PRAC1 Sample

PRACTICAL ACCOUNTING 1 PROBLEM NO. 1 – Computation of adjusted cash and cash equivalents You noted the following composition of “The Man of Words” Company’s “cash account” as of December 31, 2010 in connection with your audit: Demand deposit account Time deposit NSF check of customer Money market placement (due June 30, 2011) Savings deposit in a closed bank IOU from employee Pension fund Petty cash fund Customer’s check dated January 1, 2011 Customer’s check outstanding for 18 months Total

P 2,000,000 1,000,000 40,000 1,500,000 100,000 20,000 3,000,000 10,000 50,000 40,000 7,760,000

Additional information follows:  Check of P200, 000 in payment of accounts payable was recorded on December 31, 2010 but mailed to suppliers on January 5, 2011.  Check of P100, 000 dated January 15, 2011 in payment of accounts payable was recorded and mailed on December 31, 2010.  The company uses the calendar year. The cash receipts journal was held open until January 5, 2011, during which time P400, 000 was collected and recorded on December 31, 2010. QUESTION: The cash and cash equivalents to be shown on the December 31, 2010 statement of financial position is 2,910,000

PROBLEM NO. 2 Proof of cash; Computation of adjusted balances The accountant for the “The Enthusiast” Company assembled the following data: June 30 Cash account balance Bank statement balance Deposits in transit Outstanding checks Bank service charge Customer’s check deposited July 10, returned by bank on July, 16 marked NSF, and redeposit immediately; no entry made on books for return or redeposit Collection by bank of company’s notes receivable

P 15,822 107,082 8,201 27,718 72

71, 815

The bank statements of the company’s cash records show these totals: Disbursements in July per bank statement Cash receipts in July per “The Enthusiast’s” books QUESTIONS:

July 31 P39, 745 137, 817 12, 880 30, 112 60

8, 250 80, 900

P218, 373 236, 452

Based on the application of the necessary audit procedures and appreciation of the above data, you are to provide the answers to the following:

1. 2. 3. 4. 5.

Adjusted cash balance as of June 30? 87,565 Adjusted bank receipts for July? 245,537 Adjusted book disbursements for July? 212,517 Adjusted cash balance as of July 31? 120,585 Cash shortage as of July 31? 0

PROBLEM 3: “The Blur” Company provided the following information:

Current assets Property, plant and equipment Current liabilities Non-current liabilities

1/1/2013 240,000 1,600,000 ? 580,000

12/31/2013 ? 1,700,000 130,000 ?

All assets and liabilities of the entity are reported at year-end. Working Capital of P92, 000 remained unchanged from 2012 to 2013. Net income in 2013 was 64,000. No dividends were declared during 2013 and there were no other changes in owner’s equity. What amount should be reported as noncurrent liabilities on December 31, 2013? 616,000

PROBLEM 4: “The Aqua Girl” Company provided the following account balances on December 31, 2013: Accounts Payable Bonds Payable, due 2014 Discount on Bonds Payable Dividends Payable Note Payable, due 2015

1,500,000 2,500,000 300,000 800,000 2,000,000

What total amount of current liabilities should be reported? 4,500,000 Problem 5: “The Entrepreneur” Company reported operating expenses in two categories, namely distribution and administrative. The adjusted trial balance at year-end included the following expense and loss accounts for current year: Accounting and legal fees Advertising Freight Out Interest Loss on sale of long-term investment Officers’ salaries Rent for office space Sales salaries and commissions

1,200,000 1,500,000 800,000 700,000 300,000 2,250,000 2,200,000 1,400,000

One half of the rented premises is occupied by the sales department. What amount should be reported as total distribution costs? 4,800,000

PROBLEM 6: “The Spelling Geek” Company provided the following information for the current year: Purchases Purchase discounts Beginning Inventory Ending Inventory Freight out

5,300,000 100,000 1,600,000 2,150,000 400,000

What is the cost of goods sold for the current year? 4,650,000 Problem 7: “The Confused” Company provided the following information for the current year: Net accounts receivable at January 1 Net accounts receivable at December 31 Accounts receivable turnover Inventory at January 1 Inventory at December 31 Inventory turnover

900,000 1,000,000 5 to 1 1,100,000 1,200,000 4 to 1

What is the gross margin for the current year? 150,000 Problem 8: “Ms. Knows All” company provided the following for the current year: Net Income Unrealized gain on derivative contract Foreign currency translation adjustment – debit Revaluation surplus

3,500,000 250,000 50,000 1,000,000

What is the comprehensive income for the current year? 4,700,000

Problem 9: “The Silhouette” company accounts for noncurrent assets using the cost model. On July 31, 2013, the entity classified a noncurrent asset as held for sale. At the date, the asset’s carrying amount was P1, 450,000. The fair value was estimated at 2,150,000 and the cost of disposal at 150,000. The asset was sold on January 31, 2014 for 2,120,000. At what amount should the asset be measured in the financial position on December 31, 2014? 1,450,000 Problem 10: On January 1, 2012, “The Quiz bowler” company acquired a machine at a cost of 2,000,000. The machine is depreciated on the straight line method over five years period with no residual value. Because of a bookkeeping error, no depreciation was recognized in 2012 financial statements. The oversight was discovered during the preparation of the 2013 financial statements. What is the depreciation expense on the machine for 2013? 400,000 Problem 11: On December 31, 2013, “Silent Intense” company had the following cash balances: Cash in bank Petty cash fund (all funds were reimbursed on 12/31/2013) Time deposit (due February 1, 2014)

1,800,000 50,000 250,000

Cash in bank included P600, 000 of compensating balance against short-term borrowing arrangement on December 31, 2013. The compensating balance is legally restricted as to withdrawal. In the December 31, 2013 statement of financial position, what amount should be reported as cash and cash equivalents? 1,500,000

Problem 12: Accounts of the petty cash fund of “The Essayist” company showed its composition as follows: Coins and currency 3,300 Paid vouchers: Transportation 600 Gasoline 400 Office supplies 500 Postage stamps 300 Due from customers 1,200 3,000 Manager’s check returned by bank marked “NSF” 1,000 Check drawn by the entity to the order of petty cash custodian 2,700 What is the correct amount of petty cash fund for the statement presentation purposes? 6,000 Problem 13: On December 31, 2013, “The Ancient” company reported that the current receivables consisted of the following: Trade accounts receivable Allowance for uncollectible accounts Claim against shipper for goods lost in transit (November 2013) Selling price of unsold goods sent by “The Ancient” on consignment at 130% of cost (not included in “The Ancient’s” ending inventory) Security deposit on lease of warehouse used for storing some inventories

930,000 (20,000) 30,000 260,000 300,000

On December 31, 2013, what total amount should be reported as trade and other receivables under current assets? 940,000

Problem 14: The following transactions affecting the accounts receivable of “The Prehistoric Leader” company took place during year ended December 31, 2013: Sales (cash and credit) Cash received from credit customers, all of whom took advantage Of the discount feature of the entity’s credit terms 4/10, n/30 Cash received from cash customers Accounts receivable written off as worthless Credit memorandum issued to credit customers for sales returns and allowances Cash refunds given to cash customers for sales return and allowances Recoveries on accounts receivable written off as uncollectible in prior period (not included in cash amount stated above)

5,900,000 3,024,000 2,100,000 50,000 250,000 20,000 80,000

The following balances were taken from the January 1, 2013 statement of financial position: Accounts receivable Allowance for doubtful accounts

950,000 100,000

The entity provided for uncollectible account losses by crediting allowance for doubtful accounts in the amount of P70, 000 for the current year. 1. What is the balance of accounts receivable on December 31, 2013? 1,300,000 2. What is the balance of allowance for doubtful accounts on December 31, 2013? 200,000

Problem 15: “The Guitarist” company prepared an aging of accounts receivable on December 31, 2013 and determined that the net realizable value of the accounts receivable was P2, 500,000. Additional information is as follows: Allowance for doubtful accounts on January 1 Accounts written off as uncollectible Accounts receivable on December 31 Uncollectible accounts recovery

280,000 230,000 2,700,000 50,000

For the year ended December 31, 2013, what amount should be recognized as doubtful accounts expense? 100,000 Problem 16: “The Sinking Fund Master” company assigned P4, 000,000 of accounts receivable as collateral for a P2, 000,000 6% loan with a bank, the entity also paid a finance fee of 5% on the transaction upfront. What amount should be recorded as a gain or loss on the transfer of accounts receivable? 0 Problem 17: On July 1, 2013, “Subli Queen” company sold goods in exchange for P2, 000,000, 8 month, noninterest-bearing note receivable. At the time of sale, the market rate of interest was 12%. The entity discounted the note at 10% on September 1, 2013: 1. What is the cash received from discounting? 1,900,000 2. What is the loss on note receivable discounting? 100,000 Problem 18: “Bureche” company factored P6, 000,000 of accounts receivable to a finance entity on October1, 2013. Control was surrendered by “Bureche” company. The factor assessed fee of 3% and retained a holdback equal to 5% of the accounts receivable. In addition, the factor charged 15% interest computed on a weighted average time to maturity of the accounts receivable for 54 days. 1. What is the amount of cash initially received from the factoring? 5,386,850 2. If all accounts were collected, what is the cost of factoring the accounts receivable? 313,150 Problem 19: “The Voice” company is a dealer in equipment. On December 31, 2013, the entity sold equipment in exchange for a noninterest-bearing note requiring five annual payments of P500, 000. The first payment was made on December 31, 2014. The market interest for similar notes was 8%. The PV of 1 at 8% for five periods is 0.68, and the PV of an ordinary annuity of 1 at 8% for five periods is 3.99. 1. On December 31, 2013, what is the carrying amount of the note receivable? 1,995,000 2. What interest income should be reported for 2014? 159,600 3. What is the carrying amount of the note receivable on December 31, 2014? 1,654,600 Problem 20: On December 1, 2013, “Ms Basically” company gave “Call Center Agent” company a P200, 000, 12% loan. “Ms Basically” company paid proceeds of 194,000 after the deduction of a P6, 000 nonrefundable loan origination fee. Principal and interest are due in sixty monthly installments of P4, 450, beginning January 1, 2014. The repayments yield an effective interest rate of 12% at a present value of P200, 000 and 13.4% at a present Value of P194, 000. 1. What is the amount of interest income should be reported in 2013? 2,166.33 2. What amount should be reported as accrued interest receivable on December 31, 2013? 2,000 Problem 21: “The Mirrorer” company has a herd of 10 2-year old animals on January 1, 2013. One animal aged 2.5 years was purchased on July 1, 2013 for 108, and one animal was born on July 1, 2013. No animals were sold or disposed of during the year. The fair value less cost of disposal per unit is as follows:

2-year old animals on January1 2.5 –year old animal on July 1 New born animal on July 1 2-year old animal on December 31 2.5- year old animal on December 31 New born animal on December 31 3- year old animal on December 31 0.5- year old animal on December 31

100 108 70 105 111 72 120 80

1. What is the fair value of the biological assets on December 31, 2013? 1,400 2. What is the gain from change in fair value of biological assets that should be recognized in 2013? 292 3. What is the gain from change in fair value due to price change? 55

Problem 22: “The Selfie Queen” company estimated the cost of the physical inventory on March 31 for use in interim financial statement. The rate of markup on cost is 25%. The inventory on January 1 was P5, 500,000. During the period January 1 to March 31, the entity had purchases of P4, 300,000, purchase returns of P200, 000 and sales of 7,500,000. What is the estimated cost of inventory on March 31? 3,600,000 Problem 23: On January 1, 2013, “The Living Legend” company paid P18, 000,000 for 50,000 ordinary shares of, “Old” company which represent a 25% interest in the net assets of “Old” company. The acquisition cost is equal to the carrying amount of the net assets acquired. “The Living Legend” has the ability to exercise significant influence over “Old” company. “The Living Legend” received a dividend of P35 per share from “Old” in 2013. The investee reported net income of P9, 600,000 for the year ended December 31, 2013. On December 31, 2013, what amount should be reported as investment in associate? 18,650,000 Problem 24: ”Red Riding Hood” company started construction of a new office building on January 1, 2013, and moved into the finished building on July 1, 2014. Of the building’s P25, 000,000 total cost, P20, 000,000 was incurred in 2013 evenly through the year. The incremental borrowing rate was 12% throughout 2013, and the total amount of interest incurred was P1, 020,000. What amount should be reported as capitalized interest on December 31, 2013? 1,020,000 Problem 25: “CRESHeR” company provided the following information at year-end: 2014 2013 Building-cost 25,000,000 25,000,000 Accumulated depreciation-building 5,000,000 3,875,000 The entity did not acquire or dispose of any buildings during 2014. The straight line method of depreciation is used. The residual value is 10% of asset cost. What is the average useful life of the building? 20 yrs. Problem 26: On July 1, 2013, “Clutch of Erudites” company, a calendar year corporation, purchased the rights to mine. The total purchase price was P16, 400,000, of which P2, 000,000 was allocable to the land. The estimated reserves were 1,800,000 tons. The entity expects to extract and sell 25,000 tons per month. The entity purchased new equipment on July 1, 2013. The equipment cost P7, 500,000 and had a useful life of 8 years. However, after all the resource is removed, the equipment will be of no use and will be sold for P300, 000. 1. What amount should be recorded as depletion for 2013? 1,200,000 2. What amount should be recorded as depreciation of the mining equipment for 2013? 600,000

PROBLEM 27: Cost of land, land improvements, & building TFs Corporation was incorporated on January 2, 2014. The ff. items relate to the TFs’ property and equipment transactions:

Cost of land, which included an old apartment building appraised at 300,000 Apartment building mortgage assumed, including related interest due at the time of purchase Delinquent property taxes assumed by TFs Payments to tenants to vacate the apartment building Costs of razing the apartment building Proceeds from sale of salvaged materials Architects fee for new building Building permit for new construction Fee for title search Survey before construction of new building Excavation before construction of new building Payment to building contractor Assessment by city for drainage project Cost of grading and leveling Temporary quarters for construction crew Temporary building to house tools and materials Cost of changes during construction to make new building more energy efficient Interest cost on specific borrowing incurred during construction Payment of medical bills of employees accidentally injured while inspecting building construction Cost of paving driveway and parking lot Cost of installing lights in the parking lot Premium for insurance on building during construction Cost of open house party to celebrate opening of new building Cost of windows broken by vandals distracted by the celebration

P 3,000,000 80,000 30,000 20,000 40,000 10,000 60,000 40,000 25,000 20,000 100,000 10,000,000 15,000 50,000 80,000 50,000 90,000 360,000 18,000 60,000 12,000 30,000 50,000 12,000

Questions: Based on the above and the result of your audit, determine the ff: 1. Cost of Land 3,270,000 2. Cost of building 10,810,000 3. Cost of land improvements 72,000 4. Amount that should be expensed when incurred 80,000 5. Total depreciable property and equipment 10,882,000 Problem 28: “JPIA” company developed a new machine for manufacturing baseballs. Because the machine is considered very valuable, the entity had it patented. The following expenditures were incurred in developing and patenting the machine: Purchase of special equipment to be used solely for development of a new machine Research salaries and fringe benefits for engineers and scientist 200,000 Cost of testing prototype Legal cost for filing of patent Fees paid to government patent office Drawings required by patent office to be filed with patent application

1,800,000

250,000 150,000 50,000 40,000

1. What amount should be capitalized as cost of patent? 240,000 2. What amount of research and development cost should be expensed in the current year? 2,250,000

Problem 29: During 2013, “JMAP” company sold 500,000 boxes of cake mix under a new sales promotional program. Each box contained one coupon, which entitled the customer to a baking pan upon remittance of P40. The entity paid 50 per pan and P5 for handling and shipping and estimated that 80% of the coupons would be redeemed, even though only 300,000 had been processed during

2013. What amount should be reported as a liability for unredeemed coupons on December 31, 2013? 1,500,000

Problem 30: “JFINEX” company sells magazine subscriptions of one to three-year periods. Cash receipts from subscribers are credited to magazine subscriptions collected in advance, and this account had a balance of P2, 400,000 on December 31, 2013 before year-end adjustment. Outstanding subscriptions on December 31, 2013 expire as follows: During 2014 600,000 During 2015 900,000 During 2016 400,000 On December 31, 2013, what amount should be reported as magazine subscriptions collected in advance? 1,900,000 Problem 31: The bonus agreement of “AFOAD” company provides that the general manager shall receive an annual bonus of 10% of the net income after bonus and tax. The income tax rate is 30%. The general manger received P280, 000 for the current year as bonus. What is the income before bonus and tax? 4,280,000 Problem 32: “JPMAP” company issued the 2013 financial statements on March 1, 2014. The following data are provided by the entity for the year ended December 31, 2013: Amount owing to another entity for services rendered during December 2013 Estimated long service leave owing to employees in respect of past services Estimated cost of relocating an employee from head office to a branch in another City (employee will physically relocate in 2014) Estimated cost of overhauling machine every 5 years (the machine is 5 years old On December 31, 2013)

300,000 1,200,000 100,000 150,000

What amount should be recognized as provision on December 31, 2013? 1,200,000 Problem 33: “The Living Legend” company provided the following bank reconciliation on May 31: Balance per bank statement Deposits outstanding Check outstanding Correct cash balance

2,100,000 300,000 ( 30,000) 2,370,000

Balance per book Bank service charge Correct cash balance

2,372,000 ( 2,000) 2,370,000

June data are as follows: Bank Checks recorded 2,300,000 Deposits recorded 1,620,000 Collections by bank (P400, 000 note plus interest) 420,000 NSF check returned with June 30 statement balances 10,000 Balances 1,830,000 1. What is the amount of check outstanding on June 30? 90,000 2. What is the amount of deposits in transit on June 30? 480,000 3. What is the adjusted cash in bank on June 30? 2,220,000

Book 2,360,000 1,800,000 1,810,000