Auditing Problems

AUDIT OF INVESTMENTS

PROBLEM NO. 1

The following transactions of the Angat Company were completed during the year 2015:

Jan. 2 Purchased 20,000 shares of Bulacan Auto Co. for P40 per share plus brokerage costs of
P4,500. These shares were classified as trading securities.

Feb. 1 Purchased 20,000 shares of Malolos Company common stock at P125 per share plus
brokerage fees of P19,000. Angat classifies this stock as and available-for-sale security.

Apr. 1 Purchased P2,000,000 of RP Treasury 7% bonds, paying 102.5 plus accrued interest of
P35,000. In addition, the company paid brokerage fees of P18,000. Angat classified
these bonds as a trading security.

Jul. 1 Received semiannual interest on the RP Treasury Bonds.

Aug. 1 Sold P500,000 of RP Treasury 7% bonds at 103 plus accrued interest.

Oct. 1 Sold 3,000 shares of Malolos at P132 per share.

The market values of the stocks and bonds on December 31, 2015, are as follows:

Bulacan Auto Co. P45 per

share
Malolos Company P130 per
share
RP Treasury 7% bonds 102

Based on the above and the result of your audit, determine the following:

1. Gain or loss on sale of P500,000 RP Treasury Bonds on August 1, 2015

2. Gain or loss on sale of 3,000 Malolos shares on October 1, 2015
3. What amount of unrealized gain should be shown as component of income in 2015?
4. What amount of unrealized gain should be shown as component of equity as of December 31,
2015?

PROBLEM NO. 2

You were engaged by Balagtas Company to audit its financial statements for the year 2015.
During the course of your audit, you noted that the following trading securities were properly
reported as current assets at December 31, 2005:

Cost Market
France Corporation, 5,000 shares, convertible preferred shares P 450,000 P 487,500
Ces, Inc., 30,000 shares of common stock 675,000 742,500
Coo Co., 10,000 shares of common stock 618,750 450,000
P1,743,750 P1,680,000

The following sale and conversion transactions transpired during 2015:

Mar. 1 Sold 12,500 shares of Ces for P33.75 per share.

April 1 Sold 2,500 shares of Coo for P45 per share.

Sept. 21 Converted 2,500 shares of France’s preferred stock into 7,500 shares of France’s
common stock, when the market price was P78.75 per share for the preferred stock
and P47.25 per share for the common stock.

The following 2015 dividend information pertains to stocks owned by Balagtas:

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Jan. 2 Coo issued a 10% stock dividend when the market price of Coo’s common stock
was P49.50 per share.

March 31 France paid dividends of P2.50 per share on its preferred stock, to stockholders of
and Sept. record on March 15 and September 15, respectively. France did not pay
30 dividends on its common stock during 2006.

July 1 Ces paid a P2.25 per share dividend on its common stock.

Market prices per share of the securities were as follows:

12/31/2015 12/31/2014
France Corp., preferred 92.25 97.50
France Corp., common 42.75 38.25
Ces, Inc., common 22.50 24.75
Coo Co., common 40.50 45.00

All of the foregoing stocks are listed in the Philippine Stock Exchange. Declines in market value
from cost would not be considered permanent.

Based on the above and the result of your audit, you are to provide the answers to the
following:
1. How much is the gain on sale of 12,500 Ces shares?
2. How much is the gain or loss on sale of 2,500 Coo shares?
3. How much is the gain or loss on conversion of 2,500 France preferred stock into 15,000
common stock?
4. How much is the total dividend income for the year 2015?
5. How much should be reported as unrealized gain on trading securities in the company’s
income statement for the year 2015?

PROBLEM NO. 3

You were able to obtain the following ledger details of Trading Securities in connection with your
audit of the Bocaue Corporation for the year ended December 31, 2015:

Particulars Date Ref. DR CR

Purchase of GOOD Co. – 4,000 shares 1-14 CV P 960,000

Purchase of LUCK Co. – 4,800 shares 2-20 CV 1,200,000

Sale of LUCK Co. – 1,600 shares 3-01 CR 360,000

Receipt of GOOD Stock Dividend – Offsetting Credit to 5-31 JV 88,000

retained earnings

Sale of GOOD Stocks – 3,200 shares 8-15 CR 784,000

Sale of GOOD Stocks – 800 shares 10-1 CR 184,000

From the Philippine Stock Exchange, the GOOD dividends were analyzed as follows:

Kind Declared Record Payment Rate

Cash 01-02 01-15 01-31 P20/share
Stock 05-02 05-15 05-31 10%
Cash 08-01 08-30 09-15 P30/share

At December 31, 2015, GOOD and LUCK shares were selling at P210 and P240 per share,
respectively.

Based on the above and the result of your audit, determine the following:
1. Gain or loss on sale of 1,600 LUCK shares on March 1, 2015.
2. Gain on sale of 3,200 GOOD shares on August 15, 2015.

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3. Gain or loss on sale of 800 GOOD shares on October 1, 2015.

4. Dividend income for the year 2015.
5. Carrying value of Trading Securities as of December 31, 2015.

PROBLEM NO. 4

In connection with your audit of the financial statements of the Guiguinto Company for the year
2015, the following Available for Sale Securities and Dividend Income accounts were presented
to you:

Available for Sale Securities

Date Description Ref. Debit Credit
01/08 Purchased 20,000 shares common, par value P50, BUSTOS
Co. VR- 780,000
10,000 shares 69

03/30 BUSTOS Co. received as stock dividend CJ-30 500,000

250,000
04/03 Sold 10,000 shares @ P25 CR-
44 240,000
12/02 Sold 4,000 shares @ P60
CR-
65

Dividend Income
Date Description Ref. Debit Credit
03/30 Stock dividend SJ-8 500,000
08/30 BUSTOS Company CR-52 100,000
common

The following information was obtained during your examination:

1. From independent sources, you determine the following dividend information:

Type of Dividend Date Date of Date of

Declared Record Payment Rate
Stock 02/14/2015 02/28/2015 03/30/2015 50%
Cash 08/01/2015 08/15/2015 08/30/2015 P5/share
Cash 12/01/2015 12/15/2015 01/02/2016 20%

2. Closing market quotation as at December 31, 2015:

Bid Asked
BUSTOS Company common 13-3/4 16-1/2

Based on the above and the result of your audit, answer the following:

1. How much is the gain or loss on the April 3, 2015 sale?

2. How much is the gain on the December 2, 2015 sale?
3. How much is the total dividend income for the year 2015?
4. How much is the adjusted balance of Available for Sale Securities as of December 31, 2015?
5. How much is the Unrealized Loss on AFS as of December 31, 2015?