer PNB 121.36

01/10/07 Jeff, employee PNB 60.00

(check received Dec. 29)

(These checks were all considered good when deposited after dates shown on the checks. The
first four checks were actually deposited Jan. 3; the last check was deposited Jan. 11; all five
checks proved to be good.)

Vouchers:

Dec. 11 #261 Richard, shipping clerk temporary advance for the use of the receiving
department. Your count of Mr. Richards fund revealed: currency P28.80;
merchandise freight bills, P31.20. P 60.00
 Dec. 28 # 301 Postage 12.00

Dec. 29 # 302 Freight bill on merchandise purchases 47.30

Dec. 31 # 305 Freight bill on office supplies 88.93

Jan. 2 # 500 Freight bill on merchandise purchases 29.36

IOU Dec. 21 Mabel, employee 36.00

Sales Invoices (for cash sales, collections handled by the petty cashier):

Invoice # 315 Dec. 30 P 120.00

328 Dec. 31 153.80

334 Jan. 2 121.36

(As a general rule, the petty cashier endeavored to turn over the proceeds of cash sales to the
general cashier on the 10th, 20th and last days of each month. Proceeds on these sales were
recorded and deposited by the general cashier.)

Postage Stamps:

Three one-peso stamps. The petty cashier handled postage stamps. These stamps represent
the unused stamps purchased on Voucher # 301.

Questions
11. The petty cash fund shortage at December 31, 2006 is:
a. P 216.39 b. P 123.83 c. P 98.03 d. P 95.03

12. The adjusted petty cash fund balance of DARWIN CORPORATION at December 31, 2006 is:
a. P 900.74 b. P 960.74 c. P 1,174.54 d. P 1,234.54

13. DARWIN CORPORATIONS operating expenses found in the petty cash fund at December 31, 2006 is:
a. P 208.23 b. P 205.75 c. P 174.03 d. P 97.93

14. The Cash account (excluding PCF) of DARWIN CORPORATION is understated at December 31, 2006 by:
a. P 395.16 b. P 273.80 c. P 153.80 d. P 120.00

15. An essential phase of the audit of the cash balance at the end of the year is the auditor's review of
cutoff bank statement. This specific procedure is not useful in determining if
a. Kiting has occurred.
b. Lapping has occurred.
c. The cash receipts journal was held open.
d. Disbursements per the bank statement can be reconciled with total checks written.

Problem 4: Information pertaining to Eddie Vic Corporations property, plant and equipment for 2005 is
presented below:

Account balances at January 1, 2005

Debit Credit
Land P 1,500,000
Building 12,000,000
Accum. depreciation-building P 2,631,000
Machinery and equipment 9,000,000
Accum. depreciation-Mach. and Eqpt 2,500,000
 Automotive Equipment 1,150,000
Accum. depreciation-Automotive Eqpt 846,000

Depreciation method and useful life

Building 150% declining balance; 25 years

Machinery and equipment Straight-line; 10 years
Automotive equipment Sum-of-the-years-digits; 4 years
The salvage value of the depreciable assets is immaterial
Depreciation is computed to the nearest month.

Transactions during 2005 and other information:

On January 2, 2005, Eddie Vic purchased a new car for P350,000 cash and trade-in of a 2-year old car
with a cost of P490,000 and a book value of P147,000. The new car has a cash price of P520,000; the
market value of the trade-in is not known.

On April 1, 2005, a machine purchased for P230,000 on April 1, 2000, was destroyed by fire. Eddie Vic
recovered P155,000 from its insurance company.

On July 1, 2005, machinery and equipment were purchased at a total invoice cost of P2,800,000;
additional costs of P50,000 for freight and P250,000 for installation were incurred.

Eddie Vic determined that the automotive equipment comprising the P1,150,000 balance at January 1,
2005, would have been depreciated at a total amount of P180,000 for the year ended December 31, 2005.

Questions
16. Depreciation expense for building at December 31, 2005 is:
a. P 749,520 b. P 720,000 c. P 682,150 d. P 562,140

17. Depreciation expense for machinery and equipment at December 31, 2005 is:
a. P 1,049,250 b. P 1,037,750 c. P 1,032,000 d. P 877,000

18. Depreciation expense for Automobile equipment at December 31, 2005 is:
a. P 388,000 b. P 312,000 c. P 290,000 d. P 180,000

19. Total depreciation expense for 2005 is:

a. P 2,047,750 b. P 2,009,900 c. P 1,978,770 d. P 1,889,890

20. Total book value of property, plant, and equipment at December 31, 2005 is:
a. P 19,141,110 b. P 19,021,100 c. P 18,983,250 d. P 18,953,730

Problem 5
You were engaged by Catacutan Company, a publicity held company whose shares are traded in the
Philippines Share Exchange, to conduct an examination of its 2004 financial statements. You were told by
the companys controller that there were numerous equity transactions that took place in 2004. The
shareholders equity accounts at December 31, 2003, had the following balances:

Preference share, P100 par value, 6% cumulative; 15,000

shares authorized; 9,000 shares issued and outstanding P 900,000
Ordinary share, P1 par value, 900,000 shares authorized:
600,000 shares issued and outstanding 600,000
Additional paid-in capital 1,200,000
Retained earnings 3,198,000
Total shareholders equity P5,898,000

You summarized the following transactions during 2004 and other information relating to the shareholders
equity in your working papers as follows:
 January 6, 2004 issued 22,500 shares of ordinary share to Difficult Company in exchange or
land. On the date issued, the share had a market price of P16.50 per share. The land had a carrying
value of P201,000, and an assessed value for property taxes of P135,000.

January 31, 2004 Sold 1,350, P1,000, 12% bonds due January 31, 2006, at 98 with one
detachable share warrant to each bond. Interest is payable annually on January 31. The fair value of
the bonds without the share warrants is 95. The detachable warrant entitles the holder to purchase
10 shares of ordinary share at P10 per share.

February 22, 2004 Purchased 7,500 shares of its own ordinary share to be held as treasury
share for P24 per share.

February 28, 2004 Subscriptions for 21,000 shares of ordinary share were received at P26 per
share, payable 50% down and the balance by March 15.

March 15, 2004 The balance due on 18,000 shares was received and those shares were issued.
The subscriber who defaulted on the 3,000 remaining shares forfeited the down payment in
accordance with the subscription agreement.

April 30, 2004 Declared a dividend of inventory to ordinary shareholders. The inventory had a
carrying value of P910,000:fair value on relevant dates were:

Date of declaration (April 30, 2004) P950,000

Date of record (May 15, 2004) 900,000
Date of distribution(May 31, 2004) 920,000

August 30, 2004 Reissued 3,000 shares of treasury share for P20 per share.

September 14, 2004 There were 945 warrants detached from the bonds and exercised.

November 30, 2004 Declared a cash dividend of P2 per share to all ordinary shareholders of
record December 15, 2004. The dividend was paid on December 30, 2004.

December 15, 2004 Declared the required annual cash dividends on preference share for
2004. the dividend was paid on January 15, 2004.

January 8, 2005 Before closing the accounting records for 2004. Catacutan became aware
that no amortization had been recorded for 2003 for a patent purchased on July 2, 2003. The patent
was properly capitalized at P480,000 and had an estimated useful life of eight years when purchased.
Catacutan is subject to 32% regular corporate income tax. The appropriate correcting entry was
recorded on the same day.

Adjusted net income after tax for 2004 was P1,860,900.

Questions
Based on the foregoing and the result of your audit, answer the following:

21. Preference share at December 31, 2004 is

a. P 1,500,000 b. P 954,000 c. P 900,000 d. P 0

22. Ordinary share at December 31, 2004 is

a. P 640,500 b. P 645,450 c. P 649,950 d. P 652,950

23. How much is the total additional paid-in-capital as of December 31, 2004
a. P 2,163,300 b. P 2,178,220 c. P 2,765,600 d. P 2,774,000

24. The adjusted balance of retained earnings on December 31,2004 is

a. P 2,783,600 b. P 2,774,000 c. P 2,771,600 d. P 2,743,600
25. How much is the total shareholders equity on December 31, 2004?
a. P 6,376,850 b. P 4,271,550 c. P 4,232,550 d. P 4,194,350

Problem 6: You are examining the financial statements of MATIAS CORPORATION for the year ended
December 31, 2006. During the audit of the accounts receivable and other related accounts, certain
information was obtained.

The December 31, 2006 debit balance in the Accounts Receivable control account is P197,000.

The only entries in the Bad Debts Expense account were: a credit for P324 on December 31, 2006,
because Marlisa Company remitted in full for the accounts charged off October 31, 2006, and a debit on
December 31 for the amount of the credit to the Allowance for Doubtful Accounts.

The Allowance for Doubtful Accounts schedule is presented below:

Debit Credit Balance
January 1, 2006 P 3,658
October 21, 2006, Uncollectible;
Marlisa Co., - P324; Abonales Co.,
- P 820; Cherryl Co., - P564 P 1,508 2,150
December 31, 2006, 5% of P197,000 P 9,850 12,000

An aging schedule of the accounts receivable as of December 31, 2006 and the decision are shown in the
table below:

Age Net Debit Balance Amount to which the Allow.

is to be adjusted after adjust.
____________ _________________ and corrections have been made

0 1 month P 93,240 1 percent

1 3 months 76,820 2 percent
3 6 months 22,180 3 percent
over 6 months 6,000 Definitely uncollectible, P1,000;
P2,000 is considered 50% uncollec-
tible; the remainder is estima-
ted to be 80% collectible.

There is a credit balance in one account receivable (0-1 month) of P2,000; it represents an advance on a
sales contract. Also, there is a credit balance in one of the 1-3 months accounts receivable of P500 for
which merchandise will be accepted by the customer.

The ledger accounts have not been closed as of December 31, 2006. The Accounts Receivable control
account is not in agreement with the subsidiary ledger. The difference cannot be located, and the auditor
decides to adjust the control to the sum of the subsidiaries after corrections are made.

Questions

26. The adjusted balance of accounts receivable of MATIAS CORPORATION at December 31, 2006 is:
a. P 199,740 b. P 199,540 c. P 198,300 d. P 198,100

27. The adjusted write-off of accounts receivable balance of MATIAS CORPORATION at December 31, 2006
is:
a. P 2,708.00 b. P 2,508.00 c. P 2,384.00 d. P 1,708.00

28. The adjusted allowance of bad debts account of MATIAS CORPORATION at December 31, 2006 is:
a. P 4,980.60 b. P 4,964.20 c. P 4,780.60 d. P 4,764.20
29. The bad debts expense per book of MATIAS CORPORATION at December 31, 2006 is:
a. P 9,850.00 c. P 4,764.20
b. P 6,359.80 d. Cannot be determined

30. The adjusted bad debts expense of MATIAS CORPORATION at December 31, 2006 is:
a. P 3,814.20 b. P 3,614.20 c. P 3,490.20 d. P 2,814.20

Problem 7: Branzuela Corporation reported the following amounts of net income for the years ended
December 31, 2003, 2004 and 2005:

2003 P127,000
2004 150,000
2005 128,500

You are performing the audit for the year ended December 31, 2005. During your examination, you
discover the following errors:

a. As a result of errors in the physical count, ending inventories were

misstated as follows:

December 31, 2004 P14,000 understated

December 31, 2005 P23,000 overstated

b. On December 29, 2005, Branzuela recorded as a purchase,

merchandise in transit, which cost P15,000. The merchandise was shipped FOB Destination and had
not arrived by December 31. The merchandise was not included in the ending inventory.

c. Branzuela records sales on the accrual basis but failed to record sales
on account made near the end of each year as follows

2003 P4,000
2004 5,000
2005 3,500

d. The company failed to record accrued office salaries as follows:

December 31, 2003 P10,000

December 31, 2004 14,000

e. On March 1, 2004, a 10% stock dividend was declared and distributed.

The par value of the shares amounted to P10,000 and market value was P13,000. the stock dividend
was recorded as follows:

Miscellaneous expense P13,000

Common stock 10,000
Retained earnings 3,000

f. On July 1, 2004, Branzuela acquired a three-year insurance policy. The

three-year premium of P6,000 was paid on that date, and the entire premium was recorded as
insurance expense.

g. On January 1, 2005, Branzuela retired bonds with a book value of

P120,000 for P106,000. The gain was incorrectly deferred and is being amortized 10 years as a
reduction of interest expense on other outstanding obligations.

Questions:

31. What is the adjusted net income for the year ended December 31, 2003?
a. P133,000 b. P121,000 c. P117,000 d. P113,000
32. What is the adjusted net income for the year ended December 31, 2004?
a. P159,000 b. P160,000 b. P179,000 c. P187,000

33. What is the adjusted net income for the year ended December 31, 2005?
a. P129,600 b. P131,600 c. P139,600 d. P142,600

34. What adjusting entry should be made on December 31, 2005 to correct the error described in item
B?
a. Accounts payable 15,000
Purchases 15,000
b. Purchases 15,000
Accounts payable 15,000
c. Accounts payable 15,000
Cash 15,000
d. Accounts payable 15,000
Retained earnings 15,000

35. The adjusting entry on December 31, 2004 to correct the error described in item E should include a
debit to
a. Common stock P10,000 c. Additional paid in capital, P3,000
b. Retained earnings, P16,000 d. Miscellaneous expenses, P3,000

Problem 8: On December 31, 2006, DreamBig Company reported as Available-for-sale securities:

Attitude Company, 5,000 shares of common stock (a 1% interest) P 125,000

IstheKEY Company, 10,000 shares of common stock (a 2% interest) 160,000
2Success Company, 25,000 shares of common stock (a 10% interest) 700,000
Marketable equity securities, at cost P 985,000
Less: Valuation allowance 50,000
Marketable equity securities, at market P 935,000

Additional information:

On May, 2007, Attitude Company issued a 10% stock dividend when the market price of its stock was
P24 per share.

On November 1, 2007, Attitude Company paid a cash dividend of P0.75 per share.

On August 5, 2007, IstheKEY Company issued to all shareholders, stock rights on the basis of one right
per share. Market prices at date of issue were P13.50 per share (ex-right) of stock and P1.50 per
rights. DreamBig Company sold all rights on December 16, 2007 for net proceeds of P18,800.

On July 1, 2007, DreamBig Company paid P1,520,000 for 50,000 additional shares of 2Success
Companys common stock which represented a 20% investment in 2Success Company. The fair value
of all of the 2Success Companys identifiable assets net of liabilities was equal to their carrying amount
of P6,350,000. As a result of this transaction, DreamBig Company owns 30% of 2Success Company
and can exercise significant influence over 2Success Companys operating and financial policies.

DreamBig Companys initial 10% interest of 25,000 shares of 2Success Companys common stock was
acquired on January 2, 2006 for P700,000. At that date, the net assets of 2Success Company totaled
P5,800,000 and the fair value of 2Successs identifiable assets net of liabilities was equal to their
carrying amount.

Market prices per share of the marketable equity securities which were all listed in the stock exchange,
were as follows:
At December 31
2006 2007
 Attitude Company - common P 22 P 23
IstheKEY Company common 15 14
2Success Company common 27 29

2Success Company reported net income and paid dividends of:

Year Ended Div. per Share

Year ended December 31. 2006 P350,000 none
Six months ended June 30, 2007 200,000 none
Six months ended December 31, 2007 370,000 P 1.30
(dividend was paid on 10/1/07

There were no other intercompany transactions between DreamBig Company and 2Success Company
and there were no impairment of 2Success Companys asset at year-end.

Questions
36. The investment in Attitude Company common stock at year-end is:
a. P 126,500 b. P 125,000 c. P 120,875 d. P 113,000

37. The investment in Isthekey Company common stock at year-end is:

a. P 160,000 b. P 150,000 c. P 144,000 d. P 140,000

38. The investment in 2Success Company common stock at year-end is:

a. P 2,288,500 b. P 2,270,250 c. P 2,264,000 d. P 2,175,000

39. The recovery of market decline to be reported in the income statement is:
a. P 50,000 b. P 47,500 c. P 2,500 d. P 0

40. Gain on sale of stock rights is:

a. P 3,600 b. P 2,800 c. P 1,200 d. P 0

Problem 9:Your audit client, Tortor Corporation, presents to you the unadjusted trial balance shown
below, which was drawn from its general ledger as at June 30, 2006, the end of its fiscal year.
TORTOR CORPORATION
Unadjusted Trial Balance
June 30, 2006
Cash 721,800
Trading Securities 200,000
Accounts receivable 2,128,000
Inventory, June 30, 2005 5,194,300
Invest. in associates (Equity Method) 1,200,000
Equipment 1,621,000
Prepaid expenses 116,200
Goodwill 500,000
Accounts payable 2,426,400
Accrued expenses 152,600
Accrued interest payable 226,000
Allowance for bad debts 36,100
Allowance for depreciation 450,700
Loans payable 2,500,000
Capital stock 3,000,000
Additional paid-in capital 260,000
Retained earnings 1,808,800
Sales 21,602,000
Interest income 140,000
 Purchases 13,928,000
Salaries and wages 3,250,000
Rent, light and water 750,000
Advertising 400,000
Supplies 300,000
Taxes 250,000
Miscellaneous expenses 1,793,300
Interest expense 250,000 _________
32,602,600 32,602,600

Your examination of the accounts disclosed the following information:

1. The cash account included an NSF check returned by the bank on June 30, 2006, but recorded as a
cash reduction in July, 2006, P44,000, and a voucher for suppliers paid in cash on June 27, 2006 but
not entered in the books, P26,500.

2. Marketable Securities which cost P200,000 have a market value of P210,000. Long-Term
Investments have a market value of P1,250,000 as at balance sheet date.

3. The company has been providing an allowance for bad debts at 5% of the outstanding customers
balances. Uncollectible accounts were charged off against the allowance during the year.

4. A physical inventory taken by management personnel of the merchandise stock at June 30, 2006
totaled P5,751,900. You were unable to observe the inventory-taking as your services were engaged
only on July 15, 2006. Due to the condition of the accounting records and internal accounting controls,
you were also unable to satisfy yourself as to the inventory.

5. Equipment no longer needed (cost, P150,000; accumulated depreciation, P45,000) was sold for
P100,000 cash on June 29, 2006; the cash proceeds were credited to the Equipment account.
Equipment is depreciated at 10% a year on a monthly basis computed at year-end.

6. Prepaid expenses included insurance premium of P30,000 paid on April 1, 2006 on a one-year fire
insurance policy.

7. Salaries unpaid as of June 30, 2006, P13,000 were not taken up under accrued expenses.

8. The Goodwill account was set-up with a credit to Retained Earnings on the basis of a resolution of
the Board of Directors.

9. A 10% cash dividend declared on June 15, 2006, payable on July 31, 2006, has not been recorded.

10. The Board of Directors approved a resolution on June 25, 2006 appropriating out of Retained
Earnings the amount of P300,000 to meet possible future losses on inventories.

Questions
41. Cash for the fiscal year-ended June 30, 2006 is:
a. P 633,800 b. P 651,300 c. P 677,800 d. P 695,300

42. Marketable securities for the fiscal year-ended June 30, 2006 is:
a. P 0 b. P 190,000 c. P 200,000 d. P 210,000

43. Accounts receivable for the fiscal year-ended June 30, 2006 is:
a. P 2,172,000 b. P 2,128,000 c. P 2,100,000 d. P 2,084,000

44. Allowance for doubtful accounts for the fiscal year-ended June 30, 2006 is:
a. P 72,500 b. P 104,200 c. P 106,400 d. P 108,600

45. Inventory for the fiscal year-ended June 30, 2006 is:
 a. P 5,751,900 c. P 4,636,700
b. P 5,194,300 d. Cannot be determined.

46. Equipment for the fiscal year-ended June 30, 2006 is:
a. P 1,671,000 b. P 1,571,000 c. P 1,621,000 d. P 1,566,000

47. Accumulated depreciation for the fiscal year-ended June 30, 2006 is:
a. P 390,700 b. P 552,800 c. P 562,800 d. P 622,800

48. Retained earnings before net income for the fiscal year-ended June 30, 2006 is:
a. P 708,800 b. P 1,008,800 c. P 1,308,800 d. P 1,508,000

49. Retained earnings after net income for the fiscal year-ended June 30, 2006 is:
a. P 2,639,700 b. P 2,405,500 c. P 1,840,500 d. P 1,805,500

50. The auditor should issue a(an):

a. Unqualified Opinion c. Qualified Opinion
b. Unqualified Opinion with explanatory paragraph d. Adverse Opinion