REVIEW 105 – DAY 13 1 Ms.

Anna, President, 12%, due in 3 months (For

cash loan given to Ms. Anna) 4,800,000
P1
All notes are trade notes receivable unless otherwise specified. The Michelle note was
1. Bocaue Company had the following account balances on December 31, 2005. paid on December 1 as per notification received from the bank. The Mabelle Co. note
was dishonored on the due date but the legal department has assured management of
Petty cash fund its full collectibility.
P50,000
Cash in bank – current account 10,000,000 At what amount on the current assets section of the balance sheet as of December 31,
Cash in bank – payroll account 2,000,000 2005 will Notes Receivable-trade be carried?
Cash on hand a. P3,600,000 c. P7,200,000
500,000 B. P6,000,000 d. P8,000,000
Cash in bank – restricted account for plant additions, expected to
be disbursed in 2006 4,000,000 4. The Alena Corporation sold a piece of equipment to Ybarro, Inc. on April 1, 2005, in
Treasury bills, due February 15, 2006 3,000,000 exchange for an P800,000 non-interest bearing note due on April 1, 2007. The note had no
ready market, and there was no established exchange price for the equipment. The prevailing
The petty cash fund includes unreplenished December 2005 petty cash expense interest rate for a note of this type at April 1, 2005, was 12%. The carrying value of the note
vouchers of P20,000 and employee IOUs of P10,000. The cash on hand includes a receivable on December 31, 2005 is
P100,000 check payable to Bocaue dated January 15, 2006. What should be reported as a. P800,000 C. P694,984
“cash and cash equivalents” on December 31, 2005?
b. P620,864 d. P714,112
a. P12,420,000 C. P15,420,000
b. P19,420,000 d. P15,450,000 5. On October 15, 2005, Danaya Company purchased goods costing P4,500,000. The freight
term is FOB Destination. Some of the costs incurred with the sale and delivery of the goods
were:
2. On December 1, 2005 Pirena Company assigned on a nonnotification basis accounts
receivable of P10,000,000 to a bank in consideration for a loan of 90% of the receivables less Packaging for shipment 200,000
a 5% service fee on the accounts assigned. Pirena signed a note for the bank loan. On Shipping 200,000
December 31, 2005, Pirena collected assigned accounts of P6,000,000 less discount of Special handling charges 100,000
P400,000. Pirena remitted the collections to the bank in partial payment for the loan. The
bank applied first the collection to the interest and the balance to the principal. The agreed These goods were received on October 17, 2005. What amount of cost for these goods
interest is 1% per month on the loan balance. In its December 31, 2005 balance sheet, should be included in Danaya’s inventory?
Pirena should report note payable as a current liability at A. P4,500,000 c. P4,700,000
a. P4,500,000 c. P3,090,000
b. P4,900,000 d. P5,000,000
b. P3,400,000 D. P3,490,000
6. The physical count conducted in the warehouse of Imaw Company on December 31, 2005
3. The following pertains to the notes receivable of Amihan Corporation for the calendar year revealed merchandise with a total cost of P3,600,000 was on hand on that date. However the
2005: following items were excluded from the count:
Notes Receivable  Goods sold to a customer, which are being held for the customer to call for at the
Date Particulars Debit Credit customer’s convenience with a cost of P200,000.
Sept. 1 Michelle, 21%, due in 3 months P320,000  A packing case containing a product costing P80,000 was standing in the
1 Discounted Michelle note P320,000 shipping room when the physical inventory was taken. It was not included in the
Oct. 1 Mabelle Co., 24%, due in 2 months 1,200,000 inventory because it was marked “hold for shipping instructions”. Your investigation
Nov. 1 Eleanor, 24%, due in 13 months 2,400,000 revealed that the customer’s order was dated December 20, 2005, but that the case
30 Rigby Co., no interest, due in one year 2,000,000 was shipped and the customer billed on January 10, 2006.
30 Discounted Rigby Co. note 2,000,000  Merchandise held by Finishing Company costing P300,000 for further processing
Dec. 1 Sgt. Pepper, 18%, due in 5 months 3,600,000 and packaging.
The correct amount of inventory that should be reported in Imaw Company’s a. P4,180,000 c. P3,880,000
balance sheet at December 31, 2005 is B. P3,980,000 d. P4,100,000
 10. A physical inventory taken on December 31, 2005 resulted in an ending inventory of
7. The records of Awoo’s Wholesale and Retail Store report the following data for the month P1,440,000. Banak Company suspects some inventory may have been taken by employees.
of January 2005: To estimate the cost of missing inventory, the following were gathered:
Beginning inventory at cost 860,000 Net Additional mark up Inventory, Dec. 31, 2004 P1,280,000
Purchases at cost 6,550,000 Net Mark down Purchases during 2005 5,640,000
Freight on purchases 150,000 Sales Cash sales during 2005 1,400,000
Purchase returns at cost 360,000 Sales discounts Shipment received on December 26, 2005, included in physical inventory,
Beginning inventory at sales price 1,200,000 Employee discounts but not recorded as purchases 40,000
Purchase returns at sales price 525,000 Theft and breakage
425,000

Deposits made with suppliers, entered as purchases. Goods

750,000
were not
Initial mark up on purchases 4,350,000 received in 2005
9,450,000
80,000
Collections on accounts receivable, 2005 7,200,000
Using the average retail inventory method, Awoo’s cost of sales is
400,000

Accounts receivable, January 1, 2005 1,000,000

a. P6,390,000 c. P6,080,000
300,000

Accounts receivable, December 31, 2005

150,000
1,200,000
b. P6,150,000 D. P6,336,000 Gross profit percentage on sales 40%

8. Mangatarem Company had the following information relating to its accounts receivable for At December 31, 2005 what is the estimated cost of missing inventory?
the year 2005: a. P200,000 c. P1,000,000
B. P160,000 d. P 0
Accounts receivable – January 1 P12,000,000
Credit sales 20,000,000 11. Nakba Company installs replacement siding, windows, and louvered glass doors for
Collection from customers, excluding the recovery of accounts written off 17,000,000 family homes. At December 31, 2005, the balance of raw materials inventory account was
Accounts written off as worthless 300,000 P502,000, and the allowance for inventory writedown was P33,000. The inventory cost and
Sales returns 1,000,000 market data at December 31, 2005, are as follows:
Recovery of accounts written off 100,000
Estimated future sales returns on December 31 400,000 Cost Replacement Sales Net Normal
Estimated uncollectible accounts on December 31, per aging 1,000,000 Cost Price Realizable Profit
value
Mangatarem should report the December 31, 2005 accounts receivable, before Aluminum siding
allowance for sales returns and uncollectible accounts, at 89,000 86,000 91,500 87,000 5,000
A. P13,700,000 c. P13,800,000 Mahogany siding 94,000 92,000 93,000 85,000 7,000
b. P12,300,000 d. P13,130,000 Louvered glass door
125,000 135,000 129,000 111,000 10,000
9. Urdaneta Company accepted from a customer P5,000,000, 120-day, 12% note dated Glass windows 194,000 114,000 205,000 197,000 20,000
August 31, 2005. On September 30, 2005, Urdaneta discounted the note at the National 427,00
Total 502,000 0 518,500 480,000 32,000
Bank. However, the proceeds were not received until October 1, 2005. In the September 30,
2005 balance sheet, the amount receivable from the bank includes accrued interest revenue
The loss on inventory write down is
of
a. P 8,000 c. P11,000
a. P200,000 C. P44,000
b. P156,000 d. P 0 b. P25,000 D. P 0
12. Hagorn Company purchased 10,000 shares of Dinky Company P100 par value common
stock for P1,200,000 to be held as available for sale securities. On March 1, 2005, Hagorn
received a 20% stock dividend. On June 1, 2005, Hagorn sold all the stock dividends that
were received on March 1 at P130 per share. The gain on sale of investment be recorded by
Hagorn is
 a. P260,000 c. P200,000 a. P300,000 C. P1,500,000
b. P 20,000 D. P 60,000 b. P500,000 d. P1,000,000

13. The Alcala Company counted its ending inventory on December 31. None of the TOA
following items were included when the total amount of the company’s ending inventory was
computed: 1. Directly attributable costs of bringing the asset to working condition for its intended use
include all, except
 P150,000 in goods located in Alcala’s warehouse that are on consignment from A. INITIAL OPERATING LOSSES INCURRED PRIOR TO AN ASSET
another company.
 P200,000 in goods that were sold by Alcala and shipped on December 30 and were ACHIEVING PLANNED PERFORMANCE
in transit on December 31; the goods were received by the customer on January 2. b. Cost of site preparation
Terms were FOB Destination. c. Delivery, handling and installation costs
 P300,000 in goods were purchased by Alcala and shipped on December 30 and d. Estimated cost of dismantling and removing the asset and restoring the site, to the
were in transit on December 31; the goods were received by Alcala on January 2.
extent that it is recognized as a provision
Terms were FOB shipping point.
 P400,000 in goods were sold by Alcala and shipped on December 30 and were in
2. A contingent liability is
transit on December 31; the goods were received by the customer on January 2.
Terms were FOB shipping point. a. A liability of uncertain timing or amount.
b. A possible obligation depending on whether some uncertain future event occurs.
The company’s reported inventory (before any corrections) was P2,000,000. What is the c. A present obligation but payment is not probable or the amount cannot be measured
correct amount of the company’s inventory on December 31? reliably.
a. P2,550,000 C. P2,500,000 D. EITHER B OR C.
b. P1,950,000 d. P2,700,000
3. Which statement is incorrect?
14. On September 30, 2005, Asingan Company discounted at the bank a customer’s a. Provisions should only be used for the purpose for which they were originally
P5,000,000 6-month 10% note receivable dated June 30, 2005. The bank discounted the recognized.
note at 12%. The proceeds from this discounted note amounted to b. Enterprises should not recognize contingent liabilities but should disclose them, unless
A. P5,092,500 c. P4,842,000 the possibility of an outflow of economic resources is remote.
b. P5,250,000 d. P5,170,000 c. Contingent assets should not be recognized but should be disclosed where an inflow of
economic benefits is probable.

15. On January 1, 2004, Agana Company acquired trading securities with the following
D. WHEN THE REALIZATION OF INCOME IS VIRTUALLY CERTAIN,
market value on December 31, 2004: THEN THE RELATED ASSET IS NOT A CONTINGENT ASSET BUT ITS
Cost Market Value RECOGNITION IS INAPPROPRIATE UNLESS RECEIVED.
X 4,000,000 3,700,000
4. Which statement is incorrect regarding classification of leases?
Y 2,000,000 1,800,000
Z 5,000,000 4,500,000 a. A lease is classified as a finance lease if it transfers substantially all the risks and
Total 11,000,000 10,000,000 rewards incident to ownership.
b. All other leases that do not transfer substantially all the risks and rewards incident to
Agana sold Security Z Sept 15, 2005 for P4,800,000, while the remaining securities on ownership are classified as operating leases.
December 31, 2005 had market values of P4,200,000 for Security X and P2,300,000 for c. Classification is made at the inception of the lease.
Security Y. The unrealized gain to be recognized Agana’s income statement on D. WHETHER A LEASE IS A FINANCE LEASE OR AN OPERATING
December 31, 2005 is
LEASE DEPENDS ON THE FORM OF THE TRANSACTION.

5. Which statement is incorrect in classifying a lease of land and buildings?
a. In classifying a lease of land and buildings, land and buildings elements would
normally be separately.
b. The minimum lease payments are allocated between the land and buildings elements
in proportion to their relative fair values.
c. The land element is normally classified as an operating lease unless title passes to the
lessee at the end of the lease term.
D. THE BUILDINGS ELEMENT IS NORMALLY CLASSIFIED AS A
FINANCE LEASE UNLESS TITLE WILL NOT PASS TO THE LESSEE
AT THE END OF THE LEASE TERM.
6. The following situations would normally lead to a lease being classified as finance lease,
except
a. The lease transfers ownership of the asset to the lessee by the end of the lease term.
B. THE LESSEE HAS THE OPTION TO PURCHASE THE ASSET AT A
PRICE WHICH IS EXPECTED TO BE EQUAL TO THE FAIR VALUE AT
THE DATE THE OPTION BECOMES EXERCISABLE THAT, AT THE
INCEPTION OF THE LEASE, IT IS REASONABLY CERTAIN THAT THE
OPTION WILL BE EXERCISED.
c. The lease term is for the major part of the economic life of the asset, even if title is not
transferred.
d. At the inception of the lease, the present value of the minimum lease payments
amounts to at least substantially all of the fair value of the leased asset.
7. The depreciable asset recognized by the lessee under a finance lease should be
depreciated over the
a. Useful life of the asset
b. Lease term
C. USEFUL LIFE OF THE ASSET IF THERE IS REASONABLE
CERTAINTY THAT THE LESSEE WILL OBTAIN OWNERSHIP BY THE
END OF THE LEASE TERM.
d. Lease term or useful life of the asset, whichever is shorter
8. Examples of costs that are expensed rather than recognized as an element of cost of
property, plant and equipment include all of the following, except
a. Fair value of asset given plus cash payment
b. Fair value of asset received plus cash payment
A. COST OF EMPLOYEE BENEFITS ARISING DIRECTLY FROM THE
CONSTRUCTION ON ACQUISITION OF AN ITEM OF PROPERTY,
PLANT AND EQUIPMENT.
b. Cost of opening a new facility
c. Cost of introducing a new product or service, including cost of advertising and
promotion.
d. Cost of relocating or reorganizing part or all of an entity’s operations.
9. Which is correct concerning measurement of property, plant and equipment?
I. An entity shall choose either the cost model or the revaluation model as its accounting
policy and shall apply that policy to an entire class of property, plant and equipment.
II. The cost model means that property, plant and equipment are carried at cost less any
accumulated depreciation and any accumulated impairment loss.
II. The revaluation model means that property, plant and equipment are carried at
revalued amount, being the fair value at date of revaluation less any accumulated
depreciation and subsequent accumulated impairment loss.
A. I, II AND III b. I only c. II and III only d.
II only
10. The cost of an item of property, plant and equipment acquired in exchange for a
nonmonetary asset or a combination of monetary and nonmonetary asset is measured at
A. FAIR VALUE OF ASSET GIVEN PLUS CASH PAYMENT
b. Fair value of asset received plus cash payment
c. Book value of asset given plus cash payment
d. Book value of asset received plus cash payment
11. Which statement is incorrect regarding initial measurement of PPE?
a. PPE should be initially recorded at cost, which includes all costs necessary to bring the
asset to working condition for its intended use.
b. If payment for an item of property, plant, and equipment is deferred, interest at a
market rate must be recognized or imputed.
c. If an asset is acquired in exchange for another asset the cost will be measured at the
fair value.
D. IF AN ASSET ACQUIRED IN EXCHANGE FOR ANOTHER ASSET IS
NOT MEASURED AT FAIR VALUE, ITS COST IS MEASURED AT THE
CARRYING AMOUNT OF THE ASSET RECEIVED.
12. If the exchange transaction lacks commercial substance, the acquired item of property,
plant and equipment is measured at
C. CARRYING AMOUNT OF ASSET GIVEN PLUS CASH PAYMENT
d. Carrying amount of asset received plus cash payment
 for additional facilities, budgeted fixed costs for 60,000 units are 25% more than
13. When payment for an item of property, plant and equipment is deferred beyond normal budgeted fixed costs for P50,000 units. How much is Carera’s budgeted variable cost per
unit of output?
credit terms, its cost is the
A. P1.60 C. P3.00
A. CASH PRICE EQUIVALENT c. Invoice price
B. P1.67 D. P5.00
b. Installment price d. List price
3. ABC Company finances all of its seasonal inventory needs from the local bank at an
14. If an asset is acquired on credit or by installment, the difference between the total effective interest cost of 9%. The firm’s supplier promises to extend trade credit on terms
payments and cash price, if any, should be that will match the 9% bank credit rate. What terms would the supplier have to offer
(approximately)?
a. Considered interest expense of the current year
a. 2/10, n/60. b. 2/10, n/100. C. 2/10, N/90. d. 3/10, n/60.
b. Included as part of the asset cost
c. Amortized as interest expense over the life of the asset
D. AMORTIZED AS INTEREST EXPENSE OVER THE CREDIT PERIOD 4. A company has accounts payable of $5 million with terms of 2% discount within 15 days,
net 30 days (2/15 net 30). It can borrow funds from a bank at an annual rate of 12%, or it
15. Which is incorrect concerning self-constructed asset? can wait until the 30th day when it will receive revenues to cover the payment. If it
a. The cost of self-constructed asset is determined using the same principles as for an borrows funds on the last day of the discount period in order to obtain the discount, its
total cost will be
acquired asset.
b. Any internal profits from construction are eliminated in arriving at the cost of self-
A. $51,000 less. B. $75,500 LESS. C. $100,000 less. D.
$24,500 more.
constructed asset.
C. THE COST OF ABNORMAL AMOUNTS OF WASTED MATERIAL, 5. Every 15 days a company receives $10,000 worth of raw materials from its suppliers. The
LABOR OR OTHER RESOURCES INCURRED IN THE PRODUCTION credit terms for these purchases are 2/10, net 30, and payment is made on the 30th day
after each delivery. Thus, the company is considering a 1-year bank loan for $9,800 (98%
OF A SELF- CONSTRUCTED ASSET IS INCLUDED IN THE COST OF of the invoice amount). If the effective annual interest rate on this loan is 12%, what will
ASSET. be the net dollar savings over the year by borrowing and then taking the discount on the
d. The cost of normal amounts of wasted material, labor or other resources incurred in materials?
the production of a self-constructed asset is included in the cost of the asset. A. $3,624 B. $1,176 C. $4,800 D. $1,224

MAS 6. Sarah Company is planning to purchase a new machine for P600,000. Depreciation for tax
purposes will be P100,000 annually for six years. The new machine is expected to
1. The following characterize management advisory services except produce cash flow from operations, net of income taxes, of P150,000 a year in each of
A. involve decision for the future the next six years. The accounting (book value) rate of return on the initial investment is
B. broader in scope and varied in nature expected to be
C. UTILIZE MORE JUNIOR STAFF THAN SENIOR MEMBERS OF THE A. 8.3% C. 16.7%
FIRM B. 12.0% D. 25.0%
D. relate to specific problems where expert help is required 7. It is the policy of Franz Corp. that the current ratio cannot fall below 1.5 to 1.0. Its current
liabilities are P400,000 and the present current ratio is 2 to 1. How much is the maximum
2. Total production costs for Carera, Inc. are budgeted at P230,000 for 50,000 units of level of new short-term loans it can secure without violating the policy?
budgeted output and P280,000 for 60,000 units of budgeted output. Because of the need A. P400,000 b. P300,000 c. P266,667 d. P800,000

8. If a firm had been extending trade credit on a 2/10, net/30 basis, what change would be
expected on the balance sheet of its customer if the firm went to a net cash 30 policy?
A. INCREASED PAYABLES AND INCREASED BANK LOAN.
b. Increased receivables.
c. Decreased receivables. 9. The sales director of Lloyd Company suggested that certain credit terms be modified. He
d. Decrease in cash. estimates the following effects:
 Sales will increase by at least 20%
Accounts receivable turnover will be reduced to 8 times from the present turnover 13. It is held that the level of accounts receivable that the firm has or holds reflects both the
of 10 times volume of a firm’s sales on account and a firm’s credit policies. Which one of the
Bad debts, now at 1% of sales will increase to 1.5% following items is not considered as part of the firm’s credit policies?
Sales before the proposed changes is at P900,000. Variable cost ratio is 55% and a. The minimum risk group to which credit should be extended.
the desired rate of return is 20%. Fixed expenses amount to P150,000. b. The extent (in terms of money) to which a firm will go to collect an account.
Should the company allow revision of its credit terms? c. The length of time for which credit is extended.
A. YES, BECAUSE INCOME WILL INCREASE BY P64,800 D. THE SIZE OF THE DISCOUNT THAT WILL BE OFFERED.
B. Yes, because losses will be reduced by P73,800
C. No, because income will be reduced by P13,000 14. A major advantage of obtaining a package of applications programs from a software
D. No, because losses will be increased by P28,000 vendor is
A. THE LIKELIHOOD OF REDUCING THE TIME SPAN FROM
10. Which of the following actions would not be consistent with good PLANNING TO IMPLEMENTATION
management? a. Increased synchronization of cash flows. B. the ability to more easily satisfy the unique needs of users
B. MINIMIZE THE USE OF FLOAT. C. greater operating efficiency from the computer
c. Maintaining an average cash balance equal to that required as a D. the assurance the programs will be written in a high-level language
compensating balance or that which minimizes total cost.
d. Use of checks and drafts in disbursing funds. 15. A change in credit policy has caused an increase in sales, an increase in discounts taken, a
reduction of the investment in accounts receivable, and a reduction in the number of
11. Clara Building Corporation uses the critical path method to monitor construction jobs. The doubtful accounts. Based on this information, we know that:
company is currently 2 weeks behind schedule on Job 181, which is subject to a a. Net profit has increased.
P10,500-per-week completion penalty. Path A-B-C-F-G-H-I has normal completion time B. THE AVERAGE COLLECTION PERIOD HAS DECREASED.
of 20 weeks, and critical path A-D-E-F-G-H-I has a normal completion time of 22 weeks. c. Gross profit has declined.
The following activities can be crashed: d. The size of the discount offered has decreased.
Activities Cost to Crash 1 Week Cost to Crash 2 Weeks
BC P 8,000 P15,000
DE 10,000 19,600 P2
EF 8,800 19,500 1. Vibe Company purchased the net assets of Atlantic Company in a business combination
Clara desires to reduce the normal completion time of Job 181 and, at the same accounted for as a purchase. As a result, goodwill was recorded. For tax purposes, this
time, report the highest possible income for the year. Clara should crash combination was considered to be a tax-free merger. Included in the assets is a building with
A. BC 1 week and EF 1 week C. EF 2 weeks an appraised value of 210,000 on the date of the business combination. This asset had a net
B. BC 2 weeks D. DE 1 WEEK AND EF 1WEEK book value of 70,000, based on the use of accelerated depreciation for accounting
purposes. The building had an adjusted tax basis to Atlantic (and to Vibe as a result of the
12. A company obtaining short-term financing with trade credit will pay a higher percentage
financing cost, everything else being equal, when merger) of 120,000. Assuming a 36% income tax rate, at what amount should Vibe record
A. The discount percentage is lower. this building on its books after the purchase?
B. The items purchased have a higher price.
C. The items purchased have a lower price. a. 120,000
b. 134,400
c. 140,000
D. 210,000

2. Goodwill represents the excess cost of an acquisition over the

D. THE SUPPLIER OFFERS A LONGER DISCOUNT PERIOD.
a. sum of the fair values assigned to intangible assets less liabilities assumed. B. SUM OF THE FAIR VALUES ASSIGNED TO TANGIBLE AND
IDENTIFIABLE INTANGIBLE ASSETS ACQUIRED LESS LIABILITIES
 ASSUMED. The building has a 10-year remaining useful life and the equipment has a 5-year
c. sum of the fair values assigned to intangibles acquired less liabilities assumed. remaining useful life. The fair value of the assets on that date were:
d. book value of an acquired company.
Land 100,000
3. Cozzi Company is being purchased and has the following balance sheet as of Building 130,000
the purchase date: Equipment 75,000

Current assets 200,000 Liabilities 90,000 What is the 20X5 depreciation expense Balter will record related to purchasing
Fixed assets 180,000 Equity 290,000 Jersey Company?
Total 380,000 Total 380,000
a. 8,000
b. 15,000
The price paid for Cozzi's net assets is 500,000. The fixed assets have a fair value
of 220,000, and the liabilities have a fair value of 110,000. The amount of goodwill to C. 28,000
be recorded in the purchase is ____. d. 30,000

a. 0 6. In performing impairment test for goodwill, the company had the following 20X6 and
b. 150,000 20X7 information available.
c. 170,000
20X6 20X7
D. 190,000
Fair value of the reporting unit 350,000 400,000
4. Separately identified intangible assets are accounted for by amortizing: Net book value (including $50,000 goodwill) 360,000 380,000

a. exclusively by using impairment testing. Assume that the carry value of the identifiable assets are a reasonable approximation of
B. BASED UPON A PATTERN THAT REFLECTS THE their fair values. Based upon this information what are the 20X6 and 20X7 adjustment to
goodwill, if any?
BENEFITS CONVEYED BY THE ASSET.
c. over the useful economic life less residual value using only the straight-line method. 20X620X7
d. over a period not to exceed a maximum of 40 years.
a. no adjustment 20,000 decrease
5. Balter Inc. acquired Jersey Company on January 1, 20X5. When the b. 10,000 increase 20,000 decrease
purchase occurred Jersey Company had the following information related to fixed c. 10,000 decrease 20,000 decrease
assets: D. 10,000 DECREASE NO ADJUSTMENT

Land $ 80,000 7. Polk issues common stock to acquire all the assets of the Sam Company on
Building 200,000 January 1, 20X5. There is a contingent share agreement, which states that if the income of
Accumulated Depreciation (100,000) the Sam Division exceeds a certain level during 20X5 and 20X6, additional shares will be
Equipment 100,000 issued on January 1, 20X7. The impact of issuing the additional shares is to
Accumulated Depreciation (50,000)

a. increase the price assigned to fixed assets.

B. HAVE NO EFFECT ON ASSET VALUES, BUT TO REASSIGN d. record additional goodwill.
THE AMOUNTS ASSIGNED TO EQUITY ACCOUNTS.
c. reduce retained earnings.
8. Which of the following income factors should not be factored into an estimation 11. Consolidated financial statements are designed to provide:
of goodwill?
a. informative information to all shareholders.
a. sales for the period b. the results of operations, cash flow, and the balance sheet in an understandable
b. income tax expense and informative manner for creditors.
C. EXTRAORDINARY ITEMS C. THE RESULTS OF OPERATIONS, CASH FLOW, AND THE BALANCE
d. cost of goods sold SHEET AS IF THE PARENT AND SUBSIDIARY WERE A SINGLE
ENTITY.
9. Acquisition costs such as the fees of accountants and lawyers that were necessary
d. subsidiary information for the subsidiary shareholders.
to negotiate and consummate the purchase are

a. recorded as a deferred asset and amortized over a period not to exceed 15 years 12.The goal of the consolidation process is for:
b. expensed if immaterial but capitalized and amortized if over 2% of the acquisition price
A. ASSET ACQUISITIONS AND 100% STOCK ACQUISITIONS TO
C. EXPENSED IN THE PERIOD OF THE PURCHASE
RESULT IN THE SAME BALANCE SHEET.
d. included as part of the price paid for the company purchased
b. goodwill to appear on the balance sheet of the consolidated entity.
c. the assets of the noncontrolling interest to be predominately displayed on the
10.
balance sheet.
Account Investor Investee d. the investment in the subsidiary to be properly valued on the consolidated balance sheet.
Sales 500,000 300,000
Cost of Goods Sold 230,000 170,000 13. A subsidiary was acquired for cash in a business combination on December 31, 20X1.
Gross Profit 270,000 130,000 The purchase price exceeded the fair value of identifiable net assets. The acquired company
Selling & Admin. Expenses 120,000 100,000 owned equipment with a fair value in excess of the book value as of the date of the
Net Income 150,000 30,000 combination. A consolidated balance sheet prepared on December 31, 20X1, would

a. report the excess of the fair value over the book value of the equipment as part
Dividends paid 50,000 10,000
of goodwill.
Assuming Investor owns 70% of Investee. What is the amount that will be recorded as B. REPORT THE EXCESS OF THE FAIR VALUE OVER THE BOOK VALUE
Net Income for the Controlling Interest? OF THE EQUIPMENT AS PART OF THE PLANT AND EQUIPMENT
ACCOUNT.
a. 164,000
c. reduce retained earnings for the excess of the fair value of the equipment over its
B. 171,000 book value.
c. 178,000 d. make no adjustment for the excess of the fair value of the equipment over book
d. 180,000
value. Instead, it is an adjustment to expense over the life of the equipment.

14. When it purchased Sutton, Inc. on January 1, 20X1, Pavin Corporation issued 500,000
shares of its 5 par voting common stock. On that date the fair value of those shares totaled
4,200,000. Related to the acquisition, Pavin had payments to the attorneys and accountants
of 200,000, and stock issuance fees of 100,000. Immediately prior to the purchase, the
equity sections of the two firms appeared as follows:
 Pavin Sutton The company issued bonds of P3,000,000 at par, giving each P1,000
Common stock 4,000,000 700,000 bond a detachable warrant enabling the holder to purchase two shares
Paid-in capital in excess of par 7,500,000 900,000 of stock at P40 each for a 1- year period. The bonds would sell at P996
Retained earnings 5,500,000 500,000 per P1,000 bond without the warrant.
Total 17,000,000 2,100,000
July 1
The company issued rights to stockholders (one right on each share,
Immediately after the purchase, the consolidated balance sheet should report paid-in capital in exercisable within a 30- day period) permitting holders to acquire one
excess of par of share at P40 with every 10 rights submitted. All but 9,000 rights were
exercised on July 31, and the additional stock was issued.
a. 8,900,000
b. 9,100,000 Oct. 1
All warrants issued in connection with the bonds on April 1 were
C. 9,200,000 exercised.
d. 9,300,000
Dec. 1
15.Judd Company issued nonvoting preferred stock with a fair value of 1,500,000 in exchange The market price per share dropped to P33 and options came due.
for all the outstanding common stock of the Bath Corporation. On the date of the exchange, Because the market price was below the option price, no remaining
options were exercised.
Bath had tangible net assets with a book value of 900,000 and a fair value of 1,400,000. In
addition, Judd issued preferred stock valued at 100,000 to an individual as a finder's fee for Dec. 31
arranging the transaction. As a result of these transactions, Judd should report an increase in Net income for 2005 was P375,750.
net assets of ____.
QUESTIONS:
a. 900,000
b. 1,400,000 Based on the above and the result of your audit, determine the following as of December
C. 1,500,000 31, 2005:

AP
PROBLEM NO. 3
The stockholders’ equity section of the Determination Inc. showed the following data on
December 31, 2004: Common stock, P3 par, 450,000 shares authorized, 375,000 shares
issued and outstanding, P1,125,000; Paid-in capital in excess of par, P10,575,000;
Additional paid-in capital from stock options, P225,000; Retained earnings, P720,000. The
stock options were granted to key executives and provided them the right to acquire 45,000
shares of common stock at P35 per share. Each option has a fair value of P5 at the time the
options were granted.
The following transactions occurred during 2005:
Feb. 1
Key executives exercised 6,750 options outstanding at December 31,
2004. The market price per share was P44 at this time.
Apr. 1
1. Common stock
a. P1,165,950 b. P1,250,775 c. P1,275,075 d. P1,273,050
2. Total additional paid-in capital
a. P12,629,175 b. P11,283,300 c. P12,329,475 d. P12,604,200
3. Retained earnings
a. P870,750 b. P1,095,750 c. P1,287,000 d. P981,225
4. Total stockholders’ equity
a. P13,545,000 b. P15,000,000 c. P14,676,000 d. P14,973,000
PROBLEM NO. 2
With your representation, as Managing Partner of the Sy Pee Ey & Co., your firm was
engaged in the audit of the Fortitude Company at the close of the company’s first year of
operations on December 31, 2005. The company closed its books prior to the time you
began your year-end fieldwork.
Your audit and review showed the following stockholders’ equity accounts in the general
ledger:

Common Stock 08/30/05 CD P550,000 01/02/05 CR P6,000,000

12/29/05 J 545,000 REQUIRED:

12/29/05 J Determine the adjusted balances of

Retained Earnings the following as of December 31, 2005.
P545,000 12/01/05
12/31/05 A B C D
CR
J 5. Capital stock
P287,500 5,995,000 5,545,000 5,000,000 5,475,000
4,000,000
12/31/05 6. APIC
12/31/05
J 1,012,500 1,000,000 1,155,000 965,000
J
7. Total retained earnings
Income Summary
P26,000,000 12/31/05 3,525,000 3,572,500 3,382,500 3,512,500
4,000,000
J P30,000,000 8. Treasury stock
250,000 550,000 275,000
Based on the other working papers submitted by your audit staff, the following additional
information was forwarded: 9. Total stockholders’ equity
10,012,500 9,215,000 9,737,500 9,262,500
From the Articles of Incorporation of Fortitude Company:
10. During an audit of an entity’s shareholders’ equity accounts, the auditor determines
• whether there are restrictions on retained earnings resulting from loans, agreements,
Authorized capital stock – 150,000 shares or law. This audit procedure most likely is intended to verify management’s assertion of
• a. Existence c. Valuation
Par value per share – P100 b. Completeness D. PRESENTATION AND DISCLOSURE
From the board of directors’ minutes of meetings, the following resolutions were extracted:
11. If the auditee has a material amount of treasury stock on hand at year-end, the
• auditor should
01/02/05 – authorized the issuance of 50,000 shares at P120 per share. A. COUNT THE CERTIFICATES AT THE SAME TIME OTHER
•
08/30/05 – authorized the acquisition of 5,000 shares at P110 per share. SECURITIES ARE COUNTED.
• b. Count the certificates only if the company had treasury stock transactions during
12/01/05 – authorized the re-issuance of 2,500 treasury shares at P115 per share. the year.
c. No count the certificates if treasury stock is a deduction from shareholders’ equity.
• d. Count the certificates only if the company classifies treasury stock with other
12/29/05 – Declared a 10% stock dividend, payable January 31, 2006, to assets.
stockholders on record as of January 15, 2006. The market value of the stock on
12. In performing tests concerning the granting of stock options, an auditor should
December 29, 2005 was P130 per share. a. Confirm the transaction with the Securities and Exchange Commission.
b. Verify the existence
of option holders in the entity’s payroll records or stock
ledgers.
c. Determine that sufficient treasury stock is available to cover any new stock issued.
D. TRACE THE AUTHORIZATION FOR THE TRANSACTION TO A 13. The auditor would not expect the client to debit retained earnings for which of the
following transactions?
VOTE OF THE BOARD OF DIRECTORS. A. A 4-FOR 1 STOCK SPLIT.
b. "Loss" resulting from disposition of treasury shares. d. False, False
c. A 1-for 10 stock dividend.
d. Correction of error affecting prior year's earnings. 2. A. As a rule, donation between husband and wife during marriage is
void B. Donation can be made to conceived or unborn children
14. Only one of the following four statements, which compare confirmation of accounts
payable with suppliers and confirmation of accounts receivable with debtors is false. a. TRUE, TRUE
The false statement is that b. True, False
a. Confirmation of accounts receivable with debtors is a more widely accepted c. False, True
auditing procedures than is confirmation of accounts payable with suppliers. d. False, False
B. STATISTICAL SAMPLING TECHNIQUES ARE MORE
WIDELY ACCEPTED IN THE CONFIRMATION OF 3. A donation which takes upon the death of the donor
ACCOUNTS PAYABLE THAN IN THE CONFIRMATION OF
a. Donation mortis causa
ACCOUNTS RECEIVABLE. b. Partakes of the nature of a testamentary disposition
c. As compared with the confirmation of accounts receivable, the confirmation
of accounts payable will tend to emphasize accounts with zero balances at the
C. Shall be governed by the law on succession
balance sheet date. d. A,BANDC
d. It is less likely that the confirmation request sent to the supplier will show the
amount owed than that request sent to the debtor will show the amount due. 4. A donation which is intended by the donor to take effect during his lifetime

a. Shall be subject to donor’s tax using the tax table for donation
15. When title to merchandise in transit has passed to the audit client the auditor engaged B. Shall be in writing if the value exceeds P 5,000
in the performance of a purchase cut-off will encounter the greatest difficulty in gaining c. DONATION INTER VIVOS
assurance with respect to the d. A, B and C
a. Quantity B. QUALITY c. Price d. Terms
5. A. gift is perfected from the moment the donor effects the delivery either actual or
constructively of the property donated.
B. Donors tax is a property tax imposed on the property transferred by way of gift
inter-vivos
BLT

1. A. For the purpose of donor’s tax, second degree cousins are strangers to each a. True, True b. True, False c. False, True D. FALSE,
other. FALSE
B. Encumbrance of the property donated, if assumed by the donor is deductible for
the donors tax purposes. 6. This requires a special power of attorney except
a. To accept or repudiate an inheritance
A. True, True b. To effect novation
b. TRUE, FALSE C. To enter into compromise
c. False, True
d. TO LEASE REAL PROPERTY FOR ONE YEAR

7. It is a contract wherein a person binds himself to render some service in

representation or on behalf of another, with the consent or authority of the latter
a. AGENCY
b. Contract of service
c. Contract of piece of work
d. Partnership 8. If an agent enters into a contract in the name of his principal, exceeding the scope
of his authority, the contract is
A. Voidable
 b. UNENFORCEABLE B. Contributions of the employer for the benefit of the employee to
c. Rescissible retirement, insurance and hospitalization benefits.
d. Void c. MEMBERSHIP FEES, DUES AND OTHER EXPENSES BORNE
BY THE EMPLOYER IN SOCIAL OR ATHLETIC CLUBS OR
9. Which of the following is the correct?
a. A contract of agency must be in writing to be a valid agreement
OTHER SIMILAR ORGANIZATIONS.
d. Benefits given to rank and file employees, whether granted under a
B. A sale of personal property made by an agent without authority from the owner is collective bargaining agreement or not.
void
c. A SALE OF A PIECE OF LAND MADE BY AN AGENT WITH 13. The final tax on capital gains from sale of real property, classified as
ORAL AUTHORITY FROM THE OWNER IS VOID capital asset is:
d. An unemancipated minor cannot be appointed as an agent

10. In which of the following acts may a person not appoint an agent? a. 20% based on the gross selling price or current fair market value
a. To represent the principal in a wedding ceremony where the principal is a whichever is higher.
principal sponsor B. 7.5% based on the gross profit.
B. To vote for the principal during the meetings of stockholders where the principal c. 6% BASED ON THE GROSS SELLING PRICE OR ZONAL
is a stockholder VALUE, WHICHEVER IS HIGHER.
c. TO REPRESENT THE PRINCIPAL IN A BAPTISMAL CEREMONY d. 6% of the purchase price or the assessed value whichever is higher.
WHERE THE PRINCIPAL IS THE FATHER OF THE CHILD TO BE
BAPTIZED
d. To attend a meeting of the board of directors of a corporation where the principal 14. Sale, barter, exchange or other disposition of shares of stocks which are
is a director
traded in the local stock exchange is subject to:
11. Which escape from taxation does not result in loss of revenue to the
government? A. capital gains tax of 5% and 10% of capital gain
b. PERCENTAGE TAX OF ½ OF 1% OF SELLING PRICE
c. 10% VAT
a. Tax evasion d. none of the above
b. Tax avoidance
C. Tax exemption
d. SHIFTING 15. Domeng bought a parcel of residential land for P 1,000,000 sometime in
1980. He sold the same to Norbie for P 10,000,000 on October 15,
12. The following fringe benefits are not taxable, except: 2000. The transaction is subject to 6% capital gains tax.

a. TRUE
a. Fringe benefits which are authorized and exempted from tax under
b. False, if Domeng is engaged in the real estate business.
special laws. c. False, it is subject to VAT if the sale is in the regular course of trade or
business.
d. b and c are correct.

FINACT 3
 d. 1,340,000
Asuncion, Janice
Buduan, Dianne Jane
Lubiton, Joshua

QUESTION------

Problem 15-1
Problem 15-4
On January 1, the capital of Console Company was P1,700,000 and on December 31, the capital was
P2,400,00. During the year, the owner withdrew merchandise costing P 100,000 and with sale price of P On January 1, 2017, the statement of financial position of Racel Company showed total assets of
180,000 and paid a P 1,000,000 note payable of the business with interest of 12% for six months with a P5,000,000, total liabilities of P2,000,000 and contributed capital of P2,000,000.
check drawn on personal checking account.
During the current year, the entity issued share capital of P500,000 par value at a premium of
What is the Net Income or Loss for the current Year? P300,000. Dividend of P250,000 was paid on December 31,2107.
a. 260,000 income
b. 260,000 loss The statement of financial position on December 31, 2017 showed total assets of P7,500,000 and
c. 180,000 income total liabilities of P3,200,000.
d. 180,000 loss
What is the net income for the current year?
Problem 15-2 a. 1,750,000
b. 1,000,000
During the first year, Exel Company issued 15,000 shares with P100 par value at P150 per share. At c. 750,000
year-end, the entity issued 2,000 shares in payment of current obligations of P250, 000. Dividends of d. 500,000
P500,000 were paid during the year. Total liabilities at the end of the year amounted to P200,000 and
total assets at the end of the year equalled P3,000,000.
Problem 15-5
What is the net income for the first year of operations?
a. 1,500,000 Aubrey Company provided the following data at year-end:
b. 800,000 2016 2017
c. 500,000
d. 300,000 Share capital (P100 par value) 5,000,000 5,750,000
Share Premium 1,000,000 1,500,000
Problem 15-3 Retained Earnings 3,500,000 4,500,000

Sunshine Company had total assets of P4,000,000 and shareholders’ equity of P2,080,000 at the During the current year, the entity declared and paid cash dividend of P1,000,000 and also declared
beginning of the year. During the year, assets increased by P520,000 and liabilities decreased by and issued a stock dividend. There were no other changes in shares issued and outstanding during
P820,000. the year.

What is the shareholders’ equity at the end of the year? What is the net income for the current year?
a. 3,420,000 a. 3,250,000
b. 3,700,000 b. 2,000,000
c. 3,380,000 c. 1,000,000
 d. 2,750,000 Problem 15-8

Problem 15-6 Marble Company provided the following selected information for the current year:

On December 31, 2017 Zeus Company showed shareholders’ equity of P4,000,000. During the current Cash balance, January 1 130,000
year, the shareholders’ equity was affected by: Accounts receivable, January 1 190,000
Collections from customers 2,100,000
 An adjustment to retained earnings for overstatement of inventory on December 31,2016 in the Shareholders’ equity, January 1 380,000
amount of P200,000. Total assets, January 1 750,000
 Declared dividend of P400,000 of which P300,000 was paid in 2016. Total assets, January 31 880,000
 The share capital was split five for one. Cash balance, December 31 160,000
 Net income for the year amounted to P700,000. Accounts receivable, December 31 360,000
 The share capital of P3,000,000 remained unchanged during the year. Total liabilities, December 31 390,000

What is the net income for the current year?

a. 490,000
b. 150,000
What is the retained earnings balance on January 1, 2017? c. 110,000
a. 1,000,000 d. 70,000
b. 900,000
c. 800,000
d. 500,000

Problem 15-7

On December 31, 2017, Melissa Company showed shareholders’ equity of P5,000,000. The share capital
of P3,000,000 remained unchanged during the year. The transactions which affected the equity were:

 An adjustment of retained earnings for 2016 over depreciation 100,000

 Gain on sale of treasury shares
300,000 Problem 15-9
 Dividend declared, of which P4000,000 was paid
Trend Company provided the following information for the current year:
600,000
 Net income for the current year
Net loss 100,000
800,000
Total assets at December 31 3,000,000
What is the retained earnings balance on January 1, 2017?
Share capital at December 31 1,000,000
a. 1,400,000
Share premium at December 31 500,000
b. 1,700,000
Dividends declared 700,000
c. 1,200,000
Debt to equity ratio on December 31 50%
d. 1,600,000

What is the retained earnings balance on January 1?

a. 1,100,000
 b. 1,300,000 Share Capital 6,000,000
c. 500,000 Share Premium 600,000
d. 600,000
There were no changes in retained earnings other than for a dividend payment of P1,300,000.
Problem 15-10
What was the net income for the current year?
Myra Company was incorporated on January 1, 2017, with proceeds from the issuance of P7,500,000 in a. 1,700,000
share capital and borrowed funds of P1,000,000. b. 1,300,000
c. 900,000
During the first year of operations, revenue from sales and consulting amounted to P4,000,000, and d. 400,000
operating costs and expense totalled P3,000,000.
On December 15, 2017, the entity declared a P300,000 cash dividend, payable to shareholders on January
15, 2018.
Problem 15-13
No additional activities affected owners’ equity in 2017. The liabilities increased to P1,200,000 by
December 31, 2017. Lanao Company showed the following increase(decrease) in ledger account balances during the
current year:
On December 31,2017, what amount should be reported as total assets?
a. 9,400,000 Cash 800,000
b. 8,200,000 Accounts receivable (400,000)
c. 7,000,000 Inventory 300,000
d. 8,700,000 Equipment 950,000
Note payable- bank 500,000
Problem 15-11 Accounts payable (600,000)
Share capital 700,000
Rice Company was incorporated on January 1, 2017, with P5,000,000 form the issuance of share capital Share premium 300,000
and borrowed funds of P1,500,000. During the first year of operations, net income was P2,500,000.
There were no transactions affecting retained earnings other than a P1,500,000 cash dividend and a
On December 15,2017, the entity paid a P500,000 cash dividend. No additional activities affected P250,000 prior period error from understatement of ending inventory.
shareholders’ equity in 2017. On December 31, 2017, the liabilities had increased to P1,800,000.
What was the net income for the current year?
On December 31,2017, what amount should be reported as total assets? a. 2,000,000
a. 6,500,000 b. 2,500,000
b. 9,300,000 c. 3,250,000
c. 8,800,000 d. 3,000,000
d. 6,800,000
Problem 15-14
Problem 15-12
Easy company reported that the beginning and ending total liabilities were P840,000 and
Vela Company reported the following increases in account balances during the current year: P1,000,000, respectively. At year-end, owners’ equity was P2,600,000 and total assets were
P200,000 larger than at the beginning of the year.
Assets 8,900,000
Liabilities 2,700,000 During the year, the new share capital issued exceeded dividend by P240,000.
 Bonds payable 2,000,000

What was the net income or loss for the year? During the year, the entity sold for cash 100,000 shares with P20 par for P30 per share. Dividend of
a. 280,000 income P4,500,000 was paid in cash. The entity borrowed P4,000,000 from the bank and paid off note of
b. 280,000 loss P1,000,000 and interest of P600,000. The entity had no other loan payable. Interest of P400,000 was
c. 200,000 loss payable at the end of the year. Interest payable at the beginning of the year was P100,000.
d. 40,000 income Equipment of P2,000,000 was donated by a shareholder during the year.

Problem 15-15

Camadillo Company reported the following changes in the account balances for the current year, except What was the net income for the current year?
for retained earnings: a. 7,900,000
b. 8,900,000
Increase (decrease) c. 5,900,000
Cash 800,000 d. 6,900,000
Accounts receivable, net 250,000
Inventory 1,250,000 Problem 15-17
Investments (500,000)
Accounts payable (400,000) Elaine Company disclosed the following changes in account balances for current year:
Bonds payable 900,000
Share capital 1,000,000 Cash 450,000 increase
Share premium 100,000 Accounts receivable 300,000 decrease
Merchandise inventory 200,000 increase
There are no entries in the retained earnings account except for net income and a dividend declaration of Accounts payable 100,000 increase
P300,000 which was paid in the current year. Prepaid expenses 20,000 increase
Accrued expenses 40,000 increase
What was the net income for the current year? Unearned rental income 30,000 decreases
a. 1,300,000
b. 1,600,000 In the current year, the owner transferred financial assets to the business and these were sold for
c. 500,000 P500,000 to finance the purchase of merchandise. The owner made withdrawals during the year of
d. 200,000 P100,000.

Problem 15-16
What was the net income or net loss for the current year?
Jolo Company reported the following increase(decrease) in the account balances for the current year: a. 360,000 income
b. 360,000 loss
Cash 1,500,000 c. 140,00 income
Accounts receivable 3,500,000 d. 140,000 loss
Inventory 3,900,000
Investments (1,000,000) Problem 15-18
Equipment 3,000,000
Accounts payable (800,000) Haze Company provided the following information for the current year:
 Expenses (paid in cash) 100,000
January 1 December 31 Merchandise (unadjusted debit balance) 700,000

Cash 620,000 There were no withdrawals. All sales and purchases were on credit.
Accounts receivable 670,000 ?
Merchandise inventory 860,000 780,000 The merchandise account is debited for purchases and credited for sales.
Accounts payable 530,000 480,000
1. What is the amount of purchases for the year?
a. 2,000,000
The sales and cost of goods sold were P7,980,000 and P5,830,000 respectively. All sales and purchases b. 2,750,000
were on credit. c. 1,250,000
d. 2,050,000
Various expenses of P1,070,000 were paid in cash. There were no other pertinent transactions.
2. What is the amount of sales for the year?
1. What is the amount of collections from customers?
a. 7,980,000 a. 2,750,000
b. 8,600,000 b. 2,050,000
c. 7,750,000 c. 2,650,000
d. 8,210,000 d. 700,000

2. What is the payment of accounts payable? 3. What is the cash balance at the year-end?
a. 5,750,000 a. 1,350,000
b. 5,880,000 b. 2,000,000
c. 5,800,000 c. 1,450,000
d. 5,700,000 d. 3,450,000

3. What is the cash balance on December 31?

a. 1,090,000
b. 1,500,000
c. 2,570,000 4. What is the merchandise inventory at year-end?
d. 3,050,000 a. 700,000
b. 450,000
Problem 15-19 c. 750,000
d. 0
At the beginning of current year, Crispin Santos started a retail merchandise business. During
the current year, the business paid a trade creditors P 2,000,000 in cash and suffered a net loss of Problem 15-20
P 350,000.
Lancer Company provided the following data obtained from the single entry records for
The ledger preclosing balances at year-end included the following: 2017:
December 31
Accounts receivable 600,000 January 1
Accounts payable 750,000
Capital (total investment in cash) 2,000,000
Cash 1,600,000 Accounts Receivable of P120,000 were written off as uncollectible. Returns of P 320,000
1,200,000 were made on merchandise sales. Allowances of P 80,000 were received on merchandise
Notes receivable 1,200,000 400,000 purchases.
Accounts receivable 2,000,000
1,600,000 Required:
Merchandise inventory 960,000 1,600,000
Equipment 1,120,000 Compute the net income or loss using the single entry method and prepare an income
1,200,000 statement.
Notes payable 480,000 720,000
Accounts payable 1,040,000 1,200,000
Accrued interest payable 40,000 80,000 Problem 15-21
Unearned rent income 40,000 120,000
Corolla Company prepared the following comparative statement of financial position on
Cash receipts December 31, 2017:

Accounts receivable (after sales Assets December 31

Discounts of P100,000) January 1
3,000,000
Notes receivable 960,000 Cash 750,000 330,000
Cash sales Notes receivable 210,000 200,000
800,000 Accounts receivable 950,000 740,000
Rent income Inventory 1,500,000
80,000 1,600,000
Sale of equipment costing P 200,000 Prepaid expenses 100,000 120,000
And carrying amount of P 100,000 120,000 Investment (at cost) 100,000 400,000
Investment Equipment (net) 1,200,000 1,000,000
600,000 4,810,000
4,390,000
Cash payments
Liabilities and Equity
Accounts payable 1,520,000
Notes payable Notes payable 580,000 750,000
1,280,000 Accounts payable 750,000 600,000
Cash purchases 600,000 Interest payable 30,000 -
Interest expense 160,000 Accrued expenses 50,000
Expenses 40,000
800,000 Bonds payable - 500,000
Equipment Share capital, P100 par 1,300,000 1,000,000
400,000 Share premium 1,500,000 1,000,000
Withdrawals Retained earnings 600,000 500,000
400,000 4,810,000
4,390,000
Cash receipts cash disbursements Accrued salaries payable 250,000
Merchandise inventory 700,000
Issue of share capital 800,000 Trade creditors- notes Notes payable 200,000
and accounts
2,100,000  A summary of the transactions for the current year as recorded in the check book
Trade debtors- notes showed the following:
and accounts 2,950,000 Expenses
790,000 Deposits for the year 3,930,000
Notes receivable discounted: Dividends Checks drawn during the year 3,360,000
400,000 Bank service charge 10,000
face value, P200,000, Equipment
280,000  The following information related to accounts payable:
proceeds 190,000 Bonds 500,000
12% one-year note issued to Purchases on account during the year 2,280,000
4,070,000 Returns of merchandise 70,000
Bank on March 1, 2017 300,000 Payments of accounts by check 2,200,000
Sale of investment 250,000
4,490,000  Information about accounts receivable is as follows:

Accounts written off 30,000

Required: Accounts collected 1,720,000
Accounts receivable on December 31,2017
Determine the net income or net loss using the single entry method and prepare an income (of this balance P50,000 is estimated
statement. To be uncollectible) 450,000

 Checks drawn during the year included checks for the following:

Salaries 400,000
Supplies 75,000
Problem 15-22 Taxes 45,000
Drawings of proprietor 240,000
Camry Company, a sole proprietorship, did not have complete records on a double entry basis. Miscellaneous expense 35,000
Note payable 120,000
However, an investigation of the records established that the assets and liabilities January 1, Other operating expenses 245,000
2017 were:
 Cash sales for the year are assumed to account for all cash received other than
Cash 200,000
collected on accounts.
Accounts receivable 420,000
 Equipment is to depreciated at the rate of 10% per annum.
Allowance for doubtful accounts 20,000
Equipment 350,000
 Other financial information on December 3, 2017:
Accumulated depreciation- equipment 100,000
Merchandise inventory 650,000
Prepaid supplies 40,000
Supplies on hand 20,000
Accounts payable 250,000
 Accrued salaries payable 15,000 Other expenses 150,000
Dividends 100,000

Required:
Required:
Prepare an income statement for 2017 and a statement of financial position n December 31,
2017. a. Prepare an income statement for the current year.
b. Compute the net income or loss using the single entry method.
Problem 15-23:
Problem 15-24
Ronald Company provided the following information for the current year:
Complex Company kept very limited records.
Purchases of merchandise were paid for by check, but most other items of cost were paid out of cash
Increases
receipts.
Cash 420,000 Weekly the amount of cash on hand was deposited in a bank account.
Accounts receivable 140,000 No record wad kept of cash in the bank, nor was a record kept of sales
Accounts payable 40,000 Accounts receivable were recorded only by keeping a copy of the ticket, and this copy was given to
Prepaid insurance 20,000 the customer when he paid his account.
On January 1, 2017, the entity started business and issued share capital, 60, 000 shares with P100
Decreases par, for the following considerations:
Cash 500,000
Building (useful life, 15 years) 4,500,000
Inventory 100,000 Land 1,500,000
Equipment 10,000
Notes receivable 60,000 An analysis of the bank statements showed total deposits, including the original cash investment, of
Accrued salaries payable 30,000 3,500,000.
The balance in the bank statement on December 31, 2017, was P250,000.
Summary of cash transactions There were checks amounting to 50,000 dated in December 2017 but not paid by the bank until
January 2018
Cash on hand on December 31, 2017 was P125,000 including customer deposit of P75,000.
Receipts: During the year, the entity borrowed P500,000 from the bank and repaid P125,000 and P25,000
Cash sales 300,000 interest.
Collections on accounts receivable 3,000,000 Additional information:
Collections on notes receivable 240,000 Disbursements paid in cash during the year were:
Interest on notes receivable 20,000 Utilities 100,000
Purchase returns and allowances Salaries 100,000
Supplies 175,000
(total purchase returns and allowance, 80,000) 50,000
Taxes 25,000
Dividends 150,000
Disbursements:
Cash purchases An inventory of merchandise taken on December 31, 2017 showed P755, 000 of merchandise.
Payments on accounts payable Tickets for accounts receivable totalled P900,000 but P50,000 of that amount may prove
Sales returns and allowances (total sales uncollectible.
Returns and allowances, P120,000) 40,000 Unpaid suppliers invoices for merchandise amounted to P350,000.
Equipment with a cash price of P400,000 was purchased in early January on a one-year instalment
Insurance 70,000 basis.
Salaries 1,000,000 During the year, checks for the down payment and all maturing instalments totalled P445,000.
Equipment 80,000
The equipment has a useful life of 5 years. Accrued salaries 30,000
Required: Accounts payable 100,000
A. Prepare an income statement for the year ended December 31, 2017.
B. Prepare a statement of financial position on December 31, 2017. Required:
Problem 15-25 A. Prepare an income statement for 2017.
Ultimate Company provided the following information for the preparation of financial statements for B. Prepare a statement of financial position on December 31, 2017.
2017:
Balances - January 1, 2017 Problem 15-26
Cash 400,000 Merill Company has not prepared financial statements for 3 years since December 31 2014.
Accounts receivable 120,000 During the 3-year period, cash receipts and cash disbursement were maintained and sales on account
Inventory 230,000 were entered directly into an accounts receivable ledger.
Prepaid Insurance 35,000 However, no general ledger postings have been made since the December 31, 2014 closing.
Land 500,000 The examination of the records disclosed balances at the beginning and end of the 3-year period as
Building 2,000,000 follows:
Accumulated Depreciation 700,000 December 31, 2014 December 31, 2017
Equipment 800,000 Less than 1 year old 77, 000 141, 000
Accumulated Depreciation 240,000 1 to 2 years old 6,000 9,000
Accounts payable 170,000 2 to 3 years old 4,000
Accrued salaries payable 20,000 Over 3 years old 11,000
Advances from customers 90,000 Total accounts receivable 83,000 165,000
Share capital 2,500,000
Retained earnings 365,000 Inventory 58,000 94,000
Accounts payable 25,000 55,000
* Cash receipts for 2017 No account balances were written off during the 3 year period. The ratio of gross profit to sales
Advances from customers 70,000 remains constant from year to year. Other data available are:
Cash sales and collections on accounts receivable 2,960,000 2015 2016 2017
Sale of equipment on December 31, 2017 Cash received applied to
costing P50,000 on which P30,000 of depreciation Current year 744,000 809,000 1,044,000
had been accumulated 45,000 Accounts of prior year 67,000 75,000 84,000
3,075,000 Accounts of two years prior 3,000 2,000 10,000
Total collections 814,000 886,000 1,138,000
Cash sales 85,000 130,000 156,000
* Cash disbursements for 2017 Payment of accounts payable 625,000 706,000 869,000
Insurance premium 80,000 Required:
Purchase of equipment on October 1,200,000 1. Compute total sales for each year, 2015, 2016, and 2017.
Cash purchases and payments on accounts payable 1,640,000 2. Compute total purchases for 2015, 2016, and 2017.
Salaries 390,000 3. Compute total cost of goods sold for 2015, 2016, and 2017.
Dividends paid 125,000 4. Compute gross profit for each year, 2015, 2016, and 2017.
Other expenses 135,000
2,570,000

* Dividends of 5% were declared on June 30 and on December 31, 2017.

* All depreciable assets should be depreciated at 10% per year.
* Doubtful accounts are estimated to be 5% of year-end accounts receivable. The accounts receivable
totaled P200,000 on December 31, 2017.
* Additional data on December 31, 2017
Inventory 245,000
Prepaid insurance 25,000
Advances from customers 50,000