PHILIPPINE SCHOOL OF BUSINESS ADMINISTRATION Manila, Philippines Accounting 13; Applied Auditing 11:30 am to 2:30 pm
Name: _____________________________________ (Last name, First Name, Middle Initial)
Score:
_____________________________________
Instructions: Encircle Instructions: Encircle the letter of the best answer for multiple choice questions and compute for th e correct answer or write the required items for auditing problems. P r oblem oblem #1
The following are selected unadjusted account balances and adjustin g information of TANYING CORP. for for the year ended December 31, 2017. Retained earnings, January 1 Sales salaries and commissions Advertising expense Legal services Insurance and licenses Travel expense – expense – sales sales representatives Depreciation expense – expense – sales/deliv sales/delivery ery equipment Depreciation expense – expense – office office equipment Interest revenue Utilities Telephone and postage Office supplies inventory Miscellaneous selling expenses Dividends Dividend revenue Interest expense Allowance for doubtful accounts (credit balance) Officers’ Officers’ salaries salaries Sales Sales returns and allowances Sales discounts Gain on sale of assets Inventory, January 1 Inventory, December 31 Purchases Freight in Accounts receivable, receivable, December 31 Income from discontinued discontinued operations operations (before income taxes) Loss on sale of equipment
P 1,322,010 75,000 48,270 6,675 23,040 13,680 18,300 12,600 1,650 19,200 4,425 6,540 8,220 99,000 15,450 13,560 480 109,800 1,353,000 11,700 2,640 23,460 269,100 61,650 424,800 16,575 783,000 120,000 217,800
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PHILIPPINE SCHOOL OF BUSINESS ADMINISTRATION Manila, Philippines Ordinary shares outstanding Adjusting information:
117,000
PHILIPPINE SCHOOL OF BUSINESS ADMINISTRATION Manila, Philippines Ordinary shares outstanding
117,000
Adjusting information: (a)
Cost of inventory in the possession of consignees as of December 31, 2017, was not included in the ending inventory balance................................................................................P55,800
(b)
After preparing an analysis of aged accounts receivable, a decision was made to increase the allowance for doubtful accounts to a percentage of the ending accounts receivable balance ....................................................................................................................... 2%
(c)
Purchase returns and allowances were unrecorded. They are computed as a percentage of purchases (not including freight in) ...................................................................................... 6%
(d)
Sales commissions for the last day of the year had not been accrued. Total sales for the day .................................................................................................................................. P9,180 Average sales commissions as a percent of sales ........................................................................................ 3%
(e)
No accrual had been made for a freight bill received on January 2, 2018, for goods received on December 29, 2017 ................................................................................................. P1,710
(f)
An advertising campaign was initiated November 2, 2017. This amount was recorded as “Prepaid advertising” and should be amortized over a six-month period. No amortization was recorded ................................................................................................. P5,454 Freight charges paid on sold merchandise were netted against sales. Freight charges on sales during 2017 ..............................................................................................................P10,500
(g)
Interest earned but not accrued ............................................................................................................ P1,680
(h)
Depreciation expense on a new forklift purchased March 1, 2017, had not been recognized. (Assume all equipment will have no salvage value and the straight-line method is used. Depreciation is calculated to the nearest month.) Purchase price ....................................................................................................................................P23,400 Estimated life in years ................................................................................................................................ 10
(i)
A “real” account is debited upon the receipt of office supplies. Office supplies on hand at year-end .............................................................................................................................................. P3,675
(j)
Income tax rate (on all items)
30%
Compute for the following: 1. Net sales A. P1,363,500
B. P1,349,160
C. P1,353,000
D. P1,342,500
2. Cost of goods available for sale A. P684,900 B. P824,697
C. P686,697
D. P779,913
3. Inventory, December 31, 2017 A. P61,500 B. P61,350
C. P56,250
D. P117,450
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PHILIPPINE SCHOOL OF BUSINESS ADMINISTRATION Manila, Philippines 4. Allowance for doubtful accounts A. P15,660 B. P16,140
C. P15,180
D. P480
PHILIPPINE SCHOOL OF BUSINESS ADMINISTRATION Manila, Philippines 4. Allowance for doubtful accounts A. P15,660 B. P16,140
C. P15,180
D. P480
5.Net income A. P237,296
C. P250,289
D. P216,296
B. P210,299
Problem #2
The following accounts were included in the unadjusted trial balance of BUNCHING COMPANY as of December 31, 2017: Cash ................................................................................................................P 963,200 Accounts receivable .......................................................................................... 2,254,000 Inventory .......................................................................................................... 6,050,000 Accounts payable.............................................................................................. 4,201,000 Accrued expenses ................................................................................................431,000 During your audit, you noted that Bunching Company held its cash books open after year-end. In addition, your audit revealed the following: 1.
Receipts for January 2018 of P654,600 were recorded in the December 2017 cash receipts book. The receipts of P360,100 represent cash sales and P294,500 represent collections from customers, net of 5% cash discounts.
2.
Accounts payable of P372,400 was paid in January 2018. The payments, on which discounts of P12,400 were taken, were included in the December 2017 check register.
3.
Merchandise inventory is valued at P6,050,000 prior to any adjustments. The following information has been found relating to certain inventory transactions: a.
The invoice for goods costing P175,000 was received and recorded as a purchase on December 31, 2017. The related goods, shipped FOB destination, were received on January 4, 2018, and thus were not in cluded in the physical inventory.
b.
A P182,000 shipment of goods to a customer on December 30, 2017, terms FOB destination, are not included in the year-end inventory. The goods cost P130,000 and were delivered to the customer on January 3, 2018. The sale was properly recorded in 2018.
c.
Goods costing P637,500 were shipped on December 31, 2017, and were delivered to the customer on January 3, 2018. The terms of the invoice were FOB shipping point. The goods were included in the 2017 ending inventory even though the sale was recorded in 2017.
d.
Goods costing P217,500 were received from a vendor on January 4, 2018. The related invoice was received and recorded on January 6, 2018. The goods were shipped on December 31, 2017, terms FOB shipping point.
e.
Goods valued at P275,000 are on consignment with a customer. These goods are not included in the inventory figure.
f.
Goods valued at P612,800 are on consignment from a vendor. These goods are not included in the physical inventory.
Determine the adjusted balances of the following on December 31, 2017:
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PHILIPPINE SCHOOL OF BUSINESS ADMINISTRATION Manila, Philippines 6. Cash
PHILIPPINE SCHOOL OF BUSINESS ADMINISTRATION Manila, Philippines 6. Cash A. P963,200
B. P681,000
C. P668,600
D. P693,400
B. P2,564,000
C. P2,254,000
D. P2,548,500
B. P6,080,000
C. P5,860,000
D. P5,010,000
B.
C. P4,573,000
D. P4,603,500
7. Accounts receivable A. P2,908,600 8. Inventory A. P6,035,000 9. Accounts payable A.
P4,790,900
P4,615,900
Problem #3
BULKAN COMPANY purchased a machine for P300,000 on January 1, 2014, with the following additional items paid or incurred: Separation pay for laborer laid off upon acquisition of new machine...... ............................................ P3,600 Loss on sale of machine replaced ........................................................................................................ 3,900 Transportation in ................................................................................................................................ 3,000 Installation cost ................................................................................................................................ 12,000 The new machine is estimated to have a useful life of 10 years and a residual value of P12,000. On January 1, 2017, new parts which cost P37,800 were added to the machine so as to reduce its fuel consumption, but with no change in its estimated life or residual value. 10. The annual depreciation charge on the machine for 2015 was A.
P34,080
B.
P35,494
C.
P36,450
D.
P35,700
Problem #4
The following shareholders’ equity accounts are included in the statement of financial position of CONDESSA CO. on December 31, 2016. Preference share capital, 8%, P100 par (200,000 shares authorized, 60,000 shares issued and outstanding) Ordinary share capital, P5 par (2,000,000 shares authorized, 600,000 shares issued and outstanding) Share premium Retained earnings Total
P6,000,000 3,000,000 3,750,000 3,500,000 P16,250,000
During 2017, Condessa took part in the following transactions concerning equity. 1. Paid the annual 2016 P8 per share dividend on preference shares and a P2 per share dividend on ordinary shares. These dividends had been d eclared on December 31, 2016.
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PHILIPPINE SCHOOL OF BUSINESS ADMINISTRATION Manila, Philippines 2. Purchased 81,000 shares of its own outstanding ordinary shares for P40 per share. 3. Reissued 21,000 t
shares for land valued at P900,000.
PHILIPPINE SCHOOL OF BUSINESS ADMINISTRATION Manila, Philippines 2. Purchased 81,000 shares of its own outstanding ordinary shares for P40 per share. 3. Reissued 21,000 treasury shares for land valued at P900,000. 4. Issued 15,000 preference shares at P105 per share. 5. Declared a 10% stock dividend on the outstanding ordinary shares when the shares are selling for P45 per share. 6. Issued the stock dividend. 7. Declared the annual 2017 P8 per share dividend on preference shares and the P2 per share dividend on ordinary shares. These dividends are payable in 2018. 8. Reported net income of P9,900,000 for the current year. 11. What is the retained earnings balance (before appropriation for treasury shares) on December 31, 2017? A. P9,182,000
B. P718,000
C. P6,782,000
D. P11,000,000
12. What amount should be reported as total shareholders’ equity on December 31, 2017? A. P25,997,000
B. P23,597,000
C. P21,197,000
D. P14,415,000
Problem #5
The December 31 year-end financial statements of SAMOA COMPANY contained the following errors: Dec. 31, 2016 Dec. 31, 2017 Ending inventory Depreciation expense
P48,000 understated P11,500 understated
P40,500 overstated -------
An insurance premium of P330,000 was prepaid in 2016 covering the years 2016, 2017, and 2018. The entire amount was charged to expense in 2016. In addition, on December 31, 2017, a fully depreciated machinery was sold for P75,000 cash, but the sale was not recorded until 2018. There were no other errors during 2016 and 2017, and no corrections have been made for any of the errors. Ignore income tax effects. 13. What is the total effect of the errors on Samoa’s 2016 net income? A. P123,500 overstatement B. P27,500 overstatement C. P192,500 understatement D. P177,500 understatement 14. What is the total effect of the errors on the amount of Samoa’s working capital at December 31, 2017? A. P75,500 overstatement B. P40,500 overstatement C. P225,500 understatement D. P144,500 understatement 15. What is the total effect of the errors on the balance of Samoa’s retained earnings at December 31, 2017? A. P156,000 understatement B. P87,000 overstatement C. P133,000 understatement D. P85,000 understatement
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PHILIPPINE SCHOOL OF BUSINESS ADMINISTRATION Manila, Philippines
PHILIPPINE SCHOOL OF BUSINESS ADMINISTRATION Manila, Philippines
Problem #6
LABADA CO.’s portfolio of trading securities includes the following on December 31, 2016: Cost P1,431,000 1,638,000 P3,069,000
15,000 ordinary shares of Camias Co. 30,000 ordinary shares of Ganda Co.
Fair Value P1,251,000 1,710,000 P2,961,000
All of the above securities have been purchased in 2016. In 2017, Labada Co. completed the following securities transactions: Mar. 1
Sold 15,000 shares of Camias Co. ordinary shares at P93, less brokerage commission of P13,500.
April 1
Bought 1,800 ordinary shares of Waston, Inc. at P135 plus commission, taxes, and other transaction costs of P4,950.
The Labada Co. portfolio of trading securities appeared as follows on December 31, 2017: Cost Fair Value 30,000 ordinary shares of Ganda Co. P1,638,000 P1,740,000 1 1,800 ordinary shares of Waston, Inc. 247,950 225,0002 P1,885,950 P1,965,000 1 2
Net of P19,500 estimated transaction costs that would be incurred on the sale of the securities. Net of P4,500 estimated transaction costs that would be incurred on the sale of the securities.
16. What amount of unrealized gain on these securities should be reported in the 2017 income statement? A. P31,050
B. P79,050
C. P84,000
D. P36,000
17. What is the gain on the sale of Camias Co. ordinary shares on March 1, 2017? A. P144,000
B. P27,000
C. P130,500
D. P13,500
18. What amount should be reported as trading securities in Labada’s statement of financial position on December 31, 2017? A. P1,965,000
B. P1,989,000
C. P1,885,950
D. P1,909,950
Problem #7
Camry Inc. is selling audio and video appliances. The company’s fiscal year ends on March 31. The following information relates to the obligation of the company as of March 31, 2017: Notes payable Camry Inc. has signed several long-term notes with financial institutions. The maturities of these n otes are given below. The total unpaid interest for all of these notes amounts to P408,000 on March 31, 2017
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PHILIPPINE SCHOOL OF BUSINESS ADMINISTRATION Manila, Philippines Due Date April 30, 2017 July 31, 2017
–
P720,000 P1,080,000
PHILIPPINE SCHOOL OF BUSINESS ADMINISTRATION Manila, Philippines Due Date April 30, 2017 July 31, 2017 September 1, 2017 February 1, 2018 April 1, 2018 – March 31, 2019 Total
– – – – – –
P720,000 P1,080,000 P540,000 P540,000 P3,240,000 P6,120,000
Estimated Warranties Camry Inc. has a 1 year product warranty on some selected items. The estimated warranty liability on sales made during the 2015-2016 fiscal year-end and still outstanding as of March 31, 2016, amounted to P302,400. The warranty costs on sales made from April 1, 2016 to March 31, 2017 are estimated at P756,000. The actual warranty costs incurred during 2016-2017 fiscal year are as follows: Warranty claims honored on 2015 – 2016 sales – P302,400 Warranty claims honored on 2016 – 2017 sales – P342,000 Total P644,400 Trade payables Accounts payable for supplies, goods, and services purchases on open account amount to P672,000 as of March 31, 2017. Dividends On March 10, 2017, Civic Inc.’s BOD declared cash dividends of P.30 per ordinary share and a 10% ordinary share dividend. Both dividends were to be distributed on April 5, 2017 to shareholders on r ecord at the close of business on March 31, 2017. As of March 31, 2017, Civic Inc. has 6 million, P2 par value, ordinary shares issued and outstanding. Bonds Payable Civic Inc. issued P6,000,000, 12% bonds, on October 1, 2011 at 96. The bonds will mature on October 1, 2021. Interest is paid semi-annually on October 1 and April 1. Civic Inc. uses straight line method to amortize the bond discount. 19. Total current liabilities A. P7,734,000
B. P6,126,000
C. P6,534,000
P4,734,000
C. P9,108,000
D. P9,000,000
20. Total noncurrent liabilities A. P9,240,000
B. P9,132,000
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PHILIPPINE SCHOOL OF BUSINESS ADMINISTRATION Manila, Philippines 1.
Which of the following procedures would an auditor most likely perform in planning a financial statement audit?
PHILIPPINE SCHOOL OF BUSINESS ADMINISTRATION Manila, Philippines 1.
Which of the following procedures would an auditor most likely perform in planning a financial statement audit? a. b. c. d.
2.
Performing analytical procedures to identify areas that may represent specific risks Reviewing investment transactions of the audit period Reading the minutes of stockholders and director meeting to discover unusual transactions Issuance of management letter
An auditor will usually trace the details of the test counts made during the observation of physical inventory counts to a final inventory compilation. This audit procedure is undertaken to provide evidence that items physically present and observed by the auditor at the time of the physical inventory count are a. Owned by the client. b. Not obsolete. c. Physically present at the time of the preparation of the final inventory schedule. d. Included in the final inventory schedule.
3.
Analytical procedures used in planning an audit should focus on a. b. c. d.
4.
The auditor observed that the gross margin percentage was unchanged from the prior year although gross margin increased from the prior year. Which of the following is most likely explanation for this situation? a. b. c. d.
5.
That would aid in preventing irregularities Documented in the flowchart Considered to be deficiencies that might allow errors to enter the accounting system Considered to be strengths that the auditor plans to rely in in assessing the control risk
Which of the following is an effective internal control over accounts receivable? a. b. c. d.
7.
The effective income tax rate decreased, as compared to the prior year/ A larger percentage of the sales occurred during the last month of the year, as compared to the prior year Sales increased at the same percentage as cost of goods sold Sales increased at a lower percentage than cost of goods sold increased, as compared to the prior year
After the auditor has prepared a flowchart of internal control for sales and cash receipts transactions and evaluated the design of the system, the auditor would perform tests of controls on all control procedures a. b. c. d.
6.
Providing assurance that potential material misstatements will be identified Enhancing the auditor’s understanding of the client’s business Assessing the adequacy of the available evidential matter Reducing the scope of test of controls and substantive tests
Only persons who handle cash receipts should be responsible for the preparation of documents that reduce accounts receivable balances Responsibility for approval of the write-off of uncollectible accounts receivable should be assigned to the cashier Balances in the subsidiary accounts receivable ledger should be reconciled to the general ledger control account once a year, preferable at year-end The billing function should be assigned to persons other than those responsible for maintaining accounts receivable subsidiary records
Which of the following would best protect a company that wishes to prevent lapping: a. b. c.
Segregating duties so that accounting has no access to an incoming mail Segregating duties so that no employee has access to both cheques from customers and to currency from daily cash receipts Requesting that customers cheques be made payable to the company and be addressed to the treasurer
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PHILIPPINE SCHOOL OF BUSINESS ADMINISTRATION Manila, Philippines d.
8.
Having customers send payments directly to the company’s bank
An internal control device for cash which requires that all cash receipts should be deposited intact, and all cash
PHILIPPINE SCHOOL OF BUSINESS ADMINISTRATION Manila, Philippines d.
8.
An internal control device for cash which requires that all cash receipts should be deposited intact, and all cash payments should be made by means of cheque: a. b. c. d.
9.
Having customers send payments directly to the company’s bank
Impromptu system Fluctuating fund system Imprest system Auditing system
To control purchasing and accounts payable, an information system must include certain source documents. For a manufacturing organization, these documents should include: a. b. c. d.
Purchase orders, receiving reports, and vendor invoices Receiving reports and vendor invoices Purchase requisitions, purchase orders, inventory reports of goods needed and vendor invoices Purchase requisitions, purchase orders, receiving reports, vendor invoices
10. Which of the following functions is not appropriate for the accounts payable department a. b. c. d.
Prepare purchase orders Prepare vouchers and daily summary File voucher package by due date or by supplier Compare purchase r equisitions, purchase orders, receiving reports, and vendor’s invoices
11. Which of the following departments most likely would approve changes in pay rates and deductions from employee salaries? a. b. c. d.
Personnel Controller Treasurer Payroll
12. A means of ensuring that payroll cheques are drawn for properly authorized amounts is to a. b. c. d.
Require that undelivered cheques be returned to the cashier Require supervisory approval of employee time cards Witness the distributions of payroll cheques Conduct periodic floor verification of employees on the payroll
13. Internal control is improved when the quantity of merchandise ordered is omitted from the copy of the purchase order sent to the a. b. c. d.
Department that initiated the requisition Purchasing agent Receiving department Accounts payable department
14. How can an auditor test to determine whether receiving department procedures are applied properly? a. b. c. d.
Test a sample receiving documents Observe receiving procedures on a surprise basis Review procedure manuals Interview receiving personnel
15. Which of the following controls would help prevent overpaying a vendor? a. Requiring the cheque signer to mail the cheque directly to the vendor b. Reviewing the accounting distribution for the expenditure
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PHILIPPINE SCHOOL OF BUSINESS ADMINISTRATION Manila, Philippines c. d.
Approving the purchase before ordering from the vendor Reviewing and canceling the supporting documents when a cheque is issued
PHILIPPINE SCHOOL OF BUSINESS ADMINISTRATION Manila, Philippines c. d.
Approving the purchase before ordering from the vendor Reviewing and canceling the supporting documents when a cheque is issued
16. In a properly designed internal accounting control system, the same employees should not be permitted to a. b. c. d.
Sign cheques and cancel supporting documents Prepare disbursement vouchers and sign cheques Receive merchandise and prepare a receiving report Initiate request to order merchandise and approve merchandise received
17. The authority to accept incoming goods in receiving should be based on a (an) a. b. c. d.
Vendor’s invoice Bill of lading Materials requisition Purchase order
18. In obtaining an understanding of a manufacturing entity’s internal control over inventory balances, an auditor most likely would a. b. c. d.
Analyze the liquidity and turnover ratios of the inventory Perform analytical procedures designed to identify the cost variances Perform test counts of inventory during entity’s physical count Review the entity’s descriptions of inventory policies and procedures
19. Which of the following controls most likely addresses the completeness assertion for inventory? a. b. c. d.
Receiving reports are pre numbered and periodically reconciled Work in process account is periodically reconciled with subsidiary records Employees responsible for custody of finished goods do not perform receiving function There is a separation of duties between payroll department and inventory accounting personnel
20. To strengthen control procedures over the custody of heavy mobile equipment, the client would most likely institute a policy requiring a periodic a. b. c. d.
Inspection of equipment and reconciliation with accounting records Increase in insurance coverage Verification of liens, pledges, and collateralizations Accounting for work orders
“The biggest risk is not taking any risk.. In a world that i s changing really quickly, the only strategy that is guaranteed to fail is not taking risks.” – MZ
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End -
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SOLUTION - AUDITING PROBLEMS TEST BANK 1 PROBLEM 1
TANYING CORP.
–
SOLUTION - AUDITING PROBLEMS TEST BANK 1 PROBLEM 1
TANYING CORP.
–
1.
B
Sales (P1,353,000 + P10,500 Freight) Sales returns and allowances Sales discounts Net sales
2.
C
Inventory, Jan. 1 Purchases Purchase returns and allowances (P424,800 x 6%) Freight in (P16,575 + P1,710) Cost of goods available for sale
3.
D
Inventory, Dec. 31, 2017 Per books Goods out on consignment Per audit
P1,363,500 (11,700) (2,640) P1,349,160 P269,100 P424,800 (25,488) 18,285
417,597 P686,697
P 61,650 55,800 P117,450
Distribution costs: Sales salaries and commissions (P75,000 + [P9,180 x 3%]) P75,275 Advertising expense (P48,270 + [P5,454 x 2/6]) 50,088 Depreciation expense – Sales/delivery equipment (P18,300 + [P23,400 x 10% x 10/12]) 20,250 Freight expense 10,500 Travel expense – sales representatives 13,680 Miscellaneous selling expenses 8,220 Total P178,013 Administrative expenses: Legal services Insurance and licenses Depreciation expense – office equipment Utilities Telephone and postage Office supplies expense (P6,540 – P3,675) Officers’ salaries Doubtful accounts expense (P783,000 x 2% = P15,660 – P480) Total 6. A Allowance for doubtful accounts (P783,000 x 2%) Net sales Cost of goods sold (P686,697 – P117,450) Gross income Interest revenue (P1,650 + P1,680) Dividend revenue Gain on sale of assets Total income Total income Distribution costs Administrative expenses Interest expense Loss on sale of equipment Income from continuing operations before tax Office supplies inventory 10. A Income before tax Income tax (P218,995 x 30) Income from continuing operations Income from discontinued operations, net of tax (P120,000 x 70%) Net income
P 6,675 23,040 12,600 19,200 4,425 2,865 109,800 15,180 P193,785 P15,660 P1,349,160 (569,247) 779,913 3,330 15,450 23,460 P822,153 P822,153 (178,013) (193,785) (13,560) (217,800) P218,995 P3,675 P218,995 (65,669) 153,296 84,000 P237,296
Page 2 PROBLEM 2
BUNCHING COMPANY
–
Per books AJE 1 2 3 a b c d e Per audit
Cash P963,200 (654,600) 360,000 ----------P668,600
Accounts Receivable P2,254,000 310,000 ------------P2,564,000
(11 – C)
(12 –
B)
Inventory P6,050,000 ------130,000 (637,500) 217,500 275,000 P6,035,000 (13 – A)
Accounts Payable P4,201,000 --372,400 (175,000) ----217,500 --P4,615,900 (14 – B)
AJES
1.
Sales Accounts receivable (P294,500 / 95%) Sales discounts (P310,000 x 5%) Cash
360,100 310,000 15,500 654,600
Cash (P372,400 – P12,400) Purchase discounts Accounts payable
2.
360,000 12,400 372,400
3. a Accounts payable Purchases
175,000 175,000
b Inventory Cost of sales
130,000
c Cost of sales Inventory
637,500
d Purchases Accounts payable Inventory Cost of sales
217,500
e Inventory Cost of sales
275,000
130,000 637,500 217,500 217,500 217,500 275,000
f No adjusting entry
LABADA CO.
23.
D
Ganda Co. Waston, Inc. (P135 x 1,800)
Carrying Value P1,710,000 243,000 P1,953,000
Market Value P1,759,500 229,500 P1,989,000
Unrealized gain (P1,989,000 – P1,953,000)
P36,000
24.
C
Net proceeds (P93 x 15,000 = P1,395,000 – P13,500) Carrying value Gain on sale
P1,381,500 (1,251,000) P 130,500
25.
B
Trading securities at fair value
P1,989,000
CONDESSA CO.
1. Dividends payable – preference (P8 x 60,000) Dividends payable – ordinary (P2 x 600,000) Cash
480,000 1,200,000
2. Treasury shares Cash (P40 x 81,000)
3,240,000
3. Land Treasury shares (P40 x 21,000) Share premium – treasury
1,680,000 3,240,000 900,000 840,000 60,000
4. Cash (P105 x 15,000) Preference share capital (P100 x 15,000) Share premium – preference
1,575,000
5. Retained earnings (P45 x 54,000*) Stock dividends payable (P5 x 54,000) Share premium – ordinary
2,430,000
1,500,000 75,000 270,000 2,160,000
* 600,000 – 60,000 treasury shares = 540,000 x 10%
6. Stock dividends payable Ordinary share capital 7. Retained earnings Dividends payable – preference (P8 x 75,000) Dividends payable – ordinary (P2 x 594,000*)
270,000 270,000 1,788,000 600,000 1,188,000
* 540,000 + 54,000
8. Income summary Retained earnings
9,900,000 9,900,000
Preference share capital (P6,000,000 + P1,500,000) Ordinary share capital (P3,000,000 + P270,000) Share premium (P3,750,000 + P60,000 + P75,000 + P2,160,000) Retained earnings (P3,500,000 – P2,430,000 – P1,788,000 + P9,900,000) (39 – A) Treasury shares (P3,240,000 – P840,000) Total (40 – B) PROBLEM NO. 9
46.
SAMOA COMPAN
–
Over- (Under-)statement
A
Understatement of 2016 ending inventory Overstatement of 2017 ending inventory Prepaid insurance charged to expense in 2016 (P330,000 ÷ 3) Unrecorded sale of fully depreciated machinery in 2017 Total effect of errors on net income 47.
48.
P7,500,000 3,270,000 6,045,000 9,182,000 (2,400,000) P23,597,000
P 48,000 40,500 110,000 (75,000) P123,500
Overstatement of 2017 ending inventory Prepaid insurance charged to expense in 2016 Unrecorded sale of fully depreciated machinery in 2017 Total effect on working capital
Over- (Under-)statement P 40,500 (110,000) (75,000) (P144,500)
Overstatement of 2017 ending inventory Understatement of depreciation expense in 2016 Prepaid insurance charged to expense in 2016 Unrecorded sale of fully depreciated machinery in 2017 Total effect on retained earnings
Over- (Under-)statement P 40,500 11,500 (110,000) (75,000) (P133,000)
D
C
Camry, Inc.
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