Auditing Problems SOLUTION v.1 - 2018.docx

Share premium preference p1380000 p840000 540000 fair

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Share premium – preference (P1,380,000 – P840,000) 540,000 Fair value of building P3,060,000 MV of ordinary shares (P1,440,000/3,600 = P400 x 4,200) 1,680,000 Assumed MV of preference shares P1,380,000 Aug. 3 Cash 8,400,000 Subscriptions receivable 8,400,000 3 Subscribed ordinary shares 120,000 Ordinary shares (P10 x 12,000) 120,000 Dec. 31 Income summary 3,600,000 Retained earnings 3,600,000 31 Retained earnings 2,280,000 Dividends payable 2,280,000 Preference (60,000 + 8,400 = 68,400 x P10) P 684,000 Ordinary (30,000 + 18,000 + 3,600 + 4,200 + 12,000 + 12,000 subscribed = 79,800 x P20) 1,596,000 P2,280,000
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Page 6 PreferenceShare premium - Ordinary Share premium - Retained shares preference shares shares ordinary shares Earnings Jan 1 P 300,000 P1,140,000 Feb 23 P6,000,000 3,000,000 23 (450,000) Mar 10 180,000 6,840,000 (150,000) Apr 10 10,560,000 July 14 840,000 540,000 36,000 1,404,000 42,000 1,638,000 Aug. 3 120,000 Dec. 31 (2,280,000) Net income 3,600,000 P6,840,000 P3,090,000 P678,000 P21,432,000 P1 ,320,000 (1-C) (2-B) (3-D) (4-A) 5. Preference shares P6,840,000 Share premium – preference shares 3,090,000 Ordinary shares 678,000 Share premium – ordinary shares 21,432,000 Subscribed ordinary shares (P240,000 – P120,000) 120,000 Subscriptions receivable (P10,800,000 – P8,400,000) (2,400,000) Retained earnings 1 ,320,000 Total shareholders’ equity (D) P31 ,080,000
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Page 7 PROBLEM 6 – MAYON CORPORATION – AUDIT OF TRADING SECURITIES 1. Interest income: Tipo Co. bonds, Jan. 1 – July 1 (P800,000 x 7% x 6/12) P28,000 Turkey Co. bonds: Jan. 1 – April 1 (P1,200,000 x 7 ½% x 3/12)22,500 April 1 – Dec. 31 (P600,000 x 7 ½% x 9/12)33,750 Toll Co. bonds (P500,000 x 8% x 2/12) 6,667 Dividend income 500 Total P91,417 Answer: C 2. Gain on sale of Turkey bonds: Sales price (P600,000 x 102%) P612,000 Carrying amount (P1,218,900 x ½)609,450 P 2,550 Gain on sale of Tipo bonds: Sales price (P800,000 x 97 ½%) P780,000 Carrying amount 774,000 6,000 Total P8,550 Answer: C 3. Carrying Fair Increase Security Amount Value (Decrease) Concave Co. ordinary P243,000 P220,000 P(23,000) Turkey bonds 609,450 610,500 1,050 Newman, Inc. ordinary 116,000 116,750 750 Toll Co. bonds 505 ,000 505 ,000 -- Totals P1 ,473,450 P1 ,452,250 P(21 ,200 ) Unrealized loss on trading securities P21,200 Answer: B 4. Trading securities, at fair value P1,452,250 Answer: D 5. Sales price (P600,000 x 101%) P606,000 Carrying amount 610,500 Loss on sale of Turkey Bonds P 4,500 Answer: A Page 8
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PROBLEM 7 – BANAWE COMPANY – AUDIT OF INTANGIBLE ASSETS 1. C PATENTS Balance per books, Dec. 31, 2018 P1,650,000 Unamortized balance of P225,000 erroneously charged to account in January 2015 (P225,000 x 7/10) (157 ,500 ) Corrected balance before 2018 amortization 1,492,500 2018 amortization: Patent with 2 years remaining life (P630,000 x 7/14 = P315,000/2 years) (157,500) Remaining patent (P1,492,500 – P315,000 = P1,177,500/7 years) (168 ,214 ) Carrying value, December 31, 2018 P1 ,166,786 2. A FRANCHISE AGREEMENT Balance per books, December 31, 2018 P285,000 Annual payment charged to account (135 ,000 ) Corrected balance before 2018 amortization 150,000 2018 amortization (P150,000/5 years) (30 ,000 ) Carrying value, December 31, 2018 P120 ,000 3. B Organization costs, December 31, 2018 P 0 4. D
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  • Summer '18
  • Jane
  • Depreciation, 1966, Generally Accepted Accounting Principles, Turkey Bonds

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