Auditing Problems v.1 - 2018.docx

# The land purchased 10 years ago was carried on hvrs

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On January 1, 2018, 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, 2019. There was no established exchange price for the land. The prevailing interest rate for this note on January 1, 2018 was 10%. b) On January 1, 2018, HVR Company received a 5%, P3,600,000 promissory note in exchange for the consultation services rendered. The note will mature on December 31, 2020, 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, 2018. c) On January 1, 2018, 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, 2018. There is no established market value for the equipment. The market interest rate for similar notes was 14% on January 1, 2018. Note: Round off present value factors to four decimal places and final answers to the nearest hundred. 1. What amount of consultation fee revenue should be recognized in 2018? A. P3,600,000 B. P2,705,000 C. P4,047,500 D. P3,152,500 2. 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 3. The amount to be reported as noncurrent notes receivable on December 31, 2018 is A. P7,482,200 B. P6,037,300 C. P5,477,500 D. P7,877,600 4. The amount to be reported as current notes receivable on December 31, 2018 is A. P4,800,000 B. P2,400,200 C. P4,404,900 D. P7,440,000 5. How much interest income should be recognized in 2018? A. P974,200 B. P756,000 C. P1,378,700 D. P1,160,500 Page 8 PROBLEM NO. 5 – AUDIT OF SHAREHOLDERS’ EQUITY iBELIEVE COMPANY began operations on January 1. Authorized were 120,000 shares of P10 par value ordinary shares and 240,000 shares of 10%, P100 par value preference shares. The following transactions involving shareholders’ equity occurred during the first year of operations.

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Jan. 1 Issued 30,000 ordinary shares to the corporation promoters in exchange for land valued at P1,020,000 and services valued at P420,000. The property had cost the promoters P540,000 3 years before and was carried on the promoters’ books at P300,000. Feb.23 Issued 60,000 preference shares with a par value of P100 per share. The shares were issued at a price of P150 per share, and the company paid P450,000 to an agent for selling the shares. Mar.10 Sold 18,000 ordinary shares for P390 per share. Issue costs were P150,000. Apr.10 24,000 ordinary shares were sold under share subscriptions at P450 per share. No shares are issued until a subscription contract is paid in full. No cash was received. July 14 Exchanged 4,200 ordinary shares and 8,400 preference shares for a building with a fair value of P3,060,000. The building was originally purchased for P2,280,000 by the investors and has a book value of P1,320,000. In addition, 3,600 ordinary shares were sold for P1,440,000 in cash. Aug. 3 Received payments in full for half of the share subscriptions and payments on account on the rest of the subscriptions. Total cash received was P8,400,000. Share certificates were issued for the subscriptions paid in full.
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