QUIZ #1 – XINTACC3

Question 1:

Paupahan Corporation started its operations in July 1, 2020. Below are the details for Year 2021:
Rent Income under Accrual Basis 60,000
Accrued Rent Income – December 31, 2020 40,000
Accrued Rent Income – December 31, 2021 20,000
Unearned Rent Income – December 31, 2021 50,000
Unearned Rent Income – December 31, 2020 30,000
What is the Rent Income under Cash basis?
A 60,000
B 100,000
C 20,000
D 80,000

Rent income – cash basis (extract) 100,000

Unearned Rent Income, beg 30,000
Accrued Rent Income, end 20,000
Unearned Rent Income, end (50,000)
Accrued Rent Income, beg (40,000)
Rent Income – Accrual basis 60,000

Question 2:

Segurista Inc. has below for Year 2021:

Insurance Expense under accrual basis 90,000
Insurance payable decreased by 30,000
Prepaid insurance – December 31, 2021 20,000
Prepaid insurance – December 31, 2020 40,000
What is the Insurance Expense under Cash basis?
A 100,000
B 90,000
C 40,000
D 140,000

Insurance Expense Paid – cash basis (extract) 100,000

Prepaid Insurance, beg 40,000
Insurance Payable, end 0
Prepaid Insurance, end (20,000)
Insurance Payable, beg (dec by) (30,000)
Insurance Expense – Accrual basis 90,000
Question 3 & 4:

On January 1, 2020 SerbisyoPubliko Company started its operations with capitalization of

P1,000,000. Additional shareholder’s stocks were issued in January 1, 2021 where the company
received P100,000. SerbisyoPubliko provided P300,000 of Services revenue in January 2021 and
received full payment in April 2021. It incurred expenses of P120,000 in January 2021 which were
paid in March 2021. During March 2021, dividends of P50,000 were paid.

Question 3 – What is the Net Income (Loss) for the first quarter under Cash basis?
A (120,000)
B 180,000
C 280,000
D (170,000)

Question 4 – What is the Net Income (Loss) for the first quarter under Accrual basis?
A (120,000)
B 180,000
C 280,000
D 230,000

Cash Basis Accrual Basis

Revenues - 300,000

Expenses (120,000) (120,000)

Profit (Loss) (120,000) 180,000

Adan Corporation reported sales revenue of P2,300,000 in its income statement for the year
ended December 31, 2021. Additional information was as follows:
12/31/2020 12/31/2021
Accounts receivable P500,000 P650,000
Allowance for uncollectible accounts ( 30,000 ) ( 55,000 )
1. Uncollectible accounts totaling P10,000 were written off during 2021. Under the cash
basis of accounting, Adan would have reported 2021 sales of _______.

After the issuance of its 2021 financial statements, Terry Inc., discovered a computational
error of P150,000 in the calculation of its December 31, 2021 inventory. The error resulted in
a P150,000 overstatement in the cost of goods sold for the year ended December 31, 2021.
In October 2022, Terry paid the amount of P500,000 in settlement of litigation instituted against
it, during 2021. Ignore income taxes.
2. In the 2022 financial statements, the December 31, 2021 retained earnings balance,
as previously reported, should be adjusted by a _________. (Indicate after the amount
if it’s debit or credit ex. P85,000 debit)
The following accounts and their balances appear in an unadjusted trial balance of Rem
Company as of December 31, 2020:
Cash 35,500
Accounts receivable (net) 172,000
Inventory 48,000
Accounts payable 25,000
Notes payable 10,000
Additional information gathered adjustment follows:

• The cash account includes a collection in January 2021 from a customer’s account
of P10,000 which was given a cash discount of P500
• The cash account also includes a January 2021 cash sale of P2,000. Gross profit
on this sale was 25%.
• From the amount collected in item 1, the following payments were made:
o Accounts payable of P5,000 paid at a discount of 5%.
o A loan of P3,000 with interest of P150 accruing in January.
3. Assuming that there were no accounts under current liabilities other than the above,
the corrected total current liabilities was ________.

In its accrual basis income statement for the year ended December 31, 2021, Bart Company
reported revenue of P1,750,000. Additional information was as follows:

• Accounts receivable, December 31, 2020 – P 375,000

• Allowance for doubtful accounts 12/31/20 – P 37,500
• Uncollectible accounts written off during 2021, of which P5,000 were recovered –
P20,000
• Sales return for 2021 – P 25,000
• Accounts receivable, December 31, 2021, net of P10,000 customers credit balance –
P505,000
• Allowance for doubtful accounts 12/31/21 – P 50,500
4. Under the cash basis, how much should Bart report as revenue for 2021?

1)
Sales under
accrual 2,300,000.00
AR Beg 500,000.00
AR
Ending - 650,000.00
AR written-off - 10,000.00
Sales under cash
basis 2,140,000.00

P150,00 Overstatement of cost means understatement of Net Income ->

2) 0 credit Retained Earnings

3)
Account Payable 25,000.00
Notes Payable 10,000.00
AP Payment 5,000.00
Loan Payment 3,000.00
Current Liability 43,000.00

4)
Revenue - accrual 1,750,000.00
AR beg 375,000.00
AR end - 515,000.00
Written off - 15,000.00
Sales Return - 25,000.00
Cash Basis Sales 1,570,000.00

A. Garcia Company provided the following information:

20x2 20x1
Revenue 135,000 100,000
Expenses 98,000 65,000
Net income 37,000 35,000

Total assets 157,000 105,000

Total liabilities 50,000 35,000
Total owner’s equity 107,000 70,000

The entity failed to record P12,000 of accrued wages at the end of 20x1. Thw wages
were recorded and paid in January 20x2. The correct accruals were made on December
31, 20x2.
1. What is the corrected net income for 20x1?
Answer : 23,000
Solution : 35,000 -12,000 = 23,000
2. What is the corrected net income for 20x2 ?
Answer : 49,000
Solution : 37,000 +12,000= 49,000
B. Charm Company reported the following changes in all the account balances for the current
year :
Increase(Decrease)
Cash 80,000
Accounts receivable 25,000
Inventory 125,000
Investments ( 50,000 )
Accounts payable ( 40,000 )
Bonds payable 90,000
Share capital 100,000
Ahare premium 10,000
 There were no entries in the retained earnings account except for net income and dividend
declaration of P30,000 which was paid in the current year.
3. What is the net income for the current year ?

Answer : 50,000
Solution :
Effect on equity
Increase in cash 80,000
Increase in accounts receivable 25,000
Increase in inventory 125,000
Decrease in investments ( 50,000 )
Decrease in accounts payable 40,000
Increase in bonds payable ( 90,000 )
Net increase in equity 130,000
Add: Dividends declared and paid 30,000
Total 160,000
Less: Increase in share capital and premium 110,000
Net income 50,000

Charis Company reported the following balances:

Dec 31 Jan 1
Inventory 260,000 290.000
Accounts payable 75,000 50,000

The entity paid suppliers P490,000 during the current year.

4. Under the accrual basis, what amount should be reported for cost of goods sold in
the current year ?
Answer : 545,000

Solution :
Accounts payable end 75,000
Payments on A/P 490,000
Accounts payable, beg ( 50,000 )
Purchases 515,000
Merchandise inventory, beg 290,000
Goods available for sale 805,000
Less: Inventory, end 260,000
Cost of goods sold 545,000

Use the following information in answering the next item (s):

The following errors and omissions pertain to the records of PUDGE CORP. and
summarized below:
12/31/06 12/31/05
Salaries payable P780,000 P873,600
 Interest receivable 213,000 259,200
Prepaid insurance 307,800 384,000
Advances from customers (Collections
from customers had been recorded as sales
but should have been recognized as advances
from customers because goods were
not shipped until the following year) 561,000 470,400
Machinery
(Capital expenditures had been recorded
as repairs but should have been charged
to Machinery; the depreciation rate is
10% per year, but depreciation in the
year of expenditure is to be recognized at 5%) 522,000 564,000

1. What is the total effect of the errors on the 2005 net income?

SOLUTION:
NI NI WC
RE
2005 2006 12/31/06
12/31/06
Salaries payable

2005 873,600 (873,600)

2006 780,000 780,000

780,000
Interest receivable

2005 (259,200) 259,200

2006 (213,000) (213,000)

(213,000)
Prepaid insurance

2005 (384,000) 384,000

2006 (307,800) (307,800)

(307,800)
Advances from customers

2005 470,400 (470,400)

2006 561,000 561,000

561,000
Machinery

2005 (564,000)
(564,000)
28,200 56,400
84,600
2006 (522,000)
(522,000)
. 26,100 .
26,100)
Over (under) 165,000 (320,100) 820,200
(155,100)
2. What is the total effect of the errors on the 2006 net income?

SOLUTION:
NI NI WC
RE
2005 2006 12/31/06
12/31/06
Salaries payable

2005 873,600 (873,600)

2006 780,000 780,000

780,000
Interest receivable

2005 (259,200) 259,200

2006 (213,000) (213,000)

(213,000)
Prepaid insurance

2005 (384,000) 384,000

2006 (307,800) (307,800)

(307,800)
Advances from customers

2005 470,400 (470,400)

2006 561,000 561,000

561,000
Machinery

2005 (564,000)
(564,000)
28,200 56,400
84,600
2006 (522,000)
(522,000)
. 26,100 .
26,100)
Over (under) 165,000 (320,100) 820,200
(155,100)
3. What is the total effect of the errors on the company’s working capital at December
31, 2006?

SOLUTION:
NI NI WC
RE
2005 2006 12/31/06
12/31/06
Salaries payable

2005 873,600 (873,600)

 2006 780,000 780,000
780,000
Interest receivable

2005 (259,200) 259,200

2006 (213,000) (213,000)

(213,000)
Prepaid insurance

2005 (384,000) 384,000

2006 (307,800) (307,800)

(307,800)
Advances from customers

2005 470,400 (470,400)

2006 561,000 561,000

561,000
Machinery

2005 (564,000)
(564,000)
28,200 56,400
84,600
2006 (522,000)
(522,000)
. 26,100 .
26,100)
Over (under) 165,000 (320,100) 820,200
(155,100)
4. What is the total effect of the errors on the balance of the company’s retained
earnings at December 31, 2006?

SOLUTION:
NI NI WC
RE
2005 2006 12/31/06
12/31/06
Salaries payable

2005 873,600 (873,600)

2006 780,000 780,000

780,000
Interest receivable

2005 (259,200) 259,200

2006 (213,000) (213,000)

(213,000)
Prepaid insurance
 2005 (384,000) 384,000

2006 (307,800) (307,800)

(307,800)
Advances from customers

2005 470,400 (470,400)

2006 561,000 561,000

561,000
Machinery

2005 (564,000)
(564,000)
28,200 56,400
84,600
2006 (522,000)
(522,000)
. 26,100 .
26,100)
Over (under) 165,000 (320,100) 820,200 (155,100)

Use the following information in answering the next item (s):

KGA CORP. who started in 2018, made the following errors:
a) December 31, 2018 inventory was understated by P25,000.
b) December 31, 2019 inventory was overstated by P40,000.
c) Purchases on account in 2018 were understated by P100,000 (not included in
physical count).
d) Advances to suppliers in 2019 totaling P130,000 were inappropriately charged
as purchases.
e) December 31, 2018 prepaid insurance was overstated by P5,000.
f) December 31, 2018 unearned rent income was overstated by P26,000.
g) December 31, 2019 interest receivable was understated by P17,000.
h) December 31, 2019 accrued salaries payable was understated by P30,000.
i) Advances from customers in 2019 totaling P60,000 were inappropriately
recognized as sales but the goods were delivered in 2020.
j) Depreciation expense in 2018 was overstated by P7,200.
k) In 2019, the acquisition cost of a delivery truck amounting to P90,000 was
inappropriately charged as expense. The delivery truck has a useful life of five
years. KGA’s policy is to provide a full year’s straight-line depreciation in the
year of acquisition and none in the year of disposal.
l) A fully depreciated equipment with no residual value was sold in 2020 for
P50,000 but the sale was recorded in the following year.
Profits before correction of errors were P123,000, P156,000 and P210,000 in 2018,
2019 and 2020, respectively.
5. What is the correct net income for 2019?

SOLUTION:
2018 NI 2019 NI 2019 WC
Unadjusted net income P123,000 156,000
a) 25,000 (25,000)
b) (40,000) (40,000)
c) (100,000) 100,000
100,000 (100,000)
d) 130,000 130,000
 e) (5,000) 5,000
f) 26,000 (26,000)
g) 17,000 17,000
h) (30,000) (30,000)
i) (60,000) (60,000)
j) 7,200
k) 90,000
(18,000)
l)
Adjusted net income P176,200 P199,000 17,000 under
6. What is the adjusted retained earnings balance as of January 1, 2020?

SOLUTION:
Adjusted net income 2018 P176,200
Adjusted net income 2019 199,000
Adjusted retained earnings 1/1/2020 P375,200
7. What is the net effect on working capital as of the year ended 2019?

SOLUTION:
2018 NI 2019 NI 2019 WC
Unadjusted net income P123,000 156,000
a) 25,000 (25,000)
b) (40,000) (40,000)
c) (100,000) 100,000
100,000 (100,000)
d) 130,000 130,000
e) (5,000) 5,000
f) 26,000 (26,000)
g) 17,000 17,000
h) (30,000) (30,000)
i) (60,000) (60,000)
j) 7,200
k) 90,000
(18,000)
l)
Adjusted net income P176,200 P199,000 P17,000 under