BASIC ACCOUNTING - FINAL ROUND

EASY
1. Easy Inc. received a 3-year, non-interest bearing trade note for P50,000 on January 1,
2012. The current interest rate at that time was 15% for similar notes. The Company
recorded the receipt of the note as follows:
Notes Receivables
50,000
Sales
50,000
What is the effect of this accounting for the notes receivable on the Companys profit
for years 2012, 2013, and 2014 and the carrying value of the said receivables at the
end of 2014, respectively? (Indicate the effect only) (10 secs)
Answer: overstate, understate, understate, no effect
2. Leviticus Company had the following transactions all throughout the year 2012,
companys start of operations:
1,500,00
Sales (90% collected in first year)
0
Bad debt written-off
60,000
1,200,00
Disbursements for cost of sales and operating expenses
0
Disbursements for income taxes
90,000
Purchase of fixed assets
400,000
Depreciation on fixed assets
80,000
Proceeds from issuance of ordinary shares
500,000
Proceeds from short term borrowing
100,000
Payments on short term borrowing
50,000
How much is cash as of December 31, 2012?
Answer: P210,000
3. On December 31, Ruth Company has the following data:
Trade receivables
Allowance for uncollectible accounts
Claim against shipper for goods lost in transit, FOB
shipping point
Selling price of unsold consigned goods
Security deposit
How much is the total current receivables?

232,500
(5,000)
7,500
65,000
75,000

Answer: P235,000
4. Buyer Co. regularly buys shirts from Vendor Company and is allowed trade discounts
of 20% and 10% from the list price. Buyer purchased shirts from Vendor on May 27
and received an invoice with list price of P100,000 and payment terms 2/10, n/30. If
Buyer uses the net method of recording purchases, the journal entry to record the
payment on June 8 is
( provide the complete journal entry )
Answer: Dr: Accounts Payable P70,560
Dr: Purchase discount lost P1,440
Cr: Cash P72,000
5. X Factor Corporation is installing a new plant at its production facility. It has incurred
the following costs:
Purchase price of plant P2,500,000; Initial delivery and handling costs P200,000;
Cost of site preparation P600,000; Consultants used for advice on the acquisition of
the plant P700,000; Estimated dismantling costs to be incurred after 7 years
P300,000; Operating losses before commercial production P400,000.
The total costs that can be capitalized as PPE is

Answer: P4,000,000
6. Which of the following statements is false?
a. A certified check is a liability of the bank certifying it.
b. A certified check will be accepted by many persons who would not otherwise
accept a personal check
c. A certified check is one drawn by a bank upon itself
d. A certified check should not be included in the outstanding checks
Answer: C
7. A used delivery truck was traded in for a new truck. Information relating to the trucks
were as follows:
Used truck: Cost P1.6M; Accumulated depreciation P1.2M; Estimated fair value
P320,000
New truck: List price P2M; Cash price without trade-in P1.9M; Cash price with
trade-in P1.56M
The amount that should be capitalized as the cost of the new truck is
______________________________
Answer: P1,880,000
8. A check register may be used in lieu of what special journal?
Answer: Cash disbursement journal
9. Accounting for the interest in a non interest bearing note receivable is an example of
what aspect of accounting theory?
Answer: Substance over form
AVERAGE
1. Bank overdrafts generally should be
a. reported as a deduction from current asset section.
b. reported as a deduction from cash.
c. netted against cash and net cash amount reported.
d. reported as a current liability
e. C or D, based on the companys policy
Answer: D
2. On December 1, 2013, Adelina invited Elvira to join him in his business. Elvira agreed,
provided that Adelina will adjust the accumulated depreciation of his equipment to
ascertain amount and will recognize unrecorded liabilities of P50,000. On the other
hand, Elvira is to invest additional pieces of equipment to make his interest equal to
45%. If the capital balance of Adelina before and after adjustment were P695,000 and
P605,000, respectively, what is the effect in the carrying value of the equipment as a
result of Elviras joining Adelina?
Answer: P455,000
3. Which of the following statements is/are true in relation to issue of shares?
I.
If the equity instruments are issued before the entity receives cash, the entity
shall present the amount receivable as an asset.
II.
If the entity receives cash before the equity instruments are issued and the entity
cannot be required to repay the cash, the entity shall recognize an increase in
equity to the extent of the cash received.
III.
To the extent that the equity instruments have been subscribed but not issued
and the entity has not yet received the cash, the entity has not yet received the
cash; the entity shall not recognize an increase in equity.
Answer: II and III only

4. As suggested by Article 1787 of the Philippine Civil Code and relevant PFRSs, the net
contributions (assets and related liabilities assumed by the partnership) of the
partners to the partnership are measured at
a. fair value
c. discretionary
amount
determined
by
partners
b. cost
d. any of theses
Answer: A. Fair Value
5. During its second year of operations, Shark Company found itself in financial
difficulties. Shark decided to use its accounts receivable as a means of obtaining cash
to continue operations. On July 1, 2011, Shark sold P1,500,000 of accounts receivable
for cash proceeds of P1,390,000. No bad debt allowance was associated with these
accounts. On December 15, 2011, Shark assigned the remainder of its accounts
receivable, P5,000,000 as of the date, as collateral on a P2,500,000, 12% annual
interest rate loan from Finance Company. Shark received P2,500,000 less a 2%
finance charge. None of the assigned accounts had been collected by the end of the
year.
Additional information is as follows:
Allowance for bad debts before adjustment, 12/31/2011
85,000
Estimated uncollectible, 12/31/2011
3% of A/R
Accounts receivable excluding factored and
assigned accounts, 12/13/11
1,000,000
What amount should be recognized by Shark Company as bad debt expense for
2011?
Answer: P95,000
6. On December 1, 2013, Carissa and Marietta agreed to invest equal amounts and
share profits and losses equally in a partnership. Carissa invested P3,120,000 cash
and a piece of equipment. Marietta invested some assets which are shown below:
Receivables
Inventories
Equipments net
Intangibles net

400,000
1,120,000
2,240,000
920,000

The assets invested by Marietta are not properly valued. P32,000 of the receivables
are worthless; and Inventories are to be written down to P1,040,000. Included in the
equipments is an obsolete apparatus acquired for P384,000 with an accumulated
depreciation P336,000. Part of the intangible assets is a patent with a carrying value
of P56,000 which was under litigation. Marietta unsuccessfully defended the case and
the final decision of the court was released on November 29, 2013.
What is the fair value of the equipment invested by Carissa?
Answer: P1,344,000
7. Candice Company reported net income of P34,000 for the year ended December 31,
2013 which included depreciation expense of P8,400 and a gain on sale of equipment
of P1,700. The equipment had an historical cost of P40,000 and accumulated
depreciation of P24,000.
Each of the following accounts increased during 2013:
Patent
9,800
Prepaid rent
4,500
Available for sale investment
8,000
Bonds payable
5,000
What amount should be reported as net cash provided (used) by investing activities
for the year ended December 31, 2013? (30 secs)
Answer: (P100)

8. Storm Company made the following expenditures:

Continuing and frequent repairs
P350,000
Repainted the building
120,000
Major improvement to wiring
450,000
Partial replacement of tiles
180,000
What total amount should be expensed immediately? (30 secs)
Answer: P650,000
DIFFICULT
1. Lechon Company is negotiating a loan with EastNorth Bank needs P7.2 million. As
part of the loan agreement, EastNorth Bank will require Lechon Company to maintain
a compensating balance of 15% of the loan amount on deposit in a checking account
at the bank. Lechon Company currently maintains a balance of P0.40 million in the
checking account. The interest rate Lechon Company is required to pay on the loan is
12%. EastNorth pays 15% on checking accounts. Determine the amount of the loan
and its related effective interest rate.
(round off effective interest rate in 2 decimal %)
Answer: P8 million and 11.67%
2. Kim, Gerald and Maja were partners with capital balances on January 2, 2013 of
P350,000, P420,000 and P280,000, respectively. Said capital balances were in the
same ratio as their original net investments. Their loss sharing ratio is 3:5:2. On May
1, 2011, Kim retires from the partnership because she is irritated with Maja. On the
date of retirement, the partnerships net profit from operations is P240,000. The
partners agreed further to pay Kim P382,800 in settlement of her interest. How much
will be the capital of Gerald after the retirement of Kim?
Answer: P544,320
3. Lito Company reported the following changes during the current year: Increase
(decrease)
Cash P400,000; Accounts Receivable P300,000; Allowance for bad debts
P50,000; Inventory (P150,000); Prepaid Rent (P50,000); Plant and Equipment
P1,000,000; Accumulated Depreciation P100,000; Accounts Payable P80,000;
Bonds Payable (P100,000); Discount on bonds payable (P10,000); Ordinary Share
capital P120,000; Share Premium P60,000; Treasury Shares at cost P30,000.
There were no other entries in the Accumulated profit or loss account except for the
dividend declaration of P50,000, which was paid in the current year. Determine the
net income for the year.
Answer: P1,260,000
4. The January 1, 2012 balance sheet of Go Company shows:
2012
P2,000,00
Accounts receivable
0
Allowance for doubtful accounts
100,000
Additional information for 2012:
a. Cash sales of the Company amount to P800,000 and represent 10% of gross
sales.
b. 90% of the credit sales customers did not take advantage of the 5/10, n/30
terms.
c. Customer who did not take advantage of the discount paid P5,940,000.
d. It is expected that cash discounts of P10,000 will be taken on accounts receivable
outstanding at 12/31/12.

e. Sales returns in 2012 amounted to P80,000. All returns were from charge sales.
f. During 2012, accounts totaling P60, 000 were written-off as uncollectible.
Recoveries during the year amounted to P10,000. This amount is not included in
the foregoing collections.
g. The allowance for doubtful accounts is adjusted so that it represents a certain
percentage of the outstanding accounts receivable at year-end.
On December 31, 2012, how much should be reported in the statement of financial
position for the NRV of Receivables? (60 secs)
Answer: P2,270,000
5. The accounts shown below (with normal balances) appear in the trial balance of Blue
Eagles, Inc. on September 30, 2011, end of the accounting year.
Preference shares authorized. P100 par
P
5,000,000
Ordinary shares authorized. P10 par
2,000,000
Unissued Preference shares
1,800,000
Unissued Ordinary shares
1,000,000
Subscription receivable, Ordinary share
180,000
Subscription receivable, Preference share
190,000
Notes receivable
224,650
Accumulated depreciation Property, Plant and Equipment
1,234,550
Preference shares subscribed
100,000
Ordinary shares
subscribed
200,000
Mortgage payable
980,230
Share premium Ordinary
600,000
Share premium Preference
200,000
Share premium Treasury
50,000
Accumulated profits and losses
2,000,000
Treasury shares Ordinary (10,000 shares at cost)
680,000
Revaluation Surplus
371,000
The share subscriptions are scheduled to be collected on the following dates:

Based on the above information, determine the total Reserves as of September 30,
2011.
Answer: P1,901,000
6. On June 1, 2012, after more than ten years of profitable business of ABC
Merchandising, partners Jaja, Jeje, Jiji and Jojo decided to dissolve the partnership
business and to liquidate its affairs for good. During the first five months of
operations for the calendar year ending December 31, 2012, the partnership has
earned a total net income of Php1,000,000. The Articles of Partnership provides for
the following profit/loss sharing agreements.

Jaja and Jojo is to receive Php30,000 and Php20,000 monthly salary, respectively;
Jeje, Jiji and Jojo shall receive interests for their beginning capital balances
amounting to 3%, 2% and 10%, respectively. The total capital balance of the

partnership as of the beginning of the year is Php2,500,000 of which Jiji and Jojo
owns Php500,000 and Php1,000,000, respectively. Jaja owns of the remaining
capital balance.
Any remaining profit or loss is apportioned to Jaja, Jeje, Jiji and Jojo, respectively,
using 1:2:3:4 ratio.

On July 2, 2012, the partnership sold Php1,000,000 of its assets for Php800,000. Total
available cash was used to pay all outstanding liabilities amounting to Php900,000
and liquidation expenses amounting to Php10,000. Also, in July 2, 2012, remaining
available cash of Php500,000 was paid to the partners as partial payment of their
respective shares in the partnership liquidation.
On July 15, 2012, the remaining assets were sold. After paying for expenses
amounting to Php15,000, all available cash was distributed to the partners. Jojo
received Php698,000 as his share for the final installment of his share in the
partnership.
Based on the foregoing, how much was received by Jeje as his share in the
installment payment to the partners in July 2, 2012?
Answer: P P321,428.57
7. On November 30, 2012, a big flood caused severe damage to the warehouse on
Tribecca Company. The company suffered a big loss on its merchandise inventory. The
following information was available from the accounting records of Tribecca.
1/1/2012 to date of flood
2011
Merchandise Inventory, beginning
P200,000
-0Purchases
1,190,000
P1,120,000
Purchase returns
30,000
20,000
Sales
1,560,000
1,200,000
At the beginning of 2012, the company changed its policy on selling prices of the
merchandise in order to produce a gross profit rate of 5% higher than the gross profit
rate in 2011. Undamaged merchandise marked to sell at P50,000 and damaged
merchandise marked to sell at P15,000 were salvaged. The damaged merchandise
slightly damaged and had an estimated realizable value of P12,000. What is the
estimated cost of inventory lost from the flood?
Answer: P222,500
8. CORONA and TUPAS establish a partnership to operate a used furniture business
under the name C&T Furniture. CORONA contributes furniture that cost P 60,000 and
has a fair value of P 90,000. TUPAS contributes P 30,000 cash and delivery equipment
that cost P 40,000 and has a fair value of P 30,000. The partners agree to share
profits and losses 60% to CORONA and 40% to TUPAS.
Calculate the peso amount of inequity that will result if the initial non-cash
contributions of the partners are recorded at cost rather than fair market value.
Answer: P18,000