1st Semester, A.Y.

2019-2020 October 12, 2019

APPLIED AUDITING PART I BS Accountancy 4
Semi Finals - Quiz #1
Problem 1
On January 10, 2019, you started the audit of the financial records of the EXO Company for the year
ended December 31, 2018. From your investigation, you discovered the following:
1. The bookkeeper acts also as the cashier. Her December 31, 2018 year-end cash reconciliation
contained the following items:
Cash per ledger, 12/31/18 61,400
Cash per bank, 12/31/18 64,850
Checks outstanding 5,220
SM Co. check charged by bank in error
12/31/18 corrected by bank on 1/15/19 150
Cash in transit corrected by bank on 1/2/2019 720

2. The cash account balances per ledger as of 12/31/18 were: Cash - P61,400, PCF - P150.
3. The count of the cash on hand at the close of business on January 10, 2019, including the petty
cash, was as follows:
Currency and coin 385
Expense vouchers 20
Employees' IOU's dated 1/5/19 25
Customers' check in payment of account 290
720

4. From January 2, 2018 to January 10, 2018, the date of your cash count, total cash receipts
appearing in the cash records were P8,600. According to the bank statement for the period from
January 2, 2019 to January 10, 2019, total deposits were P7,600.

5. On July 5, 2018, cash of P400 was received on account from a customer, the Allowance for
doubtful Accounts was charged and Accounts Receivable credited.

6. On December 5, 2018, cash of P300 was received on account from a customer, Inventory was
charged and Accounts was charged and Accounts receivable credited.

7. Cash of P730 received during 2018 was not recorded.

8. Checks received from customers from January 2, 2019 to January 10, 2019, totaling P420, were not
recorded but were deposited in the bank.

9. On July 1, 2018, the bank refunded interest of P20 because a note of the EXO Company was paid
before maturity. No entry had been made for the refund.

10. In the cashier's petty cash, there were receipts for collections from customers on January 9, 2019,
totaling P850; these were unrecorded and undeposited.

11. In the outstanding checks, there is one for P50 made payable to a trade creditor; investigation
shows that this check had been returned by the creditor on June 14, 2018 and a new check for
P100was issued in its place; the original check P50 was made in error as to amount.

Required:
1. Compute the correct bank balance as of 12/31/2018.
2. Compute the cash shortage as of 12/31/2018.
3. Compute the cash shortage for the period 1/1/2019 to 1/10/2019.
Problem 2
The following information pertains to the cash of Jazzy Company:
1. July 31 August 31
Balance shown on bank statement 2,738 2,696
Balance shown in general ledger before
reconciling the bank account 2,578 2,500
Outstanding checks 863 1,015
Deposit in transit 685 1,245
 2. For August
Deposits shown on bank statement 5,588
Charges shown on bank statement 5,630
Cash receipts shown on company's books 5,398
Cash payments shown on company's books 5,476

3. The bank service charge was P18 in July (recorded by the company during August) and P24 in
August (not yet recorded by the company).

4. Included with the August bank statement was a check for P500 that had been received on August
25 from a customer on account. The returned check, amrked 'NSF' by the bank, has not yet been
recorded by the company's books.

5. During August the bank collected P750 of bond interest for EXO Company and credited the
proceeds to the company's account. The company earned the interest during the current
accounting period but not yet recorded it.

6. During August the company issued a check for P696 for equipment. The check, which cleared the
bank during August, was incorrectly reocrded by the Company for P896.

Requirement: Prepare a prrof of cash for August

Problem 3
From inception of operations to December 31, 2020, Kai Corporation provided for uncollectible
accounts receivable under the allowance method: provisions were made monthly at 2% of credit
sales; bad debts wriiten off were charged to the allowance account; recoveries of bad debts
previously written off were credited to the allowance account, and no year-end adjustments to the
alllocation account were made. Kai;s usual credit terms are net 30 days.

The balance in the allowance for doubtful accounts was P130,000 at January 1, 2021. During 2021
credit sales totaled P9,000,000, interim provisions for doubtful accounts were made at 2% of credit
sales, P90,000 of bad debts were written off, and recoveries of accounts previously written off
amounted to P15,000. Kai installed a computer facility in November 2021, and an aging of accounts
receivable was prepared for the first time as of December 31, 2021. A summary of the aging is as
follows:
Balance in Estimated %
Classification by month of sale each Uncollectible
category
Nov - Dec 2021 1,140,000 0%
Jul - Oct 600,000 1.50%
Jan - June 400,000 8.00%
Prior 1o 1/1/21 130,000 35.00%
2,270,000

Based on the review of collectibility of the account balances in the 'prior to 1/2/2021' aging category,
additional receivables totaling P60,000 were written off as of December 31, 2021. Effective with the
year ended December 31, 2021, Kai adopted the revised accounting standards in recognizing bad
debts.

Requirements:
1. Prepare schedule analyzing the changes in the allowance for doubtful accounts for the year
ended December 31, 2021. Show supporting compuations in good form.

2. Prepare the journal entry for the year-end adjustment to the allowance for doubtful accounts
balance as of December 31, 2021.

Prepared by: Noted by:

KENNETH JOY R. DIRILO, CPA ARLYN C. PASION, MBA, CPA

Instructor Dean - College of Business Education
1st Semester, A.Y. 2019-2020 October 12, 2019
ADVANCED FINANCIAL ACCOUNTING AND REPORTING PART II BS Accountancy 4
Semi Finals - Quiz #1
Problem 1
On January 2, 2019, Narra Corporation acquired all of Yaka Corporation's assets and liabilities by
issuing shares of its common stock. Partial balance sheet data for the companies prior to the business
combination and immediately after the combination are as follows:
Narra Corp. Yakal Corp. Combined
Book Value Book Value Entity
Cash 40,000 10,000 50,000
Accounts receivable 60,000 30,000 88,000
Inventory 50,000 35,000 96,000
Buildings & equipment (net) 300,000 110,000 430,000
Goodwill - ?
TOTAL ASSETS 450,000 185,000 ?

Accounts payable 188,000 84,000 272,000

Common stock, P5 par 100,000 40,000 126,000
Additional paid in capital 65,000 28,000 247,000
Retained earnings 97,000 33,000 ?
TOTAL LIAB & EQUITY 450,000 185,000 ?

Questions:
1. What number of shares did Narra issue to acquire Yakal's assets and liabilities?
2. What was the market value of the shares issued by Narra?
3. What was the fair value of the inventory held by Yakal at the date of combination?
4. What was the fair value of the net assets held by Yakal at the date of combination?
5. What amount of goodwill, if any, will be reported by the combined entity immediately following the
combination?
6. If the depreciable assets held by Yakal had an average remaining life of 10 years at the date of
acquisition, what amount of depreciation expense will be reported on those assets on December 31,
2019?

Problem 2
On January 1, 2019, Pure Company acquired 80% interest in Sure Company for P2,000,000 cash. The
stockholders'equity of Sure at the time of acquisition is P1,875,000. On January 1, 2018, NCI is measured
at its implied fair value. The excess of cost over book value of interest acquired is allocated to the
following assets:

Inventories P100,000 (sold in 2019)

Building P200,000 (5-year remaining life

During 2019, Sure Company reported net income of P500,000 and paid dividends of P100,000.
Questions:
1. What is the fair value on NCI on January 1, 2019?
2. How much goodwill (gain on acquisition) is reported in the consolidated balance sheet on 1/1/2018?
3. What is the consolidated net income attributable to parent on December 31, 2019, if Pure's net
income for 2019 is P600,000?
4. What is the NCI in net assets of subsidiary on December 31, 2019?
Problem 3
Penny Company owns an80% controlling interest in the Sandy Company. Sandy regularly sells
merchandise to Penny, which then sold to outside parties. The gross profit on all such sales is 40%. On
January 1, 2018, Penny sold land and a building to Sandy. The value of the parcel is 20% to land and
80% to structures. Pertinent data for the companies is summarize as follows:

Penny Sandy
Internally generated net income, 2018 520,000 250,000
Internally generated net income, 2019 3,440,000 235,000
Intercompany merchandise sales, 2018 - 100,000
Intercompany merchandise sales, 2019 - 120,000
Intercompany inventory, December 31, 2018 - 15,000
Intercompany inventory, December 31, 2019 - 20,000
Cost of real estate sold on January 1, 2018 600,000 -
Sales price of real estate on January 1, 2018 800,000 -
Depreciable life of building - 20 years

Questions:
1. For 2018, what is the consolidated net income attributable to controlling interest?
2. For 2019, what is the consolidated net income attributable to controlling interest?

Prepared by: Noted by:

KENNETH JOY R. DIRILO, CPA ARLYN C. PASION, MBA, CPA

Instructor Dean - College of Business Education