AP Cash to Inventory

CASH TO INVENTORY Problem 1. Q.1-4. The statement of financial position of Cleo Corporation  Corporation  reported the following long-term receivables as of December 31, 2013: Note receivable from sale of plant Note receivable from officer

P9,000,000 2,400,000

In connection with your audit, you were able to gather the following transactions during 2014 and other information pertaining to the company’s long -term receivables: receivables: a. The note receivable from sale of plant bears interest at 12% per annum. The note is payable in 3 annual installments installment s of P3,000,000 plus interest on the unpaid balance every April 1. The initial principal and interest payment was made on April 1, 2014. b. The note receivable from officer is dated December 31, 2013, earns interest at 10% per annum, and is due on December 31, 2016. The 2014 interest was received on December 31, 2014. c. The corporation sold a piece of equipment equipment to Yes, Inc. on April 1, 2014, in exchange for an P1,200,000 non-interest bearing note due on April 1, 2016. The note had no ready market, and there was no established exchange price for the equipment. The prevailing interest rate for a note of this type at at April 1, 2014, was 12%. The present value value factor of of 1 for two periods at 12% is 0.797 while the present value factor of ordinary annuity of 1 for two periods at 12% is 1.690. d. A tract of land was sold by the corporation to No Co. on July 1, 2014, for P6,000,000 under an installment sale contract. No Co. signed a 4-year 11% note for P4,200,000 on July 1, 2014, in addition to the down payment of P1,800,000. The equal annual payments of principal and interest on the note will be P1,353,750 payable on July 1, 2015, 2016, 2017,and 2018. The land had an established cash price of P6,000,000, and its cost to the corporation was P4,500,000. The collection of the installments on this note is reasonably assured. Based on the above and the result of your audit, determine the following: 1. Noncurrent notes receivable as of December 31, 2014 a. P13,556,400 c. P10,556,400 b. P 9,664,650 d. P 9,750,726

2. Current portion of long-term notes receivable as of December 31, 2014 a. P3,891,750 c. P3,000,000 b. P4,353,750 d. P 0 3. Accrued interest receivable as of December 31, 2014 a. P771,000 c. P 540,000 b. P857,076 d. P1,011,000

4. Interest income for the year 2014 a. P1,281,000 b. P1,637,076

c. P1,367,076 d. P1,512,000

2. Q 5-6. Jeffrey Company bought 20% of Cooper Corporation’s ordinary shares on January 1, 2014 for P11,400,000. Carrying amount of of Cooper’s net assets at purchase date totaled P50,000,000. Fair value and carrying amounts were the same for all items except for plant and inventory, for which fair values exceed their carrying amounts by P10,000,000 and P2,000,000 respectively. The plant has a 5-year life. All inventory was sold during 2014. During 2014, 2014, Cooper reported profit of P30,000,000 and paid a P10,000,000 cash dividend. Based on the above and the result of your audit, answer the following: 5. What amount should Jeffrey report as net income related to this investment in 2014? a. P5,200,000 c. P5,400,000 b. P6,200,000 d. P4,200,000 6. The carrying amount of Investment in Cooper Corporation as of December 31, 2014 a. P14,600,000 c. P13,600,000 b. P14,800,000 d. P15,600,000 3. Q 7-11. The Rosalina Company is on a calendar year basis. The following data were were found during your audit: a. Goods in transit shipped FOB destination by a supplier, in the amount of of P100,000, had been excluded from the inventory, and further testing revealed that the purchase had been recorded. b. Goods costing P50,000 had been received, included in inventory, and recorded as a purchase. However, upon your inspection the goods were found to be defective and would be immediately returned. c. Materials costing P250,000 and billed on December 30 at a selling price of P320,000, had been segregated in the warehouse for shipment to a customer. The materials had been excluded from inventory as a signed purchase order had been received from the customer. Terms, FOB destination. d. Goods costing P70,000 was out on consignment with Hermie Company. Since the monthly statement from Hermie Company listed those materials as on hand, the items had been excluded from the final inventory and invoiced on December 31 at P80,000. e. The sale of P150,000 worth of materials and costing P120,000 had been shipped FOB point of shipment on December 31. However, this inventory was found to be included in the final inventory. The sale was properly recorded in 2014. f.

Goods costing P100,000 and selling for P140,000 had been segregated, but not shipped at at December 31, and were not included in the inventory.  A review of the customer’s purchase order set forth terms as FOB destination. The sale had not been recorded.

g. Your client has an invoice from a supplier, terms FOB shipping point but the goods had not arrived as yet. However, these materials costing P170,000 had been included in the inventory count, but no entry had been made for their purchase. h. Merchandise costing P200,000 had been recorded as a purchase but not included as inventory. Terms of sale are FOB shipping point according to the supplie r’s invoice which had arrived at December 31. Further inspection of the client’s records revealed the following December 31, 2014 balances: Inventory, P1,100,000; Accounts receivable, P580,000; Accounts payable, P690,000; Net sales, P5,050,000; Net purchases, P2,300,000; Net income, P510,000. Based on the above and the result of your audit, determine the adjusted balances of following as of December 31, 2014: 7. Inventory a. P1,230,000 b. P1,650,000

c. P1,550,000 d. P1,480,000

8. Accounts payable a. P710,000 b. P540,000

c. P810,000 d. P760,000

9. Net sales a. P4,550,000 b. P4,650,000

c. P4,730,000 d. P4,970,000

10. Net purchases a. P2,370,000 b. P2,420,000

c. P2,150,000 d. P2,320,000

11. Net income a. P220,000 b. P290,000

c. P540,000 d. P550,000

4. Q 12-13. The books of JP's Service, Inc. disclosed a cash balance of of P687,570 on December 31, 2014. The bank statement as of December 31 showed a balance of P547,800. Additional information informati on that might be useful in reconciling the two balances follows: (a) Check number 748 for P30,000 was originally recorded on the books as P45,000. (b) A customer's note dated September 25 was discounted on October 12. The note was was dishonored on December 29 (maturity date). The bank charged JP's account for P142,650, including a protest fee of P2,650. (c) The deposit of December 24 was recorded on the books as P28,950, but it was actually a deposit of P27,000. (d) Outstanding checks totaled P98,850 as of December 31.

(e) There were bank service charges for December of P2,100 not yet recorded on the books. (f) JP's account had been charged on December 26 for a customer's NSF check check for P12,960. (g) JP properly deposited P6,000 on December 3 that was not recorded by the bank. (h) Receipts of December 31 for P134,250 were recorded by the bank on January 2. (i) A bank memo stated that a customer's note for P45,000 and interest of P1,650 had been collected on December 27, and the bank charged a P360 collection fee. Based on the above and the result of your audit, determine the following: 12. Adjusted cash in bank balance a. P583,200 b. P577,200

c. P589,200 d. P512,400

13. Net adjustment to cash as of December 31, 2014 a. P104,370 c. P 98,370 b. P110,370 d. P175,170 5. Q 14-18  The accountant for the Joshtine Company assembled the following data:

Cash account balance Bank statement balance Deposits in transit Outstanding checks Bank service charge Customer's check deposited July 10, returned by bank on July 16 marked NSF, and redeposited immediately; no entry made on books for return or redeposit Collection by bank of company's notes receivable

June 30 July 31 P 15,822 P 39,745 107,082 137,817 8,201 12,880 27,718 30,112 72 60

71,815

8,250 80,900

The bank statements and the company's cash records show these totals: Disbursements Disbursemen ts in July per bank statement Cash receipts in July per Joshtine's books

P218,373 236,452

Based on the application of the necessary audit procedures and appreciation of the above data, you are to provide the answers to the following: 14. How much is the adjusted cash balance as of June 30? a. P87,565 c. P107,082 b. (P3,695) d. P 15,822 15. How much is the adjusted bank receipts for July?

a. P253,787 b. P214,802

c. P245,537 d. P232,881

16. How much is the adjusted book disbursements for July? a. P220,767 c. P181,782 b. P212,517 d. P206,673 17. How much is the adjusted cash balance as of July 31? a. P137,817 c. P22,513 b. P112,335 d. P120,585 18. How much is the cash shortage as of July 31? a. P 8,250 c. P196,144 b. P71,815 d. P 0 6. Q 24-26. Your audit disclosed that on December 31, 2014, the accounts receivable control account of Kaila Company had a balance of P2,865,000. P2,865,000. An analysis of the accounts receivable account showed the following:  Accounts known to be worthless worthless  Advance  Advance payments to creditors creditors on purchase purchase orders orders  Advances  Advances to affiliated affiliated companies companies Customers’ accounts reporting credit balances arising from sales return Interest receivable on bonds Other trade accounts receivable  – unassigned Subscriptions receivable due in 30 days Trade accounts receivable - assigned (Kaila company’s equity in assigned accounts is P150,000) Trade installment receivable due 1  – 18  – 18 months, including unearned finance charges of P30,000 Trade receivables from officers due currently Trade accounts on which post-dated checks are held (no entries were made on receipts of checks)

P

37,500 150,000 375,000

(225,000) 150,000 750,000 825,000 375,000 330,000 22,500 75,000 P2,865,000

Based on the above and the result of your audit, determine the adjusted balance of following: 24. The trade accounts receivable as of December 31, 2014 is a. P1,147,500 c. P1,485,000 b. P1,522,500 d. P1,447,500 25. The net current trade and other receivables as of December 31, 2014 is a. P2,647,500 c. P2,272,500 b. P2,610,000 d. P1,822,500 26. How much of the foregoing f oregoing will be presented under noncurrent nonc urrent assets as of December 31, 2014? a. P1,200,000 c. P525,000 b. P 375,000 d. P 0

7. Q 27-30. The adjusted trial balance of Joseph Company as of December 31, 2013 shows the following:

 Accounts receivable receivable  Allowance for bad debts debts

Debit P1,000,000 P1,000,000

Credit P40,000

 Additional  Additional information: information: Cash sales of the company represents 10% of gross sales. 90% of the credit sales customers do not take advantage of the 2/2014, n/30 terms. It is expected that cash discount of P6,000 will be taken on accounts receivable outstanding at December 31, 2014. Sales returns in 2014 amounted to P400,000. P400,000. All returns were from charge sales. During 2014, accounts totaling to P44,000 were written off as uncollectible; bad debt recoveries during the year amounted to P3,000. The allowance for bad debts is adjusted so that it represents certain percentage of the outstanding accounts receivable at year end. The required percentage at December 31, 2014 is 150% of the rate used on December 31, 2013. Based on the above and the result of your audit, answer the following: 27. The accounts receivable as of December 31, 2014 is a. P3,000,000 c. P 333,333 b. P 300,000 d. P2,444,000 28. The allowance for doubtful accounts as of December 31, 2014 is a. P 20,000 c. P180,000 b. P120,000 d. P146,640 29. The net realizable value of accounts receivable as of December 31, 2014 is a. P 307,340 c. P2,874,000 b. P2,814,000 d. P2,291,360 30. The doubtful account expense for the year 2014 is a. P181,000 c. P 21,000 b. P121,000 d. P147,640 8. Q 31-32. On November 17, 2014, Matet Airways entered into a noncancelable commitment to purchase 3,000 barrels of aviation fuel for P9,000,000 on March 31, 2015. Matet entered into this purchase purchase commitment to protect itself against the volatility volatilit y in the aviation fuel market. By December 31, 2014, the purchase price of aviation fuel had fallen to P2,200 per barrel. However, by March 31, 2015, when Matet took delivery of the 3,000 barrels, the price of aviation fuel had risen to P3,100 per barrel.

Based on the above and the result of your audit, answer the following: 31. The loss on purchase commitment on December 31, 2014 is a. P1,500,000 c. P2,400,000 b. P 900,000 d. P 0 32. The gain on purchase commitment on March 31, 2015 is a. P2,700,000 c. P2,400,000 b. P 300,000 d. P 0 9. Q 33-36  Binalonan Sales Company uses the first-in, first-out method in calculating cost of goods sold for the three products that the company handles. Inventories and purchase purchase information concerning the three products are given for the month of October.

Oct. 1

Inventory

Oct. 1-15

Purchases

Oct. 16-31

Purchases

Oct. 1-31 Oct. 31

Sales Sales price

Product C 50,000 units at P6.00 70,000 units at P6.50 30,000 units at P8.00 105,000 units P8.00/unit

Product P 30,000 units at P10.00 45,000 units at P10.50

Product A 65,000 units at P0.90 30,000 units at P1.25

50,000 units P11.00/unit

45,000 units P2.00/unit

On October 31, the company’s suppliers reduced their prices from the most recent purchase prices by the following percentages: product C, 20%; product P, 10%; product A, 8%. Accordingly, Binalonan decided to reduce its sales prices on all items by 10%, effective November 1. Binalonan’s selling cost is 10% of sales price. Products C and P have a normal profit (after selling costs) of 30% on sales prices, while the normal profit on product A (after selling cost) is 15% of sales price. Based on the above and the result of your audit, determine the following: 33. Total cost of Inventory at October 31 is a. P565,000 c. P557,310 b. P655,500 d. P617,500 34. The amount of Inventory to be reported on the company’s statement of financial position at October 31 is a. P569,850 c. P559,350 b. P543,810 d. P595,350 35. The Allowance for inventory write down at October 31 is a. P 5,650 c. P85,650 b. P13,500 d. P60,150 36. The cost of sales after loss on inventory write down for the month of October is a. P1,298,500 c. P1,022,260 b. P1,290,650 d. P1,208,000

10. Q 37-40. You were able to gather the following from the December 31, 2014 trial balance of JP Corporation in connection with your audit of the company: Cash on hand Petty cash fund BPI current account Security Bank current account No. 01 Security Bank current account No. 02 PNB savings account PNB time deposit

P 500,000 10,000 1,000,000 1,080,000 (80,000) 1,200,000 500,000

Cash on hand includes the following items: a. Customer’s check for P40,000 returned by bank on December 26, 2014 due to insufficient fund but subsequently redeposited and cleared by the bank on January 8, 2015. b. Customer’s check for P20,000 dated January 2, 2015, received on December 29, 2014. c. Postal money orders received from customers, P30,000. P30,000. The petty cash fund consisted of the following items as of December 31, 2014. Currency and coins Employees’ vales  vales   Currency in an envelope marked “collections for charity” with names attached Unreplenished petty cash vouchers Check drawn by JP Corporation, payable to the petty cashier

P 2,000 1,600 1,200 1,300 4,000 P10,100

Included among the checks drawn by JP Corporation against the BPI current account and recorded in December 2014 are the following: a. Check written and dated December 29, 2014 and delivered to payee on January 2, 2015, P80,000. b. Check written on December 27, 2014, dated January 2, 2015, delivered to payee on December 29, 2014, P40,000. The credit balance in the Security Bank current account No. 2 represents checks drawn in excess of the deposit balance. These checks were still outstanding at December 31, 2014. The savings account deposit in PNB has been set aside by the board of directors for acquisition of new equipment. This account is expected to be disbursed in the next 3 months after the end of the reporting period. Based on the above and the result of your audit, determine the adjusted balances of following: 37. Cash on hand a. P410,000 b. P530,000

c. P470,000 d. P440,000

38. Petty cash fund a. P6,000 b. P7,200

c. P2,000 d. P4,900

39. BPI current account a. P1,000,000 b. P1,120,000

c. P1,080,000 d. P1,040,000

40. Cash and cash equivalents a. P2,917,200 b. P3,074,900

c. P3,052,000 d. P3,066,000

CASH TO INVTY. Answer Section PROBLEM 1. ANS:  Answers: 1) D; 2) A; 3) A; 4) C Suggested Solution: Question No. 1 NR from sale of plant Balance, 12/31/2014 (P9,000,000 P3,000,000) Less inst. due on 4/1/2015 NR from officer, due 12/31/2016 NR from sale of equipment Present value of note, 4/1/2014 (P1,200,000x0.797)  Add discount discount amort. amort. for 2014 (P956,400x12%x9/2016) NR from sale of land Balance, 12/31/2014 Less principal installment due on 7/1/2015 Total amount to be received Less interest (P4,200,000 x 11%) Total

P6,000,000 3,000,000

P3,000,000 2,400,000

956,400

86,076

1,042,476

4,200,000

P1,353,750 462,000

891,750

3,308,250 P9,750,726

R eceivable eceivabless are initia i nitiall llyy recog nized at its fair fair value value plus plus trans trans action cos ts that that are are dir ectly ectly attributable to the acquisition of the financial asset (PAS 39, par. 43). Receivables are financial assets since they represent contractual right to receive cash or other financial assets. They are included in the financial asset category “loans and receivables”. Fair value  is the amount for which an asset could be exchanged, or a liability settled, between between k nowledgeable, willing parties in an arm’s length transaction. Transaction costs  are incremental costs that are directly attributable to the acquisition, issue

or dis pos al of a financial fin ancial ass et or financia financi al liability. A n increme incr ementa ntall cos t is one that that would not have been incurred if the entity had not acquired, issued or disposed of the financial instrument.

Notes exchanged for property, goods, or services generally are presumed to reflect fair and adequate interest rates. Therefore, notes with reasonable interest rates are carried at face value because the face value of those notes is equal to their fair value. Conditions requiring additional valuation considerations: (1) No interest rate is stated. (2) The stated rate does not seem reasonable, given the nature of the transaction and surrounding circumstances. (3) The stated face amount is significantly different from the current cash equivalent sales price of similar property, goods, or services, or from the current market value of similar notes. If one of the three conditions exists, record the note receivable at face value and recognize and amortize a premium or discount for the difference between the face amount and whichever of the following is more clearly determinable: (1) The fair market value of the property, goods, or services exchanged, or (2) The current market value of the note. (3) Imputing an interest rate.  An imputed rate should be used where no market value is determinable determinable for the property, goods, or services or the note involved in the exchange. The imputed interest rate is used to calculate a present value for the note, thereby allowing for the recognition and amortization of a premium or discount for the difference between the face amount and present value. Subsequent to initial recognition, notes receivable are measured at amortized cost using effective par. 46). interest method (P A S 39, par.

The amortized cost of a financial asset is the amount at which the financial asset is measured at initial recognition minus principal repayments, plus or minus the cumulative amortization using the effective interest method of any difference between that initial amount and the maturity maturity amount, amount, and minu minuss any reduction (dir ( directly ectly or throug h the use of an allowa allowance nce account) for impairment or uncollectibility. Question No. 2 Note receivable from sale of plant due, 4/1/2015 Note receivable from sale of land (see no. 1) Current portion of long-term notes receivable

P3,000,000 891,750 P3,891,750

Question No. 3 NR from sale of plant (P6,000,000 x 12% x 9/2016) NR from sale of land (P4,200,000 x 11% x 6/2016)  Accrued interest interest receivable, receivable, 12/31/2014 12/31/2014

P540,000 231,000 P771,000

Question No. 4 NR from sale of plant: 1/1 to 3/31 - P9,000,000 x 12% x 3/2016 4/1 to 12/31 - P6,000,000 x 12% x 9/2016 NR from officer (P2,400,000 x 10%) NR from sale of equipment (P956,400 x 12% x 9/2016) NR from sale of land (P4,200,000 x 11% x 6/2016) Interest income for 2014

P 270,000 540,000 810,000 240,000 86,076 231,000 P1,367,076

PTS: 1 2. ANS:  Answers: 5) B; 6) D Suggested Solution: Question No. 1 Share of profit (P30,000,000 x 20%)  Amortization  Amortization of excess - Inventory  Amortization  Amortization of excess - Plant (P2,000,000 (P2,000,000/5) /5) Income from acquisition (see below) Net investment income

P6,000,000 ( 400,000) 400,000) ( 400,000) 400,000) 1,000,000 P6,200,000

 Acquisition cost cost Less carrying amount of net assets acquired (P50,000,000 x 20%) Excess  Attributed to: Undervalued plant asset (P10,000,000 x 20%) Undervalued inventory (P2,000,000 x 20%) Negative Goodwill (income from acquisition)

P11,400,000 P11,400,000 10,000,000 1,400,000 ( 2,000,000) ( 400,000) (P1,000,000)

 Any excess of the investor’s share of the net fair value of the associate’s identifiable assets, liabilities and contingent liabilities over the cost of the investment is excluded from the carrying amount of the investment and is instead included as income in the determinat ion determinat  ion of the investor’s share of the associate’s profit or loss in the period in which the investment is acquired. (PAS 28  par. 23) Question No. 2  Acquisition cost cost Net investment income Dividends received (P10,000,000 x 20%) Carrying amount, 12/31/2014

P11,400,000 P11,400,000 6,200,000 ( 2,000,000) P15,600.000

PTS: 1 3. ANS:  Answers: 7 ) C; 8) A; 9) B; 10) D, 11) 11) C Suggested Solution: Question Nos. 1 to 5

Inventory Unadjusted balances (a) (b) (c) (d) (e) (f) (g) (h)  Adjusted balances

 Accounts Payable

Net Sales

Net Purchases

Net Income

P1,100,000 P690,000 P5,050,000 P2,300,000 P510,000 - (100,000) (100,000) 100,000 (50,000) (50,000) (50,000) 250,000 (320,000) (70,000) 70,000 (80,000) (10,000) (120,000) (120,000) - (120,000) (120,000) 100,000 100,000 170,000 170,000 (170,000) 200,000 200,000 P1,550,000

P710,000 P4,650,000

P2,320,000

P540,000

PTS: 1 4. ANS:  Answers: 12) C; 13) C Suggested Solution: Question No. 12 Balance per bank statement, 12/31/2014  Add: Deposits in transit Bank error-deposit not recorded Total Less: Outstanding checks  Adjusted bank balance, balance, 12/31/2014 12/31/2014

P547,800 P134,250 6,000

Balance per books, 12/31/2014  Add: Book error error - Check No. No. 748 Customer note collected by bank Total

P15,000 46,290

Less: Dishonored note Book error-improperly recorded deposit NSF check

142,650 1,950 12,960

140,250 688,050 98,850 P589,200 P589,200 P687,570 61,290 748,860

2,100

Bank service charges  Adjusted book balance, balance, 12/31/2014 12/31/2014

159,660 P589,200 P589,200

Question No. 13 Unadjusted balance per books, 12/31/2014  Adjusted book balance, balance, 12/31/2014 12/31/2014 Net adjustment to cash – cash  – credit

P687,570 589,200 589,200 P 98,370

PTS: 1 5. ANS:  Answers: 14) A; 15) C; 16) B; 17) D; 18) D Suggested Solution: Joshtine Company Reconciliation of Receipts, Disbursements, and Bank Balance For the month ended July 31 Beginning June 30 Balance per bank statement Deposits in transit: June 30 July 31 Outstanding checks: June 30 July 31

P107,082

P249,108 a

8,201

(8,201) 12,880

Balance per books Bank service charge: June July Collection of notes receivable: June July

Disb.

Ending July 31

P218,373

P137,817

12,880

(27,718)

Beginning June 30 NSF check redeposited  Adjusted bank bank balance

Receipts July

(27,718) 30,112 Receipts July

Disb.

(30,112) Ending July 31

(8,250)

(8,250)

P 87,565

P245,537

P212,517

P120,585

P 15,822

P236,452

P212,529 b

P 39,745

(72) 60

(60)

(72)

71,815

(71,815) 80,900

80,900

 Adjusted book book balance

P 87,565

P245,537

P212,517

P120,585

a

 (P137,817 + P218,373 – P218,373  – P107,082)  P107,082)  (P15,822 + 236,452 – 236,452  – P39,745)  P39,745)

b

PTS: 1 6. ANS:  Answers: 24) B; 25) A; 26) B Suggested Solution: Question No. 1 Other trade accounts receivable  – unassigned Trade accounts receivable - assigned Trade installment receivable due 1  – 18  – 18 months, net of unearned finance charges of P30,000 Trade receivables from officers due currently Trade accounts on which post-dated checks are held Trade accounts receivable

P 750,000 375,000 300,000 22,500 75,000 P1,522,500

Question No. 2 Trade accounts receivable (see no. 1)  Advance payments to creditors on on purchase purchase orders orders Interest receivable on bonds Subscriptions Subscription s receivable, due in 30 days Current trade and other receivables

P1,522,500 150,000 150,000 825,000 P2,647,500

Question No. 3  Advances  Advances to affiliated affiliated companies companies

P375,000 P375,000

Note: Advances to affiliated companies are normally normally presented under noncurrent assets. PTS: 1 7. ANS:  Answers: 27) A; 28) C; 29) B; 30) A Suggested Solution: Question No. 1 Expected cash discounts Divide by percentage of cash discount Portion of AR that will be granted cash discounts Divide by percentage of total AR estimated to take advantage of the discount

P

6,000 0.02 300,000 0.10

 Accounts receivable, receivable, 12/31/2014 12/31/2014

P3,000,000 P3,000,000

Question No. 2  Accounts receivable, receivable, 12/31/2014 12/31/2014 Multiply by bad debt rate [(P40,000/P1,000,000) [(P40,000/P1,000,0 00) x 1.5]  Allowance for doubtful doubtful accounts, accounts, 12/31/2014 12/31/2014

P3,000,000 P3,000,000 0.06 P 180,000

Question No. 3  Accounts receivable, receivable, 12/31/2014 12/31/2014 Less: Allowance for doubtful accounts  Allowance  Allowance for sales discounts Net realizable value, 12/31/2014

P3,000,000 P3,000,000 P180,000 6,000

186,000 186,000 P2,814,000

Question No. 4  Allow. for doubtful doubtful accounts, accounts, 12/31/20 12/31/2014 14  Add accounts accounts written off Total Less: Allow. for doubtful accounts, 12/31/2014 Bad debt recoveries Doubtful accounts expense for 2014

P180,000 P180,000 44,000 224,000 P40,000 3,000

43,000 P181,000

PTS: 1 8. ANS:  Answers: 31) 31) C; 32) C Suggested Solution: Question No. 1 Contract price Market value, 12/31/2014 (3,000 x P2,200) Loss on purchase commitment, 12/31/2014

P9,000,000 6,600,000 P2,400,000

Purchase commitment is a lock on the inventory purchase price price in advance. It is an executory contract (i.e. exchange of promises about future actions). No journal entry is required to record an asset and liability at the commitment date. However, when price declines take place subsequent to the commitment and it is outstanding at the end of an accounting period, the contract becomes onerous.  A n onerous contract   is a contract in which the unavoidable costs of meeting the

obligations under the contract exceed the economic benefits expected to be received under it. PAS 37 par. 66 provides that if an entity has a contract that is onerous, the present oblig ation under the contract shal sh alll be recog nized and and mea meass ured as as a provi s ion. Question No. 2

Market value, 3/31/2015 (3,000 x P3,100) Market value, 12/31/2014 (3,000 x P2,200) Increase in market value Loss on purchase commitment, 12/31/2014 Gain on purchase commitment (maximum)

P9,300,000 6,600,000 P2,700,000 P2,400,000 P2,400,000

If, prior to delivery, the market price increases, the estimated loss on purchase commitments account is reduced and a gain is recorded, though such “recovery” can only be recognized to the extent of the original loss recorded. PTS: 1 9. ANS:  Answers: 33) B; 34) A; 35) C; 36) B Suggested Solution: Question No. 1 Product C

Oct. 16 - 31 Oct. 1 - 15

Units 30,000 15,000 45,000

Unit Cost P8.00 6.50

Total cost P240,000 97,500 337,500

P

Oct. 1 - 15

25,000

10.50

262,500

 A

Oct. 1 - 15 Oct. 1

30,000 20,000 50,000

1.25 0.90

37,500 18,000 55,500 P655,500

Question No. 2

Product C

Unit Cost P8.00 6.50

NRV* P6.48 6.48

Inventory  Amount** P194,400 97,200 291,600

Oct. 16 - 31 Oct. 1 - 15

Units 30,000 15,000 45,000

P

Oct. 1 - 15

25,000

10.50

8.91

222,750

 A

Oct. 1 - 15 Oct. 1

30,000 20,000 50,000

1.25 0.90

1.62 1.62

37,500 18,000 55,500 P569,850

* (Existing selling price x .9 x .9) ** [Units x (Lower of cost or NRV per unit)]

Question No. 3 Total cost of inventory, 10/31 (see no. 1) Less inventory value, 10/31 (see no. 2) Required allowance for inventory write down, 10/31

P655,500 569,850 P 85,650

Question No. 4 Inventory, 10/1 (at cost): Product C (50,000 units x P6) P300,000 Product P (30,000 units x P10) 300,000 Product A (65,000 units x P0.90) 58,500  Add purchases: purchases: Product C [(70,000 units x P6.50) + (30,000 units x P8) 695,000 Product P (45,000 units x P10.50) 472,500 Product A (30,000 units x P1.25) 37,500 Total goods available for sale Less inventory, 10/31 (at cost) Cost of sales, before loss on inventory write down Loss on inventory write down (see below) Cost of sales, after loss on inventory write down Required allowance for inventory write down, 10/31 Less allowance, 10/1 (see below) Loss on inventory write down for October Product Units Unit Cost NRV* C 50,000 P 6.00 P7.20 P 30,000 10.00 9.90  A 65,000 0.90 1.80  Allowance for inventory inventory write down, down, 10/1

P 658,500

1,205,000 1,863,500 655,500 1,208,000 82,650 P1,290,650 85,650 3,000 P82,650

Allowance P 3,000 P3,000

* The adjustment on selling prices is effective only starting Nov. 1.  Alternative computation computation (Direct method): method): Inventory, 10/1 - at lower of cost or NRV (P658,500 – (P658,500  – P3,000)  Add purchases: purchases: Total goods available for sale Less inventory, 10/31 - at lower of cost or NRV Cost of sales, after loss on inventory write down

PTS: 1 10. ANS:  Answers: 37) D; 38) A; 39) B; 40) D

P 655,500 1,205,000 1,205,000 1,860,500 569,850 P1,290,650

Suggested Solution: Question No. 1 Unadjusted cash on hand NSF check Post dated check received  Adjusted cash on hand hand

P500,000 (40,000) (20,000) P440,000 P440,000

Question No. 2 Petty cash fund per total Employees' vales (IOU) Currency in envelope marked "collections "collecti ons for charity" Unreplenished petty cash vouchers Petty cash fund, as adjusted

P10,100 (1,600) (1,200) (1,300) P 6,000

 Alternative computation: computation: Currency and coins Replenishment check Petty cash fund, as adjusted

P 2,000 4,000 P 6,000

Question No. 3 Unadjusted BPI current account Unreleased check Post dated check delivered  Adjusted BPI current current account account

P1,000,000 80,000 40,000 P1,120,000 P1,120,000

Question No. 4 Cash on hand (see no. 1) Petty cash fund (see no. 2) BPI current account (see no. 3) Security Bank current account (net of overdraft of P80,000) PNB time deposit Cash and cash equivalents, as adjusted

PTS: 1

P 440,000 6,000 1,120,000 1,000,000 500,000 P3,066,000