CHAPTER 2

CASH AND CASH EQUIVALENTS

PROBLEM 1: TRUE OR FALSE

1. FALSE Money, whether restricted or not, is presented as cash.
2. TRUE Postdated checks received from customers are reverted from cash back to
receivable.
3. TRUE An investment in debt securities that is acquired 3 months or less before maturity
date is presented as cash equivalent.
4. TRUE Checks drawn that are postdated should be reverted back to cash even if the
checks are already delivered to the payees.
5. FALSE Entity A acquired debt securities 2 years ago. At the reporting date, the debt
securities have a remaining term of 2 months. Entity A can present the debt securities as
cash equivalents.
6. TRUE Compensating balances that are legally restricted as to withdrawal by the borrower
are excluded from cash.
7. FALSE For best internal control, the duties of cash custody, cash disbursements
authorization and cash recording should be delegated to one and same personnel.
8. FALSE The "Petty Cash Fund" account is credited each time a petty cash disbursement is
made.
9. TRUE An entity's petty cash fund (PCF) has an imprest balance of P100. At the end of
the period, the PCF consists of P20 coins and currencies. To replenish the PCF, the entity
should write a check amounting to P80.
10. TRUE An entity's PCF has an imprest balance of P100. At the end of the period, the PCF
includes P30 unreplenished disbursements. The amount of PCF to be reported in the
financial statements is P70.

PROBLEM 2: MULTIPLE CHOICE - THEORY 1.

1. Which of the following should not be included in cash?
 Post-dated checks drawn and delivered to payees
 Checks drawn but not yet delivered to the payees
 Postdated checks received from customers
 Cash collections not deposited at year-end
2. On October 31, 20?1, Entity A had cash accounts at three different banks. One
account balance is segregated solely for a November 15, 20?1 payment into a bond
sinking fund. A second account, used for branch operations, is overdrawn. The third
account, used for regular corporate operations, has a positive balance. How should
these accounts be reported in Entity A's October 31, 20?1 classified balance sheet?
  The segregated account should be reported as a noncurrent asset, the
regular account should be reported as a current asset, and the overdraft
should be reported as a current liability.
 The segregated and regular accounts should be reported as current assets,
and the overdraft should be reported as a current liability.
 The segregated account should be reported as a noncurrent asset, and the
regular account should be reported as a current asset net of the overdraft.
 The segregated and regular accounts should be reported as current assets
net of the overdraft.
3. A debt security can qualify as a cash equivalent if
 it has a remaining maturity of 3 months or less as at the reporting date.
 it is acquired 3 months or less before its maturity date.
 it has an original maturity of 3 months or less.
 All of these
4. Which of the following may be properly presented under "Cash and Cash
Equivalents" in the December 31, 20?1 statement of financial position?
 Treasury bills acquired on December 1, 20?1 and maturing on March 31,
20x2.
 Customer's check dated January 1, 20x2 and mailed to the bank for deposit
on December 31, 20?1.
 Shares of stocks to be sold on the first week of January 20x2; a purchase
commitment is already obtained.
 Redeemable preference shares acquired three months prior to the
redemption date.
5. A compensating balance that is legally restricted as to withdrawal is
 excluded from cash
 included from cash
 disclosed in the notes
 disclosed in the notes
6. The effect of compensating balance is
 to provide greater security for the borrower.
 to decrease the yield on the loan to the lender.
 to increase the yield on the loan to the borrower.
 to increase the yield on the loan to the lender.

7. For effective internal control over the disbursement of payroll checks, an enterprise
makes a specific amount of cash available in a checking account for this limited
purpose. The type of account used for this purpose is called a(n)
 General checking account.
 Imprest bank account
 Lockbox account
 Compensating balance.
8. It is a business document or written authorization that supports every disbursement
made by an entity.
 Check
 Currency
 Voucher
 Cash equivalent
9. Which of the following is not an appropriate procedure for controlling the petty
cash fund?
 The petty cash custodian files receipts by category of expenditure after
their presentation to the general cashier so that variations in different types
of expenditures can be monitored.
 Surprise counts of the fund are made from time to time by a superior of
the petty cash custodian to determine that the fund is being accounted for
satisfactorily.
 The petty cash custodian obtains signed receipts from each individual to
whom petty cash is paid.
 Upon receiving petty cash receipts as evidence of disbursements, the
general cashier issues a company check to the petty cash custodian, rather
than cash, to replenish the fund.
10. Which of the following statements is incorrect?
 For best internal control, all cash collections must be deposited intact,
while all cash disbursements must be made directly out of the bank
account, except for petty cash disbursements.
 All disbursements must be properly supported by a disbursement voucher.
 The voucher system is an internal control over cash disbursements but not
for cash receipts.
 A journal entry is made each time a disbursement is made out of the petty
cash fund.

PROBLEM 3: EXERCISES

1. Afternoon Co.'s records on Dec. 31, 20?1 show the following: Cash on hand ?
320,000 Cash in Bank - current account Plaa,000 + 1,120,000 Cash in Bank - peso
savings deposit 6,400,000 Cash in Bank - dollar savings deposit (restricted) $64,000
Treasury bill (purchased 11/1/20?1, maturing 2/28/20?2) ?2,560,000 Treasury shares
(purchased 12/31/20?1, for reissuance on 2/28/20?2) 1,600,000 Unused Credit Line
6,400,000 Sinking fund 640,000
Additional information: On Dec. 29, 20x1, Afternoon Co. issued a check amounting to
P192,000. The check is dated Jan. 3, 20?2. The peso savings deposit includes a
compensating balance of P80,000 which is not legally restricted. The exchange rate on
 Dec. 31, 20?1 is P51:$1. Requirement: Compute for the amount of cash and cash
equivalents to be reported in the 20x1 financial statements.
8,032,000
2. Transactions relating to the petty cash fund (PCF) of Bier Co. are as follows: Oct. 1,
20x1 A petty cash fund with an imprest balance of P40,000 was established. Oct. 1 -
31, 20x1 Disbursements were made for the following: Office supplies expense,
P6,880 - Transportation expense, P12,346 Freight-out, P17,627 - Cellphone load
(Telecommunications expense), P2,502 Oct. 31, 20x1 Currencies and coins in the
petty cash box amount to P2,390. Replenishment is made.
Requirement: Provide the journal entries. (Use a suspense account for any
discrepancy in the fund.)
1,745
3. Assume that the PCF is not replenished. What amount of PCF will be reported in the
Oct. 31, 20?1 financial statements?

12, 390 = equal to currencies d coin

4. 4. On Dec. 31, 20x1, the petty cash fund of Bark Co ., with a P30,000 leger balance,
consists of the following: Currencies and coins1,020 Vouchers for various PCF
disbursements26,820 An envelope containing employees' contributions for a
weekend outing amounting to9,600 Check drawn by Bark Co. to the order of the
petty cash custodian1,200 Personal check drawn by the petty cash custodian 960

2, 220

PROBLEM 4: MULTIPLE CHOICE – COMPUTATIONAL

1. 1. Dark possible adjustment for the following: Found in Dark's safe are the following: i.
Customer check dated Jan. 8, 20x2 amounting to P82,000 ii. Dark Co.'s own check,
amounting to P40,000, drawn on Dec. 27, 20x1 and dated also as of that date. Bank draft
received from a customer amounting to $53,000, initially recorded at the exchange rate of
P52.50:$1. The bank draft is payable on demand upon presentation with the bank. The
exchange rate on Dec. 31, 20?1 is P51.40:$1. Bond certificates totaling P200,000 and all
maturing on February 14, 20?2. The bonds were acquired on Nov. 16, 20?1 and were
debited to the "Investments in Debt Securities" account. Included in the cash balance is a
bank deposit amounting to P2,800,000, which includes a compensating balance of
P900,000 that is legally restricted as to withdrawal. How much cash and cash equivalents
is presented in Dark Co.'s Dec. 31, 20?1 statement of financial position?
 7,399,700
 7,458,000
 7,516,300
 7,598,300
 2. Paulaner Co.'s Dec. 31, 20x1 cash and cash equivalents consist of the following: Petty
cash fund (with unreplenished vouchers of P9,763) Cash on hand 15,000 45,000 Cash in
bank 7,809,424 Investment in 90-day commercial paper, due 1/26/?2 150,000 180-day
certificate of deposit, due 3/1/x2 80,000 Tax fund 56,000 Payroll fund 235,000 Plant
expansion fund 198,034 Sinking fund 467,000 Total Cash and Cash equivalents
9,055,458 What is the correct amount of Cash and Cash Equivalents to be reported in
Paulaner Co.'s 20?1 statement of financial position?
 8,300,661
 8,310,424
 8,380,661
 8,390,424
3. Athena Co. held the following items on Dec. 31, 20?1: Petty cash fund (currencies and coins,
P6,000)10,000 Cash on hand (per cash count sheet on Dec. 31, 20?1)65,000 Cash in bank (per
ledger)2,890,000 Customer's check #109 - dated Dec. 29, 20?1190,000 Customer's check #392 -
dated Jan. 8, 20x220,000 Athena Co.'s check #567 - dated Dec. 29, 20?154,000 NSF check
(received from the bank on Dec. 30, 20?1)40,000 All the checks were recorded when they were
collected (drawn) by a debit (credit) to the Cash in bank account. The NSF* check was recorded
when it was received from the customer. However, the return of the NSF check from the bank
was not yet recorded. In its Dec. 31, 20?1 financial statements, what amount of cash should
Athena Co. report?
 2,695,000
 2,735,000
 2,955,000
 3,085,000

Fact pattern: Tomay Co. established a petty cash fund of P40,000. Fund disbursements during the
period were P8,025 for office supplies, P11,533 for miscellaneous selling expenses, and P7,805
for miscellaneous administrative expenses. The petty cash count at the end of the period revealed
total bills and coins of P12,834.
4.The entry to replenish the fund includes
 a debit to petty cash fund for P26,969.
 a credit to petty cash fund for P27,363.
 a debit to Cash shortage or overage for P197.
 a credit to Cash shortage or overage for P197.
5. To replenish the fund at the end of the period, Tomay Co. should write a check in the
amount of
 27,166
 26,969
 27,363
  27,560.

CHAPTER 3
BANK RECONCILATION
PROBLEM 1: TRUE OR FALSE
1. FALSE The bank statement is a report that is prepared for the purpose of bringing the
balances of cash per records and per bank statement into agreement.
2. FALSE When preparing bank reconciliation, credit memos are added to the balance per
bank statement to get the adjusted balance.
3. FALSE A bank decreased a depositor's account. To notify the depositor, the bank will
issue a credit memo.
4. TRUE Bank memorandums not recorded by the depositor require reconciling entries in
the depositor's books of accounts.
5. TRUE A bank statement has a balance of P200. If the credit memos are P20 while the
outstanding checks are P10, the adjusted cash balance is P190.
6. FALSE The ledger balance of cash is P100. If the credit memos are P20, deposits in
transit are P20, outstanding checks are P10, and NSF checks are P5, the adjusted cash
balance is P110.
7. TRUE In a proof of cash, if the June 30 cash balance is P20 while the July cash receipts
and disbursements are P10 and P18, respectively, the July 31 cash balance must be P12.
8. FALSE An entity is preparing a proof of cash for November 30 and December 31. If the
unadjusted bank statement balance on November 30 is P30, the unadjusted deposits and
withdrawals during December are P5 and P3, respectively, the unadjusted bank statement
balance on December 31 must be P28.
9. FALSE The credit memos from the previous month are extended to the cash receipts
column of a proof of cash as an addition.
10. TRUE The debit memos from the previous month are extended to the cash disbursements
column of a proof of cash as a deduction.

PROBLEM 2: MULTIPLE CHOICE - THEORY 1.

1 These are deposits made but not yet credited by the bank to the depositor's bank account.
 Credit memos (CM)
 Debit memos
 Outstanding checks (OC)
 Deposits in transit (DIT)
2 In the preparation of P9,500 of were bank incorrectly reconciliation, recorded it was in
found the books out thatas cash sales P5,900. What entry is reconciling journal entry?
 (Dr.) Cash; (Cr.) Accounts Receivable
 (Dr.) Cash; (Cr.) sales
  (Dr.) Accounts Receivable; (Cr.) Cash
 None
3 What is the reconciling entry in the depositor's books to record outstanding checks?
 (Dr.) Cash; (Cr.) Accounts Payable
 (Dr.) Accounts Receivable; (Cr.) Cash
 (Dr.) Accounts Payable; (Cr.) Cash
 None
4 In a bank reconciliation, a note receivable collected by the bank is
 deducted from the cash balance per bank statement.
 deducted from the cash balance per ledger.
 added to the cash balance per bank statement.
 added to the cash balance per ledger.
5 Which of the following reconciliation items requires an adjusting journal entry in the
books of ABC Co.?
 Amortization of loan of XYZ, Inc. erroneously credited by the bank to ABC
Co.'s account
 NSF check returned by bank and re-deposited by ABC Co. during the period
and appropriately cleared the bank in the same period
 Cash deposits made but were not yet credited to ABC Co.'s bank account as of
cut-off date
 Customer payments directly remitted to the bank
6 Which of the following may be used to compute for the adjusted balance of cash?
 Balance per books + Credit memo - Debit memo - Understatement of cash
collections
 Balance per books + Credit memo - Debit memo + Overstatement of cash
collections
 Balance per books + Credit memo - Debit memo + Overstatement of cash
disbursements
 Balance per books + Credit memo - Debit memo - Overstatement of cash
disbursements
7 If the balance shown on a company's bank statement is less than the correct cash balance,
and neither the company nor the bank has made any errors, there must be
 Deposits credited by the bank but not yet recorded by the company.
 Outstanding checks.
 Bank charges not yet recorded by the company.
 Deposits in transit.
8. Certified checks should be excluded from outstanding checks when preparing bank
reconciliation. The rationale for this treatment is that
 the bank, when certifying checks, draws the check in its account.
 the bank, when certifying checks, automatically debits the depositor's account.

 the bank, when certifying checks, automatically credits the depositor's

account.
 the bank, when certifying checks, assumes the obligation to pay the drawee
when the check is presented for payment
9 When preparing a proof of cash, a credit memo from the previous month is
 extended to the book receipts column as an addition.
 extended to the bank receipts column as an addition.
 extended to the book receipts column as a deduction.
 not extended in any of the book columns.
10 When preparing a proof of cash, an overstated book debit in the previous month is
 extended to the book receipts column as an addition.
 extended to the book receipts column as an addition.
 extended to the book disbursements column as a deduction.
 not included in the proof of cash if the error is already corrected in the current
month.

PROBLEM 4: MULTIPLE CHOICE 2004 – COMPUTATIONAL

1. In preparing its August 31, 2004 bank reconciliation, Cloud Corp. has made available the
following information: P25,650 Balance per bank statement, 8/31/04 5,900 Deposit in transit,
8/31/04 funds 600 Return of customer's check for insufficient Outstanding checks, 8/31/04 750
Bank service charges for August 100 Erroneous credit by bank 2,000
At August 31, 2004, Cloud's correct cash balance is
 P28,800.
 P28,200.
 P28,100.
 P26,500.
2. The books of Steve's Service, Inc. disclosed a cash balance of P68,757 on June 30. The
bank statement as of June 30 showed a balance of P54,780. Additional information that
might be useful in reconciling the two balances follows:
a. Check number 748 drawn for P3,000 was originally recorded on the books as P4,500.
b. A customer's note dated March 25 was discounted on April 12. The note was dishonored on June 29
(maturity date). The bank charged Steve's account for P14,265, including a protest fee of P42.

c. The deposit on June 24 was recorded on the books as P2,895 but it was actually a deposit of P2,700.

d. Outstanding checks totaled P9,885 as of June 30.

e. Therewere bank service charges for June of P210 not yet recorded on the books.

f. Steve's account had been charged on June 26 for a customer's NSF check for P1,296.

g. Steve properly deposited P600 on June 3 but it was not recorded by the bank.

h. Receipts on June 30 for P13,425 were recorded by the bank on July 2.

i. A bank memo stated that a customer's note for P4,500 and interest of P165 had been collected on
June 27, and the bank charged a P36 collection fee.

How much is the adjusted balance of cash on June 30?

 34, 890
 41, 230
 58, 920
 62, 890

3. If the month-end bank statement shows a balance of P28,000, outstanding checks are P12,000, a
deposit of P4,000 was in transit at month end, and a check for P500 was erroneously charged by the
bank against the account, the correct balance in the bank account at month end is

 P19,500.
 P20,500.
 P12,500.
 P35,500.

4.In preparing its April 2004 bank reconciliation, Gregg, Inc. has made available the following
information.

Balance per bank statement, 4/30/04

NSF check returned with 4/30/04

bank statement Deposits in transit, 4/30/04

Outstanding checks, 4/30/04

Bank service charges for April

What should be the correct balance of cash at April 30, 2004?

 P29,370
  P28,940
 P28,490
 P28,470

5. Stiner, Inc's checkbook balance on December 31, 2004 was P27,200. In addition, Stiner held the
following items in its safe on December 31:

(1) A check for P450 from Peters, Inc. received (and dated) on December 30, 2004; not included in the
checkbook balance.

(2) An NSF check from Garner Co. amounting to P700 that had been deposited with the bank but was
returned on December 29 due to lack of sufficient funds. The check was to be redeposited on January 3,
2005. The original deposit has been included in the December 31 checkbook balance

(3) Coins'and currencies amounting to P1,450.

The proper amount to be reported on Stiner's balance sheet for cash at December 31, 2004 is

 P27,500.
 P26,950.
 P28,400.
 P27,950.

6. The cash account shows a balance of P38,000 before reconciliation. The bank statement does not
include a deposit of P2,300 made on the last day of the month. The bank statement shows a collection
by the bank of P940 and a customer's check for P220 was returned because it was NSF. A customer's
check for P450 was recorded on the books as P540, and a check written for P79 was recorded as P97.
The correct balance in the cash account was

 P38,612.
 P38,648.
 P38,828.
 P40, 948

7. Assume the following facts for Kurt Company: The monthend bank statement shows a balance of
P40,000; outstanding checks total P2,000; a deposit of P8,000 is in transit at month end; and a check
for P400 is erroneously charged by the bank against the account. What is the correct cash balance at
the end ofthe month?

 P33,600
 P34,400
 P45,600
 P46,400

8. In preparing the bank reconciliation of Crews Co. for the monthof July, the following information is
made available:

Balance per bank statement, 7/31

Deposits in transit, 7/31

Outstanding checks, 7/31

Deposit erroneously recorded by bank to Crews account, 7/18

Bank service charges for July

What is the correct cash balance at July 31?

 P52,875
 P54,375
 P54, 450.
 P54,825

9. The August 31 bank statement of Kelvin Inc. showed a balance of P113,000. Deducted in arriving at
this amount was a customer's NSF check for P2,400 that had been returned. Kelvin had received no
prior notice concerning this check. In addition to the bank statement, other records showed there
were deposits in transit totaling P17,200 and that outstanding checks totaled P10,800.

What is the cash balance per books at August 31 (prior to adjustments)?

 P121,800
 P119,400
 P117,000
 P115,400

10. Sandy, Inc. had the following bank reconciliation at March 31, 2004:

Balance per bank statement, 3/31/04 ?37,200

Add: Deposit in transit 10,300 47,500

Less: Outstanding checks 12,600 B

Balance per books, 3/31/04 ?34,900

Data per bank for the month of April 2004 follow:

Deposits?42,700

Disbursements 49,700

All reconciling items at March 31, 2004 cleared the bank in April. Outstanding checks at April 30,
2004 totaled P5,000. There were no deposits in transit at April 30, 2004. What is the cash balance
per books at April 30, 2004?

 P25,200
 P27,900
 P30,200
 P35,500

CHAPTER 4
 ACCOUNTS RECEIVABLE

PROBLEM 1: TRUE OR FALSE

1. FALSE Goods with a list price of P1,000 are sold at a trade discount < 30% and terms of 2/10 and
n/30. The invoice price is P686.

2. FALSE Entity X's total accounts receivable isP100, net of P5 credit balance in Customer A's account.
The adjusted balance of accounts receivable is P95.

3. FALSE Water Co. receives a sale order on March29, 20x1 and ships the goods on March 30, 20?1.
The customer receives the goods on April 2, 20?1. If the sale term is FOB destination, the sale price
of the goods shipped will be reported as receivable and sale in Water Co.'s March 31, 20?1 financial
statements.

4. TRUE The accounts receivable account of Entity X has a gross balance of P100. If the carrying
amount of the accounts receivable is P85, the allowance for bad debts account must have a balance
of P15.

5. TRUE Entity Y uses the percentage of credit sales method in estimating credit losses on its trade
receivables. Entity Y's estimate of credit losses is 3% of net credit sales. If Entity Y reports net credit
sales of P100, the bad debt expense for the year would be P3.

6. FALSE Sween Co.'s accounts receivable increased by P100 during the period. If total collections of
accounts receivable during the period were P300, the net credit sales were 200.

7. FALSE If the beginning balance of allowance for doubtful accounts is P20, the bad debts expense
for the period is P10, and accounts written-off are P5, the ending balance is P20.

8. FALSE An entity's allowance for bad debts has a beginning balance of P10. During the period, the
entity wrote-off a P5 account and recovered a P3 account receivable. If the required balance of the
allowance at the end of the period is P15, the bad debts charged to expense must be P2.

9. TRUE An entity's allowance for bad debts account has an ending balance of P10. Accounts written-
off and recovered during the period were P8 and P3, respectively. If the amount of bad debts
recognized in profit or loss is P9, the balance of the allowance account at the start of the period
must be P6.

10. TRUE Quick Co. provides 30-day credit period to its customers. In Quick Co.'s aging schedule,
receivables under the age bracket "121 to 150 days" would be considered "91 to 120 past due."

PROBLEM 2: MULTIPLE CHOICE – THEORY

1. Which of the following is classified as "trade receivable?"
 claim for tax refund
 advances to officers, employees and affiliates
 dividends receivable
  none of these
2. Trade receivables are presented as current assets
 when they are collectible within one year.
 when they are collectible within an entity's normal operating cycle.
 when they are backed by sufficient collateral security.
 when they are collectible within an entity's normal operating cycle, even if the
normal operating cycle extends beyond one year.
3. It is a formal, written instrument of credit that has been received for the amount a customer
owes.
 check
 accounts receivable
 voucher
 note receivable
4. Which of the following receivables is most likely to be presented as current asset?
 Receivable from a subscriber of the entity's own shares
 Advances to an affiliate in which the settlement date is not yet agreed upon
 Loan receivables from the entity's officers collectible beyond 12 months from the
balance sheet date
 Long-term trade receivables of a construction firm whose normal operating cycle
extends beyond one year.
5. The adjusting entry to eliminate a credit balance in a receivable account or a debit balance in a
payable account
 decreases total receivables.
 increases total receivables.
 choice (b) for a receivable account; choice (a) for a payable account
 does not affect total receivables.
6. Accounts receivable are subsequently measured at their recoverable historical costs. Which of
the following methods of estimating uncollectible accounts is in conformance with the PFRSs?
 Allowance method
 Direct write-off
 a or b
 none of these
7. Which of the following methods may be used to estimate doubtful accounts?
I. percentage of credit sales
II. ll. percentage of receivables
III. llI. aging of receivables.
IV. IV. combination of these methods
 I only
 I, II and III l
 l and lll only
 all of these
8. The amount computed under the percentage of credit sales method is the
 bad debts expense for the period.
 required balance of the allowance account.
  a or b
 none of these
9. The amount computed under the percentage of receivables and aging methods is the
 bad debts expense for the period.
 required balance of the allowance account.
 a or b
 NONE OF THESE
10. Which of the following may not be an acceptable method of computing for doubtful accounts
to be charged to profit or loss?
 Percentage of sales
 Percentage of ending balance of accounts receivables
 Based on age of accounts
 Partly based on aging and partly based on percentage of specific accounts
receivables

PROBLEM 4: MULTIPLE CHOICE - COMPUTATIONAL

1. On Dec. 31, 20?1, Entity A sells goods with a list price of P300,000 and terms of ?20% trade
discount, 5/10, n/30." Entity A applies PFRS 15 and estimates that only 80% of the cash
discount will be taken. How much net revenue is recognized on Dec. 31, 20x1?
 240,000
 230,400
 228,000
 182,400
2. Tank Co. sold goods with a list price of P100,000 on a credit term of 10%, 3/10, 1/15, n30.
Based on Tank's past experience, all customers take the highest available cash discount. Under
the net method, how much receivable is recognized at the point of sale?
 87,300
 86,427
 92,048
 90,824
3. On December 29, 20x1, Fender Co. sold goods with selling price of P250,000, on account.
Fender Co. shipped the goods on that date and paid shipping costs of P20,000. The terms of
the sale are FOB shipping point, freight prepaid. The buyer received the goods, and settled the
account, on Jan. 17, 20x2. How much cash was received from the buyer?
 250,000
 b. 270,000
 c. 230,000
 d. 210,000
4. Wayen, Inc. sells to wholesalers on terms of 2/15, net 30. Wayen has no cash sales but 50% of
Wayen's customers take advantage of the discount. Wayen uses the gross method of recording
sales and trade receivables. An analysis of Wayen 's trade receivables at December 31, 20?1
revealed the following: Age Amount Collectible 0 - 15 days 100,000 100% 16 - 30 days 60,000
95% 31 - 60 days 5,000 90% Over 60 days 2,500 500 167,500
 In its December 31, 20?1 balance sheet, what amount should Wayen report for allowance for
discounts?
 1,000
 1,620
 1,675
 2,000
5. The following information pertains to Christine Corp.: Credit sales for the year ended Dec. 31,
20x1 450,000 Credit balance in allowance for bad debts - Jan. 1, 20?1 10,800 Bad debts written
off during 20x1 18,000
According to past experience, 3% of Christine 's credit sales have been uncollectible. After
provision is made for bad debt expense for the year ended December 31, 20?1, the allowance
for uncollectible accounts balance would be
 6,300
 13,500
 24,300
 31,500
6. The following accounts were abstracted from Claudette Co.'s unadjusted trial balance at
December 31, 20?1: Debit Credit Accounts receivable 1,000,000 Allowance for uncollectible
accounts 8,000 Net credit sales 3,000,000

Claudette estimates that 3% of the gross accounts receivable will become uncollectible. After
adjustment at December 31, 20?1, the allowance for uncollectible accounts should have a
credit balance of

 90,000
 82,000
 38,000
 30,000
7. The following information pertains to Rosa Co.'s accounts receivable at December 31, 20?1: Days
Estimated outstanding Amount % uncollectible 0-60 120,0001% 61 - 120 90,000 2% Over 120
100,000 6%

During 20x1, Rosa wrote off P7,000 in receivables and recovered p4,000 that had been written
off in prior years. Rosa's December 31, 20?1, allowance for uncollectible accounts was
P22,000. Under the aging method, what amount of allowance for uncollectible accounts
should Rosa report at December 31, 20x1?
9,000
10,000
13,000
d. 19,000
8. Radio Co. had accounts receivable of P150,000 and allowance for doubtful accounts of P12,000
at the beginning of the period. During the period, Radio Co. made total sales of P1,000,000 (40%
were cash sales), collected P410,000 accounts (excluding recoveries), wrote-off P9,000 accounts,
recovered P2,000 accounts, and recognized bad debts expense of P15,000.
 How much is the carrying amount of accounts receivable at the end of the period?
 279,000
 331,000
 311,000
 351,000
9. Light Co.'s accounts receivable balances at the beginning and end of the period were P80,000
and P100,000, respectively. Write-offs and recoveries during the period amounted to ?10,000
and P8,000, respectively. Collections of sales on account during the period totaled P120,000,
excluding the recoveries. How much is the total credit sales during the period?
 150,000
 170,000
 190,000
 120,000
10. In its December 31 balance sheet, Devin Co. reported trade accounts receivable of P250,000
and related allowance for uncollectible accounts of P20,000. What is the total amount of risk
of accounting loss related to Devin's trade accounts receivable, and what amount of that risk is
off balance-sheet risk? (Item 1) Risk of accounting loss; (Item 2) Off-balance-sheet risk.
 0; 0
 230,000; 0
 230,000; 20,000

CHAPTER 5
NOTES RECEIVABLE
PROBLEM 1: TRUE OR FALSE
1. FALSE Interest receivable is computed by multiplying the carrying amount of a note by the effective
interest rate.

2. TRUE On Jan. 1, 20x1, Crybaby Co. received a noninterest-bearing note with face amount of P2M and
appropriately recognized it at P1,241,843. The note matures in lump sum on Dec. 31, 20x5. The effective
interest is 10%. The unamortized discount on Dec. 31, 20?2 is P497,370.

3. TRUE Raining Co. receives a 3-year, noninterest-bearing note of P1,000,000. Raining Co. determines
that the effective interest rate on the transaction is 10%. The initial carrying amount of the note
receivable is computed as: P1,000,000 x PV of 1 @10%, n=3.

4. FALSE Wet Co. receives a noninterest-bearing note of P3,000,000. The note is collectible in three equal
annual installments of ?1,000,000, due at the end of each year. Wet Co. determines that the effective
interest rate on the transaction is 10%. The initial carrying amount of the note receivable is computed as
P1,000,000 ? PV of 1 @10%, n=3.
5. TRUE Fold Co. receives a 2-year, noninterest-bearing note of P1,200,000 in exchange for the sale of a
commodity. If the customer had paid in cash at the sale date, the purchase price would have been
P800,000. At initial recognition, Fold Co. records unearned interest of P400,000.

6. FALSE Bind Co. receives a 2-year, noninterest-bearing note of P500,000 from the sale of equipment
with a cash price of P400,000. The note requires lump sum payment at maturity date. Bind Co.
determines that the effective interest rate on the transaction is 10%. The interest income in Year 1 is
P50,000.

7. TRUE Cut Co. receives a long-term, noninterest-bearing note of P100,000. The note requires a lump
sum payment at maturity date. Cut Co. determines that the effective interest rate on the transaction is
10% while the appropriate present value factor is 0.90. The interest income in Year 1 is P9,000.

8. TRUE Use the information in the preceding problem (i.e ., Cut Co.). The interest income in Year 2 is
P9,900.

9.FALSE Bond Co. receives a P1,000,000, noninterest-bearing note that is collectible in installments. On
initial recognition, the carrying amount of the note was P900,000. If the amortization of the note during
the period is P50,000, the carrying amount of the note at the end of the period must be P950,000.

10. TRUE Pawn Co. receives a P1,200,000, noninterest-bearing note that is collectible in installments. On
initial recognition, the carrying amount of the note was P900,000. At the end of Year 1, the carrying
amount of the note was P800,000, the amortization of the note in Year 1 must be P100,000

PROBLEM 2: MULTIPLE CHOICE – THEORY

1. Which of the following statements is incorrect?

 Receivables other than trade receivables are initially recognized at fair value plus
transaction costs.
 Unearned interest income on a receivable is treated as contra-asset asset account
rather than a liability.
 A short-term, non-trade receivable may nevertheless be discounted if it clearly
contains a financing component.
 All interest-bearing notes need not be discounted.
2. The concept that best supports the discounting of notes to their present value is
 time value of money.
 matching.
 accrual basis.
 legal form over substance
3. Which of the following rates is used to compute for the interest income on a receivable?
 stated rate
 nominal rate
 effective interest rate
 coupon rate
4. Railing Co. obtained a 4-year, P600,000, noninterest bearing note that requires payment in
lump sum at maturity date. Railing determined that the effective interest rate on the note is
12%. Which of the following statements is correct?
 Railing Co. will most likely measure the note on initial recognition by multiplying the
face amount of the note by PV of 1 @12%, n=4.
 Railing Co. will most likely measure the note on initial recognition by multiplying the
face amount of the note by PV of ordinary annuity of 1 @12%, n=4.
 Railing Co. will most likely measure the note on initial recognition by multiplying the
face amount of the note by PV of an annuity due of 1 @12%, n=4.
 Any of these as an accounting policy choice.
5. On May 1 of this year, a company received a one-year note receivable bearing interest at the
market rate. The face amount of the note receivable and the entire amount of the interest are
due on April 30 of next year. At December 31 of this year, the company should report on its
balance sheet:
 no interest receivable.
 a deferred credit for interest applicable to next year.
 interest receivable for the interest accruing this year.
 interest receivable for the entire amount of the interest due on April 30 of the next
year.
6. Drops Co. receives a 3-year, P600,000, noninterest bearing note that requires three equal
annual payments at the end of each year. The effective interest rate on the note is 14%. How
should Drops Co. measure the note on initial recognition?

 P600,000 x PV of ordinary annuity of 1 @14%, n=3

 P600,000 ? PV of 1 @14%, n=3
 P200,000 x PV of ordinary annuity of 1 @14%, n=3
 P200,000 x PV of an annuity due of 1 @14%, n=3
7. An entity receives a three-year, P1M noninterest-bearing note that matures in lump sum
payment. The effective interest rate is 12%. Which of the following is correct?
 The measurement of the note on initial recognition is computed as PIM x PV of an
ordinary annuity of 1 @12%, n=4.
 No interest income shall be recognized on the note because it is noninterest-bearing
 The amortized cost of the note increases each year
 The amortized cost of the note decreases each year.
8. An entity receives a three-year, P1M noninterest-bearing note that matures in three equal
annual payments due at the end of each year. The effective interest rate is 12%. Which of the
following is correct?
 The measurement of the note on initial recognition is computed as P1M x PV of an
ordinary annuity of 1 @12%, n=4.
 No interest income shall be recognized on the note because it is noninterest-
bearing.
 The amortized cost of the note increases each year.
 The amortized cost of the note decreases each year.
9. A company received two one-year notes in payment for merchandise sold. One note has a face
amount of P6,000 and was interest-bearing at an annual rate of 18 percent. The other note has
 a face amount of P7,080 and was non-interest-bearing (its implied interest rate was 18
percent).
 The total amount of cash ultimately to be received will be more for the interest-
bearing note.
 Both notes will cause the same total interest to be recognized.
 The amount of interest revenue which should be recognized is more for the interest-
bearing note.
 The amount which should be credited to sales revenue is more for the noninterest-
bearing note
10. On March 1, 20x1, Nickelodeon Co. received a 12% note dated January 1, 20x1. Principal and
interest on the note are due on July 1, 20x1. On initial recognition, which of the following
accounts increased?
 Prepaid interest
 Interest receivable
 Unearned interest income
 Interest revenue

PROBLEM 4: MULTIPLE CHOICE - COMPUTATIONAL

1. On Jan. 1, 20?1, Call Co. received a 10% note with face amount of P1,200,000. Both principal
and compounded interests are due on January 1, 20?4. How much interest receivable is
reported on the December 31, 20?2 statement of financial position?
 132,000
 120,000
 168,000
 252,000
2. Frame Co. has an 8% note receivable dated June 30, 20?4, in the original amount of
P150,000. Payments of P50,000 in principal plus accrued interest are due annually on July 1,
20?5, 20x6, and 20?7. In its June 30, 20x6, balance sheet, what amount should Frame report
as a current asset for interest on the note receivable?
 0.
 4,000
 8,000
 12,000
3. On January 1, 20?4, Melanie Co. sold a building, which had a carrying amount of P350,000,
receiving a P125,000 down payment and, as additional consideration, a P400,000 noninterest
bearing note due on January 1, 20?7. There was no established exchange price for the
building, and the note had no ready market. The prevailing rate of interest for a note of this
type at January 1, 20x4, was 10%.

What amount of interest income should be included in Melanie's 20?4 income statement?
 0
  30,053
 35,053
 40,109
4. On January 2, 20?3, Zyrus Co. sold equipment with a carrying amount of P480,000 in exchange
for a P600,000 noninterest bearing note due January 2, 20X6. There was no established
exchange price for the equipment. The prevailing rate of interest for a note of this type at
January 2, 20?3 was 10%. In Zyrus' 20?3 income statement, what amount should be reported
as gain (loss) on sale of machinery?
a. (30,000) loss
 30,000 gain
120,000 gain
270,000 gain

5. On January 1, 20x1, Vale Co. sold transportation equipment with a historical cost of P20,000,000
and accumulated depreciation of P7,000,000 in exchange for cash of P500,000 and a noninterest-
bearing note receivable of P8,000,000 due in 4 equal annual installments starting on December 31, 20?
1 and every December 31 thereafter. The prevailing rate of interest for this type of note is 12%. How
much are the (1) interest income in 20x1, (2) current portion of the note on Dec. 31, 20x1, and (3)
carrying amount of the note on Dec. 31, 20x2, respectively?

 728,964; 1,271,036; 4,803,663

 576,964; 1,423,560; 3,380,102
 728,964; 1,423,560; 3,380,103
 728,964; 1,423,560; 1,785,714
6. Puppy Co. received a non-interest bearing note with face amount of P1,000,000 from a
customer on Jan. 1, 20x1. The note is due in five equal annual installments every Dec. 31.
The effective interest rate is 12%. How much is the current portion of the note on Dec.
31, 20x2?
 127,104
 72,896
 137,389
 142,356
7. The current and noncurrent portions of Rainy Morning Co.'s noninterest-bearing note
receivable on Dec. 31, 20x1 are P127,104 and P480,366, respectively. The note has a face
amount of PIM, is dated Jan. 1, 20x1 and is due in 5 equal annual installments every Dec.
31. Rainy Morning Co. reported interest income of P86,515 in 20x1 and P72,896 in 20x2.
How much is unamortized discount on the note on Dec. 31, 20x3?
 661,990
 756,224
 56,224
 61,990
8. On Jan. 1, 20?1, Meeting Co. received a noninterest-bearing note with face amount of
P1,000,000, due in five equal annual installments starting on Jan. 1, 20x1 and every 1st of
January thereafter. The current rate on Jan. 1, 20x1 was 12%. How much are the interest
income in 20?1 and the carrying amount of the note on Dec. 31, 20x1, respectively?
  72,896; 607,470
 72,896; 480,366
 72,896; 680,366
 57,644; 338,010
9. On Jan. 1, 20?1, Pakbet Co. received a 3-year, non-interest bearing note with face amount
of P2,100,000 due in equal semi-annual payments every July 1 and December 31. The
effective interest rate is 10%. How much are the interest income in 20x1 and the carrying
amount of the note on Dec. 31, 20?1, respectively?
 164,591; 1,241,083
 88,825; 1,241,083
 124,591; 1,612,083
 164,591; 1,515,317
10. On Jan. 1, 20x1, Parya Co. received a 3-year, P900,000 noninterest-bearing note
receivable due as follows: ?400,000 on Dec. 31, 20x1, P300,000 on Dec. 31, 20x2, and
P200,000 on Dec. 31, 20?3. The prevailing rate of interest for this type of note is 10%.
How much is the carrying amount of the receivable on Dec. 31, 20x1?
 467,354
 438,016
 376,345
 428,346
11. On January 1, 20x1, Tarong Co. sold goods on installment at an installment price of
P2,370,470 and received a three-year noninterest-bearing note for the same amount. If
paid outright, the cash selling price would have been P1,600,000. How much is the
carrying amount of the note on Dec. 31, 20?2?

 1,824,000
 1,924,320
 2,045,674
 2,079,360
12. On January 1, 20x1, Bark Co. sold machinery with historical cost of P5,000,000 and
accumulated depreciation of P1,900,000 in exchange for a 3-year, 3%, P3,000,000 note
receivable. Principal is due on January 1, 20?4 but interest is due annually every
December 31. The prevailing interest rate for this type of note is 12%. How much is the
carrying amount of the receivable on December 31, 20?1?
 2,159,324
 2,249,324
 2,543,685
 3,000,000
13. On January 1, 20x1, Tank Co. sold machinery with historical cost of P2,000,000 and
accumulated depreciation of P950,000 in exchange for a 3-year, P1,200,000 note
receivable. Principal and 3% compounded interest are due on January 1, 20?4. The
prevailing interest rate for this type of note is 12%. How much is the carrying amount of
the receivable on initial recognition date?
 1,311,272
 2,000,000
 933,337
  854,136
14. Devin Co. sold to Andre Co. a P20,000, 8%, 5-year note that required five equal annual
year-end payments. This note was discounted to yield a 9% rate to Andre. What should
be the total interest revenue earned by Andre on this note?
 9,000
 8,000
 5,560
 5,050
15. On Jan. 1, 20?1, Tiles Co. received a P2.4M noninterest-bearing note from a customer
due as follows: Jan. 1, 20?4, P800,000; Jan. 1, 20?5, P800,000; and Jan. 1, 20x6, P800,000.
The effective interest rate is 12%. How much are the carrying amounts of the note on Jan.
1, 20x1 and Jan. 1, 20?4, respectively?
 1,531,779; 1,186,210
 1,531,779; 1,352,039
 1,476,798; 1,239,071
 1,476,798; 1,352,039

The following were the transactions involving an entity’s petty cash fund during the period.
(REFER TO THE PHOTO) QUESTION: The petty cash fund is not replenished and
financial statements are prepared on July 31, 20x1. The month-end adjustment to the petty
cash fund would not include a

a.debit to receivable from custodian for ₱1,800.

b.credit to petty cash fund for ₱28,500.
c.total debits to various expense accounts for ₱26,700.
credit to cash in bank for ₱28,500.
Cash in checking account ₱35,000 Cash in money market account 75,000 Treasury bill,
purchased 11/1/20x1, maturing 1/31/20x2 350,000 Treasury bill, purchased 12/1/20x1,
maturing 3/31/20x2 400,000. What amount should Noise Co. report as cash and cash
equivalents in its December 31, 20x1 statement of financial position?

a.110,000
b.385,000
c. 460,000
d. 860,000

The records of Kapiz Co. show the following balances on December 31, 20x1: (REFER TO
PHOTO) QUESTION: How much is the cash and cash equivalents to be reported in the
20x1 financial statements?

12870000
On December 31, 20x1, the petty cash fund of Kristelle Co. with a general leger balance of
₱15,000 comprises the following: (REFER TO THE PHOTO) QUESTION: The entry to
replenish the fund on December 31, 20x1 includes a

a.credit to cash shortage or overage for ₱2,910

b.debit to cash shortage or overage for ₱2,910.
c.credit to cash in bank for ₱9,450.
d.credit to petty cash fund for ₱9,450.

In preparing its bank reconciliation on December 31, 20x1, Sun Co. has made available the
following data: (REFER TO THE PHOTO) QUESTION: Sun's adjusted cash in bank
balance on December 31, 20x1 is
36125

In preparing its August 31, 20x3 bank reconciliation, Morning Co. has made available the
following information: Balance per bank statement, 8/31/x3 18,050; Deposit in transit,
8/31/x3 3,250; Return of customer’s check for insufficient funds, 8/31/x3 600; Outstanding
checks, 8/31/x3 2,750; Bank service charges for August 100. What is the correct cash
balance of Morning on August 31, 20x3?

18550

The information below was taken from the bank transfer schedule prepared during the
audit of Fox Co.’s financial statements for the year ended December 31, 2001. Assume all
checks are dated and issued on December 30, 2001. (REFER TO THE PHOTO)
QUESTION: Which of the following checks might indicate kiting?

a.#101 and #303.

b.#202 and #404
c.#101 and #404
d.#202 and #303

Use the following information for the next three questions: The accounting records and
bank statement of Entity A show the following information: (REFER TO THE PHOTO)
How much is the deposit in transit?
160000

How much is the credit memo?

760000

How much is the adjusted cash balance?

1904000

The next three items are based on the following information: Taken from the records of
Girly Co. are the following: (REFER TO THE PHOTO) How much are the deposits in
transit on November 30?
5820
How much are the outstanding checks on November 30?

8280

How much is the adjusted balance of cash on November 30?

3000

Use the following information for the next three questions: Kriselda Co. has the following
information for the months of June and July. ( REFER TO THE PHOTO) 12.How much is
the adjusted cash receipts in July?

a. 24,150
b. 27,900
c. 30,750
d. 24,350

How much is the adjusted cash disbursements in July?

a. 27,600
b. 27,900
c. 21,000
d. 21,600

How much is the adjusted cash balance as of July 31?

a. 12,000
b. 8,850
c. 15,930
d. 14,600

Reversing entries are 1.normally prepared for prepaid, accrued, and estimated items. 2.necessary
to achieve a proper matching of revenue and expense. 3.desirable to exercise consistency and
establish standardized procedures.

a.1
b.2
c. 3
d. 1 and 2

An accounting record into which the essential facts and figures in connection with all
transactions are initially recorded is called the

a.ledger.
b.account.
c. trial balance.
d. none of these.

Bank statements provide information about all of the following except

a.checks cleared during the period.

b.NSF checks.
c.bank charges for the period.
d.errors made by the company.

These are deductions made by the bank to the depositor’s bank account but not yet recorded by
the depositor.

a.Credit memos (CM)

b.Debit memos (DM)
c.Outstanding checks (OC)
d.Deposits in transit (DIT)

A trial balance

a.proves that debits and credits are equal in the ledger.

b.provides a listing of open accounts and their balances which are used in preparing financial
statements.
c.is usually prepared three times in the accounting cycle.
d.all of these.
Coins, currencies, checks, money orders, money on deposit, and cash funds that are available for
unrestricted use in current operations are disclosed in the notes to the financial statements as

a.Cash.
b.Cash equivalents.
c.Investments.
d.Accounts receivable.

These are entries made at the end of the accounting period to update certain amounts so that they
reflect correct balances at the designated time.

a. Correcting entries
b. Adjusting entries
c. Reclassification entries
d. Reversing entries

It is the basic storage of information in accounting.

a. Journal entry
b. T-account
c. Debit or Credit
d. Account

On August 1, 20x1, an entity prepays one-year insurance for ₱240,000. If the entity uses the
asset method of initial recording, the 20x1 year-end adjusting journal entry will include

a.a credit to prepaid insurance for ₱140,000.

b.a credit to insurance expense for ₱140,000.
c.a credit to prepaid insurance for ₱100,000.
d.a debit to prepaid insurance for ₱140,000.

On August 1, 20x1, an entity prepays one-year insurance for ₱240,000. If the entity uses the
expense method of initial recording, the 20x1 year-end adjusting journal entry will include

a.a debit to prepaid insurance for ₱140,000.

b.a credit to insurance expense for ₱100,000.
c.a debit to prepaid insurance for ₱100,000.
d.a debit to insurance expense for ₱140,000.

On January 1, 20x1, an entity collects a 3-year advance rent of ₱360,000. If the entity uses the
income method of initial recording, the 20x1 year-end adjusting journal entry includes
a.a debit to rent income for ₱240,000
b.a credit to unearned rent for ₱120,000
c.a debit to unearned rent for ₱240,000
d.a credit to rent income for ₱120,000

On January 1, 20x1, an entity collects a 3-year advance rent of ₱360,000. If the entity uses the
income method of initial recording, how much is the rent income for the year 20x1?

a. 240,000
b. 180,000
c. 120,000
d. 80,000

On January 1, 20x1, an entity collects a 3-year advance rent of ₱360,000. If the entity uses the
liability method of initial recording, how much is the unearned rent as of December 31, 20x1?

a. 240,000
b. 180,000
c. 120,000
d. 80,000

On January 1, 20x1, an entity collects a 3-year advance rent of ₱360,000.If the entity uses the
liability method of initial recording, the 20x1 year-end adjusting journal entry will include
a.a debit to rent income for ₱120,000.
b.a credit to unearned rent for ₱240,000.
c.a debit to unearned rent for ₱120,000.
d.a credit to rent income for ₱240,000.

The credit total of a trial balance exceeds the debit total by ₱700. In investigating the cause of
the difference, the following errors were determined: (a)A credit to accounts receivable of ₱660
was not posted; (b)A ₱6,000 debit to be made to the Purchases account was debited to Accounts
payable instead; (c)A ₱3,600 credit to be made to the Sales account was credited to the Accounts
receivable account instead; (d)The Interest payable account balance of ₱5,040 was included in
the trial balance as ₱6,400. The reconciled balance from the given information is

a.8,490.
b.8,640.
c.8,940.
d.9,240.

These are short-term, highly liquid investments that are so near their maturity that they represent
insignificant risk of changes in value due to changes in interest rates.
a.Cash and Cash equivalents
b.Treasury bills
c.Treasury notes
d.Cash equivalents

In a bank reconciliation, deposits not recorded by the bank are:

a.added to the balance according to the bank statement

b.deducted from the balance according to the bank statement
c.added to the balance according to the depositor’s records
d.deducted from the balance according to the depositor’s records

Bank overdrafts that cannot be offset should be

a.reported as a deduction from the current asset section.

b.reported as a deduction from cash.
c.netted against cash and a net cash amount reported.
d.reported as a current liability.

The amount reported as "Cash" on a company's statement of financial position normally should
exclude

a.postdated checks that are payable to the company.

b.cash in a payroll account.
c.undelivered checks written and signed by the company.
d.petty cash.

Accompanying the bank statement was a credit memorandum for a short-term, noninterest-
bearing note collected by the bank. What entry is required in the depositor’s accounts?

a.Debit Cash; credit Miscellaneous Income

b.Debit Cash; credit Notes Receivable
c.Debit Accounts Receivable; credit Cash
d.Debit Notes Receivable; credit Cash

ABC Co. prepared its unadjusted trial balance and determined that the totals of debits and credits
do not equal. Further investigation revealed the following: The debit posting for a cash sale was
omitted. 6,000The balance of Inventory was listed as a credit instead of debit 36,000The
balance of Insurance expense was listed as Rent expense 9,000Unearned interest income was
listed as a debit instead of credit 15,000. How much is the difference between the total debits and
total credits in the trial balance?

a.36,000
b.42,000
c.48,000
d.55,000

Cash in foreign currency is valued at

a.face value.
b.current exchange rate.
c.current exchange rate reduced by an allowance for expected decline in peso.
d.estimated realizable value.

When an item of expense is paid and recorded in advance before it is incurred, it is normally
called a(n)

a. prepaid asset/expense.
b. accrued expense.
c. estimated expense.
d. cash expense.

The inexperienced accountant of Raymel Co. prepared the following closing entry on December
31, 20x1: (refer to the photo) How much is the correct amount of “Income summary” to be
closed to retained earnings?
a. 786,000
b. 1,028,000
c. 1,066,000
d. 1,048,000