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FINANCIAL ACCOUNTING AND REPORTING
1ST Mock Prelim Examination
NAME:
Directions: Write down your answers legibly on the spaces provided for the corresponding numbered questions.
Erasures are strictly not allowed.
MULTIPLE CHOICE
PROBLEM SOLVING
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MULTIPLE CHOICE THEORY
1.
2.
Which of the following should not be considered cash?
a. Treasury warrant
b. Money orders
c. Treasury bills
d. Manager’s check
Which of the following should be considered cash?
a. Banker’s acceptances
b. Certified checks
c. Plant fund to be disbursed within 12 months
d. Bond sinking fund
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3.
To be reported as “cash and cash equivalents”, the cash equivalent must be
a. Deposited in the bank
c. Unrestricted in use for current operations
b. Available for the redemption of preferred stock or bonds
d. Set aside for the purchase or construction of fixed assets
4.
Which of the following should be considered as cash in the Statement of financial position?
a. Postdated checks received
b. IOUs from officers to be deducted from their salaries of the following month
c. Undelivered checks
d. NSF checks
5.
Which will not be considered as cash equivalent?
a. Postal money order
b. Certificate of deposits
c. Three-year treasury bills purchased three months before maturity.
d. Redeemable preferred stock acquired three months before redemption
6.
What is the adjusting entry for a customer NSF check?
a. Debit cash and credit accounts receivable
b. Debit accounts receivable and credit cash
7.
All cash receipts are deposited intact and all cash disbursements are made by means of check. This internal control is known as
a. Administrative control
c. Accounting control
b. Imprest system
d. Auditing control
8.
If the cash balance shown in a company’s accounting records is more than the correct cash balance and neither the company nor the
bank has made any errors, there must be
a. Deposits credited by the bank but not yet recorded by the company
b. Deposits in transit
c. Outstanding checks
d. Bank charges not yet recorded by the company
9.
Which of the following items must be deducted to the balance per ledger in preparing a bank reconciliation, which ends with adjusted
cash balance?
a. Erroneous bank debit
c. Service charges
b. Collections from customers
d. Interest on deposits
10. Receivable balance should be valued at their
a. Net realizable value
b. Maturity amounts
c. Debit service charge and credit cash
d. No adjustment necessary
c. Face amounts
d. Discounted values
11. Which of the following methods of determining bad debts expense does not recognize expense on the basis of a presumed direct
association with specific revenue?
a. Charging bad debts with an amount derived from aging the accounts receivable under the allowance method
b. Charging bad debts as accounts are written off as uncollectible
c. Charging bad debts with an amount derived from aging the accounts receivable under the allowance method
d. Charging bad debts with percentage of accounts receivable under the allowance method
12. A method of estimating uncollectible accounts that emphasizes asset valuation rather than income measurement is the allowance
method based on
a. Direct write off
c. Net Credit sales
b. Gross sales
d. Aging of receivables
13. A method of estimating doubtful accounts that focuses on the income statement rather the Statement of financial position is the
allowance method based on
a. Direct writeoff
c. Credit sales
b. Aging of trade accounts receivable
d. Balance of accounts receivable
14. A company uses the allowance method for recognizing doubtful accounts. The entry to record the writeoff of a specific uncollectible
account
a. Affects neither net income nor working capital
c. Decreases both net income and working capital
b. Affects neither net income nor accounts receivable
d. Decreases both net income and accounts receivable
15. The interest on a noninterest-bearing note is equal to
a. The excess of the face value over the present value.
b. The excess of the present value over the face value.
c. The excess of the market value over the present value of the note.
d. Zero
16. Assuming that the ideal measure of short-term receivables in the Statement of financial position is the discounted value of cash to be
received in the future, failure to follow this practice usually does not make the Statement of financial position misleading because
a. Most short-term receivables are noninterest bearing.
b. The allowance for uncollectible accounts includes a discount element.
c. The amount of the discount is not material.
d. Most receivables can be sold to a bank or factor.
17. Credit balances in accounts receivable should be classified as
a. Current liability
b. Part of accounts payable
c.
d.
Noncurrent liability
Deduction from accounts receivable
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18. If there is evidence that an impairment loss on loans and receivables has been incurred, the amount of the loss is equal to
a. Excess of the carrying amount of the loan receivable over the present value of the cash flows related to the loan.
b. Excess of the present value of cash flows related to the loan over the carrying amount of the loan receivable.
c. Excess of the carrying amount of the loan over the principal amount of the loan.
d. Excess of the principal amount of the loan over its carrying amount.
19. If accounts receivable are assigned against borrowings, the amount of accounts receivable pledged shall be
a. Excluded from total receivables with disclosure
c. Included in total receivables with disclosure
b. Excluded from total receivables without disclosure
d. Included in total receivables without disclosure
20. Notes receivable discounted without recourse should be
a. Included in total receivables with disclosure of contingent liability
b. Included in total receivables without disclosure of contingent liability
c. Excluded from total receivables with disclosure of contingent liability
d. Excluded from total receivables without disclosure of contingent liability
PROBLEMS
Joanne Company provided the following data on December 31, 2017:
Checkbook balance
Bank statement balance
Check drawn on Joanne’s account, payable to supplier, dated and
recorded on December 31, 2017 but not mailed until January 31, 2018
Cash in sinking fund
Treasury bills, purchased November 1, 2017 and maturing January 31, 2018
Time deposit, purchased October 1, 2017 and maturing January 31, 2018
1.
2.
5,000,000
4,000,000
1,000,000
1,500,000
2,500,000
2,000,000
What amount should be reported as cash on December 31, 2017?
What amount should be reported as cash equivalent on December 31, 2017?
Margaret Company provided the following information for the month of October:
Cash in bank, per bank statement, October 31
Bank service charge for October
Interest paid by the bank to Margaret Company for October
Deposits made but not yet recorded by the bank
Checks written and mailed but not yet recorded by the bank
Erroneously recorded a check payment for P92,000 that should have
been recorded as P128,000.
3.
4.
5,600,000
24,000
20,000
700,000
1,300,000
What is the cash balance per ledger on October 31?
How much is the cash to be shown in the statement of financial position
On January 1, 2017, Americano Company had accounts receivable and allowance for doubtful accounts balances of P950,000 and
P100,000 respectively. During 2017, cash and credit sales totaled P5,900,000. Collections from customers were as follows: from credit
customers who took advantage of the 4/10, n/30, P3,024,000, from credit customers who did not took advantage of the credit terms (which
includes recovery of accounts previously written off of P25,000), P450,000, from cash customers, P2,100,000. Also, P50,000 of accounts
were written off during the year and sales returns and allowances were as follows: credit memorandum issued to credit customers, P250,000
and cash refund to cash customers, P20,000. Americano estimates that 5% of its accounts receivable ending balance is considered doubtful.
5.
6.
What is the net realizable value of accounts receivable on December 31, 2017?
What is the amount of net sales?
On January 1, 2017, Leaf Company sold goods to Green Company. Green issued a noninterest-bearing note requiring annual payment of
P400,000 for 5 years. The first payment was made on December 31, 2017. The prevailing interest rate for this similar note is 12%. The
present value factor of an ordinary annuity for 5 periods at 12% is 3.60 while the factor for an annuity due for 5 periods at 12% is 4.04.
7.
8.
9.
How much is the sales revenue of Leaf Company for 2017?
What total amount of income should be recognized at December 31, 2017?
What is the current portion of the notes receivable on December 31, 2017?
Danica Company sold one of its buildings on January 1, 2017 for P20,000,000. Danica received a cash down payment of P5,000,000 and a
5-year, 10% note for the balance of P15,000,000. The note is payable in equal annual payments of principal and interest of P3,957,000
payable on December 31 of each year until the year 2021.
10. What is the 2017 interest income
11. What is the notes receivable balance on December 31, 2017
12. What amount is to be reported as current notes receivable on December 31, 2017?
The records of Canon Company for accounts receivable show the following:
Balance, January 1
Balance, January 31
Collection on accounts in January
Accounts written off
Sales allowances on credit sales for January
Cash sales on January
13. What amount should be reported as gross sales in the income statement for January?
24,000
25,200
38,000
2,800
400
2,400
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Certain information relative to the 2017 operation of Dillinger Company follows:
Accounts receivable, Jan. 1
Amortized cost of accounts receivable Jan. 1
Total accounts receivable collected
Cash sales
Inventory, January 1
Inventory, December 31
Purchases
Accounts written off
Accounts recovered
Gross profit on sales
300,000
270,000
1,100,000
150,000
100,000
230,000
780,000
80,000
20,000
550,000
Dillinger maintains the same rate for uncollectibility on its accounts receivable at yearend.
14. What is the accounts receivable balance at December 31, 2017?
15. What is the doubtful accounts expense in 2017?
Marian Company’s petty cash fund showed its composition as follows:
Coins and currency
Paid vouchers
Transportation
Gasoline
Office supplies
Postage stamps
Due from employees
2,000
600
400
500
300
1,200
3,000
Employee’s check returned by bank
marked “DAIF”
Check drawn by the company to the order
of the petty cash custodian
1,000
4,000
16. What is the correct amount of petty cash fund?
QQQ Company factored P10,000,000 of accounts receivable to RRR Corporation on October 1, 2017. Control was surrendered by QQQ.
RRR accepted the receivables subject to recourse for nonpayment. RRR assessed a fee of 6% and retains a holdback equal to 15% of the
accounts receivable. In addition, RRR charged 12% interest computed on weighted average time to maturity of the receivables of 40 days.
The fair value of the recourse obligation is P300,000.
17. What amount of cash will QQQ October 1, 2017?
18. What is the total loss on factoring?
Modern Company received from Blake Company on March 1, 2017 a 10-month, P2,000,000 note bearing an annual interest rate of 12%.
The principal and the interest is payable on December 30, 2017. To obtain cash quickly, Modern discounted the note with Premiere Bank
on June 30, 2017. The bank charged a discount rate of 15%. Blake Company dishonored the note on maturity and the bank automatically
filed a protest incurring a fee of P200,000.
19. What is amount of receivable to be recorded by Modern from Blake?
20. How much was the proceeds from discounting?
21. How much is the loss from factoring
On January 1, 2016, Corona Bank granted a P2,000,000, 8% loan to Basra Company. Interest is receivable at the end of each year with the
principal due at the end of five years. At the end of 2016, the first year’s interest was not received due to financial difficulties (no interest
income was recognized) and thus negotiated a restructuring of the loan. The payment of all interest based on the original principal for five
years will be collected, together with the principal at maturity and the principal amount of the loan was reduced by P500,000. The PV of 1 at
8% for 4 periods is 0.735.
22. What is the impairment loss on December 31, 2016?
23. What is the 2017 interest income?
24. What is the 2018 interest income?
On December 1, 2018, Stiller Company assigned on a nonnotification basis accounts receivable of P5,000,000 to a bank in consideration
for a loan of 80% of the receivables less a 5% service fee on the accounts assigned. Stiller collected assigned accounts of P2,000,000,
allowing sales discounts of P200,000 and remitted the collections to the bank in partial payment for the loan. Also during December, sales
returns and allowances amounted to P50,000 and Accounts Receivable Assigned written off amounted to P30,000. The bank applied first
the collection to the interest and the balance to the principal. The agreed interest is 1% per month on the loan balance.
25. What of amount of disclosure in the 2018 financial statements will be for the ‘equity in assigned accounts”? Equity in
assigned accounts is the difference between the balance of the Accounts Receivable Assigned and the note payable
balance.
End