Title FAR Self Study Part 3.pdf ✅

Problem 6 – Revenue and Other Income In Beta Enterprises: 1. Rent income of ₱600,000 for January–March 20X5 was recorded entirely in 20X4. 2. A loan of ₱2,000,000 received in December 20X4 was recorded as “Miscellaneous Income.” 3. Service income of ₱500,000 performed in December 20X4 was billed and recorded only in January 20X5. Required: a. Prepare adjusting entries. Answer # 6 Adjusting entries 1. Defer rent related to future periods (to move Jan–Mar 20X5 portion out of 20X4): Debit Rent Income (or Other Income) ₱600,000 Credit Unearned Rent (or Deferred Income) ₱600,000 2. Reclassify loan recorded as income (liability recognition): Debit Miscellaneous Income ₱2,000,000 Credit Loan Payable (Bank Loan) ₱2,000,000 3. Record service income earned in 20X4 but billed in Jan (recognize revenue in 20X4): Debit Accounts Receivable ₱500,000 Credit Service Income ₱500,000 Problem 7 – Payroll and Accruals At Lambda Co.: 1. Salaries of ₱450,000 for the last week of December were unpaid and unrecorded. 2. 13th-month pay of ₱300,000 was expensed in January 20X5, but pertains to 20X4. 3. Accrued vacation leave of ₱200,000 was omitted. Required: a. Correcting entries. b. Total understatement of liabilities. c. Audit assertion violated. Answer # 7 Adjusting entries 1. Accrue unpaid salaries: Debit Salaries Expense ₱450,000 Credit Salaries Payable ₱450,000 2. Accrue 13th-month pay for 20X4: Debit 13th-month Pay Expense (or Employee Benefits Expense) ₱300,000 Credit Accrued 13th-month Pay (or Accrued Salaries) ₱300,000 3. Accrue vacation leave: Debit Employee Benefits Expense (or Vacation Expense) ₱200,000 Credit Accrued Vacation Leave (liability) ₱200,000 Total understatement of liabilities • Salaries payable: ₱450,000 • 13th-month accrual: ₱300,000 • Vacation accrual: ₱200,000 Total = ₱950,000 understatement of liabilities. Audit assertion violated • Completeness of liabilities (liabilities omitted). Also cutoff for the 13th-month pay and salaries. Problem 8 – Investments and Securities Audit of Alpha Corp. shows: 1. Marketable securities (FVPL) costing ₱1,000,000 had a market value of ₱1,200,000, but no adjustment was made. 2. Dividend income of ₱150,000 declared on Dec. 28, 20X4 (record date: Dec. 30, 20X4) was recorded only in January 20X5. 3. Interest income of ₱50,000 accrued in Dec. 20X4 was not recorded. Required: a. Adjusting entries. b. What audit procedure typically uncovers dividend income omissions? Answer # 8