1. Trask Corporation's checkbook balance on December 31, 2001 was ₱8,000.

In addition, Trask held

the following items in its safe on December 31:

Check payable to Trask Corporation, dated January 2, 2002, not

included in December 31 checkbook balance ₱2,000
Check payable to Trask Corporation, deposited December 20,
and included in December 31 checkbook balance, but
returned by bank on December 30, stamped "NSF." The
check was redeposited Jan. 2, 2002, and cleared Jan. 7 400
Post-dated checks 150
Check drawn on Trask Corporation's account, payable to a
vendor, dated and recorded December 31, but not mailed until
1,000
January 15, 2002

The proper amount to be shown as cash on Trask's balance sheet at December 31, 2001, is
a. ₱7,600.
b. ₱8,000.
c. ₱8,600.
d. ₱9,750.

C (8,000 – 400 + 1,000) = 8,600

2. In preparing its bank reconciliation for the month of February, James Company has made available
the following information:
Balance per bank statement, February 28 ₱18,025
Deposit in transit, February 28 3,125
Outstanding checks, February 28 2,875
Check erroneously deducted by bank from James' 125
account, February 10
Bank service charges for February 25

What is the corrected cash balance at February 28?

a. ₱18,125
b. ₱18,150
c. ₱18,275
d. ₱18,400

Solution: (18,025 + 3,125 – 2,875 + 125) = 18,400

Use the following information for the next three questions:

The accounting records and bank statement of Entity A show the following information:

SUBSIDIARY LEDGER
CASH IN BANK - BPI CURRENT ACCOUNT
Date Description Debit Credit Balance
6/1 Bal. forwarded     881,000
6/11 Check #1113   130,800 750,200
6/15 Check #1114   220,000 530,200
6/16 Deposit 295,800   826,000
6/22 Deposit 670,000   1,496,000
6/24 Check #1115   80,000 1,416,000
6/28 Check #1116   380,000 1,036,000
6/29 Deposit 160,000   1,196,000

METROBANK
BANK STATEMENT - ENTITY A
Dat
Description Debit Credit Balance
e
6/1 Bal. forwarded     881,000
 6/10 Deposit 350,000 1,231,000
6/15 Payment 2,000   1,229,000
6/15 Check #1114 220,000   1,009,000
6/16 Deposit   295,800 1,304,800
6/20 Payment 50,000 1,254,800
6/22 Deposit   670,000 1,924,800
6/24 Check #1115 80,000 1,844,800

6/26 Check #1113 130,800 1,714,000

6/28 Deposit   410,000 2,124,000

Additional information:
 The payments of ₱2,000 and ₱50,000 shown on the bank statement pertain to the cost of checkbook
requested from the bank and the monthly amortization of a bank loan, respectively. The loan payment
includes payment for interest of ₱8,000.
 Deposits shown on the bank statement but not on the cash ledger represent collections of accounts
receivable.

3. How much is the deposit in transit?

a. 160,000
b. 102,000
c. 52,000
d. 380,000

4. How much is the credit memo?

a. 52,000
b. 160,000
c. 760,000
d. 380,000

5. How much is the adjusted cash balance?

a. 1,940,000
b. 1,760,000
c. 1,380,000
d. 1,904,000

Solutions to #s 22 to 24:

SUBSIDIARY LEDGER
CASH IN BANK - BPI CURRENT ACCOUNT
Date Description Debit Credit Balance
6/1 Bal. forwarded     881,000
6/11 Check #1113   130,800 750,200
6/15 Check #1114   220,000 530,200
6/16 Deposit 295,800   826,000
6/22 Deposit 670,000   1,496,000
6/24 Check #1115   80,000 1,416,000
6/28 Check #1116   380,000 1,036,000
6/29 Deposit 160,000   1,196,000

METROBANK
BANK STATEMENT - ENTITY A
Dat
Description Debit Credit Balance
e
6/1 Bal. forwarded     881,000
6/10 Deposit 350,000 1,231,000
6/15 Payment 2,000   1,229,000
 6/15 Check #1114 220,000   1,009,000
6/16 Deposit   295,800 1,304,800
6/20 Payment 50,000 1,254,800
6/22 Deposit   670,000 1,924,800
6/24 Check #1115 80,000 1,844,800

6/26 Check #1113 130,800 1,714,000

6/28 Deposit   410,000 2,124,000

Bank reconciling items:

 Deposit in transit: ₱160,000 deposit on 6/29.
 Outstanding check: ₱380,000 Check #1116.

Book reconciling items:

 Credit memos: ₱350,000 deposit on 6/10 + ₱410,000 deposit on 6/28 = ₱760,000.
 Debit memos: ₱2,000 payment on 6/15 + ₱50,000 payment on 6/20 = ₱52,000.

Bal. per books, end. 1,196,000 Bal. per bank, end. 2,124,000
Add: CM 760,000 Add: DIT 160,000
Less: DM (52,000) Less: OC (380,000)
Add/Less: Book errors - Add/Less: Bank errors -
Adjusted balance 1,904,000 Adjusted balance 1,904,000

     

Use the following information for the next three questions:

Information on ABC Co. is shown below:

30-Jul Aug. 31
Book balance 132,200 180,000
Book debits 60,000

Book credits ?
Bank balance 100,600 169,000
Bank debits 20,600

Bank credits ?
Notes collected by bank 10,000 35,000
Debit memos 7,800 8,900
Understatement of book receipts - 2,800
Deposit in transit 45,000 43,800
Outstanding checks 11,200 3,900

6. How much is the adjusted receipts in August?

a. 78,800
b. 80,700
c. 88,700
d. 87,800

7. How much is the adjusted disbursements in August?

a. 13,300
b. 17,800
c. 16,200
d. 14,300

8. How much is the adjusted balance of cash on August?

a. 136,200
b. 134,400
c. 132,600
 d. 208,900

Solutions to #s 25 to 27:

Receipt
  30-Jul Disbursements 31-Aug
s
Per books 132,200 60,000 12,200 180,000
ADD: CM

July 10,000 (10,000)

August 35,000 35,000

LESS: DM

July (7,800) (7,800)

August 8,900 (8,900)

Book errors:

August 2,800 2,800

Adjusted 134,40 208,90
87,800 13,300
bal. 0 0

  30-Jul Receipts Disbursements 31-Aug

Per bank 100,600 89,000 20,600 169,000
ADD: DIT

July 45,000 (45,000)

August 43,800 43,800

LESS: OC
(11,200
July (11,200)
)
August 3,900 (3,900)

Adjusted 208,90
134,400 87,800 13,300
bal. 0

9. Under the allowance method of recognizing bad debts on trade accounts receivable, the effect of
writing off an account to an entity's working capital is
a. increase
b. decrease
c. either a or b depending on the current level of the entity's working capital
d. no effect

10. JG Company had an accounts receivable balance of ₱40,000 on December 31, 2001, and ₱65,000
on December 31, 2002. The company wrote off ₱10,000 of accounts receivable during 2002, and
collected ₱2,000 on an account written off in 2000. Sales for the year 2002 totaled ₱520,000. All
sales were on account. The amount collected from customers on accounts receivable during 2002
was
a. ₱487,000. c. ₱510,000.
b. ₱485,000. d. ₱495,000.

Solution:

Accounts receivable

beg. 40,000
Sales on account 520,000 487,000 Collections, including recoveries
Recoveries 2,000 10,000 Write-offs
 65,000 end.

11. RGI Company had an accounts receivable balance of ₱45,000 on December 31, 2001, and ₱60,000
on December 31, 2002. The company wrote off ₱12,000 of accounts receivable during 2002, and
collected ₱2,500 on an account written off in 2000. Sales for the year 2002 totaled ₱550,000. All
sales were on account. The total collections from customers in 2002 were
a. ₱535,000. c. ₱538,000.
b. ₱523,000. d. ₱525,500.

Solution:

Accounts receivable

beg. 45,000
Sales on account 550,000 525,500 Collections, including recoveries
Recoveries 2,500 12,000 Write-offs

60,000 end.

12. At the close of its first year of operations, December 31, 2004, Linn Company had accounts
receivable of ₱490,000, after deducting the related allowance for doubtful accounts. During 2004, the
company had charges to bad debt expense of ₱90,000 and wrote off, as uncollectible, accounts
receivable of ₱40,000. What should the company report on its balance sheet at December 31, 2004
as accounts receivable before the allowance for doubtful accounts?
a. ₱620,000 c. ₱440,000
b. ₱540,000 d. ₱360,000

Solution:

Allowance for doubtful accounts

- beg.
Write-offs 40,000 90,000 Bad debts expense

- Recoveries

end. 50,000

490,000 + 50,000 = 540,000

13. Before year-end adjusting entries, Bass Company's account balances at December 31, 2004 for
accounts receivable and the related allowance for uncollectible accounts were ₱700,000 and
₱45,000, respectively. An aging of accounts receivable indicated that ₱62,500 of the December 31
receivables are expected to be uncollectible. The net realizable value of accounts receivable after
adjustment is
a. ₱682,500. c. ₱592,500.
b. ₱637,500. d. ₱655,000.

Solution: (700,000 – 62,500) = 637,500

14. During the year, Jantz Company made an entry to write off a ₱4,000 uncollectible account. Before
this entry was made, the balance in accounts receivable was ₱80,000 and the balance in the
allowance account was ₱4,500. The net realizable value of accounts receivable after the write-off
entry was
a. ₱80,000. c. ₱71,500.
b. ₱79,500. d. ₱75,500.

Solution: [(80,000 – 4,000) - (4,500 – 4,000)] = (76,000 – 500) = 75,500

15. The following information is available for Reagan Company:

Allowance for doubtful accounts at December 31, 2003 ₱ 8,000
Credit sales during 2004 400,000
Accounts receivable deemed worthless and written
off during 2004 9,000

It has been determined that an allowance for doubtful accounts of ₱9,500 is needed at December 31,
2004. What amount should Reagan record as "bad debt expense" for the year ended December 31,
2004?
a. ₱8,500 c. ₱10,500
b. ₱9,500 d. ₱17,500

Solution: (9,500 + 9,000 – 8,000) = 10,500

Use the following information for the next two questions:

A trial balance before adjustments included the following:
Debit Credit
Sales ₱425,000
Sales returns and allowance ₱14,000
Accounts receivable 53,000
Allowance for doubtful accounts 760

16. If the estimate of uncollectibles is made by taking 1% of net sales, the amount of the adjustment is
a. ₱3,350. c. ₱4,250.
b. ₱4,110. d. ₱4,870.

Solution: (425,000 – 14,000) = 4,110

17. If the estimate of uncollectibles is made by taking 10% of gross account receivables, the amount of
the adjustment is
a. ₱4,540. c. ₱5,224.
b. ₱5,300. d. ₱6,060.

Solution: (53,000 x 10%) – 760 = 4,540

18. For the month of December, the records of Balin Corporation show the following information:
Cash received on accounts receivable ₱ 70,000
Cash sales 60,000
Accounts Receivable, December 1 160,000
Accounts Receivable, December 31 148,000
Accounts Receivable written off as uncollectible 2,000

The corporation uses the direct write-off method in accounting for uncollectible accounts receivable.

What are the gross sales for the month of December?

a. ₱118,000 c. ₱130,000
b. ₱120,000 d. ₱144,000

Solution: (148,000 + 70,000 + 60,000 + 2,000 – 160,000) = 120,000

19. An analysis and aging of accounts receivable of the Lucille Company at December 31, 2002, showed
the following:

Accounts Receivable .................................. ₱840,000

Allowance for Doubtful Accounts
(before adjustment) ................................ 36,000 (cr)
Accounts estimated to be uncollectible ............... 76,800

Compute for the net realizable value of the accounts receivable of Lucille Company at December 31,
2002.
a. ₱804,000 c. ₱763,200
b. ₱799,200 d. ₱727,200

Solution: [840,000 – (36,000 + 76,800)] = 727,200

20. On July 1, 2002, Cornell Corp. received a one-year note with a face value of ₱900,000 and a stated
interest rate of 15 percent in exchange for a machine with a fair value of ₱1,000,000. Compute the
effective interest rate for Cornell Corp.
a. 16.67 percent
b. 15.0 percent
c. 3.5 percent
d. 11.11 percent

Solution:

Using trial and error:

Cash flows PV of 1 @3.5%, n=1 Present value
900,000.00 0.96618357 869,565.22
135,000.00 0.96618357 130,434.78

1,000,000.00

21. A 10 percent, ₱3,000, 3-month note receivable discounted at 12 percent for 2 months will result in
net proceeds of
a. ₱3,075.00.
b. ₱3,013.50.
c. ₱3,000.00.
d. ₱3,005.25.

Solution:

MV = 3,000 + (3,000 x 10% x 3/12) = 3,075

D = 3,075 x 12% x 2/12 = 61.50
NP = 3,075 – 61.50 = 3,013.50

1. The information below is from the books of the Seminole Corporation on June 30:

Balance per bank statement ₱11,164

Deposits in transit 1,340
Bank charges not recorded 16
Note collected by bank and not recorded on books 1,120
Outstanding checks 1,100
NSF checks - not recorded on books nor redeposited 160

Assuming no errors were made, how much is the cash balance per books on June 30 before any
reconciliation adjustments?
a. 11,404
b. 10,980
c. 10,460
d. 11,440

Solution:
Per books 10,460 (squeeze) Per bank, June 30 11,164 (start)

Credit memo 1,120 Deposits in transit 1,340

Debit memo Outstanding checks (1,100)

(16 + 160) (176)

Adjusted balance 11,404 Adjusted balance 11,404

2. On December 31, Central Savings & Loan discounted a 3-month, ₱70,000, non-interest-bearing
note dated October 31, at 12 percent. How much is the proceeds from the discounting?
a. 63,900
b. 48,550
 c. 30,380
d. 69,300

Solution:

MV = 70,000 + (70,000 x 0% x 3/12) = 70,000

D = 70,000 x 12% x 1/12 = 700
NP = 70,000 – 700 = 69,300

3. Grant Company accepted a ₱400,000 face value, 6-month, 10 percent note dated May 15 from a
customer. On that same date Grant discounted the note at Eagle National Bank at a 12 percent
discount rate. How much cash should Grant receive from the bank on May 15?
a. ₱400,000
b. ₱396,000
c. ₱394,800
d. ₱387,200

Solution:

MV = 400,000 + (400,000 x 10% x 6/12) = 420,000

D = 420,000 x 12% x 6/12 = 25,200
NP = 420,000 – 25,200 = 394,800

4. On June 1, 2004, Noll Corp. sold merchandise with a list price of ₱30,000 to Linn on account. Noll
allowed trade discounts of 30% and 20%. Credit terms were 2/15, n/40 and the sale was made
f.o.b. shipping point. Noll prepaid ₱600 of delivery costs for Linn as an accommodation. On June
12, 2004, Noll received from Linn a remittance in full payment amounting to
a. ₱16,464. b. ₱17,052. c. ₱17,064. d. ₱16,794.

C ₱30,000 × .7 × .8 = ₱16,800
(₱16,800 × .98) + 600 = ₱17,064.

5. The following information was derived from the 2004 accounting records of Kelly Co.:
Kelly's Goods
Kelly's Central Warehouse Held by Consignees
Beginning inventory ₱260,000 ₱ 28,000
Purchases 950,000 140,000
Freight-in 20,000
Transportation to consignees 10,000
Freight-out 60,000 16,000
Ending inventory 290,000 40,000
Kelly's 2004 cost of sales was
a. ₱940,000.
b. ₱1,000,000.
c. ₱1,068,000.
d. ₱1,078,000.

D ₱260,000 + ₱28,000 + ₱950,000 + ₱140,000 + ₱20,000 + ₱10,000 – ₱290,000 – ₱40,000 =

₱1,078,000.

6. Dial Corp.'s accounts payable at December 31, 2004 totaled ₱800,000 before any necessary year-
end adjustments relating to the following transactions:
 On December 27, 2004, Dial wrote and recorded checks to creditors totaling ₱350,000 causing an
overdraft of ₱100,000 in Dial's bank account at December 31, 2004. The checks were mailed out
on January 10, 2005.
 On December 28, 2004, Dial purchased and received goods for ₱200,000, terms 2/10, n/30. Dial
records purchases and accounts payable at net amounts. The invoice was recorded and paid
January 3, 2005.
 Goods shipped f.o.b. destination on December 20, 2004 from a vendor to Dial were received
January 2, 2005. The invoice cost was ₱65,000.

At December 31, 2004, what amount should Dial report as total accounts payable?
a. ₱1,411,000.
b. ₱1,346,000.
c. ₱1,050,000.
d. ₱1,000,000.

B ₱800,000 + ₱350,000 + ₱196,000 = ₱1,346,000.

7. The balance in Iwig Co.'s accounts payable account at December 31, 2004 was ₱400,000 before
any necessary year-end adjustments relating to the following:
 Goods were in transit to Iwig from a vendor on December 31, 2004. The invoice cost was ₱50,000.
The goods were shipped f.o.b. shipping point on December 29, 2004 and were received on
January 4, 2005.
 Goods shipped f.o.b. destination on December 21, 2004 from a vendor to Iwig were received on
January 6, 2005. The invoice cost was ₱25,000.
 On December 27, 2004, Iwig wrote and recorded checks to creditors totaling ₱30,000 that were
mailed on January 10, 2005.
In Iwig's December 31, 2004 balance sheet, the accounts payable should be
a. ₱430,000
b. ₱450,000.
c. ₱475,000.
d. ₱480,000.

D ₱400,000 + ₱50,000 + ₱30,000 = ₱480,000.

8. Gear Co.'s accounts payable balance at December 31, 2004 was ₱1,100,000 before considering the
following transactions:
 Goods were in transit from a vendor to Gear on December 31, 2004. The invoice price was
₱80,000, and the goods were shipped f.o.b. shipping point on December 29, 2004. The goods
were received on January 4, 2005.
 Goods shipped to Gear, f.o.b. shipping point on December 20, 2004, from a vendor were lost in
transit. The invoice price was ₱50,000. On January 5, 2005, Gear filed a ₱50,000 claim against the
common carrier.

In its December 31, 2004 balance sheet, Gear should report accounts payable of

a. ₱1,230,000.
b. ₱1,180,000.
c. ₱1,150,000.
d. ₱1,100,000.

A ₱1,100,000 + ₱80,000 + ₱50,000 = ₱1,230,000.

9. Dark Co. recorded the following data pertaining to raw material X during January 2004:
Date Units Unit cost
1/1/04 On hand 3,200 ₱2.00

1/11/04 Issue 1,600

 1/22/04 Purchase 4,000 ₱2.35

The moving-average unit cost of X inventory at January 31, 2004 is

a. ₱2.18.
b. ₱2.22.
c. ₱2.25.
d. ₱2.35.

C [(1,600 × ₱2.00) + (4,000 × ₱2.35)] ÷ 5,600 = ₱2.25.

10. Barlow Company's Accounts Payable balance at December 31, 2002, was ₱1,800,000 before
considering the following transactions:
 Goods were in transit from a vendor to Barlow on December 31, 2002. The invoice price was
₱100,000, and the goods were shipped FOB shipping point on December 29, 2002. The goods
were received on January 4, 2003.
 Goods shipped to Barlow FOB shipping point on December 20, 2002, from a vendor were lost in
transit. The invoice price was ₱50,000. On January 5, 2003, Barlow filed a ₱50,000 claim against
the common carrier.

In its December 31, 2002 balance sheet, Barlow should report Accounts Payable of
a. 1,950,000 b. 1,900,000 c. 1,850,000 d. 1,800,000

Solution:
Unadjusted bal. 1,800,000
Goods purchased - FOB Shipping pt. 100,000
Goods lost - FOB Shipping pt. 50,000
Adjusted bal. 1,950,000

11. The balance in Master Company's accounts payable account at December 31, 2002, was
₱1,100,000 before considering the following information:
 Goods shipped FOB shipping point on December 20, 2002 from a vendor to Master were lost in
transit. The invoice cost of ₱20,000 was not recorded by Master. On January 6, 2003, Master filed
a ₱20,000 claim against the common carrier.
 On December 27, 2002, a vendor authorized Master to return, for full credit, goods shipped and
billed at ₱35,000 on December 2, 2002. The returned goods were shipped by Master on December
27, 2002. A ₱35,000 credit memo was received and recorded by Master on January 6, 2003.

What amount should Master report as accounts payable in its December 31, 2002, balance sheet?
a. 1,120,000 b. 1,115,000 c. 1,085,000 d. 1,065,000

Solution:
Unadjusted bal. 1,100,000
Goods purchased - FOB shipping pt. 20,000
Purchase returns (35,000)
Adjusted bal. 1,085,000

12. The balance in Stockwell Company's accounts payable account on December 31, 2002, was
₱1,225,000 before the following information was considered:
 Goods shipped FOB destination on December 21, 2002, from a vendor to Stockwell were lost
in transit. The invoice cost of ₱45,000 was not recorded by Stockwell. On December 28, 2002,
Stockwell notified the vendor of the lost shipment.
  Goods were in transit from a vendor to Stockwell on December 31, 2002. The invoice cost
was ₱60,000, and the goods were shipped FOB shipping point on December 28, 2002.
Stockwell received the goods on January 6, 2003.

What amount should Stockwell report as accounts payable in its December 31, 2002, balance sheet?
a. 1,330,000 b. 1,285,000 c. 1,270,000 d. 1,225,000

Solution:
Unadjusted bal. 1,225,000
Goods purchased - FOB dest. -
Goods purchased - FOB shipping pt. 60,000

Adjusted bal. 1,285,000

13. Miller Company needs an estimate of its ending inventory balance. The following information is
available:
Cost Retail
Sales revenue ............................. ₱180,000
Beginning inventory ....................... ₱ 35,000 62,000
Net purchases ............................. 100,000 135,000
Gross margin percentage ................... 30%

Given this information, when using the gross margin estimation method, ending inventory is
approximately
a. ₱1,000.
b. ₱9,000.
c. ₱19,000.
d. ₱11,650.

B 35,000 + 100,000 - (180,000 x 70%) = 9,000

14. The following information is available for the Becca Company for the three months ended June
30 of this year:

Inventory, April 1 of this year ...................... ₱1,200,000

Purchases ............................................ 4,500,000
Freight-in ........................................... 300,000
Sales ................................................ 6,400,000

The gross margin was 25 percent of sales. What is the estimated inventory balance at June 30?
a. ₱880,000
b. ₱933,000
c. ₱1,200,000
d. ₱1,500,000

C (1,200,000 + 4,500,000 + 300,000) – (6,400,000 x 75%) = 1,200,000

15. Petersen Menswear, Inc. maintains a markup of 60 percent based on cost. The company's selling
and administrative expenses average 30 percent of sales. Annual sales were ₱1,440,000.
Petersen's cost of goods sold and operating profit for the year are
Cost of Goods Sold Operating Profit
a.  ₱864,000 ₱144,000
b.  ₱864,000 ₱432,000
c.  ₱900,000 ₱108,000
d.  ₱900,000 ₱432,000

Solution:

% Amount
Sales 100% 1,440,000
(1,440,000 x 100/160) or
COGS (900,000)
(1,440,000 x 62.5%*)
Expenses 30% (432,000) (1,440,000 x 30%)

Profit 108,000

*(60% ÷ 160%) = 37.5% GPR based on sales

(100% - 37.5%) = 62.5% cost ratio

16. On October 31, a flood at Payne Company's only warehouse caused severe damage to its entire
inventory. Based on recent history, Payne has a gross profit of 25 percent of net sales. The
following information is available from Payne's records for the ten months ended October 31:
Inventory, January 1 .................................. ₱ 520,000
Purchases ............................................. 4,120,000
Purchase returns ...................................... 60,000
Sales ................................................. 5,600,000
Sales discounts ....................................... 400,000

A physical inventory disclosed usable damaged goods which Payne estimates can be sold for
₱70,000. Using the gross profit method, the estimated cost of goods sold for the ten months ended
October 31 should be
a. ₱680,000.
b. ₱3,830,000.
c. ₱3,900,000.
d. ₱4,200,000.

Solution: C (5,600,000 – 400,000) x 75%] = 3,900,000

17. Davis Company's accounting records indicated the following information:

Inventory, 1/1/02 ..................................... 1,000,000

Purchases during 5,000,000
2002 .................................
Sales during 2002 ..................................... 6,400,000

A physical inventory taken on December 31, 2002, revealed actual ending inventory at cost was
₱1,150,000. Davis' gross profit on sales has regularly been about 25 percent in recent years. The
company believes some inventory may have been stolen during the year. What is the estimated
amount of missing inventory at December 31, 2002?
a. ₱50,000
b. ₱200,000
c. ₱350,000
d. ₱450,000

Solution: A (1,000,000 + 5,000,000) – (6,400,000 x 75%) = 1,200,000 – 1,150,000 = 50,000

18. On June 19, 2002, a fire destroyed the entire uninsured merchandise inventory of the Allen
Merchandising Company. The following data are available:

Inventory, January 1 .................................. ₱ 80,000

Purchases, January 1 through June 560,000
19 ..................
Sales, January 1 through June 19 ...................... 776,000
Markup percentage on cost ............................. 25%

What is the approximate inventory loss as a result of the fire?

a. ₱19,200
b. ₱27,200
c. ₱34,000
d. ₱58,000

A (80,000 + 560,000) – (776,000 x 100%/125%) = 19,200

19. Product X sells for ₱12.00; selling expenses are ₱2.40; normal profit is ₱3.00. If the cost of
Commodity X is ₱7.80, the lower of cost and NRV is
a. ₱5.40.
b. ₱6.00.
c. ₱6.60.
d. ₱7.80.

D – the cost

20. The following information is available for Torino Corp. for its most recent year:

Net sales ............................................. ₱3,600,000

Freight-in ............................................ 90,000
Purchase 50,000
discounts ....................................
Ending inventory ...................................... 240,000

The gross margin is 40 percent of net sales. What is the cost of goods available for sale?
a. ₱1,680,000
b. ₱1,920,000
c. ₱2,400,000
d. ₱2,440,000

C (3,600,000 x 60%) = 2,160,000 COGS + 240,000 EI = 2,400,000

On January 1, 20x1, Gina Co. acquired 10%, ₱4,000,000 bonds for ₱3,807,853. The principal is due on
January 1, 20x4 but interest is due annually. The yield rate on the bonds is 12%.

21. How much is the interest income recognized in 20x1?

a. 456,942 b. 463,776 c. 471,429 d. 400,000

A (See amortization table below)

22. How much is the carrying amount of the investment on December 31, 20x1?
a. 3,807,853 b. 3,864,796 c. 3,928,571 d. 4,000,000

B (See amortization table below)

Solution:

Date Collections Interest income Amortization Present value

1/1/x1 3,807,853

12/31/x1 400,000 456,942 56,942 3,864,795

23. On December 29, 20x1, an entity commits itself to purchase a financial asset for ₱10,000, which is
its fair value on commitment date (trade date). Transaction costs are immaterial. On December 31,
20x1 and on January 4, 20x2 (settlement date) the fair values of the asset are ₱12,000 and ₱15,000,
respectively. If the entity uses the trade date accounting and that the investment is classified as
held for trading, how much is the carrying amount of the investment in the December 31, 20x1
statement of financial position?
a. 10,000 b. 12,000 c. 15,000 d. 0

B – the fair value on Dec. 31, 20x1

24. Tuba Co. enters into a “receive variable, pay fixed” interest swap on January 1, 20x1 for a
notional amount of ₱1,000,000. Under the terms of the contract, if the current rate increases
above 12% (i.e., the set rate), Tuba Co. shall receive the excess interest. If the current rate falls
below 12%, Tuba Co. shall pay the deficiency. Swap payment shall be made on December 31,
20x2. The current rates are as follows:
Jan. 1, 20x1……………………………12%
Jan. 1, 20x2……………………………15%

How much is the net cash settlement on January 1, 20x2?

a. 30,0000 payment
b. 30,000 receipt
c. 26,087 payment
d. 26,087 receipt

B (Receive 15% - Pay 12%) = 3% net receipt x 1,000,000 = 30,000 receipt

25. Bach Co. acquired a 20% interest in C Major Co. on December 31, 20x3 for ₱630,000. During 20x4,
C Major reported profit of ₱400,000 and paid cash dividends of ₱100,000. At December 31, 20x4,
the balance in the investment account should be
a. ₱630,000.
b. ₱690,000.
c. ₱670,000.
d. ₱720,000.
B ₱630,000 + (₱400,000 × .2) – (₱100,000 × .2) = ₱690,000.

26. On January 1, 20x1, Entity A acquires 30% interest in Entity B for ₱600,000. Entity B reports
profit of ₱200,000 and declares dividends of ₱50,000 in 20x1. How much is the carrying amount
of the investment in associate on December 31, 20x1?
a. 600,000
b. 660,000
c. 645,000
d. 630,000
Solution:
Investment in associate

1/1/x1 600,000
Sh. in profit (200K x 30%) 60,000 15,000 Dividends (50K x 30%)
645,000 12/31/x1
27. Young Co. acquired a 60% interest in Tomlin Corp. on December 31, 2003 for ₱630,000. Young
accounts for the investment using the equity method. During 2004, Tomlin had net income of
₱400,000 and paid cash dividends of ₱100,000. At December 31, 2004, the balance in the
investment account should be
a. ₱630,000.
b. ₱870,000.
c. ₱810,000.
d. ₱930,000.

C ₱630,000 + (₱400,000 × .6) – (₱100,000 × .6) = ₱810,000.

Use the following information for the next three questions:

Kimm, Inc. acquired 30% of Carne Corp.'s voting stock on January 1, 2004 for ₱360,000. During 2004,
Carne earned ₱150,000 and paid dividends of ₱90,000. Kimm's 30% interest in Carne gives Kimm the
ability to exercise significant influence over Carne's operating and financial policies. During 2005,
Carne earned ₱180,000 and paid dividends of ₱60,000 on April 1 and ₱60,000 on October 1. On July
1, 2005, Kimm sold half of its stock in Carne for ₱237,000 cash.

28. What amount should Kimm include in its 2004 income statement as a result of the investment?
a. ₱150,000.
b. ₱90,000.
c. ₱45,000.
d. ₱27,000.

C ₱150,000 × 30% = ₱45,000.

29. The carrying amount of this investment in Kimm's December 31, 2004 balance sheet should be
a. ₱360,000.
b. ₱378,000.
c. ₱405,000.
d. ₱333,000.

B ₱360,000 + ₱45,000 – (₱90,000 × 30%) = ₱378,000.

30. What should be the gain on sale of this investment in Kimm's 2005 income statement?
a. ₱57,000.
b. ₱52,500.
c. ₱43,500.
d. ₱34,500.

C ₱378,000 – (₱60,000 × 30%) + (₱180,000 × 50% × 30%) = ₱387,000; ₱237,000 – (₱387,000 ÷ 2) = ₱43,500.

31. On January 1, 2004, Sloane Co. purchased 25% of Orr Corp.'s common stock; no goodwill
resulted from the purchase. Sloane appropriately carries this investment at equity and the
balance in Sloane’s investment account was ₱480,000 at December 31, 2004. Orr reported net
income of ₱300,000 for the year ended December 31, 2004, and paid dividends totaling ₱120,000
during 2004. How much did Sloane pay for its 25% interest in Orr?
 a. ₱435,000.
b. ₱510,000.
c. ₱525,000.
d. ₱585,000.

A ₱480,000 – (₱300,000 × 25%) + (₱120,000 × 25%) = ₱435,000.

32. Entity A’s assets have a carrying amount of ₱100,000 before year-end adjustments. The PFRSs
require these assets to be measured at fair value at each reporting date. Location is a
characteristic of the assets. Information at year-end is as follows:
Active Market #1 Active Market #2
Quoted price ₱130,000 Quoted price ₱135,000
Transport costs 10,000 Transport costs 12,000
Costs to sell 2,000 Costs to sell 3,000

If neither Active Market #1 nor Active Market #2 is the principal market, how much is the fair value?
a. 135,000 c. 120,000
b. 132,000 d. 123,000

Solution:
The “most advantageous market” is determined as follows:
  Active Market #1 Active Market #2
Quoted price 130,000 135,000
Transport costs (10,000) (12,000)
Costs to sell (2,000) (3,000)
Net sale proceeds 118,000 120,000

The fair value is computed as follows:

135,000 price in active market #2 – 12,000 transport costs = 123,000

22. What is the net effect of the under mentioned errors on the trial balance of a firm?
I. Total of sales was taken as P58,726 instead of P58,762.
II. A discount of P52 allowed to Mr. X was not posted in the discount account.
III. Sale of old furniture of P130 was credited to Machinery account.
IV. A credit sale of P250 to Mr. Y was posted twice in his account.

a. Credit total of trial balance will be more than that of debit total by P234
b. Debit total of trial balance will be more than that of credit total by P234
c. Credit total of trial balance will be more than that of debit total by P104
d. Debit total of trial balance will be more than that of credit total by P264
e. Debit total of trial balance will be more than that of credit total by P286

Solution:
I. Erroneous credit to sales 58,762 58,726
II. Omission of sales discount 0 52
III. No effect - both accounts are debits
IV. Double posting to accounts
250 250
receivable
250
59,262 59,028
Excess of total debits 234
23. The credit total of a trial balance exceeds the debit total by P350. In investigating the cause
of the difference, the following errors were determined: a credit to accounts receivable of
P550 was not posted; a P5,000 debit to be made to the Purchases account was debited to
Accounts payable instead; a P3,000 credit to be made to the Sales account was credited to
the Accounts receivable account instead; the Interest payable account balance of P4,500 was
included in the trial balance as P5,400. The correct balance of the trial balance is
a. 7,540 b. 8,550 c. 9,250 d. 7,450

Solution:
Excess of total credits   350
Correction for credit to A/R not posted (550)  
Correction for debit to purchases not posted 5,000  
Correction for erroneous debit to A/P 5,000
Correction for credit to sales not posted 3,000
Correction for erroneous credit to A/R 3,000  
Correction for overstatement in interest payable (900)
Adjusted balances 7,450 7,450

24. The following were taken from the records of SML Co. as of December 31, 20x1:
Checks drawn but not yet issued to payees ₱120,000
Customers’ checks dated January 15, 20x2 35,000
Customers’ checks dated Dec. 31, 20x1 40,000
SML’s check dated Jan. 15, 20x2 already 16,000
mailed to payee
Cash on hand 130,000
Employees’ checks representing unclaimed 14,000
salaries, held by the treasurer
Petty cash fund (fully replenished) 20,000

How much of the items listed above will be included in SML’s Dec. 31, 20x1 cash?
a. 340,000
b. 260,000
c. 280,000
d. 320,000

Solution:
Checks drawn but not yet issued to payees 120,000
Customers’ checks dated Dec. 31, 20x1 40,000
SML’s check dated Jan. 15, 20x2 already mailed to payee 16,000
Cash on hand 130,000
Employees’ checks representing unclaimed salaries,
14,000
held by the treasurer
Petty cash fund (fully replenished) 20,000
Total 340,000

25. The accountant for Baccah Inc. established a petty cash fund of ₱1,400. During September, the
fund was depleted by the following disbursements:

Shipping expense ................................... ₱740

Travel expense .......................................... 240
Postage expense ......................................... 230
Miscellaneous 170
supplies ..................................
In addition to receipts for the above items, the petty cash box contained ₱8 in coins and an IOU of ₱8
from the secretary handling the fund. The company uses a cash over and short expense account, as
needed. The company decided to decrease the petty cash fund to ₱1,000.

How much is the cash (shortage) or overage?

a. (4)
b. 4
c. (12)
d. 12

740 + 240 + 230 + 170 + 8 + 8 = 1,396 per count – 1,400 accountability = 4 shortage

26. Entity A is preparing its March 31, 20x1 bank reconciliation. The following information was
determined:
 The cash balance per books is ₱280,000 while the cash balance per bank statement is
₱320,000.
 Credit memo – ₱20,000
 Debit memo – ₱15,000
 Deposits in transit – ₱75,000
 Outstanding checks – ₱25,000
 The disbursements per books are overstated by ₱45,000.
 The bank debits are understated by ₱40,000.

How much is the adjusted balance of cash?

a. 370,000
b. 330,000
c. 285,000
d. 380,000

Solution:
Bal. per books, end. 280,000 Bal. per bank, end. 320,000
Add: CM 20,000 Add: DIT 75,000
Less: DM (15,000) Less: OC (25,000)
Add/Less: Book errors: Add/Less: Bank errors:
Understatement 45,000 Overstatement (40,000)
Adjusted balance 330,000 Adjusted balance 330,000

Chapter 4 - Accounts Receivable

27. At 30 September 2000, Z Ltd had a provision for doubtful debts of P37,000. During the year
ended 30 September 2001 the company wrote off debts totaling P18,000, and at the end of the
year it is decided that the provision for doubtful debts should be P20,000. What should be
included in the income statement for bad and doubtful debts?
a. P35,000 debit
b. P1,000 debit
c. P38,000 debit
d. P1,000 credit
B (20,000 + 18,000 – 37,000) = 1,000 bad debts expense

28. Light Co.’s accounts receivable balances at the beginning and end of the period were ₱80,000
and ₱100,000, respectively. Write-offs and recoveries during the period amounted to ₱10,000 and
₱8,000, respectively. Collections of sales on account during the period totaled ₱120,000,
excluding the recoveries.
How much is the total credit sales during the period?
a. 130,000
b. 150,000
c. 170,000
d. 210,000

Accounts receivable
beg. 80,000
150,00
Credit sales 0 120,000 Collections, excluding recoveries
10,000 Write-off
100,000 end.

29. On January 1, 20x1, ABC Co. received a 3-year, noninterest bearing note of ₱133,100 in exchange
for land with carrying amount of ₱100,000. The note is due on December 31, 20x3. The effective
interest rate is 10%. How much is the carrying amount of the note on December 31, 20x2?
a. 133,100
b. 121,000
c. 110,000
d. 100,000

Solution:
Initial measurement:
₱133,100 x PV of ₱1 @10%, n= 3 = ₱100,000

Date Interest income Unearned interest Present value

1/1/x1 33,100 100,000
12/31/x1 10,000 23,100 110,000
12/31/x2 11,000 12,100 121,000
12/31/x3 12,100 - 133,100

30. On June 30, 2002, Simon Company discounted a customer's ₱180,000, 6 month, 10 percent note
receivable dated April 30, 2002. A discount rate of 12 percent was charged by the bank. Simon's
proceeds from this discounted note would be
a. ₱169,200.
b. ₱172,800.
c. ₱181,440.
d. ₱185,220.

C
MV = 180,000 + (180,000 x 10% x 6/12) = 189,000
D = 189,000 x 12% x 4/12 = 7,560
NP = 189,000 – 7,560 = 181,440

31. Entity A acquires inventories and incurs the following costs:

Purchase price, gross of trade discount 100,000
Trade discount 20,000
Non-refundable purchase tax, not included in the purchase price
above 5,000
Freight-in (Transportation costs) 15,000
Commission to broker 2,000
Advertisement costs 10,000

How much is the cost of the inventories purchased?

a. 102,000
b. 122,000
c. 97,000
d. 100,000
Solution:
Purchase price, gross of trade discount 100,000
Trade discount (20,000)
Non-refundable purchase tax 5,000
Freight-in (Transportation costs) 15,000
Commission to broker 2,000
Total cost of inventories 102,000

32. On October 1, 20x1, the warehouse of ABC Co. and all inventories contained therein were
damaged by flood. Off-site back up of data base shows the following information:

Inventory, Jan. 1 14,500

Accounts payable, Jan. 1 6,000
Accounts payable, Sept. 30 3,000
Payments to suppliers 50,000
Freight-in 5,000
Purchase returns and discounts 2,500
Sales from Jan. to Sept. 75,000
Sales returns 5,000
Sales discounts 2,000
Gross profit rate based on sales 20%

Additional information:
Goods in transit as of October 1, 20x1 amounted to ₱2,000, cost of goods out on consignment is
₱1,200, and materials damaged by flood can be sold at a salvage value of ₱500.

How much is the inventory loss due to the flood?

a. 6,800
b. 7,200
c. 7,800
d. 8,200

Solution:
Accounts payable
6,000 Beginning balance
47,000 Net purchases (squeeze)
Payments to suppliers 50,000
Ending balance 3,000

*Cost of goods sold is computed as follows:

Gross sales 75,000

Sales returns (5,000)
Net sales 70,000
Multiply by: Cost ratio (100% - 20% GPR based on sales) 80%
Cost of goods sold 56,000
Inventory, Sept. 30 (see T-account above) 10,500
Goods in transit (2,000)
Goods out on consignment (1,200)
Salvage value (500)
Inventory loss due to flood 6,800