CHAPTER 1 Caselette - Accounting Cycle

CHAPTER 1 - Accounting Process &  Working Paper Paper Preparation Preparation Exercises: Indicate your answer answer by encircling the letter that contains your your choice in each of the following questions. 1. One is using using periodi periodic c inventory inventory system system.. For the the year, its total total purchas purchases es amounted amounted to P2!,!!!. Its unsold merchandise merchandise at the end end of the year has a cost of P,!!! which is "!# of its beginning beginning inventory. One$s cost of sale is a. P 2 2!,!!! b. P 21,2! c. P 2%&,!!! d. P 2%",'! 2. (wo$s (wo$s purchase purchase per per purchase purchase invoi invoice ce is P1!,!! P1!,!!!. !. (he purch purchase ase discoun discountt is 2)1!, 2)1!, n)*!. n)*!. Freigh Freightt is P!!, FO+ shippi shipping ng point collect collect.. (he net purchas purchase e amount amounts s under under net method is a. P P1 P1%', %',!!! b. P 1%',!! c. P 1%",!! d. P 1!,!! *. sing the the informat information ion in Item Item 2, the amoun amountt paid by the buyer buyer is a. P P1 P1%' %',,!!! b. P 1%',!! c. P 1%",!!

d. P 1!,!!

%. (he purchase purchase invoice invoice shows shows the amount amount of P2!,!!!, P2!,!!!, 2)1!, 2)1!, 1)2!, n)*!n)*!- FO+ destinatio destination n collect, collect, P2!!. If the account account is paid 1 days after the invoice invoice date, the net payment payment should be a. P 2%,!!! b. P 2%',!! c. P 2%',*!! d. P 2%%,"!! . sing the informa information tion in in Item %, the net net purchas purchase e is a. P 2% 2%,!!! b. P 2%',!! c. P 2%',*!!

d. P 2%%,"!!

. (hree (hree purcha purchased sed merchan merchandis dise e for P,!!! P,!!! and paid paid P2!! P2!! for freight freight,, FO+ destina destinatio tion n collect. (he merchandise merchandise was sold at 12!# of cost. (he gross profit is a. P 1,!!! b. P 1,!%! c. P ,!!! d. P ,2%! '. (he total total purcha purchase se is P1,1', P1,1', net of 2# cash cash discou discount. nt. nsold nsold porti portion on of purchas purchase e is P1'. (he sale sale is at mar/0up mar/0up of 1!#. (he gross gross profit profit is a. P 11'.! b. P "" "".2% c. P 11.2 d. P 1!!.!! ". (he term term of a P*!!,!!! P*!!,!!! purch purchase ase is is 2)2!, 2)2!, n)!, n)!, FO+ FO+ shipping shipping point point prepa prepaid, id, P*!!. P*!!. If the account is paid on the 2th day from the the invoice date, the total payment payment would be a. P 2&%,!!! b. P 2&&,'!! c. P 2&%,*!! d. P *!!,*!! &. Four paid paid freight freight for P2!! on its purchase purchase on account account from Five, Five, FO+ shipping shipping point. point. (he  ournal entry in both boo/s boo/s of Four and Five Five would be +oo/s of Four +oo/s of Five a. Freight0out 2!! Freight0in 2!! ash 2!! 3ccounts payable 2!! b. Freight0in 2!! 4o entry 3ccounts receivable 2!! c. Freight0in 2!! 4o entry   a ash 2!! d. Freight0in 2!! Freight0out 2!! ash 2!! 3ccounts receivable 2!!

1

1!. 5i6 sold merchandise merchandise at list price of P2!,!!!- 1!- - n)*!. Part of the sale amounting amounting to P1!,!!! was returned returned due to defect. (he amount to be collected collected by 5i6 is a. P 2! 2!,2!! b. P 2!*,'! c. P 2!%,!!! d. P 1&,2!! 11. 3mar ompany ompany received received P&,!!! on 3pril 1, 2!!2 for one year$s rent in advance advance and recorded recorded the transaction transaction with a credit credit to a nominal account. account. (he 7ecember 7ecember *1, 2!!2 adusting entry is a. 7ebit rent rent revenue revenue and and credit credit unearned unearned rent rent revenue, revenue, P2%,!! P2%,!!!. !. b. 7ebit rent rent revenue revenue and credit credit unearn unearned ed rent revenue revenue,, P'2,!!!. P'2,!!!. c. 7ebit unearn unearned ed rent revenue revenue and credit credit rent rent revenue, revenue, P2%,!!! P2%,!!!.. d. 7ebit unearn unearned ed rent revenu revenue e and credit credit rent revenue revenue,, P'2,!!!. P'2,!!!. 12.3ndoy ompany ompany paid paid P'2,!! P'2,!!! ! on 8une 8une 1, 2!!2 2!!2 for a two0y two0year ear insuran insurance ce policy policy and recorded recorded the entire amount amount as insurance insurance e6pense. e6pense. (he 7ecember 7ecember *1, 2!!2 adusting adusting entry is a. 7ebit insura insurance nce e6pense e6pense and and credit prepaid prepaid insura insurance, nce, P21,!!! P21,!!!.. b. 7ebit insura insurance nce e6pense e6pense and and credit prepaid prepaid insura insurance, nce, P1,!!! P1,!!!.. c. 7ebit prepai prepaid d insuranc insurance e and credit credit insuran insurance ce e6pense, e6pense, P21,!! P21,!!!. !. d. 7ebit prepaid prepaid insura insurance nce and and credit insura insurance nce e6pense, e6pense, P1,!! P1,!!!. !. 1*. 3ntipuesto ompany purchase purchase equipment on 4ovember 1, 2!!2 and gave gave a 120month, &# note with a face value value of P%"!,!!!. (he 7ecember *1, 2!!2 adusting adusting entry is a. 7ebit interes interestt e6pense e6pense and credit credit intere interest st payable, payable, P',2!! P',2!!.. b. 7ebit interes interestt e6pense e6pense and credit credit intere interest st payable, payable, P1!,"! P1!,"!!. !. c. 7ebit interest interest e6pense e6pense a and nd credit credit cash, cash, P',2!!. P',2!!. d. 7ebit interes interestt e6pense e6pense and credit credit intere interest st payable, payable, P%*,2! P%*,2!!. !. 1%. On 7ecember *1, 2!!2, 3silo ompany$s ompany$s boo//eeper made an adusting adusting entry debiting supplies supplies e6pense and credit credit supplies supplies inventory inventory for P12,!!. (he supplies supplies inventory inventory accounts had a P1,*!! debit balance balance on 7ecember 7ecember *1, 2!!1. (he 7ecember *1, 2!!2 balance sheet showed showed supplies inventory inventory of P11,%!!. Only one purchase purchase of supplies was made during the month, on account. account. (he entry for that that purchase was a. 7ebit suppli supplies es inventor inventory y and credit credit cash, cash, P",'!!. P",'!!. b. 7ebit supplie supplies s e6pense e6pense and credit credit account accounts s payable, payable, P",'!!. P",'!!. c. 7ebit suppli supplies es inventor inventory y and credit credit accoun accounts ts payable, payable, P",'! P",'!!. !. d. 7ebit supplie supplies s inventory inventory and and credit credit accounts accounts payable, payable, P1,! P1,!!. !. 1.3stillo 1.3stillo ompan ompany y loa loaned ned P*!!,! P*!!,!!! !! to anoth another er compan company y on 7ecemb 7ecember er 1, 2!!2 2!!2 and received received a *0month, *0month, 1#, interest0bea interest0bearing ring note with a face value value of P*!!,!!!. 9hat adusting entry should 3stillo ompany ma/e on 7ecember *1, 2!!2: a. 7ebit interes interestt receivabl receivable e and credit credit interest interest income, income, P',!!. P',!!. b. 7ebit cash and credit credit interest interest income, income, P*,'!. P*,'!. c. 7ebit interes interestt receivab receivable le and credit credit interes interestt income, income, P*,'!. P*,'!. d. 7ebit cash cash and and credit credit intere interest st receiva receivable, ble, P',!! P',!!.. . 1. (he supplies inventory inventory account account balance at the beginning beginning of the period was P,!!!. P,!!!. 5upplies totaling P12",2! were purchased during the period and debited to supplies invent inventory ory.. 3 physic physical al count count shows shows P*",2! P*",2! of suppli supplies es inventor inventory y at the end of the period. (he year0end year0end adusting adusting entry is a. 7ebit supplie supplies s inventory inventory and and credit credit supplies supplies e6pense, e6pense, P&!,!!! P&!,!!!.. b. 7ebit supplie supplies s e6pense e6pense and credit credit supplies supplies invento inventory, ry, P12",2!. P12",2!. c. 7ebit suppli supplies es inventor inventory y and credit credit supplie supplies s e6pense, e6pense, P1,!! P1,!!!. !. d. 7ebit supplie supplies s e6pense e6pense and credit credit supplies supplies invento inventory, ry, P1,!!!. P1,!!!.

2

1!. 5i6 sold merchandise merchandise at list price of P2!,!!!- 1!- - n)*!. Part of the sale amounting amounting to P1!,!!! was returned returned due to defect. (he amount to be collected collected by 5i6 is a. P 2! 2!,2!! b. P 2!*,'! c. P 2!%,!!! d. P 1&,2!! 11. 3mar ompany ompany received received P&,!!! on 3pril 1, 2!!2 for one year$s rent in advance advance and recorded recorded the transaction transaction with a credit credit to a nominal account. account. (he 7ecember 7ecember *1, 2!!2 adusting entry is a. 7ebit rent rent revenue revenue and and credit credit unearned unearned rent rent revenue, revenue, P2%,!! P2%,!!!. !. b. 7ebit rent rent revenue revenue and credit credit unearn unearned ed rent revenue revenue,, P'2,!!!. P'2,!!!. c. 7ebit unearn unearned ed rent revenue revenue and credit credit rent rent revenue, revenue, P2%,!!! P2%,!!!.. d. 7ebit unearn unearned ed rent revenu revenue e and credit credit rent revenue revenue,, P'2,!!!. P'2,!!!. 12.3ndoy ompany ompany paid paid P'2,!! P'2,!!! ! on 8une 8une 1, 2!!2 2!!2 for a two0y two0year ear insuran insurance ce policy policy and recorded recorded the entire amount amount as insurance insurance e6pense. e6pense. (he 7ecember 7ecember *1, 2!!2 adusting adusting entry is a. 7ebit insura insurance nce e6pense e6pense and and credit prepaid prepaid insura insurance, nce, P21,!!! P21,!!!.. b. 7ebit insura insurance nce e6pense e6pense and and credit prepaid prepaid insura insurance, nce, P1,!!! P1,!!!.. c. 7ebit prepai prepaid d insuranc insurance e and credit credit insuran insurance ce e6pense, e6pense, P21,!! P21,!!!. !. d. 7ebit prepaid prepaid insura insurance nce and and credit insura insurance nce e6pense, e6pense, P1,!! P1,!!!. !. 1*. 3ntipuesto ompany purchase purchase equipment on 4ovember 1, 2!!2 and gave gave a 120month, &# note with a face value value of P%"!,!!!. (he 7ecember *1, 2!!2 adusting adusting entry is a. 7ebit interes interestt e6pense e6pense and credit credit intere interest st payable, payable, P',2!! P',2!!.. b. 7ebit interes interestt e6pense e6pense and credit credit intere interest st payable, payable, P1!,"! P1!,"!!. !. c. 7ebit interest interest e6pense e6pense a and nd credit credit cash, cash, P',2!!. P',2!!. d. 7ebit interes interestt e6pense e6pense and credit credit intere interest st payable, payable, P%*,2! P%*,2!!. !. 1%. On 7ecember *1, 2!!2, 3silo ompany$s ompany$s boo//eeper made an adusting adusting entry debiting supplies supplies e6pense and credit credit supplies supplies inventory inventory for P12,!!. (he supplies supplies inventory inventory accounts had a P1,*!! debit balance balance on 7ecember 7ecember *1, 2!!1. (he 7ecember *1, 2!!2 balance sheet showed showed supplies inventory inventory of P11,%!!. Only one purchase purchase of supplies was made during the month, on account. account. (he entry for that that purchase was a. 7ebit suppli supplies es inventor inventory y and credit credit cash, cash, P",'!!. P",'!!. b. 7ebit supplie supplies s e6pense e6pense and credit credit account accounts s payable, payable, P",'!!. P",'!!. c. 7ebit suppli supplies es inventor inventory y and credit credit accoun accounts ts payable, payable, P",'! P",'!!. !. d. 7ebit supplie supplies s inventory inventory and and credit credit accounts accounts payable, payable, P1,! P1,!!. !. 1.3stillo 1.3stillo ompan ompany y loa loaned ned P*!!,! P*!!,!!! !! to anoth another er compan company y on 7ecemb 7ecember er 1, 2!!2 2!!2 and received received a *0month, *0month, 1#, interest0bea interest0bearing ring note with a face value value of P*!!,!!!. 9hat adusting entry should 3stillo ompany ma/e on 7ecember *1, 2!!2: a. 7ebit interes interestt receivabl receivable e and credit credit interest interest income, income, P',!!. P',!!. b. 7ebit cash and credit credit interest interest income, income, P*,'!. P*,'!. c. 7ebit interes interestt receivab receivable le and credit credit interes interestt income, income, P*,'!. P*,'!. d. 7ebit cash cash and and credit credit intere interest st receiva receivable, ble, P',!! P',!!.. . 1. (he supplies inventory inventory account account balance at the beginning beginning of the period was P,!!!. P,!!!. 5upplies totaling P12",2! were purchased during the period and debited to supplies invent inventory ory.. 3 physic physical al count count shows shows P*",2! P*",2! of suppli supplies es inventor inventory y at the end of the period. (he year0end year0end adusting adusting entry is a. 7ebit supplie supplies s inventory inventory and and credit credit supplies supplies e6pense, e6pense, P&!,!!! P&!,!!!.. b. 7ebit supplie supplies s e6pense e6pense and credit credit supplies supplies invento inventory, ry, P12",2!. P12",2!. c. 7ebit suppli supplies es inventor inventory y and credit credit supplie supplies s e6pense, e6pense, P1,!! P1,!!!. !. d. 7ebit supplie supplies s e6pense e6pense and credit credit supplies supplies invento inventory, ry, P1,!!!. P1,!!!.

2

1'. 3t the end of 2!!2, 3vila ompany made four adusting adusting entries for the following items; quipment 3ccumulated depreciation 0 shop equipment 3ccounts payable 4otes payable 3ccrued interest payable 3bagon, apital (otal

7ebit 12!,!!! 2"!,!!!

redit

2,"!! "!! 2%!,!!!  

%!,"!!

%",!!! "","!! 1!!,!!! 1,2!! %!!,!!! %!,"!!

For the month of February, the following are the transactions of 3bagon 5hop. 1. 2. *. %. . . '. ". &.

3bagon 3bagon withdrew withdrew P1!!,!!! P1!!,!!! cash cash from the business business for her her personal personal use. use. Paid Paid P12,!! P12,!!! ! insura insurance nce prem premium ium.. Paid Paid P2%, P2%,!! !!! ! ren rent. t. (otal service service rendere rendered d to various various customers, customers, P1%!,!!!, P1%!,!!!, %!# %!# of total sales are are on cash basis and the balance on open account. ?eceived ?eceived promissory promissory note note from customer customer to replace replace P%!,!!! P%!,!!! accounts accounts receivable. receivable. ollected ollected in cash cash P1%,!!! P1%,!!! of of account accounts s receivabl receivable. e. Paid the the notes payab payable le of P1!!,!!! P1!!,!!! plus plus the the P2,%!! P2,%!! interest. interest. Purchase Purchased d P2,%!! P2,%!! shop shop supplies supplies on cash cash basis. basis. Paid Paid salar salaries ies,, P2%,! P2%,!!!. !!.

3t the end of the month, the following information are available to effect adustments. a. (he insuranc insurance e in number 2 for P12,!!! P12,!!! is applicab applicable le for si6 months months starting starting February. February. b. (he rent rent of P2%,!!! P2%,!!! paid in number number * is for for * months, months, starting starting Februar February. y. c. (he note note recei receiva vable ble is numbe numberr  is earning earning 12# 12# intere interest st per year year.. (he (he note is date dated d February 1, and is due on 3pril *!. d. +ad debts debts e6pense e6pense is estimate estimated d at 2# of accounts accounts receiv receivable able balanc balance. e. e. (he annu annual al depre deprecia ciatio tion n is P%",! P%",!!!. !!. f. (he unused unused suppli supplies es bala balance nce is P P1,! 1,!!!. !!. Questions 1. ash ash at end of Febr Februa uary ry is; is; a. P 1!*,2!! b. P ",2!!

c. P ',2!!

2. 4et ?eali@abl ?eali@able e value of 3ccou 3ccounts nts ?eceivab ?eceivable le at end of Februa February ry is a. P 1,"!! b. P 1',2!! c. P 1&,"!! *.

nus nused ed shop shop supp upplies lies at en end of of Feb Febrruary uary is a. P 1,"!! b. P 1,!!! c. P

"!!

%. 4et boo/ value value of 5hop >quipment >quipment at at end of Februa February ry is a. P 1"",!!! b. P 1"&,!!! c. P 1"%,!!!

4

d. P '2,"!!

d. P 1&',2!!

d. P

2!!

d. P 1%%,!!!

. 3ccounts 3ccounts Payable Payable at at end end of February February is a. P 12","!! b. P "","!!

c. P ",%!!

d. P %","!!

. 4otes 4otes Payab Payable le at end end of Febr Februar uary y is a. P 1!!,!!! b. P 1!2,%!!

c. P &',!!

d. P !

'.

3bag 3bagon on api apita tal, l, net net of of dra drawi wing ng at end end of of Feb Febru ruar ary y is is a. P *&",!! b. P *&',%!! c. P *&',"!! ". 4et 4et in incom come of of the the comp compa any at at en end of of Feb Febru rua ary is a. P &",!! b. P &',%!! c. P &',"!!

d. P "",!!

&. (otal ?evenue ?evenue of the compan company y at end end of Februa February ry is a. P 1%2,"!! b. P 1%2,%!! c. P 1%!,%!!

d. P 1%!,!!!

1!. (otal >6penses of the ompany at end of Februar February y is a. P 2,!! b. P %1,"!! c. P %1,%!!

d. P %1,!!!

Solution 1 Abagon, drawing   Ca Cas 2 !nsurance e"#ense   Ca Cas 3 $ent e"#ense Cas 4 Cas  Accounts recei%ab&e recei%ab&e   $e $e%enue 5 'otes recei%ab&e Accounts recei%ab&e 6 Cas Accounts recei%ab&e 7 'otes #a(ab&e !nterest e"#ense   Ca Cas 8 )u##&ies e"#ense Cas 9 )a&aries Cas

d. P *"",!!

100,000 100,000 12,000 12,000 24,000 24,000 56,000 84,000 140,000 40,000 40,000 164,000 164,000 100,000 2,400 102,400 2,400 2,400 24,000 24,000

 Ad*usting +ntr(: +ntr(: a b c

d e 

g

re#aid !nsurance !nsurance e"#ense re#aid rent $ent e"#ense !nterest recei%ab&e !nterest inco-e 40,000 " 12/ " 112 ad debts A&&owance or bad debts e#reciation Accu-. de#reciation nused su##&ies )u##&ies e"#ense )u##&ies e"#ense nused su##&ies Accrued interest #a(ab&e !nterest e"#ense o re%erse te beg. accrued interest  #a(ab&e

10,000 10,000 16,000 16,000 400 400 400 400 4,000 4,000 1,000 1,000 800 800 1,200 1,200

5

$!A AA'C+   CA);   ACC') $+C+!<

A)+')

!'C+ )A++'

75,20 0

75,200

160,000

 A=. >$ 

160,000 2,800

'+) $+C+!<

400

3,200

40,000

')+ )!+) ); +Q!+'

AA'C+ );++

40,000

800

1,000

800

1,000

240,000

240,000

 ACC. +'

48,000

 ACC') A?

88,800

'+) A?A+

4,000

52,000 88,800

@

 ACC. !'. A?

1,200

 AA', $A=!'

@ 1,200

@

100,000

 AA', CA!A

100,000 400,000

$+5, P2,!!!. Purchased merchandise from O5(IH> P?O7(5, P2*2,!!!. (erms; FO+ shipping point, 2)1!, n)*!. P>HI( OP34A paid P2,!!! for the transportation cost. ?eturned goods to O5(IH> P?O7(5, P12,!!! acquired on 7ecember '. Paid interest on mortgage payable, P",!!!. ?eceived payment from P3P3OA 5PPDI>5 for the amount due. 5old merchandise to O34I 5KOPP>?5, P**!,!!!. (erms; FO+ shipping point, *)1!, n)*!. ?eceived payment from O34I 5KOPP>?5 from the 7ecember 12 sales. 5old merchandise to 43B3D>5 5KOP, P2%2,!!!. (erm; FO+ shipping point, *)1!, n)*!. P>HI( OP34A paid P,!!! for the freight. Paid P&,!!! for representation e6pense. ?eceived from 43B3D>5 5KOP returned merchandise in the amount of P1",!!! from the 7ecember 1& sales. (he owner, Lenevieve, withdraw merchandise for personal use. ost J P2!,!!!- 5elling price J P*!,!!!.

3dditional information 1. 5alaries in the amount of P'*,!!! have accrued on 7ecember *1. 2. Insurance coverage with premium of P2,!!! has e6pired at month0end. *. 7epreciation on the building and on the equipment for the month amounted to P*,!!! and P%,!!, respectively. %. Office supplies on hand at month0end amounted to P',!!!. . 3 count of the inventory amounted to P%*,!!! on 7ecember *1, 2!!. Questions 1. ash balance at 7ecember *1, 2!! is; a. P ''*,'! b. P ''2,'!! 2.

*.

%.

.

.

12

c. P '%",%!

d. P '2','!!

3ccounts receivable at 7ecember *1, 2!! is; a. P %12,!!! b. P %!,!!! c. P *"',!!!

d. P *2,!!!

Inventory at 7ecember *1, 2!! is; a. P 2,'!! b. P %*,!!!

c. P %2,!!!

d. P 212,!!!

Office supplies at 7ecember *1, 2!! is; a. P ',!!! b. P 1!,!!!

c. P 2%,!!!

d. P *1,!!!

4et carrying value of Fi6ed 3ssets at 7ecember *1, 2!! is; a. P 1,&"!,!!! b. P 1,2!,!!! c. P 1,12,!!

d. P 1,2%2,!!

(otal assets at 7ecember *1, 2!! is; a. P *,2*,&! b. P *,2!,&!

d. P *,1*,&!

c. P *,2!*,&!

'.

".

&.

1!.

11.

12.

1*.

1%.

1.

3ccounts payable at 7ecember *1, 2!! is; a. P 2"&,!!! b. P 2'&,!!! c. P 2'',!!!

d. P 2',!!!

3ccrued e6penses at 7ecember *1, 2!! is; a. P &',!!! b. P '*,!!! c. P 2%,!!!

d. P &,!!!

4et sales at 7ecember *1, 2!! is; a. P '"2,!!! b. P '1",&!

c. P '1",2%!

d. P '1",1!

(otal purchases at 7ecember *1, 2!! is; a. P 2*2,!!! b. P 212,!!! c. P 1&&,'!!

d. P 1&','!!

Operating e6penses at 7ecember *1, 2!! is; a. P 12,!! b. P 11",!! c. P 1!&,!!

d. P 1!1,!!

4et income at 7ecember *1, 2!! is; a. P %"2,"!! b. P %2,&!

c. P %1&,!%!

d. P %1",&!

apital balance at 7ecember 1, 2!! is; a. P 1,'!%,!%! b. P 1,'!*,&!

c. P 1,*!,!!!

d. P 1,2",!!!

apital balance at 7ecember *1, 2!! is; a. P 1,'!%,!%! b. P 1,'!*,&! c. P 1,*!,!!!

d. P 1,2",!!!

(otal liabilities and capital at 7ecember *1, 2!! is; a. P *,2*,&! b. P *,2!,&! c. P *,2!*,&!

d. P *,1*,&!

Solution

ec 1

Accounts #a(ab&e 115,000 Cas 112,700 urcases discount 2,300

ec 10

ec 11 ec 3

Cas 174,600 )a&es discount 5,400  Accounts recei%ab&e 180,000 ec 12

ec 4

Accounts recei%ab&e rans#ortation e"# )a&es

207,000 3,000 210,000

ec 5

)a&es returns 25,000  Accounts recei%ab&e 25,000

ec 7

urcases 232,000 >reigt@in 2,000 Cas 2,000  Accounts #a(ab&e 232,000

ec 9

Accounts #a(ab&e 12,000 urcases returns

12,000

!nterest e"#ense Cas

8,000 8,000

Cas 176,450 )a&es discount 5,550 Accounts recei%ab&e

182,000

Accounts recei%ab&e )a&es

330,000

330,000

ec 18

Cas

ec 19

Accounts recei%ab&e Cas )a&es

247,000

ec 20 $e#resentation e"# Cas

9,000

ec 29

ec 30

320,100 )a&es discount 9.900 Accounts recei%ab&e 330,000

5,000 242,000

9,000

)a&es returns 18,000  Accounts recei%ab&e rawing

18,000

20,000 urcases

20,000

 Ad*usting entr(:

13

1. )a&aries e"#ense  Accrued sa&aries

73,000 73,000

2. !nsurance e"#ense re#aid insurance

2,000

3. e#reciation  Accu-. e#Gn F b&dg  Accu-. e#Gn F eEui#

7,500

2,000

3,000 4,500

4. )u##&ies e"#ense ice su##&ies

24,000

5. !n%entor( F ) !n%entor( F !)

453,000

 A')=+$: 1. C 2. C 11. A 12. 

3.  13. C

24,000

453,000

4. A 14. 

5. C 15. A

6. A

7. C

8. 

9. 

10. C  

Problem 5 (he ?ighter 5hoe 5tore ompany prepares monthly financial statements for its ban/. (he 4ovember *! and 7ecember *1, 2!!, trial balances contained the following information;

5upplies Prepaid insurance 9ages payable nearned rent revenue

4ov. *! 7r. 1,!!! ,!!!

r.

1!,!!! 2,!!!

7ec. *1 7r. *,!!! %,2!

r.

1,!!! 1,!!!

(he following information also is /nown; a.

(he 7ecember income statement arnings 5ales 5ales return and allowances Purchases Purchase return and allowances 3dvertising 5ales salaries ommission e6pense iscellaneous e6pense

P22,!! &*,!! P

*,1&!

1,!! ,"&! 1,"!! 1",'! *!,!!! *,!! 1!,!!! 1!!,!!! ,2! *'2,!!! %,'! 21,&*! *,! &,1! 2","! 1,2!! 2,&&!

15

?ent e6pense Office salaries Dight and 9ater Insurance e6pense (a6es and licenses Leneral e6pense Interest e6pense Interest income

1*,!!! 1&,'2! 1,!! 1,!"! %,'"! 1,*%! %,12! &1!

Aour e6amination of the company$s account has the need for adustments based on the following items; a.

(he cash account included a c ustomer$s chec/ for P 1,!! deposited o n 5eptember 2, 2!! but returned by the ban/ on 5eptember 2&, 2!! for lac/ of countersignature. 4o entry was made for the returned chec/.

b.

nrecorded ban/ charge for 5eptember 2!!, P!!

c.

(he allowance for doubtful accounts should be adusted to # of the outstanding accounts receivable balance on 5eptember *!, 2!!.

d.

3 physical inventory of merchandise ta/en at the end of the fiscal year 2!! amounted to P!,12!.

e.

Loods received on consignment, still unsold costing P2,!!! were included in the physical inventory.

f.

(he merchandise inventory on 5eptember *!, were correctly stated.

g.

7epreciation of furniture and equipment at 1!# annually has n ot been recogni@ed.

h.

3ccrued salesmen$s salaries not recorded P,!!!

i.

3n insurance policy was ta/en on the inventory and equipment on arch 1, 2!! with the annual insurance premium of P1,!"! paid on that date.

 .

?ent e6pense account considered of rent for the store and office space for thirteen months starting 3ugust 1, 2!!.

+ased on the aforementioned data, answer the following questions1. a. b. c. d. 2.

16

(he adusting entry on item 3 is ash 1,!! 3ccounts receivable 1,!! 3ccounts payable 1,!! ash 1,!! 3ccounts receivable 1,!!   ash 1,!! 4o adustment

(he adusting entry on item + is a. ash

!!

3ccounts receivable b. ash Leneral e6penses c. Leneral >6penses   ash d. 4o adustment

!! !! !! !! !!

*. (he adusting entry on item  is a. 3ccounts receivable %,"! 3llowance for 7oubtful 3ccounts %,"! b. 7oubtful 3ccounts 1, 3llowance for 7oubtful 3ccounts 1, c. 3llowance for 7oubtful 3ccounts 1,%&! 7oubtful 3ccounts 1,%&! d. 7oubtful 3ccounts 1,%&! 3llowance for 7oubtful 3ccounts 1,%&! %. (he adusting entry on item 7 is a. erchandise Inv. !,12! Income 5ummary b. erchandise Inv. !,12! Purchases c. Income summary !,12! erchandise inventory d. 4o adustment . (he adusting entry on item >  a. Income summary erchandise Inv. b. 5ales erchandise Inv. c. erchandise inventory Income summary d. 4o adustment

!,12! !,12! !,12!

2,!!! 2,!!! 2,!!! 2,!!! 2,!!!

. (he adusting entry on item F is a. erchandise Inv. ,"&! Income summary b. erchandise Inv. ,"&! Purchases c. Income summary ,"&! erchandise inventory d. 4o adustment '. (he adusting entry on item L is a. 7epreciation >6p. ,1"! 3ccumulated 7epreciation b. 3ccumulated 7epreciation ,1"! Furniture and >quipment c. 3ccumulated depreciation ,1"! 7epreciation e6pense d. 4o adustment

2,!!!

,"&! ,"&! ,"&!

,1"! ,1"! ,1"!

17

". (he adusting entry on item K is a. 3ccrued 5alaries >6pense ,!!! 5ales salaries b. 3ccrued salaries e6p. ,!!! Office salaries c. Office salaries ,!!! 7epreciation e6pense d. 5ales salaries ,!!! 3ccrued salaries e6pense &. (he adusting entry on item I is a. Insurance >6p. *! Prepaid insurance b. Prepaid insurance *! insurance e6p. c. Insurance e6pense %! Prepaid insurance d. Prepaid insurance %! Insurance e6pense 1!. (he adusting entry on item 8 is a. ?ent e6pense 11,!!! Prepaid rent b. Prepaid rent 2,!!! ?ent e6pense c. Prepaid rent 11,!!! ?ent e6pense d. ?ent e6pense 2,!!! Prepaid rent

,!!! ,!!! ,!!! ,!!!

*! *! %! %!

11,!!! 2,!!! 11,!!! 2,!!!

3fter ma/ing the adustments compute the following; 11.ash a. P2%,!!!

b. P21,!!!

c. P2!,!!

d. P2!,!!!

c. P"",&2!

d. P"","%

1*. erchandise inventory, 5eptember *!, 2!! a. P!,12! b. P,"&! c. P2,12!

d. P",12!

1%. Furniture and >quipment, net of accumulated depreciation a. P,2! b. P*,"'! c. P*.'!!

d. *,"&!

1. (otal assets, 5eptember *!, 2!! a. P22,'" b. P2!,"%

c. P22*,"!

d. P22,'!!

1. ost of goods sold, 5eptember *!, 2!! a. P211,!! b. P21!,!!

c. P212,*!!

d. P212,2"!

12. 4et reali@able value of accounts receivable a. P&!,%1! b. P&!,*%

1'. 4et income, 5eptember *!, 2!! 6pense Degal 5ervices Insurance and Dicenses (ravel >6pense J 5ales ?epresentative 7epreciation >6pense Interest ?evenue tilities e6pense (elephone and Postage >6pense 5upplies inventory iscellaneous 5elling >6pense 7ividends 7ividend ?evenue Interest e6pense 3llowance for bad debts 6pense 5ales 5ales returns and allowances 5ales discounts Lain on sales of assets Inventory, 8anuary 1, 2!! Inventory, 7ecember *1, 2!! Purchases Freight0in 3ccounts ?eceivable, 7ecember *1, 2!! 5hares of common stoc/ outstanding

%%!,'! *,!!! 1,!!! 2,22 ",!! %,! 1!,&!! '!! ,%!! 1,%' 2,1"! 2,2!! **,!!! ',1! %,2! *'! *,!! %&,2!! 11,2!! ""! 1",!! "&,'!! 2!,! 1'*,!!! ,2 21,!!! *&,!!!

3dusting information; 1. ost of inventory in the possession of consignee as of 7ecember *1, 2!!, was not included in the ending inventory balance, P**,!!. 2. 3fter preparing an analysis of aged accounts receivable, a decision was made to increase the allowance for bad debts to a percentage of the ending account receivable balance to *#. 3ccounts totaling P',%"! were written off as uncollectible during the year. *. Purchase returns and allowances amounting to # of purchases +I( ?>7I( ash 22,!!! 3ccounts receivable &*,!!! 3llowance for doubtful accounts *1,&!! 4otes receivable 1,!!! erchandise inventory, 5ept. *!, 2!! ",&!! Furniture and >quipment 1",!!! 3cc. 7epreciation J Furniture  >quipment 1"',!!

23

Loodwill 3ccounts payable 4otes payable apital stoc/ ?etained earnings 5ales 5ales returns and allowances Purchases Purchase returns and allowances 3dvertising 5ales salaries ommission e6pense iscellaneous selling e6penses ?ent e6pense Office salaries Dight and water Insurance e6pense (a6es and licenses iscellaneous general e6penses Interest e6pense Interest income

*!!,!!! *,!!! 1!!,!!! 1,!!!,!!! 2,!! *,'2",2!! %',!! 2,1&,*!! *,!! &,1!! 2"",!! 12,!!! 2&,&!! 1*!,!!! 1&',2!! 1,!!! 1!,"!! %',"!! 1*,%!! %1,2!! EEEEEEEE ,1"1,'!!

&,1!! ,1"1,'!!

Aour e6amination of the company$s accounts had indicated the need for adustments based on the following information; 1. (he ash account include a customers$ chec/ for P1,!!! deposited on 5eptember 2, 2!!, but returned by the ban/ on 5eptember 2&, 2!! for lac/ of countersignature. 4o entry was made by the company for the return of the chec/ or for its redeposit on October , 2!!. 2. (he 3llowance for 7oubtful 3ccounts should be adusted to # of the customers$ outstanding balances on 5eptember *!, 2!!. *. 3 physical inventory ta/en of the merchandise stoc/ as of the end of the fiscal year amounted to P!1,2!!. %. 3 purchase of merchandise FO+ shipping point, for which goods costing P%!,!!! were still in transit on 5eptember *!, 2!! was neither ta/en as a liability nor included in the inventory on that date. . Loods received on consignment, still unsold, were included in the inventory at the agreed selling price of P2%,!!!. . (he merchandise inventory at 5eptember *!, 2!! was correctly stated. '. On 8uly 1, 2!!, equipment acquired on October 1, 2!!* with a boo/ value of P*2,!!! on 5eptember *!, 2!! was sold for P*,!!! in cash. (he sales proceeds were credited to the Furniture and >quipment account. ". 7epreciation for the fiscal year 2!!02!! has not been recorded. being used is 1!# annually.

24

7epreciation rate

&. 3n insurance policy was ta/en on the inventory and equipment on 3pril 1, 2!! with the annual premium of P1!,"!! paid on that date. 1!. ?ent e6pense account consisted of rent paid for stoc/ and office space for thirteen arnings under a resolution of the +oard of 7irectors. Questions 1. ash for the fiscal year0ended 5eptember *!, 2!! is; a. P 1&,!!! b. P 21!,!!! c. P 22,!!!

d. P 2%!,!!!

2. 3ccounts receivable for the fiscal year0ended 5eptember *!, 2!! is; a. P &!,!!! b. P &21,!!! c. P &1,!!! d. P &*,!!! *. 3llowance for doubtful accounts for the fiscal year0ended 5eptember *!, 2!! is; a. P 1,! b. P %,"!! c. P %,*!! d. P %',! %. erchandise inventory for the fiscal year0ended 5eptember *!, 2!! is; a. P 1',2!! b. P %1,2!! c. P '',2!! d. P 1,2!! . +oo/ value of the Furniture and >quipment for the fiscal year0ended 5eptember *!, 2!! is; a. P *!,2!! b. P *'2,2!! c. P *',2!! d. P %"&,"!! . Loodwill for the fiscal year0ended 5eptember *!, 2!! is; a. P *!!,!!! b. P 2&2,!! c. P 2",!!!

d. P !

'. 3ccounts payable for the fiscal year0ended 5eptember *!, 2!! is; a. P %&,!!! b. P *,!!! c. P 2,!!! d. P ',!!! ". 4et income for the fiscal year0ended 5eptember *!, 2!! is; a. P *2,'! b. P **2,'! c. P *%,'!

d. P *%','!

&. ?etained earnings for the fiscal year0ended 5eptember *!, 2!! is; a. P 22,!! b. P !!,2! c. P "",2! d. P &!!,2! 1!. Insurance e6pense for the fiscal year0ended 5eptember *!, 2!! is; a. P ,%!! b. P &,2!! c. P 1!,"!! d. P 1,2!! Solution

1.

2.

3.

Accounts $ecei%ab&e   Cas

15,000

oubtu& Accounts +"#ense A&&owance or doubtu& accounts N5/ " 936,000 M 15,000 L 47,550 @ 31,900O

15,650

ercandise !n%entor( !nco-e )u--ar(

15,000

15,650

601,200 601,200

25

4.

5.

6.

7.

urcases ercandise !n%entor( Accounts a(ab&e !nco-e )u--ar(

40,000 40,000

!nco-e )u--ar( ercandise !n%entor(

24,000

!nco-e )u--ar( ercandise !n%entor(

568,900

40,000 40,000

24,000

568,900

Accu-u&ated e#reciation F >ur. P +E#t. ain on sa&e o eEui#-ent >urniture P +Eui#-ent

11,000 6,000 5,000

Cost 32,000  80/ ess acc. de#r. to date o sa&e 40,000 " 10/ " 2 M 40,000 " 10/ " 912 ooD %a&ue )e&&ing #rice ain on sa&e o eEui#-ent 8.

40,000 11,000

29,000 35,000  6,000

e#reciation e"#ense Acc. e#r. F >ur. P +Eui#

64,300 64,300

e#r. or (ear ended 9.30.03 n eE#t so&d 40,000 " 10/ " 912 n re-aining eE#t. 613,000 " 10/

9.

10.

11.

 3,000 61,300 64,300

re#aid !nsurance !nsurance e"#ense

5,400 5,400

re#aid rent $ent e"#ense

10,000 10,000

iscount on notes #a(ab&e !nterest e"#ense

3,000 3,000

ota& discount 100,000 " 12/ " 120360 ess #ortion a##&icab&e to (ear ended 9.30. na-ortiIed, 9.30.

12.

4,000 1,000 3,000

$etained +arnings   oodwi&&

300,000 300,000 $A'Q!A' C$$A!'  =$!' $!A AA'C+  )e#te-ber 30, 2003

Cas  A$  A&&. or A '$ ! >+  AF >+.

26

ria& a&ance ebit Credit 225,000 936,000 31,900 155,000 568,900 618,000 187,500

Ad*ust-ents ebit

Credit 15,000

!nco-e )tate-ent ebit Credit

15,000 15,650 568,900 11,000

5,000 64,300

617,200

a&ance )eet   ebit Credit   210,000 951,000 47,550 155,000 617,200H 613,000 240,800

oodwi&&  A ' C) $+ )a&es )a&es $P A urcases urc $PA.  Ad% )a&es sa& Co-. e"# isc.se&& $ent e"# ice sa& igt P = !ns. e"# a" P &icen isc. e !nt. e"# !nt inc

300,000

300,000 40,000

536,000 100,000 1,000,000 552,500 3,728,200

576,000 100,000 1,000,000 252,500

300,000 3,728,200

47,600 2,159,300

47,600 2,199,300

40,000 36,500

36,500

96,100 288,500 152,000 29,900 130,000 197,200 15,000 10,800 47,800 163,400 41,200 6,181,700

10,000

5,400

3,000

96,100 288,500 152,000 29,900 120,000 197,200 15,000 5,400 47,800 163,400 38,200

9,100 6,181,700

9,100

A ain e#ren re ins re rent isc on '

15,650

15,650 6,000

64,300 5,400 10,000 3,000 464,350

6,000 64,300

464,350

'+ !'C

 A')=+$: 1.  2. C

@0@

4,049,250 347,750 4,397,000

3. 

4. A

5. 

6. 

7. 

8. 

9. 

4,397,00 0 4,397,000

5,400 10,000 3,000 2,564,600

2,216,850

2,564,600

347,750 2,564,600

10. A

Problem 10 Aour audit client, (ortor orporation, presents to you the unadusted trial balance shown below, which was drawn from its general ledger as at 8une *!, 2!!, the end of its fiscal year. (O?(O? O?PO?3(IO4 nadusted (rial +alance 8une *!, 2!! ash '21,"!! (rading 5ecurities 2!!,!!! 3ccounts receivable 2,12",!!! Inventory, 8une *!, 2!! ,1&%,*!! Invest. in associates quity ethod= 1,2!!,!!! >quipment 1,21,!!! Prepaid e6penses 11,2!! Loodwill !!,!!! 3ccounts payable 2,%2,%!! 3ccrued e6penses 12,!! 3ccrued interest payable 22,!!! 3llowance for bad debts *,1!! 3llowance for depreciation %!,'!! Doans payable 2,!!,!!! apital stoc/ *,!!!,!!!

27

3dditional paid0in capital ?etained earnings 5ales Interest income Purchases 5alaries and wages ?ent, light and water 3dvertising 5upplies (a6es iscellaneous e6penses Interest e6pense

2!,!!! 1,"!","!! 21,!2,!!! 1%!,!!! 1*,&2",!!! *,2!,!!! '!,!!! %!!,!!! *!!,!!! 2!,!!! 1,'&*,*!! 2!,!!! *2,!2,!!

EEEEEEEEE *2,!2,!!

Aour e6amination of the accounts disclosed the following information; 1.

(he cash account included an 45F chec/ returned by the ban/ on 8une *!, 2!!, but recorded as a cash reduction in 8uly, 2!!, P%%,!!!, and a voucher for suppliers paid in cash on 8une 2', 2!! but not entered in the boo/s, P2,!!.

2.

ar/etable 5ecurities which cost P2!!,!!! have a mar/et value of P21!,!!!. Dong0 (erm Investments have a mar/et value of P1,2!,!!! as at balance sheet date.

*.

(he company has been providing an allowance for bad debts at # of the outstanding customers$ balances. ncollectible accounts were charged off against the allowance during the year.

%.

3 physical inventory ta/en by management personnel of the merchandise stoc/ at 8une *!, 2!! totaled P,'1,&!!. Aou were unable to observe the inventory0ta/ing as your services were engaged only on 8uly 1, 2!!. 7ue to the condition of the accounting records and internal accounting controls, you were also unable to satisfy yourself as to the inventory.

.

>quipment no longer needed quipment account. >quipment is depreciated at 1!# a year on a monthly basis computed at year0end.

.

Prepaid e6penses included insurance premium of P*!,!!! paid on 3pril 1, 2!! on a one0year fire insurance policy.

'.

5alaries unpaid as of 8une *!, 2!!, P1*,!!! were not ta/en up under accrued e6penses.

".

(he Loodwill account was set0up with a credit to ?etained >arnings on the basis of a resolution of the +oard of 7irectors.

&.

3 1!# cash dividend declared on 8une 1, 2!!, payable on 8uly *1, 2!!, has not been recorded.

1!.

(he +oard of 7irectors approved a resolution on 8une 2, 2!! appropriating out of ?etained >arnings the amount of P*!!,!!! to meet possible future losses on inventories.

28

Questions 1. ash for the fiscal year0ended 8une *!, 2!! is; a. P **,"!! b. P 1,*!! c. P '',"!!

d. P &,*!!

2. ar/etable securities for the fiscal year0ended 8une *!, 2!! is; a. P ! b. P 1&!,!!! c. P 2!!,!!!

d. P 21!,!!!

*. 3ccounts receivable for the fiscal year0ended 8une *!, 2!! is; a. P 2,1'2,!!! b. P 2,12",!!! c. P 2,1!!,!!!

d. P 2,!"%,!!!

%.

3llowance for doubtful accounts for the fiscal year0ended 8une *!, 2!! is; a. P '2,!! b. P 1!%,2!! c. P 1!,%!! d. P 1!",!!

. Inventory for the fiscal year0ended 8une *!, 2!! is; a. P ,'1,&!! c. P %,*,'!! b. P ,1&%,*!! d. annot be determined. . >quipment for the fiscal year0ended 8une *!, 2!! is; a. P 1,'1,!!! b. P 1,'1,!!! c. P 1,21,!!!

d. P 1,,!!!

'. 3ccumulated depreciation for the fiscal year0ended 8une *!, 2!! is; a. P *&!,'!! b. P 2,"!! c. P 2,"!! d. P 22,"!! ". ?etained earnings before net income for the fiscal year0ended 8une *!, 2!! is; a. P '!","!! b. P 1,!!","!! c. P 1,*!","!! d. P 1,!",!!! &. ?etained earnings after net income for the fiscal year0ended 8une *!, 2!! is; a. P 2,*&,'!! b. P 2,%!,!! c. P 1,"%!,!! d. P 1,"!,!! 1!. (he auditor should issue arasmo orporation was incorporated on 7ecember 1, 2!!, and began operations one wee/ later. 8esus is a nonpublic enterprise. +efore closing the boo/s for the fiscal year ended 4ovember *!, 2!!, >rasmo orporation$s controller prepared the following financial statements; +alance 5heet 4ovember *!, 2!! 355>(5 urrent 3ssets; ash ar/etable securities, at cost 3ccounts receivable 3llowance for doubtful accounts Inventories Prepaid insurance (otal current assets Property, plant and equipment 3ccumulated depreciation ?esearch and developments (otal assets

1!,!!!.!! !,!!!.!! %!,!!!.!! ?5$ >HI(A urrent Diabilities 3ccounts payable  accrued e6penses Income ta6 payable (otal current liabilities 5toc/holders$ >quity ommon stoc/, P1! par value ?etained earnings (otal stoc/holders$ >quity (otal liabilities  5toc/holders$ >quity

&2,!!!.!! 22%,!!!.!! "1,!!!.!! %!!,!!!.!! **,!!!.!! '*,!!!.!! 1,2,!!!.!!

5tatement of Income For the year ended 4ovember *!, 2!! 4et sales

2,&!,!!!.!!

31

ost  e6penses; ost of sales 5elling and 3dministrative 7epreciation ?esearch and 7evelopment Income before income ta6es Provision for income ta6es 4et income

1,'!,!!!.!! !,!!!.!! %!,!!!.!! *!,!!!.!! 2,*&!,!!!.!! !,!!!.!! 22%,!!!.!! **,!!!.!!

>rasmo is in the process of negotiating a loan for e6pansion purposes and the ban/ has requested audited financial statements. 7uring the course of the audit, the following additional information was obtained; 1.

(he investment portfolio consist of short0term investments in mar/etable equity securities with a total mar/et valuation of P,!!! as of 4ovember *!, 2 !!.

2.

+ased on aging of the accounts receivable as of 4ovember *!, 2!!, it was estimated that P*,!!! of the receivables will be uncollectible. (here were no +ad 7ebt write0offs during the year.

*.

Inventories at 4ovember *!, 2!!, did not include wor/ in process inventory costing P12,!!! sent to an outside processor on 4ovember 2&, 2!!.

%. 3 P*,!!! insurance premium paid on 4ovember *!, 2!!, on a policy e6piring one year later was charged insurance e6pense. . On 8une 1, 2!!, a machine purchased for P2%,!!! was charged to repairs and maintenance. >rasmo depreciates machines of this type on the straight0line method over a five year life, with no salvage value, for financial and ta6 purposes. . ?esearch and development costs of P1!,!!! were incurred in the development of a patent which >rasmo e6pects to be granted during the fiscal year ending 4ovember *!, 2!!*. >rasmo initiated a five year amorti@ation of the P1!,!!! total cost during the fiscal year ended 4ovember *!, 2!!. '. 7uring 4ovember 2!!, a competitor company filed suit against >rasmo for patent infringement claiming P2!!,!!! in damages. >rasmo orporation$s legal counsel believes that an unfavorable outcome is probable. 3 reasonable estimate of the court$s award to the plaintiff is P!,!!!. ". (he %!# effective ta6 rate was determined to be appropriate for calculating the provision for income ta6es for the fiscal year ended 4ovember *!, 2!!. Ignore computation of deferred income ta6es. Questions 1. In the income statement for the year ended 4ovember *!, 2!!, >rasmo should report for the mar/etable securities a. 3 reali@ed loss of P,!!!. c. 3 reali@ed gain of P,!!! b. 3n unreali@ed loss of P,!!!. d. 3n unreali@ed gain of P,!!! 2. In the 4ovember *!, 2!!, balance sheet, >rasmo should report in respect of the investment portfolio

32

a. b. c. d.

ar/etable 5ecurities P,!!! P,!!! P!,!!! P!,!!!

Baluation 3llowance P 0!0 P,!!! P 0!0 P,!!!

*. In the 4ovember *!, 2!!, balance sheet, >rasmo should report the allowance for doubtful accounts at a. P2*,!!! b. P*,!!! c. P&,!!! d. P&,!!! %. +ad debts e6pense for the year ended 4ovember *!, 2!!, is a. P 0!0 b. P2*,!!! c. P*,!!!

d. P&,!!!

. Inventories at 4ovember *!, 2!!, should be reported at a. P%1",!!! b. P%*!,!!! c. P%%2,!!!

d.P%!,!!!

. ost of goods sold for the year ended 4ovember *!, 2!!, reported as a. P1,%*,!!! b. P1,%,!!! c. P1,",!!! d. P1,'!,!! '. Prepaid insurance at 4ovember *!, 2!!, should be reported at a. P 0!0 b. P12,!!! c.P1,!!!

d. P1",!!!

". 3t 4ovember *!, 2!!, property, plant and equipment should be reported at a. P%!2,!!! b. P%2,!!! c. P%%',!! d. P%!,!!! &. 7epreciation e6pense for the year ended 4ovember *!, 2!!, should be reported at a. P1,!!! b. P*',!! c. P%!,!!! d. P%2,%!! 1!. 3t 4ovember *!, 2!!, accumulated depreciation should be reported at a. P*',!! b. P%!,!!! c. P%2,%!! d. P%%,"!! 11. In the 4ovember *!, 2!! balance sheet, research and development costs should be reported at a. P 0!0 b. P12!,!!! c. P1*,!!! d. P1!,!!! 12. ?esearch and development e6pense for the year ended 4ovember *!, 2!! is a. P 0!0 b. P1,!!! c. P*!,!!! d. P1!,!!! 1*. In the 4ovember *!, 2!! balance sheet, >rasmo should report an estimated liability from lawsuit at a. P 0!0 b. P!,!!! c. P1!!,!!! d. P2!!,!!! 1%. For the year ended 4ovember *!, 2!!, which one of the following adustments increases the nadusted income, before income ta6es of P!,!!!: a. Pension e6pense b. 9or/ in process inventory at outside processor c. >stimated loss from lawsuit d. ?esearch and development cost 1. For the year ended 4ovember *!, 2!!, which of the following adustments decreases the unadusted income, before income ta6es, of P!,!!!: a. ?ecognition of prepaid insurance

33

b. ?eduction in allowance for doubtful accounts c. 7epreciation on machine purchased 8une 1,2!! d. ?ecognition of research and development cost Solution

1. 2. 3. 4. 5.

6. 7.

nrea&iIed o&ding &oss 5,000 l 4inoN phenomenon and estimates the company will lose about P'!,!!!. 3n appropriation of ?etained >arnings has been made for this amount. Questions +ased on the above and the result of your audit, determine the adusted balances of the following as of 7ecember *1, 2!!; 1.

2.

*.

%.

.

.

ash a. P 1*!,'!!

b. P 2*1,!!

c. P *2,*!!

d. P %&*,!!!

3ccounts receivable a. P 1'1,!!! b. P 1*,!!!

c. P *1,!!!

d. P %!,!!!

urrent assets a. P 2,%%*,!!!

b. P 2,2**,!!!

c. P 2,!"!,'!!

d. P 2,!!,'!!

Dand, +uildings, and >quipment a. P *,"'*,&! b. P *,"',!!!

c. P *,',&!

d. P *,!"',!!!

4oncurrent assets a. P %,%!&,*!!

b. P %,2"&,*!!

c. P %,!%',!!!

d. P *,&2',!!!

(otal assets a. P ,%2,*!!

b. P ,%&!,!!!

c. P ,*%!,!!!

d. P,&'','!!

35

'.

".

&.

1!.

urrent liabilities a. P 1,1&%,"%!

b. P 1,%,"%!

c. P &"%,"%!

d. P ''%,"%!

(otal liabilities a. P *,1%,"%!

b. P 2,"%%,"%!

c. P 2,*%,"%!

d. P 2,%2%,"%!

(otal retained earnings a. P 2,2,1! b. P 2,2*,1!

c. P 1,!%,1!

d. P 1,&,1!

(otal stoc/holders$ equity a. P *,%&,1! b. P *,'&',%!

c. P *,%2&,1!

d. P 2,%2,"!

Solution a. ash J restricted *2,*!! ash *2,*!! b. Kolding loss *!,!!! 3llowance for holding loss *!,!!! c. Other receivable J noncurrent *!,!!! 3ccounts receivable *!,!!! Other receivable J current 12!,!!! Other receivable J noncurrent 12!,!!! +ad debts &,!!! 3llowance for bad debts &,!!! ; ?etained earnings '!,!!! >st. liability '!,!!! >; ?etained earnings '!,!!! ?etained earnings J appropriated '!,!!! 3d; >stimated liability '!,!!! ?etained earnings '!,!!! 3nswer; 1. 3 2. 3 *. 7 %. + . + .  '. 3 ". + &. + 1!. 3

Problem 13 . 5enaon hired an attorney to help her start 5>438O4 ?>P3I? 5>?BI> O?PO?3(IO4. On arch 1, . 5enaon deposited P11,!! cash in ban/ account in the name of the corporation in e6change for 1,1! shares of P1! par value common stoc/. 9hen he paid the attorney$s bill of P'!!, the attorney advised her to hire an accountant to /eep his records. . 5enaon was so busy that it was arch *1 before she as/ed you to straighten out his records. Aour tas/ is to develop the financial statements on the arch transactions. 3fter investing in her business and paying her attorney, . 5enaon borrowed P,!!! from the ban/. 5he later paid P2!, including interest of P!, on this loan. 5he also purchased a used pic/up truc/ in the company$s name, paying P2,!! down and financing P',%!!. (he first payment on the truc/ is due 3pril 1. . 5enaon then rented an office and paid three months$ rent P&!!, in advance. redit purchases of office equipment of P"!! and repair tools of P!! must be paid by 3pril 1!. In arch,5>438O4 ?>P3I? 5>?BI> O?PO?3(IO4 completed repairs of P1,*!!, of which P%!! were cash transactions. Of the credit transactions, P*!! were collected during arch.

36

9ages of P%! were paid to employees. On arch *1, the company received a P' bill for the arch utilities e6pense and a P! chec/ from a customer for wor/ to be completed in 3pril. Questions 1. (he ash balance of 5>438O4 ?>P3I? 5>?BI> O?PO?3(IO4 at arch *1 is; a. P12,*&! b. P12,*1 c. P12,%%! d. P11,!! 2.

(he 3ccounts ?eceivable balance of 5>438O4 ?>P3I? 5>?BI> O?PO?3(IO4 at arch *1 is; a. P&!! b. P"!! c. P'!! d. P!!

*.

(he (otal urrent 3ssets of 5>438O4 ?>P3I? 5>?BI> O?PO?3(IO4 at arch *1 is; a. P1*,'1

b. P1*,

c. P1*,1

d. P1*,%!

%.

(he (otal 4on0current assets of 5>438O4 ?>P3I? 5>?BI> O?PO?3(IO4 at arch *1 is; a. P11,&!! b. P11,""" c. P11,*"" d. P11,2!!

.

(he (otal 3ssets of 5>438O4 ?>P3I? 5>?BI> O?PO?3(IO4 at arch *1 is; a. P2,2" b. P2,%1 c. P2%,"%! d. P2%,&1

.

(he (otal 5toc/holders$ >quity of 5>438O4 ?>P3I? 5>BI> O?PO?3(IO4 at arch *1 is; a. P11,21 b. P11,&!* c. Pquipment at 7ecember *1, 2!! is; a. P 21!,!!! b. P 2%!,!!!

c. P 2'!,!!!

d. P *!!,!!!

'. Dand arnings on the basis of a resolution of the +oard of 7irectors. Audit finding o! 13 Office salaries unpaid as of 5eptember *!, 2!!, P1,2!!, were not ta/en up as accrued e6pense. Audit finding o! 14 Patents were acquired by purchase on 5eptember *!, 2!! for P2!,!!!. It has as estimated useful life of % years. Audit finding o! 15 3n analysis of the investment account shows that on 5eptember 2!! 2 shares were sold for P2!! per share. (his was recorded as a debit balance to ash, P,!!! and a credit to Investments in 3 o., P,!!!. Audit finding o! 16 3 repayment of non0interest bearing note payable for P,!!! was erroneously debited to 3dvertising.

44

Audit finding o! 17 3 payment of P1,!!! for (a6es on 5eptember 2&, 2!! was not recorded in the boo/s. Audit finding o! 18 On 5eptember *!, 2!! ?K>DD ompany declared a 1!# stoc/ dividend distributable on October 21, 2!!. (he mar/et value per share is P12! at the time of declaration. (his has not been ta/en up in the boo/s. Audit finding o! 19 On 5eptember *!, 2!! a Dand was donated by a stoc/holder. (he stoc/holder bought the Dand in 1&&" for P2,!!!. (he appraised value of the land at present is P!,!!!. Audit finding o! 20 ar/etable 5ecurities which cost P1,!!! has a mar/et value of P1,!!!. Audit finding o! 21 3 payment to supplier within the discount period was made on 8une 2!, 2!!. (he discount of P2! was credited to 5ales discounts instead of purchase discounts. Audit finding o! 22 ?K>DD orporation has a pending lawsuit from a customer, as/ing for a P1!!,!!! damages. (he lawyers of the company believe that it is remote that the case of the customer will prosper in court. ?K>DD orporation 9or/ing +alance 5heet 5eptember *!, 2!! P>? +OO "urrent ash ar/etable 5ecurities 3ccount ?eceivable J trade 3llowance for doubtful accounts 4otes ?eceivable Inventories Investment in 3, o. J1!! shares Interest ?eceivable Prepayments (O(3D

37I( 3785(>4(

FI43D +3D34>5

1!,!! 1,!!! ',2!! 1,!! dr. 21,!! *&,!! 2,!!! 0 1,'! 1'1,&!

Dand Furniture  >quipment 3ccumulated 7epreciation (O(3D

!,"! arnings #ot$l %i$b! , &! E

*,%2! 0 *1,!!!

 

',!!! 0 0 0 &&,21! 2%!,*!

?K>DD O?PO?3(IO4 9or/ing Profit and Doss Aear >nded 5eptember *!, 2!! P>? 37I( FI43D +OO5 3785(>4( +3D34>5 5ales 5ales returns 5ales discounts 4et sales

2&,"1! < 1,&!= < 1,'!!= 2,1!

ost of sales Inventory, beg. Purchases Purchase returns Purchase discounts Inventory, end Lross Profit 3dvertising 7oubtful 3ccounts 5alesman$s 5alaries iscellaneous 5elling e6penses ?ent e6pense Insurance e6pense Dight and water (a6es Office salaries iscellaneous office e6pense Doss on sale 3morti@ation of Intangibles Interest >6pense Other Income 4et Income

*&,!! 1"&,*! < *,'!!= < 1,&'!= inding 7  e#reciation  A >inding 15 oss on sa&e !n%est-ent >inding 16 'ote #a(ab&e  Ad%ertising

atents

5,000

5,085   5,085  >inding 18 $etained earnings )tocD di%. distr. A!C >inding 19 and onated ca#ita&

1,000 1,000 5,000

>inding 17  a"es 1,000 Cas >inding 21 )a&es discount 20 urcase discount

5,000

9,000 7,500 1,500 50,000 50,000

>inding 20 'o ad*ust-ent  

1,000

20

WORKING PAPER

er booDs

er audit

Cas

10,500.00

arDetab&e securities

15,000.00

 Accounts recei%ab&e @ trade

57,200.00

 A&&ow.or bd @ debit ba&ance

1,500.00

'otes recei%ab&e

39,500.00

!n%est-ent in A. Co. @ 100 sares

25,000.00

re#a(-ents and >urniture P +Eui#-ent  Accu-u&ated de#reciation oodwi&& atents

 Accounts #a(ab&e  Accrued e"#enses

@ 1,750.00 @

39,500.0 0 1,000.0 0

180.00 1,950.0 0 50,000.0 0

)tocD di%idend distributab&e

@

onated ca#ita&

@ 99,210.00 240,630.0 0

24,000.00

3,700.00 50,000.00  

5,085.0 0 10,000.0 0 5,000.0 0

50,850.00 17,255.0 0 @ 15,000.00 267,105.0 0 35,420.00

1,200.0 0

@

@

45,000.00

180.00

35,420.00

75,000.00

53,400.00 2,670.0 0 21,500.00

20,000.00 240,630.0 0

Ca#ita& stocD, 100

$etained earni ngs

45,000.0 0

10,000.00

31,000.00

 Additiona& #aid in ca#ita&

4,900.0 0 4,170.0 0

50,850.00   12,170.0 0

'otes #a(ab&e

8,400.00 15,000.00

1,100.0 0

21,500.00

!n%entories

!nterest recei%ab&e

2,100.0 0

5,000.0 0

1,200.00 26,000.00 75,000.00

3,500.0 0 7,500.0 0 50,000.0 0

3,500.00 7,500.00 50,000.00 68,485.00 267,105.0 0

49

)a&es

)a&es discounts

269,810.00   1,950.0 0   1,700.0 0

'et sa&es

266,160.00

)a&es returns

Cost o sa&es HHH

4,900.0 0

20.00

261,240.00 39,500.0 0

181,690.00

ross #roit

264,910.00   1,950.0 0 1,720.0 0

20.00 41,500.0 0 3,500.0 0

84,470.00

ter inco-e

85,070.00

430.00

A

176,170.00

180.00

84,900.00

610.00 85,680.00

#erating e"#enses   Ad%ertising oubtu& accounts )a&es-enJs sa&aries isce&&aneous se&&ing e"#enses $ent e"#enses !nsurance e"#ense igt and water    a"es ice sa&aries isce&&aneous oice e"#enses

  7,210.0 0 @   21,650.0 0   1,940.0 0   11,700.0 0   1,200.0 0   300.00     1,510.0 0 3,330.0 0   1,560.0 0

oss on sa&e

@

e#reciation

@

A-ortiIation o intangib&es

@

!nco-e ro- o#erations !nterest e"#ense

34,500.00 4,060.0 0

'et inco-e

30,440.00

 

$etained beginning i%idends $etained end

68,770.00 @

  4,170.0 0

900.00 900.00

   

1,000.0 0 1,200.0 0

1,000.0 0 5,085.0 0 5,000.0 0

150.00

urcases urcase returns urcase discounts

50

39,500.00 189,360.00   3,700.0 0 1,970.0

24,625.00 3,910.0 0

56,770.00 9,000.0 0

99,210.00

HHH C)

2,210.0 0 4,170.0 0   21,650.0 0   1,940.0 0 10,800.0 0 300.00     300.00   2,510.0 0 4,530.0 0   1,560.0 0 1,000.0 0 5,085.0 0 5,000.0 0

20,715.00 12,000.0 0 9,000.0 0

68,485.00 186,105.0 0

!n%entor( @ beg.

5,000.0 0

186,105.0 0