PROBLEM NO. 1 d.

(P 11,600)
Gerry Corporation asked you to review its records and prepare
corrected financial statements. The books of accounts are in 4. Net income (loss) in 2017
agreement with the following statement of financial position: a. (P 76,000)
b. P 194,400
Gerry Corporation c. P 195,200
Statement of Financial Position d. P 196,000
December 31, 2017
Assets 5. Retained Earnings as of December 31, 2017
Cash P 40,000 a. P 281,600
Accounts Receivable 80,000 b. P 291,200
Notes Receivable 24,000 c. P 292,000
Inventories 200,000 d. P 147,200
Total Assets P 344,000

Liabilities and Owners Equity PROBLEM NO. 2

Accounts Payable P 16,000 You obtained the following information from the balance sheet of
Notes Payable 32,000 Tristan Company in connection with your audit of the Companys
Capital Stock 80,000 financial statements for the year 2017:
Retained Earnings 216,000
Total Liabilities and owners equity P 344,000 Dec. 31, 2017 Dec. 31, 2016
Cash P 706,600 P 200,000
A review of the companys books indicates that the following errors Notes Receivable 0 50,00
and omissions had not been corrected during the applicable years: Inventory ? 399,750
Accounts payable ? 150,000
2014 2015 2016 2017
Ending Inventory - All operating expenses are paid by Tristan with cash and all
Overstated P - P 56,000 P 64,000 P - purchases of inventory are made on account. Tristan sells only
one product. All sales are cash sales which are made for P100 per
Ending Inventory - unit. Tristan purchases 1,500 units of inventory per month and
Understated 48,000 - - 72,000
values its inventory using periodic FIFO. The unit cost of inventory
Prepaid Expense 7,200 5,600 4,000 4,800 during January 2017 was P65.20 and increased P0.20 per month
Unearned Income - 3,200 - 2,400 during the year. During 2017, payments to suppliers totaled
Accrued Expense 1,600 600 800 400 P943,400 and operating expenses totaled P440,000. The ending
Accrued Income - 1,000 - 1,200 inventory for 2016 was valued at P65.00 per unit.

Based on the above and the result of your audit, determine the
No dividends were declared during the years 2014 to 2017 and no
following:
adjustments were made to retained earnings. The companys
6. Number of units sold during 2017
books reported the following profit:
a. 18,900
b. 18,400
2014 P 60,000 2016 P 52,000
c. 8,268
2015 44,000 2017 60,000
d. 8,768
QUESTIONS:
7. Accounts payable balance at December 31, 2017
Determine the adjusted amounts of the following: (Disregard tax a. P 400,000
implications)
b. P 380,200
c. P 150,000
1. Net income in 2014
d. P 383,500
a. P 99,200
b. P 116,800
8. Inventory amount at December 31, 2017
c. P 113,600
a. P 385,900
d. P 17,600
b. P 1,055,183
c. P 352,500
2. Net income (loss) in 2015
d. P 1,022,483
a. (P 62,800)
b. (P 14,800) 9. Which of the following audit procedures would provide the
c. (P 59,600)
least reliable evidence that the client has legal title to
d. P 145,200
inventories?
a. Confirmation of inventories at locations outside the
3. Net income (loss) in 2016
clients facilities
a. P 60,400
b. Observation of physical inventory counts
b. P 44,800
c. Examination of paid vendors invoices
c. P 44,400

A.Y. 2017-2018
 d. Analytical review of inventory balances compared to a. Test counts and cutoff procedures
purchasing and sales activities. b. Examination and reconciliation
c. Inquiry and observation
10. An auditor generally tests physical security controls over d. Inspection and recomputation
inventory by

PROBLEM NO. 3
You are engaged to examine the financial statements of the Melchor Manufacturing Corp for the year ended December 31, 2017. The
following schedules for property, plant and equipment and related accumulated depreciation accounts have been prepared by your client.
The opening balances agree with your prior years audit working papers.
Melchor Manufacturing Co.
Analysis of Property, Plant and Equipment and
Related Accumulated Depreciation Accounts
Year Ended December 31, 2017
Audited Per Books
Cost 12-31-16 Additions Retirement 12-31-17
Land P 450,000 P 100,000 P - P 550,000
Buildings 2,400,000 350,000 - 2,750,000
Machinery & Equipment 2,770,000 808,000 520,000 3,526,000
P 5,620,000 P 1,258,000 P 520,000 P 6,826,000

Audited Per books

Accumulated Depreciation 12-31-16 Additions Retirement 12-31-17
Buildings P 1,200,000 P 103,000 P - P 1,303,000
Machinery & Equipment 546,500 313,600 - 860,100
P 1,746,500 P 416,600 P - P 2,163,100

Further investigation revealed the following: Based on the above and the result of your audit, answer the
following:
a. All depreciable assets are depreciated on the straight-line
basis (with no salvage value) based on the following 11. The carrying amount of the buildings on December 31, 2017
estimated lives: Buildings 25 years, all other items 10 years. is
a. P 1,820,250
b. The company entered into a lease contract for a derrick b. P 1,827,400
machine with annual rental of P100,000 payable in advance c. P 1,816,250
every April 1. The parties to the contract stipulated that a 30- d. P 1,447,000
day written notice is required to cancel the lease. Estimated
useful life is 10 years. The derrick was recorded under 12. The carrying amount of the land on December 31, 2017 is
machinery and equipment at P808,000 and P60,600, a. P 650,000
applicable to the machine was included in the depreciation b. P 450,000
expense during the year. c. P 750,000
d. P 545,000
c. The company finished construction of a new building wing in
June 30. The useful life of the main building was not 13. The carrying amount of the property, plant and equipment as
prolonged. The lowest construction bid was P350,000 which of December 31, 2017 is
was the amount recorded. Company personnel constructed a. P 3,860,750
the building at a total cost of P330,000. b. P 3,755,750
c. P 3,955,750
d. P100,000 was paid for the construction of a parking lot which d. P 3,312,900
was completed on July 1, 2017. The expenditure was charged
to land. 14. The loss on the disposal of the machinery sold for P 520,000
is
e. The P520,000 equipment under retirement column represent a. P 56,000
cash received on October 1, 2017 for a machinery bought on b. P 80,000
October 1, 2013 for P960,000. The bookkeeper recorded c. P 152,000
depreciation expense of P72,000 on this machine in 2017. d. P 0

f. The companys president donated land and building
appraised at P200,000 and P400,000 respectively to the
company to be used as plant site. The company began
operating the plant on September 30, 2017. Since no money
was involved, the bookkeeper did not make any entry for the
above transaction.
15. An auditor analyzes repairs and maintenance accounts
primarily to obtain evidence in support of the audit assertion
that all
a. Noncapitalizable expenditures for repairs and
maintenance have been recorded in the proper period.
b. Expenditures for property and equipment have been
recorded in the proper period.

A.Y. 2017-2018
 c. Noncapitalizable expenditures for repairs and
maintenance have been properly charged to expense.
d. Expenditures for property and equipment have not been
charged to expense.
PROBLEM NO. 4
IVAN, Inc. had the following noncurrent asset account balances at
December 31, 2016:
Patent P 1,920,000.
Accumulated amortization ( 240,000)
Deferred tax asset 360,000.
Transactions during 2017 and other information relating to the
noncurrent assets of IVAN, Inc. were as follows:
a. The patent was purchased from Jake Company for
P1,920,000 on January 1, 2015, at which date the remaining
legal life was sixteen years. On January 1, 2017, IVAN
determined that the useful life of the patent was only eight
years from the date of acquisition.
b. On January 3, 2017, in connection with the purchase of a
trademark from Cody Corporation, the parties entered into a
noncompetition agreement and a consulting contract. IVAN
paid Cody P8,000,000 of which three-quarters was for the
trademark and one-quarter was for Codys agreement not to
compete for a five-year period in the line of business covered
by the trademark. IVAN considers the life of the trademark to
be indefinite. Under the consulting contract, IVAN agreed to
pay Cody P500,000 annually on January 3 for five years. The
first payment was made on January 3, 2017.
c. Deferred tax asset is provided in recognition of temporary
differences between accounting and tax reporting of rent
income and warranty liability. For the year ended December
31, 2017, (1) rent collected in advance decreased by
P200,000, and (2) product warranty liability increased by
P150,000. IVANs income tax rate for 2017 is 35%.
Based on the above and the result of your audit, answer the
following:
16. The total amortization of the intangible assets for the year
2017 is
a. P 680,000
b. P 610,000
c. P 280,000
d. P 830,000
17. The carrying amount of the intangible assets as of December
31, 2017 is
a. P 8,850,000
b. P 7,400,000
c. P 9,070,000
d. P 9,000,000
18. The carrying amount of deferred tax asset as of December
31, 2017 is
a. P 342,500
b. P 310,000
c. P 237,500
d. P 360,000
19. When an internally generated asset meets the recognition
criteria, the appropriate treatment for costs previously
expensed is:
a. Reinstatement
b. No adjustment as these amounts may not be reinstated.
c. Include in the cost of the development of the asset
d. Capitalize into the cost of the asset and adjust the
opening balance of retained earnings.
20. Which statement is correct regarding initial recognition of
research and development costs?
a. All research costs should be charged to expense
b. All development costs should be capitalized
c. If an entity cannot distinguish the research phased of an
integral project to create an intangible asset from the
development phase, the enterprise treats the expenditure
for that project as if it were incurred in the development
phase only.
d. A research and development project acquired in a
business combination is not recognized as an asset.
PROBLEM NO. 5
The adjusted trial balance of Jasmin Corporation on December 31,
2016, includes the following cash and receivable balances.
Cash-Allied Bank P 450,000
Currency on hand 160,000
Petty cash fund 10,000
Cash in bond sinking fund 150,000
Notes receivable (including
notes discounted with
recourse, P155,000) 365,000
Accounts Receivable P 856,000.
Allowance for doubtful accounts (41,500) 814,500
Interest receivable 5,250
Current liabilities reported in the December 31, 2016, statement of
financial position included:
Obligation on discounted notes receivable P 155,000
Transactions during 2017 included the following:
A. Sales on account were P7,670,000.
B. Cash collected on accounts totaled P5,765,000 including
accounts of P930,000 with cash discounts of 2%.
C. Notes received in settlement of accounts totaled P825,000.
D. Notes receivable discounted as of December 31, 2016, were
paid at maturity with the exception of one P30,000 note on
which the company had to pay the bank P30,900, which
include interest and protest fees. It is expected that recovery
will be made on this note early in 2018.
E. Customer notes of P585,000 were discounted with recourse
during the year, proceeds from their transfer being P585,000.
(All discounting transactions were recorded as loans.) Of this
total, P480,000 matured during the year without notice of
protest.
F. Customer accounts of P87,200 were written off during the
year as worthless.
G. Recoveries of bad debts written off in prior years were
P20,200.
H. Notes receivable collected during the year totaled P270,000
and interest collected was P24,500.
A.Y. 2017-2018
I. On December 31, accrued interest on notes receivable was d. Confirmation replies received directly from customers.
P6,300.
J. Cash of P350,000 was borrowed from Allied Bank with
accounts receivable of P400,000 being pledged on the loan. PROBLEM NO. 6
Collections of P195,000 had been made on these receivables Inting Bank granted a loan to a borrower in the amount of
[included in the total given in transaction (b)], and this amount P10,000,000 on January 1, 2017. The interest rate on the loan is
was applied on December 31, 2017, to payment of accrued 10% payable annually starting December 31, 2017. The loan
interest on the loan of P6,000, and the balance to the partial matures in five years on December 31, 2021. Inting bank incurs
payment of the loan. P130,900 of direct loan origination cost and P50,000 of indirect
K. The petty cash fund was reimbursed (meaning that cash was loan origination cost. In addition, Inting Bank charges the borrower
removed from the bank account and placed in the petty cash a 5-point nonrefundable loan origination fee.
fund) based following analysis of expenditure vouchers:
Travel expense P 1,120 The borrower paid the interest due on December 31, 2017.
Entertainment expense 780 However, during 2018 the borrower began to experience financial
Postage expense 930 difficulties, requiring the bank to reassess the collectability of the
Office supplies expense 1,730 loan. As of December 31, 2018, the bank expects that only
Cash short and over (an income account) 60 P8,000,000 of the principal will be recovered. The P8,000,000
principal amount is expected to be collected in two equal
L. Cash of P30,000 was added to bond retirement fund installments on December 31, 2020 and December 31, 2022. The
M. Currency on hand at December 31, 2017, was P120,000 prevailing interest rates for similar type of note as of December 31,
N. Total cash payments for all expenses during the year were 2017 and 2018 are 15% and 16%, respectively.
P6,800,000. Charge to general expenses
O. Uncollectible accounts are estimated to be 5% of the QUESTIONS:
December 31, 2017, Accounts Receivable balance. Based on the above and the result of your audit, answer the
following: (Round off present value factors to four decimal places)
QUESTIONS:
Based on the above and the result of your audit, answer the 26. The interest income to be recognized in 2017 is
following: a. P 1,000,000
21. The total cash to be reported in the companys December 31, b. P 1,059,399
2017 statement of financial position is c. P 1,080,150
a. P 555,700 d. P 1,051,346
b. P 574,300
c. P 574,180 27. The carrying amount of the loan as of December 31, 2017 is
d. P 569,800 a. P 10,000,000
b. P 9,732,246
22. The doubtful accounts expense to be recognized for the year c. P 9,690,299
ended December 31, 2017 is d. P 9,580,150
a. P 117,010
b. P 91,510 28. The loan impairment loss to be recognized in 2018 is
c. P 117,940 a. P 3,875,032
d. P 92,440 b. P 3,809,099
c. P 4,118,800
23. The net accounts receivable as of December 31, 2017 is d. P 0
a. P 1,713,190
b. P 1,730,860 29. Which of the following audit procedures provide the best
c. P 1,738,690 evidence about the collectability of notes receivable?
d. P 1,756,360 a. Examination of cash receipts records to determine
promptness of interest and principal payments.
24. The net trade and other receivables to be reported in the b. Reconciliation of the detail of notes receivable and the
companys December 31, 2017 statement of financial position provision for uncollectible amounts to the general ledger
is control.
a. P 2,023,690 c. Confirmation of note receivable balances with the
b. P 2,078,560 debtors.
c. P 2,072,260 d. Examination of notes for appropriate debtors signatures.
d. P 2,060,890
30. A logical substantive test for accrued interest receivable
25. In determining validity of accounts receivable, which of the would be to
following would you consider as most reliable? a. Verify the interest income by a calculation based on the
a. Direct telephone communication between auditor and face amount of notes and the nominal interest rate.
debtor. b. Recalculate interest earned and compare it to the
b. Credits to accounts receivable from the cash receipts amounts received.
book after the close of business at year end. c. Verify the cost, carrying value, and market value of notes
c. Documentary evidence that supports the accounts receivable.
receivable balance

A.Y. 2017-2018
 d. Compare the interest income with published interest b. P 2,287,800
investment records. c. P 2,304,100
d. P 2,297,400
PROBLEM NO. 7
On December 31, 2016, Reo Boc Companys financial statements 34. Carrying amount of Available for Sale Securities as of
showed the following balances related to its securities accounts: December 31, 2017
Trading securities P 1,477,500 a. P 844,000
Available-for-sale securities (AFS) 1,180,000 b. P 806,000
c. P 906,000
Reo Bocs securities portfolio on December 31, 2016, was made d. P 944,000
up of the following securities:
35. In 2017, what amount of unrealized gain or loss should be
Security Classification Cost Fair Value shown as component of income and equity?
10,000 Yeye Income Equity
Bonel Corp. a. P 28,725 gain P 62,000 gain
shares Trading P 750,000 P 762,500 b. P 28,725 gain P 22,000 loss
8,000 Totoy Bibo c. P 32,900 loss P 122,000 loss
Inc. shares Trading 550,000 528,250 d. P 39,600 gain P 78,000 gain
10% Maynilad
bonds Trading 250,000 186,750 PROBLEM NO. 8
10,000 Bulaklak Available for On January 1, 2016, the Kay Jane, Inc. issued P4,000,000 of 8%
Inc. shares sale 590,000 630,000 convertible bonds at par. The bonds will mature on January 1,
20,000 Jumbo Inc. Available for 2020 and interest is payable annually every January 1. The bond
shares sale 490,000 550,000 contract entitles the bondholders to receive 6, P100 par value,
ordinary shares in exchange for each P1,000 bond. On the date of
During 2017, the following transactions took place: issue, the prevailing market interest rate for similar debt without
Mar. 1 Purchased 3,000 additional shares of Yeye Bonel the conversion option is 10%.
Corp. for P229,500, classified as held for trading.
Apr. 15 Sold 4,000 shares of Totoy Bibo Inc. for P69 per On December 31, 2017, the holders of the bonds with total face
share. value of P2,000,000 exercised their conversion privilege. In
May 4 Sold 4,000 shares of Bulaklak Inc. for P62 per addition, the company reacquired at 110, bonds with a face value
share. of P1,000,000.
Oct. 30 Purchased 15,000 shares of Pasaway Co. for
P832,500, classified as held for trading. QUESTIONS:
Based on the above and the result of your audit, answer the
The fair values of the shares and bonds on December 31, 2017, following:
are as follows: 36. How much of the proceeds from the issuance of convertible
Yeye Bonel Corp. shares P 76.60 per share bonds should be allocated to equity?
Totoy Bibo Inc. shares P 68.50 per share a. P 1,268,000
Pasaway Co. shares P 55.25 per share b. P 253,632
Maynilad water bonds P 205,550 . c. P 443,328
Bulaklak Inc. shares P 61.00 per share d. P 0
Jumbo Unlimited Inc. shares P 27.00 per share
37. How much is the carrying amount of the bonds payable as of
QUESTIONS: December 31, 2016?
Based on the above and the result of your audit, determine the a. P 4,000,000
following: b. P 3,592,340
31. Gain or loss on sale of 4,000 Totoy Bibo Inc. shares on April c. P 2,778,800
15, 2017 d. P 3,801,000
a. P 1,000 gain
b. P 1,000 loss 38. How much is the interest expense for the year 2017?
c. P 11,875 gain a. P 320,000
d. P 11,875 loss b. P 359,234
c. P 277,880
32. Net realized gain or loss on sale of 4,000 Bulaklak Inc. shares d. P 380,100
on May 4, 2017
a. P 12,000 gain 39. The conversion of the bonds on December 31, 2017 will
b. P 4,000 gain increase share premium by
c. P 12,000 loss a. P 730,553
d. P 4,000 loss b. P 615,786
c. P 800,000
33. Carrying amount of Trading Securities as of December 31, d. P 0
2017
a. P 2,337,000

A.Y. 2017-2018
40. How much is the loss on bond reacquisition on December 31,
2017? 43. Total retained earnings
a. P 100,000 a. P 600,000
b. P 192,106 b. P 565,000
c. P 134,724 c. P 557,000
d. P 0 d. P 560,000

PROBLEM NO. 9 44. Total Equity

Essie Corporation was authorized at the beginning of 2015 with
300,000 authorized shares of P100, par value ordinary shares. At
December 31, 2015, the shareholders equity section of Essie was
as follows:
Share capital, par value P100 per share;
authorized 300,000 shares; issued
30,000 shares P 3,000,000
Share Premium 300,000
Retained Earnings 450,000
Total shareholders equity P 3,750,000
On June 15, 2016, Essie issued 50,000 ordinary shares for
P6,000,000. A 5% share dividend was declared on September 30,
2016 and issued on November 10, 2016 to shareholders of record
on October 31, 2016. Market value of ordinary share was P110
per share on declaration date. The profit of Essie for the year
ended December 31, 2016 was P475,000.
a. P 26,397,500
b. P 25,932,500
c. P 26,492,500
d. P 26,445,000
45. An auditor usually obtains evidence of shareholders equity
transactions by reviewing the entitys
a. Canceled stock certificates
b. Transfer agents records
c. Treasury stock certificate book.
d. Minutes of board of directors meetings
PROBLEM NO. 10
Odin Corporation, a nonpublic entity, was incorporated on
December 1, 2016, and began operations one week late closing
the books for the fiscal year ended November 30i, 2017, the
controller prepared the following financial statements:

During 2017, Essie had the following transactions; Odin Corporation

Statement of Financial Position
Mar. 1 Essie reacquired 3,000 shares of its ordinary November 30, 2017
shares for P95 per share.
May 31 Essie sold 1,500 treasury shares for P120 per Assets
share. Current Assets:
Aug. 10 Issued to shareholders one right for each share Cash P 150,000
held to purchase two additional ordinary shares for Marketable securities, at cost 60,000
P125 per share. The rights expire on December Accounts receivable 450,000
31, 2017 Allowance for doubtful accounts (59,000)
Sept. 15 25,000 rights were exercised when the market Inventories 430,000
value of ordinary share was P130 per share. Prepaid Insurance 15,000
Oct. 31 40,000 rights were exercised when the market Total current assets 1,046,000
value of the ordinary share was P140 per share. Property, plant and equipment 426,000
Dec. 10 Essie declared a cash dividend of P2 per share Less accumulated depreciation (40,000)
payable on January 5, 2018 to shareholders of Property, plant and equipment, net 386,000
record on December 31, 2017. Research and development costs 120,000
Dec. 20 Essie retired 1,000 treasury shares and reverted Total assets P 1,552,000
them to an unissued basis. On this date, the
market value of the ordinary share was P150 per Liabilities and Shareholders Equity
share. Current liabilities:
Dec. 31 Profit for 2017 was P500,000. Accounts payable and accrued P 592,000
expenses
QUESTIONS: Income taxes payable 224,000
Based on the above and the result of your audit, determine the Total current liabilities 816,000
following as of December 31, 2017: Shareholders equity:
Share capital, P10 par value 400,000
41. Share Capital Retained earnings 336,000
a. P 21,400,000 Total shareholders equity 736,000
b. P 21,300,000 Total liabilities and shareholders equity P 1,552,000
c. P 14,800,000
d. P 21,250,000
Odin Corporation
Statement of Income
42. Share Premium
For the Fiscal Year Ended November 30, 2017
a. P 4,627,500
Net Sales P 2,950,000
b. P 3,007,500
Operating expenses:
c. P 4,632,500
Cost of sales 1,670,000
d. P 4,592,500

A.Y. 2017-2018
 Selling and administrative 650,000 48. Total Assets
Depreciation 40,000 a. P 1,484,200
Research and development 30,000 b. P 1,486,600
2,390,000 c. P 1,489,200
Income before income taxes 560,000 d. P 1,491,600
Provision for income taxes 224,000
Net income P 336,000 49. Total Liabilities
a. P 833,340
Odin is in the process of negotiating a loan for expansion b. P 783,340
purposes, and the bank has requested audited financial c. P 855,840
statements. During the course of the audit, the following additional d. P 805,840
information was obtained:
A. The investment portfolio consists of short-term investments in 50. Total Equity
marketable equity securities with a total market valuation of a. P 683,260
P55,000 as of November 30, 2017. b. P 635,260
B. Based on an aging of the accounts receivable as of November c. P 639,760
30, 2017, it was estimated that P36,000 of the receivables will d. P 653,260
be uncollectible.
C. Inventories at November 30, 2017 did not include work in
process inventory costing P12,000, sent to an outside
processor on November 29, 2017.
D. A P3,000 insurance premium paid on November 30, 2017 on
a policy expiring one year later was charged to insurance
expense.
E. Odin adopted a pension plan on June 1, 2017 for eligible
employees to be administered by a trustee. Based upon
actuarial computations, the first twelve months normal
pension was estimated at P45,000.
F. On June 1, 2017, a production machine purchased for
P24,000 was charged to repairs and maintenance. Odin
depreciates machines of this type on the straight-line method
over a five-year life with no salvage value, for financial and
tax purposes.
G. Research and development costs of P150,000 were incurred
in the development of a patent, which Odin expects to be
granted during the fiscal year ending November 30, 2018.
Odin initiated a five-year amortization of the P150,000 total
cost during the fiscal year ended November 30, 2017.
H. During December 2017, a competitor company filed suit
against Odin for patent infringement claiming P200,000
damages. Odins legal counsel believes that an unfavorable
outcome is probable. A reasonable estimate of the courts
award to the plaintiff is P50,000.
I. The 40% effective tax rate was determined to be appropriate
for calculating the provision for income taxes for the fiscal year
ended November 30, 2017. Ignore computation of the
deferred portion of income taxes.

QUESTIONS:
Based on the above and the result of your audit, determine the
following as of and for the fiscal period ended November 30, 2017:
46. Net income
a. P 253,260
b. P 283,260
c. P 235, 260
d. P 239,760

47. Current Assets

a. P 1,084,000
b. P 1,061,000
c. P 1,079,000
d. P 1,073,000

A.Y. 2017-2018