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PROBLEMS

Items 1-19 (Source: Practical Accounting 1 by Condrado o. Uberita)


1-4. The accounts and balances shown below were taken from basic
companys trial balance on December 31, 2011. All adjusting entries have
been made.
Wages payable, P250,000; Cash, P175,000; Bonds Payable, P600,000;
Dividends
Payable,
P140,000;
Prepaid
Rent,
P136,000;
Inventory,P820,000; Sinking Fund Assets, P525,000; Trading Securities,
P153,00; Premium on Bonds Payable, P48,000, Investment in Subsidiary,
P1,020,000; Taxes Payable, P228,000; Accounts Payable, P248,000;
Accounts Receivable, P366,000; Property, plant and equipment,
P1,200,000; Patents Net, P150,000; Accumulated Depreciation-PPE,
P400,000; Land Held for future business site, P900,000.
1. How much should be reported in Basics December 31, 2011 balance
sheet as current assets?
a. P1,660,000
c. P1,860,000
b. P1,650,000
d. P1,850,000
Cash
P175,000
Prepaid rent
136,000
Inventory
820,000
Trading Securities
153,000
Accounts receivable
366,000
Total
P1,650,000
2. How much should be reported in Basics December 31, 2011 balance
sheet as noncurrent assets?
a. P2,375,000
c. P2,225,000
b. P3,395,000
d. P3,705,000
Sinking fund asset
Investment in Subsidiary
Property, plant and equipment
Patent-net
Accumulated Depreciation
Land held for future business site
Total

P 535,000
1,020,000
1,200,000
150,000
(400,000)
900,000
P3,395,000

3. How much should be reported in Basics December 31, 2011 balance


sheet as current liabilities?
a. P776,000
c. P916,000
b. P866,000
d. P966,000
Wages Payable

P250,000

Dividends Payable
Taxes Payable
Accounts Payable
Total

140,000
228,000
248,000
P866,000

4. How much should be reported in Basics December 31, 2011 balance


sheet as noncurrent liabilities?
a. 552,000
b. 648,000
c.
Bonds Payable
Premium on bonds payable
Total

c. 640,000
d. 648,000
P600,000
48,000
P648,000

5. Beloved Corporations trial balance contained


balances at December 31, 2011:
Trading Securities
Prepaid insurance
Cash
Inventory
Equipment and furniture-net
Patent
Accounts receivable-net
Land (held for capital appreciation)

the following account


150,000
30,000
330,000
900,000
990,000
120,000
480,000
1,200,000

How much is the total current assets in Beloveds December 31,2011


balance sheet?
a. P1,890,000
c. P2,190,000
b. P2,010,000
d. P2,430,000
Cash
Trading Securities
Accounts receivable-net
Inventory
Prepaid insurance
Total current assets

P 330,000
150,000
480,000
900,000
30,000
P1,890,000

6. Head Company prepared a draft of its 2011 balance sheet. The draft
statement reported current liabilities totalling P2, 000,000. However, none
of the following items were included in this preliminary total at December
31,2011.
Accounts payable
P300,000
Bonds payable, due 2012
500,000
Discounts on Bonds payable, due 2012
60,000
Dividends payable-January 31, 2012
160,000

Notes payable, due 2013


Bond issue costs

400,000
20,000

At which amount should Heads current liabilities be correctly reported in


December 31, 2011 balance sheet?
a. P2,880,000
c. P2,960,000
b. P2,900,000
d. P3,020,000
Balance per books
Accounts payable
Bonds payable, due 2012
Discounts on Bonds payable
Dividends payable
Bond issue costs
Total
7-10. The following balance
balances of Prince Company
Cash
Trading securities
Accounts receivable-net
3,275,000
Inventory
450,000
Other current assets
PPE-net
Other noncurrent assets

P2,000,000
300,000
500,000
( 60,000)
160,000
(20,000)
P2,880,000

sheet accounts and their respective unadjusted


was made available on December 31, 2011:
1,250,000 Accounts payable
340,000
800,000 Other current liabilities
200,000
2,135,000 Long-term liabilities
3,100,000

Treasury share

1,420,000
6,480,000
1,360,000

The following information relate to the December 31, 2011 balance sheet:
1. Cash includes P400,000 that has been restricted for the purchase of
manufacturing equipment.
2. Trading securities include P275,000of shares that was purchased in
order to give the company significant ownership and a seat on the
board of directors of a major suppliers.
3. Other current assets include P400,000 advance to the President of the
company, no due date has been set.
4. Long term liabilities include bonds payable of P1,000,000, of this
amount P250,000 represents bond scheduled to be redeemed in 2012.
5. Long term liabilities also include P700,000 bank loan. On May 15,2012,
the loan will become due on demand.
6. Cash in the amount of P1,900,000 has been placed in a restricted fund
for the redeemed of the preference shares. In 2012, both the cash and
the preference shares have been removed from the balanced sheet.

7. PPE includes land costing P800,000 is an investment property.


Companys policy is to measure investment property under the cost
model.
7. How much should be the current assets?
a. P7,630,000
b. P8,305,000

c. P8,430,000
d. P8,705,000

8. How much should be the non-current assets?


a. P7,840,000
c. P10,150,000
b. P8,515,000
d. P10,815,000
c.
Current
Non-current
Total per book:
P8,705,000 *
P7,840,000 **
Cash restricted for the purchase of
manufacturing equipment (1)
(400,000)
400,000
Investment in securities to give the
company significant ownership (2)
(275,000)
275,000
Advance to President (3)
(400,000)
400,000
Cash restricted for the redemption of
preference share (6)
1,900,000
Correct current and non-current assets
P7,630,000
P10,815,000
*includes cash, investments, accounts receivable, inventory and other
current liabilities
**includes PPE and other non-current assets
The investment property is classified as non-current asset
9. How much should be the current liabilities?
a. P540,000
c. P 950,000
b. P790,000
d. P1,940,000
10.
How much should be the non-current liabilities?
a. P2,325,000
c. P3, 275,000
b. P2,575,000
d. P3,275,000
Balance per book

Current
P 540,000

Non-current
*
P3,275,000

Current portion of bonds payable


(250,000)
Bank loan
(700,000)
Correct balances
P2,325,000

250,000
700,000
P1,490,000

*includes accounts payable and other current liabilities


11-13. Below are the account balance prepared by the bookkeeper for Jack
and Jill Company as of December 31, 2011:
Cash
Accts receivable, net
1,000,000
Inventories
Investments
Equipment (net)
Patents

P 800,000
Accounts payable
P 750,000
522,000
Long-term liabilities
570,000
Residual interest
763,000
960,000
320,000
P3,935,000

2,185,000
---

P3,935,000
Additional information:
Cash includes the cash surrender value of a life insurance policy for
P94,000, and bank overdraft of P25,000 has been deducted.
The net receivable balance includes:
o Accounts receivable-debit balances P600,000
o Accounts receivable-credit balances P40,000
Inventories do not include goods costing P30,000 ship out on
consignment. Receivables of P30,000 were recorded of these goods.
Investment include investments in ordinary shares, trading-P190,000,
available-for-sale-P483,000, and sinking fund of P90,000.
11. How much should be the current assets?
a. P1,063,000
c. P2,053,000
b. P1,873,000
d. P2,091,000
Current Assets:
Cash (P800,000-P94,000+P25,000)
Trading securities
Accounts Receivable (600,000-30,000)
Inventories (570,000+30,000)
Correct total current assets
12.

How much should be the total current assets?

P731,000
190,000
570,000
600,000
P2,091,000

a. P1,753,000
b. P1,847,000
Investments:
Available for sale securities
Cash surrender value
Sinking fund
Property, plant and equipment
Intangibles
Total non-current assets
P1,947,000

c. P1,937,000
d. P1,947,000
P483,000
94,000
90,000

P667,000
960,000
320,000

13. How much should be the total current liabilities?


a. P750,000
c. P 815,000
b. P775,000
d. P1,815,000
Accounts payable
Customers account with credit balances
Bank overdraft
Total current liabilities

P 750,000
40,000
25,000
P815,000

14-15. On January 1, 2011, Glow Company leased a building to Blow


Corporation for ten year term at an annual rental of P75,000. At inception of
the lease, Glow received P300,000 covering the first two years rent of
P150,000 and a deposits of P150,000. This deposits will not be returned to
Blow upon expiration of the lease but will be applied to payment of rent for
the last two years of the leased.
14. What portion of the P300,000 should be shown as a current liability in
Glows December 31, 2011 balance sheet?
a. 0
c. P150,000
b. P75,000
d. P300,000
Annual rental of P75,000
15. What portion of the P300,000 should be shown as a long-term liability in
Glows December 31, 2011 balance sheet?
a. P300,000
c. P 75,000
b. P150,000
d. P225,000
First 2 years rent of P150,000

16.18.
The following trial balance of Food Corporation at December 31,
2011 has been properly adjusted except for the income tax expense
adjustment:
Debit
Credit
Cash
Accounts receivable (net)
Inventory
Property, plant and equipment (net)
Accts payable and accrued liabilities
P1,701,000
Income taxes payable
697,600
Deferred income tax liability
85,000
Ordinary share capital
2,350,000
Share premium
3,680,000
Accumulated profit, Jan. 1, 2011
Net sales and other revenue
13,360,000
Costs and Expenses
Income tax expenses
.

P 775,000
2,695,000
2,085,000
7,366,000

3,450,000
11,180,000
1,222,600
P25,323,600

P25,323,600
Other financial data for the year ended December 31, 2011 are as follows:
o Included in accounts receivable is P1,200,000 due from a customer
and payable is quarterly instalments of P150,000. The last payment is
due December 29, 2013.
o The balance in the deferred income tax liability account pertains to a
temporary difference that arose in a prior year, of which P20,000 will
reverse within one year.
o During the year, estimated tax payments of P525,000 where charge to
income tax expense. The current and future tax rate on all types of
income is 30%.
In Food Corporations December 31, 2011 balance sheet.
16. How much should be the total current assets?
a. P4,955,000
c. P5,555,000
b. P5,405,000
d. P6,080,000

Cash
Accounts receivable
Less: Amount collectible in 2013
(P150, 000 x 4)
2,095,000
Inventory
Total current assets

775,000

P2,695,000
600,000
2,085,000
P4,955,000

17. How much should be the total current liabilities?


a. P1,873,600
c. P2,375,000
b. P1,893,600
d. P2,440,000
Accts payable and accrued liabilities
P1,701,000
Income tax payable (P697,600-P525,000)
172,600
Total current liabilities
P1,873,600
18. The accumulated profit balance shall be
a. P4,536,000
c. P4,932,400
b. P4,905,000
d. P4,976,000
Accumulated profits, January 1, 2011
P3,450,000
Add. Net income after tax:
Net sales and other revenues
P13,360,000
Less: Cost and expenses
11,180,000
Net income
P 2,180,000
Less: Income tax (P2,180,000 x 30%)
654,000
1,526,000
Accumulated profits, December 31, 2011
P4,976,000
19. Merit Corporation has an arrangement with its customers that, in any
12-month period ending March 31, if they purchase goods for a value of at
least P2,000,000, they will received retrospective discount of 2%.at the
end of the year December 31, 2011, Merit Corporation has made sales to
a customer during the period April to December 31, 2011 of P1,800,000.
What amount of revenue should Merit Corporation report in its December
31, 2011income statement retailed to the above arrangement.
a. P1,323,000
c. P1,800,000
b. P1,764,000
d. P1.960,000
P1,800,000 x 98% = P1,764,000

Items 20-30 (source KIESO)


20.
Stine Corp.'s trial balance reflected the following account balances
at December 31, 2010:
Accounts receivable (net)
$24,000
Trading securities
6,000
Accumulated depreciation on equipment and furniture15,000
Cash
11,000
Inventory
30,000
Equipment
25,000
Patent
4,000
Prepaid expenses
2,000
Land held for future business site
18,000
In
a.
b.
c.
d.

Stine's December 31, 2010 balance sheet, the current assets total is
$90,000.
$82,000.
$77,000.
$73,000.
Cash

$11,000

Accounts receivable (net)


Inventory
Trading securities
Prepaid expenses
Total current assets
$73,000

24,000
30,000
6,000
2,000

Use the following information for questions 17 through 19.


The following trial balance of Reese Corp. at December 31, 2010 has been
properly adjusted except for the income tax expense adjustment.
Reese Corp.
Trial Balance
December 31, 2010
Dr.
Cr.
Cash
Accounts receivable (net)
Inventory
Property, plant, and equipment (net)
Accounts payable and accrued liabilities
Income taxes payable

775,000
2,695,000
2,085,000
7,366,000
$ 1,701,000
654,000

Deferred income tax liability


Common stock
Additional paid-in capital
Retained earnings, 1/1/10
Net sales and other revenues
Costs and expenses
Income tax expenses

85,000
2,350,000
3,680,000
3,450,000
13,360,000
11,180,000
1,179,000
$25,280,000 $25,280,000

Other financial data for the year ended December 31, 2010:
Included in accounts receivable is $1,200,000 due from a customer and
payable in quarterly installments of $150,000. The last payment is due
December 29, 2012.
The balance in the Deferred Income Tax Liability account pertains to a
temporary difference that arose in a prior year, of which $20,000 is
classified as a current liability.
During the year, estimated tax payments of $525,000 were charged to
income tax expense. The current and future tax rate on all types of
income is 30%.
In Reese's December 31, 2010 balance sheet,
21. The current assets total is
a. $6,080,000.
b. $5,555,000.
c. $5,405,000.
d. $4,955,000.
$775,000 + [$2,695,000 ($150,000 4)] + $2,085,000 =
$4,955,000.
22. The
a.
b.
c.
d.

current liabilities total is


$1,850,000.
$1,915,000.
$2,375,000.
$2,440,000.
$1,701,000 + ($654,000 $525,000) + $20,000 = $1,850,000.

23. The
a.
b.
c.
d.

final retained earnings balance is


$4,451,000.
$4,536,000.
$4,976,000.
$4,905,000.

$3,450,000 + $13,360,000 $11,180,000 ($1,179,000


$525,000) = $4,976,000.
24. Ortiz Co. had the following account balances:
Sales
$ 120,000
Cost of goods sold
60,000
Salary expense
10,000
Depreciation expense
20,000
Dividend revenue
4,000
Utilities expense
8,000
Rental revenue
20,000
Interest expense
12,000
Sales returns
11,000
Advertising expense
13,000
What would Ortiz report as total revenues in a single-step income
statement?
a. $133,000
b. $ 10,000
c. $144,000
d. $120,000
$120,000 + $4,000 + $20,000 $11,000 = $133,000.
25. Ortiz Co. had the following account balances:
Sales
$ 120,000
Cost of goods sold
60,000
Salary expense
10,000
Depreciation expense
20,000
Dividend revenue
4,000
Utilities expense
8,000
Rental revenue
20,000
Interest expense
12,000
Sales returns
11,000
Advertising expense
13,000
What would Ortiz report as total expenses in a single-step income
statement?
a. $127,000
b. $134,000
c. $123,000
d. $ 63,000
$60,000 + $10,000 + $20,000 + $8,000 + $12,000 + $13,000 =
$123,000.
26.

An income statement shows income before income taxes and


extraordinary items in the amount of $2,055,000. The income taxes

payable for the year are $1,080,000, including $360,000 that is


applicable to an extraordinary gain. Thus, the income before
extraordinary items is
a.
b.
c.
d.

$1,335,000.
$615,000.
$1,395,000.
$675,000.
$2,055,000 ($1,080,000 $360,000) = $1,335,000.

27.

Dole Company, with an applicable income tax rate of 30%, reported


net income of $210,000. Included in income for the period was an
extraordinary loss from flood damage of $30,000 before deducting the
related tax effect. The company's income before income taxes and
extraordinary items was
a.
b.
c.
d.

$240,000.
$300,000.
$330,000.
$231,000.
$210,000 + ($30,000 .7) = $231,000
$231,000 .7 = $330,000.

28.

A review of the December 31, 2010, financial statements of Somer


Corporation revealed that under the caption "extraordinary losses,"
Somer reported a total of $515,000. Further analysis revealed that the
$515,000 in losses was comprised of the following items:
(1)Somer recorded a loss of $150,000 incurred in the abandonment
of equipment formerly used in the business.
(2)In an unusual and infrequent occurrence, a loss of $250,000 was
sustained as a result of hurricane damage to a warehouse.
(3)During 2010, several factories were shut down during a major
strike by employees, resulting in a loss of $85,000.
(4)Uncollectible accounts receivable of $30,000 were written off as
uncollectible.
Ignoring income taxes, what amount of loss should Somer report as
extraordinary on its 2010 income statement?
a.
b.
c.
d.

$150,000.
$250,000.
$400,000.
$515,000.

$515,000 $150,000 $85,000 $30,000 = $250,000.


Use the following information for questions 29 and 30.
At Ruth Company, events and transactions during 2010 included the
following. The tax rate for all items is 30%.
(1) Depreciation for 2008 was found to be understated by $30,000.
(2) A strike by the employees of a supplier resulted in a loss of $25,000.
(3) The inventory at December 31, 2008 was overstated by $40,000.
(4) A flood destroyed a building that had a book value of $500,000.
Floods are very uncommon in that area.
29.

The effect of these events and transactions on 2010 income from


continuing operations net of tax would be
a.
b.
c.
d.

$17,500.
$38,500.
$66,500.
$416,500.
$25,000 $7,500 = $17,500.

30.

The effect of these events and transactions on 2010 net income net of
tax would be
a.
b.
c.
d.

$17,500.
$367,500.
$388,500.
$416,500.
$17,500 + ($500,000 .7) = $367,500.