De Vera, Angela Kyle G.

Intermediate Accounting 1
2.1-BSA

PRELIM

On April 1, 2019 GB Company had 6,000 units of merchandise on hand that cost
P120 per unit. During the month, GB had the following entries with regard to the
merchandise:

April 5 Purchased on account 15,000 units at P140 per unit

8 Returned 1,000 units from the April 5 purchases~cost flow.

1. What is the cost of goods sold for April 2019?

a. 2,120,000 b. 2,200,000 c. 2,144,000 d. 2,080,000

Answer: a.) 2,120,000

Solution:
Unit sold Unit cost Total cost
April 1 6,000 120 720,000
April 5 10,000 140 1,400,000
Total good sold 16,000 260 2,120,000

Bakun Company began operations late in 2018. for the first quarter ended March
31, 2019, Bakun made available the following information:Total merchandise
purchased through March 15, recorded at net 4,900,000
Merchandise inventory at December 31, 2018, at selling price 1,500,000 All
merchandise was acquired on credit and no payments have been made on
accounts payable since the inception of the company. All merchandise is marked
to sell at 50% above invoice cost before time discounts of 2/10, n/30. No sales were
made in 2019.

2. How much cash is required to eliminate the current balance in accounts payable?
a. 6,000,000 b. 5,900,000 c. 6,400,000 d. 5,750,000

Answer: a.) 6,000,000

Solution:
Purchased through March 15 (4,900,000/98%) 5,000,000
Inventory (1,500,000/150%) 1,000,000
Total Gross Amount 6,000,000

The balance in Reed Company’s accounts payable account at December 31,

2019 was P4,900,000 before the following information was considered:

• Goods shipped F.O.B. destinations on December 21, 2019 from a vendor to

Reed were lost in transit. The invoice cost of P180,000 was not recorded by Reed.
On December 28, 2019, Reed notified the vendors of the lost shipment.
• Goods were in transit from a vendor to Reed on December 31, 2019. The
invoice cost was P240,000 and the goods were shipped F.O.B. shipping point on
December 28, 2019. Reed received the goods on January 6, 2020.

3. What amount should Reed report as accounts payable in its December 31, 2019
balance sheet?
a. 5,320,000 b. 5,140,000 c. 5,080,000 d. 4,900,000

Answer: b.) 5,140,000

Solution:
Accounts payable 4,900,000
Invoice cost 240,000
Adjusted accounts payable 5,140,000

Appari Bank granted a loan to a borrower on January 1, 2016. The interest rate on
the loan is 10% payable annually starting December 31, 2016. The loan matures in
five years on December 31, 2020.
Principal amount 4,000,000
Direct origination cost 61,500
Origination fee received from borrower 350,000
The effective rate on the loan after considering the direct origination cost and
origination fee received is 12%.

4. What is the carrying value of the loan receivable on January 1, 2016?

a. 4,000,000 b. 4,650,000 c. 4,411,500 d. 3,711,500

Answer: d.) 3,711,500

Solution:
Principal amount 4,000,000
Direct original cost 61,500
Origination fee received from borrower (350,000)
Total 3,711,500

5. What is the interest income for 2016?

a. 400,000 b. 558,000 c. 529,380 d. 445,380

Answer: d.) 445,380

Solution: Interest income (3,711,500*12%)=445,380

6. Account of the petty cash fund of XYZ Company showed its composition as
follows:
Coins and currency 3,300
Paid vouchers:
Transportation 600
Gasoline 400
Office supplies 500
Postage stamps 300
Due from employees 1,200 3,000
Manager’s check returned by bank marked NSF 1,000
Check drawn by company to the order of petty cash custodian 2,700

What is the amount of the petty cash fund for balance sheet purposes?
a. 10,000 c. 6,000
b. 7,000 d. 9,000

Answer: c.) 6,000

Solution:
Coins and currency 3,300
Check drawn by company to the order of petty cash custodian 2,700
Amount of the petty cash fund 6,000

Appari Bank granted a loan to a borrower on January 1, 2019. The interest rate
on the loan is 10% payable annually starting December 31, 2019. The loan
matures in five years on December 31, 2023.

Principal amount 4,000,000

Direct origination cost 61,500
Origination fee received from borrower 350,000

The effective rate on the loan after considering the direct origination cost and
origination fee received is 12%.

7. What is the carrying value of the loan receivable on January 1, 2019?

a. 4,000,000 c. 4,411,500
b. 4,650,000 d. 3,711,500

Answer: d.) 3,711,500

Solution:
Principal amount 4,000,000
Direct original cost 61,500
Origination fee received from borrower (350,000)
Total 3,711,500

The inventory on hand at December 31, 2019 for Fair Company is valued at a cost
of P950,000. The following items were not included in this inventory amount:

Item 1: Purchased goods in transit, shipped FOB destination, invoice price P30,000
which includes freight charge of P1,500.
Item 2: Goods held on consignment by Fair Company at a sales price of P28,000,
including sales commission of 20% of the sales price.
Item 3: Goods sold to Grace Company, under terms FOB destination, invoiced for
P18,500 which includes P1,000 freight charge to deliver the goods. Goods are in
transit. The company’s selling price is 140% of cost.
Item 4: Purchased goods in transit, terms FOB shipping point, invoice price P50,000,
freight cost, P2,500.
Item 5: Goods out on consignment to Manila Company, sales price P35,000,
shipping cost of P2,000.
8. What is the adjusted cost of the inventory on December 31, 2019
a. 1,042,000 b. 1,043,000 c. 1,040,000 d. 1,073,500

Answer: a.) 1,042,000

Solution:
Inventory per books 950,000
Item 3 (18,500-1,000/140%) 12,500
Item 4 (50,000+2,500) 52,500
Item 5 (35,000/140%= 25,000+2,000) 27,000
Adjusted Inventory 1,042,000

Kalibo Bank loaned P5,000,000 to Caticlan Company on January 1, 2019. The terms
of the loan require principal payments of P1,000,000 each year for 5 years plus
interest at 8%. The first principal and interest payment is due on January 1, 2020.
Caticlan Company made the required payments during 2020 and 2021. However,
during 2021 Caticlan Company began to experience financial difficulties, requiring
Kalibo to reassess the collectibility of the loan. On December 31, 2021, Kalibo Bank
determines that the remaining principal payment will be collected but the
collection of the interest is unlikely. The present value of 1 at 8% is as follows:

For one period 0.93

For two periods 0.86
For three periods 0.79

9. What is the loan impairment loss on December 31, 2021?

a. 420,000 c. 630,000
b. 210,000 d. 0

Answer: b.) 210,000

Solution:
January 1, 2022 1,000,000
January 1, 2023 (1,000,000*0.93) 930,000
January 1, 2024 (1,000,000*0.86) 860,000
Total 2,790,000
Less: Loan receivable (3,000,000)
210,000

10.What is the interest income to be reported by Kalibo Bank in 2022?

a. 223,200 c. 240,000
b. 143,200 d. 0
Answer: b.) 143,200
Solution:
Loan receivable 3,000,000
Collection (1,000,000)
Total 2,000,000
Allowance for loan impairment (210,000)
Total 1,790,000

Interest Income (1,790,000*8%) = 143,200

Hero Company’s inventory at December 31, 2019 was P7,500,000 based on physical
count priced at cost and before any necessary adjustment for the following:

• Merchandise costing P750,000, shipped FOB shipping point from a vendor on

December 30, 2019, was received and recorded on January 5, 2020.
• Goods in the shipping area were excluded from inventory although shipment
was not made until January 4, 2020. The goods, billed to the customer FOB shipping
point on December 30, 2019, had a cost of P600,000.

1. What amount should Hero report as inventory in its December 31, 2019 balance
sheet?
a. 7,500,000 b. 7,950,000 c. 8,100,000 d. 8,850,000

Answer: c.) 8,100,000

Solution:
Inventory at December 31, 2019 7,500,000
Customer FOB shipping point on December 30, 2019 600,000
Total Inventory in its December 31, 2019 8,100,000

The following information applied to Fenn Company for the current year:
Merchandise purchased for resale 4,000,000
Freight in 100,000
Freight out 50,000
Purchase returns 20,000
Interest on inventory loan 200,000

2. Fenn’s inventoriable cost was

a. 4,280,000 b. 4,030,000 c. 4,080,000 d. 4,130,000

Answer: c.) 4,080,000

Solution:
Merchandise purchased 4,000,000
Add: Freight In 100,000
Total: 4,100,000
Less: Purchased return (20,000)
Total Inventory Cost 4,080,000
Burr Company had the following account balance at December 31, 2019:
Cash in bank 2,250,000
Cash on hand 125,000
Cash legally restricted for additions to plant
(expected to be disbursed in 2020) 1,600,000

Cash in bank includes P600,000 of compensating balance against short-term

borrowing arrangement. The compensating balance is not legally restricted as to
withdrawal by Burr.

3. In the current assets section of Burr’s December 31, 2019 balance sheet, total
cash should be reported at
a. 1,775,000 c. 2,375,000
b. 2,250,000 d. 3,975,000

Answer: c.) 2,375,000

Solution:
Cash in Bank 2,250,000
Cash on Hand 125,000
Total cash be reported 2,375,000

XYZ Company factored P6,000,000 of accounts receivable to ABC Company on

October 1, 2006. Control was surrendered by XYZ. ABC accepted the receivables
subject to recourse for nonpayment. ABC assessed a fee of 3% and retains a
holdback equal to 5% of the accounts receivable. In addition, ABC charged 15%
interest computed on a weighted-average time to maturity of the receivables of 54
days. The fair value of the recourse obligation is P90,000.

4. XYZ will receive and record cash of

a. 5,296,850 c. 5,476,850
b. 5,386,850 d. 5,556,850

Answer: b.) 5,386,000

Solution: 6,000,000-300,000-180,000-133,150= 5,386,850

5. Assuming all receivables are collected, XYZ Company’s cost of factoring the
receivables would be
a. 313,150 b. 180,000 c. 433,150 d. 613,150

Answer: a.) 313,150

Solution:
Witheld as fee income 180,000
Witheld as interest income 133,150
313,150