PRACTICAL ACCOUNTING ONE REVIEWERS / TESTBANKS

1. In an audit of Selena Company on December 31, 2009, the

following information is gathered:
Balance per book 6,700,000
Customers check 200,000
Depositors note charged to account
650,000
Customers note collected by bank
120,000
Outstanding checks 800,000
Checkbook printing charge 2,000
Certified checks included in the outstanding checks
100,000
Deposit in transit 1,200,000
Interest earned on deposits net of 20% final tax
32,000
The adjusted cash in bank of Selena Company on December 31,
2009 is
a. 6,050,000 b. 6,700,000 c. 6,000,000
d. 5,300,000

Balance per book 6,700,000

Customers NSF check ( 200,000)
Depositors note charged to account ( 650,000)
Customers note collected by bank 120,000
Checkbook printing charge ( 2,000)
Interest earned on deposits 32,000
Balance per books 6,000,000

2. On January 1, 2009, Everlasting Company purchased serial

bonds with a face value of P4,000,000 and a stated interest rate of
10% to be held to maturity. The stated interest is payable annually
on December 31. The bonds are acquired to have an effective
yield at 12%. The bonds mature at annual installments of
P1,000,000 every January 1, beginning in January 1, 2010 and
every January 1 thereafter. What is the market price of the bond
investment on January 1, 2009? (Round off present value factors
to 2 decimal places)
 a. 4,000,000 b. 3,776,000 c. 3,842,000
d. 3,876,000

PV of 1/1/10 cash flow (1.4M x .89) 1,246,000

PV of 1/1/11 cash flow (1.3M x .80) 1,040,000
PV of 1/1/12 cash flow (1.2M x .71) 852,000
PV of 1/1/13 cash flow (1.1M x .64) 704,000
Total 3,842,000

3. On December 31, 2009, the balance of accounts receivable of

Jalena Company was P6,000,000 and the January 1, 2009
balance of allowance for doubtful accounts was P800,000. The
following data were gathered:
Credit Sales Write offs
Recoveries
2006 9,000,000 400,000 30,000
2007 13,000,000 600,000 70,000
2008 15,000,000 700,000 120,000
2009 20,000,000 650,000 150,000
Doubtful accounts are provided for a percentage of credit sales.
The accountant calculates the percentage annually by using the
experience of the three years prior to the current year. Hpw much
should be reported as allowance for doubtful accounts on
December 31, 2009?
a. 1,100,000 b. 800,000 c. 1,300,000 d.
1,250,000

Total writeoff (400 + 600 + 700) 1,700,000

Less: Total recovery (30 + 70 + 120) 220,000
Net writeoff 1,480,000
Divided by total credit sales 37,000,000
Doubtful accounts expense rate 4%

Beg. ADA 800,000

Writeoff ( 650,000)
Recovery 150,000
DAE (20M x 4%) 800,000
ADA, end 1,100,000
 4. Esplanade Company sells a variety of merchandise to its
customers. On December 31, 2009, the balance of Esplanades
ending inventory account was P3,000,000, and the allowance for
inventory writedown account before any adjustment was
P150,000. Relevant information about the proper valuation of
inventories and the breakdown of inventory cost and market data
at December 31, 2009, are as follows:

Cost Replacement Sales NRV Normal

Cost Price Profit
Bags 800,000 900,000 1,200,000 550,000 250,000
Shoes 1,200,000 1,200,000 1,300,000 1,100,000 150,000
Clothing 700,000 1,000,000 1,250,000 950,000 300,000
Lingerie 500,000 600,000 1,000,000 350,000 300,000
How much loss on inventory writedown is included in 2009 cost of
sales?
a. 50,000 b. 200,000 c. 400,000 d.
250,000

Lower of cost or NRV on item by item basis (550 + 1M + 700 +

350) 2,600,000
Less: Total cost 3,000,000
Required allowance for inventory writedown
400,000
Less: Beginning allowance
150,000
Loss on writedown
250,000

5. Flavia Manufacturing began operations 3 years ago. On October

1, 2009, a fire broke out in the warehouse destroying all
inventories. The information available is presented below.
January 1 October 1
Inventory 500,000
Accounts receivable 800,000
500,000
Accounts payable 400,000
650,000
Collection on accounts receivable, 1/1 to 10/1
6,500,000
 Payments to suppliers, 1/1 to 10/1
5,200,000
Goods out on consignment at October 1, at cost
400,000
2006 2007 2008
Sales 6,000,000 7,500,000
8,000,000
Gross profit on sales 1,650,000 1,725,000
2,000,000
What is the inventory loss suffered as a result of the fire?
a. 900,000 b. 425,000 c. 200,000 d.
825,000

Sales (6,500,000 800,000 + 500,000

6,200,000
Purchases (5,200 400 + 650)
5,450,000
GP % (27.5% + 23% +25%) / 3 or (5,375/21,500)
25%
GAS (500,000 + 5,450,000)
5,950,000
Less: Estimated COS (6.2M x (1-25%)
4,650,000
Estimated ending inventory
1,300,000
Less: Cost of goods out on consignment
400,000
Estimated fire loss
900,000

6. On January 1, 2009, Katherine Company purchased 20% of the

outstanding ordinary share capital of David Company for
P4,000,000, of which P1,000,000 was paid in cash and
P3,000,000 payable with 12% annual interest on December 31,
2010. Katherine also paid P500,000 to a business broker who
helped find a suitable business and negotiated to purchase.

At the time of the acquisition, the fair value of Davids identifiable

assets and liabilities were equal to their carrying value except for
 an office building which has a fair value in excess of book value of
P2,000,000 and an estimated life of 4 years. Davids shareholders
equity on January 1, 2009 was P13,000,000.

During 2009, David reported net income of P6,000,000 and paid

dividends of P4,000,000. What amount should Katherine
Company report as investment in associate on December 31,
2009?
a. 4,300,000 b. 4,800,000 c. 4,900,000
d. 4,500,000

Cost 4,500,000
Share in net income (6M x 20%) 1,200,000
Dividends ( 800,000)
Amortization ( 100,000)
Carrying amount 12/31/09 4,800,000

7. During 2009, Judith Company Corporation constructed a new

hydro electric power plant at a cost of P25,000,000. The
expenditures for this facility, which was finished late in 2009, were
incurred evenly during the year. The entity had the following loans
among Judiths liabilities outstanding on December 31, 2009:
12% note to finance construction of the hydro-electric power
plant, dated January 1, 2009, P10,000,000 that was unpaid as
of December 31, 2009. Investments were made on the excess
borrowings from this loan and income of P50,000 was realized
from deposits and other investments during 2009.
8%, 20-year bonds payable issued at face value on January 1,
2001, P40,000,000.
15%, 5-year mortgage note payable, dated March 1, 2006,
P10,000,000.
What is the amount of interest that was capitalized as cost of new
building?
a. 2,560,000 b. 1,385,000 c. 1,200,000
d. 2,325,000

Average expenditures (25M / 2)

12.5M
Interest on BP (8% x 40M)
3.2M
 Interest on MP (15% x 10M)
1.5M
Total 4.7M
Divide by the total Principal (40M + 10M)
50M
Capitalization rate
9.4%
Specific borrowings (10M x 12%) 50,000
1,150,000
General borrowings
235,000
Total borrowing cost eligible for capitalization
1,385,000

8. On January 1, 2009, Amanda Company received from a customer

an 8-month, 6,000,000 note bearing an annual interest rate of
10%. The principal and the interest are payable on September 1,
2009. To obtain cash quickly, Amanda discounted the note with
East-West Bank on March 1, 2009. The bank charged a discount
rate of 12%. What is the loss on note receivable discounting to be
recognized by Amanda?
a. 100,000 b. 400,000 c. 384,000 d.
84,000

Maturity value (6M x 10% x 8/12) 6,400,000

Less: Discount (6.4M x 12% x 6/12)
384,000
Proceeds 6,016,000
Less: Principal and interest receivable (6M x 10% x 2/12)
6,100,000
Loss on discounting ( 84,000)

9. Marla Company acquired new equipment on account on March 1,

2009 with a 5% discount if paid with in 15 days. The following
information is available:
List price 3,500,000
Trade discount 20%
Removal of old equipment 100,000
Cost of installation 50,000
 Cost of redecoration of office in connection with the purchase
250,000
Insurance taken during delivery
20,000
Repairs incurred while in transit
10,000
Transportation costs 30,000
If the invoice was paid on March 31, 2009, what should be the cost
of equipment?
a. 2,760,000 b. 3,425,000 c. 2,900,000
d. 3,010,000

Purchase price net of discount (2,800 -140)

2,660,000
Direct cost (50 + 20 + 30) 100,000
Total cost 2,760,000

10. The inventory control account balance of Luca Company at

December 31, 2009 was P4,000,000 using the perpetual inventory
system. A physical count conducted on that day found inventory
on hand worth of P3,400,000. Net realizable value for each
inventory item held for sale exceeded cost. An investigation of the
discrepancy revealed the following:
a. Goods costing P300,000 were sold on credit to Fernando
Company for P500,000 on December 28, 2009 FOB
destination. The goods were still in transit on December 31,
2009. The sales invoice was raised and processed on
December 31, 2009.
b. Goods costing P450,000 were purchased on credit FOB
destination from Kimi Company on December 29, 2009. The
goods were received on December 30, 2009 and included in
the physical count. The purchase invoice was received on
January 2, 2010.
c. Goods costing P150,000 were purchased on credit from Alistair
Company on December 27, 2009 FOB shipping point. The
goods were shipped on December 28, 2009 but, as they had
not arrived by December 31, 2009, were not included in the
physical count. The purchase invoice was received and
processed on December 31, 2009.
 d. Goods worth P200,000 held on consignment from Jensen
Company had been included in the physical count.
e. On December 31, 2009, Luca Company sold goods costing
P750,000 on credit FOB shipping point to Ruben Company for
P1,000,000. The goods were dispatched from the warehouse
on December 31, 2009 but the sales invoice had not been
raised at that date.
f. Damaged inventory items valued P350,000 were discovered
during the physical count. These items were still recorded as of
December 31, 2009 but were omitted from the physical count
records pending their writeoff.
What is Luca Companys adjusted inventory amount?
a. 3,650,000 b. 3,600,000 c. 4,100,000
d. 4,000,000

Unadjusted perpetual balance

4,000,000
Recorded goods sold FOB destination
300,000
Unearned merchandise that had been received
450,000
Unrecorded goods sold FOB shipping point (
750,000)
Damaged goods ( 350,000)
Adjusted perpetual balance 3,650,000

Unadjusted periodic balance

3,400,000
Uncounted goods sold FOB destination
300,000
Goods in transit purchased FOB shipping point
150,000
Goods held on consignment ( 200,000)
Adjusted periodic balance 3,650,000

11. Lene Company uses straight line depreciation for its property,
plant and equipment. Balances of the property, plant and
equipment and related accumulated depreciation accounts on
January 1, 2009 are P25,000,000 and P5,000,000 and on
December 31, 2009 are P20,000,000 and P6,200,000. Lene did
 not purchase property, plant and equipment during 2009.
However, machinery was sold for P3,000,000 that resulted in a
P400,000 loss. What is the depreciation expense for 2009?
a. 1,200,000 b. 2,800,000 c. 3,600,000
d. 2,200,000

Accum. Depn. 1/1 5,000,000

Accum. Depn. From sold equipment (5M (3M + 400)
(1,600,000)
Depreciation expense (SQUEEZE) 2,800,000
Accum. Depn. 12/31 6,200,000

12. During 2009, Dinara Company made the following property,

plant and equipment expenditures:
Land and building acquired from Samantha Company
7,000,000
Repairs and reconditioning cost made to the building
250,000
Reconstruction of sidewalk and fences
100,000
Special tax assessment
50,000
Remodeling of office space including new partitions and walls
400,000

In exchange for the land and building acquired from Samantha,

Dinara issued 50,000 ordinary shares of its P100 par value
ordinary shares. On the date of purchase, the shares had a market
value of P140 per share and the land and building had a fair value
of P2,000,000 and P6,000,000 respectively. During the year,
Dinara also received land from a shareholder to facilitate to
relocation of its main offices in the city. Dinara paid P50,000 for
the donated land transfer. The donated land is fairly valued at
P1,800,000. What is the total cost of the land acquisition?
a. 4,100,000 b. 3,900,000 c. 3,850,000
d. 3,600,000

FV of land acquired by issuing of shares

2,000,000
 Special assessment
50,000
FV of donated land
1,800,000
Total cost 3,850,000

13. Dominika Company purchased another entity for P8,000,000

cash. The acquiree had total liabilities of P1,500,000. Dominika
Companys assessment of the fair value of the assets it obtained
when it purchased the other entity is as follows:
Cash 500,000
Accounts receivable net 1,000,000
Inventory 800,000
Property, plant and equipment net 3,000,000
In-process research and development 2,000,000
Assembled workforce 1,200,000
What is the goodwill arising from the acquisition?
a. 2,200,000 b. 3,000,000 c. 1,000,000
d. 700,000

Acquisition cost
8,000,000
Less: FV on net assets acquired (7.3M-1.5M)
5,800,000
Goodwill 2,200,000

14. The following were taken from the incomplete financial data of
Sam Company, a calendar year merchandising corporation:
December 31, 2005 December
31, 2006
Trade accounts receivable 840,000
780,000
Inventory 1,500,000
1,000,000
Accounts payable 950,000
980,000
Accrued gen. & admin. expense 130,000
170,000
Prepaid selling expense 150,000
130,000
 PPE, net 1,650,000
1,420,000
Patent 425,000
300,000
Investment in Associate 550,000
720,000
The following additional information were made available: cash
payments for selling and administrative expense was 900,000,
payments for purchases, net of discounts of 70,000 was
1,530,000. Equipment with a book value of 200,000 was sold for
250,000. There were no acquisitions of PPE and other
transactions affecting net income during the period . There no
acquisitions of investment during the year 2006.

If the company reported a net income of 270,000, what is the

amount of collections on trade receivables in 2006?
a. 2,425,000 b. 2,470,000 c. 3,285,000
d. 3,485,000

Net income 270,000

Gain on sale of equipment ( 50,000)
Income from investment in associates (
170,000)
Depreciation 30,000
Amortization of patent 125,000
Selling and Admin. expenses
960,000
Gross profit 1,165,000

Sales 3,225,000
Cost of sales 2,060,000
Gross profit 1,165,000

Cost of sales:
Beg. Inv. 1,500,000
Purchases 1,630,000
Purchase discounts ( 70,000)
Ending inventory
(1,000,000)
COS 2,060,000
 Accounts payable Accounts
Receivable
1,530,000 950,000 840,000
3,825,000
70,000 1,630,000 3,200,000
980,000 780,000

Cash paid Selling & Admin

900,000
PB 150,000
AE 170,000
AB (130,000)
AB (130,000)
Selling & Admin (accrual) 960,000

Property, plant & equipment

1,650,000 200,000 sold
- 30,000 depreciation
1,420,000

15. The balance sheet at December 31, 2006 of Mall Company

showed a cash balance of P91,750. An examination of the books
disclosed the following:

Cash sales of P12,000 from January 1 to 7 were pre-dated as of

December 28, 31, 2006 and charged to the cash account.
Customers check totaling P4,500 deposited with and returned by
the bank NSF on December 27, 2006 were not recorded in the
books. Checks of P5,600 in payment of liabilities were prepared
before December 31, 2006 and recorded in the books, but
withheld by the treasurer. Post-dated checks totaling P3,400 are
being held by the cashier as part of cash. The companys
experience shows that post-dated checks are eventually realized.
The cash account includes P20,000 being reversed for the
purchased of a mini-computer which will be delivered soon.
Personal checks officers, P2,700 were redeemed on December
31, 2006, but returned to cashier on January 2, 2007. How much
is the cash balance that should be shown in the December 31,
2006?
 a. 91,750 b. 69,150 c. 54,750 d.
43,550

Balance per book 91,750

Cash sales for 2007 dated 2006 (12,000)
NSF ( 4,500)
Undelivered check 5,600
Post dated check ( 3,400)
Cash set aside for computer (20,000)
Personal check ( 2,700)
Correct cash balance 54,750

16. Your client, Mills Corporation, requests your assistance in

determining the amount of loss and in filing in insurance claim in
connection with a fire on June 15, 2006 that destroyed some of the
companys inventory and accounting records. You were able to
obtain the following information from available records.

The last physical inventory was taken on December 31, 2005. At

the time, total (at cost) amounted to P210,789.80. Accounts
payable were P110,106.42 on December 31, 2005 and
P126,945.37 at the time the fire occurred. Payments to vendors
from December 31, 2005 to the date of fire totaled P641,871.56.
All sales are on account and account receivable were
P135,009.18 at December 31, 2005 to the date of fire amounted to
P876,195.50. Almost all the merchandising items are sold
approximately 30% in excess of cost. As at June 15, 2006, the
total cost of inventory items not destroyed by the fire amounted to
P144,882.33.

How much is the loss incurred by the company as a result of the

fire?
a. 72,055.23 b. 216,937.56 c. 275,668.21
d. 430,785.88

Beginning inventory 210,789.80

Purchases 658,710.51
TGAS 869,500.31
Cost of sales (848,331.57 / 130%) 652,562.75
Estimated inventory 216,937.56
 Goods based on counting 144,882.33
Inventory loss 72,055.23

Accounts payable Accounts

receivable
641,871.56 110,106.42 135,009.18
876,195.50
658,710.51 848,331.57
126,945.37 107,145.25

17. Marcel Company purchased 5,000 shares of Boniface Co. par

P100 at P120 on July 2006. Marcel Company classified the
securities as available for sale. Marcel Company received a cash
dividend of 1 share dividend at P10 per share on the stock and
was granted to purchase 1 share at 105 for every 4 shares held.
The share had a market value ex-right of P115 and the right had a
value of P5. On December 20, 2006, the company sold 2,000
rights at P7.50 and exercised remaining rights. What is the
average unit cost of the total investment as of December 31,
2006?
a. 95.83 b. 99.52 c. 98.70 d.
105.00

Upon acquisition P600,000 5,000

Share dividend - 1,000
Share rights (5/20 x P600,000) ( 25,000)
_____
Balance of original investment P575,000 6,000

Cost of new investment on exercise of rights

Cash paid (4,000 rights / 4 x P105)
P105,000
Cost of rights exercised (4,000/6,000 x P25,000)
16,667
Cost of new investment P121,667

Cost Shares Unit

cost
Original P575,000 6,000
New 121,667 1,000
 Total 696,667 7,000
P99.52
18. On January 1, 2006, Trooper Enterprises, Inc. developed a new
machine that reduces the time required to insert the fortunes into
their fortune cookies. Because the process is considered valuable
to the fortune cookie industry, Trooper had a machine patented.
The following expenses were incurred in developing and patenting
the machine:

Research and development laboratory expenses

P250,000
Metal used in construction of the machine
80,000
Blueprints expenses to design the machine
32,000
Legal expense to obtain patent
120,000
Wages and employees work on the research, development,
and building of the machine; 60% of the time was
spent in actual building of the machine
150,000
Expense of drawing required by the patent office to be
submitted with the patent application
17,000
Fees paid to Government patent office to process application
24,500

On January 2, 2007, Trooper Enterprises, Inc. paid P35,200 in

legal fees to successfully defend the patent against an
infringement suit by Alliance Company.

What is the carrying value of the patent in December 31, 2007?

a. 142,500 b. 145,350 c. 175,500 d.
178,697

Total cost of patent (120 + 17 + 24.5)

P161,500
Less: Amortization for 2 years (161.5 x 2/20)
16250
Carrying value P145,350
19. Pearl Company began operations on January 1, 2005. On
December 31, 2005, Pearl provided for uncollectible accounts
based on 1% of annual credit sales. On January 1, 2006, Pearl
changed its method of determining its allowance for uncollectible
accounts by applying certain percentage to the accounts
receivable aging as follows:

Days past invoice date Percent deemed to be

uncollectible
0-30 1
31-90 5
91-180 20
Over 180 80

In addition, Pearl wrote off all accounts receivable that were over 1
year old. The following additional information relates to the year
ended December 31, 2005 and 2006:
2006 2005
Credit sales P6,000,000 P5,600,000
Collections 5,830,000 4,800,000
Accounts written off 54,000 none
Recovery of accounts previously
Written off 14,000 none
Days past invoice date @ 12/31
0-30 600,000 500,000
31-90 160,000 180,000
91-180 120,000 90,000
Over 180 50,000 30,000

What is the provision for uncollectible accounts for the year ended
December 31, 2006?
a. 22,000 b. 62,000 c. 76,000 d.
78,000
Required allowance for bad debts 2006
600,000 x 1% = P 6,000
160,000 x 5% = 8,000
120,000 x 20% = 24,000
50,000 x 80% = 40,000 P 78,000
Accounts written off 54,000
 Total P132,000
Beginning balance (1% P5,600,000) 56,000
Recovery 14,000 70,000
Bad debts P 62,000

Items 20 to 21:
On June 30, 2010, Cape Company purchased 25% of the
outstanding ordinary shares of Bit Co. at a total cost of
P2,100,000. The book value of Bit Co.s net assets on acquisition
date was P7,200,000. For the following reasons, Cape was willing
to pay more than book value for Bit Co. stock:
- Bit Co. has depreciable assets with a current fair value of
P180,000 more than their book value. These assets have a
remaining useful life of 10 years.
- Bit co. owns a tract of land with a current fair value of
P900,000 more than its carrying amount.
- All other identifiable tangible and intangible assets of Bit Co.
have current fair values that are equal to their carrying
amounts.
Bit reported net income of P1,620,000, earned evenly during the
current year ended December 31, 2010. Also in the current year,
it declared and paid cash dividends of P315,000 to its ordinary
shareholders. Market value of Bit Co.s ordinary shares at
December 31, 201o0 is P9 million. Cape Companys financial
year-end is December 31.

20. What is the total amount of goodwill of Bit Co. based on the
price paid by Cape Company?
(a) P300,000 (b)P1,080,000 (c) P120,000 (d)
P30,000

21. What amount of investment revenue should Cape report on its

income statement for the year ended December 31, 2010 under
the equity method?
(a) P202,500 (b) P200,250 (c) P78,750
(d) P123,750
22. Under the equity method, the carrying value of Cape
Companys investment in ordinary shares of Bit Co. on December
31, 2010 should be:
(a) P2,221,500 (b) P2,100,000 (c) P2,070,000 (d)
P2,250,000

23.In January 2009, Farley Corp. acquired 20% of the outstanding

common stock of Davis Co. for P800,000. This investment gave
Farley the ability to exercise significant influence over Davis.
The book value of the acquired shares was P600,000. The
excess of cost over book value was attributed to an identifiable
intangible asset which was undervalued on Davis balance sheet
and which had a remaining useful life of ten years.
For the year ended December 31, 2009, Davis reported net
income of P180,000 and paid cash dividends of P40,000 on its
common stock.
What is the proper carrying value of Farleys investment in
Davis at December 31, 2009?
(a) P772,000 (b) P780,000 (c) P800,000
(d) P 808,000

Original investment 800,000

Add: Share in net income
(180,000 x20%) 36,000
Less: Amortization
(200,000 / 10) 20,000 16,000
Total 816,000
Less: Dividends (40,000 x 20%) 8,000
Carrying value of Farleys investment 808,000

24.On January 1, 2009, Pie Company purchased available-for-sale

debt securities with face value of P2,000,000 for P1,900,500
including transaction costs of P100,500. The bonds mature on
December 31, 2011 and pay interest of 8% annually every
December 31 with a 10% effective yield. On December 31, 2009,
the bonds are quoted at 105. What amount of unrealized gain on
these bonds should be reported on the 2009 statement of changes
in equity?
 (a) P169,450 (b) P199,500 (c) P300,000
(d) P179,500

25.On January 1, 2009, Sweet Company purchased 5-year bonds

with face value of P8,000,000 and stated interest of 10% per year
payable semi-annually January 1 and July 1. The bonds acquired
to yield 8%. What is the purchase price of the bonds?
(a) P7,382,400 (b) P8,617,600 (c) P8,648,800 (d)
P7,351,200

26. Abe Company, lessor, leases its equipment under an

operating lease. The lease term is 5 years and the lease
payments are made in advance on January 1 of each year as
shown in the following schedule:
January 1, 2005 1,000,000
January 1, 2006 1,000,000
January 1, 2007 1,400,000
January 1, 2008 1,700,000
January 1, 2009 1,900,000
On December 31, 2006, Abe Company should recognize rent
receivable at:
(a) P1,400,000 (b) P800,000 (c) P400,000
(d) P 0

Average rent (7M/ 5) P1,400,000

Rent income for 2005 and 2006 (1.4M x 2)
P2,800,000
Rent received for 2005 and 2006 (1M + 1M)
2,000,000
Rent receivable 12/31/2006
P4,800,000
27. Might Company purchased a tractor on January 1, 2009
at a cost of P1,600,000 for the purpose of leasing it. The
tractor is estimated to have a useful life of 5 years with scrap of
P100,000. Depreciation is on a straight line basis. On April 1,
2009, Might entered into a lease contract for the lease of the
tractor for a term of two years up to March 31, 2011. The lease
fee is P50,000 monthly and the lessee paid P600,000, the
 lease for one year. Might paid P120,000 commission
associated with negotiating the lease, P15,000 minor repairs,
and P10,000 transportation of the tractor to the lessee during
2009. Might Company should report net rent revenue for the
year 2009 at:
(a) P160,000 (b) P235,000 (c) P80,000
(d) P85,000

Rental from April 1 to December 31, 2009

(50,000 x 9) P450,000
Depreciation (1,600,000 100,000/5)
(300,000)
Commission (120,000/ 2 x 9/12) ( 45,000)
Repairs ( 15,000)
Transportation ( 10,000)
Net rent revenue P 80,000

28. In the long-term liabilities section of its balance sheet at

December 31, 2008, Mix Company reported a capital lease
obligation of P750,000, net of current portion of P13,636.
Payments of P90,000 were made on both January 2, 2009 and
January 2, 2010. Mixs incremental borrowing rate on the date
of lease was 11% and the lessors implicit rate, which was
known to Mine, was 10%. In its December 31, 2009 balance
sheet, what amount should Mix report as capital lease
obligation, net of current portion?
(a) P660,000 (b) P735,000 (c) P763,636
(d) P742,500

Total lease liability, Dec. 31, 2008

(750,000 + 13,636) P763,636
Payment on January 2, 2009 P90,000
Interest for 2007 (10% x 763,636) (76,364) ( 13,636)
Lease liability, December 31, 2009 P750,000
Payment on January 2, 2010 P90,000
Interest for 2010 (10% x 750,000) (75,000) ( 15,000)
Lease liability, December 31, 2010
P735,000
Current portion (represented by principal
 payment on January 2, 2010) P
15,000
Long-term portion (remainder)
735,000
Total lease liability, December 31, 2009
P750,000

29. Jen Company is completing the preparation of its draft

financial statements for the year ended December 31, 2009.
The financial statements are authorized for issue on March 31,
2010.
On March 15, 2010, a dividend of P1,750,000 was declared
and a contractual profit share payment of P350,000 was made,
both based on the profit for the year ended December 31, 2009.
On February 1, 2010, a customer went into liquidation having
owed the entity of P340,000 for the past 5 months. No allowance
had been made against this debt in the draft financial statements.
On December 30, 2010, a manufacturing plant was destroyed
by fire resulting in a financial loss of P2,600,000.
What total amount should be recognized in profit or loss for the
year ended December 31, 2009 to reflect adjusting events after
the end of reporting period?
(a) P1,750,000 (b) P3,290,000 (c) P2,600,000 (d)
P690,000

Contractual profit share payment 350,000

Bad debt loss 340,000
Loss due to fire 2,600,000
Total adjusting entries 3,290,000
30. Heidi uses the direct method to prepare its cash flow
statement. Pertinent account balances are:
2009 2008
Prepaid interest expense 200,000
50,000
Property, plant and equipment 5,000,000
4,500,000
Unamortized bond discount 250,000
300,000
Selling expenses 7,200,000 8,600,000
 General and administrative expenses 6,850,000
7,565,000
Interest expense 800,000 150,000
Income tax expense 1,000,000
3,000,000
Allowance for uncollectible accounts 65,000
55,000
Accumulated depreciation 900,000
750,000
Income tax payable 1,100,000
1,300,000
Deferred income tax liability 200,000
400,000
Accrued interest payable 300,000
500,000
Heidi purchased P500,000 in equipment during 2009. Heidi
allocated one-third of its depreciation to selling and the remainder
to administrative. What amount should Heidi report in its 2009
cash flow statement as cash paid for interest?
(a) P1,100,000 (b) P1,150,000 (c) P1,200,000
(d) P750,000 A

Interest expense 800,000

Add: Prepaid interest, end. 200,000
Interest payable, beg. 500,000 700,000
Total 1,500,000
Less: Prepaid interest, beg. 50,000
Interest payable, end. 300,000
Amortization of bond disc. 50,000
400,000
Interest paid
1,100,000
31. Excel reported P70,000 of inventory on December 31,
2009, based on physical count. Additional information was
given as follows:
a. Included in the physical count were small equipments billed
to a customer, FOB shipping point, on December 31, 2009.
The small equipments had a cost of P3,000 had been billed
at P5,000. The shipment is ready for pick-up by the delivery
contractor.
 b. Goods were in transit from a vendor. The invoice cost was
P8,000 and goods were shipped FOB shipping point on
December 31, 2009.
c. Work in process costing P500 was sent to an outside
processor for finishing on December 30, 2009.
d. Goods out on consignment amounted to P4,600 (sales
price); shipping costs, P120 (markup is 15% on cost).
The correct amount of inventory on December 31, 2009 is:
(a) P85,620 (b) P85,500 (c) P82,620
(d) P82,500 C

Inventory per count, Jan. 1, 2009

P70,000
Goods in transit, shipped FOB shipping point
8,000
Work in process job out for finishing
500
Goods out on consignment [(4,600/ 1.15) + 120]
4,120
Inventory as adjusted, Dec. 31 2009
P82,620
32. The balance in Reed Companys accounts payable
account at December 31, 2009 was P1,225,000 before the
following information was considered:
- Goods shipped FOB destination on December 21, 2009 from a
vendor to Reed were lost in transit. The invoice cost of
P45,000 was recorded by Reed. On December 28, 2009, Reed
notified the vendor of the lost shipment.
- Goods were in transit from a vendor to Reed on December 31,
2009. The invoice cost was P60,000 and the goods were
shipped FOB shipping point on December 28, 2009. Reed
received the goods on January 6, 2010.
- Goods shipped to Reed, FOB shipping point on December 20,
2009 from a vendor were lost in transit. The invoice price was
P50,000. On January 5, 2010, Reed filed a P50,000 claim
against the common carrier.
- On December 27, 2009, a vendor authorized Reed to return, for
full credit, goods shipped and billed at P35,000 on December
20, 2009. The returned goods were shipped by Reed on
 December 27, 2009. A P35,000 credit memo was received and
recorded by Reed on January 6, 2010.
What amount should Reed report as accounts payable in its
December 31, 2009 statement of financial position?
(a) P1,300,000 (b) P1,345,000 (c) P1,255,000 (d)
P1,250,000 C

Accounts payable per book P1,225,000

A ( 45,000)
B 60,000
C 50,000
D ( 35,000)
Adjusted accounts payable P1,255,000
33. Following data reselected information on Marbel
Company for the year 2009:
Cash balance, January 1 130,000
Accounts receivable, January 1 190,000
Collections from customers 2,100,000
Stockholders equity, January 1 380,000
Total assets, January 1 750,000
Total assets, December 31 880,000
Cash balances, December 31 160,000
Accounts receivable, December 31
360,000
Total liabilities, December 31 390,000
The net income of Marbel for 2009 is:
(a) P490,000 (b) P150,000 (c) P110,000
(d) P70,000 C

Total assets December 31 880,000

Total liabilities December 31 390,000
Stockholders equity December 31 490,000
Stockholders equity January 1 380,000
Net income 110,000

Since there are no dividends declared and issuance of capital

stock during the year, the net increase in stockholders equity is
already the net income for the year.
34. If a petty cash fund is established in the amount of P250,
and contains P150 in cash and P95 in receipts for
disbursements when it is replenished, the journal entry to
record replenishment should include credit (s) to the following
account (s):
(a) petty cash, P75 (c) cash, P95; cash short
and over, P5
(b) petty cash, P100 (d) cash, P100
D

Expenses (100 5) P95

Cash short and over (100 95) 5
Cash (250 150) P100

35. Kayumanggi Companys unadjusted trial balance on

December 31, 2012 appears below. The company uses the
perpetual method to record inventory transactions.

Gross Sales 7,500,000

Sales returns 200,000
Cost of goods sold 5,500,000
Inventory losses 120,000
Inventory 2,800,000

Inventory on hand, determined by physical count, had a cost of

3,000,000 and a net realizable value of 2,700,000. No inventory
writedown has been recorded for the year. On December 15,
2012, Kayumanggi recorded a 200,000 credit sale of goods
costing 150,000. These goods were sold on FOB destination
terms and were in transit on December 31, 2012. The goods
were included in the physical count.

How much should be reported as cost of goods sold for 2012?

a. 5,500,000
b. 5,720,000
c. 5,700,000
d. 5,620,000
 36. Marikitka Corporation accounting records show the
following numbers below at the end of each year:

2012 2011
Borrowings 3,000,000 800,000
Share capital 4,000,000 2,000,000
Retained earnings 1,000,000 800,000

Old debts of 500,000 were repaid during 2012 and new

borrowings include 300,000 vendor financing arising on the
acquisition of a property. The movement in share capital arose
from issuance of share capital for cash during the year. There
was no dividend declared at the beginning and end of the
current year. Net change in retained earnings comprises profit
for 2012 of 900,000, net of dividend of 700,000.

How much is the financing net cash inflows that should be

reported in the 2012 Cash Flow statement?

a. 3,900,000
b. 3,200,000
c. 3,400,000
d. 4,100,000

37. Mirageme Holdings, Inc. provided the following numbers for the
preparation of the 2012 financial statements.

December 31 January 1
Fixed Assets 1,200,000 1,050,000
Accumulated depreciation 300,000 450,000

The company purchased new equipment during the year. Also during
the year, an equipment with original cost of P300,000 was disposed
of for a gain of P50,000. Depreciation charged for the current year
was P200,000. The company has a policy to depreciate all their
assets in 5 years.

What is the amount of newly acquired fixed assets during the year?
a. 400,000
b. 450,000
c. 150,000
d. 500,000

38. Makisig Corporation has an accounts receivable and allowance

for doubtful accounts balances of 18,000,000 and 500,000
respectively as of December 31, 2012 prior to any year-end
adjustments.

Sales in for the year 2012 totaled 120,000,000 (10% of which are by
way of cash sales). In the same year, the Company management
decided to write off customer accounts amounting to 200,000.
Allowance for doubtful accounts are estimated to be 2% of accounts
receivable and is only taken up as an adjustment at year end.

What is the balance in the Allowance for doubtful accounts on

January 1, 2012?

a. 725,000
b. 540,000
c. 525,000
d. 700,000

39. Maginoo Corporation had very risky business operations that

started on January 1, 2012. On July 1, 2012, the Company decided to
pay in advance premiums on annual insurance policy for fixed assets
amounting to P420,000. The insurance premium was a tax deductible
expense in the Companys 2012 cash basis tax return. Should the
accrual basis be used for the preparation of the income statement,
the Company will report a P210,000 insurance expense in 2012 and
2013. The corporate income tax rate is 35%.

On the December 31, 2012 balance sheet, how much should be

reported as deferred tax liability related to the prepaid insurance?

a. 73,500
b. 147,000
c. 36,750
d. 0

40. On March 2012, Dynamo Research, Inc. has developed another

breakthrough product which entails it to incur research and
development costs amounting to 126,000 relating to an invention the
patent of which was granted on June 1, 2012.

The patent right was granted to the company for 20 years, and its
estimated economic life is 10 years. The average patent life for the
company is 15 years. The total cost of registering the patent
amounted to 54,000.

In its December 31, 2012 balance sheet, Dynamo Research should

report net patent at

a. 171,000
b. 169,500
c. 50,850
d. 51,300

41. Wowowee Corporation 2nd year in business posted a net income

of 70,000,000 for the year ended December 31, 2012. The following
data are extracted from the books of accounts:

Depreciation 32,000,000
Decrease in accounts payable 3,400,000
Increase in prepaid expenses 1,500,000
Forex Loss 22,400,000
Dividends paid 25,500,000

The Company should report as cash provided by operations in its

cash flow statement for the year ended December 31, 2012 at

a. 100,100,000
b. 119,500,000
c. 100,400,000
d. 126,300,000
42. Carino Milling Corporation ("the Company") operates a huge rice
mill operation. As at December 31, 2012, following are the liabilities of
the Company:

Promissory notes, 6% due 4/1/2013, 14,000,000;

Deferred tax liability, 900,000;
Accounts payable, 1,850,000;
Contingent liability, P15,000,000;
Bonds Payable, 8% due 5/31/2013, 32,500,000;
Accrued expenses, 1,450,000.

The contingent liability represents the accrual for possible losses on a

legal suit filed by Matodas Corp. against the Company for damages in
the amount of 15,000,000. The legal counsel of the Company expects
that the litigation shall be settled in 2013, with the Company paying
15,000,000 for damages. Also, recent developments suggest that the
deferred tax liability will be reversed next year.

In the December 31, 2012 financial statements, the amount that

should be reported by the Company under current liabilities shall be

a. 64,800,000
b. 18,200,000
c. 49,800,000
d. 32,300,000

43. Cebu Fantastic Company would like to know the amount of its
pretax financial income for the current year by taking adjustments to
taxable income as per company's income tax return. The tax return
shows a taxable income of P5,000,000, with tax payable of
P1,750,000 has been reported. The following are adjustments to the
amount of taxable income:

Straight-line depreciation on these assets is P800,000 and

accelerated depreciation for income tax purposes was P1,000,000.

Goodwill impairment loss of P500,000 may be deducted in the

income statement but was not included as a deduction in the tax
return.
During the year, P800,000 was received on interest on treasury bills
that were not included in the income tax return.

Cebu Fantastic 's financial income subject to tax for the year should
amount to:

a. 4,700,000
b. 5,100,000
c. 5,500,000
d. 5,200,000

44. The following accounts came from the adjusted trial balances of
Davao Pacific Company at December 31, 2012:

Cash 750,000, Accounts receivable, net 1,800,000, Prepaid taxes

400,000 Other Assets 110,000 Accounts payable 140,000

During the year, the company granted special payment terms to a

customer that requires the latter to pay equal semi annual
installments of 150,000 for a 600,000 worth of goods and services.
Installment dates are due every March 1 and September 1 starting
year 2013.

Estimated corporate tax payable of 400,000 was charged to prepaid

taxes during the year. The corporate tax rate is 35%. There were no
adjustments between financial and taxable income.

What is the amount of current assets that company should show in

the financial statements?

a. 2,550,000
b. 2,250,000
c. 2,950,000
d. 3,060,00

45. The following accounts came from the adjusted trial balances of
Iloilo Lines Company at December 31, 2012:
Capital Stock 700,000; Premium on Capital Stock 350,000; Retained
earnings 650,000;
Revenue from Sale of Goods 4,000,000; Interest Income from
Deposits; 90,000; Cost of Goods Sold 2,200,000; Operating
Expenses 800,000; Accumulated Depreciation 150,000;

Estimated corporate tax payable of was charged to prepaid taxes

during the year. The corporate tax rate is 35%. There were no
adjustments between financial and taxable income.

What is the amount of retained earnings that the Company should

report as of December 31, 2012?

a. 1,293,500
b. 1,235,000
c. 1,137,500
d. 1,196,000

46. The following accounts were extracted from the books of

Camarines Goods Company for the year ended December 31, 2012:

Legal and audit fees 1,800,000

Rent for office space 1,700,000
Rent for plant operations 2,300,000
Interest on bank loan 2,100,000
Loss on inventory shortages and pilferages 350,000

The Companys top Operations Managers and Finance department

share equally in the use of office space. Likewise, Logistics and the
rest of the Operations departments share in the plant operations
space.

What is the amount of general and administrative expenses that

should be reflected in the income statement of Camarines Goods?

a. 2,650,000
b. 3,500,000
c. 5,800,000
d. 3,800,000

47. The following information is available from Bulacan Crispy

Company's accounting records for the current year:

Purchases 4,700,000
Purchase discounts 150,000
Beginning inventory 1,450,000
Ending inventory 1,650,000
Freight out 400,000

The company gives out sales discounts to long term customers.

Sales discounts granted for the year amounted to 250,000. Sales
returns increased this year to 2% of sales or 300,000 in value.

The Companys cost of goods sold for the current year is

a. 4,050,000
b. 4,100,000
c. 4,350,000
d. 3,800,000

48. Mabilis Corp. provided the following information on December

31,2012:

Capital Stock 5,000,000

Premium on Capital Stock 3,600,000
Cumulative translation adjustment (equity reduction) 2,000,000
Cumulative unrealized gain on available for sale securities 600,000
Treasury shares, at cost 700,000
Retained earnings (post closing or ending) 1,500,000

How much is the contributed capital that should be reported on the

financial statement as of December 31, 2012?

a. 9,200,000
b. 9,300,000
c. 7,300,000
d. 8,600,000

Receivables

49. Marilag Company starts the year with an allowance for doubtful
accounts balance of 9,000 (credit). During the year, 15,000 in
receivables are written off as uncollectible, bad debt expense of
26,000 is recognized, and a 2,000 account previously written off as
uncollectible is actually collected.

What is the ending Allowance for Doubtful Accounts account balance

at the end of the year?

a. 18,000 Credit balance

b. 22,000 Credit balance
c. Answer not given
d. 20,000 Credit balance

50. A company starts the current year with a 18,000 credit balance
in its Allowance for Doubtful Accounts account. During the year,
receivables of 20,000 are written off as uncollectible. For
monthly reporting purposes, bad debt expense is recognized based
on 3% of credit sales. Total credit sales for the year were
800,000. At the end of the year, for financial statement purposes,
the Allowance for Doubtful Accounts account is adjusted based on
anestimated rate of 4% of ending receivables. The Accounts
Receivable account at the end of the year was 600,000.

a. 24,000
b. 20,000
c. 26,000
d. 22,000

51. On December 31, 20XX, a company has the following balances

in the books:

Sales 400,000
Accounts receivable 300,000
Allowance for Doubtful Accounts account (unadjusted) with
a 2,000 credit balance. The company estimates that 4% of
sales for the year will be bad.

Given the above, how much bad debt expense should the
company recognize at the end of the year?

a. 12,000
b. 14,000
c. 18,000
d. 16,000

52. A company reports Sales of 300,000, Accounts receivable of

200,000, and an Allowance for Doubtful Accounts account of
4,000 credit balance (unadjusted) as of the end of the year.
Based on experience, the company estimates that 10% of its
accounts receivable will be uncollectible.

How much bad debts expense should the company recognize at

the end of the year?

a. 20,000
b. 16,000
c. 24,000
d. 26,000

53. Mabilis company has a beginning Accounts receivable balance

of 700,000. During the year, the company generated credit
sales amounting to 2.8M with 100,000 sales returns and write
offs of 50,000. During the year, the company collected a
total of 2.2M.

At the end of the year, the company estimated future sales

returns at 50,000 and uncollectible accounts of 100,000.

What amount should the company report for gross Accounts

Receivable balance at year end?
a. 1,100,000
b. 1,000,000
c. 1,150,000
d. 1,050,000

54. Matipid company has an Accounts receivable beginning balance

of
1,200,000 with a corresponding Allowance for doubtful accounts
of 60,000. During the year, the company extended credit to
customers amounting to 5.3M while collecting 3.9M of it. At the
end of the year, the company has written off 100,000 worth of
receivables already and estimated the uncollectible accounts per
receivables aging report of 120,000.

How much is the Allowance for doubtful accounts balance as of

the end of year?

a. 60,000
b. 180,000
c. 220,000
d. 120,000

55. Makunat company has an Accounts receivable beginning balance

of
1.5M with its corresponding Allowance for doubtful accounts
of 130,000. During the year, the company extended credit to
customers amounting to 5.3M and collected 3.9M of it. At the
end of the year, the company has written off already 200,000 and
estimated the uncollectible accounts per receivables aging
report of 100,000.

The ending balance of Accounts receivable before allowance for

doubtful accounts should be

a. 2,800,000
b. 2,900,000
c. 2,600,000
d. 2,700,000
56. Mabait Corporation factored 8M of its Accounts Receivable to
Madugas Corporation. Madugas accepted and took over the
receivables subject to recourse for non-payment. It is estimated that
the fair value of the recourse obligation is 624,000. The weighted
average time to maturity of the receivables is computed at 73 days.

Other information include:

Factoring fee 2%
Holdback Value 4%
Interest Charge 11%

How much cash should Mabait expect from the factoring transaction?

a. 7,520,000
b. 6,720,000
c. 7,344,000
d. 7,696,000

57. Malupeet Corporation factored 8M of its Accounts Receivable to

Madugas Corporation. Madugas accepted and took over the
receivables subject to recourse for non-payment. It is estimated that
the fair value of the recourse obligation is 240,000.

Other information include:

Factoring fee 2%
Holdback Value 4%

Calculate the loss of Mabait in this factoring transaction:

a. 560,000
b. 720,000
c. 480,000
d. 880,000
58. The company records showed the following balances and
transactions at year end:

Collections received 3,450,000

Notes given to creditors 250,000
Merchandise returned to suppliers 70,000
Payments on notes payable 50,000
Discounts given to customers 25,000
Sales on account 4,500,000
Provision for doubtful accounts 90,000
Bad debts written off 50,000
Purchases on account 3,900,000
Payments to creditors 3,200,000
Discounts allowed by creditors 260,000
Merchandise returned by customer 25,000

Compute the Net Accounts Receivable at year end:

a. 880,000
b. 1,000,000
c. 900,000
d. 950,000

Cash

59. Bayani Corp has the following information relating to cash at

December
31, 2011:

Bank statement balance 2,500,000

Checkbook balance 2,600,000
Deposits in transit 700,000
Outstanding checks 200,000

Bayani's December 31, 2011 Balance Sheet should report cash as:
a. 3,400,000
b. 3,500,000
c. 3,100,000
d. 3,000,000

60. The petty cash fund account of Magiting Company showed the
following:

Coins and currency 5,500

Paid vouchers:
Transportation 200
Gasoline 150
Office supplies 250
Postage stamps 200
Due from employees 1,200

Digging deeper into the records, you realized that there is a

Manager's
check returned by bank marked "NSF" for 1,000. There is also a
check
drawn by company to the order of petty cash custodian amounting to
3,500.

What is the amount of the petty cash fund for balance sheet
purposes?

a. 10,000
b. 9,000
c. 11,000
d. 5,800

61. The current assets section of the balance sheet of Gregorio

Corporation
consists of:

Bond sinking fund cash 1,500,000

Checking account in HSBC 3,265,000
Currency and coins awaiting deposit 1.635,000
Deposit in a bank closed by BSP 500,000
Petty cash fund (of which 100,000 in is
the form of paid vouchers) 50,000
Advances to officers and employees 200,000

The HSBC checking account has 250,000 check still outstanding per
bank
statement. The petty cash fund has 5,000 worth of paid vouchers.

The correct cash balance that should be shown in the balance sheet
is

a. 4,950,000
b. 4,600,000
c. 4,595,000
d. 4,945,000

62. Diego Bandido Company's accounting data showed the following

information as of December 31,2011:

Petty cash fund of 20,000 and undeposited receipts amounting to

1,400,000. The undeposited collections includes a postdated
customer check for 50,000. Cash in Metrobank as per bank
statement of 2,350,000
with a check for 30,000 still outstanding as of balance sheet date.
There was a Bond sinking fund amounting to 900,000. Unrecorded
vouchers paid out of collections and IOUs signed by employees taken
also from collections amounted to 40,000 and 10,000 respectively.

Given the above data, what amount should cash on hand and in bank
that
should be reported on the December 31, 2011 balance sheet?

a. 3,740,000
b. 4,670,000
c. 3,690,000
d. 3,770,000
Solution

Petty cash fund 20,000

Undeposited receipts (1,400,000 - 50,000) 1,350,000
Cash in Metrobank (2,350,000 - 30,000) 2,320,000

Total cash on hand and in bank 3,690,000

***The postdated customer check of 50,000 should not be included
as cash
and should be treated as accounts receivable. The outstanding check
of 30,000 is deducted from the cash in MetroBank because the cash
balance given is per bank statement. The bond sinking fund should
be
shown as noncurrent investment. The vouchers paid should be
recorded
as expenses and the IOUs should be shown as advances to
employees.

63. Malvar Knives Company had the following cash balances as of

December 31, 2011,

Cash in bank HSBC 2,400,000

Petty cash fund 50,000
Revolving fund 100,000
Time deposit (due February 1, 2005) 500,000

There was a compensating balance of 500,000 on the HSBC account

maintained against a short term borrowing arrangement made at the
end
of the year. Until the short term loan is settled the company cannot
withdraw the compensating balance. Time deposit is due on January
1,
2005 coming from a half year term. Petty cash fund was all disbursed
out by the end of the year including a 10,000 cash advances to
employees
coming of the revolving fund.

What total amount should be reported as cash as of December 31,

2011?
a. 2,540,000
b. 2,050,000
c. 2,550,000
d. 2,040,000

Solution

Cash in bank (2,400,000 - 500,000) 1,900,000

Petty cash fund 50,000
Revolving fund 100,000

Total cash 2,050,000

***Since the compensating balance is not withdrawable, it is not
included
in the cash balance. The compensating balance should be shown as
"cash
held as compensating balance" as a current asset because the
related
loan is short-term. The term of the time deposit is given as 6 months
hence it is not included in the computation as well. Terms of three
months or less is needed for this to be included as cash. The 10,000
cash advance is already taken up so this is just a nuisance data that
should not be included in the computations.

64. Plaridel Publishing Company had the following trial balances at

December 31,2011:

Cash in Citi 3,500,000

Cash on hand 250,000
Treasury Bills 500,000
Special Time Deposits 500,000

Cash in bank includes P500,000 of compensating balance against

short-term borrowing arrangement which is not legally restricted as
to withdrawal by the company. Also, the special deposits account
pertains to cash legally restricted for machinery upgrades that is
expected to be disbursed in 2012.

In the current assets section of Company's December 31, 2011

balance
sheet, the total cash and cash equivalents should be

a. 3,750,000
b. 3,250,000
c. 4,750,000
d. 4,250,000

Solution

Cash in Citi 3,500,000

Cash on hand 250,000
Treasury bills 500,000

Total cash and cash equivalents 4,250,000

***A compensating balance is the bank's minimum balance
requirement that
must be maintained in the company's bank account for servicing a
checking or demand deposit account or in connection with a
borrowing
arrangement with the bank. It should be part of cash if not legally
restricted. Otherwise, it should be treated as other current
or non-current asset depending on the loan or bank services it is
related. There was no mention of any contrary statement for the
Treasury bills so it should be assumed as maturing within 90 days.

65. The accountant of Bonifacio Holdings presented the following

account
balances as of December 31,2011:

Cash in bank - Checking 2,600,000

Cash in bank - Savings 700,000
Cash on hand 300,000
Cash in bank - restricted 2,000,000
Treasury bills 3,000,000

The restricted cash in bank account is opened specifically for building

construction expected to be disbursed in Q1 2012. The cash on hand
includes a P100,000 check payable to Bonifacio, dated January 5,
2012.
The Treasury bills are purchased December 1, 2011 and due on
February
28, 2012.

If you are the Accountant of Bonifacio Holdings, what amount of

"cash
and cash equivalents" should be reported as of December 31, 2011?

a. 6,300,000
b. 6,500,000
c. 6,600,000
d. 8,700,000

Solution

Cash in bank - Checking 2,600,000

Cash in bank - Savings 700,000
Cash on hand (300,000-100,000) 200,000
Treasury bills 3,000,000

Total cash and cash equivalents 6,500,000

***The cash in bank set aside for payroll is included in cash because
it
is for the payment of current liability.

Cash on hand should be reduced by the postdated check. The PDC

amount
should be considered still as accounts receivable.

Treasury bills are classified as cash equivalent because the term is

within the 90-day rule. An investment qualifies as a cash equivalent
only when it has a short maturity of three months or less from the
date of acquisition.

The cash in bank restricted for building construction should be

classified as a noncurrent investment hence not included in the
computation.
66. The Accounting Department produced the following data for
Aguinaldo
Company as of December 31, 2011:

Checkbook balance 950,000

Collectibles balance 1,000,000
Cash in sinking fund 1,000,000
Petty cash fund balance 10,000

There was also a check drawn on Thor's account, payable to supplier

amounting to 20,000, dated and recorded on December 31, 2004, but
was mailed only on January 15, 2012.

On December 31, 2011, how much should be reported as "cash and

cash
equivalents"?

a. 1,980,000
b. 980,000
c. 1,960,000
d. 960,000

Solution

Checkbook balance 950,000

Add: Undelivered cheque balance 20,000
Petty Cash fund 10,000
Adjusted cash balance 980,000
***Undelivered cheques as of closing dates should be restored to the
cash balance by debiting cash and crediting accounts payable. The
cash in sinking fund should be considered aa noncurrent investment
because it is set aside for the payment of noncurrent liability.

67. On December 31, 2011, Mabini Wheelchairs, Inc. had the

following data
related to its cash position:

Checking Account Balance 4,500,000

Petty cash fund 50,000
Time deposit 4,000,000
Savings deposit 1,000,000

The time deposit is held for one year and is maturing on March
15,2012.
There was a check amounting to P50,000 dated January 15,2012 in
payment of accounts payable that was recorded and mailed on
December 31, 2011.

What amount should be reported as "cash and cash equivalents" at

the
end of the year?

a. 9,550,000
b. 9,450,000
c. 5,450,000
d. 5,500,000

Solution

Checking Account (4,500,000 + 50,000) 4,450,000

Petty cash fund 50,000
Savings deposit 1,000,000

Total cash and cash equivalents 5,500,000

***You have to catch the check of P50,000 is added back to checking
account because it is a postdated check to a supplier delivered only
on December 31. The time deposit is a noncash equivalent because
the
term is one year and because of that, it is classified separately in
the current assets as marketable securities. Should the original term
is 90 days or less, it should be treated as cash equivalents. In this
case, although the time deposit is due within 90 days from balance
sheet date, you should remember that the point of reckoning is the
original maturity period which is, in this case, 1 year.

68. On December 31,2011, the trial balance of Diego Bantay

Company
reveals the following account balances:
Petty cash fund - Finance 40,000
Revolving fund - Operations 20,000
Current account - Citibank 3,000,000
Current account - HSBC (overdraft) (250,000)
Money market placement - JP Morgan 2,000,000
Time deposit - Duetche Bank 2,000,000

Note that the petty cash fund includes unreplenished December 2011
petty cash expense vouchers for P10,000 and an employee check for
P5,000 dated January 31, 2012. There's a check for P45,000 that
was
drawn against CitiBank current account dated and recorded
December
29, 2004 but delivered to payee on January 15, 2005. And lastly,
the Duetche Bank time deposit is set aside for plant expansion in
February 2012.

The December 31, 2011 balance sheet should report "cash and cash
equivalents" at

a. 3,090,000
b. 5,090,000
c. 5,095,000
d. 3,060,000

Solution

Petty cash fund (40,000 - 10,000 - 5,000) 25,000

Revolving fund 20,000
Current account - Citibank (3,000,000 + 45,000) 3,045,000
Money market placement JP Morgan 2,000,000

Total cash and cash equivalents 5,090,000

***The bank overdraft in the HSBC is should be classified as current
liability. Note that money market placement is included. Here is
a tip. If there is no contrary statements regarding money market
placement, time deposit and treasury bills in the problem given,
they are to be considered as short-term investment of three months
or less. Duetche Bank time deposit should be noncurrent asset
because
it is set aside for plant expansion on a future date.

CASH FLOWS

69. On the statement of cash flows in which the operating activities

section is prepared under the indirect method, depreciation is treated
as an adjustment to reported net earnings because depreciation

a. Is a direct inflow of cash from investing activities.

b. Reduces reported net earnings and involves an inflow of cash.
c. Reduces reported net earnings but does not involve an
outflow of cash.
d. Is an inflow of cash to a reserve account for replacement of
assets.
***Depreciation is deducted in the calculation of net earnings;
however, it is a noncash expense item and as such does not affect
cash. Therefore, it would be added back in to net earnings on the
statement of cash flows when using the indirect method.
70. The amortization of bond premium on long-term debt should be
presented in a statement of cash flows (using indirect approach for
operating activities) as a(n)

a. Addition to net income.

b. Deduction from net income.
c. Investing activity.
d. Financing activity.
***If bonds are sold at a discount or premium, the interest expense for
the period will differ from the change in cash resulting from payment
of interest expense. When the premium is amortized, the interest
expense included in income determination is not as large as the
interest paid or becoming payable in the period. Because the cash
outflow is larger than the deduction in arriving at net income, a
deduction from net income is necessary to determine cash provided
by operating activities (when using the indirect approach of
presenting cash flows from operating activities).
71. A loss on the sale of machinery in the ordinary course of business
should be presented in a statement of cash flows (using indirect
approach for operating activities) as a(n)

a. Outflow of cash.
b. Addition to net income.
c. Deduction from net income.
d. Inflow and outflow of cash.
***The loss decreases net income, but does not reduce cash.
Therefore, the loss must be added back to net income to determine
cash flows from operating activities.
72. Would the following be added back to net income when reporting
operating activities cash flows by the indirect method?

.......Excess of treasury stock acquisition cost over sales proceeds

(cost method) ................... Bond discount amortization
A. .............Yes ............................................................Yes
B. .............No ..............................................................No
C. .............No ..............................................................Yes
D. .............Yes .............................................................No

***Under the indirect method of reporting cash flows from operations,

income from continuing operations is adjusted for changes in
operating-related accounts and noncash expenses, revenues, losses,
and gains. Noncash items that were subtracted in determining net
income must be added back, including amortization of bond discount
since it is a charge against income but does not increase cash. The
excess of treasury stock acquisition cost would not be added back to
net income when determining operating activities' cash flows because
it represents a financing activity.
73. In a statement of cash flows in which the operating activities
section is prepared under the indirect method, a gain on the sale of
an investment in available-for-sale securities should be presented as
a(n)

a. Inflow and outflow of cash.

b. Outflow of cash.
c. Addition to net income.
d. Deduction from net income.
***Any gain on the sale of an investment other than trading securities
should be included as part of the total proceeds reported in investing
activities. However, this gain has been included in net income. Under
the indirect method, net income is adjusted for items which affect
income but not cash. Therefore, the amount of the gain must be
deducted from net income to remove the book gain from the cash
flows from operating activities, thereby avoiding double counting the
gain.
74. In a statement of cash flows, interest payments to lenders and
other creditors should be classified as cash outflows for

a. Financing activities.
b. Lending activities.
c. Borrowing activities.
d. Operating activities.
***Interest payments to lenders and other creditors are expenses of
the company; hence, they are categorized as cash flows from
operating activities.
75. In a statement of cash flows, payments to acquire debt
instruments of other entities (other than cash equivalents) which will
be held until maturity should be classified as cash outflows for

a. Lending activities.
b. Investing activities.
c. Operating activities.
d. Financing activities.
***Investing activities include making and collecting loans and
acquiring and disposing of debt or equity instruments and property,
plant, and equipment. Cash flows from transactions in held-to-
maturity and available-for-sale securities are to be classified as cash
flows from investing activities. Conversely, amounts related to
securities held for trading are classified as operating activities.
76. Cheesecake Manufacturing Co. purchased a 3-month Treasury
bill. In preparing Cheesecakes statement of cash flows, this
purchase would
a. Have no effect.
b. Be treated as an outflow from financing activities.
c. Be treated as an outflow from lending activities.
d. Be treated as an outflow from investing activities.
***On the statement of cash flows, the purchase of a 3-month
Treasury bill is an acquisition of a security; however, it is considered
a cash equivalent and thus would not be included in investing
activities. Take note that the exchange of cash for cash equivalents
would result in no net change in cash and cash equivalents.
77. In a statement of cash flows, receipts from sale of property, plant,
and equipment and other productive assets should generally be
classified as cash inflows from

a. Operating activities.
b. Investing activities.
c. Financing activities.
d. Selling activities.
***Involved here is PPE, which is a non-current asset. Receipts from
sale of property, plant, and equipment and other productive assets
are categorized as cash flows from investing activities.
78. The purchase for cash of treasury stock should be presented in a
statement of cash flows as a(n)

..... Investing activity ... Financing activity

A. ............. No ..................... No
B. ............. No ..................... Yes
C. ............. Yes .................... No
D. ............. Yes .................... Yes

***Transactions which involve either an outlay of cash for treasury

stock or an inflow of cash from the reissue of treasury stock shall be
reported as a financing activity. The purchase of treasury stock would
not be classified as an investing activity because treasury stock is a
SHE item. Investing activities include making and collecting loans, as
well as acquiring and disposing of debt or equity instruments of other
entities, property, plant, and equipment and other productive assets.
79. In a statement of cash flows, proceeds from issuing equity
instruments should be classified as cash inflows from
a. Lending activities.
b. Operating activities.
c. Financing activities.
d. Investing activities.
***A SHE item... Financing activities include obtaining resources from
owners and providing them with a return on, and a return of, their
investment. Proceeds from issuing equity instruments are specifically
identified as cash inflows from financing activities.
80. In a statement of cash flows, which of the following items is
reported as a cash outflow from financing activities?

I. Payments to retire mortgage notes.

II. Interest payments on mortgage notes.
III. Dividend payments.

a. I, II, and III.

b. I and III.
c. I only.
d. II and III.
***Mortgage Note is a long term liability, while dividend payments
affect SHE. Interest payments on mortgage is an expense (hence
operating).

***Payments to retire mortgage notes are considered cash outflows

from financing activities. Interest payments on mortgage notes are
included in cash outflows from operating activities because these
payments are expenses and included in the determination of net
income. Dividend payments are included in cash outflows from
financing activities.
81. The retirement of long-term debt by the issuance of common
stock should be presented in a statement of cash flows as a

... Financing activity ... Investing activity

A. ...... Yes ......................... No
B. ...... No ......................... Yes
C. ...... No ......................... No
D. ...... Yes ......................... Yes

D. YES and YES

A. YES and NO
C. NO and NO
B. NO and YES
***Financing and investing activities which have no effect on cash
flows shall be shown either in a separate schedule of noncash
financing and investing activities or in narrative form in the footnotes,
not in the body of the statement.
82. The following information is available from Sand Corp.s
accounting records for the year ended December 31, 2009:

Cash received from customers ............... P870,000

Rent received ......................................... 10,000
Cash paid to suppliers and employees .. 510,000
Taxes paid ............................................. 110,000
Cash dividends paid .............................. 30,000

Net cash flow provided by operations for 2008 was

a. P260,000
b. P250,000
c. P230,000
d. P220,000
Solution: Cash received from customers ............... P870,000
Add(Deduct)
Rent received ......................................... 10,000
Cash paid to suppliers and employees .. (510,000)
Taxes paid ............................................. (110,000)

***The answer is 260,000. Dividend payment is not included because

it is a SHE item and therefore included under financing activities.
83. Mademoiselle Co. has provided the following 2009 current
account balances for the preparation of the annual statement of cash
flows:

ACCOUNTS .................. January 1 ........ December 31

Accounts receivable ...... P11,500 .......... P14,500
Allowance for U/A .......... 400 .............. 500
Prepaid rent expense .... 6,200 .......... 4,100
Accounts payable ........... 9,700 .......... 11,200

Mademoiselles 2009 net income is P75,000. Net cash provided by

operating activities in the statement of cash flows should be

a. P75,700
b. P72,700
c. P74,300
d. P75,500
Net Income...................................................................75,000
Add(Deduct) Changes in Working Capital Accounts:
Increase in Accounts Receivable..................................(3,000)
Increase in Allowance for Uncollectible Accounts..............100
Decrease in Prepaid Rent..............................................2,100
Increase in Accounts Payable........................................1,500

Net Cash from Operating Activities is...........................75,700

The increase in AR is deducted from net income because it indicates

that cash collected is less than sales revenue. The increase in the
allowance account is added to net income because it reflects an
expense (bad debt expense) which was not a cash payment. The
decrease in prepaid rent is added because it too reflects an expense
(rent expense) which was not a cash payment (it was an allocation of
previously recorded prepaid rent). Finally, the increase in AP is added
because it also represents an expense (cost of goods sold) which
was not yet paid.
84. Romantic Corp.s transactions for the year ended December 31,
2009, included the following:

Purchased real estate for P550,000 cash which was borrowed from a
bank.
Sold available-for-sale investment securities for P500,000.
Paid dividends of P600,000.
Issued 500 shares of common stock for P250,000.
Purchased machinery and equipment for P125,000 cash.
Paid P450,000 toward a bank loan.

Romantics net cash used in investing activities for 2009 was

a. P175,000
b. P375,000
c. P675,000
d. P50,000
Purchase of real estate...................................(550,000)
Sale of investment securities...........................500,000
Purchase of machinery and equipment...........(125,000)

Total cash used in investing activities...............175,000

The bank borrowing (P550,000), dividend payment (P600,000),

issuance of stock (P250,000), and bank loan payment (P450,000) are
financing activities.

85. Matatag Corp.s transactions for the year ended December 31,
2009, included the following:

Paid P450,000 toward a bank loan.

Issued 500 shares of common stock for P250,000.
Purchased machinery and equipment for P125,000 cash.
Purchased real estate for P425,000 cash which was borrowed from a
majority stockholder.
Sold available-for-sale investment securities for P325,000.
Paid dividends of P300,000.
Matatags net cash used in financing activities for 2009 was

a. P500,000
b. P1,350,000
c. P75,000
d. P750,000
Payments for bank loans..............................................(450,000)
Issuance of 500 shares of common stock......................250,000
Dividends paid this year................................................(300,000)
Advances from Stockholder (used to buy real estate)....425,000

Net cash used in financing activities is.............................75,000

86. In 2010, a tornado completely destroyed a building belonging to

Hollyfield Corp. The building cost P100,000 and had depreciated
value of P48,000 at the time of the loss. Hollyfield received a cash
settlement from the insurance company and reported an
extraordinary loss of P21,000. In Hollyfields 2010 cash flow
statement, the net change reported in the cash flows from investing
activities section should be a

a. P10,000 increase
b. P21,000 decrease
c. P52,000 decrease
d. P31,000 increase
Building Cost...............................................100,000
Accumulated Depreciation.............................48,000
Net book value.............................................52,000
Extraordinary loss reported.........................21,000

Net cash flows from investing activities is 31,000.

87. La0 Tze Co. had net cash provided by operating activities of
P351,000; net cash used by investing activities of P420,000; and
cash provided by financing activities of P250,000. La0 Tzes cash
balance was P27,000 on January 1. During the year, there was a sale
of land that resulted in a gain of P25,000 and proceeds of P40,000
were received from the sale. What was La0 Tzes cash balance at the
end of the year?

Answer: P208,000
To calculate the cash balance at the end of the year, you should
combine the effects of the changes in operating, investing, and
financing activities, and add the beginning cash balance.

Net Cash provided from Operating Activities.........P351,000

Net Cash used from investing activities...............(P420,000)
Net cash provided by financing activities..............P250,000
----------------------------------------------------------------------------
Net change in cash...............................................P181,000
Add: Beginning cash balance..................................P27,000
----------------------------------------------------------------------------
Ending Cash Balance.............................................P208,000
==========================================

88. During 2012, Pampangas Good, Inc. engaged in the following

related party transactions:

Sales to affiliated companies >> 3,560,730

Top management personnel compensation >> 2,225,510

Which of the two transactions would be disclosed as related party

transactions in the Companys 2012 financial statements?

a. The Key management compensation transaction only

b Both transactions
c. The Sales to Affiliated Companies transaction only
d. Neither transaction
89. The following unadjusted account balances have been reported
on the financial statements by Tarlac Trucking Company on
December 31, 2012:

Cash in bank > 4,000,000; Petty cash fund > 70,000;

Notes receivable > 3,000,000; Accounts receivable > 5,000,000;
Inventory > 2,000,000; Deferred charges > 350,000;

Cash in bank is net of a checking accounts bank overdraft amounting

250,000. Petty cash expenses have not been replenished for 20,000.
Notes receivable includes discounted note of 800,000 while Accounts
receivable balance is net of accounts with credit balances of 650,000.

The total current assets for the Balance Sheet as of December 31,
2012 should be

a. 12,950,000
b. 14,150,000
c. 12,850,000
d. 13,200,000

90. The following unadjusted account balances have been reported

on the financial statements by Marilag Biscuit Company on December
31, 2012:

Cash in bank 4,000,000; Notes receivable 3,000,000;

Accounts receivable 5,000,000; Inventory 2,000,000;
Deferred charges 350,000; Accounts payable 2,500,000;
Notes payable 4,000,000; Accruals 1,500,000;

Cash in bank is net of a checking accounts bank overdraft amounting

250,000. Notes receivable includes discounted notes of 800,000
while Accounts receivable balance is net of accounts with credit
balances of 650,000. Accounts payable is also net of accounts with
debit balances of 500,000.

The total current liabilities to be reported as of December 31, 2012

should be
a. 8,900,000
b. 8,500,000
c. 8,000,000
d. 9,400,000

91. The following information is extracted from the accounting records

of Great Year Company's in the computation of cost of goods sold:

Inventory, January 1 5,600,000

Purchases 7,400,000
Loss on inventory writedown 1,900,000
Inventory, December 31 1,700,000

There was unexpected inventory obsolescence of recently purchased

stocks due to technological advances that prompted the Company to
writedown some of its inventories.

What amount should the Company report as cost of goods sold on its
year end Income Statement?

a. 11,300,000
b. 7,500,000
c. 13,200,000
d. 9,400,000

92. On January 1, 2012, the management of Milan Company

determined that a revision in the estimate associated with the
depreciation of plant facilities was necessary. The facilities,
purchased on January 1, 2010, for 7,500,000, had been depreciated
using the straight-line method with an estimated residual value of
500,000 and an estimated useful life of 15 years.

Management has determined from recent appraisal reports that the

expected remaining useful life of the facilities is only 10 years and the
estimated residual value should be increased by 200,000.

What is the depreciation expense that should be recognized for the

year 2012?
a. 536,667
b. 633,333
c. 293,333
d. 586,667

93. Marangal Furnitures Corporation was incorporated on January 1,

2009. In its audited financial statements for the year ended December
31, 2011, the Company used the following original cost and useful
lives for its property plant and equipment.

Building 12,000,000 12 years

Machinery 9,000,000 10 years

Furniture 3,000,000 6 years

On January 1, 2012 the company decided to review the useful lives of

the property, plant and equipment and consequently hired
independent valuation experts who can certify the remaining useful
lives of the property, plant and equipment. The results are as follows:

Building 10 years Machinery 7 years Furniture 4 years

The Company uses the straight line method of depreciation.

What is the amount of depreciation expense for 2012?

a. 2,400,000
b. 2,175,000
c. 2,528,571
d. 5,742,857

97. Selected information from the accounting records of Mabini

Company is as follows:

Accounts receivable at January 1 1,200,000

Accounts receivable at December 31 1,100,000
Account receivable turnover 6 to 1
Inventory at January 1 800,000
Inventory at December 31 1,400,000
Inventory turnover 5 to 1

What was the gross margin for end of year?

a. 1,400,000
b. 1,300,000
c. 1,200,000
d. 1,500,000

98. Kuliglig Company provided the following income statement

information relating to the current year:

Net income 4,200,000

Unrealized gain on available for sale securities 350,000
Debit balance foreign currency translation adjustment 75,000
Surplus on revaluation 1,050,000

The amount of recognized gains and losses for the current year
should show net amount at

a. 5,250,000
b. 4,475,000
c. 5,525,000
d. 5,675,000

99. Madel Corporation was established on January 1, 2009. On

January 1, 2011, the Company purchased plant equipment at a cost
of 3,500,000 for its expanding provincial operations. It is the
Company policy that this equipment should be depreciated on the
straight line method over a five-year period with no residual value.

In the year 2011, the newly hired accountant made an error not to
recognize depreciation in the Companys financial statements. During
the preparation of the Companys 2012 financial statements, the error
was discovered by the auditors.

What should be the Depreciation expense on this machine for the

year 2012?

a. 350,000
b. 2,100,000
c. 1,400,000
d. 700,000

100.Kaperahan Corporation had the following account balances on

December 31, 2012:

Cash in bank - current account 4,000,000

Cash in bank - payroll account 2,000,000
Cash on hand - 400,000
Cash in bank - reserved 2,000,000
Treasury bills 2,500,000

The cash on hand includes a 100,000 check payable to the

Company, dated January 2, 2013. The cash in bank reserved is
established for the purchase of custom-made equipment that is
expected to be consummated in 2012. Treasury bills were purchased
on November 30, 2012 and are due on March 1, 2013.

What amount should be reported as "cash and cash equivalents" on

December 31, 2012?

a. 10,800,000
b. 8,800,000
c. 8,900,000
d. 10,900,000