SULTAN KUDARAT STATE UNIVERSITY

Applied Auditing
Prefinal Examination

Instruction: Choose the correct answer. Show your computations

I. The following data pertain to Yellow Company property, plant and equipment for 2009.

Audited balances at December 31, 2008:

DEBIT CREDIT
Land 7,500,000
Buildings 60,000,000
Accumulated depreciation - Buildings 13,155,000
Machinery and equipment 45,000,000
Accumulated depreciation - Machinery and eqpt 12,500,000
Delivery Equipment 5,750,000
Accumulated depreciation - Delivery Eqpt 4,230,000

Depreciation Data:
Depreciation method Useful life
Building 150% declining balance 25 years
Machinery and equipment straight line 10 years
Delivery equipment sum-of-the-years’ digits 4 years
Leasehold improvements straight line

Transactions during 2009 and other information are as follows:

a. On January 2, 2009, Yellow purchased a new truck for P1,000,000 cash and trade-in of a 2-year
truck with a cost of P900,000 and a book value of P270,000. The new truck has a cash price of
P1,200,000; the market value of the trade-in is not known.
b. On April 1, 2009 a machine purchased for P1,150,000 on April 1, 2004 was destroyed by fire.
Yellow recovered P775,000 from its insurance company.
c. On March 1, 2009, costs of P8,400,ooo were incurred to improve leased office premises. The
leasehold improvements have a useful life of 8 years. The related lease terminates on December
31, 2015.
d. On July 1, 2009, machinery and equipment were purchased at a total invoice cost of
P14,000,000; additional costs of P250,000 for freight and P1,250,000 for installation were
incurred.
e. Yellow determine that the delivery equipment comprising the P5,750,000 balance at January 1,
2009, would have been depreciated at a total amount of P900,000 for the year ended December
31,2009.

The salvage values of the depreciable assets are immaterial. The policy of yellow Co. is to compute
depreciation to the nearest month.

After examining the above information, you are to determine the following:

1. The 2009 depreciation expense for the building

a. 2,805,600 b. 2,840,000 c. 2,810,700 d. none of these
2. The 2009 depreciation expense for the machinery and equipment
a. 5,188,750 b. 4,385,000 c. 4,275,350 d. none of these
3. The 2009 depreciation expense for the delivery equipment
 a. 720,000 b. 880,000 c. 1,200,000 d. none of these
4. The 2009 depreciation expense for the leasehold improvements
a. 105,000 b. 630,000 c. 840,000 d. none of these
5. The total net gain or loss from disposal of assets for the year ended December 31, 2009
a. 110,000 b. 120,000 c. 130,000 d. none of these

II. A corporation was organized in 2008. Its accounting records include only one account for all
intangible assets. The following is the summary of the debit entries that have been recorded
and posted during 2008 and 2009.
INTANGIBLE ASSET
July 1, 2008 8-year trademark; expires June 30, 2016 126,000
Oct. 1, 2008 Advance payment on leasehold (term of lease is 2 yrs) 84,000
Dec. 31, 2008 Net loss for 2008 including incorporation fee, P3,000 and related 48,000
legal fees of organizing P15,000 (all fess incurred in 2008)
Jan. 2, 2009 Acquired patent (10-year life) 222,000
Mar. 1, 2009 Cost of developing a secret formula 225,000
Apr. 1, 2009 Goodwill purchased 835,200
July 1, 2009 Legal fee for successful defense of patent purchased above 37,950
Oct. 1, 2009 Research and development costs 480,000

Ignore income tax effects

After considering the above information, you are to determine the following:

6. The unamortized patent cost at December 31, 2009, should be

a. 199,800 b. 235,440 c. 222,000 d. 197,490
7. The 8unamortized trademark cost at December 31, 2009 should be
a. 110,250 b. 94,500 c. 102,375 d. 118,125
8. The amount of prepaid rent to be reported on A’s December 31, 2009, balance sheet is
a. 73,500 b. 31,500 c. 84,000 d. 63,000
9. The adjusting entries on December 31, 2009, should include a net debit to the retained earnings
account of
a. 889,275 b. 42,000 c. 60,375.00 d. 66,375
10. As a result of the adjustments at December 31, 2009, the total charges against A’s 2009 income
should be
a. 840,900 b. 822,900 c. 597,900 d. 841,275

III. XYZ Company is authorized to issue 200,000 shares of P10 par value common stock, and
60,000 shares of 6% cumulative and nonparticipating preferred stock, par value P100 per
share. The corporation engaged in the following stock transactions through December 31,
2009
a. 60,000 shares of common stock were issued for P700,000 and 24,000 shares of
preferred stock for machinery valued at P2,950,000.
b. Subscription for 9,000 shares of common have been taken , and 40% of the subscription
price of P16 per share has been collected. The stock will be issued upon collection of
the subscription price in full.
c. Treasury stock of 2,000shares of common has been purchased for P15 and accounted
for under the cost method.

The retained earnings balance is P420,000.

 In your examination of the above information, you are to determine the balances of the
following accounts as of December 31, 2009:
11. Preferred stock
a. 2,000,000 b. 2,100,000 c. 2,400,000 d. none of these

12. Common stock

a. 550,000 b. 600,000 c. 650,000 d. none of these

13. Subscriptions receivable

a. 82,500 b. 86,400 c. 88,500 d. none of these

14. Retained earnings

a. 400,000 b. 420,000 c. 460,000 d. none of these

15. Total stockholder’s equity

a. 3,890,900 b. 4,097,600 c. 4,145,300 d. none of these

IV. Aling, Inc. has been producing quality children’s apparel for more than 30 years. The
company’s fiscal year runs from April 1 to March 31. The following information relates to
the obligation of Aling as of march 31, 2009.

Bonds Payable
Aling issued P10,000,000 of 11% bonds on July 1, 2003 at 96 which yielded proceeds of
P9,600,000. The bonds will mature on July 1, 2013. Interest is paid semi-annually on July 1
and January 1. Aling uses straight-line method to amortize the bond discount.

Notes Payable
Aling had signed several long term notes with financial institutions. The maturities of these
notes are given below. The total unpaid interest for all of these notes amounts to P420,000
on March 31, 2009.
Due date Amount Due
April 1, 2009 P 400,000
July 1, 2009 600,000
October 1, 2009 300,000
January 1, 2010 300,000
April 1, 2010 – March 31, 2011 5,400,000

Estimated warranties
Aling has one year warranty on some selected items in its product line. The estimated warranty
on sales made during 2007-2008 fiscal year and still outstanding as of March 31, 2008,
amounted to P168,000. The warranty costs on sales made from April 1, 2008, through march
31, 2009, are estimated at P420,000. The actual warranty costs incurred during 2008-20009
fiscal year are as follows:
Warranty claims honored on 2007-2008 sales P168,000
Warranty claims honored on 2008-2009 sales 190,000
Total warranty claims honored P358,000

Other information
1. Trade payables. Account payable for supplies, goods, and services purchases on open
account amount to P740,000 as of march 31, 2009.
 2. Dividends. On March 5, 2009, Aling’s board of directors declared a cash dividend of P0.40
per common share and a 10% common stock dividend. Both dividends were to be
distributed on April 15, 2009 to the common stockholders of record at the close of business
on march 31, 2009. Data regarding Aling’s common stock are as follows:
Par value P5/share
Number of shares issued and outstanding 6,000,000 shares

After examining the above information, you are to answer the following questions:

16. How much is the March 31, 2009 balance of bond discount?
a. 200,000 b. 170,000 c. 240,000 d. None of these

17. How much is the March 31, 2009 balance of bond interest payable?
a. 1,100,000 b. 520,000 c. 275,000 d. None of these

18. How much is the March 31, 2009 balance of current note payable?
a. 7,000,000 b. 1,400,000 c. 1,600,000 d. None of these

19. How much is the March 31, 2009 balance of long term note payable?
a. 5,400,000 b. 7,000,000 c. 6,500,000 d. None of these

20. How much is the March 31, 2009 balance of estimated warranty payable?
a. 230,000 b. 650,000 c. -0- d. None of these

21. How much is the march 31, 2009 balance of cash dividends payable?
a. 6,000,000 b. 2,400,000 c. 3,000,000 d. None of these

22. How much is the March 31, 2009 total current liabilities?
a. 4,915,000 b. 5,245,000 c. 5,665,000 d. None of these

23. How much is the March 31, 2009 total long term liabilities?
a. 10,000,000 b. 15,400,000 c. 15,230,000 d. None of these

V. Karla corporation provided the following information for the year 2009

Preferred stock,