APPLIED
AUDITING
With Comprehensive
Review of Philippine Financial
Reporting Standards (PFRSs)
A guide in applying auditing procedures to specific
accounts of the financial statements.
AND PC.Compatible in Acrobat
E READER T
EACHERS MANUAL
2017
Edition
By
DARRELL JOE O. ASUNCION, MBA, CPA
MARK ALYSON B. NGINA, CMA, CPA
RAYMUND FRANCIS A. ESCALA, MBA, CPA
Dear fellow teacher,
This “Teacher’s Manual” should be used solely by the
teacher and for classroom purposes only. This manual
should NOT be reproduced either manually (e.g.,
printing or photocopy) or electronically (e.g., copying or
uploading in the net) without our written consent (or the
publisher’s written authorization).
E
t
If you have comments, queries or suggestions, please do
not hesitate to contact us at:
Telephone: 074-2441894
Mobile No.: Darrell Joe O. Asuncion – 0923-424-8286
Mark Alyson B. Ngina – 0915-510-7281
Raymund Francis A. Escala – 0917-715-1226
Email
PC.Compatible
READERad:ANDappliedauditingnea@gmail.com.in Acrob
Thanks and God bless.
Sincerely,
Darrell Joe O. Asuncion, MBA, CPA
Mark Alyson B. Ngina, CMA, CPA
Raymund Francis A. Escala, MBA, CPA
Table of Contents
CHAPTER 5: CASH TO ACCRUAL ...................................................................................................4
CHAPTER 6: CORRECTION OF ERRORS ...........................................................................19
CHAPTER 8: CASH AND CASH EQUIVALENTS ................................................................. 29
CHAPTER 10: LOANS AND RECEIVABLES .......................................................................... 52
CHAPTER 12: INVENTORIES ..................................................................................................86
CHAPTER 14: INTRODUCTION TO FINANCIAL ASSET AND INVESTMENT
IN EQUITY SECURITIES ..........................................................................................................117
CHAPTER 15: INVESTMENT IN DEBT SECURITIES ...............................................133
CHAPTER 16 INVESTMENT IN ASSOCIATE .................................................................... 142
CHAPTER 18 PROPERTY, PLANT AND EQUIPMENT..............................................157
CHAPTER 19 WASTING ASSETS ........................................................................................183
CHAPTER 20 INVESTMENT PROPERTY............................................................................ 189
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CHAPTER 23 REVALUATION, IMPAIRMENT AND NONCURRENT ASSET
HELD FOR SALE ..........................................................................................................................208
CHAPTER 25 INTRODUCTION TO LIABILITIES .................................................... 225
CHAPTER 26 FINANCIAL LIABILITIES AND DEBT RESTRUCTURING 239
CHAPTER 27 LEASE..................................................................................................................259
CHAPTER 29 SHAREHOLDERS’ EQUITY .................................................................. 285
CHAPTER 30 BOOK VALUE AND EARNINGS PER SHARE ...................................308
CHAPTER 32 STATEMENT OF FINANCIAL POSITION AND
COMPREHENSIVE INCOME ..................................................................................................320
CHAPTER 33 STATEMENT OF CASH FLOWS ......................................................... 339
Chapter 5: Cash to Accrual
CHAPTER 5: CASH TO ACCRUAL
PROBLEM 5-1 (Computation of Sales under cash basis)
Accounts receivable/Notes receivable trade/Advances from customers
Beg. balance – AR
200,000
180,000 Balance end - AR
Beg. balance – NR
240,000
170,000 Balance end - NR
Balance end - Advances
40,000
55,000 Beg. balance - Advances
Sales on account
600,000
4,000 Sales ret. and allowance
Recoveries
2,000 Sales discounts
Collections
including
666,000 recoveries
3,000 Write-off
Total
1,080,000 1,080,000
Suggested answer: A
PROBLEM 5-2 Computation of Bad Debts
Allowance for bad debts
Ending balance
Write-off
40,000
8,000
25,000
21,000
Total
48,000
48,000
Beginning balance
Bad debts expense
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Suggested answer: C
PROBLEM 5-3 (Computation of Purchases)
Accounts Payable / Notes Payable / Advances to Suppliers
Payments
800,000
200,000 Beg. balance - AP
Purchase ret. and allow.
6,000
400,000 Beg. balance - NP
Purchase discount
3,000
68,000 Balance end - Advances
Beg. balance - Advances
50,000
651,000 Purchases (gross)
Balance end – AP
250,000
Balance end – NP
210,000
Total
1,319,000 1,319,000
Suggested answer: A
4
Chapter 5: Cash to Accrual
PROBLEM 5-4 Computation of Cost of Sales
Accounts Payable (AP) / Notes Payable (NP)
Payments
800,000
200,000 Beg. balance - AP
Purchase ret. and allow.
6,000
- Beg. balance - NP
Purchase discount
3,000
859,000 Purchases (gross)
250,000
Balance end - AP
Balance end - NP
Total
1,059,000 1,059,000
Beginning balance
Net purchases
Total
Merchandise Inventory
400,000
210,000 Ending balance
860,000 1,050,000 Cost of sales
1,260,000 1,260,000
Computation of the net purchases:
Gross purchases on account
Add cash purchases
Total
Less: Purchase returns and allowances
Purchase discount
Net purchases
859,000
10,000
869,000
6,000
3,000
860,000
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PROBLEM 5-5 (Computation of Income Other Than Sales)
Rent Receivable/Unearned rent income
Beg. Balance - Rent
Receivable
Balance end - Unearned
rent income
Rent Income (squeeze)
Total
200,000
250,000
Balance end - Rent
Receivable
90,000 Beg. Balance – Unearned
rent income
660,000 Collections
30,000
770,000
1,000,000
1,000,000
Suggested answer: B
PROBLEM 5-6 (Computation of Expenses in General)
Prepaid Rent/Rent payable
Beg. Balance - Prepaid
Balance end - Accrued
Salaries
Payments
Total
250,000
200,000
65,000
850,000
1,115,000
Balance end - Prepaid
Rent
80,000 Beg. Balance – Rent
payable
785,000 Rent Expense
1,115,000
5
Chapter 5: Cash to Accrual
Suggested answer: C
PROBLEM 5-7 (Computation of Cost of Machine Acquired and Sold)
Question No. 1
Carrying amount of equipment sold
Add: Accumulated depreciation
Cost
Question No. 2
Beg. Balance
Cost of PPE
(squeeze)
25,000
15,000
40,000
Equipm ent
acquired
Total
100,000
60,000
120,000
40,000
160,000
160,000
Balance end
Cost of PPE disposed
Accumulated depreciation
Balance end
Accumulated depreciation
of PPE disposed
18,000
15,000 Beg. Balance
18,000 Depreciation expense
15,000
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SUMMARY OF ANSWERS:
1. D
2. A
PROBLEM 5-8
Question No. 1
Beg. Balance
Payments
Total
Prepaid Insurance
7,500
6,000 Balance end
41,500
43,000 Expenses (squeeze)
49,000
49,000
Question No. 2
Beg. Balance
Income (squeeze)
Total
Interest Receivable
14,500
3,700
112,700
123,500
127,200
127,200
6
Balance end
Collections
Chapter 5: Cash to Accrual
Question No. 3
Balance end
Payments
Salaries payable
61,500
53,000 Beg. Balance
481,000
489,500 Expenses
Total
542,500
Question No. 4
542,500
Accounts receivable trade
Beg. Balance
Sales
415,000
1,980,000
550,000 Balance end
1,845,000 Collections (squeeze)
Total
2,395,000
2,395,000
Question No. 5
Accounts receivable trade
415,000
550,000 Balance end
1,980,000
1,820,000 Collections (squeeze)
25,000 Write-off
Beg. Balance
Sales
Total
2,395,000
2,395,000
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Accounts receivable trade
415,000
550,000 Balance end
1,980,000
1,840,000 Collections (squeeze)
20,000
25,000 Write-off
Beg. Balance
Sales
Recoveries
Total
2,415,000
2,415,000
SUMMARY OF ANSWERS:
1.
C
2.
B
3.
C
4.
A
5.
A
6.
B
PROBLEM 5-9
Question No. 1
Accounts/Notes receivable trade
Decrease in A/R
Sales on account
(squeeze)
Total
100,000
4,260,000
100,000 Increase in N/R
10,000 Write-off
4,200,000 Collections
30,000 Sales discounts
20,000 Sales ret. and allow.
4,360,000
4,360,000
7
Chapter 5: Cash to Accrual
Question No. 2
Cash paid to creditors
Accounts payable
2,800,000
200,000
Purchase discounts
40,000
Purchase returns
10,000
Total
2,650,000
2,850,000
Decrease in Accounts
payable
Gross
purchases
(squeeze)
2,850,000
Question No. 3
Decrease in Inventory
Gross purchases
Total
Merchandise inventory
25,000
40,000 Purchase discounts
2,650,000
10,000 Purchase returns
2,625,000 Cost of sales (squeeze)
2,675,000
2,675,000
Question No. 4
Rental receivable/Unearned Rent Income
Rental
(squeeze)
revenue
454,000
14,000
Increase in Rental
receivable
40,000 Decrease in Unearned
rental
400,000 Collections from tenants
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Total
454,000
454,000
Question No. 5
Prepaid interest/Interest Payable
Decrease
interest
Increase
in
Prepaid
in
Interest
5,500
Interest paid
8,0
500
100
Total
114,000
SUMMARY OF ANSWERS:
1. D
2. D
3. A
4.
114,000 Interest
(squeeze)
114,000
A
8
5.
D
expense
Chapter 5: Cash to Accrual
PROBLEM 5-10
Question No. 1
Accounts Receivable/Notes receivable trade
Beg. Balance – A/R
Beg. Balance – N/R
Sales on account
(squeeze)
200,000
300,000
1,000,000
250,000 Bal. end – A/R
100,000 Bal. end – N/R
20,000 Sales ret. and allow.
10,000 Sales discount
1,120,000 Collections
Total
1,500,000
1,500,000
Question No. 2
Balance end – A/P
Balance end – N/P
Purchase returns
Purchase discount
Payments
Accounts payable/Notes payable
25,000
50,000 Beg. Balance – A/P
75,000
100,000 Beg. Balance – N/P
and
650,000 Gross purchases
(squeeze)
40,000
10,000
650,000
Total
800,000
800,000
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650,000 Acrobat
Less: Purchase ret and allow
Purchase discounts
Net Purchases
Question No. 3
Sales
Less: Sales ret and allow
Sales discounts
Net Sales
Less: Cost of Sales
Merchandise inventory beg.
Add: Net Purchases
Purchases
Add: Freight-in
Gross Purchases
Less: Purch. Ret and allow
Purchase discounts
Total goods available for sale
Less: Merchandise inventory, end
Gross Income / Gross Profit
40,000
10,000
50,000
600,000
20,000
10,000
1,000,000
30,000
970,000
200,000
600,000
650,000
40,000
10,000
600,000
800,000
100,000
700,000
270,000
9
Chapter 5: Cash to Accrual
Question No. 4
Prepaid/Accrued Salaries
Beg. Balance -Prepaid
Salaries
Balance end - Accrued
Salaries
Payments
100,000
Total
500,000
Question No. 5
125,000
Balance end - Prepaid
Salaries
75,000 Beg. Balance - Accrued
Salaries
300,000 Salaries
expense
(squeeze)
50,000
350,000
500,000
Accrued rent/Unearned rent
Beg. Balance - Accrued
40,000
Balance end - Unearned
rent
Rent income (squeeze)
490,000
Balance end - Accrued
rent
80,000 Beg. Balance - Unearned
rent
300,000 Collection of rent
Total
600,000
600,000
70,000
40,000
SUMMARY OF ANSWERS:
1. A
2. B
3. C
4.
B
5.
B
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PROBLEM 5-11
Question No. 1
Beg. Balance
Recoveries
Sales (squeeze)
Total
Sales
Less: Sales discount
Net Sales
Accounts receivable trade
200,000
300,000 Balance end
8,000
20,000 Sales discounts
1,570,000
1,408,000 Collections
including
recoveries (1,498,00080,000+20,00-30,000)
50,000 Accounts written-off
1,778,000
1,778,000
1,570,000
20,000
1,550,000
Question No. 2
Accounts payable trade
Payment (1,210,00020,000+30,000)
Purchase ret. and allow.
Balance end
1,210,000
10,000
100,000
10
150,000
1,170,000
Beg. Balance
Purchases (squeeze)
Chapter 5: Cash to Accrual
Total
1,320,000
Purchases
Less: Purchases discount
Net Purchases
Question No. 3
1,320,000
1,170,000
10,000
1,160,000
Merchandise inventory
Beg. Balance
Net
Purchases
380,000
330,000 Balance end
1,210,000 Cost of Sales (squeeze)
1,160,000
1,540,000
Total
1,540,000
Question No. 4
Beg. Balance
Rent income (squeeze)
Rent Receivable
70,000
80,000 Balance end
130,000
120,000 Collections
Total
200,000
200,000
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Allowance for Doubtful accounts
Accounts written off
Balance end
50,000
30,000
20,000 Beg. Balance
52,000 Doubtful
account
expense(squeeze)
8,000 Recoveries
Total
80,000
80,000
SUMMARY OF ANSWERS:
1. B
2. B
3. B
4.
A
5.
A
PROBLEM 5-12 Comprehensive
Question No. 1
Accounts receivable trade
Beg. Balance
Professional
(squeeze)
Total
fees
500,000
5,250,000
750,000 Balance end
5,000,000 Collections
5,750,000
5,750,000
11
Chapter 5: Cash to Accrual
Question No. 2
Professional Fees (See No. 1)
Less: Rent expense (1.2M +100,000)
Supplies expense
(800,000+300,000-250,000)
Other operating expense
Interest expense (1M x 12% x 9/12)
Depreciation expense (2,500,000/10)
Net income
Question No. 3
Cash
Accounts Receivable
Supplies
Total Current Assets
5,250,000
1,300,000
850,000
750,000
90,000
250,000
3,240,000
2,010,000
1,500,000
750,000
250,000
2,500,000
Question No. 4
Furniture and fixtures
Less: Accumulated Depreciation
(125,000 + 250,000)
Total Noncurrent Assets
2,500,000
375,000
2,125,000
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Total current assets (See No. 3)
Total noncurrent assets (See No. 4)
Total Assets
2,500,000
2,125,000
4,625,000
Question No. 6
Notes Payable
Accrued rent
Accrued interest on notes payable
(1,000,000 x 12% x 9/12)
Total Current Liabilities
1,000,000
100,000
90,000
1,190,000
Question No. 7
Total assets (See No. 5)
Less: Total liabilities (See No. 6) – all are
current
Total Owner’s Equity
SUMMARY OF ANSWERS:
1. B
2. B
3. A
4.
A
12
4,625,000
1,190,000
3,435,000
5.
A
6.
C
7.
B
Chapter 5: Cash to Accrual
PROBLEM 5-13
Question No. 1
Accounts receivable trade
Beg. Balance
Sales on account
(squeeze)
1,535,000
146,000 Balance end
13,000 Sales discount
1,500,000 Collections
Total
1,659,000
1,659,000
124,000
Sales on account
Add: Cash sales
Total sales
1,535,000
160,000
1,695,000
Question No. 2
Gross sales (see No. 1)
Less: Sales discount
Net sales
1,695,000
13,000
1,682,000
Question No. 3
Accounts Payable
Payments
Balance end
Total
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1,206,000
410,000
382,000
1,234,000
1,616,000
1,616,000
Beg. Balance
Purchases (squeeze)
PC.Compatible in Acroba
Purchases on account
Add: Cash purchases
Total Purchases
1,234,000
120,000
1,354,000
Question No. 4
Beg. Balance
Net purchases
Total
Question No. 5
Merchandise Inventory
186,000
190,000 Balance end
1,354,000
1,350,000 Cost of sales (squeeze)
1,540,000
1,540,000
Prepaid9G,6&0A0/Accrued G&A
Beg. Balance - Prepaid
8,400
Balance end – Accrued
Interest
Payments
204,000
Balance end - Prepaid
Interest
7,000 Beg. Balance – Accrued
Interest
207,200 Expenses
Total
222,600
222,600
9,000
13
Chapter 5: Cash to Accrual
Question No. 6
General and administrative expense (see No. 5)
Depreciation expense
Warranty expense
Total operating expense
207,200
84,000
6,400
297,600
Question No. 7
Selling price of land
Less: Book value of land
Gain on sale of land
20,000
16,000
4,000
Question No. 8
Selling Price
Less Book value
Cost
Less: Accumulated depreciation
Gain on sale of warehouse equipment
12,000
25,000
16,000
Question No. 9
Selling Price
Less: Book value
Cost
Less: Accumulated depreciation
Gain on sale of boiler
9,000
3,000
42,000
48,000
20,000
28,000
14,000
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Question No. 10
1,682,000
1,350,000
332,000
297,600
21,000
55,400
Net Sales
Less: Cost of Sales
Gross Profit
Less: Operating expenses
Gain on sale (14,000+3,000+4,000)
Net income
SUMMARY OF ANSWERS:
1. B
2. C
3. D
6. A
7. A
8. C
4.
9.
A
B
5.
10.
B
A
PROBLEM 5-14 Comprehensive
Question No. 1
Accounts receivable trade
Beg. Balance
Sales (squeeze)
150,000
800,000
200,000
10,000
740,000
Total
950,000
950,000
14
Balance end
Sales returns
Collections
Chapter 5: Cash to Accrual
Question No. 2
Sales on account
Add: Cash sales
Total sales
Less: Sales returns and allowances
Net sales
Less: Cost of sales (squeeze)
Gross profit (200,000/40%)
800,000
100,000
900,000
10,000
890,000
390,000
500,000
Merchandise inventory
Beg. Balance
Net Purchases (squeeze)
Total
190,000
420,000
610,000
220,000 Balance end
390,000 Cost of Sales
610,000
Question No. 3
Accounts Payable trade
Payments (squeeze)
470,000
Purchase returns and
230,000
428,000
8,000
180,000
Beg. Balance - Accounts
payable
Gross purchases
(420,000+8,000)
Balance end – Accounts
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payable
Total
658,000
658,000
Question No. 4
Total payment of Accounts payable and admin expenses
Less: Payment of Accounts payable
Payment of admin expenses
Question No. 5
Payment of admin expenses
Divided by: Percentage of cash expenses to total admin
expense
Total admin expenses
Add: Selling expenses
Total selling and administrative expense
Question No. 6
Total administrative expenses
Less: Payment of administrative expense
Non-cash administrative expenses
Less: Depreciation for building
(440,000 x 60% x 5% x 9/12)
15
518,000
470,000
48,000
48,000
80%
60,000
200,000
260,000
60,000
48,000
12,000
9,000
Chapter 5: Cash to Accrual
Depreciation for furniture and fixtures
Divided by: Number of months used over 12 months
Annual depreciation
Divided by: Depreciation rate
Cost of Furniture and Fixtures (no residual value)
SUMMARY OF ANSWERS:
1. A
2. A
3.
B
4.
A
3,000
6/12
6,000
10%
60,000
5.
C
6.
PROBLEM 5-15
Question No. 1
Cash Receipts:
From customers
From issue of ordinary shares
From bank loan
Cash disbursements:
Purchase of inventory
Rent
Salaries
Utilities
Insurance
Purchase of
equipment
E READER
393,000
Cash
360,000
100,000
100,000
560,000
300,000
15,000
30,000
5,000
3,000
PiCn.CompAaNtDible
Acrobat
Question Nos. 2 and 3
Current assets
Cash
Inventories
Prepaid rent (1,000 x 3)
Total current assets (No. 2)
Noncurrent assets
Property, plant and equipment
Less accumulated depreciation
Total assets (No. 3)
167,000
167,000
100,000
3,000
270,000
40,000
4,000
Question No. 4
Accounts payable
Utilities payable
Loans payable
Interest on loans payable (100,000 x 12% x 9/12)
Total current liabilities
16
36,000
306,000
20,000
1,000
100,000
9,000
130,000
A
Chapter 5: Cash to Accrual
Question No. 5
Ordinary shares
Retained earnings (net income)
Shareholders’ equity
SUMMARY OF ANSWERS:
1. B
2. B
3.
100,000
176,000
176,000
A
4.
D
5.
A
PROBLEM 5-16
Question No. 1
Notes receivable – December 31
Accounts receivable – December 31
Collection of notes and accounts
Note receivable discounted
Total
Less: Notes receivable – January 1
Accounts receivable – January 1
Sales on account
200,000
740,000
Question No. 2
Notes payable – December 31
Less: Note payable – bank
Notes payable– trade
E READER
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Accounts payable – December 31
Payment of notes and accounts
Total
Less: Notes payable – January 1
Accounts payable – January 1
Purchases on account
750,000
600,000
Question No. 3
Equipment – January 1
Add: Acquisition
Total
Less: Equipment – December 31
Depreciation
Question No. 4
Interest accrued on note issued to bank (300,000 x 12% x 10/12)
Interest expense
Question No. 5
Volks Company
Income Statement
Year ended December 31, 2016
210,000
950,000
2,950,000
200,000
4,310,000
940,000
3,370,000
580,000
300,000
280,000
Acroba
750,000
2,100,000
3,130,000
1,350,000
1,780,000
1,000,000
280,000
1,280,000
1,200,000
80,000
30,000
30,000
17
Chapter 5: Cash to Accrual
Sales
Cost of sales:
Inventory – January 1
Purchases
Goods available for sale
Less: Inventory – December 31
Gross income
Expenses:
*Expenses
Depreciation
**Loss on sale of investment
***Loss on note receivable discounted
Interest expense
Net income
3,370,000
1,600,000
1,780,000
3,380,000
1,500,000
1,880,000
1,490,000
820,000
80,000
50,000
10,000
30,000
*Expenses paid
Add: Prepaid expenses – January 1
Accrued expenses – December 31
Total
Less: Prepaid expenses – December 31
Accrued expenses – January 1
Expenses
990,000
500,000
790,000
120,000
50,000
960,000
100,000
40,000 140,000
820,000
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**Sales price
Less: Cost of investment sold
Loss on sale of investment
250,000
300,000
( 50,000)
***Loss on note receivable discounted (200,000 – 190,000)
10,000
OR
Retained earnings – December 31
Add: Dividends
Total
Less: Retained earnings – January 1
Net income
SUMMARY OF ANSWERS:
1. A
2. A
3.
C
600,000
400,000
1,000,000
500,000
500,000
4.
18
C
5.
D
Chapter 6: Correction of Errors
CHAPTER 6: CORRECTION OF ERRORS
PROBLEM 6-1 Income Statement and SFP Errors
Questions Nos. 1-6
2016
Unadjusted
balances
1
2
Adjusted
balances
2017
Net
income
Workin
g capital
RE, end
of the
year
200,000
-
180,000
-
200,000
-
160,000
-
260,000
-
360,000
-
200,000
180,000
200,000
160,000
260,000
360,000
Questions No. 7
Assuming errors were discovered in 2016
ADJUSTING ENTRIES
1) Miscellaneous income
Rent income
2)
Notes payable
Net
income
Workin
g capital
RE, end
of the
year
Debit
25,000
Credit
25,000
28,000
s payable
READERAccouAntN
D PC.Compatible 2i
8,000 Acrobat
n
Assuming errors were discovered in 2017
1)
ADJUSTING ENTRIES
No entry
Debit
Credit
2)
No entry
Assuming errors were discovered in 2018
ADJUSTING ENTRIES
Debit
1) No entry
Credit
2)
No entry
SUMMARY OF ANSWERS:
1. A
2. B
3. A
4.
C
19
5.
C
6.
C
Chapter 6: Correction of Errors
PROBLEM 6-2 Counterbalancing Errors
Questions Nos. 1-6
Unadjusted
balances
1
2
3
4
Adjusted
balances
Net
income
2016
Workin
g capital
R/E
Net
income
2017
Workin
g capital
200,000
(15,000)
20,000
6,000
(7,500)
180,000
(15,000)
20,000
6,000
(7,500)
200,000
(15,000)
20,000
6,000
(7,500)
160,000
15,000
(20,000)
(6,000)
7,500
260,000
-
360,000
203,500
183,500
203,500
156,500
260,000
360,000
Question No. 7
A. Errors were discovered in 2016
ADJUSTING ENTRIES
1) Interest expense
Interest payable
2)
Debit
15,000
R/E
Credit
15,000
Interest receivable
Interest income
20,000
20,000
Insurance
expense
3) Prepaid
insurance
6,000
READER
PC.Compatible
in6,00A0 crobat
nt rN
evD
enue
4) ReA
7,500
Unearned rent revenue
B.
7,500
Errors were discovered in 2017
Assuming errors are discovered when the cash flows related to the
transactions were processed and books are still open
ADJUSTING ENTRIES
Debit
Credit
1) Retained earnings
15,000
Interest expense
15,000
2)
3)
4)
Interest income
Retained earnings
20,000
Insurance expense
Retained earnings
6,000
Retained earnings
Rent revenue
7,500
20,000
6,000
7,500
When books are already closed, no necessary adjusting entries to be
made.
C.
Errors were discovered in 2018
No necessary adjusting entries to be made.
SUMMARY OF ANSWERS:
1. C
2. B
3. C
4.
C
20
5.
B
6.
C
Chapter 6: Correction of Errors
PROBLEM 6-3 Counterbalancing Errors
Questions Nos. 1-6
Unadjusted
balances
1
2
3
Adjusted
balances
Net
income
2015
Workin
g capital
R/E, end
Net
income
2016
Workin
g capital
R/E, end
200,000
(60,000)
80,000
(20,000)
180,000
(60,000)
80,000
(20,000)
200,000
(60,000)
80,000
(20,000)
160,000
60,000
(80,000)
20,000
260,000
-
360,000
-
200,000
180,000
200,000
160,000
260,000
360,000
Question No. 7
A. Errors were discovered in 2016
ADJUSTING ENTRIES
1) Purchases
Accounts payable
2)
3)
Debit
60,000
Accounts receivable
Sales
80,000
Cost of sales
Inventory
20,000
Credit
60,000
80,000
20,000
E READER AND PC.Compatible in Acrobat
B.
Errors were discovered in 2017
Assuming errors are discovered when the cash flows related to the
transactions were processed and books are still open
ADJUSTING ENTRIES
Debit
Credit
1) Retained earnings
60,000
Purchases
60,000
2)
3)
Sales
Retained earnings
80,000
Retained earnings
Inventory, beginning
20,000
80,000
20,000
If books are already closed, no necessary adjusting entries to be made.
C.
Errors were discovered in 2018
No necessary adjusting entries to be made.
SUMMARY OF ANSWERS:
1. C
2. B
3. C
4.
B
21
5.
C
6.
B
Chapter 6: Correction of Errors
PROBLEM 6-4 Noncounterbalancing Errors
Questions Nos. 1-6
2016
2017
Net
income
Workin
g capital
RE, end
of the
year
Unadjusted
balances
1.
2.
3.
4.
5.
6.
200,000
(30,000)
20,000
12,000
150,000
(12,000)
(15,000)
180,000
(30,000)
20,000
-
200,000
(30,000)
20,000
12,000
150,000
(12,000)
(15,000)
160,000
(6,000)
10,000
(50,000)
5,000
260,000
(36,000)
30,000
-
360,000
(36,000)
30,000
12,000
100,000
(12,000)
(10,000)
Adjusted
balances
325,000
170,000
325,000
119,000
254,000
444,000
Question No. 7
A. Errors were discovered in 2016
ADJUSTING ENTRIES
1) Insurance expense
Prepaid insurance
Net
income
Workin
g capital
RE, end
of the
year
Debit
30,000
Credit
30,000
2)
Unearned rent income
20,000
3)
Accumulated depreciation
Depreciation expense
12,000
ReN
nt DincomePC.Compatiblein
E READER A
20,000Acroba
t
4)
5)
6)
Building improvements
Repairs expense
200,000
200,000
Depreciation expense
Accumulated depreciation
50,000
Other income
Accumulated depreciation
Gain on sale
Building
20,000
48,000
Repairs expense
Building
20,000
Accumulated depreciation
Depreciation expense
B.
12,000
Errors were discovered in 2017
ADJUSTING ENTRIES
1) Retained earnings
Insurance expense
Prepaid insurance
50,000
8,000
60,000
20,000
5,000
5,000
Debit
30,000
6,000
Credit
36,000
22
Chapter 6: Correction of Errors
2)
Unearned rent income
Retained earnings
Rent income
30,000
3)
Accumulated depreciation
Retained earnings
12,000
4)
Building improvements
Retained earnings
200,000
200,000
50,000
50,000
Retained earnings
Accumulated depreciation
Building
12,000
48,000
Retained earnings
Building
20,000
Accumulated depreciation
Retained earnings
Depreciation expense
C. Errors were discovered in 2018
ADJUSTINEGNTRIES
10,000
6)
E READER AND
t
12,000
Depreciation expense
Retained earnings
Accumulated depreciation
5)
20,000
10,000
100,000
60,000
20,000
5,000
5,000
ebi
it bl
ien
PC.CompaDt
Acroba
Credit
1)
2)
3)
4)
5)
6)
Retained earnings
Prepaid insurance
36,000
Unearned rent income
Retained earnings
30,000
Accumulated depreciation
Retained earnings
12,000
36,000
30,000
12,000
Building improvements
Retained earnings
200,000
Depreciation expense
Retained earnings
Accumulated depreciation
50,000
100,000
200,000
Retained earnings
Accumulated depreciation
Building
12,000
48,000
Retained earnings
Building
20,000
Accumulated depreciation
Retained earnings
10,000
150,000
60,000
20,000
10,000
23
Chapter 6: Correction of Errors
SUMMARY OF ANSWERS:
1. D
2. A
3. D
4.
PROBLEM 6-5 Comprehensive
Questions Nos. 1-3
1) MI over, NI over
MI under, NI under
2) Purchases over, NI under
3) Sales over, NI over
4) Expenses over, NI under
Depreciation exp under, NI over
5) Other income over
*Loss under, NI over
Adjustment
A
5.
A
E READER AND PC.Compatible
Cost
40,000
t
Less: Accumulated depreciation
Loss on sale
15,000
Question No. 4
Effect of errors to Retained Earnings in 2016
Understatement to 2015 net income
Overstatement to 2016 net income
Net understatement to 2016 retained earnings
2)
3)
D
Effects of error in
Net income
Working
2015
2016
Capital
10,000
(10,000)
(8,000)
(8,000)
(20,000)
20,000
(40,000)
(40,000)
20,000
(20,000)
70,000
70,000
(80,000)
20,000
20,000
5,000
(45,000)
32,000
22,000
Computation of loss:
Selling
Pricevalue
Less: Book
Questions No. 5
ADJUSTING ENTRIES
1) Retained earnings, beg
Merchandise inventory, beg
Merchandise inventory, end
Cost of Sales
6.
20,000
in Acroba
25,000
(5,000)
45,000
32,000
13,000
Debit
10,000
8,000
Credit
10,000
8,000
Purchases
Retained earnings
Advances supplier
Purchases
20,000
Retained earnings, beg
Sales
20,000
20,000
40,000
40,000
20,000
24
Chapter 6: Correction of Errors
Sales
Advances customers
4)
5)
70,000
70,000
Depreciation expense
Improvements
Accumulated depreciation
Retained earnings
20,000
100,000
Accumulated depreciation
Retained earnings, beg
Equipment
40,000
80,000
15,000
25,000
SUMMARY OF ANSWERS:
1. A
2. A
3. A
4.
A
5.
40,000
C
PROBLEM 6-6 Comprehensive
Questions Nos. 1-5
2015
Net
Income
Ending Inventory 2015
(6,000)
understated, NI
understated
Ending Inventory 2016
overstated,
NI over
Depreciation exp. 2015
(11,000)
overstated, NI
understated
Depreciation exp. 2016
overstated, NI
understated
Accrued expense
4,500
understated, NI
overstated 2015
Accrued expense
understated, NI
overstated 2016
Prepaid expense
(5,000)
understated, NI
understated 2015
Prepaid expense
understated, NI
understated 2016
Accrued revenues
understated, NI
understated 2016
Deferred revenues
1,200
understated, NI
overstated 2015
Total
(16,300)
12/31/2
016
2016
Workin
g capital
(6,000)
Net
Income
Workin
g capital
R/E
6,000
-
10,000
10,000
-
-
(11,000)
(7,000)
-
(7,000)
(4,500)
-
-
7,500
7,500
7,500
5,000
-
-
(12,000)
(12,000)
(12,000)
(3,000)
(3,000)
(3,000)
1,200
(1,200)
-
-
5,300
800
2,500
(15,500)
READER AND
-
4,500
(5,000)
25
-
in A1c0,0r00oba
Chapter 6: Correction of Errors
SUMMARY OF ANSWERS:
1. D
2. D
3. A
4.
A
5.
C
PROBLEM 6-7
Note to professor:
Item letter b - On December 31, “f” should be December 31, 2016.
Item letter e - Additional industrial robots were acquired at the beginning of
20X0 (should be 2015).
Adjusting entries:
a) Prepaid Insurance (₱35,000 / 5 x 2)
Insurance Expense (₱35,000 / 5 x 1)
Retained Earnings (₱35,000 / 5 x 3)
14,000
7,000
b)
Retained earnings, beginning
Merchandise Inventory, beginning
25,000
Retained earnings, beg
Commission expense
15,500
c)
d)
21,000
25,000
15,500
This is not an error, rather it is a
cR
hangeA
inN
acD
countiP
ngC
es.
timC
ateo
. mpatible in Acrobat
READE
e) Equipment
100,000
Accumulated depreciation
(₱100,000/10 x 2)
Retained earnings
20,000
80,000
Depreciation expense (₱100,000/10)
Accumulated depreciation
Question No. 5
Item a
Item b
Item c
Item d
Item e
Net adjustment to retained earnings
SUMMARY OF ANSWERS:
1. B
2. B
3. A
10,000
10,000
21,000
(25,000)
(15,500)
80,000
60,500
(E)
4.
B
26
5.
(E)
Chapter 6: Correction of Errors
PROBLEM 6-8
Unadjusted
balances
1. Advtg exp
over, NI under
2. Advances rec.
as sales
2016
2017
3. Advances rec.
as purchases
2016
2017
4. Gain
understated
Cost under
Accumulated
depreciation
Depr. Over, NI
under
5. Rent revenue
Net
Income
200,000
CA
NCA
CL
1,570,400
1,365,600
636,000
RE
300,000
50,000
60,000
(100,000)
(50,000)
80,000
100,000 (100,000)
80,000
64,000
80,000
64,000
(336,000)
400,000
13,600
13,600
13,600
20,C
00.
0 Compatible(60,i
erc
60r
,00o
0 ba
E READER AND P
000n
) undA
t
6. Bad debts
exp under
(5% x 480K)16,000)
7. Purchases
under
EI under
8. Ins. Exp.
Under, NI over
Adjusted
balances
(8,000)
(8,000)
(8,000)
20,000
20,000
15,000
344,600
SUMMARY OF ANSWERS:
1. C
2. C
3. D
15,000
1,662,400
4.
A
27
1,443,200
5.
D
696,000
424,600
Chapter 8: Cash and Cash Equivalents
CHAPTER 8: CASH AND CASH EQUIVALENTS
PROBLEM 8-1 Cash and Cash Equivalents
Current account at Metrobank
Payroll account
Petty cash fund (₱2,000 in currency)
Postal money order
Traveler’s check
Treasury bills, due 3/31/2018 (purchased 12/31/2017)
Treasury warrants
Undelivered check
Company’s postdated check
Stale check issued
Total cash and cash equivalents
(E)
1,000,000
250,000
2,000
15,000
25,000
100,000
150,000
100,000
50,000
25,000
1,717,000
PROBLEM 8-2 Cash and Cash Equivalents
Reported cash and cash equivalents
Certificate of deposits with maturity of 120 days
Postdated check
Adjusted cash and cash equivalents
6,325,000
(500,000)
(125,000)
P5,700,000
Suggested answer: A
READ
ER AND PC.Compatible in Acrobat
PROBLEM 8-3 Cash and Cash Equivalents
Bills and coins on hand
Checking Account Balance in Bank of Philippine Island
Money order
Petty cash (₱4,000 - ₱1,650)
Traveler’s check
Total
₱105,560
44,000
1,600
2,350
44,800
₱198,310
Suggested answer: (E)
PROBLEM 8-4 Cash and Cash Equivalents
Cash on hand
Checking account No. 143 - BPI
Checking account No. 155 - BPI
*Securities classified as cash equivalents
Checking account No. 155 - BPI
₱
80,000
200,000
(30,000)
3,600,000
₱ 3,850,000
*Breakdown of securities classified as cash equivalents
Date
Maturity
Securities:
Acquired
Date
120-day Certificate of Deposit
12/10/2016
01/31/2017
BSP-Treasury Bills (No.2)
10/31/2016
01/20/2017
28
Amount
P 600,000
1,000,000
Chapter 8: Cash and Cash Equivalents
Money Market Funds
11/21/2016 02/10/2017 2,000,000
Suggested answer: A
PROBLEM 8-5 Cash and Cash Equivalents
Bank cheque account
Bank savings account (collectible immediately)
Cash
Treasury bonds – maturing in 2 months
Cash and cash equivalents
P
P
58,400
23,440
10,000
8,500
100,340
Suggested answer: B
PROBLEM 8-6 Cash and Cash Equivalents
Petty cash fund (70,000-15,000-5,000)
Current account – Metro Bank (4,000,000+100,000)
Cash and cash equivalents
50,000
4,100,000
P4,150,000
Suggested answer: C
PROBLEM 8-7 Effective Interest Rate
READ
ER A. 1ND PC.Compatible in Acrobat
Question No
Let X = Principal amount of the loan
Principal
X
Less: Compensating balance
5%X
Add: Current balance
50,000
Amount needed
P3,375,000
X-.05X+50,000 =
3,375,000
.95X =
3,375,000-50,000
.95X/.95 =
3,325,000/.95
X =
3,500,000
Question No. 2
Annual interest payment (3,500,000 x 12%)
Interest income on the loan proceeds in the
compensating balance [3.5M-3,375,000) x 4%]
Net interest
Divide by loan proceeds (3,500,000-175,000)
Effective interest rate
Suggested answers:
1. C
2. C
29
420,000
5,000
415,000
3,375,000
12.30%
Chapter 8: Cash and Cash Equivalents
PROBLEM 8-8 Petty Cash Fund
Requirement No. 1: Working Paper for the Petty Cash Fund
Petty Cash Count Sheet
January 3, 2017; 9:00 AM
Denomination
₱200
100
20
Coins
10
5
1
.25
.10
.05
Total Bills and Coins
Bills
Quantity
10
20
40
10
9
804
1,410
1,520
810
Total
₱ 2,000
2,000
800
100
45
804
352.50
152
40.5
₱ 6,258
Checks for Deposits:
Maker
Date
Payee
W. Ally, Cashier
12/28/17
ABC Company
I.O.U's
Date
Amount
A. Braham, janitor
12/19/17
250
R. Tica, clerk
12/20/17
150
P. Du, Bookkeeper 12/22/17
200
Total
600
Amount
500
E READER AND PC.Compatible in Acrobat
Vouchers:
Payee
J. Cruz, messenger
Cid Bookstore
Dalin Liner
Bureau of Posts (stamps)
A. Bala, carpenter
Total
Date
12/14/17
12/15/17
12/19/17
12/20/17
12/21/17
Account charged
Advances to employees
Supplies
Freight-out
Supplies
Repairs
Bills and coins
Checks for deposit
I.O.U’s
Vouchers paid
Unused stamps
Total Petty Cash Accounted
Less: Petty cash Accountabilities
Petty Cash Shortage
₱ 6,258
500
600
1,217
50
8,625
12,600
(3,975)
30
Amount
125.00
150.00
192.00
300.00
450.00
1,217.00
Chapter 8: Cash and Cash Equivalents
Petty cash accountabilities
Petty cash imprest balance
Unclaimed payroll
Petty cash accountabilities
12,000
600
12,600
Acknowledgment
I hereby acknowledge that the above petty cash fund items were counted in my
presence and the same were returned to me intact. I further acknowledge a petty cash
short of three thousand nine hundred seventy-five (₱3,975). I have no other fund
accountabilities.
W. Ally
Petty Cash Custodian
Requirement No. 2
ADJUSTING ENTRIES
1) Employee advances
Petty cash fund
2)
3)
Credit
600
Expenses
Office supplies
Petty cash fund
Cash short or over
Pettcyash fund
1,217
50
Cash short or over
Petty cash fund
3,975
E READER
t
4)
Debit
600
1,267
3,975
AND PC.Compatib3l,97e5 in Acroba
3,975
Requirement No. 3
Bills and coins
Checks for deposit
Total Petty Cash Fund
₱ 6,258
500
₱ 6,758
PROBLEM 8-11 Bank Reconciliation
Oct. 31
Receipts
Unadjusted bank bal
18,005
17,709
Erroneous bank credit
(500)
DIT: October
1,790
(1,790)
November
3,600
(6,681)
OC: October
Nov. (760+1,868)
13,114
19,019
Unadjusted book bal
Credit memo Oct.
Nov.
11,534
1,600
18,269
750
31
Disb
25,620
(6,681)
2,628
21,567
21,575
Nov. 30
10,094
(500)
3,600
(2,628)
10,566
8,228
1,600
750
Chapter 8: Cash and Cash Equivalents
NSF-Nov
BSC: Oct
Nov
Check
No.
overstated
disbursement
Check
No.
understated
disbursement
665
22
35
(665)
(20)
(22)
(35)
(1,000)
1,000
270
21,567
(270)
10,566
(20)
148
150
13,114
SUMMARY OF ANSWERS:
1. B
2. A
3.
B
19,019
4.
D
PROBLEM 8-12 Deposit in Transit
Deposit in transit, beg
Add: Book debits for the month
Less: CM recorded this month
Error – check received (Jan)
Error – check issued (Jan)
Add: Error – check received (Feb)
Total
5.
A
P 50,000
P 400,000
5,000
36,000
27,000
16,000
348,000
E READER AND PC.Compatible in 398,000 Acrob
t
P 360,000
Less: Bank debits for this month
Less: CM for this month
Erroneous bank credit - Feb
Erroneous bank charge - Jan
Deposit in transit, end
6,000
2,500
1,000
350,500
P 47,500
Suggested answer: A
PROBLEM 8-13 Outstanding Checks
Outstanding checks, beg (squeeze)
Add: Book credits for the month
Less: Error in recording
Service charge recorded
Total
Less: Bank debits for this month
Less: NSF check returned
DM for this month
Outstanding checks, end
P 85,800
1,800
30
P 97,650
2,300
3,000
Suggested answer: A
32
P 12,880
83,970
96,850
92,350
P 4,500
Chapter 8: Cash and Cash Equivalents
PROBLEM 8-14 Proof of Cash
Question No. 1
Outstanding checks, beg.
Add: Checks issued
Total
Less: Checks paid by the bank
Outstanding checks, end
100,000
2,500,000
2,600,000
2,200,000
400,000
Question No. 2
Deposits in transit, beg
Add: Deposits made
Total
Less: Deposits acknowledged by the bank
Deposits in transit, end
300,000
1,800,000
2,100,000
1,600,000
500,000
Unadjusted bal-bank
Deposit in transit-May
31
-June 30
Outstanding
checksMay 31
31-May
2,600,000
Receipts
*2,190,000
300,000
Disb.
**2,410,000
(300,000)
500,000
500,000
(100,000)
(100,000)
in Acrobat
-June 30
Erroneous bank credit
(60,000)
Erroneous bank charge
40,000
(40,000)
Adjusted balances
2,780,000
2,350,000
*(1,600,000+40,000+550,000)
**(2,200,000+60,000+50,000+100,000)
Unadjusted bal-book
Bank service chargeMay 31
-June 30
CM for collection-May
31
-June 30
NSF checks for June 30
Adjusted balances
***(1,800,000+600,000)
SUMMARY OF ANSWERS:
1. A
2. B
3.
4
(6000,,000000)
2,650,000
31-May
Receipts
Disb.
2,190,000 ***2,400,000 2,500,000
(10,000)
50,000
600,000
(600,000)
550,000
4.
2,480,000
30-Jun
2,090,000
(10,000)
(50,000)
550,000
100,000 (100,000)
2,350,000 2,650,000 2,480,000
2,780,000
A
30-Jun
2,380,000
A
33
5.
A
Chapter 8: Cash and Cash Equivalents
PROBLEM 8-15 Proof of Cash
Question No. 2
Outstanding checks, beg.
Add Checks issued
Book disb.
Less DM last mo
Error last mo. C T M
Under of CD
Over of CR
Total
Less checks issued
Bank disb.
less DM this mo
Error last mo. C T M
Under of CD
Erroneous B Cr-LM
Erroneous B CH-TM
Outstanding checks, end
150,000
1,500,000
110,000
-
1,390,000
1,540,000
1,300,000
75,000
45,000
30,000
Deposits in transit, beg
Add deposits made
Book receipts
1,300,000
Less: CM last month
125,000
Error last mo. C T M
Under of CR (21K-12K)
9,000
Over of CD
Total
Less: Deposits acknowledged by the bank
Bank receipts
1400000
Less: CM this month
150,000
Error last mo. C T M
Under of CR
20,000
Erroneous B CH-LM
Erroneous B Cr-TM
17,000
Deposits in transit, end
1,150,000
390,000
200,000
READER AND PC.Compatible in Acrobat
BANK
Unadjusted bal-bank
Deposit in transit-May 31
-June 30
Outstanding checks-May 31
-June 30
Erroneous bank credit-May
31
-June 30
1,166,000
1,366,000
1,213,000
153,000
31-May
Receipts
1,250,000 1,400,000
200,000 (200,000)
153,000
(150,000)
(45,000)
153,000
(150,000)
390,000 (390,000)
(45,000)
(17,000)
34
Disb.
30-Jun
1,300,000 1,350,000
(17,000)
Chapter 8: Cash and Cash Equivalents
Erroneous bank chargeMay 31
-June 30
Adjusted balances
BOOK
Unadjusted bal-book
NSF-May 31
-June 30
CM for collection-May 31
-June 30
Under of CR-May
Adjusted balances
20,000
(20,000)
(30,000)
30,000
1,465,000 1,126,000
Disb.
30-Jun
1,500,000 1,051,000
(110,000)
75,000
(75,000)
1,275,000 1,316,000
31-May
Receipts
1,251,000 1,300,000
(110,000)
125,000 (125,000)
150,000
9,000
(9,000)
1,275,000 1,316,000
SUMMARY OF ANSWERS:
1. C
2. D
3. C
4.
D
5.
150,000
1,465,000 1,126,000
A
6.
PROBLEM 8-16 Proof of Cash
Question No. 1
Beg. Bal., 7/1
Add: Cash receipts for July
Total Cash receipts for Aug.
for July
Less: Cash disbursement
1,330,882
Cash disbursement for Aug.
Bank reconciliation item
Unadjusted balance
E READER AND
D
P 128,384
1,364,858
P31,839,744
,332,986
PC.Compatible in
Acrobat
1,712,892
750
P 288,462
Question No. 2
Outstanding check, Aug. 31
Add: Checks paid by the bank
Bank debits except serv. charge
Less: Erroneous bank charge
DM on Interest on note
Total
Less: Checks issued by the company
this August
Outstanding check, July 31
P
P1,702,830
1,166
4,950
67,122
1,696,714
P1,763,836
1,712,892
P 50,944
Questions No 3 to 5
BANK
Unadjusted balances
Outstanding checks
July 31
August 31
Deposit in transit
July 31
31-Jul
180,250
Receipts
1,830,752
( 50,944)
32,844
( 32,844)
35
Disb.
*1,702,918
Aug. 31
308,084
( 50,944)
67,122
( 67,122)
Chapter 8: Cash and Cash Equivalents
August 31
Erroneous bank charge
Adjusted Balances
(*1,702,830 + 88)
BOOK
Unadjusted balances
Error in recording check
no. 216 taken up as
P1,930 but should be
P1,390 (1,930-1,390)
DM for int. on note
Bank service charge
July 31
August 31
NSF for July 31
Adjusted balances
41,836
1,839,744
162,150
31-Jul
P162,360
Receipts
P1,839,744
( 1,166)
1,717,930
41,836
1,166
283,964
Disb.
**P1,713,642
Aug. 31
P288,462
4,950
540
( 4,950)
540
(
52)
(
698)
P162,150
(
52)
88
(
698)
P1,717,930
P1,839,744
(
88)
P283,964
**(1,712,892+750)
SUMMARY OF ANSWERS:
1. A
2. C
3. A
PROBLEM 8-17
NA
oE
1ND
READ
RQuestion
4.
B
5.
A
Proof of Cash
PC.Compatible in Acrobat
Outstanding check
Check Nos.
144
149
150
Total
P
1,500
8,000
12,000
P 21,500
Alternatively, it may also be computed as follows:
Outstanding check, beg
Add: Checks issued
Total
Less: Checks paid by the bank
Bank Debits
P 113,000
Less: DM for this month
NSF checks (10,000+40,000)
50,000
Bank service charge
2,000
Error Correction
500
Outstanding checks, end
Question No 2
Unadjusted rec. per bank
Deposit in transit:
November 30
December 31
P 7,000
75,000
P 82,000
60,500
P 21,500
P 171,500
(11,000)
20,000
36
Chapter 8: Cash and Cash Equivalents
Error correction
NSF check, no entry on the books when returned
and redeposited
Adjusted balance
Question No 3
Unadjusted disbursement, per bank
Outstanding checks
November 30
December 31
Error correction
NSF check, no entry on the
books on the returned and redeposit
Adjusted balance
(500)
( 40,000)
P 140,000
P 113,000
(7,000)
21,500
(500)
( 40,000)
P 87,000
Question No 4
Unadjusted bank bal.
Deposit in transit
November 30
December 31
Outstanding checks
November 30
December 31
P 127,500
20,000
( 21,500)
AdE
jusR
ted bal.
READ
NA5ND PC.Compatibl P126,000
oba
e
in
Acr
t
Question
Zero, adjusted bank and book balance on December 31 is the same.
PROOF OF CASH
Unadjusted bank balance
Deposit in transit
November 30
December 31
Outstanding checks
November 30
December 31
Error correction
NSF check, no entry on the
books on the return and
redeposit
Adjusted bal.
* (69,000+171,500-113,000)
** (18,000+2,000)
Unadjusted book balance
Credit memo for note
collected
Nov. 30
69,000
Receipts
171,500
11,000
(11,000)
*20,000
(7,000)
Disb.
113,000
Dec. 31
*127,500
20,000
(21,500)
(500)
(7,000)
21,500
(500)
73,000
(40,000)
140,000
(40,000)
87,000
126,000
Nov. 30
66,000
Receipts
113,800
Disb.
85,000
Dec. 31
94,800
37
Chapter 8: Cash and Cash Equivalents
November 30
December 31
Bank service charge
November 30
December 31
Adjusted bal.
SUMMARY OF ANSWERS:
1. A
2. A
3. B
8,800
(8,800)
35,000
35,000
(1,800)
73,000
4.
B
PROBLEM 8-18 Proof of Cash
Question No. 1
Outstanding checks, beg
Add: Checks issued this month
Book disbursements (squeeze)
Less: DM recorded this month
126,250 Total
Less: Checks paid by the bank
Erroneous bank charge
Outstanding checks, end
140,000
5.
2,000
87,000
(1,800)
(2,000)
126,000
A
P 16,250
P128,750
2,500
P 133,750
3,750
142,500
130,000
P 12,500
Question No. 2
t,Debpeo
it C.Compatible P i
E READERin tAranNsiD
gsP
12n
,500Acroba
t
Add: Deposits made by the company
Total
Less: Deposits acknowledged by the bank
Deposit in transit, end
152,500
165,000
145,000
P 20,000
Question No. 3
Unadjusted cash in bank balance per ledger
Add: Under-footing of cash receipts
Total
Less: Unrecorded bank service charges
(3,250 +1,500-2,500)
Adjusted cash in bank balance, 12/31
Question No. 4
Bank service charges per
bank statement in December
Less: Bank service charge in December
recorded in December
Total BSC recorded in the books Dec
Less: BSC in Nov. recorded in Dec.
Unrecorded BSC charge in December
P 37,500
2,500
40,000
2,250
P 37,750
P 3,250
P 2,500
1,500
38
1,000
P 2,250
Chapter 8: Cash and Cash Equivalents
Question No. 5
Unadjusted cash in bank, November (squeeze)
Add: Book Receipts (152,500 - 2,500)
Total
Less: Book disbursements
Unadjusted cash in bank, December
P 16,250
150,000
166,250
128,750
P 37,500
Unadjusted cash in bank, November (squeeze)
Less: BSC in November
Adjusted cash in bank, December
P 16,250
1,500
P 14,750
SUMMARY OF ANSWERS:
1. C
2. D
3. C
4.
D
PROBLEM 8-19 Proof of Cash
Question No. 1
Outstanding checks, beg (squeeze)
Add: Checks issued this month
Book disbursements
Less: DM recorded this month
Total
Less: Bank disbursements
Add: Paid out in currency
5.
B
P 8,000
P 148,000
2,500
145,500
153,500
E READER AND PC.CompatP 1i502,000
b,00l0 e in Acroba
t
Less: NSF redeposited
DM for this month
Outstanding checks, end
Question Nos. 2 to 5
BANK
Unadj. balance - bank
Undeposited collections:
September 30
October 31
Outstanding checks:
September 30
October 31
Paid out in currency
Adjusted balances
BOOK
Unadj. balance - book
Customer’s notes
collected:
September 30
October 31
Bank service charge:
3,000
1,500
Sept. 30
100,000
Receipts
200,000
5,000
(5,000)
7,000
(8,000)
147,500
P 6,000
Disb.
150,000
Oct. 31
150,000
7,000
97,000
2,000
201,000
(8,000)
6,000
2,000
147,000
151,000
Sept. 30
91,500
Receipts
196,000
Disb.
148,000
Oct. 31
139,500
8,000
(8,000)
13,000
39
(6,000)
13,000
Chapter 8: Cash and Cash Equivalents
September 30
October 31
Adjusted balances
(2,500)
97,000
SUMMARY OF ANSWERS:
1. B
2. A
3. A
4.
201,000
A
PROBLEM 8-20 Proof of Cash
Question No. 1
Account No. 143:
Unadjusted balances
Deposit in transit
Misplaced check
Outstanding check
Undelivered check
Note charged by the bank
Adjusted balance
*(100,000 - 20,000, Misplaced check)
**(75,000 - 15,000, Undelivered check)
Question No. 2
Total Outstanding checks:
Account No.143
*Account No.144
Total outstanding check
5.
(2,500)
1,500
147,000
1,500
151,000
A
Bank
P1,000,000
*80,000
(**60,000)
P1,020,000
Book
P1,099,400
( 20,000)
15,000
(
74,400)
P1,020,000
E READER AND PC.Comp60a,00t0 ible in Acrobat
1,860,000
P 1,920,000
*Outstanding check for Account No. 144 is computed as follows:
Outstanding checks, beg
P 250,000
Add: Checks issued this month
Book Credits
P3,500,000
Less: BSC November
10,000
3,490,000
Total
P 3,740,000
Less: Checks paid by the bank
Bank Debits
P2,000,000
Less: BSC December
20,000
NSF check
100,000
1,880,000
Outstanding checks, end
P1,860,000
Question Nos. 3 to 4
Unadjusted bank balance
Deposit in transit:
November 30
December 31
Nov. 30
2,200,000
December
Receipts
Disb.
1,000,000 2,000,000
90,000
(90,000)
**240,00
40
Dec. 31
1,200,000
240,000
Chapter 8: Cash and Cash Equivalents
0
Outstanding check:
November 30
December 31
Erroneous bank charge November
Adjusted balances
Unadjusted
book
balance
Bank service charge:
November 30
December 31
Unrecorded collections November 30
Uncollected customer's
note already recorded
as cash receipt
NSF - December 31
Adjusted balances
(250,000)
(250,000)
1,860,000
(1,860,000)
20,000
2,060,000
(20,000)
1,130,000
3,610,000
(420,000)
1,980,000
1,420,000
3,500,000
(100,000)
(10,000)
20,000
(20,000)
(200,000)
100,000
3,610,000
(100,000)
(420,000)
(10,000)
(90,000)
90,000
(200,000)
2,060,000
1,130,000
**Deposit in transit, beg
Add: Deposit made by the co. this month
Book Debits
P1,420,000
Less: Unrecorded collection
90,000
Customer’s note recorded as
cash receipts
200,000
Total
Less: Deposits acknowledged by the bank
Bank Credits
P1,000,000
Less: Erroneous bank charge
20,000
Outstanding checks, end
P
90,000
READER AND PC.Compatible in Acrobat
Question No. 5
Adjusted balances:
Account No. 143
Account No. 144
Total adjusted balances
SUMMARY OF ANSWERS:
1. A
2. A
3. B
1,130,000
P1,220,000
980,000
P 240,000
P1,020,000
( 420,000)
P 600,000
4.
B
PROBLEM 8-21 Proof of Cash
Question No. 1
RCBC Account
Unadjusted balance
5.
C
Book
P 165,000
41
Bank
P 125,000
Chapter 8: Cash and Cash Equivalents
Credit memo for note collected
Bank service charge
Deposit in transit
Outstanding checks (25,000+20,000)
Unrecorded disbursement
Adjusted balance
6,000
(1,000)
( 30,000)
P 140,000
60,000
(45,000)
P 140,000
Question Nos. 2-3
Equitable PCI Bank
Book
Bank
Unadjusted bal. (squeeze)
P 62,000
P 93,000
Credit memo for note coll.
10,000
Bank service charge
( 2,000)
Deposit in transit (15,000+20,000+50,000*)
85,000
Outstanding checks
( 28,000)
Unrecorded transfer (30,000+50,000*)
80,000
Adjusted balance
P 150,000
P150,000
*fund transfer No. 4 (Included both as unrecorded transfer and deposit in
transit)
Question No. 4
Outstanding checks:
RCBC Account (25,000+20,000)
Equitable PCI Bank
Total outstanding checks
P 45,000
28,000
P 73,000
READER
No
A. 5ND PC.Compatible in Acroba
t
Question
Fund transfer No. 1 is recorded in the disbursing book during December while it
only cleared in the disbursing bank in January.
SUMMARY OF ANSWERS:
1. A
2. A
3. B
PROBLEM 8-22 Proof of Cash
BOOK
Unadjusted balances-books
Credit Memo-January
Credit Memo-February
BSC check-January
BSC check-February
Check of the company issued in
January was mutilated and
returned by the payee. A
replacement check was issued.
Both checks were entered in the
Check register but no entry was
made to cancel the mutilated
check, P700.
4.
B
Jan. 31
200,000
9,000
(100)
700
42
5.
B
Receipts
150,000
(9,000)
13,000
-
Disb
80,000
(100)
150
-
Feb. 28
270,000
13,000
(150)
700
Chapter 8: Cash and Cash Equivalents
The company issued a stop
payment order to the bank in
February for check issued in
February which was not
received by the payee. A new
check was written and recorded
in the Check register in
February. The old check was
written off by a journal entry
also in February, P1,200.
Adjusted balances
-
(1,200)
(1,200)
-
209,600
152,800
78,850
283,550
Feb. 28
276,950
11,000
(1,800)
(4,000)
1,400
BANK
Unadjusted balances-bank
Deposit in transit-January
Deposit in transit-February
Outstanding checks-January
Outstanding checks-February
Erroneous bank credit-January
Erroneous bank credit-February
Erroneous bank charge-January
Erroneous bank chargeFebruary
Adjusted balances
Jan. 31
206,600
10,000
(4,200)
(6,000)
3,200
-
Receipts
159,000
(10,000)
11,000
(4,000)
(3,200)
-
Disb
88,650
(4,200)
1,800
(6,000)
(1,400)
209,600
152,800
78,850
SUMMARY OF ANSWERS:
1. D
2. C
3. C
4.
5.
READER AND
A
in Acroba
283,550
C
PROBLEM 8-23 Computation of Cash Shortage
Question No. 1
Unadjusted bank bal.
Less: Outstanding checks (8,434+4,300+
6,524+ 9,551.50+4,577+5,961)
Add: Undeposited receipts
Adjusted bank balance
P
225,400
(39,347.50)
35,000
P221,052.50
Question No. 2
Unadjusted book bal.
Credit memo for notes collection
Credit memo for int.
Balance (cash accountability)
P242,310.50
30,000
900
P273,210.50
Question No. 3
Adjusted bank bal. (Cash accounted)
P221,052.50
43
Chapter 8: Cash and Cash Equivalents
Less: Cash in bank bal. (cash accountability)
Shortage
273,210.50
(P52,158.00 )
SUMMARY OF ANSWERS:
1. B
2. D
3. B
PROBLEM 8-24 Computation of Cash Shortage
Question No. 1
Unadjusted bank bal.
Outstanding checks
Undeposited collections
Adjusted bank balance
P 42,400
( 11,500)
5,000
P 35,900
Question No. 2
Unadjusted book bal.
Credit memo proceeds clean draft
Debit memo for bank service charge
Balance (cash accountability)
P 46,500
900
(
100)
P 47,300
Question No. 3
Adjusted bank bal. (Cash accounted)
Cash in bank bal. (cash accountability)
Shortage as of June 30
P 35,900
47,300
(P1 1,4 00)
READER AND PC.Compatible in Acrobat
Question No. 4
Additional cash shortage from July 1-15
July collection per duplicate O.R.
Less: collections in July that were deposited in
July
Collection per duplicate slips
Less :Undeposited collection, June 30
Cash that should be on hand on July 15
Less: Actual cash on hand on July 15
Cash shortage from July 1-15
P 18,800
P 11,000
5,000
Question No. 5
Understatement of cash in bank per books (46,500-45,600)
Overstatement of cash in bank per bank (44,000-42,400)
Understatement of outstanding checks (11,500-3600)
Overstatement of undeposited collections (5,100-5,000)
Non-recording of credit memo-proceeds of clean draft
Cash shortage as of June 30
SUMMARY OF ANSWERS:
1. C
2. D
3. B
4.
D
44
5.
D
6,000
P 12,800
4,800
P 8 , 00 0
P
900
1,600
7,900
100
900
P11,400
Chapter 8: Cash and Cash Equivalents
PROBLEM 8-25 Computation of Cash Shortage
Question No. 1
Deposit in transit, unadjusted bal.
Less: Customer's Post-dated check
Adjusted Deposit in transit
P 175,250
50,000
P 125,250
Question No. 2
Outstanding checks, unadjusted balance
Less: Unreleased check
Company's post-dated check
Adjusted Outstanding checks
P 246,760
( 14,750)
( 37,210)
P 194,790
Question No. 3
Unadjusted bal. per bank
Add: Deposit in transit (No. 1)
Less: Outstanding checks (No. 2)
Erroneous bank credit
Adjusted cash in bank bal.
P 350,000
125,250
(194,790)
( 30,000)
P 250,460
Question No. 4
Unadjusted bal. per books
Add: Credit memo for note coll.
Unreleased check
E READER AND
t
P 293,500
15,000
PC.Compatible in Acroba
14,750
Company's post-dated check
Total
Less: Customer's post-dated check
Cash in bank per books bal.
Less: Adjusted cash in bank balance
Cash shortage
37,210
P 360,460
(50,000)
P 310,360
250,460
(P60,000)
Question No. 5
Unadjusted bal. per books
Less: Adjusted cash in bank balance
Net adjustments
P293,500
250,460
P 43,040
SUMMARY OF ANSWERS:
1. B
2. D
3. B
4.
C
5.
A
45
Chapter 10: Loans and Receivables
CHAPTER 10: LOANS AND RECEIVABLES
Note to professor: Page 257.
ILLUSTRATION: Sales Discount (PAS 18 vs. PFRS 15)
SOLUTION: (PAS 18)
Accounts receivable
Sales (instead of allowance for sales discount)
₱100,000
PROBLEM 10-1 Trade and other receivables
Trade
Trade and other
Receivables
receivables
1
277,000
277,000
2
150,000
150,000
3
10,000
4
30,000
5
6
15,000
7
70,000
70,000
8
80,000
9
100,000
100,000
597,000 1. C
732,000 2. C
Adjusted bal.
₱100,000
Noncurrent
Asset
110,000
220,000
330,000
E READ
NDDifferenFtP
PRE
OBR
LEM 1A
0-2
reigC
ht.
teC
rmo
s mpatible in Acro
at
Question No. 1
FOB Destination, freight prepaid
Invoice price of merchandise sold
Less: Invoice price of merchandise returned
Net invoice price
Less: Sales discount (300,000 x 2%)
Collection before freight
Less: Freight payment - FOB Destination, freight collect
Add: Freight payment - FOB shipping point, freight prepaid
Total Net Cash Collection
(B)
Question No. 2
FOB Destination, freight collect
Invoice price of merchandise sold
Less: Invoice price of merchandise returned
Net invoice price
Less: Sales discount (300,000 x 2%)
Net Payment before freight
Less: Freight payment - FOB Destination, freight collect
Add: Freight payment - FOB shipping point, freight prepaid
Total Net Cash Collection
(A)
47
300,000
300,000
6,000
294,000
294,000
300,000
300,000
6,000
294,000
5,000
289,000
Chapter 10: Loans and Receivables
Question No. 3
FOB Shipping point, freight prepaid
Invoice price of merchandise sold
Less: Invoice price of merchandise returned
Net invoice price
Less: Sales discount (300,000 x 2%)
Net Receipt before freight
Less: Freight payment - FOB Destination, freight collect
Add: Freight payment - FOB shipping point, freight prepaid
Total Net Cash Collection
(C)
Question No. 4
FOB Shipping point, freight prepaid
Invoice price of merchandise sold
Less: Invoice price of merchandise returned
Net invoice price
Less: Sales discount (300,000 x 2%)
Collection before freight
Less: Freight payment - FOB Destination, freight collect
Add: Freight payment - FOB shipping point, freight prepaid
Total Net Cash Collection
(B)
300,000
300,000
6,000
294,000
5,000
299,000
300,000
300,000
6,000
294,000
294,000
SUMMARY OF
E READ
2. ANSWERS:3.
4.
B
1. EBR AND PC.Com patible in Acroba
t
PROBLEM 10-3 Gross method and Net method
List price
Less: Trade discounts
15%: (100,000 x 15%)
15,000
20%: (100,000 – 15,000) x 20%
17,000
Invoice price, gross of discount (C)
Less: Sales discount (68,000 x 3%)
Invoice price, net of discount
(D)
P 100,000
32,000
68,000
2,040
P 65,960
SUMMARY OF ANSWERS:
1. C
2. D
PROBLEM 10-4 Computation of Percentage of Bad Debts Expense
2013
2014
2015
Credit Sales
₱ 1,500,000
2,000,000
3,500,000
7,000,000
CASE 1
Accounts written off Recoveries
₱ 20,000
₱ 15,000
40,000
20,000
270,000
15,000
330,000
50,000
48
Chapter 10: Loans and Receivables
2016
2017
2,000,000
9,000,000
3,000,000
12,000,000
65,000
395,000
85,000
480,000
Question No. 1
Percentage
Accounts written off minus Recoveries
Total credit sales
=
Total years from 2013 to 2017:
Percentage
30,000
80,000
40,000
120,000
₱480,000 - ₱120,000
₱12,000,000
=
Percentage = 3.00 %
Question No. 2
Bad debts expense
= 3% x ₱3,000,000
= ₱90,000
Question No. 3
Allowance for Bad debts
85,000
400,000
445,000
90,000
40,000
520,000
520,000
Write off
Balance end (squeeze)
Beg. Balance
Bad debts exp
Recovery
READER AND PC.Compatible in Acrobat
CASE 2
Question No.4
Accounts written off minus Recoveries
Total credit sales
Total years from 2013 to 2015 (years should exclude the last two years):
₱330,000 - ₱50,000
Percentage
=
₱7,000,000
Percentage = 4 %
Percentage
Question No. 5
Bad debts expense
=
= 4% x P3,000,000
= ₱120,000
Question No. 6
Credit Sales
2016
2,000,000
2017
3,000,000
BD exp
80,000
120,000
Recoveries
Write-off
65,000
30,000
85,000
40,000
Allowance for BD (D)
49
Net AB
115,000
165,000
280,000
Chapter 10: Loans and Receivables
CASE 3
Question No. 7
Percentage of bad
=
Total years from 2013 to 2016:
Percentage of bad
Percentage = 3.5%
it isnaulessRecoveries
Accounts wT
riottaelncoreffdm
₱3959,0,00000-,0₱0800,000
=
Percentage of bad
=
Total years from 2013 to 2017:
Percentage of bad
Percentage = 3 %
it isnaulessRecoveries
Accounts wT
riottaelncoreffdm
₱480₱,1
02
0,000- 0
₱,102000,000
=
Question Nos. 8 and 9
Allowance for Bad debts
Balance end
Write off
85,000
(B3e,g0.0B0a,0la0n0cxe 3.5%)
(D) 42,000 Bad
debts exp (squeeze)
40,000 Recovery
187,000
E READER AND PC.Compatible in Acrobat
187,000
SUMMARY OF ANSWERS:
Case 1
1. B
2. B
3. B
Case 2
4. D
5. D
6. D
Case 3
7. C
8. D
9. C
PROBLEM 10-5 Aging Based on Outstanding Receivables
Question No. 1
Categories
0-30 days
31-60 days
61-90 days
over 91 days
Totals
Balance end
Balance
500,000
600,000
750,000
300,000
2,150,000
PerUcnecnotllecAtm
iboleunt
2%
10,000
3%
18,000
5%
37,500
10%
30,000
95,500
Allowance for Bad debts
95,500
40,000
50
Beg. balance
Chapter 10: Loans and Receivables
(see above table)
Write off
(23,000+100,000)
123,000
218,500
12,000 Recoveries
166,500 Bad debts exp (squeeze)
218,500
Question No. 2
Accounts receivable, end (see above table)
Less: Allowance for doubtful accounts, end
Net Realizable Value
2,150,000
95,500
2,054,500
SUMMARY OF ANSWERS:
1. A
2. A
PROBLEM 10-6 Aging Based On Days Past Due
Question No. 1
Overdue accounts % uncollectible
Balance
For less than 31 days
5.00%
300,000
From 31-60 days
6.00%
220,000
From 61-90 days
8.00%
150,000
From 91-120 days
15.00%
60,000
For over 121 days
20.00%
Required allowance for doubtful accounts
Allowance
15,000
13,200
12,000
9,000
49,200
E READ
QuE
estR
ion NA
o. 2ND PC.Compatible in Acrobat
Balance end
Allowance for Bad debts
49,200
20,000 Beg. balance
29,200 Bad debts exp (squeeze)
158,000
158,000
SUMMARY OF ANSWERS:
1. A
2. A
PROBLEM 10-7 Interest-bearing Note with Realistic Interest Rate
Requirement No. 1
*Selling price
P 100,000
Less: Carrying amount of machinery
Cost
500,000
Less: Accumulated depreciation
350,000
150,000
Loss on sale
(P 50,000)
*Note: The selling price is equal to the face amount, which is likewise equal to
the present value of the note since the note bears an annual interest rate that is
similar with the market rate.
51
Chapter 10: Loans and Receivables
Requirement No. 2
Interest income = (100,000 x 10%) = P10,000
Requirement No. 3
Zero. The principal amount is collectible beyond one year from the reporting
date and thus, reported as non-current.
Requirement No. 4
P100,000. The entire principal amount of notes receivable is treated as
noncurrent asset since it is collectible beyond one year from the reporting date.
Journal entries are as follows:
01/01/2016 Notes receivable
Accumulated depreciation
Loss on sale
Machinery
\
12/31/2016
100,000
350,000
50,000
Cash
Interest income
500,000
10,000
10,000
PROBLEM 10-8 Interest-bearing Note with Unrealistic Interest Rate,
Interest
Annually, One-Time Collection of Principal
Qu
estion Is
NoPayable
.1
READER AND PC.Compatible in
Present value of principal (2,000,000 x 0.7118)
Add: Present value of interest payments
(2,000,000 x 10% x 2.4018)
Total present value / Selling price
Less: Carrying amount of machinery
Cost
Less: Accumulated depreciation
Gain on sale
Question Nos. 2 to 5
Amortization table
Date
Interest
Collections
01/01/2016
12/31/2016
200,000
12/31/2017
200,000
12/31/2018
200,000
Interest
Income
Acroba
P 1,423,600
480,366
1,903,966
1,000,000
150,000
Discount
Amortization
228,475
231,892
235,704
28,475
31,892
35,672
850,000
P1,053,966
Carrying
amount
1,903,960
1,932,435
1,964,327
2,000,000
The total amount of 1,932,435 is reported as noncurrent receivable since it is
due to be collected beyond twelve months from the end of the reporting period.
SUMMARY OF ANSWERS:
1. B
2. B
3. A
4.
A
52
5.
C
Chapter 10: Loans and Receivables
PROBLEM 10-9 Interest-bearing Note with Unrealistic Interest Rate,
Interest Is Payable Semi-Annually, One-Time Collection of Principal
Question No. 1
Present value of principal (2,000,000 x 0.7050)
Add: Present value of interest payments
(2,000,000 x 5% x 4.9173)
Total present value / Selling price
Less: Carrying amount of machinery
Cost
Less: Accumulated depreciation
Gain on sale
Amortization table
Date
Interest
Interest
Collections
Income
01/01/2016
07/31/2016
100,000
114,104
12/31/2016
100,000
114,950
07/31/2017
100,000
115,847
12/31/2017
100,000
116,796
07/31/2018
100,000 4
12/31/2018
100,000
118,602
READER
P 1,410,000
491,730
1,901,730
1,000,000
150,000
Discount
Amortization
14,104
14,950
15,815
16,796
ND
Question No. 2
Interest income up to 07/31/2016
Interest income up to 12/31/2016
Total interest income
18,802
850,000
P1,051,730
Carrying
amount
1,901,730
1,915,834
1,930,784
1,946,599
1,963,395
1,981,19
2,000,000
in Acroba
114,104
114,950
229,054
Question No. 3
1,930,784. See amortization table above.
Question No.s 4 and 5
The total amount of 1,932,435 is reported as noncurrent receivable since it is
due to be collected beyond twelve months from the end of the reporting period.
SUMMARY OF ANSWERS:
1. B
2. B
3. B
4.
A
5.
D
PROBLEM 10-10 Interest-bearing Note with Unrealistic Interest Rate,
Uniform Collection of Principal
Question No. 1
53
Chapter 10: Loans and Receivables
Computation of present value of all payments:
Present
Pri6n0ci0p,0a0
l0
0.8929
0.7972
600,000
0.7118
600,000
Total present value
Interest
180,000
120,000
60,000
Total present value / Selling price
Less: Carrying amount of machinery
Cost
Less: Accumulated depreciation
Gain on sale
Amortization table
Interest
Date
Collections
01/01/16
12/31/16
180,000
12/31/17
120,000
12/31/18
60,000
collections
Total
780,000
720,000
660,000
Total PV
696,462
573,984
469,788
1,740,234
1,740,234
1,000,000
150,000
850,000
P890,234
Interest
Income
Amortizatio
n
Principal
collections
208,828
140,287
70,651
28,828
20,287
10,651
600,000
600,000
600,000
Carrying
amount
1,740,234
1,169,062
589,350
-
Question No. 2
208
,8R
28. SeA
e aN
moD
rtizatP
ionC
ta.
bleC
abo
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e. patible in Acrobat
READ
E
Question No. 3
1,169,062. See amortization table above.
Question No. 4
Principal collections – 2017
Less: Amortization – 2017
Current portion – 12/31/2016
600,000
20,287
579,713
Question No. 4
Carrying value – 12/31/2016
Less: Current portion – 12/31/2016
Non-current portion – 12/31/2016
SUMMARY OF ANSWERS:
1. B
2. B
3. A
4.
1,169,062
579,713
589,350
B
5.
A
PROBLEM 10-11 Non-interest-bearing Note with Unrealistic Interest Rate,
Non-Uniform Collection of Principal
Question No. 1
Computation of present value of all payments:
54
Chapter 10: Loans and Receivables
Total
PV factor
collections
0.8929
1,000,000
0.7972
600,000
0.7118
200,000
Total present value of the notes
Total PV
892,900
478,320
142,360
1,513,580
Total present value / Selling price
Less: Carrying amount of machinery
Cost
Less: Accumulated depreciation
Gain on sale
Question Nos. 2 to 5
Amortization table
Interest
Date
income
01/01/16
12/31/16
181,630
12/31/17
83,425
12/31/18
21,382
1,513,580
1,000,000
150,000
Amortizatio
n
850,000
P663,580
Principal
Collections
181,630
83,425
21,365
1,000,000
600,000
200,000
Carrying
amount
1,513,580
695,210
178,635
-
Question No. 2
181,630. SeeAND
above.
E READER
amortizationPC.Compatible in Acrob
t
Question No. 3
695,210. See amortization table above.
Question No. 4
Principal collections – 2017
Less: Amortization – 2017
Current portion – 12/31/2016
600,000
83,425
516,575
Question No. 5
Carrying value – 12/31/2016
Less: Current portion – 12/31/2016
Non-current portion – 12/31/2016
695,210
516,575
178,635
SUMMARY OF ANSWERS:
1. B
2. B
3. A
4.
B
5.
D
PROBLEM 10-12 Noninterest-bearing Note, One-Time Collection of
Principal
Question No. 1
Total present value (1,800,000 x 0.7118)
1,281,240
55
Chapter 10: Loans and Receivables
Less: Carrying amount of machinery
Cost
Less: Accumulated depreciation
Gain on sale
Amortization table
Date
Interest Income
01/01/16
12/31/16
153,749
12/31/17
172,199
12/31/18
192,812
1,000,000
150,000
Amortization
153,749
172,199
192,812
850,000
P431,240
Carrying amount
1,281,240
1,434,989
1,607,187
1,800,000
Question No. 2
153,749. See amortization table above.
Question No. 3
1,434,989. See amortization table above.
Question No. 4 and 5
The total amount of 1,434,989 is reported as noncurrent receivable since it is
due to be collected beyond twelve months from the end of the reporting period.
SUMMARY OF ANSWERS:
1. B
2. B
3. A
4.
B
5.
A
E READER AND PC.Compatible in Acrobat
PROBLEM 10-13 Computation of Annual Payment or Collection
CASE 1: Based on the original data
Requirement No. 1
Annual collection
=
Annual collection
=
Present value of the notes
Present value of ordinary annuity for 3 periods
1,500,000
2.4018
Annual collection
= P624,532
Requirement No. 2
Interest income (1,500,000 x 12%)
= P180,000
CASE 2
Requirement No. 1
Annual collection
=
Annual collection
=
Present value of the notes
Present value of annuity due for 3 periods
1,500,000
2. 6901
Annual collection
= P557,600
56
Chapter 10: Loans and Receivables
Requirement No. 2
Interest income (1,500,000 – 557,600) x 12%
= P113,088
PROBLEM 10-14
Accounts receivable
Sales
Sales discount ₱250,000 x 3% x 40%)
Allowance for sales discount
Cash (₱250,000 x 50% x 97%)
Allowance for sales discount
Sales discount [₱250,000 x (50% - 40%) x 3%]
Accounts receivable (₱250,000 x 50%)
₱250,000
₱250,000
3,000
3,000
121,250
3,000
750
125,000
On December 31, 2016, the receivable then is included in the statement of
financial position as follows:
Accounts receivable, end
₱ 250,000
Less: Allowance for sales discount
3,000
Net realizable value
₱ 247,000
SOLUTION: (PFRS 15)
Accounts receivable
E READ
ER AND PC.Compatible100,000
in₱
t
Refund liability
Sales [₱100,000 – (₱100,000 x 2% x 50%)
Cash (₱100,000 x 60% x 98%)
Sales discount [₱100,000 x (60% - 50%) x 2%]
Refund liability
Accounts receivable (₱100,000 x 60%)
Acroba
₱ 1,000
99,000
58,800
200
1,000
60,000
On December 31, 2016, the receivable then is included in the statement of
financial position as follows:
Accounts receivable = Net realizable value
₱ 100,000
PROBLEM 10-15
SOLUTION:
Requirement No. 1 PAS 18
2017:
Dec. 31
Accounts receivable
Sales
Cost of sales
Merchandise inventory
Sales returns (₱550,000 x 30%)
₱ 550,000
₱ 550,000
300,000
300,000
165,000
57
Chapter 10: Loans and Receivables
Allowance for sales return
2018:
Jan. 5
165,000
Cash [₱550,000 - (45% x ₱550,000)]
Sales returns [(45%-30%) x ₱550,000]
Allowance for sales returns
Accounts receivable
302,500
82,500
165,000
550,000
Requirement No. 2 PAS 18
2017:
Dec. 31
No journal entry. No revenue is recognized because the company
cannot estimate reliably any future returns.
2018:
Feb. 1
Accounts receivable
Sales
₱ 550,000
₱ 550,000
Cost of sales
300,000
Merchandise inventory
300,000
Note: Revenue is recognized since the time period for rejecting/accepting has
elapsed.
Requirement No. 1 PFRS 15
2017:
Dec. 31
Accounts receivable
₱385,000
SN
aleD
s [₱5P
50,C
000
xC
(10
0%
-3p
0%
)]tible in ₱38A
5,c
00r
0 oba
READER ACost
.
o
m
a
of sales (₱300,000 x 70%)
210,000
Asset for right to recover product to be
returned
Merchandise inventory
2018:
Jan. 5
90,000
300,000
Cash [₱550,000 - (45% x ₱550,000)]
Sales returns [(45%-30%) x ₱550,000]
Accounts receivable
302,500
82,500
Merchandise inventory
Cost of sales
Asset for right to recover product to
be returned
135,000
₱385,000
45,000
90,000
Requirement No. 2 PFRS 15
2017:
Dec. 31
Asset for right to recover product to be
300,000
Merchandise inventory
2018:
Feb. 1
Accounts receivable
Sales
300,000
₱ 550,000
₱ 550,000
58
Chapter 10: Loans and Receivables
Cost of sales
Asset for right to recover product to
300,000
300,000
PROBLEM 10-16 Impairment of Receivable, One-time Collection of
Principal
CASE NO. 1
Question No. 1
16,000,000
Principal
Add: Accrued interest receivable
1,600,000
Less: *Present value of expected cash flows
Loan impairment
(A)
17,600,000
7,705,280
9,894,720
*Computation of present value of all payments:
PV factor
Total collections
Total PV
0.9091
1,600,000
1,454,560
0.8264
3,200,000
2,644,480
0.7513
4,800,000
3,606,240
Total present value of the notes
7,705,280
Question Nos. 2 to 3
Amortizati on table
REA DER AND PC.CIo
ntem
rep
st a tible inCarryA
ingcr oba
Date
12/31/2015
12/31/2016
12/31/2017
12/31/2018
Collections
Income
Amortization
1,600,000
3,200,000
4,800,000
770,528
687,581
436,339
829,472
2,512,419
4,363,389
CASE NO. 2
Question No. 4
Carrying value – 12/31/2015 (see table below)
Less: *Present value of expected cash flows
Loan impairment
(B)
Amortization table
Interest
Received
Date
Or Accrued
01/01/2013
12/31/2013
1,600,000
12/31/2014
1,600,000
12/31/2015 1,600,000*
*Interest accrued.
15,458,634
7,705,280
9,894,720
Interest
Income
Amortization
1,781,530
1,803,313
1,827,711
181,530
203,313
227,710
59
amount
7,705,280
6,875,808
4,363,389
-
Carrying
amount
₱14,846,080
15,027,610
15,230,923
15,458,634
Chapter 10: Loans and Receivables
12/31/2015
Accrued interest receivable
Interest income
1,600,000
Unearned interest income
Interest income
227,710
1,600,000
227,710
CASE NO. 3
Question No. 5
Carrying value – 12/31/2015 (see table below)
Less: *Present value of expected cash flows
Loan impairment
(C)
Amortization table
Interest
Received
Date
Or Accrued
01/01/2013
12/31/2013
1,600,000
12/31/2014
1,600,000
12/31/2015
12/31/2015
17,058,634
7,705,280
9,353,354
Interest
Income
Amortization
1,781,530
1,803,313
1,827,711
181,530
203,313
1,827,711
Unearned interest income
Interest income
Carrying
amount
₱14,846,080
15,027,610
15,230,923
17,058,634
1,827,711
1,827,711
E READER AND PC.Compatible in Acrobat
CASE NO. 4
Question No. 6
Carrying value – 12/31/2015 (see table below)
Less: *Present value of expected cash flows
Loan impairment
C)
Amortization table
Interest
Received
Date
Or Accrued
01/01/2013
12/31/2013
1,600,000
12/31/2014
1,600,000
12/31/2015
1,600,000
12/31/2015
15,458,634
7,705,280
9,894,720
Interest
Income
Amortization
1,781,530
1,803,313
1,827,711
181,530
203,313
227,710
Cash
Interest income
Carrying
amount
₱14,846,080
15,027,610
15,230,923
15,458,634
1,600,000
1,600,000
Unearned interest income
Interest income
SUMMARY OF ANSWERS:
60
227,710
227,710
Chapter 10: Loans and Receivables
1.
A
2.
B
3.
B
4.
B
5.
C
6.
C
PROBLEM 10-17 Reversal of Impairment Loss
Question No. 1
Present value of expected cash flows
vs. Would have been present value if there was no
impairment
Lower
Less: Actual amortized cost
Gain on reversal of impairment loss
(A)
600,000
600,000
396,681
P 203,319
Question No. 2
Present value of expected cash flows
Less: Actual amortized cost
Gain on reversal of impairment loss
(D)
P 654,552
396,681
P 257,871
Question No. 3
Interest income (600,000 x 10%)
(B)
P
60,000
Question No. 4
Interest income (654,552 x 10%)
(A)
P
65,455
P 654,552
SUMMARY OF ANSWERS:
E READ
1. ER
2.
3. B
4.
A
AND PC.Compatible in Acroba
t
PROBLEM 10-18 Pledge of Receivable
Principal amount borrowed
Less: One year interest deducted in advance (900,000 x 10%)
Cash received on December 1
(B)
PROBLEM 10-19 Assignment of Accounts Receivable
Question No. 1
Principal amount borrowed
Less: Finance fee (150,000 x 5%)
Cash received on December 1
(D)
Question No. 2
Notes payable
Less: Principal payment
Remittance
Less: Interest (150,000 x 12% x 3/12)
Notes payable – December 31
(C)
Question No. 3
P 900,000
( 90,000)
P810,000
P 150,000
( 7,500)
P142,500
P150,000
95,000
( 1,500)
93,500
P 56,500
61
Chapter 10: Loans and Receivables
Accounts receivable – assigned (200,000 – 100,000)
Less: Notes payable
Equity in assigned account
(C)
P 100,000
( 56,500)
P 43,500
SUMMARY OF ANSWERS:
1. D
2. C
3. C
PROBLEM 10-20 Factoring of Receivables
Entries to record transactions
Option
Accounts
One
Cash (400,000 x 90%)
Receivable from factor
(25,000 – [5% x 400,000])
Loss on sale of receivables (squeeze)
Notes payable
Two
Cash (400,000 x 90%)
Receivable from factor
(25,000 – [4% x 400,000])
Loss on sale of receivables (squeeze)
Notes payable
Estimated recourse liability
Debit
360,000
Credit
5,000
35,000
400,000
360,000
9,000
34,000
400,000
3,000
READ
EMRARY OAF N
SUM
AND
SWERP
S: C.Compatible in Acrobat
1.
B
2.
C
PROBLEM 10-21 Notes Receivable Discounting and Notes Receivable
Dishonored
CASE NO. 1
Question No. 1
Principal
P 600,000.00
Add: Interest over full credit period (600,000 x 9% x 90/360)
13,500.00
Maturity value
613,500.00
Less: Discount (613,500 x 12% x 65/360)
13,292.50
Net proceeds from discounting
(C)
P 600,207.50
Question No. 2
Net proceeds from discounting
Less: Carrying amount on date of discounting
Principal
Add: Interest (600,000 x 9% x 25/360)
Loss on notes receivable discounting
(A)
Question No. 3
CASE NO. 2
62
P 600,207.50
600,000.00
3,750.00
603,750.00
(P 3,542.50)
Chapter 10: Loans and Receivables
Loss of P3,524.50. The amount of loss to be recognized is computed in a
similar way as to that of discounted note without recourse.
(A)
Question No. 4
Maturity value of the note
Add: Protest fee and other bank charges
Cash received on December 1
(C)
P 613,500
5,000
P618,500
CASE NO. 3
Question No. 5
Interest expense of P3,524.50. The amount of interest expense is computed
in a similar way as to that of discounted note without recourse or conditional
sale.
(A)
Question No. 6
Maturity value of the note
Add: Protest fee and other bank charges
Cash received on December 1
(C)
SUMMARY OF ANSWERS:
1. C
2. A
3. A
4.
P 613,500
5,000
P618,500
C
5.
A
6.
C
inNote
E READER payableAND PC.Compatible P 250,000 Acrob
t
PROBLEM 10-22 Discounting “Own” Note
Question No. 1
Less: Discount on note payable (250,000 x 12%)
Carrying amount – Date of issuance
Effective interest rate
= Discount/Net proceeds
= 30,000/220,000
= 13.60%
(D)
Question No. 2
Entry to record transaction
Cash
220,000
Discount on notes payable
30,000
Notes payable
250,000
SUMMARY OF ANSWERS:
1. D
2. B
63
( 30,000)
P 220,000
Chapter 10: Loans and Receivables
COMPREHENSIVE PROBLEMS
PROBLEM 10-23
Question No. 1
Credit Sales
Accounts written off Recoveries
2013
2,220,000
52,000
4,300
2014
2,450,000
59,000
7,500
2015
2,930,000
60,000
7,200
7,600,000
171,000
19,000
Percentage
=
Total years from 2013 to 2015:
Percentage
Accounts written off minus Recoveries
Total credit sales
171,000 - 19,000
7,600,000
=
Percentage = 0.02 or 2%
Question No. 2
Doubtful accounts expense (3,000,000 x 2%) = P60,000
Question No. 3
Reported doubtful account expense (bad debts written off)
Less: Correct doubtful account expense (see No. 2)
P 62,000
( 60,000)
Overstatement in doubtful account expenses
READ
ER AND PC.Compatible iPn2,000Acrobat
Question No. 4
Beg. Balance
Sales on account
Accounts receivable trade
418,000 645,600 Balance end
3,000,000
62,000 Write-off
2,710,400 Collections excluding
advance from customers
Total
3,418,000 3,418,000
Question No. 5
Allowance for Doubtful accounts
Accounts written off
Balance end
62,000 15,200 Beg. Balance
21,600 60,000 Doubtful accounts expense
8,400 Recoveries
Total
83,600
SUMMARY OF ANSWERS:
1. A
2. A
3. B
83,600
4.
B
64
5.
A
Chapter 10: Loans and Receivables
PROBLEM 10-24
Question No. 1
Unadjusted accounts receivable, Dec. 1 (squeeze)
Add: Adjusted net sales
Total
Less: Collections, net of discounts
Estimated uncollectible accounts charged to AR in Dec.
Unadjusted accounts receivable, Dec. 31
Subsidiary ledger balance, Dec. 1
Less: AR controlling account, Dec. 1 (see above)
Add: Estimated uncollectible account
charged to AR in Dec.
Customers’ credit balance
(D)
Question No. 2
Collection, net of discount
Divide by: (100%-2%)
Total credit to AR for collection
P 21,800
255,000
276,800
156,800
30,000
P 90,000
P 59,000
21,800
6,000
27,800
P31,200
P 156,800
98%
P160,000
(A)
Question No. 3
Customer credit balance, Dec. 1
Less: sale to customer with credit balance
Customer Credit balanceD,ec. 31 (A)
E READER AND
t
P 31,200
10,000
21,200
PC.C ompatible in Acrob
Question No. 4
Unadjusted Sales, balance
b) Sales, FOB shipping pt., not yet recorded
c) Sales, FOB destination
Adjusted Sales balance
(A)
P 260,000
10,000
( 15,000)
P 255,000
Question No. 5
Subsidiary ledger, balance, 12/1
Add: Adjusted Sales in December
Freight prepaid by the company
Total
Less: total credit to AR for coll.
Adjusted accounts receivable in Dec. (B)
P 59,000
255,000
1,000
P 315,000
160,000
P 155,000
SUMMARY OF ANSWERS:
1. D
2. A
3. A
5.
4.
A
65
B
Chapter 10: Loans and Receivables
PROBLEM 10-25
Question No. 1
Balance
Accounts
Dec. 31
Not due
1-60 days
61-120 days
Over 120
1
12,000
3,000
8,000
1,000
2
22,000
22,000
4
20,000
10,000
10,000
5
55,000
2,220
52,780
6
7,500
7,500
116,500
27,220
68,280
11,000
10,000
Multiply by:
0.50%
2%
5%
50%
136.10
1,365.60
550
5,000.00
Question Nos. 2 and 3
Required balance (P136.10+P1,365.60+P550+P5,000)
Less: Allowance for doubtful accounts, beginning
Doubtful accounts expense
Question Nos. 4 and 5
Interest income
(120,000 X 6% X 2/12)
(100,000 X 6% X 1/12)
Interest income
Interest
income
P 1,200
500
P 7,051.70
5,000.00
P 2,051.70
Accrued
interest
income
P
500
patible in Acrobat
READER AND PC.Com
P 1,700
P 500
SUMMARY OF ANSWERS:
1. D
2. C
3. B
4.
D
PROBLEM 10-26
Question No. 1
Principal
Origination fees received
Direct origination cost incurred
Initial Carrying amount of the loan
5.
A
4,000,000
(342,100)
150,020
3,807,920
Question No. 2
By trial and error, 12% interest rate will have a present value equal to the
initial carrying amount of the loan.
Present value of Prin. (4,000,000 x .7118) 2,847,200
Present value of Int. (4M x 10% x 2.4018)
960,720
Present value of Loan Receivable
3,807,920
66
Chapter 10: Loans and Receivables
Question Nos. 3 and 4
Date
01/01/2016
31/12/2016
31/12/2017
31/12/2018
Collections
Interest
Income
Amortization
400,000
400,000
400,000
456,950
463,784
471,439
56,950
63,784
71,346
Carrying
amount
3,807,920
3,864,870
3,928,655
4,000,000
Question No. 5
Zero, As of December 31, 2016, the entire loan proceeds will be collectible on
December 31, 2018, that is two years from the reporting date.
SUMMARY OF ANSWERS:
1. A
2. C
3. B
4.
A
PROBLEM 10-27
Question No. 1
Annual Cash
PV
Date
flows
factor
Dec. 31, 2015
P1,750,000 0.9091
Dec. 31, 2016
2,000,000 0.8264
Dec. 31, 2017
1,750,000 0.7513
Total
5.
A
Amount
P 1,590,925
1,652,800
1,314,775
4,558,500
E READER AND PC.Compatible in Acrobat
Question No. 2
Carrying amount of the loan
Less: Present value of the loan
Impairment loss
P 5,500,000
4,558,500
P 941,500
Question Nos. 3 to 5
Date
12/31/2014
12/31/2015
12/31/2016
12/31/2017
Payment
Interest
Income
P1,750,000
2,000,000
1,750,000
P455,850
326,435
159,079
SUMMARY OF ANSWERS:
1. C
2. A
3.
B
4.
67
Reduction to
Principal
P1,294,150
1,673,565
1,590,785
A
5.
C
Carrying
amount
P4,558,500
3,264,350
1,590,785
-
Chapter 10: Loans and Receivables
PROBLEM 10-28
Question Nos. 1 to 4
Unadjusted balances
2) Sale return
Cost of return
Merchandise
(30,000 x 80%)
3)Sales FOB shipping
point
not recorded as
Sale
Cost of mdse sold
(40,000 x 80%)
4) Goods shipped
FOB
Destination recorded
as sale
Cost of goods
(50,000 x 80%)
6) Doubtful accts exp
Adjusted bal.
Accounts
Receivable
300,000
(30,000)
Allow
for DA
3,000
Mdse.
Inventory
400,000
Net
Sales
1,000,000
(30,000)
24,000
40,000
Cost of
Sales
800,000
(24,000)
40,000
(32,000)
(50,000)
32,000
(50,000)
40,000
260,000
(12,000)
15,000
432,000
Question No. 5
Accounts
doubtful accounts
Less: Allowance for
Net realizable value
P245,000
SUMMARY OF ANSWERS:
1. B
2. B
3. B
B
(40,000)
960,000
768,000
AND PC.Comp( atible
in Acrobat
15,000)
4.
5.
C
PROBLEM 10-29
Question No. 1
Classification
Balance
1-60 days
P 1,000,000
61-120 days
400,000
121-180 days
300,000
181-360 days
200,000
60,000
More than one year
Totals
P 1,960,000
Estimated
Percentage
Amount
1%
P 10,000
5%
20,000
10%
30,000
25%
50,000
80%
48,000
P 158,000
Question No. 2
Accounts receivable, adjusted (see no. 1)
Less: Allowance for doubtful accounts, end (see no. 1)
Net realizable value
68
P 1,960,000
158,000
P1,802,000
Chapter 10: Loans and Receivables
Question No. 3
Doubtful accounts per books (9,000,000 x 2%)
Less: *Adjusted doubtful accounts expense
Understatement of doubtful accounts
P 180,000
188,000
(P 8,000)
*Adjusted doubtful account expense
Allowance for Doubtful accounts
Write off (100,000+40,000)
Balance end (required)
140,000
158,000
90,000
20,00
188,000
298,000
298,000
Total
Question No. 4
Total carrying value
Less: **Present value of the loan
Impairment loss
*Computation of present value
Annual Cash flow PV factor
P1,000,000
1.00
1,000,000
0.93
1,000,000
0.86
Total Present value of the loan
Beg. Balance
Recoveries
Doubtful account expense
P3,000,000
2,790,000
P 210,000
Total
P 1,000,000
930,000
patible in Acrobat
READER AND PC.Com860,000
P 2,790,000
Question No. 5
Date
01/01/2016
12/31/2016
12/31/2017
Collections
Interest
Income
Amortizatio
n
1,000,000
1,000,000
143,200
1,000,000
856,800
SUMMARY OF ANSWERS:
1. A
2. B
3. D
4.
B
5.
Carrying
amount
2,790,000
1,790,000
933,200
B
PROBLEM 10-30
Question No. 1
Accounts receivable, unadjusted balance
Per subsidiary ledger
Note receivable included in the AR
Factored Accounts receivable
Sales FOB shipping point
Adjusted AR balance
69
P1,660,000
(200,000)
(160,000)
100,000
P1,400,000
Chapter 10: Loans and Receivables
Question No. 2
Allowance for doubtful accts, beg.
Add: Doubtful accounts (P15,000,000 + P100,000) x 1%
Total
Less: Accounts written off
Allowance for doubtful accts, end
P 100,000
151,000
P 251,000
28,000
P 223,000
Question No. 3
Unadjusted Net Sales
Add: Sales, FOB shipping point
Total Sales
Multiply by: rate
Doubtful accounts
P15,000,000
100,000
P 15,100,000
1%
P
151,000
Question No. 4
No effect. The audit adjustments did not result to any changes to inventory
account.
Question No. 5
Sales, FOB shipping point
SUMMARY OF ANSWERS:
1. D
2. A
3. D
P 100,000
4.
D
5.
A
E READ
N1 D PC.Compatible in Acrobat
PRE
OBR
LEM 1A
0-3
Question No. 1
Accounts receivable factored
Less: Service charge (400,000 x 5%)
Receivable from factor (400,000 x 20%)
Customers’ credit balance
20,000
80,000
P 400,000
100,000
P300,000
Question No. 2
Principal
Add: Interest over full credit period (300,000 x 12% x 6/12)
Maturity value
Less: Discount (318,000 x 12% x 3/12)
Net proceeds from discounting
P 300,000
18,000
318,000
11,925
P 306,075
Question No. 3
Maturity value of the notes (see item in No. 2)
Add: Protest fee
Total cash paid/Amount to be debited to AR
318,000
12,000
P 330,000
Question No. 4
Note payable (80% x P600,000)
Less: Service fee (5% x P600,00)
Cash received
480,000
30,000
P 450,000
70
Chapter 10: Loans and Receivables
Question No. 5
Total Cash paid (see No. 3)
Add: Interest income (P330,000 x 12% x 2/12)
Cash received
330,000
6,600
P 336,600
Question No. 6
Accounts receivable-unassigned
(2,000,000-3000,000-400,000-600,000)
Add: Accounts receivable assigned
Total
Less: Less: Allowance for doubtful accounts (1,300,000 x 5%)
Net realizable value
P 700,000
600,000
1,300,000
65,000
P1,235,000
SUMMARY OF ANSWERS:
1. B
2. C
3. A
4.
PROBLEM 10-32
Question Nos. 1 to 3
Total
Unadjusted
12/31/2016
Balance,
B
60
1,900,000
5.
D
and
below
1,000,000
6.
61
D
90
days
500,000
Ovdearys90
400,000
AdE
jusR
tmentA
s: ND PC.Compatible in Acrobat
READ
Write Off
(40,000)
(40,000)
Unrecorded sale
50,000
NSF Check
20,000
In transit shipment –
FOB Destination
(45,000)
Consignment
(45,000)
Erroneous unit price
(7,500)
Adjusted
balance,
12/31/2016
1,832,500
Percentage of Uncollectibility
Required
allowance,
12/31/2016
108,825
50,000
20,000
(45,000)
(45,000)
(7,500)
930,000
4%
492,500
5%
410,000
10%
37,200
24,625
41,000
Question No. 4
Allowance for Doubtful accounts
Write off
40,000 100,000 Beg. Balance
Balance end (required)
102,825
- Recoveries
42,825 Doubtful account expense
(squeeze)
Total
142,825
142,825
71
Chapter 10: Loans and Receivables
Item
1
2
3
4
5
6
Accounts
Allowance for bad debts
Accounts receivable
Debit
40,000
Accounts receivable
Sales
50,000
Accounts receivable
Cash in bank
20,000
Sales
Accounts receivable
45,000
Sales
Accounts receivable
45,000
Sales
Accounts receivable
7,500
Credit
40,000
50,000
20,000
45,000
45,000
7,500
SUMMARY OF ANSWERS:
1. C
2. D
3. D
4.
D
5.
C
PROBLEM 10-33
Question Nos. 1 and 3
Adjusting entries for Accounts receivable
E READER AND PC.Compatible in Acroba
t
Item
1
2
3
4
Accounts
Accounts receivable
Allowance for doubtful accounts
Debit
20,000
Sales discount
Accounts receivable
16,000
Credit
20,000
16,000
Accounts receivable
Allowance for doubtful accounts
120,000
Accounts receivable
Allowance for doubtful accounts
30,000
Miscellaneous income
Accounts receivable
30,000
120,000
30,000
30,000
Accounts receivable
Beg. Balance
(20,000+200,000)
Sales
Recoveries
220,000
2,720,000 Balance end
4,000,000
30,00 Recoveries
30,000 *1,500,000 Collections, gross of
discount
72
Chapter 10: Loans and Receivables
Total
4,250,000
4,250,000
*Collections from customers excluding recoveries
Collections without discount
Add: Collections with discount
Cash discount availed (784,000/98% x 2%)
Total collections excluding recoveries
Allowance for Doubtful accounts
20,000 Beg. Balance
170,000
30,000 Recoveries
120,000 Doubtful account expense
Balance end
Total
170,000
Accounts receivable
Less: Allowance for bad debts
Net realizable value
170,000
2,720,000
170,000
P 2,550,000
Question Nos. 2, 4 and 5
Adjusting entries for Loans receivable
Item
Debit
E READER AND
t
700,000
784,000
16,000
P 1,500,000
Credit
PC.Compatible in Acrob
Accounts
1
Loan Receivable
Interest income
2
Unearned interest income
Interest income
400,000
45,382
45,382
Principal
Direct origination cost incurred
Direct origination fees received
Date
01/01/2015
12/31/2015
12/31/2016
12/31/2017
12/31/2018
12/31/2019
400,000
4,000,000
11,520
(300,000)
Collections
Interest
Income
Amortization
400,000
400,000
400,000
400,000
400,000
445,382
450,828
456,928
463,759
471,410
45,382
50,828
56,928
63,759
71,583
Initial carrying amount
3,711,520
Carrying
amount
3,711,520
3,756,902
3,807,731
3,864,658
3,928,417
4,000,000
1.
B
2.
C
3.
D
4.
D
73
Amortization table at 12% Effective Rate
SUMMARY OF ANSWERS:
5.
A
Chapter 10: Loans and Receivables
PROBLEM 10-34
Question No. 1
Unrecorded gain on sale of machinery – 2015 (see below)
Unrecorded interest income – receivable from sale of machinery
(240,183 x 12%)
Unrecorded accrued interest – receivable from sale of plant
(1,500,000 x 12% x 9/12)
Net adjustment to R/E – 01/01/16
(B)
135,000
254,005
Cash consideration
Add: Present value of future cash flows (2.4018 x 100,000)
Total selling price
Less: Carrying value of machine (800,000 – 450,000)
Gain on sale of machine
200,000
240,183
440,183
350,000
90,183
Amortization table (receivable from sale of machinery):
Interest
Income
Date
Collections
Amortization
01/01/2015
12/31/2015
100,000
28,822
71,178
12/31/2016
100,000
20,281
79,719
12/31/2017
100,000
10,714
89,286
90,183
28,822
Carrying
amount
240,183
169,005
89,286
-
READER AND PC.Compatible in Acrobat
Question No. 2
Interest income from note receivable:
Sale of machinery (169,005 x 12%)
Sale of plant [(1,500,000 x 12% 3/12) + (1M x 12% x 9/12)
Sale of equipment (170,750 x 10% x 9/12)
Total interest income
(C)
20,281
135,000
12,806
168,087
Question No. 3
Current portion of note receivable from:
Sale of machinery (see amortization table above)
Sale of plant
Total current portion
(B)
89,286
500,000
589,286
Question No. 4
Non-current portion of note receivable from:
Sale of plant
Sale of equipment (170,750 + 12,806)
Total non-current portion
(D)
500,000
183,556
683,556
Question No. 5
Interest income from sale of machine
20,281
74
Chapter 10: Loans and Receivables
Interest income from sale of plant (180,000 – 135,000)
Interest income from sale of equipment
Net overstatement of income
(D)
SUMMARY OF ANSWERS:
1. B
2. C
3. B
4.
D
5.
(45,000)
12,806
(11,912)
D
E READER AND PC.Compatible in Acrobat
75
Chapter 12: Inventories
CHAPTER 12: INVENTORIES
PROBLEM 12-1 Cost of Purchase
Purchase price based on vendors’ invoices
Brokerage commission paid to agents for arranging imports
Import duties
Freight and insurance on purchases
Other handling costs relating to imports
Total cost of purchase
(B)
1,250,000
50,000
100,000
250,000
25,000
P1,675,000
Note that the trade discount was already deducted in arriving at the vendor’s
invoice.
PROBLEM 12-2 Inventoriable Cost
Materials
Irrecoverable purchase taxes
Labor
Variable production overhead
Fixed production costs
Cartage in
Total
(C)
₱ 350,000
30,000
120,000
50,000
40,000
8,000
₱598,000
E READER AND PC.Compatible in Acrobat
PROBLEM 12-3 Rebates
Question No. 1
Invoice price (no VAT is charged on these goods)
Less: Rebate offered to the entity by the supplier
Inventoriable cost
(B)
₱ 850,000
10,000
₱ 840,000
Question No. 2
Inventoriable cost
₱ 850,000
(C)
PROBLEM 12-4 FREIGHT TERMS & FOREIGN EXCHANGE
Question No. 1 Free on Board
Cost of inventory ($100,000 x ₱45)
ForEx loss (₱46.875 - ₱45) x 100,000
(A)
₱4,500,000
187,500
Question No. 2 Cost, Insurance and Freight
Cost of inventory ($100,000 x ₱45.625)
ForEx loss (₱46.875 - ₱45.625) x 100,000 (D)
₱4,562,500
125,000
76
Chapter 12: Inventories
PROBLEM 12-5 MANUFACTURING COST
Question No. 1
Variable cost:
Direct labor (₱3 x 3 DLH x 100,000 units)
Direct materials (₱2 excluding VAT x 100,000 units)
Fixed Cost (₱100,000 / 100,000 normal capacity) x 100,000 actual
Total cost
(C)
₱ 900,000
200,000
100,000
₱1,200,000
Question No. 2
Variable cost:
Direct labor (₱3 x 3 DLH x 120,000 units)
Direct materials (₱2 excluding VAT x 120,000 units)
Fixed Cost (₱100,000 / 120,000 actual capacity) x 100,000 actual
Total cost
(C)
₱1,080,000
200,000
100,000
₱1,420,000
Question No. 3
Variable cost:
Direct labor (₱3 x 3 DLH x 80,000 units)
Direct materials (₱2 excluding VAT x 80,000 units)
Fixed Cost (₱100,000 / 100,000 normal capacity) x 80,000 actual
Total cost
(D)
PROBLEM 12-6 Items
to be Included in the
warehouse during the count
1
Items in the
2
Items out on consignment at another company's store
Items purchased FOB shipping point that are in transit at
4
December 31
5
Freight charges on goods purchased above
Items sold to another company, for which our company
has signed an agreement to repurchase at a set price that
covers all costs related to the inventory. Total cost of
7
merchandise is
Items sold FOB destination that are in transit at December
10 31, at cost
14 Items currently being used for window display
15 Items on counter for sale
17 Items included in the count, damaged and unsalable
re(nco
eitving
therectouurnnte)d by customer, in good
18 condition
included in
19 Merchandise inventories out on approval, at cost
Finished special article goods, made to order (included in
20 the count)
Total
(A)
₱ 720,000
160,000
80,000
₱ 960,000
READER AND PC.Compatible in Acrobat
77
P1,090,000
70,000
500,000
13,000
200,000
75,000
100,000
400,000
(150,000)
50,000
100,000
(78,000)
P2,370,000
Chapter 12: Inventories
The following items would not be reported as inventory:
3
Cost of goods sold in the income statement
6
Not reported in the financial statements
8
Cost of goods sold in the income statement
9
Cost of goods sold in the income statement
11 Advertising exp. In the income statement
12 Not reported in the financial statements
13 Temporary investments in the current
assets section of the balance sheet
16 Not reported in the financial statements
21 Office supplies in the current asset
section of the balance sheet
40,000
300,000
30,000
50,000
10,000
100,000
125,000
360,000
40,000
PROBLEM 12-7 Accounts Payable
Unadjusted balance
Goods acquired in transit, FOB shipping point
Goods lost in transit
Adjusted Accounts Payable
(A)
The journal entry on item 2 would include the following:
Purchases / Inventory
Accounts Payable
on December 20.
To record the
purchase
1,800,000
100,000
50,000
P1,950,000
50,000
50,000
E READER AND PC.Compatible in Acroba
t
Query: For F/S presentation on December 31, is the goods lost in transit be
presented as part of inventory?
Answer: No, since the inventories were lost in transit and it is improper to
report inventories that is not existing (i.e. it violates the existence assertion).
Thus the journal entry at December 31 if no claim was filed and the common
carrier has yet to acknowledge the claim may include a:
Loss on goods lost in transit (preferably presented as
other expense and not as cost of goods sold)
Inventory / Purchases
50,000
50,000
And on the next year (January 5), when the claim was filed and acknowledged
by the common carrier, the journal entry will be:
Claims from common carrier
50,000
Gain on reimbursement of lost inventory
50,000
To record the claim against common carrier on January 5.
78
Chapter 12: Inventories
PROBLEM 12-8 Consigned Goods
Inventory shipped on consignment to Lomasoc
Freight by Desiree to Lomasoc
Total Inventoriable cost
(D)
360,000
18,000
P 378,000
PROBLEM 12-9 Gross method vs. Net method
Date
01/02
01/12
01/14
Date
01/02
CASE NO 1: Gross method
Accounts
Purchases (100,000 x [1-20%])
Accounts payable
Debit
80,000
80,000
Accounts payable
Cash (80,000 x [1-98%])
Purchase discount
80,000
Accounts payable
Cash
80,000
78,400
1,600
80,000
CASE NO 2: Net method
Accounts
Purchases (100,000 x [1-20%]
x [1-2%])
payable
E READER AND
Credit
Debit
Credit
78,400
78,400
PC.Compatible in Acroba
Accounts
t
01/12
01/14
Accounts payable
Cash (80,000 x [1-98%])
78,400
Accounts payable
Purchase discount lost
Cash
78,400
1,600
SUMMARY OF ANSWERS:
CASE NO. 1
1. B
2. C
3. D
4. A
78,400
80,000
CASE NO. 2
5. C
6. C
7. A
8. D
PROBLEM 12-10 Cost Formulas - Different Methods
Question Nos. 1 and 2
Weighted average
=
Weighted average
Weighted average
=
Total goods available for sale (in peso value)
Total goods available for sale (in units)
1,105,000
79
Chapter 12: Inventories
unit cost
85,000
Weighted average unit cost = P13/unit
Inventory end (40,000 x 13)
Cost of goods sold (20,000+5,000+21,000–1,000) x 13
= P520,000
= P585,000
(C)
(C)
Question Nos. 3 and 4
Moving average
April 1 balance
Apr. 2
Balance
Apr. 4
Balance
Apr. 10
Balance
Apr. 15
Balance
Apr. 17
Apr. 28
Apr. 28
Purchase
Sale
Purchase
Sales
Sales return
Balance
Purchase
Balance
Units
20,000
30,000
50,000
(25,000)
25,000
15,000
40,000
(21,000)
19,000
1,000
20,000
20,000
40,000
Unit cost
10
12
11
11
11
14
12
12
12
12
16.75
15
Inventory end
Cost of goods sold (280,000 + 257,250 – 12,250)
Total cost
200,000
360,000
560,000
(280,000)
280,000
210,000
490,000
(257,250)
232,750
12,250
245,000
335,000
580,000
= P580,000
= P525,000
(A)
(A)
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Question Nos. 5 and 6
FIFO
April 1 balance
Apr. 2
Apr. 4 (25,000 units sold)
Balance from Apr. 2
Apr. 10
Apr. 15 (21,000 units sold)
Balance from April 2
Balance from April 10
Apr. 17
Balance
Balance from April 2
Balance from April 10
Apr. 28
Total
Units Unit cost
20,000
10
30,000
12
(20,000)
10
(5,000)
12
25,000
12
15,000
14
(21,000)
12
4,000
12
15,000
14
1,000
12
Purchase
From Apr. 1
From Apr. 2
Purchase
From Apr. 2
Sales return
5,000
15,000
20,000
40,000
Purchase
Balance
12
14
17
Total cost
200,000
360,000
(200,000)
(60,000)
300,000
210,000
(252,000)
48,000
210,000
12,000
60,000
210,000
335,000
605,000
Inventory end
= P605,000
Cost of goods sold (200,000 + 60,000 + 252,000 – 12,000) = P500,000
(B)
(B)
Question Nos. 7 and 8
Note that inventory and cost of goods sold under FIFO periodic and perpetual is
the same.
80
Chapter 12: Inventories
SUMMARY OF ANSWERS:
1. C
2. C
3. A
4.
A
5.
B
6.
B
7.
B
8.
B
PROBLEM 12-11 Lower of Cost or Net Realizable Value
Question No. 1 Raw Materials
Supply of steel (used for motorbikes)
Cost
More profitable (as is)
Supply of aluminum (used for bicycles)
Cost
More profitable (completed product)
Total write-down
₱ 60,000
50,000
(C)
Question No. 2 Work-in-process
Incomplete motorbikes
Cost
More profitable (completed product)
₱ 30,000
25,000
Incomplete bicycles
Cost
More profitable (as is)
Total write-down
E READER AND
t
₱ 40,000
25,000
₱ 50,000
60,000
(D)
Write-down
₱ 15,000
10,000
₱ 25,000
Write-down
₱ 5,000
₱
PC.Compatible in5,000Acrob
Question No. 3 Finished goods
Motorbikes
Cost
More profitable (completed product)
₱ 80,000
60,000
Bicycles
Cost
More profitable (completed product)
Total write-down
₱ 80,000
110,000
(C)
Question No. 4 Adjusted COGS
Cost of goods sold before write-down
Add: Write-down
Raw materials
Work-in-process
Finished goods
Adjusted cost of goods sold
Write-down
₱ 20,000
₱ 20,000
₱450,000
(C)
25,000
5,000
20,000
₱500,000
81
Chapter 12: Inventories
PROBLEM 12-12 Purchase Commitment
CASE NO. 1
Date
11/15
12/31
03/15
Accounts
Debit
No entry
Loss on purchase commitment (20,000 x [25-20])
Estimated liability for purchase commitment
Purchases (25,000 x 25)
Estimated liability for purchase commitment
Accounts payable/Cash
Gain on purchase commitment
Credit
100,000
100,000
500,000
100,000
500,000
100,000
CASE NO. 2
Date
11/15
Accounts
No entry
12/31
No entry
03/15
Purchases (25,000 x 25)
Accounts payable/Cash
Debit
Credit
500,000
500,000
PROBLEM 12-15 Purchase Commitment
Date
Accounts
Debit
Credit
31 RNo A
entN
ry D PC.Compatible in Acrobat
READ3/E
12/31
Loss on purchase commitment (1,200,000-1,000,000)
Estimated liability for purchase commitment
04/30
Purchases
Estimated liability for purchase commitment
Accounts payable/Cash
Gain on purchase commitment
200,000
1,200,000
200,000
200,000
1,200,000
200,000
SUMMARY OF ANSWERS:
1. B
2. A
PROBLEM 12-13 Inventory Estimation - Gross Profit Rate Method
Sales
Less: Sales returns
Net Sales excluding Sales discount
Multiply by: Cost ratio (1-30%)
Cost of Goods sold
3,400,000
(30,000)
3,370,000
70%
2,359,000
Inventory, January 1
Add: Net Purchases
Purchases
Add: Freight-in
650,000
2,300,000
60,000
82
Chapter 12: Inventories
Less: Purchase returns
Total Goods available for sale
Less: Cost of goods sold
Merchandise inventory that should be on hand
Less: Actual merchandise inventory on hand
Cost of Missing inventory
(80,000)
(A)
2,280,000
2,930,000
(2,359,000)
571,000
(420,000)
151,000
PROBLEM 12-14 Inventory Estimation: Average Method - Retail Method
Computation of cost ratio:
Inventory at January 1
Purchases
Net markups
Net markdowns
Totals
Cost
250,000
1,325,000
1,575,000
Retail
375,000
1,750,000
200,000
(75,000)
2,250,000
Cost ratio (1,575,000 / 2,250,000) = 70%
Computation of Inventory end at retail
Balance up to markdowns (see above computation)
Less: Sales
Estimated normal shrinkage (1,500,000 x 5%)
Estimatendormal shoplifting losses
2,250,000
1,500,000
75,000
50,000
Computation of Cost of goods sold
Total goods available for sale at cost
Less: Inventory end at cost (625,000 x 70%)
Cost of Sales
(B)
1,575,000
437,500
1,137,500
E READER
AND PC.Compatibli
en croba
A
t
Inventory end at retail
P 625,000
PROBLEM 12-15 Inventory Estimation: FIFO Method - Retail Method
Computation of cost ratio:
Purchases
Net markups
Net markdowns
Totals
Cost
292,500
292,500
Retail
400,000
75,000
(25,000)
450,000
Cost ratio (292,500 / 450,000) = 65%
Computation of Inventory end at retail
Balance up to markdowns (see above computation)
Add: Inventory beginning
Less: Sales
Inventory end at retail
450,000
100,000
375,000
P 175,000
83
Chapter 12: Inventories
Multiply: Cost ratio
Inventory end at cost
65%
P113,750
(A)
PROBLEM 12-17
Question No. 1
A EI over (P129-P119) x 4,000
B EI under
C EI over
Overstatement of ending inventory
Question No. 2
D. Ending inventory understated
40,000
(70,000)
100,000
70,000
(C)
(140,000)
(B)
Question Nos. 3 and 4
2015
1,000,000
(40,000)
70,000
(100,000)
2016
1,200,000
40,000
(70,000)
100,000
140,000
930,000 1,410,000
(A)
(C)
Unadjusted balance
A. EI over, NI over (P129-P119) x 4,000
B. EI under, NI under
C. EI over, NI over
D. EI under, NI under
Adjusted balances
READER
AND PC.Compatible in Acrobat
Question No. 5
Unadjusted net income (1,000,000+1,200,000)
Less: Adjusted net income (930,000+1,410,000)
Net adjustment to income-understated
SUMMARY OF ANSWERS:
1. C
2. B
3. A
4.
C
5.
2,200,000
2,340,000
(140,000)
(D)
D
PROBLEM 12-18
Question Nos. 1 and 2
Ledger
Balances prior to adjustment
Add: Goods in transit sold, FOB destination
Less: unrecorded sale
Less: unrecorded purchase returns
Less: goods held on consignment
Add: unrecorded purchase
Add: Goods in transit purchased, FOB shipping point
Add: Goods out on consignment
Adjusted balances
84
P 314,800
3,200
( 8,400)
( 6,000)
3,640P 307,240
Cyosuincatl
Ph
P 293,600
3,200
( 8,800)
1,600
14,800
P 304,400
Chapter 12: Inventories
Question No. 3
Adjusted balances, per ledger
Adjusted balances, physical count
Inventory shortage
(A)
(C)
P 307,240
304,400
P 2,840
(B)
SUMMARY OF ANSWERS:
1. A
2. C
3. B
PROBLEM 12-19
Note to the professor: Use the following guide questions in answering this
question:
1. Accounts Payable and related accounts
Was there a valid purchase?
Was the purchase recorded?
Were the inventories INCLUDED in the count?
2. Accounts Receivable and related accounts
Was there a valid sale?
Was the sale recorded?
Were the inventories EXCLUDED in the count?
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RION:AND PC.Compatible in Acrobat
SOE
LUT
Ending
679
680
681
682
683
684
685
686
310
311
312
313
314
315
316
Unadjusted balances
Purch over, COS over, NI
under
EI over, COS under, NI
over
EI over, COS under, NI
over
Purch under, NI over
No, No, No
No, No, No
Yes, Yes, Yes
Sales over, NI over
EI under, NI under (560 x
70%)
Sales over, NI over
EI under, NI under (31,940
x 70%)
Sales over, NI over
EI under, NI under (6,350
x 70%)
Sales over, NI over
No, No, No
No, No, No
550,000
1,000,000
600,000
450,000
Income
1N2e0t,000
(46,740)
(46,740)
(46,740)
(46,740)
46,740
(4,500)
1,060
392
22,358
4,445
85
1,060
(4,500)
(1,060)
(560)
(560)
(31,940)
392
(31,940)
(6,350)
22,358
(6,350)
(1,930)
4,445
(1,930)
Chapter 12: Inventories
317
318
No, No, No
Net adjustment
Adjusted balances
(24,045)
525,955
(A)
SUMMARY OF ANSWERS:
1. A
2. A
3. A
4.
(40,780)
959,220
(A)
A
5.
(45,680) (45,680)
554,320 404,320
(A)
(A)
(19,145)
100,855
(D)
D
PROBLEM 12-20
Accounts
receivable
Ending
inventory
Unadjusted
balance
A
B
C
D
E
Adjusted
P220,000
Accounts
payable
P104,000
(10,000)
50,000
14,000
( 24,000)
P 250,000
(A)
(64,000)
(16,000)
P24,000
(C)
SUMMARY OF ANSWERS:
1. A
2. C
3. D
4.
D
Sales
Net income
P138,000
(20,000)
(10,000)
P1,010,000
P180,400
20,000
(64,000)
(16,000)
P108,000
(D)
P930,000
(D)
(14,000)
(2,000)
( 24,000)
P160,400
(A)
5.
A
E READER AND PC.Compatible in Acrobat
PROBLEM 12-21
Unadjusted
balances
A
B
C
D
E
F
G
H
I
J
Adjusted
balances
Inventory
Accounts
payable
250,000
35,000
4,000
(25,000)
10,000
34,000
60,000
400,000
4,000
60,000
368,000
464,000
SUMMARY OF ANSWERS:
1. C
2. C
3. A
Accounts
Receivable
Net
Purchases
Net Sales
Net income
1,000,000
40,000
(30,000)
(68,000)
(10,000)
-
4,000,000
40,000
(30,000)
(68,000)
(10,000)
(90,000)
-
2,500,000
4,000
60,000
600,000
35,000
15,000
10,000
(30,000)
(34,000)
(10,000)
(90,000)
-
932,000
3,842,000
2,564,000
496,000
4.
A
86
5.
D
6.
D
Chapter 12: Inventories
PROBLEM 12-22
Questions No. 1 to 5
R/E
Sales
36,000
2016 Purchases under, CGS
under, NI over, RE over
2017 Purchases over, CGS
over
2016 EI under, NI under, RE
under
2017 BI under, CGS under
Sales under
Purchases under, CGS under
EI under, CGS over
Purchases under, CGS under
EI under, CGS over
Total
EI
A/P
CGS
36,000
(32,000)
(32,000)
(20,000)
(24,000)
8,000
(4,000)
(4,000)
(4,000)
4,000
4,000 (20,000) (12,000) (28,000) (12,000)
(8,000)
(24,000)
Legend:
BI - Beginning inventory
EI - Ending inventory
NI - Net Income
CGS - Cost of goods sold
RE - Retained earnings – 12/31/2016 or 01/01/2017
4,000 – overstated
(4,000) – understated
E READER AND PC.Compatible in Acroba
t
Note: The effect of errors on December 2016 and January 2017 has no effect on
the ending balance of the accounts payable on December 31, 2017 since the
payable is expected to be settled before the end of the year.
SUMMARY OF ANSWERS:
1. C
2. B 3. B 4. D 5. C
PROBLEM 12-23
Question No. 1
Sales (475,000/80%)
Less: Cost of sales
Gross profit
P593,750
475,000
118,750
100%
80%
20%
Inventory (in units)
Beg. Balance (60,000/P3)
20,000
25,000
Purchases
100,000
Total
120,000
Balance end (squeeze) or
(125,000/5)
95,000 Cost of sales (475,000/5)
120,000
Inventory (in peso amount)
87
Chapter 12: Inventories
Beg. Balance (squeeze)
Purchases
60,000
540,000
Total
125,000 Balance end (squeeze)
475,000 Cost of sales
600,000
600,000
Weighted average unit cost = TGAS (peso) / TGAS (units)
Weighted average unit cost (P600,000/120,000) = P5/unit
SUMMARY OF ANSWERS:
1. A
2. A
3.
B
4.
A
5.
B
PROBLEM 12-24
Question No. 1
The cumulative effect on change in accounting policy on January 1, 2016 or
December 31, 2015 Retained Earnings is understatement of 100,000, which is
the understatement of Ending Inventory on December 31, 2015.
(B)
Question No. 2
Net income – weighted average
Beginning inventory under, CGS under, Net income over
Ending inventory under, CGS over, Net income under
P3,250,000
(150,000)
100,000
AdE
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PIFC
Question No. 3
Computation of units sold:
Beginning inventory – units
Add: Total purchases – units
Total goods available for sale – units
Less: Units sold (P6,400,000 / P80/unit)
Ending inventory in units
10,000
100,000
110,000
80,000
30,000
The 30,000 ending inventory comes from the last two purchases as follows:
Units
Unit cost Total cost
From 4th quarter purchases
10,000
68
680,000
From 3rd quarter purchases
20,000
66 1,320,000
Total
30,000
(B)
2,000,000
Question No. 4
Cost (refer to no. 3)
Net realizable value [(P70 – P5) x 30,000]
Loss on inventory write-down
Question No. 5
Beginning inventory – FIFO
Add: Net Purchases (P6,480,000 – 980,000)
88
(B)
2,000,000
1,950,000
50,000
500,000
5,500,000
Chapter 12: Inventories
Total goods available for sale
Less: Ending inventory at cost (see no. 3)
Cost of goods sold at cost
Add: Loss on inventory write-down (see no. 4)
Cost of goods sold after inventory write-down
SUMMARY OF ANSWERS:
1. B
2. B
3. B
4.
B
(A)
5.
6,100,000
2,000,000
4,100,000
50,000
4,150,000
A
PROBLEM 12-25
Question No. 1
(10,500 - 1,000 + 3,000) = 12,000 units
No. of units Unit cost
3,000
14
2,000
13
4,000
15
3,000
16
12,000
Total
P 42,000
26,000
60,000
48,000
P 176,000
(A)
Question No. 2
(4,500+700+600)=5,800 units
No. of units Unit cost
Total
1,800
19
P 34,200
1,800
20
36,000
1,200
21
25,200
1,000
22
22,000
5,800
P 117,400
(A)
READER AND PC.Compatible in Acrobat
Question No. 3
T-shirts:
Net realizable value
(12,000 x (P16-(10% x P16))
Jackets:
(5,800 x (P22-(10%xP22)
Lower of cost or NRV
NRV
P172,800
Cost
P176,000
Lower
P 172,800
114,840
117,400
114,840
P287,640 P 293,400 P 287,640
Question No. 4
Total cost (see no. 3)
Less: Lower of cost or NRV (see no. 3)
Loss on inventory write-down
P 293,400
287,640
P 5,760
(B)
Question No. 5
Beginning inventories:
T-shirts (9,000 x P11)
Jackets (5,000 x P15)
P 99,000
75,000
89
P 174,000
Chapter 12: Inventories
Add:*Total purchases (299,500 + 183,900)
Total goods available for sale
Less: Merchandise inventory at cost
Cost of sales before inventory write-down
Add: Loss on inventory write-down
Cost of sales after inventory write-down (B)
*T-shirts
4,000
3,000
2,500
3,500
2,000
4,000
3,000
22,000
Jackets
900
1,100
1,500
2,000
1,800
P12
12
13
14
13
15
16
P 48,000
36,000
32,500
49,000
26,000
60,000
48,000
P 299,500
P16
18
19
19
20
P 14,400
19,800
28,500
38,000
36,000
483,400
P 657,400
293,400
P 364,000
5,760
P369,760
1
00 ompatible in Acrobat
READ E11,000
R,200AN222D
PC25
.,2C
22,000
9,500
P 183,900
SUMMARY OF ANSWERS:
1. A
2. A
3. A
4.
B
5.
B
PROBLEM 12-26
This T-Account of Raw Materials will be the same under the three different
cases:
Raw Materials
Beginning balance
600,000
1,200,000 Balance end
Net Purchases
2,200,000
1,600,000 Direct materials used
Total
2,800,000
2,800,000
CASE NO. 1
Question No. 1
GP Rate:
Gross Profit
Divide by: Sales
Gross Profit Rate
2013
2,000,000
1,700,000
0.15
90
2014
3,500,000
2,800,000
0.20
2015
4,000,000
3,000,000
0.25
2016
0.30
Chapter 12: Inventories
The trend of gross profit for the past three years increases by 5% each year;
thus, if the trend continues, the gross profit for 2016 will be 30%. The cost ratio
then would be 70% (100% - 30%). Therefore, the cost of goods sold is
computed as follows:
Sales
6,000,000
Multiply by: Cost Ratio
0.70
Cost of goods sold
4,200,000 (B)
Question No. 2
Finished Goods
Beginning balance
Cost of goods
manufactured
2,800,000
Total
6,200,000
3,400,000
2,000,000
4,200,000
Balance end
Cost of goods sold
6,200,000
Work in Process
Beginning balance
Direct materials used
Direct labor
Factory overhead
Total
E READER AND
t
2,000,000
1,600,000
1,600,000
800,000
2,600,000
Balance end
Cost of goods
3,400,000 manufactured
6,000,000
6,000,000
(A)
PC.Compatible in Acroba
Computation of factory overhead:
Direct labor cost
Multiply by: Predetermined rate
Factory overhead
1,600,000
50%
800,000
CASE NO. 2:
Question No. 3
GP Rate:
Gross Profit
Divide by: Sales
Gross Profit Rate
2013
340,000
2,000,000
0.17
2014
630,000
3,500,000
0.18
2015
1,000,000
4,000,000
0.25
2016
0.20
The GP rate in 2016 is computed as follows:
16% + 18% + 25%
Gross Profit Rate
=
3
=
20%
The cost ratio then would be 80% (100% - 20%). Therefore, the cost of goods
sold is computed as follows:
Sales
6,000,000
Multiply by: Cost Ratio
0.80
Cost of goods sold
4,800,000 (B)
91
Chapter 12: Inventories
Question No. 4
Beginning balance
Cost of goods
manufactured
Finished Goods
2,800,000
2,000,000
4,800,000
4,000,000
Total
6,800,000
Balance end
Cost of goods sold
6,800,000
Work in Process
Beginning balance
Direct materials used
Direct labor
Factory overhead
2,000,000
1,600,000
1,600,000
800,000
2,000,000
Balance end
Cost of goods
4,000,000 manufactured
Total
6,000,000
6,000,000
(A)
CASE NO. 3:
Question No. 5
The gross profit for 2016 is computed based on the overall gross profit for 2014
and 2015:
800,000 + 1,000,000
Gross Profit Rate
= 3,500,000 + 4,000,000
1,800,000
=
7,500,000
Gross Profit Rate
= 24%
E READER AND PC.Compatible in Acrobat
The cost ratio then would be 76% (100% - 24%). Therefore, the cost of goods
sold is computed as follows:
Sales
6,000,000
Multiply by: Cost Ratio
0.76
Cost of goods sold
4,560,000 (A)
Question No. 6
Finished Goods
Beginning balance
Cost of goods
manufactured
2,800,000
Total
6,560,000
2,000,000
4,560,000
Balance end
Cost of goods sold
3,760,000
6,560,000
Work in Process
Beginning balance
Direct materials used
Direct labor
Factory overhead
2,000,000
1,600,000
1,600,000
800,000
92
2,240,000 Balance end
Cost of goods
3,760,000 manufactured
(A)
Chapter 12: Inventories
Total
6,000,000
SUMMARY OF ANSWERS:
1. B
2. A
3. B
4.
6,000,000
A
5.
A
6.
A
PROBLEM 12-27
Question No. 1
Balance end
Purchase ret. and allow.
Purchase discounts
Payments to supplier
(squeeze)
Total
Accounts payable
250,000
555,000 Beg. Balance
70,000 3,000,000 Purchases
80,000
100,000 Freight-in
3,255,000
3,655,000 3,655,000
Question No. 2
Direct materials inventory
Beg. Balance
Net purchases
AND
E READ
TotE
al R
200,000
2,950,000
3,150,000
320,000 Balance end
2,830,000 Direct materials used
3,150,000
PC.Compatible in Acroba
t
Purchases
Add: Freight-in
Gross Purchases
Less: Purchase returns and allow
Purchase discounts
Net Purchases
Question No. 3
3,000,000
100,000
3,100,000
70,000
80,000
2,950,000
Work in process
Beg. Balance
Direct materials used
Direct labor
Factory overhead
250,000
2,950,000
900,000
675,000
280,000 Balance end
4,375,000 Cost of goods
manufactured
Total
4,655,000
4,655,000
Question No. 4
Sales
Less: Cost of sales (5,000,000/120%)
Gross profit
P5,100,000 120%
4,250,000 100%
850,000 20%
93
Chapter 12: Inventories
Note: Do not deduct sales discount from the gross sales since sales discount
does not constitute actual return of merchandise.
Question No. 5
Finished goods
Beg. Balance
Cost of goods
manufactured
400,000
4,375,000
525,000 Balance end
4,250,000 Cost of goods sold
Total
4,775,000
4,775,000
Estimated finished goods
Less: Cost of goods out on consignment
Salvage value
Inventory fire loss
525,000
20,000
10,000
495,000
Question No. 6
Cost of goods sold (80% x P5,100,000)
= P4,080,000
Question No. 7
Sales (5,100,000-100,000)
Less: Cost of sales (80% x P5,100,000)
Gross profit
P5,000,000
4,080,000
1,000,000
100%
80%
20%
E READER AND PC.Compatible in Acrobat
Finished goods
Beg. Balance
Cost of goods
manufactured
400,000
4,375,000
695,000 Balance end
4,080,000 Cost of goods sold
Total
4,775,000
4,775,000
Estimated finished goods
Less: Cost of goods out on consignment
Salvage value
Inventory fire loss
SUMMARY OF ANSWERS:
1. A
2. A
3. A
4.
B
695,000
20,000
10,000
665,000
5.
B
6.
A
7.
A
PROBLEM 12-28
Question No. 1
Accounts payable, March 31
Less: Payment in April
Total
Accounts payable for April Purchases
2,370,000
300,000
2,070,000
94
Chapter 12: Inventories
Total purchases
Less: Payment in April
Total
600,000
200,000
(B)
Question No. 2
Purchases, as of March 31
Add: Purchases in April
Gross purchases
Less: Purchase returns
Net purchases
400,000
2,470,000
4,200,000
600,000
4,800,000
12,000
4,788,000
(B)
Question No. 3
Beg. Balance
Accounts receivable
2,700,000
3,000,000
Sales on account
Recoveries
1,488,000
0
4,188,000
Bal. end
Collections
938,000 recoveries
250,000 Writeoff
0 Sales returns
4,188,000
Net Sales
Sales as of March 31
April Sales
9,040,000
including
1,488,000
E READER AND
PC.Compatible in Acroba
t
Less: Sales return
100,000
1,388,000
Net Sales
Question No. 4
Net Sales
Multiply by: Cost ratio
Cost of Sales
Cost of Sales
Divide by: Gross Profit
(C)
(C)
10,428,000
10,428,000
60%
6,256,800
9,000,000 10,500,000
9,000,000
4,500,000
50.000%
30.000%
Average gross profit = (50%+30%)/2 = 40%
Cost ratio = 100% - 40% = 60%
Question No. 5
Estimated inventory
Less: Shipment in transit
Undamaged goods at cost
Salvage value
Inventory fire loss
SUMMARY OF ANSWERS:
(C)
3,031,200
40,000
120,000
25,000
2,846,200
95
Chapter 12: Inventories
1.
B
2.
B
3.
C
4.
C
5.
C
PROBLEM 12-29
Questions No. 1 and 2
Purchases ending
11 mos
12 mos
2,700,000 3,200,000
30,000
(4,000)
(6,000)
(8,000)
(8,000)
(22,000)
2,696,000
2,186,000
1. (D)
2. (D)
Unadjusted balance
Shipment in Nov. included in December purchases
Unsalable shipments received
Deposits in October shipped February
Deposits made vendor in November
Adjusted balance
Question No. 3
Beginning inventory – January 1, 2015
Add: Purchases for 11 months (see No. 1)
(360,000Less: Ending inventory – Nov. 30, 2015
22,000 + 20,000)
Cost of sales
350,000
2,696,000
358,000
2,688,000
(A)
Cost ratio (5,736,000 / 6,720,000) = 8 0%
READ
ER AND PC.Compatible in Acrobat
Question No. 4
Sales ending December 31, 2015
Less: Sales ending Nov. 30, 2015 (3.4M-40,000)
Sales – December 2015
Less: Sales at cost
Sales in December 2015 made at a profit
Multiply: Cost ratio (2,688,000 / 3,360,000)
Cost of sales made at profit
Add: Cost of sales made at cost
Total Cost of Sales -December
Question No. 5
Beginning inventory – Nov. 30, 2015
Add: Purchases for December (3,186,000 – 2,696,000)
Less: Cost of Sales – December
Ending inventory – December 31, 2015
SUMMARY OF ANSWERS:
1. D
2. D
3. A
4.
A
PROBLEM 12-30
96
5.
A
3,840,000
3,360,000
480,000
40,000
440,000
80%
352,000
40,000
392,000
(A)
358,000
490,000
392,000
456,000
(A)
Chapter 12: Inventories
Inventory, Jan 1
Purchases
Purchase returns
Purchase discounts
Purchase allowance
Freight-in
Departmental Transfer-In
Departmental Transfer-Out
Totals
Basis of computation of cost ratios
Totals
Markups
Markup cancellations
Basis of computation (conservative)
Markdown
Markdown cancellations
Basis of computation (average)
Cost
Retail
300,000
1,200,000
6,000,000
8,500,000
(400,000)
(800,000)
(150,000)
(50,000)
20,000
600,000
1,100,000
(560,000) (1,334,000)
5,760,000
8,666,000
5,760,000
5,760,000
5,760,000
8,666,000
600,000
(50,000)
9,216,000
(316,000)
100,000
9,000,000
Cost ratios:
Conservative
5,760,000
E READ
PC.Compatible in Acro
CosE
t rR
atio A
=ND
at
9,216,000
Cost ratio
= 62,50%
Average
Cost ratio
Cost ratio
=
5,760,000
9,000,000
= 64%
FIFO
Cost ratio
Cost ratio
5,760,000 – 300,000
9,000,000 – 1,200,000
= 70%
=
Estimated ending inventory @ retail – for all methods
TGAS @ retail under average method
Sales
Sale returns
Normal Shrinkage
Estimated ending inventory @ retail
9,000,000
(7,000,000)
700,000
(500,000)
2,200,000
97
Chapter 12: Inventories
Question Nos. 1 to 6
Cost method
Conservative (62.5%)
FIFO (70%)
Average (64%)
Ending inventory at cost
(EI @ retail x cost ratio)
P 1,375,000
1,540,000
1,408,000
SUMMARY OF ANSWERS:
1. A
2. B
3. B
4.
C
5.
C
Cost of goods sold
(TGAS @cost – EI @cost)
4,385,000
4,220,000
4,352,000
6.
D
PROBLEM 12-31
Question No. 1
Subsidiary
Ledger
P 760,000
Unadjusted bal.
Undelivered sales
Valid Sales
Sales FOB destination
NSF check
Collection by the bank
Sales in 2015 recorded in 2016 DR No. 38740
Receivable ins. Co DRNo. 38741
50,000
( 60,000)
3,360
( 10,080)
Sales in 2016 recorded in 2015 DR No. 38743
Adjusted balance
(D)
( 19,200)
P 784,080
60,000
General
Ledger
P 1,020,000
( 100,000)
(
(
100,000)
50,000
60,000)
3,360
10,08 0)
E READER AND PC.Compatible i( n Acroba
t
Question No. 2
Current:
Unadjusted beginning Balance
Add: Valid Sales in 2015 (60,000 + 3,360)
Total
Less: Receivable ins. Co (DR # 38741)
Sales in 2016 recorded in 2015 (DR # 38743)
Current Accounts Receivable balance
Amount
784,080
131,580
*652,500
Percentage
Current
131,580
Past due
652,500
Allowance for doubtful accounts
6
10
(A)
98
19,200)
P 784,080
97,500
63,360
160,860
10,080
19,200
131,580
Past Due:
Adjusted Accounts Receivable balance (see no. 1)
Less: Current Accounts Receivable balance
Past due Accounts Receivable
*or (662,500+50,000-60,000)
Age classification
(
Total
7,894.80
65,250.00
73,144.80
Chapter 12: Inventories
Question No. 3
Allowance for doubtful accounts, beginning
Less: Accounts written off
Less: Allowance for doubtful accounts, ending
Doubtful accounts expense
7,000.00
73,144.80
66,144.80
(A)
Question No. 4
Unadjusted Merchandise Inventory, ending
Add: Cost of merchandise sold of DR # 38743(19,200/120%)
Doubtful accounts expense
(B)
Question No. 5
Unadjusted Net Sales balance
Undelivered sales
Sales FOB destination
Sales in 2015 recorded in 2016 DR No. 38740
Sales in 2016 recorded in 2015 DR No. 38743
Adjusted balance
SUMMARY OF ANSWERS:
1. D 2. A
3. A
4.
B
5.
316,000
16,000
332,000
P 3,000,000
100,000)
100,000)
3,360
(
19,200)
P 2,784,160
(
(
(B)
B
PROBLEM 12-33
Accounts
payable
500,000
(77,500)
12,500
1,000
(2,650)
433,350
Accts.
Net
Net
Receivable Net Sales
Purchases
income
500,000 4,500,000 1,607,500 1,086,000
(77,500)
(11,000)
20,000
20,000
20,000
105,000
12,500
1,000
(2,650)
520,000 4,520,000 1,540,850 1,200,000
READER InAveNntoDry PC.Compatible in Acrobat
Unadj.
625,000
Adj.
(77,500)
(11,000)
105,000
12,500
1,000
(2,650)
652,350
SUMMARY OF ANSWERS:
1. D 2. B
3. B
4.
B
5.
PROBLEM 12-34
SUMMARY OF ANSWERS:
1. C
2. A
3. A
4.
A
5.
PROBLEM 12-35
SUMMARY OF ANSWERS:
1. C
2. D 3. D
4.
D
5.
B
PROBLEM 12-36
SUMMARY OF ANSWERS:
1. A
2. A
3. C
4.
C
5.
B
99
C