CHAPTER 1 Caselette - Accounting Cycle
Short Description
audit...
Description
CHAPTER 1 - Accounting Process & Working Paper Preparation Exercises: Indicate your answer answer by encircling the the letter that contains your your choice in each each of the following questions. 1. One is using using periodic periodic invento inventory ry system. system. For the the year year, its its total purcha purchases ses amounte amounted d to P2!,!!!. Its unsold merchandise merchandise at the end of the year has a cost of P,!!! which is "!# of its beginning inventory. inventory. One$s cost of sale is a. P 2!,!!! b. P 21,2! c. P 2%&,!!! d. P 2%",'! 2. (wo$s (wo$s purch purchase ase per purch purchase ase invoice invoice is P1!,!! P1!,!!!. !. (he purcha purchase se discount discount is 2)1!, 2)1!, n)*!. n)*!. Freigh Freightt is P!!, FO+ shipping shipping point point col collec lect. t. (he net purchas purchase e amount amounts s under under net method is a. P 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%',!!! b. P 1%',!! c. P 1%",!!
d. P 1!,!!
%. (he purchase purchase invoice invoice shows shows the amount of P2!,!!!, P2!,!!!, 2)1!, 1)2!, 1)2!, n)*!- FO+ destinat destination ion collect, collect, P2!!. If the account account is paid 1 days after the invoice invoice date, 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%,!!! b. P 2%',!! c. P 2%',*!!
d. P 2%%,"!!
. (hree (hree purcha purchased sed merchan merchandis dise e for P,!!! P,!!! and and paid paid P2!! P2!! for freight freight,, FO+ destina destinatio tion n collect. (he merchandise merchandise was was sold at at 12!# of cost. (he gross profit is a. P 1,!!! b. P 1,!%! c. P ,!!! d. P ,2%! '. (he total total purchas purchase e is P1,1', P1,1', net net of 2# cas cash h discount. discount. nsold nsold portion portion of purch purchase ase is P1'. (he sale sale is at mar/0up mar/0up of 1!#. (he gross gross profit is a. P 11'.! b. P "" "".2% c. P 11.2 d. P 1!!.!! ". (he term term of a P*!!,! P*!!,!!! !! purchase purchase is is 2)2!, n)!, n)!, FO+ shippin shipping g point prepa prepaid, id, P*!!. P*!!. If th the account is paid on the 2 day from the invoice date, the total payment would be a. P 2&%,!!! b. P 2&&,'!! c. P 2&%,*!! d. P *!!,*!! &. Four Four 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 and 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!! b. P 2!*,'! c. P 2!%,!!! d. P 1&,2!! 11. 3mar ompany ompany received received P&,!!! P&,!!! on 3pril 3pril 1, 2!!2 for one year$s year$s rent in advance advance and recorded recorded the transacti transaction on with a credit credit to a nominal nominal account. account. (he 7ecember 7ecember *1, 2!!2 adusting entry is a. 7ebit rent rent revenue revenue and credit credit unearn unearned ed 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 and credit credit rent reven revenue, ue, P2%,!!!. P2%,!!!. d. 7ebit unearn unearned ed rent revenu revenue e and credit credit rent reven revenue, ue, P'2,!!!. P'2,!!!. 12. 3ndoy ompany ompany paid P'2,!!! on 8une 1, 2!!2 for a two0yea two0yearr insuran insurance ce policy and recorded the entire amount amount as insurance insurance e6pense. e6pense. (he 7ecember *1, 2!!2 2!!2 adusting entry is a. 7ebit insura insurance nce e6pense e6pense and credit credit prepaid prepaid insuran insurance, ce, P21,!!!. P21,!!!. b. 7ebit insura insurance nce e6pense e6pense and credit credit prepaid prepaid insuran insurance, ce, P1,!!!. P1,!!!. c. 7ebit prepaid prepaid insur insuranc ance e and credit credit insuran insurance ce e6pense, e6pense, P21,!!!. P21,!!!. d. 7ebit prepaid prepaid insura insurance nce and credit credit insuran insurance ce e6pense, e6pense, P1,!!!. P1,!!!. 1*. 3ntipuesto ompany purchase purchase equipment on 4ovember 1, 2!!2 and gave a 120month, &# note with a face value value of P%"!,!!!. (he 7ecember *1, 2!!2 2!!2 adusting entry is a. 7ebit interes interestt e6pense e6pense and credit credit intere interest st payab payable, le, P',2!!. P',2!!. b. 7ebit interes interestt e6pense e6pense and credit credit interest interest payab payable, le, 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 interest interest payab payable, le, P%*,2!!. P%*,2!!. 1%. On 7ecember *1, 2!!2, 3silo ompany$s boo//eeper made an adusting entry debiting supplies supplies e6pense and credit credit supplies inventor inventory y for P12,!!. P12,!!. (he supplies supplies inventory inventory accounts had a P1,*!! P1,*!! debit balance on 7ecember *1, 2!!1. (he 7ecember *1, 2!!2 balance sheet showed supplies supplies inventory of P11,%!!. Only one purchase of supplies was was made during the month, on account. account. (he entry for that that purchase was was a. 7ebit suppli supplies es invent inventory ory and 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 accou accounts nts payab payable, le, P",'!!. P",'!!. d. 7ebit supplies supplies invent inventory ory and credit credit accounts accounts payab payable, le, P1,!!. P1,!!. 1.3stillo 1.3stillo ompan ompany y loa loaned ned P*!!,! P*!!,!!! !! to anothe anotherr compan company y on 7ecemb 7ecember er 1, 2!!2 2!!2 and and received a *0month, *0month, 1#, interest0bearing interest0bearing note with a face face value of P*!!,!!!. P*!!,!!!. 9hat adusting entry should 3stillo ompany ma/e on 7ecember *1, 2!!2: a. 7ebit interes interestt receivab receivable le 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 receiva receivable ble and credi creditt interest interest income, income, P*,'! P*,'!.. d. 7ebit cash and credit interest receivable, P',!!. . 1. (he supplies inventory inventory account account balance at the beginning beginning of the period period was P,!!!. P,!!!. 5upplies totaling P12",2! were purchased during the period and debited to supplies inventory inventory.. 3 physical physical count shows shows P*",2! P*",2! of supplies inventor inventory y at the end of the period. (he year0end year0end adusting entry entry is a. 7ebit supplie supplies s inventory inventory and and credit credit supplies supplies e6pense, e6pense, P&!,!!!. P&!,!!!. b. 7ebit supplies supplies e6pense e6pense and and credit supplies supplies invent inventory ory,, P12",2!. P12",2!. c. 7ebit suppli supplies es inventor inventory y and credit credit suppli supplies es e6pense, e6pense, P1,!! P1,!!!. !. d. 7ebit supplies supplies e6pense e6pense and and credit supplies supplies invent inventory ory,, 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!! b. P 2!*,'! c. P 2!%,!!! d. P 1&,2!! 11. 3mar ompany ompany received received P&,!!! P&,!!! on 3pril 3pril 1, 2!!2 for one year$s year$s rent in advance advance and recorded recorded the transacti transaction on with a credit credit to a nominal nominal account. account. (he 7ecember 7ecember *1, 2!!2 adusting entry is a. 7ebit rent rent revenue revenue and credit credit unearn unearned ed 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 and credit credit rent reven revenue, ue, P2%,!!!. P2%,!!!. d. 7ebit unearn unearned ed rent revenu revenue e and credit credit rent reven revenue, ue, P'2,!!!. P'2,!!!. 12. 3ndoy ompany ompany paid P'2,!!! on 8une 1, 2!!2 for a two0yea two0yearr insuran insurance ce policy and recorded the entire amount amount as insurance insurance e6pense. e6pense. (he 7ecember *1, 2!!2 2!!2 adusting entry is a. 7ebit insura insurance nce e6pense e6pense and credit credit prepaid prepaid insuran insurance, ce, P21,!!!. P21,!!!. b. 7ebit insura insurance nce e6pense e6pense and credit credit prepaid prepaid insuran insurance, ce, P1,!!!. P1,!!!. c. 7ebit prepaid prepaid insur insuranc ance e and credit credit insuran insurance ce e6pense, e6pense, P21,!!!. P21,!!!. d. 7ebit prepaid prepaid insura insurance nce and credit credit insuran insurance ce e6pense, e6pense, P1,!!!. P1,!!!. 1*. 3ntipuesto ompany purchase purchase equipment on 4ovember 1, 2!!2 and gave a 120month, &# note with a face value value of P%"!,!!!. (he 7ecember *1, 2!!2 2!!2 adusting entry is a. 7ebit interes interestt e6pense e6pense and credit credit intere interest st payab payable, le, P',2!!. P',2!!. b. 7ebit interes interestt e6pense e6pense and credit credit interest interest payab payable, le, 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 interest interest payab payable, le, P%*,2!!. P%*,2!!. 1%. On 7ecember *1, 2!!2, 3silo ompany$s boo//eeper made an adusting entry debiting supplies supplies e6pense and credit credit supplies inventor inventory y for P12,!!. P12,!!. (he supplies supplies inventory inventory accounts had a P1,*!! P1,*!! debit balance on 7ecember *1, 2!!1. (he 7ecember *1, 2!!2 balance sheet showed supplies supplies inventory of P11,%!!. Only one purchase of supplies was was made during the month, on account. account. (he entry for that that purchase was was a. 7ebit suppli supplies es invent inventory ory and 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 accou accounts nts payab payable, le, P",'!!. P",'!!. d. 7ebit supplies supplies invent inventory ory and credit credit accounts accounts payab payable, le, P1,!!. P1,!!. 1.3stillo 1.3stillo ompan ompany y loa loaned ned P*!!,! P*!!,!!! !! to anothe anotherr compan company y on 7ecemb 7ecember er 1, 2!!2 2!!2 and and received a *0month, *0month, 1#, interest0bearing interest0bearing note with a face face value of P*!!,!!!. P*!!,!!!. 9hat adusting entry should 3stillo ompany ma/e on 7ecember *1, 2!!2: a. 7ebit interes interestt receivab receivable le 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 receiva receivable ble and credi creditt interest interest income, income, P*,'! P*,'!.. d. 7ebit cash and credit interest receivable, P',!!. . 1. (he supplies inventory inventory account account balance at the beginning beginning of the period period was P,!!!. P,!!!. 5upplies totaling P12",2! were purchased during the period and debited to supplies inventory inventory.. 3 physical physical count shows shows P*",2! P*",2! of supplies inventor inventory y at the end of the period. (he year0end year0end adusting entry entry is a. 7ebit supplie supplies s inventory inventory and and credit credit supplies supplies e6pense, e6pense, P&!,!!!. P&!,!!!. b. 7ebit supplies supplies e6pense e6pense and and credit supplies supplies invent inventory ory,, P12",2!. P12",2!. c. 7ebit suppli supplies es inventor inventory y and credit credit suppli supplies es e6pense, e6pense, P1,!! P1,!!!. !. d. 7ebit supplies supplies e6pense e6pense and and credit supplies supplies invent inventory ory,, P1,!!!. P1,!!!.
2
1'. 3t the end of 2!!2, 3vila ompany made four adusting adusting 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 premi premium. um. Paid Paid P2%, P2%,!! !!! ! ren rent. t. (otal (otal service service rendered rendered to various various customers, customers, P1%!,!!!, P1%!,!!!, %!# of total total sales are on cash basis and the balance on open account. ?eceived promissory note from from customer customer to replace P%!,!!! P%!,!!! accounts accounts receivable. receivable. ollected ollected in cash cash P1%,!!! P1%,!!! of of account accounts s receivab receivable. le. Paid Paid the notes paya payable ble of P1!!,!!! P1!!,!!! plus plus the P2,%!! P2,%!! interest. interest. Purchase Purchased d P2,%!! P2,%!! shop shop supplies supplies on cash cash basis. basis. Paid Paid salari salaries, es, P2%,!! P2%,!!!. !.
3t the end of the month, the following information are available to effect adustments. a. (he insurance insurance in number 2 for P12,!!! is applicable applicable for si6 months starting starting February February.. b. (he rent rent of P2%,!!! P2%,!!! paid in number number * is for for * months, months, starting starting Februa February ry.. c. (he note note receiv receivab able le is number number is earnin earning g 12# intere interest st per year year.. (he note note is dated dated February 1, and is due on 3pril *!. d. +ad debts debts e6pense e6pense is estimated estimated at 2# of accounts accounts receiva receivable ble balance. balance. 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@ab ?eali@able le value value of 3ccounts 3ccounts ?eceiva ?eceivable ble at end of Februar February y 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 Febrruar uary is is a. P 1,"!! b. P 1,!!! c. P
"!!
%. 4et boo/ value value of 5hop 5hop >quipmen >quipmentt at end of Febru February ary 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 Payab Payable le at end of of Februa February ry is is a. P 12","!! b. P "","!!
c. P ",%!!
d. P %","!!
. 4otes Paya Payable ble at at end end of Februar February 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 end end of Febru bruary is a. P &",!! b. P &',%!! c. P &',"!!
d. P "",!!
&. (otal (otal ?evenue ?evenue of the the company company at end end of Februar February y is a. P 1%2,"!! b. P 1%2,%!! c. P 1%!,%!!
d. P 1%!,!!!
1!. (otal (otal >6penses of the ompany at end of February 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/ " 112 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 te 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 AA'C+ CA); ACC') $+C+!<
A)+')
!'C+ )A++'
75,20 0
75,20 0
160,000
A=. >$
160,000 2,800
'+) $+C+!5, P2,!!!. Purchased merchandise from O5(IH> P?O7(5, P2*2,!!!. (erms; FO+ shipping point, 2)1!, n)*!. P>HI( OP34A 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 P3P3OA 5PPDI>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>HI( OP34A 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.
*.
%.
.
1 2
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,!!
.
'.
".
&.
1!.
11.
12.
1*.
1%.
1.
(otal assets at 7ecember *1, 2!! is; a. P *,2*,&! b. P *,2!,&!
c. P *,2!*,&!
d. P *,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 urcases 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
urcases 232,000 >reigt@in 2,000 Cas 2,000 Accounts #a(ab&e 232,000
ec 9
Accounts #a(ab&e 12,000 urcases 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
320,100 )a&es discount 9.900 Accounts recei%ab&e 330,000
ec 19
Accounts recei%ab&e Cas )a&es
247,000
ec 20 $e#resentation e"# Cas
9,000
5,000 242,000
ec 29)a&es returns 18,000 Accounts recei%ab&e
9,000
18,000
1 3
ec 30
rawing
20,000 urcases
20,000
Ad*usting entr(: 1. )a&aries e"#ense Accrued sa&aries
73,000 73,000
2. !nsurance e"#ense re#aid insurance
2,000
3. e#reciation Accu-. e#Gn F b&dg Accu-. e#Gn F eEui#
7,500
2,000
3,000 4,500
4. )u##&ies e"#ense ice su##&ies
24,000
5. !n%entor( F ) !n%entor( F !)
453,000
A')=+$: 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; 4ov. *! 5upplies Prepaid insurance 9ages payable nearned rent revenue
7r. 1,!!! ,!!!
7ec. *1 r.
1!,!!! 2,!!!
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
P22,!! &*,!! P
*,1&!
1,!! ,"&! 1,"!! 1",'! *!,!!! *,!! 1!,!!! 1!!,!!! ,2! *'2,!!! %,'! 21,&*! *,!
1 5
3dvertising 5ales salaries ommission e6pense iscellaneous e6pense ?ent e6pense Office salaries Dight and 9ater Insurance e6pense (a6es and licenses Leneral e6pense Interest e6pense Interest income
&,1! 2","! 1,2!! 2,&&! 1*,!!! 1&,'2! 1,!! 1,!"! %,'"! 1,*%! %,12! &1!
Aour e6amination of the company$s account has the need for adustments based on the following items; a.
b.
(he cash account included a c ustomer$s chec/ f or P1,!! deposited on 5eptember 2, 2!! but returned by the ban/ on 5eptember 2&, 2!! for lac/ of countersignature. 4o entry was made for the returned chec/. nrecorded ban/ charge for 5eptember 2!!, P!!
c.
(he allowance for doubtful accounts should be adusted 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.
1 6
(he adusting entry on item 3 is a. ash 1,!! 3ccounts receivable 1,!! b. 3ccounts payable 1,!! ash 1,!! c. 3ccounts receivable 1,!! ash 1,!!
d. 4o adustment 2.
(he adusting entry on item + is ash 3ccounts receivable b. ash !! Leneral e6penses c. Leneral >6penses !! ash d. 4o adustment a.
!! !! !! !!
*. (he adusting 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 adusting entry on item 7 is a. erchandise Inv. !,12! Income 5ummary b. erchandise Inv. !,12! Purchases c. Income summary !,12! erchandise inventory d. 4o adustment . (he adusting entry on item > a. Income summary erchandise Inv. b. 5ales erchandise Inv. c. erchandise inventory Income summary d. 4o adustment
!,12! !,12! !,12!
2,!!! 2,!!! 2,!!! 2,!!! 2,!!!
. (he adusting entry on item F is a. erchandise Inv. ,"&! Income summary b. erchandise Inv. ,"&! Purchases c. Income summary ,"&! erchandise inventory d. 4o adustment '. (he adusting entry on item L is a. 7epreciation >6p. ,1"! 3ccumulated 7epreciation b. 3ccumulated 7epreciation ,1"! Furniture and >quipment
2,!!!
,"&! ,"&! ,"&!
,1"! ,1"!
1 7
c. 3ccumulated depreciation 7epreciation e6pense d. 4o adustment
,1"!
". (he adusting 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 adusting 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 adusting 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
,1"!
,!!! ,!!! ,!!! ,!!!
*! *! %! %!
11,!!! 2,!!! 11,!!! 2,!!!
3fter ma/ing the adustments compute the following; 11.ash a. P2%,!!!
b. P21,!!!
c. P2!,!!
d. P2!,!!!
12. 4et reali@able value of accounts receivable a. P&!,%1! b. P&!,*%
c. P"",&2!
d. P"","%
1*. erchandise inventory, 5eptember *!, 2!! a. P!,12! b. P,"&!
c. P2,12!
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. P22,'" b. P2!,"%
c. P22*,"!
d. P22,'!!
1. ost of goods sold, 5eptember *!, 2!! a. P211,!! b. P21!,!!
c. P212,*!!
d. P212,2"!
1 8
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 21,!!! *&,!!!
3dusting information; 1. ost of inventory in the possession of consignee as of 7ecember *1, 2!!, was not included in the ending inventory balance, P**,!!.
1 9
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 6pense J achinery and >quipment is; a. P &,! b. P &,!! c. P &,%1' d. P &,!!! '. (he adusted amount of 3ccounts payable is; a. P "1",!!! b. P "!!,!!! c. P '",!!!
d. P !!,!!!
Solution a Cas
150,000 Accounts #a(ab&e 150,000 b urcases 98,000 Accounts #a(ab&e 98,000 c Accounts #a(ab&e 80,000 urcase returns 80,000 d Accounts recei%ab&e 50,000 )a&es 50,000 e Accounts recei%ab&e 5,000 Cas 5,000 ad debts 28,325 A&&owance or bad debts 28,325 1,355,000 " 1K/ L 20,325 M 8,000 debit ba&ance o A&&owance A')=+$: 1. 2. A 3. 4. 5. 6. 7. C
Problem 9 (he trial balance of (?34HID34 O?PO?3(IO4, prior to the closing of is accounts for the fiscal year0ended 5eptember *!, 2!! follows; 7>+I( ?>7I(
2 3
ash 3ccounts receivable 3llowance for doubtful accounts 4otes receivable erchandise inventory, 5ept. *!, 2!! Furniture and >quipment 3cc. 7epreciation J Furniture >quipment 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
22,!!! &*,!!! *1,&!! 1,!!! ",&!! 1",!!! 1"',!! *!!,!!! *,!!! 1!!,!!! 1,!!!,!!! 2,!! *,'2",2!! %',!! 2,1&,*!! *,!! &,1!! 2"",!! 12,!!! 2&,&!! 1*!,!!! 1&',2!! 1,!!! 1!,"!! %',"!! 1*,%!! %1,2!! EEEEEEEE ,1"1,'!!
&,1!! ,1"1,'!!
Aour e6amination of the company$s accounts had indicated the need for adustments based on the following information; 1. (he ash account include a customers$ 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 adusted 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.
2 4
'. 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.
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 22,!! 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
2 5
1.
2.
3.
4.
5.
6.
7.
Accounts $ecei%ab&e Cas
15,000
oubtu& Accounts +"#ense A&&owance or doubtu& accounts N5/ " 936,000 M 15,000 L 47,550 @ 31,900O
15,650
15,000
ercandise !n%entor( !nco-e )u--ar(
601,200
urcases ercandise !n%entor( Accounts a(ab&e !nco-e )u--ar(
40,000 40,000
!nco-e )u--ar( ercandise !n%entor(
24,000
!nco-e )u--ar( ercandise !n%entor(
568,900
601,200
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/ " 912 ooD %a&ue )e&&ing #rice ain on sa&e o eEui#-ent 8.
15,650
e#reciation e"#ense Acc. e#r. F >ur. P +Eui#
40,000 11,000
29,000 35,000 6,000 64,300 64,300
e#r. or (ear ended 9.30.03 n eE#t so&d 40,000 " 10/ " 912 n re-aining eE#t. 613,000 " 10/
9.
10.
11.
re#aid !nsurance !nsurance e"#ense re#aid rent $ent e"#ense iscount on notes #a(ab&e !nterest e"#ense ota& discount 100,000 " 12/ " 120360 ess #ortion a##&icab&e to (ear ended 9.30. na-ortiIed, 9.30.
12.
$etained +arnings oodwi&&
3,000 61,300 64,300 5,400 5,400 10,000 10,000 3,000 3,000 4,000 1,000 3,000
300,000 300,000 $A'Q!A' C$$A!' =$!' $!A AA'C+ )e#te-ber 30, 2003
2 6
Cas A$ A&&. or A '$ ! >+ AF >+. oodwi&& A ' C) $+ )a&es )a&es $P A urcases urc $PA. Ad% )a&es sa& Co-. e"# isc.se&& $ent e"# ice sa& igt P = !ns. e"# a" P &icen isc. e !nt. e"# !nt inc
ria& a&ance ebit Credit 225,000 936,000 31,900 155,000 568,900 618,000 187,500 300,000 536,000 100,000 1,000,000 552,500 3,728,200 47,600 2,159,300 36,500 96,100 288,500 152,000 29,900 130,000 197,200 15,000 10,800 47,800 163,400 41,200 9,100 6,181,700 6,181,700
Ad*ust-ents ebit
Credit 15,000 15,000 15,650
568,900 11,000
3,728,200 40,000
36,500
10,000
5,400
3,000
96,100 288,500 152,000 29,900 120,000 197,200 15,000 5,400 47,800 163,400 38,200 9,100
15,650 6,000
64,300 5,400 10,000 3,000 464,350
6,000 64,300
464,350
'+ !'C
4,049,250 347,750 4,397,000
4. A
5.
a&ance )eet ebit Credit 210,000 951,000 47,550 155,000 617,200H 613,000 240,800 @0@ 576,000 100,000 1,000,000 252,500
47,600 2,199,300
15,650
3.
617,200
5,000 64,300 300,000 40,000
300,000
A ain e#ren re ins re rent isc on '
A')=+$: 1. 2. C
!nco-e )tate-ent ebit Credit
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 unadusted 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 nadusted (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 !!,!!!
2 7
3ccounts payable 3ccrued e6penses 3ccrued interest payable 3llowance for bad debts 3llowance for depreciation Doans payable apital stoc/ 3dditional paid0in capital ?etained earnings 5ales Interest income Purchases 5alaries and wages ?ent, light and water 3dvertising 5upplies (a6es iscellaneous e6penses Interest e6pense
2,%2,%!! 12,!! 22,!!! *,1!! %!,'!! 2,!!,!!! *,!!!,!!! 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.
2 8
&.
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.
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$s controller prepared the following financial statements; +alance 5heet 4ovember *!, 2!! 355>(5 urrent 3ssets; ash ar/etable securities, at cost 3ccounts receivable 3llowance for doubtful accounts Inventories Prepaid insurance (otal current assets Property, plant and equipment 3ccumulated depreciation ?esearch and developments (otal assets
1!,!!!.!! !,!!!.!! %!,!!!.!! ?5$ >HI(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
&2,!!!.!! 22%,!!!.!! "1,!!!.!! %!!,!!!.!! **,!!!.!! '*,!!!.!!
3 1
(otal liabilities 5toc/holders$ >quity
1,2,!!!.!!
5tatement of Income For the year ended 4ovember *!, 2!! 4et sales ost e6penses; ost of sales 5elling and 3dministrative 7epreciation ?esearch and 7evelopment Income before income ta6es Provision for income ta6es 4et income
2,&!,!!!.!! 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
3 2
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 ar/etable 5ecurities Baluation 3llowance a. P,!!! P 0!0 b. P,!!! P,!!! c. P!,!!! P 0!0 d. P!,!!! 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 adustments increases the nadusted income, before income ta6es of P!,!!!: a. Pension e6pense
3 3
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 adustments decreases the unadusted income, before income ta6es, of P!,!!!: a. ?ecognition of prepaid insurance 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 adusted 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 *,!"',!!!
3 5
.
.
'.
".
&.
1!.
4oncurrent assets a. P %,%!&,*!!
b. P %,2"&,*!!
c. P %,!%',!!!
d. P *,&2',!!!
(otal assets a. P ,%2,*!!
b. P ,%&!,!!!
c. P ,*%!,!!!
d. P,&'','!!
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 . 5enaon hired an attorney to help her start 5>438O4 ?>P3I? 5>?BI> O?PO?3(IO4. On arch 1, . 5enaon 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$s bill of P'!!, the attorney advised her to hire an accountant to /eep his records. . 5enaon was so busy that it was arch *1 before she as/ed you to straighten out his records. Aour tas/ is to develop the financial statements on the arch transactions. 3fter investing in her business and paying her attorney, . 5enaon borrowed P,!!! from the ban/. 5he later paid P2!, including interest of P!, on this loan. 5he also purchased a used pic/up truc/ in the company$s name, paying P2,!! down and financing P',%!!. (he
3 6
first payment on the truc/ is due 3pril 1. . 5enaon 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. 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,!!!.
4 4
Audit finding o! 16 3 repayment of non0interest bearing note payable for P,!!! was erroneously debited to 3dvertising. 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 Dand Furniture >quipment 3ccumulated 7epreciation (O(3D Loodwill
37I( 3785(>4(
FI43D +3D34>5
1!,!! 1,!!! ',2!! 1,!! dr. 21,!! *&,!! 2,!!! 0 1,'! 1'1,&!
!,"! 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>? 37I( FI43D +OO5 3785(>4( +3D34>5 5ales 5ales returns 5ales discounts 4et sales 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 Questions
4 6
2&,"1! < 1,&!= < 1,'!!= 2,1!
*&,!! 1"&,*! < *,'!!= < 1,&'!= inding 7 e#reciation A >inding 15 oss on sa&e !n%est-ent >inding 16 'ote #a(ab&e Ad%ertising
41,500 180 180
>inding 13 ice sa&aries 1,200 Accrued e"#enses >inding 14 A-ortiIation 5,000 atents
1,200
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 urcase 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 57,200.00
1,100.0 0
A&&ow.or bd @ debit ba&ance 'otes recei%ab&e
1,500.00
39,500.00
!n%est-ent in A. Co. @ 100 sares
25,000.00
!nterest recei%ab&e
4,900.0 0 4,170.0 0
21,500.00
!n%entories
@
8,400.00 15,000.00
Accounts recei%ab&e @ trade
2,100.0 0
53,400.00 2,670.0 0 21,500.00
45,000.0 0
39,500.0 0 1,000.0 0
180.00 1,950.0 0 50,000.0 0
45,000.00 24,000.00 180.00
re#a(-ents and >urniture P +Eui#-ent Accu-u&ated de#reciation oodwi&& atents
Accounts #a(ab&e
1,750.00 @ 50,850.00 12,170.0 0
3,700.00 50,000.00
5,085.0 0 10,000.0 0 5,000.0 0
10,000.00 20,000.00 240,630.0 0 35,420.00 @
'otes #a(ab&e
31,000.00
Ca#ita& stocD, 100
75,000.00
1,200.00
75,000.00
@ @
15,000.00 267,105.0 0
26,000.00
)tocD di%idend distributab&e
1,200.0 0
5,000.0 0
Additiona& #aid in ca#ita&
@
35,420.00
Accrued e"#enses
50,850.00 17,255.0 0
3,500.0 0 7,500.0 0
3,500.00 7,500.00
4 9
onated ca#ita&
50,000.0 0
@
$etained earnings
99,210.00 240,630.0 0
)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
ross #roit ter inco-e A
181,690.00
50,000.00 68,485.00 267,105.0 0
4,900.0 0
264,910.00 1,950.0 0 1,720.0 0
20.00
261,240.00 39,500.0 0
20.00 41,500.0 0 3,500.0 0
176,170.00
84,470.00
85,070.00
430.00
180.00
610.00
84,900.00
85,680.00
#erating e"#enses Ad%ertising
7,210.0 0
oubtu& accounts )a&es-enJs sa&aries isce&&aneous se&&ing e"#enses $ent e"#enses !nsurance e"#ense igt and water a"es ice sa&aries isce&&aneous oice e"#enses
@ 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 @
e#reciation
@
A-ortiIation o intangib&es
@
900.00
!nco-e ro- o#erations !nterest e"#ense 'et inco-e $etained beginning i%idends $etained end
4,170.0 0
900.00
oss on sa&e
1,000.0 0 1,200.0 0
1,000.0 0 5,085.0 0 5,000.0 0
34,500.00 4,060.0 0
150.00
30,440.00 68,770.00 @
5 0
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
24,625.00 3,910.0 0 20,715.00
12,000.0 0 9,000.0 0
56,770.00 9,000.0 0
99,210.00
68,485.00 186,105.0 0
HHH C)
5,000.0 0
186,105.0 0
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