PRELIM EXAMINATION

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

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

Purchased through March 15 5,000,000

(4,900,000/98%)
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

Accounts Payable on December 31, 2019 before considering P 4,900,000

additional events
Goods in transit at FOB shipping point basis 240,000
Accounts payable on December 31, 2019 after considering P 5,140,000
additional events
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

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

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 b. 7,000 c. 6,000 d. 9,000

Coins and currency P3,300

Check drawn by company to the order of petty cash custodian 2,700
Amount of petty cash fund 6,000

7. 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%.

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

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

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

Inventory per books P 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 P 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 b. 210,000 c. 630,000 d. 0

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)
Total 210,000

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

a. 223,200 b. 143,200 c. 240,000 d. 0

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

Inventory at December 31, 2019 P 7,500,000

Customer FOB shipping point on December 30, 2019 600,000.
Total inventory in its December 31, 2019 P 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

Merchandise purchased P 4,000,000

ADD: Freight in 100,000
Total 4,100,000
LESS: Purchase returns (20,000)
Inventory Cost P 4,080,000
3. 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.

In the current assets section of Burr’s December 31, 2019 balance sheet, total
cash should be reported at

a. 1,775,000 b. 2,250,000 c. 2,375,000 d. 3,975,000

Cash in bank P 2,250,000

Cash on hand 125,000
Total cash be reported P 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 b. 5,386,850 c. 5,476,850 d. 5,556,850

*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

* Withheld as fee income 180,000

*Withheld as interest income 133,150

P313,150