JPIA Financial Accounting 1 (Prelims)

University of Santo Tomas Alfredo M. Velayo College of Accountancy Junior Philippine Institute of Accountants CASH & CASH EQUIVALENTS Problem 1: (Burkina Faso Corp.) In the course of your examination of the cash in bank account of Burkina Faso Corp., you obtained the following information: (a) The bank statement on May 31, 2015 showed a balance of P 1,836,000. (b) Among the bank credits in May was customer’s note for P 600,000 collected for the account of the company which the company recognized in June among its receipts. (c) Included in the bank debits for the month of May were service charges amounting to P 7,200 and a P 240,000 check which was charged by the bank in error against Burkina Faso Corp.’s account. (d) You also ascertained that there were deposits-in-transit amounting to P 480,000 and outstanding checks totaling P 1,020,000 by the end of May. (e) The bank statement for the month of June showed total credits of P 2,496,000 and total charges of P 1,224,000. (f) The company’s books for June showed total debits of P 4,818,600, total credits of P 2,443,200 and a balance of P 2,913,600. (g) Bank debit memos for June were: No. 781 for service charges, P 9,600 No. 782 on a customer’s returned check marked DAUD for P 144,000. (h) On June 30, 2015, the corporation placed with the bank a customer’s promissory note with a face amount of P 720,000 for collection. The Corporation treated this note as part of its receipts although the bank was able to collect on the note only in July 2015. (i) A disbursement check of P 45,000 was recorded by the corporation as P 450,000 in the month of May. This error was corrected in the books in June. (j) Another check for P 23,760 was recorded in the company cash disbursements books in June as P 237,600. Question(s): 1. How much is the unadjusted cash balance per ledgers as of May 30, 2015? 2. How much is the adjusted cash balance as of May 30, 2015? 3. What is the correct deposit-in-transit as of June 30, 2015? 4. What is the correct outstanding checks as of June 30, 2015? 5. How much is the adjusted cash balance as of June 30, 2015? Problem 2: (Chile Co.) The cash account in the ledger of Chile Co. had a balance of P 105,600 at December 31, 2016. An investigation of the account, however, disclosed the following: (a) The sales book was left open up to January 5, 2017, and cash sales totaling P 15,000 were considered as sales in December. (b) Checks of P 9,300 in payment of liabilities were prepared before December 31, 2016, recorded in the books, but not mailed or delivered to payees. (c) Post-dated customer collection checks totaling P 7,800 are being held by the cashier as part of cash. The company’s experience shows that post-dated checks are eventually realized. (d) Customer’s check for P 1,500 deposited with but returned by bank marked DAIF on December 27, 2016. The return was not recorded in the books. (e) The cash account includes P 40,000 earmarked for the purchase of a small equipment which will soon be delivered. Question(s): 6. What is the amount of cash to be shown on the statement of financial position on December 31, 2016?

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University of Santo Tomas Alfredo M. Velayo College of Accountancy Junior Philippine Institute of Accountants Problem 3: (El Salvador, Inc.) In connection with your examination of El Salvador, Inc. for the year ended December 31, 2015, you gathered the following information: Current account at PNB

P

Current account at Chinabank Payroll account Foreign bank account – restricted (in US$)* Postage stamps Employee’s post-dated check IOU from president Credit memo from a vendor for a purchase return Traveler’s check Customer’s NSF check Money orders Petty cash fund (P 12,000 in currency and coins and expense vouchers for P 18,000) Treasury bills, due 3/31/16 (acquired 12/31/15) Treasury bills, due 2/1/16 (acquired 1/1/15) Change fund Bond sinking fund

6,000,00 0 (300,000 ) 1,500,00 0 60,000 3,000 12,000 30,000 60,000 150,000 45,000 90,000 30,000 600,000 900,000 10,000 1,000,00 0

* Exchange rate as of 12/31/15 is US$1: P 50. Question(s): 7. What is the total cash and cash equivalent to be reported in the December 31, 2015 statement of financial position? 8. What amount should be presented as part of Non-current assets? Problem 4: (Bosnia and Herzegovina Co.) The accountant of Bosnia and Herzegovina Co. prepared the following bank reconciliation at December 31, 2015: Balance per bank statement Add: Deposit in transit Note collected by bank Total: Less: Outstanding checks Balance per general ledger

P 350,000 175,250 15,000 P 540,250 (246,750) P 293,500

In the course of your examination, you noted the following: (a) At December 31, 2015, the bank statement and the general ledger showed balances of P 350,000 and P 293,500, respectively. (b) The cut-off bank statement showed a bank charge on January 3, 2016 for P 25,000 representing a correction of an erroneous bank credit. (c) Included in the list of outstanding checks were the following:  A check payable to a supplier dated December 28, 2015, in the amount of P 15,000 delivered on January 4, 2016.  A check representing advance payment to a supplier in the amount of P 37,200, the date of which is January 5, 2016 and released In December 2015. (d) On December 31, 2015, the company received and recorded a customer’s check dated January 2, 2016 amounting to P 50,000. Question(s): 9. What is the correct amount of outstanding checks as of December 31, 2015? 10.What is the correct cash balance on December 31, 2015? 11.How much was the cash shortage? Problem 5: (Barbados Company)

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University of Santo Tomas Alfredo M. Velayo College of Accountancy Junior Philippine Institute of Accountants Barbados Company records contained the following:     

Outstanding checks, October 31, P 90,000. Customer’s DAUD check recorded in November but returned in October, P 6,000. Bank service charges in October and recorded in November, P 2,400. Total credits to the cash account in all journals during November, P 190,400. Checks and charges returned by the bank in November including a November service charge of P 3,000 and NSF check of P 12,000, P 195,000.

Question(s): 12.What is the amount of outstanding checks as of November 30? Problem 6: (Burma Co.) The following information was revealed in trying to reconcile the bank statement balance as of February 28 with the Burma Co.’s records as of the same date:  Total credits per February bank statement were P 310,000.  Among the bank credits in January was a customer’s note collected by the bank for the account of the company which the company recognized in February. Proceeds were P 30,300.  Client books for February showed total debits of P 420,000.  Deposits in transit on January 31 were P 15,000.  The bank credited the client’s account in February for P 50,000 representing loan approved and granted by the bank. Burma made no entry for this.  A deposit of P 4,300 was recorded by your client as P 3,400 in June. The bank recorded the deposit at its correct amount. Question(s): 13.How much were the deposits in transit as of February 28? Problem 7: (Cote D’ivoire Co.) A count of the petty cash fund of Cote D’ivoire Co. on January 5, 2016, 9 am revealed the following composition: Bills and coins

P

Vouchers: Dated December 2015 Dated January 2016 IOUs from employees (all dated December 2015)

7,30 0 850 200 4,20 0

Employee’s check dated December 25, 2015 January 10, 2016 Unsigned pay envelope to an employee (the envelope has been opened with no money inside)

2,80 0 4,25 0 5,00 0

The petty cash fund per records is P 15,000. Question(s): 14.How much is the cash shortage or overage? 15.What is the correct amount of petty cash fund to be reported in the statement of financial position as of December 31, 2015? Problem 8: (Cyprus Co.) You are examining the general cash account of the Cyprus Co. for the fiscal year ended September 30, 2015. You obtained the following information: Per books Beginning balance, August 31, 2015 Deposits

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P

665,000

P

Per bank statement 780,000 2,500,000

University of Santo Tomas Alfredo M. Velayo College of Accountancy Junior Philippine Institute of Accountants Cash receipts journal Checks cleared Cash disbursements journal September bank service charge Note paid directly NSF check Balance, September 30

2,520,000 (2,354,600)

(2,380,000 )

(8,500) (610,000) (36,000) 270,000

805,000

August 31 bank reconciliation Balance per bank Deposits in transit Outstanding checks Balance per books

P

780,000 60,000 (175,000 ) 665,000

Additional information: (1) Checks clearing that were outstanding on August 31 totaled P 165,000. (2) Checks clearing that were recorded in the June disbursements journal totaled P 2,050,000. (3) A check for P 100,000 cleared the bank, but had not been recorded in the cash disbursements journal. It was for a purchase of merchandise. (4) A check for P 39,600 was charged to Cyprus but had been written on a different company’s bank account. (5) Deposits included P 60,000 from August and P 2,440,000 for June. (6) The bank charged Cyprus’ account for an NSF check totaling P 36,000. The credit manager concluded that the customer intentionally closed its account and left the city. The check was turned over to a collection agency. (7) A note for P 595,000, plus interest, was paid directly to the bank under an agreement signed three months ago. The note payable was recorded at P 595,000 on Cyprus’ records. Question(s): 16.What is the amount of deposits in transit as of September 30, 2016? 17.What is the amount of outstanding checks as of September 30, 2016? 18. What is the adjusted book disbursements on September 30? 19.What is the adjusted bank balance on September 30? Problem 9: (Eritrea Corp.) A count of the petty cash fund of Eritrea Corp. in the morning of January 6, 2016 showed the following compositions: Bills and coins: Denomination P 1,000 500 200 100 50 20 10 5

No. of pieces 5 10 5 10 10 20 25 50

Unreplenished paid vouchers: 12/28 Transportation 12/30 Office repairs 12/30 Miscellaneous 12/30 Due to employees 1/1 Gasoline Unreplenished unpaid vouchers: 1/3 Gasoline 1/3 Transportation

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P

500 300 900 1,000 1,000 800 1,500

University of Santo Tomas Alfredo M. Velayo College of Accountancy Junior Philippine Institute of Accountants Checks on hand: 12/29 T. Jones, employee 11/26 M. Rivera, employee, returned by the bank marked NSF 12/27 Eritrea Corp., payable to the custodian

2,000 1,000 10,00 0 900

Cash receipt voucher for a return of an expense advance

Question(s): 20.How much is the cash shortage or overage, if any? 21.What is the correct petty cash fund balance to be reported as of December 31, 2015? Problem 10: (Kiribati Co.) In the course of your examination of Cash of Kiribati Co. as of and for the period ended December 31, 2015, the following is a list that comprise the company’s Cash and cash equivalent account: Current account at PCIB Savings account at DBP Current account at Eastwest Bank Undeposited checks, bank drafts, and money orders on hand Travel fund Interest and dividend fund Payroll fund Pension fund Change fund Bond sinking fund Petty cash fund, imprest balance Cash in HCI Bank (closed) Postage stamps IOU from employees Credit memo from a vendor for a purchase return Investment in debt securities, due 3/31/16 (acquired 12/31/15) Investment in debt securities, due 2/28/16 (acquired 2/1/15) Investment in equity securities

P

3,000,00 0 2,000,00 0 (240,000 ) 987,000 50,000 120,000 400,000 250,000 25,000 500,000 30,000 300,000 3,000 30,000 60,000 600,000 9,000,00 0 1,000,00 0

You noted the following: (1) The current account at PCIB included the following: (a) P 75,000 check to a supplier, in payment of an outstanding invoice dated December 1, 2015. The check was issued as of December 31, 2015 but dated January 2, 2016. (b) P 120,000 check to a supplier, in payment of another outstanding invoice dated December 18. The check which was dated December 30, 2015 was still on hand as of December 31, 2015. This check was delivered to the payee on January 4, 2016. (c) P 180,000 check to another supplier dated December 31 and released on the same date for the payment of an invoice dated December 24. (2) The savings account at DBP included a P 500,000 compensating balance related to a 5-year, 12%, P 5,000,000 bank loan dated January 1, 2013. The terms of the loan called for the legal restriction on withdrawal from the said compensating balance at any time during the year term of the loan. (3) The undeposited checks, bank drafts and money orders included the following items: (a) P 180,000 check from a customer dated 4/30/15. (b) P 125,000 check from a customer dated 1/16/16. (c) P 155,000 check from a customer dated 11/27/15, returned by the bank with the November bank statement marked DAIF, yet to be redeposited. (d) P 127,000 check from an employee dated 12/22/15.

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University of Santo Tomas Alfredo M. Velayo College of Accountancy Junior Philippine Institute of Accountants (e) P 80,000 check from a manager dated 12/16/15 returned by the bank marked NSF. (f) P 150,000 postal money order. (g) P 120,000 bank drafts. (4) Cash, in the custody of the petty cashier, on December 31, 2015 were: (a) Bills and coins totaling P 7,000. (b) Replenishment check of P 11,500. (c) P 10,000 worth of unreplenished paid petty cash vouchers. (5) All other funds were accounted for as equaling cash or securities on hand. (6) Kiribati made an estimate that only half of the cash in HCI Bank shall be recovered but the period of recovery is indefinite. (7) The investment in equity securities comprise of the following: (a) P 400,000 investment in ordinary shares acquired on 12/1/15 which are intended for short-term profit purposes. Kiribati intends to sell this by 3/1/16. (b) P 300,000 investment in ordinary shares acquired on 11/30/14 which Kiribati is intending to hold as available for sale (AFS). (c) P 300,000 investment in preference shares acquired on 12/1/15 redeemable at the option of the issuer by 2/28/15. Question(s): 22.What is the adjusted Current account at PCIB that should be presented as part of Cash and cash equivalents? 23.How much from the Savings account with DBP shall be presented as part of Cash and cash equivalents? 24.How much from the Current account with Eastwest bank shall be presented as part of Cash and cash equivalents? 25.How much from the undeposited checks, money orders and bank drafts shall be presented as part of Cash and cash equivalents? 26.How much is the adjusted petty cash fund? 27.How much from the total cash funds shall be presented as part of Cash and cash equivalents? 28.How much from the debt and equity securities shall be presented as part of Cash and cash equivalents? 29.What is the total cash and cash equivalents to be reported by Kiribati in its December 31, 2015 statement of financial position? -END OF CASH & CASH EQUIVALENTSRECEIVABLES Problem 1: (Bahamas Co.) The Trade Accounts Receivable account of Bahamas Co. showed a balance of P 264,500 on December 31, 2015. Below are the items that affected the trade accounts receivable account for the year 2015: January 1 balance, net of P 9,000 credit balance Charge sales Charge for consignment sales Shareholder subscriptions Recovery of previously written-off accounts Refunds to customers with credit balances Deposit on contract Claim against the common carrier for shipping damages IOUs from employees Cash advances to affiliates Advances to suppliers Receipts from customers, including overpayment of P 10,000 and the recovery of accounts written off Accounts written off Returns of merchandise Allowance to customers for shipping damages Collections on carrier claims

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P

106,000 1,250,000 25,000 60,000 5,000 5,000 50,000 5,000 1,000 50,000 10,000 (1,240,000 ) (7,000) (5,500) (3,000) (2,000)

University of Santo Tomas Alfredo M. Velayo College of Accountancy Junior Philippine Institute of Accountants Collection on shareholder subscriptions Total:

(45,000) 264,500

Additional information: (a) It was ascertained that 50% of the outstanding trade accounts receivable balance are still currently collectible. The credit sales term is 5/30 n/60. Based on past experience, 25% of the customers whose accounts are still current normally pay within the discount period. (b)

30% of the trade accounts receivable is 60 days past due and is expected to be 90% collectible.

(c)

20% of the trade accounts receivable is more than 120 days past due and is expected to be 50% collectible.

Question(s): 1. What is the correct balance of the trade accounts receivable? 2. What is the carrying value of the trade accounts receivable?

Problem 2: (Costa Rica Corp.) Your examination of Costa Rica Corp.’s accounts receivable and its related allowance for uncollectible accounts expense revealed the following information: (a)

The general ledgers of Costa Rica Corp. have the following balances: Accounts receivable Allowance for uncollectible accounts Net realizable value

(b)

P

360,000 (1,320) 358,68 0

An aging of Costa Rica Corp.’s accounts receivable per subsidiary ledgers, on December 31, 2015 contained the following information: Days outstanding: Under 30 days 30 – 60 days 61 – 120 days 121 – 180 days Over 180 days

Amount: P

240,00 0 48,000 36,000 24,000 12,000 360,0 00

(c)

Investigations revealed that half of the “over 180 days” account is definitely uncollectible and that a P 12,000 customer credit balance for an advance payment for a future delivery was included in the “under 30 days” account.

(d)

Based on past experiences, the corporation believes that the following uncollectible percentage are reasonable: Under 30 days 30 – 60 days 61 – 120 days 121 – 180 days Over 180 days

0% 3% 15% 30% 60%

(e)

The credit sales term is 10/15 n/30. As per past experience, 20% of the customers whose accounts are still current are expected to take advantage of the cash discount.

(f)

Also you have ascertained that 5% of the current account should be provided for probable future sales returns.

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University of Santo Tomas Alfredo M. Velayo College of Accountancy Junior Philippine Institute of Accountants Question(s): 3. What is the adjusted accounts receivable balance? 4. What is the correct doubtful accounts expense for the period? 5. What is the carrying value of Costa Rica Corp.’s accounts receivable as of December 31, 2015? 6. Assuming that the allowance for doubtful accounts had a P 1,680 debit balance before adjustments, what is the doubtful accounts expense? Problem 3: (Georgia Co.) From the start of operations to December 31, 2015, Georgia Co. provided for uncollectible accounts receivable under the allowance method. Georgia’s usual credit terms are 2/30 n/60. The balance in the allowance for bad debts was P 65,000 at January 1, 2015. During 2015, sales totaled P 5,000,000 (of which 10% are cash sales), interim provisions for bad debts were made at 2% of credit sales; P 45,000 of bad debts were written off; and recoveries of accounts previously written off amounted to P 7,500. Georgia installed a computer facility in November 2015, and an aging of accounts receivable was prepared for the first time as of December 31, 2015. A summary of the aging is as follows: Classification by Month of sale: November – December July – October January – June Prior to 1/1/15

Balance in each category: P 1,140,000 600,000 400,000 130,000 2,270,000

Estimated uncollectible percentage (%): 1.5 8.0 35.0 70.0

Based on the review of the collectability of the account balances in the “prior to 1/1/15” category, additional accounts totaling P 30,000 were written off as of December 31, 2015. Effective with the year ended December 31, 2015, Georgia adopted the revised company policy in recognizing bad debts. Further review revealed that P 700,000 of the November – December balance were December sales and 30% of the amount is anticipated to be collected within the discount period the following period. Question(s): 7. What is the correct balance of the allowance for bad debts at December 31, 2015? 8. What is the carrying value of the accounts receivable at December 31, 2015? Problem 4: (Marshall Islands Co.) In the course of your examination of Marshall Islands Co.’s receivables account as of December 31, 2015, you found out that the account comprised the following items: Trade accounts receivable Trade accounts receivable, assigned (proceeds from assignment amounted to P 650,000) Trade accounts receivable, factored (proceeds from factoring done on a without-recourse basis amounted to P 250,000) 12% trade notes receivable 20% trade notes receivable, discounted at 40% upon receipt of the 180-day note on a without recourse basis Trade receivables rendered worthless and must be written off Installments receivable, normally due one to two years Customers’ accounts reporting credit balances arising from sales returns Advance payments for purchase of merchandise Customers’ accounts reporting credit balances arising from advance payments Cash advances to affiliates

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P

1,550,000 750,000 300,000 200,000 300,000 50,000 600,000 60,000 300,000 40,000 800,000

University of Santo Tomas Alfredo M. Velayo College of Accountancy Junior Philippine Institute of Accountants Claims from insurance company Subscription receivable due in 60 days Accrued interest receivable Deposit on contract bids Advances to stockholders (collectible in 2019)

30,000 600,000 20,000 500,000 2,000,000

Question(s): 9. How much is the total trade receivables? 10.How much is the amount to be presented as “trade and other receivables” under current assets? 11.How much gain or loss from receivable financing should be recognized in the profit or loss statement? Problem 5: (San Marino, Inc.) San Marino, Inc. had the following transactions for the fiscal year ended August 31, 2015: (a) San Marino, Inc. had an outstanding accounts receivable balance amounting to P 4,000,000 on June 30, 2015. These was pledged to HCIB Bank in consideration of a 12% loan. The loan amount is 80% of the outstanding accounts receivable. HCIB charged San Marino 5% of the outstanding accounts receivable as service charge. By the end of July, San Marino collected P 1,200,000 cash from credit customers, net of P 120,000 cash discounts. Also, by the end of July, San Marino accepted merchandise from customers as returns. This was originally invoiced at P 80,000. By the end of August, San Marino collected another P 900,000 after P 50,000 cash discounts and wrote-off P 200,000 of the accounts receivable as worthless. It was agreed-upon with the HCIB that remittances from collections will be made to the bank on a monthly-basis and that the collections from customer will cover both interest and the principal amount of the loan. (b) On May 1, 2015, San Marino discounted to HCIB a 12-month, 10% note dated January 1, 2015 and with a face value of P 2,000,000. HCIB’s discount rate was at 8%. The discounting was done on a without-recourse basis. Question(s): 12.What is the balance of the accounts receivable account as of August 31, 2015? 13.What is the balance of the loan payable account as of August 31, 2015? 14.What is the balance of the note receivable as of August 31, 2015? 15.What amount of gain or loss is to be reported in the 2015 profit or loss from derecognition of receivables, if any? Problem 6: (Botswana Co.) Botswana Co. had the following transactions in 2015: (a) At the beginning of November, Botswana Co. assigned P 2,000,000 out of its P 10,000,000 outstanding accounts receivable to NYB Bank in consideration of a P 1,500,000, 12% loan. NYB charged Botswana 5% of the loan principal as service charge. By the end of November, Botswana collected P 600,000 cash from the assigned accounts net of P 50,000 cash discount. Also, by the end of November, Botswana accepted merchandise from customers as returns. This was originally invoiced at P 60,000. By the end of December, Botswana collected another P 700,000 from the assigned accounts after P 40,000 cash discount and wrote-off P 80,000 of the assigned accounts as worthless. The agreement with NYB calls for monthly remittance of customer collections for the month. The collections will cover both interest and loan principal. (b) Also at the beginning of November, Botswana Co. factored P 500,000 of its accounts receivable to NYB. As of the date of factoring, it was ascertained that P 20,000 of the accounts receivable is doubtful of collection. NYB advanced P 350,000 cash to Botswana and withheld P 50,000 as factors holdback to cover future sales discount and sales returns and allowances. The Co. incurred P 10,000 of legal fees and other professional fees related to the factoring.

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University of Santo Tomas Alfredo M. Velayo College of Accountancy Junior Philippine Institute of Accountants Question(s): 16.What is the balance of the accounts receivable-assigned account as of December 31, 2015? 17.How much is the equity in assigned accounts to be disclosed on December 31, 2015? 18.What amount of gain or loss to be reported in the 2015 profit or loss from derecognition of receivables, if any? Problem 7: (Algeria Co.) The Statement of financial position of Algeria Co. reported the following long-term receivables as of December 31, 2015: Notes receivable from sale of a business segment Note receivable from vice president

P

4,500,00 0 1,200,00 0

In connection with your examination, you were able to gather the following transactions during 2016 and other information pertaining to the company’s long-term receivables: (Use three decimal place for PV factors) (1) The note receivable from sale of a business segment bears annual interest rate of 12%. The note is payable in annual installments of P 1,500,000 plus appropriate interest every April 1. The initial principal and interest payment was made on April 1, 2016. (2) The note receivable from vice president is dated December 31, 2015, earns interest at 10%, and is due on December 31, 2018. The 2016 interest was collected at yearend. (3) The company sold a piece of equipment to Bhutan Corp. on April 1, 2016 in exchange for a P 600,000 non-interest bearing note due on April 1, 2018. The note had no ready market and there was no established price for the said equipment. The prevailing interest rate for a note of this type at April 1, 2016 was 12% and 15% at December 31, 2016. (4) A tract of land was sold by the company to Bobby Bolivia Inc. on July 1, 2016 for P 3,000,000 under an installment sales contract. Bobby signed a four-year 11% note for P 2,100,000 on July 1, 2016, in addition to the P 900,000 down-payment. The equal annual payments of principal and interest on the note will be P 676,875 payable on July 1 of every year starting July 1, 2017. The land had an established cash price of P 3,000,000 and its cost to the company was P 2,250,000. The collection of the installments on this note is reasonably assured. Question(s): 19.How much is the total current portion of the long-term notes receivable as of December 31, 2016? 20.How much is the total non-current notes receivables as of December 31, 2016? 21.What is the amount of accrued interest receivable as of December 31, 2016? 22.What is the total amount of interest income to be reported for the year 2016? Problem 8: (Kosovo Co.) On December 31, 2015, Kosovo Co. lent P 4,000,000 to Latvia Inc. due after three years. Kosovo received an 8% promissory note. Interests are collectible annually every December 31. The prevailing market rate of a note of this type is 6.25%. Kosovo was able to collect interest as it became due at the end of 2016. During 2017, Latvia is experiencing business deterioration due to political instability and faltering global economy, Kosovo was not able to collect amounts due at the end of 2017. After assessing the collectability of the note at December 31, 2017, Kosovo determined that it was probable that Latvia would pay back only P 3,400,000 collectible as follows: December 31, 2019

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P

1,400,00

University of Santo Tomas Alfredo M. Velayo College of Accountancy Junior Philippine Institute of Accountants December 31, 2020 December 31, 2021 December 31, 2022

0 1,000,00 0 600,000 400,000

As of December 31, 2017, the prevailing interest rate for all debt instruments is 9.75%. (Use four decimal places for PV factors) Question(s): 23.What is the carrying value of the notes receivable as of December 31, 2016? 24.What is the impairment loss to be recognized in the 2017 income statement? 25.What amount related to the note shall be presented as non-current assets on December 31, 2018? 26.What is the interest income to be recognized in the 2019 income statement? 27.What amount related to the note shall be presented as current assets on December 31, 2020? 28.What is the carrying value of the notes receivable as of December 31, 2020? Problem 9: (Mauritania Corp.) You are to assess the collectability of the receivables carried in the books of Mauritania Corp. the books showed the following balances as of December 31, 2015: Notes receivable Accounts receivable

P

6,000,000 4,000,000

In the course of your examination, you discovered the following: (1) The composition of the notes receivable, as shown above, is as follows: Notes receivable from Nauru Co. Notes receivable from Poland Co. Notes receivable from Rwanda Co.

P

2,000,000 3,000,000 1,000,000

(2) No interest has yet been recorded by Mauritania during 2015 on any of the notes. (3) Nauru Co. is undergoing bankruptcy proceedings and has negotiated for a restructuring of its notes receivable. The note was for a four-year period and interest of 10% is collectible annually. All interest accrued before 2015 has been collected. The note matured on December 31, 2015. Collection of interest was last made on December 31, 2014. The restructuring agreement with Nauru calls for annual payment of P 550,000 starting December 31, 2016. No further interest will be collected during the extended period. (4) The notes receivable from Rwanda bears interest at 10%. The note was received from sale of goods in the normal course of business. The note is dated October 1, 2015 and matures on March 31, 2017. (5) The notes receivable from Poland is a three-year non-interest bearing note. The note was received in exchange for a tract of land sold by Mauritania on May 1, 2015. The land was carried in the books at the date of sale at P 2,600,000. The prevailing rate of interest for a note of this type is 10%. Question(s): 29.What amount is to be presented as current assets in the statement of financial position at December 31, 2015? 30.What amount is to be presented as non-current assets in the statement of financial position at December 31, 2015? 31.What is the amount of impairment loss on receivables to be reported in the 2015 income statement? 32.How much is the total interest revenue for the year 2015?

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University of Santo Tomas Alfredo M. Velayo College of Accountancy Junior Philippine Institute of Accountants Problem 10: (Saint Kitts and Nevis Co.) Saint Kitts and Nevis Co. started operations on January 1, 2015. The following data are available as of June 30, 2015: Purchase of merchandise Inventory, June 30, 2015 Goods were sold at 150% above cost; 75% of sales were on account Recorded uncollectible accounts expense Total collections from customers Adjusted allowance for uncollectible accounts, June 30, 2015

P

1,900,000 350,000 32,000 3,504,750

15,000 Question(s): 33.What is the account balance of Accounts receivable at December 31, 2015? -END OF RECEIVABLESINVENTORIES Problem 1: (Belize Co.) The following information were found during your examination of the inventory and related accounts of the Belize Co.: (a) An excerpt from Belize’s trial balance revealed the following account balances: Accounts receivable Inventory, per count Accounts payable Net sales

P

Net purchases Net income

680,000 1,200,0 00 790,000 6,050,0 00 3,300,0 00 610,000

(b) Belize conducted an inventory count on December 31, 2015. Belize normally sells at 30% gross margin based on sales price. (c) Goods were in transit FOB destination from a supplier in the amount of P 120,000. Further testing revealed that the supplier’s invoice pertaining to the delivery was received and recorded on December 29, 2015. (d) Goods costing P 70,000 had been received on December 31, and recorded as a purchase. However, upon your inspection the goods were found to be defective and would be immediately returned. (e) Materials costing P 224,000, sold and billed on December 30 under a “bill-and-hold” agreement, had been segregated in the warehouse awaiting pick-up by the customer. Being on hand, the materials had been included in the count. (f) Goods costing P 70,000 was out on consignment with Cambodia Co. since the monthly statement from Cambodia listed those materials as on hand, the items had been excluded from the ending inventory and invoiced on December 31 at a normal gross profit provision. (g) The sale of materials invoiced at P 150,000 had been shipped FOB point of shipment at December 31. However, this inventory was found to be included in the ending inventory. The sale was properly recorded in 2015. (h) Goods costing P 98,000 had been segregated but not shipped at December 31. A review of the customer’s purchase order related to the goods set forth terms as FOB shipping point. The sale had not been recorded while the goods were excluded from the count. (i) Belize has an invoice from a supplier, terms FOB shipping point but the goods had not arrived as yet. While these materials costing P 170,000 had been included in the inventory count, no entry had been made for their purchase. (j) Merchandise costing P 200,000 had been recorded as a purchase but not included as inventory. Terms of the sale are FOB point of shipment according to the supplier’s invoice which had arrived at December 31. Determine the correct balances of the following:

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University of Santo Tomas Alfredo M. Velayo College of Accountancy Junior Philippine Institute of Accountants 1. 2. 3. 4. 5.

Inventory. Accounts payable. Net sales. Net purchases. Net income.

Problem 2: (Comoros Corp.) In your examination of the December 31, 2015 financial statements of Comoros Corp., you found the following inventory-related transactions: 













Goods costing P 100,000 are on consignment with a customer. These goods were invoiced at normal profit margin which was at 40% based on cost and was recorded as 2015 sales. Being offsite on the count date which was on December 30, 2015, these goods were not included in the physical count. Goods costing P 33,000 were delivered to Comoros Corp. on January 3, 2016. The invoice of these goods were received and recorded on January 8, 2016. The invoice showed that the shipment was made on December 30, 2015, FOB seller. Goods costing P 40,000 were shipped FOB seller on December 31, 2015, and were received by the customer on January 1, 2016. Although the sale was recorded in 2015, these goods were included in the 2015 inventory. Goods costing P 16,000 were shipped to a customer on December 30, 2015, FOB buyer. These goods were received by the customer on January 7, 2016 and were not included in the physical count. The sale was recorded in 2016. Goods costing P 22,000 shipped by a vendor under FOB buyer term, were received on January 2, 2016. The related invoice however, were received on December 31, 2015, thus was recorded as purchase in 2015. Goods costing P 50,000 were received from a vendor under consignment term. These goods were included in the physical count. No purchase related to the inventory had been recorded yet. Comoros recorded as 2015 sale a P 112,000 invoice for goods delivered to a customer on December 31, 2015, FOB buyer. The goods were received by the customer on January 6, 2016. Having been delivered after the inventory count date, the goods were included in the physical count.

Question(s): 6. What is the net adjustment to inventories as of December 31, 2015? 7. Assuming sales are on account, what is the net adjustment to accounts receivable as of December 31, 2015? 8. Assuming all purchases are on account, what is the net adjustment to accounts payable? 9. What is the effect of the errors to the 2015 net income?

Problem 3: (Bissau Co.) You are engaged in an examination of financial statements of Bissau Co. for the year ended October 31, 2015, and have observed the physical count of inventories on October 30, 2015. All merchandise received up to and including October 30, 2015 has been included in the physical count which totaled P 354,500. As a result of the count, the following cost of goods sold schedule has been prepared by Bissau’s accountant: Inventory, November 1, 2014 Net purchases Total cost of goods available for sale Inventory, October 30, 2015 per count Cost of goods sold

P

235,000 2,543,9 00 2,778,9 00 (?) ?

The following list of invoices is for purchases of merchandise and are entered in the purchase journal for the months of October and November 2015:

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University of Santo Tomas Alfredo M. Velayo College of Accountancy Junior Philippine Institute of Accountants Recorded as purchases in October 2015 Receiving report #: 6901 6902 6903

P

Amoun t:

Freight terms:

Invoice date:

14,400 8,800 18,500

Destination Destination Shipping point Destination Destination

October 18 October 20 October 23

6904 6905

7,800 5,000

6906

20,500

6907

18,400

6908 6909

24,200 69,200

Shipping point Shipping point Destination Destination

Date merchandise were received: October 20 October 23 October 30

October 21 November 5 October 26

November 3 October 28

October 26

October 30

October 22 October 28

October 30 October 30

Date merchandise were received: October 31 October 30 October 30

October 30

Recorded as purchases in November 2015 Receiving report #: 6912 6913 6914

P

Amoun t:

Freight terms:

Invoice date:

4,000 9,700 12,840

Destination Destination Shipping point Shipping point Shipping point Shipping point Destination

October 30 October 30 October 26

6915

14,440

6916

25,640

6917

28,400

6918

14,200

November 1 October 24

November 3

October 24

November 4

October 28

November 4

November 4

Question(s): 10.What is the adjusted balance of the Inventory account as of October 31, 2015? 11.What is the correct cost of goods sold for the period ended October 31, 2015? Problem 4: (Holy See Co.) As part of your examination of receivables of Holy See Co., you performed a cut-off test of sales. Results of your test revealed the following: Recorded as Sales in December 2015

P

Sales price : 18,00 0 12,50 0 8,680 14,20 0 9,000 10,00 0 7,800 14,00 0

P

Cost:

Freight Terms:

Date of shipment:

Date received by the customers:

16,50 0 10,20 0 7,240 12,50 0 7,500 7,750

Shipping point

12/25/2015

12/30/2015

Destination

12/25/2015

12/30/2015

Destination Shipped to consignee Shipping point Destination

12/27/2015 12/29/2015

01/03/2016 01/03/2016

12/30/2015 12/31/2015

01/03/2016 01/02/2016

6,100 12,00 0

Shipping point Shipped to consignee

12/31/2015 12/31/2015

01/03/2016 01/02/2016

Recorded as Sales in January 2016

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University of Santo Tomas Alfredo M. Velayo College of Accountancy Junior Philippine Institute of Accountants

P

Sales price : 21,00 0 10,50 0 4,500 6,500

P

Cost:

Freight Terms:

Date of shipment:

Date received by the customers:

18,20 0 8,800

Shipping point

12/31/2015

01/02/2016

Destination

12/31/2015

01/02/2016

3,200 5,000

Destination Shipping point

01/01/2016 01/03/2016

01/04/2016 01/07/2016

A count of all inventories within the premises was made in the morning of December 31, 2015 prior to any shipment made during that day. The total cost of the count was recorded as inventories as of December 31, 2015. The goods shipped to consignees are still unsold at December31. The unadjusted ledger balances showed the following: Accounts receivable Inventories Sales

P

Cost of goods sold

276,500 425,000 1,320,0 00 842,000

Determine the adjusted balances of the following: 12.Accounts receivable. 13.Inventories. 14.Sales. 15.Cost of goods sold. 16.Gross profit. Problem 5: (Lesotho Co.) The Lesotho Co. is an importer and wholesaler. Its merchandise is purchased from several suppliers and is warehoused by Lesotho until sold to customers. In conducting an examination for the year ended June 30, 2015, the Company’s CPA observed the physical inventory count at an interim date, May 31, 2015, instead of at fiscal year-end. The CPA obtained the following information from the records and ledgers: Inventory, July 1, 2014 Inventory, May 31, 2015 Sales for 11 months ended May 31, 2015

P

Sales for year-ended June 30, 2015 Purchases for 11 months ended May 31, 2015 (before adjustments) Purchases for year-ended June 30, 2015 (before adjustments)

87,500 95,000 840,00 0 960,00 0 675,00 0 800,00 0

The CPA’s examination disclosed the following data: Shipments received in May and included in the physical inventory count but recorded as June purchases Shipments received in unsalable condition and excluded from physical inventory; credit memos had not been received nor had returns to vendors been recorded: Total at May 31, 2015 Total at June 30, 2015 (including the May unrecorded returns) Deposits made with vendor and charged to purchases in April 2015. The goods were shipped in July 2015 Deposits made with a vendor and charged to purchases in May 2015. Goods

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P

7,500

1,000 1,500

2,000

University of Santo Tomas Alfredo M. Velayo College of Accountancy Junior Philippine Institute of Accountants were shipped, FOB buyer, on May 29, 2015 and was included in May 31, 2015 physical inventory count as goods in transit

5,500

Through the carelessness of the warehouseman, a June shipment was damaged. This shipment was later sold in June at its cost of

10,00 0

Required: 17.Compute the gross profit ratio for the eleven months ended May 31, 2015. 18.Compute the cost of goods sold during June 2015. 19.Compute the estimated June 30, 2015 inventory. Problem 6: (Malawi Co.) Malawi Co.’s policy is to measure their inventory accounts at the lower of cost and net realizable value (NRV). Data regarding Malawi’s inventories are as follows: The general ledgers showed the following balances: Costs:

Raw materials Work-inprogress Finished goods

P

2,875,00 0 748,000 1,430,00 0

Allowance for Inventory write-down:

Raw materials Finished goods

P

(40,000) (10,000)

The following information was furnished to you by Malawi Co.: RAW MATERIALS INVENTORY Item # 18672 Cost Current purchase price

RM #0823

250,000 250,000

500,000 480,000

RM #0800

RM #0913

400,000 450,000

300,000 275,000

P

Item # 18673 Cost Current purchase price

RM #0997

P

Item # 18674 Cost Current purchase price

RM #0762 P

RM #0916 400,000 375,000 RM #0888 200,000 180,000 RM #0797 450,000 420,000

375,000 395,000

WORK-IN-PROGRESS INVENTORY

Cost Selling price Estimated cost to complete Replacement cost Normal profit margin as percentage of selling price

P

Item #18672 240,000 360,000 48,000

P

Item #18673 188,000 289,000 97,650

P

Item #18674 320,000 735,000 74,000

208,000

169,000

375,000

30.0

25.0

20.0

Item #18672

Item #18673

FINISHED GOODS INVENTORY

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Item #18674

University of Santo Tomas Alfredo M. Velayo College of Accountancy Junior Philippine Institute of Accountants Cost Selling price Estimated cost to sell as percentage of selling price

P

550,000 675,000

P

540,000 620,000

20.0

P

15.0

430,000 820,000 15.0

Question(s): 20.What is the correct amount to be reported as Raw materials inventory as of year-end? 21.What is the correct amount to be reported as Work-in-Progress inventory as of year-end? 22.What is the correct amount to be reported as Finished goods inventory as of year-end? 23.What is the total loss on inventory write-down to be reported for the period? Problem 7: (Antigua and Barbuda Corp.) Antigua and Barbuda Corp. wholesales wooden tables. The company is a calendar year entity. At December 1, 2015, inventory on hand consisted of 350 wooden tables at P 820 each and 43 wooden tables at P 850 each. During the month ended December 31, 2015, the following inventory transactions took place. All purchase and sales transactions are on credit. Decemb er

2

Sold 300 wooden tables for P 1,200 each.

4

Five wooden tables were returned by a customer. They had originally cost P 820 each and were sold for a sales price same as the above. Purchased 55 wooden tables at P 910 each.

1 1 1 5 1 6 1 8 2 0 2 4 3 0

Purchased 76 wooden tables at P 960 each. Sold 86 bicycles at P 1,360 each. Returned a damaged wooden table to the supplier. This wooden table had been purchased on December 11. Sold 60 wooden tables for P 1,250 each. Purchased 72 wooden tables at P 980 each. Two wooden tables, sold on December 20, were returned by a customer. The wooden tables were badly damaged so it was decided to write them off. They had originally cost P 910 each.

Assuming Antigua and Barbuda uses perpetual inventory system, determine the following: 24.Cost of 12/31/15 inventory using the First In, First Out (FIFO) method. 25.Gross profit for the month of December using the First In, First Out (FIFO) method.*** 26.Cost of 12/31/15 inventory using the moving average method. 27.Gross profit for the month of December using the moving average method. *** Assuming Antigua and Barbuda uses periodic inventory system, determine the following: 28.Cost of 12/31/15 inventory using the weighted average method. 29.Cost of goods sold for the month of December using the weighted average method. Problem 8: (Chad Co.) The records of Chad Co. revealed the following information on August 31, 2015 Inventory, September 1 Purchases

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P

COST: 1,020,00 0 13,072,5 00

P

RETAIL: 1,920,000 22,155,00 0

University of Santo Tomas Alfredo M. Velayo College of Accountancy Junior Philippine Institute of Accountants Transportation In Sales

300,000

Purchase return Purchase allowance Sales returns & allowances Sales discounts Purchase discounts Normal spoilages & breakages Discounts granted to employees Departmental transfer debit Departmental transfer credit Net mark-up Net mark-down Mark-up cancellations Mark-down cancellations Abnormal spoilages & breakages

450,000 270,000

19,800,00 0 750,000 450,000 500,000

15,960

600,000 300,000

300,000 600,000

120,000

425,000 1,200,000 450,000 1,425,000 40,000 40,000 200,000

The company reported inventories per a physical count conducted on August 31 at P 400,000. You ascertained that the count was adequately made by Chad. (Round percentages to the nearest whole number) Requirement(s): 30.Estimated cost of inventory shortage under the average cost method. 31.Estimated cost of inventory shortage under the FIFO retail method. 32.Estimated cost of inventory shortage under the conventional retail method. Problem 9: (Fiji Co.) The Fiji Co. uses the lower of cost and net realizable value (NRV) inventory. Data regarding the items in work-in-process (WIP) inventory are presented below:

Historical cost

P

Marker s 24,000

Selling price

36,000

Estimated cost to complete Replacement cost

3,000 20,800

Normal profit margin as a percentage of selling price Cost to sell as a percentage of selling price

15.0 5.0

Pens P

18,88 0 21,80 0 2,620 16,80 0 20.0 10.0

P

Pencil s 30,000 38,000 6,200 16,800 25.0 10.0

Question(s): 33.What is the loss on inventory write-down under the direct write-off method? 34.What is the loss on inventory write-down under the allowance method, assuming that the unadjusted balance of the allowance for inventory writedown is at P 2,000? 35.What is the gain on recovery of previous write-down under the allowance method, assuming, that the unadjusted balance of the allowance for inventory write-down is at P 5,000? 36.What is the correct carrying value of inventories as of December 31? Problem 10: (Grenada Co.) The following data was presented to you by Grenada Co. on December 31, 2015: Item #: 012 013 014 015

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Quantity: 360 units 24 units 28 units 43 units

P

Cost: 3.60 each 4.70 each 16.50 each 5.15 each

P

Net realizable value: 3.64 each 4.80 each 16.50 each 5.20 each

P

Amount: 1,310.40 112.80 1,353.00 176.80

University of Santo Tomas Alfredo M. Velayo College of Accountancy Junior Philippine Institute of Accountants 016 017 018

400 units 70 dozens 95 grosses

9.10 each 2.00/dozen 144.00/gross

8.10 each 2.00/dozen 132.00/gross

3,640.00 140.00 13,780.00

Question(s): 37.How much should the inventory be presented in the 2015 statement of financial position? -END OF INVENTORIES~END OF HANDOUT~ “Every expert was once a beginner”

CASH & CASH EQUIVALENTS 1. P 538,200 2. P 1,536,000 3. P 1,317,600 4. P 2,171,760 5. P 2,253,840 6. P 50,600 7. P 8,362,000 8. P 4,000,000 9. P 194,550 10. P 255,700 11. P 55,000 12. P 92,000 13. P 145,600 14. P 400 shortage 15. P 5,300 16. P 80,000 17. P 340,000 18. P 3,134,500 19. P 50,500 20. P 10,800 shortage 21. P 25,500 22. P 3,195,000 23. P 1,500,000 24. 0

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Suggested Answers: RECEIVABLES

INVENTORIES

1. P 124,500 2. P 107,537 3. P 366,000 4. P 22,320 5. P 330,720 6. P 25,320 7. P 275,100 8. P 1,960,700 9. P 3,100,000 10. P 4,050,000 11. P (86,000) 12. P 1,450,000 13. P 1,152,320 14. 0 15. P 16,000 gain 16. P 470,000 17. P 245,850 18. P 90,000 loss 19. P 1,945,875 20. P 4,875,363 21. P 385,500 22. P 683,538 23. P 4,127,863 24. P 1,545,814

1. P 1,169,000 2. P 770,000 3. P 5,950,000 4. P 3,280,000 5. P 499,000 6. P 59,000 7. P (252,000) 8. P 11,000 9. P (204,000) 10. P 412,540 11. P 2,439,140 12. P 250,620 13. P 420,440 14. P 1,294,120 15. P 846,560 16. P 447,560 17. 20% 18. P 98,000 19. P 114,000 20. P 2,785,000 21. P 708,000 22. P 1,497,000 23. P 103,000 24. P 148,980

University of Santo Tomas Alfredo M. Velayo College of Accountancy Junior Philippine Institute of Accountants 25. P 26. P 27. P 28. P 29. P

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447,000 18,500 613,500 900,000 6,655,500

25. P 26. P 27. P 28. P 29. P 30. P 31. P 32. P 33. P

1,806,139 188,596 542,561 919,023 1,400,655 3,771,950 456,555 375,260 353,250

25. P 26. P 27. P 28. P 29. P 30. P 31. P 32. P 33. P 34. P 35. P 36. P 37. P

176,230 143,486 170,736 133,607 382,603 297,500 308,750 252,500 3,880 1,880 1,120 69,000 18,012