NAQDOWN – Elimination Elimination Auditing Problems Name:_________________________ Name:_____________________________________ _____________ _ Year and Section:________________________ Section:_____________________________ _____ Instructions: Write the letter of your answer before each number. Use UPPERCASE letters only. Provide all necessary solutions on your worksheet. Erasures are NOT allowed.
For items 1 to2 The following information was obtained from the audited financial statements of Dalaygon, INC. for the year ended December 31, 2012:
Operating income Selling, administrative, administrati ve, and other operating expenses Finance cost 10% Nonconvertible Nonconvertibl e bonds Income tax rate
P 3,500,000 1,800,000 250,000 2,500,000 30%
Additional data: a. There were 35,000 ordinary shares outstanding throughout the year. b. On January 1, 2012, there were options outstanding to purchase 20,000 ordinary shares at P30 per share. The average market price during the year was P40 per share. 1. What is Dalaygon’s Dalaygon ’s basic earnings per share for 2012? a. P29.00 b. 31.57
c. 23.56 d. 31.42
2. What is Dalaygon’s Dalaygon’s diluted earnings per share for 2012? a. P26.93 c. 17.14 b. 25.38 d. 31.42 For items 3 to 5 Do Min Joon Company has long-standing policy of acquiring company equipment by leasing. On January 1, 2011, the company entered into a lease for a new machine. The lease contract provides that annual payments will be made for 5 years. The payme payments nts are to be made in advance on Decembe Decemberr 31 of each year. At the end of the 5-year period, Do Min Joon may purchase the machine. The estimated economic life of the machine is 12 years. Do Min Joon uses the calendar year for reporting purposes and depreciates its other equipment using the straight-line method. In addition, the following information about the lease is also available: Annual lease payments P Purchase option price Estimated fair market value of the machine after 5 years Interest rate implicit in the lease 10% Date of first lease payment
165,000 75,000 1,125,000
The following data are abstracted from the present value tables: PV of 1 for 5 periods at 10% PV of an annuity due for 5 periods at 10% PV of an ordinary annuity for 5 periods at 10%
January 1, 2011
0.62092 4.16986 3.79079
3. What is the amount to be capitalized as an asset for the lease of the machine? a. 672,049 b. 837,232 c. 734,596 d. 763,027 4. What is the amount of interest expense to be recognized for the year ended December 31, 2012? Page 1 of 5
a. 46,156 d. 103,116 b. 56,960 c. 34,271 5. How much depreciation should be provided on the leased equipment for the year ended December 31, 2012? a. b. c. d.
P63,586 56,004 146,920 61,216
For item 6 You are engaged in the regular annual examination of the accounts and records of PRTC Manufacturing Co. for the year ended December 31, 2012. To reduce the workload at year end, the company, upon your recommendation, took its annual physical inventory on November 30, 2012. You observed the taking of the inventory and made tests of the inventory count and the inventory records. The company’s inventory account, which includes raw materials and work-in-process is on perpetual basis. Inventories are valued at cost, first-in, first-out method. There is no finished goods inventory. The company’s physical inventory revealed that the book inventory of P1,695,960 was understated by P84,000. To avoid delay in completing its monthly financial statements, the company decided not to adjust the book inventory until year-end except for obsolete inventory items. Your examination disclosed the following information regarding the November 30 inventory: a. Pricing tests showed that the physical inventory was overstated by P61,600. b. An understatement of the physical inventory by P4,200 due to errors in footings and extensions. c. Direct labor included in the inventory amounted to P280,000. Overhead was included at the rate of 200% of direct labor. You have ascertained that the amount of direct labor was correct and that the overhead rate was proper. d. The physical inventory included obsolete materials with a total cost of P7,000. During December, the obsolete materials were written off by a charge to cost of sales.
Your audit also disclosed the following information about the December 31 inventory: a. Total debits to the following accounts during December were: Cost of sales P1,920,800 Direct labor 338,800 Purchases 691,600 b. The cost of sales of P1,920,800 included direct labor of P386,400. 6. Based on the above info. and the result of your audit , what is the adjusted amount of physical inventory at November 30, 2012 a. P1,715,560 b. P1,845,760 c. P1,631,560 d. P1,722,560
7. Adjusted amount of inventory at December 31, 2012 a. P1,509,760 b. P1,502,760 c. P1,516,760
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d. P1,425,760
For items 7 – 10 The following information was obtained in connection with the audit of MICHELLE TALAVERA COMPANY’s cash account as of December 31, 2012. Outstanding checks, 11/30/12 P 16,250 Outstanding checks, 12/31/12 12,500 Deposit in transit, 11/30/12 12,500 Cash balance per general ledger 12/31/12 37,500 Actual company collections from its customers during December 152,500 Company checks paid by bank in December 130,000 Bank service charges recorded on company books in December 2,500 Bank service charges per December bank statement 3,250 Deposits credited by bank during December 145,000 November bank service charges recorded on company books in December 1,500 The cash receipts book of December is under footed by P2,500. The bank erroneously charged the company’s account for a P3,750 check of another depositor. This bank error was corrected in January 2013. 8. How much is the deposit in transit on December 31, 2012? a. P5,000 c. 22,500 b. 20,000 d. 17,500
9. The total unrecorded bank service charges as of December 31, 2012 is a. P750 c. 1,750 b. 2,250 d. 4,250 10. What is the total book receipt in December? a. P150,000 b. 152,500 c. 155,000 d. 147,500 Instructions:Write your answer on the space provided. Provide all necessary solutions on your worksheet. (Items 11 – 20) For Items 11
– 15
The following is Macedonia Company’s pre-audit income statement for year ended December 31, 2010: Sales
P2,964,000
Cost of goods sold
1,926,000
Gross income
P1,038,000
Operating expenses: Rent expense
P250,000
Salaries expense
345,000
Utilities expense
219,000
Advertising expense
30,000 Page 3 of 5
Warranty expense
14,000
Other expenses
35,500
Net income
893,500 P144,500
A. Some Macedonia’s customers pay for their orders in advance. At December 31, 2010, orders paid
Warranty expense
14,000
Other expenses
35,500
Net income
893,500 P144,500
A. Some Macedonia’s customers pay for their orders in advance. At December 31, 2010, orders paid for in advance of shipment totaled P15,000. These have been included in the sales figure. B. Macedonia’s products are sold with a 30 day money -back guarantee. Customers seldom returned the products during the year. Macedonia has not included in the sales figure and in cost of goods sold those products sold within the last 30 days of the current year. The revenue is P98,000 and the cost of the products is P63,700. C. On July 1, 2010, Macedonia prepaid its office space rent for 18 months. The amount paid P216,000, was recorded as rent expense. D. The amount of P120,000 was paid on July 1, 2010, for general advertising to be completed prior to December 31, 2010. Macedonia’s management believes that the advertising will benefit a 2 year period and, therefore, has decided to charge the costs to the income statement at the rate of P5,000 per month. E. In prior years, Macedonia has estimated warranty expense using a percentage of sales. Future warranty cost relating to 2010 sales are estimated to amount to 2% of sales. However, during 2010, Macedonia elected to charge costs to warranty expense as costs were incurred. Macedonia spent P14,000 during 2010 to repair and replace defective products sold in current and prior years. 11. 12. 13. 14. 15.
The correct amount of Macedonia’s sales revenue for 2010 is ________________________________ Macedonia’s income statement for 2010 should show gross income of _________________________ Macedonia’s total expenses (excluding cost of goods sold) for 2010 should be __________________ Macedonia’s net income for 2010 (ignore income tax) should be ______________________________ The prepaid advertising account balance on December 31, 2010 is____________________________
For items 16 – 20 PRTC Company's property, plant, and equipment, accumulated depreciation, and amortization balances at December 31, 2011 are: Cost
Accum. depreciation
Land Buildings Machinery and equipment Automobile and trucks Leasehold improvements Totals
P 275,000 2,800,000 1,380,000 210,000 432,000 P5,097,000
P 672,900 367,500 114,326 108,000 P1,262,726
Additional information on depreciation, amortization methods, and useful lives follows: Page 4 of 5
Asset Buildings Machinery and equipment Automobile and trucks (all acquired after 2009)
Depreciation method 150%-declining-balance straight-line 150%-declining-balance
Useful life 25 years. 10 years 5
Asset Buildings Machinery and equipment Automobile and trucks (all acquired after 2009) Leasehold improvements
Depreciation method 150%-declining-balance straight-line 150%-declining-balance straight-line
Useful life 25 years. 10 years 5 years
Depreciation is computed to the nearest month. Salvage values of depreciable assets are immaterial except for automobiles and trucks which have estimated salvage values equal to 15% of cost. Other additional information: PRTC entered into a twelve-year operating lease starting January 1, 2009. The leasehold improvements were completed on December 31, 2008 and the facility was occupied on January 1, 2009. On January 6, 2012, PRTC completed its self-construction of a building on its own land. Direct costs of construction were P1,095,000. Construction of the building required 15,000 direct labor hours. PRTC's construction department has an overhead allocation system for outside jobs based on an activity denominator of 100,000 direct labor hours, budgeted fixed costs of P2,500,000, and budgeted variable costs of P27 per direct labor hour. On July 1, 2012, machinery and equipment were purchased at a total invoice cost of P325,000. Additional costs of P23,000 to rectify damage on delivery and P18,000 for concrete embedding of machinery were incurred. A wall had to be demolished to enable a large machine to be moved into the plant. The wall demolition cost P7,000, and rebuilding of the wall cost P19,000. On August 30, 2012, PRTC purchased a new automobile costing P25,000. On September 30, 2012, a truck with a cost of P48,000 and a carrying amount of P30,000 on December 31, 2011 was sold for P23,500. On November 4, 2012, PRTC purchased a tract of land for investment purposes for P700,000. PRTC thinks it might use the land as a potential future building site. On December 20, 2012, a machine with a cost of P17,000, a carrying amount of P2,975 on date of disposition, and a market value of P4,000 was sold to a corporate officer. QUESTIONS:
Based on the above info. and the result of your audit, compute for the following as of and for the year ended December 31, 2012: 16. Total Depreciation:______________________________________________ 17. Carrying Amount of Buildings:____________________________________ 18. Carrying amount of machinery and equipment_________________________ 19. Carrying amount of automobiles and trucks___________________________ 20. Carrying amount of property, plant and equipment _____________________
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