AUDITING PROBLEMS TEST BANK 2
PROBLEM NO. 1
You have been assigned to audit the
financial statements of AYALA MERCHANTS CORPORATION for the year 2017. The company is a dealer of appliances and has
several branches in Metro Manila. Its
main office is located in Makati City.
You were given by the company controller the unadjusted balances of the
items to be included in the company’s statement of financial position and
statement of income as of and for the year ended December 31, 2017. Audit findings are as follows:
I. AUDIT OF CASH
A cash count was
conducted by your staff on January 7, 2018.
The petty cash fund of P60,000 maintained by the company on an imprest
basis relected a balance of P22,750.
Unreplenished expenses totaled P37,250 of which P9,510 pertains to
January 2018.
You were
furnished a copy of the company’s bank reconciliation statement with Chartered
Bank as follows:
Balance
per bank P277,994
Add: Deposit in transit 248,836
Bank debit memos 712,750
Returned check 63,000
Less: Outstanding checks (174,580)
Book error (72,000)
Balance per books P1,056,000
Your review of
the reconciliation statement disclosed the following:
1. Postdated checks totaling P107,400 were
included as part of the deposit in transit.
These represent collections from various customers whose accounts have
been outstanding for less than three months.
These checks were actually deposited on January 8, 2018.
2. Included in the deposit in transit is a check
from a customer for P63,000 which was returned by the bank on December 27, 2017
for insufficiency of funds. This account
has been outstanding for over six months.
The check was replaced by the customer on January 15, 2018.
3. The bank debited the account of Ayala
Merchants for P710,000 as payment of notes payable including interest of
P10,000 due on December 26, 2017. This
was not recorded as of year-end.
4. A check was cleared by the bank as P30,900 but
was recorded by the bookkeeper as P102,900.
This was in payment of accounts payable.
5. Bank service charges totaling P2,750 were not
recorded.
II. AUDIT OF
ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
It is the
company’s policy to provide allowance for doubtful accounts as follows:
Less than 3 months P2,500,960 1%
3 to 6 months 843,200 5%
Over 6 months 274,500 10%
Total P3,618,660
An analysis of the accounts receivable
schedule showed that several long outstanding accounts for more than a year
totaling P152,460 should be written-off.
Page 2
III. AUDIT OF
MARKETABLE SECURITIES – TRADING
The company’s
equity portfolio as of year-end showed the following:
Total Market Value
Shares Cost per Share
Bacnotan Cement 7,000 P108,500 P16.00
Fil-Estate 10,000 195,000 19.75
Ionics 2,400 49,200 24.00
La Tondena 2,000 67,000 26.00
Selecta 8,000 31,600 1.20
Union Bank 1,600 50,880 27.50
P502,180
The securities are listed in the stock
exchange. The company follows the fair
value accounting.
IV. AUDIT OF NOTES
RECEIVABLE
The note receivable
amounting to P1,300,000 represents a loan granted to a subsidiary. This is covered by a promissory note with
interest at 15% per annum dated November 1, 2017. No interest has been accrued on the note as
of December 31, 2017.
V. AUDIT OF PREPAYMENTS
Prepaid expenses
account consists of the following:
Prepaid
advertising P 640,000
Prepaid
insurance 490,000
Prepaid
rent 420,000
Unused
office supplies 361,000
P1,911,000
Ayala
Merchants renewed its contract with an advertising agency for the annual
promotion as well as the regular advertisement of its products. It paid a total of P640,000, P100,000 of
which is for the Christmas promotion while the balance is for the regular
promotion and which will run for one year starting on August 1, 2017. Payment was made on July 20, 2017, and the
total amount was reflected as prepaid advertising.
The
company leases the main office and store in Makati City at a monthly rental of
P140,000. On November 5, 2017, a check
for P420,000 was issued in payment of three-month rental as per renewal
contract which was effective on November 1, 2017. Rental deposit remained at three months and
is included under other assets.
The
company’s delivery equipment is insured with Fortune Insurance Corporation for
a total coverage of P2.4 million. Total
payment made on November 16, 2017 for the renewal amounted to P490,000 which
covers the period from November 1, 2017 to November 1, 2018. No adjustment has been made as of December
31, 2017.
To
take advantage of volume discount ranging from 10% to 20%, the company buys
office and store supplies on a bulk basis.
The staff-in-charge bought supplies worth P220,000 on June 10, 2017 and
included the same in their office supplies inventory. As at year-end, unused office supplies amount
to P102,500.
Page
3
VI.
AUDIT OF INVENTORIES
A
physical count of inventories was conducted simultaneously in all stores on
December 29 and 20, 2017. Your review of
the list submitted by the accountant disclosed the following:
1. Some deliveries made in December 2017 have
not been invoiced and recorded as of year-end.
These items had a selling price of P146,940 with term of 15 days. The corresponding cost was already deducted
from the ending inventory.
2. Goods on consignment to Ayala Merchants
totaling P356,000 were included in the inventory list.
3. Some appliances worth P138,500 were recorded
twice in the inventory list.
4. Goods costing P153,800 purchased and paid on
December 26 was received on January 4, 2018.
The goods were shipped by the supplier on December 28, FOB shipping
point.
VII.
AUDIT OF PROPERTY, PLANT AND EQUIPMENT
The
company purchased additional equipment worth P268,000 on June 30, 2017. At the date of purchase, it incurred the
following additional costs which were charged to repairs and maintenance
account:
Freight-in P30,400
Installation
cost 13,000
Total P43,400
The above
equipment has an estimated useful life of ten years and estimated salvage value
of P20,000. Depreciation for the above
equipment has been provided based on original cost.
The company
discarded some store equipment on October 1, 2017, realizing no salvage
value. The cost of these equipment
amounted to P165,520 with an accumulated depreciation of P138,620 on December
31, 2017. Depreciation booked from
October 1, 2017 to year-end was P10,480.
No entry was made on the disposal of the property.
VIII. AUDIT OF
ACCRUED EXPENSES
Some expenses for
December 2017 were recorded when paid in January 2018 which included the
following:
Electric
bills P73,400
Commission
of sales agents 57,000
Telephone
charges 42,500
Minor
repair of delivery equipment 21,340
Water
bills 18,760
Total P213,000
IX. AUDIT OF
LIABILITIES
Ayala Merchants
obtained a one-year loan from Chartered Bank amounting to P2.6 million at an
interest rate of 16% per annum on October 1, 2017. Accrued interest on this loan was not taken
up at year-end.
Page 4
X. OTHER AUDIT
FINDINGS
A review of the
minutes of meeting showed that a 10% cash dividend was declared to shareholders
of record as of December 15, 2017, payable on January 31, 2018.
Ayala
Merchants Corporation
UNADJUSTED
TRIAL BALANCE
December 31,
2017
Debit Credit
Petty cash
fund P
60,000
Cash in bank 1,056,000
Trading
securities 483,640
Accounts
receivable – trade 3,618,660
Allowance for
doubtful accounts P
110,360
Notes
receivable 1,300,000
Inventories 7,274,900
Prepaid
advertising 640,000
Prepaid
insurance 490,000
Prepaid rent 420,000
Office supplies
inventory 361,000
Furniture and
fixtures 1,298,400
Delivery
equipment 2,770,000
Accumulated
depreciation 1,177,500
Other assets 548,000
Accounts
payable – trade 2,356,320
Notes payable 3,300,000
Accrued
expenses 169,040
Bonds payable 5,000,000
Discount on
bonds payable 500,000
Ordinary
share capital 5,400,000
Retained
earnings 792,160
Sales 13,078,000
Cost of goods
sold 8,034,000
Operating
expenses 3,357,000
Other income 1,453,500
Other charges 625,280
P32,836,880 P32,836,880
Determine the
adjusted balances of the following:
(Ignore tax implications)
1. Petty
cash fund
A. P37,250 B. P60,000 C. P22,750 D. P32,260
2. Cash
in bank
A. P522,650 B. P450,650 C. P1,056,000 D. P244,850
3. Trading
securities
A. P403,640 B. P502,180 C. P491,240 D. P472,700
4. Accounts
receivable
A. P3,936,000 B. P3,618,660 C. P3,783,540 D. P3,613,140
5. Allowance
for doubtful accounts
A. P110,360 B. P152,640 C. P130,316 D. P88,217
Page
5
6. Notes
and interest receivable
A. P1,331,960 B. P1,332,160 C. P1,332,500 D. P1,300,000
7. Inventories
A. P6,934,200 B. P7,274,900 C. P7,290,200 D. P6,780,400
8. Prepaid
insurance
A. P449,167 B. P408,333 C. P490,000 D. P428,750
9. Prepaid
rent
A. P140,000 B. P 0 C. P420,000 D. P280,000
10. Prepaid
advertising
A. P325,000 B. P640,000 C. P373,334 D. P315,000
11. Office
supplies inventory
A. P258,500 B. P117,500 C. P361,000 D. P102,500
12. Total
current assets
A. P14,0333,612 B. P13,523,866 C. P13,677,666 D. P13,537,666
13. Property,
plant, and equipment
A. P4,068,400 B. P2,905,228 C. P3,946,280 D. P3,902,880
14. Accumulated
depreciation
A. P1,038,880 B. P1,041,050 C. P1,177,500 D. P1,179,672
15. Accounts
payable
A. P2,525,360 B. P2,428,320 C. P2,597,360 D. P2,356,320
16. Interest
payable
A. P104,000 B. P16,178 C. P4,000 D. P27,644
17. Total
current liabilities
A. P6,803,798 B. P6,103,798 C. P6,054,360 D. P5,603,798
18. Sales
A. P13,068,440 B. P13,078,000 C. P13,224,940 D. P12,339,500
19. Cost
of goods sold
A. P8,034,000 B. P8,236,200 C. P8,018,700 D. P8,374,700
20. Operating
expenses
A. P4,296,514 B. P3,357,000 C. P4,341,514 D. P4,621,514
Page
6
PROBLEM NO. 2
To substantiate the existence of the
accounts receivable balances as at December 31, 2017 of LUKAS COMPANY, you have
decided to send confirmation requests to customers. Below is a summary of the confirmation
replies together with the exceptions and audit findings. Gross profit on sales is 20%. The company is under the perpetual inventory
method.
|
Name of
Customer
|
Balance
Per Books
|
Comments
From Customers
|
Audit Findings
|
|
Concordia
|
P150,000
|
P90,000 was returned
on December 30, 2017. Correct balance
as is P60,000.
|
Returned goods were
received December 31, 2017.
|
|
Falcon
|
P30,000
|
Your CM representing
price adjustment dated December 28, 2017 cancels this.
|
The CM was taken up
by Lukas Company in 2018.
|
|
Lazaro
|
P144,000
|
You have overpriced
us by P150. Correct price should be
P300.
|
The complaint is
valid.
|
|
Silang
|
P112,500
|
We received the
goods only on January 6, 2018.
|
Term is shipping
point. Shipped in 2017.
|
|
Yakal
|
P135,000
|
Balance was offset
by our December shipment of your raw materials.
|
Lukas Company
credited accounts payable for P135,000 to record purchases. Yakal is a supplier.
|
21. If
the necessary adjusting journal entry is made regarding the case of Concordia,
the net income will
A. Decrease by P18,000. C. Increase by
P18,000.
B. Decrease
by P90,000. D. Increase by P90,000.
22. The
effect on 2017 net income of Lukas Company of its failure to record the CM
involving transaction with Falcon:
A. P30,000 over. C. P6,000 over.
B. P30,000
under. D. P6,000 under.
23. The
overstatement of receivable from Lazaro is
A. P96,000 B. P24,000 C. P72,000 D. P48,000
24. The
accounts receivable from Silang is
A. Correctly stated. C. P112,500
under.
B. P112,500
over. D. P225,000 under.
25. The
adjusting entry to correct the receivable from Yakal is
A. Purchases 135,000
Accounts receivable 135,000
B. Accounts payable 135,000
Purchases 135,000
C. Accounts
receivable 135,000
Accounts payable 135,000
D. Accounts payable 135,000
Accounts receivable 135,000
Page
7
PROBLEM NO. 3
Palito, CPA, has just accepted an
engagement to audit the financial statements of Crocodile, Inc. for the year
ending December 31, 2017. After
obtaining an understanding of the client’s design of the accounting and
internal control systems and their operation, he then proceeded in performing
test of controls related to production cycle.
The following questions related to test
of controls of the production cycle:
26. Which of the following auditing procedures
probably would provide the most reliable evidence concerning the entity’s
assertion of rights and obligations related to inventories:
A. Trace
the test counts noted during the entity’s physical count to the entity’s
summarization of quantities.
B. Inspect agreements to determine whether any
inventory is pledged as collateral or subject to any liens.
C. Select
the last few shipping documents used before the physical count and determine
whether the shipments were recorded as sales.
D. Inspect
the open purchase order file for significant commitments that should be
considered for disclosure.
27. Which of the following internal control
activities most likely addresses the completeness assertion for inventory?
A. The
work-in-process account is periodically reconciled with subsidiary inventory
records.
B. Employees
responsible for custody of finished goods do not perform the receiving function
C. Receiving reports are prenumbered and the
numbering sequence is checked periodically.
D. There
is a separation of duties between the payroll department and inventory
accounting personnel.
28. From the auditor’s point of view, inventory
counts are more acceptable prior to the year-end when
A. Internal
control is weak.
B. Accurate perpetual inventory records are
maintained.
C. Inventory
is slow moving.
D. Significant
amounts of inventory are held on a consignment basis.
29. A retailer’s physical count of inventory was
higher than that shown by the perpetual records. Which of the following could explain the
difference?
A. Inventory
items had been counted but the tags placed on the items had not been taken off
and added to the inventory accumulation sheets.
B. Credit memos for several items returned by
customers had not been recorded.
C. No
journal entry had been made on the retailer’s books for several items returned
to its suppliers.
D. An
item purchased FOB shipping point had not arrived at the date of the inventory
count and had not been reflected in the perpetual records.
30. 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.
Page
8
PROBLEM NO. 4
A portion of the SPARK COMPANY’s statement of financial
position appears as follows:
December
31, 2017 December 31, 2016
Assets:
Cash P353,300 P100,000
Notes receivable 0 25,000
Inventory ? 199,875
Liabilities:
Accounts payable ? 75,000
Spark Company pays for all operating expenses with cash
and purchases all inventory on credit.
During 2017, cash totaling P471,700 was paid on accounts payable. Operating expenses for 2017 totaled
P220,000. All sales are cash sales. The inventory was restocked by purchasing
1,500 units per month and valued by using periodic FIFO. The unit cost of inventory was P32.60 during
January 2017 and increased P0.10 per month during the year. Spark sells only one product. All sales are made for P50 per unit. The ending inventory for 2016 was valued at
P32.50 per unit.
31. Number
of units sold during 2017
A. 7,066 B. 18,400 C. 4,268 D. 13,400
32. Accounts
payable balance at December 31, 2017
A. P190,100 B. P50,000 C. P199,100 D. P200,000
33. Inventory
quantity on December 31, 2017
A. 5,750 B. 2,750 C. 17,084 D. 10,750
34. Cost
of inventory on December 31, 2017
A. P187,450 B. P186,875 C. P192,950 D. P189,660
35. Cost
of goods sold for the year ended December 31, 2017
A. P609,125 B. P609,700 C. P606,915 D. P603,625
Page
9
PROBLEM NO. 5
A depreciation schedule for semi-trucks of ISIDRO MANUFACTURING
COMPANY was requested by your auditor soon after December 31, 2017, showing the
additions, retirements, depreciation, and other data affecting the income of
the company in the 4-year period 2014 to 2017, inclusive.
The following data were ascertained.
Balance of Trucks account, Jan. 1, 2014
Truck No. 1 purchased Jan. 1, 2011, cost P180,000
Truck No. 2 purchased July 1, 2011, cost 220,000
Truck No. 3 purchased Jan. 1, 2013, cost 300,000
Truck No. 4 purchased July 1, 2013, cost
240,000
Balance, Jan. 1, 2014 P940,000
The Accumulated Depreciation—Trucks account previously adjusted to
January 1, 2014, and entered in the ledger, had a balance on that date of
P302,000 (depreciation on the four trucks from the respective dates of
purchase, based on a 5-year life, no salvage value). No charges had been made
against the account before January 1, 2014.
Transactions between January 1, 2014, and December 31, 2017, which
were recorded in the ledger, are as follows.
July
1, 2014 Truck No. 3 was traded for a
larger one (No. 5), the agreed purchase price of which was P400,000. Isidro
Mfg. Co. paid the automobile dealer P220,000 cash on the transaction. The entry
was a debit to Trucks and a credit to Cash, P220,000. The transaction has
commercial substance.
Jan.
1, 2015 Truck No. 1 was sold for P35,000
cash; entry debited Cash and credited Trucks, P35,000.
July
1, 2016 A new truck (No. 6) was
acquired for P420,000 cash and was charged at that amount to the Trucks
account. (Assume truck No. 2 was not retired.)
July
1, 2016 Truck No. 4 was damaged in a
wreck to such an extent that it was sold as junk for P7,000 cash. Isidro Mfg.
Co. received P25,000 from the insurance company. The entry made by the
bookkeeper was a debit to Cash, P32,000, and credits to Miscellaneous Income,
P7,000, and Trucks, P25,000.
Page 10
Entries for depreciation had been made at the close of each year
as follows: 2014, P210,000; 2015, P225,000; 2016, P250,500; 2017, P304,000.
36. What is the total depreciation expense for the
year ended December 31, 2014?
A. P180,000 B. P198,000 C. P172,000 D. P228,000
37. What
is the gain (loss) on trade in of Truck #3 on July 1, 2014?
A. (P30,000) B. P10,000 C. (P60,000) D. P190,000
38. What
is the net book value of the Trucks on December 31, 2017?
A. P414,000 B. P348,000 C. P228,500 D. P894,000
39. The
total depreciation expense recorded for the 4-year period (2014-2017) is
overstated by
A. P185,500 B. P265,500 C. P287,500 D. P275,500
40. The
books have not been closed for 2017. What is the compound journal entry on
December 31, 2017 to correct the company’s errors for the 4-year period (2014-2017)?
A. Accumulated
depreciation 629,500
Trucks 480,000
Retained earnings 9,500
Depreciation expense 140,000
B. Accumulated depreciation 665,500
Trucks 480,000
Retained earnings 45,500
Depreciation expense 140,000
C. Accumulated
depreciation 665,500
Trucks 480,000
Retained earnings 185,500
D. Accumulated
depreciation 665,500
Trucks 665,500
Page 11
PROBLEM NO. 6
The cash
account of NUNAL COMPANY shows the following activities:
Date Debit Credit Balance
Nov. 30 Balance P345,000
Dec. 2 November
bank charges P 150 344,850
4 November
bank credit for notes
receivable collected P 30,000 374,850
15 NSF
check 3,900 370,950
20 Loan
proceeds 145,500 516,450
21 December
bank charges 180 516,270
31 Cash
receipts book 2,121,900 2,638,170
31 Cash
disbursements book 1,224,000 1,414,170
CASH
BOOKS
RECEIPTS PAYMENTS
Date OR
No. Amount Check No. Amount
Dec. 1 110-120 P
33,000 801 P 6,000
2 121-136 63,900 802 9,000
3 137-150 60,000 803 3,000
4 151-165 168,000 804 9,000
5 166-190 117,000 805 36,000
8 191-210 198,000 806 57,000
9 211-232 264,000 807 78,000
10 233-250 231,000 808 90,000
11 251-275 63,000 809 183,000
12 276-300 90,000 810 21,000
15 301-309 165,000 811 24,000
16 310-350 24,000 812 48,000
17 351-390 57,000 813 60,000
18 391-420 27,000 814 66,000
19 421-480 51,000 816 108,000
22 481-500 63,000 817 33,000
23 501-525 96,000 818 150,000
23 - - 819 21,000
23 - - 820 12,000
26 526-555 222,000 821 9,000
28 556-611 15,000 822 36,000
28 - - 823 39,000
29 612-630 114,000 824 87,000
29 - - 825 6,000
29 - - 826 33,000
Totals P2,121,900 P1,224,000
Page
12
BANK STATEMENT
Date Check Charges Credits
Dec. 1 792 P
7,500 P 25,500
2 802 9,000 33,000
3 - - 63,900
4 804 9,000 60,000
5 EC 243,000 243,000
8 805 36,000 285,000
9 CM
16 - 36,000
10 799 21,150 462,000
11 DM
57 3.900 231,000
12 808 90,000 63,000
15 803 3,000 -
16 809 183,000 255,000
17 DM
61 180 24,000
18 813 60,000 57,000
19 CM
20 - 145,500
22 815 18,000 -
23 816 108,000 141,000
23 811 24,000 -
23 801 6,000 -
26 814 66,000 96,000
28 818 150,000 222,000
28 DM
112 360 -
29 821 9,000 15,000
29 CM
36 - 36,000
29 820 12,000
-
Totals P1,059,090 P2,493,900
Additional
information:
1. DMs 61 and 112 are for service charges.
2. EC is error corrected.
3. DM 57 is for an NSF check.
4. CM 20 is for loan proceeds, net of P450
interest charges for 90 days.
5. CM 16 is for the correction of an erroneous
November bank charge.
6. CM 36 is for customers’ notes collected by
bank in December.
7. Bank balance on December 31 is P1,776,810
Page 13
Based on the preceding information, determine
the following:
41. Outstanding
checks at November 30
A. P39,150 B. P28,650 C. P21,150 D. P46,650
42. Outstanding
checks at December 31
A. P459,000 B. P477,000 C. P441,000 D. P487,650
43. Deposit
in transit at November 30
A. P58,500 B. P145,500 C. P 0 D. P25,500
44. Deposit
in transit at December 31
A. P114,000 B. P139,500 C. P132,000 D. P 0
45. Adjusted
book balance at November 30
A. P410,850 B. P345,000 C. P375,000 D. P374,850
46. Adjusted
bank receipts for the month of December
A. P2,297,400 B. P2,291,400 C. P2,303,400 D. P2,321,400
47. Adjusted
book disbursements for the month of December
A. P1,228,440 B. P1,246,440 C. P1,210,440 D. P1,246,620
48. Adjusted
bank balance at December 31
A. P1,449,810 B. P1,674,810 C. P1,431,810 D. P1,776,810
49. Unadjusted
bank balance at November 30
A. P555,060 B. P94,560 C. P1,776,810 D. P342,000
50. The
best evidence regarding year-end bank balances is documented in the
A. Cutoff
bank statements.
B. Bank reconciliations.
C. Interbank
transfer schedule.
D. Bank
deposit lead schedule.
Page
14
PROBLEM NO. 7
MINA MINING CO. has acquired a tract of
mineral land for P50,000,000. Mina
Mining estimates that the acquired property will yield 150,000 tons of ore with
sufficient mineral content to make mining and processing profitable. It further estimates that 7,500 tons of ore
will be mined the first and last year and 15,000 tons every year in
between. (Assume 11 years of mining
operations.) The land will have a residual
value of P1,550,000.
Mina Mining builds necessary structures
and sheds on the site at a total cost of P12,000,000. The company estimates that these structures
can be used for 15 years but, because they must be dismantled if they are to be
moved, they have no residual value. Mina
Mining does not intend to use the buildings elsewhere.
Mining machinery installed at the mine
was purchased secondhand at a total cost of P3,600,000. The machinery cost the former owner
P9,000,000 and was 50% depreciated when purchased. Mina Mining estimates that about half of this
machinery will still be useful when the present mineral resources have been
exhausted but that dismantling and removal costs will just about offset its
value at that time. The company does not
intend to use the machinery elsewhere.
The remaining machinery will last until about one-half the present
estimated mineral ore has been removed and will then be worthless. Cost is to be allocated equally between these
two classes of machinery.
51. What
are the estimated depletion and
depreciation charges for the 1st year?
Depletion Depreciation
A. P4,845,000 P870,000
B. P4,845,000 P780,000
C. P2,422,500 P870,000
D. P2,422,500 P780,000
52. What
are the estimated depletion and
depreciation charges for the 5th year?
Depletion Depreciation
A. P2,422,500 P1,740,000
B. P2,422,500 P1,560,000
C. P4,845,000 P1,560,000
D. P4,845,000 P1,740,000
53. What
are the estimated depletion and
depreciation charges for the 6th year?
Depletion Depreciation
A. P2,422,500 P1,560,000
B. P2,422,500 P1,740,000
C. P4,845,000 P1,560,000
D. P4,845,000 P1,740,000
54. What
are the estimated depletion and
depreciation charges for the 7th year?
Depletion Depreciation
A. P2,422,500 P1,380,000
B. P2,422,500 P1,560,000
C. P4,845,000 P1,380,000
D. P4,845,000 P1,560,000
55. What
are the estimated depletion and
depreciation charges for the 11th year?
Depletion Depreciation
A. P4,845,000 P1,380,000
B. P4,845,000 P690,000
C. P2,422,500 P1,380,000
D. P2,422,500 P690,000
Page 15
PROBLEM NO. 8
The HVR Company included the following
in its notes receivable on December 31, 2017:
Note receivable from sale of land P2,640,000
Note receivable from consultation 3,600,000
Note receivable from sale of equipment 4,800,000
The following transactions during 2017
and other information relate to the company’s notes receceivable:
a)
On January 1, 2017, HVR Company sold a tract
of land to Triple X Company. The land,
purchased 10 years ago, was carried on HVR’s books at P1,500,000. HVR received a noninterest-bearing note for
P2,640,000 from Triple X. The note is
due on December 31, 2018. There was no
established exchange price for the land.
The prevailing interest rate for this note on January 1, 2017 was 10%.
b)
On January 1, 2017, HVR Company received a 5%,
P3,600,000 promissory note in exchange for the consultation services
rendered. The note will mature on
December 31, 2019, with interest receivable every December 31. The fair value of the services rendered is
not readily determinable. The prevailing
rate of interest for a note of this type was 10% on January 1, 2017.
c)
On January 1, 2017, HVR Company sold an old
equipment with a carrying amount of P4,800,000, receiving P7,200,000 note. The note bears an interest rate of 4% and is
to be repaid in 3 annual installments of P2,400,000 (plus interest on the
outstanding balance). HVR received the
first payment on December 31, 2017.
There is no established market value for the equipment. The market interest rate for similar notes
was 14% on January 1, 2017.
Note: Round off present value factors to four
decimal places and final answers to the nearest hundred.
56. What
amount of consultation fee revenue should be recognized in 2017?
A. P3,600,000 B. P2,705,000 C. P4,047,500 D. P3,152,500
57. What
amount should be reported as gain on sale of equipment?
A. P994,800 B. P2,400,000 C. P1,162,700 D. P1,237,300
58. The
amount to be reported as noncurrent notes receivable on December 31, 2017 is
A. P7,482,200 B. P6,037,300 C. P5,477,500 D. P7,877,600
59. The
amount to be reported as current notes receivable on December 31, 2017 is
A. P4,800,000 B. P2,400,200 C. P4,404,900 D. P7,440,000
60. How
much interest income should be recognized in 2017?
A. P974,200 B. P756,000 C. P1,378,700 D. P1,160,500
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