Accountancy Department

Accountancy Department
College of Business and Accountancy

Notre Dame University

Cotabato City, Philippines

CPA – MOCK BOARD EXAMINATION

AUDITING PROBLEMS MR. RONALD GERMO MAMARIL

INSTRUCTION: Select the correct answer for each of the following questions. Mark only one answer for each item by shading the box corresponding to the letter of your choice on the sheet provided. STRICLY NO ERASURES ALLOWED. Use pencil no. 1 only.

CASE 1: STOCK INVESTMENT IN SAN MIGUEL

1. The Stock Investment showed the following details during year 2008

STOCK INVESTMENT IN SAN MIGUEL

Debit Credit
Jan. 1 Audited balance 4,000shares P80,000
Feb. 28 Cash dividend 2,000
Mar. 31 Bought shares 9,000
Apr. 1 Sale of rights 6,000
June 30 Sale of shares 10,000

1. A cash dividend of P0.50 per share were received on Feb. 28. The adjusting entry (assuming the use of the cost method) is:

a. Stock Investment 2,000 Dividend income 2,000 b. Retained earnings 2,000 Dividend income 2,000 c. Dividend Income 2,000 Stock investment 2,000 d. Cash 2,000 Dividend income 2,000

2. On March 15, stock rights were received entitling shareholders to purchase one share for every five held at P15 per share. Market values on this date were: shares, P20; rights, P5. The adjusting entry to recognize the cost allocated to the rights is:

a. Stock rights 16,000 Stock investment 16,000 b. Stock rights 20,000 Stock investment 20,000 c. Stock rights 10,000 Stock investment 10,000 d. Stock rights 30,000 Stock investment 30,000

3. On March 31, 600 shares were purchased with the partial exercise of these rights. The adjusting entry, after the adjustment in No. 7 above has been given effect, is