CPA REVIEW SCHOOL OF THE PHILIPPINES

Manila
FINANCIAL ACCOUNTING AND REPORTING VALIX/VALIX/ESCALA/SANTOS/DELA CRUZ BATCH
92 OCTOBER 2022 CPALE
CASH AND ACCRUALS BASIS
1. An entity reported sales revenue of P4,500,000 in the income statement for the current year.
January 1 December 31
Accounts receivable 1,000,000 1,500,000 Allowance for doubtful accounts 50,000 200,000
Advances from customers 200,000 400,000
The entity wrote off uncollectible accounts totaling P100,000 during the current year.
Under cash basis, what amount should be reported as sales revenue for the current
year?
a. 4,100,000
b. 3,900,000
c. 4,200,000
d. 3,700,000
2. During the current year, an entity reported gross cash sales of P3,000,000 with related returns and
allowances of P100,000 and gross credit sales of P5,000,000 with related discounts of P400,000. On
January 1, customers owed the entity P1,000,000 and on December 31, customers owed the entity
P2,000,000. The entity used the direct writteoff method for bad debts. No bad debts were recorded in the
current year.
Under cash basis, what amount of sales revenue should be reported for the current
year? a. 6,500,000
b. 8,000,000
c. 7,500,000
d. 8,500,000
3. An entity provided the following data:
December 31, 2022 December 31, 2023
Inventory 1,500,000 2,000,000 Cost of goods sold 5,800,000
Accounts receivable 1,400,000 1,900,000 Accounts payable 1,800,000 2,200,000
During 2023, cash receipts from customers were P7,500,000 after sales discounts of P300,000. Accounts
written off were P200,000 and sales returns with credit memo were P350,000. Cash refund to customers
for returned goods P50,000 was debited to accounts receivable. Cash payment to creditors amounted to
P5,500,000 after purchase discounts of P400,000 while purchase returns amounted to P500,000. Cash
received from suppliers for purchase allowances totaled P100,000.
1. What amount should be reported as gross sales in 2023 under accrual basis?
a. 8,800,000
b. 8,850,000
c. 8,600,000
d. 8,550,000
2. What amount should be reported as gross purchases for 2023 under accrual basis?
a. 6,800,000
b. 6,900,000
c. 6,700,000
d. 6,000,000
3. What amount should be reported as cost of goods sold for 2023 under accrual basis?
a. 5,400,000
b. 5,300,000
c. 5,800,000
d. 5,200,000

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4. An entity maintains the accounting records on the cash basis but restates the financial statements to the
accrual basis. The entity had P5,000,000 in cash basis net income for the current year. The entity
reported accounts receivable of P1,000,000 on January 1 and P1,500,000 on December 31, accounts
payable of P2,000,000 on January 1 and P500,000 on December 31. Under accrual basis, what amount
should be reported as net income for current year?
a. 5,500,000
b. 4,500,000
c. 4,000,000
d. 7,000,000
5. An entity borrowed money under various loan agreement involving notes requiring interest payments at
maturity. During the current year, the entity paid interest totaling P3,000,000. The statement of financial
position included the following:
January 1 December 31
Prepaid interest 550,000 450,000 Interest payable 800,000 750,000
What amount of interest expense should be reported for the current year?
a. 3,050,000
b. 2,950,000
c. 3,100,000
d. 3,300,000
6. An entity assigned some of its patents to other entities under a variety of licensing agreements. The
following data are gathered for the current year:
January 1 December 31
Unearned rent income 600,000 400,000 Rent receivable 900,000 850,000 Uncollectible
rent written off during current year 250,000
During the current year, the entity received royalty remittance of P4,000,000. What amount should be
reported as royalty income for the current year?
a. 4,150,000
b. 4,400,000
c. 4,200,000
d. 3,900,000
7. An entity acquired rights to a patent under a licensing agreement that required an advance royalty
payment when the agreement was signed. The entity remitted royalties earned and due under the
agreement on October 31 each year. Additionally, the entity paid in advance estimated royalties for the
next year. The entity did not prepare reversing entry. The entity provided the following information for
the year ended December 31:
Jan 1 Prepaid royalties 650,000 Oct 31 Royalty payment charged to royalty expense 1,100,000
Dec 31 Year-end credit adjustment to expense 250,000
What amount should be reported as prepaid royalties on December 31?
a. 250,000
b. 400,000
c. 850,000
d. 900,000
8. An entity had a balance of P490,000 in the compensation expense account on December 31, 2022 before
year-end adjustment for the following:

• No salary accrual was made for the week of December 25-31, 2022. Salaries for this period totaled
P20,000 and were paid on January 5, 2023.
• Bonus for 2022 was paid o January 31, 2023 in the total amount of P175,000.
What amount should be reported as compensation for 2022?
a. 685,000
b. 665,000
c. 508,000
d. 490,000
End
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