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Bsa 1201-Financial Accounting and Reporting Preliminary Departmental Exam Reviewer Topic Coverage
Bsa 1201-Financial Accounting and Reporting Preliminary Departmental Exam Reviewer Topic Coverage
1. A cash equivalent is a short-term, highly liquid investment that readily convertible into known
amounts of cash and
a. The term "cash equivalent" refers to demand credit instruments such as money order and
bank drafts.
b. The purpose of establishing a petty cash fund is to keep enough cash on hand to cover
all normal operating expenses for a period of time
c. Classification of a restricted cash balance as current or noncurrent should parallel the
classification of the related obligation for which the cash was restricted
d. Compensating balances required by a bank should always be excluded from cash and
cash equivalent".
3. If the cash balance in a company’s bank statement is less than the correct cash balance and
neither the company nor the bank has made any errors, there must be
a. Deposits credited by the bank but not yet recorded by the company
b. Outstanding checks
c. Bank charges not yet recorded by the company
d. Deposits in transit
4. The journal entries for a bank reconciliation
5. Entries to record the replenishment of petty cash fund result in a debit to various expense
accounts and a credit to cash in bank. This accounting procedure typically exemplifies the
a. Imprest petty cash system c. Internal control
b. Fluctuating petty cash system d. Administrative control
9. A method of estimating doubtful accounts that focuses on the income statement rather than
the balance sheet is the allowance method based on
a. Translated to local currency using the exchange rate at the time the receivables arise
b. Shown at face value of the foreign currency
c. Translated to local currency using the exchange rate at balance sheet date
d. Translated to local currency using the exchange rate when the balance sheet is issued
11. When accounts receivable aging schedule is prepared, a series of computations is made to
determine the estimated uncollectible accounts. The resulting amount from this aging
schedule
a. When added to the total amounts written off during the year is the desired credit balance
of the allowance for doubtful accounts at year-end.
b. Is the amount of doubtful accounts expense for the year.
c. Is the amount that should be added to the beginning allowance for doubtful accounts to
get the beginning allowance for doubtful accounts expense for the year.
d. Is the amount of desired credit balance of the allowance for doubtful accounts to be
reported at the year end.
12. Which of the following is not permitted in accounting for uncollectible accounts receivable?
13. In the case of long-term installments receivable (real estate installment sales) where a major
portion of the receivables will be collected beyond the normal operating cycle
a. The entire receivables are classified as current without disclosure of the amount not
currently due.
b. The entire receivables are classified as noncurrent.
c. Only the portion currently due is classified as current and the balance as noncurrent.
d. The entire receivables are classified as current with disclosure of the amount not currently
due.
14. Which of the following method of recognizing bad debts is consistent with accrual accounting?
a. Allowance method
b. Direct write off method
c. Percent of sales method
d. Percent of accounts receivable method
15. A 90- day 15% interest bearing note receivable is sold to a bank without recourse after being
held for 60 days. The proceeds are calculated using a 12% interest rate. The amount credited
to note receivable at the date of the discounting transaction should be
a. The same as the cash proceeds. c. The face value of the note.
b. Less than the face value of the note. d. The maturity value of the note.
16. Advocates of the allowance method of recognizing bad debts argue that
17. At the beginning of 2024, Finney Ltd received a three-year, zero interest bearing P1,000 note
on the sale of inventory. The market rate for equivalent notes was 8% at that time. Finney Ltd.
reported sales revenue of P1,000 and included the note as a P1,000 trade note receivable on
its balance sheet at the end of 2024. What effect did this accounting treatment for the note
have on Finney’s profit 2024, 2025. 2026, respectively?
PROBLEMS
18. L Company had the following account balances on December 31, 2016:
The petty cash fund includes un-replenished December 2016 petty cash expense vouchers
of ₱5,000 and employee IOU of ₱5,000. The cash on hand includes a ₱100,000 check
payable to Lourdes dated January 31, 2017. In exchange for a guaranteed line of credit, the
entity has agreed to maintain a minimum balance of ₱200,000 in its unrestricted current bank
account.
What amount should be reported as “cash and cash equivalents” on December 31, 2016?
a. 6,940,000 c. 5,940,000
b. 6,740,000 d. 7,440,000
19. On December 31, 2014, Agenda Company has the following information concerning its cash
equivalents and some other items:
What amount of cash and cash equivalents should Agenda Company report in its December
31, 2014 statement of financial position?
a. P2,869,000 c. P2,882,000
b. P2,874,000 d. P2,909,000
20. Following were the account balances of Born Company at December 31, 2016
- Cash in current and savings accounts includes P900,000 as holdout against short-term
loan arrangements. There are no legal restrictions as to withdrawal by Born on these
holdouts.
What is the total cash that should be reported in the current assets section of Born's December
31, 2014 statement of financial position?
a. P2,662,500 c. P3,562,500
b. P3,375,000 d. P5,962,500
21. Delta Corporation has supplied you with the following list of its bank accounts and cash at
December 31, 2019:
Checking account (compensating balance of P 15,000
with no restriction) P 48,000
Savings account, 2% 30,000
Certificate of deposit, 6 months, 10%, due April 20, 2020 60,000
Money market (30-day certificate), current rate, 9.75% 40,000
Payroll account 20,000
Certificate of deposit, 3 months, 10% due
February 15, 2020 75,000
Petty Cash 1.500
Total P 274,500
What should be the balance to be reported as “Cash and Cash Equivalents” in the December
31, 2019 statement of financial position of Delta Corporation?
a. P139,500 c. P214,500
b. P199,500 d. P274,500
23. Gel-O Company provided the following information with respect to its cash and cash
equivalents on December 31, 2016:
24. The petty cash fund of P Company on December 31, 2016 is composed of the following:
Coins and currencies ₱14,000
Petty cash vouchers:
Gasoline payments 3,000
Supplies 1,000
Cash advances to employees 2,000
Employee’s check returned by bank marked NSF 5,000
Check drawn by the company payable to the order of J
Bebe, petty cash custodian, representing his salary 20,000
A sheet of paper with names of employees together with
contribution for a birthday gift of a co-employee in the amount of 8,000
Total ₱53,000
The petty cash ledger account has an imprest balance of ₱50,000. What is the correct
amount of petty cash on December 31, 2016?
a. ₱34,000 c. ₱14,000
b. ₱39,000 d. ₱42,000
For items 25 and 26 use the following information:
Opti, Inc. examined the petty cash fund immediately after the close of business December
31, 2016. The petty cash custodian presented the following during the count:
Currency ₱3,300
Petty cash voucher
Postage 840
Office supplies expense 1,800
Transportation expense 680
Computer repairs 1,600
Advances to office staff 3,000
A check drawn by Opti, Inc., payable to the petty cash 14,400
custodian
Postage stamp (unused) 600
An employee’s check, returned by bank, mark NSF 2,000
An envelope containing currency for a gift for a retiring 3,780
employee
Total 32,000
- The general ledger shows an imprest petty cash fund balance of ₱32,000
26. What is the adjusted balance of the petty cash fund at December 31, 2016?
a. 3,300 c. 17,700
b. 7,200 d. 8,850
27. Ace Co. prepared an aging of its accounts receivable at December 31, 2020 and determined
that the net realizable value of the receivables was 600,000. Additional information is available
as follows:
For the year ended December 31, 2020, Ace's uncollectible accounts expense would be
a. 50,000. c. 32,000.
b. 46,000. d. 18,000.
28. At January 1, 2015, Queen Co. had a receivable from A Company of P400,000 that has been
outstanding for quite some time. Initial investigation revealed that A Company is in deep
financial dilemma. At present A Company is unable to settle all outstanding obligations but
further investigation revealed that F Company is taking over to run and operate the business
affairs of A Company. However, F Company is more than willing to assume only 75% of A
Company's financial obligations and by the end of 2016, all the assumed financial obligations
of A Company will be settled. As of December 31, 2015, Queen Company expects to collect
P300,000 that is due from A Company. At the time the receivable was recognized the
prevailing effective rate of interest for a similar financial asset is 14%.
What amount should Queen report in its December 31, 2015 statement of financial position
involving its account receivable?
a. P136,843 c. P300,000
b. P263,157 d. P400,000
29. Index Company showed the following information related to the accounts receivable in order
to estimate bad debts through the use of the aging. The credit period of the company is 30
days on the average.
What is the carrying value of accounts receivable for balance sheet reporting purposes?
a P430,000 c P6,340,000
b P960,000 d P6,870,000
30. Nenn Co.'s allowance for uncollectible accounts was 190,000 at the end of 2012 and 180,000
at the end of 2011. For the year ended December 31, 2012, Nenn reported bad debt expense
of 26,000 in its income statement. What amount did Nenn debit to the appropriate account in
2012 to write off actual bad debts?
a. 10,000 c. 26,000
b. 16,000 d. 36,000
31. Blink Company factored P750,000 of accounts receivable to Sparkle Company on December
1, 2015. Blink Company retained significant amount of risks and rewards of ownership and
continues to manage the financial asset.
Sparkle accepted the receivable, assessed a fee of 2% and retains a holdback equal to 4%
of the accounts receivable. In addition, Sparkle charged 12% interest on the amount
advanced.
What amount of finance cost should Blink Company report in its December 2015 statement
of comprehensive income related to the factoring of its accounts receivable?
a. None c. P15,000
b. P7,200 d. P22,200
32. Herald Corporation had the following information relating to its accounts receivable:
In the December 31, 2014 statement of financial position, what is the amortized cost of the
receivable?
a. P2,490,000 c. P2,775,000
b. P2,737,500 d. P2,925,000
33. The following data pertain to B Corporation on December 31, 2016:
On December 31, 2016, how much should be reported as “cash and cash equivalents”?
a. ₱13,000,000 c. ₱18,000,000
b. ₱12,000,000 d. ₱17,000,000
34. The following accounts were abstracted from Starr Co.'s unadjusted trial balance at December
31, 2020: Debit Credit
35. On the December 31, 2019 balance sheet of Microwave Company, the current receivables
consisted of the following:
At December 31, 2019, how much should be Microwave's total current net receivables?
a. P235,000 c. P310,000
b. P300,000 d. P375,000
ANSWER KEY:
THEORIES
1. D. Is so near its maturity that it presents insignificant risk of changes in interest rates
2. C. Classification of a restricted cash balance as current or noncurrent should parallel
the classification of the related obligation for which the cash was restricted
3. D. Deposits in transit
4. B. May include a debit to office expense for bank service charges
5. A. Imprest petty cash system
6. D. To effectively control cash disbursements.
7. D. Minimum deposits required to be maintained in connection with a borrowing
arrangement
8. D. One-year BSP treasury bills with remaining maturity of three months on balance sheet
date may be shown as part of “cash and cash equivalents” provided this is disclosed.
9. C. Credit sales
10. C. Translated to local currency using the exchange rate at balance sheet date
11. D. Is the amount of desired credit balance of the allowance for doubtful accounts to be
reported at the year end.
12. C. Direct write-off method
13. C. Only the portion currently due is classified as current and the balance as noncurrent.
14. A. Allowance method
15. C. The face value of the note.
16. C. Both (a) and (b).
17. C. Overstate, understate, understate
PROBLEMS
18. A. 6,940,000
19. D. P2,909,000
Coins and currency P 50,000
Checks from customers 600,000
Petty cash fund 4,000
Checking account-A 2,100,000
Money order 15,000
Savings account 100,000
Bank draft 40,000
Total P 2,909,000
20. C. P3,562,500
Cash on hand P 187,500
Cash in current and savings 3,375,000
accounts
Total Cash P3,562,500
- Cash on hand (P187,500) and cash in current and savings accounts (P3,375,000) are
both reported as cash in the current assets section of the balance sheet because they are
unrestricted and readily available for use. Cash restricted for additions to plant
(P2,400,000) is not available to meet current operating needs, and, therefore, excluded
from current assets. Instead, it is shown in the non-current assets section of the balance
sheet as an investment.
21. C. P214,500
- The 15,000 compensating balance is not legally restricted hence, it is included as part of
the cash account but requires disclosure.
- Certificate of deposit of 6 months is not considered as cash and cash equivalents since
its term is more than the required time period.
22. D. P4,500
Check issued by company P118,000
Less: Checks paid by bank P115,000
Less: Outstanding checks, May 1,500 113,500
Outstanding checks, June P4,500
23. C. 4,900,000
24. A. ₱34,000
25. A. 4,380 shortage
26. C. 17,700
27. D. 18,000
- Allowance for Doubtful Acct. balance 68,000 + 10,000 – 46,000 = 32,000 (before bad
debt expense)
650,000 – 600,000 – 32,000 = 18,000 (bad debt expense).
28. B. P263,157
- Solution:
Expected cash inflow related to the receivable P300,000
x Present value of 14% after one year .87719
Present value of account receivable P263,157
29. D. P6,870,000
Gross % % of Collectability Amount collectible
P4,000,000 x 100% = P4,000,000
1,500,000 x 97% = 1,455,000
1,000,000 x 90% = 900,000
500,000 x 75% = 375,000
200,000 x 55% = 110,000
100,000 x 30% = 30,000
P7,300,000 P6,870,000
30. B. 16,000
- Solution: 180,000 + 26,000 – 190,000 = 16,000.
31. D. 22,200
- Solution:
Interest cost (P750,000 x 96% x 12% x 30/360) P 7,200
Service charge (P750,000 x 2%) 15,000
Total financial cost P22,200
32. A. 2,490,000
Accounts receivable, December 31, 2013 P 1,950,000
Add: Credit sales 8,100,000
Total P10,050,000
Less: Collection from customers P 7,125,000
Accounts written off 187,500 7,312,500
Accounts receivable, December 31, 2014 P2,737,500
Less: Estimated uncollectible accounts 247,500
Amortized cost (expected net cash inflow) P2,490,000
33. C. ₱18,000,000
34. D. 30,000
- 750,000 × .04 = 30,000.
35. A. P235,000
Trade accounts receivable P232,500
Allowance for uncollectible accounts ( 5,000)
Claim receivable 7,500
Total current net receivables P235,000