CASH & CASH EQUIVALENTS

MAS Company reported the following information in relation to cash on December 31, 2019:

 Checkbook balance, ₱4,000,000.

 Undeposited collections, ₱400,000.
 A customer check amounting to ₱200,000 dated January 2, 2020 was included in
the December 31, 2019 checkbook balance.
 Another customer check for ₱500,000 deposited on December 22, 2019 was
included in the checkbook balance but returned by the bank for insufficiency of
fund.
This check was redeposited on December 26, 2019 and cleared two days later.
 A ₱400,000 check payable to supplier dated and recorded on December 30, 2019
was mailed on January 16, 2020.
 A petty cash fund of ₱50,000 comprised the following on December 31, 2019:
Coins and currencies 5,000
Petty cash vouchers 40,000
Refundable deposit for returnable containers 5,000
50,000
 A check of ₱40,000 was drawn on December 31, 2019 payable to Petty Cash.

1. What is the adjusted cash in bank on December 31, 2019?

a. 4,600,000
b. 4,200,000
c. 4,400,000
d. 3,700,000
2. What total amount should be reported as cash on December 31, 2019?
a. 4,645,000
b. 6,845,000
c. 4,600,000
d. 4,650,000
Solutions:

Question 1 Answer b

Checkbook balance 4,000,000

Postdated customer check erroneously included (200,000)
Undelivered check payable to supplier 400,000

Adjusted cash in bank 4,200,000

Question 2 Answer a

Cash in bank 4,200,000

Cash on hand – undeposited collections 400,000
Petty cash fund 45,000

Total cash 4,645,000

Coins and currencies 5,000

Replenishment check 40,000

Total petty cash 45,000

On December 31, 2019, Bulldogs Company has the following cash balances:

Cash in bank – current account 1,800,000

Petty cash fund – all funds were reimbursed at year-end 50,000
Time deposit due January 1, 2021 250,000
Time deposit in bank closed by BSP 1,000,000

Cash in bank included ₱600,000 of compensating balance against short-term borrowing

arrangement on December 31, 2019. The compensating balance is legally restricted as to
withdrawal.

On December 31, 2019, what total amount should be reported as cash and cash equivalents?

a. 2,500,000
b. 1,250,000
c. 2,100,000
d. 1,500,000

Solution:

Answer d

Cash in bank (1,800,000 – 600,000 compensating balance) 1,200,000

Petty cash fund 50,000
Time deposit 250,000

Total cash 1,500,000

At year-end, Hershey’s Company reported cash and cash equivalents which comprised the
following:

Cash on hand 500,000

Demand deposit 4,000,000
Certificate of deposit 2,000,000
Postdated customer check 300,000
Petty cash fund 50,000
Traveler’s check 200,000
Manager’s check 100,000
Money order 150,000

What total amount should be reported as “cash” at year-end?

a. 7,000,000
b. 4,800,000
c. 6,800,000
d. 5,000,000

Solution:

Answer d

Cash on hand 500,000

Demand deposit 4,000,000
Petty cash fund 50,000
Traveler’s check 200,000
Manager’s check 100,000
Money order 150,000

Total cash 5,000,000

RECEIVABLES

Yobab Company provided the following information during the first year of operations:

Total merchandise purchases for the year 7,000,000

Merchandise inventory on December 31 1,400,000
Collections from customers 4,000,000

All merchandise was marked to sell at 40% above cost. All sales are on a credit basis and all
receivables are collectible.

What is the balance of accounts receivable on December 31?

a. 1,000,000
b. 3,840,000
c. 5,000,000
d. 5,800,000

Solution:

Answer b

Purchases 7,000,000
Inventory – December 31 (1,400,000)

Cost of goods sold 5,600,000

Markup on cost (40% x 5,600,000) 2,240,000

Sales (140% x 5,600,000) 7,840,000

Collections from customers (4,000,000)

Accounts receivable – December 31 3,840,000

Sales ratio (100% + 40%) 140%

Stan Smith Company has an 8% note receivable dated June 30, 2019, in the original amount of
₱1,500,000. Payments of ₱500,000 in principal plus accrued interest are due annually on July 1,
2020, 2021, 2022.

1. What is the balance of note receivable on July 1, 2020?

a. 1,500,000
b. 1,000,000
c. 500,000
d. 0

2. In the June 30, 2021 statement of financial position, what amount should be reported as a
current asset for interest on the note receivable?
a. 120,000
b. 40,000
c. 80,000
d. 0

Solutions:

Question 1 Answer b

Note receivable, June 30, 2019 1,500,000

Payment on July 1, 2020 (500,000)

Note receivable, July 1, 2020 1,000,000

Question 2 Answer c

Accrued interest receivable – June 30, 2021 (1,000,000 x 8%) 80,000

On July 1, 2019, Carlo Company sold equipment to Carla Company for ₱1,000,000. Carlo
accepted a 10% note receivable for the entire sales price.

This note is payable in two equal installments of ₱500,000 plus accrued interest on December
31, 2019 and December 31, 2020.

On July 1 2020, the entity discounted the note at a bank at an interest rate of 12%.

What is the amount received from the discounting of note receivable?

a. 484,000
b. 493,500
c. 503,500
d. 517,000

Solution:

Answer d

Principal 500,000
Add: Interest (500,000 x 10%) 50,000

Maturity value 550,000

Less: Discount (550,000 x 12% x 6/12) 33,000

Net proceeds 517,000

INVENTORIES
Lhianna Company included the following in inventory at year-end:

Merchandise out on consignment at sale price,

including 30% markup on sales 1,500,000
Goods purchased in transit, shipped FOB shipping point 1,200,000
Goods held on consignment by Lhianna 900,000

At what amount should the inventory be reduced?

a. 1,350,000
b. 3,600,000
c. 2,400,000
d. 2,100,000

Solution:

Answer a

Markup on goods out on consignment (1,500,000 x 30%) 450,000

Goods held on consignment 900,000

Total reduction 1,350,000

On August 1, Cathy Star Company recorded purchases of inventory of ₱800,000 and ₱1,000,000
under credit terms of 2/15, net 30.

The payment due on the ₱800,000 purchase was remitted on August 16. The payment due on the
₱1,000,000 purchase was remitted on August 31.

Under the net method and the gross method, these purchases should be included at what
respective amounts in the determination of cost of goods available for sale?

a. Net method ₱1,784,000

Gross method ₱1,764,000
b. Net method ₱1,764,000
Gross method ₱1,800,000
c. Net method ₱1,764,000
Gross method ₱1,784,000
d. Net method ₱1,800,000
Gross method ₱1,764,000

Solution:

Answer c

Net method

Purchases (800,000 + 1,000,000) 1,800,000

Purchase discount taken (2% x 800,000) (16,000)

Purchase discount not taken (2% x 1,000,000) (20,000)

Net amount 1,764,000

Gross method

Purchases 1,800,000

Purchase discount taken (16,000)

Net purchases 1,784,000

Lego Hauz Company reported inventory on December 31, 2019 at ₱6,000,000 based on a
physical count of goods priced at cost and before any necessary year-end adjustments relating to
the following:

 Included in the physical count were goods billed to a customer FOB shipping
point on December 30, 2019. These goods had a cost of ₱125,000 and were
picked up by the carrier on January 7, 2020.

 Goods shipped FOB shipping point on December 28, 2019, from a vendor to
Lego Hauz were received and recorded on January 4, 2020. The invoice cost was
₱300,000.

What amount should be reported as inventory on December 31, 2019?

a. 5,875,000
b. 6,000,000
c. 6,175,000
d. 6,300,000

Solution:

Answer d

Physical count 6,000,000

Goods shipped FOB shipping point on December 30, 2019

to Lego Hauz and received January 4, 2020 300,000

Inventory, December 31, 2019 6,300,000

INVESTMENTS

At the beginning of the current year, Willie Company purchased 10% of Revillame Company’s
outstanding ordinary shares for ₱4,000,000.

Willie Company is the largest single shareholder in Revillame and Well’s officers are a majority
of Revillame’s board of directors.

The investee reported net income of ₱5,000,000 for the current year and paid cash dividend of
₱1,500,000.

What amount should be reported as investment in Revillame Company at year-end?

a. 4,500,000
b. 4,350,000
c. 4,000,000
d. 3,850,000

Solution:

Answer b

Acquisition, January 1 4,000,000

Add: Share in net income (10% x 5,000,000) 500,000
Total 4,500,000
Less: share in cash dividend (10% x 1,500,00) 150,000

Carrying amount of investment, December 31 4,350,000 4, 350,000

Nathaniel Company provided the following data for the current year:

 On September 1, Nathaniel received a ₱500,000 cash dividend from Aga Company in

which Nathaniel owns a 30% interest.
 On October 1, Nathaniel received a P60,000 liquidating dividend from Queen Company.
Nathaniel owns a 5% interest in Queen.
 Nathaniel owns a 10% interest in Tie Company, which declared and paid ₱2,000,000
cash dividend on November 15.

What amount should be reported as dividend income for the current year?

a. 700,000
b. 560,000
c. 500,000
d. 200,000

Solution:

Answer d

Cash dividend from Bow Company (10% x 2,000,000) 200,000

Ridgeway Company had 100,000 ordinary shares outstanding. Hermle Company acquired
30,000 shares of Ridgeway for ₱120 per share in 2017 representing 30% interest.

Changes in retained earnings for Ridgeway are:

Retained earnings (deficit), January 1, 2019 (500,000)

Net income for 2019 700,000

Retained earnings, December 31, 2019 200,000

Net income for 2020 800,000
Cash dividend paid on December 31, 2020 (400,000)

Retained earnings, December 31, 2020 600,000

What is the carrying amount of the investment in associate on December 31, 2020?
a. 3,600,000
b. 3,930,000
c. 3,780,000
d. 4,080,000

Solution

Acquisition cost (30,000 x 120) 3,600,000

Deficit on January 1, 2019 (30% x 500,000) ( 150,000)

Carrying amount of investment – January 1, 2019 3,450,000

Net income for 2019 (30% x 700,000) 210,000
Net income for 2020 (30% x 800,000) 240,000
Cash dividend on 12/31/2020 (30% x 400,000) ( 120,000)

Carrying amount of investment – December 31, 2020 3,780,000

Simple Approach

Acquisition cost 3,600,000

Share in retained earnings - December 31, 2020
 (30% x 600,000) 180,000

Carrying amount of investment – December 31, 2020 3,780,000

PROPERTY, PLANT & EQUIPMENT

Letran Company purchased a ten-ton draw press at a cost of ₱3,600,000 with terms of 5/15, n/45.
Payment was made within the discount period.

Shipping cost was ₱90,000 which included ₱4,000 for insurance in transit. Installation cost
totaled ₱240,000 which included ₱80,000 for taking out a section of a wall and rebuilding it
because the press was too large for the doorway.

What is the capitalized cost bof ten-ton draw press?

a. 3,420,000
b. 3,670,000
c. 3,750,000
d. 3,715,200

Solution:

Answer c

Purchase price net of discount (3,600,000 x 95%) 3,420,000

Shipping cost 90,000

Installation cost 240,000

Total cost 3,750,000

Camaraderie Company had the following property acquisitions during the current year:

 Acquired a tract of land in exchange for 50,000 shares of Camaraderie Company with
₱100 par value that had a market price of ₱120 per share on the date of acquisition . The
last property tax bill indicated assessed value of ₱2,400,000 for the land.
 Received land from a major shareholder as an inducement to locate a plant in the city. No
payment was required but the entity paid ₱50,000 for legal expenses for land transfer.
The land is fairly valued at ₱1,200,000.

What is the total increase in land as a result of the acquisitions?

a. 7,200,000
b. 6,000,000
c. 7,050,000
d. 6,100,000

Solution:

Answer a

First land

Fair value of shares (50,000 shares x 120) 6,000,000

Second land 1,200,000

Total cost 7,200,000

Deus Company paid ₱200, 000 for the right to mine lead in Australia. The cost to drill and erect
a mine shaft was ₱2,400,000 and equipment to process the lead ore before shipment to the
smelter was ₱1,800,000. The mine is expected to yield 2,000,000 tons of ore during the five
years it is expected to be operating.

The equipment is salvageble and is expected to be worth ₱200,000 when mining is concluded.
The mine started operations on April 30, 2019, 300,000 tons of ore were extracted.

1. What is the depletion for 2019?

a. 390,000
b. 195,000
c. 520,000
d. 260,000

2. What is the depreciation for 2019?

a. 240,000
b. 120,000
c. 320,000
d. 160,000

Solutions:

Question 1 Answer a

Cost of right 200,000

Cost to drill and erect a mine shaft 2,400,000

Total cost of mining right 2,600,000

Depletion for 2019

(2,600,000 / 2,000,000 = 1.30 x 300,000) 390,000

Question 2 Answer a

Depreciation rate (1,800,000 – 200,000 / 2,000,000) 0.80

Depreciation of equipment (300,000 x .80) 240,000