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CPA REVIEW SCHOOL OF THE PHILIPPINES Manila
AUDITING PROBL PROBLEMS EMS AUDIT OF LIAB ILITIES – QUIZZERS QUIZZERS PROBLEM NO. 1
Cavaliers Cavaliers Corporation is selling selling audio and video appliances. appliances. The company’s company’s fisc ends on March March 31. The following inform information ation relates relates to the obligations obligations of the com of March 31, 2005:
Notes payable Cavaliers has signed signed several long-term long-term notes with with financial institutions. institutions. The mat these notes are given below. below. The total total unpaid interest interest for all of these notes amo P 340,000 340,000 on March 31, 2005. 2005. Due date April 31, 2005 J uly 31, 2005 S eptember eptember 1, 2005 F ebruary 1, 2006 April 1, 2006 – March 31, 2007 2007
Amount P 600,000 600,000 900,00 ,000 450,000 450,000 2,700,000 2,700,000 P 5,100,00 5,100,000 0
Estimated warranties Cavaliers has a one-year product product warranty warranty on some selected selected items. items. The es warranty warranty liability on sales made during the the 2003 – 2004 fisc fiscal al year and still still outstan of March 31, 2004 2004,, amounted amounted to to P252 P 252,000. ,000. The warranty warranty costs costs on sales made fro 1, 2004 to March 31, 2005, 2005, are estimated estimated at P 630,000. 630,000. The actual warranty warranty costs costs in during 2004 – 2005 fiscal year are as follows: Warranty claims honored on 2003 2003 – 2004 sales sales Warranty claims honored on 2004 2004 – 2005 sales sales Total Total
P 252,000 252,000 285,000 285,000 P 53 537,00 ,000
Trad Trade e payab ayablles Accounts payable for supplies, goods, and services purchases on open account am P 560,000 560,000 as of March March 31, 2005. 2005.
Dividends On March 10, 2005, Cavaliers’ board of directors declared a cash dividend of P0. common common share share and a 10% comm common stock dividend. Both Both dividends were to be dis up toclose vote onof this title on April 5, 2005 to common stockholders on recordSign at the business on Ma 2005. 2005. As of of March 31, 31, 2005, 2005, Cavaliers Cavaliers has 5 million, million, PUseful 2p par ar value, v alue, comm Not common useful on shares P2 and outstanding. outstanding.
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2. 3. 4. 5.
Audit of Stockholders
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Unamortized bond discount a. P110,000 b. P200,000
c. P100,000
d. P90,000
Bond interest payable a. P0 b. P300,000
c. P150,000
d. P250,000
Total current liabilities a. P6,445,000 b. P5,105,000
c. P5,445,000
d. P3,945,000
Total noncurrent liabilities a. P7,700,000 b. P7,590,000
c. P7,500,000
d. P7,610,000
SUGGESTED ANSWERS: B, D, B, C, D
PROBLEM NO. 2
Pirates’ Music Emporium carries a wide variety of music promotion techniques - wa and premiums – to attract customers.
Musical instrument and sound equipment are sold in a one-year warranty for repla of parts and labor. The estimated warranty cost, based on past experience, is 2% o
The premium is offered on the recorded and sheet music. Customers receive a co each peso spent on recorded music or sheet music. Customers may exchan coupons and P20 for an AM/FM radio. Pirates pays P34 for each radio and estim 60% of the coupons given to customers will be redeemed.
Pirates’ total sales for 2005 were P7,200,000 - P 5,400,000 from musical instru Reading a Preview sound reproduction equipment You're and P1,800,000 from recorded music and sheet Replacement parts and labor for warranty work totaled P164,000 during 2005. Unlock full access with a free trial. 6,500 AM/FM radio used in the premium program were purchased during the ye there were 1,200,000 coupons redeemed in 2005. Download With Free Trial
The accrual method is used by Pirates to account for the warranty and premium financial reporting purposes. The balance in the accounts related to warrant premiums on J anuary 1, 2005, were as shown below: Inventory of Premium AM/FM radio Estimated Premium Claims Outstanding Estimated Liability from Warranties
P39,950 44,800 136,000
QUESTIONS:
Based on the above and the result of your audit, determine the amounts thatwill be on the 2005 financial statements for the following: Sign up to vote on this title Useful Not useful 1. Warranty expense a. P108,000
b. P164,000
c. P144,000
d. P80,000
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PROBLEM NO. 3
In the audit process, the following data were obtained from the books of the Company which uses a voucher system. All invoices are subject to term 2/10, n/ are entered net with the discount entered in the Purchase Discount column of the v register. The accountant in charge of the books went on leave to attend to his based in New J ersey. A fresh accounting graduate has been assigned to rec transactions. At year-end, the substitute accountant finds that the unpaid vouchers agree with the Vouchers Payable control account. You are called to adjust the m
A schedule of unpaid vouchers as of December 31, 2005, all of which are net of di is presented to you: Date Nov. 27 Dec. 02 11 20 21 22 31
Voucher No. 797 821 829 836 842 856 865
Supplier Duncan Supply Co. Ginobili Distributors Parker Sales Mohamed Dealers Bowen Merchandising Horry Mercantile J ackson Traders
Amoun P 78,400 19,600 44,100 17,150 22,050 80,850 78,400 P340,55
Vouchers Payable (control account) Cash disbursements P1,309,500 Purchases journal Purchase returns journal 36,750*
P1,645,00
* Voucher Nos. 821 and 836 cancelled as g oods were returned in December.
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REQUIRED:
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Based on the above and the result of your audit, compute for the following as of Dec 31, 2005: Download With Free Trial 1. 2. 3. 4.
Adjusted balance of Vouchers Payable a. P310,000 b. P306,750
c. P303,800
d. P344,250
Purchase discounts lost on unpaid vouchers a. P6,200 b. P2,950 c. P3,700
d. P0
Purchase discounts lost on paid vouchers a. P28,750 b. P8,000 c. P5,050
d. P41,800
Adjusting journal entry or entries to correct the accounts will include a. A debit to Purchase Discounts Lost of P11,250. b. A debit to Purchase Discounts Lost of P5,050. Sign up to vote on this title c. A credit to Vouchers Payable of P8,000. d. A credit to Vouchers Payable of P11,250. Useful Not useful
SUGGESTED ANSWERS: B, B, C, C
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10/01/2005
Audit of Stockholders
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Treasury Bonds P 216,000
Bond P remium 01/01/2001
01/01/2005 07/01/2005
AP-59-1stPB_5.06
CR
Bond Interest Expense P 96,000 96,000
The bonds were redeemed for permanent cancellation on October 1, 2005 at 1 accrued interest. QUESTIONS:
Based on the above and the result of your audit, determine the following: 1. The adjusted balance of bonds payable as of December 31, 2005 is a. P1,400,000 b. P1,600,000 c. P1,000,000 d. P1,384,00 2. The unamortized bond premium on December 31, 2005 is a. P80,000 b. P64,000 c. P56,000
d. P58,800
3. The total bond interest expense for the year 2005 is You're Reading ac.Preview a. P189,100 b. P182,900 P188,800
d. P182,800
4. The gain or loss on partial bond redemption Unlock full access withis a free trial. a. P1,900 loss b. P1,900 gain c. P18,100 loss
d. P18,100 gai
Download With Free Trial SUGGESTED ANSWERS: A, C, B, A
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