CPA REVIEW SCHOOL OF THE PHILIPPINES
Manila
AUDITING February 7, 2025
FIRST PREBOARD EXAMNATION Friday, 1:00PM – 4:00PM
MULTIPLE CHOICE QUESTIONS
1. Which is not true of the intended user?
A. The intended user is the person or class of persons for whom the professional accountant
prepares the report for a specific use or purpose
B. The intended user(s) is (are) always limited to the addressee of the professional
accountant’s report
C. The responsible party may also be one of the intended users
D. The intended user(s) may not be the addressee of the professional accountant’s report
2. Inherent limitations in an audit stem from the following factors except
A. most audit evidence is persuasive rather than conclusive.
B. use of testing.
C. accounting and internal control system limitation.
D. incompetence of an auditor.
3. Which of the following is not among the risk assessment procedures that the auditor should
perform in obtaining an understanding of the entity and its environment, including its internal
control?
A. Inquiries of management and others within the entity
B. Analytical procedures
C. Observation and inspection
D. Confirmation
4. Where internal technical and training resources are unavailable, the firm
A. Violates a basic tenet of quality management regarding capabilities and competence
B. Cannot adequately provide for the professional development needs of its members.
C. Must obtain, within two years, the necessary internal technical and training resources
D. May use a suitably qualified external person for the purpose.
5. The audit procedure that may be helpful in identifying the existence of unusual transactions
or events, and amounts, ratios and trends that may indicate matters that have financial
statement and audit implications is
A. inquiries of management.
B. observation and inspection.
C. confirmation.
D. analytical procedures.
6. A financial statement audit client has an information processing system where all information
is transmitted, processed, and maintained electronically. Because the company has very little
tangible data available, the auditor has decided that it will be impossible to do enough
substantive testing to reduce the risk of material misstatement to an acceptably low level.
What should the auditor do in that situation?
A. Express a qualified opinion or disclaim an opinion.
B. Withdraw from the engagement.
C. Perform additional tests of controls to reduce the risk of material misstatement.
D. Recommend that the client convert a portion of the information processing system to a
manual system so backup documentation can be made available to the auditor.
7. During the course of audit engagement, the CPA needed additional studies and consultation
with experts. This additional study and consultation is deemed to be
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CPA REVIEW SCHOOL OF THE PHILIPPINES (CPAR) - MANILA FIRST PREBOARD EXAMINATION
AUDITING February 7, 2025
A. An unusual practice which should have voided the audit engagement
B. Lack of competence on the part of the CPA
C. An appropriate part of the professional conduct of the audit engagement
D. Undertaken as a responsibility of management
8. Which of the following is not a benefit claimed for the practice of determining materiality in
the initial planning stage of starting an audit?
A. Being able to fine tune the audit work for effectiveness and efficiency.
B. Avoiding the problem of doing more work than necessary (overauditing).
C. Being able to decide early what kind of audit opinion to give.
D. Avoiding the problem of doing too little work (underauditing).
9. Which of the following services provides the lowest level of assurance on a financial
statement?
A. An audit
B. A review
C. Neither service provides assurance on financial statements
D. Each service provides the same level of assurance on financial statements
10. Which of the following factors most likely would lead a CPA to conclude that a potential audit
engagement should be rejected?
A. The details of most recorded transactions are not available after a specified period of time.
B. Internal control activities requiring the segregation of duties are subject to management
override.
C. It is unlikely that sufficient appropriate evidence is available to support an opinion on the
financial statements.
D. Management has a reputation for consulting with several accounting firms about
significant accounting issues.
11. Significant unexpected fluctuations identified by analytical procedures will usually necessitate
a(n)
A. audit report modification.
B. understanding of the client’s internal control.
C. explanation in the representation letter.
D. auditor investigation.
12. Which of the following is a definition of control risk?
A. The risk that a material misstatement will not be prevented or detected on a timely basis
by the client’s internal controls.
B. The risk that the auditor will not detect a material misstatement.
C. The risk that the auditor’s assessment of internal controls will be at less than the
maximum level.
D. The susceptibility of material misstatement assuming there are no related internal control
policies or procedures.
13. When considering internal control, an auditor must be aware of the concept of reasonable
assurance which recognizes that the
A. employment of competent personnel provides assurance that management’s control
objectives will be achieved.
B. establishment and maintenance of internal control is an important responsibility of the
management and not of the auditor.
C. cost of internal control should not exceed the benefits expected to be derived therefrom.
D. separation of incompatible functions is necessary to ascertain that the internal control is
effective.
14. A procedure that involves tracing a transaction from its origination through the company’s
information systems until it is reflected in the company’s financial report is referred to as a(n)
A. analytical analysis.
B. substantive procedure.
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CPA REVIEW SCHOOL OF THE PHILIPPINES (CPAR) - MANILA FIRST PREBOARD EXAMINATION
AUDITING February 7, 2025
C. test of a control.
D. walk-through.
15. An audit engagement letter least likely include:
A. A reference to the inherent limitations of an audit that there is an unavoidable risk that
some material misstatements may remain undiscovered
B. Description of any letters or reports that the auditor expects to submit to the client
C. Identification of specific audit procedures that the auditor needs to undertake
D. Basis on which fees are computed and any billing arrangements
16. When engaged to compile the financial statements of an entity, an accountant is required to
possess a level of knowledge of the entity’s accounting principles and practices. This
requirement most likely will include obtaining a general understanding of the
A. internal control awareness of the entity’s senior management.
B. risk factors relating to misstatements arising from illegal acts.
C. design of the entity’s internal controls implemented.
D. nature of the entity’s business transactions, the form of its accounting records and the
accounting basis on which the financial information is to be presented.
17. During an audit engagement, pertinent data are compiled and included in the audit working
papers. The working papers primarily are considered to be
A. a client-owned record of conclusions reached by the auditors who performed the
engagement.
B. evidence supporting financial statements.
C. support for the auditor’s representations as to compliance with relevant PSAs.
D. a record to be used as a basis for the following year’s engagement.
18. Anauditor uses assessed control risk to
A.evaluate the effectiveness of the entity’s internal controls.
B.identify transactions and account balances where inherent risk is at the maximum.
C.indicate whether materiality thresholds for planning and evaluation purposes are
sufficiently high.
D. determine the acceptable level of detection risk for financial statement assertions.
19. What is the primary means of dealing with risk in planning decisions related to audit evidence?
A. Selection of more effective tests of details of balances.
B. Application of the audit risk model.
C. Establishing a lower preliminary judgment about materiality.
D. Allocating materiality judgment to segments.
20. Which of the following is a function of the risks of material misstatement and detection risk?
A. Internal control
B. Corroborating evidence
C. Quality control
D. Audit risk
21. Inherent risk is _______ related to detection risk and _______ related to the amount of audit
evidence.
A. directly, inversely
B. directly, directly
C. inversely, inversely
D. inversely, directly
22. Which of the following procedures regarding notes payable would an accountant most likely
perform during a review engagement?
A. Confirming the year-end outstanding note payable balance with the lender.
B. Examining records indicating proper authorization of the notes payable.
C. Making inquiries of management regarding maturities, interest rate, and collateral.
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CPA REVIEW SCHOOL OF THE PHILIPPINES (CPAR) - MANILA FIRST PREBOARD EXAMINATION
AUDITING February 7, 2025
D. Documenting control procedures for payment calculations of the notes’ principal and
interest.
23. When discussing control risk (CR) and the audit risk model, which of the following is false?
A. CR is a measure of the auditor’s assessment of the likelihood that misstatements will not
be prevented or detected by internal control.
B. If the auditor concludes that internal control is completely ineffective to prevent or detect
errors, he/she would assign a low value to CR.
C. The relationship between control risk and detection risk is inverse.
D. The relationship between control risk and evidence needed to support account balances
is direct.
24. To provide assurance that each voucher is submitted and paid only once, an auditor most
likely would examine a sample of paid vouchers and determine whether each voucher is
A. supported by a vendor’s invoice.
B. stamped “paid” by the check signer.
C. prenumbered and accounted for.
D. approved for authorized purchases.
25. A consideration of internal control made during an audit is usually not sufficient to express an
opinion on an entity's controls because
A. Weaknesses in the system may go unnoticed during the audit engagement.
B. A consideration of internal control is not necessarily made during an audit engagement.
C. Only those controls on which an auditor intends to rely are reviewed, tested, and
evaluated.
D. Controls can change each year.
26. During an audit of an entity’s financial statements, an auditor should perform tests of controls
to obtain sufficient appropriate audit evidence about the operating effectiveness of relevant
controls if
A. the auditor does not presume that client management has committed fraud.
B. more financial documentation is available through tests of controls.
C. substantive procedures alone cannot provide sufficient appropriate audit evidence.
D. the auditor does not intend to rely on the operating effectiveness of controls.
27. After testing a client's internal control activities, an auditor discovers a number of significant
deficiencies in the operation of a client's internal controls. Under these circumstances the
auditor most likely would
A. Issue a disclaimer of opinion about the internal controls as part of the auditor's report.
B. Increase the assessment of control risk and increase the extent of substantive tests.
C. Issue a qualified opinion of this finding as part of the auditor's report.
D. Withdraw from the audit because the internal controls are ineffective.
28. The most important test of details of balances to determine the existence of recorded accounts
receivable is:
A. tracing details of sales invoices to shipping documents.
B. tracing the credits in accounts receivable to bank deposits.
C. tracing sales returns entries to credit memos issued and receiving room reports.
D. the confirmation of customers’ balances.
29. If an auditor establishes a relatively high level for materiality, then the auditor will:
A. accumulate more evidence than if a lower level had been set.
B. accumulate less evidence than if a lower level had been set.
C. accumulate approximately the same evidence as would be the case were materiality is
lower.
D. accumulate an undetermined amount of evidence.
30. A company sells a product only in the last month of its fiscal year. The company uses
commission agents and pays them 6% of their net sales 30 days after the sales are made.
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CPA REVIEW SCHOOL OF THE PHILIPPINES (CPAR) - MANILA FIRST PREBOARD EXAMINATION
AUDITING February 7, 2025
The agents' sales were P10,000,000. Experience indicates that 10% of the sales are usually
not collected and 2% are returned in the first month of the new year. The auditor would
expect the year-end balance in the accrued commissions account to be
A. P528,000
B. P540,000
C. P588,000
D. P600,000
31. An auditor may achieve audit objectives related to particular assertions by
A. performing analytical procedures.
B. adhering to a system of quality control.
C. preparing auditor working papers.
D. increasing the level of detection risk.
32. The negative form of accounts receivable confirmation request is useful except when
A. internal control surrounding accounts receivable is considered to be effective.
B. a large number of small balances are involved.
C. the auditor has reason to believe the persons receiving the requests are likely to give
them consideration.
D. individual account balances are relatively large.
33. Which of the following is not a related party of an entity?
A. An associate of the entity.
B. Chief executive officer of the entity.
C. A shareholder owning 20% of the ordinary shares.
D. A financial institution providing banking facilities to the entity.
34. A CPA has been engaged to perform review services for a client. Identify which of the
following is a correct statement.
A. The CPA must perform the basic audit procedures necessary to determine that the
statements are in conformity with the applicable financial reporting framework.
B. The financial statements are primarily representations of the CPA.
C. The CPA may prepare the statements from the books but may not assist in adjusting and
closing the books.
D. The CPA is performing an assurance engagement other than an audit of the financial
statements.
35. Audit working papers should not
A. Include any client-prepared papers or documents other than those prepared by the CPA
or his assistant.
B. Be kept by the CPA after review and completion of the audit except for items required for
the income tax return or the permanent file.
C. Be submitted to the client to support the financial statements and to provide evidence of
the audit work performed.
D. Be themselves be expected to provide sufficient support for the auditor’s opinion.
36. AMOR, CPA, is performing a compilation service for Clean and Green Corporation. In the
course of performing compilation procedures, AMOR became aware that some of the
information provided by Clean and Green’s management are incomplete. Client management
refuses to comply with AMOR’s requests for additional information. In this case, AMOR
should:
A. Issue a qualified opinion on the financial statements compiled.
B. Issue an adverse opinion on the financial statements compiled.
C. Issue a disclaimer of opinion on the financial statements complied.
D. Withdraw from the engagement.
37. Which of the following procedures would a CPA ordinarily perform when reviewing the
financial statements of an entity in accordance with Philippine Standards on Review
Engagements (PSREs)?
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CPA REVIEW SCHOOL OF THE PHILIPPINES (CPAR) - MANILA FIRST PREBOARD EXAMINATION
AUDITING February 7, 2025
A. Document whether control risk is assessed at or below the maximum level.
B. Obtain an understanding of the entity’s internal control components.
C. Compare the financial statements with budgets or forecasts.
D. Apply year-end cutoff tests for the sales and purchasing functions.
38. In comparison to the external auditor, an internal auditor is more likely to be concerned with
A. internal administrative control.
B. cost accounting procedures.
C. operational auditing.
D. internal control.
39. Before reducing assessed control risk, the auditor obtains reasonable assurance that the
internal control procedures are in use and operating as planned. The auditor obtains this
assurance by performing
A. tests of details of balances.
B. substantive tests of transaction.
C. tests of controls.
D. tests of trends and ratios.
40. The auditor looks for an indication on duplicate sales invoices to see if the invoices have been
verified. This is an example of
A. a test of details of balances.
B. a test of control.
C. a substantive test of transactions.
D. both a test of control and a substantive test of transactions.
41. Which of the following controls may prevent the failure to bill customers for some shipments?
A. Each shipment should be supported by a prenumbered sales invoice that is accounted for.
B. Each sales order should be approved by authorized personnel.
C. Sales journal entries should be reconciled to daily sales summaries.
D. Each sales invoice should be supported by a shipping document.
42. The purpose of an engagement letter is to
A. document the CPA firm’s responsibility to external users of the audited financial
statements.
B. document the terms of the engagement.
C. notify the audit staff of an upcoming engagement so that personnel scheduling can be
facilitated.
D. emphasize management’s responsibility for approving the audit program.
43. Which is least likely beneficial in adequately planning an audit of financial statements?
A. Assist in coordination of work done by auditors of components and experts.
B. Assist in the selection of engagement team members with appropriate levels of capabilities
and competence.
C. Aid the auditor to identify and resolve potential problems on a timely basis.
D. Aid the auditor to devote appropriate attention to all areas of the audit.
44. Evidence is generally considered appropriate when _________________.
A. it consists of written statements made by managers of the entity under audit.
B. it has the qualities of being relevant, objective, and free from known bias.
C. it has been obtained by random selection.
D. there is enough of it to afford a reasonable basis for an opinion on financial statements.
45. An attitude that includes a questioning mind and a critical assessment of audit evidence is
referred to as
A. due professional care.
B. reasonable assurance.
C. professional skepticism.
D. supervision.
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CPA REVIEW SCHOOL OF THE PHILIPPINES (CPAR) - MANILA FIRST PREBOARD EXAMINATION
AUDITING February 7, 2025
46. Quality management policies and procedures should be relevant, adequate, effective, and
complied with. This statement is most closely associated with the quality management
element of _______________.
A. review
B. supervision
C. monitoring and remediation.
D. relevant ethical requirements.
47. If an auditor is obtaining an understanding of an entity’s information and communication
component of internal control, which of the following factors should the auditor assess?
A. The integrity and ethical values of top management.
B. The philosophy and operating style of management to promote effective internal control
over financial reporting.
C. The classes of transactions in the entity’s operations that are significant to the entity’s
financial statements.
D. The oversight responsibility over financial reporting and internal control by the board or
audit committee.
48. Which of the following services, if any, may a practitioner who is not independent provide?
A. Reviews but not compilations.
B. Compilations but not reviews.
C. Both compilations and reviews.
D. No services.
49. The objective of assurance services is to
A. Improve the firm’s outcomes.
B. Compare internal information and policies to those of other firms.
C. Enhance decision making.
D. Provide more timely information.
50. Which of the following factors most likely would cause an auditor to decline a new
engagement?
A. Failure of management to satisfy the preconditions for an audit.
B. An inability to perform preliminary analytical procedures before assessing control risk.
C. The close proximity to the end of the entity’s fiscal year.
D. An inadequate understanding of the entity’s internal control.
SITUATIONAL
Situation 1
RRR CORPORATION commenced operations on January 1, 2021. The company’s machinery
account is shown below.
Date Particulars Debit Credit Balance
Jan. 1, 2021 Purchase P157,200
120,000
132,000 P409,200
Sept. 30, 2021 Purchase on installment
Payments from Sept. to Dec. 72,000 481,200
Oct. 3, 2021 Freight and installation 6,000 487,200
Dec. 31, 2021 Depreciation P97,440 389,760
2022 Installment payments for acquisition
on Sept. 30, 2021 144,000 533,760
June 30, 2022 Purchase 240,000 773,760
Dec. 31, 2022 Depreciation 154,752 619,008
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CPA REVIEW SCHOOL OF THE PHILIPPINES (CPAR) - MANILA FIRST PREBOARD EXAMINATION
AUDITING February 7, 2025
June 30, 2023 Acquisition – trade in of old machine 150,000 769,008
Dec. 31, 2023 Depreciation 153,802 615,206
Jan. 1, 2024 Sale 71,250 543,956
Dec. 31, 2024 Depreciation 108,791 435,165
Oct. 1, 2025 Sale 24,000 411,165
Dec. 31, 2025 Depreciation 82,233 328,932
a) On September 30, 2021, a machine was purchased on an installment basis. The list price
was P180,000, but 12 payments of P18,000 each were made by the company. Only the
monthly payments were recorded in the machinery account starting with September 30, 2021.
Freight and installation charges of P6,000 were paid and charged to the machinery account
on October 3, 2021.
b) On June 30, 2022, a machine was purchased for P240,000, 2/10, n/30, and recorded at
P240,000 when paid for on July 5, 2022.
c) On June 30, 2023, the machine acquired for P157,200 was traded for a larger one having a
list price of P279,000. Allowance of P129,000 was received on the old machine, the balance
of the list price being paid in cash and charged to the machinery account.
d) On January 1, 2024, the machine acquired on January 1, 2021 with cost of P132,000 was sold
for P75,000. The cost of removal and crating totaled P3,750.
e) On October 1, 2025, the machine purchased on January 1, 2021 was sold for P24,000 cash.
Assume a 5-year useful life for RRR Corporation’s machinery.
51. What is the total amount of gain on the sale/trade-in of the machinery acquired on January
1, 2021?
A. P50,400 B. P40,200 C. P86,850 D. P36,450
52. What is the adjusted balance of the Machinery account on December 31, 2025?
A. P694,200 B. P700,200 C. P705,000 D. P703,950
53. What is the adjusted balance of the Accumulated depreciation on December 31, 2025?
A. P462,240 B. P465,600 C. P457,140 D. P397,740
54. What is the correct total depreciation provision for the years 2021-2025?
A. P734,040 B. P737,400 C. P728,940 D. P669,540
55. The entry to correct the depreciation provision for the years 2021-2025 should include a
debit (credit) to
Depreciation Expense Retained Earnings
A. (P18,492) P79,707
B. P18,492 (P79,707)
C. P75,807 P55,249
D. P75,807 P61,215
Situation 2
DAY LABORATORIES holds a valuable patent (No. 112170) on a device that prevents certain types
of air pollution. DAY does not manufacture or sell the products and processes it develops; it
conducts research and develops products which it patents, and then assigns the patents to
manufacturers on a royalty basis. The history of Patent No. 112170 is as follows:
Date Activity Cost
2015-2016 Research conducted to develop device P1,259,100
Jan. 2017 Design and construction of a prototype 262,800
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CPA REVIEW SCHOOL OF THE PHILIPPINES (CPAR) - MANILA FIRST PREBOARD EXAMINATION
AUDITING February 7, 2025
Mar. 2017 Testing of models 126,000
Jan. 2018 Legal and other fees to process patent application; patent granted
June 2018 186,150
Nov. 2019 Engineering activity necessary to advance the design of the device
to the manufacturing stage 244,500
April 2021 Research aimed at modifying the design of the patented device 129,000
May 2025 Legal fees paid in a successful patent infringement suit against a
competitor 102,000
DAY assumed a useful life of 17 years when it received the initial device patent. On January 1,
2023, it revised its useful life estimate downward to 5 remaining years. Amortization is computed
for a full year if the cost is incurred prior to July 1 and no amortization for the year if the cost is
incurred after June 30. DAY’s reporting date is December 31, 2025.
Compute the carrying value of Patent No. 112170 on each of the following dates:
56. December 31, 2018
A. P175,200 B. P180,675 C. P186,150 D. P293,788
57. December 31, 2022
A. P223,200 B. P131,400 C. P52,560 D. P122,640
58. December 31, 2025
A. P120,560 B. P78,840 C. P52,560 D. P98,550
Situation 3
HARDIN COMPANY has provided information on intangible assets as follows:
• A patent was purchased from City Company for P4,000,000 on January 1, 2024. HARDIN
estimates the remaining useful life of the patent to be 10 years. The patent was carried in
City’s accounting records at a net book value of P4,000,000 when City sold it to HARDIN.
• During 2025, a franchise was purchased from Yaspe Company for P960,000. The contract
which runs for 10 years provides that 5% of revenue from the franchise must be paid to
Yaspe. Revenue from the franchise for 2025 was P5,000,000. HARDIN takes a full year
amortization in the year of purchase.
• The following research and development costs were incurred by HARDIN in 2025:
Materials and equipment P284,000
Personnel 378,000
Indirect costs 204,000
P866,000
HARDIN estimates that these costs will be recouped by December 31, 2028. The materials
and equipment purchased have no alternative uses.
• On January 1, 2025, because of recent events in the field, HARDIN estimates that the
remaining life of the patent purchased on January 1, 2024 is only 5 years from January 1,
2025.
59. What is the total carrying value of HARDIN’s intangible assets on December 31, 2025?
A. P4,864,000 B. P3,744,000 C. P2,880,000 D. P3,681,500
60. What is the total amount of charges against income for 2025?
A. P2,428,000 B. P1,932,000 C. P1,648,000 D. P1,116,000
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CPA REVIEW SCHOOL OF THE PHILIPPINES (CPAR) - MANILA FIRST PREBOARD EXAMINATION
AUDITING February 7, 2025
Situation 4
During May 2023, GUADALUPE, INC. was organized with 900,000 authorized shares of P10 par
value ordinary shares, and 90,000 of its ordinary shares were issued for P990,000. Net income
through December 31, 2023, was P37,500.
On July 3, 2024, Guadalupe issued 150,000 of its ordinary shares for P1,875,000. A 5% share
dividend was declared on October 2, 2024, and issued on November 6, 2024, to shareholders of
record on October 23, 2024. The market value of the ordinary shares was P11 per share on the
declaration date. Guadalupe’s net income for the year ended December 31, 2024, was P105,000.
During 2025, Guadalupe had the following transactions:
1. In February, Guadalupe reacquired 9,000 of its ordinary shares for P9 per share. Guadalupe
uses the cost method to account for treasury shares.
2. In June, Guadalupe sold 4,500 of its treasury shares for P12 per share.
3. In September, each shareholder was issued (for each share held) one right to purchase two
additional ordinary shares for P13 per share. The rights expire on December 31, 2025.
4. In October, 75,000 rights issues were exercised when the market value of the ordinary share
was P14 per share.
5. In November, 120,000 rights issues were exercised when the market value of the ordinary
share was P15 per share.
6. On December 15, Guadalupe declared its first cash dividend to shareholders of P0.30 per
share, payable on January 10, 2026, to shareholders of record on December 31, 2025.
7. On December 21, in accordance with the applicable law, Guadalupe formally retired 3,000 of
its treasury shares and had them revert to an unissued basis. The market value of the
ordinary share was P16 per share on this date.
8. Net income for 2025 was P240,000.
61. What are the balances of the following equity accounts on December 31, 2023?
Ordinary
Share Capital Share Premium Retained Earnings
A. P990,000 P0 P37,500
B. P990,000 P37,500 P0
C. P900,000 P90,000 P37,500
D. P900,000 P37,500 P90,000
62. What are the balances of the following equity accounts on December 31, 2024?
Ordinary
Share Capital Share Premium Retained Earnings
A. P2,520,000 P465,000 P22,500
B. P2,532,000 P465,000 P10,500
C. P2,520,000 P477,000 P10,500
D. P2,532,000 P477,000 P22,500
63. What are the balances of the following equity accounts on December 31, 2025?
Ordinary
Share Capital Share Premium Retained Earnings
A. P6,363,000 P1,660,500 P190,350
B. P6,390,000 P1,663,500 P59,250
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CPA REVIEW SCHOOL OF THE PHILIPPINES (CPAR) - MANILA FIRST PREBOARD EXAMINATION
AUDITING February 7, 2025
C. P6,393,000 P1,657,500 P13,500
D. P6,376,500 P1,650,000 P72,750
64. What amount should be charged to Retained earnings for the cash dividend declared on
December 15, 2025?
A. P191,700 B. P191,250 C. P189,900 D. P120,600
65. What is the treasury shares balance on December 31, 2025?
A. P13,500 B. P40,500 C. P54,000 D. P81,000
Situation 5
On January 1, 2025, IDAHU, INC. issued P100,000, 10%, 10-year bonds when the market rate
of interest was 8%. Interest is payable on June 30 and December 31. The following financial
information is available.
Sales P300,000
Cost of sales 180,000
Gross profit 120,000
Interest expense ?
Depreciation expense (14,500)
Other expenses (82,000)
Net income ?
Dec. 31, 2025 Jan. 1, 2025
Accounts receivable P55,000 P48,000
Inventory 87,000 93,000
Accounts payable 60,000 58,000
All purchases of inventory are on account. Other expenses are paid for in cash.
66. What is the carrying value of the bonds on December 31, 2025?
A. P112,661 B. P100,000 C. P112,233 D. P113,592
67. What is the interest expense for 2025?
A. P4,544 B. P8,641 C. P10,000 D. P9,069
68. How much was paid for inventory purchases?
A. P174,000 B. P172,000 C. P184,000 D. P186,000
69. What is Idahu’s net income for 2025?
A. P13,500 B. P14,859 C. P14,431 D. P23,000
70. How much was received from customers in 2025?
A. P245,000 B. P283,000 C. P293,000 D. P307,000
---END OF EXAMINATION---
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