NFJPIA Mock Board 2016_Auditing

AUDITING INSTRUCTIONS: Select the best answer for each of the following questions. ALL questions are compulsory and MUST be attempted. Mark only one answer for each item on the answer sheet provided. Strictly NO ERASURES ALLOWED. Erasures will render your examination answer sheet INVALID. Use PENCIL NO. 2 only. GOODLUCK! 1.

According to PSA 200, professional skepticism includes being alert to all of the following except: a. Audit evidence that contradicts other audit evidence obtained. b. Information that brings into question the relevance of documents. c. Conditions that may indicate possible fraud. d. All of the above.

2.

Which of the following would not be considered audit evidence? a. Invoices received by the company and retained on the company’s IT system in electronic form. b. The electronic work paper program package used by the auditor to produce the electronic work papers. c. Hard copy minutes of the Board of Directors and Audit Committee meetings. d. Electronic images of the front and back of checks that the company has written.

3.

4.

Which of the following statements is correct regarding the auditor's consideration of the possibility of illegal acts by clients? a. The auditor has a responsibility to plan and perform the audit to obtain reasonable assurance that no illegal acts have been committed by clients. b. The auditor's training, experience, and understanding of the client should be used to provide a basis for the determination as to whether illegal acts have occurred. c. If specific information concerning an illegal act comes to the auditor's attention, the auditor should apply audit procedures specifically directed to ascertaining whether an illegal act has occurred. d. If an illegal act has occurred, the auditor should express a qualified opinion or an adverse opinion on the financial statements taken as a whole. As part of designing and performing procedures to address management override of controls, auditors must perform which of the following procedures?

a. b. c. d. 5.

Examine all journal entries above materiality Yes No Yes No

Review accounting estimates for biases Yes No No Yes

Items documented in an engagement letter about which the auditor and client establish an understanding include: a. management’s responsibility for ensuring that the company complies with applicable laws and regulations. b. management’s responsibility for providing reasonable assurance about whether the financial statements are free of material misstatement. c. the auditor’s responsibility for maintaining effective ICFR throughout the audit engagement. d. the auditor’s responsibility for signing a management representation letter at the conclusion of the audit engagement.

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6.

Which of the following factors would most likely influence an auditor's consideration of the reliability of data when performing analytical procedures? a. Whether the data were developed in a computerized or a manual accounting system. b. Whether the data were prepared on the cash basis or in conformity with GAAP. c. Whether the data were developed under a system with adequate controls. d. Whether the data were processed in an online system or a batch entry system.

7.

When a compensating control exists, the absence of a key control: a. is still a major concern to the auditor. b. could cause a material loss, so it must be tested using substantive procedures. c. is magnified and must be removed from the sampling process and examined in its entirety. d. is no longer a concern because there is no longer a significant deficiency or material weakness.

8.

For effective internal control, the accounts payable department generally should a. Stamp, perforate, or otherwise cancel supporting documentation after payment is mailed. b. Ascertain that each requisition is approved as to price, quantity, and quality by an authorized employee. c. Obliterate the quantity ordered on the receiving department copy of the purchase order. d. Establish the agreement of the vendor's invoice with the receiving report and purchase order.

9.

Which of the following statements is correct concerning materiality in a financial statement audit? a. Analytical procedures performed during an audit's review stage may change materiality levels. b. If the materiality amount used in evaluating audit findings increases from the amount used in planning, the auditor should apply additional substantive tests. c. The auditor's materiality judgments generally involve quantitative, but not qualitative, considerations. d. Materiality levels are generally considered in terms of the aggregate level of misstatement that could be considered material to all of the financial statements.

10. In using the work of a specialist, an understanding should exist among the auditor, the client, and the specialist as to the nature of the work to be performed by the specialist. Preferably, the understanding should be documented and would include all of the following except a. The objectives and scope of the specialist's work. b. The specialist's representations as to her or his relationship, if any, to the client. c. The specialist's understanding of the auditor's corroborative use of the specialist's findings in relation to the representations in the financial statements. d. A statement that the methods or assumptions to be used are not inconsistent with those used by the client.

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AUDITING

TeamPRTC 11. The ultimate purpose of assessing control risk is to contribute to the auditor's evaluation of the risk that: a. Specific internal control activities are not operating as designed. b. The collective effect of the control environment may not achieve the control objectives. c. Tests of controls may fail to identify activities relevant to assertions. d. Material misstatements may exist in the financial statements. 12. Which of the following characteristics most likely would heighten an auditor's concern about the risk of material misstatement arising from fraudulent financial reporting? a. There is a lack of interest by management in maintaining an earnings trend. b. Computer hardware is usually sold at a loss before being fully depreciated. c. Management had frequent disputes with the auditor on accounting matters. d. Monthly bank reconciliations usually include several large checks outstanding. 13. Before applying principal substantive tests to an entity's accounts receivable at an interim date, an auditor should: a. Consider the likelihood of assessing the risk of incorrect rejection too low. b. Project sampling risk at the maximum for tests covering the remaining period. c. Ascertain that accounts receivable are immaterial to the financial statements. d. Assess the difficulty in controlling the incremental audit risk. 14. What is the most likely course of action that an auditor would take after determining that performing substantive tests on inventory will take less time than performing tests of controls? a. Assess control risk at a low level. b. Perform both tests of controls and substantive tests on inventory. c. Perform only substantive tests on inventory. d. Perform only tests of controls on inventory. 15. After making inquiries about credit granting policies, an auditor selects a sample of sales transactions and examines evidence of credit approval. This test of controls most likely supports management's financial statement assertion(s) of: a. b. c. d.

Rights and obligations Yes Yes No No

Completeness Yes No Yes No

16. Which of the following strategies most likely could improve the response rate of the confirmations of accounts receivable? a. Restrict the selection of accounts to be confirmed to those customers with large balances. b. Include a list of items or invoices that constitute the customers' account balances. c. Explain to customers that discrepancies will be investigated by an independent third party. d. Ask customers to respond to the confirmation requests directly to the auditor by fax. 17. As a result of tests of controls, an auditor assesses control risk too high. This incorrect assessment most likely occurred because:

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a. Control risk based on the auditor's sample is less than the true operating effectiveness of the client's control activity. b. The auditor believes that the control activity relates to the client's assertions when, in fact, it does not. c. The auditor believes that the control activity will reduce the extent of substantive testing when, in fact, it will not. d. Control risk based on the auditor's sample is greater than the true operating effectiveness of the client's control activity. 18. Which of the following characteristics most likely would be an advantage of using classical variables sampling rather than probability-proportional-to-size (PPS) sampling? a. The selection of negative balances requires no special design considerations. b. The sampling process can begin before the complete population is available. c. The auditor need not consider the preliminary judgments about materiality. d. The sample will result in a smaller sample size if few errors are expected. 19. Which of the following matters is an auditor required to communicate to those charged with governance? a. Adjustments that were suggested by the auditor and recorded by management that have a significant effect on the entity's financial reporting process. b. The auditor's consideration of risk factors in assessing the risk of material misstatement arising from the misappropriation of assets. c. The results of the auditor's analytical procedures performed in the review stage of the engagement that indicate significant variances from expected amounts. d. Changes in the auditor's preliminary judgment about materiality that were caused by projecting the results of statistical sampling for tests of transactions. 20. After considering an entity's negative trends and financial difficulties, an auditor has substantial doubt about the entity's ability to continue as a going concern. The auditor's considerations relating to management's plans for dealing with the adverse effects of these conditions most likely would include management's plans to: a. Increase current dividend distributions. b. Reduce existing lines of credit. c. Increase ownership equity. d. Purchase assets formerly leased. 21. In which of the following situations would an auditor ordinarily choose between expressing a qualified opinion or an adverse opinion? a. The auditor did not observe the entity's physical inventory and is unable to become satisfied about its balance by other auditing procedures. b. Conditions that cause the auditor to have substantial doubt about the entity's ability to continue as a going concern are inadequately disclosed. c. There has been a change in accounting principles that has a material effect on the comparability of the entity's financial statements. d. The auditor is unable to apply necessary procedures concerning an investor's share of an investee's earnings recognized on the equity method.

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AUDITING

TeamPRTC

22. Under which of the following circumstances would an auditor's expression of an unqualified opinion be inappropriate? a. The auditor is unable to obtain the audited financial statements of a significant subsidiary. b. The financial statements are prepared on the entity's income tax basis. c. There are significant deficiencies in the design and operation of the entity's internal control. d. Analytical procedures indicate that many year-end account balances are not comparable with the prior year's balances. 23. An auditor determines that the entity is presenting certain supplementary financial disclosures of pension information that are required by the SEC. Under these circumstances, the auditor should: a. Add an explanatory paragraph to the auditor's report that refers to the required supplementary information. b. State that the audit is not being performed in accordance with generally accepted auditing standards. c. Document in the working papers that the required supplementary information is presented, but should not apply any procedures to the information. d. Compare the required supplementary information for consistency with the audited financial statements. 24. In the first audit of a client, an auditor was not able to gather sufficient evidence about the consistent application of accounting principles between the current and prior year, as well as the amounts of assets or liabilities at the beginning of the current year. This was due to the client's record retention policies. If the amounts in question could materially affect current operating results, the auditor would: a. Be unable to express an opinion on the current year's results of operations and cash flows. b. Express a qualified opinion on the financial statements because of a client-imposed scope limitation. c. Withdraw from the engagement and refuse to be associated with the financial statements. d. Specifically state that the financial statements are not comparable to the prior year due to an uncertainty. 25. Which of the following statements is a basic element of the auditor's standard report? a. The disclosures provide reasonable assurance that the financial statements are free of material misstatement. B. The auditor evaluated the overall internal control. b. An audit includes assessing significant estimates made by management. c. The financial statements are consistent with those of the prior period. 26. Which of the following risk assessments or values is least likely to be characteristic of a small business audit? a. Business risk is low. b. Control risk is low. c. Inherent risk is low d. Detection risk is low.

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27. A client follows full PFRSs for its domestic operations and foreign GAAP for a foreign subsidiary. The foreign subsidiary is audited by a component auditor, while the group auditor audits the remainder of the corporation and issues an audit report on consolidated operations. Which auditor(s) is (are) responsible for evaluating the appropriateness of the adjustment of the foreign GAAP statements to full PFRSs? a. b. c. d.

Component auditor Yes No Yes No

Group auditor Yes Yes No No

28. Which of the following is true? a. The criteria for any audit (an operational audit or a financial audit) are GAAP. b. A financial audit is designed to determine if the company is acquiring resources at the lowest cost and is utilizing its resources in the most useful manner. c. External auditors may perform operational audits and internal auditors may perform financial audits. d. Both external and internal auditors can provide management advice to the company as long as they agreed to do so. 29. When an accountant compiles projected financial statements, the accountant's report should include a separate paragraph that: a. Explains the difference between a compilation and a review. b. Documents the assessment of the risk of material misstatement due to fraud. c. Expresses limited assurance that the actual results may be within the projected range. d. Describes the limitations on the projection's usefulness. 30. The objective of a review of interim financial information of a public entity (issuer) is to provide an accountant with a basis for reporting whether a. A reasonable basis exists for expressing an updated opinion regarding the financial statements that were previously audited. b. Summary financial statements or pro forma financial information should be included in a registration statement. c. The financial statements are presented fairly in accordance with generally accepted accounting principles. d. Material modifications should be made to conform with generally accepted accounting principles. 31. The auditor with final responsibility for an engagement and one of the assistants have a difference of opinion about the results of an auditing procedure. If the assistant believes it is necessary to be disassociated from the matter’s resolution, the CPA firm’s procedures should enable the assistant to a. Refer the disagreement to the AICPA’s Quality Review Committee. b. Document the details of the disagreement with the conclusion reached. c. Discuss the disagreement with the entity’s management or its audit committee. d. Report the disagreement to an impartial peer review monitoring team.

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AUDITING

TeamPRTC 32. Which of the following statements concerning ownership of working papers is incorrect? a. All working papers made by a CPA and his/her staff in the course of an examination remain the property of such CPA in the absence of any written or oral agreement between the CPA and the client to the contrary. b. Working papers include schedules and memoranda prepared and submitted by the client of the CPA. c. All working papers, except reports submitted by a CPA to his/her client shall be treated confidential and privileged. d. Working papers shall be treated confidential and privileged and remain the property of the CPA unless such documents are required to be produced through subpoena issued by any court, tribunal, or government regulatory or administrative body. 33. According to Code of Ethics for Professional Accountants, all professional accountants: a. should be independent in fact and in appearance at all times. b. in public practice should be independent in fact and in appearance at all times. c. in public practice should be independent in fact and in appearance when providing assurance services. d. in public practice should be independent in fact and in appearance when providing auditing, tax, and MAS services. 34. When a professional accountant in public practice solicits new work through advertising or other forms of marketing, there may be potential threats to compliance with the fundamental principles. For example, a __________ to compliance with the principle of professional behavior is created if services, achievements or products are marketed in a way that is consistent with that principle. a. self-interest threat c. familiarity threat b. self-review threat d. advocacy threat 35. When an auditor tests the internal controls of a computerized accounting system, which of the following is true of the test data approach? a. Test data are coded to a dummy subsidiary so they can be extracted from the system under actual operating conditions. b. Test data programs need not be tailor-made by the auditor for each client's computer applications. c. Test data programs usually consist of all possible valid and invalid conditions regarding compliance with internal controls. d. Test data are processed with the client's computer and the results are compared with the auditor's predetermined results. Use the following information for the next five questions. Katrina, Inc. is an importer and wholesaler of cellphone accessories. Its merchandise is purchased from a number of suppliers and is warehoused until sold to customers. In conducting your audit of Katrina’s financial statements for the year ended December 31, 2015, you determined that the internal control system is functioning effectively. You observed the physical count of inventory on November 30, 2015.

Sales for 11 months ended November 30 Sales for the year ended December 31 Purchases for 11 months ended Nov. 30 Purchases for the year ended Dec. 31 Inventory, January 1 Inventory, Nov. 30 (per physical count)

P3,400,000 3,840,000 2,700,000 3,200,000 350,000 380,000

Your audit disclosed the following information: a)

b) c)

d)

e)

Shipments received in unsalable condition and excluded from physical inventory. The returns were not recorded because no credit memos were received from vendors: Total at November 30 Total at December 31 (including the November 30 unrecorded returns) Deposit made with vendor and charged to Purchases in October. The goods were shipped in January 2016. Deposit made with vendor and charged to Purchases in November. The goods were shipped FOB destination on November 29 and were included in physical inventory as goods in transit. Shipments received in November and included in the physical count at November 30 but recorded as December purchases. Due to the carelessness of the receiving department, a December shipment was damaged by rain. These goods were later sold at cost in December.

Based on following:

the

preceding

information,

P 4,000 6,000 8,000

22,000

30,000

40,000

determine

the

Questions: 36. Adjusted net purchases a. Up to November 30: Up to December 31: b. Up to November 30: Up to December 31: c. Up to November 30: Up to December 31: d. Up to November 30: Up to December 31:

P2,666,000; P3,190,000 P2,700,000; P3,164,000 P2,696,000; P3,186,000 P2,704,000; P3,184,000

37. Cost of goods sold for 11 months ended November 30, 2015 a. P2,688,000 c. P2,670,000 b. P2,666,000 d. P2,692,000 38. Gross profit ratio for 11 months ended November 30, 2015 a. 21.58% c. 21.47% b. 20.94% d. 20.82% 39. Gross profit for the month of December 2015 a. P92,136 c. P83,760 b. P91,236 d. P88,000 40. Estimated inventory at December 31, 2015 a. P491,760 c. P490,000 b. P456,000 d. P455,120

The following information were obtained from Katrina’s accounting records:

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AUDITING

TeamPRTC Use the following information for the next five questions.

Use the following information for the next five questions.

The cost goods sold section of the income statement prepared by your client for the year ended December 31 appears as follows:

You noted the following items relative to the company’s Intangible assets in connection with your audit of the Five Corporation’s financial statements for the year 2015.

Inventory, January 1 Purchases Cost of goods available for sale Inventory, December 31 Cost of goods sold

P 80,000 1,600,000 1,680,000 100,000 P1,580,000

Although the books have been closed, your working paper trial balance is prepared showing all accounts with activity during the year. This is the first time your firm has made an examination. The January 1 and December 31 inventories appearing above were determined by physical count of the goods on hand on those dates and no reconciling items were considered. All purchases are FOB shipping point. In the course of your examination of the inventory cutoff, both at the beginning and end of the year, you discovered the following facts: Beginning of the Year 1.

Invoices totaling P25,000 were entered in the voucher register in January, but the goods were received during December.

2.

December invoices totaling P13,200 were entered in the voucher register in December, but goods were not received until January.

On January 1, 2015, Five signed an agreement to operate as franchisee of Clear Copy Service, Inc. for an initial franchise of P680,000. Of this amount, P200,000 was paid when the agreement was signed and the balance was payable in four annual payments of P120,000 each, beginning January 1, 2016. The agreement provides that the down payment is not refundable and no future services are required of the franchisor. The implicit rate for loan of this type is 14%. The agreement also provides the 5% of the revenue from the franchise must be paid to the franchisor annually. Five’s revenue from the franchise for 2015 was P8,000,000. Five estimates the useful life of the franchise to be ten years. Patent On July 1, 2015, Five purchased a patent from the inventor, who asked P1,100,000 for it. Five paid for the patent as follows: cash, P400,000; issuance of 10,000 shares of its own ordinary shares, par P10 (market value, P20 per share); and a note payable due at the end of three years, face amount, P500,000, noninterest-bearing. The current interest rate for this type of financing is 12 percent. Five estimates the useful life of the patent to be ten years. Trademark

End of the Year 3.

Sales of P43,000 (cost of P12,900) were made on account on December 31 and goods delivered at that time, but all entries relating to the sales were made on January 2.

4.

Invoices totaling P15,000 were entered in the voucher register in January, but the goods were received in December.

5.

December invoices totaling P18,000 were entered in the voucher register in December, but the goods were not received until January.

6.

Invoices totaling P12,000 were entered in the voucher register in January, and the goods were received in January, but the invoices were dated December.

Based on the preceding information, determine the net working paper adjustment that should be made for each of the following accounts: 41. Retained earnings a. P13,200 credit b. P11,800 debit

c. P25,000 debit d. P38,200 debit

42. Purchases a. P27,000 debit b. P28,000 debit

c. P25,000 credit d. P2,000 debit

43. Beginning inventory a. P25,000 credit b. P38,200 debit

c. P13,200 debit d. P11,800 debit

44. Accounts receivable a. P43,000 debit b. P43,000 credit

c. P30,000 debit d. No adjustment

45. Sales a. P43,000 debit b. P43,000 credit

c. P30,000credit d. No adjustment

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Franchise

Five purchased for P1,200,000 a trademark for a very successful soft drink it markets under the name POWER!. The trademark was determined to have an indefinite life. A competitor recently introduced a product that is in direct competition with the POWER! product, thus suggesting the need for an impairment test. Data gathered by the entity suggests that the useful life of the trademark is still indefinite, but the cash flows expected to be generated by the trademark have been reduced either to P40,000 per year (with a probability of 70%) or to P80,000 per year (with 30% probability). The appropriate risk-free interest rate is 5%. The appropriate risk-adjusted interest rate is 10%. QUESTIONS: Based on the above and the result of your audit, determine the following: (Round off present value factors to 4 decimal places) 46. Total expenses related to franchise in 2015 a. P503,914 c. P448,950 b. P535,200 d. P454,964 47. Carrying amount of franchise as of December 31, 2015 a. P549,644 c. P538,733 b. P494,680 d. P612,000 48. Carrying amount of patent as of December 31, 2015 a. P1,045,000 c. P860,310 b. P 955,900 d. P908,105 49. Total expenses related to the intangible assets in 2015 a. P662,759 c. P733,063 b. P711,709 d. P802,212 50. The most effective means for the auditor to determine whether a recorded intangible asset possesses the characteristics of an asset is to a. Vouch the purchase by reference to underlying documentation.

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AUDITING

TeamPRTC b. c. d.

Inquire as to the status of patent applications. Evaluate the future revenue-producing capacity of the intangible asset. Analyze research and development expenditures to determine that only those expenditures possessing future economic benefit have been capitalized.

Use the following information for the next five questions. You were able to obtain the following information in connection with your audit of the Cash account of the Syria Company as of December 31, 2016: Balances per bank Undeposited collections Outstanding checks

November 30 P480,000 244,000

December 31 P420,000 300,000

150,000

120,000

d.

The bank statement for the month of December showed total credits of P240,000.

e.

DAIF checks are recorded as a reduction of cash receipts. DAIF checks which are later redeposited are then recorded as regular receipts. Data regarding DAIF checks are as follows: 1. Returned by the bank in Nov. and recorded by the company in Dec., P10,000. 2. Returned by the bank in Dec. and recorded by the company in Dec., P25,000. 3. Returned by the bank in Dec. and recorded by the company in Jan., P29,000.

f.

Check of Syrio Company amounting to P90,000 was charged to the company’s account by the bank in error on December 31.

g.

A bank memo stated that the company’s account was credited for the net proceeds of a customer’s note for P106,000.

h.

The company has hypothecated its accounts receivable with the bank under an agreement whereby the bank lends the company 80% of the hypothecated accounts receivable. The company performs accounting and collection of the accounts. Adjustments of the loan are made from daily sales reports and deposits.

i.

The bank credits the company account and increases the amount of the loan for 80% of the reported sales. The loan agreement states specifically that the sales report must be accepted by the bank before the company is credited. Sales reports are forwarded by the company to the bank on the first day following the date of sale. The bank allocates each deposit 80% to the payment of the loan, and 20% to the company account. Thus, only 80% of each day’s sales and 20% of each collection deposits are entered on the bank statement. The company accountant records the hypothecation of new accounts receivable (80% of sales) as a debit to Cash and a credit to the bank loan as of the date of sales. One hundred percent of the collection on accounts receivable is recorded as a cash receipt; 80% of the collection is recorded in the cash disbursements books as a payment on the loan. In connection with the hypothecation, the following facts were determined:  Included in the undeposited collections is cash from the hypothecation of accounts receivable. Sales were P180,000 on November 30, and P200,000 at December 31. The balance was made up from collections which were entered on the books in the manner indicated above.  Collections on accounts receivable deposited in December, other than deposits in transit, totaled

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P725,000. j.

Interest on the bank loan for the month of December charged by the bank but not recorded in the books, amounted to P38,000.

QUESTIONS: Based on the above and the result of your audit, answer the following: 51. How much is the unadjusted balance per books as of November 30, 2016? a. P504,000 c. P430,000 b. P484,000 d. P356,000 52. How much is the December, 2016? a. P860,000 b. P770,000

unadjusted

book

receipts

for

c. P735,000 d. P738,000

53. How much is the unadjusted book disbursements for December, 2016? a. P773,000 c. P735,000 b. P700,000 d. P760,000 54. How much is the unadjusted balance per books as of December 31, 2016? a. P481,000 c. P309,000 b. P530,000 d. P539,000 55. Cash receipts should be deposited on the day of receipt or the following business day. Select the most appropriate audit procedure to determine that cash is promptly deposited. a. Review cash register tapes prepared for each sale. b. Compare the daily cash receipts totals with the bank deposits. c. Review the functions of cash handling and maintaining accounting records for proper separation of duties. d. Review the functions of cash receiving and disbursing for proper separation of duties. Use the following information for the next five questions. The shareholders’ equity section of the Jerely Corporation’s statement of financial position as of December 31, 2014 is presented below: 12% Preference share capital, P100 par Ordinary share capital, P20 par Share premium – preference Share premium – ordinary Share premium – treasury shares Retained earnings

P

270,000 1,598,400 36,800 235,200 3,200 1,585,840

Total shareholders’ equity

P3,729,440

Jerely had 65,000 ordinary shares as December 31, 2013. The following shareholders’ recorded in 2014 and 2015: 2014 May 1

-

July 1

-

Jul. 31

-

Aug. 30

-

Dec. 31

-

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equity

transactions

were

Sold 9,000 ordinary shares for P24, par value P20. Sold 700 preference shares for P124, par value P100. Issued an 8% share dividend on ordinary shares. The market value of ordinary share was P30 per share. Declared cash dividends of 12% on preference shares and P3 per share on ordinary shares. Profit for the year amounted to P1,345,040.

AUDITING

TeamPRTC

2015 Feb. 1 May 1 May 31

-

Sep. 1

-

Oct. 1

-

Nov. 1

-

Dec. 31

-

Sold 2,200 ordinary shares for P30. Sold 600 preference shares for P128. Issued a 2-for-1 split of ordinary shares. The par value of the ordinary share was reduced to P10 per share. Purchased 1,000 ordinary shares for P18 to be held as treasury shares. Declared and paid cash dividends of 12% on preference shares and P4 per share on ordinary shares. Sold 1,000 shares of treasury shares for P22. Profit for the year amounted to P991,520.

QUESTIONS: Determine the amounts, as required, in Jerely Corporation’s comparative financial statements as of and for the years ended December 31, 2014 and 2015. 56. Dividends paid to ordinary shareholders in 2015 a. P652,690 c. P652,960 b. P692,560 d. P656,960

Share capital, P10 par value Retained earnings Total shareholders' equity Total liabilities and shareholders' equity

400,000 336,000 736,000 P1,552,000

Bryant Corporation Statement of Income For the Fiscal Year Ended November 30, 2014 Net sales

P2,950,000

Operating expenses: Cost of sales Selling and administrative Depreciation Research and development

1,670,000 650,000 40,000 30,000 2,390,000 Income before income taxes 560,000 Provision for income taxes 224 000 Net income P 336,000 Bryant is in the process of negotiating a loan for expansion purposes, and the bank has requested audited financial statements. During the course of the audit, the following additional information was obtained:

a. The investment portfolio consists of short-term

57. Retained earnings as of December 31, 2015 a. P1,880,800 c. P1,892,000 b. P1,884,800 d. P1,888,000

investments in marketable equity securities with a total market valuation of P55,000 as of November 30, 2014.

58. Total equity as of December 31, 2015 a. P4,175,200 c. P4,182,400 b. P4,171,200 d. P4,157,200

b. Based on an aging of the accounts receivable as of

59. Basic earnings per share for 2014 a. P17.12 b. P 8.21

c. P 8.56 d. P18.49

c. Inventories at November 30, 2014 did not include work

60. Basic earnings per share for 2015 a. P7.40 b. P7.34

c. P5.86 d. P5.81

2014 on a policy expiring one year later was charged to insurance expense.

Bryant Corporation, a nonpublic entity, was incorporated on December 1, 2013, and began operations one week late closing the books for the fiscal year ended November 30, 2014, the controller prepared the following financial statements: Bryant Corporation Statement of Financial Position November 30, 2014

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e. Bryant adopted a pension plan on June 1, 2014 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, 2014, a production machine purchased for P24,000 was charged to repairs and maintenance. Bryant 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

Assets

Liabilities and Shareholders' equity Current liabilities: Accounts payable and accrued expenses Income taxes payable Total current liabilities Shareholders' equity:

in process inventory costing P12,000, sent to an outside processor on November 29, 2014.

d. A P3,000 insurance premium paid on November 30,

Use the following information for the next five questions.

Current assets: Cash Marketable securities , at cost Accounts receivable Allowance for doubtful accounts Inventories Prepaid insurance Total current assets Property, plant and equipment Less accumulated depreciation Property, plant and equipment, net Research and development costs Total assets

November 30, 2014, it was estimated that P36,000 of the receivables will be uncollectible.

P 150,000 60,000 450,000 ( 59,000) 430,000 __15,000 1,046,000 426,000 ( 40,000) 386,000 120,000 P1,552,000

P 592,000 224,000 816,000

incurred the development of a patent, which Bryant expects to be granted during the fiscal year ending November 30, 2015. Bryant initiated a five-year amortization of the P150,000 total cost during the fiscal year ended November 30, 2014.

h. During December 2014, a competitor company filed

suit against Bryant for patent infringement claiming P200,000 damages. Bryant's legal counsel believes that an unfavorable outcome is probable. A reasonable estimate of the court's 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, 2014. Ignore computation of the deferred portion of income taxes.

QUESTIONS:

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TeamPRTC Based on the above and the result of your audit, determine the following as of and for the fiscal period ended November 30, 2014: 61. Net income a. P253,260 b. P283,260

c. P235,260 d. P239,760

62. Current assets a. P1,084,000 b. P1,061,000

c. P1,079,000 d. P1,073,000

63. Total assets a. P1,484,200 b. P1,486,600

c. P1,489,200 d. P1,491,600

64. Total liabilities a. P833,340 b. P783,340

c. P855,840 d. P805,840

65. Total equity a. P683,260 b. P635,260

c. P639,760 d. P653,260

During the course of the audit, the following additional information was obtained: a.

The trading securities were acquired on December 31, 2014. The securities have a fair value of P67,000 at December 31, 2015.

b.

In discussion with the company officials, it was determined that the doubtful accounts expense rate based on net sales should be reduced to 2% from 3%, effective January 1, 2015.

c.

As a result of errors in the physical count, inventories were overstated by P12,000 at December 31, 2014 and by P17,500 at December 31, 2015.

d.

On January 1, 2014, the cost of equipment purchased for P30,000 was debited to repairs and maintenance. Bulls depreciates equipment of this type by the straight-line method over a five-year life with no residual value.

e.

On July 1, 2015, fully depreciated equipment purchased for P21,000, was sold as scrap for P2,500. The only entry Bulls made was to debit cash and credit property and equipment for the scrap proceeds. The property and equipment (net) had a current cost of P250,000 at December 31, 2015.

f.

Advertising and promotion expense for the year ended December 31, 2014 includes the P25,000 cost of printing sales catalogs for a special promotional campaign held in January 2015.

g.

Bulls was named as a defendant in a lawsuit in October 2015. Bulls' counsel is of the opinion that Bulls has a good defense, and does not anticipate any impairment of Bulls' assets or that any significant liability will be incurred. Nevertheless, Bulls’ management wished to be conservative and, therefore, established a loss contingency of P100,000 at December 31, 2015.

Use the following information for the next five questions. Bulls, Inc., a nonpublic enterprise, is negotiating a loan for expansion purposes and the bank requires audited financial statements. Before closing the accounting records for the year ended December 31, 2015, Bulls' controller prepared the following comparative financial statements for 2015 and 2014: Bulls, Inc. Statements of Financial Position December 31, 2015 and 2014 2015 Assets Cash Trading securities Accounts receivable Allow. for doubtful accounts Inventories Property and equipment Accumulated depreciation Total assets Liabilities and Equity Accounts payable and accrued liabilities Estimated liability from lawsuit Share capital, P10 par Share premium Retained earnings Total liabilities and equity

P

2014

275,000 78,000 487,000 (50,000) 425,000 310,000 (150,000) P1,375,000

P150,000 78,000 392,000 (32,000) 307,000 217,000 (121,000) P 991,000

P 420,000

P347,000

100,000 260,000 130,000 465,000 P1,375,000

260,000 130,000 254,000 P 991,000

Bulls, Inc. Income Statements For the Years Ended December 31, 2015 and 2014 2015 2014 Net sales P1,580,000 P1,250,000 Operating expenses: Cost of sales P 755,000 P 690,000 Selling and admin. 485,000 365,000 Depreciation 29,000 18,000 Est. loss from lawsuit 100,000 P1,369,000 P1,073,000 Profit P 211,000 P 177,000

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QUESTIONS: Based on the above and the result of your audit, compute for the following: (Disregard income taxes) 66. Adjusted retained earnings as of January 1, 2015 a. P266,000 c. P285,000 b. P297,000 d. P291,000 67. Adjusted profit for the year ended December 31, 2015 a. P281,800 c. P287,800 b. P181,800 d. P306,800 68. Adjusted current assets as of December 31, 2015 a. P1,226,760 c. P1,154,900 b. P1,190,300 d. P1,202,300 69. Adjusted carrying amount of property and equipment as of December 31, 2015 a. P168,500 c. P178,000 b. P180,500 d. P192,500 70. Adjusted shareholders’ equity as of December 31, 2015 a. P962,800 c. P974,800 b. P950,800 d. P862,800

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