FIRST PREBOARD

FIRST PREBOARD

INSTRUCTIONS: CHOOSE THE BEST ANSWER FOR EACH OF THE FOLLOWING. MARK THE LETTER OF YOUR
CHOICE WITH A VERTICAL LINE ON THE ANSWER SHEET PROVIDED. STRICTLY NO ERASURES ARE ALLOWED

PROBLEM NO. 1
The balance sheet for the DON’T THROW IT ALL AWAY Corporation on December 31, 2022, included the following
receivables balances:

Notes Receivables P365,000

Less notes discounted 155,000 P210,000
Accounts Receivable P856,000

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Less allowance for doubtful accounts 41,500 814,500
Interest Receivable 5,250

Transactions during 2023 included the following:

a. Sales on account were P7,670,000.

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b. Cash collected on accounts totaled P5,765,000, which included accounts of P930,000 on which cash
discounts of 2% were allowed.

c. Notes received in settlement of accounts totaled P825,000.

d. Notes receivable discounted as of December 31, 2022, were paid at maturity with the exception of one
P30,000 note on which the company had to pay the bank P30,900, which included interest and protest fees.
It is expected that recovery will be made on this note early 2024.

e. Customer’s notes of P600,000 were discounted with recourse during the year, proceeds from their transfer
being P585,000. Of this total, P480,000 matured during the year without notice of protest.

f. Customers’ accounts P87,200 were written off during the year as worthless.

g. Recoveries of doubtful accounts written off in prior years were P20,200.

h. Notes receivable collected during the year totaled P270,000 and interest collected was P24,500.

i. On December 31, accrued interest on notes receivable was P6,300.

j. Uncollectible accounts are estimated to be 5% of the December 31, 2023 Accounts Receivable balance.

k. Cash of P350,000 was borrowed from the bank, accounts receivable of P400,000 being pledged on the loan.
Collections of P195,000 had been made on these receivables (included in the total given in transaction (b)
and this amount was applied on December 31,2023, to payment of accrued interest on the loan of P6,000,
and the balance to partial payment of the loan.

Determine the adjusted balances of the following accounts as of December 31, 2023:

1. Notes Receivable
a. P320,000 b. P365,000 c. P165,000 d. P285,000

2. Notes Receivable Discounted

a. P155,000 b. P600,000 c. P120,000 d. P105,000

3. Interest Receivable
a. P5,250 b. P6,300 c. P11,550 d. P1,050

4. Accounts Receivable
a. P1,861,100
b. P1,830,200
c. P1,860,720
d. P1,461,100

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5. Allowance for Doubtful Accounts

a. P93,055
b. P118,555
c. P93,036
d. P67,636

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6. Bank Loan or Notes Payable – Bank
a. P350,000
b. P155,000
c. P161,000
d. P211,000

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7. Doubtful Accounts Expense for the year ended December 31, 2023.
a. P93,055
b. P118,555
c. P93,036
d. P67,536

PROBLEM NO. 2
TOO MUCH HEAVEN Company was incorporated on January 1, 2023. All sales are on
account under the terms 3/10, 1/20, n/30. TOO MUCH HEAVEN Company uses the aging of
the receivables approach in providing bad debts. Provided below is the aging schedule
which TOO MUCH HEAVEN Company’s accountant prepares at the end of the accounting
period.

Days past due Probability of collectibility

1 – 30 days 95%
31 – 60 days 80%
61 – 90 days 60%
91 – 120 days 30%
Over 120 days 10%

During 2023, TOO MUCH HEAVEN Company reported sales of P14,500,000. Initial bad
debts expense has been provided during the year at 2.5% of gross sales. Write-offs
during the year amounted to P75,000. In July 2023, TOO MUCH HEAVEN Company
received a P50,000 face value note from a customer as payment for goods sold in
February. The note carries an interest rate of 10% and will mature on June 30, 2008.
Total cash collections for 2023 amounted to P12,961,000; of which P3,686,000 were
collected within 10 days from the date of sale, P2,475,000 were collected beyond 10
days but within 20 days from the date of sale and the rest after 20 days, including
recoveries totaling to P40,000.

At the end of the year, a schedule of the receivable was provided

Age of the Percentage
Receivables

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1 – 30 days 35%
31 – 60 days 25%
61 – 90 days 20%
91 – 120 days 10%
121 – 150 days 7%
over 150 days 3%
8. The accounts receivable balance at December 31, 2023 is

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a. P1,275,000 b. P1,315,000 c. P1,415,000 d. P1,554,000
9. The allowance for bad debts account balance prior to the preparation of the aging
schedule is
a. P362,500 b. P402,500 c. P287,500 d. P327,500

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10. The amount of bad debts expense to be reported in the 2023 income statement is
a. P362,500 b. P468,422 c. P256,578 d. P221,578

PROBLEM NO. 3
The RUN TO ME Co. is on a calendar year basis. The following data were found during your
audit:

A. Goods in transit shipped FOB Destination by a supplier in the amount of P20,000

had been excluded from the inventory, and further testing revealed that the purchase had
been recorded.
B. Goods costing P10,000 had been received, included in the inventory and recorded as a
purchase. However, upon inspection, the goods were found to be defective and would be
immediately returned.
C. Materials costing P50,000 and billed on December 30 at a selling price of P64,000 had
been segregated in the warehouse for shipment to a customer. The materials had been
excluded from inventory as a signed purchase order had been received from the
customer. Terms, FOB destination.
D. Goods costing P14,000 was out on consignment with Libra, Inc. Since the monthly
statement from Libra listed those materials as on hand, the items had been excluded from
the final inventory and invoiced on December 31 at P16,000.
E. The sale of P30,000 worth of materials and Costing P24,000 had been shipped FOB
point of shipment on December 31. However, this inventory was found to be included in
the final inventory.
F. Goods costing P20,000 and selling for P28,000 had been segregated but not shipped
at December 31, and were not included in the inventory. A review of the customer’s
purchase order set forth terms as FOB destination. The sale had not been recorded.
G. Your client has an invoice from a supplier, terms FOB shipping point but the goods had
not arrived as yet. However, these materials costing P34,000 had been included in the
inventory count, but no entry had been made for their purchase.
H. Merchandise costing P40,000 had been recorded as a purchase but not included in
inventory. Terms of shipment are FOB shipping point according to the supplier’s invoice
which was received on December 31.

Further inspection of the client’s records revealed the following December 31 balances.
Inventory, P220,000; Accounts receivable, P116,000; Accounts payable, P138,000; Sales,
P1,010,000; Purchases, P640,000; Net Income, P102,000.

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Compute the adjusted balances of the following items:

11. Inventory
a. P310,000 b. P300,000 c. P334,000 d. none of these

12. Accounts receivable

a. P100,000 b. P52,000 c. P36,000 d. none of these

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13. Accounts payable
a. P152,000 b. P108,000 c. P142,000 d. none of these

14. Sales
a. P946,000 b. P930,000 c. P994,000 d. none of these

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15.

16.
Purchases
a. P644,000

Net income
a. P118,000
b. P654,000

b. P108,000
c. P610,000

c. P142,000
d. none of these

d. none of these

PROBLEM NO. 4
You are engaged to audit Hawaii Corporation which began operations in 2014. The reported net
incomes (or loss) are as follows:
2014: 3,000,000 2015: (1,000,000) 2016: 3,500,000

Your audit disclosed the following:

1) December 31, 2014 inventory understated 120,000
2) December 31, 2016 inventory overstated 210,000
3) December 31, 2014 accrued interest payable understated 40,000
4) December 31, 2016 accrued interest payable overstated 90,000
5) Depreciation for 2015 understated 180,000
6) Depreciation for 2016 overstated 30,000
Advances to supplier were recorded as purchases but
merchandise was received in subsequent year:
7) 2014 30,000
2015 40,000
On January 1, 2015, an equipment costing P40,000 was
sold for P20,000. At the date of sale, the equipment had an
8)
accumulated depreciation of P25,000. The cash received
was recorded as other income
Questions:
Based on the above and the result of your audit, determine the following:
1. The adjusted net income in 2014.
a. 2,840,000 c. 3,110,000
b. 2,870,000 d. 2,990,000
2. The adjusted net loss in 2015.
a. 1,000,000 c. 1,265,000
b. 1,025,000 d. 1,090,000
3. The adjusted retained earnings as of December 31, 2015.

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a. 1,840,000 c. 1,860,000
b. 1,845,000 d. 1,900,000
4. The adjusted net income in 2016.
a. 3,700,000 c. 3,790,000
b. 3,740,000 d. 3,370,000
5. The adjusted retained earnings as of December 31, 2016.
a. 5,580,000 c. 5,215,000

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b. 5,545,000 d. 5,635,000

PROBLEM NO. 5
The I WANT TO HOLD YOUR HAND Company was started by Paul McCartney early in 2016. Initial
capital was acquired by issuing shares of ordinary shares to various investors and by obtaining a

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bank loan. The company operates a retail store that sells records, tapes, and compact discs. Business
was so good during the first year of operations that Paul is considering opening a second store on the
other side of town. The funds necessary for expansion will come from a new bank loan. In order to
approve the loan, the bank requires financial statements.
Paul asks for your help in preparing the balance sheet and presents you with the following
information for the year ending December 31, 2016:
a. Cash receipts consisted of the following:
From customers P360,000
From issue of ordinary shares 50,000
From bank loan 100,000
b. Cash disbursements were as follows:
Purchase of inventory P300,000
Rent 15,000
Salaries 30,000
Utilities 5,000
Insurance 3,000
Purchase of equipment and furniture 40,000
c. The bank loan was made on March 31, 2016. A note was signed requiring payment of
interest and principal on March 31, 2017. The interest rate is 12%.
d. The equipment and furniture were purchased on January 3, 2016, and have an estimated
useful life of 10 years with no anticipated salvage value. Depreciation per year is P4,000.
e. Inventories on hand at the end of the year cost P100,000.
f. Amounts owed at December 31, 2016 were as follows:
To suppliers of inventory P20,000
To the utility company 1,000
g. Rent on the store building is P1,000 per month. On December 1, 2016, four months’ rent was
paid in advance.
h. Net income for the year was P76,000.
Questions:
Based on the above data, compute for the following:
1. Cash
a. 117,000 c. 393,000
b. 167,000 d. 560,000
2. Current Assets
a. 220,000 c. 496,000
b. 270,000 d. 663,000
3. Total Assets

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a. 306,000 c. 532,000
b. 256,000 d. 699,000
4. Current Liabilities
a. 70,000 c. 121,000
b. 100,000 d. 130,000
5. Shareholders’ equity
a. 176,000 c. 411,000

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b. 126,000 d. 599,000

PROBLEM NO. 6
In the audit of Nelia Company cash account, you ascertain the following information: The
bookkeeper’s bank reconciliation at November 30, 2015 was as follows:

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Bank balance – November 30, P 90,800
2015
Undeposited collections 5,000
Bank service charges 100
Bank collection of customer’s ( 8,000)
note
Outstanding checks:
Number Amount
7159 P30,000
7767 5,000
7915 2,000 (37,000)
Book balance – Nov. 30, 2015 P 50,900
Additional data are given as follows:
1) Company recordings for December:
Total collections from customers,
net of the item in # 2 P 165,000
Total checks drawn 98,000
2) NSF checks returned by the bank, recorded as reduction of cash receipts. Returned by bank in
December and recorded also in December P1,800.
3) Bank statement totals for December:
Credits P 171,272
Charges 99,072
4) On the 23rd of December, an NSF check for P472 was returned by the bank. The check was re-
deposited on December 27th and no journal entry was made by Nelia Co. both on the return and
when it was redeposited.
5) Check No. 7159 dated November 25, 2015, was entered as P30,000 in payment of a voucher for
P3,000. Upon examination of the checks returned by the bank, the actual amount of the check
was P3,000.
6) Check No. 8331 dated December 20, 2015 was issued to replace a mutilated check (No. 7767)
which was returned by the payee. Both checks were recorded in the amount drawn, P5,000, but
no journal entry was made to cancel Check No. 7767.
7) The December bank statement included a check drawn by Gahid Company for P1,500.
8) Undeposited collections on December 31, 2015 is P8,000.
9) The service charge for December was P150 which was charged by the Bank to another client.
10) The bank collected a note receivable of P7,000 on December 28, 2015, but the collection was not
received on time to be recorded by Nelia.
11) The outstanding checks on December 31, 2015 are:
Check No. Amount Check No. Amount
7767 P5,000 8906 P2,300

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8555 1,300 8907 4,100

Questions:
Based on the above data, compute for the following:
1. Unadjusted cash in bank balance per books, December 31, 2015
a. P152,800 c. P144,900
b. P125,800 d. P165,700
2. Adjusted cash balance as of November 30, 2015

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a. P85,800 c. P63,800
b. P58,800 d. P90,800
3. Adjusted cash receipts for December 2015
a. P170,300 c. P172,000
b. P182,000 d. P173,800

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4. Adjusted cash disbursements for December 2015
a. P120,150 c. P98,150
b. P99,950 d. P125,150
5. Adjusted cash in bank balance, December 31, 2015
a. P132,650 c. P167,800
b. P164,650 d. P134,650

PROBLEM NO. 7
On January 3, 2020, Cat Company purchased for P250,000 cash a 10% interest in Dog Corp.
On that date the net assets of Dog had a book value of P1,875,000. The excess of cost over
the underlying equity in net assets is attributable to undervalued depreciable assets having
a remaining life of 10 years from the date of Cat's purchase. The investment in Dog Corp.
was designated as FVTOCI. The fair value of Cat's investment in Dog securities is as follows:
December 31, 2020, P285,000; December 31, 2021, P262,500; December 31, 2022,
P1,100,000.
On January 2, 2022, Cat purchased an additional 30% of Dog's stock for P787,500 cash
when the book value of Dog's net assets was P2,075,000. The excess was attributable to
depreciable assets having a remaining life of 8 years. During 2020, 2021, and 2022 the
following occurred:
Dog Net Income Dividends Paid by
Dog to Cat
2020 P175,000 P7,500
2021 200,000 10,000
2022 275,000 35,000
Questions:
Based on the above and the result of your audit, answer the following:

1. The net amount to be recognized in 2020 comprehensive income related to this

investment
A. P7,500 B. P35,000 C. P42,500 D. P60,000

2. The net amount to be recognized in 2021 comprehensive income related to this

investment
A. P10,000 B. (P22,500) C. (P12,500) D. P7,500

3. If the entity used the ‘fair value as deemed cost approach’ in accordance with PIC Q&A No.
2020-06, the carrying amount of the investment in Dog Corp. as of December 31, 2022 is

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A. P1,100,000 B. P1,097,500 C. P1,095,000 D. P1,050,000

4. If the entity used the ‘accumulated cost approach’ in accordance with PIC Q&A No. 2020-
06,the carrying amount of the investment in Dog Corp. as of December 31, 2022 is
A. P1,100,000 B. P1,099,062.50 C. P1,097,500 D. P1,086,562,50

5. In confirming with an outside agent, such as a financial institution, that the agent is

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holding investment securities in the client's name, an auditor would most likely gather
evidence in support of management's financial statement assertions of existence or
occurrence and:
a. Valuation or allocation.
b. Rights and obligations.
c. Completeness.

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d. Presentation and disclosure.

Dictionary is the only place that success comes before work. Hard work is the price we
must pay for success. I think you can accomplish anything if you're willing to pay the
price.
Vince Lombardi

Perfection is not attainable, but if we chase perfection we can catch excellence.

Vince Lombardi

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1. Certified public accountants registered at the time RA9298 took effect shall
A. Take a new set of CPA licensure examinations
B. Automatically be registered as CPAs
C. Renew their certificate of registration
D. Take an oath of profession

2. Statement 1: The dean of the College of Accountancy that exclusively offers the BSA Program must be a
CPA.
Statement 2: The dean of the College of Business, Accountancy and Management shall be a CPA.
Statement 3: The program chair of the BSA program must be a CPA.
A. Only one statement is correct

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B. Only two statements are correct
C. All statements are correct
D. All statements are incorrect

3. Statement 1: The members are appointed by the President of the Philippines

Statement 2: The Commission submits 3 recommendees to the President based on a list of nominees

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Statement 3: 6 nominees for each position will be submitted by PICPA to the Commission
A. Only one statement is correct
B. Only two statements are correct
C. All statements are correct
D. All statements are incorrect

4. Which statement is correct with respect to continuing professional development (CPD) requirements
of members of the accountancy profession?
A. Only members employed in commerce and industry are required to comply with CPD requirements.
B. Only members in public practice are required to comply with CPD requirements.
C. Members, regardless of whether they are in public practice, are required to comply with CPD
requirements.
D. There is no requirement for members to comply with CPD requirements.

5. The organization charged with protecting investors and the public by requiring full disclosure of
financial information by companies offering securities to the public is the:
A. Auditing and Assurance Standards Council
B. Financial Reporting Standards Council
C. Board of Accountancy
D. Securities and Exchange Commission.

6. Which of the following attributes most clearly differentiates a CPA who audits management's financial
statements as contrasted to management?
A. Integrity.
B. Competence.
C. Independence.
D. Keeping informed on current professional developments.

7. Statement 1: A CPA may receive a commission for recommending a particular computer system to an
audit client.
Statement 2: CPAs can advertise the fees only for their nonattest services.
A. Only Statement 1 is correct
B. Only Statement 2 is correct
C. Both statements are correct
D. Both statements are incorrect

8. Contingency fee based pricing of accounting services is:

A. Always strictly prohibited in public accounting practice.
B. Never restricted in public accounting practice.
C. Prohibited for clients for whom attestation services are provided.
D. Considered an act discreditable to the profession.

9. Which of the following is least likely to impair a CPA firm's independence with respect to a nonpublic
audit client in the Laguna office of a national CPA firm?
A. A partner in the Laguna office owns an immaterial amount of stock in the client.
B. A partner in the Cavite office owns 7% of the client's stock.
C. A partner in the Laguna office, who does not work on the audit, previously served as controller for
the audit client.
D. A partner in the Batangas office is also the vice president of finance for the audit client.
10. When a threat to independence arises, an auditor should consider
A. Alternative threats to a lack of independence.
B. Available safeguards to independence.
C. Global independence rules.
D. Required lack of independence approaches.

11. Statement 1: The risk that information is misstated is referred to as information risk.
Statement 2: The risk associated with a company's survival and profitability is referred to as business
risk.
A. Only Statement 1 is correct

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B. Only Statement 2 is correct
C. Both statements are correct
D. Both statements are incorrect

12. Which of the following risks encompasses the risk that a company will not be able to meet its
obligations when they become due is referred to as:

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A. Information risk.
B. Inherent risk.
C. Relative risk.
D. Business risk.

13. The attest function:

A. Is an essential part of every engagement by the CPA, whether performing auditing, tax work, or
other services.
B. Includes the preparation of a report of the CPA's findings.
C. Requires a consideration of internal control.
D. Requires a complete review of all transactions during the period under examination.

14. Statement 1: The auditors are primarily responsible for preparing the financial statements and
expressing an opinion on whether they follow generally accepted auditing standards.
Statement 2: Partners in CPA firms usually have the responsibility for signing the audit report.
A. Only Statement 1 is correct
B. Only Statement 2 is correct
C. Both statements are correct
D. Both statements are incorrect

15. Statement 1: Independent audits of today place more emphasis on sampling than did the audits of
the 19th century. Statement 2: The Philippine Institute of Certified Public Accountants (PICPA) issues
CPA certificates and permits CPAs to practice.
A. Only Statement 1 is correct
B. Only Statement 2 is correct
C. Both statements are correct
D. Both statements are incorrect

16. Which of the following types of services is generally provided only by CPA firms?
A. Tax audits.
B. Financial statement audits.
C. Compliance audits.
D. Operational audits.

17. An operational audit differs in many ways from an audit of financial statements. Which of the
following is the best example of one of these differences?
A. The usual audit of financial statements covers the four basic statements, whereas the operational
audit is usually limited to either the balance sheet or the income statement.
B. The boundaries of an operational audit are often drawn from an organization chart and are not
limited to a single accounting period.
C. Operational audits do not ordinarily result in the preparation of a report.
D. The operational audit deals with pre-tax income.

18. A typical objective of an operational audit is for the auditor to:

A. Determine whether the financial statements fairly present the entity's operations.
B. Evaluate the feasibility of attaining the entity's operational objectives.
C. Make recommendations for improving performance.
D. Report on the entity's relative success in attaining profit maximization.

19. Which of the following is not one of the assertions made by management about an account balance?
A. Relevance.
B. Existence.
C. Valuation.
D. Rights and obligations.

20. Which of the following factors would most likely cause a CPA to decide not to accept a new audit
engagement?
A. Lack of understanding of the potential client's internal auditors' computer-assisted audit techniques.

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B. Management's disregard for internal control.
C. The existence of related party transactions.
D. Management's attempt to meet earnings per share growth rate goals.

21. A predecessor auditor is required to attempt to initiate communication with the successor auditor:
I. Prior to the incoming auditor’s acceptance of the engagement

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II. Subsequent to the incoming auditor’s acceptance of the engagement
A. I only
B. II only
C. Both I and II
D. Neither I nor II

22. Preliminary arrangements agreed to by the auditors and the client should be reduced to writing by
the auditors. The best place to set forth these arrangements is in:
A. A memorandum to be placed in the permanent section of the auditing working papers.
B. An engagement letter.
C. A client representation letter.
D. A confirmation letter attached to the constructive services letter.

23. Statement 1: Audit committees should be made up of the most qualified directors regardless of
whether they are part of management of the company.
Statement 2: In planning an audit, the auditor may decide that it is appropriate to perform substantive
approach to an audit for many small businesses.
A. Only Statement 1 is correct
B. Only Statement 2 is correct
C. Both statements are correct
D. Both statements are incorrect

24. The auditors will not ordinarily initiate discussion with the audit committee concerning the:
A. Extent to which the work of internal auditors will influence the scope of the examination.
B. Extent to which change in the company's organization will influence the scope of the examination.
C. Details of potential problems which the auditors believe might cause a qualified opinion.
D. Details of the procedures which the auditors intend to apply.

25. Which measure of materiality (or both) considers quantitative considerations?

I. Planning
II. Evaluation
A. I only
B. II only
C. Both I and II
D. Neither I nor II

26. The auditors are planning an audit engagement for a new client in a business that is unfamiliar to the
auditors. Which of the following would be the most useful source of information for the auditors during
the preliminary planning stage when they are trying to obtain a general understanding of audit
problems that might be encountered?
A. Client manuals of accounts and charts of accounts.
B. Industry Audit Guides.
C. Prior-year working papers of the predecessor auditors.
D. Latest annual and interim financial statements issued by the client.

27. Statement 1: The auditors' tests of controls are designed to substantiate the fairness of specific
financial statement accounts.
Statement 2: At least a portion of the auditors' consideration of internal control usually is performed at an
interim date rather than at the balance sheet date.
A. Only Statement 1 is correct
B. Only Statement 2 is correct
C. Both statements are correct
D. Both statements are incorrect

28. Statement 1: The relatively low number of types of transactions incurred by small firms makes the
segregation of duties impossible.
Statement 2: In a financial statement audit, CPAs are required to assess the operating effectiveness
of most significant accounting-oriented controls.

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A. Only Statement 1 is correct
B. Only Statement 2 is correct
C. Both statements are correct
D. Both statements are incorrect

29. Which of the following is true about the auditors' consideration of internal control in a financial

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statement audit?
A. The auditors must assess control risk at a level lower than the maximum.
B. The auditors must prepare a flowchart description of internal control for their working papers.
C. The auditors must obtain an understanding of the steps in processing major types of transactions.
D. The auditors must perform tests of controls.

30. Which of the following is most likely to be considered a risk assessment procedure relating to internal
control?
A. Confirm accounts receivable.
B. Perform a test of a control relating to payroll.
C. Take test counts of the year-end inventory.
D. Trace a transaction through the information system relevant to financial reporting.

31. For effective internal control, which of the following functions should not be assigned to the
company's accounting department?
A. Reconciling accounting records with existing assets.
B. Recording financial transactions.
C. Signing payroll checks.
D. Preparing financial reports.

32. Statement 1: The operating system is an example of system software.

Statement 2: Data encryption is an example of data transmission control.
A. Only Statement 1 is correct
B. Only Statement 2 is correct
C. Both statements are correct
D. Both statements are incorrect

33. Internal control is ineffective when computer department personnel:

A. Participate in computer software acquisition decisions.
B. Design documentation for computerized systems.
C. Originate changes in master files.
D. Provide physical security for program files.

34. Which of the following is least likely to be a general control over computer activities?
A. Procedures for developing new programs and systems.
B. Requirements for system documentation.
C. A change request log.
D. A control total.

35. Which of the following is least likely to be tested with generalized audit software?
A. An aging of accounts receivable.
B. A schedule of inventory.
C. A depreciation schedule
D. A computer-operations manual.