CASH AND CASH EQUIVALENT

You were able to gather the following from the December 31, 2006 trial balance of Mandaluyong
Corporation in connection with your audit of the company:

Cash on hand P 500,000

Petty cash fund 10,000
BPI current account 1,000,000
Security Bank current account No. 01 1,080,000
Security Bank current account No. 02 (80,000)
PNB savings account 1,200,000
PNB time deposit 500,000

Cash on hand includes the following items:

a. Customer’s check for P40,000 returned by bank on December 26, 2006 due to insufficient fund but
subsequently redeposited and cleared by the bank on January 8, 2007.
b. Customer’s check for P20,000 dated January 2, 2007, received on December 29, 2006.
c. Postal money orders received from customers, P30,000.

The petty cash fund consisted of the following items as of December 31, 2006.
Currency and coins P 2,000
Employees’ vales 1,600
Currency in an envelope marked “collections for charity” with names attached 1,200
Unreplenished petty cash vouchers 1,300
Check drawn by Mandaluyong Corporation, payable to the petty cashier 4,000
P10,100

Included among the checks drawn by Mandaluyong Corporation against the BPI current account and recorded
in December 2006 are the following:
a. Check written and dated December 29, 2006 and delivered to payee on January 2, 2007, P80,000.
b. Check written on December 27, 2006, dated January 2, 2007, delivered to payee on December 29,
2006, P40,000.

The credit balance in the Security Bank current account No. 2 represents checks drawn in excess of the deposit
balance. These checks were still outstanding at December 31, 2006.

The savings account deposit in PNB has been set aside by the board of directors for acquisition of
new equipment. This account is expected to be disbursed in the next 3 months from the balance
sheet date.
Questions:
Based on the above and the result of your audit, determine the adjusted balances of following:
1. Cash on hand
a. P410,000
b. P530,000
c. P470,000
d. P440,000

2. Petty cash fund

a. P6,000
b. P7,200
c. P2,000
d. P4,900

3. BPI current account

a. P1,000,000
b. P1,120,000
c. P1,080,000
d. P1,040,000

4. Cash and cash equivalents

a. P2,917,200
b. P3,074,900
c. P3,052,000
d. P3,066,000

Question No. 1
Unadjusted cash on hand P500,000
NSF check (40,000)
Post dated check received (20,000)
Adjusted cash on hand P440,000

Question No. 2
Petty cash fund per total P10,100
Employees' vales (IOU) (1,600)
Currency in envelope marked "collections for charity" (1,200)
Unreplenished petty cash vouchers (1,300)
Petty cash fund, as adjusted P 6,000
 Question No. 3
Unadjusted BPI current account P1,000,000
Unreleased check 80,000
Post dated check delivered 40,000
Adjusted BPI current account P1,120,000

Question No. 4
Cash on hand (see no. 1) P 440,000
Petty cash fund (see no. 2) 6,000
BPI current account (see no. 3) 1,120,000
Security Bank current account (net of overdraft of P80,000) 1,000,000
PNB time deposit 500,000
Cash and cash equivalents, as adjusted P3,066,000

BANK RECONCILIATION

Shown below is the bank reconciliation for Marikina Company for November 2006:

Balance per bank, Nov. 30, 2006 P150,000

Add: Deposits in transit 24,000
Total 174,000
Less: Outstanding checks P28,000
Bank credit recorded in error 10,000 38,000
Cash balance per books, Nov. 30, 2006 P136,000

The bank statement for December 2006 contains the following data:

Total deposits P110,000

Total charges, including an NSF check of P8,000 and a service charge of P400 96,000

All outstanding checks on November 30, 2006, including the bank credit, were cleared in the bank
in December 2006.

There were outstanding checks of P30,000 and deposits in transit of P38,000 on December 31,
2006.

Questions:

Based on the above and the result of your audit, answer the following:

1. How much is the cash balance per bank on December 31, 2006?

a. P154,000
 b. P150,000
c. P164,000
d. P172,400

2. How much is the December receipts per books?

a. P124,000
b. P 96,000
c. P110,000
d. P148,000

3. How much is the December disbursements per books?

a. P96,000
b. P79,600
c. P89,600
d. P98,000

4. How much is the cash balance per books on December 31, 2006?

a. P150,000
b. P170,400
c. P180,400
d. P162,000

5. The adjusted cash in bank balance as of December 31, 2006 is

a. P141,600
b. P162,000
c. P172,000
d. P196,000

Question No. 1
Balance per bank, Nov. 30, 2006 P150,000
Add: Total deposits per bank statement 110,000
Total 260,000
Less: Total charges per bank statement 96,000
Balance per bank, Dec. 31, 2006 P164,000

Question No. 2
Total deposits per bank statement P110,000
Less deposits in transit, Nov. 30 24,000
Dec. receipts cleared through the bank 86,000
Add deposits in transit, Dec. 31 38,000
December receipts per books P124,000

Question No. 3
 Total charges per bank statement P96,000
Less: Outstanding checks, Nov. 30 P28,000
Correction of erroneous bank credit 10,000
December NSF check 8,000
December bank service charge 400 46,400
Dec. disb. cleared through the bank 49,600
Add outstanding checks, Dec. 31 30,000
December disbursements per books P79,600

Question No. 4
Balance per books, Nov. 30, 2006 P136,000
Add December receipts per books 124,000
Total 260,000
Less December disbursements per books 79,600
Balance per books, Dec. 31, 2006 P180,400

Question No. 5
Balance per bank statement, 12/31/06 P164,000
Deposits in transit 38,000
Outstanding checks ( 30,000)
Adjusted bank balance, 12/31/06 P172,000

Balance per books, 12/31/06 P180,400

NSF check ( 8,000)
Bank service charges ( 400)
Adjusted book balance, 12/31/06 P172,000

ACCOUNT RECEIVABLE

The adjusted trial balance of Galimuyod Company as of December 31, 2005 shows the following:

Debit Credit
Accounts receivable P1,000,000
Allowance for bad debts P40,000

Additional information:

 Cash sales of the company represents 10% of gross sales.

 90% of the credit sales customers do not take advantage of the 2/10, n/30 terms.
 It is expected that cash discount of P6,000 will be taken on accounts receivable outstanding at
December 31, 2006.
 Sales returns in 2006 amounted to P400,000. All returns were from charge sales.
 During 2006, accounts totaling to P44,000 were written off as uncollectible; bad debt recoveries
during the year amounted to P3,000.
  The allowance for bad debts is adjusted so that it represents certain percentage of the outstanding
accounts receivable at year end. The required percentage at December 31, 2006 is 150% of the rate
used on December 31, 2005.

Questions:

Based on the above and the result of your audit, answer the following:

1. The accounts receivable as of December 31, 2006 is

a. P3,000,000
b. P 300,000
c. P 333,333
d. P2,444,000

2. The allowance for doubtful accounts as of December 31, 2006 is

a. P 20,000
b. P120,000
c. P180,000
d. P146,640

3. The net realizable value of accounts receivable as of December 31, 2006 is

a. P 307,340
b. P2,814,000
c. P2,874,000
d. P2,291,360

4. The doubtful account expense for the year 2006 is

a. P181,000
b. P121,000
c. P 21,000
d. P147,640

Question No. 1

Expected cash discounts P 6,000

Divide by percentage of cash discount 0.02
Portion of AR that will be granted cash discounts 300,000
Divide by percentage of total AR estimated to take advantage of the discount 0.10
Accounts receivable, 12/31/06 P3,000,000

Question No. 2
 Accounts receivable, 12/31/06 P3,000,000
Multiply by bad debt rate[(P40,000/P1,000,000) x 1.5] 0.06
Allowance for doubtful accounts, 12/31/06 P 180,000

Question No. 3

Accounts receivable, 12/31/06 P3,000,000

Less: Allowance for doubtful accounts P180,000
Allowance for sales discounts 6,000 186,000
Net realizable value, 12/31/06 P2,814,000

Question No. 4

Allow. for doubtful accounts, 12/31/06 P180,000

Add accounts written off 44,000
Total 224,000
Less: Allow. for doubtful accounts, 12/31/05 P40,000
Bad debt recoveries 3,000 43,000
Doubtful accounts expense for 2006 P181,000

NOTES RECEIVABLE

In connection with your audit of the Salcedo Corporation, you noted that the company’s Notes Receivable
consists of the following:

a. A 4-month note dated November 30, 2006, from AA Company, P200,000; interest rate, 16%;
discounted on November 30, 2006 at 16%.
b. A draft drawn payable 30 days after for P900,000 by the BB Company on the Charlie Company in favor
of the Delta Company, endorsed to Salcedo Corp. on December 2, 2006 and accepted on December 4,
2006.
c. A 90-day note dated November 1, 2006 from E. Dy, P500,000; interest at 16%; the note is for
subscription to 5,000 shares of the preferred stock of Salcedo Corp. at P100 per share.
d. A 60-day note dated May 3, 2006, from CC Company, P600,000; interest rate, 16%; dishonored at
maturity; judgment obtained on October 10, 2006. Collection within the next twelve months is
doubtful.
e. A 90-day note dated January 4, 2006, from Apol Bobads, president of Salcedo, P160,000; no interest;
note not renewed; president confirmed.
f. A 120-day note dated September 14, 2006, from DD Company, P120,000; interest rate, 16%; note is
held by bank as collateral.

QUESTIONS:

Based on the above and the result of your audit, you are to provide the answers to the following:

1. The adjusted balance of Notes Receivable as of December 31, 2006 is

 a. P2,480,000
b. P1,220,000
c. P1,020,000
d. P 900,000

2. How much of foregoing notes receivable will be reported in the current assets section of the balance sheet?

a. P1,220,000
b. P2,480,000
c. P1,680,000
d. P1,520,000

3. How much is the net interest income from the foregoing notes receivable for 2006?

a. P19,093
b. P70,613
c. P166,613
d. P 35,093

4. The adjusted balance of Interest Receivable as of December 31, 2006 is

a. P19,093
b. P 5,760
c. P70,613
d. P0

Question No. 1

AA Company P 200,000
BB Company 900,000
DD Company 120,000
Adjusted balance of Notes Receivable P1,220,000
Notes:

1) AA Company will still be included in the balance of “Notes Receivable” since “Notes Receivable-
Discounted” account will be credited upon discounting. If the question is Notes Receivable that will be
reported in the balance sheet, the Notes Receivable – Discounted will be excluded from the total Notes
Receivable with disclosure of contingent liability.
2) E. Dy note was excluded since that will be reclassified to Subscriptions Receivable.
3) CC Company note was excluded because the note was dishonored. It will be reclassified to Accounts
Receivable, including the accrued interest.
4) Apol Bobads note was excluded due to the fact that it will be reclassified to Advances to Officers.
5) The fact that DD Company note is held by bank as collateral should be disclosed but the note will still
be included in the Notes Receivable.
Question No. 2

Notes receivable – trade (excluding note discounted amounting to P200,000) P1,020,000

Subscriptions receivable 500,000
Advances to officers 160,000
Amount that will be reported in the current assets section of the balance sheet P1,680,000

Questions No. 3 & 4

Maker Date Amount Rate Interest Income AIR

E. Dy Nov. 1 P500,000 16% P 13,333 P 13,333
CC Com. May 3 600,000 16% 16,000 -
DD Co. Sep. 14 120,000 16% 5,760 5,760
P35,093 P19,093

LOAN RECEIVABLE

On January 1, 2004, Sinait Company loaned P3,000,000 to Ilocos Company. The terms of the loan were
payment in full on January 1, 2009, plus annual interest payments at 11%. The interest payment was made as
scheduled on January 1, 2005; however, due to financial setbacks, Ilocos was unable to make its 2006 interest
payment. Sinait considers the loan impaired and projects the following cash flows from the loan as of
December 31, 2006 and 2007. Assume that Sinait accrued the interest at December 31, 2005, but did not
continue to accrue interest due to the impairment of the loan.

Amount projected as of
Date of Flow Dec. 31, 2006 Dec. 31, 2007
December 31, 2007 P 200,000 P 200,000
December 31, 2008 400,000 600,000
December 31, 2009 800,000 1,200,000
December 31, 2010 1,200,000 1,000,000
December 31, 2011 400,000
QUESTIONS:

Your client requested you to determine the following: (Round-off present value factors to four decimal places)

1. Loan impairment (bad debt expense) for the year 2006

a. P 882,380
b. P1,549,500
c. P1,212,380
d. P1,542,380

2. Interest income for 2007 assuming the P200,000 was collected on December 31, 2007 as scheduled

a. P195,855
b. P232,938
 c. P200,000
d. P 66,000

3. Allowance for loan impairment as of December 31, 2007

a. P554,340
b. P752,640
c. P649,442
d. P776,900

4. Interest income for 2008 assuming the P600,000 was collected on December 31, 2008 as scheduled

a. P225,210
b. P247,023
c. P236,561
d. P222,541

5. Carrying amount of loan receivable as of December 31, 2008

a. P1,672,570
b. P2,150,558
c. P1,645,641
d. P1,892,683

Question No. 1

Principal P3,000,000
Add accrued interest in 2005 (P3,000,000 x 11%) 330,000
Carrying amount, 12/31/06 3,330,000
Less PV of projected cash flows (see below) 2,117,620
Loan impairment (bad debt expense) P1,212,380

Date Collection Period PVF at 11% Present value

Dec. 31, 2007 P 200,000 1 year 0.9009 P 180,180
Dec. 31, 2008 400,000 2 years 0.8116 324,640
Dec. 31, 2009 800,000 3 years 0.7312 584,960
Dec. 31, 2010 1,200,000 4 years 0.6587 790,440
Dec. 31, 2011 400,000 5 years 0.5935 237,400
P3,000,000 P2,117,620

Question No. 2

Interest income for 2007 (P2,117,620 x 11%) P232,938

Question No. 3
Principal, 12/31/07 (P3,000,000 - P200,000) P2,800,000
Less PV of projected cash flows (see below) 2,245,660
Allowance for loan impairment, 12/31/07 P 554,340

Date Collection Period PVF at 11% Present value

Dec. 31, 2008 P 600,000 1 year 0.9009 P 540,540
Dec. 31, 2009 1,200,000 2 years 0.8116 973,920
Dec. 31, 2010 1,000,000 3 years 0.7312 731,200
P2,800,000 P2,245,660

Question No. 4

Interest income for 2008 (P2,245,660 x 11%) P247,023

Question No. 5

Principal, 12/31/08 (P2,800,000 - P600,000) P2,200,000

Less allowance for loan impairment, 12/31/08 (P554,340 - P247,023) 307,317
Carrying value, 12/31/08 P1,892,683

RECEIVABLE FINANCING

Tagudin Co. required additional cash for its operation and used accounts receivable to raise such needed cash,
as follows:

 On December 1, 2006 Tagudin Company assigned on a non-notification basis accounts receivable of

P5,000,000 to a bank in consideration for a loan of 90% of the receivables less a 5% service fee on the
accounts assigned. Tagudin signed a note for the bank loan. On December 31, 2006, Tagudin collected
assigned accounts of P3,000,000 less discount of P200,000. Tagudin remitted the collections to the
bank in partial payment for the loan. The bank applied first the collection to the interest and the
balance to the principal. The agreed interest is 1% per month on the loan balance.
 Tagudin Co. sold P1,550,000 of accounts receivable for P1,340,000. The receivables had a carrying
amount of P1,470,000 and were sold outright on a nonrecourse basis.
 Tagudin Co. received an advance of P300,000 from Union Bank by pledging P360,000 of accounts
receivable.
 On June 30, 2006, Tagudin Co. discounted at a bank a customer’s P600,000, 6-month, 10% note
receivable dated April 30, 2006. The bank discounted the note at 12% on the same date.

QUESTIONS:

1. In its December 31, 2006 balance sheet, Tagudin should report note payable as a current liability at

a. P1,745,000
 b. P2,250,000
c. P1,545,000
d. P1,700,000

2. Tagudin Company’s equity in the assigned accounts receivable as of December 31, 2006 is

a. P255,000
b. P300,000
c. P455,000
d. P0

3. The entry to record the sale of accounts receivable would include

a. A debit to Finance Charge of P210,000.

b. A debit to Allowance for Doubtful Accounts of P80,000.
c. A credit to Accounts Receivable of P1,470,000.
d. A credit to Notes Payable of P1,550,000.

4. Accounts receivable pledged against borrowings, should be

a. Included in total receivables with disclosure.

b. Included in total receivables without disclosure.
c. Excluded from total receivables with disclosure.
d. Excluded from total receivables without disclosure.

5. The proceeds from the note receivable discounted on June 30, 2006 is

a. P564,000
b. P617,400
c. P604,800
d. P576,000

Question No. 1

Original note payable (P5,000,000 x 90%) P4,500,000

Less: payment applied to principal:
Total payment (P3,000,000 - P200,000) P2,800,000
Less: payment applied to interest (P4,500,000 x 1%) 45,000 2,755,000
Note payable, 12/31/06 P1,745,000

Question No. 2

Total accounts receivable assigned P5,000,000

Less collections 3,000,000
Accounts receivable assigned, 12/31/06 2,000,000
Note payable, 12/31/06 1,745,000
Equity in accounts receivable assigned P 255,000
Question No. 3

Journal entry to record the sale (factoring) of accounts receivable:

Cash P1,340,000
Allowance for doubtful accounts (P1,550,000P1,470,000) 80,000
Loss on factoring (Finance Charge) 130,000
Accounts receivable P1,550,000

Question No. 4

Accounts receivable pledged against borrowings, should be Included in total receivables with disclosure.

Question No. 5

Face value P600,000

Add interest up to maturity (P600,000 x 10% x 6/12) 30,000
Maturity value 630,000
Less discount (P630,000 x 12% x 4/12) 25 200
Proceeds from note receivable discounting P604,800

INVENTORIES

During your audit of the records of the Manaoag Corporation for the year ended December 31, 2006, the
following facts were disclosed:

Raw materials inventory, 1/1/2006 P 720,200

Raw materials purchases 5,232,800
Direct labor 4,900,000
Manufacturing overhead applied (150% of direct labor) 7,350,000
Finished goods inventory, 1/1/2006 1,240,000
Selling expenses 8,112,800
Administrative expenses 7,377,200

Your examination disclosed the following additional information:

a) Purchases of raw materials

Month Units Unit Price Amount

January - February 55,000 P17.76 P 976,800
March - April 45,000 20.00 900,000
May - June 25,000 19.60 490,000
July - August 35,000 20.00 700,000
September - October 45,000 20.40 918,000
November - December 60,000 20.80 1,248,000
 265,000 P5,232,800

b) Data with respect to quantities are as follows:

Units
Explanation 1/1/06 12/31/06
Raw materials 35,000 ?
Work in process (80% completed) - 25,000
Finished goods 15,000 40,000
Sales, 200,000 units

c) Raw materials are issued at the beginning of the manufacturing process. During the year, no returns,
spoilage, or wastage occurred. Each unit of finished goods contains one unit of raw materials.

d) Inventories are stated at cost as follows:

 Raw materials – according to the FIFO method

 Direct labor – at an average rate determined by correlating total direct labor cost with effective
production during the period
 Manufacturing overhead – at an applied rate of 150% of direct labor cost

QUESTIONS:

Based on the above and the result of your audit, answer the following:

1. The raw materials inventory as of December 31, 2006 is

a. P992,000
b. P888,000
c. P 936,000
d. P1,040,000

2. The work in process inventory as of December 31, 2006 is

a. P1,496,000
b. P1,514,000
c. P1,746,000
d. P1,776,000

3. The finished goods inventory as of December 31, 2006 is

a. P2,793,600
b. P3,334,000
c. P3,553,130
d. P2,812,000
4. The cost of goods sold for the year ended December 31, 2006 is

a. P16,897,000
b. P14,161,400
c. P14,077,000
d. P13,911,400

Question No. 1

Units
Raw materials, 1/1/06 35,000
Add Purchases 265,000
Raw materials available for use 300,000
Less raw materials, 12/31/06 (squeeze) 50,000
Goods placed in process 250,000
Less work in process, 12/31/06 25,000
Goods manufactured 225,000
Finished goods, 1/1/06 15,000
Total goods available for sale 240,000
Less finished goods, 12/31/06 40,000
Goods sold 200,000
Raw materials, 12/31/06 (50,000 units x P20.80) P1,040,000
Question No. 2

Raw materials [(10,000 units x P20.80) +(15,000 units x P20.40)] P 514,000

Direct labor (25,000 units x 80% x P20a) 400,000
Factory overhead (25,000 units x 80% x P30b) 600,000
Work in process, 12/31/06 P1,514,000

Labor unit cost (P4,900,000/245,000* units) P20a

Overhead unit cost (P7,350,000/245,000* units) P30b

*Equivalent production for labor and overhead

Started, finished and sold [(200,000 units - 15,000 units) x 100%] 185,000
Started, finished and on hand (40,000 units x 100%) 40,000
Started, and in process (25,000 units x 80%) 20,000
Total 245,000

Question No. 3

Raw materials [(30,000 units x P20.40) + (10,000 units x P20)] P 812,000

Direct labor (40,000 units x P20a) 800,000
Factory overhead (40,000 units x P30b) 1,200,000
Finished goods inventory, 12/31/06 P2,812,000
Question No. 4

Raw materials, 1/1/06 P 720,200

Add purchases 5,232,800
Raw materials available for use 5,953,000
Less raw materials, 12/31/06 (see no. 1) 1,040,000
Direct materials used 4,913,000
Direct labor 4,900,000
Factory overhead 7,350,000
Total manufacturing cost 17,163,000
Add work in process, 1/1/06 -
Total cost placed in process 17,163,000
Less work in process, 12/31/06 (see no. 2) 1,514,000
Cost of goods manufactured 15,649,000
Add finished goods, 1/1/06 1,240,000
Total goods available for sale 16,889,000
Less finished goods, 12/31/06 (see no. 3) 2,812,000
Cost of goods sold P14,077,000

INVESTMENT

The following transactions of the Angat Company were completed during the year 2006:

Jan. 2 Purchased 20,000 shares of Bulacan Auto Co. for P40 per share plus brokerage costs of P4,500.
These shares were classified as trading securities.

Feb. 1 Purchased 20,000 shares of Malolos Company common stock at P125 per share plus brokerage
fees of P19,000. Angat classifies this stock as and available-for-sale security.

Apr. 1 Purchased P2,000,000 of RP Treasury 7% bonds, paying 102.5 plus accrued interest of P35,000.
In addition, the company paid brokerage fees of P18,000. Angat classified these bonds as a
trading security.

Jul. 1 Received semiannual interest on the RP Treasury Bonds.

Aug. 1 Sold P500,000 of RP Treasury 7% bonds at 103 plus accrued interest.

Oct. 1 Sold 3,000 shares of Malolos at P132 per share.

The market values of the stocks and bonds on December 31, 2006, are as follows:

Bulacan Auto Co. P45 per share

Malolos Company P130 per share
RP Treasury 7% bonds 102
QUESTIONS:

Based on the above and the result of your audit, determine the following:

1. Gain or loss on sale of P500,000 RP Treasury Bonds on August 1, 2006

a. P15,000 gain
b. P 2,500 gain
c. P2,000 loss
d. P7,500 loss
2. Gain or loss on sale of 3,000 Malolos shares on October 1, 2006
a. P18,150 loss
b. P18,150 gain
c. P 2,000 gain
d. P21,000 gain
3. What amount of unrealized gain should be shown as component of income in 2006?
a. P92,500
b. P97,000
c. P74,500
d. P80,000

4. What amount of unrealized gain should be shown as component of equity as of December 31, 2006?

a. P68,850
b. P85,000
c. P66,000
d. P0

Question No. 1

Sales proceeds (P500,000 x 1.03) P515,000

Less cost of RP Treasury bonds sold (P500,000 x 1.025) 512,500
Gain on sale of P500,000 RP Treasury Bonds P 2,500

Question No. 2

Sales proceeds (3,000 shares x P132) P396,000

Less cost of shares sold {[(20,000 x P125) + P19,000] x 3/20} 377,850
Gain on sale of 3,000 Malolos shares P 18,150

Question No. 3

Cost of Bulacan Auto Co. shares (20,000 x P40) P 800,000

Cost of RP Treasury 7% bonds (P2,000,000 x 1.025) 2,050,000
Cost of P500,000 RP Treasury bonds sold (see no. 1) ( 512,500)
Trading securities, 12/31/06 before mark to market 2,337,500
Fair value of trading securities, 12/31/06 (see below) 2,430,000
Unrealized gain on TS to be reported on the IS P 92,500

Bulacan Auto Co. (20,000 x P45) P 900,000

RP Treasury 7% bonds (P1,500,000 x 1.02) 1,530,200
Fair value of trading securities, 12/31/06 P2,430,000

Question No. 4

Cost of Malolos Company shares [(20,000 x P125) + P19,000] P2,519,000

Cost of 3,000 shares sold (see no. 2) (377,850)
AFS, 12/31/06 before market to market 2,141,150
Fair value of AFS, 12/31/06 [(20,000 3,000) x P130] 2,210,000
Unrealized gain AFS, 12/31/06 to be reported under SHE P 68,850