AP mock board exam (NDU)

Accountancy Department
College of Business and Accountancy
Notre Dame University
Cotabato City, Philippines
CPA – MOCK BOARD EXAMINATION
AUDITING PROBLEMS
MR. RONALD GERMO MAMARIL
INSTRUCTION: Select the correct answer for each of the following
questions. Mark only one answer for each item by shading the box
corresponding to the letter of your choice on the sheet provided.
STRICLY NO ERASURES ALLOWED. Use pencil no. 1 only.
CASE 1: STOCK INVESTMENT IN SAN MIGUEL
1. The Stock Investment showed the following details during year 2008
STOCK INVESTMENT IN SAN MIGUEL

Jan.
Feb.
Mar.
Apr.
June
1.

1
28
31
1
30

Audited balance 4,000shares
Cash dividend
Bought shares

Sale of rights
Sale of shares

Debit
P80,000
9,000
10,000

Credit
2,000
6,000

A cash dividend of P0.50 per share were received on Feb. 28. The
adjusting entry (assuming the use of the cost method) is:
a. Stock Investment
Dividend income
b. Retained earnings
Dividend income
c. Dividend Income
Stock investment
d. Cash
Dividend income

2,000
2,000
2,000
2,000

2,000
2,000

2,000
2,000

2. On March 15, stock rights were received entitling shareholders to
purchase one share for every five held at P15 per share. Market values
on this date were: shares, P20; rights, P5. The adjusting entry to
recognize the cost allocated to the rights is:
a. Stock rights
Stock investment
b. Stock rights
Stock investment
c. Stock rights
Stock investment
d. Stock rights
Stock investment

16,000
16,000

20,000

20,000

10,000

10,000

30,000

30,000

3. On March 31, 600 shares were purchased with the partial exercise of
these rights. The adjusting entry, after the adjustment in No. 7 above
has been given effect, is
a. Stock investment
Stock rights
b. Stock investment
Stock rights
c. Stock rights
Stock investment
d. Stock rights
Stock investment

18,000

18,000

12,000

12,000

12,000

12,000

15,000

15,000

4. On April 1, the remaining rights were sold for P6, 000. The adjusting
entry is:
a. Stock investment
Gain on sale of rights
b. Stock investment
Stock rights
Gain on sale of rights
c. Stock investment
Loss on sale of rights
Stock rights
d. Stock investment
Gain on sale of rights

6,000
6,000

6,000

4,000
2,000
4,000
2,000
6,000

4,000

4,000

5. On June 30, 460 shares were sold for P10, 000. Using the average cost
method, the adjusting entry is:

a. Cash
Stock investment
Gain on sale of stock
b. Stock investment
Gain on sale of stock
c. Stock investment
Gain on sale of stock
d. None of the above

10,000
7,500
2,500
10,000

10,000

2,500

2,500

CASE 2: HOME OFFICE AND ESPERANZA BRANCH
The following were found in your examination of the interplant accounts
between the Home Office and Esperanza Branch.
a. Transfer of fixed assets from Home Office amounting to P53, 960 was not
booked by the branch.
b. P10,000 covering marketing expenses of another branch was charged by
Home Office to Esperanza.
c. Esperanza recorded a debit note on inventory transfers from Home Office
of P75,000 twice.
d. Home Office recorded cash transfer of P65,700 from Esperanza Branch as

coming from Upi Branch.
e. Esperanza reversed a previous debit memo from Cotabato Branch mounting
to P10,500. Home Office debited that this charge is appropriately Upi
Branch’s cost.
f. Esperanza recorded a debit memo from Home Office of P4, 650 as P4,650.
6.

The net adjustment in the Home Office books related to the Esperanza
Branch current amount is:
a.
b.
c.
d.

P75,700
65,700
86,200
94,820

7. The net adjustment in Esperanza’s books related to the Home Office
account is:
a.
b.
c.
d.

P33,335
31,450
20,950
10,450

8. Before the above discrepancies were given effect, the balance in the
Home Office books of its Esperanza Branch Current account was debit
balance of P165, 920. The unadjusted balance in the Esperanza Branch
books of its Home Office Current account must be:
a. P92,336
b.
98,230
c. 104,500
d. 111,170
page 2


9. The adjusted balance of the reciprocal account is:
a.
b.
c.
d.

P84,
90,
99,
109,

807
220
200
120

CASE 3: LEILA MAE’S FLOWER SHOP (ACCRUAL)

The following information pertains to Leila Ma’s Flower Shop, a
calendar-year sole proprietorship, which maintained its books on the cash
basis during the year.
Leila Ma’s Flower Shop
TRIAL BALANCE
December 31, 2008
Debit
Cash
P 102, 400
Accounts receivable
64, 800
Inventory, 12/31/2007
248, 000
Furniture & fixtures
472, 800
Land improvements
180, 000
Accumulated depreciation, 12/31/2007
Accounts payable, 12/31/2007
Leila Mae’s, Drawings
Leila Mae’s, Capital, 12/31/2007
Sales
Purchases
1, 220, 400
Salaries
696, 000
Payroll taxes
49, 600
Insurance
34, 800

Rent
136, 800
Utilities
50, 400
Living expenses
52, 000
P3, 308, 000

Credit

P129, 600
68, 000
498, 400
2, 612, 000

P3, 309, 000

Leila Mae’s has developed plans to extend into wholesale flower market
and is in the process of negotiating a bank loan to finance the expansion. The
bank is requesting 2008 financial statements prepared on the accrual basis of
accounting from Leila Mae’s. During the course of a review engagement, Marion,
Leila Mae’s accountant, obtained the following additional information.
1. Amounts due from customers totaled P128, 000 at December 31, 2008.
2. An analysis of the above receivables revealed that an allowance for
uncollectible accounts of P15, 200 should be provided.
3. Unpaid invoices for flower purchases totaled P122, 000 and P68, 000, at
December 31, 2008, and December 31, 2007, respectively.
4. The inventory totaled P291, 200 based on a physical count of the goods
at December 31, 2008. The inventory was priced at cost, which
approximates market value.

5. On May 1, 2008, Leila Mae paid P34, 800 to renew its comprehensive
insurance coverage for 1 year. The premium on the previous policy, which
expired on April 30, 2008, was P31, 200.
6. On January 2, 2008, Leila Mae entered into 25-year operating lease for
the vacant lot adjacent to Baron’s retail store for use as a parking
lot. As agreed in the lease, Leila Mae paved and fenced in the lot at a
cost P180, 000. The improvements were completed on April 1, 2008, and
have an estimated useful life of 15 years. No provision for depreciation
or amortization has been recorded. Depreciation on furniture and
fixtures was P48, 000 for 2008.
7. Accrued expenses at December 31, 2007 and 2008, were as follows:
Utilities
Payroll taxes

2 0
P3,
4,
P8,

0 0
600
400
000

2 0 0 1
P 6, 000
6, 400
P12, 400

page 3

8. Leila Mae is being sued for P16, 000. The coverage under the
comprehensive insurance policy is limited to P1, 000, 000. Leila Mae’s


attorney believes that an unfavorable outcome is probable and that a
reasonable estimate of the settlement is P1, 200, 000.
9. The salaries account includes P16, 000 per month paid to the proprietor.
Leila Mae also receives P1, 000 per week for living expenses.
Required: You are to convert the balances of the nine (9) accounts below to
the accrual basis.
MULTIPLE CHOICE QUESTIONS:
a
10.
11.
12.
13.
14.
15.
16.
17.
18.

Accounts receivableP64,
Inventory
291,
Accounts payable
54,
Sales
2, 612,
Purchases

1, 274,
Salaries
888,
Payroll taxes
51,
Insurance
34,
Utilities
50,

b

c

d

800
P63, 200
P128, 000
P192, 800
200
248, 000
43, 200
334, 400
000
68, 000
122, 000
176, 000
000 2, 548, 800 2, 500, 000 2, 675, 200
400 1, 220, 400 1, 166, 400 1, 250, 000

000
696, 000
600, 000
504, 000
600
47, 600
49, 600
50, 000
800
33, 600
36, 000
35, 000
400
48, 000
50, 000
52, 800

CASE 4: J& M CO. (BONDS)
The J & M Co. sold P6, 000, 000 of 9% bonds on October 1, 2001, at P5,
747, 280 plus accrued interest. The bonds were dated July 1, 2001; interest
payable semiannually on January 1 and July 1; redeemable after June 30, 2006
to June 30, 2007, at 101, and thereafter until maturity at 100; and
convertible into P10 par value common stock as follows.
 Until June 30, 2006, at the rate of 6 shares for each P1, 000 bond.
 From July 1, 2006 to June 30, 2009, at the rate of 5 shares for each
P1, 000
bond.
 After June 30, 2009, at the rate of 4 shares for each P1, 000 bond.
The bonds mature 10 years from their issue date. The company adjusts its
books monthly and closes its books as of December 31 each year.

The following transactions occur in connection with the bonds:
2007
July 1
P2, 000, 000 of bonds were converted into stock.
2008
Dec. 31

P1, 000, 000 face value of bonds were reacquired
at 99-1/4 plus accrued interest. These were
immediately retired.

2009
July 1
The remaining bonds were called for redemption
and accrued interest was paid. For purposes of obtaining funds for redemption
and business expansion, a P8, 000, 000 issue of 7% bonds was sold at 97. These
bonds are dated July 1, 2009, and are due in 20 years.

19. What are the carrying value of bonds payable at December 31, 2001?
a. P5, 747, 280
b. P6, 000, 000

c. P5, 753, 760
d. P5, 749, 440

20. What is the total interest expense for 2001?
a. P128, 520
b. P 47, 160

c. P141, 480

d. P135, 000

21. In recording the bond conversion on July 1, 200, how much should be
credited to the additional paid-in capital account?
a. P1, 796, 320
b. P1, 965, 440

c. P1, 845, 440
d. P1, 865, 440

page 4

22. What is the gain or loss on bond conversion on July 1, 2007?
a. P0

c. P1, 865, 440


b. P1, 796, 320

d. P

34, 560

23. What is the carrying value of the bonds reacquired on December 31, 2008?
a. P989, 200
b. P957, 880

c. P1, 010, 800
d. P

981, 700

24. What is the gain (loss) on bond reacquisition on December 31, 2008?
a. P3, 300
b. (P3, 300)

c. P34, 620
d. P (P34, 620)

25. What is the carrying value of the bonds retired on July 1, 2009?
a. P3, 000, 000
b. P2, 974, 080

c. P2, 873, 640
d. P3, 025, 920

26. What is the gain (loss) on bond retirement on July1, 2009?
a. (P25, 920)
b. P25, 920

c. (P12, 960)
d. P0

CASE 5: BLUE ICE CO. (R/E)
BLUE ICE COMPANY’S stockholders’ equity account balance at December 31,
2008 were as follows:
Common Stock
Additional Paid-in capital
Retained Earnings
The following 2009 transactions

stockholders’ equity accounts:

800, 000
1, 600, 000
1, 845, 000
and

other

information

relate

to

the

a. BLUE ICE had 400, 000 authorized shares of P5 par common stock, of which
160, 000 shares were issued and outstanding.
b. On March 5, 2009, BLUE ICE acquired 5, 000 shares of its common stock
for P10 per share to hold as treasury stock. The shares were originally
issued at P15 per share. BLUE ICE uses the cost method to account for
treasury stock. Treasury stock is permitted in BLUE ICE’s state of
incorporation.
c. On July 15, 2009, BLUE ICE declared and distributed a property dividend
of inventory. The inventory had a P75, 000 carrying value and a P60, 000
fair market value.
d. On January 2, 2009, BLUE ICE granted stock options to employees to
purchase 20, 000 share of BLUE ICE’s common stock at P18 per share,
which was the market on that date. The option may be exercised all 20,

000 options when the market value of the stock was P25 per share. BLUE
ICE issued new shares to settle the transaction.
e. BLUE ICE’s net income for 2009 was P240, 000.
Instruction:
Based on the information
necessary, answer the following question.

above

and

other

analysis

27. BLUE ICE’s Common Stock balance at December 31, 2009 is;
a. P1, 160, 000
b. P900, 000

c. P800, 000
d. P1, 300, 000

28. BLUE ICE’s Additional Paid-in capital balance at December 31, 2009 is;
a. P1, 860, 000
c. P2, 000, 000
b. P1, 960, 000
d. P2, 100, 000
29. BLUE ICE’s Retained Earnings balance at December 31, 2009 is;
a. P2, 085, 000
b. P2, 010, 000

c. P2, 025, 000
d. P1, 770, 000

30. BLUE ICE’s Treasury Stock balance at December 31, 2009 is;
a. P50, 000
b. P75, 000

c. P0
d. P125, 000
page 5

31. BLUE ICE’s Stockholders’ Equity balance at December 31, 2009 is;

as


a. P4, 910, 000
b. P4, 820, 000

c. P4, 720, 000
d. P4, 735, 000

CASE 6: LETICIA’S CO. (PPE)
Information pertaining to LETICIA
equipment for 2009 is presented below.

COMPANY’S

property,

plant

and

Account balances at January 1, 2009:
Debit
000, 000
000, 000

Land
6,
Buildings
48,
Accum. Depreciation – Bldg.
Machinery and equipment
36,
Accum. Depreciation – Mach/Equip.
Automotive equipment
4,
Accum. Depreciation – Auto. Equip.
Depreciation data:
Building
Machinery/Equip.
Automotive Equip.
Leasehold improvements

000, 000
600, 000

Credit
10, 524, 000
10, 000, 000
3, 384, 000

Depreciation
Method
150% declining balance
SLM
SYD
SLM

Useful
Life
25 years
10 years
4 years
-

Depreciation is computed to the nearest month.
Transactions during 2009 and other information are as follows:
• On January 2, 2009, LETICIA purchased a new car for P800, 000 cash and
trade-in of a 2-year-old car with a cost of P720, 000 and a book value of
P216, 000. The new car has a cash price of P960, 000; market value of the
trade-in is not known.
• On May 1, 2009, costs of P6, 720, 000 were incurred to improve leased office
premises. The leasehold improvements have a useful life of 8 years. The
related lease terminates on December 31, 2008.
• On July 1, 2009, machinery and equipment were purchased at a total invoice
cost of P11, 200, 000; additional costs of P200, 000 for freight and P1, 000,

000 for installation were incurred.
• LETICIA determined that the automotive equipment comprising the P4, 600, 000
balance at January 1, 2009, would have been depreciated at a total amount of
P720, 000 for the year ended December 31, 2009.
Instruction:
Based on the information
necessary, answer the following question:

above

and

other

analysis

as

32. What is the depreciation on building for 2009?
a. P1, 499, 040
b. P2, 880, 000

c. P2, 998, 080
d. P2, 248, 557

33. What is the book value of the building at December 31, 2009?
a. P34, 596, 000
b. P35, 976, 960

c. P34, 477, 920

d. P35, 227, 393

34. What is the depreciation on machinery and equipment for 2009?
a. P4, 128, 000
b. P4, 151, 000

c. P4, 220, 000
d. P4, 197, 000

35. What is the gain on machine destroyed by fire?
a. P620, 000
b. P300, 000

c. P160, 000
d. P460, 000
page 6

36. What is the balance of the accumulated depreciation – machinery and
equipment at December 31, 2009?


a. P13, 231, 000
b. P13, 777, 000

c. P13, 760, 000
d. P13, 691, 000

37. What is the depreciation on automotive equipment for 2009?
a. P1, 104, 000
b. P816, 000

c. P720, 000
d. P960, 000

38. What is the gain (loss) on car traded in?
a. P (240, 000)
b. P240, 000

c. P (56, 000)
d. P56, 000

39. What is the depreciation on leasehold improvement for 2009?
a. P756, 000
b. P672, 000

c. P560, 000
d. P630, 000

40. What is the book value of leasehold improvements at December 31, 2009?
a. P6, 160, 000
b. P6, 048, 000

c. P6, 090, 000
d. P5, 964, 000

CASE 7: ST. JOHN AND ST. THERESE
Financial Statements for St. John and St.
follows:
Income Statements for the year ended 12/31/02

Therese

on

December

St. John

St. Therese

Sales
Cost of sales
Gross Margin
Depreciation and interest expense
Other operating expenses
Net income from operations
Gain on sale of equipment
Gain on bonds
Equity in subsidiary’s income
Net income

750,
581,
169,
28,
117,
23,
3,

420,

266,
154,
16,
128,
9,

01/01/02 Retained Earnings
Net Income (from above)
Total
Dividends
12/31/02 Balance

48, 000
35, 060
83, 060
(15, 000)
68, 060
=========

000
000
000
400
000
600
000

31,

000

000
000
200
400
400

8, 460
.
35, 060
9, 400
========
========
Statement of Retained Earnings for the year ended 12/31/02
41, 000
9, 400
50, 400
(4, 000)
46, 400
========

Balance Sheet as of December 31, 2009
Cash
Accounts receivable (net)
Inventories
Equipment
Accumulated depreciation
Investment in stock of St. John
Investment in bonds of St. Therese
Patents

45,
43,
38,
195,
(35,
125,

300
700
300
000
200)
460

Accounts payable
Bonds payable
Capital Stock
Additional paid-capital
Retained earnings (from above)

8, 900
100, 000
154, 000
81, 600
68, 060
412, 560
========

.

412, 560
=========

6,
12,
20,
57,
(18,

400
100
750
000
900)

44, 000
9, 000
130, 350
========
18, 950
50, 000
15, 000
46, 400
130, 350
=========
page 7

St. John acquired 90% of the common stock of St. Therese for P120, 600 on
January 1, 2009.

2009


The following additional information is available in the first year after the
acquisition.
1. During 2009, St. John sold merchandise to St. Therese that originally cost
St. John P15, 000, and the sale was made for P20, 000. On December 31, 2008,
St. Therese’s inventory included merchandise purchased from St. John at a cost
to St. Therese of P12, 000.
2. Also, during 2009, St. John acquired P18, 000 of merchandise from St.
Therese. St. Therese uses normal markup of 25% above cost. St. John’s ending
inventory includes P10, 000 of the merchandise acquired from St. Therese.
3. St. Therese reduced its intercompany account payable to St. John to a
balance of P4, 000 as of December 31, 2009, by making a payment of P1, 000 on
December 30. This P1, 000 payment was still in transit on December 31, 2009.
4. On January 2, 2009, St. Therese acquired equipment from St. John for P7,
000. The equipment was originally purchased by St. John for P5, 000 and had a
book value of P4, 000 at the date of sale to ST. Therese. The equipment had an
estimated remaining life of 4 years as of January 2, 2009.
5. On December 31, 2009, St. Therese purchased for P44, 000, 50% of the
outstanding bonds issued by St. John. The bonds mature on December 31, 2005,
and were originally issued at par. The bonds pay interest annually on December
31 of each year, and the interest was paid to the prior investor immediately
before St. Therese’s purchase of bonds.
QUESTION:
Assume that the combination is accounted for as PURCHASE.
41. What is the eliminating entry for the Equity in subsidiary’s income and
dividends declared by the subsidiary?
a. Equity in subsidiary’s income
8, 460

Investment in stock of St. Therese
8, 460
b. Equity in subsidiary’s income
8, 460
Dividends declared – St. Therese
3, 600
Investment in stock of St. Therese
4, 860
c. Equity in subsidiary’s income
12, 060
Investment in stock of St. Therese
12, 060
d. No Eliminating Entry
42. What is the eliminating entry for St. Therese’s stockholders’ equity?
a. Capital stock – St. Therese
45, 000
Additional paid-in capital – St. Therese
13, 500
Retained earnings – St. Therese
36, 900
Goodwill
25, 200
Investment in stock of St. Therese
120, 600
b. Capital; stock – St. Therese
45, 000
Additional paid-in capital – St. Therese
13, 500
Retained earnings – St. Therese
36, 900

Investment in stock of St. Therese
95, 400
c. Capital stock – St. Therese
50, 000
Additional paid-in capital
15, 000
Retained earnings – St. Therese
46, 400
Goodwill
14, 060
Investment in stock of St. Therese
125, 460
d. Capital stock – St. Therese
50, 000
Additional paid-in capital – St. Therese
15, 000
Retained earnings – St. Therese
46, 400
Investment in stock of St. Therese
111, 400
43. To eliminate the sales made by St. John to St. Therese, the entry is:
a. Sales
Inventory – St. Therese (B/S)
Purchases
Inventory – St. Therese (I/S)
b. Sales
Cost of sales
Inventory – St. Therese
c. Sales
Inventory – St. Therese

Cost of sales

20, 000
3, 000
20, 000
3, 000
20, 000
17, 000
3, 000
20, 000
3, 000
23, 000
Page 8

d. Retained Earnings
Sales
Inventory – St. Therese

3, 000
20, 000
3, 000


Cost of sales

20, 000

44. To eliminate the entry made by St. Therese to St. John, the entry is:
(assume that Equity in subsidiary income has not been recorded by parent)
a. Sales

18, 000
Inventory
2, 000
Cost of sales
16, 000
b. Sales
18, 000
Investment in stock of St. Therese
1, 600
Retained earnings – St. Therese
400
Cost of sales
18, 000
Inventory
2, 000
c. Sales
18, 000
Retained earnings
2, 000
Cost of sales
18, 000
Inventory
2, 000
d. Sales
18, 000
Inventory
2, 000
Cost of sales
20, 000
45. To record the items in transit and to eliminate the

payable/receivable, the entry is:
a. Accounts payable
4, 000
Accounts receivable
4,
b. Accounts receivable
4, 000
Cash
1, 000
Accounts payable
5,
c. Cash
1, 000
Accounts payable
3, 000
Accounts receivable
4,
d. Cash
1, 000
Accounts payable
4, 000
Accounts receivable
5,

inter-company’s
000
000
000
000

46. To eliminate the acquisition made by St. Therese from St. John, the entry
is:
a. Equipment
2, 000
Accumulate depreciation
1, 000
Gain on sale of equipment
3, 000
b. Gain on sales of equipment
3, 000
Equipment
2, 000
Accumulated depreciation
250
Depreciation expense
750
c. Gain on sale of equipment
3, 000
Equipment
2, 000
Accumulated depreciation
1, 000
d. Gain on sale of equipment
3, 000
Equipment
2, 000
Depreciation expense
1, 000
47. The depreciation recorded by St. John at December 31, 2009 is:
a. Overstated by P750

c. Overstated by
P1, 750
b. Overstated by P250
d. Understated by P1, 000
48. The entry to eliminate the bonds purchased by
is:
a. Bonds payable
50,
Investment in bonds of St. John
Gain on extinguishments of debt
b. Investment of St. John
44,
Loss on extinguishments of debt
6,
Bonds payable
c. Bonds payable
44,
Investment in bonds of St. John
Retained earnings
d. Bonds payable
50,
Investment in bonds of St. John
Retained earnings

St. Therese from St. John
000
000
000
000
000

44, 000
6, 000
50, 000
44, 000
6, 000
44, 000
6, 000

page 9

For items 49-50, assume that the combination is accounted for as POOLING OF
INTEREST.


49. What is the eliminating entry for the Equity in
dividends declared by the subsidiary?
a. Equity in subsidiary’s income
8,
Investment in stock of St. Therese
b. Equity in subsidiary’s income
8,
Dividends declared – St. Therese
Investment in stock of St. Therese
c. Equity in subsidiary’s income
12,
Investment in stock of St. Therese
e. No eliminating Entry

subsidiary’s income and

460
460

8, 460
3, 600
4, 860

060

12, 060

50. What is the eliminating entry for St. Therese’s stockholders’ equity?
a. Capital stock – St. Therese
45, 000
Additional paid-in capital – St. Therese
13, 500
Retained earnings – St. Therese
36, 900
Goodwill
25, 200
Investment in stock of St. Therese
120, 600
b. Capital stock – St. Therese
45, 000
Additional paid-in capital – St. Therese
13, 500
Retained earnings – St. Therese
36, 900
Investment in stock of St. Therese
95, 400

c. Capital stock – St. Therese
50, 000
Additional paid-in capital – St. Therese
15, 000
Retained earnings – St. Therese
46, 400
Goodwill
14, 060
Investment in stock of St. Therese
125, 460
d. Capital stock – St. Therese
50, 000
Additional paid-in capital – St. Therese
15, 000
Retained earnings – St. Therese
46, 400
Investment in stock of St. Therese
111, 400

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