1st Midterm Departmental Examinations Reviewer
A.Y. 2022-2023
Subject Code: ACCO102
Course Subject: Intermediate Accounting 1
1.
Which of the following characterizes a financial instrument according to
International Accounting Standards?
a)
It is a financial asset for one party and a financial liability or equity for
another.
b)
It must be payable at a later date.
c)
It must have a maturity date.
d)
It must be signed by the issuer and countersigned by the holder.
2.
Which of the following is considered an item for cash equivalent?
a)
Temporary investments in equity shares
b)
6-month money market savings certificates
c)
Redeemable preference shares with mandatory redemption period and
acquired three months before maturity
d)
Customer's post-dated checks
3.
What is the purpose of a petty cash fund?
a)
Account for all small cash receipts and disbursements.
b)
Pay small miscellaneous expenses.
c)
Cash checks for employees.
d)
Handle cash sales.
4.
Which of the following is true about recognition of assets according to
IFRS 9?
a)
An entity shall recognize a financial asset when and only when the entity
becomes a party to the contractual provisions of the instrument.
b)
The entity recognizing the financial asset has the right to the inflow and
outflow of economic benefits from the instrument embodied in the
agreement with the other entity.
c)
An asset is recognized in the Statement of Cash Flow when it is probable
that the future economic benefits will flow to the entity.
d)
When deciding whether to recognize an economic resource as an asset, the
inflow of economic benefit should not be considered.
5.
Cash and Cash Equivalents should be shown as the
a)
First line item under non-current assets
b)
First line item under current assets
c)
Second line item under non-current assets
d)
Second line item under current assets
6.
Which of the following must be deducted from the balance per books to
correct the cash balance?
a)
Outstanding checks
b)
Deposit in transit
c)
Credit memos
d)
Debit memos
7.
Which of the following are included in “receivables”?
I.
Loans and advances to officers, employees, customers, affiliated
companies, and other outside parties
II.
Accrued interest, rental, commissions
III.
Amounts collectible from customers
IV.
Allowance for sales discounts
a)
I only
b)
III only
c)
I, II, and III
d)
I, II, III, and IV
For questions 8-9, refer to the following information below.
Upon preparing the bank reconciliation, Darcy Company noticed that the
amount reflected in the receipts of the book is P356,723.00 while the
amount recorded by the bank is P352,763.00.
8.
If the error source is unknown, who committed the error in recording the
amount, and what amount should be recorded in the book and bank
balances?
a)
The amount in the book is incorrect; The amount that should be recorded is
P352,763.
b)
The amount in the book is correct; The amount that should be recorded is
P356,723.
c)
The amount in the bank is incorrect; The amount that should be recorded is
P356,723.
d)
Inconclusive
9.
The error committed in recording the amount will cause an
a)
Overstated bank balance of P3,960.00
b)
Understated book balance of P3,960.00
c)
Overstated book balance of P3,960.00
d)
Understated bank balance of P3,960.00
10.
The statement of financial position should show receivable from officers,
employees, or affiliated companies as
a)
non-current assets only
b)
offsets to capital
c)
trade notes and accounts receivable if they otherwise qualify as current
assets
d)
current assets, if collectible within twelve months
11.
Which form of receivable financing is equivalent to an absolute sale of
accounts receivable
a)
Factoring
b)
Discounting of notes receivable
c)
Pledge of accounts receivable
d)
Assignment of accounts receivable
12.
The following are the methods of accounting for Accounts Receivable and
Related Revenues, except
a)
Allowance Method
b)
c)
d)
Cash Method
Gross Price Method
Net Price Method
13.
Statement 1: The direct write-off method recognizes impairment loss or
bad debt expense by crediting the receivable account directly.
Statement 2: There are two methods of accounting for uncollectible
accounts: the allowance method and the direct write-off.
a)
True; True
b)
False; False
c)
True; False
d)
False; True
14.
Which of the following is unnecessary when an entity holds collateral and
is permitted to sell or re-pledge the collateral in the absence of default by
the owner of the collateral?
a)
The terms and conditions associated with the use of the collateral.
b)
The carrying amount of financial assets it has pledged as collateral for
liabilities.
c)
The fair value of any such collateral sold or re-pledged.
d)
The fair value of the collateral held.
15.
The following are considered cash for financial reporting purposes,
except
a)
Money market checking accounts
b)
Money market savings certificate
c)
Money orders and interest fund
d)
Savings account for the acquisition of inventories
16.
Which of the following is an example of internal control over cash?
I.
II.
III.
IV.
Non-encashment of personal checks from petty cash fund
Use of voucher system
Internal audits at different intervals
Periodic cash count
V.
a)
b)
c)
d)
Minimum cash balance
I, II, III, V
II, III, V
I, II, III, IV
I, II, III, IV, V
17.
Which of the following pertains to the objectives of internal controls over
cash?
I.
Reliability of financial reporting
II.
Effectiveness of operations
III.
Financial statement presentation and measurement of cash
IV.
Concealment of cash shortages
V.
Efficiency of operations
VI.
Compliance with laws and regulations
VII.
Safeguarding of assets and liabilities
a)
I, II, III, V, VI, VII
b)
I, II, V, VI
c)
I, III, V, VI
d)
I, II, III, VI, VII
18.
Statement 1: The voucher system is an internal control over all cash
disbursements.
Statement 2: Periodic cash counts should be performed to provide
reasonable assurance that actual cash tallies with the balance per books.
Statement 3: The custody over cash should be given only to the
treasurer.
Statement 4: In a typical organization, purchases are authorized by the
purchasing department and purchase transactions are recorded by the
accountant.
a)
True, False, True, False
b)
True, True, False, False
c)
True, True, True, False
d)
True, True, True, True
19.
Which of the following is correct about non-trade receivables being
classified as current assets?
a)
Non-trade receivables are classified as current assets if these are collectible
within one year.
b)
Non-trade receivables are classified as current assets if these are collectible
within the company's normal operating cycle.
c)
Non-trade receivables are classified as current assets if these are collectible
within one year or the company's normal operating cycle, whichever is
shorter.
d)
Non-trade receivables are classified as current assets if these are collectible
within one year or the company's normal operating cycle, whichever is
longer.
20.
Statement I: The interest rate to be used to compute for the interest
receivable on a long-term receivable is the ______________.
Statement II: The interest rate to be used to compute the interest
income on a long-term receivable is the ______________.
a)
Market interest rate; Market interest rate
b)
Market interest rate; Stated interest rate
c)
Stated interest rate; Stated interest rate
d)
Stated interest rate; Market interest rate
21.
Assume that XYZ Merchandising Company sells merchandise on account
with a list price of P200,000, less trade discount of 10%, 5%, 3%. Find
the invoice price of the merchandise.
a)
P164,000
b)
P30
c)
P165,870
d)
P36,000
For questions 22-25, refer to the following information below.
Triple M Company sold merchandise on account on November 10, 2022 with a list
price of P150,000, less trade discounts of 10% and 4%. Assume that the credit
terms were 3/15, n/30, FOB shipping point, and the P1,500 freight was paid by
Triple M Company.
22.
What is the Invoice Price of the Merchandise?
a)
P126,600
b)
P129,000
c)
P128,100
d)
P129,600
23.
Under the Gross Price Method, the journal entry for the sale of
merchandise on November 10, 2022 will be:
a)
Debit Cash P151,500; Debit Sales Discount P20,400; Credit Accounts
Receivable P131,100
b)
Debit Cash P131,100; Credit Accounts Receivable P131,100
c)
Debit Accounts Receivable P131,100; Credit Sales P129,600; Credit Cash
P1,500
d)
Debit Accounts Receivable P131,100; Credit Sales P131,100
24.
Assume that the buyer pays on November 19, 2022, what will be the
journal entry?
a)
Debit Cash P131,100; Credit Accounts Receivable P131,100
b)
Debit Cash P129,600; Credit Accounts Receivable P129,600
c)
Debit Cash P128,478; Debit Sales Discount P2,622; Credit Accounts
Receivable P131,100
d)
Debit Cash P127,212; Debit Sales Discount P3,888; Credit Accounts
Receivable P131,100
25.
Assume that the buyer pays on November 28, 2022, the journal entry will
be:
a)
Debit Cash P131,100; Credit Accounts Receivable P131,100
b)
Debit Cash P129,600; Credit Accounts Receivable P129,600
c)
Debit Cash P128,478; Credit Accounts Receivable P128,478
d)
None of the above.
McKinley Corporation had the following balances on December 31, 2024:
Cash in checking account
P550,000
Cash in money market account
850,000
Treasury bill, purchased November 1, 2024 maturing January 31,
2025
6,500,000
Time deposit purchased December 1, 2024 maturing March 31,
2025
7,000,000
26.
What amount should be reported as cash and cash equivalents on
December 31, 2024?
a)
P14,900,000
b)
P7,900,000
c)
P1,400,000
d)
P13,500,000
Marianne Company provided the following data on December 31, 2024:
Checkbook balance
P2,000,000
Bank statement balance
3,000,000
Check drawn on Marianne's account, payable to supplier,
600,000
dated and recorded on December 31, 2024 but not mailed until
January 16, 2025
Sinking fund cash
27.
1,000,000
On December 31, 2024, what amount should be reported as “cash” under
current assets?
a)
P5,600,000
b)
P5,000,000
c)
P2,600,000
d)
P6,600,000
For questions 28-30, refer to the following information below.
In preparing its bank reconciliation on December 31, 2022, Javerb Company had
made available the following information:
Balance per bank statement
P 580,000
Deposit in transit
72,000
Outstanding Checks
56,600
Amount erroneously credited by Bank to Javerb’s account
3,800
Bank service charge for December
950
Check drawn, dated and recorded December 31, 2022, but not
mailed until January 10, 2021 (included in the total
outstanding checks above)
11,000
Check of Javerb Company charged by bank to account of
Javerb Company
13,000
28.
What is the amount shown as cash on Javerb’s December 31, 2022
statement of financial position?
a)
P602,600
b)
P605,200
c)
P615,600
d)
P592,200
29.
What is the unadjusted cash in bank per books on December 31, 2022?
a)
P595,150
b)
P606,150
c)
P616,550
d)
P605,550
30.
What is the net increase (decrease) in the cash account as a result of the
adjustments?
a)
b)
c)
d)
31.
950 net decrease
10,050 net increase
950 net increase
10,050 net decrease
Batumbakal Corporation shows its cash account balance of P735,000
before reconciliation. The bank statement does not include a deposit of
P8,450 made on the last day of the month. The bank statement shows a
collection by the bank of P5,200 and a customer's check for P4,150 was
returned because it was NSF. A check written for P840 was recorded as
P480, and a customer's check for P5,250 was recorded on the books as
P7,250. What should be the correct cash balance?
a)
P742,140
b)
P733,690
c)
P734,410
d)
P737,690
For questions 32-34, refer to the following information below.
Leviste Company prepared the following bank reconciliation on April 30:
Balance per bank
P4,600,000
Deposits in transit
280,000
Outstanding checks
(960,000)
Balance per book
3,920,000
There were total deposits of P5,600,000 and charges for disbursements of P6,000,000 for
May per bank statement. All reconciliation items on April 30 cleared the bank on May 31.
Checks outstanding amounted to P1,000,000 and deposits in transit totaled P1,200,000 on
May 31.
32.
What is the amount of cash receipts per book in May?
a)
b)
c)
d)
P6,520,000
P7,420,000
P6,620,000
P8,320,000
33.
What is the amount of cash disbursements per book in May?
a)
P8,600,000
b)
P7,600,000
c)
P9,040,000
d)
P6,040,000
34.
What is the cash balance per ledger on May 31?
a)
P4,600,000
b)
P4,400,000
c)
P3,400,000
d)
P3,600,000
For questions 35-36, refer to the following information below.
On December 1, 2021, Midnight Company gave Raine P2,000,000, 12% loan.
Midnight Company paid proceeds of P1,940,000 after a deduction of a P60,000
nonrefundable loan origination fee. Principal and interest are due in sixty monthly
installments of P44,500, beginning January 1, 2024. The repayments yield an
effective interest rate of 12% at a present value of P2,000,000 and 13.4% at a
present value of P1,940,000.
35.
What amount of interest income should be reported in 2021?
a)
P22,333
b)
P19,400
c)
P21,663
d)
P20,000
36.
What amount should be reported as accrued interest receivable on
December 31, 2021?
a)
P44,500
b)
c)
d)
P60,000
P20,000
0
At year-end, Rhaenyra Company reported cash and cash equivalents which
comprised the following:
Cash on hand
P400,000
Demand deposit
8,000,000
Certificate of deposit
3,000,000
Postdated customer check
100,000
Petty cash fund
80,000
Traveler's check
120,000
Manager's check
160,000
Money order
190,000
37.
What total amount should be reported as ”cash” at year-end?
a)
P12,050,000
b)
P13,050,000
c)
P8,950,000
d)
P12,950,000
Dracarys Company provided the following information on December 31, 2024:
Checking account at Metrobank
P6,000,000
Employee's postdated check
320,000
Foreign bank account unrestricted and in equivalent pesos
3,500,000
IOU from company auditor
400,000
NSF customer check
80,000
Petty cash fund, expense receipts P40,000
60,000
Postage stamps
8,000
Treasury bonds
700,000
Value added tax account
2,300,000
38.
What
a)
b)
c)
d)
amount should be reposted as unrestricted cash on December 31, 2024?
P13,328,000
P11,860,000
P13,368,000
P11,820,000
Vhagar Company reported petty cash fund which comprised:
Coins and currencies
P4,600
Paid vouchers for expenses
3,000
Customer check returned by bank marked “NSF”
2,800
Check drawn to the order of petty cash custodian
1,860
39.
What amount should be reported as a petty cash fund?
a)
P6,460
b)
P3,460
c)
P6,000
d)
40.
P3,000
On December 21, 2024, Balerion Manufacturing discounted the 60-day,
13% P500,000 note from Daenerys at Local Bank. The note is dated
December 1, and the bank's discount rate is 12%.
What will be the journal entry to record the note discounted? (assume a
360-day year):
a)
Debit Cash P504,022.22; Credit Liability on Discounted Notes P504,022.22
b)
Debit Cash P510,833.33; Credit Liability on Discounted Notes P510,833.33
c)
Debit Cash P504,022.22; Credit Liability on Discounted Notes P504,044.44
d)
Debit Cash P510,844.44; Credit Liability on Discounted Notes P510,866.66
41.
During December, Seasmoke Manufacturing sold goods priced at
P100,000 with credit terms of n/30. Seasmoke immediately factored the
receivable to a finance company. The factoring fee was 8% of the
receivables purchased. The factor's holdback is 4% of the purchase price.
What would be the amount of net cash received from factoring?
a)
P112,680
b)
P100,000
c)
P92,000
d)
P88,320
42.
On December 31, 2021, Desiree&Cheese Company sold used equipment
with a carrying amount of P2,500,000 in exchange for a non-interest
bearing note of P4,250,000 requiring ten annual payments of P425,000.
The first payment was made on December 31, 2022. The market interest
for similar note was 12%. The present value of an ordinary annuity of 1
at 5% is 7.72 for 10 periods and 7.11 for 9 periods. What is the carrying
amount of note receivable on December 31, 2022?
a)
P2,738,750
b)
P1,464,250
c)
P1,446,250
d)
P3,281,000
43.
Sayo Nalang A Co. received a 150,000, 8%, 5-year note that requires five
equal annual year-end payments. The effective interest rate on the note
is 6%. What is the total interest revenue to be earned over the term of
the note?
a)
P53,869
b)
P35,869
c)
P35,698
d)
P53,986
For questions 44-46, refer to the following information below.
Peach Company borrowed P1,000,000 from Jay Company on January 1, 2019,
with 10% interest rate, collectible after 3 years. Jay Company collected the
interest on December 31, 2019.
Based on the credit information available for Peach Company on December 31,
2019, Jay Company determined that for the next 12 months there is 4%
probability of default and expected to collect only 90% of the loan principal.
44.
What will be the present value of future cash flows?
a)
P900,000
b)
P743,850
c)
P100,000
d)
P1,300,000
45.
How much is the expected credit loss?
a)
P256,150
b)
P40,000
c)
P100,000
d)
P36,000
46.
The 12-month Expected Credit Loss of Jay Company will be _______.
a)
P256,150
b)
P48,000
c)
d)
P10,246
P4,000
For questions 47-49, refer to the following information below.
Oliver Bank, Inc. loaned Elio Company P5,000,000 on January 1, 2016. The terms
of the loan were payment in full on December 31, 2020 plus annual interest
payments at 10% every December 31 starting December 31, 2016 until December
31, 2020.
Due to the economic downtrend brought by COVID-19 pandemic during 2020, Elio
Company is experiencing declining revenues and is likely, to default on its loan
payment with Oliver Bank, Inc. Elio Company requests for a restructuring of its
loan with Oliver Bank, Inc. on December 31, 2020. Oliver Bank, Inc. accrued the
interest for 2020.
Round off all present value factors to four decimal places.
Additional information:
1. The prevailing market rate of interest on December 31, 2020 is 7%.
2. Both parties agreed on the following modified terms:
a. Condonation of half of the accrued interest, the other half will be paid on
the reconstructing date.
b. Extension of maturity date to December 31, 2022 with no interest during
the extended term.
47.
How much is the impairment loss to be recognized for 2020?
a)
P1,118,000
b)
P1,168,500
c)
0
d)
P250,000
48.
How much is the interest income for 2021?
a)
P413,200
b)
P500,000
c)
d)
49.
P285,705
0
What is the carrying value of loan receivable on December 31, 2021?
a)
P5,000,000
b)
P4,545,200
c)
P3,718,800
d)
P4,132,000
For questions 50-51, refer to the following information below.
On August 20, 2020, HUGO, Inc. sold merchandise on account with a list price of
P80,000, less trade discounts of 4%, 3%, and 2%. Assume that the credit terms
agreed by the both parties were 2/15, n/30, FOB Shipping Point, and HUGO Inc.
paid the P3,000 freight.
50.
Under the Net Price Method, what is the amount of the “Accounts
Receivable”?
a)
P73,006
b)
P74,546
c)
P71,546
d)
None of the above.
51.
Under the Allowance Method, Allowance for Sales Discounts will cost
_____.
a)
P76,006
b)
P1,460
c)
P71,546
d)
P3,000
For questions 52-55, refer to the following information below.
Local Bank granted a loan to a borrower on January 1, 2025. The interest on the loan is 10%
payable annually starting December 31, 2025 The loan matures in four years on December
31, 2029.
Principal amount
P4,000,000
Origination fee charged against the borrower
342,100
Direct origination cost incurred
150,000
After considering the origination fee charged against the borrower and the direct origination
cost incurred, the effective rate on the loan is 12%.
52.
What is the carrying amount of the loan receivable on January 1, 2025?
a)
P4,000,000
b)
P3,807,900
c)
P4,150,000
d)
P3,657,900
53.
What amount should be recognized as interest income for 2025?
a)
P400,000
b)
P380,900
c)
P456,948
d)
P480,000
54.
What is the carrying amount of the loan receivable on December 31,
2025?
a)
P4,000,000
b)
P3,807,900
c)
P3,864,848
d)
P3,750,932
55.
What amount should be recognized as interest income for 2026?
a)
P480,000
b)
P400,000
c)
P386,485
d)
P463,782
For questions 56-59, refer to the following information below.
On January 1, 2016, Sun Merchandising borrowed P5,500,000 to Moon Company,
with interest rate of 7%, due every December 31, and collectible after 6 years.
Moon Company collected the interest on December 31, 2016.
Moon Company determined that there is 5% probability of default for the next 12
months and expected to collect only 90% of the loan principal.
Assuming that on December 31, 2017, Sun Company gained information that
Peach Company made some defaults on its other financial obligations and
assessed that the probability of default over the remaining life of the loan
increased to 10%. It expected recovery to the loan principal at 80%.
56.
On December 31, 2017, after collecting the interest, what will be the
Present Value of Future Cash Flows?
a)
P3,529,350
b)
P4,400,000
c)
P1,970,650
d)
P3,356,760
57.
Compute for the Expected Credit Loss (ECL) of Moon Company.
a)
P2,143,240
b)
P98,532
c)
P3,356,760
d)
P214,324
58.
What is the Lifetime ECL of Moon Company?
a)
P5,500,000
b)
P214,324
c)
P98,532
d)
P1,970,650
59.
The adjusting entry for impairment loss on receivables that Moon
Company should prepare is
a)
b)
c)
d)
Debit to Impairment Loss on Receivables for P115,792; Credit to Allowance
for Expected Credit Loss for P115,792
Debit to Impairment Loss on Receivables for P214,324; Credit to Allowance
for Expected Credit Loss for P214,324
Debit to Impairment Loss on Receivables for P3,356,760; Credit to Allowance
for Expected Debit Loss for P3,356,760
None of the above
Room 205 Inc. provided you the following information as of December 31, 2022:
No.:
Item
Amount
1
Trade accounts receivable, net of P150,000 credit balance
in customer’s accounts, including P9,000 uncollectible
customer’s accounts
P780,000
2
Credit card sale of merchandise to customer
800,000
3
Trade accounts receivable - assigned
950,000
4
Trade accounts receivable - unassigned
560,000
5
Trade accounts receivable - factored
780,000
6
8% note receivable
143,000
7
Accounts payable, net of 100,000 debit balance in
supplier’s accounts
600,000
8
Special deposits on contract bids
750,000
9
Dividend receivables
69,000
10
Advances to officers (of which P50,000 is currently
collectible)
960,000
11
Advances to affiliates
780,000
12
Subscription receivable (of which P75,000 is collectible
within 90 days)
55,000
13
60.
Accrued interest receivable
What is the amount of trade receivables?
a)
P3,080,000
b)
P3,374,000
c)
P3,473,000
d)
P3,808,000
140,000
Summary of Answers
1.
A
36.
C
2.
C
37.
C
3.
B
38.
D
4.
A
39.
A
5.
B
40.
A
6.
D
41.
D
7.
C
42.
D
8.
A
43.
B
9.
C
44.
B
10.
D
45.
A
11.
A
46.
C
12.
B
47.
A
13.
A
48.
A
14.
B
49.
B
15.
B
50.
B
16.
D
51.
B
17.
B
52.
B
18.
C
53.
C
19.
A
54.
C
20.
D
55.
D
21.
C
56.
D
22.
D
57.
A
23.
C
58.
B
24.
D
59.
A
25.
A
60.
B
26.
B
61.
27.
C
62.
28.
C
63.
29.
D
64.
30.
B
65.
31.
B
66.
32.
A
67.
33.
D
68.
34.
B
69.
35.
C
70.
Summary of Answers – Explained
1. (A) As defined in International Accounting Standards (IAS) 32 Financial
Instruments: Presentation, a financial instrument is any contract that gives rise to a
financial asset of one entity and a financial liability or equity instrument of another
entity.
2. (C) Only highly liquid investments that are acquired three months before maturity can
qualify as cash equivalents. Redeemable preference shares may qualify to be
reported as cash equivalents if purchased within three months or less before the
redemption date.
3. (B) Petty cash fund is established to cover small and miscellaneous expenditures.
4. (A) In letter B, it should be “inflow” only. In letter C, it should be Statement of
Financial Position/Balance Sheet, and not Statement of Cash Flow. In letter D, an entity
should consider the inflow of economic benefit.
5. (B) Since Cash and Cash Equivalent are unrestricted, it can readily be converted into
cash, and is available for use in the current operations, it is usually shown as the first
line item under current assets.
6. (D) Outstanding checks should be deducted from the bank balance. Deposit in transit
should be added to the bank statement balance. Credit memos should be added to the
cash balance per book.
7. (C) Allowance for sales discounts is a contra revenue account.
8. (A) The bank usually verifies the cash and the deposit slips before accepting the deposit.
If the error source is unknown, we can assume that the bank has the right amount and
the book entry is wrong. The correct amount to record is P352,763.
9. (C) The problem is silent as to who committed the error, therefore, the bank will have
the correct entry. The difference between P356,723.00 and P352,763 is P3,960.00 which
means that the book balance is overstated by that amount.
10. (D) An entity should classify non-trade receivables expected to be collected within
twelve months from the end of the reporting period as current assets, regardless of the
length of its normal operating cycle.
11. (A) Factoring is the transfer of receivables without recourse and is, therefore, an outright
sale of receivables.
12. (B) The cash method of accounting is a way of recording income and liabilities of an
entity.
13. (A) Statement 1: A company can immediately debit the Bad Debt Expense account and
credit Accounts Receivable under the direct write-off method when it deems that an
invoice is uncollectible.
Statement 2: Allowance method and direct write-off method are the only two methods
on accounting for uncollectible accounts.
14. (B) Letter B is necessary only for the accounts receivable pledged or assigned, and notes
receivable discounted.
15. (B) Money market savings certificates are classified as cash equivalents.
16. (D) Non-encashment of personal checks from petty cash funds, use of voucher systems,
internal audits at different intervals, periodic cash count, and minimum cash balance are
all examples of internal control over cash. In addition, the list also includes segregation
of incompatible duties, imprest system, and bank reconciliation.
17. (B) Internal control is any action or process effected by management that is designed to
help an entity achieve its objectives. Such objectives may be categorized as follows:
Reliability of financial reporting; Effectiveness and efficiency of operations; Compliance
with laws and regulations, and; Safeguarding of assets.
18. (C) In a typical organization, purchases are authorized by the manager (authorization),
purchases are made by the purchasing department (execution), check payments are
released to payees by the treasurer (custody), and purchase transactions are recorded
by the accountant (recording).
19. (A) Non-trade receivables are generally classified as current because of the concept of
normal operating cycle. Normal operating cycle is the time between the acquisition of
materials entering into a process (or the acquisition of goods for sale) and their
realization in cash or cash equivalents. In simple terms, it is the normal course of an
entity's business. If an entity's normal operating cycle is not clearly identifiable, it is
assumed to be 12 months. Therefore, non-trade receivable is classified a non-current
asset only if it is collectible within 12 months from the reporting date.
20. (D) The interest rate to be used to compute the interest receivable on a long-term
receivable is the stated interest rate. The interest rate to be used to compute the
interest income on a long-term receivable is the market interest rate.
21. (C)
List Price
Less 10% x P200,000
P200,000
P 20,000
P180,000
Less 5% x P180,000
P 9,000
P171,000
Less 3% x 171,000
P 5,130
Invoice Price
P165, 870
22. (D) P150,000 x .90 x .96 = P129,600
23. (C) Since the seller paid the freight and it is an FOB shipping point, Triple M Company is
entitled to charge the amount as an addition to the accounts receivable.
24. (D) When deducting the Cash Discounts, freight charges will be excluded.
P129,600 x .97 = P125,712
P125,712 + 1,500 = P127,212
25. (A) The Cash Discount will be disregarded since the buyer paid beyond the discount
period.
26. (B)
Cash in checking account
550,000
Cash in money market account
850,000
Treasury bill purchased November 1, 2024 maturing January 31, 2025
6,500,000
Total cash and cash equivalents
7,900,000
According to PAS 7, cash equivalents are treasury bills, money market placement and time
deposits that mature in three months or less from the date of purchase.
Unless stated otherwise, the money market is a cash equivalent with a three-month maturity.
The treasury bills are also cash equivalents because they mature in three months. The time
deposit is not a cash equivalent because it matures in four months.
27. (C)
Checkbook balance
2,000,000
Undelivered check drawn on Marianne's account
600,000
Adjusted cash balance account
2,600,000
The undelivered check is restored to the cash balance by debiting cash and crediting accounts
payable. The sinking fund cash is a long-term investment because it is reserved for paying off
the bond payable, which is a long-term liability.
28. (C)
Bank
Book
Unadjusted balances
580,000
605,550
Deposit in transit
72,000
Outstanding checks (56,600 - 11,000)
(45,600)
Erroneous bank credit
(3,800)
Bank service charge
(950)
Unreleased check
Erroneous bank charge
Adjusted balances
11,000
13,000
615,600
615,600
Bank
Book
Unadjusted balances
580,000
605,550
Deposit in transit
72,000
29. (D)
Outstanding checks (56,600 - 11,000)
(45,600)
Erroneous bank credit
(3,800)
Bank service charge
(950)
Unreleased check
11,000
Erroneous bank charge
13,000
Adjusted balances
615,600
30. (B)
Adjusted cash balance
Cash balance per books
Net Increase in cash
615,600
P 615,550
605,550
P 10,050
31. (B)
Balance per books
Proceeds collected by bank in favor of company
NSF customer check
Understatement of cash disbursements (840 - 480)
Overstatement of cash receipts (7,250 – 5,250)
Correct cash balance
P735,000
5,200
(4,150)
(360)
(2,000)
P733,690
32. (A)
Bank receipts for May
5,600,000
Deposits in transit - April 30
(280,000)
Deposits in transit - May 31
1,200,000
Book receipts on May
P6,520,000
33. (D)
Bank disbursements for May
6,000,000
Outstanding checks - April 30
(960,000)
Outstanding checks - May 31
1,000,000
Book disbursements for May
P6,040,000
34. (B) The balance per book on May 31 is also the adjusted book balance because there
are no book reconciling items.
Balance per book - April 30
3,920,000
Book receipts for May
6,520,000
Book disbursements for May
(6,040,000)
Balance per book - May 31
P4,400,000
35. (C) Interest income for 2021 (1,940,000 x 13.4% x 1/12) = 21,663
36. (C) Accrued interest receivable (2,000,000 x 12% x 1/12) = 20,000
37. (C) The certificate of deposit is considered a cash equivalent. The postdated customer's
check is reverted to accounts receivable.
Cash on hand
400,000
Demand deposit
8,000,000
Petty cash fund
80,000
Traveler's check
120,000
Manager's check
160,000
Money order
190,000
Total Cash
P8,950,000
38. (D)
Checking account at Metrobank
6,000,000
Foreign bank account unrestricted and in equivalent pesos
3,500,000
Petty cash fund, expense receipts (60,000 - 40,000)
20,000
Value added tax account
2,300,000
Total unrestricted cash
11,820,000
39. (A) The check drawn to the order of the petty cash custodians is actually a
replenishment check and therefore part of cash.
Coins and currencies
4,600
Check drawn to the order of petty cash custodian
1,860
Petty cash fund to be reported
P6,460
40. (A)
Principal
P500,000
Add: Interest (P500,000 x 13% x 60/360)
10,833.33
Maturity Value
P510,833.33
Less: Discount (P510,833.33 x 12% x 40/360)
6,811.11
Proceeds
P504,022.22
Cash
Liability on Discounted Notes
P504,022.22
P504,022.22
41. (D)
Gross amount of receivables factored
P100,000
Less: Factoring fee (8% x 100,000)
P8,000
Factor's holdback (4% x 92,000)
3,680
Net cash received from factoring
P88,320
42. (D) The note receivable is recorded at present value on December 31, 2022.
Present value of note (4,250,000 x 7.72) = 3,281,000
43. (B)
CF x PVF = PV
Where: CF = Future cash flows, PVF = Present value factor, PV = Present Value
CF x (PV of ordinary annuity of 1 @6%, n=5) = 150,000
CF X 4.2124 rounded off = 150,000
CF = 150,000/4.2124
CF = 35,609
Total cash flow from the note (35,609 x 5 years)
Less: Present value of the note using effective interest rate
(35,609 x PV of ordinary annuity of 1 @8, n=5)
Total interest revenue over the life of the note
P 178,045
(142,176)
P 35,869
44. (B)
Carrying amount of loan
Probability of Collection
Future Cash Flows
Present Value Factor (at 10% effective rate)
For 2 more periods [1/(1+0.1)^2]
Present Value of future cash flows
P 1,000,000
90%
P
900,000
P
0.8265
743,850
45. (A)
Carrying amount of the loan
Present Value of the future cash flows
Expected Credit Loss
P 1,000,000
P 743,850
P 256,150
Carrying amount of the loan
Present Value of the future cash flows
Expected Credit Loss
P 1,000,000
P 743,850
P 256,150
46. (C)
Probability of default for the next 12 months
12-month ECL
47. (A)
Future cash inflow x PV of 1 at 10% for 2 periods
5,000,000 x 0.8264 = 4,132,000
P
4%
10,246
Outstanding capital, 12/31/2020
P 5,000,000
Add: Accrued interest, 12/31/2020 (5,000,000 X 10%)
500,000
Less: Accrued interest collected, 12/31/2020
(250,000)
Carrying value of loan, 12/31/2020
P 5,250,000
Carrying value of the loan, 12/31/2020
Less: Present value of future cash flows, 12/31/2020
Impairment Loss
5,250,000
(4,132,000)
1,118,000
48. (A) Interest income for 2021 4,132,000 x 10% x 12/12 = P413,200
49. (B)
Present Value, 12/31/2020
Add: Interest - 2021
Carrying value, 12/31/2021
P 4,132,000
413,200
P 4,545,200
50. (B) Under Net Price Method, Accounts Receivable and the Sales at the Sales Price less
the available cash discount.
Accounts Receivable
Sales (P73,006 x .98)
Cash (amount of freight)
P 74,546
P 71,546
P 3,000
51. (B)
Accounts Receivable
Allowance for Sales Discounts (P73,006 x 2%)
Sales (P73,006 x .98)
Cash (amount of freight)
P 76,006
P 1,460
P 71,546
P 3,000
52. (B)
Origination fee received
342,100
Direct origination cost incurred
(150,000)
Unearned interest income - January 1, 2025
192,100
Loan Receivable
4,000,000
Unearned interest income
(192,100)
Carrying amount - January 1, 2025
3,807,900
53. (C)
Interest income for 2025 (12% × 3,807,900)
456,948
Interest received for 2025 (10% × 4,000,000)
400,000
Amortization of unearned interest income
56,948
54. (C)
Loan receivable
4,000,000
Unearned interest income - December 31, 2025
(135,152)
Carrying amount - December 31, 2025
3,864,848
Unearned interest income - January 1, 2025
192,100
Amortization for 2025
(56,948)
Unearned interest income - December 31, 2025
135,152
55. (D)
Interest income for 2026 (12% x 3,864,848)
56. (D)
Carrying amount of the loan
Probability of collection
463,782
P 5,500,000
80%
Future cash flows
Present value factor (at 7% effective rate)
For 4 more periods [1/1+0.07)^4
Present value of future cash flows
57. (A)
58. (B)
59. (A)
P 4,400,000
0.7629
P 3,356,760
Carrying amount of the loan
Probability of collection
Future cash flows
Present value factor (at 7% effective rate)
For 4 more periods [1/1+0.07)^4
Present value of future cash flows
Carrying amount of the loan
Present value of future cash flows
Expected credit loss
P 5,500,000
80%
P 4,400,000
Carrying amount of the loan
Probability of collection
Future cash flows
Present value factor (at 7% effective rate)
For 4 more periods [1/1+0.07)^4
Present value of future cash flows
P 5,500,000
80%
P 4,400,000
Carrying amount of the loan
Present value of future cash flows
Expected credit loss
Probability of default for the next 12 month
Lifetime ECL
P 5,500,000
P 3,356,760
P 2,143,240
10%
P 214,324
Carrying amount of the loan
Probability of collection
Future cash flows
Present value factor (at 7% effective rate)
For 4 more periods [1/1+0.07)^4
Present value of future cash flows
P 5,500,000
80%
P 4,400,000
0.7629
P 3,356,760
P 5,500,000
P 3,356,760
P 2,143,240
0.7629
P 3,356,760
0.7629
P 3,356,760
Carrying amount of the loan
Present value of future cash flows
Expected credit loss
Probability of default for the next 12 month
Lifetime ECL
Allowance for ECL
Impairment loss for 2023
P 5,500,000
P 3,356,760
P 2,143,240
10%
P 214,324
P
98,532
P 115,792
60. (B)
No.:
Item
Amount
1
Trade accounts receivable, net of P150,000 credit balance in
customer’s accounts, including P9,000 uncollectible customer’s
accounts
2
Credit card sale of merchandise to customer
800,000
3
Trade accounts receivable - assigned
950,000
4
Trade accounts receivable - unassigned
560,000
6
8% note receivable
143,000
Trade Receivables
P 921,000
P3,374,000