UNIVERSITY OF SANTO TOMAS

AMV-COLLEGE OF ACCOUNTANCY
PRELIMINARY EXAMINATION
CA5105 – INTERMEDIATE ACCOUNTING I

THEORIES (2pts. each)

1. Which of the following is not considered cash for financial reporting purposes?
a. Petty cash funds and change funds
b. Money orders, certified checks
c. Coin, currency, and available funds
d. Postdated checks and I.O.U.’s

2. What is a compensating balance?

a. Savings account balances
b. Margin accounts held with brokers
c. Temporary investments serving as collateral for outstanding loans
d. Minimum deposits required to be maintained in connection with a borrowing
arrangement

3. A cash equivalent is a short-term, highly liquid investment that is readily

convertible into known amounts of cash and
a. is acceptable as a means to pay current liabilities.
b. has a current market value that is greater than its original cost.
c. bears an interest rate that is at least equal to the prime rate of interest at the
date of liquidation.
d. is so near its maturity that it presents insignificant risk of changes in interest
rates.

4. A Cash Over and Short account

a. is not generally accepted.
b. is credited when the petty cash fund proves out over.
c. is credited when the petty cash fund proves out short.
d. is a contra account to Cash.

5. The journal entries for a bank reconciliation

a. are taken from the "balance per bank" section only.
b. may include a debit to Office Expense for bank service charges.
c. may include a credit to Accounts Receivable for an NSF check.
d. may include a debit to Accounts Payable for an NSF check.

6. Which of the following items is not matched correctly with its basis of valuation
for purposes of reporting in the Statement of Financial Position?
a. Cash à Face value
b. Long-term interest-bearing note with unrealistic rate à Face value
c. Long-term non-interest-bearing note à Present value
d. Accounts receivableà Amortized cost

7. When preparing a bank reconciliation, erroneous book credits are

a. added to the bank statement balance.
b. deducted from the bank statement balance.
c. added to the balance per books.
d. deducted from the balance per books.
8. Under the Imprest fund system, the Petty Cash Fund account is:
a. Debited when the fund is replenished.
b. Credited when the fund is created or when it is replenished.
c. Debited when the fund is created.
d. Credited when the fund is created

9. Which of the following scenarios imply good internal control for cash?
a. Daily receipts await 3 days in the company’s possession before being deposited in
the bank.
b. All disbursements are supported by approved vouchers and recorded in the check
register or cash disbursement journal.
c. The cashier has access to cash receipts journal.
d. Audit procedures, dates of conducting audit, department involved and scope of
audit are announced to the cashier.

10. The following reconciling items are added to the book balance of cash in order
to arrive at the unadjusted bank balance of cash:
a. Erroneous bank credit
b. Erroneous book debit
c. Deposit in transit
d. Debit memo

11. Which of the following is true when accounts receivable are factored without
recourse?
a. The transaction may be accounted for either as a secured borrowing or as a sale,
depending upon the substance of the transaction.
b. The receivables are used as collateral for a promissory note issued to the factor
by the owner of the receivables.
c. The factor assumes the risk of collectibility and absorbs any credit losses in
collecting the receivables.
d. The financing cost (interest expense) should be recognized ratably over the
collection period of the receivables.

12. If the present value of a note received is less than its face value, the difference
should be
a. Treated initially as a premium on notes receivable
b. Amortized as interest income over the life of the note
c. Amortized as interest income over the life of the asset
d. Included in interest income in the year of issuance

13. Which of the following statements concerning non-interest-bearing notes

receivable is generally a false statement?
a. Discount on notes receivable should be deducted to arrive at the carrying
value of notes receivable
b. Amortizing the discount causes the carrying amount of the notes receivable
to gradually increase over the life of the note
c. Amortizing the premium causes the carrying amount of the notes receivable
to gradually decrease over the life of the note
d. Interest income is recognized and reported in profit or loss
14. On September 1, 2020, an entity received a two-year interest-bearing note on
which the principal and interest are payable on September 1, 2022. How many
months of accrued interest should be reported for accrued interest on December
31, 2021?
a. 4 months
b. 8 months
c. 16 months
d. 24 months

15.Which of the following forms of receivable financing may be treated as a

borrowing or as a sale of receivables?

I.Pledging
II.Assignment
III.Factoring
IV.Discounting

a. I and II b. III and IV c. II,III and IV d. IV only

16. What is "recourse" as it relates to selling receivables?

a. The obligation of the seller of the receivables to pay the purchaser in case the debtor
fails to pay.
b. The obligation of the purchaser of the receivables to pay the seller in case the debtor
fails to pay
c. The obligation of the seller of the receivables to pay the purchaser in case the debtor
returns the product related to the sale.
d. The obligation of the purchaser of the receivables to pay the seller if all of the
receivables are collected

17. When the allowance method of recognizing uncollectible accounts expense is

used, the entries at the time of collection of an account previously written off
would
a. Decrease profit.
b. Increase the amortized cost of accounts receivable.
c. Increase profit.
d. Increase the allowance for uncollectible accounts.

18. Which of the following is not a valid basis for using trade discounts as
adjustments to list price?
a. To encourage customers to buy in big quantities.
b. To encourage collection of account within a specified period.
c. To avoid frequent changes in price catalogs.
d. To make price differentials amount different classes of customers.

19. Which of the following items will increase the accounts receivable account?
a. Dishonored notes
b. Notes received in settlement of accounts
c. Collection from credit customers beyond the discount period
d. Factoring on a without recourse basis
20. Trade receivables are classified as current assets if they are to be collected
within 12 months or within the normal operating cycle whichever is
a. Longer
b. Shorter
c. Shonger
d. Hotter

PROBLEM SOLVING (3pts. each)

In reconciling the Cash in Bank of GRABETOH Company with the bank statement balance for the
month of November 2021, the following data are summarized:

Book receipts- November P800,000

Bank receipts - November 900,000
Credit memo for note collection:
October 60,000
November 75,000
Credit memo for November bank loan 100,000
Deposit in transit for October 120,000
Erroneous bank credit for November corrected in December 25,000
Erroneous bank credit for October corrected in November 50,000
Erroneous book credit during November corrected in December 5,000
Erroneous book credit during October corrected in November 10,000
Debit memo for service charge - October 6,000
Debit memo for service charge – November 8,000
Erroneous book debit – November corrected in December 20,000
Erroneous bank debit – November corrected in December 65,000
Book disbursement – November 600,000
Bank disbursement – November 700,000
Outstanding check – October 80,000

1. How much is the Adjusted Receipts for the month of November? 885,000
2. How much is the Adjusted Disbursements for the month of November 597,000

PWEDENA Company provided the following data for the purpose of reconciling the cash
balance per book:

Balance per Book P220,000

Outstanding checks (including certified check of P20,000) 50,000
Deposit in transit 90,000
December NSF checks (of which P10,000 had been re-deposited
and cleared on December 27) 30,000
Erroneous credit to PWEDENA’s account, representing proceeds
of loan granted to another company 60,000
Proceeds of note collected by bank for PWEDENA, net of
service charge of P4,000 150,000
Erroneous bank charge 3,000
A check of P5,000 in payment of account was recorded
by the company as 50,000

3. How much is the Cash in Bank balance as shown in the bank statement on
December 31?
a. 382,000 c. 392,000
b. 385,000 d. 395,000

4. How much is the total net adjustments to Cash in Bank?

a. 175,000 debit c. 85,000 debit
b. 175,000 credit d. 85,000 credit
 On December 31, 2020, SANAOL Company’s “Cash and Cash Equivalents” account
balance per ledger of P3,600,000 includes:

Demand deposit, P1,500,000; Certificate of deposit-30 days, P 500,000; NSF check of

customer, P20,000; Money market placement (due date: June 30, 2021), P1,000,000;
Savings deposit in closed bank, P50,000; IOU from an employee, P30,000; Cash
surrender value, P400,000; Petty cash fund, P10,000; Customer’s check dated January
31, 2021, P60,000; Customer’s check outstanding for 18 months, P30,000.

Additional information:
q Check of P100,000 in payment of accounts payable was recorded on December
31, 2020 but mailed to creditors on January 15, 2021.
q Check of P50,000 dated January 31, 2021 in payment of accounts payable was
recorded and mailed December 31, 2020.
q The company uses the calendar year. The cash receipts journal was held open
until January 15, 2021, during which time, P200,000 was collected and
recorded on December 31, 2020.

5. How much “Cash and Cash Equivalents” should be shown on the December
31, 2020 balance sheet?
a. 1,960,000 c. 2,160,000
b. 2,050,000 d. 2,360,000

You are examining the Petty Cash of PONY Company with an imprest fund balance of
P30,000 as of December 31, 2020. The count was made at 11:00 am on January 4, 2021, in
the presence of POOH, a petty cashier revealed the following:

Currencies and Coins P 9,000

Checks
Date Payee Maker Amount
Dec. 27, 2020 PONY Co. TACA, Employee P1,000
28, 2020 LUH Co. PONY Co. 1,400
29 , 2020 PONY Co KAH, Manager 1,200
30 , 2020 PONY Co. MOW, Customer 1,500
Jan. 2, 2021 PONY Co. INA, Office Director 1,300*

* Received from INA on December 31, 2020.

Vouchers
Date Particulars Amount
Dec. 15, 2020 Transportation P300
28, 2020 Postage stamps 200
Jan. 2, 2021 Newspapers 150

IOUs
Date Particulars Amount
Dec. 20, 2020 ETA - Employee P500

Unused postage stamps P 300

Others
An envelope marked “Collections for Pool Party “
with names attached (no currencies when opened) P1,100
Sales Invoices (currencies and check)
Invoice #101 Dec. 30, 2020 P1,500
#102 Jan. 2, 2021 2,000
#103 Jan. 3, 2021 800

6. How much is the Adjusted Petty Cash Fund on December 31, 2020?
a. 7,450 c. 8,550
b. 7,300 d. 10,250

7. How much is the Petty Cash Shortage or Overage?

a. 21,550 c. 20,250
b. 20,100 d. none of the choices

The petty cash fund of KAPITPA Company on December 31, 2020 is composed of the
following:

Currencies and coins 6,250

Petty cash vouchers not yet replenished:
• Postage stamps 825
• Supplies 3,000
• IOU’s 2,000
• Transportation 5,750

Replenishment check dated 12/16/20 2,000

Unused supplies 1,375
Check drawn by office manager dated 12/30/20 4,375
Check drawn by customer dated 12/25/20 5,000
Envelope containing cash contributions from employees
for networking start-up party (no money when opened) 1,500

The Petty cash fund was established for an amount of P25,000.

8. How much is the Adjusted Petty Cash Fund on December 31, 2020? 11,125
9. How much is the Petty Cash Shortage? 2,300

You gather the following information about the Cash and Cash Equivalent items of
WALANGSUSUKO Company as of December 31, 2020:

Current account at BPI 6,000,000

Current account at BDO (300,000)
Payroll account 1,500,000
Foreign bank account – restricted (in USD) * 60,000
Postage stamps 3,000
Employee’s PDC 12,000
IOU from a key officer 30,000
Credit memo from a vendor for a purchase return 60,000
Traveler’s check 150,000
DAUD 45,000
Money orders 90,000
Petty cash fund (P12,000 in currency and expense vouchers for P18,000) 30,000
Treasury bills, due 3/30/21 (purchased 12/30/20) 600,000
Treasury bills, due 1/31/21 (purchased 1/1/20) 900,000
Interest and Dividend fund 10,000
Bond sinking fund 1,000,000

*Closing rate on December 31, 2020 is P50 for every 1USD

10. How much “Cash and Cash Equivalents” should be shown on the December
31, 2020 balance sheet?
a. 8,122,000 c. 8,380,000
b. 8,362,000 d. 9,262,000

The balances of the selected accounts taken from the December 31, 2019 balance sheet of
TIWALALANG Company are as follows:

Accounts Receivable- P 674,000; Allowance for bad debts- P 24,000

The following transactions (in summary) affecting accounts receivable occurred during the
year ended December 31, 2020:

Sales (all on account terms: 3/10,1/20,n/60) P3,000,000

Cash received from customers 3,200,000
Cash received includes the following:
Customers paying within the 10-day discount period 1,746,000
Customers paying within the 20-day discount period 990,000
Recovery of accounts previously written-off 6,000
Customers paying beyond the discount period ?
Accounts receivable written-off as worthless 22,000
Credit memoranda issued to credit customers for sales returns and allowances 12,000

An aging of accounts receivable and estimate of uncollectible accounts at December 31,

2020 revealed the following:

Age Amount Probability of non-collection

Less than 30 days P 150,000 2%
31-90 days 120,000 8%
91-120 days 86,000 15%
More than 120 days ? 30%

11. How much is the Amortized cost of Accounts Receivable on December 31,
2020?
a. 382,000 b. 344,500 c. 348,700 d. 376,000

12. How much is the correct bad debts expense for the year 2020?
a. 25,300 b. 33,300 c. 37,500 d. 23,500

On December 31, 2020, SANATAMAKO Company’s customer was experiencing financial

difficulties and entered into a debt restructuring agreement with the creditor. SANATAMAKO
Company restructured the obligation as follows: Reduced the principal from P10,000,000 to
P9,000,000. Forgave the accrued interest of P1,200,000. Extended the maturity date from
December 31, 2020 to December 31, 2023. Reduced the interest rate by 2%. Interest is
payable annually on Dec. 31, 2021, 2022 and 2023.

13. How much is the impairment loss on December 31, 2020?

(carry present value factors into 4 decimal places)

a. 2,632,180 c. 2,200,090
b. 1,432,180 d. 1,000,090
 On February 1, 2005, MAGI Corporation factored receivables without recourse with a
face amount of P600,000 to NGAT Corporation. MAGI Corporation advances P490,000
to NGAT Corporation. NGAT Corporation’s holdback rate is 5% of the factored
receivables.

14. What amount of loss should MAGI Corporation recognize as a result of

factoring of receivables?
a. 0 c. 80,000
b. 140,000 d. 110,000

On October 31, 2020, PARASAPANGARAP Company discounted at the bank a customer’s

P600,000 interest-bearing note, 6-month, 12% note, dated July 1, 2020 without
recourse. The bank discounted the note at 10%.

15.How much is the gain or loss should the company recognize as a result of
discounting the notes receivable?
a. 10,600 c. 24,000
b. 1,400 d. 0

JOSKO Company reported the following notes receivable balances as of December 31, 2019:

Notes receivable from sale of Goods P2,000,000

Notes receivable from sale of Equipment 3,000,000

Additional information:

a. The notes receivable from sale of Goods has a coupon rate of 12% per annum dated
July 1, 2019. The note is payable in two equal annual installments of P1,000,000
plus interest on the unpaid balance every July 1. The initial principal and interest
payments were made on July 1, 2020.

b. The notes receivable from sale of Equipment is dated January 1, 2019, has a stated
rate of 12% compounded annually. The note matures on January 1, 2021.

Present value of P1 at 12% for two periods is 0.797. Present value of P1 at 12% for one
period is 0.893. The present value of an ordinary annuity of 1 at 12% for two periods is
1.690.

16. How much is the carrying value of notes receivable on December 31, 2020?
4,000,000

KONTINGTIISPA Company sold an old Machinery on January 1, 2019 and received a

P1,000,000 note with a stated rate of 12% payable annually every December 31. The note
is payable on December 31, 2021. The carrying value of the old Machinery on the date of
sale was P700,000. The prevailing market interest rate for a similar obligation is 10%.

The present value of P1 at 12% for three periods is 0.712. The present value of an ordinary
annuity of 1 at 12% for three periods is 2.402. The present value of P1 at 10% for three
periods is 0.751. The present value of an ordinary annuity of 1 at 10% for three periods is
2.487.

17.How much is the Selling Price of the old Machinery sold on January 1, 2019?
1,049,440
 On January 1, 2019, TAR Company sold an old building for P700,000 to ADO Company. ADO
Company paid P100,000 down and signed a non-interest-bearing note for the balance which
is payable in 3 equal annual installments every December 31 of each year. The carrying
value of the old building on the date of sale was P400,000.

On January 1, 2020, TAR Company sold a piece of Land to ANT Company. ANT company
signed a non-interest-bearing note requiring payment of P100,000 annually for 3 years
every December 31 of each year. The first payment was made on December 31, 2020. The
carrying value of the Land on the date of sale was P200,000.

The prevailing rate of interest for the above type of notes was 12%. The present value of
P1 at 12% for three periods is 0.712. Present value of P1 at 12% for two periods is 0.797.
Present value of P1 at 12% for one period is 0.893. The present value of an ordinary
annuity of 1 for two periods is 1.690. The present value of an ordinary annuity of 1 for three
periods is 2.402.

18. How much is the amortized cost of notes receivable related to depreciable assets
on December 31, 2020?
a. 338,048 b. P178,614 c. 347,638 d. 507,072

19. How much is the total income to be reported in the profit or loss for the year
2020?
a. 109,590 b. 69,390 c. 289,990 d. 86,472

NYE Co. uses the NET method to record sales made on credit. On June 10, 2019, it made
sales of P100,000 with terms 2/10, n/30 to MAS Farms, Inc. On June 19, 2019, NYE
received payment for 1/2 the amount due from MAS Farms. NYE’s fiscal year end is on June
30, 2019.

20. What amount will be reported in the Statement of Financial Position for the
accounts receivable due from MAS Farms, Inc.?
a.P49,000
b.P50,000
c.P48,000
d.P51,000