Midterm Quiz # 1

Far Eastern University

Institute of Accounts, Business and Finance
1. Which means checks that are long outstanding?
A. Undelivered check
B. Customer’s post-dated check
C. Post-dated check delivered
D. Stale checks
2. If undelivered check is not adjusted to appropriate accounts at the end of the accounting period,
what is the effect to Cash and Accounts Payable, respectively?
A. Understated and overstated, respectively
B. Overstated and understated, respectively
C. Both accounts are overstated
D. Both accounts are understated
3. Which of the following is not classified as accounts payable at the end of the accounting period?
A. Undelivered check
B. Post-dated check to suppliers
C. Customer’s post-dated check
D. Stale check payable to supplier
4. Cash equivalents are
A. Short-term and highly liquid investments that are readily convertible into cash.
B. Short-term and highly liquid investments that are readily convertible into cash with
remaining maturity of three months.
C. Short-term and highly liquid investment that are readily convertible into cash and acquired
three months or less before maturity.
D. Short-term and highly liquid marketable equity securities.
5. To be reported as “cash and cash equivalent”, the cash and cash equivalent must be
A. Unrestricted in use for current operations
B. Available for the purchase of property, plant and equipment
C. Set aside for the liquidation of long-term debt
D. Deposited in the bank
6. Which is false concerning measurement of cash and cash equivalents?
A. Cash is measured at face value
B. Cash in foreign currency is measured at the current exchange rate
C. If a bank or financial institution holding the funds of the company is in bankruptcy or
financial difficulty, cash should be written down to estimated realizable valued.
D. Cash equivalents should be measured at maturity value, meaning face value plus
interest.
7. Which is not considered as a cash equivalent?
A. A three-year treasury-note maturing on May 30 of the current year purchased by the entity
on April15 of the current year.
B. A three-year treasury-note maturing on May 30 of the current year purchased by the entity
on January 15 of the current year.
C. A 90-day T-bill.
D. A 6-day money market placement
8. As contemplated in accounting, cash includes
A. Money only
B. Money and any negotiable instrument
C. Any negotiable instrument
D. Money and any negotiable instrument that is payable in money and acceptable
by the bank for deposit and immediate credit.
9. Bank overdraft
A. is a debit balance in a cash in bank account.
B. is offset against demand deposit account in another bank.
C. which cannot be offset is classified as a current liability.
D. which cannot be offset is classified as non-current liability.
10 Which of the following is not usually considered cash?
. A. Undeposited collections
B. Postal Money Order
 C. Treasury Warrants
D. Certificates of Deposit
11 Which of the following should be recorded in Accounts Receivable?
. A. Receivables from officers
B. Receivables from subsidiaries
C. Dividends receivable
D. None of these
12 Trade receivables are classified as current assets if they are reasonably expected to be
. collected
A. within one year
B. within the normal operating cycle
C. within one year or within the operating cycle, whichever is shorter
D. within one year or within the operating cycle, whichever is longer
13 Of the approaches to record cash discounts related to accounts receivable, which is more
. theoretically correct?
A. Net approach.
B. Gross approach.
C. Allowance approach.
D. All three approaches are theoretically correct.
14 If a company employs the gross method of recording accounts receivable from customers, then
. sales discounts taken should be reported as
A. a deduction from sales in the income statement.
B. an item of "other income and expense" in the income statement.
C. a deduction from accounts receivable in determining the net realizable value of accounts
receivable.
D. sales discounts forfeited in the cost of goods sold section of the income statement.
15 What is the normal journal entry for recording bad debt expense under the allowance method?
. A. Debit Allowance for Doubtful Accounts, credit Accounts Receivable.
B. Debit Allowance for Doubtful Accounts, credit Bad Debt Expense.
C. Debit Bad Debt Expense, credit Allowance for Doubtful Accounts.
D. Debit Accounts Receivable, credit Allowance for Doubtful Accounts.
16 Which of the following is included in the normal journal entry to record the collection of accounts
. receivable previously written off when using the allowance method?
A. Debit Allowance for Doubtful Accounts, credit Accounts Receivable.
B. Debit Allowance for Doubtful Accounts, credit Bad Debt Expense.
C. Debit Bad Debt Expense, credit Allowance for Doubtful Accounts.
D. Debit Accounts Receivable, credit Allowance for Doubtful Accounts
17 Interest bearing long-term notes are initially measured at
. A. Face value
B. Present value
C. Discounted value
D. Net realizable value
18 The difference between the face value of the noninterest-bearing long-term notes receivable and
. its present value is the
A. Amount of amortization of unearned interest revenue
B. Interest revenue actually earned
C. Unearned Interest Revenue
D. Gain on sale of the asset
19 All of the following are characteristics of loans and receivables, except
. A. They have fixed or determinable payments
B. They are unquoted
C. The holder can recover substantially all of its investment unless there has been a credit
deterioration.
D. The holder has a demonstrated positive intention and ability to hold them to maturity.
20 What is the treatment of “direct origination costs” incurred in connection with loans and
. receivables?
A. Included in profit or loss
B. Part of the initial carrying amount of the loan receivable and amortized using the effective
interest method.
C. Part of the initial carrying amount of the loan receivable and amortized using the straight-
line method.
 D. Charged directly to retained earnings.
21 Which is part of inventory cost?
. A. Freight charge on goods sold
B. Freight charge on goods consigned
C. Excessive spoilage
D. Selling cost
22 Inventories are assets (choose the incorrect one)
. A. Held for sale in the ordinary course of business.
B. In the process of production for sale
C. In the form of materials or supplies to be consumed in the production process or in the
rendering of services.
D. Held for use in the production or supply of goods or services.
23 Which of the following would not be reported as inventory?
. A. Land acquired for resale by a real estate firm.
B. Shares of stocks held for resale by a brokerage firm
C. Partially completed goods held by a manufacturing company
D. Machinery acquired by a manufacturing company for use in the production process.
24 Which of the following accounts is not used by the perpetual inventory system?
. A. Sales
B. Cost of Goods sold
C. Inventory, beginning
D. Sales Discount
25 Which account is not used by the gross method of recording purchases?
. A. Purchases
B. Purchase Discount
C. Purchase Discount Lost
D. Purchase Returns and Allowances
26 The Purchase Discount Lost account is shown as
. A. Other Income
B. Other expense
C. Contra liability account
D. Deduction from Retained Earnings
27 Which method of inventory valuation is no longer acceptable in accounting?
. A. FIFO
B. Weighted average
C. LIFO
D. Specific identification
28 Under the moving average method of inventory valuation, a new weighted average unit cost
. must be computed
A. After every sale
B. After every purchase
C. After every sale and every purchase
D. None of the above
29 Net realizable value is
. A. fair value plus estimated costs to complete and make a sale.
B. selling price.
C. selling price plus estimated costs to complete and make a sale.
D. selling price less estimated costs to complete and make a sale.
30 A mark-up of 25% on cost is equivalent to what mark-up on selling price?
. A. 15%
B. 20%
C. 25%
D. 33%
31. From the following accounting information provided by DELTA Corporation at December 31, 2020, compute the
amount of cash equivalents to be reported in its statement of financial position.

Securities Date Acquired Maturity Date Amount

120-day Certificate of Time Deposit 12/01/2020 03/30/2021 1,000,000
BSP – Treasury Bills No. 01298 11/01/2020 02/29/2021 6,000,000
BSP – Treasury Bills No. 52312 11/30/2020 02/25/2021 4,000,000
150 days Commercial Paper 12/15/2020 05/01/2021 2,000,000
Money Market Funds 11/20/2020 02/15/2021 1,000,000
What amount is to be reported in the statement of financial position at December 31, 2020 as cash equivalents?

32. On December 31, 2020, the cash account of Tonette Corporation has a debit balance of P 3,440,000. Ana
analysis of the cash account shows the following details:

Undeposited collections P 50,000

Cash in Bank - BDO 500,000
Cash in Bank – PNB (overdraft) (50,000)
Petty Cash Fund (unreplenished expenses, P 200) 10,000
Undeposited NSF Check received from customer, dated December 15, 2020 15,000
Undeposited check from a customer dated January 15, 2021 25,000
Cash in Bank – BDO (Payroll fund) 150,000
Cash in Bank – BDO (Savings Deposit) 100,000
Cash in Bank – BDO (money market instruments, 120 days) 2,000,000
Cash in foreign bank (restricted) 100,000
IOUs from officers 30,000
Sinking Fund Cash 450,000
Listed stocks held as temporary 60,000
TOTAL P 3,440,000
What is the correct cash balance to be shown as current asset in the statement of financial position as of
December 31, 2020?

33. On December 31, 2020, Gemini Company had the following cash balances:

Cash in Bank – BDO checking account P 6,000,000

Petty Cash fund (all funds are reimbursed at year-end) 50,000
Time Deposit – three months, due January 15, 2021 2,500,000
Savings Deposit 1,000,000

Cash in bank included P 400,000 of compensating balance against short-term borrowing arrangement. The
compensating balance is legally restricted as to withdrawal.

Compute the amount of cash and cash equivalents that should be reported in the statement of financial position as at
December 31, 2020.

34. Using the same information in Number 33 except that the compensating balance is not legally restricted.
Compute the amount of cash and cash equivalents that should be reported in the statement of financial position as at
December 31, 2020.

35. At year-end, YBC Company reported cash and cash equivalents which comprised of the following:

Cash on hand P 500,000

Money order 150,000
Demand Deposit 4,000,000
Petty Cash Fund 50,000
Manager’s Check 100,000
Traveler’s Check 200,000
Certificate of Deposit 2,000,000
Postdated Customer Check 300,000

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

36. Sterling Company provided the bank statement for the month of December which included the following
information:

Ending balance, December 31 P 2,800,000

Bank service charge for December 12,000
Interest paid by bank to Sterling Company for December 10,000

In comparing the bank statement to its own cash records, the entity found the following:

Deposits made but not yet recorded by the bank P 350,000

Checks written and mailed but not yet recorded by the bank 650,000

In addition, the entity discovered that it had drawn and erroneously recorded a check for P46,000 that should have
been recorded for P64,000

What is the cash balance per ledger on December 31?

37. Timmy Company reported petty cash fund which comprised the following:

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 the entity to the order of petty
cash custodian 2,700

What is the correct amount of petty cash fund for statement presentation purposes?

38. Light Company reported an imprest petty cash fund of P50,000 with the following details:

Currencies 20,000
Coins 2,000
Petty cash vouchers:
Gasoline payments for delivery equipment 3,000
Medical supplies for employees 1,000
 Repairs of office equipment 1,500
Loans to employees 3,500
Check drawn by the entity payable to the order of Lads Puno,
Petty cash custodian, representing her salary 15,000
An employee check returned by the bank for insufficiency of fund 3,000
A sheet of paper with names of several employees together with
Contribution for a birthday gift of a co-employee. Attached
To the sheet of paper is a currency 5,000

What amount of petty cash fund should be reported in the statement of financial position?
Scorpio Company kept all cash in a checking account. An examination of the accounting records and bank statement
for the month of June revealed the following information:

- The cash balance per book on June 30 was P8,500,000

- A deposit of P1,000,000 that was placed in the bank’s night depository on June 30 did not appear on the
bank statement.
- The bank statement showed that on June 30 the bank collected note for the entity and credited the proceeds
of P950,000 to the entity’s account, net of collection charge P50,000
- Checks outstanding on June 30 amounted to P300,000 including certified check for P100,000
- The entity discovered that a check written in June for P200,000 in payment of an account payable had been
recorded in the entity’s records as P20,000
- Included with the June bank statement was NSF check for P250,000 received from a customer on June 26
- The bank statement showed a P20,000 service charge for June

39. What amount should be reported as cash in bank on June 30?

40. What is the balance per bank statement on June 30?

41. On the December 31, 2020 statement of financial position of Gilbert Co., the current receivables consisted of the
following:

Trade accounts receivable P 75,000

Allowance for uncollectible accounts (2,000)
Claim against shipper for goods lost in transit (November 2019) 3,000
Selling price of unsold goods sent by Gilbert on consignment at 130% of cost
(not included in Gilbert 's ending inventory) 26,000
Security deposit on lease of warehouse used for storing some inventories 30,000
Total 132,000

At December 31, 2020, the correct total of Gilbert's current net receivables was?

42. Based on the aging of its accounts receivable at December 31, Lassy Company determined that the net
realizable value of the receivables at that date is P304,000. Additional information is as follows:

Accounts receivable at December 31 384,000

Allowance for bad debts at January 1 51,200

Accounts written off as uncollectible during the year 35,200

Lassy's Bad Debt Expense for the year ended December 31 is?

On January 1, 2020 Easy company reported accounts receivable P 2,070,000 and allowance for doubtful accounts P
80,000.

Credit Sales Write-off Recoveries

 11,100,00
2017 260,000 22,000
0
12,250,00
2018 295,000 37,000
0
14,650,00
2019 300,000 36,000
0
15,000,00
2020 310,000 40,000
0

The collections from customers during 2020 totaled 14 million pesos, excluding recoveries. Doubtful accounts are
provided for as a percentage of credit sales. The entity calculated the percentage annually by using the experience of
the three years prior to the current year of credit sales and net write-off.

43. What is the doubtful accounts rate to be used in 2020?

44. What amount should be reported as doubtful accounts expense for 2020?

45. Miya Company factored P6,000,000 of accounts receivable to a finance entity at the end of current year. Control
was surrendered by Miya Company.

The factor assessed a fee of 3% and retained a holdback equal to 5% of the accounts receivable.

In addition, the factor charged 15% interest computed on a weighted average time to maturity of the accounts
receivable of 54 days.

What is the amount of cash initially received from the factoring? (use 365 days)

Legends Company accepted from a customer P1,000,000 face amount, 6-month, 8% note dated April 1,2019.

On the same date, the entity discounted the note without recourse at a 10% discount rate.

46. What amount of cash was received from the discounting?

47. What is the loss on note receivable discounting?

On December 31, 2019, Soo Company sold used equipment with carrying amount of P2,000,000 in exchange for a
noninterest bearing note of P5,000,000 requiring ten annual payments of P500,000. The first payment was made on
December 31, 2020.

The market interest for similar note was 12%. The present value of an ordinary annuity of 1 at 12% is 5.65 for ten
periods and 5.33 for nine periods.

48. What is the carrying amount of the note receivable on December 31, 2019?

49. What is the gain on sale of equipment to be recognized in 2019?

50. What is the carrying amount of the note receivable on December 31, 2020?

Karen Company reported the following information for the current year:

Beginning inventory 5,000,000

Purchases 26,000,000
Freight-in 2,000,000
Purchase returns and allowances 3,500,000
Purchase discounts 1,500,000
Sales 40,000,000
Sales returns 3,000,000
Sales allowances 500,000
 Sales discounts 1,000,000

A physical inventory taken at year-end resulted in an ending inventory costing P 4,000,000.

At year-end, unsold goods out on consignment with selling price of P 1,000,000 are in the hands of a consignment.

The gross profit was 40% on sales.

51. What is the cost of goods available for sale?

52. What is the cost of goods sold?

53. What is the estimated cost of inventory shortage?

Flame Company adopted the FIFO approach of inventory pricing in connection with the use of the retail inventory
method. The retail records showed the following:

Cost Retail
Year 2020:
Beginning inventory 556,800 928,000
Purchases 4,576,000 7,028,000
Net markup 42,000
Net markdown 30,000
Sales 6,840,000

Year 2021:
Purchases 4,760,000 6,812,000
Net markup 56,000
Net markdown 68,000
Sales 6,928,000

54. What is the estimated cost of inventory on December 31, 2020 applying the FIFO retail approach.

55. What is the estimated cost of inventory on December 31, 2021 applying the FIFO retail approach.

56. Stone Company had the following transactions during December:

Inventory shipped on consignment to Beta Company 1,800,000

Freight paid by Stone 90,000
Inventory received on consignment from Alpha Company 1,200,000
Freight paid by Alpha 50,000

No sales on consigned goods were made in December

What amount should be included in inventory on December 31?

57. Moreno Company revealed inventory on December 31, 2019 at P3,250,000 based on a physical count priced at
cost and before any necessary adjustment for the following:

- Merchandise costing P300,000 shipped FOB shipping point from a vendor on December 31, 2019 was received on
January 5, 2020.

- Merchandise costing P220,000 shipped FOB destination from a vendor on December 28, 2019 was received on
January 3, 2020.
- Merchandise costing P380,000 shipped to a customer FOB destination on December 28, 2019 arrived at the
customer location on January 6, 2020.

- Merchandise costing P120,000 was being held on consignment by Trisha Company, a consignee of Moreno
Company.

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

58. Argon Company used the perpetual system.

The following information has been extracted from the records about one product:

Units Unit Cost Total Cost

Jan. 1 Beginning Balance 8,000 70.00 560,000
Jan. 6 Purchase 3,000 70.50 211,500
Feb. 5 Sale 10,000
Mar. 5 Purchase 11,000 73.50 808,500
Mar. 8 Purchase return 800 73.50 58,800
Apr. 10 Sale 7,000
Apr. 30 Sale return 300
If the FIFO cost flow method is used? What is the cost of the inventory on April 30?

59. Papel Company purchased a tract of land for P12,000,000. The entity incurred additional cost of P3,000,000
during the remainder of the year in preparing the land for sale.

The tract of land was subdivided into residential lots.

Lot class Number of lots Sales price per lot

A 100 240,000
B 100 160,000
C 200 100,000

Using the relative sales value method, what amount of cost should be allocated to Class A lots?

60. Harris Company provided the following information for an inventory at year-end:

Historical cost 1,200,000

Estimated selling price 1,300,000
Estimated completion and selling cost 150,000
Replacement cost 1,100,000

What amount should be reported as inventory at year-end?

61.On November 15, 2019, Emerald Company entered a commitment to purchase 10,000 ounces of gold on
February 5, 2020 at a price of P310 per ounce.

On December 31, 2019, the market price of gold is P270 per ounce.
On February 15, 2020, the price of gold is P300 per ounce.

What amount should be recognized as loss on purchase on commitment in 2019?

At the beginning of current year, Jasmine Company had a credit balance of 260,000 in the allowance for uncollectible
accounts. Based on experience, 2% of credit sales would be uncollectible.

During the current year, the entity wrote off P325,000 of uncollectible accounts. Credit sales for the year totaled
P9,000,000.

62. What amount should be reported as uncollectible accounts expense for the year?

63. What amount should be reported as allowance for uncollectible accounts at year-end?
64. Earl Sportswear regularly buys sweaters from Gudani Company and allowed trade discounts of 20% and 10%
from the list price.

Earl made a purchase during the year and received an invoice with a list price of P600,000, a freight charge of
P15,000 and payment terms of 2/10, n/30.

What is the cost of the purchase?

65. On August 1, Avery Company recorded purchases of inventory of P800,000 and P1,000,000 under credit terms of
2/15, net 30.

The payment due on the P800,000 purchase was remitted on August 16. The payment due on the P1,000,000
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?