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ReSA The Review School of Accountancy Tel. No. 735-9807 & 734-3989

PRACTICAL ACCOUNTING 1

C.T.ESPENILLA

CASH AND CASH EQUIVALENT (PAS 7) 1.

On December 31, 2008, the cash account of Germany Corporation shows the following composition: Petty cash fund, P30,000; Cash in bank (payroll fund), P2,000,000; Travel fund, P150,000; Interest and dividend fund, P250,000; Tax fund, P120,000; Cash in bank (current account), P3,000,000; Certificate of deposit (90-day term), P1,000,000; Certificate of deposit (180-day term), P1,500,000; Cash in foreign bank-restricted, P500,000; Money market fund (60 days), P500,000; Money market fund (6 months). P900,000; Customer’s check dated January 15, 2009, P60,000; Customer’s check dated December 30, 2008 returned by the bank for lack of funds, P40,000; A 30-day BSP treasury bill, P1,000,000; A 3-year treasury bill acquired three months prior to maturity, P1,200,000; Sinking fund cash, P800,000; Preferred Redemption fund, P400,000; Contingent fund, P300,000; Insurance fund, P200,000; Fund for the acquisition of long lived assets, P500,000; Traveler’s check, P60,000; and Cashier’s checks, P100,000. What is the correct cash and cash equivalents balance to be reported by Germany Corporation on December 31, 2008? a. 7,810,000 c. 9,410,000 b. 8,210,000 d. 9,610,000

2.

On December 31, 2008, England Co.’s Cash account balance per ledger of P3,600,000 includes: Demand deposit, P1,500,000; Certificate of deposit-30 days, P500,000; NSF check of customer, P20,000; Money Market Placement (due date: June 30, 2009), P1,000,000; Savings deposit in closed bank, P50,000; IOU from an employee, P30,000; Pension fund, P400,000; Petty cash fund, P10,000; Customer’s check dated January 31, 2009, P60,000; Customer’s check outstanding for 18 months, P30,000. Additional information:  Check of P400,000 in payment of an accounts payable was recorded on December 31, 2008, but was mailed to creditors on January 15, 2009.  Check of P50,000 dated January 1, 2009 in payment of accounts payable was recorded and mailed on December 31, 2008.  The company uses the calendar year. The cash receipts journal was held open until January 15, 2009, during which time, P200,000 was collected and recorded on December 31, 2008. How much “Cash and Cash equivalents” should be shown on the December 31, 2008 balance sheet? a. 1,960,000 c. 2,160,000 b. 2,050,000 d. 2,360,000

ReSA: The Review School of Accountancy Page 2 3.

On April 1, 2008, Burma Inc. established a petty cash fund for P40,000 by writing a check drawn against the general checking account. On April 30, the fund contained the following: Currency and coins, P12,000; Paid vouchers for office supplies, P16,000; Receipts for postage still unused, P8,000; Paid vouchers for transportation, P2,400. On April 30, the company wrote a check to replenish the fund.

Question 1: What is the amount of the replenishment under the imprest system? a. 12,000 c. 28,000 b. 24,000 d. 40,000 Question 2: What is the amount of the replenishment under the fluctuating system? a. 12,000 c. 28,000 b. 24,000 d. 40,000 Question 3: What is the amount of the shortage/overage under the imprest system? a. 800 c. 2,400 b. 1,600 d. 3,200 4.

Trinidad Co. provided the following data for the purpose of reconciling the cash balance per book: Balance per book P170,000 Outstanding checks (including certified check of P20,000) 100,000 Deposit in transit 40,000 December NSF check (of which P10,000 had been redeposited and cleared on December 27) 30,000 Erroneous credit to Trinidad’s account, representing proceeds of a loan granted to another company 60,000 Proceeds of note collected by bank for Trinidad, net of service charge of P4,000 150,000 Erroneous bank charge 3,000 A check of P5,000 in payment of account was recorded by the company as: 500 Question 1: The correct cash balance to be shown in the company’s December 31, 2008 balance sheet is: a. 285,500 c. 335,500 b. 295,500 d. 345,500 Question 2: The cash in bank balance as shown in the bank statement on December 31, 2008 is: a. 372,500 c. 372,500 b. 382,500 d. 392,500

5.

In your audit of Georgia Corp. as of December 31, 2008, you ascertained the following: ________________________________________________________________ PRACTICAL ACCOUNTING 1 – CASH AND RECEIVABLES

ReSA: The Review School of Accountancy Page 3 Balance per book Bank charges Balance per bank Deposit in transit Customer note collected by the bank Interest on customer note Customer check returned NSF Depositor’s note charged to account What is the total amount of outstanding checks? a. 140,000 b. 300,000 6.

P600,000 1,500 605,000 180,000 225,000 9,000 37,500 150,000 c. 160,000 d. 165,000

The following information was included in the bank reconciliation for France Corp. Assume all other reconciling items are listed below: Check and charges returned by the bank in June including a June service charge of P5,000, P900,000; Check issued by company for P9,000 was recorded at P900; Erroneous bank debit, P6,000; Service charge made by bank in May and recorded in the books in June, P10,000; Total credits to cash in all journals during June P800,000; Customer’s NSF check returned as bank charge in June (no entry made on book), P100,000; Customer’s NSF check returned in May and redeposited in June (no entry made on books in either May or June), P50,000; Customer’s NSF check in May and recorded in June, P20,000; Outstanding checks at May 31, P200,000. What is the total outstanding check on June 30? a. 172,900 b. 178,900

7.

The following information was included in the bank reconciliation of Swaziland Corp. on December 31, 2008: Total recorded company receipts for December P850,000 Credit memo for November recorded in December 60,000 Credit memo for December not yet recorded 80,000 Erroneous receipt by the company during December, no correction was made until the following year 50,000 Erroneous bank disbursement in December corrected by bank in December 18,000 Total receipts per bank in December 900,000 Deposit in transit, December 31 100,000 Book receipt for P90,000 in December recorded by the company as 9,000 The total deposit in transit for November 30 is: a. 243,000 b. 193,000

8.

c. 189,100 d. 239,100

c. 131,000 d. 81,000

Rock Company had the following bank reconciliation at March 31, 2008: Balance per bank statement 3/31 P465,000 ________________________________________________________________ PRACTICAL ACCOUNTING 1 – CASH AND RECEIVABLES

ReSA: The Review School of Accountancy Page 4 Add: Deposit in transit Debit memo Total Less: Outstanding checks Credit memo Balance per book, 3/31

P100,000 10,000 P125,000 60,000

110,000 575,000 185,000 P390,000

All reconciliation items at March 31, 2008 cleared through the bank in April. Outstanding checks at April 30, 2008 totaled P75,000; Deposit in transit amounted to P150,000; Credit memo for April, P80,000; Debit memo for April, P15,000; Bank receipts for April, P600,000; and bank disbursement in April, P500,000. Question 1: What is the amount of cash receipts per books in April? a. 590,000 c. 650,000 b. 630,000 d. 750,000 Question 2: What is the amount of cash disbursement per books in April? a. 435,00 c. 465,000 b. 445,000 d. 500,000 LOANS AND RECEIVABLES (PAS 32, PAS 39, PFRS 7) 9.

On December 31, 2008, the Receivable account of George Corporation shows a debit balance of P5,950,000. Subsidiary details show the following composition: Accounts receivable, P725,000; Loans receivable, P100,000; Installment receivables, normally due 1 year to 2 years, P300,000; Customers’ accounts reporting credit balances arising from sales returns, P30,000; Advance payments for purchase of merchandise, P150,000; Customers’ accounts reporting credit balances arising from advance payments, P20,000; Cash advances to subsidiary, P400,000; Claim from insurance company, P15,000; Subscription receivable due in 60 days, P300,000; Accrued interest receivable, P10,000; Deposit on contract bids, P3,000,000 and Advances to shareholders (collectible in 2010), P1,000,000. How much is the amount to be presented as trade and other receivables under the current assets section of the balance sheet? a. 725,000 c. 1,590,000 b. 1,125,000 d. 1,600,000

10.

On January 1, 2008, Swiss Inc.’s Trade receivables has an outstanding balance of P500,000. Below are the transactions in its receivables and other elated accounts during 2008: Sales on account, P7,200,000; Accounts receivable written off due to impairment, P50,000; Notes receivable to settle accounts, P800,000; Purchases on account, P7,800,000; Payments to creditors, P6,400,000; Purchase discounts, P520,000; Sales returns, P30,000; Collections received to settle accounts, P4,900,000; Notes given to settle accounts, P500,000; Purchase returns, P140,000, Payments of notes, P200,000;

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ReSA: The Review School of Accountancy Page 5 Discounts taken by customers, P80,000; Collection on notes receivables, P360,000; Provision for future returns and discounts on outstanding receivables, P25,000. What is the carrying value of the accounts receivable on December 31, 2008? a. 1,815,000 c. 2,255,000 b. 1,840,000 d. 2,280,000 11.

On December 31, 2008, Globe Company’s general ledger of its account receivable showed an outstanding balance of P2,100,000. Below is summary of the aging schedule of the said general ledger: Classification 1-60 days 61-120 days 121-180 days 181-360 days More than one year

Balance P1,000,000 400,000 300,000 200,000 200,000

% of collectability 100% 90% 80% 70% 10%

Additional information:  Half of more than one year receivables are deemed worthless, thus has to be further written off.  During the year the company has made a recovery of a previous write off. Question 1: Determine the net amount to be charged against income related to receivables in 2008? a. 150,000 c. 220,000 b. 164,000 d. 320,000 Question 1: What is the net book value of receivables as of December 31, 2008? a. 2,100,000 c. 1,750,000 b. 2,000,000 d. 1,650,000 12.

Point company has an outstanding receivable of P1,000,000 as of December 31, 2008. A test of collectibility of the receivables showed that P600,000 is currently collectible and not impaired. P300,000 has been outstanding more than the required period for similar transaction an objective evidence showed that only P158,000 is considered realizable; the remaining receivable balance has been outstanding for 2 years and Point Company estimates that none of which will be realized. What amount should the account receivable be reported in the December 31, 2008 balance sheet? a. 158,000 c. 600,000 b. 458,000 d. 758,000

13.

On March 1, 2008, Curse Company sold goods to Matt Company. Matt signed a noninterest bearing note requiring payment of P60,000 annually for seven years. The first payment was made on March 1, 2008. The prevailing rate of interest for this type of note at the date of issuance was 10%. Information Periods Present value Present value of Ordinary of 1 at 10% Annuity of 1 at 10%

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ReSA: The Review School of Accountancy Page 6 6 7

0.56 0.51

4.36 4.87

Curse company should report sales revenue in March 1, 2008 at: a. 321,600 c. 261,600 b. 292,200 d. 214,200 14.

On December 31, 2008, Large Corporation sold for P50,000 an old machine having an original cost of P70,000 and a book value of P20,000, the term of the sale were as follows: P10,000 down payment 20,000 payable on December 31, each of the next two years The agreement of the sale made no mention of interest; however, 9% would be a fair rate for this type of transaction. What should be the amount of the notes receivable, net of the unamortized discount and gain on sale, respectively on December d31, 2005? a. 35,182 and 25,282 c. 45,182 and 25,182 b. 40,000 and 20,000 d. 70,364 and 30,000

15.

On December 31, 2008, Ball Company finished consultation services and accepted in exchange a promissory note with a face value of P200,000, a due date of December 31, 2008, and a stated rate of 5% with interest receivable at the end of each year. The fair value of the services is not readily determinable and the note is not readily marketable. Under the circumstances, the note is considered to have an appropriate imputed rate of interest of 10%. How much should of the note be initially recognized on the transaction date? a. 24,869 c. 175,133 b. 150,264 d. 200,000

16.

Maxx Company sold its inventory for P300,000 to Maxx on January 2, 2008 and receive a one-year note bearing an interest of 12% for the full amount. On December 31, 2008, Maxx determined based on Maxx recent financial crisis, that the amount due on January 2, 2009 will not be collected and that only P210,000 of the principal will be collected with some delay until the end of 2010. What is the carrying value of the notes receivable on Maxx’s 2008 balance sheet? a. 167,410 c. 210,000 b. 187,500 d. 300,000

17.

At January 1, 2008, Queen Co. had a receivable from King Company of P400,000 that has been outstanding for quite some time. Initial investigation revealed that King is in deep financial difficulties. At present King Company is unable to settle all outstanding obligation but further investigation revealed that Jack Company is taking over to run and operate the business affairs of King Company. However, Jack Company is more than willing to assume only 75% of King Company’s financial obligation and by the end of 2009, all financial obligations of King will be settled. As of December 31, 2008 Queen Co. expects to collect P300,000 that is due from King. At the time the receivable was granted

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ReSA: The Review School of Accountancy Page 7 the prevailing rate of interest for similar financial asset is 14% while the prevailing implicit rate on December 31, 2008 is 15%. Question involving a. b.

1: What amount should Queen report in its December 31, 2008 balance sheet the receivable? 136,843 c. 300,000 263,157 d. 400,000

Question 2: What amount of bad debt/impairment loss should Queen report in 2008? a. 136,843 c. 300,000 b. 263,157 d. 400,000 18.

Peter Company assigned P1,000,000 of its accounts receivable to BPI Financing Co. as a security for P600,000 loan. BPI charged a 2% commission on the amount of the loan. The interest on the loan was 10%. During the first month, Peter collected P245,000 on the assigned accounts after deducting P5,000 of discounts. Peter company accepted returns worth P10,000 and wrote off assigned accounts totaling P9,000. Question 1: The amount of cash received at the time of the assignment was? a. 588,000 c. 882,000 b. 600,000 d. 980,000 Question 2: How much is the loss to be recognized from the transfer of asset? a. 0 c. 412,000 b. 12,000 d. 588,000 Question 3: What is the balance of the accounts receivable-assigned at the end of the first month? a. 0 c. 731,000 b. 588,000 d. 755,000

19.

20.

On November 1, 2008, Chandler Company assigned on a non-notification basis accounts receivable of P4M to a bank in consideration for a 24% interest bearing loan. The loan value was 80% of the receivable assigned and a 5% service fee on the accounts assigned was charged by the finance company. Chandler collected assigned accounts of P1,500,000 and P1,000,000 on November and December, respectively, and remitted the collections to the finance company on a monthly basis in partial payment for the loan. The finance company applied first the collection to the interest and the balance to the principal. In its December 31, 2008 balance sheet, Chandler should report note payable as a current liability at a. 0 c. 799,280 b. 700,000 d. 828,000

On February 1, 2006, Pacific Corporation factored receivables with a face amount of P600,000 to BDO. BDO advanced P490,000 to Pacific while retaining P30,000. Prior to the sale of the receivables, it was determined that 2% of the receivables were deemed not collectible based on the available information at that time, thus, the company made the necessary accounting of the said development in their 2008 financial records. At the time of transfer, what amount of loss should Pacific recognize? a. 0 c. 80,000 ________________________________________________________________ PRACTICAL ACCOUNTING 1 – CASH AND RECEIVABLES

ReSA: The Review School of Accountancy Page 8 b. 68,000

d. 88,000

21.

On October 31, 2008, Crade Company engaged in the following transactions:  Factored P1,000,000 of accounts receivable with recourse on a non notification basis with BDO. BDO charged a factoring fee of 2% of the amount of recievables factored and withheld 10% of the amount factored. Fair market value of the recourse obligation is P8,000.  Obtained a P500,000, six month loan from City Bank, discounted at 12%. The company pledged the remaining accounts receivable amounting to P600,000 as a security to the loan. What is the total cash received from the financing of receivables and the amount of loss, respectively? a. 1,320,000 and 28,000 c. 1,380,000 and 20,000 b. 1,350,000 and 28,000 d. 1,470,000 and 20,000

22.

On July 31, 2008, Gary Co. discounted at a bank a 6-month, 10% customer note amounting to P600,000 and dated May 31, 2008. The bank discounted the note at 12%. How much net proceeds did Gary receive from the discounting? a. 564,000 c. 604,800 b. 567,000 d. 617,400

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