AP Investments Quizzer q

I V – AU DI T O F I NVE STM EN TS

PRO BL EM NO .1

Thef ol l owi ngt r ansact i onsoft heAngatCompanywer ecompl e t eddur i ng t he y ear 2006 : Jan.2 Pur c hased 20, 000 shar esofBul acan Aut o Co.f orP40 pershar e pl us b r ok er agecost s o f P4, 500. These are sh s w er e cl assi fied as rad t i ng s ec uri t i es. Fe b.1 Pu r chas ed 20 , 000shar es of Mal ol os om C pan y com mon s t oc k at P12 5 pershar e pl us br oke r ag e f ees of P19 , 000 . A ngat cl ass i fies ht i s st ockas a nd ava i l abl e-f or sa l e se cu ri t y. Apr .1Pur c hasedP2, 000, 000ofRPTr easur y7% bonds,payi ng102. 5pl us accr ued i nt er es t of P35, 000. I n ad di t i on ,t he com pan y pai d br oker agef eesofP18, 000.Angatcl assi fied t hesebondsasa t rad i ng sec uri t y. Jul .1

Rec eve id se mi an nuali nt er es t ont he R P Tr easu r y B on ds.

Aug.1 Sol d P500, 000 ofRP Tr easur y 7% bonds at103 pl us accr ued i nt ere st. Oct . 1

Sol d 3, 000 sh ar es of Mal ol os at P132 persh ar e.

Themar ke tval uesoft hest ocksandbondsonDecember31,2006,ar eas f ol l ows: Bul acanAut oCo. Mal ol osCompany RPTr easur y 7%bonds

P45pershar e P130pershar e 102

QUE STI ONS:

Based ont he ab ove d an t he e rsu l t ofyou r au di t , det er mi ne h te ol fl ow i ng:

n orl ossnosal e of P5 00 , 00 0 RP Tr easu ry B on ds on Augu st1,20 06 1.Gai a. P15, 000gai n c. P2, 000l oss b. P 2, 500gai n d. P7, 500l oss n orl oss on sal e of 3, 000 Mal ol os sh ar es on Oct ob er1, 2006 2.Gai a. P18, 150l oss c. P 2, 000gai n b. P18, 150gai n d. P21, 000gai n

103

3. Whatamountofunreal i z ed gai n shoul d be shown as componentof i nco me n i 20 06 ? a. P92, 500 b. P97, 000

c. P7 4, 50 0 d. P8 0, 00 0

4.Whatamou nt ofunr eal i z ed ai gn shou l d b e show n as om c pon ent of equ i t y as of Dec em ber31,2006 ? a. 8 b .P P6 88 5, , 05 00 0

c. 0000 d .P P66,

Sugg est edSol ut i on : Quest i onNo.1

Sal espr oceeds( P500, 000x1. 03) P515, 000 Le ss cos t ofRP Tr eas ur y bo nd s sol d P (500 , 000x 1. 025) * 512 , 500 Ga i n on sal e ofP500, 000 RPTr easur y Bo nds P 2, 500 * PA S 39 par . 43 st at est hat when a financi al asset or n fi anci al l i abi l i t y i s r eco gni ze d i ni t i al l y, an en t i t y sh al l measu r e i t a t t i s f ai r va l ue pl us, i n t he ca seofa financi al ass etor n fi anci al l i n ao bt i l i t y a tf ai r va l ue t hr ou gh pr ofi t orl os s, t r ansa ct i on cos t s t hat a r e di r ect l y at t r i but abl e t o t he acqu i si t i on or i ss ue of n fi anci al ass et or nan fi ci al l i abi l i t y. Ther ef or e, he tt r ansa ct i on cost s ( e. g.br ok er agef ee s)sh ou l d be ex pen se d f or r a t di ng se cu r i t i es .

Quest i onNo.2

Sa l es pr oceeds ( 3, 000 s ha r es x P132) Lessost c ofsh ar es so l d {[ ( 20, 000x P12 5)+ P19 , 000 ]x 3/ 20} Gai n on sal e of3, 000 Mal ol os sha r es

P396, 000 377 , 850 P 18, 150

Quest i onNo.3

Cost ofBul acan Aut o C o.sh ar es( 20, 000 x 4 P 0)

P

80 0, 00 0

C of P00, Tr eas y 7% on ds P( 2 , 00 , 0d 00 xe 1. 02 5) 2 , 0 0 Cost ost ofR P5 0 00ur R P Tr eb asu r y b on d s 0sol ( se n o. 1 ( ) 55 10 2, , 50 00 0) 2, 337, 500 Tr adi ngsecur i t i es,12/31/06bef or emar kt omar ke t Fai r a vl ue o ft r adi ng sec uri t i es, 12/31/06 ( seeel b) ow 2, 430, 000 Unr eal i ze d gai n onTS t o b e e rp ort edont he S I P 92, 500 Bul acan Aut o C o.( 20 , 00 0x P 45 ) RP Tr eas ur y 7%bon ds P1 (, 50 0, 00 0 x . 1 02 ) Fai r val ueoft r adi ngsecur i t i es,12/31/06

P

90 0, 00 0 1, 530, 200 P2, 430, 000

104 Quest i onNo.4 Cos t ofMal ol os om C pa ny shar es [ ( 20, 000 x P 125) + P19, 000] P2, 519 , 000 Cos tof3, 000 shar essol d( seeno.2) ( 377, 850) AFS,12/31/06bef or emar kt omar ke t 2, 141, 150 Fai r val ue ofAFS , 12 /31 /06( 20, [00 0 -3, 00 0)x P130 ] 2, 21 0, 00 0 Unr eal i z ed gai nAFS, 12 /3 1/0 6t o b e e rport ed n u derSHE P 6 8, 85 0 Answer s:1)B;2)B;3)A;4)A

PRO BL EM NO .2

Youwer eengagedbyBal agt asCompanyt oaudi ti t sfinanci alst at ement sf or t he year 0062 . Dur i ng h te cou r se of you r au di t , younot edt hatt he ol fl ow i ng t r ad i ng secu r i t i es er we p r op er l y re port edascu r r en t asset s a t Decem ber31, 2005: Cos t Fr an ce orpo C r at i on , 5, 000 sh are s, conv er t i bl e pr ef er r ed shar es Ce s,I nc . ,30, 000 sha r es ofcommon st ock Co o Co . ,10, 000 shar es ofcommon s t oc k

Mar ke t

P 4 50, 000 P 4 87, 500 675, 000 742, 500 618, 750 450, 000 P1, 743, 750 P1, 680, 000

Thef ol l owi ngsal eandconv er si ont r ansact i onst r anspi r eddur i ng2006: Mar . 1

Sol d 12, 500 sh ar es of Ces or f P3 3. 75 persh ar e.

Apr i l1

Sol d 2, 500 sh ar es of Coo or f P45 persh ar e.

Sept . 21

Conve r t ed 2, 50 0 shar esofFr an ce’ s pr eer fr ed st oc k n it o 7, 50 0 shar es of Fr an ce ’ s co mmons t oc k, whent he m ar ket pr i cewas P78. 75 per h s ar e f or ht e pr ef er r ed st ockan d P4 7. 25 persh ar e or f t he c om mons t ock.

Thef ol l owi ng2006di vi dendi nf or mat i onper t ai nst ost ocksownedby Bal ag t as: Jan.2Cooi ssueda10% s t oc kdi vi dendwhent hemar ke tpr i ceofCoo’ s com mon st oc k w asP4 9. 50per shar e. Marc h 3 1 Fr an cepai d di vi den ds ofP2. 50 per sh are on t s i pr ef er r ed an d Sept . 30 st ock , t o st ock hol der s ofr ecor d on Marc h 15 an d Sept em ber 15, r esp ect i vel y . Fr an ce di d n ot pay

di vd i en ds ont si c ommons t ock ur d i ng 20 06 . 105

Jul y1

Ces pai d a P2. 25 per shar e di vi dend on i t s common stock.

Mar ketpri ceser p sh ar e o ft he secu ri t i es er we a s ol fl ow s: Fr ance Co r p. ,pr ef er r ed Fr anceCor p. ,common Ces,I nc. ,common CooCo. , common

12/31/2006 12/31/2005 92. 25 97. 50 42. 75 38. 25 24. 75 22. 50 45. 00 40. 50

Al loft hef or egoi ngs t oc ksar el i s t edi nt hePhi l i ppi neSt ockExc hange. Decl i nes nimar ket val ue r f om cos t wou l d notbe con si der ed er pman en t . QUE STI ONS:

Based ont he ab ove d an t he e rsu l t ofyou r au di t , youareo tp r ovi de h te answ er s o t h te ol fl ow i ng: te g an i onsal e of 12, 500Cessha r es ? 1.How much si h a. P112, 500 b. P281, 250

c. P140, 625 d. P 0

te gai n orl oss on sal e of 2, 500 C oo sh ar es? 2.How much si h a. P28, 125gai n c. P28, 125l oss b. P10, 227gai n d. P 0 3.How muchi s h te gai n orl oss on con ve r si onof2, 500 Fr an ce pre f er r ed s t ocknt o i 15 , 000 com mons t ock? a. P 28, 125l oss c. P46, 875l oss b. P129, 375gai n d. P 0 s h te ot taldi vi den d i ncom e or f t he ye ar 20 06? 4.How muchi a. P64, 375 c. P 51, 875 b. P101, 375

d. P364, 375

ou l d be r eport edasunr eal i z edgai n on t r ad i ng secu r i t i es 5. How muchsh i n t he com pan y’ s n i com e s t at em en tf ort he ye ar 20 06? a. P4, 500 c. P59, 250 b. P67, 773 d. P 0 Sugg est edSol ut i on : Quest i onNo.1

Sal es pr oceeds ( 12, 500 shar es x P33. 75) Less CV of Ces sha r es sol d 1 (2 . 5/ 30x P7 42 , 50 0) Gai n on sal eof12, 500 Cesshar es

P421, 875 30 9, 37 5 P112, 500

106 Quest i onNo.2

Sal espr oceeds( 2, 500 shar esx P45) P112, 500 Le ss CV ofCooshar es sol d P (450, 000 x 500/11, 2, 000* ) 102, 273 Gai nonsal eof2, 500Cooshar es P 10, 227 *t ot al numberofsh ar es f a t er10% st ocki vi d den ds 1 ( 0, 000 x 1 . 1)

Quest i onNo.3

Fai r va l ue of pr ef err edst ock ( 2, 500 sh ar es x78 P . 75)P1 96 , 87 5 Less CV o fsha r es conv er t ed P (487, 500 x2. 5/5) 243, 750 Lo ss on onv c er si on f o2, 500 anc Fre pr ef er r ed s har es P 46, 875 Quest i onNo.4

Fr om Fr ance( 5, 000 shar esx P2. 50 x 2) Fr om Ces[ ( 30, 000 -12, 500)xP2. 25) Tot aldi vi dendi ncomei n2006

P25, 000 39, 375 P64, 375

Quest i onNo.5 Tr adi ngsecur i t i es,1/1/06 P1, 680, 000 CV ofCesshar essol d( seeno.1) ( 309, 375) CV ofCooshar essol d( seeno.2) ( 102, 273) CV of Fr anc e pr ef er r ed s har es conv er t ed s ( ee no. 3) ( 243, 750) Cos t of7, 500 r ance F common h s ar es r ecei ved s ( ee no. 3) 196, 875 Tr adi ngsecur i t i es,12/31/06bef or emar kt omar ke t 1, 221, 477 Fai r val ue oft r adi ng se cur i t i es,12 /31 /0 6 s ( eebel ow ) 1, 28 9, 25 0 Un r eal i z ed gai n on t r adi ng secur i t i es P 67, 773

Fr anc e Cor p, .pr ef er r ed ( [ 5, 000 2, -500) x P92. 25] Fr anceCor p.–Common ( 7, 500 x P42. 75)

P 230, 625 320, 625

Ce ,C I nc . ,c c o mmo n[ ( [ 30, 000 - 1 21 , 50 x 22. 50P40. ] 50} 39344, 3, 75250 0 Cos o o. , o mmo n { ( 10, 000 x 1. )0 -) 2, 5P 00] x P1, 289, 250 Fai r va l ue of t rad i ng secu ri t i es, 12/31/06 Answer s:1)A;2)B;3)C;4)A;5)B

PRO BL EM NO .3

You wer eabl et oobt ai nt hef ol l owi ngl edgerde t ai l sofTr adi ngSecur i t i esi n con nect i on wi t h you r au di t oft he B ocau e C or por ai t on f or ht e yearded en December 31 , 200 6:

Par t i cul ar s Pur chaseofGOOD Co.– 4, 000 sh ar es Pu r chase ofLU CK Co.– 4, 800shar es Sal eofLUCK Co.–1, 600 shar es

107 Dat e 114

220 301

Rec ept i ofGOOD St ock i vi Dden d –Offset t i ngCr edi tt or e t ai ned ear ni ngs 531

Ref . CV

CV

DR P960, 000

CR

1, 200, 000

CR

JV

360, 000

88, 000

Sal e o f GOOD St oc ks – 3, 200 shar es

815

CR

784, 000

Sal e o f GOOD St oc ks – 800 shar es

101

CR

184, 000

Fr om t he Ph i l i pp i ne S t ock xc E han ge ,t he G OOD di vd i end s w er e an al yz ed s a f ol l ows: Ki nd Decl ar ed Record Payment Rat e 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 AtDecember31,2006,GOOD andLUCK shar eswer esel l i ngatP210and P240 persh ar e,r esp ect i vel y. QUE STI ONS:

Based ont he ab ove d an t he e rsu l t ofyou r au di t , det erm i ne h te ol fl ow i ng:

n orl oss on sal e of 1, 60 0 LUCK sha r eson Mar ch 1,20 06 1.Gai a. P360, 000gai n c. P40, 000l oss b. P200, 000l oss d. P40, 000gai n 2.Gai n onsal e o f 3, 20 0 GOOD shar esonAugu s t 15 , 20 06 a. P48, 000 c. P16, 000 b. P144, 000 d. P 0

n orl oss on sal e of 80 0 GOOD sha reson Oct ober 1,20 06 3.Gai a. P8, 000gai n c. P 8, 000 l oss b. P24, 000l oss d. P24, 000gai n vi den d i ncom e or f t he ye ar 20 06 4.Di a. P132, 000

c.P212, 000

b. P300, 000

108

d. P

0

5. Carryi ng val ue of Tr ad i ng S ecu r i t i es as Decem of ber31, 2006 a. P768, 000 c. P880, 000 000 d. P768, 000 b. P852, Sugg est edSol ut i on : Quest i onNo.1

S al es r p oceeds Less CV ofsh are s ( sol d, P1 20 0, 000 x 1 , 600/4 , 800) Loss on s al e of1, 600 Luc k sha r es on 3 /1/06

P3 60 , 00 0 40 0, 0 0 0 P 40, 000

Quest i onNo.2

Tot alpr oceeds P7 84 , 00 0 Less di vi dends sol d( 3, 200 shar es x P30) 96, 000 Sal es pr oceeds 688, 000 Less VCofi nves t men t sol d ( P880, 000*x3, 200/4, 400* * ) 640, 000 Gai n o n s al e of3, 20 0 G ood sha r es on 9 /15/ 06 P 48, 000 Com put at i onofadj ust edcost ofGood Co.sh ar es

Tot alcashpai d Less pur c hased di vi dend ( 4, 000 x P20) Adj us t edcos t

P9 60 , 00 0 80, 000 P880, 000 *

* *A f t er10% st ock di vi den d

Quest i onNo.3

Sal es pr oceeds Less VCofi nves t men t sol ( P8 d80 , 00 0 x 00 8/4 , 40 0) Gai n on sal e of800 Good sha r es on 10/1/06

P184, 000 16 0, 00 0 P 24, 000

Quest i onNo.4

Di vi den d n icom e -Decl ar ed u A g. 1 32 , 00 0 ( 4, 4 00sh ar es x30 P)P1 Quest i onNo.5

Goo d C o. [ ( 4, 000 x 1 . 1) - 3, 200 - 800] = 400 x P 21 P0 8 4, 00 0 Lu ck Co. 76 8, 00 0 ( 4, 800 - 1, 600) = 3, 200 x P 240 Car r yi ng al vueof t r adi ngsecur i t i es, 12/31/ 06 P852, 000 Answer s:1)C;2)A;3)D;4)A, 5)B

109

PRO BL EM NO .4

I n con nect i on wi t h you r au di t oft he fi nan ci alst at em en t s of t he G ui gu i nt o Com pan y f or ht e yea r 2 006, t he ol fl ow i ng Avai l ab l e or f al Se S ecu r i t i es n a d Di vi den d n Icom e acc ou nt s w er e pr ese nt ed ot you : Avai l abl ef orSal eSecur i t i es Descr i pt i on Ref .

Dat e

Pur c ha sed 2 0, 00 0 s ha r es com mon, par val ue P5 0, BUST OS Co . 03/3010, 000 har s es BUST OS C o. r ecei ved as st ockdi vi den d 04 /03 Sol d 10 , 00 0 shar es @ P25 12 /0 2S ol d 4 , 00 0 sh ar es@ P6 0

Debi t

Cr edi t

01 /08

Dat e 03/30 08/30

VR69

78 0, 00 0

CJ30 CR44 CR65

50 0, 00 0

Di vi den d I ncom e Descr i pt i on Ref . St ock d i vi dend SJ-8 BUS TOSCo mpany common CR52

250, 000 240, 000

De bi t

Cr edi t 50 0, 00 0 10 0, 00 0

Thef ol l owi ngi nf or mat i onwasobt ai neddur i ngyourexami nat i on:

1.

Fr om i ndep en den t sou r ces, youdet er mi ne h te ol fl ow i ng d i vi den d i nf orm at i on : Typeof Di vi dend St oc k Cash Cash

2.

Dat e Decl ar ed 02/14/2006 08/01/2006 12/01/2006

Dat eof Dat eof Recor d Payment Rat e 02/28/2006 03/30/2006 50% 08/15/2006 08 /30 /20 06 P5 /sha r e 12/15/2006 01/02/2007 20%

Cl osi ng m ar ket qu ot ai t onas at Dece mber31, 2006: BUSTOSCompanycommon

B d 1 3i 3/4

A s k e d 1 6 1 / 2

QUE STI ONS:

Based ont he ab ove d an t he e rsu l t ofyou r au di t , an sw ert he ol fl ow i ng: 1.How muchi s h te gai n orl oss on t he A pr i l 3, 2006 sal e? a. P10, 000l oss c. P140, 000 l oss b. P10, 000gai n d. P 0 s h te g an i ont he D ec em ber 2,20 06sal e? 2.How much i a. P136, 000 c. P84, 000 b. P 96, 000 d. P 0

110 s h te ot taldi vi den d i ncom e or f t he ye ar 20 06? 3.How muchi a. P600, 000 c.P100, 000 b. P800, 000 d. P300, 000 4.How muchi s h te a dj ust edbal an ce of Avai l ab l e or f al Se S ecu r i t i es s a of Dece mber 31, 200 6? a. P290, 000 c.P220, 000 b. P264, 000 d. P416, 000 h i s h te U nr eal i z ed Loss onAFS as of Dec ember 31 , 20 06 ? 5.How muc a. P196, 000 c.P152, 000 b. P 70, 000 d. P 0

Sugg est edSol ut i on : Quest i onNo.1

Sal es pr ocee ds 1 ( 0, 000 sh ar es x25 P ) LessV C ofi nve smen t t sol d ( P780, 000 x 1 0/3 0* )

C a r r y i n g

Lossn o sal e of AFS on4/ 3/ 06 * Af t er50% st ock i vi d den d

Quest i onNo.2

Tot alpr oceeds( 4, 000shar esxP60) Lessvi d di en ds sol d ( 4, 000 sh ar es x50 Px 2 0%) Net sal es r p oceed s LessV C ofi nve smen t t sol d ( P780, 000 x 4 /3 0) Gai n onsal e of AFS on12 /2 /06 Quest i onNo.3 Cashdi vi den ds d ec l ar ed, 8/1 /2 006 ( 20, 000 sh ar esx P 5) Cashdi vi den ds decl ar ed, 12/1 /2 00 6 ( 20 , 00 0 sh ar esx P5 0 x 0% 2) Tot aldi vi dendi ncome

Quest i onNo.4

Shar espur c hased, 1/ 08 Shares ecei r ved asst ock di vi den d Sol d, 4/3 Sol d, 12/2 Bal an ce, 12/31/06 Mul t i pl y by ar mket val ue/sh ar e,12/3 1/0 6

v a l u e o f A F S , 1 2 / 3 1 / 0 6

P1 00 , 00 0

P2 50 , 00 0 26 0, 00 0 P10 , 00 0

P2 40 , 00 0 40 , 00 0 20 0, 00 0 10 4, 00 0 P96 , 00 0

111

20 0, 00 0 P3 00 , 00 0

20, 00 0 10, 00 0 ( 10, 000) ( 4, 000) 16, 00 0 13. 75 P2 20 , 00 0

Not e:Appl i ca t i ongu i dance a p r . 72 ofPA S 39 st at est hat t he appr op r i at e mar ket pr i ce or f aan sse t h el d or i a l bi l i t y t o be i ss ued i s usu al l y t he current bi d pri cea nd, f or n a ass ett o be acqu i r ed or i a l bi l i t y hel d, t he ask i ng pr i ce. Quest i onNo.5

Acqui si t i oncos t CV o f10, 000 sha r es sol d,4/3 ( see no .1) CV o f4, 000 sha r es sol d,12/2 ( see no .2) AFS,12/31/06bef or emar kt omar ke t Fai rval ueofAFS,12/31/06 Unr eal i z ed l osson AFS,12/31/06

P780, 000 ( 260, 000) ( 104, 000) 416, 000 220, 000 P196, 000

Answer s:1)A;2)B;3)D;4)C,5)A

PRO BL EM NO .5

Youraudi toft heBal i uagCor por at i ondi scl osedt hatt hecompanyowned t he ol fl ow i ng secu r i t i es on Decem ber31, 2005: Tr adi ng se cu r i t i es:

Secur i t y Shar es Cos t Mar ke t Sput ni k, I nc. 4, 800 P 7 2, 00 0 P 92, 000 Expl or er , I nc. 8, 000 216, 000 14 4, 00 0 10 % , P100, 000 f aceal v ue , Vanguar dbonds( i nt er estpayabl e semi annual l yon Jan.1 and Jul .1) 79, 200 81, 720 Tot al P367, 200 P317, 720 Avai l abl ef or sal esec ur i t i es:

Secur i t y Scor ePr oduct s Ti r os,I nc. Mi das, I nc. Tot al

Shar es 16, 000 120, 000 40, 000

Cos t 88, 000 P 6 3, 120, 000 480, 000 P4 , 28 8, 00 0

Mar ke t P 720, 000 2, 920, 000 640, 000 P4 , 28 0, 00 0

Hel d t o m at ur i t y:

Cos t 12%, 1, 000, 000 f ace u val e,Di scov er erbon ds ( i nt er es t pay abl e ann ual l y ev er y Dec. 31)

Book val ue

P9 50, 00 0 P9 63 , 00 0

112

Dur i ng 2 006, t he ol fl ow i ng r t an sact i on s occu rr ed : Jan.1

Recei v ei nt er es tont heVanguar dbonds.

Mar .1

Sol d 4 , 000shar es o f Expl or er I nc. s t oc kf orP76, 000 .

May 15

Sol d 1, 600 shar es ofMi das ,I nc. f orP15 per shar e.

Jul y 1

Recei v edi nt er es tont heVanguar dbonds.

Dec.31

Recei v ed i nt er es t on he t D i scover er bond s.

31

Tr an sf er r ed t he D i sco ve r er bon ds o t h te avai l ab l ef or sal e port f ol i o.The b on ds w er e sel l i ng at 101 on t hi s d at e.The bondswer epur c hasedonJanuar y2,2005.Thedi scountwas amort i zed usi ng h te eff ect i ve nt i er est met hod .

Themar ke tval uesoft hes t ocksandbondson December31,2006,ar eas f ol l ows: Sput ni k, I nc. P22pershar e Expl or er ,I nc. P15pershar e 10%Vanguar dbonds P75, 600 Scor ePr oduct s P42pershar e Ti r os,I nc. P28pershar e Mi das, I nc. P18per shar e QUE STI ONS:

Based ont he ab ove d an t he e rsu l t ofyou r au di t , det er mi ne h te ol fl ow i ng: 1. Gai n orl oss on sal e of 4, 000 Exp l orer ,I nc.sh ares onMar ch1, 2006 a. P4, 000l oss c. P32, 000l oss b. P4, 000gai n d. P32, 000 gai n i ze d gai n or oss l on sal e o f 1, 600 Mi das, I nc.sh ar es on May15, 2. Real 2006 a. P4, 800l oss b. P4, 800gai n

c. P1, 600l oss d. P1, 600 ga i n

3. Tot al i nt er est i ncom e or f ht e year06? 20 a.P130, 000 c.P144, 820 b. P125, 560 d. P143, 000

4. The amount t hat shoul d be r epor t ed as unr eal i z ed gai n i n t he st at em en t ofch angesn i equ i t y e rga r di ng r t ansf erofDi scoverer bon ds t o A FS? a. P47, 000 c. P61, 820 b. P32, 180 d. P 0

113

5. Carryi ng va l ue o f Tr adi ng Secu ri t i esand Ava i l abl ef or sa l e secu ri t i esas ofDec em ber31 , 20 06shou l d b e Tr adi ngsecur i t i es Avai l abl ef or sal esecuri t i es a. P241, 200 P5, 733 , 200 b. P301, 200 P4, 723 , 200 c. P241, 200 P5, 762 , 000 d. P301, 200 P5, 720 , 800 Sugg est edSol ut i on : Quest i onNo.1

Sal es pr oceeds P76, 000 Less CV o fsha r es sol d( P144, 000 x 4/8) 72, 000 Lo ss on s al e of 4, 000 Expl or er ,I nc .shar es P 4, 000 Quest i onNo.2

Sal espr oceed s ( 1, 600 sh ar esx P 15) Unr eal i zed gai n on t he sh ares d sol ( P1 6 0, 000x 1. 6/ 40) Tot al

P2 4, 000 6, 400 30, 400

L ss CVo fi s ha r essa so l d( P 64 0 , 0 0 0Mi xd 1a . 6 /4I 0 ) Re ea l i zed ga n on l e of 1 , 6 0 0 s, n c.sh ar es

P

2 5, 6 4 , 80 000

Al t er nat i v ec omput at i on:

Sal espr oceed s ( 1, 600 sh ar esx P 15) Cost ofsh ar es ( sol d80, P4 000x 1. 6/4 0) Real i z ed g ai n o n s al e of1, 60 0 Mi da s,I nc .sha r es Quest i onNo.3

Vanguar dbonds( P100, 000x10%) Di scover er bond s( P963, 000 x 14%* ) Tot ali nt er es ti ncomef or2006

P 1 0, 00 0 134, 820 P1 44 , 82 0

*C om put at i onofeff ect i vei nt er est r at e:

Carr yi ng v au le,12/3 1/0 5 Less car r yi ngval ue ,1/2/05 ( Co st ) Di scountamor t i z at i on f or2005 Addnomi nali nt er es t( P1, 000, 000x12%) Effect i v ei nt er est Di vi de by car r yi ng val ue,1/2/05 Effect i v ei nt er estr at e

P9 63 , 00 0 950, 000 13, 000 120, 000 133, 000 950, 000 14%

P2 4, 00 0 19 , 200 P 4, 80 0

114 Quest i onNo.4 Carr yi ng v au le,12/3 1/0 5 P 9 63 , 00 0 Adddi scountamor t i z at i oni n2006: Effect i v e nt ier est ( P963, 000 x 14% ) P134, 820 Nomi na li nt er es t( P1 , 00 0, 00 0 x 2% 1 ) ( 12 0, 00 0) 14 ,82 0 Cai ar r y i ng v al ue , 1 2/ 31/06 F r val u e of Di scover erbon ds on 12/31/06( P1, 000, 000x1. 01) Unreal i zed ga i n on t ran sf er of sec uri t i es t ober epor t edunderSHE

977, 820 1, 010, 000 P 32, 180

Quest i onNo.5

Tr adi ngsecur i t i es Sput ni k, I nc.( 4, 800 x P 22) Ex pl or er ,I nc.[ ( 8, 000 -4, 000)x P15] 10% ,P100, 000 a fce val ue,Va ng ua r d b ond s Tot almar ke tval ue Avai l abl ef or sal esecur i t i es Scor ePr oduct s( 16, 000 xP42) Ti r os,I nc.( 120, 000xP28) Mi das,I nc.[ ( 40, 000 -1, 600)x P18] Di scover er bond s( P1, 000, 000 x 1. 01) Tot almar ke tval ue

P1 05 , 60 0 60, 000 75, 600 P2 41 , 20 0 P 6 72, 000 3, 360, 000 691, 200 1, 010, 000 P5, 733, 200

Answer s:1)B;2)B;3)C;4)B,5)A

PRO BL EM NO .6

I n con nec t i on wi t h you r au di t ofHogon oy om C pan y’ s fi nan ci alst at em en t s, y ou we r el a e t or g a t hert h e f ol l ow i n g su bsi di ar y acc ountw0 h6 i c hr eflectt he market ab ebl secu i t i es of t h e com p an y or f h t e year 20 : HugoCor p. Shar es 40, 000

Dat e 9/01

Tr ansact i ons Pur chase

9/30

Ca sh d i vi dends t o st oc khol ders of r eco rd 9/15, decl ar ed8/15

10/01

Pur chase

10/15

Sal eat P65

Debi t P2, 000, 000

Cred i t

P 100, 000

10 0, 00 0 40, 000

5, 000, 000 2, 000, 000

115

HugoCor p. Dat e Tr ansact i ons Shar es 11/30Cashcol l ect edf or sal e mad e on11 /1 0,af t era 11/1 decl ar at i onofP5 cash di vi den d persh ar e t o st ock hol der s o n r ecord as of 12/1 40, 000 12/ 15

Cash di vi de nd e r cei v ed Tot al s

Debi t

Cr edi t

6, 600, 000 .

P7, 000, 000

30 0, 00 0 P9, 000, 000

Hogon oy ,I nc.acqu i r ed 0 3 % ofPugo orporat C i on ’ s vot i ng st ock onJan uary 1,20 05 f or P5, 00 0, 00 0.Dur i ng 2 00 5,Pu go ear ned P2 , 00 0, 00 0 an d pai d di vi den ds of P1, 250, 000. Hogon oy’ s 3 0% i nt er est i n Pugo ves gi Hogon oy ht e ab i l i t y t o exer ci sesi gn i fican ti nfluen ceoverugo’ Ps op er ai t ng an d finan ci al pol i ci es . D ur i ng 20 06 , Pu go ear ned P2 , 50 0, 00 0 an d pa i d di vi den ds of P750, 000on Apr i l 1 andP750, 000on Oct obe r 1.On Jul y 1,2006, Hogo noy sol d hal f ofi t s n i ves t men ti n Pugo or f P3, 300, 000 cash .

QUE STI ONS: Based ont he ab ove d an t he e rsu l t ofyou r au di t , an sw ert he ol fl ow i ng:

nonsal eof40, 000shar esofHugoCor p.onOct ober15i s 1.Thegai a. P628, 600 c.P 600, 000 b. P700, 000 d. P2, 057, 000 nonsal eof40, 000shar esofHugoCor p.onNovember10i s 2.Thegai a. P4, 400, 000 c. P2, 000, 000 b. P4, 800, 000 d. P4, 600, 000 3.The carryi ng val ue oft he Company’ si nvest ment i n Hugo Corp.on Dece mber 31 , 20 06i s a. P2, 700, 000 c. P2, 400, 000 b. P2, 000, 000 d. P3, 000, 000 4.Thegai nonsal eofi nv est me nti nPugoCor p.i s a. P1, 312, 500 c. P687, 500 b. P 537, 500 d. P612, 500

5. The carryi ng val ue oft he Company’ si nvest menti n Pugo Cor p.on Dec em ber31 , 20 06i s a. P2, 612, 500 b. P2, 762, 500

c. P2, 687, 500 d. P1, 98 7, 500

116 Sugg est edSol ut i on : Quest i onNo.1

Sal es pr oceeds ( 40, 000 shar es x P65) Less st co ofi nvest men t sol d: Cash ai p d P2, 000, 000 Lesspur chased di vi dend Gai n on sal e

100, 000

P2, 600, 000

1, 900, 000 P 700, 000

Quest i onNo.2

Tot alpr oceeds P6, 600, 000 20 0, 00 0 Less vi di den ds sol d ( 40, 000 sh are s x 5 P ) Sal es pr oceeds 6, 400, 000 Less st co ofi nvest men t sol d 2, 000, 000 ( P5 , 00 0, 00 0 x40 /1 00 ) Gai n onsal e of 40, 000 sh ar esofHugo or Cp. , 11/1 P4 0, 400, 000 Quest i onNo.3

Acqui si t i oncos t ,10/1 pur c hase see n2) Lessost c ofi nves t men t sol d on1( 1 /10 o. Gai n o n s al e of3, 20 0 G ood s ha r es on 9/ 15 /06

P5, 000, 000 2, 000, 000 P3 , 000 , 000

Quest i onNo.4

Pr oceedson sal eofi nves t me nt Lessarr cyi ng am ou nt ofi nves t men t sol d: P5, 000, 000 Acqui si t i oncost ,1/1/05 Shar e n i neti ncom e or f 2005 ( P2, 000, 000x30%) 600, 000 Di vi den ds e rcei vedn i 2005 ( P1, 250, 000x30%) ( 375, 000) Ca r r yi ng val ue,12/31/05 5, 225, 000

P3, 300, 000

Shar e n i ne ti nco me u pt o 7/ 1/ 06 ( P2, 500, 000 x 6/12 x 30%) 375, 000 Di vi den ds e rce i ve d up t o 7 /1 /0 6 ( P750, 000x30%) ( 225, 000) Car r yi ng val ue,7/1/06 5, 375, 000 Mul t i pl y by 1/2 2, 687, 500 Gai n on sal e P 612, 500 Quest i onNo.5

Car r yi ngval ue,7/1/06 P5, 375, 000 Les s car r yi ng amou nt ofi nve s t ment sol d s ( ee no.4) 2, 687 , 500 Gai n o n s al e of3, 20 0 G ood s ha r es on 9/ 15 /06 P2 , 687 , 500

117

Not e:Si nce he t cl i en t ' s eq ui t y was ed r uced t o 1 5%, i t was a ssu med t hat t he cl i en t ost l t siabi l i t y t o exe r ci se si gn i fica nt n i fluen ce. u Th s, he t i nve smen t t wi l l be a cc ou nt edf orusi ng cost met hodf r om 7/1/0 6. Change r om f equ i t y t o cost met hodi s accou nt edf or curr en t l y and pr os pect i vel y.

Answer s:1)B;2)A;3)D;4)D,5)C

PRO BL EM NO .7

TheMar i l aoCompanyhast hef ol l owi ngt r ansact i onsi nt hes t ocksoft he St a.Mar i a C or p.

a) On Jan uar y 2,19 99,Mar i l ao pu r chas ed 4, 00 0 shar es ofP1 00 par val uecommons t oc katP110pershar e. a.Mar i aCor p.wasexpandi ngand on Mar c h 2,2000,i ti ssued b) TheSt st ockr i gh t s t o i t s st ock hol der s. Th e hol der needs f ou r r i gh t s t o pu r c hase e onsh ar e of co mmon s t oc k atpa r . Th e mar ket val ue of t he s t oc k on t hatdat e w as 1 P 40 persh ar e.Th er e w as o n qu ot edpr i ce or f t he r i gh t s.No j ou r nalen t ry was mad e t o r ecor d t he r ece i pt of t he ri ght s.

c) On Apri l 2, 2000, Mari l ao exerci sedal li t s st ockri gh t s.The n Ivest men t i n St ock ccou a nt was ch ar gedor ft he am ou nt pai d. i nson , Mari l ao’ s accou nt an t ,f el t h tat ht e cash pai d f or t he new d) Rob sh ar es as w mer ey l an asses sm en t si nce M ari l ao’ s p r op ort i on at e sh ar e i n St a.Mari a wasnotch an ged. Hen ce, he cr ed i t edal l di vi den ds 5 ( % i n Dece mber of each year )t o t he I nve smen t ti n St ockaccou nt unt i lt he deb i t was u fl l y o ffset .

e) Mar i l ao r ec ev i ed a 50 % s t oc k di vden i d f r om St a.Mar i a i n Dec em ber 20 04 . B ec au se t he shar es r ec ev i ed wer e ex pect ed t o be sol d, h t e com pan y’ s p r esi den ti nst r uct edRob i nsonnott o mak e an y en t ry or f ht i s di vi den d. The com pan y di d se l lt he d i vi den d sh ar es niJa nuary 005 2 f or P1 50 persh are . The p r oceed s r f om t he sal e w er e cr ed i t edt o n icom e.

f) I n Decem ber2005, St a. Mar i a’st ock s w er e sp l i t on a w tof or on e b asi s an d t he n ew sh ar es er we ss iuedas o n p ar h s ar es . Mar i l ao ou fnd t hat eac h new shar e w as o wr t h P1 0 mor e h tan t he P1 10 per shar e or i gi nal acqu i si t i on cos t . F or t hi s r eason , Mari l ao deci ded t o debi t t he I nve smen t t n i St ockaccou nt w i t h t he ad di t i on alsh ar es r ec eve id at P110 persh ar e an d cr ed i t edr even ue or f t . i

118

g) I n Augu st2006, Mari l aosol d on e h al f( ½) ofi t s h ol di ngs niSt a.Mari a at P1 20 per h s ar e.The pr ocee ds wer e cr edi t ed t o t he I nve smen t t i n St ock accou nt . Mar i l aouseshe t aver age m eh todi n r ecor di ng h te sa l e of i t s n i vest men ti n stock. QUE STI ONS:

1. The cost ofi nvest men tt o b e al l oca t edt o st ock ri gh t s e rcei ved on Mar ch 2, 2000 i s a. P 0 c. P3 1, 42 9 b. P29, 333 d. P2 5, 14 3 ust edbal anceofI nves t menti nSt a.Mar i as t ockonDecember 2. Theunadj 31, 2006 i s a. P940, 000 b. P490, 000

c. P3 90 , 00 0 d. P4 30 , 00 0

3.Theadj us t edbal anceofI nv es t menti nSt a.Mar i as t oc konDecember 31, 2006 i s a. P135, 000 b. P360, 000

c.P180, 000 d. P270, 000

nont hesal eofst oc kdi vi dendr ecei v edi nDecember2004i s 4.Thegai a. P100, 000 c. P80, 000 b. P105, 000 d. P195, 000 nonsal eoft heshar essol di nAugus t2006i s 5.Thegai a. P240, 000 c.P120, 000 b. P420, 000 d. P870, 000 Sugg est edSol ut i on : Quest i onNo.1

Cost al l oca t edt o st ock r i gh t s P ( 10* /P150 x P 440, 000) P2 9, 33 3 Si ncet he MV of i ght rs i s not avai l ab l e we must om cpu t e f or he t t heo r et i ca l va l ue of he t st ock r i ght s.Si ncet he mar ketva l ue of he t st ock gi veni s on t he dat e ofi ssu anceoft he st ock r i gh t s,t he mar ketva l ue i s con si deredxr “e i ght s”.

Theor e t i calval ueofst ockr i ght s=MV ofs t ockexbs.pri ce ri ght s – su Numberofr i gh t s o t p ur ch ase 1 ar sh e

=( P 14 0 - P10 0) /4 = P10*

119 Quest i onNo.2 Deb i t s o t n Ives t men t accou nt : Pu r c hase , 1/ 2/ 99 ( 4, 000 sh ar es x 10 P1 ) P4 40 , 00 0 Exerci se of ri gh t s,4/2/0 ( 4, 000 0/ 4x P 10 0) 10 0, 00 0 St ock spl i t ,12/2005 ( 5, 000 x P110) 550, 000 P1, 090, 000 Less ed cr i t s o tcei I n vest men t acco unt : Di vi den d s e r ved, 200 02 003 ( 5, 000xP100x5% x4) Sal e,8/2006 ( 5, 000 shar es x P120) Bal an ce , 12 /3 1/ 06per book s

100, 000 600, 000 P

700, 000 3 90 , 00 0

Quest i onNo.3

Pur c hase, 1/2/1999 Recei ptofst ockr i ght s,3/2/2000 Bal ance Exer ci se of r i gh t s,4/2/200 0 ( see el ow b)

Cost / Shar es shar e Tot alcos t 4, 000 P110 P4 40 , 00 0 ( 29, 333) 4, 000 103 410, 667 1, 000 129 129, 333

Bal ance 50% s t oc k di vi dend,12/2004 Bal ance Sal e ofs t ock di vi dend,1/2005 Bal ance St oc kspl i t ,12/2005 Bal ance Sal e, 8/2006 Adj us t edbal ance,12/31/06

5, 000 108 540, 000 2, 500 7, 500 72 540, 000 ( 2, 500) 72 ( 180, 000) 5, 000 72 360, 000 5, 000 10, 000 36 360, 000 ( 5, 000) 36 ( 180, 000) 5, 000 36 P180, 000

Cash pai d ( 4, 00 0/ 5 xP1 00 ) Cost of s t oc kr i ght s Tot alcost

P 8 0, 00 0 29, 333 P1 29 , 33 3

Quest i onNo.4

Sal es pr oceeds ( 2, 500 shar es x P150) Less cos tofi nvest mentsol d( see no .3) Gai n o n s al e ofst oc k d i vi dendr ecei v ed

P375, 000 180, 000 P195, 000

Quest i onNo.5

Sal es pr oceeds ( 5, 000 shar es x P120) Less cos tofi nvest mentsol d( see no .3) Ga i n on sal e ofi nv est menti n 8/2006 120

P600, 000 180, 000 P420, 000

Answer s:1)B;2)C;3)C;4)D,5)B

PRO BL EM NO .8

Mey cau ayan I nc.acqu i r ed 0 5 , 000 sh ar es of AAA st ockor fP5 persh ar e an d 12 5, 00 0 shar es of BBB s t oc k f orP1 0 per shar e onJan uar y 2 , 20 05 . Bot h AAA I nc.and BBB Cor p.hav e 500, 000 shar es ofnoparcommon s t ock ou t st an di ng.Bot h se cu r i t i es ar e bei ng hel d as l on g t er m i nve smen t t s. Chan ge s n i r e t ai ned ear ni ngs or f AAA an d BBB f or20 05 an d 20 06 ar e as f ol l ows:

Re t ai ne d ear ni ngs ( defici t ) ,1/1/05 Cashdi vi dends,2005 Ne t i ncome, 2005 Re t ai ned ear ni ngs,De cember31,2005 Cashdi vi dends,2006 Ne t i ncome, 2006 Re t ai ne d e ar ni ng s,December 31 ,200 6

AAA,I nc. BBB Cor p. P1, 000, 000 ( P175, 000) ( 125, 000) 200, 000 325, 000 1, 075, 000 150, 000 ( 150, 000) ( 50, 000) 300, 000 125, 000 P1 , 22 5, 00 0 P 2 25 , 00 0

Ma r ke tval ueofs t oc k:12/31/05 12/31/06

P7. 00 6. 50

P12. 00 15. 00

QUE STI ONS:

Based ont he ab ove d an t he e rsu l t ofyou r au di t , an sw ert he ol fl ow i ng: ncomef r om i nves t menti nAAA,I nc.i n2006i s 1.Thei a. P15, 000 c. P12, 500 b. P 1, 000 d. P 0 ncomef r om i nves t menti nBBB,I nc.i n2005i s 2.Thei a. P31, 250 c. P2, 500 b. P81, 250 d. P 0 r yi ngval ueofI nves t me nti nAAA,I nc.asDecember31,2006i s 3.Thecar a. P250, 000 c.P325, 000 b. P350, 000 d. P252, 500 4.Thecar r yi ngval ueofI nves t me nti nBBB,I nc.asDecember31,2006i s a. P1, 250, 000 c. P1, 875, 000 b. P1, 268, 750 d. P1, 350, 000 5.How much i s h te u nr eal i ze d gai n or oss l hat t wi l l be n icl uded as com pon en t ofequ i t y as of Dec em ber31 , 20 06? a. P75, 000gai n c. P25, 000gai n b. P25, 000l oss d. P 0

121

Sugg est edSol ut i on : Quest i onNo.1 Meyca uaya n, I nc.ow ns 1 0% ( 50, 000/5 00, 000) ofAAA, I nc.st oc k; t her ef or e, t he cost met hodi s u sed and t he d i vi den d i s com put edas ol fl ow s:

Di vi d en d s pa i d by AAA, I nc.i n 2006 Mu l t i pl y b y %o w ner shi p I ncom e r f om i nve smen t ti n AAA, I nc.i n 2006

P1 50 00 0 1 0, % P 1 5, 00 0

Quest i onNo.2 Meyc auayan , n Ic . o wns 25% ( 125 , 000/5 00, 000) of BBBCor p. t s oc k; t her eor fe,t he eq ui t y met hodi s u se d t o ecor r d t he n i com e ea r ned .

AAA,I nc.ne ti ncomei n2005 Mul t i pl y by %owner shi p I ncom e r f om i nves t ment i n BBB Cor p. i n 20 05

P3 25 , 00 0 25% P 8 1, 25 0

Quest i onNo.3 I nve smen t ti n AAA, I nc.st ockwi l l be cl ass i fiedas ava i l abl ef or sa l e se cu r i t i es si ncet he sh ar esar e hel d as l on g t er m i nvest men t and t her e i s r el i abl e f ai r va l ue.Ther ef or e,t he car r yi ng va l ue as of12/31/ P 0 3 6 25 i , s 000 5 ( 0, 000 sh ar es x6. P 50) .

Quest i onNo.4

P1, 250, 000 Acqui si t i oncos t( 125, 000shar esxP10) Sha r ei n ne ti nc ome f or 20 05( P3 25 , 00 0 x25 %) 81 , 25 0 Car r yi ngval ue,12/31/05 1, 331, 250 Di vi de nd sr ecei ved n i 2 00 6 P (5 0, 00 0 x25 %) ( 12 , 50 0) Sha r ei n ne ti nc ome f or 20 06( P1 25 , 00 0 x25 %) 31 , 25 0 P1, 350, 000 Carr yi ng v au le,12/3 1/0 6 Quest i onNo.5

25 , 00 0 Fai r val ue,12/3 1/0 6 ( 50, 000 sh ar es x6. P 50) P 3 Acqui si t i oncos t( 50, 000shar esxP5) 250, 000 Unr eal i z edgai n,12/31/06 P 75, 000 Answer s:1)A;2)B;3)C;4)D,5)A

122

PRO BL EM NO .9

On Janu ar y 2 , 20 04, Nor z ag ar ay om C pan y acq ui r ed 20% oft he 40 0, 00 0 shar es ofou t s t an di ng common st oc k ofI maw Cor por at i on f or P3 0 per sh are . The pu r ch ase r i ce p as w equ alt o maw I ’ s u nder l yi ng b ookval ue. Norzaga r aypl ans o t h ol d t hi s st ock t o n ifluen ce ht e a ct i vi t i es f oI maw . Thef ol l owi ngdat aar eappl i cabl ef or2004and2005: I maw di vi dends( pai d Oct .31) I mawear ni ngs I maw s t ockmar ke tpr i ceatyear end

2004 P 40, 000 140, 000 32

2005 P 48, 000 160, 000 31

On Jan uar y 2,20 06,Nor z ag ar ay o Cm pan y sol d 20, 00 0 shar es of I maw st oc k f or 31 P per shar e. D ur i ng 20 06 , maw I r epor t ed ne t n icome of P1 20 , 00 0,an d on Oct ober 31, 20 06 ,I maw pai d di vden i ds ofP2 0, 00 0.At Decem ber31, 2006, af t era si gn i fican t st ockdecl i ne,whi ch i s exp ect ed t o bet empor ar y ,I maw’ ss t oc kwassel l i ngf orP22pershar e.Af t ersel l i ngt he 20, 000 sh ares, Norz aga r ay oes d ot nexp ect t o exerc i se gn si i fican ti nfluen ce over maw I, and t he sh ar es r a e cl assi fiedas ava i l abl e or f sa l e. QUE STI ONS:

Based ont he ab ove d an t he e rsu l t ofyou r au di t , det er mi ne h te ol fl ow i ng:

yi ng val ue of I nve sm ten ti n I maw as of Dec ember31 , 2004 1.Carr a. P12, 020, 000 c. P2, 420, 000 b. P 2, 500, 000 d. P2, 388, 000 2.Carr yi ng val ue of I nve sm ten ti n I maw as of Dec ember31 , 2005 a. P2, 442, 400 c. P12, 042, 400 b. P2, 612, 000 d. P 2, 372, 000

n orl oss on sal e of I nve st men ti n I maw on Ja nuary 2, 20 06 3.Gai a. P2, 390, 600l oss c. P33, 000 l oss b. P 9, 400gai n d. P27, 000gai n 4.Thei ncomef r om i nves t menti nBBB,I nc.i n2005i s a. P 3, 000 c. P4, 000 b. P24, 000 d. P 0 i zedl oss on avai l ab l e f or sa l e secu r i t i esasofDecem ber 1 3 , 5. Netunreal 2006 a. P671, 800 b. P511, 800

c. P6 39 , 00 0 d. P4 59 , 00 0

123 Sugg est edSol ut i on : Quest i onNo.1

Acqui si t i oncos t( 400, 000x20% xP30) Di vi dends r ecei v ed( P40, 000 x 20%) I nv est menti ncome ( P140, 000 x 20%) Carr yi ng v au le,12/3 1/0 4

P2, 400, 00 0 ( 8, 000) 28, 000 P2, 420, 00 0

Quest i onNo.2

Carr yi ng val ue,12/31/04 ( see no.1) Di vi dends r ecei v ed ( P48, 000 x 20%) I nv est menti ncome ( P160, 000 x 20%) Carr yi ng v au le,12/3 1/0 5

P2, 420, 00 0 ( 9, 600) 32, 000 P2, 442, 40 0

Quest i onNo.3

Sal espr oceeds( 20, 000 xP31) Less rr ca yn ig va l ue of i nvest men t sol d ( P2, 442, 400x20/80) Gai nonsal eofi nv est ment

P620, 000 610, 600 P 9, 400

Quest i onNo.4

Di vi dend i ncome( P20, 000 x 15%* )

P3, 000

*[ 20% - ( 20, 00 0/4 00, 000 x 1 00%) ]

Quest i onNo.5

Car r yi ngval ue,12/31/05 P2, 442, 400 Less car r yi ng val ue ofi nv est mentsol d 610, 600 Car r yi ng v au le, 12/31 /06 bef - or er ecl as si fic at i on 1, 831, 800 Fai r val ue of AFS, 12 /3 1/0 6[ ( 80 , 00 0 - 20 , 00 0)x P2 2] 1, 32 0, 00 0 Unr eal i ze d l oss on AFS P 5 11 , 80 0 Answer s:1)C;2)A;3)B;4)A,5)B

PRO BL EM NO .10

You wer e abl et o gat her t he f ol l owi ng i n connect i on wi t h your audi tof Oban do,nc I . O n December 31 , 2005 , O ban do r epor t ed t he f ol l ow i ng ava i l abl ef or sa l e se cu ri t i es :

124 Cost

Mar ket

Unr ea l i zed l oss

ERAP Cor p, .10 , 00 0 shar es ofco mmon st oc k ( a 1% i nt er es t ) P 250, 000 P 220, 000 GMA Cor p, .20 , 00 0 sh ar es ofco mmon st oc k ( a2% i nt er es t ) 320, 000 300, 000 FVR Cor p. , 50, 00 0 sh ar esof common t s oc k ( a10% i nt er est ) 1, 400, 000 1, 350, 000 Tot al P1, 970, 000 P1, 870, 000

P 3 0, 00 0 20, 000

50, 000 P1 00 , 00 0

Addi t i onali nf or mat i on:  

On Apr i l 1,20 06 , ERAP i ssued 10 % s t oc k di vi den d when t he mar ke t pri ce f oi t s st ock was P 24 persh ar e. On Sept em ber15, 20 06, ERAP pa i d cash di vi den d ofP0. 75 persh ar e.



On Augu st30, 2006, GMA i ssu ed t o al l sh ar eh ol der s,st ockr i gh t s on t he basi s ofon e r i gh t per are sh . Mar ketpr i ces ta da t e ofi ssu e wer e P13. 50 per h s are of st ockan d P1. 50 per i gh rt . Oban do sol d al lr i gh t s onDec em ber1, 2006 f ornetpr ocee ds of P37, 600.



On Ju l y 1, 20 06 , Oban do pai d P3 , 04 0, 00 0 f or 10 0, 00 0 add i t i on al shar es of FV R Cor p’ . s com mon s t oc k whi c h r epr esent ed a 20% i nvest men ti n FVR. The a f i r val ue o f al l ofFVR’ s d i en t i fiabl e a sset s n et ofl i ab i l i t i eswas equ alt o t hei r carryi ng amou nt ofP12, 700, 000. As a r es ul t oft hi s r t an sact i on , Oba ndo ow ns 3 0% ofFVR an d canex ec rse i si gn i fica nt i nfluen ce over FVR’ s op er at i ng a nd finan ci al pol i ci es.



Oban do’ s n i i t i al10% i nt er es t of50, 000 sh are s of FVR’ s com mon st ock wasacqui r edonJanuar y2,2005f orP1, 400, 000.Att hatdat e,t hene t ass e t s of FV R t ot aed l P1 1, 60 0, 00 0 an d t he f ai r val ues of FV R‘ s i den t i fiabl e a ssets etl n i abi l i t i es ere w u eq al t o th ei r ca rryi ng a mount .



Mar ket pri cesper sh areof ht e secu r i t i es whi ch areal ll i st ed i n t he Phi l i ppi ne S t ock Exch ange, ar e a s ol fl ow s: ERAP Cor p. – common GMA Cor p– c . ommon FVR Cor p– c . ommon

12 /31 /20 06 12 /31 /20 05 P23 P22 14 15 31 27

125



FVR r ep ort ed et n i ncom e an d pai d di vi den ds of :

YearendedDecember31,2005 Si xmo nt hsended June30,2006 Si x mont hs e nded e D cember 31, 200 6 ( di vi dend wa s pai d on 10/1/2006) 

Di vi den d Ne ti nco me pe r shar e P700, 000 None 400, 000 None 740, 000 P1. 30

Ther ewer e no ot heri nt er company t r ansact i onsbe t ween Obando and FV R.

QUE STI ONS:

Based ont he ab ove d an t he e rsu l t ofyou r au di t , det er mi ne h te ol fl ow i ng: u r eal i ze d gai n or l osson avai l ab l e f or sal e secu r i t i es as of 1. Net n December 31, 200 6 a. P95, 000 gai n b. P37, 000l oss

c. P 5, 000 l oss d. P55, 000 l oss

2. N e tt ad us t men tt ofR e t ai ed ar Esh ni ngs as Ja of nof uary 20 06 r ul t of h ej p u r ch ase o ad dn i t i on al ares st of ock FVR 1, C orp . as aes a. P70, 000 c. P58, 000 b. P210, 000 d. P 0 3. N eti nve smen t ti ncom ef r om FVR Cor p. f orye aren ded ec Dem ber 31, 2006 a. P237, 500 c. P2 62 , 00 0 b. P225, 000 d. P3 05 , 00 0 4. C ar ry i ng am ou nt ofI nve s t men ti n FVR Cor p. as of Dec em ber31, 20 06 a. P4, 674, 500 c. P4, 577, 000 b. P4, 677, 000 d. P4, 540, 500 5. Gai n onsal e of st ock gh ri t s onDece mber1, 2006 a. P c. P7 , 60 0 0 b. P2, 050 d. P5, 600 Sugg est edSol ut i on : Quest i onNo.1

Avai l abl ef or sal esecur i t i es,1/1/06 Rece i pt ofst ock r i gh t s r f om GMA, 8/30 ( P300, 000x 1. 5/1 5) Re cl assi ficat i on ofI nves t menti n FVR AFS,12/31/06bef or emar kt omar ke t

P1, 870, 000 ( 30, 000) ( 1, 350, 000) 490, 000

126 Fai r val ue of AFS, 12/3 1/0 6: GMA [ ( 10, 000 x1. 1)x23] ERAP( 20, 000x14) Decr easei nunr eal i z edl ossonAFS Unr eal i z ed oss l onAFS, 12/3 1/0 5 ( P100, 000 - P2 , 00 0 - P5 0, 000)

P253, 000 280, 000

( see not e b el ow )

Unr eal i z ed l oss,12/31/06 -asadj us t ed

533, 000 43, 000

P

48, 000 5, 000

Not e:Al t er nat i vel y,t he unr ea l i zedl osson AFS canbe co mput ed by com par i ng t he ot tal f ai r va l ue a nd t ot al cost ofAFS as o f Decem ber31, 2006. I nci dent al l y, t he o j urn al ent r i es o t reco r d t he rece i pt of st ockr i ght s and r ecl ass i fica t i onoft he n i vest men ti n FVR f ol l ow :

St ock r i ght s P 32, 000 Avai l abl ef orsal esecuri t i es( P300, 000x1. 5/15) Unr eal i z ed l oss on A FS P (20, 000 x 1. 5/15) I nv es t menti n associ at e

P3 0, 00 0 2, 000

P1, 400, 000

Avai l abl ef orsal esecur i t i es Unr eal i z edl ossonAFS

P1 , 35 50 0, , 000 000

Quest i on s N o.2 t o 4

Recl assi ficat i on ofi nvest men ti n FVR ( seeo. n1) Ret r oa ct i vead j ust men t ( cost o eq tui t y met hod ) : Shar ei n NIf or2005 ( P700, 000 x10%) Adj us t edbal ance,1/1/06 Cos tofaddi t i onal100, 000 shar es Neti nve smen t ti ncom e or f 2006: Shar e n i NI f orsi x m on t hs end ed /3 60 ( P400, 000x10%) P40, 000 Shar e n i NI f orsi x m on t hs en ded 12/31 [ P740, 000 x ( 10%+20%) ] 222, 000 Di vi den ds recei ved [ ( 50, 000 sh ares + 100, 000 sh ares )x 1 . 3] Carr yi ng val ue of i nve smen t ti n FVR, 12/3 1/0 6

P1, 400, 000 70, 000( 2) 1, 470, 000 3, 040, 000

3) 262, 000 (

( 195, 000) P 4, 577, 000

( 4)

Not e:The excess ofcost over he tb ookva l ue ofnetass es t acqu i r ed wi l l be at t r i but ed t o Good wi l l . Th er ef or e, he t excess wi l l notffect a he t i nves t men t n i c om e and t he c ar r yi ng val ue of he t i nvest ment nsi c e Goo dwi l li s n otamor t i zed .

127 Quest i onNo.5 Sal espr oceeds P37, 600 Le ss cos t ofs t ock r i ght s( see no .1) 32, 000 Ga i n on sal e ofst oc kr i ght s P 5, 600 Answer s:1)C;2)A;3)C;4)C,5)D

PRO BL EM NO .11

Paom bong Cor por at i on pu r c hase d P20 0, 0008% bonds f or P184, 557on Januar y1,2004.Paombongcl assi fied t hebondsasavai l abl ef orsal e.The bonds wer e pur c hased t o yi el d 10% i nt er es t .I nt er est i s payabl e semi ann ual l y onJu l y 1 an d Jan uar y 1. Th e bon ds m at ur e onJan uar y 1, 20 09. Pa ombo ng u se s h te eff ec t i ve ni t er es t me t hodt o a mor t i z e pr em i um or di sco unt . On Jan uar y 2 , 20 06 , Paom bon g so l d t he b ond s o fr P18 5, 00 0 af t er rece i vi ng i nt erest o meet t t si l i qui di t y nee ds. Themar ke tval uesoft hebondsar easf ol l ows: December31,2004 December31,2005

P190, 449 186, 363

QUE STI ONS:

Based ont he ab ove d an t he e rsu l t ofyou r au di t , det erm i ne h te ol fl ow i ng: 1.I nt er est i ncom e or f ht e year 0042 a. P14, 869 c. P18, 517 b. P16, 000 d. P18, 456 2.Unr eal i z ed gai n onAFS as of Dec em ber31, 2004 a. P3, 436 c. P5, 892 b. P3, 375 d. P 0 nt er est i ncom e or f ht e year 0052 3.I a. P18, 775 c. P16, 000 b. P15, 272 d. P18, 701

eal i zedgai n orl oss on AFS as of Dece mber , 31 2005 4.Unr a. P8, 053gai n c. P3, 351gai n b. P3, 486l oss d. P1, 806l oss i ze d gai n orl oss on sal e of AFS onJan uary,2 2006 5.Real a. P6, 861l oss c. P4, 849l oss

b. P4, 714l oss

128

d. P9, 416gai n

Sugg est edSol ut i on : Quest i onNo.1 The f ol l ow i ng amor t i za t i on sch ed ul e wi l l be usef ul i n com put i ng f or he t r equ i r em en t s:

Dat e 01/01/04 07/01/04 12/31/04 07/01/05 12/31/05 07/01/06 12/31/06 07/01/07 12/31/07 07/01/08 12/31/08

Effect i ve

Nomi nal

Di scount

i nt er es t

i nt er es t

amor t i z at i on

P9, 228 9, 289 9, 354 9, 421 9, 492 9, 567 9, 645 9, 728 9, 814 9, 905

P8, 000 8, 000 8, 000 8, 000 8, 000 8, 000 8, 000 8, 000 8, 000 8, 000

P1, 228 1, 289 1, 354 1, 421 1, 492 1, 567 1, 645 1, 728 1, 814 1, 905

1/ /1 /0 4t t o12 6 /3 0 /0 4 se e or r t i z at i on sc hedu l e) 7 1/ 04 o /3 1 /0 4( ( se e aam mo t i z a t i o ns c he dul e ) Tot ali nt er es ti ncomef or2004

Ca r r yi ng val ue P184, 557 185, 785 187, 074 188, 428 189, 849 191, 341 192, 908 194, 553 196, 281 198, 095 200, 000

P 9 , 2 928 , 289 P1 8, 51 7

Not e:PA S 39 par . 55( b) st at est hat a ga i n or os l s o n an ava i l abl ef or sa l e financ i al asse t shal l be r ec ogni zed di r ec t l yi n equi t y, t hr ough t he st at em en t ofcha nges i n equ i t y,excep tf or mp iai r men tl oss esand f or ei gn exch angega i ns a nd l oss es, unt i lt he fi nanci al asset i s d er ecog ni zed , at whi c h t i me t he cu mul at i vega i n or oss l pr evi ou sl y r ecogn i zedi n equ i t y sh al l ber ec ogn i zedi n pr ofi t orl oss.ow H i ever nt erest , al cu cl at ed usi ng eff ec t i ve i nt er es t met hod sha l l be r ecogn i ze d i n pr ofi t or loss . Quest i onNo.2

Fai rval uet hebonds,12/31/04 P190, 449 Car r yi ng v au le, 12/31 /04( see a mor t i z at i on sc hedu l e) 187, 074 Unr eal i z edgai n on AFS,12/31/04 P 3, 375 Quest i onNo.3

1/1 /0 5 t o 6 /3 0/0 5 ( se e am or t i z at i onsc hedu l e) 7/ 1/05t o 12 /31 /0 s ( ee amor t i z at i on s che dul e) Tot ali nt er es ti ncomef or2005

P

9 , 35 4 9, 42 1 P1 8, 77 5

129 Quest i onNo.4 Fai rval uet hebonds,12/31/05 P186, 363 Carr yi ng val ue,12/31/05 ( see am ort i zat i onsch ed ul e) 18 9, 84 9 Unr eal i z edl osson AFS,12/31/05 ( P 3, 486) I nci den t al l y,t he a dj ust i ng e nt r y on12/31/05 f ol l ow s:

Unr eal i z edgai non AFS Unr eal i z edl ossonAFS Avai l abl ef orsal esecur i t i es

P3, 375 3, 486 P6, 861

Quest i onNo.5

Sal es pr oceeds Unr eal i z edl ossonAFS Ne t Carryi ng va l ue,12/31/05 ( f ai r a vu le) Real i z edl ossonsal eofAFS

P185, 000 ( 3, 486) 18 1, 51 4 18 6, 36 3 ( P 4, 849)

Not e:PA S 39 par . 26 st at est hat onder ecogn i t i onofa financi al asset i n i t s en t i r et y,t he di ffer en cebet ween( a) t he ca r r yi ng amou nt and ( b) t he su m of he t co nsi der at i on r ec eved i and any c umul at i ve ga i n or oss l r ecogn i zeddi r ect l y i n equ i t y, sh al l ber ecog ni zedi n pr ofi t orl oss . I nci dent al l y, t he o j urn al ent r y t o reco r d t he s al e s: i

Cash Real i z ed l osson sal eofAFS Avai l abl ef orsal esecur i t i es Unr eal i z edl ossonAFS

P185, 000 4, 849 P186, 363 3, 486

Answer s:1)C;2)B;3)A;4)B,5)C

PRO BL EM NO .12

On Ju ne 1, 20 05 , Pan diCor por at i on pu r c hase d as al on g e tm r i nves t ment 4, 000 oft he P 1, 000 f ace val ue,8% bon ds of Vi ol etCorpo r at i on . The b on ds wer epur c hasedt oyi el d10% i nt er est .I nt er esti spayabl esemi annual l yon December 1 andJu ne 1. Th e bonds at u m r e onJu ne 1, 201 1.Pand i uses t he eff ec t i ve ni t er es t met hod ofamor t i z at i on . On Nove mber1, 2006, Pa ndi sol d t he b on ds or f at ot alcon si der ai t on ofP3, 925, 000. Pan di i nt en ded t o hol d t hese on b ds u nt i lt hey m au tr ed , soyear t oyearar m ketfluct uat i on s wer ei gnor edi naccount i ngf orbonds.

130

QUE STI ONS:

Based ont he ab ove d an t he e rsu l t ofyou r au di t , det er mi ne h te ol fl ow i ng: ( Rou nd off pr ese nt va l ue a f ct or s o t ou fr deci mal pl aces) 1.Thepur c hasepr i ceoft hebondsonJune1,2005i s a. P3, 645, 328 c. P3, 696, 736 b. P3, 691, 132 d. P3, 624, 596 nt er esti ncomef ort heyear2005i s 2.Thei a. P215, 850 c.P212, 829 b. P215, 521 d. P211, 612 ngval ueoft hei nves t menti nbondsasofDecember31,2005 3. Thecarryi i s a. P3, 725, 919 b. P3, 649, 541

c. P3, 719, 986 d. P3, 671, 490

4.Thei nt er esti ncomef ort heyear2006i s a. P306, 607 c.P311, 218 b. P310, 715 d. P304, 748

n on sal eofi nvest menti n bondson November1,2006i s 5.Thegai a. P21, 196 c. P27, 632 b. P80, 235 d. P104, 045 Sugg est edSol ut i on : Quest i onNo.1

PV o fpr i nc i pal( P4, 000, 000 x0. 5568) P2, 227, 200 PVof i nt er es t[ ( P4, 000, 000 x 4%)x 8. 8633] 1, 418, 128 Pur c hasepr i ce P3, 645, 328 Quest i onNo.2

June1t oNov .30( P3 , 64 5, 32 8 x 10 % x 6/1 2)

P1 82 , 26 6

( P 667, 594 x10% x1/12) Dec. 1 t o Dec. 33 1, Tot ali nt er es ti ncomef or2005

30, 56 3 P2 12 , 82 9

a

a

Com put at i onofc ar r yi ng va l ue, 12/1 /05: Carr yi ng val ue,6/1 /0 5 Adddi scountamor t i z at i on, 6/1/05 t o 11/3 0/05 : Effecti ve nt i erest 82 , 26 6 ( P3 , 64 5, 46 8 x 10 % x 6/1 2) P1 Nom i nali nt er est 160, 000 ( P4 , 00 0, 00 0 x 8% x 6/1 2) Carr yi ng val ue,12/1 /0 5

131

P3, 645, 328

22, 266 P3, 667, 594

Quest i onNo.3

Carryi ng val ue,12/1/05 ( seeo. n2) Adddi scountamor t i z at i on, 12/1/0 5 t o 12/31 /05: Effecti ve nt i erest ( P3 , 66 7, 59 4 x 10 % x 1/1 2) P3 0, 56 3 Nom i nali nt er est 26, 667 ( P4 , 00 0, 00 0 x % 8 x 1/1 2) Carr yi ng v au le,12/3 1/0 5

P3, 667 , 594

3, 896 P3, 671 , 490

Quest i onNo.4

Jan.1t oMay31( P3, 667, 594x10% x5/12) P152, 816 b June1 t oNov .1( P3, 690, 974 x 10%x 5/1 2) 15 3, 79 1 Tot ali nt er es ti ncomef or2006 P306, 620 b

Com put at i onofcar r yi ng va l ue, 6/1/06: Carr yi ng val ue,12/1 /0 5 Adddi scountamor t i z at i on, 12 /1/0 5 o t 5/31/0 6 Effecti ve nt i erest 83 , 38 0 ( P3 , 66 7, 59 4 x 10 % x 6/1 2) P1 Nom i nali nt er est 000 ( P4 , 00 0, 00 0 x % 8 x 6/1 2) 160, Carr yi ng val ue,6/1 /0 6

P3, 667 , 594

23, 380 P3, 690 , 974

Quest i onNo.5

Tot alpr oceeds P3, 925, 000 Less ccru a ed i nt er e( st P4 , 00 0, 00 0 x 8%x 5/1 2) 13 3, 33 3 Sal es pr oceeds 3, 791, 667 Le ss car r yi ngval ue ,11 /1 /06 s ( ee be l ow) 3, 71 1, 43 2 Ga i n on sal e on i nv es t menti n bonds P 80, 235 Com put at i onofcar r yi ng va l ue, 11/1/06:

Carryi ng val ue,6/1 /06 ( seeo. n4) Adddi scountamor t i z at i on, 6/1 /06t o 11/1 /06 ( P3 , 69 0, 97 4 x 10 % x 5/1 2) P1 Effecti ve nt i erest 53 , 79 1 Nom i nali nt er est 333 ( P4 , 00 0, 00 0 x % 8 x 5/1 2) 133, Carr yi ng val ue,11/1 /0 6

Answer s:1)A;2)C;3)D;4)A,5)B

132

P3, 690 , 974

20, 468 P3, 711 , 432

PRO BL EM NO .13

On May 1, 200 3, Pl ar i delCor por at i on acq ui r ed P1 , 60 0, 00 0 ofJ & B Cor por ai t on 9% bon ds a t 97 pl us a ccr ued i nt er es t .I nt er es t on bon ds i s payabl e s emi an nual l y onMar c h 1 an d Sept em ber 1,an d bon ds m at ur e on Sept em ber 1, 00 2 6. l P ar i delnt i s t end o hol d t hes e bon ds unt i l h tey mat ur ed. Due t o an i sol at ed even t h tat s i beyon d Pl ari del ’ s con t r ol ,i s non r ecu rr i ng an d cou l d nothave ee b n r eason ab l y an t i ci pat ed by Pl ari del ,t he com pan y sol d bon ds of P480, 000 f or103 pl us accr ued ni t er es t onMay , 12004. On Ju l y 1 , 2005,bon ds of P640, 000 wer e ex cha nge d f or90, 00 0 sha r es of J & B Cor por ai t on , com mon , no p arval ue,qu ot ed on t he m ar ket ont hi s da t e atP8 persh are. I nt er est was rece i ved onbon ds o t d at e of exch an ge. On Sept ember 1, 2006 , r emai ni ng bonds wer e r edee med andac cr ued i nt er est was recei ved . QUE STI ONS:

Based ont he ab ove d an t he e rsu l t ofyou r au di t , det er mi ne h te ol fl ow i ng: ( Uset he st r ai gh tl i ne amort i za t i onmet hod ) 1. To t al i nt erest i nco me or f 0 2 03 i s a. P96, 000 c. P1 05 , 60 0 06 , 80 0 b. P86, 400 d. P1 2. Thecar r yi ng v al ueoft hei nv es t me nti n 31 , 20 03

i s

c.P1, 562, 800 d. P1, 564, 000

bondsasofDe cember

a.P1, 561, 600 b.P1, 540, 000 3.Thegai nonsal eoft hebondsonMay1,2004i s a. P 0 c. P 2, 88 0 b. P4, 320 d. P24, 480 4.Thegai nonexc hanget hebondsonJul y1,2005i s a. P c. P5 7, 92 0 0 b. P86, 720 d. P73, 280

alcash r ecei vedbyt hecompanyonSept ember1,2006i s 5.Tot a. P501, 600 c.P480, 000 b. P523, 200 d. P508, 800

133 Sugg est edSol ut i on : Quest i onNo.1

No mi na li nt er es t( P1, 600, 000 x 9% x 8/12) P 96, 000 Di scount amor t i z at i on o f r 20 03( P4 8, 00 0 x8/ 40 ) 9, 60 0 Tot ali nt er es ti ncomef or2003 P1 05 , 60 0 Quest i onNo.2

Car r yi ng v au le,5/1 /0 3 ( P1 , 600, 00 0 x 9 7%) Adddi scountamort i zat i on f or2003( seeno.1) Carr yi ng v au le,12/3 1/0 3

P1, 552, 00 0 9, 600 P1, 561, 60 0

Quest i onNo.3

Sel l i ngpr i ce( P480, 000x1. 03) Less carryi ng val ue of bon ds sol d: P4 80 , 00 0 Face u val e Less unamor t i z ed on bd d i sc ou nt , 5/1 /0 4 P4 8, 00 0 x48 0/ 1, 60 0 x 8/4 2 0) 10, t o 9/ 1/0 6( 080 Gai n on sal eofi nves t me nti n bonds

P494, 400

469, 920 P 24, 480

PA S 39 par . 52 st at est hat when ever sa l esor ecl rassi ficat i on s o f mor e t han an i nsi gn i fican t amou nt ofhel dt omat ur i t y i nvest men t s do notmeet any of he t cond i t i on s i n par . 9 , a ny r em ai ni ng hel dt omat ur i t y i nvest men t s sh al l be r ecl ass i fiedas a va i l abl e or f sa l e.Si nce he t sa l e o ft he b on ds on May 1, 2004 i s due t o an i so l at ed eve nt t hat i s bey on d Pl ar i del ’ s con t r ol ,i s non r ecu r r i ng and cou l d nothavebeenr ea son abl y ant i ci pat ed by Pl ar i del ,t he i nvest men ti s not r equ i r edt o b e ecl r ass i fiedas a va i l abl e or f sa l e.

Quest i onNo.4 ( P9 0, 000 x P8 ) F ai r va l ue o f st o ck recei ved Less carr yi ng val u es of bon ds x ech an ged: Face val ue P640, 000 Less unamor t i z ed on bd d i sc ou nt , 7/1 /0 5 t o 9/ 1/0 6( 6, 720 P4 8, 00 0 x64 0/ 1, 60 0 x 4/4 1 0) Gai nonexchangeof bonds

P7 20 , 00 0

633, 280 P86, 720

Quest i onNo.5

Face val ue of r em ai ni ng b on ds ( P1, 60 0, 000 - P4 80, 000 - P6 40, 00 0) I nt er est , 3/1/06 t o 9 /1/0 6 0, ( P48 000x 9%x 6/12 ) Tot alcashr ecei ved,9/1/06

P4 80 , 00 0 21, 600 P5 01 , 60 0

Answer s:1)C;2)A;3)D;4)B,5)A

134

PRO BL EM NO .14

Pul i l anCom pan y’ s accou nt i ng r ecor ds sh ow edt he ol fl ow i ng n ives t men t s at Januar y1,2006: Common s t ock: JangCompany( 1, 000shar es) Geum Company( 5, 000 shar es) Par ki ng l ot( l eased t o Jewe lCo mpany) Tr ademar k Tot ali nv est ment s

P 500, 000 5, 000, 000 2, 500, 000 2, 000, 000 P10 , 00 0, 000

Addi t i onali nf or mat i on: 

Pu l i l an owns 1% ofJang and30% ofGeum. Dur i ng t he y earende d Dece mber 31 , 2006, Pul i l an r ece i ve d cash di vi den ds o f P350, 000 f r om Jang and P750, 000 f r om Geum, whose 2006 ne t ear ni ngs wer e P4, 000, 000 a nd P 10, 000, 000 res pect i vel y .



TheJewell easewhi chcomme ncedonJanuar y1,2005i sf or5year sat an an nualr en t alofP1, 250, 000. I n ad di t i on , on Jan uary ,1 2005, Jew el pai d a non r ef undab l e d ep osi t ofP400, 000 aswel l asa secu r i t y d ep osi t ofP250, 000, t o be r ef unded upon exp i r at i on ofl ease. Pul i l an r ecei ved P1, 250, 000 r en tf r om Jew eli n 2006.



Thet r ademar k wasl i censed t oPal aceCompanyf orr oyal t i esof10% of sal es oft he t r ad em arki t em s.Royal t i es are ayab p l e sem i an nual l y on Mar ch 1, f or sal es niJu l y h tr ou gh Dece mberoft he p r i or ear y, an d on Sept em ber 1, orfsal es ni Jan uar y t hr ou gh Ju ne ofsame year . On Mar c h 1, 200 5 an d 200 6, Pu l i l an r ec ev i ed r oy at l i es of 0P5 0, 000 an d P7 50 , 00 0, es rpect i vel y . O n Sept em ber , 1 20 05 an d 20 06 , Pu l i l an r ecei vedr oya l t i es of 1 P , 000, 000 an d P1, 500, 000 r esp ect i vel y . Pal ace C om p an y’ l es t he t r ad em ar kedi t em s o ta ted l P4, 000, 000 f or ht e l a st h al fs ofsa 2 0 06. of

QUE STI ONS:

Based ont he ab ove d an t he e rsu l t ofyou r au di t , det er mi ne h te ol fl ow i ng: ali ncomef r om i nves t ment si nequi t ysecur i t i es 1.Tot a. P3, 350, 000 c. P4, 100 , 000 b. P1, 100, 000 d. P3, 000, 000 ti ncom e or f 2006 2.Ren a. P1, 250, 000 b. P1, 330, 000

c. P1, 650 , 000 d. P1, 380, 000

135 3. R oyal t y n i com ef or2006 a. P1, 500, 000 b. P2, 000, 000

c. P2, 500, 000 d. P1, 900, 000

Sugg est edSol ut i on : Quest i onNo.1

Di vi dendi ncomef r om Jang P 350, 000 I nv es t menti nc ome f r om Geum ( P10, 000, 000 x 30% ) 3, 000, 000 Tot ali ncomef r om i nvest me nt si nequi t ysecur i t i es P3, 350, 000 Quest i onNo.2

Annualr ent al Amor t i z at i onofl easebonus( P400, 000/5) Rent i ncom e or f 20 06

P1, 250, 000 80, 000 P1, 330, 000

Quest i onNo.3

Januar yt oJune2006 Jul yt oDecember2006( P4, 000, 000x10%) Royal t y n i com e or f 2006

P1, 500, 000 400, 000 P1, 900, 000

Answer s:1)A;2)B; 3)D PRO BL EM NO .15

Sel ect t he b est answ erf or ea choft he ol fl ow i ng:

1. Whi c h oft he f ol l owi ng i s nota cont r olt hati s desi gned t o pr ot ect i nvest men t secu ri t i es? osecur i t i esshoul dbeves t edi nmor et hanonei ndi vi dual . a. Accesst b. Secu r i t i es sh ou l d be pr op er l y con t r ol l ed physi cal l y i n or der t o pr eve nt unau t hori ze d usage.

c. Secu r i t i es sh ou l d be e rgi st er edi n t he n ame of t he ow ner . d. Cust od y over ecu s r i t i es sh ou l d be l i mi t ed t o i ndi vi dual s who have reco rd keep i ng resp onsi bi l i t y ove r h te s ecu ri t i es .

2. Whi c h oft he f ol l owi ng cont r ol s woul d a company mostl i kel y use t o saf egu ar d i nves t men t secu r i t i es h wenan i ndep en den tt r ustagen ti s n ot em pl oy ed?

a. Thechai r man oft heboar dver i fiest hei nv es t mentsecur i t i es,whi ch are kept i n a b an k saf e d ep osi t box, each year on t he b al an ce sh ee t dat e.

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b. The i nves t mentcommi t t ee oft he boar d ofdi r ect or s per i odi cal l y revi ew s h te n i vest men t deci si on s d el ega t edt o h te r t ea su r er .

c. Two company offici al s hav ej oi ntcont r olofi nv es t mentsecur i t i es, whi c har ekepti nabanksaf edeposi tbox.

d. The i nt er nalaudi t or and t he cont r ol l er i ndependent l yt r ace al l pur ch ases an d sal es f oi nves t men t secu r i t i esf r om t he su bsi di ary l ed ge rs ott he gen eral l ed ger .

3. Whi c hoft hef ol l owi ngcont r ol swoul danent i t ymos tl i kel yuset oassi s t i n sat i sf yi ng i nves t men t s?

t he

com pl e t en ess asser t i on r el at ed t o

l on gt er m

r ol l er compar es t he cur r ent mar ke t pr i ces ofr ecor ded a. The cont i nvest men t s w i t h t he b r ok er s’advi cesnofil e.

b. Sen i or a mn agem en t ver i fies ht atsecu r i t i es nit he b an k saf e d ep osi t boxar er egi st er edi nt heent i t y’ sname.

c. The i nt er nalaudi t or compar es t he secur i t i es i nt he bank saf e dep osi t boxwi t h r ecor dedi nvest men t s.

d. The t r easur ervouc hes t he acqui si t i on ofsecur i t i es by compar i ng br oker s’advi ceswi t hcancel edc hecks.

4. Whi c h oft he f ol l owi ng cont r ol s woul d an ent i t y mostl i kel y use i n sa f egu ar di ng a ga i nstt he os ls of i nvest men t secu ri t i es?

a. A desi gnat ed member of t he boar d of di r ect or s cont r ol st he secu ri t i es nia b ank sa f e d ep os i t box .

b. An i ndependentt r ustcompanyt hathasnodi r ectcont actwi t ht he em pl oyees howhave rec ordkeep i ng r esp on si bi l i t i es as h possessi on of sec uri t i es .

c. Thei nt er nalaudi t orver i fiest hei nv est mentsecur i t i esi nt heent i t y’ s saf e ea chyear on t he b al an ce sh eet dat e.

d. The i ndependent audi t or t r aces al l pur c hases and sal es of i n vest men r i t i es ht r ou gh t he su bsi di ary l ed ger s o tt he g en er al l ed ger . t secu

5. Whennegot i abl esecur i t i esar eofconsi der abl evol ume,pl anni ngbyt he audi t or si n ecessa ry ot gu ar d aga i nst

a. Subst i t ut i on ofsecu ri t i es l r a ea dy co unt edf or t h oer secu ri t i es h w i ch b. c. d.

sh ou l d be onhan d bu t ar e n ot . Subst i t ut i on of aut hen t i c se cu ri t i eswi t h co unt erf ei t se cu ri t i es. Unaut hori zed negot i at i onoft he secu ri t i es ef b orehey t r a e co unt ed . Unr eco r dedsa l es f osecu ri t i es f t a ert hey r a e co unt ed .

6. I n au di t i ng i nvest men t s f or r p op er val uat i on ,t he au di t or sh ou l d do al l butt hef ol l owi ng:

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a. Vouch purchases and sal es ofsecur i t i es by t r aci ng t o br oker s' ad vi ces d an can cel edch ecks.

b. Compa r e cos t an d mar ket by r ef er ence ot yearnd e mar ket val ues f or s eec lt edse cu ri t i es .

c. Con firm secu ri t i es el hd i n sa f ek eep i ng offt he cl i en t ' s p r em i ses. d. Reca l cu l at e ga i n or os l s o n di sp os al s. 7. An audi tpr ocedur et hatpr ovi des evi dence aboutpr operval uat i on of t r adi ng se cu ri t i es ri a si ng r f om a sh ort t ermi nvest men t ofexcess ca sh i s cu l at i on ofi nvest men t carryi ng val ue by ap pl yi ng t he equ i t y a. Recal

b. c. d.

me t hod. Com pari sonofcarr yi ng val ue w i t h cu r r en t mar ketqu ot ai t on s. Con firm at i onofsecu ri t i es el hd bybr ok er . Cal cu l at i onofpr em i um or scou di nt amort i zat i on .

t eehasacqui r ed anot hercompanybypur c hase.Whi ch oft he 8. Theaudi f ol l ow i ng w ou l d be h te b est au di t pr oced ur e o tt est t he a ppr op ri at en ess of t he a l l oca t i on of co stt o t angi bl e a ss es? t

a. Eval uat e p r oced ur es sed u t o est i mat e a nd r ecor d f ai r m ar ket val ues f or u p r ch ased asset s.

b. Det er mi ne w het herasset s h ave been r ecor ded t at hei r bookval ue at t he d at e of pur ch ase.

c. Eval uat e h te e raso nab l en ess of r ecor dedval ues y b d i scu ssi on wi t h op er at i ng per son nel .

d. Eval uat e t he r eas onabl eness of e r cor ded val ues by use of r ep l acem en t cost dat a.

9. Theaudi t eehasj ustacqui r ed anot hercompany by pur c hasi ngal li t s asset s.As a resu l t oft he p ur ch ase, " go od wi l l " has b eenr eco r dedon t he au di t ee' s b ook s.Whi choft he ol fl ow i ng com pari son s w ou l d be h te m ost appr op ri at e au di tt est f or ht e a mou nt ofr eco r dedgo od wi l l ? a. Thepurchasepri ceandt hef ai rmar ke tval ueofasse t spur c hased. b. Thepurchasepri ceandt hebookval ueofasse t spur chased. c. Thefiguref orgoodwi l lspeci fiedi nt hecont r actf orpur c hase. d. Earni ngs niexcess15of % ofnetasset s or f ht e p ast five years .

10. Of t he ol fl ow i ng,whi ch i s h te most effici en t au di t pr oced ur e or f est ti ng accr ued ni t er est earn ed n o bon d n ives t men t s?

a. Vouchi ngt her ecei ptanddeposi tofi nt er estc hecks. b. Traci ngi nt er estdecl ar at i onst oani ndependentr ecor dbook. c. Recom put i ng i nt er est earn ed .

d. Con firm i ng n it er est r at e w i t h t he ssu i eroft he b on ds. C Answer s:1)D;2)C;3)C;4)B,5)A;6)C;7)B;8)A;9)A; 10)

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