AUDITING PROBLEMS

PROBLEM 1

The accountant of SANTIANGO COMPANY is in the process of preparing the company’s

financial statements for the year ended December 31, 2018. He is trying to determine the correct
balance of cash and cash equivalent to be reported as a current asset in the statement of financial
position. The following items are being considered:

 Balances is the company’s accounts at the Metropolitan Bank:

- Current account P81,000
- Savings account P132,600
 Undeposited Customer checks of P22,200 (including a Customer check dated January 2,
2019, for P3,000).
 Currency and coins on hand of P3,480.
 Savings account at the Northern Philippines Bank with a balance of P2,400,000. This
account is being used to accumulate cash for future plant expansion (in 2019).
 Petty cash of P4,000 (current of P1,200 and unreplenished vouchers for P2,800).
 P120,000 in a current account at the Northern Philippines Bank. This represent a 20%
compensating balance for P600,000 loan with the bank. Santiago Company is legally
restricted to withdraw the funds until the loan is due in 2021.
 Treasury bills:
Two-month maturity bills P90,000
Seven-month bills 120,000
 Time deposit (placement term is in 2 months) P100,000

What total amount of cash and cash equivalents should be reported under current
assets?

PROBLEM 2

The following information has been extracted from the accounting records of the URSULA
COMPANY at December 31, 2018:

a. Cash on hand (see note below) P230,000

b. Impukan Bank savings account (the required minimum Monthly
Average Daily Balance is P10,000) 9,500
c. 364-day Treasury bills purchased March 1, 2018 400,000
d. Petty cash fund ( see Note below ) 20,000
e. Tipid Bank current account ( see note below) 160,000
f. Time deposit placement:
Date Term
Dec. 15, 2018 30 days 30,000
Oct. 31, 2018 90 days 40,000
Nov. 30, 2018 180 days 25,000
g. Employee travel advances 7,000
h. Cash in bond sinking fund 500,000
i. Customer’s note receivable 45,000
j. Postage stamp 2,400

The following are included in cash on hand:

 A customer check for P43,000 returned by the bank on December 2, 2018. It was
redeposited and cleared the bank on January 2, 2019.
 A customer check for P75,000 dated January 3, 2019, received December 27, 2018.
 PHLPost money orders received from customers, P30,000.

The petty cash fund consists of the following:

Current and coins P13,500
IOUs from officers and employees 3,000
Unreplenished petty cash disbursement 1,500
Currency in envelope with notation:
 We were Bang Quay’s coworkers. Words may not be
Adequate to express how sorry we feel. Please accept
our heartfelt sympathies on the loss of your love one.” 1,500

P20,000

The following Information pertains to Tipid Bank current account:

 A check foe P13,000 was dated and recorded on December 29, 2018, but was delivered to
payee on January 5, 2019.
 A check for P5,000 dated January 10 2019, payable to a supplier was recorded and
released to payee on December 19 2018. Tipid Bank required current account depositors
to maintain a monthly average daily balance of P50,000.

What total amount should be recorded as cash and cash equivalents on December 31,
2018?

PROBLEM 3

The controller the LYRIC CO. is trying to determine the amount of cash and cash equivalents to
be reported on its December 31, 2018, statement of financial position. The following information
is provided:

1. Balances in the company’s accounts at the Monte Bank:

 Checking account- P540,000
 Saving account- P884,000.
2. Undeposited customer checks of P208,000.
3. Currency and coins on hand of P23,200.
4. Savings account at the Naic Bank with a balance of P350,000.
This account is being used to accumulate cash for future plant expansion ( in 2020 ).
5. P800,000 balance in a checking account at the Naic Bank.
6. Treasury bills; 30-day maturity bills totaling P600,000, and 180-day bills totaling
P800,000.

On December 31, 2018, what amount should be reported as cash and cash equivalents?

PROBLEM 4

The following facts apply to OTO Company during 2018:

1. Savings account of P900,000 and a checking account balance of P1,200,000 are held at
Manila Bank.
2. Money market placement with maturity of 3 months, P7,500,000.
3. Currency and coins on hand amounted to P11,550.
4. Travel advances of P27,000 for the first quarter of next year ( employee reimbursement
will be through salary deduction ).
5. Oto Company has purchase P3,150,000 of commercial paper of Mendez Corp. which is
due in 60 days.
6. A separate cash fund amounting to P2,250,000 is restricted for the retirement of long-
term debt.
7. Petty cash fund of P1,500.
8. An IOU from an employee of Oto Company in the amount of P2,000.
9. Two certificates of deposit, each totaling P500,000. These CDs have a maturity of 120
days.
10. Oto Company has received a check from a customer in the amount of P187,500 dated
January 15, 2019.
11. On January 1, 2018, Oto Company purchased marketable equity securities to be held as
“trading” for P3,000,000. On December 31, 2018, its market value is P4,300,000.

What amount should be reported as cash and cash equivalent on December 31, 2018?
PROBLEM 5

Your audit of the December 31, 2018, financial statements of DIONESIO CORP. reveals the
following:

Current account at Prime Bank P (30,000)

Current account at prudent Bank 135,000
Treasury bills (acquired 3 months before maturity) 300,000
Treasury bills (maturity date is Dec.31, 2019) 1,500,000
Payroll account 390,000
Foreign bank account – restricted (translated using the
December 31, 2018, exchange rate) 2,000,000
Postage stamps 1,250
Employee’s postdated check 4,500
IOU from the vice-president 8,000
Credit memo from supplier for a purchase return 8,100
Traveler’s check 21,000
Money order 12,900
Petty cash fund (P3,000 in currency and expense
receipts for P12,000) 15,000

What amount would be reported as “cash and cash equivalents” in the statement of
financial position on December 31, 2018?

PROBLEM 6

The Cash account of the BEA CORPORATION as of December 31, 2018, was composed of the
following:

On deposits in current account with the Bank of PI P900,000

Cash collection not yet deposited to the bank 350,000
A customer’s check return by the bank for insufficient fund 150,000
A check drawn by the Vice-president of the company
dated January 15, 2019 70,000
A check drawn by a supplier dated December 28, 2018,
for goods returned by company 60,000
A check dated May 31, 2018, drawn by the company against
the Bank of manila in payment of customs duties.
Since the importation did not materialized, the check was
return by the customs broker. This check was an outstanding
check in the reconciliation of the Bank of Manila 140,000
Petty cash fund of which P10,000 is in currency; P7,20 in form
of employees’ IOU; and P2,800 is supported by approved
petty cash vouchers for expenses all date prior to closing of the
books on December 31, 2018 20,000
Total P1,960,000
Less: Overdraft with the Bank of Manila secured by a chattel
Mortgage on the inventories 300,000
Cash balance per ledger P1,660,000

What is the amount of cash to be reported on the December 31, 2018, statement of financial
position of Bea Company?

PROBLEM 7

The December 31, 2017, statement of financial position of the UPAT COMPANY included the
following information:
Accounts receivable P672,000
Less: Allowance for credit loss (42,300) P629,700
Notes receivable* 65,400
 Total receivables P695,100
* The company is contingently liable for discount notes receivable of P114,000.

During the year ending December 31, 2018, the following transactions occurred:

1. Sales on credit P2,623,800

2. Collections of accounts receivable 2,523,000
3. Accounts receivable written off as uncollectible 41,400
4. Notes receivable collected 78,000
5. Customer notes received in payment of accounts receivable 216,000
6. Notes receivable discounted that were paid at maturity 108,000
7. Notes receivable discounted that were defaulted, including
interest of P60 and a P15 fee. This amount is expected to be
collected during 2019 6,075
8. Proceeds from customer notes discounted with recourse (principal
P135,000, accrued interest, P600) 135,225
9. Collections on accounts previously written off 1,500
10. Sales return and allowances (on credit sale) 6,000
11. Increase in allowance for credit loss 39,357

Based on the preceding information, determine the balances of the following accounts at
December 31, 2018.

1. Accounts receivable
2. Allowancefor credit loss
3. Notes receivable
4. Notes receivable discounted

PROBLEM 8

Shown below is GOROSPE COMPANY’s aging schedule of its accounts receivable on

December 31, 2018.
Balance Days Past Due
Customers Due Current 1-30 31-60 Over 60

AA Co. P23,000 P 0 P 0 P23,000 P 0

BB, Inc. 105,000 62,000 20,000 13,000 10,000
CC Corp. 87,500 23,000 14,500 10,000 40,000
DD, Corp. 93,000 53,000 20,500 10,000 10,000
EE Transport 40,000 0 0 0 40,000
FF Inc. 31,000 15,000 16,000 0 0
GG Co. 1,000 1,000 0 0 0
HH Corp. 64,000 20,000 18,000 16,000 10,000
II Company 60,000 60,000 0 0 0
Totals P505,000 P234,000 P89,000 P72,000 P110,000

The accounts receivable balance per general ledger is P505,000 on December 32, 2018.

The following are audit comments for possible adjustment:

AA Co.
Merchandized found defective; returned by the customer on November 10 for credit, but the
credit memo was issued by Gorospe only on January 2, 2019.
BB Inc.
Account is good but usually pays late.
CC Corp.
Merchandise worth P40,000 destroyed in transit on June 4, 2018. The carrier was billed on July 1
(see EE Transport and II Company).
DD, Inc.
Customer billed twice in error for P10,000. Balance is collectible.
EE Transport
Collected in full on January 15, 2019.
FF, Inc.
Paid in full on December 29, 2018, but not recorded. Collections were deposited January 3,
2019.
GG Co.
Received account confirmation from customer for P11,000. Investigation revealed an erroneous
credit for P10,000. (see HH Corp.)
HH Corp.
Neglected to post P10,000 credit to customer’s account.
II Company
Customer wants to know the reason for receipt of P40,000 credit memo as its account payable
balance is P100,000.

Based on the foregoing information, what should be the adjustment balance of the
Accounts receivable – trade at December 31, 2018?

PROBLEM 9

DAFFODIL AUTO PARTS sells new parts to auto dealers. Company policy requires that a
prenumbered shipping document be issued for each sale. At that time of pickup or shipment, the
shipping clerk writes the date on the shipping document. The last shipment made in the year
ended December 31, 2018, was recorded on document 3167. Shipments are billed in the order
that the billing clerk receives the shipping documents.

For late December 2018 and early January 2019, shipping documents are billed on sales invoices
as follows:

Shipping Sales
Document No. Invoice No.
3163 5332
3164 5326
3165 5327
3166 5330
3167 5331
3168 5328
3169 5329
3170 5333
3171 5335
3172 5334

The December 2018 and January 2019 sales journals have the following information included:

SALES JOURNAL – DECEMBER 2018

Day of Sales Amount
Month Invoice No. of Sale

30 5326 P72,611
30 5329 191,430
31 5327 41,983
31 5328 62,022
31 5330 4,774

SALE JOURNAL – JANUARY 2019

Day of Sales Amount
Month Invoice No. of Sale

1 5332 P264,131
1 5331 10,639
1 5333 85,206
2 5335 125,050
2 5334 64,658
 1. What is the net overstatement (understatement) of Daffodil’s sale for the year ended
December 31, 2918?
2. What adjusting entry is necessary to correct Daffodil’s financial statements for the
year ended December 31, 2018?
3. Cutoff test designed to detect credit sales made before the end of the year that have
been recorded in the subsequent year provide assurance about management’s
assertion of
4. Tracing shipping documents to prenumbered sales invoices provides evidence that
5. An auditor most likely would review an entity’s periodic accounting for the
numerical sequence of shipping documents and invoice to support management’s
financial statement assertion of

PROBLEM 10

Presented below are unrelated situation. Answer the questions related to each situation.
1. The following information is from GUMAMELA CORP.’s first year of operations:
1. Merchandise purchased P450,000
2. Ending Merchandise inventory 123,000
3. Collection from customers 150,000
4. All sales are on account and good sell
at 30% above cost.

What is the account receivable balance at the end of the company’s first year of
operations?

2. BANANA CO. reported the following information at the end of its first year of
operations, December 31, 2018:
Expected credit loss for 2018 P271,000
Uncollectible accounts written off during 2018 35,400
Net realizable value of accounts receivable 895,000

What is the accounts receivable balance at December 31, 2018?

3. MAHOGANY COMPANY’s analysis and aging of its accounts receivable at December

31, 2018, disclosed the following:
Accounts receivable P460,000
Accounts estimated to be uncollectible (per aging) 95,000
Allowance for credit loss (per books) 103,000

What is the net realizable value of Mahogany’s receivables at December 31, 2018?

4. The following amounts are shown on the 2018 and 2017 financial statement of SAN
FRANCISCO CO:
2018 2017
Accounts receivable ? P 470,000
Allowance for credit loss 20,000 10,000
Net sales 2,600,000 2,400,000
Cost of goods sold 1,900,000 1,752,000

San Francisco Co.’s accounts receivable turn over for 2018 is 6.5 times.

What is the accounts receivable balance at December 31, 2018?

PROBLEM 11

CALACHUCHI CORP.’s accounts receivable subsidiary ledger shows the following

information:
ACCOUNT BALANCE INVOICE
CUSTOMER DEC.31,2018 DATE AMOUNT

Aruy, Inc. P35,180 12/06/18 P14,000

12/29/18 21,180
Naku Co. 20,920 09/27/18 12,000
08/20/18 8,920
Syak Corp. 30,600 12/08/18 20,000
10/25/18 10,600
Trip Co. 45,140 11/17/18 23,140
10/09/18 22,000
Uy Co. 31,600 12/12/18 19,200
12/02/18 12,400
Xak Corp. 17,400 09/12/18 17,400

The life time expected credit loss rates below are based on Calachuchi Corp.’s receivable
collection experience for forward-looking estimates.
Age of Accounts Rate
0 – 30 days 1%
31 – 60 days 1.5%
61 – 90 days 3%
91 – 120 days 10%
Over 120 days 50%

The allowance for credit loss account had a debit balance of P5,500 on December 31, 2018,
before adjustment.

1. The company’s accounts receivable under “61-90 days” category should be

2. The company’s accounts receivable under “91-120 days” category should be
3. The allowance for credit loss to be reported in the statement of financial position at
December 31, 2018, is
4. What entry should be made on December 31, 2018, to adjust the allowance for
credit loss account?
5. What is the net realizable value of accounts receivable at December 31,2018?

PROBLEM 12

The TILL CORPORATION has adjusted and closed its books at the end of 2018. The company
arrives at its inventory position by a physical count taken on December 31, of each year. In
March 2019, the following errors were discovered:

(a) Merchandise that cost P7,500 was sold for P10,200 on December 30, 2018. The order
was shipped December 31, 2018 with terms FOB shipping point. The merchandise was
not included in the ending inventory. The sale was recorded on January 15, 2019, when
the customer made payment on the sale.

(b) On January 2, 2019, Till Corporation received merchandise that had been shipped to it on
December 31, 2018. The terms of the purchase were FOB shipping point. Cost of the
merchandise was P5,250. The purchase was recorded and the goods included in the
inventory on January 2, 2019.

(c) On January 8, 2019, merchandise that had been included in the ending inventory was
returned Till because the consignee had not able to sell it. The cost of this merchandise
was P3,600 with a selling price of P5,400.

(d) Merchandise costing P2,250, located in a separate warehouse, was overlooked and
excluded from the 2018 inventory count.

(e) On December 27, 2018, Till Corporation purchased merchandise costing P3,525 from a
supplier. The order was shipped December 28 (terms FOB destination) and was still “in
transit” on December 31. Because the invoice was received on December 31, the
purchase was recorded in 2018. The merchandise was not included in the inventory
count.
 (f) The corporation failed to make an entry for a purchase on account of P2,505 at the end of
2018, although it included this merchandise in the inventory count. The purchase was
recorded when payment was made to the supplier in 2019.

(g) The corporation included in its 2018 ending inventory merchandise with a cost of P4,050.
This merchandise had been custom built and was being held according to the customer’s
written request until the customer could come and pick up the merchandise. The sale for
P5,475, was recorded in 2019.

Give the entry in 2019 (2018 books are closed) to correct each error. Assume that the
errors were made during 2019, all amounts are material, and the periodic inventory
system is used.

PROBLEM 13

WALLNUT Co. asks you to review its December 31, 2018, inventory values and prepare the
necessary adjustment to the books. The following information is given to you.

1. Wallnut uses the periodic method of recording inventory a physical count reveals
P704,670 of inventory on hand at December 31, 2018.

2. Not included in the physical count of inventory is P31,260 of merchandise purchase on

December 15 from Benggay. This merchandise was shipped f.o.b. shipping point on
December 29 and arrived in January. The invoice and was recorded on December 31.

3. Included in Inventory is merchandise sold to Bubbly on December 30, f.o.b, destination.

This merchandise was shipped after it was counted. The invoice was prepared and
recorded as a sale on account for P38,400 on December 31. The merchandise cost
P22,050, and Bubbly received it on January 3.

4. Included in inventory was merchandise received from Doodle on December 31, with an
invoice price of P46,890. The merchandise was shipped f.o.b. destination. The invoice
which has not yet arrived, has not been recorded.

5. Not included in inventory is P25,620 of merchandise purchase from Maundy Company.

This merchandise was received on December 31 after the inventory had been counted.
The invoice was received and recorded on December 30.

6. Included in inventory was P31,314 of inventory held by Wallnut on consignment from

Jaka Corporation.

7. Included in inventory is merchandise sold to Simson f.o.b. shipping point. This

merchandise was shipped after it was counted. The invoice was prepared and recorded as
a sale for P56,700 on December 31. The cost on this merchandise was P34,560, and
Simson received the merchandise on January 5.

8. Excluded from inventory was a carton labeled “Please accept for credit” This carton
contains merchandise costing P4,500 which had been sold to a customer for P7,800. No
entry had been made to the books to reflect the return, but none of the returned
merchandise seemed damage.

a. Compute the correct inventory balance for Wallnut at December 31,2018.

b. Prepare any correcting entries to adjust inventory and related accounts to their
proper amounts at December 31, 2018. Assume the books have not been closed.

PROBLEM 14

In testing the sales cut-off for the BIG LOVE COMPANY in connection with an audit for the
year ended October 31, 2018, you find the following information.
A physical inventory was taken as of the close business on October 31 2018, All customers are
within a three-day delivery area of the company’s plant. The unadjusted balances of Sales and
Inventories are P7,500,000 and P330,000, respectively.

Invoice Date Date

Number FOB Terms Shipped Recorded Sales Cost
6671 Destination Oct. 20 Oct. 31 P 3,000 P2,700
6672 Shipping point Oct. 31 Nov. 2 7,500 6,000
6673 Shipping point Oct. 25 Oct. 31 5,400 3,600
6674 Destination Oct. 31 Oct. 29 12,600 9,300
6675 Destination Oct. 31 Nov. 2 27,600 24,000
6676 Shipping point Nov. 2 Oct. 23 19,500 15,300
6677 Shipping point Nov. 5 Nov. 6 22,500 17,400
6678 Destination Oct. 25 Nov. 3 11,700 6,000
6679 Shipping point Nov. 4 Oct. 31 25,800 24,600
6680 Destination Nov. 5 Nov. 2 15,800 12,000

Based on the foregoing information, compute the October 31, 2018 adjusted balances of
the following accounts:
1. Sales
2. Inventories

PROBLEM 15

MAGNOLIA CORP. invested its excess cash in equity securities during 2018, The business
model for these investment is to profit from trading on price changes.

(a) As of December 31, 2018, the equity investment portfolio consisted of the following:
Investment Quantity Cost Fair Value

LJ, Inc. 1,000 shares P 45,000 P 63,000

Polland Co. 2,000 shares 120,000 126,000
Alabang Corp. 2,000 shares 216,000 180,000
Totals P381,000 P369,000

1. In the December 31, 2018, statement of financial position, what should be reported
as carrying amount of the investments?
2. In the 2018 income statement, what amount should be reported as unrealized gain
or loss?

PROBLEM 16

During the course of your audit of the financial statement of FISHING CORPARATION for the
year ended December 31, 2018, you found a new account, “Investment in equity Securities”.
Your audit revealed that during 2018, Fishing began a program of investment, and all
investment-related transactions were entered in this account. Your analysis of this account for
2018 follows:

Fishing Corporation
Analysis of investment in equity Securities for the
Year Ended December 31, 2018
Debit Credit
(a)
Salmon Company Ordinary shares
Feb. 14 Purchase 36,000 share @ P55 per share P1,980,000
July 26 Received 3,600 ordinary shares of Salmon
Company as a stock dividend.
(Memorandum entry in general ledger.)
Sept. 28 Sold the 3,600 ordinary shares of Salmon
Company received July 26 @ P70 per share. P252,000
 (b)
Debit Credit
Tamban Inc. Ordinary Shares
April 30 Purchase 180,000 shares @ P40 per share P7,200,000
Oct. 28 Received dividend of P1.20 per share. P216,000

Additional Information:

a. The fair value for each security as of the 2018 date of each transaction follows:
Security Feb. 14 April 30 July 26 Sept. 28 Dec. 31

Salmon Company P55 P62 P70 P74

Tamban, Inc. P40 32
Fishing Corp. 25 28 30 33 35

b. All of the investments of fishing Corporation are nominal in respect to percentage of

ownership (5% or less).

c. Each investment is considered by fishing Corporation to be non-trading. Fishing

Corporation has made an irrevocable election to present in other comprehensive income
subsequent changes in fair value of its non-trading equity securities.

1. What amount should be reported as gain on sale of non-trading equity securities in

the income statement of Fishing Corporation for the year ended December 31,
2018?
2. The receipt of 3,600 stock dividend would cause the investment balance to increase
by
3. What entity is necessary to correct the recording of the cash divided received from
Tamban, Inc?
4. What amount of unrealized gain or loss should be reported in the 2018 statement of
comprehensive income as component of other comprehensive income?
5. What amount should be reported as investment in equity Securities in the statement
of financial position on December 31 2018?

POBLEM 17

The following independent situations relate to the acquisition/self-construction of various

property, plant, and equipment items.

Answer the question/s at the end of each situation.

1. BRADPIT, INC. has constructed a production equipment needed for the company’s
expansion program. Bradpit received a P1.500,000 bid from a reputable manufacturer for
the construction of the equipment.

The cost of direct material and direct labor incurred the equipment were P960,000 and
P600,000, respectively. It is estimated that incremental overhead cost for construction
amount to 140% of direct labor costs.

Fixed cost (excluding interest) of P2,100,000 were incurred during the construction
period. This amount was allocated to construction on the basis of total prime costs- the
sum of direct labor and direct material. The prime costs incurred to construct the new
equipment amounted to 35% of the total prime costs incurred for the period. The
company’s policy is to capitalize all possible costs on self-construction projects.

To assist in financing the construction of the production equipment, Bradpit borrowed

P1.5 million at the beginning of the 6-month construction period. The loan was for 2
years with interest at 10%.

What is the total cost of the self-construction equipment?

2. The following transactions relate to IMPO COMPANY.

a. The national government grants the company a large tract of land to be used as a plant
site. The land’s fair value is determined to be P1,620,000.

b. Impo Company issued 280,000 ordinary shares (par value, P50) in exchange for land
and building. The fair value of the property is determined to be P16,200,000 with the
following allocation:
Land P 3,600,000
Building 12,600,000
P16,200,000

Impo Company’s ordinary shares are not listed on the stock exchange, but its records
show that a block of 2,000 shares was sold by a shareholder a year ago at P70 per
share, and another block of 4,000 shares was sold by another shareholder 8 months
ago at P63 per share.

c. Impo Company constructed machinery during the year. No entry was made to remove
from the accounts for materials, labor, and overhead the following cost that are
property chargeable to the machinery account.

Raw material used P250,000

Factory supplies used 18,000
Direct labor costs incurred 320,000
Incremental overhead caused by construction
of machinery (excluding factory supplies used) 54,000
Fixed overhead rate applied to regular manufacturing
Operations 60% of direct labor cost

The cost of similar machinery would be P880,000 if it had been purchased from a
dealer.

The entries required to record these transactions should include debits to?

3. HAGAI COMPANY is a major supplier of computer parts and accessories. To improved

delivery services to customers, the company acquired four new trucks on July 1, 2018,
Described below are the terms of acquisition for each truck.

Truck List Price Terms

No. 1 P600,000 Acquired for a cash payment of P556,000.

No. 2 P800,000 Acquired for down payment of P80,000 cash and a 1 year,
non-interest-bearing note with a face amount of
P720,000.
There was no established cash price for the equipment. The
prevailing interest rate for this type of note is 10%.

No, 3 P640,000 Acquired in exchange for a computer package that the

Company carries in inventory. The computer package cost
P480,000 and is normally sold by Hagai Co. for P608,000.

No. 4 P560,000 Acquired by issuing 40,000 of Hagai Co.’s ordinary shares.

The shares have a par value per share of P10 and a market
value per share of P13.

What is the total cost of the trucks purchased on July 1, 2018?

4. On March 11, 2018, RAMBO COMPANY acquired the plant assets of Ina Corporation in
exchange for 25,000 ordinary shares (100 par value), which had a fair value per share of
P180 on the date of the purchase of property. The property had the following appraised
value.
 Land P 800,000
Building P2,400,000
Machinery and equipment P1,600,000

Below is a summary of Rambo’s cash outflows between the acquisition date and
December 29, the date when it first occupied the building.
Repairs to building P210,000
Construction of bases for machinery
to be installed later 270,000
Driveways and parking lots 244,000
Remodelling of office space in building
Including new partitions and walls 322,000
Special assessment by the city government
on land 36,000

On December 27, Rambo paid cash for machinery, P560,000 (subject to a cash discount)
and freight on machinery of P21,000.

Compute the total cost of each of the following:

a. Land
b. Buildings
c. Machinery and equipment

PROBLEM 18

The following are PPE acquisition for selected companies:

1. FRENCH HORN COMPANY acquired land, building, and equipment from a financially
distressed company, Bankrupt Corp., for a lump sum price of P2,800,000. On the
acquisition date, Bankrupt’s assets had the following book and fair values:
Book Values Fair Value
Land P 800,000 P 600,000
Buildings 1,000,000 1,400,000
Equipment 1,200,000 1,200,000

French Horn decided to take a conservative position by recording the lower of the two
values for each PPE item acquired. The following entry was made:
Land 600,000
Buildings 1,000,000
Equipment 1,200,000
Cash 2,800,000

2. TRUMPET, INC., purchase factory equipment by making a P200,000 cash down

payment and signing a 3-year P300,000, 10% note payable, The acquisition was made as
follows:
Factory equipment 530,000
Cash 200,000
Note payable 300,000
Interest payable 30,000

3. TUBA CO. purchase store equipment for P800,000, terms 2/10, n/30. The company took
the discount and make the following entry when it paid for the acquisition:

Store equipment 800,000

Cash 784,000
Purchase discount 16,000

4. FLUTE CORP. constructed a building at a total cost of P43,000,000. The building could
have been purchased for P45,000,000. The company’s controller made the following
entry:
 Building 45,000,000
Cash 43,000,000
Profit on construction 2,000,000

Prepare the necessary correcting entry for each acquisition.

PROBLEM 19

SAXOPHONE COMPANY acquires a new manufacturing equipment on January 1, 2018, on

installment basis. The deferred payment contract provides for a down payment of P300,000 and
an 8-year note for P3,104,160. The note is to be paid in 8 equal annual installment payment of
P388,020, including 10% interest The payment are to be made on December 31 of each year,
beginning December 31, 2018. The equipment has a cash price equivalent of P2,370,000.
Saxophone’s financial year-end is December 31.

1. What is the acquisition cost of the equipment?

2. The amount to be recognized on January 1, 2018, as discount on note payable is?
3. The amount of interest expenses to be recognized in 2019 is?
4. The carrying value of the note payable at December 31, 2019, is?

PROBLEM 20

Various equipment used by BASSOON CO. in its operations are either purchased from dealers
or self-constructed. The following items for two different types of equipment were recorded
during the calendar year 2018.

Manufacturing equipment (self-constructed):

Materials and purchased parts at gross invoice price
(Bassoon failed to take the 2% cash discount) P 450,000
Imputed interest on funds used during construction
(stock financing) 36,000
Labor costs 185,000
Overhead costs (fixed-P40,000; variable-P60,000) 100,000
Gain on self-construction 74,000
Installation 8,600

Store equipment (purchased):

Cash paid for equipment P175,000
Freight and insurance cost while in transit 3,500
Cost of moving equipment into place at store 1,200
Wage cost for technicians to test equipment 7,000
Insurance premium paid during first of operation on this
equipment 5,200
Special plumbing fixtures required for this equipment 8,200
Repair cost incurred in year of operations related to this equipment 1,450

1. What is the total cost of the self-constructed equipment?

2. What is the cost of the store equipment purchased?

PROBLEM 21

CELLO CORP. has been experiencing a significant increase in customers’ demand for its
product. To expand its production capacity, Cello decided to purchase equipment from Pede
Utang Company on January 2, 2018. Cello issues a P2,400,000 5 year, noninterest – bearing note
to Pede Utang for the new equipment when the prevailing market rate of interest for obligations
of this nature is 12%. The company will pay off the note in five P480,000 installments due at the
end of each year over the life of the note. Cello’s financial year-end is December 31, The
appropriate present value factor of an ordinary annuity of 1 at 12% for 5 periods is 3.60478.

1. What is the cost of the new equipment?

2. What amount of interest expense should be reported in Cello’s income statement for
the year ended December 31, 2019?
 3. What is the carrying value of the note at December 31, 2020?

PROBLEM 22

The INTANGIBLES COMPANY engaged in the following transactions at the beginning of

2018:

1. Purchased a patent for P700,000 that had originally been filed in January 2012. The
acquisition was made to protect another patent that the company had filed for in January
2014 and subsequently received.

2. Purchased the rights to a novel by a best-selling novelist in exchange for 100,000

ordinary shares (P10 par) selling for P60 per share. The book sells 1 million copies in
2018 and is expected to sell a total of 500,000 copies in future years.

3. Purchased the franchise to operate a ferry service from the government for P100,000. A
bridge has been planned to replace the ferry, and it is expected that it will completed in
five years. The company hopes that the ferry will continue as a tourist attraction, but
profits are expected to be only 20% of those earned before the bridge is opened.

4. Paid P280,000 to attorney’s for the services to successfully defend the patent acquired in
transaction 1.

5. Paid a taxi operator P500,000 to have the company name prominently displayed on his
taxis for two years.

Based on the preceding information, determine the carrying value of the following at
the end of 2018:
1. Patent
2. Copyright
3. Franchise

PROBLEM 23

The following independent situations relate to the audit of intangible assets, Answer the
question/s at the end of each situation.

Situation 1

YOLING INDUSTRIES reports the following patents on its December 31, 2017, statement of
financial position.
Date of Useful life
Initial Cost Acquisition (at date of Acquisition)
Patent A P1,224,000 March 1, 2014 17 years
Patent B 450,000 July 1, 2015 10 years
Patent C 432,000 Sept. 1, 2016 4 years

The following event occurred during the year ended December 31 2018.

1. Research and development cost of P737,100 were incurred during the year. These cost
were incurred prior to protects achieving economic viability.
2. Patent D was purchased on July 1 for P855,000. It has a remaining life 0f 91/2 years.
3. A possible impairment of patent B’s value may have occurred at December 31, 2018.
This is due to a significant reduction in the demands for certain products protected by
Patent B. The company’s controller estimates the following future cash flows from
Patent B.
December 31, 2019 P60,000
December 31, 2020 60,000
December 31, 2020 60,000
The appropriate rate to be used for cash flow is 8%.

1. What is the total carrying value of Yoling’s patent on December 31, 2017?
 2. What amount of impairment loss should be reported by Yoling for the year ended
December 31, 2018?
3. What is the total carrying value of Yoling’s patents on December 31, 2018?

Situation 2

In your audit of the books of DIEHARD CORP. for the year ended December 31, 2018, you
found the following items in connection with the company’s patents account.

a) Diehard had spent P360,000 during the year ended December 31, 2017, for research and
development costs. This amount was debited to its patents account. The company’s cost
records disclose that it had spent a total of P424,500 for the research and development of
its patents, of which P64,500 spent in 2017 had been debited to Research and
Development expense.
b) The patents were issued on July 1, 2017. In connection with the issuance of the patents,
the company incurred legal expenses of P42,840, which were debited to legal and
Professional Fees expense.
c) On January 5, 2018 Diehard paid a retainer of P45,000 for legal services in connection
with a patent infringement suit brought against it. Deferred Cost was charged for the
amount.
d) In reply to your inquiry about the company’s liabilities as of December 31, 2018, you
received a letter from the company’s legal counsel dated January 20, 2019, which
indicated that a settlement of the patent infringement suit had been arranged. The plaintiff
will drop the suit and release the company from all future liabilities in exchange for
P60,000. Additional lawyer’s fees were incurred amounting to P3,780.

4. The correcting journal entries (excluding amortization) on December 31, 2018,

would include net debit (credit) to.

Situation 3

As the recently appointed auditor for SUPERPOWER COMPANY, you have been asked to
examine selected accounts. Your audit client, organized in 2017, has setup a single account for
all intangible assets. The following summary shows the debit entries that have been recorded
during 2018.

Jan. 2 Purchased patent (8-year life) P870,000

April 5 Goodwill 720,000
June 30 Payment of 12 months’ rent property leased
By Superpower 182,000
July 1 Purchased franchise with 10-year life expiration
date, July 1, 2028 900,000
Aug. 3 Payment for copyright(5-year life) 312,000
Sept. 1 Research and development costs related to patent
(incurred prior to achieving economic viability) 320,000
P3,304,000

5. What is the total carrying value of Superpower’s intangible assets as of December

31, 2018?

PROBLEM 24

The following situations are found in the records of the KILIMANJARO, INC. in your audit of
the company’s financial statement for the year ended December 31, 2018.
1. December 1, 2018:
Advertising expense 72,000
Cash 72,000
Payment of 2019 advertising contract.

2. Balance of Office supplies expense, Dec. 31, 2018 P45,000

Balance of Unused office supplies, Dec. 31 2018 15,000
Inventory of office supplies, Dec. 31, 2018 22,500
 3. June 2, 2018:
Prepaid insurance 54,000
Cash 54,000
Payment of one-year insurance
Premium for inventory

4. Balance of Factory supplies expense account,

De. 31, 2018 P69,000
Physical inventory of factory supplies
Dec. 31, 2018 58,500

5. On May 1, 2018, a two-year subscription to Industry Journal in the amount of P 14,400

was paid. Subscriptions expense was charged for the entire amount.

Prepare the adjusting journal entries on December 31, 2018, based on the situations
described.

PROBLEM 25

The following amounts are included in the general ledger of MARGHERITA PEAK
CORPORATION at December 31, 2018:
Organization costs P72,000
Trademarks 45,000
Patents 225,000
Discount on bonds payable 105,000
Deposits with advertising agency for ads to promote
goodwill of company 30,000
Cost of equipment acquired for various research and
development projects 320,000
Cost of developing a secret formula for a product that
is expected to the marketed for at least 20 years 240,000

On the basis of the information above, what is the total amount of intangible assets to
be reported by Margherita Peak in its statement of financial position at December 31,
2018?

PROBLEM 26

BOOMERANG, INC. is a manufacturing and retailer of household furniture. Your audit of the
company’s financial statement for the year ended December 31, 2018, discloses the following
debt obligations of the company at the end of its reporting period. Boomerang’s financial
statements are authorized for issuance on March 6, 2019.

1. A P150,000 short-term obligation due on March 1, 2019. Its maturity could be extended
to March 1, 2021, provided Boomerang agrees to provide additional collateral. On
February 12, 2019, an agreement is reached to extend the loan’s maturity to March 1,
2021.

2. A short-term obligation of P3,600,000 in the form of notes payable due February 5, 2019.
The company issued 75,000 ordinary shares for P36 per share on January 25, 2019. The
proceeds from the issuance, plus P900,000 cash, were used to fully settle the debt on
February 5,2019.

3. A long-term obligation of P2,500,000 due December 1, 2028. On November 10, 2018,

Boomerang breaches a covenant on its debt obligation and the loan becomes payable on
demand. An agreement is reached to provide a waiver of the breach on December 11,
2018.

4. A long-term obligation of P4,000,000. The loan is maturing over 4 years in the amount of
P1,000,000 per year. The loan is dated September 1, 2018, and the first maturity date is
September 1, 2019.
 5. A debt obligation of P1,000,000 maturing on December 31, 2021. The debt is callable on
demand by the lender at any time.

1. What amount of current liabilities should be reported on the December 31, 2018,
statement of financial position?
2. What amount of noncurrent liabilities should be reported on the December 31,
2018, statement of financial position?

PROBLEM 27

The data below are from the records of ALMANOR, INC. on December 31, 2018:
Accounts payable P 680,000
Cash balance, ABC Bank 1,240,000
Cash overdraft with XYZ Bank 80,000
Customers’ accounts with credit balances 25,000
Dividends in arrears on preference share 400,000
Employee’s income tax payable 100,000
Estimated warranty payable 50,000
Estimated premium claims outstanding 90,000
Income tax payable 400,000
Notes payable (issued in 2018 maturing in 20 semi-
annual installments beginning on April 1, 2019) 4,000,000
Salaries payable 400,000

The amount to be shown as total current liabilities on Almanor’s statement of

financial position at December 31, 2018, is?

PROBLEMS 28

SAIMAA CORP. records its purchases at gross amounts but wishes to change to recording
purchases net of purchase discounts. Discounts on purchases recorded from January 1, 2018 to
December 31, 2018, totaled P80,000. Of this amount, P8,000 is still available in the accounts
payable balance. The balances in Saimaa’s accounts as of and for year ended December 31,
2018, before conversion are:
Purchases P 4,000,000
Purchase discounts 32,000
Accounts payable 1,200,000

1. The amount of purchase discounts lost to be recognized is?

2. The accounts payable balance should be reduced by?
3. The purchase account should be reduced by?
4. The entry to record the conversion is?

PROBLEM 29

ANGLIN CORPORATION must determine the December 31, 2018, year-end accruals for
advertising and rent expenses. A P50,000 advertising bill was received January 10, 2019,
Comprising costs of P37,500 for advertisements in December 2018 issues, and P12,500 for
advertisements in January 2019 issues of the newspaper.

A store lease, effective December 16, 2017, calls for fixed rent of P120,000 per month, payable
one month from the effective date and monthly thereafter. In addition, rent equal to 5% of net
over P6,000,000 per calendar year is payable on January 31 of the following year. Net sales for
2018 were P7,500,000.

What is the total accrued liabilities that should be reported by Anglin Corporation in
its statement of financial position as at December 31, 2018?

PROBLEM 30

Ana Rosa, president of the APOPKA COMPANY, has a bonus arrangement with the company
under which she receives 10% of the net income (after deducting taxes and bonuses) each year.
For the current year, the net income before deducting either the provision for income taxes or the
bonus is P4,650,000. The bonus is deductible for tax purposes, and the tax rate is 30%.

1. Determine the amount of Ana Rosa’s bonus.

2. Compute the appropriate provision for income tax for the year.
3. Prepare the entry to record the bonus (which will be paid in the following year).

PROBLEM 31

The NEPAL COMPANY is authorized to issue 600,000 shares of P10 par value ordinary share
capital. Nepal’s accounting year ends on December 31. The following transactions occurred in
2018, the company’s first year of operation.

a) Issued 20,000 shares at P20 per shares: received cash.

b) Issued 2,500 shares to attorneys for services in securing the corporate charter and for
preliminary legal costs of organizing the corporation. The fair value of the services was
P85,000.
c) Issued 300 shares, valued objectively at P15,000 to the employees instead of paying them
cash wages.
d) Issued 325,000 shares in exchange for a building valued at P3,000,000 and land valued at
P4,000,000. (The building was originally acquired by the investor for P2,500,000 and has
P1,000,000 of accumulated depreciation: the land was originally acquired for
P1,500,000.)

1. What is the ordinary share capital balance on December 31, 2018?

2. The amount of share premium to be reported on Nepal’s statement of financial
position at December 31,2018, is?
3. The amount of organization expense to be charged against Nepal’s income for
2018 is?

PROBLEM 32

The following are PAKISTAN COMPANY’s equity accounts at December 31, 2017:

Ordinary share capital, par value P10; authorized 200,000 shares; issued and outstanding.
120,000 shares---------------------------------------------------------P 1,200,000
Share premium-------------------------------------------------------------180,000
Retained earnings----------------------------------------------------------720,000

Pakistan Company uses the cost method of accounting for treasury shares.

The following transactions occurred in 2018:

a. Acquired 8,000 ordinary shares for P144,000.
b. Sold 6,500 treasury shares at P20 per share
c. Retired the remaining treasury shares

What is the share premium balance on December 31, 2018?

PROBLEM 33

As the newly appointed auditor in 2018 for JORDAN COMPANY you have analyzed the
company’s “share Premium” account. The following is a summary of the account since the
inception of Jordan Company.
Debits Credits
Cash dividends-preference shares P160,000
Cash dividend-ordinary shares 195,000
Excess of amount paid in over par value of
ordinary shares P375,000
Net income 500,000
Gain on early extinguishment of debt 42,000
Treasury preference shares; issued and reacquired at par 90,000
Loss on litigation 75,000
Correction of a prior period error 23,000
P543,000 P917,000
Credit balance of share premium account 374,000 ________
P917,000 P917,000

1. What is Jordan’s correct net income for 2018?

2. What is the correct retained earnings balance (before appropriation for treasury
shares) as at the end of the current year?
3. What is the correct share premium balance as at the end of the current year?

PROBLEM 34

ISRAEL COMPANY, is authorized to issue 200,000 of P10 par value ordinary shares, and
60,000 of 6% cumulative and nonparticipating preference shares, par value P100 per share. The
company engaged in the following share capital transaction through December 31, 2018:
a) 50,000 ordinary shares were issued for P650,000 and 20,000 preference shares for
machinery valued at P2,600,000.
b) Subscriptions for 9,000 ordinary shares have been taken, and 40% of the subscription
price of P18 per share has been collected. The shares will be issued upon collection on
the subscription price in full.
c) 2,000 treasury ordinary shares have been purchased for P12 and accounted for under the
cost method.
The post-closing retained earning balance at December 31,2018, is P420,000.

What is Israel’s total shareholder’ equity at December 31, 2018?

PROBLEM 35

The following are changes in all the account balances of MONACO COMPANY during the year
ended December 31, 2018, except for retained earnings.
Increase
(Decrease)
Cash ……………………………………………………………….. P395,000
Accounts receivable (net)………………………………………….. 948,000
Inventory…………………………………………………………….(500,000)
Investments …………………………………………………………(235,000)
Accounts payable……………………………………………………(255,000)
Bonds payable ………………………………………………………. 410,000
Ordinary share capital ………………………………………………..300,000
Share premium ………………………………………………… … 20,000

There were no entries in the retained earnings account except for net income and a dividend
declaration of P295,000 which was paid in the current year.

What is Monaco’s net income for the current year?

PROBLEM 36

The following selected information pertains to ICELAND COMPANY:

Cash balance, January 1, 2018 ……………………………… P 65,000
Accounts receivable, January 1, 20181…………………………...95,000
Collections from customers in 2018…………………………..1,050,000
Capital account balance, January 1, 2018……………………….190,000
Total assets, January 1, 2018……………………………………375,000
Additional cash investment, July 1, 2018……………………… 25,000
Total assets December 31, 2018……………………………… 505,000
Cash balance, December 31, 2018………………………………100,000
Accounts receivable, December 31, 2013………………………180,000
Withdrawals made during 2018……………………………… 55,000
Total liabilities, December 31, 2018……………………………205,000
 How much net income should Iceland reported in its income statement for the year
ended December 31, 2018?

PROBLEM 37

Presented below are the condensed income statements of LATVIA CORPORATION for the
years ended December 31, 2018 and 2017.
2018 2017
Sales P5,000,000 P4,900,000
Cost of goods sold 3,350,000 3,300,000
Gross income 1,650,000 1,600,000
Operating expenses 675,000 650,000
Operating income 975,000 950,000
Gain on sale of division 200,000 ________
1,175,000 950,000
Income tax expense (30%) 352,500 285,000
Net income P822,000 P665,000

On October 10, 2018, Latvia entered into an agreement to sell the assets of one of its
geographical segments. The geographical segment compromises operations and cash flows that
can be clearly distinguished, operationally and for financial reporting purposes, from the rest of
the company. The segment was sold on December 31, 2018, for P1,750,000. The book value of
the segment’s assets was P1,550,000. The segment’s contribution to Latvia’s operating income
before tax for each year was follows:
2018 P113,750 loss
2017 81,250 income

Base on the above data, calculate the following:

1. Income from continuing operations in 2017?

2. Income from continuing operations in 2018?
3. Net income in 2017?
4. Net income 2018?
5. Assume that by December 31, 2018, the segment had not yet been sold but was
considered held for sale. The fair value of the segment’s assets on December 31 was
P1,750,000. The post-tax income (loss) from discontinued operation for 2018 should
be?
6. Assume that by December 31, 2018, the segment had not yet been sold but was
considered held for sale. The fair value of the segment’s assets on December 31 was
P1,250,000. The post-tax loss from discontinued operation for 2018 should be?

PROBLEM 38

On January 1, 2018, FINLAND CORP. signed a contract to operate as a franchisee of Mc Dodo,

for an initial franchise fee of P5,000,000. The amount of P2,000,000 was paid when the
agreement was signed, and the balance is payable in five annual payments P600,00 each,
beginning January 1, 2019. The contract stipulates that payment is not refundable and that no
future services are to be rendered by the franchisor. Finland can borrow money at 12% for loan
of this type and the present value of an ordinary annuity of 1 at 12% for five periods is 3.60478.

1. How much should Mc Dodo record as franchise fee revenue on January 1, 2018?
2. What entry would be made by Mc Dodo on January 1, 2018, if it has substantial
future services that remain to be performed?

PROBLEM 39

AUSTRIA, INC. purchased bonds at a discount of P18,400. Subsequently, Austria sold these
bonds at a premium of P26,500. Bond discount amortization of P3,400 had been recorded during
the period that Austria held this bond investment.

What amount should Austria, Inc. reported as gain on the sale of these bonds?
PROBLEM 40

On January 4, 2017, GUYANA, INC. purchased computer hardware for P600,000 On the date of
acquisition, Guyana’s management estimated that the computers would have an estimated useful
life of 5 years and would have a residual value of P60,000. The company used the double-
declining-balance method to depreciate the computer hardware.

In January 2018, Guyana’s Management realized that the technological advancements had made
the computers virtually obsolete and that they would have to be replaced. Management decided
to change the estimated useful life of computer hardware to 2 years.

How much depreciation on computer hardware should be recorded in 2018?

PROBLEM 41

TONGA COMPANY decided on January 2, 2018, to review its accounting practices. This is due
to changing economic conditions and to make its financial statement more comparable to those
of other companies in its industry.

The following changes will be effective as January 1, 2018:

1. Tonga decided to change its allowance for bad debts from 2% to 4% of its outstanding
receivables balance. Tonga’s receivable balance at December 31, 2018, was P690,000.
Allowance for bad debts had a debit balance of P2,000 before adjustment.

2. Tonga decided to use the straight-line method of depreciation on its equipment instead of
the sum-of-the-years’-digits method. It was also decided that this asset has 10 more years
of useful life as of January 2, 2018. The equipment was purchase on January 1, 2008, at a
cost of P1,100,000. On the acquisition date, it was estimated that the equipment would
have a 15-year useful life with no residual value.

1. The entry to record the current year provision for bad debts is?
2. What is the amount of depreciation on equivalent for the current year?

PROBLEM 42

In the past, PERU COMPANY has depreciated its computer hardware using the straight-line
method. The computer hardware has a 10% salvage value and an estimated useful life of 5 years.
As a result of the rapid advancement in information technology, management of Peru has
determined that it receives most of the benefits from its computer facilities in the first few years
of ownership. Hence, as of January 1, 2018, Peru proposes changing to the sum-of-the years’-
digits method, for depreciating its computer hardware. The following computer purchases were
made by Peru at the beginning of each year.

2015 P90,000
2016 50,000
2017 60,000

1. How much depreciation expense was recorded by Peru in 2015, 2016 and 2017?
2. The amount of depreciation expense that should be recognized in 2018 is?
3. What journal entry, if any, should be prepared on January 1, 2018, to adjust the
accounts?

PROBLEM 43

On January 1, 2018, management of TUVALU COMPANY decided to make a revision in the

estimates associated with its production equipment. The equipment was acquired on January 3,
2016, for P800,000 and had been depreciated using straight-line method. At the date of
acquisition, it had an estimated useful life of 10 years with an estimated salvage value of
P50,000. Management has determined that the equipment’s remaining useful life is 4 years and
that it has an estimated residual value of P60,000.
 1. What is the annual depreciation expense recognized in 2016 and 2017?
2. What is the amount of depreciation expense that should be recognized in 2018 as a
result of the changes in estimates?

PROBLEM 44

ECUADOR CORP. was organized on January 1, 2015. An analysis of the company’s allowance
for bad debts account reveals the following:
Estimated Actual
Bad Debts Bad Debts
2015 P15,000 P3,000
2016 26,000 5,000
2017 35,000 9,000
2018 No provision yet 8,000
In the past, bad debts had been estimated at 3% of credit sales, The Ecuador Corp.’s account has
determined that the 3% rate is inappropriate and suggested that it be revised downward to 1%.
Credit sales for the year ended December 31, 2018, totaled P950,000.

1. Prepare the entity to record bad debt expense for the year?
2. What adjusting entry, if any would be made to correct the inaccurate estimates for
prior periods?

PROBLEM 45

The income statement of HAITI COMPANY is presented below:

Haiti Company
INCOME STATEMENT
For the Year Ended December 31, 2018
Sale P20,700,000
Cost of goods sold:
Inventory, January 1 P5,700,000
Purchases 13,200,000
Goods available for sale 18,900,000
Inventory, December 31 4,800,000 14,100,000
Gross income 6,600,000
Operating expenses:
Selling expenses P1,350,000
Administrative expenses 2,100,000 3,450,000
Net income P3,150,000

Additional information;
a. Accounts receivable decreased P1,080,000 during the year.
b. Prepaid expenses increased P510,000 during the year.
c. Accounts payable to suppliers of merchandise decrease P825,000 during the year.
d. Accrued expenses payable decreased P300,000 during the year.
e. Administrative expenses include depreciation expense of P180,000.

1. What is the total amount of cash receivable from customers during the year?
2. What is the total amount of cash paid to suppliers during the year?
3. What is the total amount of cash paid for operating expenses during the year?
4. What is the amount of cash provided by operating activities?

PROBLEM 46

The December 31, 20181, income statement of GHANA COMPANY contained the following
condensed information:

Fees revenue P2,520,000

Operating expenses (excluding depreciation) P1,872,000
Depreciation expenses 180,000
Loss on sale of equipment 78,000 2,130,000
Income before income taxes 390,000
Income tax expense 120,000
Net income P270,000

Ghana Company’s comparative statement of financial position at December 31, 2018 and 2017,
contained the following data:
2018 2017
Accounts receivable P111,000 P162,000
Accounts payable* 123,000 93,000
Income taxes payable 12,000 25,500
*pertains to operating expenses

1. How much was received from customers?

2. How much was paid for operating expenses?
3. What is the net cash provided by operating activities? (Use the direct method.)

PROBLEM 47

SUDAN COMPANY uses the direct method to prepare its statement of cash flows. Sudan’s trial
balances at December 31, 2018 and 2017, are shown below:
December 31
2018 2017
DEBTS
Cash P105,000 P96,000
Accounts receivable 99,000 90,000
Inventory 93,000 141,000
Property, plant, and equipment 300,000 285,000
Unamortized bond discount 13,000 15,000
Cost of goods sold 750,000 1,140,000
Selling expenses 424,500 516,000
General and administrative expenses 411,000 453,000
Interest expense 12,900 7,800
Income tax expense 61,200 183,600
P2,270,100 P2,928,300
CREDITS
Allowance for bad debts P3,900 P3,300
Accumulated depreciation 49,500 45,000
Accounts payable – trade 75,000 46,500
Income taxes payable 63,000 87,300
Deferred income taxes payable 15,900 13,800
8% Bonds payable 135,000 60,000
Ordinary share capital 150,000 120,000
Share premium 27,000 22,500
Retained earnings 134,100 193,800
Sales 1,616,400 2,336,100
P 2,270,100 P2,928,300

Additional data are as follows:

1. Sudan purchased P15,000 in equipment during 2018.
2. One-third of Sudan’s depreciation expense is allocated to selling expense and the
remainder to general and administrative expense.
3. Bad debt expense for 2018 was P15,000. During the year, uncollectible accounts totaling
P14,400 were written off. The company reports bad debts as selling expense.

Based on preceding data, determine the amounts that should be reported on Sudan’s
statement of cash flows for the year ended December 31, 2018, for the following:

1. Cash collected from customers

2. Cash paid to suppliers
3. Cash paid for interest
4. Cash paid for income taxes
5. Cash paid for selling expenses
PROBLEM 48

BURUNDI COMPANY’s income statement for the year ended December 31, 2018, reported net
income of P478,800. In preparing the statement of cash flows, the account noted the following
transaction during 2018 that might affect cash flow from operating activities:

1. Burundi purchased 300 treasury shares at a cost P20 per share. These shares were then
resold at P25 per share.

2. Burundi sold 300 of Loleng ordinary shares at P200 per share. The fair value of these
share was P145 per share at December 31, 2017. This investment was shown as a non-
trading equity security on Burundi’s statement of financial position at December 31,
2017.

3. Burundi change from the straight-line method to the double-declining-balance method of

depreciation for its machinery. The cumulative effect of the change was P43,800.

4. Burundi revised its estimate for bad debts. Prior to 2018, Burundi’s bad debt expense was
1% of its net sales. In 2018, this rate was increased to 2%. Net sales for 2018 were
P1,500,000, and net accounts receivable decreased by P36,000 during 2018.

5. Burundi issued 1,500 shares of its P10 par ordinary shares for a patent. The ordinary
shares had a market value of P23 per share on the transaction date.

6. Depreciation expense amounted to P117,000.

7. Burundi Company holds 40% of the Sioning Corp.’s ordinary shares as a long-term
investment. Sioning Corp. reported net income of P81,000 for 2018.

8. Sioning Corp. paid a total cash dividends of P6,000 to all investees in 2018.

9. Burundi declared a 10% stock dividend. Three thousand of P10 par ordinary shares were
distributed. The market price on the date of declaration of the stock dividend was P20 per
share.

What is the amount of net cash provided by operating activities?

PROBLEM 49

The worksheet below present the comparative statement of financial position items of NAMIBIA
COMPANY at December 31, 2018 and 2017, with a column that shows the increase (decrease)
from 2017 to 2018:
Increase
2018 2017 (Decrease)
Cash P4,037,500 P3,500,000 P537,500
Accounts receivable 5,640,000 5,840,000 (200,000)
Inventories 9,250,000 8,575,000 675,000
Property, plant, & equipment 16,535,000 14,835,000 1,700,000
Accumulated depreciation (5,825,000) (5,200,000) (625,000)
Investment in associate 1,525,000 1,375,000 150,000
Loan receivable 1,312,500 …… 1,321,500
Total assets P32,475,000 P28,925,000 P3,550,000

Accounts payable P5,075,000 P4,775,000 P300,000

Income taxes payable 150,000 250,000 (100,000)
Dividend payable 400,000 500,000 (100,000)
Liability under finance lease 2,000,000 …. 2,000,000
Ordinary shares, P10 par 2,500,000 2,500,000 …
Share premium 7,500,000 7,500,000 …
Retained earnings 14,850,000 13,400,000 1,450,000
Total liabilities and equity P32,475,000 P28,925,000 P3,550,000

Additional information:

1. On December 31, 2017, Namibia acquired 25% of Orly Co.’s ordinary shares for
P1,375,000. On that date, the book value of Orly’s assets and liabilities, which
approximated their fair values, was P5,500,000. Orly reported income of P600,000 for
the year ended December 31, 2018. No dividend was paid on Orly’s ordinary shares
during the year.

2. During 2018, Namibia loaned P1,500,000 to Ariel Co., an unrelated company. Ariel
made the first semi-annual principal repayment of P187,500, plus interest at 10% on
December 31, 2018.

3. On January 2, 2018, Namibia sold equipment costing P300,000, with a carrying amount
of P175,000, for P200,000 cash.

4. On December 31, 2018, Namibia entered into a finance leased for an office building. The
present value of the annual rental payments is P2,000,000, which equals the fair value of
the building. Namibia made the first rental payment of P300,000 when due on January 2,
2019.

5. Net income for 2018 was P1,850,000

6. Namibia declared and paid cash dividends for 2018 and 2017 as follows:
Declared Paid Amount
2017 Dec. 15, 2017 Feb. 20, 2018 P500,000
2018 Dec.15, 2018 Feb. 20, 2019 400,000

Based on the preceding information, determine the following:

1. Net cash provided by operating activities

2. Net cash used in investing activities
3. Net cash used in financing activities