DySAS Center for CPA Review
2F & 3F Mitra Building, San Pedro Street, Davao City
Tel. No. (082) 224-43-20: E-mail Address – dysasrev@yahoo.com
Practical Accounting 1
John C. Frivaldo, CPA, MBA
FIRST PRE-BOARD EXAMINATIONS
December 20, 2008 @ 8:00 – 10:00 am
===========================================================
INSTRUCTIONS: Mark the letter of your choice with a VERTICAL LINE on the answer sheet
provided. ERASURES NOT ALLOWED.
1. Mega Company purchased from Ora Company a P2,000,000, 8% 5-year note that required
five equal annual year-end payments of P500,900. The note was discounted to yield a 9%
rate to Mega. At the date of purchase, Mega recorded the note at its present value of
P1,948,500. What should be the total revenue earned by Mega over the life of this note?
(a) P504,500
(b) P556,000
(c) P800,000
(d) P900,000 B
Total payments (500,900 x 5)
Present value of note
Total interest revenue
P2,504,500
1,948,500
P 556,000
National Bank grants a 10-year loan to Abbo Company in the amount of P1,500,000 with a
stated interest rate of 6%. Payments are due monthly and are computed to be P16,650.
National Bank incurs P40,000 of direct loan origination cost and P20,000 of indirect loan
origination cost. In addition, National Bank charges Abbo a 4-point nonrefundable loan
origination fee.
2. National Bank, the lender, has a carrying amount of:
(a) P1,440,000
(b) P1,480,000
(c) P1,500,000
(d) P1,520,000
B
Note receivable
P1,500,000
Direct origination cost
40,000
Total
P1,540,000
Nonrefundable origination fee (1,500,000 x 4%)
60,000
Carrying value
P1,480,000
The direct origination cost incurred by the bank is a deferred charge to be amortized
over the term of the loan. The indirect origination cost incurred by the bank is an
outright expense. The nonrefundable origination fee charged by the bank against the
borrower is unearned income on the part of the bank and deferred financing charge on
the part of the borrower to be amortized over the term of the loan.
3. Abbo, the borrower, has a carrying amount of:
(a) P1,440,000
(b) P1,480,000
(c) P1,500,000
Note payable
Nonrefundable origination fee
Carrying value
(d) P1,520,000
A
P1,500,000
( 60,000)
P1,440,000
4. Impeccable Corporation manufactures and sells electrical generators. On January 1, 2000,
it sold an electrical generator costing P700,000 for P1,000,000. The buyer paid P100,000
down and signed a P900,000 non-interest bearing note payable in three equal installments
every December 31. Assume the prevailing interest rate for a note of this type is 12%.
What is the interest income that should be recognized for the year 2000?
(a) P86,465
(b) P108,000
(c) P179,460
(d) P59,820 A
Face value
Present value (300,000 x 2.4018)
Unearned interest income
Interest income – 2000 (720,540 x 12%)
P900,000
(720,540)
P179,460
P86,465
5. Roth Company received from a customer a 1 – year, P500,000 note bearing annual interest
of 8%. After holding the note for 6 months, Roth discounted the note at a nearby bank at
an effective interest rate of 10%. What amount of cash did Roth received from the bank?
(a) P540,000
(b) P523,810
(c) P513,000
(d) P495,238 C
Maturity value [500,000 + (500,000 x 8%)]
Discount (540,000 x 10% x 6/12)
Net proceeds
P540,000
( 27,000)
P513,000
6. On June 30, 2003, Ray Company discounted at the bank a customer’s P60,000, 6-month,
10% note receivable dated April 30, 2003. The bank discounted the note at 12%. Ray’s
proceeds from this discounted note amounted to:
(a) P56,400
(b) P57,600
(c) P60,480
(d) P61,740 C
Maturity value [60,000 + (60,000 x 10% x 6/12)]P63,000
Discount (63,000 x 12% x 4/12)
( 2,520)
Net proceeds
P60,480
X Corporation factored P6,000,000 of accounts receivable to A Corporation on October 1,
2004. Control was surrendered by X Corporation. A Corporation accepted the receivables
subject to recourse for nonpayment. A Corporation assessed a fee of 3% and retains a
holdback equal to 5% of the accounts receivable. In addition, A Corporation charged 15%
interest computed on a weighted-average time to maturity of the receivables of 54 days.
The fair value of the recourse obligation is P90,000.
7. X Corporation will receive and record cash of:
(a) P5,296,850
(b) P5,386,850
(c) P5,476,850
Accounts receivable
Factor’s holdback (6,000,000 x 5%)
Factoring fee (6,000,000 x 3%)
Interest (6,000,000 x 15% x 54/365)
Cash received from factoring
(d) P5,556,850
B
P6,000,000
( 300,000)
( 180,000)
( 133,150)
P5,386,850
8. Assuming all receivables are collected, X Corporation’s cost of factoring the receivables
would be:
(a) P313,150
(b) P180,000
(c) P433,150
(d) P613,150 A
Factoring fee
Interest
Total cost of factoring
P180,000
133,150
P313,150
9. Sigma Company began operations on January 1, 2004. On December 31, 2004, Sigma
provided for uncollectible accounts based on 1% of annual credit sales. On January 1,
2005, Sigma changed its method of determining its allowance for uncollectible accounts by
applying certain percentages to the accounts receivable aging as follows:
Days past invoice date
Percent uncollectible
0 – 30
1
31 – 90
5
91 – 180
20
Over 180
80
In addition, Sigma wrote off all accounts receivables that were over 1 year old. The
following additional information relates to the years ended December 31, 2005 and 2004:
2005
2004
Credit sales
P3,000,000
P2,800,000
Collections (including recovery)
2,915,000
2,400,000
Accounts written off
27,000
none
Recovery of accounts previously
written off
7,000
none
Days past invoice date at 12/31:
0 – 30
300,000
250,000
31 – 90
80,000
90,000
91 – 180
60,000
45,000
Over 180
25,000
15,000
What is the provision for uncollectible accounts for the year ended December 31, 2005?
(a) P39,000
(b) P31,000
(c) P38,000
(d) P11,000 B
0 – 30
(300,000 x 1%)
31 – 90
(80,000 x 5%)
91 – 180
(60,000 x 20%)
Over 180
(25,000 x 80%)
Required allowance – 12/31/2005
P 3,000
4,000
12,000
20,000
P39,000
Allowance – 12/31/2004
(2,800,000 x 1%)
Recovery in 2005
Uncollectible accounts expense
Total
Writeoff in 2005
Required allowance – 12/31/2005
P28,000
7,000
31,000
P66,000
27,000
P39,000
10. From inception of operations to December 31, 2003, Murr Corporation provided for
uncollectible accounts receivable under the allowance method, provisions were made
monthly at 2% of credit sales, bad debt written off were charged to the allowance account,
recoveries of bad debts previously written off were credited to the allowance account, and
no year-end adjustments to the allowance account were made. Murr’s usual credit terms
are net 30 days.
The balance in the allowance for doubtful accounts was P120,000 at January 1, 2004.
During 2004, credit sales totaled P9,000,000, interim provisions for doubtful accounts were
made at 2% of credit sales, P90,000 of bad debts were written off, and recoveries of
accounts previously written off amounted to P15,000. Murr installed a computer facility in
November 2004 and prepared an aging of accounts receivable for the first time as of
December 31, 2004. A summary of the aging is as follows:
Classification by
Balance in
Estimated %
month of sale
each category
uncollectible
November – December 2004
P2,000,000
2%
July – October
600,000
10%
January – June
400,000
25%
Prior to 1/1/2004
200,000
75%
P3,200,000
Based on the review of collectibility of the account balances in the “prior to 1/1/2004” aging
category, additional receivables totaling P60,000 were written off as of December 31, 2004.
Effective with the year ended December 31, 2004, Murr adopted a new accounting method
for estimating the allowance the allowance for doubtful accounts at the amount indicated by
the year-end aging analysis of accounts receivable.
What is the year-end adjustment to the allowance for doubtful accounts as of December
31, 2004?
(a) P305,000
(b) P180,000
(c) P320,000
(d) P140,000 D
November – December (2,000,000 x 2%)
July – October (600,000 x 10%)
January – June (400,000 x 25%)
Prior to 1/1/2004 (200,000 – 60,000 x 75%)
Required allowance – 12/31/2004
P 40,000
60,000
100,000
105,000
P305,000
Allowance – 1/1/2004
Recoveries
Doubtful accounts expense
Total
Writeoffs (90,000 + 60,000)
Required allowance – 12/31/2004
P120,000
15,000
320,000
P455,000
150,000
P305,000
Correct doubtful accounts expense
Recorded amount (2% x 9,000,000)
Increase in doubtful accounts
P320,000
180,000
P140,000
Doubtful accounts
Allowance for doubtful accounts
P140,000
P140,000
11. When examining the accounts of Brute Company, you ascertain that balances relating to
both receivables and payables are included in a single controlling account called receivables
control that has a debit balance of P4,850,000. An analysis of the make-up of this account
revealed the following:
Debit
Credit
Accounts receivable – customers
P7,800,000
Accounts receivable – officers
500,000
Debit balances – creditors
300,000
Postdated checks from customers
400,000
Subscriptions receivable
800,000
Accounts payable for merchandise
P4,500,000
Credit balances in customers’ accounts
200,000
Cash received in advance from customers
for goods not yet shipped
100,000
Expected bad debts
150,000
After further analysis of the aged accounts receivable, you determined that the allowance
for doubtful accounts should be P200,000. What is the correct total of current net
receivables?
(a) P8,950,000
(b) P8,800,000
(c) P8,600,000
(d) P8,850,000 B
Accounts receivable – customers
(7,800,000 + 400,000)
Allowance for doubtful accounts
Accounts receivable – officers
Debit balances – creditors
Total current net receivables
P8,200,000
( 200,000)
500,000
300,000
P8,800,000
12. The following information is available for the Hook company:
Amount in Thousands
2001
2002
2003
Charge sales
900
1,100
1,000
Cash sales
600
800
700
Total
1,500
1,900
1,700
Accounts receivable
(end of year)
170
230
220
Allowance for doubtful
accounts (end of year)
47
30
56
Accounts written off as
uncollectible (during
the year)
2
50
4
Assuming there was no change in the method used for estimating doubtful accounts, what
was the balance in the allowance for doubtful accounts at the beginning of 2001?
(a) P 0
(b) P22,000
(c) P45,000
(d) P49,000 B
2001
Allowance – 1/1
22,000
Expense (squeeze) 27,000
Total
49,000
Writeoff
2,000
Allowance – 12/31 47,000
Percentage of charge sales:
2001 33,000/ 1,100,000
2002 30,000/ 1,000,000
2003 3% x 900,000
2002
47,000
33,000
80,000
50,000
30,000
=
=
=
2003
30,000
30,000
60,000
4,000
56,000
3%
3%
27,000 Expense
13. Rip Corporation showed the following balances on January 1, 2003:
Accounts receivables
P 600,000
Allowance for doubtful accounts
30,000
The following transactions affecting accounts receivable occurred during the year ended
December 31, 2003:
Sales – cash and credit
P3,280,000
Cash received from cash customers
400,000
Cash received from credit customers,
excluding recovery
2,475,000
Cash received from credit customers who took
advantage of the 2/10, n/30 terms
(included in P2,475,000)
1,470,000
Accounts receivable written off as worthless
20,000
Recoveries of accounts written off
5,000
Credit memoranda for returned credit sales
55,000
Cash refunds to cash customers
10,000
The company uses the percentage of accounts receivable method in determining the
allowance for doubtful accounts. What is the net realizable value of accounts receivable on
December 31, 2003?
(a) P855,000
(b) P900,000
(c) P850,000
(d) P895,000 A
Accounts receivable – 1/1
P 600,000
Sales – credit (3,280,000 – 400,000)
2,880,000
Cash received from credit customers,
excluding recovery
(2,475,000)
Sales discounts
( 30,000)
Accounts receivable written off as worthless
( 20,000)
Credit memoranda for returned credit sales
( 55,000)
Accounts receivable – 12/31
P 900,000
Accounts collected with discount (1,470,000/98%)P1,500,000
Cash received
1,470,000
Sales discounts (2% x 1,500,000)
P
30,000
Accounts receivable – 12/31
P 900,000
Allowance for doubtful accounts (5% x 900,000) ( 45,000)
Net realizable value
P 855,000
14. Excel reported P70,000 of inventory on December 31, 2003, based on physical count.
Additional information was given as follows:
a. Included in the physical count were machines billed to a customer, FOB shipping
point, on December 31, 2003. The machines had a cost of P3,000 a had been billed
at P5,000. The shipment is ready for pick-up by the delivery contractor.
b. Goods were in transit from a vendor. The invoice cost was P8,000 and goods were
shipped FOB shipping point on December 31, 2003.
c. Work in process costing P500 was sent to an outside processor for finishing on
December 30, 2003.
d. Goods out on consignment amounted to P4,600 (sales price); shipping costs, P120
(markup is 15% on cost).
The correct amount of inventory on December 31, 2003 is:
(a) P85,620
(b) P85,500
(c) P82,620
(d) P82,500 C
Inventory per count, Jan. 1, 2003
Goods in transit, shipped FOB shipping point
Work in process job out for finishing
Goods out on consignment [(4,600/ 1.15) + 120]
Inventory as adjusted, Dec. 31 2003
P70,000
8,000
500
4,120
P82,620
15. The book value of Good’s inventory at the end of 2003 is P95,000. Included in the amount
are the following items:
Merchandise in transit, purchased FOB shipping point
P6,800
Goods held as consignee
5,000
Goods out on consignment, at cost plus 50% markup
on cot plus P100 delivery charge
6,100
The correct amount of inventory is:
(a) P83,100
(b) P87,900
(c) P86,200
(d) P88,000 D
Inventory per books, December 31
Goods held as consignee
Markup on goods out on consignment
[6,000 – (6,000/ 1.50)]
Inventory as adjusted, December 31
P95,000
( 5,000)
( 2,000)
P88,000
16. Compute for the cost of inventory lost in fire using the data below:
Inventory, July 1, 2004
P51,600
Purchases, July 1, 2004 to Jan. 19, 2005
368,000
Sales, July 1, 2004 to Jan. 19, 2005
583,000
Purchase returns
11,200
Purchase discounts taken
5,800
Freight in
3,800
Sales returns
8,600
A fire destroyed the entire inventory except for purchases in transit, FOB shipping point, of
P2,000 and goods having a selling price of P4,700 that were salvaged from the fire. The
salvaged goods had an estimated value of P2,900. The average gross profit rate on net
sales is 40%.
(a) P59,760
(b) P56,940
(c) P62,660
(d) P56,860 B
Inventory, July 1, 2004
Purchases, July 1, 2004 to Jan. 19, 2005
Purchase returns
Purchase discounts taken
Freight in
Available for sale
Cost of goods sold:
Net sales (583,000 – 8,600)
P574,400
Multiply by cost percentage
60%
Estimated ending inventory
Goods in transit
Salvage value of damaged goods
Estimated inventory lost in fire
P 51,600
368,000
( 11,200)
( 5,800)
3,800
P406,400
(344,640)
P 61,760
( 2,000)
( 2,820)
P 56,940
17. The following information pertains to Dely Corporation’s 2004 cost of goods sold:
Inventory, December 31, 2003
P90,000
2004 purchases
124,000
2004 write-off of obsolete inventory
34,000
Inventory, December 31, 2004
30,000
The inventory written off became obsolete due to an unexpected and unusual technological
advance by a competitor. In its 2004 income statement, what amount should Dely report as
cost of goods sold?
(a) P218,000
(b) P184,000
(c) P150,000
(d) P124,000 C
Inventory, December 31, 2003
2004 purchases
2004 write-off of obsolete inventory
Inventory, December 31, 2004
Cost of goods sold
P90,000
124,000
(34,000)
(30,000)
P150,000
18. Pine Company prepares monthly income statements. A physical inventory is taken only at
year-end; hence, month-end inventories must be estimated. All sales are made on account.
The rate of markup on cost is 50%. The following information relates to the month of
November:
Accounts receivable, November 1
P102,000
Accounts receivable, November 30
153,000
Collection of accounts receivable during November 255,000
Inventory, November 1
183,600
Purchases of inventory during November
163,200
The estimated cost of the November 30 inventory is:
(a) P122,400
(b) P142,800
(c) P193,800
(d) P224,400 B
Inventory, November 1
P183,600
Purchases of inventory during November
163,200
Cost of goods available for sale
P346,800
Accounts receivable, November 30
P153,000
Collection of accounts receivable during November 255,000
Accounts receivable, November 1
(102,000)
Sales
P306,000
Divided by 150% (50% markup on cost)
50%
Estimated cost of goods sold
P204,000
Estimated cost of the Nov. 30 inventory
(346,800 – 204,000)
P142,800
19. A store uses the gross profit method to estimate inventory and cost of goods sold for
interim reporting purposes. Past experience indicates that the average gross profit rate is
25% of sales. The following data relate to the month of October:
Inventory cost, October 1
P255,000
Purchases during the month at cost
683,400
Sales
856,800
Sales returns
30,600
Using the data above, what is the estimated ending inventory at October 31?
(a) P206,550
(b) P214,200
(c) P295,800
(d) P318,750 D
Inventory cost, October 1
Purchases during the month at cost
Cost of goods sold
[(856,800 – 30,600) x 75%]
Estimated inventory, October 31
P255,000
683,400
(619,650)
P318,750
20. The following items were included in Opal Company’s inventory account at December 31,
2004:
Merchandise out on consignment, at sales price,
including 40% markup on selling price
P28,000
Goods purchased in transit, FOB shipping point
24,000
Goods held on consignment by Opal Company
16,000
Goods out on approval (sales price, P10,000;
cost , P8,000)
10,000
By what amount should the inventory at December 31, 2004 be reduced?
(a) P29,200
(b) P50,000
(c) P54,000
(d) P78,000 A
Markup on merchandise out on consignment
(40% x 28,000)
Goods held on consignment
Markup on goods out on approval (10,000 – 8,000)
Total inventory reduction
P11,200
16,000
2,000
P29,200
21. The balance in Reed Company’s accounts payable account at December 31, 2000 was
P1,225,000 before the following information was considered:
- Goods shipped FOB destination on December 21, 20009 from a vendor to Reed were lost
in transit. The invoice cost of P45,000 was not recorded by Reed. On December 28,
2000, Reed notified the vendor of the lost shipment.
- Goods were in transit from a vendor to Reed on December 31, 2000. The invoice cost
was P60,000 and the goods were shipped FOB shipping point on December 28, 2000.
Reed received the goods on January 6, 2001.
- Goods shipped to Reed, FOB shipping point on December 20, 2000 from a vendor were
lost in transit. The invoice price was P50,000. On January 5, 2001, Reed filed a
P50,000 claim against the common carrier.
- On December 27, 2000, a vendor authorized Reed to return, for full credit, goods
shipped and billed at P35,000 on December 20, 2000. The returned goods were shipped
by Reed on December 27, 2000. A P35,000 credit memo was received and recorded by
Reed on January 6, 2001.
What amount should Reed report as accounts payable in its December 31, 2000 balance
sheet?
(a) P1,300,000
(b) P1,345,000
(c) P1,235,000
(d)
P1,250,000
A
Accounts payable per book
A
B
C
D
Adjusted accounts payable
P1,225,000
60,000
50,000
( 35,000)
P1,300,000
Maricar Company, a wholesaler distributor of automotive replacement parts. Initial amounts
taken from accounting records are as follows:
Inventory at December 31, 2000 (based on physical count)
P1,250,000
Accounts payable at December 31, 2000:
Vendor
Terms
Amount
Baker
2% 10 days, net 30
P 400,000
Charlie
net 30
210,000
Dolly
net 30
300,000
Eagle
net 30
90,000
Full
net 30
Greg
net 30
_________
P1,000,000
Sales in 2000
P9,000,000
Additional information is as follows:
A. Parts held on consignment from Charlie to Maricar, the consignee, amounting to
P159,000 were included in the physical count of goods on December 31, 2000, and in
accounts payable at December 31, 2000.
B. P20,000 of parts which were purchased from Full and paid for in December 2000 were
sold in last week of 2000 and appropriately recorded as sales of P28,000. The parts
were included in the physical count of goods on December 31, 2000, because the parts
were on the loading dock waiting to be picked up by the customers.
C. Parts in transit on December 31, 2000 to customers, shipped FOB shipping point, on
December 28, 2000, amounted to P34,000. The customers received the parts on
January 6, 2001. Sales of P40,000 including P1,000 freight cost, were recorded by
Maricar on January 2, 2001.
D. Retailers were holding P210,000 at cost (P250,000 at retail), of goods on consignment
from Maricar the consignor, at their stores on December 31, 2000.
E. Goods were in transit from Greg to Maricar on December 31, 2000. The cost of the
goods was P25,000, and they were shipped FOB shipping point on December 29, 2000.
F. A quarterly freight bill in the amount of P2,000 specifically relating to merchandise
purchases in December 2000, all of which was still in the inventory at December 31,
2000, was received on January 3, 2001. The freight bill was not included in either the
inventory or in accounts payable at December 31, 2000.
G. All of the purchases from Baker occurred during the last seven days of the year. These
items have been recorded in accounts payable and accounted for in the physical
inventory at cost before discount. Maricar’s policy is to pay invoices in time to take
advantage of all cash discounts, adjust inventory accordingly, and record accounts
payable, net of cash discounts.
22. What is the adjusted balance of inventory on December 31, 2000?
(a) P1,250,000
(b) P1,300,000
(c) P1,356,000
(d) P1,200,000
23. What is the adjusted balance of accounts payable on December 31, 2000?
(a) P833,000
(b) P858,000
(c) P860,000
(d) P1,000,000
24. What is the adjusted balance of net sales for 2000?
(a) P9,300,000
(b) P9,039,000
(c) P9,239,000
(d) P8,880,000
Per book
1
2
3
4
5
6
7
Adjusted
Inventory
P1,250,000
( 159,000)
( 20,000)
210,000
25,000
2,000
(
8,000)
P1,300,000
Accounts payable
P1,000,000
( 159,000)
B
C
B
Net sales
P9,000,000
39,000
(
P
25,000
2,000
8,000)
860,000
_________
P9,039,000
25. Art Company has determined its cash flows from 2004 operating activities as P5,350,000.
The cash balance on January 1, 2004 was P6,500,000. During 2004, the company had the
following investing and financing activities. Cash dividends of P3,500,000 were declared
and paid. An additional P1,400,000 of cash dividends were declared but remained unpaid at
the end of the year.
Machinery with a book value of P1,750,000 was sold for that amount. Additional machinery
of P2,600,000 was acquired for cash to replace the one sold.
Note payable of P4,200,000 was taken out of the local bank early in the year. By the end of
the year, P1,500,000 of this amount including interest of P300,000 had been repaid.
Bonds payable with a book value of P2,500,000 was converted into common stock having
par value of P2,000,000.
How much should be reported as net cash used in financing activities in the 2002 cash flow
statement?
(a) P4,700,000
(b) P5,000,000
(c) P1,900,000
(d) P500,000 D
Payment of dividends
(P3,500,000)
Issuance of note
4,200,000
Partial payment of note
( 1,200,000)
Net cash used in financing activities
(P 500,000)
26. The following is Mart Company’s comparative balance sheet accounts:
2005
2004
Cash
4,800,000
3,000,000
Accounts receivable
2,300,000
2,400,000
Inventories
4,000,000
3,600,000
Property, plant and equipment
12,800,000
6,000,000
Accumulated depreciation
(2,300,000)
(2,000,000)
Investment in Max Company
5,500,000
6,000,000
Loan receivable
2,700,000
Accounts payable
2,000,000
1,800,000
Income tax payable
100,000
500,000
Dividend payable
2,000,000
3,000,000
Capital lease liability
8,000,000
Common stock
10,000,000
10,000,000
Additional paid in capital
1,000,000
1,000,000
Retained earnings
6,700,000
2,700,000
a. On December 31, 2005, Mart acquired 20% of Max Company’s common stock for
P6,000,000. Max report net loss of P2,500,000 for the year ended December 31,
2005. No dividend was paid on Max’s common stock during the year.
b. During 2005, Mart loaned P3,000,000 to Chase Company, an unrelated company.
Chase made the first semi-annual principal repayment of P300,000 plus interest of
10% on October 1, 2005.
c. On January 2, 2005, Mart sold equipment costing P1,200,000 with a carrying amount
of P700,000, for P800,000 cash.
d. On December 31, 2005, Mart entered into a capital lease for an office building. The
present value of the annual rental payments is P8,000,000 which equals the fair value
of the building. Mart made the first rental payment of P1,200,000 when due on
January 2, 2006.
e. Mart declared cash dividends in one year and paid the dividends in the subsequent
year.
Net cash provided by operating activities was:
(a) P6,700,000
(b) P7,700,000
(c) P5,700,000
(d) P6,200,000 A
Net income (6,700,000 + 2,000,000 –
2,700,000)
P6,000,000
Investment loss (2,500,000 x 20%)
500,000
Gain on sale (800,000 – 700,000)
(100,000)
Depreciation (2,300,000 + 500,000 –
2,000,000)
800,000
Decrease in accounts receivable
100,000
Increase in inventories
(400,000)
Increase in accounts payable
200,000
Decrease in income tax payable
(400,000)
Net cash provided by operating activities P6,700,000
27. Trial balances of Ron Company at December 31 are as follows:
Debits:
2005
Cash
P 875,000
Accounts receivable
825,000
Inventory
775,000
Property, plant and equipment
2,500,000
Unamortized bond discount
112,500
P
2004
800,000
750,000
1,175,000
2,375,000
125,000
Cost of goods sold
6,250,000
9,500,000
Selling expenses
3,537,500
4,300,000
General and administrative expenses
3,425,000
3,782,500
Interest expense
107,500
65,000
Income tax expense
52,500
637,000
Credits:
Allowance for uncollectibles
P
32,500
P
27,500
Accumulated depreciation
412,500
375,000
Trade accounts payable
625,000
437,500
Income taxes payable
67,500
Deferred income taxes
132,500
115,500
3% callable bonds payable
1,125,000
500,000
Common stock
1,250,000
1,000,000
Additional paid in capital
227,500
187,500
Retained earnings
1,117,500
1,399,500
Sales
13,470,000
19,467,000
Ron purchased P125,000 equipment during 2005. Ron allocated one-half of its depreciation
expense to selling expenses and the remainder to general expenses. Ron uses the direct
method to prepare its cash flow statement. What amount should Ron report in its cash flow
statement for the year ended December 31, 2005 for cash paid for interest?
(a) P120,000
(b) P107,500
(c) P95,000
(d) P42,500 C
Interest expense
Amortization of bond discount
Interest paid
107,500
(12,500)
95,000
28. The transactions of Art Company for the year 2005 included the following:
Purchase of land for cash (cash was borrowed from bank)
3,000,000
Sale of securities for cash
1,000,000
Dividend declared (of which P1,500,000 was paid during
the year)
2,000,000
Issuance of common stock for cash
5,000,000
Payment of bank loan including interest of P200,000
2,200,000
Increase in customer’s deposits
300,000
The 2005 cash flow statement should report net cash provided by financing activities at:
(a) P4,500,000
(b) P1,500,000
(c) P4,300,000
(d) P4,800,000 A
Borrowed from bank
Dividends paid
Issuance of common stock
Payment of bank loan
Net cash provided by financing activities
3,000,000
(1,500,000)
5,000,000
(2,000,000)
4,500,000
29. Data below came from the comparative trial balance of Excel Corporation. The books are
kept on the accrual basis. Included in the operating expenses are depreciation of P3,100
and amortization of P1,400.
December
2005
2004
Accounts receivable
220,000
245,000
Interest receivable
800
1,700
Inventories
420,000
405,000
Prepaid insurance
3,800
1,900
Accounts payable
364,000
345,000
Other operating expenses payable
18,000
15,000
Net sales
1,200,000
Interest revenue
6,500
Cost of goods sold
800,000
Insurance expense
48,000
Other operating expenses
95,000
Cash paid for operating expenses during the year is:
(a) P137,400
(b) P87,500
(c) P139,600
(d) P102,500 A
Other operating expenses
Increase in operating expenses payable
Insurance expense
Increase in prepaid insurance
Depreciation
Amortization
Cash paid for operating expenses
95,000
( 3,000)
48,000
1,900
( 3,100)
( 1,400)
137,400
30. Land on January 1, 2003 balance sheet was recorded at P6,000,000. Selected information
in the year 2003 from the statement of cash flows follows:
Net income
P20,000,000
Depreciation expense
3,000,000
Loss on sale of land
200,000
Proceeds from sale of land
1,400,000
Investing and financing activities not affecting cash:
Issued preferred stock for land
2,400,000
The value of the land to be disclosed in the balance sheet as of December 31, 2003 is:
(a) P6M
(b) P7M
(c) P8.4M
(d) P6.8M
D
Balance of land, Jan. 1, 2003
Preferred stock issued for land
Cost of land sold (1,400,00 + 200,000)
Balance of land, Dec. 31, 2003
P6,000,000
2,400,000
(1,600,000)
P6,800,000
31. Dione Company employs several consulting companies. Some of the companies require
payments in advance for performing services while others bill Dione after services are
rendered. Dione also leases office space to several law firms. Some law firms are required
to pay rent in advance for using their offices while others are allowed to their offices before
paying rent. Dione uses the conventional accrual basis of accounting. The amount of cash
paid to consulting companies during 2004 was P6,400,000 and the amount of rent revenue
earned from leasing office space was P7,800,000. Selected information obtained from the
company’s comparative balance sheet is shown below:
2004
2003
Prepaid consulting fees
200,000
500,000
Accrued consulting fees
700,000
200,000
Rent receivable
600,000
800,000
Unearned rent revenue
1,000,000
400,000
Under the direct method, the 2004 cash flow statement should report cash received from
leasing office space at:
(a) P8,600,000
(b) P7,800,000
(c) P8,200,000
(d) P7,000,000 A
Rent revenue earned
Rent receivable, 2002
Rent receivable, 2001
Unearned rent revenue, 2002
Unearned rent revenue, 2001
Cash received from leasing
P7,800,000
( 600,000)
800,000
1,000,000
( 400,000)
P8,600,000
32. The balance sheet at December 31 of Love Company showed a cash balance of P200,000.
An examination of the books disclosed the following:
a. Cash sales of P15,000 from January 1 to 7, were predated as of December 28 to 31, and
charged to the cash account.
b. Customer’s checks totaling P5,000 deposited with and returned by the bank, NSF, on
December 27, were not recorded in the books.
c. Checks of P6,500 in payment of liabilities were prepared before December 31, and
recorded in the books, but withheld by the treasurer.
d. Customer’s postdated checks totaling P4,300 are being held by the cashier as part of
cash. The company’s experience shows that postdated checks are eventually realized.
e. The cash account includes P30,000 being reserved for the purchase of a mini-computer
which will be delivered soon.
How much cash balance is to be shown on the December 31 balance sheet?
(a) P152,200
(b) P166,500
(c) P192,200
(d) P200,000 A
Cash balance, per book
Cash sales for January 1 to 7
NSF checks
Undelivered check
Customer’s postdated checks
Cash for purchase of a computer
Adjusted cash balance
P200,000
( 15,000)
( 5,000)
6,500
( 4,300)
( 30,000)
P152,200
33. The balance sheet at December 31,2004 of Lore Company showed a cash balance of
P105,600. An examination of the books disclosed the following:
a. The sales book was left open up to January 5, 2005 and cash sales totaling P15,000
were considered as sales in December 2004.
b. Checks of P9,300 in payment of liabilities were prepared before December 31, 2004,
recorded in the books, but not mailed or delivered to payees.
c. Customer’s postdated checks totaling P7,800 deposited with but returned by bank, NSF,
on December 27, 2004. Return was not recorded in the books, P1,500.
d. The cash account includes P40,000 earmarked for the purchase of an office equipment
which will be delivered soon.
How much cash balance is to be shown on the December 31, 2004 balance sheet?
(a) P105,600
(b) P60,500
(c) P58,400
(d) P50,600 D
Cash balance, per book
Cash sales for January
NSF checks
Undelivered check
Customer’s postdated checks
Cash for purchase of office equipment
Adjusted cash balance
P105,600
( 15,000)
( 1,500)
9,300
( 7,800)
( 40,000)
P 50,600
34. The balance sheet at December 31 of Live Company showed a cash balance of P91,750. An
examination of the books disclosed the following:
a. Cash sales of P12,000 from January 1 to 5, 2005 were predated as of December 28 to
31, 2004 and charged to the cash account.
b. Customer’s checks totaling P4,500 deposited with and returned by the bank, NSF, on
December 27, 2004 were not recorded in the books.
c. Checks of P5,600 in payment of liabilities were prepared before December 31, 2004 and
recorded in the books, but withheld by the treasurer.
d. Personal checks of officers, P2,700, were “redeemed” on December 31, 2004, but
returned to cashier on January 2, 2005.
e. The cash account includes P20,000 being reserved for the purchase of an office machine
which will be delivered soon.
How much cash balance is to be shown on the December 31 balance sheet?
(a) P91,750
(b) P69,150
(c) P54,750
(d) P90,350 C
Cash balance, per book
P 91,750
Cash sales for January
( 12,000)
NSF checks
( 4,500)
Undelivered check
5,600
Customer’s postdated checks
( 3,400)
Personal checks of officers
( 2,700)
Cash for purchase of a computer
( 20,000)
Adjusted cash balance
P 54,750
Items 30 to 34:
On October 7, 2004, the cash book of Davao Company showed the following entries:
Receipts
Checks
September 30 (overdraft)
P 0
P5,000
October 1
Tuesday
1,200
1,600
2
Wednesday
3,000
2,400
3
Thursday
800
1,000
4
Friday
6,000
3,400
5
Saturday
4,000
2,500
Cash receipts are deposited at the beginning of every Monday, Wednesday and Friday and in
each case includes the receipts of the preceding two working days. The bank statement at
the close of October 5 showed:
Balance, September 30 – overdraft
P6,500
Deposits
7,000
Checks (includes all checks issued prior to October 4
and also a check for P300 belonging to Cebu
Co., erroneously charged to Davao account
5,800
A check for P256 issued on October 5 had been canceled
by the company but the bookkeeper has not made
any entry for this.
Additional information: undeposited collections – October 31, P10,000; outstanding checks
– October 31, P5,644.
35. The book balance as at October 5, 2004 should be:
(a) (P900)
(b) (P3,900)
(c) P1,100
(d) P1,200
A
(d) P1,100
B
(d) P1,000
C
(d) P500
D
39. The adjusted book and bank balances as at October 5, 2004 should be:
(a) P5,644
(b) P644
(c) P1,144
(d) P344
B
Balance per book, September 30
Receipts (October 1 to 5)
Checks (October 1 to 5)
Balance per book, October 5
(P5,000)
15,000
(10,900)
(P 900)
36. The bank balance as at October 5, 2004 should be:
(a) (P3,900)
(b) (P5,300)
(c) P1,200
Balance per bank, September 30
Deposits
Checks
Balance per bank, October 5
(P6,500)
7,000
( 5,800)
(P5,300)
37. The undeposited collections as at September 30, 2004 should be:
(a) P4,000
(b) P3,000
(c) P2,000
Undeposited collections – October 31
Bank receipts
Book receipts
Undeposited collections – September 30
P10,000
7,000
(15,000)
P 2,000
38. The outstanding checks as at September 30, 2004 should be:
(a) P200
(b) P300
(c) P400
Outstanding checks – October 31 P 5,644
Bank disbursements (5,800 – 300)
5,500
Book disbursements (10,900 – 256) (10,644)
Outstanding checks – September 30 P 500
Unadjusted balance per bank, Oct.5(P5,300)
Undeposited collections
10,000
Outstanding checks
( 5,644)
Bank error
( 300)
Adjusted balance per bank, Oct. 5 (P 644)
40. The balance sheet of Happy Company as of December 31, 2004 showed a cash balance of
P68,225, which was determined to consist of the following:
Petty cash fund
P 360
Cash in Metro, per bank statement, with a
check for P600 still outstanding
33,675
Notes receivable in the possession of a
collecting agency
2,500
Undeposited receipts, including a postdated
check for P1,050 and a traveler’s
check for P1,000
17,800
Bond sinking fund – cash
12,750
IOUs signed by employees
495
Paid vouchers, not yet recorded
645
Total
P68,225
At what amount should cash on bank and in bank be reported on Happy’s balance sheet?
(a) P50,185
(b) P53,475
(c) P62,935
(d) P66,225 A
Petty cash fund
Cash in Metro (33,675 – 600)
Undeposited receipts (17,800 – 1,050)
Total
P
360
33,075
16,750
P50,185
* end of the examination – practical accounting 1*