FACULTY OF ECONOMICS

PRESIDENT UNIVERSITY
FX-P1.
Your audit of the December 31, 2017 financial statements of Dinoco Company reveals the following:

Current account at Prime Bank $ (30,000)

Current account at Prudent Bank 135,000
Treasury bills (acquired 3 months before maturity 300,000
Treasury bills (maturity date is December 31, 2018 1,500,000
Payroll account 390,000
Foreign bank account-restricted (translated using the December 31, 2017
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 a supplier for a purchase return 8,100
Traveler's check 21,000
Money order 12,900
Petty cash fund ($3,000 in currency and expense receipts for $12,000) 15,000

What amount would be reported as "cash and cash equivalents" on the statement of financial
position on December 31, 2017?

a. $ 840,050 c. $ 849,400
b. $ 873,900 d. $ 861,900

Solution:
Current account at Prudent Bank 135,000
Payroll account 390,000
Treasury bills (acquired 3 months before maturity 300,000
Traveler's check 21,000
Money order 12,900
Petty cash 3,000
d. 861,900

FX-P2.
The data below are from the records of Alabama Company on December 31, 2017:

Accounts payable $ 680,000

Cash balance, ABC Bank 1,240,000
Cash overdraft, YXZ Bank 80,000
Customers' account with credit balances 25,000
Dividends in arrears on preference shares 400,000
Employees' income tax payable 100,000
Estimated warranty payable 50,000
Estimated premium claims outstanding 90,000
Income tax payable 400,000
 FACULTY OF ECONOMICS
PRESIDENT UNIVERSITY
Notes payable (issued 2017 maturing 20 semiannual installments beginning
April 1, 2018) 4,000,000
Salaries payable 400,000

The amount to be show as total current liabilities on Alabama Company's statement of financial
position at December 31, 2017, is:

a. $ 2,225,000 c. $ 2,625,000
b. $ 2,025,000 d. $ 2,145,000

Solution:
Cash overdraft, YXZ Bank 80,000
Note payable 400,000
Accounts payable 680,000
Salaries payable 400,000
Employees' income tax payable 100,000
Estimated warranty payable 50,000
Estimated premium claims outstanding 90,000
Customers' account with credit balances 25,000
Income tax payable 400,000
a. 2,225,000
FX-P3.
The following audited balances pertain to Oliver Company:

Accounts payable:
January 1, 2017 $ 286,924
December 31, 2017 737,824

Inventory balance:
January 1, 2017 $ 815,386
December 31, 2017 488,874
Cost of goods sold - 2017 $ 1,859,082

How much was paid by Oliver Company to its suppliers in 2017?

a. $ 2,636,494.0 c. $ 1,734,694.0
b. $ 1,081,670.0 d. $ 1,983,470.0

Solution:
Cost of goods sold 1,859,082
Inventory Dec. 31 488,874
Inventory, January 1 -815,386
AP, January 1 286,924
AP, Dec. 31 -737,824
b. 1,081,670
 FACULTY OF ECONOMICS
PRESIDENT UNIVERSITY

FX-P4.
The Nepal Company is authorized to issue 600,000 shares of $10 par value ordinary share capital.
Nepal Company's accounting year ends on December 31. The following transactions occurred in
2017, the company's first year of operations.

a. Issued 20,000 shares at $20 per share, 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 value of the services was $85,000.
c. Issued 300 shares values objectively at $15,000 to the employees instead of paying cash
salaries.
d. Issued 325,000 shares in exchange for a building vales at $3,000,000 and land valued at
$4,000,000. The building was originally acquired by the investor for $2,500,000 and has
$1,000,000 of accumulated depreciation; the land was originally acquired for $1,500,000.

1. What is the ordinary share capital balance on December 31, 2017?

a. $ 3,453,000 c. $ 3,490,000
b. $ 3,478,000 d. $ 4,278,000

2. The amount of share premium to be reported on Nepal Company's statement of financial

position at December 31, 2017 is

a. $ 3,962,000 c. $ 3,022,000
b. $ 4,047,000 d. $ 4,022,000

Solution:
1. a. 200,000
b 25,000
c. 3,000
d 3,250,000
b. 3,478,000

2. a. 200,000
b 60,000
c. 12,000
d 3,750,000
d. 4,022,000
 FACULTY OF ECONOMICS
PRESIDENT UNIVERSITY
FX-P5.
You have been engaged to audit the financial statements of Pompei Company for year ended
December 31, 2017. Your audit reveals the following situations:

1. Depreciation of $16,000 for 2017 on equipment was not yet recorded.

2. The physical inventory count on December 31, 2016 improperly excluded merchandise costing
$5,000 that had been temporarily stored in a public warehouse. Pompei Company uses
a periodic inventory system.

3. The physical count on December 31, 2017, improperly included merchandise with a cost of
$42,500 had been recorded as a sale on December 29, 2017, and held for the customer to pick
up on January 2, 2018.

4. A collection of $28,000 on account from a customer received on December 31, 2017 was not
recorded until January 3, 2018.
5. In 2017, Pompei Company sold for $18,500 fully depreciated equipment that originally cost
$110,000. The proceeds from the sale were credited to the equipment account.

6. During December 2017, a competitor company filed a patent infringement lawsuit against
Pompei Company claiming damages of $1,000,000. The company's legal counsel has
indicated that an unfavorable outcome is probable and a reasonable estimate of the court's
award to the competitor is $600,000. The company has not reflected or disclosed this situation
in the financial statements.
7. Pompei Company has a portfolio of current marketable equity securities acquired in 2016 for
trading purposes. No valuation entry has been made. Information on cost and market value is
as follows:
Cost Market
December 31, 2016 $ 475,000 $ 475,000
December 31, 2017 475,000 500,000
8. At December 31, 2017, an analysis of payroll information shows accrued salaries of $61,000.
The Accrued Salaries Payable account had a balance of $80,000 at December 31, 2017, which
was unchanged from its balance at December 31, 2016.

9. A piece of equipment was acquired on January 2, 2017, for $160,000 and was charged to
Repair Expense. The equipment is expected to have a useful life of 8 years and no residual
value. Pompei Company normally uses the straight-line method to depreciate this type of
equipment.
10. A $75,000 insurance premium paid in July 1, 2016, for a policy that expires on June 30, 2019,
was charged to Insurance expense.

Required:
Prepare the necessary journal entries at December 31, 2017.

Solution:
1. Depreciation expense 16,000
 FACULTY OF ECONOMICS
PRESIDENT UNIVERSITY
Accumulated depreciation-equipment 16,000

2. Cost of goods sold (beginning inventory) 95,000

Retained earnings 95,000

3. Cost of goods sold 42,500

Inventory 42,500

4. Cash 28,000
Accounts receivable 28,000

5. Accumulated depreciation-equipment 110,000

Cash 18,500
Equipment 110,000
Gain on sale of equipment 18,600

6. Estimated litigation loss 600,000

Estimated litigation payable 600,000

7. Investment in trading securities 25,000

Unrealized holding gain on trading securities 25,000

8. Accrued salaries payable 19,000

Salaries expense 19,000

9. Depreciation expense-equipment (160000/8) 20,000

Equipment 160,000
Repairs expense 160,000
Accumulated depreciation-equipment 20,000

10. Insurance expense (75,000/3) 25,000

Prepaid insurance (75,000/3 x 1.5) 37,500
Retained earnings 62,500