PRACTICAL
ACCOUNTING 1
Submitted by:
Dizon, Russel
Canlas, Marianne
Flores, Peejay
Lagroma, Stefhanie
Villa, Ma. Louella Fatima
STATEMENT OF FINANCIAL POSITION
1.) The general ledger trial balance of Darwin Company included the
following accounts on December 31, 2013:
Inventory, including inventory expected in the ordinary
course of operations to be sold beyond 12 months
amounting to P700,000
Accounts receivable
1,000,000
1,200,000
Prepaid insurance
100,000
Financial assets held for trading
200,000
Financial asset at fair value through other
comprehensive income
800,000
Cash
300,000
Deferred tax asset
150,000
Bank overdraft
250,000
What amount should be reported as total current asset on December 31, 2013?
a. 2,800,000
b. 2,550,000
c. 3,600,000
d. 2,100,000
2.) Violago Company provided the following account balances on
December 31, 2013:
Accounts receivable
Financial assets at fair value through profit or loss
1,600,000
500,000
Financial assets at amortized cost
1,300,000
Cash
1,100,000
Inventory
3,000,000
Equipment and furniture
2,500,000
Accumulated depreciation
1,500,000
Patent
400,000
Prepaid expenses
100,000
Equipment classified as held for sale
2,000,000
In the December 31, 2013 statement of financial position, what total
Amount should be reported as current assets?
a. 6,300,000
b. 8,300,000
c. 8,200,000
d. 9,600,000
3.) Pamela Company provided the following adjusted account balances
on December 31, 2013:
Wages payable
250,000
Cash
200,000
Mortgage payable
1,500,000
Dividends payable
150,000
Prepaid rent
100,000
Inventory
800,000
Sinking fund
500,000
Short-term investments
300,000
Investment in associate
2,000,000
Taxes payable
220,000
Accounts payable
240,000
Accounts receivable
350,000
What total amount should be reported as current assets on December 31, 2013?
a. 2,250,000
b. 1,750,000
c. 3,750,000
d. 4,250,000
4.) Petite Company provided the following data on December 31, 2013:
Cash
5,000,000
Financial assets at fair value (including
long term investment of P500,000 in ordinary
shares of Ayala Company)
2,000,000
Inventories (including goods received on
consignment of P200,000)
800,000
Prepaid expenses (including a deposit of P50,000 made
on inventories to be delivered in 18 months)
150,000
Property, plant and equipment (excluding P300,000
of equipment still in use, but fully depreciated)
10,000,000
Goodwill (based on estimate by the president)
Total assets
Cash in general checking account
Cash in fund to be used to retire bonds in 2015
Cash held to pay value added tax
1,000,000
18,950,000
3,500,000
1,000,000
500,000
Total cash
5,000,000
What total amount should be reported as current assets on December 31, 2013?
a. 6,250,000
b. 6,200,000
c. 7,200,000
d. 7,250,000
5.) Cara Company provided the following information:
1/1/2013
Current assets
12/31/2013
240,000
Property, plant and equipment
1,600,000
Current liabilities
?
Noncurrent liabilities
580,000
?
1,700,000
130,000
?
All assets and liabilities of the entity are reported at year-end. Working capital
of P92,000 remained unchanged from 2012 to 2013. Net income in 2013 was
P64,000. No dividends were declared during 2013 and there were no other changes
in owner’s equity. What amount should be reported as noncurrent liabilities on
December 31, 2013?
a. 340,000
b. 432,000
c. 580,000
d. 616,000
6.) Rice Company was incorporated on January 1, 2013, with P5,000,000 from the
issuance of share capital and borrowed funds of P1,500,000. During the first year,
net income was P2,500,000. On December 15, the entity paid a P500,000 cash
dividend. No additional activities affected shareholders’ equity in 2013. On
December 31, 2013, what amount should be reported as total assets?
a. 6,500,000
b. 9,300,000
c. 8,800,000
d. 6,800,000
7.) Mirr Company was incorporated on January 1, 2013, with proceeds from the
Issuance of P7,500,000 in share capital and borrowed funds of P1,100,000.
During the first year, revenue from sales and consulting amounted to P8,200,000,
and operating costs and expenses totaled P6,400,000. On December 15, 2013, the
entity declared a P300,000 dividend, payable to shareholders’ equity in 2013.
The liabilities increased to P2,000,000 by December 31, 2013. On December 31, 2013,
what amount should be reported as total assets?
a. 11,000,000
b. 11,300,000
c. 10,100,000
d. 12,100,000
8.) Gold Company provided the following trial balance on December 31, 2013:
Cash overdraft
Accounts receivable
100,000
350,000
Inventory
580,000
Prepaid expenses
120,000
Land classified as held for sale
Property, plant and equipment, net
1,000,000
950,000
Accounts payable and accrues expenses
320,000
Ordinary share capital
250,000
Share premium
1,500,000
Retained earnings
830,000
3,000,000
3,000,000
Checks amounting to P300,ooo were written to vendors and recorded on December 29, 2013,
resulting in cash overdraft of P100,000. The checks were mailed January 15, 2014. Land
classified
as held for sale was sold for cash on January 31, 2014. The entity issued the financial statement
on March 31, 2014. On December 31, 2013, what total amount should be reported as current
assets?
a. 2,250,000
b. 2,050,000
c. 1,950,000
d. 1,250,000
9.) Arabian Company reported the following current assets on December31, 2013:
Cash
4,300,000
Accounts receivable
7,500,000
Inventory
4,000,000
Deferred tax asset
1,200,000
An analysis of the accounts receivable disclosed that accounts
receivable comprised the following:
Trade accounts receivable
5,000,000
Allowance for doubtful accounts
( 500,000)
Selling price of Arabian Company’s unsold goods sent
to Tar Company on consignment at 150% of cost
and excluded from Arabian’s ending inventory
3,000,000
7,500,000
On December 31, 2013, what amount should be reported as total current assets?
a. 16,000,000
b. 15,300,000
c. 15,800,000
d. 14,800,000
10.)
Caticlan Company provided the following data on December 31, 2013:
Cash, including sinking fund of P500,000
Notes receivable
Note receivable discounted
Accounts receivable – unassigned
2,000,000
1,200,000
700,000
3,000,000
Accounts receivable – assigned
Equity of assignee in accounts receivable assigned
800,000
500,000
Inventory, including P600,000 cost of goods in transit
Purchased FOB destination. The goods were
Received on January 3, 2014/
2,800,000
Allowance for doubtful accounts
100,000
What total amount of current assets should be reported in the statement
of financial position on December 31, 2013?
a. 7,900,000
b. 8,000,000
c. 7,400,000
d. 7,700,000
11.)
On December 31, 2013, Ivan Company showed the following current assets:
Cash
500,000
Accounts receivable
2,500,000
Inventory
2,000,000
Prepaid expenses
100,000
Total current assets
5,100,000
Cash on hand including customer’s postdated check
of P20,000 and employee IOU of P10,000
130,000
Cash in bank per bank statement (outstanding
Checks on December 31, 2013, P70,000)
Total cash
370,000
500,000
Customer’s debit balances, net of customers
deposit of P50,000
1,900,000
Allowance for doubtful accounts
( 150,000)
Sales price of goods invoiced to customers at 150%
of cost on December 29, 2013 but delivered on
January 5, 2014 and excluded from reported
Inventory
750,000
Total accounts receivable
2,500,000
What total amount of current assets should be reported on December 31, 2013?
a. 4,900,000
b. 4,830,000
c. 4,780,000
d. 4,630,000
12.)
East Company reported the following current assets at year-end:
Cash
3,200,000
Accounts receivable
2,000,000
Inventory
2,800,000
Deferred charges
200,000
8,200,000
That accounts receivable consisted of the following items:
Customers’ accounts
Employees’ account-current
Advances to subsidiary
Allowance for uncollectible accounts
Claim against shipper for goods lost in transit
1,420,000
240,000
260,000
(120,000)
200,000
2,000,000
What amount should be reported as total current assets?
a. 7,740,000
b. 7,780,000
c. 7,940,000
d. 8,200,000
13.)
Daet Company provided the following account balances and related
Information on December 31, 2013:
Cash and cash equivalents
3,700,000
Accounts receivable
1,500,000
Allowance for doubtful accounts
( 200,000)
Inventory
2,000,000
Prepaid insurance
300,000
7,300,000
Cash in bank, net of bank overdraft of P300,000
maintained in a separate bank
1,000,000
Cash set aside by the Board of Directors for the
purchase of a plant site
Petty cash
2,000,000
10,000
Cash withheld from wages for income tax of employees
General cash
Total cash and cash equivalents
190,000
500,000
3,700,000
The accounts receivable included past due account in the amount of
P100,000. The amount is deemed uncollectible and should be written off.
The inventory included goods held on consignment amounting to P150,000
And goods of P200,000 purchased and received on December 31, 2013.
Neither of these items have been recorded as purchase.
The prepaid insurance included cash surrender value of life insurance
of P50,000.
What total amount should be reported as current assets on December 31, 2013?
a. 5,400,000
b. 5,100,000
c. 5,300,000
d. 5,200,000
14.)
Mill Company provided the following account balances on December
31, 2013
Accounts payable
1,500,000
Bond payable , due 2014
2,500,000
Discount on bonds payable
300,000
Dividends payable
800,000
Note payable, due 2015
What total amount of current liabilities should be reported?
a. 4,500,000
2,000,000
b. 5,100,000
c. 6,500,000
d. 7,800,000
15.)
Gar Company reported the following liability account balances on
December 31, 2013:
Accounts payable
1,900,000
Bonds payable
3,400,000
Premium on bonds payable
200,000
Deferred tax liability
400,000
Dividends payable
500,000
Income tax payable
900,000
Note payable, due January 31, 2014
600,000
The deferred tax liability is based on temporary differences that will
reverse in 2015. In the December 31, 2013 statement of financial
position, what total amount should be reported as current liabilities?
a. 7,100,000
b. 4,300,000
c. 3,900,000
d. 4,100,000
16.)
Brite Company had the following liabilities on December 31, 2013:
Accounts payable
Unsecured note payable, 8%, due July 1, 2014
550,000
4,000,000
Accrued expenses
350,000
Contingent liability
450,000
Deferred tax liability
250,000
Senior bonds payable, 7%, due March 31, 2014
5,000,000
What amount should be reported as current liabilities?
a. 10,350,000
b. 10,150,000
c. 9,900,000
d. 4,900,000
17.)
Burma Company disclosed the following liabilities:
Accounts payable, after deducting debit balances
In suppliers’ accounts amounting to P100,000
Accrued expenses
4,000,000
1,500,000
Credit balances of customer’s accounts
Stock dividend payable
500,000
1,000,000
Claims for increase in wages and allowances by
Employees of the entity, covered in a pending lawsuit
Estimated expenses in redeeming prize coupons
What amount should be reported as current liabilities?
a. 6,700,000
b. 6,600,000
c. 7,100,000
400,000
600,000
d. 7,700,000
18.)
Gumamela Company provided the following data on December 31, 2013:
Trade accounts payable, including cost of goods
received on consignment of P150,000
1,350,000
Accrued taxes payable
125,000
Customers’ deposit
100,000
Gumamela Company as guarantor
200,000
Bank overdraft
55,000
Accrued electric and power bills
60,000
Reserve for contingencies
150,000
What amount should be reported as total current liabilities?
a. 1,840,000
b. 1,740,000
c. 1,650,000
d. 1,540,000
19.)
Charice Company provided the following on December 31, 2013:
Accounts payable amounted to P500,000 and accrued expenses totaled P300,000 on December
31, 2013.
On December 15, 2013, the entity declared a cash dividend of P7 per share on 100,000
outstanding shares,
payable on January 15, 2014.
On July 1, 2013, the entity issued P500,000,000, 8% bonds for P4,400,000 to yield 10%. The
bonds mature on June 30, 2018, and pay interest annually every June 30.
The pretax financial income was P8,500,000 and taxable income was P6,000,000. The difference
is due to P1,000,000 permanent difference and P1,500,000 of taxable temporary difference to
reverse in 2014. The income tax rate is 30%. The entity made estimated income tax payments
during the year of P1,000,000.
What amount should be reported as total current liabilities on December 31, 2013?
a. 3,500,000
b. 2,700,000
c. 2,300,000
d. 2,500,000
20.)
Mazda Company reported the following liability balances on December 31, 2013:
10% note payable issued on October 1, 2012, maturing
October 1, 2014
2,000,000
12% note payables issued on March 1, 2012, maturing
On March 1, 2014
4,000,000
The 2013 financial statements were issued on March 31, 2014. Under the loan agreement for the
10% note payable, the entity has discretion to refinance the obligation for at least twelve months
after December 31, 2013.
On March 1, 2014, the entire P4,000,000 balance of the 12% note payable was refinanced
through issuance of a long-term obligation payable lump sum. What amount of the notes payable
should be classified as current on December 31, 2013?
a. 6,000,000
b. 4,000,000
c. 2,000,000
d.
0
21.) On December 31, 2013, Ace Company had P40,000,000 note payable due on February
28, 2014.
On December 31, 2013, the entiy arranged a line credit with City Bank which allows the entity to
borrow up to P35,000,000 at one percent above the prime rate for three years. On February 15,
2014, the entity borrowed P25,000,000 from City Bank and used P5,000,000 additional cash to
liquidate P30,000,000 note payable.
The financial statement were issued on March 31, 2014. What amount of the note payable should
be reported as current liability on December 31, 2013?
a. 40,000,000
b. 10,000,000
c.
d.
5,000,000
0
22.) Jam Company had P2,000,000 note payable that is due on February 28,2014. The entity
borrowed P1,600,000 on February 25, 2014 which was a five year term and used the
proceeds to pay down the note and used other cash to pay the balance. How much of the
P2,000,000 note is classified as noncurrent in the December 31,2013 financial statements that
were issued on March 31, 2014?
a. 2,000,000
b. 1,600,000
c.
400,000
d.
0
23.) Kumaykay Company provided the following schedule of liabilities on December 31,
2013:
Accounts payable
6,500,000
Bank note payable – 10%
3,000,000
Bank note payable – 11%
5,000,000
Interest payable
Mortgage note payable – 10%
Bonds payable
150,000
2,000,000
4,000,000

The P3,000,000, 10% note was issued March 1, 2013, payable on demand. Interest is
payable every six months.

The one-year P5,000,000, 11% note was issued January 15, 2013. On December 31,
2013, the entity negotiated a written agreement with the bank to replace the note with a 2year, P5,000,000, 10% note to be issued January 15, 2014.

The 10% mortgage note was issued October 1, 2010, with a term of 10 years. Terms of
the note give the holder the right to demand immediate payment if the entity fails to
make a monthly interest payment within 10 days from the date the payment is due. On
December 31, 2013, the entity is three months behind in making its required interest
payment.

The bonds payable are ten-year, 8% bonds, issued June 30, 2004. Interest is payable
semiannually on June 30 and December 31.
What amount should be reported as total current liabilities on December 31, 2013?
a. 15,650,000
b. 11,650,000
c. 20,650,000
d. 13,650,000
24.)
Manchester Company provided the following information on December 31,2013:
Employee income taxes withheld
900,000
Cash balance at First State Bank
2,500,000
Cash overdraft at Harbor Bank
1,300,000
Accounts receivable with credit balance
750,000
Estimated expenses of meeting warranties
500,000
Estimated damages as a result of unsatisfactory
Performance on a contract
Accounts payable
1,500,000
3,000,000
Deferred serial bonds, issued at par and bearing interest at 12%,
Payable in semiannual installments of P500,000 due April 1
and October 1 of each year, the last bond to be paid on
October 1, 2019. Interest is also paid semiannually.
5,000,000
What amount should be reported in the December 31, 2013 statement of financial position
as total current liabilities?
a. 8,100,000
b. 7,950,000
c. 9,100,000
d. 7,350,000
25.) The unadjusted current assets and shareholders’ equity of United Company on December
31, 2013 are as follows:
Cash
600,000
Financial assets at fair value (including cost
of P300,000 of United Company’s shares)
1,000,000
Trade accounts receivable
3,500,000
Inventory
1,500,000
Share capital
5,000,000
Share premium
Retained earnings
2,000,000
500,000
What amount should be reported as total shareholders’ equity?
a. 7,200,000
b. 7,500,000
c. 7,800,000
d. 5,200,000
26.) The adjusted trial balance of Kalinga Company on December 31, 2013 included the
following accounts:
Share capital
15,000,000
Share premium
5,000,000
Treasury shares, at cost
2,000,000
Actuarial loss recognized through other
comprehensive income
1,000,000
Retained earnings unappropriated
6,000,000
Retained earnings appropriated
3,000,000
Revaluation surplus
4,000,000
Cumulative translation adjustment – credit
1,500,000
What amount should be reported as total shareholders’ equity?
a. 31,500,000
b. 32,500,000
c. 28,500,000
d. 25,500,000
27.)
Silver Company provided the following information on December 31, 2013:
Share premium
Accounts payable
Preference share capital, at par
Ordinary share capital, at par
Sales
1,000,000
1,100,000
2,000,000
3,000,000
10,000,000
Total expenses
7,800,000
Treasury shares – ordinary
500,000
Dividends
700,000
Retained earnings – January 1
1,000,000
What total shareholders’ equity should be reported on dece,
31, 2013?
a. 8,000,000
b. 8,500,000
c. 5,800,000
d. 8,700,000
28.)
Mont Company reported net assets totaling P8,750,000 on December 31, 2013.
The assets included the following:
Treasury shares of Mont Company at cost
250,000
Idle machinery
100,000
Trademark
150,000
Allowance for inventory writedown
200,000
What amount should be reported as net assets on December 31, 2013?
a. 8,500,000
b. 8,400,000
c. 8,300,000
d. 8,200,000
29.) Peach Company reported total assets of P4,375,000 at year-end. The total assets included
the following:
Treasury shares of Peach Company at cost
Unamortized patent
120,000
56,000
Cash surrender value of life insurance
Cumulative translation loss
What amount should be reported as total assets at year-end?
a. 4,208,500
b. 4,213,000
c. 4,250,500
d. 4,225,000
68,500
42,000
30.)
Kabugao Company provided the following on December 31, 2013:
Cash in bank, net of bank overdraft of P500,000
5,000,000
Petty cash (unreplenished petty cash expenses, P10,000)
Notes receivable
50,000
4,000,000
Accounts receivable, net of accounts with credit balances
Of P1,500,000
6,000,000
Inventory
3,500,000
Bond sinking fund
3,000,000
Total current assets
21,550,000
Accounts payable, net of accounts with debit balances of P1,000,000
7,000,000
Notes payable
4,000,000
Bond payable due June 30, 2014
3,000,000
Accrued expenses
2,000,000
Total current liabilities
16,000,000
1. What amount should be reported as total current assets on December 31, 2013?
a. 19,040,000
b. 20,040,000
c. 20,050,000
d. 24,040,000
2. What amount should be reported as total current liabilities on December 31, 2013?
a. 19,000,000
b. 16,000,000
c. 15,500,000
d. 15,000,000
31.)
The following trial balance of Trey Company on December 31, 2013
has been adjusted except for income tax expense:
Cash
600,000
Accounts receivable, net allowance of
P100,000
1,650,000
Prepaid taxes
300,000
Accounts payable
140,000
Share capital
500,000
Share premium
680,000
Retained earnings
Foreign currency translation adjustment
630,000
400,000
Revenue
Expenses
3,600,000
2,600,000
5,550,000
5,550,000
During 2013, estimated tax payments of P300,000 were change to prepaid taxes. The entity has
not yet recorded income tax expense.
There were no differences between financial and taxable income. The tax rate is 30%.
Included in accounts receivable is P500,000 due from a customer.
Special terms granted to this customer require payment in equal semiannual installments of
P125,000 every April 1 and October 1.
1. In the December 31, 2013 statement of financial position, what amount should be
reported as total current assets?
a. 2,000,000
b. 2,200,000
c. 2,300,000
d. 2,500,000
2. In the December 31, 2013 statement of financial position, what amount should be
reported as total retained earnings?
a. 1,680,000
b. 1,200,000
c. 1,330,000
d. 1,630,000
32.)
The following trial balance of Mint Company on December 31, 2013
has just been adjusted except for income tax expense:
Cash
Accounts receivable, net
Cost in excess of billings on long-term contracts
600,000
3,500,000
1,600,000
Billings in excess of cost on long-term contracts
Prepaid taxes
Property, plant and equipment
Note payable – noncurrent, net
Share capital
Share premium
Retained earnings unappropriated
700,000
450,000
1,510,000
1,620,000
750,000
2,030,000
900,000
Retained earnings appropriated
160,000
Earnings from long-term contracts
Cost and expenses
6,680,000
5,180,000
12,840,000
12,840,000

The entity used the percentage of completion method to account for long-term
construction contracts for financial statement and income tax purposes. All receivables on
these contracts are considered to be collectible within 12 months.

During 2013, estimated tax payments of P450,000 were charged to prepaid taxes. The
entity has not recorded income tax expense. There were no temporary or permanent
differences. The tax rate is 30%.
In December 31, 2013 statement of financial position, what amount should be reported as
1. Total retained earnings?
a. 1,950,000
b. 2,110,000
c. 2,400,000
d. 2,560,000
2. Total noncurrent liabilities?
a. 1,620,000
b. 1,780,000
c. 2,230,000
d. 2,480,000
3. Total current assets?
a. 5,000,000
b. 4,100,000
c. 5,700,000
d. 6,225,000
33.)
Multinational Company provided the following balances on December 31, 2013:
Accounts payable
500,000
Accrued taxes
100,000
Ordinary share capital
5,000,000
Dividends – ordinary share
1,000,000
Dividends – preference share
500,000
Mortgage payable (P500,000 due in six months)
4,000,000
Note payable, due in January 31, 2015
2,000,000
Share premium
Preference share capital
Premium on note payable
Income summary – credit balance
500,000
3,000,000
200,000
4,000,000
Retained earnings – January 1
2,500,000
Unamortized issue cost on note payable
Unearned rent income
50,000
150,000
1. What is the total amount of noncurrent liabilities on December 31, 2013?
a. 5,700,000
b. 6,200,000
c. 5,500,000
d. 5,650,000
2. What is the amount of retained earnings on December 31, 2013?
a. 6,500,000
b. 2,500,000
c. 1,000,000
d. 5,000,000
3. What is the total shareholders’ equity on December 31, 2013?
a. 15,000,000
b. 13,500,000
c.
9,500,000
d.
8,500,000
34.)
Aroma Company provided the following information on December 31, 2013:
Cash
Accounts receivable, net allowance of P50,000
Inventory
Prepaid expenses
Property, plant and equipment
Accumulated depreciation
300,000
800,000
1,650,000
250,000
8,800,000
800,000
Accounts payable
1,250,000
Accrued expenses
250,000
Bonds payable
4,000,000
Share capital
5,000,000
Retained earnings
500,000
A P500,000 note payable to bank, due on June 30, 2014, was deducted from the balances on
deposit in the same bank. The entity recorded checks of P200,000 in payment of accounts
payable on December 31, 2013. These checks were still on hand on January 20, 2014. An
advance payment of P100,000 from a customer for goods to be delivered in 2014 was deducted
from accounts receivable. What is the working capital on December 31, 2013?
a. 1,500,000
b. 3,800,000
c. 1,400,000
d. 2,000,000
35.)
Alena Company provided the following information at year-end:
Property, plant and equipment
Accounts receivable
35,000,000
20,000,000
Prepaid insurance
2,500,000
Short-term note payable
3,000,000
Cash
5,000,000
Bonds payable
40,000,000
Total assets
101,500,000
Land
20,000,000
Accounts payable
8,000,000
Allowance for doubtful accounts
1,000,000
Merchandise inventory
13,000,000
Financial asset at fair value through other
comprehensive income
7,000,000
Wages payable
2,000,000
Total liabilities
56,000,000
Premium on bonds payable
What is the working capital?
a. 46,500,000
b. 33,500,000
c. 26,500,000
d. 35,500,000
3,000,000
36.)
Moon Company provided the following data on December 31, 2013:
Cash in general checking account
500,000
Sinking fund to be used to retire bonds in 2016
1,200,000
Cash held to pay value added taxes
300,000
Notes receivable – due February 2015
2,200,000
Accounts receivable
2,100,000
Inventory
1,500,000
Prepaid insurance
300,000
Vacant land held as investment
5,000,000
Equipment classified as help for sale
300,000
Accounts payable
1,400,000
Note payable – due July 2014
800,000
Note payable – due January 2015
300,000
Bonds payable – maturity 2016
4,600,000
Salaries payable
400,000
Value added taxes payable
300,000
What is the amount of working capital?
a. 4,900,000
b. 2,000,000
c. 2,260,000
d. 1,700,000
37.)
The following trial balance of Shaw Company on December 31, 2013
has been adjusted except income tax expense:
Cash
675,000
Accounts receivable (net)
2,695,000
Inventory
2,185,000
Property, plant and equipment (net)
10,245,000
Accounts payable and accrued liabilities
1,800,000
Income tax payable
1,500,000
Deferred tax liability
750,000
Share capital
2,500,000
Share premium
3,000,000
Retained earnings, January 1
3,350,000
Net sales and other revenue
15,000,000
Costs and expenses
10,000,000
Income tax expense
2,100,000
27,900,000
27,900,000
The accounts receivable included P1,000,000 due from a customer and payable in quarterly
installments of P125,000. The last payment is due December 30, 2015. During the year,
estimated tax payment of P600,000 was charged to income tax expense. The income tax rate is
30% on all types of income.
On December 31, 2013, what amount should be reported as:
1. Total current assets?
a. 6,030,000
b. 5,555,000
c. 5,530,000
d. 5,055,000
2. Total current liabilities?
a. 2,700,000
b. 3,300,000
c. 4,050,000
d. 3,450,000
3. Retained earnings?
a. 8,350,000
b. 7,750,000
c. 6,850,000
d. 6,250,000
38.) The current sections of the unadjusted statement of financial position of Camarines
Company on December 31, 2013 were as follows:
Cash
2,000,000
Accounts receivable
3,000,000
Merchandise inventory
Prepaid expenses
1,900,000
100,000
Total current assets
7,000,000
Trade accounts payable, net of a debit balance of P500,000
2,450,000
Interest payable
Income tax payable
Money claims of the union, pending final decision
Mortgage payable, due in four annual installments
Total current liabilities
150,000
300,000
500,000
2,000,000
5,400,000
A review showed that the cash balance of 2,000,000 included a customer’s check amounting to
P100,000 returned by the bank marked NSF, an employee IOU of P50,000, and P200,000
deposited with the court for a case under litigation. The cash in bank portion of P1,650,000 is the
balance per bank statement. On December 31, 2013, outstanding checks amounted to P250,000.
The accounts receivable included the following:
Customer’s debit balance
1,600,000
Advances to subsidiary
400,000
Advances to suppliers
200,000
Receivable from officers
300,000
Allowance for doubtful accounts
(100,000)
Selling price of merchandise invoiced at 120%
of cost, not yet delivered and excluded from ending inventory
600,000
Total accounts receivable
3,000,000
What amount should be reported as total current assets on December 31, 2013?
a. 6,050,000
b. 6,350,000
c. 5,550,000
d. 6,100,000
NOTES TO FINANCIAL STATEMENTS
1.) During 2013, Jane Company engaged in the following transactions:
Key management personnel compensation
2,000,000
Sales to affiliated entities
3,000,000
What total amount should be included as related party disclosures in Jane Company’s 2013
financial statements?
a. 5,000,000
b. 3,000,000
c. 2,000,000
d.
0
2.) Gibson Company is part of a major industrial group and is known to accurately disclose
related party transactions in its financial statements. Renumeration and other payments
made to the entity’s chief executive office during 2013 were:
Annual salary
2,000,000
Share option and other share-based payments
1,000,000
Contribution to retirement benefit plan
500,000
Reimbursement of travel expenses for business trips
1,200,000
What total amount should be disclosed as “compensation” to key management personnel?
a. 3,500,000
b. 4,700,000
c. 3,000,000
d. 2,500,000
3.) Dean Company acquired 100% Morey Company prior to 2013.
During 2013, the individual entities included in their financial statements the following:
Dean
Morey
Key officers’ salaries
750,000
Officers’ expenses
200,000
100,000
1,250,000
500,000
Loans to officers
Intercompany sales
1,500,000
500,000
What total amount should be reported as related party disclosures in the notes to Dean
Company’s 2013 consolidate financial statement?
a. 1,500,000
b. 1,550,000
c. 1,750,000
d. 3,000,000
4.) The audit of Anne Company for the year ended December 31, 2013 was completed on
March 1, 2014. The financial statements were signed by the managing director on March
15, 2014 and approved by the shareholders on March 31, 2014. The next events have
occurred.

On January 15, 2014, a customer owing P200,000 to Anne Company filed for
bankruptcy. The financial statements included an allowance for doubtful accounts
pertaining to this customer only of P100,000

Anne Company’s issued share capital comprised 100,000 ordinary shares with P100,000
par value. The entity issued additional 25,000 shares on March 1, 2014 at par value.

Specialized equipment costing P525,000 purchased on September 1, 2013 was destroyed
by fire on December 15, 2013. Anne Company has booked a receivable of P400,000 from
the insurance entity.
After the insurance entity completed its investigation on February 1, 2014, it was discovered that
the fire took place due to negligence of the machine operator. As a result, the insurer’s liability
was zero on this claim.
What total amount should be reported as “adjusting events” on December 31, 2013?
a. 1,300,000
b. 1,200,000
c. 3,800,000
d. 3,700,000
5.) The end of reporting period of Norway Company is December 31, 2013 and the financial
statements are authorized for issue on March 15, 2014.

On December 31, 2013, Norway Company had a receivable of P400,000 from a customer
that is due 60 days after the end of reporting period. On January 15, 2014, a receiver was
appointed for the said customer. The receiver informed Norway that the P400,000 would
be paid in full by June 30, 2014.

Norway Company measured its investments in listed shares as held for trading at fair
value through profit or loss. On December 31, 2013, these investments were recorded at
the market value of P5,000,000. During the period up to February 15, 2014, there was a
steady decline in the market value of all the shares in portfolio, and on February 15,
2014, the market value had fallen to P2,000,000.

Norway Company had reported a contingent liability on December 31, 2013 related to a
court case in which Norway Company was defendant. The case was not heard until the
first of February 2014. On February 11, 2014, the judge handed down a decision against
Norway Company. The judge determined that Norway Company was liable to pay
damages and costs totaling P3,000,000.

On December 31, 2013, Norway Company had a receivable from a large customer in the
amount of P3,500,000. On January 31, 2014, Norway Company was advised in writing
by the liquidator of the said customer that the customer was insolvent and that only 10%
of the receivable will be paid on April 30, 2014.
What should be reported as “adjusting events” on December 31, 2013?
a. 6,150,000
b. 9,150,000
c. 9,550,000
d. 6,500,000
6.) Ginger Company is completing the preparation of its draft financial statements for the
year ended December 31, 2013. The financial statements are authorized for issue on
March 31, 2014. On March 15, 2014, a dividend of P1,750,000 was declared and a
contractual profit share payment of P350,000 was made, both based on the profit for the
year ended December 31, 2013. On February 1, 2014, a customer went into liquidation
having owed the entity P340,000 for the past 5 months. No allowance had been made
against this debt in the draft financial statements. On March 20, 2014, a manufacturing
plant was destroyed by fire resulting in a financial loss of P2,600,000.
What total amount should be recognized as profit or loss for the year ended December 31, 2013
ro reflect adjusting events after the end of reporting period?
a. 1,750,000
b. 3,290,000
c. 2,600,000
d.
690,000
7.) Elysee Company’s draft financial statements showed the profit before tax for the year
ended December 31, 2013 at P9,000,000. The board of directors authorized the financial
statements for issue on March 20, 2014. A fire occurred at one of Elysse’s sites on
January 15, 2014 with the resulting damage costing P7,000,000, only P4,000,000, of
which is covered by insurance. The repairs will take place and be paid for in April 2014.
The 4,000,000 claim from the insurance entity will however be received on February 14,
2014.
What amount should be reported as profit before tax in Elysee’s financial statements?
a. 13,000,000
b.
9,000,000
c.
2,000,000
d.
6,000,000
8.) Caress Company carried a provision of P2,000,000 in its draft financial statements on
December 31, 2013 in relation to an unresolved court case. On January 31, 2014, when
the financial statements on December 31, 2013 had not yet been authorized for issue, the
case was settled and the court decided the final total damages payable by Caress to be
P2,800,000. What amount should be adjusted on December 31, 2013 in relation to this
event?
a. 2,800,000
b. 2,000,000
c.
800,000
d.
0
9.) During 2013, Marian Company was sued by a competitor for P5,000,000 for
infringement of patent. Based on the advice of the entity’s legal counsel, the entity
accrued the sum of P3,000,000 as a provision in its financial statements for the year
ended December 31, 2013.
Subsequently, on March 15, 2014. The Supreme Court decided in favor of the party alleging
infringement of the patent and ordered the defendant to pay the aggrieved party a sum of
P3,500,000.
The financial statements were prepared by the entity’s management of February 15, 2014 and
approved by the board of directors on March 31, 2014.
What amount should be recognized as accrued liability on December 31, 2013?
a. 5,000,000
b. 3,500,000
c. 3,000,000
d. 1,500,000
10.)
Caroline Company provided the following events that occurred after December
31, 2013:
1/15/2014
customer.
P3,000,000 of accounts receivable was written off due to the bankruptcy of a major
2/14/2014
lost at sea
A shipping vessel of the entity with carrying amount of P5,000,000 was completely
because of a hurricane.
3/11/2014
A court case involving the entity as the defendant was settled and the entity was
obligated to pay the
plaintiff P1,500,000. The entity previously has not recognize a
liability for the suit because
entity would lose the case.
management deemed it possible that then
3/15/2014
One of the entity’s factories with a carrying amount of P4,000,000 was completed
razed by forest fire
that erupted in its vicinity.
The management completed the draft of the financial statements for 2013 on February 10, 2014.
On March 20, 2014, the board of directors authorized the financial statements for issue. The
entity announced its profit and other selected information on March 22, 2014. The financial
statements were approved by shareholders on April 2, 2014 and filed with the SEC the very next
day. What total amount should be reported as “adjusting events” on December 31, 2013?
a. 9,500,000
b. 8,500,000
c. 9,000,000
d. 4,500,000
NOTES TO FINANCIAL STATEMENTS
11.)
During 2013, Jane Company engaged in the following transactions:
Key management personnel compensation
2,000,000
Sales to affiliated entities
3,000,000
What total amount should be included as related party disclosures in Jane Company’s 2013
financial statements?
e. 5,000,000
f. 3,000,000
g. 2,000,000
h.
0
12.)
Gibson Company is part of a major industrial group and is known to accurately
disclose related party transactions in its financial statements. Renumeration and other
payments made to the entity’s chief executive office during 2013 were:
Annual salary
2,000,000
Share option and other share-based payments
1,000,000
Contribution to retirement benefit plan
500,000
Reimbursement of travel expenses for business trips
1,200,000
What total amount should be disclosed as “compensation” to key management personnel?
e. 3,500,000
f. 4,700,000
g. 3,000,000
h. 2,500,000
13.)
Dean Company acquired 100% Morey Company prior to 2013.
During 2013, the individual entities included in their financial statements the following:
Dean
Morey
Key officers’ salaries
750,000
Officers’ expenses
200,000
100,000
1,250,000
500,000
Loans to officers
Intercompany sales
500,000
1,500,000
What total amount should be reported as related party disclosures in the notes to Dean
Company’s 2013 consolidate financial statement?
e. 1,500,000
f. 1,550,000
g. 1,750,000
h. 3,000,000
14.)
The audit of Anne Company for the year ended December 31, 2013 was
completed on March 1, 2014. The financial statements were signed by the managing
director on March 15, 2014 and approved by the shareholders on March 31, 2014. The
next events have occurred.

On January 15, 2014, a customer owing P200,000 to Anne Company filed for
bankruptcy. The financial statements included an allowance for doubtful accounts
pertaining to this customer only of P100,000

Anne Company’s issued share capital comprised 100,000 ordinary shares with P100,000
par value. The entity issued additional 25,000 shares on March 1, 2014 at par value.

Specialized equipment costing P525,000 purchased on September 1, 2013 was destroyed
by fire on December 15, 2013. Anne Company has booked a receivable of P400,000 from
the insurance entity.
After the insurance entity completed its investigation on February 1, 2014, it was discovered that
the fire took place due to negligence of the machine operator. As a result, the insurer’s liability
was zero on this claim.
What total amount should be reported as “adjusting events” on December 31, 2013?
e. 1,300,000
f. 1,200,000
g. 3,800,000
h. 3,700,000
15.)
The end of reporting period of Norway Company is December 31, 2013 and the
financial statements are authorized for issue on March 15, 2014.

On December 31, 2013, Norway Company had a receivable of P400,000 from a customer
that is due 60 days after the end of reporting period. On January 15, 2014, a receiver was
appointed for the said customer. The receiver informed Norway that the P400,000 would
be paid in full by June 30, 2014.

Norway Company measured its investments in listed shares as held for trading at fair
value through profit or loss. On December 31, 2013, these investments were recorded at
the market value of P5,000,000. During the period up to February 15, 2014, there was a
steady decline in the market value of all the shares in portfolio, and on February 15,
2014, the market value had fallen to P2,000,000.

Norway Company had reported a contingent liability on December 31, 2013 related to a
court case in which Norway Company was defendant. The case was not heard until the
first of February 2014. On February 11, 2014, the judge handed down a decision against
Norway Company. The judge determined that Norway Company was liable to pay
damages and costs totaling P3,000,000.

On December 31, 2013, Norway Company had a receivable from a large customer in the
amount of P3,500,000. On January 31, 2014, Norway Company was advised in writing
by the liquidator of the said customer that the customer was insolvent and that only 10%
of the receivable will be paid on April 30, 2014.
What should be reported as “adjusting events” on December 31, 2013?
e. 6,150,000
f. 9,150,000
g. 9,550,000
h. 6,500,000
16.)
Ginger Company is completing the preparation of its draft financial statements for
the year ended December 31, 2013. The financial statements are authorized for issue on
March 31, 2014. On March 15, 2014, a dividend of P1,750,000 was declared and a
contractual profit share payment of P350,000 was made, both based on the profit for the
year ended December 31, 2013. On February 1, 2014, a customer went into liquidation
having owed the entity P340,000 for the past 5 months. No allowance had been made
against this debt in the draft financial statements. On March 20, 2014, a manufacturing
plant was destroyed by fire resulting in a financial loss of P2,600,000.
What total amount should be recognized as profit or loss for the year ended December 31, 2013
ro reflect adjusting events after the end of reporting period?
e. 1,750,000
f. 3,290,000
g. 2,600,000
h.
690,000
17.)
Elysee Company’s draft financial statements showed the profit before tax for the
year ended December 31, 2013 at P9,000,000. The board of directors authorized the
financial statements for issue on March 20, 2014. A fire occurred at one of Elysse’s sites
on January 15, 2014 with the resulting damage costing P7,000,000, only P4,000,000, of
which is covered by insurance. The repairs will take place and be paid for in April 2014.
The 4,000,000 claim from the insurance entity will however be received on February 14,
2014.
What amount should be reported as profit before tax in Elysee’s financial statements?
e. 13,000,000
f.
9,000,000
g.
2,000,000
h.
6,000,000
18.)
Caress Company carried a provision of P2,000,000 in its draft financial
statements on December 31, 2013 in relation to an unresolved court case. On January 31,
2014, when the financial statements on December 31, 2013 had not yet been authorized
for issue, the case was settled and the court decided the final total damages payable by
Caress to be P2,800,000. What amount should be adjusted on December 31, 2013 in
relation to this event?
e. 2,800,000
f. 2,000,000
g.
h.
800,000
0
19.)
During 2013, Marian Company was sued by a competitor for P5,000,000 for
infringement of patent. Based on the advice of the entity’s legal counsel, the entity
accrued the sum of P3,000,000 as a provision in its financial statements for the year
ended December 31, 2013.
Subsequently, on March 15, 2014. The Supreme Court decided in favor of the party alleging
infringement of the patent and ordered the defendant to pay the aggrieved party a sum of
P3,500,000.
The financial statements were prepared by the entity’s management of February 15, 2014 and
approved by the board of directors on March 31, 2014.
What amount should be recognized as accrued liability on December 31, 2013?
e. 5,000,000
f. 3,500,000
g. 3,000,000
h. 1,500,000
20.)
Caroline Company provided the following events that occurred after December
31, 2013:
1/15/2014
customer.
P3,000,000 of accounts receivable was written off due to the bankruptcy of a major
2/14/2014
lost at sea
A shipping vessel of the entity with carrying amount of P5,000,000 was completely
because of a hurricane.
3/11/2014
A court case involving the entity as the defendant was settled and the entity was
obligated to pay the
plaintiff P1,500,000. The entity previously has not recognize a
liability for the suit because
management deemed it possible that then
entity would lose the case.
3/15/2014
One of the entity’s factories with a carrying amount of P4,000,000 was completed
razed by forest fire
that erupted in its vicinity.
The management completed the draft of the financial statements for 2013 on February 10, 2014.
On March 20, 2014, the board of directors authorized the financial statements for issue. The
entity announced its profit and other selected information on March 22, 2014. The financial
statements were approved by shareholders on April 2, 2014 and filed with the SEC the very next
day. What total amount should be reported as “adjusting events” on December 31, 2013?
e. 9,500,000
f. 8,500,000
g. 9,000,000
h. 4,500,000
STATEMENT OF COMPREHENSIVE INCOME
1.) Brock Company reported operating expenses in two categories, namely distribution and
genereal and administrative. The adjusted trial balance at year-end included the following
expense and loss accounts for current year?
Accounting and legal fees
1,200,000
Advertising
1,500,000
Freight out
800,000
Interest
Loss on sale of long-term investment
700,000
300,000
Officers’ salaries
2,250,000
Rent for office space
2,200,000
Sales salaries and commissions
One-half of the rented premises is occupied by the sales department.
What amount should be reported as total distribution costs?
1,400,000
a. 4,800,000
b. 4,000,000
c. 3,700,000
d. 3,600,000
2.) Lee Company reported the following data for the current year:
Legal and audit fees
1,700,000
Rent for office space
2,400,000
Interest on inventory loan
2,100,000
Loss on abandoned data processing equipment
350,000
The office space is used equally by the sales and accounting departments.
What amount should be classified as general and administrative expenses?
a. 2,900,000
b. 3,250,000
c. 4,100,000
d. 5,000,000
3.) Griff Company reported the following data for the current year:
Accounting and legal fees
250,000
Freight in
1,750,000
Freight out
1,600,000
Officers’ salaries
1,500,000
Insurance
850,000
Sales representative salaries
2,150,000
What amount should be reported as administrative expenses?
a. 2,600,000
b. 5,500,000
c. 6,350,000
d. 8,100,000
4.) Dell Company provided the following information for the current year:
Purchases
Purchase discounts
5,300,000
100,000
Beginning inventory
1,600,000
Ending inventory
2,150,000
Freight out
400,000
What is the cost of goods sold for the current year?
a. 4,650,000
b. 4,750,000
c. 5,050,000
d. 5,850,000
5.) Bart Company provided the following information for the current year:
Disbursement for purchases
5,800,000
Increase in trade accounts payable
500,000
Decrease in merchandise inventory
200,000
What is the cost of goods sold for the current year?
a. 6,500,000
b. 6,100,000
c. 5,500,000
d. 5,100,000
6.) Vigor Company provided the following information for the current year:
Net accounts receivable at January 1
Net accounts receivable at December 31
Accounts receivable turnover
900,000
1,000,000
5 to 1
Inventory at January 1
1,100,000
Inventory at December 31
1,200,000
Inventory turnover
4 to 1
What is the gross margin for the current year?
a. 150,000
b. 200,000
c. 300,000
d. 400,000
7.) Hiligaynon Company provided the following information for the current year:
Beginning inventory
400,000
Freight in
300,000
Purchase returns
900,000
Ending inventory
500,000
Selling expenses
1,250,000
Sales discount
250,000
The cost of goods sold is six times the selling expenses.
What is the amount of gross purchase?
a. 6,500,000
b. 6,700,000
c. 8,000,000
d. 8,200,000
8.) Bicolano Company provided the following information for the current year:
Inventory, January 1
2,000,000
Purchases
7,500,000
Purchase returns and allowances
500,000
Sales returns and allowances
750,000
Inventory on December 31
Gross profit rate on net sales
What is the amount of gross sales for the current year?
a. 7,750,000
b. 8,500,000
c. 7,000,000
d. 9,125,000
2,800,000
20%
9.) Kay Company provided the following information for the current year:
Increase in raw materials inventory
Decrease in goods in process inventory
Decrease in finished goods inventory
150,000
200,000
350,000
Raw materials purchased
4,300,000
Direct labor payroll
2,000,000
Factory overhead
3,000,000
Freight out
450,000
Freight in
250,000
What is the cost of goods sold for the current year?
a. 9,950,000
b. 9,550,000
c. 9,250,000
d. 9,150,000
10.)
Sheraton Company reported the following information for the current year:
Ending goods in process
Depreciation on factory building
1,000,000
320,000
Beginning raw materials
Direct labor
Factory supervisor’s salary
Depreciation on headquarters building
Beginning goods in process
400,000
1,980,000
560,000
210,000
760,000
Ending raw materials
340,000
Indirect labor
360,000
Purchases of raw materials
2,300,000
What is the cost of goods manufactured for the current year?
a. 5,340,000
b. 5,580,000
c. 5,550,000
d. 5,820,000
11.)
year:
Argentina Company incurred the following costs and expenses during the current
Raw materials purchases
4,000,000
Direct labor
1,500,000
Indirect labor – factory
800,000
Factory repairs and maintenance
200,000
Taxes on factory building
100,000
Depreciation – factory building
300,000
Taxes on salesroom and general office
150,000
Depreciation – sales equipment
50,000
Advertising
400,000
Sales salaries
500,000
Office salaries
700,000
Utilities (60% applicable to factory)
500,000
Beginning
Ending
Raw materials
300,000
450,000
Work in process
400,000
350,000
Finished goods
500,000
700,000
What is the cost of goods manufactured for the current year?
a. 6,900,000
b. 7,200,000
c. 7,100,000
d. 7,300,000
12.)
Vane Company provided the following trial balance of income statement
accounts for the current year:
Debit
Credit
Sales
5,750,000
Cost of sales
2,400,000
Administrative expenses
700,000
Loss on sale of equipment
100,000
Sales commissions
500,000
Interest revenue
250,000
Freight out
150,000
Loss on early retirement of long-term debt
200,000
Uncollectible accounts expense
150,000
4,200,000
6,000,000
Finished goods inventory:
January 1
4,000,000
December 31
3,600,000
What amount should be reported as cost of goods manufactured?
a. 2,000,000
b. 2,150,000
c. 2,800,000
d. 2,950,000
13.)
Mercury Company showed cost of goods sold of P4,320,000 in its statement of
comprehensive income after the first year of operations. The total manufacturing costs
comprised 50% materials used, 30% direct labor incurred, and 20% manufacturing
overhead. Goods in process at year-end were 10% of the total manufacturing cost.
Finished goods at year-end amounted to 20% of the cost of goods manufactured. What is
the amount of the direct labor cost incurred?
a. 1,800,000
b. 2,400,000
c. 3,000,000
d. 5,400,000
14.)
Tactful Company reported that the operating expenses other than interest expense
for the current year amount to 40% of cost of sales but only 20% of sales. Interest
expense if 5% of sales. The amount of purchases is 120% of cost of sales. Ending
inventory is twice as much as the beginning inventory. The income after tax of 30% for
the current year is P560,000. What is the amount of sales for the current year?
a. 2,080,000
b. 1,485,000
c. 2,285,000
d. 3,200,000
15.)
Jericho Company showed net income of P480,000 in its income statement for the
current year. Selling expenses were equal to 15% of sales and also 25% of cost of sales.
All other expenses were 13% of sales. What is the gross profit for the current year?
a. 4,000,000
b. 2,400,000
c. 1,600,000
d. 2,000,000
16.)
The financial records of Ronalyn Company were destroyed by fire at the end of
the current year. However, certain statistical data related to the income statement are
available.
Interest expense
Cost of goods sold
Sales discount
20,000
2,000,000
100,000
The beginning inventory was P400,000 and decreased 20% during the year. Administrative
expense are 25% of cost of goods sold but only 10% of gross sales. Four-fifths of the operating
expenses relate to sale activities. Ignoring income tax, what is the net income for the current
year?
a. 380,000
b. 480,000
c. 330,000
d. 400,000
17.)
Thorpe Company reported net income of P7,410,000 for the current year. The
auditor raised questions about the following amounts that had been included in net
income:
Unrealized loss on foreign currency translation
Gain in early retirement of bonds payable
( 540,000)
2,200,000
Adjustment of prior of prior year for error
in depreciation (net of tax effect)
Loss from fire
( 750,000)
(1,400,000)
What amount should be reported as adjusted net income?
a. 6,500,000
b. 6,610,000
c. 8,160,000
d. 8,700,000
18.)
Pearl Company reported income before tax of P5,000,000 for the current year.
The auditor questioned the following amounts that had been included in income before
tax:
Equity earnings of Cinn Company – 40% interest
Dividend received from Cinn Company
1,600,000
320,000
Adjustment of profit of prior year
For arithmetical error in depreciation
What amount should be reported as income before tax?
a. 3,400,000
b. 4,680,000
c. 4,800,000
d. 6,080,000
(1,400,000)
19.)
Witt Company incurred the following during the current year:
a. P350,000 from major strike by employees.
b. P300,000 from condemnation of asset.
c. P250,000 from the abandonment of equipment used in the business.
In the income statement, what is the total amount of infrequent losses that should be reported as
extraordinary?
a. 900,000
b. 600,000
c. 650,000
d.
0
20.)
Ocean Company’s comprehensive insurance policy allows its assets to be
replaced at current value. The policy has a P250,000 deductible clause. One of the
entity’s waterfront warehouse was destroyed in a winter storm. Such storms occur
approximately every four years. The entity incurred P100,000 of cost in dismantling the
warehouse and plans to replace it. The following data relate to the warehouse:
Current carrying amount
1,500,000
Replacement cost
5,500,000
What amount of gain should be reported as a component of income from continuing operations?
a. 5,150,000
b. 3,900,000
c. 3,650,000
d.
0
21.)
Bangladesh Company provided the following information for the current year:
Sales
50,000,000
Cost of goods sold
30,000,000
Distribution costs
5,000,000
General and administrative expenses
4,000,000
Interest expense
2,000,000
Gain on early extinguishment of long-term debit
Correction of inventory error, net of income tax – credit
500,000
1,000,000
Investment income – equity method
3,000,000
Gain on expropriation
2,000,000
Income tax expense
5,000,000
Dividends declared
2,500,000
What is the income from continuing operations?
a. 9,000,000
b. 8,000,000
c. 9,500,000
d. 7,000,000
22.)
Rosebud Company provided the following information for the current year:
Sales
5,000,000
Cost of goods sold
2,800,000
Foreign translation adjustment – credit
400,000
Selling expenses
700,000
Unusual and infrequent error
400,000
Correction of inventory error
200,000
General and administrative expenses
600,000
Income tax expense
150,000
Gain on sale of investment
50,000
Proceeds from sale of land at cost
800,000
Dividends
300,000
What amount should be reported as income from continuing operations?
a. 1,200,000
b. 1,350,000
c. 1,600,000
d. 2,000,000
23.)
Corazon Company provided the following information for the current year:
Sales
Sales returns and allowances
7,000,000
100,000
Cost of goods sold
2,800,000
Utilities expense
1,000,000
Interest revenue
150,000
Income tax expense
800,000
Casualty loss due to earthquake
50,000
Finance cost
200,000
Salaries expense
600,000
Loss on sale of investment
50,000
What amount should be reported as income from continuing operations?
a. 1,550,000
b. 1,600,000
c. 2,350,000
d. 1,400,000
24.)
Igloo Company provided the following information for the current year:
Uncollectible accounts expense
2,000,000
Freight out
3,500,000
Cost of sales
40,000,000
Loss on sale of equipment
1,500,000
Loss from typhoon
3,000,000
Sales
90,000,000
Interest income
4,000,000
Administrative expense
10,000,000
Finished goods inventory, January 1
Sales commissions
60,000,000
7,000,000
Finished goods inventory, December 31
Income tax rate
What amount should be reported as income from continuing operations?
a. 30,000,000
b. 19,500,000
c. 27,000,000
d. 18,900,000
55,000,000
30%
25.)
Remy Company had the following events and transactions during 2013:

Depreciation for 2011 was understated by P300,000.

A litigation settlement resulted in a loss of P250,000.

The Inventory on December 31, 2011 was over stated by P200,000.

The entity disposed of a recreational division at a loss of P500,000.
The income tax rate is 30%. What is the effect of these events on the income from continuing
operations for 2013?
a. 175,000
b. 385,000
c. 665,000
d. 525,000
26.)
Sky Company reported the following date for the current year:
Income from continuing operations
450,000
Net income
405,000
Selling and administrative expenses
2,250,000
Income before income tax
900,000
What amount should be reported as income or loss from discontinued operations?
a. 450,000 income
b. 360,000 income
c. 90,000 loss
d. 45,000 loss
27.)
Alladin Company provided the following for the current year:
Net income
3,500,000
Unrealized gain on derivative contract
250,000
Foreign currency translation adujstment – debit
Revaluation surplus
50,000
1,000,000
What is the comprehensive income for the current year?
a. 3,700,000
b. 4,700,000
c. 4,800,000
d. 4,500,000
28.)
Brass Company provided the following data for the current year:
Income from continuing operations
8,000,000
Actuarial loss recognized in other
comprehensive income
Dividend paid
Casualty loss (not included in income)
What is the profit for the current year?
a. 8,000,000
b. 7,500,000
c. 5,500,000
2,000,000
700,000
500,000
d. 6,800,000
29.)
Rose Company, an investment entity, provided the following income and
expenses for the current year:
Dividend income from investments
9,200,000
Distribution income from trusts
Interest income on deposits
500,000
700,000
Income from bank treasury bills
100,000
Unrealized gain on derivative account
400,000
Income from dealing in securities and derivatives held
for trading
600,000
Writedown of securities and derivatives held for trading
150,000
Other income
250,000
Finance cost
300,000
Administrative staff costs
3,800,000
Sundry administrative costs
1,200,000
Income tax expense
1, 700,000
What is the comprehensive income of the current year?
a. 4,200,000
b. 4,600,000
c. 3,800,000
d. 9,200,000
30.)
Sales
Dahlia Company provided the following information for the current year:
9,500,000
Interest revenue
250,000
Gain sale of equipment
Revaluation surplus during the year
Share of profit of associate
Cost of goods sold
100,000
1,200,000
350,000
6,000,000
Finance cost
150,000
Distribution costs
500,000
Administrative expenses
300,000
Translation loss in foreign operation
200,000
Income tax expense
950,000
What is the net income for the current year?
a. 2,300,000
b. 3,300,000
c. 4,200,000
d. 2,100,000
31.)
Lotus Company provided the following date for the current year:
Sales
Share of profit of associate
9,750,000
450,000
Decrease in inventory of finished goods
250,000
Raw materials and consumables used
3,500,000
Employee benefit expense
1,500,000
Translation gain on foreign operation
300,000
Impairment loss
800,000
Finance cot
350,000
Other operating expenses
900,000
Income tax expenses
900,000
Unrealized gain on internet swap
200,000
What is the net income for the current year?
a. 2,900,000
b. 2,500,000
c. 2,000,000
d. 1,850,000
32.)
Mount Isarog Company provided the following data for the current year:
Retained earnings, January 1
3,000,000
Dividends
1,000,000
Sales
8,350,000
Dividend income
100,000
Inventory, January 1
1,040,000
Purchases
3,720,000
Salaries
1,540,000
Contribution to employees’ pension fund
280,000
Delivery
205,000
Miscellaneous expense
125,000
Doubtful accounts expense
10,000
Depreciation expense
85,000
Loss on sale of securities
40,000
Loss on inventory writedown
150,000
Income tax
753,000
Inventory on December 31 was valued at P700,000(P850,000 less P150,000 writedown of
obsolete inventory).
1. What is the cost of goods sold?
a. 4,760,000
b.
4,060,000
c. 3,910,000
d. 4,210,000
2. What is the income from continuing operations?
a. 2,105,000
b. 1,370,000
c. 1,520,009
d. 1 410,000
3. What is the balance of retained earnings on December?
a. 4,370,000
b. 3,370,000
c. 4,520,000
d. 3,520,000
33.)
While preparing the 2013 financial statements, Dek Company discovered
computational errors in the 2012 and 2011 depreciation expense. These errors resulted in
overstatement of each year’s income by P100,000, net of income tax. The following
amounts were reported in the previously issued financial statements:
Retained earnings, January 1
Net income
2012
2011
2,800,000
2,000,000
600,000
800,000
The net income for 2013 is correctly reported at P700,000. What is the correct balance of
retained earnings on December 31, 2103?
a. 3,900,000
b. 4,100,000
c. 4,300,000
d. 4,000,000
NONCURRENT ASSET HELD FOR SALE
DISCONTINUED OPERATION
1.) Dana Company accounts for noncurrent assets using the cost model. On October 1,
2013, the entity classified a noncurrent asset as held for sale. At that date, the asset’s
carrying amount was P3,200,000, its fair value was estimated at P2,200,000 and the
cost of disposal at P200,000. On December 15,2013, the asset was sold for net
proceeds of P1,850,000. What amount should be included as an impairment loss in
the statement of comprehensive income for the year ended December 31, 2013?
a. 1,000,000
b. 1,200,000
c. 1,350,000
d.
0
2.) Arlene Company accounts for noncurrent assets using the cost model. On October 30,
2013, the entity classified a noncurrent asset as held for sale. At that date, the asset’s
carrying amount was P1,500,000, its fair value was estimated at P1,100,000 and the
cost of disposal at P150,000. On November 20, 2013, the asset was sold for net
proceeds of P800,000. What amount should be included as loss on disposal in the
statement of comprehensive income for the year ended December 31, 2013?
a. 550,000
b. 700,000
c. 150,000
d.
0
3.) Coral Company accounts for noncurrent assets using the cost model. On July 31,
2013, the entity classified a noncurrent asset as held for sale. At that date, the asset’s
carrying amount was P1,450,000, the fair value was estimated at P2,150,000 and the
cost of disposal at 150,000. The asset was sold on January 31, 2014 for P2,120,000.
At what amount should the asset be measured in the statement of financial position on
December 31, 2013?
a. 2,000,000
b. 2,150,000
c. 2,120,000
d. 1,450,000
4.) Lynx Company is planning to dispose of a collection of assets. The entity designated
these assets as a disposal group. The carrying amount of these assets immediately
before classification as held for sale was P2,000,000. Upon being classified as held
for sale, the assets were revalued to P1,800,000. The entity feels that it would cost
P100,000 to sell the disposal group. What is the carrying amount of the disposal
group after classification as held for sale?
a. 2,000,000
b. 1,800,000
c. 1,700,000
d. 1,900,000
5.) On April 1, 2013, Brandy Company has a machine with a cost of P1,000,000 and
accumulated depreciation of P750,000. On April 1, 2013, the entity classified the
machine as “held for sale” and decided to sell the machine within 1 year. On April 1,
2013, the machine had an estimated selling price of P100,000 and a remaining useful
life of 2 years. It is estimated that selling cost associated with the disposal of the
machine will be P10,000. On December 31, 2013, the estimated selling price of the
machine had increased to P150,000 with estimated selling cost of P20,000. What
amount should be recognize as gain on reversal of impairment on December 31,
2013?
a. 93, 750
b. 73,750
c. 60,000
d. 40,000
6.) On January 1, 2013, Villa Company classified as held for sale a noncurrent asset with
a carrying amount of P5,000,000. On this date, the asset is expected to be sold for
P4,600,000. Reasonable disposal cost to be incurred on sale is expected at P200,000.
By December 31, 2013, the asset had not been sold and management after
considering its option decided to place back the noncurrent asset into operations. On
that date, the entity estimated that the noncurrent asset is expected to be sold at
P4,300,000 with disposal cost of P50,000. The carrying amount of the noncurrent
asset is P4,000,000 on December 31, 2013 if the noncurrent asset is not classified as
held for sale. What is the carrying amount of the asset that should be reported in the
statement of financial position on December 31, 2013?
a. 5,000,000
b. 4,000,000
c. 4,400,000
d. 4,250,000
7.) Clara Company purchased equipment for P5,000,000 on January 1, 2013 with a
useful life of 10 years and no residual value. On January 1, 2015, the entity classified
the asset as held for sale. The fair value of the equipment on January 1, 2015 is
P3,300,000 and the cost of disposal is P100,000. On December 31, 2015, the fair
value of the equipment is P3,800,000 and the cost of disposal is P200,000. On
December 31,2015, the entity believed that the criteria for classification as held for
sale can no longer be met. Accordingly, the entity decided not to sell the asset but to
continue to use it.
1. What is the measurement of the equipment that ceases as held for sale on December 31,
2013?
a. 3,200,000
b. 4,000,000
c. 3,500,000
d. 3,600,000
2. What amount should be recognized as profit or loss as a result of the reclassification in
2015?
a. 800,000
b. 300,000
c. 400,000
d.
0
8.) Booker Company committed to sell its comic book division (a component of the
business) on September 1, 2013. The carrying amount of the division was P4,000,000
and its fair value was P3,500,000. The disposal date is expected to be June 1, 2014.
The division reported an operating loss of P200,000 for the year ended December 31,
2013. Ignoring income tax, what amount should be reported as loss from discontinue
operation in 2013?
a. 500,000
b. 200,000
c. 700,000
d.
0
9.) Enron Company decided on August 1, 2013 to dispose of a component of its business,
the component was sold on November 30, 2013. The income for 2013 included
income of P5,000,000 from operating the discontinued segment from January 1 to the
sale date. The entity incurred a loss on the November 30 sale of P4,500,000. Ignoring
income tax, what amount should be reported in the 2013 income statement as income
or loss under “discontinued operation” ?
a. 4,500,000 loss
b. 5,000,000 income
c.
500,000 loss
d.
500,000 income
10.)
Xavier Company has three segment s, A, B and C. Segment C, the closing
division, is deemed inconsistent with the long-term direction of the entity.
Management has decided to dispose of Segment C. On November 15, 2013, the board
of directors of Xavier Company voted to approve the disposal and an announcement
was made. On that date the carrying amount of Segment C’s net asset was
P90,000,000 and the fair value less cost of disposal was P70,000,000. Segment C’s
revenue and expenses for 2013, respectively, were P50,000,000 and P32,000,000,
including an interest of P5,000,000 attributable to Segment C. There was no further
impairment of assets between November 15 and December 31, 2013. Before income
tax, what is the income or loss from discontinued operation to be reported in the 2013
income statement?
a. 13,000,000 income
b. 18,000,000 income
c. 30,000,000 income
d.
2,000,000 loss
11.)
On September 30, 2013, when the carrying amount of the net assets of a business
segment was P70,000,000, Young company signed a legally binding contract to sell
the business segment. The sale is expected to be completed by January 31, 2014 at a
selling price of P60,000,000. In addition, prior to January 31, 2014, the sale contract
obliges Young Company to terminate the employment of certain employees of the
business segment incurring an expected termination cost of P2,000,000 to be paid on
June 30, 2014. The segment revenue and expenses for 2013 were P40,000,000 and
P45,000,000 respectively. Before income tax, what amount should be reported as loss
from discontinued operation for 2013?
a. 17,000,000
b. 12,000,000
c. 15,000,000
d.
7,000,000
12.)
Zebra Company is a diversified entity with nationwide interests in commercial
real estate development, banking, mining and food distribution. The food distribution
division was deemed to be inconsistent with the long-term direction of the entity. On
October 1, 2013the board of directors voted to approved the disposal of this division.
The sale is expected to occur in August 2014. The food distribution had the following
revenue and expenses in 2013: January 1 to September 30, revenue of P35,000,000
and expenses of P27,000,000; October 1 to December 31, revenue of P15,000,000
and expenses of P10,000,000. The carrying amount of the division’s value less cost of
disposal was P58,000,000. The sale contract requires Zebra to terminate certain
employees incurring an expected termination cost of P4,000,000 to be paid by
December 15, 2014. The income tax rate is 30%. In the income statement for the year
ended December 31, 2013, what amount should be reported as income from
discontinued operation?
a. 7,700,000
b. 8,300,000
c. 9,000,000
d. 6,300,000
13.)
Flame Company has two divisions, North and South both qualified as business
components. In 2013, the entity decided to dispose of the assets and liabilities of
division South and it is probable that the disposal will be completed early next year.
The revenue and expenses of Flame Company for 2013 and 2012 are as follows:
2013
Sales- North
4,600,000
5,000,000
Total nontax expenses-North
4,100,000
4,400,000
Sales-South
5,100,000
3,500,000
Total nontax expenses-South
4,500,000
3,900,000
2012
During the later part of 2013, the entity disposed of a portion of division South and recognized a
pretax loss of P2,000,000 on the disposal. The income tax rate is 30%. What amount should be
reported as loss from discontinued operation in 2013?
a. 2,000,000
b. 2,400,000
c. 1,400,000
d. 1,680,000
14.)
Jazz Company operates two restaurants, one in Boracay and Dakak. The
operations and cash flows of each of the two restaurants are clearly distinguishable.
During 2013, the entity decided to close the restaurant in Dakak and sell the property.
It is probable that the disposal will be completed early next year. The revenue and
expenses for 2013 and for the preceding two years are as follows:
2013
Sales-Boracay
60,000
Cost of goods sold-Boracay
18,000
Other expenses-Boracay
Sales-Dakak
52,000
2011
48,000
40,000
26,000
14,000
23,000
Cost of goods sold-Dakak
20,000
Other expenses-Boracay
2012
22,000
13,000
30,000
14,000
17,000
12,000
19,000
16,000
15,000
The other expenses do not include income tax expense. During the later part of 2013, the entity
sold some of the kitchen equipment of the Dakak restaurant and recognized a pretax gain of
P15,000 on the disposal. The income tax rate is 30%. What amount should be reported an
income or loss from discontinued operation for 2013?
a. 8,000 loss
b. 7,000 gain
c. 5,600 loss
d. 4,900 gain
15.)
In 2013, Isuzu Company decided to discontinue its Electronics Division, a
separately identifiable component of Isuzu’s business. On December 31, 2013, the
division has not been completely sold. However negotiations for the final and
complete sale are progressing in a positive manner and it is probable that hthe
disposal will be complete within a year. Analysis of the records for the year disclosed
the following relative to the Electronics Division:
Operating loss for the year
8,000,000
Loss on disposal of some Electronic Division assets
During 2013
500,000
Expected operating loss in 2014 preceding final disposal
1,000,000
Expected gain in 2014 on disposal of division
2,000,000
What amount should be reported as pretax loss from discontinued operation in 2013?
a. 8,000,000
b. 8,500,000
c. 9,500,000
d. 7,500,000
16.)
Mati Company, a parent entity, approved on December 1, 2013 a plan to sell its
subsidiary. The sale is expected to be completed on March 31, 2014. The year –end of
the entity is December 31, 2013 and the financial statements were approved on March
1, 2014. The subsidiary had net assets with carrying amount of P15,000,000 including
goodwill of P1,500,000 from January 1 to March 1, 2014 and is expected to make a
further loss of P2,000,000 up to the date of sale.
At the date of approval of the financial statements; the entity was in negotiation for the sale of
the subsidiary but no contract had been signed. The entity expects to sell the subsidiary for
P9,000,000 and to incur cost of selling of P500,000. The value in use of the subsidiary was
estimated to be P10,000,000.
In the December 31, 2013 statement of financial position, what is the measurement of the
subsidiary which is considered as a “disposal group classified as held for sale”?
a. 15,000,000
b. 10,000,000
c.
9,000,000
d.
8,500,000
17.)
Purple Company has correctly classified its packaging operation as a disposal
group held for sale and as discontinued operation. For the year ended December 31,
2013, this disposal group incurred trading loss after tax of P2,000,000 and the loss on
remeasuring it to fair value less cost of disposal was P1,500,000. What total amount
of the disposal group’s losses should be included in profit or loss for the year ended
December 31, 2013?
a. 3,500,000
b. 2,000,000
c. 1,500,000
d.
0
ACCOUNTING CHANGES
1.) During 2013, Orca Company decided to change from the FIFO method of inventory
valuation to the weighted average method. Inventory balances under each method were as
follows:
FIFO
Weighted average
January 1
7,100,000
7,700,000
December 31
7,900,000
8,300,000
Ignoring income tax, in the 2013 statement of retained earnings, what amount should be reported
as the cumulative effect of this accounting change?
a. 1,000,000 addition
b. 1,000,000 deduction
c.
600,000 addition
d.
600,000 deduction
2.) Goudard Company had used the FIFO method of inventory valuation since it began
operations in 2010. The entity decided to change to the weighted average method for
determining inventory costs at the beginning of 2013. The following schedule shows
year-end inventory balances under the FIFO and weighted average method:
Year
FIFO
2010
4,500,000
2011
7,800,000
2012
8,300,000
Weighted average
5,400,000
7,100,000
7,800,000
What amount , before income tax should be reported in the 2013 statement of retained earnings
as the cumulative effect of the change in accounting policy?
a. 500,000 decrease
b. 300,000 decrease
c. 500,000 increase
d. 300,000 increase
3.) On January 1,2013, Folk Company change from the average cost method to the FIFO
method to account for its inventory. Ending inventory for each method was as follows:
2012
2013
Average cost
500,000
900,000
FIFO cost
700,000
1,400,000
The income statement information calculated by the average cost method was as follows:
2012
2013
Sales
10,000,000
13,000,000
Cost of goods sold
7,000,000
9,000,000
Operating expenses
1,500,000
2,000,000
Income before tax
1,500,000
Tax expense
450,000
2,000,000
600,000
The entity accurate tax expense on December 31 of each year and pays the tax in April of the
following year. The income tax rate is 30%. What is the net income to be reported in 2013 after
the change to the FIFO inventory method?
a. 1,610,000
b. 2,300,000
c. 1,750,000
d. 1,890,000
4.) Bank Company used the cost recovery method of accounting since it began operations in
2010. In 2013, management decided to adopt the percentage of completion method.
2010
Revenue from completed contracts
40,000,000
Cost of completed contracts
Income from operations
Casualty loss
0
Income
12,000,000
2011
25,000,000
2012
42,000,000
18,000,000
29,000,000
28,000,000
7,000,000
13,000,000
12,000,000
0
7,000,000
0
13,000,000
Analysis of the accounting records disclosed the following income by contracts using percentage
of completetion method.
2010
Contract 1
2011
2012
7,000,000
Contract 2
5,000,000
Contract 3
2,000,000
8,000,000
3,000,000
Contract 4
6,000,000
7,000,000
1,000,000
Contract
(1,000,000)
5
Ignoring income tax, what is the cumulative effect of changes in accounting policy that should be
reported in the statement of retained earnings for 2013?
a. 6,000,000
b. 8,000,000
c. 7,000,000
d.
0
5.) During 2013, Build Company changed from the cost recovery method to the percentage
of completion method. The tax rate is 40%. Gross profit figures are as follows:
2011
Cost recovery method
1,400,000
Percentage of completion
2,100,000
How should this accounting change be reported in 2013?
a. 1,200,000 increase in profit or loss
b.
780,000 increase in profit or loss
2012
2013
950,000
1,250,000
1,600,000
1,900,000
c. 1,200,000 increase in retained earnings
d.
780,000 increase in retained earnings
6.) Rodrigo Company had purchased an equipment on January 1, 2010 for P2,400,000. The
entity used the straight line depreciation based on a ten-year useful life with no residual
value. During 2013, the entity decided that the equipment would be used only three more
years. What entry should be made on January 1, 2013 to reflect this accounting change?
a. No entry
b. Debit other comprehensive income and credit accumulated depreciation for P480,000.
c. Debit retained earnings and credit accumulated depreciation for P480,000.
d. Debit depreciation and credit accumulated depreciation for P560,000.
7.) Blue Company purchased a machine on January 1, 2010 for P6,000,000. At the date of
acquisition, the machine had a life of six years with no residual value. The machine is
being depreciated on a straight line basis. On January 1, 2013, the entity determined that
the machine had a useful life of eight years from the date of acquisition with no residual
value. What is the depreciation of the machine for 2013?
a. 750,000
b. 600,000
c. 375,000
d. 500,000
8.) On January 1,2010, Flax Company purchased a machine for P5,280,000 and depreciated
it by the straight line method using an estimated useful life of eight years with no residual
value. On January 1, 2013, the entity determined that the machine had a useful life of six
years from the date of acquisition and the residual value was P480,000. An accounting
change was made in 2013 to reflect these additional data. What is the accumulated
depreciation for the machine on December 31, 2013?
a. 2,920,000
b. 3,080,000
c. 3,200,000
d. 3,520,000
9.) On January 1, 2011, Milan Company purchased an equipment for P6,000,000. The
equipment had been depreciated using the straight line with residual value of P600,000
and useful life of 20 years. On January 1, 2013, the entity determined that the remaining
useful life is 10 years and the residual value is P800,000. What is the depreciation for
2013?
a. 270,000
b. 546,000
c. 466,000
d. 582,000
10.)
On January 1, 2009, Roma Company purchased equipment for P4,000,000. The
equipment has a useful life of 10 years and a residual value of P400,000. On January 1,
2013, the entity determined that the useful life of the equipment was 12 years from the
date of acquisition and the residual value was P460,000. What is the depreciation of the
equipment for 2013?
a. 175,000
b. 262,500
c. 360,000
d. 300,000
11.)
Acute Company was incorporated on January 1, 2010. In preparing the financial
statements for the year ended December 31, 2012, the entity used the following original
cost and useful life for the property, plant and equipment:
Original cost
Building
years
Useful life
15,000,000
15
Machinery
Furniture
10,500,000
3,500,000
10 years
7 years
On January 1, 2013, the entity determined that the remaining useful life is 10 years for the
building, 7 years for the machinery and 5years for the furniture. The entity used the straight line
method of depreciation with no residual value. What is the total depreciation for 2013?
a. 2,650,000
b. 3,700,000
c. 2,550,000
d. 3,500,000
12.)
On January 1, 2013, Canyon Company decided to decrease the estimated useful
life on all existing patents from 10 years to 8 years. Patents were purchased on January 1,
2008 for P3,000,000. The estimated residual value is zero. The entity decided on January
1, 2013, total cost of depreciable assets is P8,000,000 and the accumulated depreciation is
P3,400,000. The remaining useful life of depreciation assets on January 1, 2013is 10
years and the residual value is P200,000. What is the total charges against income for
2013 as a result of the accounting changes?
a. 940,000
b. 960,000
c. 627,500
d. 647,500
13.)
On January 1, 2010, Charisma Company bought a merchandise for P1,500,000.
The machine had useful life of six years with no residual value. On January 1, 2013, the
entity determined that the machine had useful life of eight years from the date it was
acquired with no residual value. The straight line method of depreciation is used. What
amount of depreciation should be recorded for 2013?
a. 125,000
b. 150,000
c. 187,500
d. 250,000
14.)
On January 1, 2011 Brazilia Company purchased for P4,800,000 a machine with
a useful life of ten years and a residual value of P200,000. The machine was depreciated
by the double declining balance and the carrying amount of the machine was P3,072,000
on December 31, 2012. The entity changed to the straight line method on January 1,
2013. The residual value did not change. What is the depreciation expense on this
machine for the year ended December 31, 2013?
a. 287,200
b. 384,000
c. 460,000
d. 359,000
15.)
On January 1, 2012, Kelvin Company purchased a machine for P2,750,000/ the
machine was depreciated using the sum of years’ digits method based on a useful life of
10 years with no residual value. On January 1, 2013, the entity changed to the straight
line method of depreciation. The entity can justify the change. What is the depreciation of
the machine for 2013?
a. 180,000
b. 220,000
c. 250,000
d. 275,000
16.)
Xavier Company purchased a machinery of January 1, 2010 for P7,200,000. The
machinery has useful life of 10 years with no residual value and was depreciated using
the straight line method. In 2013, a decision was made to change the depreciation method
from straight line to sum of years’ digits method. The estimates of useful life and residual
value remained unchanged, what is the depreciation for 2013?
a. 1,260,000
b. 1,440,000
c.
916,360
d.
720,000
17.) On January 1, 2007, Paragon Company paid P6,000,000 to acquire a new barge. In the belief
that it was entitled to a refund of purchase taxes on the acquisition of the barge, the entity
claimed and was refunded P600,000 by the local government. However, in late 2013 the entity
repaid the refund when it became apparent that it had made an error in making the claim to the
local government as it had not been entitled to the refund of purchase taxes on acquisition of the
barge. The useful life of the barge is 15 years from the date of acquisition. The residual value of
the barge is NIL,
18.)In 2013, the period over which the barge is expected to be economically usable increased
from 15 to 26 years. However, the entity expects to dispose of the barge after using it for 20
years from the date of acquisition. On December 31, 2013, the entity assessed the residual value
of the barge at P800,000. What is the carrying amount of the barge on December 31, 2013?
a. 3,600,000
b. 3,400,000
c. 3,460,000
d. 3,420,000
PRIOR PERIOD ERRORS
1.) Effective January 1, 2013. King Company adopted the accounting policy of expensing
advertising and promotion costs as they are incurred. Previously, advertising and
promotion costs applicable to future periods were recorded in prepaid expenses. The
entity can justify the change, which was made for both financial statement and income
tax reporting purposes. The prepaid advertising and promotion costs totaled P600,000 on
December 31,2013. The income tax rate is 30%. What is the net charge against income
for 2013 as a result of the change?
a. 600,000
b. 180,000
c. 420,000
d.
0
2.) On January 1, 2012, Aker Company acquired a machine at a cost of P2,000,000. The
machine is depreciated on the straight line method over a five-year period with no
residual value. Because of a bookkeeping error, no depreciation was recognized in the
2012 financial statements. The oversight was discovered during the preparation of the
2013 financial statements. What is the depreciation expense on the machine for 2013?
a. 800,000
b. 400,000
c. 500,000
d.
0
3.) Harbor Company reported the following events during the year ended December 31,
2013:

It was decided to write off P800,000 from inventory which was over two years old as
it was obsolete.

Sales of P600,000 had been omitted from the financial statements for the year ended
December 31, 2012.
What total amount should be reported as prior period error in the financial statements for the year
ended December 31, 2013?
a. 1,400,000
b.
600,000
c.
800,000
d.
200,000
4.) Universal Company failed to accrue warranty cost of P100,000 on December 31, 2012. In
addition, a change from straight line to accelerated depreciation made at the beginning of
2013 resulted in a cumulative effect of P60,000 on retained earnings. What amount
before tax should be reported as prior period error in 2013?
a. 100,000
b. 160,000
c.
60,000
d.
0
5.) The draft financial statements for Savior Company for the year ended December 31, 2013
had been prepared. A final review of the draft revealed an overvaluation of the ending
inventory of P2,000,000 on December 31, 2013. Further investigation showed that there
was an overvaluation of the ending inventory on December 31, 2012 of P1,200,000.
What adjustment should be made to the profit for the year ended December 31, 2013
presented as the comparative figure in the 2014 financial statements?
a. 2,000,000 decrease
b. 1,200,000 decrease
c.
800,000 decrease
d.
0
6.) Extracts from the statement of financial position of Animus Company showed the
following:
December 31, 2014
Development costs
Amortization
December 31, 2014
8,160,000
5,480,000
(1,800,000)
(1,200,000)
The capitalized development costs relate to a single project that commenced in 2011. It has now
been discovered that one of the criteria for capitalization has never been met. What adjustment is
required to restate retained earnings on January 1, 2014?
a. 6,360,000
b. 1,720,000
c. 4,640,000
d.
0
7.) In reviewing Bituin Company’s draft financial statements for the year ended December
31, 2014, management decided that market conditions were such that the provision for
inventory obsolescence on December 31, 2014 should be increased by P3,000,000. If the
same basis of calculating inventory obsolescence had been applied on December 31,
2013, the provision would have been P1,800,000 higher than the amount recognized in
the statement of financial position. What adjustment should be made to the profit for
2014 and financial statements?
Profit for 2014
Profit for 2013
a. 3,000,000 decrease
1,800,000 decrease
b. 1,200,000 decrease
1,800,000 decrease
c.
3,000,000 decrease
0
d. 3,000,000 decrease
0
8.) Samar Company reported the following events during the year ended December 31,
2014:

A counting error relating to the inventory on December 31, 2013 was discovered. This
required a reduction in the carrying amount of inventory at that date of P280,000.

The provision for uncollectible accounts receivable on December 31, 2013 was P300,000.
During 2014, P500,000 was written off the December 31, 2013 accounts receivable.
What adjustment is required to restate retained earnings on January 1, 2014?
a. 280,000
b. 300,000
c. 580,000
d.
0
9.) After the issuance of the 2013 financial statements, Narra Company discovered a
computational error of P150,000 in the calculation of the December 31, 2013 inventory.
The error resulted in a P150,000 overstatement in the cost of goods sold for the year
ended December 31, 2013. In October 2014, the entity paid the amount of P500,000 in
settlement of litigation instituted against it during 2013. Ignore income tax. In the 2014
financial statements, what is the adjustment of the retained earnings on January 1, 2014?
a. 150,000 credit
b. 350,000 debit
c. 500,000 debit
d. 650,000 credit
10.)
Natasha Company reported net income of P700,000 for 2014. The entity
declared and paid dividends of P150,000 in 2014 and P300,000 in 2013. In the financial
statements for the year ended December 31, 2013, the entity reported retained earnings
of P1,100,000 on January 1, 2013. The profit for 2013 was P600,000. In 2014, after the
2013 financial statements were approved for issue, the entity discovered error in the
December 31, 2012 financial statements. The effect of the error was P650,000
overstatement of profit for the year ended December 31, 2012 due to under depreciation.
What amount should be reported as retained earnings on December 31, 2014?
a. 1,300,000
b. 1,400,000
c. 1,650,000
d. 1,950,000
OPERATING SEGMENT
1.) Correy Company and its division are engaged solely in manufacturing operations. The
following data pertain to the industries in which operations were conducted for the
current year:
Industry
Revenue
Profit
A
10,000,000
1,750,000
20,000,000
B
8,000,000
1,400,000
17,500,000
C
6,000,000
1,200,000
12,500,000
D
3,000,000
550,000
7,500,000
E
4,250,000
675,000
7,000,000
F
1,500,000
225,000
3,000,000
32,750,000
5,800,000
67,500,000
How many reportable segments does Correy have?
a. Three
b. Four
c. Five
Assets
d. Six
2.) Aroma Company and its divisions are engaged solely in manufacturing. The following
data pertain to the industries in which operations were conducted for the current year:
Segment profit (loss)
V
3,400,000
W
1,000,000
X
(2,000,000)
Y
400,000
Z
( 200,000)
2,600,000
In the segment information for the current year, what are the reportable segments?
a. V, W, X and Y
b. V, W and X
c. V and W
d. V, W, X, Y and Z
3.) Macbeth Company, an entity listed on a recognized stock exchange, reports operating
results from its North American division to the chief operating decision maker. The
segment information for the current year is as follows:
Revenue
Profit
Assets
3,675,000
970,000
1,700,000
Number of employees
The results for all of the operating segments in total are:
2,500
Revenue
39,250,000
Profit
9,600,000
Assets
17,500,000
Number of employees
18,500
Which pieces of information determines for the entity that the North American divisions is a
reportable operating segment?
a. Revenue
b. Profit
c. Assets
d. Number of employees
4.) The following information pertains to Aria Company and its divisions for the current
year:
Sales to unaffiliated customers
20,000,000
Intersegment sales of products similar to those
Sold to unaffiliated customers
Interest earned on loans to other operating segments
6,000,000
400,000
Aria and all of its divisions are engaged solely in manufacturing operations.
What is the minimum amount of segment revenue in order that a division can be considered a
reportable segment?
a. 2,640,000
b. 2,600,000
c. 2,040,000
d. 2,000,000
5.) The following information pertains to revenue earned by Timmy Company’s operating
segments for the current year:
Sales to
Unaffiliated
Segment
customers
Intersegment
Total
sales
revenue
Alo
5,000
3,000
8,000
Bix
8,000
4,000
12,000
Cee
4,000
Dil
43,000
Combined
-
60,000
Elimination
-
Consolidated
60,000
4,000
16,000
59,000
23,000
83,000
(23,000)
(23,000)
-
60,000
In conformity with the revenue test, what is the total revenue of the reportable segments?
a. 83,000
b. 71,000
c. 51,000
d. 60,000
6.) Grum Company, a publicly owned entity, is subject to the requirement of segment
reporting. In the income statement for the year ended December 31, 2013, the entity
reported revenue of P50,000,000, excluding intersegment sales of P10,000,000, expenses
of P47,000,000 and net income of P3,000,000. Expenses included payroll costs of
P15,000,000. The combined identifiable assets of all operating segments on December
31, 2013 totaled P40,000,000.
1. In the financial statements, the entity should disclose major customer data if sales to any
single customer amount to at least
a. 5,000,000
b. 4,000,000
c. 6,000,000
d. 4,700,000
2. External revenue for reportable operating segments must be at least
a. 22,500,000
b. 30,000,000
c. 33,750,000
d. 37,500,000
7.) Graf Company discloses supplemental operating segment information. The following
information is available for the current year:
Segment
Sales
Traceable expenses
X
5,000,000
3,000,000
Y
4,000,000
2,500,000
Z
3,000,000
1,500,000
12,000,000
7,000,000
Additional expenses are as follows:
Indirect expenses
1,800,000
General corporate expenses
1,200,000
Interest expense
600,000
Income tax expense
400,000
The interest expenses and income tax expense are regularly reviewed by the chief operating
decision maker as measure of profit or loss. Appropriate common expenses are allocated to
segments based on the ratio of a segment’s sales to total sales. What is Segment Z’s profit for the
current year?
a. 900,000
b. 950,000
c. 800,000
d. 500,000
8.) Clay Company has three lines of business, each of which was determined to be reportable
segment. The entity sales aggregated P7,500,000 in the current year, of which Segment
No. 1 contributed 40%. Traceable costs were P1,750,000 for Segment No. 1 out of a total
of P5,000,000 for the entity as a whole. For external reporting, the entity allocated
common costs to the total income before common costs. In the financial statements for
the current year, what amount should be reported as profit for Segment No. 1?
a. 1,250,000
b. 1,000,000
c.
650,000
d.
500,000
9.) Colt Company has four manufacturing divisions, each of which has been determined to
be a reportable segment. Common costs are appropriately allocated on the basis of each
division’s sales in relation to Colt’s aggregate sales. Colt’s Delta division accounted for
40% of Colt’s total sales in the current year. For the current year ended December 31,
Delta had sales of P8,000,000 and traceable costs of P4,800,000. In the current year, Colt
incurred costs of P800,000 that were not directly traceable to any of the divisions. In
addition, the Delta division incurred interest expense of P640,000. It is an entity policy
that interest expense is included in the measure of profit or loss that is reviewed by the
chief operating decision maker.
What amount should be disclosed as Delta’s profit for the current year?
a. 3,200,000
b. 3,000,000
c. 2,880,000
d. 2,240,000
10.)
Taylor Company, a publicly owned entity, assesses performance and makes
operating decisions using the following information for its reportable segment:
Total revenue
Total profit and loss
7,680,000
406,000
The total profit and loss included intersegment profit of P61,000. In addition, the entity has
P5,000 of common costs for its reportable segments that are not allocated in reports reviewed by
the chief operating decisions maker. What amount should be reported as segment profit?
a. 350,000
b. 345,000
c. 411,000
d. 406,000
11.)
Eagle Company operates in several different industries. Total sales for Eagle
Company totaled P14,000,000, and total common costs amounted to P6,500,000 for the
current year. For internal reporting purposes, Eagle Company allocated common costs
based on the ratio of a segment’s sales to total sales. Additional information regarding the
different segments follows:
Segment
Contribution to total sales
Costs specific to the segment
1
25%
1,100,000
2
12%
1,000,000
3
31%
1,300,000
4
23%
880,000
5
9%
400,000
What is the profit of Segment 1?
a. 3,500,000
b. 1,875,000
c. 2,400,000
d.
775,000
12.)
Congo Company provided the following data for the current year:
Sales
60,000,000
Cost of goods sold
28,000,000
Expenses
14,000,000
Depreciation
4,000,000
Income tax expenses
4,000,000
The entity has two major reportable segments, X and Y. An analysis revealed that P1,000,000 of
the total depreciation expense and P2,000,000 of the expenses are related to general corporate
activities. The remaining expenses and sales are directly allocable to segment activities
according to the following percentages:
Segment X
Sales
40%
Cost of goods sold
35
Segment Y
45%
15%
50
Expenses
15
40
Depreciation
Others
40
40
20
45
15
What amount should be reported as profit of Segment X?
a. 8,200,000
b. 6,600,000
c. 7,000,000
d. 5,400,000
13.)
Revlon Company has expanded rapidly and segment reporting is now required.
The following data are for the year ended December 31, 2013:
Operating
Segment
Segment
revenue
Operating
Identifiable
profit (loss)
assets
1
620,000
200,000
2
100,000
20,000
80,000
3
340,000
70,000
300,000
4
190,000
( 30,000)
140,000
5
180,000
( 25,000)
180,000
6
70,000
7
120,000
( 20,000)
140,000
Others
380,000
( 25,000)
140,000

400,000
10,000
120,000
The “others” category includes five operating segments, none of which has revenue or
assets greater than P80,000 and none with an operating profit.

Operating Segments 1 and 2 produce very similar products and use very similar
production process, butt serve different customer types and use quite different product
distribution system. These differences are due in part to the fact that segment 2 operates
in a regulated environment while segment 1 does not.

Operating segments 6 and 7 have very similar products, production processes, product
distribution systems, but are organized as separate divisions since they serve substantially
different types of customers. Neither Segments 6 and 7 operate in a regulated
environment.
What are the reportable segments for the year ended December 31, 2013?
a. Segments 1, 3, 4 and 5
b. Segments 1, 3, 4, 5 and 7
c. Segments 1, 2, 3, 4 and 5
d. Segments 1, 3, 4, 5 and Segments 6 and 7 combined as one segment
INTERIM REPORTING
1.) Farr Company had the following transactions during the quarter ended March 31, 2013.
Loss from typhoon
700,000
Payment of fire insurance premium for calendar year 2013 100,000
What amount should be included in the income statement for the quarter ended March 31, 2013?
Casualty loss
Insurance expense
a.
700,000
100,000
b.
700,000
25,000
c.
175,000
25,000
d.
0
100,000
2.) Harper Company incurred an inventory loss from market decline of P840,000 on June 30,
2013. What amount of the inventory loss should be recognized in the quarterly income
statement for the three months ended June 30, 2013?
a. 210,000
b. 280,000
c. 420,000
d. 840,000
3.) Wilma Company experienced a P500,000 decline in the market value of inventory at the
end of the first quarter. The entity had expected this declined to reverse in the second
quarter, and in fact, the second quarter recovery exceeded the previous decline by
P100,000. What amount of gain or loss should be reported in the interim statements for
the first and second quarters?
First Quarter Second Quarter
a. 500,000 loss 500,000 gain
b. 500,000 loss 600,000 gain
c. 500,000 loss 100,000 gain
d.
0
0
4.) On June 30, 2013, Mill Company incurred a P1,000,000 net loss from disposal of a
business segment. Also, on June 30, 2013, the entity paid P400,000 for property taxes
assessed for the calendar year 2013. What total amount should be included in the
determination of the net income or loss for the six-month, interim period ended June 30,
2013?
a. 1,400,000
b. 1,200,000
c.
900,000
d.
700,000
5.) Mount Apucao Company operates in the travel industry and incurs costs unevenly
throughout the year. Advertising costs of P2,000,000 were incurred on March 1, 2013,
and staff bonuses are paid at year-end based on sales. Staff bonuses are expected to be
around P20,000,000 for the year. Of that sum, P3,000,000 would relate to the period
ending March 31, 2013. What amount should be included in the quarterly financial report
ending March 31, 2013?
Advertising
Bonuses
a. 2,000,000
5,000,000
b.
500,000
5,000,000
c. 2,000,000
3,000,000
d.
3,000,000
500,000
6.) Davao Company prepares quarterly interim financial reports. The entity sells electrical
goods and normally 5% of customers claim on their warranty. The provision in the first
quarter was calculated at 5% of sales to date which amounted to P10,000,000. However,
in the second quarter, a design fault was found and warranty claims were expected to be
10% for the whole year. Sales for the second quarter amounted to P15,000,000. What
amount of provision should be charged in the second quarter’s interim income statement?
a. 2,000,000
b. 1,250,000
c. 1,500,000
d.
750,000
7.) Everest Company has historically reported bad debt expense of 5% of sales in each
quarter. For the current year, the entity followed the same procedure in the three quarters
of the year. However, in the fourth quarter, the entity determined that bad debt expense
for the entire year should be P450,000. Sales in each quarter of the year were first quarter
P2,000,000, second quarter P1,500,000, third quarter P2,500,000 and fourth quarter
P4,000,000. What amount of bad debt expense should be recognized for the fourth
quarter?
a. 200,000
b. 150,000
c. 300,000
d. 400,000
8.) Kell Company reported P950,000 net income for the quarter ended September 30, 2013
which included the following after tax items:

A P600,000 expropriation gain, realized on April 30, 2013, was allocated equally to the
second, third, and fourth quarters of 2013.

A P160,000 cumulative-effect loss resulting from a change in inventory valuation method
was recognized on Aug. 1 2013.
In addition the entity paid P480,000 on February 1, 2013, for 2013 calendar-year proper taxes.
Of this amount, P120,000 was allocated to the third quarter of 2013. For the quarter ended
September 30, 2013, what amount should be reported as net income?
a.
910,000
b. 1,030,000
c. 1,110,000
d. 1,150,000
9.) The terms and conditions of employment with Pauline Company include entitlement to
share in the staff bonus system, under which 5% of the profit for the year before charging
the bonus is allocated to the bonus pool, provided the annual profit exceeds P50,000,000.
The profit before accrual of any bonus for the first half of 2013 amounted to P40,000,000
and the latest estimate of the profit before accrual of any bonus for the year as a whole is
P60,000,000. What amount should be recognized in profit or loss in respect of the staff
bonus for the half year ended June 30, 2013?
a. 1,500,000
b. 3,000,000
c. 2,000,000
d.
0
10.)
Snider Company is preparing its interim financial statements for the first quarter
ended March 31, 2013. Expenses in the first quarter totaled P4,000,000 of which 25%
was variable. The fixed expenses included television advertising expense o P1,500,000
representing air time to be incurred evenly during 2013 for an equipment that was
available for use on March 1, 2013. What amount should be reported as total expenses in
the first quarter ended March 31, 2013?
a. 4,000,000
b. 2,875,000
c. 2,325,000
d. 2,335,000
11.)
On January 1, 2013, Builder Company entered into a P20,000,000 long-term
fixed price contract to construct a factory building. The entity accounted for this contract
under percentage of completion at the end of each quarter for 2013.
Quarter
Percentage of completion
1
10%
15,000,000
2
10%
15,000,000
3
25%
19,200,000
4
25%
19,200,000
Estimated cost
No work was performed in the second and fourth quarters. What amount should be reported as
income (loss) on construction contract in the quarterly income statements?
First
Second
Third
Fourth
a. 0
0
0
200,000
b. 500,000
0
(300,000)
0
c. 500,000
0
0
0
d. 500,000
0
(120,000)
0
12.)
Vilo Company has estimated that total depreciation expense for 2013 will amount
to P600,000 and that 2013 year-end bonuses to employees will total P1,200,000. In the
interim income statement for the six months ended June 30, 2013, what total amount of
expenses should be reported?
a. 1,800,000
b.
300,000
c.
900,000
d.
0
13.)
On January 1, 2013. Akron Company paid real estate taxes for the calendar year
2013 in the amount of P600,000. In the first week of April 2013, the entity made
unanticipated ordinary repairs to plant equipment at a cost of P900,000. What total
amount of these expenses should be reflected in the quarterly income statements for
2013?
March 31
June 30
September 30 December 31
a. 150,000
450,000
450,000
450,000
b. 375,000
375,000
375,000
375,000
c. 150,000
1,050,000
150,000
150,000
d. 600,000
900,000
0
0
14.)
15.)
Bailar Company, a calendar-year entity, has the following income before income
tax and estimated effective tax rate for the first three quarters of the current year:
Income before tax
First quarter
6,000,000
Second quarter
Third quarter
Effective tax rate
30%
7,000,000
30%
4,000,000
35%
What amount should be reported as income tax provision in the interim income statement for the
third quarter?
a. 5,950,000
b. 2,050,000
c. 1,200,000
d. 1,400,000
CASH AND CASH EQUIVALENTS
1.) Pygmalion Company had the following account balances on December 31, 2013:
Cash in bank- current account
5,000,000
Cash in bank- payroll account
1,000,000
Cash on hand
500,000
Cash in bank – restricted account for building
construction expected to be disbursed in 2014
3,000,000
Time deposit, purchased December 15, 2013 and
due March 15,2014
2,000,000
The cash on hand included a P200,000 check payable to Pygmalion, dated January 15, 2014.
What total amount should be reported as “cash and cash equivalents” on December 31, 2013?
a. 6,300,000
b. 8,300,000
c. 6,500,000
d. 8,700,000
2.) Thor Company provided the following data on December 31, 2013:
Checkbook balance
Bank statement balance
4,000,000
5,000,000
Check drawn on Thor’s account, payable to supplier
dated and recorded on December 31, 2013, but
not mailed until January 15, 2014
Cash in sinking fund
500,000
2,000,000
On December 31, 2013, what amount should be reported as “cash” under current assets?
a. 4,500,000
b. 5,500,000
c. 3,500,000
d. 6,500,000
3.) Everlast Company reported the following information at the current year-end:

Investment securities of P1,000,000. These securities are share investments in entities
that are traded in Philippine Stock Exchange. As a result, the shares are very actively
traded in the market.

Investment securities of P2,000,000. These securities are government treasury bills. The
reasury bills have a 10-year term and purchased on December 31 at which time they had
two months to until they mature.

Cash of P3,400,000 in the form of coin, currency, savings account and checking account.

Investment securities of P1,500,000. These securities are commercial papers. The term of
the papers is nine months and they were purchased on December 31 at which time they
had three months to go until they mature.
What total amount should be reported as cash and cash equivalents at the current year-end?
a. 5,400,000
b. 6,400,000
c. 6,900,000
d. 7,900,000
4.) On December 31, 2013, the cash account of Roel Company showed the following details:
Undeposited collections
60,000
Cash in bank – PCIB checking account
500,000
Cash in bank – PNB (overdraft)
( 50,000)
Undeposited NSF check received from customer,
dated December 1, 2013
15,000
Undeposited check from a customer, dated January 15, 2014
25,000
Cash in bank – PCIB (fund for payroll)
150,000
Cash in bank – PCIB (saving deposit)
100,000
Cash in bank – PCIB (money market instrument, 90 days)
Cash in foreign bank (restricted)
2,000,000
100,000
IOUs from officers
30,000
Sinking fund cash
450,000
Financial asset held for trading
On December 31, 2013, what total amount should be reported as
120,000
“cash and cash equivalent”?
a. 2,660,000
b. 2,810,000
c. 2,770,000
d.
810,000
5.) Burr Company had the following account balances on December 31, 2013:
Cash in bank
2,250,000
Cash on hand
125,000
Cash restricted for addition to plant
(expected to be disbursed in 2014)
1,600,000
Cash in bank included P600,000 of compensating balance against short-term borrowing
arrangement. The compensating balance is not legally restricted as to withdrawal. In the
December 31, 2013 statement of financial position, what total cash should be reported under
current assets?
a. 1,775,000
b. 2,250,000
c. 2,375,000
d. 3,975,000
6.) On December 31, 2013, West Company had the following cash balances :
Cash in bank
Petty cash fund (all funds were reimbursed on 12/31/2013)
Time deposit (due February 1, 2014)
1,800,000
50,000
250,000
Cash in bank included P600,000 of compensating balance against short-term borrowing
arrangement on December 31, 2013. The compensating balance is legally restricted as to
withdrawal. In the December 31, 2013 statement of financial position, what total amount should
be reported as cash and cash equivalents?
a. 1,850,000
b. 1,250,000
c. 2,100,000
d. 1,500,000
7.) Campbell Company had the following account balance of December 31, 2013.
Petty cash fund
Cash in bank – current account
Cash in bank – sinking fund
Cash on hand
50,000
4,000,000
2,000,000
500,000
Cash in bank – restricted account for plant addition,
Expected to be disbursed in 2014
Treasury bills
1,500,000
1,000,000
The petty cash fund included unreplenished December 2013 petty cash expense vouchers of
P10,000 and employee IOU of P5,000. The cash on hand included a P100,000 check payable to
Campbell dated January 15, 2014. In exchange for a guaranteed line of credit, the entity has
agreed to maintain a minimum balance of P200,000 in its unrestricted current bank account. The
sinking fund is set aside to settle a bond payable that is due on June 30, 2014. What total amount
should be reported as :cash and cash equivalents” on December 31, 2013?
a. 7,435,000
b. 5,435,000
c. 4,435,000
d. 5,535,000
8.) ABC Company reported that the cash account per ledger had a balance at December 31,
2013 of P4,415,000 which is considered of the following:
Petty cash fund
24,000
Undeposited receipts, including a postdated customer
Check for P70,000
1,220,000
Cash in Allied Bank, per bank statement, with
a check for P40,000 still outstanding
Bond sinking fund
2,245,000
850,000
Vouchers paid out of collections, not yet recorded
43,000
IOUs signed by employees, taken from collections
33,000
4,415,000
What amount should be reported as cash in the December 31, 2013 statement of financial
position?
a. 3,379,000
b. 3,419,000
c. 3,489,000
d. 3,449,000
9.) The cash account in the statement of financial position of Tawiran Company consisted of
the following:
Bond sinking fund
1,500,000
Checking account in FEBTC (A P320,000 check is
still outstanding per bank statement)
3,155,000
Currency and coins awaiting deposit
1,135,000
Deposit in a bank closed by BSP
500,000
Petty cash fund (of which P10,000 in is the form
of paid vouchers)
Receivables from officers and employees
50,000
175,000
6,515,000
What total amount of cash should be reported under current assets?
a. 4,440,000
b. 4,330,000
c. 4,830,000
d. 5,830,000
10.)
Islander Company provided the following information with respect to the cash
and cash equivalents on December 31, 2013.
Checking account at First Bank
Checking account at Second Bank
(
200,000)
3,500,000
Treasury bonds
1,000,000
Payroll account
500,000
Value added tax account
Foreign bank account- restricted (in equivalent peso)
400,000
2,000,000
Postage stamps
50,000
Employee’s postdated check
300,000
IOU from president’s brother
750,000
Credit memo from a vendor for a purchase return
Traveler’s check
Not-sufficient-fund check
80,000
300,000
150,000
Petty cash fund (P20,000 in currency and expense
receipts for P30,000)
Money order
50,000
180,000
What amount should be reported as unrestricted cash on December 31, 2013?
a. 5,900,000
b. 4,600,000
c. 4,900,000
d. 6,900,000
11.)
Ral Company reported that the checkbook balance on December 31, 2013 was
P5,000,000. In addition, the entity held the following items in its safe on that date:
Check payable to Ral, dated January 2, 2014 in
payment of a sale made in December 2013, not
included in December 31 checkbook balance
2,000,000
Check payable to Ral, deposited December 15
and included in December 31 checkbook
balance, but returned by bank on December 30
stamped “NSF.” The check was redeposited on
January 2, 2014 and cleared on January 9, 2014
500,000
Check drawn on Ral’s account, payable to a vendor, dated
and recorded in Ral’s books on December 31, 2013
but not mailed until January 10, 2014
What is the amount to be reported as “cash” on December 31, 2013?
a. 4,800,000
300,000
b. 5,300,000
c. 6,500,000
d. 6,800,000
12.)
The checkbook balance of Dove Company on December 31, 2013 was
P4,000,000. Data about certain cash items follow:

A customer check amounting to P200,000 dated January 2, 2014 was included in
the December 31, 2013 checkbook balance.

Another customer check for P500,000 deposited on December 22, 2013 was
included in its checkbook balance but returned by the bank for insufficiency of
fund. This check was redeposited on December 26, 2013 and cleared two days
later.

A P400,000 check payable to supplier dated and recorded on December 30, 2013
was ,mailed on January 16, 2014.

A petty cash fund of P50,000 with the following summary on December 31, 2013:
Coins and currencies
5,000
Petty cash vouchers
43,000
Return value of 20 cases of soft drinks
2,000
50,000

A check of P43,000 was drawn on December 31, 2013 payable to Petty Cash.
What amount should be reported as “cash” on December 31, 2013?
a. 4,248,000
b. 4,200,000
c. 4,205,000
d. 3,748,000
13.)
Account of petty cash fund of Timex Company showed its composition as
follows:
Coins and currency
3,300
Paid vouchers:
Transportation
600
Gasoline
400
Office supplies
500
Postage stamps
300
Due from employees
Manager’s check returned by bank marked “NSF”
1,200
3,000
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?
a. 10,000
b.
7,000
c.
6,000
d.
9,000
14.)
The petty cash fund of Liwanag Company on December 31, 2013 is composed of
the following:
Currencies
Coins
20,000
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
A check drawn by the entity payable to the
order of Grace de la Cruz, petty cash
custodian, representing her salary
15,000
An employee’s check returned by the bank
for insufficiency of funds
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 of.
5,000
The petty cash general ledger account has an imprest balance of P50,000. What is the amount of
petty cash fund that should be reported in the statement of financial position on December 31,
2013?
a. 42,000
b. 27,000
c. 37,000
d. 22,000
15.)
Yasmin Company provided the following information on December 31, 2013:
Petty cash fund
50,000
Current account – First bank
4,000,000
Current account – Second Bank (overdraft)
( 250,000)
Money market placement – Third Bank
Time deposit – Fourth Bank
1,000,000
2,000,000

The petty cash fund included unreplenished December 2013 petty cash expense vouchers
P15,000 and an employee check for P5,000 dated January 31, 2014.

A check for P100,000 was drawn against First Bank current account dated and recorded
December 29, 2013 but delivered to payee on January 15, 2014.

The Fourth Bank time deposit is set aside for land acquisition in early January 15, 2014.
What total amount should be reported as “cash and cash equivalents” on December 31, 2013?
a. 5,120,000
b. 5,150,000
c. 4,130,000
d. 4,880,000
16.)
On December 31, 2013, Erika Company reported “cash account” balance per
ledger of P3,600,000 which included the following:
Demand deposit
1,500,000
Time deposit – 30 days
500,000
NSF check of customer
20,000
Money market placement due on June 30, 2014
Saving deposit
1,000,000
50,000
IOU from an employee
Pension fund
30,000
400,000
Petty cash fund
10,000
Customer check dated January 31, 2014
60,000
Customer check outstanding for 18 months
30,000

Check of P100,000 in payment of accounts payable was dated and recorded on December
31, 2013 but mailed to creditors on January 15, 2014.

Check of P50,000 dated January 31, 2014 in payment of accounts payable was recorded
and mailed December 31, 2013.

The entity uses the calendar year. The cash receipts journal was held open until January
15, 2014, during which time P200,000 was collected and recorded on December
31,2013?
What total amount should be reported as “cash and cash equivalents” on December 31, 2013?
a. 2,010,000
b. 1,960,000
c. 1,860,000
d. 1,510,000
17.)
Karla Company provided the following information on December 31, 2013:
Cash on hand
500,000
Petty cash fund
20,000
Security Bank current account
1,000,000
PNB Current account no. 1
400,000
PNB Current account no. 2
(
50,000)
BSP treasury bill – 60 days
3,000,000
BPI time deposit – 30 days
2,000,000

The cash on hand included a customer postdated check of P100,000 and postal money
order of P40,000.

A check for P200,000 was drawn against Security Bank account, dated January 15, 2014,
delivered to the payee and recorded December 31, 2013.

The BPI time deposit is set aside for acquisition of land.
What total amount of cash and cash equivalents should be reported on December 31, 2013?
a. 4,970,000
b. 6,970,000
c. 4,770,000
d. 1,970,000
18.)
Celine Company provided the following information on December 31, 2013:
Cash on hand
200,000
Petty cash fund
Philippine Bank current account
20,000
5,000,000
Manila Bank current account
4,000,000
City Bank current account (bank overdraft)
( 100,000)
Asia Bank saving account for equipment acquisition
Asia Bank time deposit, 90 days

250,000
2,000,000
Cash on hand included the following items:
Customer’s check for P35,000 returned by bank December 26, 2013 due to insufficient fund but
subsequently redeposited and cleared by the bank on January 10, 2014.
Customer’s check for P15,000 dated January 10, 2014, received December 23, 2013.

The petty cash fund comprised the following items on December 31, 2013:
Currency and coins
5,000
IOU from an officer
2,000
Unreplenished petty cash voucher

12,000
Included among the checks drawn by Celine against the Philippine Bank current account
and recorded in December 2013 are:
Check written and dated December 23, 2013 and delivered to payee on January 3, 2014,
P25,000.
Check written December 26, 2013, dated January 30, 2014, delivered to payee on December 28,
2013, P45,000.
What total amount should be reported as cash and cash equivalents on December 31, 2013?
a. 11,125,000
b. 11,225,000
c. 11,155,000
d. 11,205,000
19.)
At year-end, Myca Company reported cash and cash equivalents comprising cash
on hand P500,000, demand deposit P4,000,000, certificate of deposit P2,000,000,
postdated customer’s check P500,000, petty cash fund P50,000, traveler’s check
P200,000, manager’s check P100,000 and money order P150,000. What total amount of
cash should be reported at year-end?
a. 7,000,000
b. 4,800,000
c. 6,800,000
d. 5,000,000
BANK RECONCILIATION
1.) In preparing the August 31, 2013 bank reconciliation, Apex Company provided the following
information:
Balance per bank statement
Deposit in transit
1,805,000
325,000
Return of customer’s check for insufficient fund
Outstanding checks
Bank service charge for August
On August 31, 2013, what is the adjusted cash in bank?
a. 1,855,000
b. 1,795,000
c. 1,785,000
d. 1,755,000
60,000
275,000
10,000
2.) In preparing the bank reconciliation on December 31, 2013, Case Company provided the
following data:
Balance per bank statement
3,800,000
Deposit in transit
520,000
Amount erroneously credited by bank to Case’s account
40,000
Bank service charge for December
5,000
Outstanding checks
675,000
What is the adjusted cash in bank on December 31, 2013?
a. 3,685,000
b. 3,645,000
c. 3,600,000
d. 3,605,000
3.) In an audit of Mindanao Company on December 31, 2013, the following data aree gathere:
Balance per book
Bank charges
1,000,000
3,000
Outstanding checks
235,000
Deposit in transit
300,000
Customer note collected by bank
375,000
Interest on customer note
15,000
Customer check returned NSF
Depositor’s note charged to account
62,000
250,000
What is the adjusted cash in bank on December 31, 2013?
a. 1,575,000
b. 1,065,000
c. 1,075,000
d. 1,325,000
4.) Core Company provided the following data for the purpose of reconciling the cash balance
per book with the balance per bank statement on December 31, 2013:
Balance per bank statement
2,000,000
Outstanding checks (including certified check of P100,000) 500,000
Deposit in transit
200,000
December NSF checks (of which P50,000 had
been redeposited and cleared by December 27)
150,000
Erroneous credit to Core’s account, representing
proceeds of loan granted to another company
300,000
Proceeds of note collected by Bank for Core,
net of service charge of P20,000
750,000
What is the cash in bank to be reported on December 31, 2013?
a.
1,500,000
b. 1,400,000
c. 1,800,000
d. 1,450,000
5.) Aries Company keeps all its cash in a checking account. An examination of the entity’s
accounting records and bank statement for the month ended June 30, 2013 revealed the
following information:

The cash balance per book on June 30 is P8,500,000.

A deposit of P1,000,000 that was placed in the bank’s night depository on June 30 does
not appear on the bank statement.

The bank statement shows on June 30, the bank collected note for Aries and credited the
proceeds of P950,000 to the entity’s account.

Checks outstanding on June 30 amount to P300,000.

Aries discovered that a check written in June for P200,000 in payment of an account
payable, had been recorded in the entity’s record as P20,000.

Included with the June bank statement was NSF check for P250,000 that Aries had
received from a customer on June 26.

The bank statement shows P20,000 service charge for June.
What is the cash in bank to be reported in the statement of financial position on June 30, 2013?
a. 9,000,000
b. 8,300,000
c. 9,360,000
d. 9,180,000
6.) On March 31, 2013, Able Company received its bank statement. However, the closing
balance of the account was unreadable. Attempts to contact the bank after hours did not
secure the desired information. The following data are available in preparing a bank
reconciliation:
February 28 book balance
1,460,000
Note collected by bank
100,000
Interest earned on note
10,000
NSF check of customer
130,000
Bank service charge on NSF
2,000
Other bank service charges
3,000
Outstanding checks
202,000
Deposit of February 28 placed in night depository
85,000
Check issued by Axle Company charged to Able’s account
20,000
What is the cash balance per bank statement?
a. 1,435,000
b. 1,532,000
c. 1,338,000
d. 1,557,000
7.) Stellar Company’s bank statement for the month of December included the following
information:
Ending balance, December 31
Bank service charge for December
2,800,000
12,000
Interest paid by bank to Stellar 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
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?
a. 2,500,000
b. 2,520,000
c. 2,540,000
d. 2,800,000
8.) On June 30, 2013, the bank statement of Bougainvilla Company had an ending balance of
P3,735,000. The following data were assembled in the course of reconciling the bank
balance:

The bank erroneously credit Bougainvilla Company P21,000 on June 22.

During the month, the bank charged back NSF checks amounting to P23,000 of which
P8,000 had been redeposited by June 25.

Collection for June 30 totaling P103,000 was deposited the following month.

Checks outstanding on June 30 amounted to P302,000.

Note collected by the bank for Bougainvilla Company was P80,000 and the
corresponding bank charge was P5,000.
What is the unadjusted cash in bank per ledger on June 30, 2013?
a. 3,515,000
b. 3,557,000
c. 3,455,000
d. 3,497,000
9.) Letty Company’s bank statement for the month of April included the following information:
Bank service charge for April
15,000
Check deposited by Letty during April was not collectible
and has been marked “NSF” by the bank and returned
40,000
In comparing the bank statement to its own records, the entity found the following:
Deposits made but not yet recorded by bank
130,000
Checks written and mailed but not yet recorded by bank
100,000
All deposits in transit and outstanding checks have been properly recorded in the entity’s books.
A customer’s check for P35,000 payable to Letty Company had not yet been deposited and had
not been recorded by the entity. The cash in bank account balance per ledger is P920,000
What is the adjusted cash in bank on April 30?
a. 900,000
b. 865,000
c. 930,000
d. 965,000
10.)
Carefree Company prepared the following bank reconciliation on March 31:
Book balance
Add: March 31 deposit
Collection of note
Interest on note
1.405,000
750,000
2,500,000
150,000
Total
4,805,000
Loss: Careless Company’ s deposit to our account
Bank service charge
Adjusted book balance
Bank balance
Add: Error on check No. 175
Total
3,400,000
1,100,000
45,000
1,145,000
3,600,000
5,630,000
45,000
5,675,000
Less: Preauthorized payments for water bills
NSF check
Outstanding check
250,000
220,000
1,650,000
Adjusted bank balance
2,075,000
3,600,000
Check No. 175 was made for the proper amount of P249,000 in payment of account. However it
was entered in the cash payments journal as P294,000. The entity authorized the bank to
automatically pay its water bills as submitted directly to the bank. What is the adjusted cash in
bank on March 31?
a. 3,660,000
b. 3,600,000
c. 3,630,000
d. 2,880,000
11.)
Divine Company prepared the following bank reconciliation on December 31, 2013:
Balance per bank statement
Add: Deposit in transit
Checkbook printing charge
2,800,000
195,000
5,000
Error made by Divine recording
check No. 45 (issued in December)
NSF check
35,000
110,000
345,000
3,145,000
Less:
Outstanding check
100,000
Note collected by bank (includes P15,000 interest)
Balance per book
215,000
315,000
2,830,000
The entity had P200,000 cash on hand on December 31, 2013. What amount should be reported
as cash in the statement of financial position on December 31, 2013?
a. 2,930,000
b. 3,095,000
c. 2,895,000
d. 3,130,000
12.)
Margar Company keeps all cash in a checking account. An examination of the entity’s
accounting records and bank statement for the month ended December 31, 2013 revealed a
bank statement balance of P8,469,000 and a book balance of P8,524,00.
A deposit of P950,000 placed in the bank’s night depository on December 29 does not appear on
the bank statement. Checks outstanding on December 31 amount to P270,000.
The bank statement shows that on December 25, the bank collected a note for Margar Company
and credited the proceeds of P935,000 to the entity’s account. The proceeds included P35,000
interest, all of which Margar Company earned during the current period. Margar Company has
not yet recorded the said collection.
Margar Company discovered that check number 1000759 written in December for P183,000 in
payment of an account had been recorded in the entity’s records as P138,000.
Included with the December 31 bank statement was an NSF check for P250,000 that Margar
Company had received from Ana Company on December 20. Margar Company has not yet
recorded the returned check. The bank statement shows a P15,000 service charge for December.
What is the journal entry to adjust the cash in bank on December 31, 2013?
a. Net debit to cash in bank of P625,000
b. Net credit to cash in bank of P625,000
c. Debit to cash in bank of P935,000
d. Credit to cash in bank of P310,000
13.)
While checking the cash account of ABC Company on December 31, 2013, the
following information is discovered:
Balance per book
6,776,000
Balance per bank statement (outstanding checks of P987,000)
6,532,000
Deposit in bank closed by BSP
1,600,000
Currency and coins counted
950,000
Petty cash fund (of which P100,000 is in the form of paid vouchers)
Bank charges not yet taken up in the book
Bond sinking fund
Receivables from employees
50,000
6,000
1,000,000
70,000
Error in recording a check in the book. The correct
amount as paid by the bank is P89,000 instead of P98,000
as recorded in the book, or a difference of
9,000
What is the adjusted cash in bank on December 31,2013
a.
6,535,000
b. 6,779,000
c. 7,769,000
d. 8,379,000
14.)
Ron company provided the following data for the month of January of the current year:
Balance per book, January 31
Balance per bank statement, January 31
3,130,000
3,500,000
Collections on January 31 but Undeposited
550,000
NSF check received from a customer returned by the bank on
February 5 with the January bank statement
Checks outstanding on January 31
Bank debit memo for safety deposit box rental not recorded by depositor
50,000
650,000
5,000
A creditor’s check for P30,000 was incorrectly recorded in the depositor’s
Book as
A customer’s check for P200,000 was recorded by the depositor as
300,000
20,000
The depositor neglected to make an entry in its books for a check
drawn in payment of an account payable
125,000
What is the adjusted cash in bank on January 31?
a. 3,130,000
b. 3,500,000
c. 3,400,000
d. 2,950,000
15.) In reconciling the cash balance on December 31,2013 with that shown in the bank
statement, the following tacts are gathered from the records of Sam Company:
Balance per bank statement
Balance per book
4,000,000
2,700,000
Outstanding checks
600,000
Deposit in transit
475,000
Service charge
Proceeds of bank loan, December 1, discounted for 6 months at 12%,
10,000
not recorded on Sam Company’s books
940,000
Customer’s check charged back by bank
For absence of counter signature
50,000
Deposit of P100, 000 incorrectly recorded by bank as
10,000
Check of Sim Company charged by bank
against Sam account
150,000
Customer ‘s note collected by bank in favor of Sam Company.
Face
400,000
Interest
40,000
Total
440,000
Collection fee
5,000
Erroneous debit memo of December 28,
To charge Sam account with
Settlement of bank loan
Deposit of Sim Company credited to Sam account
200,000
300,000
What is the adjusted cash in bank on December 31, 2013?
a. 4,315,000
b. 3,925,000
c. 3,075,000
d. 4,015,000
16.) Esteem Company’s month-end bank statement showed a balance of P3,600,000.
Outstanding checks amounted toP1,200,000, a deposit of P400,000 was in transit at month-
end, and a check for P50,000 was erroneously charged by the bank against the account. What
is the correct balance in the bank account at month-end?
a. 2,750,000
b. 2,850,000
c. 2,050,000
d. 4,350,000
17.)
The accounts of Susan Company showed the following facts on August 31, 2013.
Balance of cash in bank account
1,300,000
Balance of bank statement
1,200,000
Outstanding checks, August 31:
Number 555
10,000
761
55,000
762
40,000
763
25,000
764
65,000
765
70,000
Receipts of August 31, deposited September 1
Service charge for August
NSF check received from a customer
275,000
5,000
85,000
The cashier-bookkeeper had misappropriated P30,000 and an additional P10,000 by charging
sales discounts and crediting accounts receivable The stub for check number 765 and the invoice
relating there to show that it was for P50,000. It was recorded incorrectly in the cash
disbursements journal as P70, 000. This check was drawn in payment of an account payable.
Payment has been stopped on check number 555 which was drawn in payment of an account
payable. The payee cannot be located. What is the adjusted cash in bank in august 31, 2013?
a. 1,240,000
b. 1,230,000
c. 1,210,000
d. 1,200,000
18.) The cash account of Gallant Company showed a balance of P4, 500,000. The bank
statement did not include a deposit of P230,000 made on the last day of the month. The bank
statement showed a collection by the bank of P94,000 and a customer’s check for P32,000
returned because it was NSF. A customer’s check for P45,000 was recorded on the books as
P54,000, and a check written for P79,000 was recorded as P97,000.What is the correct
balance in the cash account?
a. 4,765,000
b. 4,571,000
c. 4,819,000
d. 4,801,000
19.) Mcbride Company provided the following data pertaining to the transactions and bank
account for May of the current year.
Cash balance per accounting recorded
1,719,000
Cash balance per bank statement
3,195,000
Bank service charge
Debit memo for the cost of printed checks delivered
by the bank;
10,000
the charge has not been recorded in
the accounting record
Outstanding checks
Deposit of May 30 not recorded by bank until June 1
12,000
685,000
500,000
Proceeds of a bank loan on May 30, not recorded in accounting record,
net of interest of P30,000
570,000
Proceeds from a customer’s promissory note,
principal amount P800,000
collected by the bank not taken
up in the accounting record with interest
810,000
Check No. 1086 issued to a supplier entered in the
accounting record as P210,000 but deducted in the
bank statement at an erroneous amount of
120,000
Stolen check lacking an authorized signature deducted
from Mcbride’s account by the bank error
80,000
Customer’s check returned by the bank marked NSF
indicating that the customer’s balance was not
adequate to cover the check ;no entry has been
made in the accounting record to record
the returned check
What is the adjusted in bank?
a. 3,000,000
b. 2,910,000
c. 3,080,000
d. 2,990,000
77,000
20.) The last account in the ledger of Kate Company shows a balance of P1,652,000 at
December 31 . The bank statement, however, shows a balance of P2,000,000 at the same
date. The only reconciling items consist of bank service charge of P2,000, a large number of
outstanding checks totaling P590,000 and a deposit in transit. What is the deposit in transit in
the December 31 bank reconciliation?
a. 150,000
b. 440,000
c. 154,000
d. 592,000
21.)
Grass Company provided the following information:
Balance per bank statement July 31
Balance per ledger, July 31
Deposit of July 30 not recorded by bank
Debit memo – service charges
Credit memo – collection of note by bank
Outstanding checks
An analysis of the canceled checks returned with the bank statement
reveals the following:
* Check for purchase of supplies was drawn for P60,000 but
was recorded as P90,000
* The manager wrote a check for traveling expenses of P100,000
while out of town. The check was not recorded.
What is the amount of outstanding checks on July 31?
a. 970,000
1,240,000
750,000
280,000
10,000
300,000
?
b. 270,000
c. 550,000
d. 610,000
22.)
The following information was included in the bank reconciliation for
Bayside Company for October and November 2013:
Checks and charges recorded by bank in November,
including a November service charge of P4,000
and NSF check of P20,000
550,000
Service charge made by bank in October and
recorded by depositor in November
Total credits to cash in all journals during November
2,000
620,000
Customer’s NSF check returned in October and
redeposited in November (no entry made by
depositor in either October or November)
40,000
Outstanding checks on October 31,2013 that
cleared in November
What is the amount of outstanding checks on November 30,2013?
a. 282,000
b. 300,000
c. 322,000
d. 302,000
230,000
23.)
Jam Company providing the bank reconciliation on May31:
Balance per bank statement
2,100,000
Deposit outstanding
300,000
Checks outstanding
(__30,000)
Correct cash balance
2,370,000
Balance per book
2,372,000
Bank service charge
(__
2,000)
Correct cash balance
2,370,000
June data are as follows:
Bank
Checks recorded
2,300,000
Deposit recorded
1,620,000
Book
2,360,000
1,800,000
Collection by bank (P400,000 note
plus interest)
420,000
NSF check returned with June 30statement
10,000
Balances
1,830,000
1. What is the amount of checks outstanding on June 30?
a. 30,000
b. 90,000
c. 60,000
d.
0
1,810,000
2. What is the amount of deposit s in transit on June 30?
a. 480,000
b. 120,000
c. 180,000
d. 680,000
3. What is the adjusted cash in bank on June 30?
a. 1,810,000
b. 2,220,000
c. 2,240,000
d. 2,780,000
24.)
Lazer Company had the following bank reconciliation on June 30,
2013:
Balance per bank statement, June 30
Deposit in transit
Total
Outstanding checks
Balance per book, June 30
3,000,000
__400,000
3,400,000
(__900,000)
2,500,000
The bank statement for the month of July showed the following:
Deposits (including P200,000 note collected for Lazer)
9,000,000
Disbursements (including P140,000 NSF check and
P10,000 service charge)
7,000,000
All reconciling items on June 30 cleared through the bank in July. The outstanding checks
totaled P600,000 and the deposit in transit amounted to P1,000,000 July 31.
1. What is the cash balance per book on July 31?
a. 5,400,000
b. 5,350,000
c. 5,550,000
d. 4,500,000
2. What is the amount of cash receipts per book in July?
a. 9,400,000
b. 9,600,000
c. 8,600,000
d. 9,800,000
3. What is the amount of cash disbursements per book July?
a. 6,550,000
b. 6,700,000
c. 7,300,000
d. 6,850,000
25.)
Chris Company presented the following bank reconciliation for the
month of November of the current year:
Balance per bank statement, November 30
3,600,000
Add: Deposit in transit
__800,000
4,400,000
Less: Outstanding checks
Bank credit recorded in error
Balance per book, November 30
1,200,000
_200,000
_1,400,000
3,000,000
Data per bank statement for the month of December follow:
December deposits (including note
collected of P1,000,000 for Chris)
5,500,000
December disbursements (including NSF, P350,000
and service charge, P50,000)
4,400,000
All items that were outstanding on November 30 cleared through the bank in December,
including the bank credit. In addition, checks amounting to P500,000 were outstanding and
deposits of P700,000 were in transit on December 31.
1. What is the cash balance per ledger on December 31?
a. 4,100,000
b. 4,900,000
c. 4,700,000
d. 4,300,000
2. What is the amount of cash receipts per book in December?
a. 5,400,000
b. 4,400,000
c. 5,500,000
d. 6,400,000
3. What is the amount of cash disbursements per book in December?
a. 3,700,000
b. 3,300,000
c. 3,100,000
d. 3,500,000
26.) Lira Company prepared the following bank reconciliation dated June 30 of the current
year.
Balance per bank
9,800,000
Deposit in transit
400,000
Outstanding checks
Balance per book
(1,400,000)
8,800,000
There were total deposits of P6,500,000 and charges of disbursements of P9,000,000 for July per
bank statement. All reconciliation items on June 30 cleared the bank on July 31. Checks
outstanding amounted to P1,000,000 on July 31.What is the amount of cash disbursements per
book in July?
a. 8,600,000
b. 7,600,000
c. 9,400,000
d. 8,400,000
27.)
Oro Company had the following bank reconciliation on March 31 of the current year:
Balance per bank statement, March 31
Add: Deposits in transit
Total
Less: Outstanding checks
Balance per book, March 31
Data per bank statement for the month of April follow:
Deposits
Disbursements
All reconciliation items on March 31 cleared through the bank in April. Outstanding checks on
April 30 totaled P750,000 and deposits in transit amounted to P1,500,000. What is the amount of
cash receipts per book in April?
a. 5,000,000
b. 6,500,000
c. 7,500,000
d. 5,500,000
ACCOUNTS RECEIVABLE
1.) Roxy Company had the following information for 2013 relating to accounts
receivable:
Accounts receivable on January 1
1,300,000
Credit Sales
5,400,000
Collections from customers, excluding recovery
Accounts written off
4,750,000
125,000
Collection of accounts written off in prior year
(customer credit was not reestablished)
25,000
Estimated uncollectible receivables per aging
of receivable at December 31
165,000
On December 31, 2013, what is the balance of accounts receivable, before allowance for
doubtful accounts?
a. 1,825,000
b. 1,850,000
c. 1,950,000
d. 1,990,000
2.) Jay Company provided the following data relating accounts receivable for 2013:
Accounts receivable, January 1
Credit sales
650,000
2,700,000
Sales returns
75,000
Accounts written off
40,000
Collections from customers
2,150,000
Estimated future sales returns at December 31
Estimated uncollectible accounts at 12/31 per aging
50,000
110,000
What amount should Jay report as net realizable value of accounts receivable on December 31,
2013?
a. 1,200,000
b. 1,125,000
c. 1,085,000
d.
925,000
3.) The following data were taken from the records of Infra Company for the year ended
December 31, 2013:
Sales on account
Notes received to settle accounts
3,600,000
400,000
Provision for doubtful accounts
Accounts receivable determined to be worthless
90,000
25,000
Purchases on account
3,900,000
Payments to creditors
3,200,000
Discounts allowed by creditors
Merchandise returned by customer
Collections received to settle accounts
Notes given to creditors in settlement of accounts
Merchandise returned to suppliers
Payments on notes payable
Discounts taken by customers
Collections received in settlement of notes
260,000
15,000
2,450,000
250,000
70,000
100,000
40,000
180,000
What is the net realizable value of accounts receivable on December 31, 2013?
a. 605,000
b. 890,000
c. 825,000
d. 670,000
4.) When examining the accounts of Brute Company, it is ascertained that balances
relating to both receivables and payables are included in a single controlling account
called “receivables control” that has a debit balance of P4,850,000. An analysis of the
make-up of this account revealed the following:
Debit
Accounts receivable – customer
Credit
7,800,000
Accounts receivable – officers
500,000
Debit balances – creditors
300,000
Postdated checks from customer
400,000
Subscriptions receivable
800,000
Accounts payable for merchandise
4,500,000
Credit balances in customers’ accounts
200,000
Cash received in advance from customers
for goods not yet shipped
400,000
Expected bad debts
150,000
After further analysis of the aged accounts receivable, it is determined that the allowance for
doubtful accounts should be P200,000. What amount should be reported as “trade and other
receivables” under current assets?
a. 8,950,000
b. 8,800,000
c. 8,600,000
d. 8,850,000
5.) Miami Company reported that the current receivables consisted of the following:
Trade accounts receivable
Allowance for uncollectible accounts
930,000
(
20,000)
Claim against shipper for goods lost in transit (November 2013)
30,000
Selling price of unsold goods sent by Miami on consignment at 130% of cost
(not included in Miami’s ending inventory)
260,000
Security deposit on lease of warehouse used for storing some inventories
Total
300,000
1,500,000
On December 31, 2013, what total amount should be reported as trade and other receivables
under current assets?
a.
940,000
b. 1,200,000
c. 1,240,000
d. 1,500,000
6.) Faith Company provided the following information relating to current operations:
Accounts receivable, January 1
4,000,000
Accounts receivable collected
8,400,000
Cash sales
2,000,000
Inventory, January 1
4,800,000
Inventory, December 31
4,400,000
Purchases
8,000,000
Gross margin on sales
4,200,000
What is the balance of accounts receivable on December 31?
a. 8,200,000
b. 6,200,000
c. 2,000,000
d. 4,200,000
7.) On December 31, 2013, the accounts receivable control account of Honduras
Company had a balance of P8,200,000. An analysis of the accounts receivable
showed the following:
Accounts known to be worthless
100,000
Advances payments to creditors on purchase orders
400,000
Advances to affiliated companies
1,000,000
Customers’ accounts reporting credit balances arising from sales returns
Interest receivable on bonds
( 600,000)
400,000
Trade accounts receivable – unassigned
2,000,000
Subscription receivable due in 30 days
2,200,000
Trade accounts receivable – assigned (Finance
company’s equity in assigned accounts is P500,000)
1,500,000
Trade installments receivable due in 1 – 18 months,
including unearned finance charge of P50,000
850,000
Trade accounts receivable from officers, due currently
150,000
Trade accounts on which postdated checks are held
(no entries were made on receipt of checks)
Total
230,000
8,200,000
What is the correct balance of trade accounts receivable on December 31, 2013?
a. 4,650,000
b. 4,700,000
c. 4,150,000
d. 4,050,000
8.) The financial statements of Katherine Company included the following information
for 2013:
January 1
Accounts receivable
Allowance for doubtful accounts
Sales
December 31
1,200,000
60,000
8,000,000
Cash collected from customers
7,000,000
The cash collections included a recovery of P10,000 from a customer whose account had been
written off as worthless customers’ accounts of P30,000. On December 1, 2013, a customer
sttled an account by issuing a 12%, six-month note for P400,000. What is the net realizable value
of accounts receivable on December 31, 2013?
a. 1,640,000
b. 1,670,000
c. 1,780,000
d. 1,630,000
9.) Von Company provided the following data for the current year in relation to accounts
receivable:
Debits
January 1 balance after deducting credit balance of P30,000
Charge sales
530,000
5,250,000
Charge for goods out on consignment
50,000
Shareholders’ subscriptions
200,000
Accounts written off but recovered
10,000
Cash paid to customer for January 1 credit balance
25,000
Goods shipped to cover January 1 credit balance
5,000
Deposit on contract
120,000
Claim against common carrier
15,000
Advances to supplier
155,000
Credits
Collections from customers, including overpayment of P50,000
5,200,000
Write off
35,000
Merchandise returns
25,000
Allowances to customers for shipping damages
15,000
Collection on carrier claim
10,000
Collection on subscription
50,000
What is the balance of accounts receivable on December 31?
a. 565,000
b. 595,000
c. 545,000
d. 495,000
10.)
The following transactions affecting the accounts receivable of Wonder
Company took place during the year ended December 31, 2013.
Sales (cash and credit)
5,900,000
Cash received from credit customers, all of whom
took advantage of the discount feature of the
entity’s credit terms 4/10,n/30
3,024,000
Cash received from cash customers
2,100,000
Accounts receivable written off as worthless
50,000
Credit memorandum issued to credit customers
for sales returns and allowances
250,000
Cash refunds given to cash customers for sales
returns and allowances
20,000
Recoveries on accounts receivable written off as
Uncollectible in prior periods (not included in
cash amount stated above)
80,000
The following balances were taken from the January 1, 2013 statement of financial position:
Accounts receivable
950,000
Allowance for doubtful accounts
100,000
The entity provided for uncollectible amount losses by crediting allowance for doubtful accounts
in the amount of P70,000 for the current year.
1. What is the balance of accounts receivable on December 31, 2013?
a. 1,300,000
b. 1,426,000
c. 1,280,000
d. 1,220,000
2. What is the balance of allowance for doubtful accounts on December 31, 2013?
a. 120,000
b. 200,000
c. 250,000
d. 170,000
11.)
On January 1, 2013, the statement of financial position of Square Company
showed accounts receivable of P450,000 and allowance for doubtful accounts of
P9,000. During the current year, the transaction were:
Sales on account, P4,800,000.
Cash collections of accounts receivable totaled P3,920,000, after discounts of P80,000 were
allowed from prompt payment.
Bad accounts previously written off prior year amounting to P5,000 were recovered.
The entity decided to provide P26,000 for doubtful accounts by a journal entry at the end of the
year.
Accounts receivable of P700,000 have been pledged to a local bank on a loan of P400,000.
Collection of P150,000 were made on such accounts receivable (not included in the collections
previously given).
What is the net realizable value of accounts receivable on December 31, 2013?
a. 1,065,000
b. 1,060,000
c. 1,070,000
d. 1,074,000
12.)
Germany Company started business on January 1,2013. After considering the
collection experience of the other entities in the industry, the entity established an
allowance for doubtful accounts estimated at 5% of credit sales. Outstanding accounts
receivable recorded on December 31, 2013 totaled P460,000, while allowance for
doubtful accounts had a credit balance of P50,000 after recording estimated doubtful
accounts expense for December and after writing off P10,000 of uncollectible
accounts. Further analysis showed that merchandise purchased amounted
toP1,800,000 and ending merchandise inventory was P300,000. Good were sold at
40% above cost. The total sales comprised 80% sales on account and 20% cash sales.
Total collections from customers, excluding cash sales, amounted to P1,200,000.
What is the effect of the transactions on the accounts receivable and allowance for
doubtful accounts, respectively?
a.
10,000 understated 24,000 understated
b.
20,000 understated 34,000 understated
c. 330,000 understated 40,000 understated
d. 330,000 understated 50,400 understated
ESTIMATION OF DOUBTFUL ACCOUNTS
1.) Sheraton Hotel manages an extensive network of boutique hotels in the country. The
entity has significant accounts receivable from three customers, namely:
Bacolod Inn
5,000,000
Chicken House
9,000,000
Landmark Hotel
Other accounts receivables not individually significant
8,000,000
4,500,000
The entity has determined that the Chicken House receivable is impaired by P1,500,000 and the
Landmark Hotel receivable is impaired by P2,000,000. The receivable from the Bacolod Inn is
not impaired . The entity has also determined that a composite rate of 5% is appropriate to
measure impairment has loss of accounts receivable?
a. 4,825,000
b. 3,500,000
c. 3,975,000
d. 3,725,000
2.) On December 31,2013, Celaica Company reported accounts receivable as follows:
Trisha Company
800,000
Jerard Company
2,000,000
Marc Company
1,500,000
Francis Company
1,000,000
Other accounts receivable not individually significant
5,000,000
The entity determined that Trisha Company receivable is impaired by P500,000 and Francis
Company receivable is totally impaired. The other accounts receivable from Jerard Company and
Marc Company are not considered impaired. The entity also determined that a composite rate of
4% is appropriate to measure impairment of all other accounts receivable. What is the total
impairment loss of accounts receivable?
a. 1,840,000
b. 1,500,000
c. 1,700,000
d. 1,912,000
3.) Orr Company prepared an aging of accounts receivable on December 31,2013 and
determined that the net realizable value of the accounts receivable was P2,500,000.
Additional information is as follows:
Allowance for doubtful accounts on January 1
280,000
Accounts written off as uncollectible
230,000
Accounts receivable on December 31
2,700,000
Uncollectible accounts recovery
50,000
For the year ended December 31,2013, what amount should be recognize as doubtful accounts
expense?
a. 230,000
b. 200,000
c. 150,000
d. 100,000
4.) Seiko Company reported the following balances after adjustment at year-end:
2013
2012
Accounts receivable
5,250,000
4,800,000
Net realizable value
5,100,000
4,725,000
During 2013, the entity wrote off accounts totaling P160,000 and collected P40,000 on accounts
written off in previous years. What amount should be recognized as doubtful accounts expense
for the year ended December 31,2013?
a. 195,000
b. 150,000
c. 120,000
d. 150,000
5.) Roanne Company used the allowance method of accounting for uncollectible
accounts. During 2013, the entity had charged P800,000 to bad debt expense, and
wrote off accounts receivable of P900,000 as uncollectible. What was the decrease in
working capital?
a. 900,000
b. 800,000
c. 100,000
d.
0
6.) Mill Company’s allowance for doubtful accounts was P1,000,000 at the end of 2013
and P900,00 at the end of 2012. For the year ended December 31,2013, the entity
reported doubtful accounts expense of P160,000 in the appropriate account in 2013 to
write off uncollectible accounts?
a.
60,000
b. 100,000
c. 160,000
d. 260,000
7.) Boholano Company used the statement of financial position approach in estimating
uncollectible accounts expense. The entity prepared an adjusting entry to recognize
this expense at the end of the year. During the year, the entity wrote off a P100,000
receivable and made no recovery of previous write off. After the adjusting entry for
the year, the credit balance in the allowance for doubtful accounts was P250,000
larger than it was on January 1. What amount of uncollectible account expense was
recorded for the year?
a. 250,000
b. 100,000
c. 150,000
d. 350,000
8.) Tara Company provided the following information pertaining accounts receivable on
December 31,2013:
Days
outstanding
Estimated
Amount
Estimated
uncollectible
0-
60
61 -
120
Over
120
1,200,000
1%
900,000
1,000,000
2%
60,000
3,100,000
During 2013, the entity wrote off P70,000 in accounts receivable and recovered P40,000 that had
been written off in prior years. On January 1, 2013, the allowance for uncollectible accounts was
P100,000. Under the aging method, what amount of allowance for uncollectible accounts should
be reported on December 31, 2013?
a.
90,000
b. 100,000
c. 130,000
d. 190,000
9.) Marian Company used the allowance method of accounting for bad debts. The
following summary schedule was prepared from an aging of accounts receivable
outstanding on December 31 of the current year:
Number of days
Probability
outstanding
Amount
of collection
0 – 30 days
5,000,000
.98
31 – 60 days
2,000,000
.90
Over 60 days
1,000,000
.80
The following additional information is available for the current year:
Net credit sales for the year
40,000,000
Allowance for doubtful accounts:
Balance, January 1
Balance before adjustment, December 31
450,000 (cr)
20,000 (dr)
The entity based its estimate of doubtful accounts on the aging of accounts receivable. What
amount should be recognized as doubtful accounts expense for the current year?
a. 470,000
b. 480,000
c. 500,000
d. 520,000
10.) Delta Company sells to wholesalers on terms 2/15, net 30. The entity has no cash
sales but 50% of the customers take advantage of the discount. The entity used the
gross method of recording sales and accounts receivable. An analysis of the trade
accounts receivable on December 31, 2013 revealed the following:
Age
Amount
Collectible
0 – 15 days
2,000,000
100%
16 – 30 days
1,200,000
95%
31 – 60 days
100,000
90%
Over 60 days
__ 50,000
50%
3,350,000
In the December 31, 2013 statement of financial position, what amount should be reported as
allowance for sales discount?
a. 20,000
b. 32,400
c. 33,500
d. 40,000
11.) Brain Company prepared the following schedule on December 31, 2013 and the
uncollectible accounts experience of the previous five years.
0-30 days
4,500,000
31-60 days
1,500,000
61-90 days
800,000
91-120 days
200,000
Over 120days
_100,000
7,100,000
Year-end
0-30
31-60
days
61-90
91-120
days
days
Over
Year
receivables
days
120-days
2012
7,800,000
3%
9%
17.4%
2011
7,500,000
5
8
18.0
49.2
80.3
2010
6,800,000
4
11
19.0
53.7
82.0
2009
6,900,000
4
10
19.8
51.3
78.5
2008
7,200,000
2
11
17.8
49.9
85.2
52.1%
84.1%
The unadjusted allowance for bad debts on December 31, 2013 is P300,000.
What is the correct balance of the allowance for bad debts based on the average loss experience
of the entity for the last 5 years? The average rate is determined by adding all the rates for each
category divided by 5.
a. 640,700
b. 300,000
c. 340,700
d. 597,500
12.) The following accounts were abstracted from Manchester Company’s unadjusted
trial balance on December 31, 2013:
Debit
Accounts receivable
Allowance for doubtful accounts
Net credit sales
Credit
5,000,000
40,000
20,000,000
The entity estimated that 3% the gross accounts receivable will become uncollectible. What
amount should be recognized as doubtful accounts expense for 2013?
a. 110,000
b. 150,000
c. 190,000
d. 600,000
13.)
Ladd Company provided the following information for the current year:
Allowance for doubtful accounts – January 1
180,000
Sales
9,500,000
Sales returns and allowances
800,000
Sales discounts
200,000
Accounts written off as uncollectible
200,000
The entity provided for doubtful accounts expense at the rate of 3% of net sales. What is the
allowance for doubtful accounts at the-end?
a. 435,000
b. 265,000
c. 235,000
d. 241,000
14.)
Barr Company showed the following at the year-end:
Allowance for doubtful accounts (debit balance)
(
16,000)
Net sales
7,100,000
The entity estimated tits uncollectible receivables at 2% of net sales.
What is the allowance for doubtful accounts at year-end?
a. 158,000
b. 144,500
c. 142,000
d. 126,000
15.) Effective with the year ended December 31, 2013, Hall Company adopted a new
accounting method for estimating the allowance for doubtful accounts at the amount
indicated by the year-end aging of accounts receivable. The following data are
available:
Allowance for doubtful accounts, January 1
250,000
Provision for doubtful accounts during the current year
(2% of credit sales of P10,000,000)
Accounts written off
Estimated uncollectible accounts per aging on December 31
200,000
205,000
220,000
After year-end adjustment, what is the doubtful accounts expense for current year?
a. 220,000
b. 205,000
c. 200,000
d. 175,000
16.) Capetown Company began operations on January 1, 2012. The entity has found
that its estimated bad debt expense has been consistently higher than actual bad debts.
Management proposed lowering the percentage from 3% of credit sales to 2%. Credit
sales for 2013 totaled P5,000,000, and accounts written off as uncollectible during
2013 totaled P550,000 What is the debt expense for 2013
a. 150,000
b. 100,000
c. 550,000
d. 240,000
17.) Oriental Company followed the procedure of debiting bad debt expense for 2% of
all new sales.
Sales
Allowance for bad debts
2011
3,000,000
40,000
2012
2,800,000
60,000
2013
3,500,000
80,000
What was the amount of accounts written off in 2013?
a. 50,000
b. 70,000
c. 10,000
d. 86,000
18.) Easy Company sells directly to retail customers. On January 1, 2013, the balance
of the accounts receivable was P2,070,000 while the allowance for doubtful accounts
was credit of P78,000. The following data are gathered:
Credit sales
Writeoffs
Recoveries
2010
11,100,000
260,000
22,000
2011
12,250,000
295,000
37,000
2012
14,650,000
300,000
36,000
2013
15,000,000
310,000
42,000
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. What
amount should be reported as allowance for doubtful accounts on December 31, 2013?
a. 110,000
b. 378,000
c. 300,000
d. 478,000
19.) From inception of operations in 2009, Axis Company carried no allowance for
doubtful accounts. Uncollectible accounts were expensed as written off and
recoveries were credited to income as collected.
On March 1, 2013 (after the 2012 financial statements were issued), management recognized that
the accounting policy with respect to doubtful accounts was not correct, and determined that an
allowance for doubtful accounts was necessary.
A policy was established to maintain an allowance for doubtful accounts based on historical bad
debt loss percentage applied to year-end accounts receivable.
The historical bad debt loss percentage is to be recomputed each year based on all available past
years up to a maximum of five years.
Information for five years is as follows:
Year
Credit sales
Writeoffs
Recoveries
2009
1,500,000
15,000
0
2010
2,250,000
38,000
2,700
2011
2,950,000
52,000
2,500
2012
3,300,000
65,000
4,000
2013
4,000,000
83,000
5,000
The entity reported accounts receivable of P1,250,000 and P2,000,000 on December 31, 2012
and December 31, 2013, respectively. What amount should be reported as doubtful accounts
expense for 2013?
a. 97,000
b. 78,000
c. 83,000
d. 92,000
20.) From inception of operations to December 31, 2013, Murr Company provided for
uncollected accounts expense under the allowance method, provisions are made
monthly at 2% of credit sales, bad debts written off were charged to the allowance
account , recoveries of bad debts previously written off were credited to the
allowance account , and no year-end adjustments to the allowance account were
made. The usual credit terms are net 30 days.
The allowance for doubtful accounts was P120,000 on January 1 ,2013. During the current year,
credit sales totaled P9,000,000, interim provisions for doubtful accounts were made at 2% of
credit sales, P90,000 of bad debts were written off ,and recoveries of accounts previously written
off amounted to P15,000
The entity prepared an aging of accounts receivable for the first time on December 31, 2013
Classification
November – December
July
January
– October
– June
Prior to January 1, 2013
Balance
2,000,000
600,000
400,000
_ 200,000
Uncollectible
2%
10%
25%
75%
3,200,000
Based on the review of collectability of the account balances in the “prior to January 1, 2013”
aging category, additional accounts totaling P60,000 are to be written off on December 31, 2013.
Effective with the year ended December 31, 2013, the entity adopted a new accounting method
for estimating the allowance for doubtful accounts at the amount indicated by the year-end aging
analysis of accounts receivable. What is the year-end adjusted to the allowance for doubtful
accounts on December 31,2013?
a. 305,000
b. 180,000
c. 320,000
d. 140,000
RECEIVABLE FINANCING
1.) Moon Company assigned P3,000,000 of accounts receivable as collateral for a
P2,000,000 loan with a bank. The bank assessed a 4% finance fee and charged 6%
interest on the note at maturity. What would be the journal entry to record the
transaction?
a. Debit cash P1,920,000, debit finance charge P80,000, and credit note payable
P2,000,000.
b. Debit cash P1,920,000, debit finance charge P80,000, and credit accounts receivable
P2,000,000.
c. Debit cash P1,920,000, debit finance charge P80,000, debit from the bank P1,000,000,
and credit accounts receivable P3,000,000
d. Debit cash P1,880,000, debit finance charge P120,000, and credit note payable
P2,000,000.
2.) Star Company assigned P4,000,000 of accounts receivable as collateral for a P2,000,000,
6% loan with a bank. The entity also paid a finance fee of 5% on the transaction upfront.
What amount should be recorded as a gain or loss on the transfer of accounts receivable?
a. 200,000 loss
b. 100,000 loss
c. 240,000 gain
d.
0
3.)
4.)
5.) Zeus Company factored P6,000,000 of accounts receivable to a finance entity on October
1, 2013. Control was surrendered by Zeus Company. The factored 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 weighted average time to maturity of the accounts
receivable of 54 days.
1. What is the amount of cash initially received from the factoring?
a. 5,296,850
b. 5,386,850
c. 5,476,850
d. 5,556,850
2. If all accounts are collected, what is the cost of factoring the accounts receivable?
a. 313,150
b. 180,000
c. 433,150
d. 613,150
6.) Mazda Company sold P5,800,000 in accounts receivable for cash of P5,000,000. The
factor withheld 10% of the cash proceeds to allow for possible customer returns and other
adjustments. An allowance for bad debts of P600,000 had previously been established by
the entity in relation to these accounts. What is the loss on factoring that should be
recognized?
a. 200,000
b. 700,000
c. 500,000
d. 800,000
7.) Flora Company factored P5,000,000 of its accounts receivable. The transfer is recorded
as a sale by Flora Company. The factor retained 8% for sales adjustment and charged
P300,000 as a financing fee. For simplicity, the estimated and actual amounts of the
following items are equal:
Sales adjustments
Uncollectible accounts
250,000
100,000
What is the loss or financing expense to be recognized on the transfer?
a. 300,000
b. 650,000
c. 350,000
d. 400,000
8.)
9.)
10.)
11.)
Freeway Company provides financing to other entities by purchasing their
accounts receivable on a nonrecourse basis. Freeway charges its clients a commission of
15% on all receivables factored.
In addition, Freeway withholds 10% of receivables factored as protection against sales returns
and other adjustments. Freeway credits the 10% withheld to Clients Retainer account and makes
payments to clients at the end of each month so that the balance in the retainer is equal to 10% of
unpaid receivables at the end of the month.
Experience has led Freeway to establish an allowance for doubtful accounts of 4% of all unpaid
receivables purchased.
On December 1, 2013, Freeway purchased receivables from Motorway Company totaling
P3,000,000. Motorway had previously established an allowance for doubtful accounts for these
receivables a P100,000. By December 31, 2013, Freeway had collected P2,500,000 on these
receivables.
1. What is the amount of cash initially received by Motorway Company from Freeway
Company?
a. 2,250,000
b. 3,000,000
c. 2,550,000
d. 2,700,000
2. What is the loss on factoring to be recognized by Motorway Company?
a. 350,000
b. 450,000
c. 650,000
d. 750,000
12.)
13.)
14.)
On July 1, 2013, Lee Company sold goods in exchange for P2,000,000, 8-month,
noninterest-bearing note receivable. At the time of the sale, the market rate of interest
was 12%. The entity discounted the note at 10% on September 1, 2013?
1. What is the cash received from discounting?
a. 1,940,000
b. 1,938,000
c. 1,900,000
d. 1,880,000
2. What is the loss on note receivable discounting?
a. 100,000
b.
75,000
c.
25,000
d.
0
15.)
Apex Company accepted from a customer P1,000,000 face amount, 6-month, 8%
note dated April 15, 2013. On the same date the entity discounted the note without
recourse at Union Bank at 10% discount rate.
1. What amount of cash was received from the discounting?
a. 1,040,000
b.
990,000
c.
988,000
d.
972,000
2. What is the loss on note receivable discounting?
a. 50,000
b. 40,000
c. 52,000
d. 12,000
16.)
On June 30, 2013, Ray Company discounted at the bank a customer/s
P6,000,000, 6-month, 10% note receivable is dated April 30, 2013. The bank discounted
the note at 12% without recourse.
1. What is the amount received from the note receivable discounting?
a. 5,640,000
b. 5,760,000
c. 6,048,000
d. 6,174,000
2. What is the loss on the note receivable discounting?
a. 252,000
b. 152,000
c.
52,000
d.
48,000
17.)
On July 1, 2013, Kay Company sold equipment to Mando Company for
P1,000,000. Kay accepted a 10% note receivable for the entire sales price. This note is
payable in two equal installments of P500,000 plus accrued interest on December 31,
2013 and December 31, 2014.
On July 1, 2014, the entity discounted the note at a bank at an interest rate of 12%. What is the
amount received from the discounting of note receivable?
a.
484,000
b. 493,500
c. 503,500
d. 517,000
18.)
Rand Company accepted from a customer a P4,000,000, 90-day, 12% interestbearing note dated August 31, 2013. On September 30, 2013, the entity discounted the
note with recourse at the Apex State Bank at 15%. However, the proceeds were not
received until October 1, 2013. The discounting with recourse is accounted for as a
conditional sale with recognition of a contingent liability.
1. What is the amount received from the discounting of note receivable?
a. 4,017,000
b. 4,120,000
c. 4,103,000
d. 3,965,000
2. What is the loss on note receivable discounting?
a. 40,000
b. 23,000
c. 17,000
d. 20,000
19.)
On August 31, 2013, Sunflower Company discounted with recourse a customer’s
note at the bank at discount rate of 15%. The note was received from the customer on
August 1, 2013, is for 90 days, has a face value of P5,000,000, and carries an interest rate
of 12%. The customer paid the note to the bank on October 30, 2013, the date of
maturity. If the discounting is accounted for as a secured borrowing. What is the interest
expense to be recognized on Aug. 31, 2013?
a. 50,000
b. 21,250
c. 28,750
d. 25,000
20.)
On January 1, 2013, Cactus Company sold land with carrying amount of
P1,500,000 in exchange for a 9-month, 10% note with face value of P2,000,000. The
10% rate properly reflects the time value of money for this type of note.
On April 1, 2013, the entity discounted the note with recourse. The bank discount rate is 12%.
The discounting transaction is accounted for as a secured borrowing.
On October 1, 2013, the maker dishonored the note receivable. The entity paid the bank the
maturity value of the note plus protest fee of P10,000.
On December 31, 2013, the entity collected the dishonored note in full plus 12% annual interest
on the total amount due.
1. What is the amount received from the discounting of note receivable?
a. 2,150,000
b. 2,021,000
c. 2,050,000
d. 1,921,000
2. What is the interest expense to be recognized on April 1, 2013?
a. 50,000
b. 29,000
c. 21,000
d. 25,000
3. What is the amount collected from the customer on December 30, 2013?
a. 2,150,000
b. 2,224,000
c. 2,160,000
d. 2,214,500
21.)
On August 1, 2013, Vann Company’s P5,000,000 one-year non-interest bearing
note due July 31, 2014, was discounted at Homestead Bank at 10.8%. the entity used the
straight line method of amortizing discount. What is the carrying amount of the note
payable in the December 31, 2013 statement of financial position?
a. 5,000,000
b. 4,775,000
c. 4,685,000
d. 4,460,000
22.)
On November 1, 2013, Davis Company discounted with recourse at 10% a oneyear, noninterest bearing, P2,050,000 note receivable maturing on January 31, 2014. The
discounting of the note receivable is accounted for as a conditional sale with recognition
of a contingent liability. What amount of contingent liability for this note must be
disclosed in the financial statements for the year ended December 31, 2013?
a. 2,050,000
b. 2,000,000
c. 2,033,333
d.
0
23.)
Brooke Company discounted its own P5,000,000 one-year note at a discount rate
of 12%, when the prime rate was 10%. In reporting the note prior to maturity, what rate
should be used for the recording of interest expense?
a. 10.0%
b. 10.7%
c. 12.0%
d. 13.6%
NOTES RECEIVABLE
1.) On June 1, 2013, Yola Company loaned Dale P500,000 on a 12% note, payable in five
annual installments of P100,000 beginning January 1, 2014. In connection with this loan,
Dale was required to deposit P5,000 in a noninterest-bearing escrow account. The amount
held in escrow is to be returned to Dale after all principal and interest payments have
been made.
Interest on the note is payable on the first day of each month beginning July 1, 2013. Dale made
timely payments through November 1, 2013. On January 1, 2014, Yola received payment of the
first principal installment plus all interest due.
On December 31, 2013, what is the accrued interest receivable on the loan?
a. 0
b. 5,000
c. 10,000
d. 15,000
2.) On December 31, 2013, Jet Company received of two P1,000,000 notes receivable from
customers in exchange for services rendered. On both notes, interest is calculated on the
outstanding principal balance at the annual rate of 3% and payable at maturity. The note
from Hart Company, made under customary trade terms, is due in nine months and the
note from Maxx Company is due in five years. The market interest rate for similar notes
on December 31, 2013 was 8%. The compound interest factors to the convert future value
into present value at 8% follow:
Present value of 1 due in nine months
Present value of 1 due in five years
.944
.680
What is the carrying amount of notes receivable in December 31, 20133 statement of financial
position?
Hart
Maxx
a. 944,000
680,000
b. 965,200
782,000
c. 1,000,000
680,000
d. 1,000,000
782,000
3.) On January 1, 2013, Ott Company sold goods to Fox Company. Fox signed a noninterestbearing note requiring payment of P600,000 annually for seven years. The first payment
was made on January 1, 2013. The prevailing rate of interest for this type of note at date
of issuance was 10%. Information on present value factors is as follows:
Present value of
Present value
Period
of 1 at 10%
ordinary annuity
of 1 at 10%
6
.56
4.36
7
.51
4.87
What amount should be recorded as sales revenue in January 2013?
a. 3,216,000
b. 2,922,000
c. 2,616,000
d. 2,142,000
4.) Frame Company has an 8% note receivable dated June 30, 2013, in the original amount
of P1,500,000. Payments of P500,000 in principal plus accrued interest are due annually
on July 1, 2014, 2015 and 2016. In the June 30, 2015 statement of financial position,
what amount should be reported as a current asset for interest on the note receivable?
a.
120,000
b.
40,000
c.
80,000
d.
0
5.) On December 31, 2013, Park Company sold used equipment and received a noninterestbearing note requiring payment of P500,000 annually for ten years. The first payment is
due December 31, 2014 and the prevailing rate of interest for this type of note at date of
issuance is 12%. Present value factors are as follows:
Present value of 1 at 12% for 10 periods
0.322
Present value of ordinary annuity of 1 at 12% for 10 periods
5.650
In the December 31, 2013 statement of financial position, what is the carrying amount of the note
receivable?
a. 1,610,000
b. 2,175,000
c. 2,825,000
d. 5,000,000
6.) On December 31, 2013, Chang Company sold a machine to Door Company in exchange
for a noninterest-bearing note requiring ten annual payments of P100,000. Door made the
first payment on December 31, 2013. The market interest rate for similar notes at date of
issuance was 8%. Information on present value factors is:
Present value of
Present value
ordinary annuity
Period
of 1 at 8%
of 1 at 8%
9
.50
6.25
10
.46
6.71
In the December 31, 2013 statement of financial position, what is the carrying amount of the note
receivable?
a. 450,000
b. 460,000
c. 625,000
d. 671,000
7.) Pangasinan Company is a dealer in equipment. On December 31, 2013, the entity sold
equipment in exchange for a noninterest bearing note requiring five annual payments of
P500,000. The first payment was made on December 31, 2014. The market interest for
similar notes was 8%. The PV of 1 at 8% for 5 periods is .68, and the PV of an ordinary
annuity of 1 at 8% for 5 periods is 3.99.
1. On December 31, 2013, what is the carrying amount of the note receivable?
a. 2,500,000
b. 1,995,000
c. 1,700,000
d. 1,495,000
2. What interest income should be reported for 2014?
a. 505,000
b. 101,000
c. 159,600
d. 119,600
3. What is the carrying amount of the note receivable on December 31, 2014?
a. 1,654,600
b. 2,000,000
c. 2,154,600
d. 1,495,000
8.) On December 31, 2013, Flirt Company sold for P3,000,000 old equipment having an
original cost of P5,400,000 and carrying amount of P2,400,000. The terms of the sale
were P600,000 down payment and P1,200,000 payable each year on December 31 of the
next two years. The sale agreement made no mention of interest. However, 9% would be
a fair rate for this type of transaction. The present value of an ordinary annuity of 1 at 9%
for two years is 1.76.
1. What is the interest income for 2014?
a. 216,000
b. 190,080
c. 108,000
d. 106,000
2. What is the carrying value of the note receivable on December 31, 2014?
a. 1,200,000
b. 1,102,080
c. 2,302,080
d. 1,009,920
9.) On June 30, 2013, Pink Company sold goods for P5,000,000 and accepted the customer’s
10% one-year note in exchange. The 10% interest rate approximates the market rate of
return. What amount should be reported as interest income for the year ended December
31, 2013?
a. 500,000
b. 250,000
c. 125,000
d.
0
10.)
On June 30, 2013, Green Company accepted a customer’s P2,500,000
noninterest-bearing one-year note in a sale transaction. The product sold normally sells
for P2,300,000. What amount should be reported as interest revenue for the year end
December 31, 2013?
a. 200,000
b. 100,000
c. 250,000
d.
0
11.)
On January 1, 2013, Emme Company sold equipment with a carrying amount of
P4,800,000 in exchange for a P6,000,000 noninterest bearing note due January 1, 2016.
There was no established exchange price for the equipment. The prevailing rate of
interest for a note of this type on January 1, 2013 was 10%. The present value of 1 at
10% for three periods is 0.75.
1. I n the 2013 income statement, what amount should be reported as interest income?
a.
90,000
b. 450,000
c. 500,000
d. 600,000
2. In the 2013 income statement, what amount should be reported as gain or loss on sale of
equipment?
a.
300,000 loss
b.
300,000 gain
c. 1,200,000 gain
d. 2,700,000 gain
12.)
On December 27, 2013, Lily Company sold a building, receiving as
consideration a P4,000,000 noninterest bearing note due in three years. The building had
a cost of P3,800,000 and accumulated depreciation was P1,600,000 at the date of sale.
The prevailing rate of interest for a note of this type was 12%. The present value of 1 for
three periods at 12% is 0.712. In the 2013 income statement, what amount of gain should
be reported on the sale?
a. 1,800,000
b.
648,000
c.
200,000
d.
0
13.)
Ayala Company sold equipment with a carrying amount of P800,000, receiving a
noninterest-bearing note due in three years with a face amount of P1,000,000. There is no
established market value for the equipment. The interest rate on similar obligations is
estimated at 12%. The present value of 1 at 12% for three periods is. 712. What amount
should be reported as gain or loss on the sale and interest income for the first year?
Gain(loss)
Interest income
a. 200,000
288,000
b. ( 88,000)
85,440
c. ( 88,000)
120,000
d. 200,000
96,000
14.)
On January 1, 2013, Mill Company sold a building and received as consideration
P1,000,000 cash and a P4,000,000 noninterest bearing note due on January 1, 2016.
There was no established exchange price for the building, and the note of this type on
January 1, 2013 was 10%. The present value of 1 at 10% for three periods is 0.75. What
amount of interest revenue should be included in the 2014 income statement?
a. 370,000
b. 400,000
c. 300,000
d. 330,000
15.)
Pasadena Company sold machinery to Rodac Company on January 1, 2013 for
which the cash selling price was P7,582,000. Rodac entered into an installment sale
contract with Pasadena at an interest rate of 10%. The contract required payments of
P2,000,000 a year over five years with the first payment due on December 31, 2013.
What amount of interest income should be reported in 2013?
a. 1,000,000
b.
634,020
c.
758,200
d.
0
16.)
Alamo Company sold one of its factories on January 1, 2013 for P7,000,000. The
entity received a cash down payment of P1,000,000 and a 4-year, 12% note for the
balance. The note is payable in equal annual payments of principal and interest of
P1,975,400 payable on December 31 of each year until 2016. What is the carrying
amount of the note receivable on December 31, 2013?
a. 4,500,000
b. 4,744,600
c. 4,624,600
d. 4,025,600
17.)
On January 1, 2013, Ryan Company had the following balances:
Note receivable from sale of building
Note receivable from an officer
7,500,000
2,000,000
The P7,500,000 note receivable is dated May 1, 2012, bears interest at 9%. Principal payments of
P2,500,000 plus interest are due annually beginning May 1, 2013.
The P2,000,000 note receivable is dated December 31, 2010, bears interest at 8%, and is due on
December 31, and all interest payments were made through December 31, 2013.
On July 1, 2013, Ryan Company sold a parcel of land to Barr Company for P4,000,000 under an
installment sale contract. Barr Company made a P1,200,000 cash down payment on July 1, 2013,
and signed a 4-year 10% note for the P2,800,000 balance. The equal annual payments of
principal and interest on the note totaled P880,000, payable on July 1 of each year from 2014
through 2017.
1. What is the total amount of notes receivable including accrued interest that should be
classified as current assets on December 31, 2013?
a. 3,540,000
b. 3,820,000
c. 2,940,000
d. 3,080,000
2. What is the total amount of notes receivable that should be classified as noncurrent assets
on December 31, 2013?
a. 7,300,000
b. 6,700,000
c. 4,500,000
d. 6,420,000
18.)
Touch Company sold a piece of machinery with a list price of P1,600,000 to
Archer Company on January 1, 2013. Archer Company issued a noninterest bearing note
of P1,700,000 due in one year. Touch Company normally sells this type of machinery for
90% of list price. What amount should be recorded as interest revenue?
a. 100,000
b. 260,000
c. 160,000
d.
0
19.)
Jean Company purchased from Carmina Company a P20,000, 8%, five-year note
that required five equal annual year-end payments of P5,009. The note was discounted to
yield a 9% rate to Jean Company. At the date purchase, Jean Company recorded the note
at the present value of P19,485. What is the total interest revenue earned by Jean
Company over the life of this note?
a. 5,045
b. 5,560
c. 8,000
d. 9,000
IMPAIRMENT OF LOAN
1.) Appari Bank granted a loan to a borrower on January 1, 2013. The interest rate on the
loan is 10% payable annually starting December 31, 2013. The loan matures in five years
on December 31, 2017. The data related to the loan are:
Principal amount
Direct organization cost
Origination fee received from borrower
4,000,000
61,500
350,000
The effective rate on the loan after considering the direct origination cost and origination fee is
12%.
1. What is the carrying amount of the loan receivable on January 1, 2013?
a. 4,000,000
b. 4,650,000
c. 4,411,500
d. 3,711,500
2. What is the interest income for 2013?
a. 400,000
b. 558,000
c. 529,380
d. 445,380
2.) National Bank granted a loan to a borrower on January 1, 2013. The interest on the loan
is 10% payable annually starting December 31, 2013. The loan matures in three years on
December 31, 2015. The data related to the loan are:
Principal amount
Origination fee charged against the borrower
Direct origination cost incurred
4,000,000
342,100
150,000
After considering the origination fee charged against the borrower and the direct origination cost
incurred, the effective rate on the loan is 12%. What is the carrying amount of the loan
receivable on December 31, 2013?
a. 4,000,000
b. 3,807,900
c. 3,864,848
d. 3,750,952
3.) Philippine Bank granted a loan to a borrower on January 1, 2013. The interest on the loan
is 8% payable annually starting December 31, 2013. The loan matures in three years on
December 31, 2015.
The data related to the loan are:
Principal amount
Origination fee charged against the borrower
3,000,000
100,000
Direct origination cost incurred
260,300
After considering the origination fee charged to the borrower and the direct origination cost
incurred, the effective rate on the loan is 6%. What is the carrying amount of the loan receivable
on December 31, 2013?
a. 3,000,000
b. 3,160,300
c. 3,109,918
d. 3,210,682
4.) On December 1, 2013, Nicole Company gave Dawn Company a P200,000, 12% loan.
Nicole Company paid proceeds of P194,000 after the deduction of a P6,000
nonrefundable loan origination fee. Principal and interest are due in sixty monthly
installments of P4,450, beginning January 1, 2014. The repayments yield an effective
interest rate of 12% at a present value of P200,000 and 13.4% at a present value of
P194,000.
1. What amount of interest income should be reported in 2013?
a. 2,233
b. 1,940
c. 2,166
d. 2,000
2. What amount should be reported as accrued interest receivable on December 31, 2013?
a. 4,450
b. 6,000
c. 2,000
d.
0
5.) National Bank granted a 10-year loan to Abbo Company in the amount of P1,500,000
with a stated interest rate of 6%. Payments are due monthly and are computed to be
P16,650. National Bank incurred P40,000 of direct loan origination cost and P20,000 of
indirect loan origination cost. In addition, National Bank charged Abbo Company a 4point nonrefundable loan origination fee
1. What is the initial carrying amount of the loan receivable on the part of National Bank?
a. 1,440,000
b. 1,480,000
c. 1,500,000
d. 1,520,000
2. What is the initial carrying amount of the loan payable on the part of Abbo Company?
a. 1,440,000
b. 1,480,000
c. 1,500,000
d. 1,520,000
6.) Kalibo Bank loaned P5,000,000 to Caticlan Company on January 1, 2011. The terms of
the loan require principal payments of P1,000,000 each year for 5 years plus interest at
8%. The first principal and interest payment is due on January 1, 2012. Caticlan
Company made the required payments during 2012 and 2013. However, during 2013
Caticlan Company began to experience financial difficulties, requiring Kalibo Bank to
reassess the collectability of the loan. On December 31, 2013, Kalibo Bank has
determined that the remaining principal payment will be collected but the collection of
the interest is unlikely. Kalibo Company did not accrue the interest on December 31,
2013. The present value of 1 at 8% is as follows:
For one period
0.926
For two periods
For three periods
0.857
0.794
1. What is the loan impairment loss on December 31, 2013?
a. 423,000
b. 217,000
c. 222,000
d.
0
2. What is the interest income to be reported in 2014?
a. 126,160
b. 142,640
c. 240,000
d.
0
3. What is the carrying amount of the loan receivable on December 31, 2014?
a. 2,000,000
b. 1,925,640
c. 1,640,360
d. 1,783,000
7.) Beach Bank loaned Boracay Company P7,500,000 on January 1, 2011. The terms of the
loan were payment in full on January 1, 2015 plus annual interest payment at 11%. The
interest payment was made as scheduled on January 1, 2012. However, due to financial
setbacks, Boracay Company was unable to make the 2013 interest payment. Beach Bank
considered the loan impaired and projected the cash flows from the loan on December 31,
2013. The bank accrued the interest on December 31, 2012, but did not continue to
accrue interest for 2013 due to the impairment of the loan. The projected cash flows are:
Data of cash flow
Amount projected
on December 31, 2013
December 31, 2014
500,000
December 31, 2015
1,000,000
December 31, 2016
2,000,000
December 31, 2017
4,000,000
The PV of 1 at 11% is 0.90 for one period, 0.81 for two periods, 0.73 for three periods, and 0.66
for four periods.
1. What is the loan impairment loss on December 31, 2013?
a. 2,965,000
b. 2,240,000
c. 5,360,000
d. 2,140,000
2. What is the interest income to be reported in 2014?
a. 589,600
b. 534,600
c. 825,000
d. 599,456
3. What is the carrying amount of the loan receivable on December 31, 2014?
a. 7,000,000
b. 5,449,600
c. 4,860,000
d. 5,949,600
8.) On January 1, 2013, Oceanic Bank made a P1,000,000, 8% loan. The 80,000 interest is
receivable at the end of each year, with the principal amount to be received at the end of
five years. At the end of 2013, the first year’s interest of P80,000 has not yet been
received because the borrower is experiencing financial difficulties. The borrower
negotiated a restructuring of the loan. The payment of all of the interest for 5 years will
be delayed until the end of the 5-year loan term. In addition, the amount of principal
repayment will be dropped from P1,000,000 to P500,000. The PV of 1 at 8% for 4
periods is .735. No interest revenue has been recognized in 2013 in connection with the
loan.
1. What is the loan impairment loss on December 31, 2015?
a. 338,500
b. 238,500
c. 388,000
d. 288,000
2. What is the interest income for 2014?
a. 80,000
b. 52,920
c. 48,960
d.
0
9.) On December 31, 2013, Macedon Bank has a 5-year loan receivable with a face value of
P5,000,000 dated January 1, 2012 that is due on December 31, 2016. Interest on the loan
is payable at 9% every December 31. The borrower paid the interest that was due on
December 31, 2012 but informed the bank that interest accrued in 2013 will be paid at
maturity date. There is a high probability that the remaining interest payments will not be
paid because of financial difficulty. The prevailing market rate of interest on December
31, 2013 is 10%. The PV of 1 for three periods is .772 at 9%, and .751 at 10%. What is
the loan impairment loss on December 31, 2013?
a. 1,242,600
b. 1,590,000
c. 1,357,050
d. 1,695,000
10.)
On December 31, 2013, Solid Bank has a loan receivable of P4,000,000 from a
borrower that it is carrying at face value and is due on December 31, 2018. Interest on the
loan is payable at 9% each December 31. The borrower paid the interest due on
December 31, 2013 but informed the bank that it would probably miss the next two
years’ interest payments. After that, the borrower is expected to resume its annual interest
payment but it would make the principal payment one year late, with interest paid for that
additional year at the time of principal payment. The PV of 1at 9% is .772 for three
periods, .708 for four periods, .650 for five periods, and .596 for six periods. What is the
loan impairment loss for 2013?
a. 634,640
b. 720,000
c. 721,960
d. 913,120
11.)
On December 31, 2013, Oregon Bank recorded an investment of P5,000,000 in a
loan granted to a client. The loan has a 10% effective interest rate payable annually every
December 31. The principal is due in full at maturity on December 31, 2016.
Unfortunately, the borrower is experiencing significant financial difficultly and will have
difficult time in making full payment. The bank projected that the entire principal will be
paid at maturity and 4% interest or P200,000 will be paid annually on December 31 of
the next three years. There is no accrued interest on December 31, 2013. The PV of 1 at
10% for three periods is 0.75, and the PV of an ordinary annuity of 1 at 10% for three
periods is 2.49.
1. What is the loan impairment loss for 2013?
a. 752,000
b. 600,000
c. 250,000
d. 748,000
2. What is the interest income for 2014?
a. 200,000
b. 424,800
c. 224,800
d. 500,000
3. What is the carrying amount of the loan receivable on December 31, 2014?
a. 5,000,000
b. 3,750,000
c. 4,472,800
d. 4,672,800
12.)
On December 31, 2013, London Bank granted a P5,000,000 loan to a borrower
with 10% stated rate payable annually and maturing in 5 years. The loan was discounted
at the market interest rate of 12%. Unfortunately, the financial condition of the borrower
worsened because of lower revenue. On December 31, 2015, the bank determined that the
borrower would pay back only P3,000,000 of the principal at maturity. However, it was
considered likely that interest would continue to be paid on the P5,000,000 loan. The PV
of 1 at 12% is .57 for five periods and .71 for three periods. The PV of an ordinary
annuity of 1 at 12% is 3.60 for five periods and 2.40 for three periods.
1. What is the amount of cash paid to the borrower on December 31, 2013?
a. 4,400,000
b. 4,500,000
c. 5,000,000
d. 4,650,000
2. What is the carrying amount of the loan receivable on December 31, 2015?
a. 4,650,000
b. 4,790,000
c. 4,772,960
d. 4,720,000
3. What is the impairment loss to be recognized on December 31, 2015?
a. 2,000,000
b. 1,442,960
c. 1,922,960
d. 1,670,000
13.)
Diane Company sold loans with a P2,200 fair value and a carrying value amount
of P2,000. The entity obtained an option to purchase similar loans and assumed a
recourse obligation to repurchase loans. The entity also agreed to provide a floating rate
of interest to transferee. The fair values are as follows:
Cash proceeds
Interest rate swap
Call option
2,100
140
80
Recourse obligation
( 120)
1. What is the gain (loss) on the sale?
a.
320
b.
200
c.
(100)
d.
120
2. What is included in the journal entry to record the transfer on the books of Diane
Company?
a. A debit to call option
b. A credit to interest rate swap
c. A debit to loans
d. A credit to cash
3. Assume that Diane Company agreed to service the loans without explicitly stating the
compensation. The fair value of the service it P50. What are the net proceeds and the gain
(loss) on the sale, respectively?
a. 2,200 and 200
b. 2,250 and 250
c. 2,150 and 150
d. 2,200 and (250)
INVENTORY
1.) Brandy Company took a physical inventory at the end of the year and determined that
P2,600,000 of goods were on hand. In addition, the entity determined that P200,000 of
goods purchased in transit shipped FOB shipping point were actually received two days
after the physical count and that the entity had P300,000 of goods out on consignment.
What amount should be reported as inventory at year-end?
a. 2,600,000
b. 2,800,000
c. 2,900,000
d. 3,100,000
2.) Scotch Company took a physical inventory at the end of the year and determined that
P1,900,000 of goods were on hand. In addition, the entity determined that P240,000 of
goods purchased were in transit shipped FOB destination. The goods were actually
received three days after the inventory count. The entity sold P100,000 worth of
inventory FOB destination. Such inventory is in transit at year-end. What amount should
be reported as inventory at year-end?
a. 1,900,000
b. 2,140,000
c. 2,000,000
d. 2,240,000
3.) Amman Company provided the following data:
Items counted in the bodega
Items included in the count specifically segregated per sale contract
4,000,000
100,000
Items in receiving department, returned by customer, in good condition
Items ordered and in the receiving department
50,000
400,000
Items ordered, invoice received but goods not received.
Freight is on account of seller.
300,000
Items shipped today, invoice mailed, FOB shipping point
250,000
Items shipped today, invoice mailed, FOB destination
150,000
Items currently being used for window display
200,000
Items on counter sale
Items in receiving in count, damaged and unsalable
Items in the shipping department
What is the correct amount of inventory?
800,000
50,000
250,000
a. 5,700,000
b. 6,000,000
c. 5,800,000
d. 5,150,000
4.) Lunar company included the following items under inventory:
Materials
1,400,000
Advance for materials ordered
200,000
Goods in process
600,000
Unexpired insurance on inventory
60,000
Advertising catalogs and shipping cartons
150,000
Finished goods in factory
2,000,000
Finished goods in entity-owned retail store,
including 50% profit on cost
750,000
Finished goods in hands on consignees including
40% profit on sales
400,000
Finished goods in transit to customers, shipped FOB
destination at cost
250,000
Finished goods out on approval, at cost
100,000
Unsalable finished good, at cost
50,000
Office supplies
40,000
Materials in transit, shipped FOB shipping point,
excluding freight of P30,000
330,000
Goods held on consignment, at sales price, cost P150,000
200,000
What is the correct amount of inventory?
a. 5,375,000
b. 5,500,000
c. 5,540,000
d. 5,250,000
5.) Ram Company provided the following information at the end of current year:
Finished goods in storeroom, at cost, including overhead
of P400,000 or 20%
2,000,000
Finished goods in transit, including freight charge of
P20,000, FOB shipping point
250,000
Finished goods held by salesmen, at selling price,
cost, P100,000
140,000
Goods in process, at cost of materials and direct labor
720,000
Materials
1,000,000
Materials in transit, FOB destination
50,000
Defective materials returned to suppliers
100,000
Shipping supplies
20,000
Gasoline and oil for testing finished goods
110,000
Machine lubricants
60,000
What is the correct amount of inventory?
a. 4,000,000
b. 4,170,000
c. 4,270,000
d. 4,090,000
6.) Brilliant Company has incurred the following costs during the current year:
Cost of purchases based on vendors’ invoices
5,000,000
Trade discount on purchases already deducted
from vendors’ invoices
500,000
Import duties
400,000
Freight and insurance on purchases
1,000,000
Other handling costs relating to imports
100,000
Salaries of accounting department
600,000
Brokerage commission paid to agents for arranging imports
200,000
Sales commission paid to sale agents
300,000
After-sales warranty costs
250,000
What is the total cost of purchase?
a. 5,700,0000
b. 6,100,000
c. 6,700,000
d. 6,500,000
7.) Corolla Company incurred the following costs:
Materials
700,000
Storage costs of finished goods
180,000
Delivery of customers
40,000
Irrevocable purchase taxes
60,000
At what amount should the inventory be measured?
a. 880,000
b. 760,000
c. 980,000
d. 940,000
8.) Eagle Company incurred the following costs in relation to a certain product:
Direct materials and labor
180,000
Variable production
overhead
25,000
Factory administrative costs
15,000
Fixed production costs
20,000
What is the correct measurement of the product?
a. 205,000
b. 225,000
c. 195,000
d. 240,000
9.) Fenn Company provided the following information for the current year:
Merchandise purchased for resale
4,000,000
Freight in
100,000
Freight out
50,000
Purchase returns
20,000
Interest on inventory loan
200,000
What is the inventoriable cost of purchase?
a. 4,280,000
b. 4,030,000
c. 4,080,000
d. 4,130,000
10.)
On December 28, 2013, Kerr Company purchased goods costing P500,000. The
terms were FOB destination. The costs incurred in connection with the sale and delivery
of the goods were:
Packaging for shipment
10,000
Shipping
15,000
Special handling charges
25,000
These goods were received on December 31, 2013. On December 31, 2013, what total costs
should be included in inventory?
a. 545,000
b. 535,000
c. 520,000
d. 500,000
11.)
On December 26, 2013, Branigan Company purchased goods costing
P1,000,000. The terms were FOB shipping point. The goods were received on December
28, 2013. Costs incurred by the entity in connection with the purchases and delivery of
the goods were normal freight charge P30,000, handling costs P20,000, insurance on
shipment P5,000 and abnormal freight charge for express shipping P12,000. What is the
total cost of the inventory?
a. 1,050,000
b. 1,030,000
c. 1,055,000
d. 1,067,000
12.)
Brooke Company used a perpetual inventory system. At the end of 2012, the
inventory account was P360,000 and P30,000 of those goods included in ending
inventory were purchased FOB shipping point and did not arrived until 2013. Purchases
in 2013 were P3,000,000. The perpetual inventory records showed an ending inventory of
P420,000 for 2013. A physical count at the end of 2013 showed an inventory of
P380,000. Inventory shortages are included in cost of goods sold. What amount should be
reported as cost of goods sold for 2013?
a. 2,940,000
b. 2,980,000
c. 3,000,000
d. 3,010,000
13.)
Stone Company had the following transactions during December 2013:
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 of consigned goods were made in December 2013. What amount should be included in
inventory on December 31, 2013?
a. 1,200,000
b. 1,250,000
c. 1,800,000
d. 1,890,000
14.)
On October 1, 2013, Grimm Company consigned 40 freezers to Holden
Company costing P14,000 each for sale and paid P16,000 in transportation costs. On
December 30, 2013, Holden Company reported the sale of 10 freezers and remitted
P170,000. The remittance was net of the agreed 15% commission. What amount should
be recorded as consignment sales revenue?
a. 154,000
b. 170,000
c. 196,000
d. 200,000
15.)
On December 1, 2013, Alt Department Store received 505 sweaters on
consignment from Todd. Todd’s cost for the sweaters was P800 each, and they were
priced to sell at P1,000. Alt’s commission on consigned goods is 10%. On December 31,
2013, 5 sweaters remained. In the December 31, 2013 statement of financial position,
what amount should be reported as payable for consigned goods?
a. 490,000
b. 454,000
c. 450,000
d. 404,000
16.)
Clem Company provided the following for the current year:
Central warehouse
Held by consignees
Beginning inventory
1,100,000
120,000
Purchases
4,800,000
600,000
Freight in
100,000
Transportation to consignees
50,000
Freight out
300,000
Ending inventory
1,450,000
80,000
200,000
What is the cost of sales for the current year?
a. 4,550,000
b. 4,850,000
c. 5,070,000
d. 5,120,000
17.)
An analysis of the ending inventory of Lilac Company on December 31, 2013
disclosed the inclusion of the following items:
Merchandise in transit purchased on terms:
FOB shipping point
165,000
FOB destination
100,000
Merchandise out on consignment at sales price (including
markup of 30% on cost)
195,000
Merchandise sent to customer for approval (cost of goods,
P30,000)
40,000
Merchandise held on consignment
35,000
What is the reduction of the inventory on December 31, 2013?
a. 355,000
b. 190,000
c. 203,500
d. 222,000
18.)
Dean sportswear regularly buys sweaters from Mill Company and is allowed
trade discounts of 20% and 10% from the list price. Dean made a purchase on March 20,
2013, 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?
a. 432,000
b. 447,000
c. 438,360
d. 435,000
19.)
On June 1, 2013, Pitt Company sold merchandise with a list price of P5,000,000
to Burr account. Pitt allowed trade discounts of 30% and 20%. Credit terms were 2/10,
n/30 and the sale was made FOB shipping point. Pitt prepaid P200,000 of delivery costs
for Burr as an accommodation. On June 11, 2013, what amount was received by Pitt from
Burr as remittance in full?
a. 2,744,000
b. 2,940,000
c. 2,944,000
d. 3,140,000
20.)
On August 1 of the current year, Stella 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 amount in the determination of cost of
goods available for sale?
Net method
Gross method
a. 1,784,000
1,764,000
b. 1,764,000
1,800,000
c. 1,764,000
1,784,000
d. 1,800,000
1,764,000
21.)
Rabb Company records its purchases at gross amount but wishes to change to
recording purchases net of purchase discounts. Discount available on purchases for the
current year totaled P100,000. Of this amount, P10,000 is still available in the accounts
payable balance. The balances in the accounts as of and for the year ended December 31,
before conversion are:
Purchases
5,000,000
Purchases discounts taken
40,000
Accounts payable
What is the balance of accounts payable on December 31 after the conversion?
a. 1,490,000
1,500,000
b. 1,460,000
c. 1,440,000
d. 1,410,000
22.)
Wine Company recorded purchases at net amount. On December 10, the entity
purchased merchandise on account, P4,000,000, terms 2/10. n/30. The entity returned
P300,000 of the December 10 purchase and received credit on account. The account had
not been paid on December 31. At what amount should the account payable be adjusted
on December 31?
a. 74,000
b. 86,000
c. 80,000
d.
0
23.)
Duke Company specializes in the sale of IBM compatibles and software packages
and had the following transactions:
Purchases of IBM compatibles
Purchases of commercial software packages
1,700,000
1,200,000
Returns and allowances
50,000
Purchase discounts taken
17,000
Terms on all purchases were 2/10, n/30. All returns and allowances took place within 5 days of
purchase and prior to any payment. What was the amount of discount was lost?
a. 57,000
b. 40,000
c. 17,000
d. 41,000
24.)
Cognac Company used the perpetual inventory and gross method of recording
purchases. On December 1, the entity purchased P1,500,000 of inventory, terms 2/10,
n/30. On December 5, the entity returned goods that cost P150,000. On December 11, the
entity paid the supplier. On December 11, what account should be credited>
a. Purchase discount for P30,000
b. Inventory for P30,000
c. Purchase discount for P27,000
d. Inventory for P27,000
25.)
Hero Company’s inventory on December 31, 2013 was P6,000,000 based on a
physical count of goods priced at cost and before any necessary year-end adjustments
relating to the following:

Included in the physical count were goods billed to a customer FOB shipping point on
December 30, 2013. These goods had a cost of P125,000 and were picked up by the
carrier on January 7, 2014.

Goods shipped FOB shipping point on December 28, 2013, from a vendor to Hero were
received on January 4, 2014. The invoice cost was P300,000.
What amount should be reported as inventory on December 31, 2013?
a. 5,875,000
b. 6,000,000
c. 6,175,000
d. 6,300,000
26.)
The physical count considered in the warehouse of Reverend Company on
December 311, 2013 revealed merchandise with a total cost of P5,000,000. However,
further investigation revealed that the following items were excluded from the count.

Goods sold to a customer, which are being held for the customer to call at the customer’s
convenience with a cost P200,000.

A packing case containing a product costing P500,000 was standing in the shipping room
when the physical inventory was taken.
It was not included in the inventory because it was marked “hold for shipping instructions”. The
investigation revealed that the customer’s order was dated December 28, 2013, but that the case
was shipped and the customer billed on January 4, 2014.

A special machine costing P250,000, fabricated to order for a customer, was finished and
specifically segregated at the back part of the shipping room on December 31, 2013. The
customer was billed on that date and the machine was excluded from inventory although
it was shipped on January 2, 2014.
What is the correct amount of inventory that should be reported on December 31, 2013?
a. 5,950,000
b. 5,750,000
c. 5,500,000
d. 5,700,000
27.)
The inventory on hand on December 31, 2013 for Fair Company is valued at a
cost of P950,000. The following items were not included in this inventory amount.
Item 1: Purchased goods in transit, shipped FOB destination, invoice price P30,000 which
include freight charge of P1,500.
Item 2: Goods held on consignment by Fair Company at a sales price of P28,000, including sales
commission of 20% of the sales price.
Item 3: Goods sold to Grace Company, under terms FOB destination, invoiced for P18,500
which includes P1,000 freight charge to deliver the goods. Goods are in transit. The entity’s
selling price is 140% of cost.
Item 4: Purchased goods in transit, terms FOB shipping point, invoice price P50,000, freight
cost,P2,500.
Item 5: Goods out on consignment to Manila Company, sales price P35,000, shipping point cost
of P2,000.
What is the adjusted cost of the inventory on December 31, 2013?
a. 1,042,000
b. 1,043,000
c. 1,040,000
d. 1,073,500
28.)
Baritone Company counted and reported the ending inventory on December 31,
2013 at P2,000,000. None of the following items were included when the total amount of
the ending inventory was computed:

P150,000 in goods located in the entity’s warehouse that are on consignment from
another entity.

P200,000 in goods that were sold by the entity and shipped on December 30 and were in
transit on December 31, 2013. The goods were received by the customer on January 2,
2014.Terms were FOB destination.

P300,000 in goods that were purchased by the entity and shipped on December 30 and
were in transit on December 31, 2013. The goods were received by the entity on January
2, 2014. Terms were FOB shipping point.

P400,000 in goods that were sold by the entity and shipped on December 30 and were in
transit on December 31, 2013. The goods were received by the customer on January 2,
2014. Terms were FOB shipping point.
What is the correct amount of inventory on December 31, 2013?
a. 2,500,000
b. 2,350,000
c. 2,900,000
d. 2,750,000
29.)
Sterling Company reported the 2013 year-end inventory at P7,600,000 before the
following adjustments:

Goods valued at P1,000,000 re on consignment with a customer. These goods are not
included in the year-end inventory.

Goods costing P250,000 were received from a vendor on January 5, 2014. The related
invoice was received and recorded on January 12, 2014. These goods were shipped on
December 31, 2013, terms FOB shipping point.

Goods costing P850,000 were shipped on December 31, 2103, and were delivered to the
customer on January 2, 2014. The terms of the invoice were FOB shipping point. The
goods were included in ending inventory for 2013 even though the sale was recorded in
2013.

A P350,000 shipment of goods to a customer on December 31, 2013, terms FOB
destination, was not included in the year-end inventory. The goods cost P260,000 and
were delivered to the customer on January 8, 2014. The sale was properly recorded in
2014.

An invoice for goods costing P350,000 was received and recorded as a purchases on
December 31, 2013. The related goods, shipped FOB destination, were received on
January 2, 2014, and thus were not included in the physical inventory.

Goods valued at P650,000 are on consignment from a vendor. These goods are not
included in the year-end inventory.

A P1,050,000 shipment of goods to a customer on December 30, 2013, terms FOB
destination, was recorded as a sale in 2013. The goods, costing P840,000 and delivered to
the customer on January 6, 2014, were not included in 2013 ending inventory.
What is the correct inventory on December 31, 2013?
a. 9,100,000
b. 8,100,000
c. 9,950,000
d. 9,450,000
30.)
A physical count on December 31, 2013 revealed that Joy Company had
inventory with a cost of P4,410,000. The audit identified that the following items were:

Merchandise of P610,000 is held by Joy on consignment.

Merchandise costing P380,000 was shipped by Joy FOB destination to a customer on
December 31, 2013. The customer was expected to receive the goods on January 5, 2014.

Merchandise costing P460,000 was shipped by Joy FOB shipping point to a customer on
December 29, 2013. The customer was expected to receive the goods on January 5, 2014.

Merchandise costing P830,000 shipped by a vendor FOB destination on December 31,
2013 was received by Joy on January 5, 2014.

Merchandise costing P510,000 purchased FOB shipping point was shipped by the
supplier on December 31, 2013 and received by Joy on January 5, 2013.
What is the correct amount of inventory on December 31, 2013?
a. 5,300,000
b. 4,690,000
c. 3,800,000
d. 4,920,000
31.)
Min Company submitted an inventory list on December 31, 2013 which showed a
total of P5,000,000.

Excluded from the inventory was merchandise costing P80,000 because it was transferred
to the delivery department for packaging on December 28, 2013 and for shipping on
January 2, 2014.

The billing of lading and other import documents on a merchandise were delivered by the
bank and the trust receipt accepted by the entity on December 26, 2013. Taxes and duties
have been paid on this shipment but the broker did not deliver the merchandise until
January 7, 2014. Delivered cost of the shipment totaled P800,000. This shipment was not
included in the inventory on December 31, 2013.

A review of the entity’s purchases orders showed a commitment to buy P100,000 worth
of merchandise from Myrose Company. This was not included in the inventory because
the good were received on January 3, 2014.

Supplier’s invoice for P300,000 worth of merchandise dated December 28, 2013 was
received through the mail on December 30, 2013 although the goods arrived only on
January 4, 2014. Shipment terms are FOB shipping point. The item was included in the
December 31, 2013 inventory by the entity.

Goods valued at P20,000 were received from Darlyn Company on December 28, 2013
for approval by Mia. The inventory team included this merchandise in the list but did not
place any value on it. On January 4, 2014, the entity informed the supplier by long
distance telephone of the acceptance of the goods and the supplier’s invoice was received
on January 7, 2014.

On December 27, 2013, and order for P25,000 worth of merchandise was placed. This
was included in the year-end inventory although it was received only on January 5, 2014.
The seller shipped the goods FOB destination.
What is the correct amount on December 31, 2013?
a. 5,855,000
b. 5,055,000
c. 5,555,000
d. 5,830,000
32.)
The physical count conducted in the warehouse of Leila Company on December
31, 2013 revealed total cost of P3,600,000. However, the following items were excluded
from the count.

Goods sold to a customer which are being held for the customer to call for at the
customer’s convenience with a cost of P200,000.

A packing case containing a product costing P80,000 was standing in the shipping room
when the physical inventory was taken. It was not included in the inventory because it
was marked “hold ofor shipping instructions”.

Goods in process P50,000 shipped by a vendor FOB seller on December 28, 2013 and
received by Leila Company on January 10, 2014.
What is the correct inventory on December 31, 2013?
a. 4,180,000
b. 4,230,000
c. 3,980,000
d. 4,030,000
33.)
Black Company reported accounts payable on December 31 2013. at P4,500,000
before any necessary year-end adjustment relating to the following transactions:

On December 20, 2013, Black wrote and recorded checks to creditors totaling P2,000,000
causing an overdraft of P500,000 in Black’s bank account on December 31, 2013. The
checks were mailed on January 10, 2014.

On December 28, 2013, Black purchased and received goods for P750,000, terms 2/10,
n/30. Black records purchases and accounts payable at net amount. The invoice was
recorded and paid January 3, 2014.

Goods shipped F.O.B destination on December 20, 2013 from a vendor to Black were
received January 2, 2014. The invoice cost was P325,000
On December 31, 2013, what amount should be reported as accounts payable?
a. 7,575,000
b. 7,250,000
c. 7,235,000
d. 7,553,000
34.)
Kew Company reported accounts payable on December 31, 2013 at P2,200,000
before considering the following data”

Goods shipped to Kew F.O.B. shipping point on December 22, 2013, were lost in transit.
The invoice cost of P40,000 was not recorded by Kew. On January 7, 2014, Kew filed a
P40,000 claim against the common carrier.

On December 27, 2013, a vendor authorized Kew to return, for full credit, goods shipped
and billed at P70,000 on December 3, 2013. The returned goods were shipped by Kew on
December 28, 2013. A P70,000 credit memo was received and recorded by Kew on
January 5, 2014.

On December 31, 2013, Kew has a P500,000 debit balance in its accounts payable to
Ross, a supplier, resulting from a P500,000 advance payment for goods to be
manufactured to Kew specifications.
What amount should be reported as accounts payable on December 31, 2013?
a. 2,170,000
b. 2,680,000
c. 2,730,000
d. 2,670,000
35.)
Bakun Company began operations late in 2012. For the first quarter ended March
31, 2013, the entity provided the following information:
Total merchandise purchased through March 1, 2013
recorded at net
4,900,000
Merchandise inventory on December 31, 2012
at selling price
1,500,000
All merchandise was acquired on credit and no payments have been made on accounts payable
since the inception of the entity. All merchandise is marked to sell at 50% above invoice cost
before time discounts of 2/10, n/30. No sales were made in 2013. What amount of cash is
required to eliminate the current balance in accounts payable?
a. 6,000,000
b. 5,900,000
c. 6,400,000
d. 5,750,000
36.)
Aiza Company sold merchandise for P800,000 on December 31, 2013. The terms
of the sale state that payment is due in one year’s time. The imputed rate of interest is
9%. The PV of 1 at 9% is .917 for one period What amount of sales revenue be
recognized?
a. 872,000
b. 733,600
c. 800,000
d.
0
37.)
Lewis Company’s usual sales terms are net 60 days, F.O.B. shipping point. Sales,
net of returns and allowances, totaled P9,200,000 for the year ended December 31, 2013,
before year-end adjustments.

On December 27, 2013, Lewis authorized a customer to return, for full credit, goods
shipped and billed at P200,000 on December 1, 2013. The returned goods were received
by Lewis on January 4, 2014, and a P200,000 credit memo was issued and recorded on
the same date.

Goods with an invoice amount of P300,000 were billed and recorded on January 3, 2014.
The goods were shipped on December 30, 2013.

Goods with an invoice amount of P400,000 were billed and recorded on December 30,
2013. The goods were shipped on January 3, 2014.
What is the correct amount of net sales for 2013?
a. 9,300,000
b. 9,100,000
c. 9,000,000
d. 8,900,000
38.)
Fenn Company had sales of P5,000,000 during December 2013. Experience had
shown that merchandise equaling 7% of sales will be returned within 30 days and an
additional 3% will be returned within 90 days. Returned merchandise is readily resalable.
In addition, merchandise equaling 15% of sales will be exchanged for merchandise of
equal or greater value. What amount should be reported for net sales in the income
statement for the month of December 2013?
a. 4,500,000
b. 4,250,000
c. 3,900,000
d. 3,750,000
39.)
On October 1, 2013, Acme Company sold 100,000 gallons of heating oil to Karn
Company at P30 per gallon. Fifty thousand gallons were delivered on December 15,
2013, and the remaining 50,000 gallons were delivered on January 15, 2014. Payments
terms were: 50% due on October 1, 2013, 25% on the first delivery, and the remaining
25% due on the second deliver. What amount of revenue from the sale during 2013?
a. 3,000,000
b. 1,500,000
c. 2,250,000
d.
750,000
40.)
On July 1, 2013, Loveluck Company, a manufacturer of office furniture, supplied
goods to Kaye Company for P1,200,000 on condition that this amount is paid in full on
July 1, 2014. Kaye had earlier rejected an alternative offer from Loveluck whereby it
could have bought the same goods by paying cash of P1,080,000 on July 1, 2013. What
amount should respectively as sales revenue and interest income for the year ended June
30, 2014?
a. 1,080,000 and 120,000
b. 1,200,000 and 120,000
c. 1,080,000 and
0
d. 1,200,000 and
0
41.)
On July 1, 2013, Kathleen Company handed over to a client a new computer
system. The contract price for the supply of the systems and after-sales support at
P120,000 and it marked up such cost by 50% when tendering for support contracts. What
is the total revenue that should be recognized for 2013?
a. 620,000
b. 800,000
c. 710,000
d.
0
42.)
Ilocos Company produced 80,000 kilos of tobacco during the 2013 season. Ilocos
sells all of its tobacco to a certain customer which has agreed to purchase the entire
production at the prevailing market price. Recent legislation assures that the market price
will not fall below P100 per kilo during the next two years. The costs of selling and
distributing the tobacco are immaterial and can be reasonably estimated. Ilocos reports its
inventory at expected exit value. During 2013, Ilocos sold and delivered to the customer
60,000 kilos at the market price of P100. Ilocos sold the remaining 20,000 kilos during
2014 at the market price of 150. What amount of revenue should be recognized in 2013?
a. 6,000,000
b. 3,000,000
c. 8,000,000
d. 9,000,000
43.)
Beverly Company provided service contracts to customers for maintenance of
their electrical system. On October 1, 2013, the entity agreed to a four-year contract with
a major customer for P1,540,000. Costs over the period of the contract are reliably
estimated at P513,330. What amount of revenue should be recognized for the year ended
December 31, 2013?
a. 385,000
b. 128,330
c.
96,250
d.
32,080
44.)
Marie Company, a distributor of machinery, bought a machine from the
manufacturer in November 2013 for P10,000. On December 30, 2013, Marie sold this
machine to Zoe Company for P15,000 under the following terms: 2% discount if paid
within thirty days, 1% discount if paid after thirty days but within sixty days, or payable
in full within ninety days if not paid within the discount periods. However, Zoe had the
right to return this machine to Marie if it was unable to resell the machine before
expiration of the ninety-day payment period, in which case Zoe’s obligation to Marie
would be canceled. In the net sales for the year ended December 31, 2013, what amount
should be included for the sale of this machine?
a. 15,000
b. 14,700
c. 14,850
d.
0
45.)
On January 1, 2013, Bell Company contracted with the City of Manila to provide
custom built desks for the cit y schools. The contract made Bell the city’s sole supplier
and required Bell to supply no less than 4,000 desks and no more than 5,500 desks per
year for two years. In turn, the City of Manila agreed to pay a fixed price of P550 per
desk. During 2013, Bell produced , 5,000 desks for the City of Manila. On December 31,
2013, 500 of these desks were segregated from the regular inventory and were accepted
and awaiting pickup by the City of Manila. The City of Manila paid Bell P2,250,000
during 2013. What amount should be recognized as contract revenue in 2013?
a. 2,250,000
b. 2,475,000
c. 2,750,000
d. 3,025,000
46.)
Emco Company had the following transactions in 2013:

Emco sold goods to a customer for P50,000, FOB shipping point on December 30, 2013.

Emco sold three pieces of equipment on a contract over a three-year period. The sale
price of each piece of equipment is P100,000. Delivery of each piece of equipment is on
February 10 of each year. In 2013, the customer paid a P200,000 down payment, and will
pay P50,000 per year in 2014 and 2015. Collectability is reasonably assured.

On June 1, 2013, Emco signed a contract for P200,000 for goods to be sold on account.
Payment is to be made in two installments of P100,000 each on December 1, 2013 and
December 1, 2014. The goods are delivered on October 1, 2013. Collection is reasonably
assured and the goods may not be returned.

Emco sold goods to a customer on July 1, 2013 for P500,000. If the customer does not
sell the goods to retail customers by December 31, 2014, the goods can be returned to
Emco. The customer sold the goods to retail customers on October 1, 2014.
What amount of sales revenue should be reported in the 2013 income statement?
a. 350,000
b. 850,000
c. 450,000
d. 550,000
47.)
Delicate Company is a wholesale distributor of automotive replacement parts.
Initial amounts taken from accounting records on December 31, 2013 are as follows:
Inventory on December 31 based on physical count
Accounts payable
Sales
1,250,000
1,000,000
9,000,000
A. Parts held on consignment from another entity to Delicate, the cosignee, amounting to
P165,000, were included in the physical count on December 31 31, 2013, and in accounts
payable on December 31, 2013.
B. P20,000 of parts which were purchased and paid for in December 2013, were sold in the
last week of 2013 and appropriately recorded as sales of P28,000. The parts were
included the physical in the physical count December 31, 2013 because the parts were on
the loading dock waiting to be picked up by the customer.
C. Parts in transit on December 31, 2013 to customers, shipped FOB shipping point on
December 28, 2013, amounted to P34,000. The customer received the parts on January 6,
2014. Sales of P40,000 to the customers for the parts were recorded by Delicate on
January 2, 2014.
D. Retailers were holding P210,000 at cost and P250,000 at retail, of goods on consignment
from Delicate, at their stores on December 31, 2013.
E. Goods were in transit from a vendor to Delicate on December 31, 2013. The cost of
goods was P25,000. The goods were shipped FOB shipping point on December 29, 2013.
1. What is the correct amount of inventory?
a. 1,300,000
b. 1,320,000
c. 1,334,000
d. 1,090,000
2. What is the correct amount of accounts payable?
a. 835,000
b. 960,000
c. 975,000
d. 860,000
3. What is the correct amount of sales?
a. 9,250,000
b. 9,290,000
c. 9,040,000
d. 9,000,000
BIOLOGICAL ASSETS
1.) Forester Company has reclassified certain assets as biological assets. The total value of
the forest assets is P6,000,000 which comprises:
Freestanding trees
5,100,000
Land under trees
600,000
Roads in forests
_ 300,000
6,000,000
In the statement of financial portion, what total amount of the forest assets should be classified as
biological assets?
a. 5,100,000
b. 5,700,000
c. 5,400,000
d. 6,000,000
2.) Columbia Company is producer of coffee. The entity is considering the valuation of its
harvested coffee beans. Industry practice is to value the coffee beans at market value and
uses as reference a local publication “Accounting for Successful Farms”
On December 31, 2013, the entity has harvested coffee beans costing P3,000,000 and with fair
value less cost of disposal of P3,500,000 at the point harvest.
Because of long aging and maturation process after harvest, the harvested coffee beans were still
on hand on December 31, 2014. On such date, the fair value less cost of disposal is P3,900,000
and the net realizable value is P3,200,000.
What is the measurement of the coffee beans inventory on December 31, 2014?
a. 3,000,000
b. 3,500,000
c. 3,200,000
d. 3,900,000
3.) Joan Company provided the following data:
Value of biological asset at acquisition cost on
December 31, 2013
600,000
Fair valuation surplus on initial recognition at fair
value on December 31, 2013
Change in fair value to December 31, 2014 due to
700,000
growth and price fluctuation
100,000
Decrease in fair value due to harvest
90,000
1. What is the carrying amount of the biological assets on December 31, 2014?
a. 1,400,000
b. 1,310,000
c. 1,300,000
d. 1,490,000
2. What is the gain from change in fair value of biological asset that should be reported in the
2014 income statement?
a. 100,000
b. 800,000
c. 710,000
d.
10,000
4.) Salve Company is engaged in rising dairy livestock. Information regarding its activities
relating to the dairy livestock is as follows:
Carrying amount on January 1, 2013
5,000,000
Increase due to purchases
2,000,000
Gain arising from change in fair value less cost of disposal
attributing to price change
4,000,000
Gain arising from change in fair value less cost of disposal
attributing to physical change
Decrease due to sales
600,000
850,000
Decrease due to harvest
200,000
What is the carrying amount of the biological asset on December 31, 2013?
a. 6,950,000
b. 6,000,000
c. 8,000,000
d. 7,150,000
5.) Bear Company produces milk for sale to local and national ice cream producers. The
entity began operations on January 1, 2013 by purchasing 650 milk cows for P8,000,000.
The entity had the following information available at year-end relating to the cows:
Acquisition cost, January 1, 2013
Change in fair value to growth and price changes
8,000,000
2,500,000
Decrease in fair value due to harvest
250,000
Milk harvested during 2013 but not yet sold
400,000
1. What amount of gain in fair value should be recognized for biological asset in 2013?
a. 2,500,000
b. 2,250,000
c. 2,900,000
d. 2,650,000
2. What amount of gain in fair value should be reported for agricultural produce in 2013?
a. 2,250,000
b.
400,000
c.
150,000
d.
0
6.) Honey Company has a herd of 10 2-year old animals on January 1, 2013. One animal
aged 2.5 years was purchased on July 1, 2013. No animals were sold or disposed of
during the year. The fair value less cost of disposal per unit is as follows:
2 – year old animal on January 1
2.5 – year old animal on July 1
New born animal on July 1
100
108
70
2 – year old animal on December 31
105
2.5 – year old animal on December 31
111
Newborn animal on December 31
3 – year old animal on December 31
0.5 – year old animal on December 31
72
120
80
1. What is the fair value of the biological assets on December 31, 2013?
a. 1,400
b. 1,320
c. 1,440
d. 1,360
2. What is the gain from change in fair value of biological assets that should be recognized
in 2013?
a. 222
b. 292
c. 300
d. 332
3. What is the gain from change in fair value due to price change?
a. 292
b. 222
c. 237
d.
55
7.) Farmland Company produces milk on its mark. The entity produces 20% of the
community’s milk that is confused. Farmland Company owns farms and had a stock of
2,100 cows and 10,050 heifers.
The farms produce 800,000 kilograms of milk a year and the average inventory held is 15,000
kilograms of milk. However, on December 31, 2013, the biological assets are:
Purchased before January 1, 2013
(
3 years old)
Purchased on January 1, 2013
(
2 years old)
Purchased on July 1, 2013
(1.5 years old)
2,100 cows
300 heifers
750 heifers
No animals were born or sold during the current year. The unit fair value less cost of disposal is
as follows.
January 1, 2013:
1-year old
3,000
2-year old
4,000
July 1, 2013:
1-year old
3,000
December 31, 2013:
1-year old
3,200
2-year old
4,000
1.5-year old
3,600
3-year old
5,000
The entity has had problems during the year. Contaminated milk was sold to customer. As a
result, milk consumption has gone down.
The entity’s business is spread over different parts of the country. The only region affected by
the contamination was Batangas. However, the castle in this area were affected by the
contamination and were healthy. The entity feels that it cannot measure the fair value of the cows
in the region because of the problems created by the contamination. There are 600 cows and 200
heifers on the Batangas farm and all these animals had been purchased on January 1, 2013.
1. What is the fair value of biological assets on January 1, 2013?
a. 9,300,000
b. 9,600,000
c. 8,400,000
d. 7,200,000
2. What is the fair value of biological assets purchased on July 1, 2013?
a. 2,250,000
b. 3,000,000
c. 3,750,000
d. 3,375,000
3. What is the fair value biological assets on December 31, 2013?
a. 14,550,000
b. 15,750,000
c. 15,225,000
d. 11,850,000
4. What is the increase in fair value of biological assets on December 31, 2013?
a. 3,000,000
b. 5,250,000
c. 4,950,000
d. 6,150,000
5. What is the increase in fair value of biological assets due to physical change?
a. 1,260,000
b. 1,740,000
c. 3,000,000
d. 1,440,000
8.) Dairy Company provided the following information for the year ended December 31,
2013:
Cash
Trade and other receivables
500,000
1,500,000
Inventories
100,000
Dairy livestock – immature
50,000
Dairy livestock – mature
Property, plant and equipment, net
400,000
1,400,000
Trade and other payables
520,000
Note payable – long-term
1,500,000
Share capital
1,000,000
Retained earnings – January 1
800,000
Fair value of milk produced
600,000
Gain from change in fair value
50,000
Inventories used
140,000
Staff costs
120,000
Depreciation expenses
15,000
Other operating expenses
Income tax expense
190,000
55,000
1. What is the net income for 2013?
a. 650,000
b. 600,000
c. 130,000
d. 185,000
2. What is the fair value of biological assets on December 31, 2013?
a. 550,000
b. 450,000
c. 500,000
d. 400,000
INVENTORY VALUATION
1.) Marsh Company had P150,000 units of product A on hand at January 1, costing P21
each. Purchases of product A during the month of January were as follows:
Units
Unit cost
January
22
10
200,000
18
250,000
28
100,000
23
24
A physical count on January 31 shows 250,000 units of product A on hand.
What is the cost of the inventory on January 31 under the FIFO method?
a. 5,850,000
b. 5,550,000
c. 5,350,000
d. 5,250,000
2.) ABC Company provided the following income and inventory:
2013
2014
Net income using LIFO
2,750,000
3,000,000
Year-end inventory – FIFO
1,400,000
2,000,000
Year-end inventory – LIFO
900,000
What is the net income for 2014 using the FIFO cost flow?
a. 2,900,000
b. 2,600,000
c. 3,500,000
d. 3,100,000
1,600,000
3.) On April 1, 2013, Toronto Company had 6,000 units of merchandise on hand that cost
P120 per unit. During the month, the entity had the following transactions with regard to
the merchandise:
April
5
Purchased on account 15,000 units at P140 per unit
8
Returned 1,000 units from the April 5 purchase.
29
Sold on account 16,000 units at P200 per unit.
The entity used a perpetual inventory system and a FIFO cost flow. What is the cost of goods
sold for April?
a. 2,120,000
b. 2,200,000
c. 2,144,000
d. 2,080,000
4.) Rona Company used the perpetual inventory system. The inventory transaction for
August of the current year were as follows:
Units
Aug.
Unit cost
Total cost
1
Beginning
20,000
4.00
80,000
7
Purchase
10,000
4.20
42,000
10 Purchase
20,000
4.30
86,000
12 Sale
16 Purchase
15,000
20,000
20 Sale
40,000
28 Sale return
3,000
?
4.60
?
?
?
92,000
?
?
The sale return relates to the August 20 sale. If the FIFO cost flow method is used, the sale return
would be costed back into inventory at what unit cost?
a. 4.00
b. 4.20
c. 4.30
d. 4.60
5.) The following information has been extracted from the records of Jayson Company about
one of its products. Jayson Company used the perpetual system.
Units
Jan.
1
Beginning balance
8,000
6
Purchase
Feb.
5
Sale
Mar.
5
Purchase
Mar.
8
Purchase return
800
Apr. 10
Sale
7,000
Apr. 30
Sale return
3,000
Unit cost
Total cost
70.00
560,000
70.50
211,500
10,000
11,000
73.50
73.50
808,000
58,800
300
If the FIFO cost flow method is used, what is the cost of the inventory on April 30?
a. 330,750
b. 315,000
c. 433,876
d. 329,360
6.) Mildred Company is a wholesaler of office supplies. The FIFO periodic inventory is
used. The activity for inventory of calculators during August is as follows:
Units
August 1
Inventory
20,000
7
Purchase
30,000
12
Sale
21
Purchase
22
Sale
29
Purchase
Cost
36.00
37.20
36,000
48,000
38.00
38,000
16,000
38.60
What is the ending inventory on August 31?
a. 1,500,800
b. 1,501,600
c. 1,522,000
d. 1,529,000
7.) Lagoon Company accumulated the following quarterly cost data for the current year.
Raw materials – beginning inventory
Purchases
90,000 units @ P7.00
75,000 units @ P8.00
120,000 units @ P8.50
The entity transferred 195,000 units of raw materials to work in process during the year.
Work in process – beginning inventory
Direct labor
Manufacturing overhead
Work in process – ending inventory
50,000 units @ P14.00
3,100,000
2,950,000
48,000 units @ P15.00
The entity used the FIFO method for valuing inventory. What is the cost of goods manufactured
for the current year?
a. 7,535,000
b. 8,235,000
c. 7,515,000
d. 8,280,000
8.) Hilltop Company sells a new product. During a move to a new location, the inventory
records for the product were misplaced. The entity has been able to gather some
information from the purchases and sales records. The July purchases are as follows:
July
Quantity
Unit cost
Total
cost
5
10,000
65
650,000
9
12,000
63
756,000
12
15,000
60
900,000
25
14,000
62
868,000
51,000
On July 31, 15,000 units were on hand. The sales for July amount to P6,000,000, or 60,000 units
at P100 per unit. The entity has always used a periodic FIFO inventory costing system. Gross
profit on sales for July was P2,400,000. What is the cost of inventory on July 1?
a.
1,354,000
b. 2,400,000
c. 2,826,000
d.
426,000
9.) Lane Company provided the following inventory card during February:
Purchase
Units
Balance
Price
Jan.
10
100
Units
Used
20,000
20,000
31
Feb. 8
10,000
110
30,000
9 Returns from factory (Jan. 10 lot)
Units
10,000
40,000
(
1,000)
28
11,000
41,000
30,000
Using the weighted average method, what is the cost of inventory on February 28?
a. 3,180,000
b. 3,150,000
c. 3,120,000
d. 3,300,000
10.)
Anders Company used the moving method in determine the cost of the inventory.
During January of the current year, the entity recorded the following information
pertaining to its inventory:
Units
Balance on January 1
40,000
Sold on January 17
35,000
Purchased on January 28
20,000
What amount of inventory should be reported on January 31?
a. 2,000,000
Unit
Total
cost
cost
50
80
2,000,000
1,600,000
b. 1,850,000
c. 1,625,000
d. 1,500,000
11.)
During the January of the current year, Metro Company which maintains a
perpetual inventory system, recorded the following information pertaining to its
inventory:
Units
Balance on 1/1
10,000
Purchased on 1/7
6,000
Sold on 1/20
9,000
Purchased 1/25
4,000
Unit cost
100
300
Total cost
Units on hand
1,000,000
10,000
1,800,000
16,000
7,000
500
2,000,000
11,000
1. Under the moving average method, what amount should Metro report as inventory on
January 31?
a. 2,640,000
b. 3,225,000
c. 3,300,000
d. 3,900,000
2. Under the FIFO method, what amount should Metro report as inventory on January 31?
a. 1,300,000
b. 2,700,000
c. 3,900,000
d. 4,100,000
12.)
Frey Company recorded the following data pertaining to raw material Y during
January of the current year.
Units
Date
hand
1/1
8,000
1/8
4,000
1/20
16,000
Received
Cost
Inventory
Issued
On
200
Issue
4,000
Purchase
12,000
240
What is the moving average unit cost of the inventory on January 31?
a. 220
b. 224
c. 230
d. 240
13.)
Stephanie Company is a wholesaler of photographer equipment. The entity used
the periodic average cost method to account for inventory. The activity for the inventory
of cameras during July is shown below:
Units
Unit
cost
July
36.00
1
Inventory
20,000
7
Purchase
30,000
37.00
12
Sale
21
36,000
Purchase
50,000
37.88
22
Sale
29
38,000
Purchase
16,000
38.11
What is the ending inventory on July 31?
a. 1,534,000
b. 1,569,120
c. 1,587,360
d. 1,594,640
14.)
Celine Company provided the following data relating to an inventory item.
Units
Jan.
1
Beginning balance
5,000
10
Purchase
5,000
15
Sale
16
Sale return
1,000
30
Purchase
16,000
31
Purchase return
2,000
Unit cost
200
1,000,000
250
1,250,000
150
2,400,000
7,000
150
Under the perpetual system, what is the moving average unit cost on January 31?
a. 167
Total cost
300,000
b. 165
c. 181
d. 225
15.)
Yakal Company reported that a flood recently destroy many of the financial
record. The entity used an average cost inventory valuation system. The entity made a
physical count at the end of each month in order to determine monthly ending inventory
value. By examining various documents, the following data are gathered:
Ending inventory at July 31
60,000 units
Total cost of units available for sale in July
1,452,100
Cost of goods sold during July
1,164,100
Cost of beginning inventory, July 1
4.00 per unit
Gross profit on sales for July
July
935,000
Units
Unit cost
5
55,000
5.10
280,500
11
53,000
5.00
265,000
15
45,000
5.50
247,000
16
_47,000
5.30
_249,100
Total purchases
200,000
1. What is the number of units on July 1?
a. 102,500
b. 140,000
c.
76,000
d.
60,000
Total cost
1,042,100
2. How many units were sold during the month of July?
a. 242,500
b. 140,000
c. 302,000
d. 260,000
3. What is the cost of the inventory on July 31?
a. 288,000
b. 410,000
c. 312,600
d. 240,000
16.)
Elixir Company bought a 10-hectare land in Novaliches to be improved,
subdivided into lots and eventually sold. Purchase price of the land was P5,800,000.
Taxes and documents expenses on the transfer of the property amounted to P80,000. The
lots were classified as follows:
Lot class
Number of lots
Selling price per lot
Total clearing cost
A
10
100,000
None
B
20
80,000
100,000
C
40
70,000
300,000
D
50
60,000
800,000
What amount should be allocated as total cost of class B lots under the relative sales value
method?
a. 1,176,000
b. 1,220,000
c. 1,276,000
d. 1,700,000
17.)
Casa 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 was subdivided into residential lots as follows:
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?
a. 3,000,000
b. 3,750,000
c. 6,000,000
d. 7,200,000
18.)
Solid Company purchased a plot of ground for P18,000,000. The entity also paid
an independent appraiser for the land the amount of P500,000. The land was develop as
residential lots at a total cost of P41,500,000. The lots were classified as follows:
Number of lots
Sales price per lot
Highland
20
1,000,000
Midland
40
750,000
Lowland
100
500,000
What total cost should be allocated to Highland lots?
a. 12,000,000
b. 11,900,000
c.
8,400,000
d.
8,300,000
19.)
Apitong Company manufactures bath towels. The production comprises 60% of
“Class A” which sells for P500 per dozen and 40% of “Class B” which sells for P250 a
dozen. During the current year. 60,000 dozens were produced at an average cost of P360
a dozen. The inventory at the end of the current year was as follows:
2,200 dozens “Class A” @ P360
792,000
3,000 dozens “Class B “@ P360
1,080,000
Total inventory
1,872,000
Using the inventory sales value method which management considers as a more equitable basis
of cost distribution, what is the measurement of the inventory?
a. 1,170,000
b. 1,665,000
c. 1,872,000
d. 2,340,000
20.)
Julius Company, a conglomerate, has three subsidiaries, Aye, Bee and Cee. Aye
Company is in commodity business. Inventory on January 1, 2013 totaled P240,000. Aye
Company used the weighted average method.
Quantities on hand were 8,000 and 10,000 on January 1 and December 31, 2013 respectively
Aye Company made purchases of P25,000 units in 2013 at a total cost of P816,000.
Bee Company buys and sells land. On January 1, 2013, a tract of land was bought for
P10,000,000. Costs of leveling the land amounted to P2,500,000. The lots were subdivided as
follows:
25 Class A to sell for P400,000 each
30 Class B to sell for P300,000 each
10 Class C to sell for P100,000 each
On December 31, 2013, the unsold lots consisted of 15 Class A, 6 Class B and 3 Class C.
Cee Company sells beds. The perpetual inventory was stated at P1,960,000 on December 31,
2013. At the close of the year, a new approach for compiling inventory was used and apparently
a satisfactory cutoff was not made.
Some events that occurred are as follows:

Beds shipped FOB shipping point to a customer on January 5, 2014 costing P200,000
were included inventory on December 31, 2013.

Beds costing P900,000 received December 30, 2013 were recorded on January 2, 2014.

Beds received costing P190,000 were recorded twice.

Beds shipped FOB shipping point to a customer on December 28, 2013 per date shipping
invoice which cost P700,000 were not recorded as delivered until January 2014.

Beds on hand which cost P230,000 were not included.
1. What is the ending inventory of Aye Company?
a. 320,000
b. 326,000
c. 300,000
d. 313,200
2. What is the ending inventory of Bee Company?
a. 3,900,000
b. 4,050,000
c. 5,062,000
d. 4,875,000
3. What is the ending inventory of Cee Company?
a. 3,090,000
b. 2,390,000
c. 2,200,000
d. 2,900,000
LOWER OF COST AND NET REALIZABLE VALUE
1.) Chicago Company has two products in the inventory.
Selling price
Materials and conversion costs
General administration costs
Estimated selling costs
Product X
Product Y
2,000,000
3,000,000
1,500,000
1,800,000
300,000
800,000
600,000
700,000
At the year-end, the manufacture of items of inventory has been completed but no selling costs
have yet been incurred. What is the measurement of Product X and Y, respectively?
a. 1,400,000 and 2,300,000
b. 1,400,000 and 1,800,000
c. 1,500,000 and 2,300,000
d. 1,500,000 and 1,800,000
2.) Based on physical inventory taken on December 31, 2013, Chewy Company determine
its chocolate inventory on a FIFO basis at P 5,200,000 with a replacement cost of
P4,000,000. The entity estimated that, after further processing costs of P2,400,000, the
chocolate could be sold as finished candy bars for P8,000,000. The normal profit margin
is 10% of sales. Using the measurement at the lower of cost or net realizable value, what
amount should be reported as chocolate inventory on December 31, 2013?
a. 5,600,000
b. 4,000,000
c. 5,200,000
d. 4,800,000
3.) Greece Company provided the following data for the current year:
Inventory – January 1:
Cost
Net realizable value
Net purchases
3,000,000
3,000,000
2,800,000
8,000,000
Inventory – December 31:
Cost
Net realizable value
4,000,000
3,700,000
What amount should be reported as cost of goods sold?
a. 7,000,000
b. 7,100,000
c. 7,300,000
d. 7,200,000
4.) Gracia Company used the lower of cost or net realizable value method to value inventory.
Data regarding the items in work in process inventory are presented below.
Markers
Pens
Highlighters
Historical cost
250,000
188,000
300,000
Selling price
360,000
250,000
360,000
Estimated cost to complete
48,000
50,000
68,000
Replacement cost
208,000
168,000
318,000
Normal profit margin as a
percentage of selling price
25%
What is the measurement of the work in process inventory?
a. 720,000
b. 728,000
c. 676,000
d. 694,000
25%
10%
5.) On December 31, 2013, Julie Company’s ending inventory was P3,000,000, and the
allowance for inventory writedown before any adjustment was P150,000. Relevant
information on December 31, 2013 follows:
Product 1
Historical cost
800,000
Replacement cost
900,000
Sales price
1,200,000
Product 2
1,000,000
1,200,000
1,300,000
Product 2
Product 3
700,000
500,000
1,000,000
600,000
1,250,000
1,000,000
350,000
Net realizable value
550,000
1,100,000
950,000
Normal profit
250,000
150,000
300,000
300,000
What amount of loss on inventory writedown should be included in cost of goods sold?
a. 100,000
b. 200,000
c. 400,000
d. 250,000
6.) Uptown Company used the perpetual method to record inventory transactions for 2013.
Inventory
1,900,000
Sales
6,500,000
Sales return
Cost of goods sold
Inventory losses
150,000
4,600,000
120,000
On December 24, 2013, the entity recorded a P150,000 credit sale of goods costing P100,000.
These goods were sold on FOB destination terms and were in transit on December 31, 2013. The
goods were included in the physical count. The inventory on December 31, 2013 determined by
physical count had a cost of P2,000,000 and a net realizable value of P1,700,000. Any inventory
writedown is not yet recorded. What amount should be reported as cost of goods sold for 2013?
a. 5,020,000
b. 4,500,000
c. 4,720,000
d. 4,920,000
7.) Altis Company sells one product which it purchases from various suppliers. The trial
balance on December 31, 2013 included the following accounts:
Sales (100,000 units at P150)
15,000,000
Sales discount
1,000,000
Purchases
9,300,000
Purchase discount
400,000
The inventory purchases during 2013 were as follows:
Units
Beginning inventory, January 1
20,000
Unit cost
60
Total cost
1,200,000
Purchases, quarter ended March 31
30,000
65
1,950,000
Purchases, quarter ended June 30
40,000
70
2,800,000
Purchases, quarter ended Sept. 30
50,000
75
3,750,000
Purchases, quarter ended Dec. 31
_10,000
80
__800,000
150,000
10,500,000
The accounting policy is to report inventory in the financial statements at the lower of cost or net
realizable value was P72 per unit. The normal profit margin is P10 per unit.
What amount should be reported as cost of goods sold for 2013?
a. 6,500,000
b. 6,300,000
c. 6,700,000
d. 6,900,000
8.) In 2013, North Company experienced a decline in the value of inventory resulting in a
writedown from P3,600,000 to P3,000,000. The entity used the allowance method in
2013 to record the necessary adjustment. In 2014, market conditions have improved
dramatically and the inventory increased to P3,200,000. What is included in the adjusting
entry on December 31, 2014?
a. Debit gain on reversal of inventory writedown P200,000
b. Credit gain on reversal of inventory writedown P400,000
c. Debit allowance for inventory writedown P200,000
d. Credit allowance for inventory writedown P400,000
9.) On December 31, 2013, Dos Company has outstanding purchase commitments for 50,000
gallon of raw material. It is determined that the market price of the raw material has
declined to P17 per gallon on December 31, 2013 and it is expected to decline further to
P15 in the first quarter of 2014. What is the loss on purchase commitment that should be
recognized in 2013?
a. 850,000
b. 150,000
c. 250,000
d.
0
10.)
On October 1, 2013, Gorgeous Company entered into a 6-month, P5,200,000
purchase commitment for a supply of a special product. On December 31, 2013, the
market value of this material had fallen to P5,000,000. On March 31, 2014, the market
value of the purchase commitment is P4,900,000. What is the loss on purchase
commitment to be recognized on March 31, 2014?
a. 200,000
b. 100,000
c. 300,000
d.
0
11.)
On November 15, 2013, Diamond Company entered into a commitment to
purchase 10,000 ounces of gold on February 15, 2014 at a price of 310 per ounce. On
December 31, 2013, the market price of gold is P270 per ounce. On February 15, 2014,
the price of gold is P300 per ounce. What is the gain on purchase commitment to be
recognized on February 15, 2014?
a. 400,000
b. 300,000
c. 100,000
d.
0
12.)
On November 15, 2013, Damascus Company entered into a commitment to
purchase 100,000 barrels of aviation fuel for P55 per barrel on March 31, 2014. The
entity entered into this purchase commitment to protect itself against the volatility in the
aviation fuel had fallen to P40 per barrel. However, by March 31, 2014, when the entity
took the delivery of the 100,000 barrels the price of aviation fuel had risen to P60 per
barrel. What amount should be recognized as gain on purchase commitment for 2014?
a. 1,500,000
b. 2,000,000
c.
500,000
d.
0
13.)
On January 1, 2013, Card Company signed a three-year, noncancelable purchase
contract, which allows Card to purchase up to 5,000 units of a computer part annually
from Heart Company at P100 per unit and guarantees a minimum annual purchase of
1,000 units. During 2013, the part unexpectedly became obsolete. Card had 2,500 units of
this inventory on December 31, 2013, and believed these parts can be sold as scrap for
P20 per unit. What amount of loss from the purchase commitment should be reported in
the 2013 income statement?
a. 240,000
b. 200,000
c. 160,000
d. 360,000
GROSS PROFIT METHOD
1.) Lin Company sells merchandise at a gross profit of 30%. On June 30, 2013, all of the
inventory was destroyed by fire. The following figures pertain to the operations for the
six months ended June 30, 2013:
Net
8,000,000
sales
Beginning
2,000,000
inventory
Net
5,200,000
purchases
What is the estimated cost of the destroyed inventory?
a. 4,800,000
b. 2,800,000
c. 1,600,000
d.
800,000
2.) Olivia Company provided the following information for the year ended December 31,
2013:
Inventory,
650,000
January
1
Purchases
2,300,000
Purchase
80,000
Freight
60,000
returns
in
Sales
3,400,000
Sales
20,000
discounts
Sales
30,000
returns
On December 31, 2013, a physical inventory revealed that the ending inventory was only
P420,000. The gross profit on sales has remained constant at 30% in recent years. The entity
suspects that some inventory may have been pilfered by one of the entity’s employees. On
December 31, 2013, what is the estimated cost of missing inventory?
a. 151,000
b. 165,000
c. 420,000
d. 585,000
3.) On October 31, 2013, Pamela Company reported that a flood caused severe damage to
the entire inventory. Based on recent history, the entity has gross profit of 25% of sales.
The following information is available from the records for ten months ended October 31,
2013:
Inventory, January 1
Purchases
Purchase returns
520,000
4,120,000
60,000
Sales
5,600,000
Sales returns
400,000
Sales allowances
100,000
A physical inventory disclosed usable damaged goods which can be sold for P70,000. Using the
gross profit method, what is the estimated cost of goods sold for the ten months ended October
31, 2013?
a. 3,360,000
b. 3,830,000
c. 3,900,000
d. 3,825,000
4.) On September 30, 2013, Brock Company reported that a fire caused severe damage to the
entire inventory. The entity has a gross profit of 30% on cost. The following data are
available for nine months ended September 30, 2013:
Inventory at January 1
1,100,000
Net purchases
6,000,000
Net sales
7,280,000
A physical inventory disclosed usable damaged goods which can be sold for P100,000. What is
the estimated cost of goods sold for the nine months ended September 30, 2013?
a. 5,500,000
b. 4,975,000
c. 5,096,000
d. 5,600,000
5.) Tonette Company provided the following information for the current year:
Net sales
3,600,000
Freight in
90,000
Purchase discounts
60,000
Ending inventory
240,000
The gross margin is 40% of sales. What is the cost of goods available for sale?
a. 1,680,000
b. 1,920,000
c. 2,400,000
d. 2,440,000
6.) Keepsake Company estimated the cost of the physical inventory on March 31 for use in
interim financial statement. The rate of markup on cost is 25%. The inventory on January
1 was P5,500,000. During the period January 1 to March 31, the entity had purchases of
P4,300,000. Purchase returns of P200,000 and sales of P7,500,000. What is the estimated
cost of inventory on March 31?
a. 2,100,000
b. 3,600,000
c. 3,975,000
d. 2,800,000
7.) A fire destroyed Newborn Company’s inventory on October 31. On January 1, the
inventory had a cost of P2,500,000. During the period January 1 to October 31, the entity
had net purchases of P7,500,000 and net sales of P15,000,000. Undamaged inventory at
the date of fire had a cost of P150,000. The markup on cost is 66 2/3%. What was the
cost of inventory destroyed by fire?
a. 3,850,000
b. 4,000,000
c. 1,000,000
d.
850,000
8.) Moderate Company provided the following information:
June
July
August
Sales on account
Cash sales
7,200,000
720,000
7,360,000
800,000
7,600,000
1,040,000
All merchandise is marked up to sell invoice cost plus 70%. Inventory at the beginning of each
month is 30% of that month’s cost of goods sold.
a. 5,760,000
b. 6,000,000
c. 6,080,000
d. 6,600,000
9.) On the night of September 30, 2013, a fire destroyed most of the merchandise inventory
of Sonia Company. All goods were completely destroyed except for partial damage
goods that normally sell for P100,000 and that had an estimated net realizable value of
P25,000 and undamaged goods that normally sell for P60,000. The following data are
available:
Inventory, January 1
660,000
Net purchases, January through September 30
4,240,000
Net sales, January 1 through September 30
5,600,000
Total
2012
2011
2010
Net sales
9,000,000
5,000,000
3,000,000
1,000,000
Cost of sales
6,750,000
3,840,000
2,200,000
710,000
Gross income
2,250,000
1,160,000
800,000
290,000
What is the estimated amount of fire loss on September 30, 2013?
a. 700,000
b. 615,000
c. 630,000
d. 580,000
10.)
Cool Air Company lost 50% of its inventory by fire on December 31, 2013. No
inventory had been taken on December 31, 2013. The following profit and loss data are
available:
2013
2012
2011
Inventory, January 1
1,040,000
840,000
848,000
Purchases
3,600,000
2,876,000
2,836,000
Purchase returns
240,000
140,000
200,000
Sales
4,060,000
3,900,000
3,620,000
60,000
100,000
20,000
Sales returns
What is the value of the inventory destroyed by fire?
a. 1,600,000
b. 1,760,000
c.
800,000
d.
880,000
11.)
Beyonce Company sells merchandise on a consignment basis to dealers. The
selling price of the merchandise averages 25% above cost. The dealer is paid a 10%
commission of the sales price for all sales made. All dealer sales are made on a cash
basis. The following consignment activities occurred during 2013:
Manufacturing cost of goods shipped on consignment
Sales price of merchandise sold by dealers
Payments remitted by dealers after deducting commission
8,800,000
9,600,000
6,300,000
What is the gross profit on sales?
a. 2,400,000
b. 1,920,000
c. 1,700,000
d. 1,220,000
12.)
Steven Company began operations in 2013. For the year ended December 31,
2013, the entity provided the following information:
Total merchandise purchases for the year
7,000,000
Merchandise inventory on December 31
1,400,000
Collection from customers
4,000,000
All merchandise was marked to sell at 40% above cost. All sales are on a credit basis and all
receivables are collectible. What is the balance of accounts receivable on December 31, 2013?
a. 1,000,000
b. 3,840,000
c. 5,000,000
d. 5,800,000
13.)
On December 31, 2013, Empress Company had fire which completely destroyed
the goods in process inventory. After the fire a physical inventory was taken. The raw
materials were valued at P600,000, the finished goods at P1,000,000 and supplies at
P100,000 on December 31, 2013. The inventories on January 1, 2013 consisted of the
following:
Finished goods
1,400,000
Goods in process
1,000,000
Raw materials
Supplies
300,000
400,000
Data for 2013 were:
Sales
3,000,000
Purchases
1,000,000
Freight in
100,000
Direct labor
800,000
Manufacturing overhead – 50% of direct labor
Average gross profit rate
?
30%
What is the estimated cost of the goods in process on December 31, 2013 that were completely
destroyed by fire?
a. 1,300,000
b. 2,100,000
c. 2,000,000
d. 1,700,000
14.)
In conducting an audit of Remy Company for the year ended June 30, 2013, the
entity’s CPA observed the physical inventory at an interim date, May 31, 2013. The
following information was obtained:
Inventory, July 1, 2012
Physical inventory, May 31, 2013
875,000
950,000
Sales for 11 months ended May 31, 2013
8,400,000
Sales for year ended June 30, 2013
9,600,000
Purchases for 11 months ended May 31, 2013
6,750,000
Purchases for year ended June 30, 2013
8,000,000
a. Shipments received in May and included in the
physical inventory but recorded as June purchases
75,000
b. Shipments received in unsalable condition and
excluded from physical inventory. Credit memos
had not been received nor bad chargeback to
vendors been recorded:
Total at May 31, 2013
10,000
Total at June 30, 2013 (including the May
unrecorded chargebacks)
c. Deposit made with vendor and charged to purchases
15,000
in April, 2013. Product was shipped in July, 2013
20,000
d. Deposit made with vendor and charged to purchases
in May, 2013. Product was shipped FOB destination,
on May 29, 2013 and was included in May 31, 2013
physical inventory as goods in transit
55,000
e. Through the carelessness of the receiving department
a June shipment was damaged by rain.
This shipment was later sold in June at its cost of
100,000
1. What is the cost of goods sold for the month of June 2013?
a. 980,000
b. 960,000
c. 880,000
d. 780,000
2. What is the inventory June 30, 2013?
a. 1,240,000
b. 1,140,000
c. 1,160,000
d. 1,340,000
15.)
On April 30, 2013, a fire the office of Amaze Company. The following balances
were gathered from the general ledger on March 31, 2013:
Accounts receivable
Inventory – January 1
920,000
1,880,000
Accounts payable
950,000
Sales
3,600,000
Purchases

1,680,000
An examination of the April bank statement and canceled checks revealed checks written
during the period April 1-30 as follows:
Accounts payable as of March 31
April merchandise shipments
Expenses
Deposits during the same period amounted to P440,000 which consisted of collections from
customers with exception of P20,000 refund from a vendor for merchandise returned in April.

Customers acknowledged indebtedness of P1,040,000 at April 30. Customers owed
another P60,000 that will never be recovered. Of the acknowledged indebtedness,
P40,000 may prove uncollectible.

The average gross profit rate is 40%.

Inventory with a cost of P260,000 was salvaged and sold for P140,000. The balance of
the inventory was a total loss.
What is the fire loss on April 30?
a. 1,440,000
b. 1,300,000
c. 1,200,000
d. 1,340,000
FINANCLE LEASE – LESSEE
Problem 48-1
Elysee Company leased a machine with a fair value of P 1,650,000 for a period of 5 years under
a finance lease. The initial direct costs included in negotiating the lease amounted to P 12,500.
The present value of the minimum lease payments discounted at the rate implicit in the lease is P
1,584,000.
At what amount should the machine be recognized initially in Elysee’s financial statement?
a. 1,650,000
b. 1,596,500
c. 1,662,500
d. 1,584,000
Solution- Answer b
Present value of minimum lease payments
Initial direct costs
Total initial costs of machine
1,584,000
12,500
1,596,000
PAS17, paragraph 20, provides that an entity shall recognize finance lease as asset and liability
at the fair value of the leased property or present value of minimum lease payments, whichever
is lower.
Paragraph 24 further provides that initial direct costs incurred by the lessee are added to the
amount recognized as an asset.
Problem 482-2 (IFRS)
Mindoro Company lease a land and building for 20 years, the useful life of the building, with
effect from January 1, 2011. At that date, the fair value of the leasehold interest was P7, 500,000
and of which P6, 000,000 was attributable to the building. Annual rentals of P800, 000 are
payable in advance on January 1.
What amount should Mindoro recognized as an operating lease expense in the year ended
December 31, 2011?
a. 800,000
b. 640,000
c. 160,000
d. 0
Solution- Answer c
The annual rate should be split between the land lease and building lease based on their relative
fair value.
Leasehold interest
7,500,000
Attributable to building
6,000,000
Attributable to land
1,500,000
Operating lease expense
(1,500,000/7,500,000x800, 000)
160,000
A land and building lease should be separated in two components namely, the land lease and the
building lease.
In general, a land lease is classified as an operating lease if title is not expected to pass to the
lessee by end of the lease term.
However under the amendment to PAS 17, a land lease of several decades (more than two) or
longer maybe classified as finance lease even if the title will not pass to the lessee at the end of
the lease term.
The building lease is finance lease because in this case the lease term extends to end of the
building useful life.
Problem 48-3
Cassanova Company leased a warehouse with adjoining land for a period of 15 years. The fair
values of the leasehold interests in the land and the warehouse are P5, 000,000 and P2, 500,000
respectively. The land has indefinite economic life whereas the warehouse has useful life of 15
years. Title to the land is not expected to pass at the end of the lease.
At what amount should the asset in relation to finance lease be recognized in the financial
statement of Casanova?
a. 7,500,000
b. 5,000,000
c. 2,500,000
d. 0
Soultion – Answer c
The warehouse lease is finance lease and therefore of the leasehold interest of P2, 500,000 is
recognized as an asset.
The land lease is an operating lease and therefore the leasehold interest of P5, 000,000 is not
recognized as an asset.
Problem 48 – 4 (AICPA Adapted)
On January 1, 2011, Ashe Company entered into a ten year no cancellable lease requiring year
end payment of P1, 000,000. Ashe’s incremental borrowing rate is 12% while the lessor’s
implicit interest rate, known to Ashe, is 10%. Present value of factors for an ordinary annuity for
ten periods are 6.145 at 10%, and 5.650 at 12%. On same date, Ashe Company paid initial direct
cost of P200, 000 in negotiating and securing leasing arrangement. Ownership of the property
remains with the lessor at expiration of the lease. There is no bargain option. The leased
property has an estimated economic life of 12 years.
What amount should Ashe capitalize as cost of the leased property of January 1, 2011?
a. 6,145,000
b. 6,345,000
c. 5,650,000
d. 5,850,000
Solution - Answer b
Present value of rentals (1,000,000 x 6.145)
Initial direct cost
Total cost of property
6,145,000
200,000
6,345,000
Problem 48-5 (IAA)
On December 31, 2011, Tiger Company leased equipment from Zebra Company. Pertinent lease
transaction data are as follows:

The estimated seven – year useful equipment life coincides with the lease term.

The first of the seven equal annual P200,000 lease payments was paid on December
31,2011

Zebra Company’s implicit interest rate of 12% is known to Tiger.

Tigers incremental borrowing rate is 14%

Present value of annuity of 1 in advance for seven periods is 5.11 at 12% and 4.89 at
14%.

Tiger Company paid initial direct cost of P100, 000.
What amount should be recorded by Tiger Company initially as cost of the equipment?
a. 1,400,000
b. 1,022,000
c. 1,122,000
d. 1,078,000
Solution – Answer c
Present value of rentals (200,000 x 5.11)
1,022,000
Initial direct cost
100,000
Total cost of equipment
1,122,000
The commencement of the lease is December 31, 2011 and the firm annual payment was made
on December 31, 2011 in advance.
Thus, the present value of an annuity of 1 in advance factor applicable to the implicit interest rate
of 12% is used in determining the present value of rentals.
Problem 48-6 (AICPA Adapted)
Neal Company entered into a nine year finance lease on a warehouse on December 31,2011
Lease payment of P520,000 which includes real estate taxes and other executory cost of
P200,000, are due annually, beginning on December 31,2012 and every December 31 thereafter.
The interest rate implicit in the lease is 9%. The rounded present value of an ordinary annuity of
1 for nine years at 9% is 5.6. What amount should Neal report as lease liability on December 31,
2011?
a. 2,800,000
b. 2,912,000
c. 4,500,000
d. 4,680,000
Solution – Answer a
Lease liability (500,000 x 5.6)
2,800,000
Problem 48-7(AICPA Adapted)
On January 1, 2011, Day Company leased a new machine from Parr with the following pertinent
information:
Lease term
6 years
Annual rental payable at beginning of each year
500,000
Useful life of machine
8 years
Implicit interest rate in lease
12%
Present value of annuity of 1 in advance for 6 periods at 12%
4.60
The lease is not renewable, and the machine reverts to Parr at the termination of the lease. The
cost of the machine on Parrs accounting record is P3, 755,000. At the beginning of the lease
term, what amount should be recorded as lease liability?
a. 2,055,000
b. 2,300,000
c. 3,755,000
d. 2,800,000
Solution – Answer b
Present value of rentals (500,000 x 4.60)
2,300,000
Problem 48-8
Robbins Company leased a machine from Ready Leasing Company. The lease qualifies as
finance lease and requires 10 annual payments of P100, 000 beginning immediately. The lease
specifies an interest rate of 12% and a purchase option of P100, 000 at the end of tenth year,
even though the machine’s estimated value on that date is P200,000.
Present value of an annuity due (in advance )
6.328
Of 1 at 12% for 10 periods
Present value of 1 at 12% for 10 periods
0.322
What amount should Robbins record as lease liability at the beginning of lease term?
a. 612,600
b. 648,600
c. 665,000
d. 697,200
Solution – Answer c
Present value of rentals (100,000 x 6.328)
Present value of bargain purchase option (100,000 x 3.22)
Total lease liability – beginning of lease term
632,800
32,200
665,000
Problem 48-9
On January 1, 2011, Stoic Company became the lessee of new equipment under a noncancelable
six years lease. The estimated economic life of this equipment is 10 years. The fair value of this
equipment on January 1 was P4, 000,000. The lease does not meet the criteria for classification
as a finance lease with respect to transfer of ownership of the leased asset, or bargain purchase
option, or lease term. Nevertheless, Stoic must classify this lease as a finance lease if at inception
of the lease, the present value of the minimum lease payments (excluding executory costs) is
equal to at least
a. 2,700,000
b. 3,000,000
c. 3,600,000
d. 4,000,000
Solution – Answer c
To qualify as a finance lease, the present value of the minimum lease payments should be equal
to atleast 90% of the fair value of the asset at the inception of the lease. Thus, 90% times P4,
000,000 equals 3,600,000.
Problem 48-10
On January 1, 2011, Nori Mining Company (lessee) entered into a 5 year lease for drilling
equipment. Nori accounted for the acquisition as a finance lease for P2, 400,000, which includes
a P100, 000 bargain purchase option. At the end of the lease, Nori expects to exercise the bargain
purchase option. Nori estimates that equipment’s fair value will be P200, 000 at the end of its 8
year life. Nori regularly uses straight straight line depreciation on similar equipment.
For the year ended December 31, 2011, what amount should Nori recognize as depreciation
expense on the leased asset?
a. 480,000
b. 460,000
c. 300,000
d. 275,000
Solution – Answer d
Cost of leased property
2,400,000
Residual value
(200,000)
Depreciable amount
2,200,000
Depreciation (2,200,000/8)
275,000
Problem 48-11 (AICPA Adapted)
On January 1, 2011, Cole Company signed an eight year noncancelable lease for a new machine,
requiring P 150,000 annual payments at the beginning of each year. The machine has a useful
life of 12 years, with no residual value. Title passes to Cole at the lease expiration date. Cole
uses straight line depreciation for all of its plant assets. Aggregate lease payments have a present
value on January 1, 2011 of P1, 080,000 based on appropriate rate of interest. What amount
should be recorded as depreciation expense of the leased machine for 2011?
a. 0
b. 90,000
c. 135,000
d. 150,000
Solution – Answer b
Depreciation (1,080,000/12)
90,000
Problem 48-12(AICPA Adapted)
On January 1, 2011, Kosovo Compqny entered into a 10 year lease for an equipment. Kosovo
accounted for the acquisition as a finance lease for P4, 900,000 which includes a P200, 000
guaranteed residual value. At the end of the lease, the asset will revert back to the lessor. It is
estimated that the assets fair value at the end of its 12 year useful life will be P100, 000. Kosovo
regularly uses straight line depreciation on similar equipment.
For the year ended December 31,2011, what amount should Kosovo recognize as depreciation
expense of the leased asset?
a. 490,000
b. 400,000
c. 470,000
d. 480,000
Solution – Answer c
Depreciation for 2011 (4,700,000/10)
470,000
Cost of leased equipment
4,900,000
Guaranteed residual value
(200,000)
Depreciable amount
4,700,000
Problem 48-13
Nova Company has leased an asset on a finance lease. The present value of the minimum lease
payment is P686, 000 and the fair value of the asset is P700, 000.
The asset useful life of 5 years and the lease is for a period of 4 years, after which the asset can
be acquired for a near zero cost, which is substantially below the expected value of the asset at
that date. The asset is depreciated on a straight line basis. What is the amount of the annual
depreciation expense?
a. 175,000
b. 140,000
c. 137,200
d. 171,500
Solution – Answer c
Annual Depreciation (686,000/5 years)
137,200
Problem 48-14 (IFRS)
On January 1, 2011, Diamond Company leased a van with a fair value of P3, 600,000 under a
finance lease. The lease term is 6 years, and the present value of the lease minimum payment is
P3, 552,000. The useful life of the van to the business was estimated at 8 years with no final
residual value. The entity operates a policy of straight line depreciation.
What is the depreciation charge on the van in 2011?
a. 600,000
b. 450000
c. 592,000
d. 444,000
Solution - Answer c
Annual Depreciation (3,552,000/6)
592,000
Problem 48-15
On January 1, 2011, Babson Company leased two automobiles for executive use. The lease
requires Babson to make five annual payments of P1,300,000 beginning January 1,2011. At the
end of the lease term December 31,2015, Babson guarantees the residual value of automobiles
will total P1,000,000. The lease qualifies as a finance lease. The interest rate implicit in the lease
is 9%. Present value factors for the 9% implicit rate are as follows:
For an annuity due with 5 payments (in advance)
4.240
For an ordinary annuity with 5 payments
3.890
Present value of 1 for 5 periods
0.650
What is the finance lease liability immediately after the first required payment?
a. 4,862,000
b. 4,407,000
c. 3,562,000
d. 3,107,000
Solution – Answer a
Present value of rentals (1,300,000 x 4.24)
Present value of guaranteed residual value (1,000,000 x 0.65)
5,512,000
650,000
Total lease of liability – January 1, 2011
6,162,000
Less: First payment on January 1, 2011
(1,300,000)
Lease liability – January 1, 2011
4,862,000
Problem 48-16
On December 31,2011, Action Company signed a 7 year finance lease for an airplane to
transport its basketball team around the country. The airplane’s fair value was P8,415,000.
Action made the first annual lease payment of P1,530,000 on December 31,2011. Action’s
incremental borrowing rate was 12% and the interest rate implicit in the lease, which was known
by Action was 9%. The following are the round present value factors for an annuity due:
9% for 7 years
5.5
12% for 7 years
5.1
What amount should Action report as finance lease liability in its December 31, 2011 statement
of financial position?
a. 8,415,000
b. 7,803,000
c. 6,885,000
d. 6,273,000
Solution – Answer c
Present value – December 31,2011 (1,530,000 x5.5)
8,415,000
Less: First payment on December 31,2011
1,530,000
Lease liability
6,885,000
Problem 48-17
Oak Company leased equipment for its entire nine year useful life, agreeing to pay P500,000 at
the start of the lease term December 31,2011, and P500,000 annually on each December 31 for
the next eight years. The present value on December 31,2011 of the nine lease payments over the
lease term, using the rate implicit in the lease which Oak knows to be 10%, was P3,165,000.
The December 31,2011 present value of the lease payments using Oaks incremental borrowing
rate of 12% was P2,985,000. Oak made timely second lease payment.
What amount should Oak report as lease liability in its December 31,2012 statement of financial
position?
a. 3,500,000
b. 2,431,500
c. 2,283,200
d. 2,485,000
Solution – Answer b
Present value – December 31,2011
3,165,000
Less:First payment on December 31,2011
500,000
Lease liability – December 31,2011
Less: Second payment on December 31,2012
Interest for 2012 (10% x 2,665,000)
Lease liability – December 31,2012
2,665,000
500,000
(266,500)
233,500
2,431,000
Problem 48-19
Newton Company leased a machinery with a fair value of P2,500,000 from another entity on
December 31,2011. The contract is six year noncancelable with implicit interest of 10%. The
lease requires annual payment of P500,000 beginning December 31,2011. Newton appropriately
accounted for the lease as finance lease. Newton’s incremental borrowing rate is 12%.
The present value of an annuity due of 1 for 6 years at 10% is 4.7908 and the present value of an
annuity due of 1 for 6 years at 12% is 4.6048.
What is the lease liability that Newton should report in the statement of financial position on
December 31,2012?
a. 1,895,400
b. 1,700,000
c. 1,584,940
d. 1,518,688
Solution- Answer c
Present value - December 31,2011( 500,000x4.7908)
2,395,400
First payment on December 31,2011
500,000
Lease liability December 31,2011
1,895,400
Second payment on December 31,2012
500,000
Interest for 2012 (10%x1,895,400)
(189,540)
310,460
Lease liability – December 31,2012
1,584,900
Problem 48-19
On December 31,2011, Roe Company leased a machine form Colt for a five year period. Equal
annual payments under the lease are P1,050,000 including P50,000 annual executory cost and are
due on December 31 of each year. The first payment was made on December 31,2011 and the
second payment was made on December 31,2012.
The five lease payments are discounted at 10% over the lease term. The present value of
minimum lease payments are the inception of the lease and before the first and annual payment
was P4,170,000. The lease is appropriately accounted for as finance lease by Roe.
In its December 31,2012 statement of financial position, what should be reported by Roe
Company as lease liability?
a. 3,170,000
b. 3,150,000
c. 2,853,000
d. 2,487,000
Solution – Answer d
Present value - December 31,2011
4,170,000
First payment on December 31,2011
1,000,000
Lease liability – December 31,2011
3,170,000
Second payment on December 31,2012
Interest for 2012 (10% x 3,170,000)
Lease liability - December 31,2012
1,000,000
(317,000)
683,000
2,487,000
Problem 48-20
On Decmeber 31,2011, Ames Company leased equipment under a finance lease for 10 years. It
contracted to pay for P400,000 on December 31,2011, and on December 31 of each of the nine
years. The finance lease liability was recorded at P2,700,000 on December 31,2011 before the
first payment. The equipment’s useful life is 12 years, and the interest rate implicit in the lease is
10%. Ames uses the straight line method to depreciate all equipment.
In recording the December 31,2012 payment, by what amount should Ames reduce the finance
lease liability?
a. 270,000
b. 230,000
c. 225,000
d. 170,000
Solution – Answer d
Lease liability - December 31,2011
Less:First payment on December 31.2011
2,700,000
400,000
Lease liability – December 31,2011
2,300,000
Second payment on December 31,2012
400,000
Interest for 2012 (10% 2,300,000)
(230,000)
Reduction of lease liability on December 31,2012
170,000