Auditing Review Shareholder’s Equity Problem 1 The shareholder’s equity section of Bahrain Corporation as of Dec 31, 2015 is as follows: hare Capital ! ordinary "10par, #50,000 shares authori$ed, %12,500 issued and outstandin&' hare (re)iu) +nappropriated retained earnin&s ppropriated retained earnin&s
(%, 125,000 *25,000 2,002,500 #50,000 --------- P7, 70,!00
Total Shareholder’s Equity
Bahrain Corporation had the followin& shareholder’s equity transaction durin& 201.: /an /an 15
co)p co)ple lete ted d the the uil uildi din& n& ren reno oat atio ion n for for whi which ch (#5 (#50, 0, 000 000 of the the ret retai aine ned d earn earnin in&s &s had had ee een n rest restri rict cted ed (aid the contractor (#2#, 500, all of which was capitali$ed
ar 3
4ssued (150, 000 additional ordinary shares for for (1* per share
ay ay 1* 1*
decl declar ared ed a dii diide dend nd of (15 (150 0 per per sha share re to to e e pai paid d on /uly /uly 31, 31, 201 201., ., to the the sha share reho hold lder ers s on on reco record rd in /une 30, 201.
/une /une 1 1
appr appro oed ed the the addi additi tion onal al uil uildi din& n& reno renoa ati tion on to to e e fun funde ded d int inter erna nally lly The The est esti) i)at ated ed cost cost of the the pro6ect is (.00, 000 and retained earnin&s are to e restricted for the a)ount
/uly 31
(aid the diidend
7o 7o 12 12
Decl Declar ared ed a pro prope pert rty y di diid iden end d to to e e pai paid d on on /an /anua uary ry 5, 201# 201# The The dii diide dend nd is to cons consis istt of of equip)ent that has a carryin& a)ount of (3.0, 000 and a fair alue of (%#2, 500 on 7oe)er 12
Dec Dec 31
7et 7et inco inco)e )e for for 201. 201. "ef "efor ore e rec reco& o&ni niti tion on of i)pa i)pair ir)e )ent nt loss loss on the the equ equip ip)e )ent nt decl declar ared ed as prop proper erty ty diidend' is (1, 32#,500 The fair alue less cost to distriute of the equip)ent on Dec 31 is (330, 000
Required" 1 2 3 %
har hare e Cap Capit ital al ! ord ordin inary ary a (5,.25,000 (%,125,000 hare pr pre)iu) a (2,.25,000 (*25,000 +nappr +nappropr opriat iated ed retain retained ed earnin earnin&s &s a (2,1.3,#50 (2,2%.,250 Total tal share shareho hold lder’ er’s s equit equity y a (10,3#.,250 (10,52.,250
c (%,50,000
d (#,.50,000
c (2,025,000
d (1,200,000
c (2,133,#50
d (2,2#.,250
c (,2.,250
d (#,.50,000
Problem C( C( was en&a&ed y Birdie Birdie Co)pany in 201. to to e8a)ine its oo9s oo9s and records and to )a9e whateer whateer corrections are necessary n n e8a)ination of the accounts discloses the followin&: a
Diidends Diidends had een een declared declared on Dece) Dece)er er 15 in 201% and and 2015 ut had not een een entered entered in the oo9s oo9s until until paid
4)proe)e 4)proe)ents nts in uildin&s uildin&s and and equip)ent equip)ent of (32, (32, %00 had een deited deited to e8pens e8pense e at the end of pril pril 2013 2013 4)proe)ents are esti)ated to hae a 12 year life The co)pany uses the strai&ht line )ethod in recordin& depreciation and co)putes depreciation to the nearest )onth
c
The physical physical inentory inentory of of )erchandis )erchandise e had een understat understated ed y (, .00 at the the end of 201% and y (1%, (1%, 250 at end 2015
d
The )erchandi )erchandise se inentori inentories es at the end of 2015 2015 and 201. did not includ include e )erchandis )erchandise e that was then then in transit and to which the co)pany had title These ship)ents of (., 300 and (*, #00 were recorded as purchases in /anuary of 201. and 201#, respectiely
e
The co)pany co)pany had failed failed to record record sales co))i co))issio ssion n payale payale of (10, *00 and (3 (3,, 300 at the end of 2015 2015 and 201., respectiely respectiely
f
The co)pany co)pany had failed failed to to reco&ni$e reco&ni$e suppli supplies es on hand hand (2, 550 and and (5, 1.0 1.0 at the the end of 2015 and and 201., respectiely
The retained earnin& account appeared as shown elow on the date the C( e&an the e8a)ination Retained Earnings #ate 01( /an 1 Dec 31 01! /an 10 ar 1. Dec 31 01) /an 10 Dec 31 5 . # *
$tem
#ebit
Balance 7et 4nco)e
%redit
&alan'e
*%,000
15,000 2#,000
Diidends paid toc9s sold ! e8cess oer par 7et loss for year
%.,500 53,%00
232,500 25,500 2%2,100
Diidends paid 7et loss for the year
%.,500 5#,00
15,.00 13#,#00
.3,000
hat is the corrected 201% net inco)e; a (12%,200 0,00 c 121,500 d #1,#00 hat is the corrected 2015 net loss; a (53,%00 ..,000 c 5%,300 d 5,#00 hat is the corrected 201. net loss; a (.%,#%0 .2,3%0 c 5.,0%0 d #1,0%0 hat is the corrected retained earnin&s on Dece)er 31, 2015; a (22.,200 1.3,*00 c 100,00 d 1*3,0.0 hat is the corrected retained earnin&s on Dece)er 31, 201.; a (.3,000 (,0.0 c 2,#.0 d 3.,0.0 $nvestments
Problem * a&nolia Corporation inested its e8cess cash in equity securities durin& 2015 The usiness )odel for these inest)ents is to profit fro) tradin& on price chan&es s of Dece)er 31, 2015, the equity inest)ent portfolio consisted of the followin&: 4nest)ent >/ 4nc (oland Co laa)a Corp
Cost (0, 000 2%0,000 %32,000
=air alue 12.,000 252,000 3.0,000
10 4n Dece)er 31, 2015, state)ent of financial position, what should e reported as carryin& a)ount of inest)ents; a #3*,000 .0,000 c #.2,000 d *10,000 11 4n the 2015 inco)e state)ent, what a)ount should e reported as unreali$ed &ain or loss; a +nreali$ed &ain of (2%,000 +nreali$ed loss of (2%,000 c +nreali$ed loss of (#2,000 d +nreali$ed &ain of (%*,000 Durin& the year 201., a&nolia Corp sold shares of (oland Co for (22, 200 and purchased 2,000 shares of >/ 4nc and 1,000 shares of Dwary Co)pany ?n Dece)er 31, 201., a&nolia equity securities portfolio consisted of the followin&: 4nest)ent >/ 4nc >/ 4nc Dwarfy Co)pany laan& Corp
Cost (0, 000 1*,000 .,000 %32,000
=air alue 120,000 2%0,000 #2,000 132,000
12 hat is the &ain or loss on the sale of (oland Co 4nest)ent; a (10,*00 &ain 10,*00 loss c (22,*00 &ain d 22,*00 loss 13 hat is the carryin& a)ount of inest)ent on Dece)er 31, 201.; a *1.,000 ***,000 c 5.%,000 d (%2,000 1% hat is the a)ount of the unreali$ed &ain or loss reported as of Dece)er 31, 201.; a (252,000 unreali$ed &ain (252,000 unreali$ed loss c (21.,000 unreali$ed &ain d (21.,000 unreali$ed loss Durin& the year 201#, a&nolia sold 3,000 shares of >/ 4nc for (23, %00 and 500 shares of Dwarfy Co)pany at a loss of 1.,200 ?n Dece)er 31, 201#, a&nolia’s equity inest)ent portfolio consisted of the followin&
4nest)ent Dwarfy Co)pany laan& Corp
Cost %*,000 %32,000
=air alue 3.,000 %2,000
15 hat should e the reported loss on sale of tradin& securities in 201#; a (120,.00 .%,*00 c %*,.00 d 13.,*00 1. hat is the a)ount of the unreali$ed &ain or loss reported as of Dece)er 31, 201#; a (3.0,000 unreali$ed &ain (3.0,000 unreali$ed loss c (%*,000 unreali$ed &ain d (%*,000 unreali$ed loss 1# 4n the Dece)er 31, 201#, state)ent of financial position, what should e reported as the carryin& a)ount of tradin& securities; a (%*0,000 %.*,000 c 52*,000 d 5%0,000 Problem ( antol Corp inested its e8cess cash in non@tradin& equity securities durin& 201. ?n initial reco&nition, the entity )ade an irreocale election to present its securities at fair alue throu&h other co)prehensie inco)e "=A?C4' s of Dece)er 31, 201., the co)pany’s securities portfolio consisted of the followin&:
4nestee Co)pany hares Cost elly, 4nc 30,000 %50,000 loy Corp .0,000 1,500,000 o&i nterprises .0,000 2,1.0,000
=air alue %25,000 1,.10,000 2,300,000
Durin& the year 201#, antol sold .0,000 shares of loy Corp for (1, #00,000 and purchased .0,000 additional shares of elly, 4nc and 30,000 shares of on&&a Co)pany ?n Dece)er 31, 201#, antol’s portfolio of non@tradin& equity securities co)prise the followin&: 4nestee Co)pany hares Cost elly, 4nc 30,000 %50,000 elly, 4nc .0,000 1,300,000 on&&a Co)pany 30,000 520,000 o&i nterprises .0,000 2,1.0,000
=air alue 500,000 1,%50,000 %*0,000 #00,000
Durin& the year 201*, antol sold all the elly 4nc shares for (2, 300, 00 and 15,000 shares of on&&a Co)pany at a loss of (0, 000 ?n Dece)er 31, 201*, antol’s portfolio of non@tradin& equity securities consisted of the followin&:
4nestee Co)pany on&&a Co)pany o&i nterprises
hares 15,000 .0,000
Cost 2.0,000 2,1.0,000
=air alue 1*0,000 %,200,000
1* hat is the total a)ount credited in the retained earnin&s as a result of the sale of loy Corp in securities in 201#; a (200,000 110,000 c 0,000 d 20,000 1 hat is the unreali$ed loss on the re)ainin& financial assets that should e reported in the 201# state)ent of co)prehensie inco)e as part of other co)prehensie inco)e; a (1,.00,000 1,.%0,000 c 1,%15,000 d 1,300,000 20 hat is the cu)ulatie a)ount of unreali$ed loss that should e reported as co)ponent of other co)prehensie inco)e in the state)ent of chan&es in equity in Dec 31, 201#; a (1,%15,000 1,300,000 c 335,000 d 225,000 21 hat unreali$ed &ain on the re)ainin& financial assets should e reported in the 201* state)ent od co)prehensie inco)e as part of other co)prehensie inco)e; a (1,.0,000 .0,000 c 3,%%0,000 d 3,500,000 22 hat cu)ulatie a)ount of unreali$ed &ain should e reported as co)ponent of other co)prehensie inco)e in the state)ent of chan&es in equity on Dece)er 31, 201*; a (1,505,000 (1,.0,000 c 1,%*0,000 d 3,%%0,000
