AUDITING PROBLEMS TEST BANK 2 PROBLEM NO. 1 You have been assigned to audit the financial statements of AYALA MERCHANTS CORPORATON CORPORATON fo! the "ea! "ea! #$%&' The com(an" com(an" is a deale! of a((liance a((liancess and has seve!al seve!al b!anches b!anches in Met!o Met!o Manila' Manila' ts main main office is located located in Ma)ati Ma)ati Cit"' Cit"' You *e!e given given b" the com(an" cont!olle! the unad+usted balances of the items to be included in the com(an",s statement of financial (osition and statement of income as of and fo! the "ea! ended -ecembe! .%/ #$%&' Audit findings findings a!e as follo*s0 follo*s0 ' A1-T O2 CASH A cash count *as conducted b" "ou! staff on 3anua!" &/ #$%4' The (ett" cash fund of P5$/$$$ maintained b" the com(an" on an im(!est basis !elected a balance of P##/&6$' 1n!e(lenished e7(enses totaled P.&/#6$ of *hich P8/6%$ (e!tains to 3anua!" #$%4' You *e!e fu!nished a co(" of the com(an",s ban) !econciliation statement *ith Cha!te!ed 9an) as follo*s0 9alance (e! ban) Add0 -e(osit in t!ansit 9an) debit memos Retu!ned chec) Less0 Outstanding chec)s 9oo) e!!o! 9alance (e! boo)s
You! !evie* of the !econciliation statement disclosed the follo*ing0 %' Postda Postdated ted chec)s chec)s totaling totaling P%$&/:$$ P%$&/:$$ *e!e include included d as (a!t of the de(osit de(osit in t!ansi t!ansit' t' Thes These e !e(! !e(!es esen entt coll collect ectio ions ns f!om f!om va!i va!iou ouss custo custome me!s !s *hose *hose accou account ntss have have been been outsta outstandi nding ng fo! less than th!ee months' months' These These chec)s chec)s *e!e actuall" actuall" de(osit de(osited ed on 3anua!" 4/ #$%4' #' nclude ncluded d in the de(osi de(ositt in t!ansi t!ansitt is a chec) f!om f!om a custom custome! e! fo! P5./$$$ P5./$$$ *hich *hich *as !etu!ned b" the ban) ban) on -ecembe! #&/ #$%& fo! insufficienc" of funds' This account has been outstandi outstanding ng fo! ove! si7 months' months' The chec) *as *as !e(laced !e(laced b" the custome! custome! on 3anua!" %6/ #$%4' .' The ban) debite debited d the accoun accountt of A"ala A"ala Me!chants Me!chants fo! P&%$/$$$ P&%$/$$$ as (a"men (a"mentt of notes (a"able including inte!est of P%$/$$$ due on -ecembe! #5/ #$%&' This *as not !eco!ded as of "ea!=end' :' A chec) *as clea!e clea!ed d b" the ban) ban) as P.$/8$ P.$/8$$ $ but *as !eco!d !eco!ded ed b" the boo))ee boo))ee(e! (e! as P%$#/8$$' This *as in in (a"ment of accounts (a"able' (a"able' 6' 9an) se!vic se!vice e cha!ges cha!ges totaling totaling P#/&6$ P#/&6$ *e!e *e!e not !eco!ded !eco!ded'' ' A1-T O2 ACCO1NTS RECE>A9LE RECE>A9LE AN- ALLO?ANCE 2OR -O19T21L ACCO1NTS t is the com(an",s (olic" to (!ovide allo*ance fo! doubtful accounts as follo*s0
Less than . months . to 5 months Ove! 5 months Total
P#/6$$/85$ 4:./#$$ #&:/6$$ P./5%4/55$
%@ 6@ %$@
An anal"sis of the accounts !eceivable schedule sho*ed that seve!al long outstanding accounts fo! mo!e than a "ea! totaling P%6#/:5$ should be *!itten=off'
Page
#
' A1-T O2 MARETA9LE SEC1RTES B TRA-N The com(an",s eDuit" (o!tfolio as of "ea!=end sho*ed the follo*ing0
9acnotan Cement 2il=Estate onics La Tondena Selecta 1nion 9an)
Total Sha!es &/$$$ %$/$$$ #/:$$ #/$$$ 4/$$$ %/5$$
The secu!ities a!e listed in the stoc) e7change' accounting'
>' A1-T O2 NOTES RECE>A9LE The note !eceivable amounting to P%/.$$/$$$ !e(!esents a loan g!anted to a subsidia!"' This is cove!ed b" a (!omisso!" note *ith inte!est at %6@ (e! annum dated Novembe! %/ #$%&' No inte!est has been acc!ued on the note as of -ecembe! .%/ #$%&' >' A1-T O2 PREPAYMENTS P!e(aid e7(enses account consists of the follo*ing0 P!e(aid P!e(aid P!e(aid 1nused
adve!tising insu!ance !ent office su((lies
P 5:$/$$$ :8$/$$$ :#$/$$$ .5%/$$$ P%/8%%/$$$
A"ala Me!chants !ene*ed its cont!act *ith an adve!tising agenc" fo! the annual (!omotion as *ell as the !egula! adve!tisement of its (!oducts' t (aid a total of P5:$/$$$/ P%$$/$$$ of *hich is fo! the Ch!istmas (!omotion *hile the balance is fo! the !egula! (!omotion and *hich *ill !un fo! one "ea! sta!ting on August %/ #$%&' Pa"ment *as made on 3ul" #$/ #$%&/ and the total amount *as !eflected as (!e(aid adve!tising' The com(an" leases the main office and sto!e in Ma)ati Cit" at a monthl" !ental of P%:$/$$$' On Novembe! 6/ #$%&/ a chec) fo! P:#$/$$$ *as issued in (a"ment of th!ee= month !ental as (e! !ene*al cont!act *hich *as effective on Novembe! %/ #$%&' Rental de(osit !emained at th!ee months and is included unde! othe! assets' The com(an",s delive!" eDui(ment is insu!ed *ith 2o!tune nsu!ance Co!(o!ation fo! a total cove!age of P#': million' Total (a"ment made on Novembe! %5/ #$%& fo! the !ene*al amounted to P:8$/$$$ *hich cove!s the (e!iod f!om Novembe! %/ #$%& to Novembe! %/ #$%4' No ad+ustment has been made as of -ecembe! .%/ #$%&' To ta)e advantage of volume discount !anging f!om %$@ to #$@/ the com(an" bu"s office and sto!e su((lies on a bul) basis' The staff=in=cha!ge bought su((lies *o!th P##$/$$$ on 3une %$/ #$%& and included the same in thei! office su((lies invento!"' As at "ea!=end/ unused office su((lies amount to P%$#/6$$'
Page . >' A1-T O2 N>ENTORES A (h"sical count of invento!ies *as conducted simultaneousl" in all sto!es on -ecembe! #8 and #$/ #$%&' You! !evie* of the list submitted b" the accountant disclosed the follo*ing0 %'
Some delive!ies made in -ecembe! #$%& have not been invoiced and !eco!ded as of "ea!=end' These items had a selling (!ice of P%:5/8:$ *ith te!m of %6 da"s' The co!!es(onding cost *as al!ead" deducted f!om the ending invento!"'
#'
oods on consignment to A"ala Me!chants totaling P.65/$$$ *e!e included in the invento!" list'
.'
Some a((liances *o!th P%.4/6$$ *e!e !eco!ded t*ice in the invento!" list'
:'
oods costing P%6./4$$ (u!chased and (aid on -ecembe! #5 *as !eceived on 3anua!" :/ #$%4' The goods *e!e shi((ed b" the su((lie! on -ecembe! #4/ 2O9 shi((ing (oint'
>' A1-T O2 PROPERTY/ PLANT AN- E1PMENT The com(an" (u!chased additional eDui(ment *o!th P#54/$$$ on 3une .$/ #$%&' At the date of (u!chase/ it incu!!ed the follo*ing additional costs *hich *e!e cha!ged to !e(ai!s and maintenance account0 2!eight=in P.$/:$$ nstallation cost %./$$$ Total P:./:$$ The above eDui(ment has an estimated useful life of ten "ea!s and estimated salvage value of P#$/$$$' -e(!eciation fo! the above eDui(ment has been (!ovided based on o!iginal cost' The com(an" disca!ded some sto!e eDui(ment on Octobe! %/ #$%&/ !ealiFing no salvage value' The cost of these eDui(ment amounted to P%56/6#$ *ith an accumulated de(!eciation of P%.4/5#$ on -ecembe! .%/ #$%&' -e(!eciation boo)ed f!om Octobe! %/ #$%& to "ea!=end *as P%$/:4$' No ent!" *as made on the dis(osal of the (!o(e!t"'
>' A1-T O2 ACCR1E- EGPENSES Some e7(enses fo! -ecembe! #$%& *e!e !eco!ded *hen (aid in 3anua!" #$%4 *hich included the follo*ing0 Elect!ic bills P&./:$$ Commission of sales agents 6&/$$$ Tele(hone cha!ges :#/6$$ Mino! !e(ai! of delive!" eDui(ment #%/.:$ ?ate! bills %4/&5$ Total P#%./$$$ G' A1-T O2 LA9LTES A"ala Me!chants obtained a one="ea! loan f!om Cha!te!ed 9an) amounting to P#'5 million at an inte!est !ate of %5@ (e! annum on Octobe! %/ #$%&' Acc!ued inte!est on this loan *as not ta)en u( at "ea!=end'
Page :
G' OTHER A1-T 2N-NS A !evie* of the minutes of meeting sho*ed that a %$@ cash dividend *as decla!ed to sha!eholde!s of !eco!d as of -ecembe! %6/ #$%&/ (a"able on 3anua!" .%/ #$%4'
-ete!mine the ad+usted balances of the follo*ing0 ;gno!e ta7 im(lications< %' Pett" cash fund A' P.&/#6$
9' P5$/$$$
C' P##/&6$
D. P.#/#5$
#' Cash in ban) A' P6##/56$
9' P:6$/56$
C' P%/$65/$$$
D. P#::/46$
.' T!ading secu!ities A' P:$./5:$
9' P6$#/%4$
C' P:8%/#:$
D. P:&#/&$$
:' Accounts !eceivable A' P./8.5/$$$
9' P./5%4/55$
C. P./&4./6:$
-' P./5%./%:$
C' P%.$/.%5
D. P44/#%&
6' Allo*ance fo! doubtful accounts A' P%%$/.5$ 9' P%6#/5:$
Page 5' Notes and inte!est !eceivable A' P%/..%/85$ 9' P%/..#/%5$
C. P%/..#/6$$
-' P%/.$$/$$$
&' nvento!ies A. P5/8.:/#$$
9' P&/#&:/8$$
C' P&/#8$/#$$
-' P5/&4$/:$$
4' P!e(aid insu!ance A' P::8/%5&
B. P:$4/...
C' P:8$/$$$
-' P:#4/&6$
8' P!e(aid !ent A. P%:$/$$$
9' P $
C' P:#$/$$$
-' P#4$/$$$
9' P5:$/$$$
C' P.&./..:
D. P.%6/$$$
%%' Office su((lies invento!" A' P#64/6$$ 9' P%%&/6$$
C' P.5%/$$$
D. P%$#/6$$
%#' Total cu!!ent assets A' P%:/$.../5%#
C. P%./5&&/555
-' P%./6.&/555
%.' P!o(e!t"/ (lant/ and eDui(ment A' P:/$54/:$$ 9' P#/8$6/##4
C. P./8:5/#4$
-' P./8$#/44$
%:' Accumulated de(!eciation A' P%/$.4/44$ B. P%/$:%/$6$
C' P%/%&&/6$$
-' P%/%&8/5&#
%6' Accounts (a"able A' P#/6#6/.5$
B. P#/:#4/.#$
C' P#/68&/.5$
-' P#/.65/.#$
%5' nte!est (a"able A. P%$:/$$$
9' P%5/%&4
C' P:/$$$
-' P#&/5::
%&' Total cu!!ent liabilities A' P5/4$./&84 9' P5/%$./&84
C. P5/$6:/.5$
-' P6/5$./&84
%4' Sales A' P%./$54/::$
9' P%./$&4/$$$
C. P%./##:/8:$
-' P%#/..8/6$$
%8' Cost of goods sold A' P4/$.:/$$$
9' P4/#.5/#$$
C' P4/$%4/&$$
D. P4/.&:/&$$
#$' O(e!ating e7(enses A' P:/#85/6%:
9' P./.6&/$$$
C' P:/.:%/6%:
D. P:/5#%/6%:
%$' P!e(aid adve!tising A' P.#6/$$$
9' P%./6#./455
6
Page
5
PROBLEM NO. 2 To substantiate the e7istence of the accounts !eceivable balances as at -ecembe! .%/ #$%& of L1AS COMPANY/ "ou have decided to send confi!mation !eDuests to custome!s' 9elo* is a summa!" of the confi!mation !e(lies togethe! *ith the e7ce(tions and audit findings' !oss (!ofit on sales is #$@' The com(an" is unde! the (e!(etual invento!" method' Name of Custome! Conco!dia
9alance Pe! 9oo)s P%6$/$$$
2alcon
P.$/$$$
LaFa!o
P%::/$$$
Silang
P%%#/6$$
Ya)al
P%.6/$$$
Comments 2!om Custome!s P8$/$$$ *as !etu!ned on -ecembe! .$/ #$%&' Co!!ect balance as is P5$/$$$' You! CM !e(!esenting (!ice ad+ustment dated -ecembe! #4/ #$%& cancels this' You have ove!(!iced us b" P%6$' Co!!ect (!ice should be P.$$' ?e !eceived the goods onl" on 3anua!" 5/ #$%4' 9alance *as offset b" ou! -ecembe! shi(ment of "ou! !a* mate!ials'
Audit 2indings Retu!ned goods *e!e !eceived -ecembe! .%/ #$%&' The CM *as ta)en u( b" Lu)as Com(an" in #$%4' The com(laint is valid' Te!m is shi((ing (oint' Shi((ed in #$%&' Lu)as Com(an" c!edited accounts (a"able fo! P%.6/$$$ to !eco!d (u!chases' Ya)al is a su((lie!'
#%' f the necessa!" ad+usting +ou!nal ent!" is made !ega!ding the case of Conco!dia/ the net income *ill A. -ec!ease b" P%4/$$$' 9' -ec!ease b" P8$/$$$'
C' nc!ease b" P%4/$$$' -' nc!ease b" P8$/$$$'
##' The effect on #$%& net income of Lu)as Com(an" of its failu!e to !eco!d the CM involving t!ansaction *ith 2alcon0 A. P.$/$$$ ove!' 9' P.$/$$$ unde!'
C' P5/$$$ ove!' -' P5/$$$ unde!'
#.' The ove!statement of !eceivable f!om LaFa!o is A' P85/$$$
9' P#:/$$$
C' P&#/$$$
D. P:4/$$$
#:' The accounts !eceivable f!om Silang is A. Co!!ectl" stated' 9' P%%#/6$$ ove!'
C' P%%#/6$$ unde!' -' P##6/$$$ unde!'
#6' The ad+usting ent!" to co!!ect the !eceivable f!om Ya)al is A' Pu!chases Accounts !eceivable 9' Accounts (a"able Pu!chases C' Accounts !eceivable Accounts (a"able D. Accounts (a"able Accounts !eceivable
Page & PROBLEM NO. 3 Palito/ CPA/ has +ust acce(ted an engagement to audit the financial statements of C!ocodile/ nc' fo! the "ea! ending -ecembe! .%/ #$%&' Afte! obtaining an unde!standing of the client,s design of the accounting and inte!nal cont!ol s"stems and thei! o(e!ation/ he then (!oceeded in (e!fo!ming test of cont!ols !elated to (!oduction c"cle' The follo*ing Duestions !elated to test of cont!ols of the (!oduction c"cle0 #5' ?hich of the follo*ing auditing (!ocedu!es (!obabl" *ould (!ovide the most !eliable evidence conce!ning the entit",s asse!tion of !ights and obligations !elated to invento!ies0 A' T!ace the test counts noted du!ing the entit",s (h"sical count to the entit",s summa!iFation of Duantities' B. ns(ect ag!eements to dete!mine *hethe! an" invento!" is (ledged as collate!al o! sub+ect to an" liens' C' Select the last fe* shi((ing documents used befo!e the (h"sical count and dete!mine *hethe! the shi(ments *e!e !eco!ded as sales' -' ns(ect the o(en (u!chase o!de! file fo! significant commitments that should be conside!ed fo! disclosu!e' #&' ?hich of the follo*ing inte!nal cont!ol activities most li)el" add!esses the com(leteness asse!tion fo! invento!" A' The *o!)=in=(!ocess account is (e!iodicall" !econciled *ith subsidia!" invento!" !eco!ds' 9' Em(lo"ees !es(onsible fo! custod" of finished goods do not (e!fo!m the !eceiving function C. Receiving !e(o!ts a!e (!enumbe!ed and the numbe!ing seDuence is chec)ed (e!iodicall"' -' The!e is a se(a!ation of duties bet*een the (a"!oll de(a!tment and invento!" accounting (e!sonnel' #4' 2!om the audito!,s (oint of vie*/ invento!" counts a!e mo!e acce(table (!io! to the "ea!= end *hen A' nte!nal cont!ol is *ea)' B. Accu!ate (e!(etual invento!" !eco!ds a!e maintained' C' nvento!" is slo* moving' -' Significant amounts of invento!" a!e held on a consignment basis' #8' A !etaile!,s (h"sical count of invento!" *as highe! than that sho*n b" the (e!(etual !eco!ds' ?hich of the follo*ing could e7(lain the diffe!ence A' nvento!" items had been counted but the tags (laced on the items had not been ta)en off and added to the invento!" accumulation sheets' B. C!edit memos fo! seve!al items !etu!ned b" custome!s had not been !eco!ded' C' No +ou!nal ent!" had been made on the !etaile!,s boo)s fo! seve!al items !etu!ned to its su((lie!s' -' An item (u!chased 2O9 shi((ing (oint had not a!!ived at the date of the invento!" count and had not been !eflected in the (e!(etual !eco!ds' .$' An audito! *ill usuall" t!ace the details of the test counts made du!ing the obse!vation of (h"sical invento!" counts to a final invento!" com(ilation' This audit (!ocedu!e is unde!ta)en to (!ovide evidence that items (h"sicall" (!esent and obse!ved b" the audito! at the time of the (h"sical invento!" count a!e A' O*ned b" the client' 9' Not obsolete' C' Ph"sicall" (!esent at the time of the (!e(a!ation of the final invento!" schedule' D. ncluded in the final invento!" schedule'
Page 4 PROBLEM NO. 4 A (o!tion of the SPAR COMPANY,s statement of financial (osition a((ea!s as follo*s0 -ecembe! .%/ #$%&
S(a!) Com(an" (a"s fo! all o(e!ating e7(enses *ith cash and (u!chases all invento!" on c!edit' -u!ing #$%&/ cash totaling P:&%/&$$ *as (aid on accounts (a"able' O(e!ating e7(enses fo! #$%& totaled P##$/$$$' All sales a!e cash sales' The invento!" *as !estoc)ed b" (u!chasing %/6$$ units (e! month and valued b" using (e!iodic 22O' The unit cost of invento!" *as P.#'5$ du!ing 3anua!" #$%& and inc!eased P$'%$ (e! month du!ing the "ea!' S(a!) sells onl" one (!oduct' All sales a!e made fo! P6$ (e! unit' The ending invento!" fo! #$%5 *as valued at P.#'6$ (e! unit'
.%' Numbe! of units sold du!ing #$%& A' &/$55
B. %4/:$$
C' :/#54
-' %./:$$
.#' Accounts (a"able balance at -ecembe! .%/ #$%& A' P%8$/%$$
9' P6$/$$$
C' P%88/%$$
D. P#$$/$$$
C' %&/$4:
-' %$/&6$
C. P%8#/86$
-' P%48/55$
..' nvento!" Duantit" on -ecembe! .%/ #$%& A. 6/&6$
9' #/&6$
.:' Cost of invento!" on -ecembe! .%/ #$%& A' P%4&/:6$
9' P%45/4&6
.6' Cost of goods sold fo! the "ea! ended -ecembe! .%/ #$%& A' P5$8/%#6
9' P5$8/&$$
C' P5$5/8%6
D. P5$./5#6
Page 8 PROBLEM NO. 5 A de(!eciation schedule fo! semi=t!uc)s of S-RO MAN12ACT1RN COMPANY *as !eDuested b" "ou! audito! soon afte! -ecembe! .%/ #$%&/ sho*ing the additions/ !eti!ements/ de(!eciation/ and othe! data affecting the income of the com(an" in the :="ea! (e!iod #$%: to #$%&/ inclusive' The follo*ing data *e!e asce!tained' 9alance of T!uc)s account/ 3an' %/ #$%: T!uc) No' % (u!chased T!uc) No' # (u!chased T!uc) No' . (u!chased T!uc) No' : (u!chased 9alance/ 3an' %/ #$%:
The Accumulated -e(!eciationIT!uc)s account (!eviousl" ad+usted to 3anua!" %/ #$%:/ and ente!ed in the ledge!/ had a balance on that date of P.$#/$$$ ;de(!eciation on the fou! t!uc)s f!om the !es(ective dates of (u!chase/ based on a 6="ea! life/ no salvage value<' No cha!ges had been made against the account befo!e 3anua!" %/ #$%:' T!ansactions bet*een 3anua!" %/ #$%:/ and -ecembe! .%/ #$%&/ *hich *e!e !eco!ded in the ledge!/ a!e as follo*s' 3ul" %/ #$%:
T!uc) No' . *as t!aded fo! a la!ge! one ;No' 6
3an' %/ #$%6
T!uc) No' % *as sold fo! P.6/$$$ cashJ ent!" debited Cash and c!edited T!uc)s/ P.6/$$$'
3ul" %/ #$%5
A ne* t!uc) ;No' 5< *as acDui!ed fo! P:#$/$$$ cash and *as cha!ged at that amount to the T!uc)s account' ;Assume t!uc) No' # *as not !eti!ed'<
3ul" %/ #$%5
T!uc) No' : *as damaged in a *!ec) to such an e7tent that it *as sold as +un) fo! P&/$$$ cash' sid!o Mfg' Co' !eceived P#6/$$$ f!om the insu!ance com(an"' The ent!" made b" the boo))ee(e! *as a debit to Cash/ P.#/$$$/ and c!edits to Miscellaneous ncome/ P&/$$$/ and T!uc)s/ P#6/$$$'
Page %$ Ent!ies fo! de(!eciation had been made at the close of each "ea! as follo*s0 #$%:/ P#%$/$$$J #$%6/ P##6/$$$J #$%5/ P#6$/6$$J #$%&/ P.$:/$$$' .5' ?hat is the total de(!eciation e7(ense fo! the "ea! ended -ecembe! .%/ #$%: A' P%4$/$$$
B. P%84/$$$
C' P%&#/$$$
-' P##4/$$$
.&' ?hat is the gain ;loss< on t!ade in of T!uc) K. on 3ul" %/ #$%: A. ;P.$/$$$<
9' P%$/$$$
C' ;P5$/$$$<
-' P%8$/$$$
.4' ?hat is the net boo) value of the T!uc)s on -ecembe! .%/ #$%& A. P:%:/$$$
9' P.:4/$$$
C' P##4/6$$
-' P48:/$$$
.8' The total de(!eciation e7(ense !eco!ded fo! the :="ea! (e!iod ;#$%:=#$%&< is ove!stated b" A' P%46/6$$
9' P#56/6$$
C. P#4&/6$$
-' P#&6/6$$
:$' The boo)s have not been closed fo! #$%&' ?hat is the com(ound +ou!nal ent!" on -ecembe! .%/ #$%& to co!!ect the com(an",s e!!o!s fo! the :="ea! (e!iod ;#$%:=#$%&< A' Accumulated de(!eciation T!uc)s Retained ea!nings -e(!eciation e7(ense B. Accumulated de(!eciation T!uc)s Retained ea!nings -e(!eciation e7(ense C' Accumulated de(!eciation T!uc)s Retained ea!nings -' Accumulated de(!eciation T!uc)s
-Ms 5% and %%# a!e fo! se!vice cha!ges' EC is e!!o! co!!ected' -M 6& is fo! an NS2 chec)' CM #$ is fo! loan (!oceeds/ net of P:6$ inte!est cha!ges fo! 8$ da"s' CM %5 is fo! the co!!ection of an e!!oneous Novembe! ban) cha!ge' CM .5 is fo! custome!s, notes collected b" ban) in -ecembe!' 9an) balance on -ecembe! .% is P%/&&5/4%$
Page %: PROBLEM NO. ' MNA MNN CO' has acDui!ed a t!act of mine!al land fo! P6$/$$$/$$$' Mina Mining estimates that the acDui!ed (!o(e!t" *ill "ield %6$/$$$ tons of o!e *ith sufficient mine!al content to ma)e mining and (!ocessing (!ofitable' t fu!the! estimates that &/6$$ tons of o!e *ill be mined the fi!st and last "ea! and %6/$$$ tons eve!" "ea! in bet*een' ;Assume %% "ea!s of mining o(e!ations'< The land *ill have a !esidual value of P%/66$/$$$' Mina Mining builds necessa!" st!uctu!es and sheds on the site at a total cost of P%#/$$$/$$$' The com(an" estimates that these st!uctu!es can be used fo! %6 "ea!s but/ because the" must be dismantled if the" a!e to be moved/ the" have no !esidual value' Mina Mining does not intend to use the buildings else*he!e' Mining machine!" installed at the mine *as (u!chased secondhand at a total cost of P./5$$/$$$' The machine!" cost the fo!me! o*ne! P8/$$$/$$$ and *as 6$@ de(!eciated *hen (u!chased' Mina Mining estimates that about half of this machine!" *ill still be useful *hen the (!esent mine!al !esou!ces have been e7hausted but that dismantling and !emoval costs *ill +ust about offset its value at that time' The com(an" does not intend to use the machine!" else*he!e' The !emaining machine!" *ill last until about one=half the (!esent estimated mine!al o!e has been !emoved and *ill then be *o!thless' Cost is to be allocated eDuall" bet*een these t*o classes of machine!"' 6%' ?hat a!e the e$t&(ate% de(letion and de(!eciation cha!ges fo! the % st "ea! -e(letion -e(!eciation A' P:/4:6/$$$ P4&$/$$$ 9' P:/4:6/$$$ P&4$/$$$ P#/:##/6$$ P4&$/$$$ C. -' P#/:##/6$$ P&4$/$$$ 6#' ?hat a!e the e$t&(ate% de(letion and de(!eciation cha!ges fo! the 6 th "ea! -e(letion -e(!eciation A' P#/:##/6$$ P%/&:$/$$$ 9' P#/:##/6$$ P%/65$/$$$ C' P:/4:6/$$$ P%/65$/$$$ P:/4:6/$$$ P%/&:$/$$$ D. 6.' ?hat a!e the e$t&(ate% de(letion and de(!eciation cha!ges fo! the 5 th "ea! -e(letion -e(!eciation A' P#/:##/6$$ P%/65$/$$$ 9' P#/:##/6$$ P%/&:$/$$$ C. P:/4:6/$$$ P%/65$/$$$ -' P:/4:6/$$$ P%/&:$/$$$ 6:' ?hat a!e the e$t&(ate% de(letion and de(!eciation cha!ges fo! the & th "ea! -e(letion -e(!eciation A' P#/:##/6$$ P%/.4$/$$$ 9' P#/:##/6$$ P%/65$/$$$ C. P:/4:6/$$$ P%/.4$/$$$ -' P:/4:6/$$$ P%/65$/$$$ 66' ?hat a!e the e$t&(ate% de(letion and de(!eciation cha!ges fo! the %% th "ea! -e(letion -e(!eciation A' P:/4:6/$$$ P%/.4$/$$$ 9' P:/4:6/$$$ P58$/$$$ C' P#/:##/6$$ P%/.4$/$$$ D. P#/:##/6$$ P58$/$$$
Page %6 PROBLEM NO. ) The H>R Com(an" included the follo*ing in its notes !eceivable on -ecembe! .%/ #$%&0 Note !eceivable f!om sale of land Note !eceivable f!om consultation Note !eceivable f!om sale of eDui(ment
P#/5:$/$$$ ./5$$/$$$ :/4$$/$$$
The follo*ing t!ansactions du!ing #$%& and othe! info!mation !elate to the com(an",s notes !ececeivable0 a< On 3anua!" %/ #$%&/ H>R Com(an" sold a t!act of land to T!i(le G Com(an"' The land/ (u!chased %$ "ea!s ago/ *as ca!!ied on H>R,s boo)s at P%/6$$/$$$' H>R !eceived a noninte!est=bea!ing note fo! P#/5:$/$$$ f!om T!i(le G' The note is due on -ecembe! .%/ #$%4' The!e *as no established e7change (!ice fo! the land' The (!evailing inte!est !ate fo! this note on 3anua!" %/ #$%& *as %$@' b< On 3anua!" %/ #$%&/ H>R Com(an" !eceived a 6@/ P./5$$/$$$ (!omisso!" note in e7change fo! the consultation se!vices !ende!ed' The note *ill matu!e on -ecembe! .%/ #$%8/ *ith inte!est !eceivable eve!" -ecembe! .%' The fai! value of the se!vices !ende!ed is not !eadil" dete!minable' The (!evailing !ate of inte!est fo! a note of this t"(e *as %$@ on 3anua!" %/ #$%&' c< On 3anua!" %/ #$%&/ H>R Com(an" sold an old eDui(ment *ith a ca!!"ing amount of P:/4$$/$$$/ !eceiving P&/#$$/$$$ note' The note bea!s an inte!est !ate of :@ and is to be !e(aid in . annual installments of P#/:$$/$$$ ;(lus inte!est on the outstanding balance<' H>R !eceived the fi!st (a"ment on -ecembe! .%/ #$%&' The!e is no established ma!)et value fo! the eDui(ment' The ma!)et inte!est !ate fo! simila! notes *as %:@ on 3anua!" %/ #$%&' N*te+ Round off (!esent value facto!s to fou! decimal (laces and final ans*e!s to the nea!est hund!ed'
65' ?hat amount of consultation fee !evenue should be !ecogniFed in #$%& A' P./5$$/$$$
9' P#/&$6/$$$
C' P:/$:&/6$$
D. P./%6#/6$$
6&' ?hat amount should be !e(o!ted as gain on sale of eDui(ment A' P88:/4$$
9' P#/:$$/$$$
C' P%/%5#/&$$
D. P%/#.&/.$$
64' The amount to be !e(o!ted as noncu!!ent notes !eceivable on -ecembe! .%/ #$%& is A' P&/:4#/#$$
9' P5/$.&/.$$
C. P6/:&&/6$$
-' P&/4&&/5$$
68' The amount to be !e(o!ted as cu!!ent notes !eceivable on -ecembe! .%/ #$%& is A' P:/4$$/$$$
9' P#/:$$/#$$
C. P:/:$:/8$$
-' P&/::$/$$$
5$' Ho* much inte!est income should be !ecogniFed in #$%& A' P8&:/#$$
