University of Santo Tomas

Alfredo M. Velayo College of Accountancy

Junior Philippine Institute of Accountants

Problems

1. The following were omitted by the accountant of JPIA Co.

2011 2012 2013

Prepaid Expense P125,000 P75,000 P263,000
Unearned Income 87,250 149,000 152,750
Salaries Payable 12,500 16,500 18,000
Interest Receivable 52,150 68,350 47,950

On March 1, 2010 the company purchased a machinery costing P6,000,000 with a useful life of ten years. The accountant recorded this as an expense
transaction.

What is the net adjustment on the net income of JPIA Co. on the year 2011; 2012; 2013? (indicate whether debit or credit)
What is the net adjustment on the equity of JPIA Co. on the year ended 2011; 2012; 2013? (indicate whether debit or credit)

2. The trial balance of Nathan Nga Co. as of December 31, 2013 shows the following:

Dr Cr
Cash P3,218,000
Accounts Receivable 2,737,725
Allowance for bad debts 36,750
Rent Receivable 290,750
Interest Receivable 462,000
Inventories 490,000
Prepaid Expense 263,150
Property, Plant and Equipment 1,313,000
Accumulated Depreciation 468,000
Accounts Payable 768,500
Unearned Income 232,500
Bonds Payable 3,000,000
Nga Capital, Beginning 1,875,000
Service Revenue 1,792,500
Rent Income 124,500
Salaries Expense 263,400
Utilities Expense 55,200
Depreciation Expense 60,000
Total P10,855,075 P6,595,900

The trial balance was not correct due to the following errors committed by the accountant:
 A P300,000 collection of accounts was posted twice in the debit balance of accounts receivable.
 An accrued rent income of P27,500 was not recorded.
 A cash amounting to P64,500 representing advance payment from tenants was recorded as debit to cash and credit to rent income.
 An acquisition of equipment worth of P810,000 on July 1, 2012 was not recorded . It has a useful life of nine years with no salvage value.
 Payment of accounts payable worth P127,250 was posted in the debit balance of accounts receivable as P12,725.
 Collection of accrued interest amounting to P180,000 was recorded as P81,000 twice in the credit balance of cash account and P18,000 once in
the credit balance of interest receivable.
 The accumulated depreciation of machine was undervalued by P375,000.
 The equipment was over-depreciated by P125,000.
 Some of accounts were posted in the wrong side of the trial balance.

What is the adjusted trial balance?

How much is the net asset of Nathan Nga Co. as of December 31, 2013?

3. Bernadette Co. had the following notes payable account balances at December 31, 2011:

Notes Payable from VMA Company 5,000,000

Notes Payable from Aaron Inc. 2,000,000
 University of Santo Tomas
Alfredo M. Velayo College of Accountancy
Junior Philippine Institute of Accountants

Transactions during 2012 and other information relating to Bernadette’s long-term payables were as follows:
 The P5,000,000 note, dated July 1, 2011 bears interest at 8%. Principal payments of P500,000 plus appropriate interest are due semi-annually.
The first principal payment was made on July 1, 2011 and interest payment was made on Dec 31, 2011.
 The P2,000,000 note is dated April 1, 2011, bears interest of 10% and is due on April 1, 2013. Interest is payable annually and all interest
payment were made on their due dates.
 On August 1, 2012, Bernadette Co. purchased an equipment from Kim Company for P3,000,000 under an installment sale contract. Denise made
a P600,000 cash down payment on the same date and signed a two-year, 12% note for the remaining balance. The equal semi-annual payments
of principal and interest on the note will be paid on Jan 31, 2013 through August 1, 2016.
 On March 1, 2011, Bernadette Co. purchased a machine with a cash price of P200,000. Cash paid at the time of purchase is P50,000 and the
balance is payable in three equal annual payments with interest at 10% on the unpaid balance. Interest is payable annually.

What is the accrued interest payable on December 31, 2012 arising from the foregoing data?

4. Burgundy Company pays all salaried employees on a biweekly basis. Overtime pay, however, is paid in the next biweekly period. Burgundy Company
accrues salaries expense only at its June 30 fiscal year end. Data relating to salaries earned in June 2012 were as follows:
 Last payroll was paid on June 26, 2012 for the two-week ended June 26, 2012.
 Overtime pay earned in the two-week period ended June 26, 2012 was P42,000
 Remaining work days in June 2012 were June 28, 29, and 30 on which there was no overtime.
 The recurring biweekly salaries total P750,000

Assuming a five-day work week, Burgundy should report a liability at June 30, 2012 for accrued salaries of?

5. CPAR co. purchased a life insurance on November 1, 2012. The life insurance is valid for 24 years. The balance of prepaid insurance for the year ended
December 31, 2018 is P267,500.

What amount did the company paid for the insurance on November 1, 2012?

6. Tiffany Hwang rented a dormitory last July 1, 2013 at a cost of P91,000. The balance of the prepaid rent as of the fiscal year October 31, 2015 is P74,667.

How many years was the term of the rent?

7. Jeanne Co. has a beginning and ending balance of P115,000 and P100,000 respectively on its supplies account. During the year, the company purchased
additional supplies amounting to P32,000.

Using the asset method, what amount will be adjusted to expense account?
Using the expense method, what amount will be adjusted to expense account?

8. Pongyang Co. had the following rent contracts:

Rent # Date Received Amount received Terms (months)

0266 November 1, 2009 P150,000 60
0437 June 3, 2011 69,000 36
0089 August 4, 2005 72,000 72
0125 October 7, 2008 175,000 60

What is the rent income of Ponyang Co. for the fiscal year July 31, 2013?
What is the balance of Unearned Rent for the fiscal year ended November 30, 2014?

9. On June 1, 2012, Bench Company received P900,000 from Matt Co. for payments for the service to be rendered on September 1, 2012. The performance
will cover a five-year period. The company uses calendar year.

By what amount should the Unearned Revenue be decrease if the company uses Liability method?
What is the percentage of the contract price that has already been performed at the end of the year?

10. Yoona Co. purchased machinery last April 1, 2009 with a useful life of 20 years. The Accumulated depreciation for the year ended December 31, 2020 was
P5,422,625.
 University of Santo Tomas
Alfredo M. Velayo College of Accountancy
Junior Philippine Institute of Accountants

How much did Yoona Co. pay to acquire the machinery?

What is the accumulated depreciation for the year ended December 31, 2026?

11. Son Ye Jin Co. bought equipment on May 1, 2010. It has a book value of P3,919,500 and a scrap value of P50,000 as of the fiscal year ended March 31,
2017. Its estimated economic life is 16 years.

What is the depreciation expense per year?

What is the carrying value as of March 31, 2020?

12. A small business reported these balances on their Wages Payable account at the beginning of 2014 and end of 2014:
January 1, 2014 P 15,000 December 31, 2014 P 20,000

If wages of P12, 700 were paid in cash during the year, what amount would be reported for Wages expense in 2014?

13. Mariko Co. ordered machinery through snail-mail last March 5, 2013 from Bernardino Co. at a cost of P6,000,000 with a useful life of 30 years. The latter
received the order on May 3, 2013. It was shipped last June 13, 2013 and was delivered until August 2, 2013. The company also paid for the following:
 freight and other handling charge amounting to P200,000
 insurance while still in transit amounting to P50,000
 installation cost amounting to P150,000
 cost of testing and trial run necessary for preparing the machine for its intended use in the amount of P125,000
 initial estimate of cost of dismantling and removing the machinery on which it is located for which the entity has a present obligation in the
amount of P75,000
 fees paid to consultants for advice on the acquisition of the machinery in the amount of P220,000
 cost of safety rail and platform surrounding the machine in the amount of P65,000
 cost of water device to keep the machine cool in the amount of P15,000.
The machinery was idle for three months and was actually used on Nov 7, 2013.
At the end of its useful life, the machinery can be sold at a proceeds of P90,000.

What is the total cost of machinery?

What is the depreciable cost of the machinery?
What is the depreciation expense for the year 2013?

14. Portia Company purchased a computer hardware on July 1, 2012 for P400,000 The economic life and residual value are estimated to be 5 years and
P40,000 respectively. The straight line method is used. In January 2013, due to advances in technology, the company adjusted its estimate to a three-year
total life and residual value of P10,000.

What is the depreciation expense for 2013?

15. On January 1, 2009, Anthony Company purchased for P132,000 a machine to be depreciated by the straight-line method over an estimated useful life of
eight years, without salvage. On January 1, 2012, Arden determined that the machine has a useful life of six years from the date of acquisition without
salvage value. An accounting change was made in 2012 to reflect this data.

What is the accumulated depreciation balance at December 31, 2012, after the appropriate adjusting entry was made?

16. The Jessica Co. acquired a drilling machine on October 1, 2008 at a cost of P25,000 and depreciated it at a 25 % per annum on a straight line basis. On
October 1, 2010, P5,000 was spent on an upgrade to the machine in order to improve its efficiency and increase the inflow of economic benefits over the
machine’s remaining life.

What depreciation expense should be recognized in profit or loss for the year ended September 30, 2011?

17. The Charlie Shane company started its operation in 2011. On January 1, 2012, the company acquired equipment worth P750,000 and estimates indicate
that the equipment will be worthless at the end of its 5-year life. On June 30, 2014, the equipment was sold for P425,000.

How much is the gain (loss) on sale of equipment?

How much is the balance of the accumulated depreciation of the equipment to be reported for the year end 2014?
 University of Santo Tomas
Alfredo M. Velayo College of Accountancy
Junior Philippine Institute of Accountants

Answers

1. Net Income – 5,577,400 CR; 699,550 DR; 437,650 DR

Equity – 5,577,400 CR; 4,877,850 CR; 4,440,200 CR
2. 8,538,000; 3,241,400
3. 573,333
4. 267,000
5. 360,000
6. 13 years
7. 47,000; 15,000
8. 58,833; 0
9. 60,000; 6.67%
10. 9,230,000; 8,191,625
11. 426,000; 2,641,500
12. 17,700
13. 6,900,000; 6,810,000; 94,583
14. 141,600
15. 77,000
16. 8,750
17. 50,000 gain ; 0