Professional Documents
Culture Documents
CHAPTER 1 Caselette - Accounting Cycle
CHAPTER 1 Caselette - Accounting Cycle
1. One is using periodic inventory system. For the year, its total purchases amounted to
P250,000. Its unsold merchandise at the end of the year has a cost of P5,000 which is
80% of its beginning inventory. One’s cost of sale is
a. P 250,000 b. P 251,250 c. P 249,000 d. P 248,750
2. Two’s purchase per purchase invoice is P150,000. The purchase discount is 2/10, n/30.
Freight is P500, FOB shipping point collect. The net purchase amounts under net
method is
a. P P147,000 b. P 147,500 c. P 148,500 d. P 150,500
4. The purchase invoice shows the amount of P250,000, 2/10, 1/20, n/30; FOB destination
collect, P200. If the account is paid 15 days after the invoice date, the net payment
should be
a. P 245,000 b. P 247,500 c. P 247,300 d. P 244,800
6. Three purchased merchandise for P5,000 and paid P200 for freight, FOB destination
collect. The merchandise was sold at 120% of cost. The gross profit is
a. P 1,000 b. P 1,040 c. P 6,000 d. P 6,240
7. The total purchase is P1,176, net of 2% cash discount. Unsold portion of purchase is
P176. The sale is at mark-up of 10%. The gross profit is
a. P 117.60 b. P 88.24 c. P 115.25 d. P 100.00
8. The term of a P300,000 purchase is 2/20, n/60, FOB shipping point prepaid, P300. If
the account is paid on the 25th day from the invoice date, the total payment would be
a. P 294,000 b. P 299,700 c. P 294,300 d. P 300,300
9. Four paid freight for P200 on its purchase on account from Five, FOB shipping point. The
journal entry in both books of Four and Five would be
Books of Four Books of Five
a. Freight-out 200 Freight-in 200
Cash 200 Accounts payable 200
b. Freight-in 200 No entry
Accounts receivable 200
c. Freight-in 200 No entry
Cash 200
d. Freight-in 200 Freight-out 200
Cash 200 Accounts receivable 200
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10. Six sold merchandise at list price of P250,000; 10; 5; n/30. Part of the sale amounting
to P10,000 was returned due to defect. The amount to be collected by Six is
a. P 205,200 b. P 203,750 c. P 204,000 d. P 195,200
11. Amar Company received P96,000 on April 1, 2002 for one year’s rent in advance and
recorded the transaction with a credit to a nominal account. The December 31, 2002
adjusting entry is
a. Debit rent revenue and credit unearned rent revenue, P24,000.
b. Debit rent revenue and credit unearned rent revenue, P72,000.
c. Debit unearned rent revenue and credit rent revenue, P24,000.
d. Debit unearned rent revenue and credit rent revenue, P72,000.
12. Andoy Company paid P72,000 on June 1, 2002 for a two-year insurance policy and
recorded the entire amount as insurance expense. The December 31, 2002 adjusting
entry is
a. Debit insurance expense and credit prepaid insurance, P21,000.
b. Debit insurance expense and credit prepaid insurance, P51,000.
c. Debit prepaid insurance and credit insurance expense, P21,000.
d. Debit prepaid insurance and credit insurance expense, P51,000.
13. Antipuesto Company purchase equipment on November 1, 2002 and gave a 12-month,
9% note with a face value of P480,000. The December 31, 2002 adjusting entry is
a. Debit interest expense and credit interest payable, P7,200.
b. Debit interest expense and credit interest payable, P10,800.
c. Debit interest expense and credit cash, P7,200.
d. Debit interest expense and credit interest payable, P43,200.
14. On December 31, 2002, Asilo Company’s bookkeeper made an adjusting entry debiting
supplies expense and credit supplies inventory for P12,600. The supplies inventory
accounts had a P15,300 debit balance on December 31, 2001. The December 31, 2002
balance sheet showed supplies inventory of P11,400. Only one purchase of supplies was
made during the month, on account. The entry for that purchase was
a. Debit supplies inventory and credit cash, P8,700.
b. Debit supplies expense and credit accounts payable, P8,700.
c. Debit supplies inventory and credit accounts payable, P8,700.
d. Debit supplies inventory and credit accounts payable, P16,500.
15. Astillo Company loaned P300,000 to another company on December 1, 2002 and
received a 3-month, 15%, interest-bearing note with a face value of P300,000. What
adjusting entry should Astillo Company make on December 31, 2002?
a. Debit interest receivable and credit interest income, P7,500.
b. Debit cash and credit interest income, P3,750.
c. Debit interest receivable and credit interest income, P3,750.
d. Debit cash and credit interest receivable, P7,500.
.
16. The supplies inventory account balance at the beginning of the period was P66,000.
Supplies totaling P128,250 were purchased during the period and debited to supplies
inventory. A physical count shows P38,250 of supplies inventory at the end of the
period. The year-end adjusting entry is
a. Debit supplies inventory and credit supplies expense, P90,000.
b. Debit supplies expense and credit supplies inventory, P128,250.
c. Debit supplies inventory and credit supplies expense, P156,000.
d. Debit supplies expense and credit supplies inventory, P156,000.
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17. At the end of 2002, Avila Company made four adjusting entries for the following items:
(1) depreciation expense, P35,000; (2) expired insurance, P2,200 (originally recorded as
prepaid insurance); (3) interest payable, P9,000; and (4) rental revenue receivable,
P10,000.
In the normal situation, to facilitate subsequent entries, the adjusting entry or entries
that may be reversed is/are
a. Entry 1 c. Entries 3 and 4
b. Entry 4 d. Entries 2, 3, and 4
18. Bagaipo Company reported an allowance for doubtful accounts of P12,000 (credit) at
December 31, 2002 before performing an aging of accounts receivable. As a result of
the aging, Bagaipo Company determined that an estimated P20,000 of the December
31, 2002 accounts receivable would prove uncollectible. The adjusting entry at
December 31, 2002 would be
a. Doubtful accounts expense 8,000
Allowance for doubtful accounts 8,000
b. Doubtful accounts expense 20,000
Accounts receivable 20,000
c. Allowance for doubtful accounts 8,000
Doubtful accounts expense 8,000
d. Doubtful accounts expense 8,000
Interest revenue 8,000
19. Assuming that the company does not reverse the adjusting entries, what should be
made on April 1, 200 when the annual interest payment is received?
a. Debit cash and credit interest revenue, P9,375.
b. Debit cash and credit interest receivable, P28,125.
c. Debit cash, P37,500; credit interest receivable, P28,125; and interest revenue,
P9,375.
d. Debit cash and credit interest revenue, P37,500.
20. Using the data of No. 19, but assuming that the company does reverse its adjusting
entries, what entry should be made on April 1, 2003 when the annual interest payment
is received?
a. Debit cash and credit interest revenue, P9,375.
b. Debit cash and credit interest receivable, P28,125.
c. Debit cash, P37,500; credit interest receivable, P28,125; and interest revenue,
P9,375.
d. Debit cash and credit interest revenue, P37,500.
Answer:
1. b 2. b 3. a 4. c 5. b 6. a 7. d 8. d 9. c 10. a
11.a 12.d 13.a 14.c 15.c 16.d 17.c 18.a 19.c 20.d
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Problem 1
The following is the post-closing trial balance of Abagon Shop dated February 1, 2006:
Debit Credit
Cash 120,000
Accounts Receivable 280,000
Allowance for doubtful accounts 2,800
Unused shop supplies 800
Shop Equipment 240,000
Accumulated depreciation - shop 48,000
equipment
Accounts payable 88,800
Notes payable 100,000
Accrued interest payable 1,200
Abagon, Capital 400,000
Total 640,800 640,800
For the month of February, the following are the transactions of Abagon Shop.
1. Abagon withdrew P100,000 cash from the business for her personal use.
2. Paid P12,000 insurance premium.
3. Paid P24,000 rent.
4. Total service rendered to various customers, P140,000, 40% of total sales are on cash
basis and the balance on open account.
5. Received promissory note from customer to replace P40,000 accounts receivable.
6. Collected in cash P164,000 of accounts receivable.
7. Paid the notes payable of P100,000 plus the P2,400 interest.
8. Purchased P2,400 shop supplies on cash basis.
9. Paid salaries, P24,000.
At the end of the month, the following information are available to effect adjustments.
a. The insurance in number 2 for P12,000 is applicable for six months starting February.
b. The rent of P24,000 paid in number 3 is for 3 months, starting February.
c. The note receivable is number 5 is earning 12% interest per year. The note is dated
February 1, and is due on April 30.
d. Bad debts expense is estimated at 2% of accounts receivable balance.
e. The annual depreciation is P48,000.
f. The unused supplies balance is P1,000.
Questions
1. Cash at end of February is:
a. P 103,200 b. P 85,200 c. P 75,200 d. P 72,800
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5. Accounts Payable at end of February is
a. P 128,800 b. P 88,800 c. P 86,400 d. P 48,800
Solution
1 Abagon, drawing 100,000
Cash 100,000
2 Insurance expense 12,000
Cash 12,000
3 Rent expense 24,000
Cash 24,000
4 Cash 56,000
Accounts receivable 84,000
Revenue 140,000
5 Notes receivable 40,000
Accounts receivable 40,000
6 Cash 164,000
Accounts receivable 164,000
7 Notes payable 100,000
Interest expense 2,400
Cash 102,400
8 Supplies expense 2,400
Cash 2,400
9 Salaries 24,000
Cash 24,000
Adjusting Entry:
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TRIAL BALANCE ADJUSTMENTS INCOME STATEMENT BALANCE SHEET
75,20 75,20
CASH 0 0
ACCNTS RECEIV 160,000 160,000
ALLOW. FOR BD 2,800 400 3,200
40,00 40,00
NOTES RECEIV 0 0
UNUSED SUPPLIES 800 1,000 800 1,000
SHOP EQUIPMENT 240,000 240,000
ACCUM. DEPN 48,000 4,000 52,000
ACCOUNTS PAY 88,800 88,800
NOTES PAYABLE - -
ACC. INT. PAY 1,200 1,200 -
ABAGON, DRAWING 100,000 100,000
ABAGON, CAPITAL 400,000 400,000
REVENUE 140,000 140,000
Answer:
1. C 2. A 3. B 4. A 5. B 5. D 8. A 9. A 9. C 10. B
Problem 2
The following selected transactions were completed during Year 1 of operations by Vicar
Corporation:
a. Sold of its 20,000 shares of its own common stock, par P1 per share, for P15 per
share and received cash in full.
c. Purchased equipment for use in operating the business at a net cash cost of
P164,000; paid in full.
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d. Purchased merchandise for resale at cash cost of P140,000; paid cash. Assume a
periodic inventory system; therefore, debit Purchases.
e. Purchased merchandise for resale on credit terms of 2/10, n/60. The merchandise
will cost P9,800 if paid within 10 days; after 10 days, the payment will be P10,000. The
company always takes the discount; therefore, such purchased are recorded at net of
the discount.
f. Sold merchandise for P180,000; collected P165,000 cash, and the balance is due in
one month.
h. Paid ¾ of the balance for the merchandise purchased in (e) within 10 days; the
balance remains unpaid.
i. Collected 50% of the balance due on the sale in (f); the remaining balance is
uncollected.
j. Paid cash for an insurance premium, P600; the premium was for two years’ coverage
(debit Prepaid insurance).
k. Purchased a tract of land for a future building for company operations, P63,000 cash.
l. Paid damages to a customer who was injured on the company premises, P10,000
cash.
Questions
Using the unadjusted trial balance, answer the following:
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a. P 300,000 b. P 280,000 c. P 200,000 d. P 20,000
Cash 157,400
Accounts receivable 7,500
Prepaid insurance 600
Land 63,000
Equipment 164,000
Accounts payable 2,500
Notes payable 100,000
Common stock 20,000
Premium on capital stock 280,000
Sales 180,000
Purchases 149,800
Operating expenses 30,000
Purchase disc. lost 200
Loss on damages 10,000 _______
Total 582,500 582,500
ANSWER
1. b 2. d 3. a 4. d 5. b 6. b 7. c 8. d 9. b 10. a
11. a 12. b
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Problem 3
The post-closing trial balance of the general ledger of Wilson Corporation at December 31,
20I, reflected the following:
The following transactions occurred during 20J in the order given (use the number at the
left to indicate the date):
1. Sales revenue at P30,000, of which P10,000 was on credit; cost provided by perpetual
inventory record, P19,500.
2. Collected P17,000 on accounts receivable.
3. Paid income taxes payable (20I), P4,000.
4. Purchased merchandise, P40,000, of which P8,000 was on credit.
5. Paid accounts payable, P6,000.
6. Sales revenue of P72,000 (in cash); cost, P46,800.
7. Paid operating expenses, P19,000.
8. On January 1, 20J, sold and issued 1,000 shares of common stock, par P1, for P1,000
cash.
9. Purchased merchandise, P100,000, of which P27,000 was on credit.
10. Sales revenue of P98,000, of which P30,000 was on credit; cost P63,700.
11. Collected cash on accounts receivable, P26,000.
5. Paid cash on accounts payable, P28,000.
6. Paid various operating expenses in cash, P18,000.
Assume a bad debt rate of ½% of credit sales for the period and a 32% income tax rate. At
December 31, 20J, accrued wages were P300. Use straight-line depreciation.
Questions
1. Cash at December 31, 20J is:
a. P 51,000 b. P 50,000 c. P 45,000 d. P 41,000
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2. Accounts receivable at December 31, 20J is:
a. P 18,000 b. P 16,800 c. P 16,000 d. P 15,800
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Cost of sales 63,700
Inventory 63,700
(11) Cash 26,000
Accounts receivable 26,000
(12) Accounts payable 28,000
Cash 28,000
(13) Operating expenses 18,000
Cash 18,000
Adjusting Entry:
(a) Operating expenses (ins. Exp) 540
Prepaid insurance 540
(P900 x 12/20)
(b) Operating expenses (depreciation) 2,500
Accumulated depreciation 2,500
(c) Operating expenses (bad debts) 200
Allowance for bad debts 200
(d) Operating expenses 300
Wages payable 300
FINANCIAL STATEMENTS
Cash 51,000
Accounts receivable 18,000
Allowance for bad debts (1,200)
Inventory 45,000
Prepaid insurance 360
Equipment 50,000
Accumulated depreciation (25,000)
Total Assets 138,160
Answer:
1. a 2. b 3. b 4. a 5. d 6. b 7. d 8. b 9. b 10.c 11.b
Problem 4
The account of PEQUIT COMPANY as at December 1, 2006 are listed below:
Cash 214,000
Accounts receivable 338,000
Marketable securities 426,000
Office supplies 31,000
Prepaid insurance 48,000
Land 370,000
Building 900,000
Accum. depreciation – bldg 250,000
Equipment 800,000
Accum. depreciation – equip. 200,000
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Accounts payable 172,000
Mortgage payable 1,200,000
Capital _______ 1,305,000
3,127,000 3,127,000
Additional information
1. Salaries in the amount of P73,000 have accrued on December 31.
2. Insurance coverage with premium of P2,000 has expired at month-end.
3. Depreciation on the building and on the equipment for the month amounted to
P3,000 and P4,500, respectively.
4. Office supplies on hand at month-end amounted to P7,000.
5. A count of the inventory amounted to P453,000 on December 31, 2006.
Questions
1. Cash balance at December 31, 2006 is:
a. P 773,750 b. P 772,700 c. P 748,450 d. P 727,700
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6. Total assets at December 31, 2006 is:
a. P 3,253,950 b. P 3,250,950 c. P 3,203,950 d. P 3,153,950
Solution
13
Dec 30 Drawing 20,000
Purchases 20,000
Adjusting entry:
3. Depreciation 7,500
Accum. Dep’n – bldg 3,000
Accum. Dep’n – equip 4,500
5. Inventory – BS 453,000
Inventory – IS 453,000
ANSWER:
1. C 2. C 3. B 4. A 5. C 6. A 7. C 8. B 9. D 10. C
11. A 12. D 13. C 14. B 15. A
Problem 5
The Righter Shoe Store Company prepares monthly financial statements for its bank. The
November 30 and December 31, 2006, trial balances contained the following information:
Nov. 30 Dec. 31
Dr. Cr. Dr. Cr.
Supplies 1,000 3,000
Prepaid insurance 6,000 4,250
Wages payable 10,000 15,000
Unearned rent revenue 2,000 1,000
Questions
1. What was the cost of supplies purchased during December?
a. P 1,000 b. P 2,000 c. P 3,000 d. P 4,000
2. What was the adjusting entry recorded at the end of December for prepaid
insurance?
a. Prepaid insurance 4,250
Insurance expense 4,250
b. Insurance expense 4,250
Prepaid insurance 4,250
c. Insurance expense 1,750
Prepaid insurance 1,750
d. No adjusting entry
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3. What was the adjusting entry recorded at the end of December for
accrued wages?
a. Wages expense 15,000
Wages payable 15,000
b. Wages expense 10,000
Wages payable 10,000
c. Wages expense 5,000
Wages payable 5,000
d. No adjusting entry
5. What adjusting entry was recorded at the end of December for unearned
rent?
a. Unearned rent rev. 3,000
Rent revenue 3,000
b. Rent revenue 2,000
Unearned rent rev. 2,000
c. Unearned rent revenue 1,000
Rent revenue 1,000
d. Unearned rent revenue 2,000
Rent revenue 2,000
Solution
1. D
Supplies on Hand
Beg. Bal 1,000 Adjustment 2,000
Purchases 4,000 *
Ending bal. 3,000
* squeezed figure
2. C 3. A 4. A 5. C
Problem 6
The trial balance of ANN CO., prior to the closing of its account for the fiscal year ended
September 30, 2006 follows:
Cash P22,500
Accounts receivable 93,600
Allowance for doubtful accounts P 3,190
Note receivable 15,500
Merchandise inventory, 9/30/02 56,890
Furniture and equipment 61,800
Accumulated depreciation 18,750
Goodwill 30,000
Accounts payable 53,600
Notes payable 10,000
Capital Stock 100,000
Retained Earnings 55,250
Sales 372,000
Sales return and allowances 4,760
Purchases 215,930
Purchase return and allowances 3,650
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Advertising 9,610
Sales salaries 28,850
Commission expense 15,200
Miscellaneous expense 2,990
Rent expense 13,000
Office salaries 19,720
Light and Water 1,500
Insurance expense 1,080
Taxes and licenses 4,780
General expense 16,340
Interest expense 4,120
Interest income 910
Your examination of the company’s account has the need for adjustments based on the
following items:
d. A physical inventory of merchandise taken at the end of the fiscal year 2006
amounted to P60,120.
j. Rent expense account considered of rent for the store and office space for
thirteen months starting August 1, 2006.
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d. No adjustment
17
c. Accumulated depreciation 6,180
Depreciation expense 6,180
d. No adjustment
11. Cash
a. P24,000 b. P21,000 c. P20,500 d. P20,000
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17. Net income, September 30, 2006 (disregard tax effect)
a. P31,635 b. P31,625 c. P38,935 d. P38,115
Answer:
1. C 2. C 3. B 4. A 5. A 6. D 7. A 8. D 9. D 10. C
11. C 12. B 13. D 14. B 15. A 16. A 17. D 18. B 19. A
Problem 7
Selected pre-adjustment account balances and adjusting information of NAPPY COMPANY for
the year ended December 31, 2006, are as follows:
Adjusting information:
1. Cost of inventory in the possession of consignee as of December 31, 2006, was not
included in the ending inventory balance, P33,600.
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2. After preparing an analysis of aged accounts receivable, a decision was made to increase
the allowance for bad debts to a percentage of the ending account receivable balance to
3%. Accounts totaling P7,480 were written off as uncollectible during the year.
4. Sales commission for the last day of the year had not been accrued. Total sales for the
day, P3,600. Average sales commission as a percent of sales is 3%.
5. No accrual has been made for a freight bill received on January 3, 2007, for goods
received on December 29, 2006, P800.
6. An advertising campaign for P1,818 was initiated November 1, 2006. This amount was
recorded as “prepaid advertising” and should be amortized over a 6-month period. No
amortization was recorded.
7. Freight charges paid on sold merchandise and not passed to the buyer were netted
against sales. Freight charges on sales during 2006 is P4,200.
9. Depreciation expense on a new forklift (estimated life is 10 years) purchased for P7,800
on March 1, 2006 had not been recognized. (Assume all equipment will have no salvage
value and the SLM is used. Depreciation is calculated to the nearest month.)
10. A “real” account is debited upon the receipt of supplies. Supplies on hand at year-end is
P1,600.
Questions
1. Net Sales is
a. P 499,200 b. P 489,300 c. P 488,500 d. P 487,320
3. Freight-in is
a. P 6,325 b. P 5,200 c. P 5,000 d. P 4,125
4. Inventory – 12/31/02 is
a. P 54,700 b. P 54,150 c. P 53,600 d. P 52,200
5. Cost of sales is
a. P 265,440 b. P 205,350 c. P 204,495 d. P 114,795
7. Advertising expense is
a. P 24,696 b. P 16,800 c. P 16,750 d. P 16,606
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8. Depreciation expense is
a. P 14,600 b. P 12,500 c. P 12,000 d. P 11,550
9. Supplies expense is
a. P 670 b. P 580 c. P 560 d. P 480
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Telephone and postage 1,475 1,475
Misc. selling expense 2,200 2,200
Officers' salaries 36,600 36,600
Interest expense 4,520 4,520
Bad debts 7,460 7,460
Transportation expense 4,200 4,200
Supplies expense 580 580
141,984
ANSWER:
1. D 2. C 3. A 4. B 5. C 6. A 7. D 8. D 9. B 10. B
11. B 12. C 13. C
Problem 8
Presented below are unaudited balances of selected accounts of Baluyot Company as at
December 31, 2006 – its first year of operation. During the course of your audit of
Baluyot’s books you obtained additional information affecting these accounts:
Debit Credit
Cash 500,000
Accounts receivable 1,300,000
Allowance for bad debts 8,000
Sales (net) 6,750,000
Accounts payable 600,000
Purchases (net) 4,350,000
Cars and trucks 1,200,000
Machinery and equipment 950,000
Accumulated depreciation 95,000
Additional information:
a. On December 31, 2006, Baluyot recorded and wrote check payments to creditors
amounting to P300,000. A number of checks amounting to P150,000 were mailed on
January 3, 2007.
b. On December 28, 2006, Baluyot purchased and received goods amounting to P100,000,
terms 2/10, n/30. As a policy, Baluyot records purchases in accounts payable at net
amounts. This particular invoice was recorded and paid on January 4, 2007.
c. On December 26, 2006, a supplier authorized Baluyot to return goods shipped and billed
at P80,000 on December 3, 2006. The goods were returned on December 30, 2006.
The supplier’s credit memo was received and recorded on January 5, 2007.
d. Goods amounting to P50,000 were invoiced for the account of Palmes Company and
recorded on January 2, 2007 with terms of net 60 days, FOB shipping point. The goods
were shipped to Palmes on December 30, 2006.
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e. The bank returned on December 29, 2006, a customer check for P5,000 marked “No
Sufficient Fund” but no entry was made.
f. Baluyot estimates that allowance for uncollectible accounts should be one and one-half
percent (1½%) of the accounts receivable balance as of year-end. No provision has yet
been made for 2006.
g. All the cars and trucks were acquired on May 1, 2006 at a total cost of P1,200,000.
Baluyot estimates the useful life of the cars and trucks at five-years and depreciates
these assets based on 150% declining balance. As a policy, depreciation is computed to
the nearest month and rounded-off to the nearest peso. No depreciation has been
recorded for cars and trucks as at December 31, 2006.
Questions
1. The adjusted amount of Cash is:
a. P 650,000 b. P 645,000 c. P 500,000 d. P 495,000
6. The adjusted amount of 2006 Depreciation Expense – Machinery and Equipment is:
a. P 95,550 b. P 95,500 c. P 95,417 d. P 95,000
Problem 9
The trial balance of TRANQUILAN CORPORATION, prior to the closing of is accounts for the
fiscal year-ended September 30, 2006 follows:
DEBIT CREDIT
23
Cash 225,000
Accounts receivable 936,000
Allowance for doubtful accounts 31,900
Notes receivable 155,000
Merchandise inventory, Sept. 30, 2005 568,900
Furniture and Equipment 618,000
Acc. Depreciation – Furniture & Equipment 187,500
Goodwill 300,000
Accounts payable 536,000
Notes payable 100,000
Capital stock 1,000,000
Retained earnings 552,500
Sales 3,728,200
Sales returns and allowances 47,600
Purchases 2,159,300
Purchase returns and allowances 36,500
Advertising 96,100
Sales salaries 288,500
Commission expense 152,000
Miscellaneous selling expenses 29,900
Rent expense 130,000
Office salaries 197,200
Light and water 15,000
Insurance expense 10,800
Taxes and licenses 47,800
Miscellaneous general expenses 163,400
Interest expense 41,200
Interest income ________ 9,100
6,181,700 6,181,700
Your examination of the company’s accounts had indicated the need for adjustments based
on the following information:
1. The Cash account include a customers’ check for P15,000 deposited on September 25,
2006, but returned by the bank on September 29, 2006 for lack of countersignature. No
entry was made by the company for the return of the check or for its redeposit on
October 5, 2006.
3. A physical inventory taken of the merchandise stock as of the end of the fiscal year
amounted to P601,200.
4. A purchase of merchandise FOB shipping point, for which goods costing P40,000 were
still in transit on September 30, 2006 was neither taken as a liability nor included in the
inventory on that date.
5. Goods received on consignment, still unsold, were included in the inventory at the
agreed selling price of P24,000.
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7. On July 1, 2006, equipment acquired on October 1, 2003 with a book value of P32,000
on September 30, 2005 was sold for P35,000 in cash. The sales proceeds were credited
to the Furniture and Equipment account.
8. Depreciation for the fiscal year 2005-2006 has not been recorded. Depreciation rate
being used is 10% annually.
9. An insurance policy was taken on the inventory and equipment on April 1, 2006 with the
annual premium of P10,800 paid on that date.
10. Rent expense account consisted of rent paid for stock and office space for thirteen (13)
months ending October 31, 2006.
11. The 120-day Note Payable of P100,000 bearing interest of 12% was discounted at the
bank on September 1, 2006.
12. The Goodwill account was set-up by a credit to Retained Earnings under a resolution of
the Board of Directors.
Questions
1. Cash for the fiscal year-ended September 30, 2006 is:
a. P 195,000 b. P 210,000 c. P 225,000 d. P 240,000
2. Accounts receivable for the fiscal year-ended September 30, 2006 is:
a. P 906,000 b. P 921,000 c. P 951,000 d. P 936,000
3. Allowance for doubtful accounts for the fiscal year-ended September 30, 2006 is:
a. P 15,650 b. P 46,800 c. P 45,300 d. P 47,550
4. Merchandise inventory for the fiscal year-ended September 30, 2006 is:
a. P 617,200 b. P 641,200 c. P 677,200 d. P 561,200
5. Book value of the Furniture and Equipment for the fiscal year-ended September 30,
2006 is:
a. P 360,200 b. P 372,200 c. P 375,200 d. P 489,800
7. Accounts payable for the fiscal year-ended September 30, 2006 is:
a. P 496,000 b. P 536,000 c. P 552,000 d. P 576,000
8. Net income for the fiscal year-ended September 30, 2006 is:
a. P 326,750 b. P 332,750 c. P 346,750 d. P 347,750
9. Retained earnings for the fiscal year-ended September 30, 2006 is:
a. P 252,500 b. P 600,250 c. P 885,250 d. P 900,250
10. Insurance expense for the fiscal year-ended September 30, 2006 is:
a. P 5,400 b. P 9,200 c. P 10,800 d. P 16,200
Solution
25
1. Accounts Receivable 15,000
Cash 15,000
4. Purchases 40,000
Merchandise Inventory 40,000
Accounts Payable 40,000
Income Summary 40,000
TRANQUILAN CORPORATION
WORKING TRIAL BALANCE
September 30, 2003
26
Trial Balance Adjustments Income Statement Balance Sheet
Debit Credit Debit Credit Debit Credit Debit Credit
Cash 225,000 15,000 210,000
AR 936,000 15,000 951,000
All. for DA 31,900 15,650 47,550
NR 155,000 155,000
MI 568,900 568,900 617,200 617,200*
F/E 618,000 5,000 613,000
AD– F/E. 187,500 11,000 64,300 240,800
Goodwill 300,000 300,000 -0-
AP 536,000 40,000 576,000
NP 100,000 100,000
CS 1,000,000 1,000,000
RE 552,500 300,000 252,500
Sales 3,728,200 3,728,200
Sales R& A 47,600 47,600
Purchases 2,159,300 40,000 2,199,300
Purch R&A. 36,500 36,500
Adv 96,100 96,100
Sales sal 288,500 288,500
Com. exp 152,000 152,000
Misc.sell 29,900 29,900
Rent exp 130,000 10,000 120,000
Office sal 197,200 197,200
Light & W 15,000 15,000
Ins. exp 10,800 5,400 5,400
Tax & licen 47,800 47,800
Misc. Ge 163,400 163,400
Int. exp 41,200 3,000 38,200
Int inc 9,100 9,100
6,181,700 6,181,700
DA 15,650 15,650
Gain 6,000 6,000
Depren 64,300 64,300
Pre ins 5,400 5,400
Pre rent 10,000 10,000
Disc on NP 3,000 3,000
464,350 464,350 4,049,250 4,397,00 2,564,600 2,216,850
0
NET INC 347,750 347,750
4,397,000 4,397,000 2,564,600 2,564,600
ANSWER:
1. B 2. C 3. D 4. A 5. B 6. D 7. D 8. D 9. B 10. A
Problem 10
Your audit client, Tortor Corporation, presents to you the unadjusted trial balance shown
below, which was drawn from its general ledger as at June 30, 2006, the end of its fiscal
year.
TORTOR CORPORATION
Unadjusted Trial Balance
June 30, 2006
Cash 721,800
Trading Securities 200,000
Accounts receivable 2,128,000
Inventory, June 30, 2005 5,194,300
Invest. in associates (Equity Method) 1,200,000
Equipment 1,621,000
Prepaid expenses 116,200
Goodwill 500,000
27
Accounts payable 2,426,400
Accrued expenses 152,600
Accrued interest payable 226,000
Allowance for bad debts 36,100
Allowance for depreciation 450,700
Loans payable 2,500,000
Capital stock 3,000,000
Additional paid-in capital 260,000
Retained earnings 1,808,800
Sales 21,602,000
Interest income 140,000
Purchases 13,928,000
Salaries and wages 3,250,000
Rent, light and water 750,000
Advertising 400,000
Supplies 300,000
Taxes 250,000
Miscellaneous expenses 1,793,300
Interest expense 250,000 _________
32,602,600 32,602,600
1. The cash account included an NSF check returned by the bank on June 30, 2006, but
recorded as a cash reduction in July, 2006, P44,000, and a voucher for suppliers paid in
cash on June 27, 2006 but not entered in the books, P26,500.
2. Marketable Securities which cost P200,000 have a market value of P210,000. Long-
Term Investments have a market value of P1,250,000 as at balance sheet date.
3. The company has been providing an allowance for bad debts at 5% of the
outstanding customers’ balances. Uncollectible accounts were charged off against the
allowance during the year.
7. Salaries unpaid as of June 30, 2006, P13,000 were not taken up under accrued
expenses.
8. The Goodwill account was set-up with a credit to Retained Earnings on the basis of a
resolution of the Board of Directors.
28
9. A 10% cash dividend declared on June 15, 2006, payable on July 31, 2006, has not
been recorded.
10. The Board of Directors approved a resolution on June 25, 2006 appropriating out of
Retained Earnings the amount of P300,000 to meet possible future losses on inventories.
Questions
1. Cash for the fiscal year-ended June 30, 2006 is:
a. P 633,800 b. P 651,300 c. P 677,800 d. P 695,300
2. Marketable securities for the fiscal year-ended June 30, 2006 is:
a. P 0 b. P 190,000 c. P 200,000 d. P 210,000
3. Accounts receivable for the fiscal year-ended June 30, 2006 is:
a. P 2,172,000 b. P 2,128,000 c. P 2,100,000 d. P 2,084,000
4. Allowance for doubtful accounts for the fiscal year-ended June 30, 2006 is:
a. P 72,500 b. P 104,200 c. P 106,400 d. P 108,600
7. Accumulated depreciation for the fiscal year-ended June 30, 2006 is:
a. P 390,700 b. P 552,800 c. P 562,800 d. P 622,800
8. Retained earnings before net income for the fiscal year-ended June 30, 2006 is:
a. P 708,800 b. P 1,008,800 c. P 1,308,800 d. P 1,508,000
9. Retained earnings after net income for the fiscal year-ended June 30, 2006 is:
a. P 2,639,700 b. P 2,405,500 c. P 1,840,500 d. P 1,805,500
Solution
TORTOR CORPORATION
WORKING TRIAL BALANCE
June 30, 2006
29
Goodwill 500,000 500,000 ------------
AP 2,426,400 2,426,400
Acc. Exp. 152,600 13,000 165,600
Acc. int. pay 226,000 226,000
Allow. For 36,100 72,500 108,600
BD
Acc. for 450,700 60,000 172,100 562,800
depr.
Loans 2,500,000 2,500,000
payable
Capital stock 3,000,000 3,000,000
APIC 260,000 260,000
RE 1,808,800 500,000
300,000
300,000 708,800
Sales 21,602,000 21,602,000
Int. inc. 140,000 140,000
Purch. 13,928,000 13,928,000
Sal. & wages 3,250,000 13,000 3,263,000
Rent, light … 750,000 750,000
30
P150,000
Less acc. depr.
(45,000+15,000)
60,000
Book value P 90,000
Selling price 100,000
Gain P 10,000
Depreciation expense 172,100
Allowance for depreciation 172,100
10% x (1,621,000 + 100,000)
6. Insurance expense 7,500
Prepaid expenses 7,500
(30,000 x 3/12)
7. Salaries and wages 13,000
Accrued expenses 13,000
8. Retained earnings 500,000
Goodwill 500,000
9. Retained earnings 300,000
Dividends payable (10% x 300,000
P3,000,000)
10. Retained earnings 300,000
RE Appropriated for Possible 300,000
Losses in Inv.
ANSWER:
1. B 2. C 3. A 4. D 5. A 6. B 7. C 8. A 9. D 10. C
Problem 11
Erasmo Corporation was incorporated on December 1, 2005, and began operations one
week later. Jesus is a nonpublic enterprise. Before closing the books for the fiscal year
ended November 30, 2006, Erasmo Corporation’s controller prepared the following financial
statements:
Balance Sheet
November 30, 2006
ASSETS
Current Assets:
Cash 150,000.00
Marketable securities, at cost 60,000.00
Accounts receivable 450,000.00
Allowance for doubtful accounts (59,000.00)
Inventories 430,000.00
Prepaid insurance 15,000.00
Total current assets 1,046,000.00
Property, plant and equipment 426,000.00
Accumulated depreciation (40,000.00)
Research and developments 120,000.00
Total assets 1,552,000.00
Current Liabilities
Accounts payable & accrued expenses 592,000.00
Income tax payable 224,000.00
Total current liabilities 816,000.00
Stockholders’ Equity
Common stock, P10 par value 400,000.00
Retained earnings 336,000.00
Total stockholders’ Equity 736,000.00
31
Total liabilities & Stockholders’ Equity 1,552,000.00
Statement of Income
For the year ended November 30, 2006
Erasmo is in the process of negotiating a loan for expansion purposes and the bank has
requested audited financial statements. During the course of the audit, the following
additional information was obtained:
3. Inventories at November 30, 2006, did not include work in process inventory costing
P12,000 sent to an outside processor on November 29, 2006.
4. A P3,000 insurance premium paid on November 30, 2006, on a policy expiring one year
later was charged insurance expense.
5. On June 1, 2006, a machine purchased for P24,000 was charged to repairs and
maintenance. Erasmo depreciates machines of this type on the straight-line method over
a five year life, with no salvage value, for financial and tax purposes.
7. During November 2006, a competitor company filed suit against Erasmo for patent
infringement claiming P200,000 in damages. Erasmo Corporation’s legal counsel
believes that an unfavorable outcome is probable. A reasonable estimate of the court’s
award to the plaintiff is P50,000.
8. The 40% effective tax rate was determined to be appropriate for calculating the
provision for income taxes for the fiscal year ended November 30, 2006. Ignore
computation of deferred income taxes.
Questions
32
1. In the income statement for the year ended November 30, 2006, Erasmo should report
for the marketable securities
a. A realized loss of P5,000. c. A realized gain of P5,000
b. An unrealized loss of P5,000. d. An unrealized gain of P5,000
2. In the November 30, 2006, balance sheet, Erasmo should report in respect of the
investment portfolio
Marketable Securities Valuation Allowance
a. P55,000 P -0-
b. P55,000 P5,000
c. P60,000 P -0-
d. P60,000 P5,000
3. In the November 30, 2006, balance sheet, Erasmo should report the allowance for
doubtful accounts at
a. P23,000 b. P36,000 c. P59,000 d. P69,000
4. Bad debts expense for the year ended November 30, 2006, is
a. P -0- b. P23,000 c. P36,000 d. P59,000
6. Cost of goods sold for the year ended November 30, 2006, reported as
a. P1,643,000 b. P1,645,000 c. P1,658,000 d. P1,670,00
9. Depreciation expense for the year ended November 30, 2006, should be
reported at
a. P16,000 b. P37,600 c. P40,000 d. P42,400
11. In the November 30, 2006 balance sheet, research and development costs
should be reported at
a. P -0- b. P120,000 c. P135,000 d. P150,000
12. Research and development expense for the year ended November 30, 2006 is
a. P -0- b. P15,000 c. P30,000 d. P150,000
13. In the November 30, 2006 balance sheet, Erasmo should report an estimated
liability from lawsuit at
a. P -0- b. P50,000 c. P100,000 d. P200,000
14. For the year ended November 30, 2006, which one of the following adjustments
increases the Unadjusted income, before income taxes of P560,000?
a. Pension expense
33
b. Work in process inventory at outside processor
c. Estimated loss from lawsuit
d. Research and development cost
15. For the year ended November 30, 2006, which of the following adjustments
decreases the unadjusted income, before income taxes, of P560,000?
a. Recognition of prepaid insurance
b. Reduction in allowance for doubtful accounts
c. Depreciation on machine purchased June 1,2006
d. Recognition of research and development cost
Solution
ANSWER:
1. B 2. D 3. B 4. C 5. C 6. C 7. D 8. D 9. D 10. C
11. A 12. D 13. B 14. B 15. C
Problem 12
In connection with your audit of the Eddie Vic Farms Corp., the accountant prepared the
following balance sheet:
Eddie Vic Farms Corp.
Balance sheet
December 31, 2006
Assets
Cash P 493,000
Marketable securities 630,000
Accounts receivable 540,000
Inventories 1,002,000
Total current assets 2,665,000
Land, buildings, and equipment 2,904,000
Total assets P5,569,000
Liabilities and Stockholders’ Equity
Accounts payable P 684,840
Estimated losses from future crop failures 670,000
Salaries payable 300,000
Total current liabilities 1,654,840
10% Bonds payable (due in 10 years) 1,050,000
Capital stock 900,000
Retained earnings 1,964,160
Total liabilities and stockholder’s equity P 5,569,000
34
Additional information:
a. Cash is held in a checking account and a savings account with balances of P130,700 and
P362,300, respectively. The cash in the savings account will be used to support
operations in the event of a crop failure.
b. The marketable securities represents the cost of treasury bills with a total market value
of P600,000 at year-end.
d. Inventories include:
e. “Land, buildings, and equipment” includes 5 tractors that were purchased near the end
of the year for P720,000 (shown net of a P600,000, 5-year loan used to buy the
tractors). The balance of the account consists of land that was purchased for
P2,400,000 and buildings that were purchased for P510,000 (shown net of depreciation
of P126,000).
g. The company has 180,000 shares of P5 par common stock issued and outstanding. The
common stock was originally sold for P7 per share, and the premium was included in
“Retained Earnings.”
h. After reading a PAGASA report, the president believes that next year will be a bad crop
year due to prolonged “El Nino” phenomenon and estimates the company will lose about
P670,000. An appropriation of Retained Earnings has been made for this amount.
Questions
Based on the above and the result of your audit, determine the adjusted balances of the
following as of December 31, 2006:
1. Cash
a. P 130,700 b. P 231,600 c. P 362,300 d. P 493,000
2. Accounts receivable
a. P 171,000 b. P 513,000 c. P 531,000 d. P 540,000
3. Current assets
a. P 2,443,000 b. P 2,233,000 c. P 2,080,700 d. P 2,050,700
35
5. Noncurrent assets
a. P 4,409,300 b. P 4,289,300 c. P 4,047,000 d. P 3,927,000
6. Total assets
a. P 6,642,300 b. P 6,490,000 c. P 6,340,000 d. P5,977,700
7. Current liabilities
a. P 1,194,840 b. P 1,654,840 c. P 984,840 d. P 774,840
8. Total liabilities
a. P 3,514,840 b. P 2,844,840 c. P 2,634,840 d. P 2,424,840
Solution
a. Cash – restricted 362,300
Cash 362,300
b. Holding loss 30,000
Allowance for holding loss 30,000
c. Other receivable – noncurrent 360,000
Accounts receivable 360,000
Other receivable – current 120,000
Other receivable – noncurrent 120,000
Bad debts 9,000
Allowance for bad debts 9,000
(180,000 x 5%)
d. Supplies 39,000
Land, building & equipment 183,000
Inventories 222,000
e. Land, building & equipment 600,000
Long-term liability 600,000
f. Advances to suppliers 210,000
Accounts payable 210,000
g. OE: Retained earnings 670,000
Est. liability 670,000
CE: Retained earnings 670,000
Retained earnings – appropriated 670,000
Adj: Estimated liability 670,000
Retained earnings 670,000
Answer:
1. A 2. A 3. D 4. B 5. B
6. C 7. A 8. B 9. B 10. A
Problem 13
M. Senajon hired an attorney to help her start SENAJON REPAIR SERVICE CORPORATION.
On March 1, M. Senajon deposited P11,500 cash in bank account in the name of the
corporation in exchange for 1,150 shares of P10 par value common stock. When he paid the
attorney’s bill of P700, the attorney advised her to hire an accountant to keep his records.
M. Senajon was so busy that it was March 31 before she asked you to straighten out his
records. Your task is to develop the financial statements on the March transactions.
After investing in her business and paying her attorney, M. Senajon borrowed P5,000 from
the bank. She later paid P260, including interest of P60, on this loan. She also purchased a
used pickup truck in the company’s name, paying P2,500 down and financing P7,400. The
36
first payment on the truck is due April 15. M. Senajon then rented an office and paid three
months’ rent P900, in advance. Credit purchases of office equipment of P800 and repair
tools of P500 must be paid by April 10.
9. The Total Operating expenses and other expenses of SENAJON REPAIR SERVICE
CORPORATION at March 31 is:
a. P1,585 b. P1,035 c. P1,015 d. P897
10. The Net Income of SENAJON REPAIR SERVICE CORPORATION at March 31 is:
a. P415 b. P403 c. P(85) d. P(285)
Solution
Cash 11,500
Common stock 11,500
Pre-operating cost 700
Cash 700
Cash 5,000
Notes payable 5,000
Interest expense 60
Notes payable 200
37
Cash 260
Equipment 9,900
Cash 2,500
Notes payable 7,400
Rent expense 300
Prepaid rent 600
Cash 900
Equipment 800
AP – others 800
Tools 500
Accrued expenses 500
Cash 400
Accounts receivable 900
Revenue 1,300
Cash 300
Accounts receivable 300
Wages 450
Cash 450
Utilities 75
Accrued expenses 75
Cash 50
Advances from customer 50
Answer:
1. C 2. D 3. D 4. D 5. C 6. A 7. C 8. C 9. A 10. D
Problem 14
OMANDAC CORPORATION has just completed its third year of operations, December 31,
2006. The newly selected president was amazed, to say the least, when told that the
“company’s books have never been in balance.” In fact, he has learned that they are
P14,800 out of balance. Consequently, he has decided to ask an independent CPA to “get
things straightened out.” You are the lucky CPA! While getting an overview of the situation
you learn that the bookkeeper journalize and posts all of the daily transactions, but the
adjusting and closing entries are entered directly into the ledger accounts. A worksheet is
not used. After recording the adjusting entries, the bookkeeper prepares an adjusted trial
balance, which is then used to prepare the financial statements.
At your request the bookkeeper prepared the following post-closing trial balance following
his usual procedures:
OMANDAC CORPORATION
Post-closing Trial Balance
December 31, 2006
Cash 17,800
Accounts receivable 55,000
Note receivable 6,000
Merchandise inventory (periodic system) 120,000
Prepaid insurance 2,400
Equipment 240,000
Land (future site) 40,000
Accounts payable 20,000
Income tax payable 10,000
Mortgage payable 100,000
Common stock, par P10 (20,000 shares outstanding) 320,000
Dividends declared and paid 4,000
Retained earnings 50,000
To balance 14,800 _______
Total 500,000 500,000
38
After spending considerable time digging into the records and files of the company, you
discovered the following:
a. Estimates of bad debts expense that total P5,000 have been credited directly to
Accounts Receivable.
b. Accrued interest expense of P4,000 was recorded, but the credit was omitted.
c. The 2006 ending inventory of P140,000 was not recorded; the beginning inventory
was P120,000.
d. Prepaid insurance of P2,400 was for two full years, 2006 and 2007.
f. Accounts payable of P2,000 were paid, but the debit was not recorded.
Questions
1. Cash at December 31, 2006 is:
a. P 11,800 b. P 13,800 c. P 15,800 d. P 17,800
39
11. Common stock at December 31, 2006 is:
a. P 320,000 b. P 200,000 c. P 180,000 d. P 120,000
Solution
Cash 17,800
Accounts receivable 60,000
Allowance for bad debts 5,000
Note receivable 6,000
Merchandise inventory 140,000
Prepaid insurance 1,200
Equipment 300,000
Accumulated depreciation 90,000
Land 40,000
Accounts payable 18,000
Interest payable 4,000
Income tax payable 10,000
Mortgage payable 100,000
Common stock 200,000
APIC 120,000
Retained earnings ________ 18,000 squeezed figure
565,000 565,000
Answer
1. D 2. C 3. C 4. B 5. C 6. A 7. A 8. C 9. D 10. A
11. B 12. C
Problem 15
Your new audit client, Capiz Company, prepared the trial balance below as of December 31,
2006. The company started its operations on January 1, 2005. Your examination resulted in
the necessity of applying the adjusting entries indicated in the additional data below.
Capiz Company
TRIAL BALANCE
December 31, 2006
Debits Credits
Cash P510,000
Accounts receivable, net allowance of P20,000 600,000
Inventories, December 31, 2005 669,000
Land 660,000
Buildings 990,000
Accumulated depreciation, building P19,800
Machinery 444,000
Accumulated depreciation, machinery 45,000
Sinking fund assets 75,000
Bond discounts 75,000
Treasury stock, common 105,000
40
Accounts payable 567,000
Accrued bond interest 11,250
First mortgage, 6% sinking fund bonds 679,500
Common stock 1,500,000
Premium on common stock 150,000
Stock donation 180,000
Retained earnings, December 31, 2005 222,450
Net sales 2,625,000
Purchases 850,500
Salaries and wages 507,000
Factory operating expenses 364,500
Administrative expenses 105,000
Bond interest 45,000 _________
P6,000,000 P6,000,000
Additional data are as follows:
(1) The 1,500,000 common stock was issued at a 10 percent premium to the owners of
the land and buildings on December 31, 2004, the date of organization. Stock with a par
value of P180,000 was donated back by the vendors. The following entry was made:
The stock was donated because the proceeds from its subsequent sale were to be
considered as an allowance on the purchase price of land and buildings in proportion to
their values as first recorded. The treasury stock was sold in 2006 for P75,000, which
was credited to treasury Stock.
(2) On December 31, 2006, a machine costing P15,000 when the business started was
removed. The machine had been depreciated at 10 percent during the first year. The
only entry made was one crediting the Machinery account with its sales price of P6,000.
(4) The first mortgage, 6% sinking fund bonds, par value P750,000 will mature in ten
years from January 1, 2005, interest payable April 1 and October 1. The bonds were
sold on January 1, 2005, at 90; the discount is to be amortized over the life of the bonds
on straight-line basis.
(5) A sinking fund is built up on the straight-line basis, with a provision that each
installment after the first shall be decreased y the amount of the annual 6 percent
interest, which interest is to be added to the fund. The audit disclosed that the proper
installment to the sinking fund was paid by the company on December 31, 2006, but
that the amount was charged in error o the firs Mortgage, 6% Sinking Fund Bonds
account.
(6) The trustee of the sinking fund reported an addition of P4,500 interest to the fund on
December 31, 2006. this had not been recorded by the company.
Questions
41
Based on the above and the result of your audit, you are to provide the answers to the
following:
2. The adjusted net book value of the Building as of December 31, 2006 was
a. P 907,200 b. P905,400 c. P950,400 d. P945,000
3. The correct net book value of the machinery as of December 31, 2006 was
a. P399,000 b. P354,000 c. P345,000 d. P348,000
5. How much was the gain or loss on sale of machinery on December 31, 2006?
a. P6,000 loss b. P6,000 gain c. P7,500 loss d. P7,500 gain
6. The adjusted net carrying amount of 6% sinking fund bonds as of December 31,
2006 was
a. P675,000 b. P679,500 c. P690,000 d. P735,000
7. The correct balance of sinking fund assets as of December 31, 2006 was:
a. P75,000 b. P79,500 c. P150,000 d. P154,500
10. The correct balance of stock donation as of December 31, 2006 was:
a. P180,000 b. P105,000 c. P0 d. P75,000
Solution
1. OE: Treasury stock 180,000
Stock donation 180,000
CE: Memo entry
Adj: Stock donation 180,000
Treasury stock 180,000
---------------------------------------------------------
OE: Cash 75,000
Treasury stock 75,000
CE: Cash 75,000
Land 30,000
Building 45,000
Adj: Treasury stock 75,000
Land 30,000
Building 45,000
2. OE: Cash 6,000
Machinery 6,000
CE: Cash 6,000
Accum. Dep’n 3,000
Loss on sale 6,000
Machinery 15,000
Adj: Accum. Dep’n: mach 3,000
42
Loss on sale 6,000
Machinery 9,000
3. Depreciation 63,900
Accum. Dep’n – Mach 45,000 *
Accum. dep’n - bldg 18,900
* 444,000 + 6,000 – 15,000 x 10% = 45,000
** 990,000 – 45,000 = 945,000 x 2% = 18,900
Accum. Dep’n – bldg 900
Retained earnings 900
4. Discount on bonds 75,000
Sinking fund bonds 75,000
Retained earnings 7,500
Interest expense 7,500
Discount on bonds 15,000
P 75,000/10 yrs = P7,500 – 2002
7,500 – 2003
5. OE: Sinking fund bond 70,500
Cash 70,500
CE: Sinking fund 70,500
Cash 70,500
Adj: Sinking fund 70,500
Sinking fund bond 70,500
6. Sinking fund 4,500
Interest income 4,500
Answer:
1. B 2. A 3. D 4. B 5. A 6. C 7. C 8. A 9. B 10. C
Problem 16
Instructions:
1. Prepare the audit adjustments required in the problems.
2. Post the net adjustment at the Working Balance Sheet (WBS) and Working Profit and
Loss (WPL).
3. Compute the final balances of each account on your WBS and WPL, proceed to the
questionnaires and transfer all answers to the final answer sheet.
4. Assume no other issues, except those discussed on the problem.
On November 20, 2006 you have substantially completed your fieldwork relative to your
audit of RUCHELL Corporation, engaged in the sale of rechargeable lamps. Its rented store
and office is located in Davao City.
Based on your review of the records you have found out that the company’s financial
statements at the end of its fiscal year September 30, 2006 submitted by their account is
subject to the adjustments you noted in your audit.
43
Audit finding No. 3
Goods shipped out on consignment basis in September 2006, still unsold as at the end of
the month, were recorded as sales for P4,900 which included 40% gross profit on cost. This
was not included in the physical inventory.
44
Audit finding No. 16
A repayment of non-interest bearing note payable for P5,000 was erroneously debited to
Advertising.
RUCHELL Corporation
Working Balance Sheet
September 30, 2006
Land
Furniture & Equipment 50,850
Accumulated Depreciation (12,170)
TOTAL 38,680
Goodwill 10,000
45
Patents 20,000
TOTAL 30,000
Total Assets 240,630
Liabilities
Accounts payable 35,420
Accrued expenses -
Notes payable 31,000
Stockholders’ equity
Capital Stock, P100 75,000
Additional paid in capital -
Stock dividend distributable -
Donated capital -
Retained Earnings 99,210
Total Liab. & S. E 240,630
RUCHELL CORPORATION
Working Profit and Loss
Year Ended September 30, 2006
PER AUDIT FINAL
BOOKS ADJUSTMENT BALANCES
Sales 269,810
Sales returns ( 1,950)
Sales discounts ( 1,700)
Net sales 266,160
Cost of sales
Inventory, beg. 39,500
Purchases 189,360
Purchase returns ( 3,700)
Purchase discounts ( 1,970)
Inventory, end (41,500)
181,690
Gross Profit 84,470
Advertising ( 7,210)
Doubtful Accounts -
Salesman’s Salaries (21,650)
Miscellaneous Selling expenses ( 1,940)
Rent expense (11,700)
Insurance expense ( 1,200)
Light and water ( 300)
Taxes ( 1,510)
Office salaries ( 3,330)
Miscellaneous office expense ( 1,560)
Loss on sale -
Amortization of Intangibles -
Interest Expense ( 4,060)
Other Income 430
Net Income 30,440
Questions
46
1. Cash
a. P 9,500 b. P8,400 c. P10,600 d. P5,800
5. Inventories
a. P41,500 b. P46,400 c. P45,000 d. 40,000
6. Doubtful accounts
a. P2,980 b. P2,670 c. P4,170 d. P4,000
7. Prepayments
a. P2,980 b. P3,700 c. p2,050 d. P2,650
9. Depreciation
a. P5,085 b. P6,285 c. P6,085 d. P4.985
12. Sales
a. P269,810 b. P274,710 c. P264,910 d. P260,100
13. Purchases
a. P189,360 b. P187,360 c. P180,000 d. P200,160
16. Goodwill
a. P0 b. P10,000 c. P5,000 d. P6,000
18. Patents
a. P0 b. P10,000 c. P15,000 d. P5,000
47
19. Additional Paid in Capital
a. P3,500 b. P500 c. P2,000 d. P200
21. Advertising
a. P7,210 b. P5,210 c. P2,210 d. P5,000
22. Light and Power
a. P500 b. P5,300 c. P300 d. P0
23. Taxes
a. P1,970 b. P2,510 c. P1,000 d. P300
25. Land
a. P0 b. P50,000 c. p26,000 d. P24,000
Answer:
1. B 2. B 3. B 4. B 5. C 6. C 7. B 8. D 9. A 10. A
11. A 12. C 13. A 14. D 15. B 16. A 17. C 18. C 19. A 20. C
21. C 22. C 23. B 24. A 25. B 26. C 27. B 28. B 29. A 30. A
Entries:
Finding 1 Finding 8
Accounts receivable 1,100 Prepayments 900
Cash 1,100 Insurance expense 900
Finding 2 Finding 9
Bad debts 4,170 Prepayments 900
Allow. For BD 4,170 Rent expense 900
Finding 3 Finding 10
Sales 4,900 Prepayment 150
Accounts receivable 4,900 Interest expense 150
Inventory 3,500 Finding 11
COS 3,500 Retained earnings 2,000
Finding 4 APIC 2,000
COS 39,500 Finding 12
Inventory 39,500 Retained earnings 10,000
Inventory 41,500 Goodwill 10,000
48
COS 41,500 Finding 13
Finding 5 Office salaries 1,200
Interest receivable 180 Accrued expenses 1,200
Interest income 180 Finding 14
Finding 6 Amortization 5,000
No adjustments Patents 5,000
Finding 7
Depreciation 5,085
AD 5,085
Finding 15 Finding 18
Loss on sale 1,000 Retained earnings 9,000
Investment 1,000 Stock div. distr. 7,500
Finding 16 APIC 1,500
Note payable 5,000 Finding 19
Advertising 5,000 Land 50,000
Donated capital 50,000
Finding 17
Taxes 1,000 Finding 20
Cash 1,000 No adjustment
Finding 21
Sales discount 20
Purchase discount 20
WORKING PAPER
Per books Per audit
2,100.0
Cash 10,500.00 0 8,400.00
Marketable securities 15,000.00 15,000.00
1,100.0 4,900.0
Accounts receivable - trade 57,200.00 0 0 53,400.00
4,170.0 (2,670.0
Allow.for bd - debit balance 1,500.00 0 0)
Notes receivable 21,500.00 21,500.00
45,000.0 39,500.0
Inventories 39,500.00 0 0 45,000.00
1,000.0
Investment in A. Co. - 100 shares 25,000.00 0 24,000.00
Interest receivable - 180.00 180.00
1,950.0
Prepayments 1,750.00 0 3,700.00
50,000.0
Land - 0 50,000.00
Furniture & Equipment 50,850.00 50,850.00
(12,170.0 5,085.0 (17,255.0
Accumulated depreciation 0) 0 0)
10,000.0
Goodwill 10,000.00 0 -
5,000.0
Patents 20,000.00 0 15,000.00
240,630.0 267,105.0
0 0
49
50,000.0
Donated capital - 0 50,000.00
Retained earnings 99,210.00 68,485.00
240,630.0 267,105.0
0 0
4,900.0
Sales 269,810.00 0 264,910.00
(1,950.0 (1,950.0
Sales returns 0) 0)
(1,700.0 (1,720.0
Sales discounts 0) 20.00 0)
Net sales 266,160.00 261,240.00
39,500.0
Cost of sales *** 181,690.00 0 20.00
41,500.0
0
3,500.0
0 176,170.00
Gross profit 84,470.00 85,070.00
Other income 430.00 180.00 610.00
TOTAL 84,900.00 85,680.00
Operating expenses
(7,210.0 5,000.0 (2,210.0
Advertising 0) 0 0)
4,170.0 (4,170.0
Doubtful accounts - 0 0)
(21,650.0 (21,650.0
Salesmen's salaries 0) 0)
(1,940.0 (1,940.0
Miscellaneous selling expenses 0) 0)
(11,700.0 (10,800.0
Rent expenses 0) 900.00 0)
(1,200.0 (300.00
Insurance expense 0) 900.00 )
(300.00 (300.00
Light and water ) )
(1,510.0 1,000.0 (2,510.0
Taxes 0) 0 0)
(3,330.0 1,200.0 (4,530.0
Office salaries 0) 0 0)
(1,560.0 (1,560.0
Miscellaneous office expenses 0) 0)
1,000.0 (1,000.0
Loss on sale - 0 0)
5,085.0 (5,085.0
Depreciation - 0 0)
5,000.0 (5,000.0
Amortization of intangibles - 0 0)
Income from operations 34,500.00 24,625.00
(4,060.0 (3,910.0
Interest expense 0) 150.00 0)
Net income 30,440.00 20,715.00
12,000.0
Retained beginning 68,770.00 0 56,770.00
9,000.0 (9,000.0
Dividends - 0 0)
Retained end 99,210.00 68,485.00
186,105.0 186,105.0
0 0
*** COS
50
Inventory - beg. 39,500.00
Purchases 189,360.00
(3,700.0
Purchase returns 0)
(1,970.0
Purchase discounts 0)
TGAS 223,190.00
(41,500.0
Inventory - end 0)
COS 181,690.00
51