Problem No

PROBLEM NO. 1 – Computation of adjusted inventory Ovation Company asks you to review its December 31, 2015 inventory values and prepare the necessary adjustments to the books. The following information is given to you. a. Ovation uses the periodic method of recording inventory. A physical count reveals P2,348,900 inventory on hand at December 31, 2015. b. Not included in the physical count of inventory is P134,200 of merchandise purchased on December 15 from Standing. This merchandise was shipped F.O.B shipping point on December 29 and arrived in January. The invoice arrived and was recorded on December 31. c. Included in inventory is merchandise sold to Oval on December 30, F.O.B destination. This merchandise was shipped after it was counted. The invoice was prepared and recorded as a sale on account for P128,000 on December 31. The merchandise cost P73,500 and Oval received it on January 3. d. Included in inventory was merchandise received from Owl on December 31 with an invoice price of P156,300. The merchandise was shipped FOB. destination. The invoice, which has not yet arrived, has not been recorded. e. Not included in inventory is P85,400 of merchandise purchased from Oxygen Industries. The merchandise was received on December 31 after the inventory had been counted. The invoice was received and recorded on December 30. f.

Included in inventory was P104,380 of inventory held by Ovation on consignment from Ovoid Industries.

g. Included in inventory is merchandise sold to Kemp FOB. shipping point. This merchandise was shipped after it was counted. The invoice was prepared and recorded as a sale for P189,000 on December 31. The cost of this merchandise was P105,200 and Kemp received the merchandise on January 5. h. Excluded from inventory was carton labeled, “Please accept for credit.” This carton contains merchandise costing P15,000 which had been sold to a customer for P25,000. No entry had been made to the books to reflect the return, but none of the returned merchandise seemed damaged. REQUIRED: Determine the adjusted balance of Inventory.

SOLUTION:

Unadjusted inventory Add (deduct) adjustments:

2,348,900

b) Goods in-transit purchased FOB shipping - not included c) Goods in-transit sold FOB destination - included d) Goods purchased and received already - included

134,200

e) Goods purchased and received already - not included

85,400

f) Goods held on consignment - included

(104,380)

-

g) Goods in-transit sold FOB shipping point - included (105,200) e) Goods returned by customers, received already - not included 15,000

Adjusted inventory

2,373,920

PROBLEM NO. 2 – Computation of adjusted inventory and related accounts Bulls Company, a manufacturer of small tools, provided the following information from its accounting records for the year ended December 31, 2015: Inventory at December 31, 2015 (based on physical count on Dec. 31, 2015) Accounts Payable at December 31, 2015 Net Sales (sales less sales returns)

P 980,000 586,000 10,048,000

Additional information follows: a. Goods held on consignment from Chicago to Bulls amounting to P9,000 were included in the physical count of goods in Bulls’ warehouse on December 31, 2015, and in accounts payable at December 31, 2015. b. Retailers were holding P50,000, at cost, of goods on consignment from Bulls, at their stores on December 31, 2015. c. Included in the physical count were goods billed to a customer FOB shipping point on December 31, 2015. These goods had a cost of P31,000 and were billed at P40,000. The shipment was on Bulls’ loading dock waiting to be picked up by the common carrier. d. P15,000 worth of parts which were purchased from Deng Co. and paid for in December 2015 were sold in the last week of 2015 and appropriately recorded as sales of P21,000. The parts were included in the physical count on December 31, 2015 because the parts were on the loading dock waiting to be picked up by the customer. e. Goods were in transit from a vendor to Bulls on December 31, 2015. The invoice cost was P71,000 and the goods were shipped FOB shipping point on December 29, 2015. f.

Work in process inventory costing P30,000 was sent to an outside processor for plating on December 30, 2015.

g. Goods returned by customers and held pending inspection in the returned goods area on December 31, 2015 were not included in the physical count. On January 8, 2016, the tools costing P32,000 were inspected and returned to inventory. Credit memos totaling P47,000 were issued to the customers on the same date. h. Goods shipped to a customer FOB destination on December 26, 2015 were in transit at December 31, 2015, and had a cost of P21,000. Upon notification of receipt by the customer on January 2, 2016, Bulls issued a sales invoice for P42,000. i.

Goods, with an invoice cost of P27,000, received from a vendor at 5:00 p.m. on December 31, 2015, were recorded on a receiving report dated January 2, 2016. The goods were not included in the physical count, but the invoice was included in accounts payable at December 31, 2015.

j.

Goods received from a vendor on December 26, 2015 were included in the physical count. However, the related P56,000 vendor invoice was not included in accounts payable at December 31, 2015, because the accounts payable copy of the receiving report was lost.

k. On January 3, 2016, a monthly freight bill in the amount of P6,000 was received. The bill specifically related to merchandise purchased in December 2015, one-half of which was still in the inventory at December 31, 2015. The freight charges were not included in either the inventory or accounts payable at December 31, 2015. REQUIRED:

1. Determine the following as of and for the year ended December 31, 2015: a. Inventory b. Net Sales c. Accounts Payable 2. Adjusting entries as of December 31, 2015

SOLUTION:

Requirement No. 1 Inventory Unadjusted balances Add (deduct) adjustments:

980,000

Accts. Payable 586,000

Sales, net 10,048,000

a - Goods held on consignment

(9,000)

(9,000)

-

b - Goods out on consignment c - Unshipped goods, erroneously billed

50,000

-

-

d - Goods with constructive delivery e - Goods purchased FOB shipping point

(15,000)

f - WIP sent to outside processor

30,000

-

g - Goods returned by customers

32,000

-

h - Goods sold FOB destination i - Goods excluded from physical count j - Unrecorded purchases

21,000

-

k - Unrecorded freight-in

3,000

Adjusted balances

-

-

71,000

-

1,190,000

56,000

b) Inventory P/L summary (Cost of sales)

50,000

c) Sales Acccounts receivable

40,000

d) P/L summary (Cost of sales)

15,000

(47,000) -

6,000 710,000

Requirement No. 2 9,000

-

71,000

27,000

a) Accounts payable Inventory

(40,000)

9,000

50,000

40,000

9,961,000

Inventory

15,000

e) Inventory Accounts payable

71,000

f) Inventory P/L summary (Cost of sales)

30,000

g) Inventory P/L summary (Cost of sales)

32,000

Sales returns Acccounts receivable

71,000

30,000

32,000 47,000 47,000

h) Inventory P/L summary (Cost of sales)

21,000

i) Inventory P/L summary (Cost of sales)

27,000

j) P/L summary (Cost of sales) Accounts payable

56,000

k) Inventory

3,000

P/L summary (Cost of sales) Accounts payable PROBLEM NO. 11 – Roll forward analysis

21,000

27,000

56,000

3,000 6,000

You are engaged in the regular annual examination of the accounts and records of Valenzuela manufacturing for the year ended December 31, 2015. To reduce the workload at year end, the company upon your recommendation, took its annual physical inventory in November 30, 2015. You observed the taking of the inventory and made tests of the inventory count and inventory records. The company’s inventory account, which includes raw materials and work in process, is on perpetual basis. Inventories are valued at cost, FIFO method. There is no finished goods inventory. The company’s physical inventory revealed that the book inventory of 1,695,960 was understated by 84,000. To avoid delay in completing its monthly financial statements, the company decided not to adjust the book inventory until year end except for obsolete inventory items. Your examination disclosed the following information regarding the November 30 inventory 1. Pricing tests showed that the physical inventory was overstated by 61, 600. 2. An understatement of the physical inventory by 4,200 due to errors in footings and extensions. 3. Direct labor included in the inventory amounted to 280,000. Overhead was included at the rate of 200% of direct labor. You have ascertained that the amount of direct labor was correct and that the overhead rate was proper. 4. The physical inventory included obsolete materials with a total cost of 7,000. During December the obsolete materials were written off by a charge to cost of sales.

Your audit also disclosed the following information about the December 31 inventory: a. Total debits to the following accounts during December were: Cost of sales Direct labor Purchases

1,920,800 338, 800 691, 600

b. The cost of sales of 1,920,800 included direct labor of 386,000 REQUIRED Compute for the following: 1. Adjusted amount of physical inventory at November 30, 2015 2. Adjusted amount of inventory at December 31, 2015 3. Breakdown of inventory at December 31, 2015 a. Cost of materials on hand, and materials included in work in process b. Direct labor included in work in process c. Factory overhead included in work in process

SOLUTION: Requirement No. 1 Inventory per books, 11/30

1,695,960

Add understatement of booked inventory

84,000

Physical inventory,11/30, per client Add (deduct) adjustments

1,779,960

Overstatement due to pricing errors

(61,600)

Understatement due to footing and extension errors

4,200

Obsolete materials

(7,000)

Inventory per physical count, as adjusted

1,715,560

Requirement No. 2 Adjusted balance of inventory, 11/30

1,715,560

Purchases

691,600

Direct labor

338,800

Factory overhead (200% of direct labor)

677,600

Total Less cost of sales:

3,423,560

Per books Obsolete materials written off through COS

1,920,800 (7,000)

Inventory, 12/31

1,913,800 1,509,760

Requirement No. 3 Inventory, 11/30 (see no. 1)

1,715,560

Direct labor

(280,000)

Factory overhead (200% of direct labor)

(560,000)

Raw materials, 11/30

875,560

Purchases

691,600

Total Less: Materials included in cost of sales

1,567,160

Adjusted cost of sales (see no. 2)

1,913,800

Direct labor

(386,400)

Factory overhead

(772,800)

Cost of materials on hand and materials included in WIP Labor cost in the WIP: Labor included in 11/30 inventory

280,000

Labor incurred in December

338,800

Total

618,800

Labor included in COS

(386,400)

Applied factory overhead (200% of direct labor)

754,600 812,560

232,400 464,800

Total, as shown in no.2 1,509,760 PROBLEM NO. 1 – Audit of recognition and measurement of intangible assets The accountant of the newly organized Zerg Corporation provided to you the details the company’s Intangible Assets account as follows: Date 01/02 01/15 04/01 05/01 07/01

Intangible Assets Description Organization costs Goodwill Patent License and trademark R & D laboratory

Amount P 233,000 15,000 490,000 300,000 1,310,000

12/31

Product development costs

1,750,000 4, 098, 000

Transactions during 2015 included the following: Jan 2

Paid legal fees of P 150,000 and stock certificate costs of P83,000 to complete corporation of the corporation.

15

organization of the

Hired a clown to stand in front of the corporate office for 2 weeks and hand out pamphlets and candy to create goodwill for the new enterprise. Clown cost, P10,000; pamphlets and candy, P5,000.

Apr. 1

Patented a newly developed process with costs as follows: Legal fees to obtain patent

P429,000

Patent application licensing fees Total

61,000

and

490,000

It is estimated that in 5 years other companies will have developed improved processes, making the Zerg Corporation process obsolete. May 1

Acquired both a license to use a special type of container and a distinctive trademark to be printed on the container in exchange for 6, 000, no-par, ordinary shares of Zerg selling for P50 per share. The license is worth twice as much as the trademark, both of which may be used for 5 years.

Jul.1

Constructed a shed for P1,310,000 to house prototypes of experimental models to be developed in future research projects.

Dec. 31

Paid salaries for an engineer and chemist involved in research and development totaling P1,720,000 in 2015.

It is the company’s policy to take full year amortization in the year of acquisition. REQUIRED: 1. Prepare the necessary adjusting journal entries as of December 31, 2015. 2. Compute the carrying amount of the Intangible assets as of December 31, 2015. 3. Compute the total amount resulting from the foregoing transactions that should be expensed when incurred. SOLUTION: Requirement No. 1 1/2

Organization expenses

233,000

Intangible assets

1/15

Advertising expense

233,000

15,000

Intangible assets

4/1

Patents Intangible assets

15,000

490,000 490,000

5/1

Licences (P300,000 x 2/3)

200,000

Trademark

100,000

Intangible assets

7/1

300,000

Building

1,310,000

Intangible assets

12/31

Research expense

and

1,310,000 development 1,750,000

Intangible assets

Amortization expense

1,750,000

158,000

Patent (P490,000/5)

98,000

Licences (P200,000/5)

40,000

Trademark (P100,000/5)

20,000

Requirement No. 2 Cost Patent

490,000

Licences

200,000

Trademark Less amortization

100,000

Patent (P490,000/5)

98,000

Licences (P200,000/5)

40,000

Trademark (P100,000/5)

20,000

Carrying amount, 12/31/12

790,000

158,000 632,000

Requirement No. 3 Organization expenses (Jan. 2 transaction)

233,000

Advertising expense (Jan. 15 transaction)

15,000

R and D expense (Dec. 31 transaction)

1,750,000

Total 1,998,000 PROBLEM NO. 3 – Amortization and impairmentof intangible assets

The Terran Company acquired several small companies at the end of 2014 and, based on the acquisitions, reported the following intangibles in its December 31, 2014 statement of financial position: Patent Copyright Tradename Computer software Goodwill

P200,000 400,000 350,000 100,000 900,000

The company’s accountant determines the patent has an expected life of 10 years and no expected residual value, and that it will generate approximately equal benefits each year. The company expects to use the copyright and tradename for the foreseeable future. The accountant knows that the computer software is used in the company’s 120 sales offices. The company has replaced the software in 60 offices in 2015, and expects to replace the software in 40 more offices in 2016 and the remainder in 2017. In December 31, 2015, there are no indications of impairment of patent and computer software. The following information relate to the other intangible assets: a.) Because of the rampant piracy, the copyright is expected to generate cash flows of just P8,000 per year. b.) The tradename is expected to generate cash flows of P15,000 per year. c.) The goodwill is associated with Terran’s SCV Manufacturing reporting unit. The cash flows expected to be generated by the SCV Manufacturing reporting unit is P200,000 per year for the next 24 years. The reporting unit has a carrying amount of P2,100,000. REQUIRED: Based on the above and the result of your audit, determine the following: (Assume that the appropriate discount rate for al litems is 5%) 1. Total amortization of intangible assets in 2015 2. Total loss on impairment in 2015 3. Carrying amount of goodwill on December 31, 2015 4. Carrying amount of other intangible assets on December 31, 2015

SOLUTION: Requirement No. 1 Patent (P200,000/10)

20,000

Computer software [P100,000 x (60/120)]

50,000

Total amortization

70,000

*The useful lives of copyright and tradename are indefinite, so no amortization expense is recognized. ** Goodwill is not amortized. Requirement No. 2 Impairment loss

Copyright: Carrying amount Recoverable amount (P8,000/0.05) Tradename: Carrying amount Recoverable amount (P15,000/0.05) Goodwill:

400,000 160,000

240,000

350,000 300,000

Carrying amount of Anne Manufacturing unit

3,000,000

Recoverable amount (P200,000 x 14.0939)

2,818,780

Total impairment loss

50,000

181,220 471,220

Requirement No. 3 Original amount of Goodwill

900,000

Less impairment loss

181,220

Carrying amount of Goodwill, 12/31/12

718,780

Question No. 4 - A Patent (P200,000 - P20,000)

180,000

Copyright (recoverable amount)

160,000

Tradename (recoverable amount)

300,000

Computer software (P100,000 - P50,000)

50,000

Carrying amount of other intangible assets, 12/31/12 690,000 PROBLEM NO.10 – Audit of intangibles and other assets GDI., Inc, had the following noncurrent asset account balances at December 31, 2014 Patent P1,920,000 Accumulated amortization (240,0000) Deferred tax asset 360,000

Transactions during 2015 and other information relating to the noncurrent assets of GDL, Inc were as follows: a. The patent was purchased from Grey Company for P1,920,000 on January 1, 2013, at which date the remaining life was sixteen years. On January 1, 2015, GDL determined that the useful life of the patent was only eight years from the date of acquisition. b. On January 3, 2015, in connection with the purchase of a trademark from Cody Corporation, the partie entered into a noncompetiton agreement and a consulting contract. GDL paid Cody P8,000,000, of which three-quarters was for trademark and one-quarter was for Cody’s agreement not to compete for a five-year period in the line of business covered by the trademark. GDI considers the life of the trademark to be indefinite. Under the consulting contract,

GDL agreed to pay Cody P500,000 annually on January 3 for five years. The first payment was made on January 3,2015 c. Deferred tax asset is provided in recognition of temporary differences between accounting and tax reporting of rent income and warranty liability. For the year ended December 31, 2015, (1) rent collected in advance decreased by P200,000, and (2)product warranty liability increased by P150,000. GDL’s income tax rate for 2015 was 35% REQUIRED: Based on the above and the result of your audit, determine the following: 1. The total amortization of the intangible assets for the year 2015 2. The carrying amount of the intangible assets as of December 31,2015 3. The carrying amount of deferred tax asset as of December 31, 2015 SOLUTION: Requirement No. 1 Patent amortization (P1,680,000/6) Trademark

280,000

Noncompetition agreement (P2,000,000/5)

400,000

Total amortization

680,000

-

Requirement No. 2 Patent (P1,680,000 - P280,000)

1,400,000

Trademark (P8,000,000 x 3/4)

6,000,000

Noncompetition agreement (P2,000,000 - P400,000)

1,600,000

Carrying amount of intangible assets, 12/31/12

9,000,000

Requirement No. 3 Deferred tax asset, 12/31/11 Decrease in deferred tax asset: Decrease in unearned rent (P200,000 x 35%) (70,000) Increase in warranty liability (P150,000 x 35%) 52,500 Deferred tax asset, 12/31/12 PROBLEM NO. 1 – Composition of trade and other receivables

360,000

(17,500) 342,500

On December 21, 2015 the accounts receivable control account of Ipil-ipil Co. had a balance of P181,100. An analysis of the accounts receivable account showed the following: Accounts known to be worthless Advance payments to creditors on purchase orders

P 2,500 10,000

Advances to affiliated companies

25,000

Customers’ accounts reporting credit balance arising from sales return

(15,000)

Interest receivable on bonds

10,000

Other trade accounts receivable – unassigned

50,000

Subscriptions receivable for ordinary share capital due in 30 days

55,000

Trade accounts receivable – assigned Trade installment receivable due 1 – 18 months, (including unearned finance charges, P2,000)

15,000

Trade receivables from officers, due currently

1,500

Trade accounts on which post-dated checks are held (no entries were made on receipts of checks)

5,000

Total

P181,000

22,000

REQUIRED: Determine the trade and other receivables to be reported on the entity’s December 31, 2015 statement of financial position. SOLUTION: Items included: Trade accounts receivable (see computation below)

91,500

Advance payments to creditors on purchase orders

10,000

Interest receivable on bonds

10,000

Subscriptions receivable due in 30 days

55,000

Trade and other receivables

166,500

Composition of trade accounts receivable: Other trade accounts receivable – unassigned

50,000

Trade accounts receivable - assigned Trade installment receivable due 1 – 18 months,

15,000

net of unearned finance charges of P2,000

20,000

Trade receivables from officers due currently Trade accounts on which post-dated checks are held (no entries were made on receipts of checks) Trade accounts receivable Items not included: Accounts known to be worthless Advances to affiliated companies Customers' account with credit balance

1,500

5,000 91,500

2,500 25,000 (15,000)

Write off Noncurrent investment Trade and other payables

PROBLEM NO. 8 – Audit of notes receivable and related accounts On January 1, 2015, Pedro Company sold land that originally cost P400, 000 to Buyer Company. As payment, Buyer gave Pedro Company a P600, 000 note. The note bears an interest rate of 4% and is to be repaid in three annual installments of P200, 000 (plus interest on the outstanding balance). The first payment is due on December 31, 2015. The market price of the land is not reliably determinable =. The prevailing rate of interest for notes of this type is 14% on January 1, 2015 and 15% on December 31, 2015. Pedro made the following journal entries in relation to the sale of land and the relate note receivable. January 1, 2015 Notes Receivable Land Gain on sale of Land December 31, 2015 Cash Notes receivable Interest income

P600,000 P400,000 200,000

P224,000 P200,000 24,000

Pedro reported the notes receivable in its statement of financial position at December 31, 2015 as part of trade and other receivables. REQUIRED: 1. Determine the following as of and for the year ended December 31, 2015: a. Correct gain on sale of land b. Correct interest income c. Overstatement of profit d. Correct carrying amount of note receivable e. Overstatement of working capital 2. Adjusting entries as of December 31, 2015 SOLUTION: Requirement No. 1.a PV of consideration receivable (see computation below) Carrying amount of land Correct gain on sale of land

503,105 (400,000) 103,105

Present value of cash flows to determine initial CA: Date

12/31/12 12/31/13 12/31/14

Principal

200,000 200,000 200,000 600,000

Interest (4%)

Total

24,000 16,000 8,000

224,000 216,000 208,000

PVF (14%)

PV, 1/1/12

PV, 12/31/12

0.8772 0.7695 0.6750

196,493 166,212 140,400 503,105

189,475 160,056 349,531

Repayment

AC

Requirement No. 1.b Amortization schedule using effective interest method: Date 1/1/12 12/31/12

EI (14%) 70,435

NI (4%) 24,000

Disc. Amort. 46,435

200,000

503,105 349,540

12/31/13 12/31/14

48,936 16,000 25,524 8,000 23 Interest income - 2012 (P503,105 x .14)

32,936 17,524

200,000 200,000

182,476 -

70,435

Requirement No. 1.c Gain on sale of land - overstated (P200,000 - P103,105) Interest income for 2012 - understated (P70,435 - P24,000) Net overstatement of 2012 profit

96,895 (46,435) 50,460

Requirement No. 1.d Carrying amount, 12/31/12 (see schedule)

349,540

Requirement No. 1.e Amount reported as notes receivable Correct current portion of NR (P349,540 - P182,476) Overstatement of CA/working capital

400,000 167,064 232,936

Requirement No. 2 Adjusting journal entries: To corect the entrymade to record the sale of land on 1/1/12: Gain on sale of land 96,895 Discount on notes receivable (FV-PV) To record amortization of discount on 12/31/12: Discount on notes receivable Interest income PROBLEM NO. 11 – Loan impairment

96,895

46,435 46,435

Bahrain Bank granted a loan to a borrower in the amount of P10,000,000 on January 1,2014. The interest rate on the loan is 10% payable annually starting December 31, 2014. The loan matures in five years on December 31, 2018. Bahrain Bank incurs P130,900 of direct loan origination cost and P50,000 of indirect loan origination cost. In addition, Bahrain Banks charges the borrower a 5-point nonrefundable loan origination fee. The borrower paid the interred due on December 31, 2014. However during 2015 the borrower began to experience financial difficulties, requiring the bank to reassess the collectability of the loan. As of December 31, 2015, the bank expects that only P8,000,000 of the principal will be recovered. The P8,000,000 principal amount is expected to be collected in two equal installments on December 31,2017 and December 31,2019. The prevailing interest rates for similar type of note as of December 31, 2014 and 2015 are 15% and 16%, respectively. REQUIRED: Determine the following: 1. Interest income to be recognized in 2014 2. Carrying amount of the loan as of December 31, 2014 3. Loan impairment loss to be recognized in 2015 SOLUTION: Requirement No.s 1 & 2 Principal Direct origination cost Origination fee received from borrower (P10M x .05)

10,000,000 130,900 (500,000)

Carrying amount, 1/1/12 Amortization schedule Date 1/1/11 12/31/11 12/31/12 12/31/13 12/31/14 12/31/15

9,630,900

EI (11%)

NI (10%)

1,059,399 1,065,933 1,073,186 1,081,236 1,089,346 826

Requirement No. 3 Carrying amount, 12/31/12 (see schedule) Less PV of expected cash flows: 12/31/14 (P4M x 0.8116) 12/31/16 (P4M x 0.6587) Loan impairment (bad debt expense) PROBLEM NO.12- Proof of cash

Disc. Amort.

1,000,000 1,000,000 1,000,000 1,000,000 1,000,000

59,399 65,933 73,186 81,236 89,346

9,756,232 3,246,400 2,634,800

5,881,200 3,875,032

Celtics Company had the following bank reconciliation on June 30, 2015: Balance per bank statement, June 30, 2015 Add: Deposit in transit Total Less: Outstanding checks Balance per book, June 30

P3,000,000 400,000 3,400,000 900,000 P2,500,000

The bank statement for the month of July 2015 showed the following: Deposits (including P200,000 note collected for Celtics) Disbursements (including P140,000 NSF check and P10,000 service charge) All reconciling items on June 30,2015 cleared through the bank in july. The outstanding checks totaled P600,000 and the deposits in transit amounted to P1,000,000 on July 31, 2015. REQUIRED: Determine the following: 1. 2. 3. 4.

Cash receipts per books in July Cash disbursement per books in July Cash balance per books at July 31 Adjusted cash balance at July 31

SOLUTION: Requirement No. 1 Total deposits per bank statement in June

9,000,000

Note collected by bank in July

(200,000)

Deposits in transit, June 30

(400,000)

P9,000,000 7,000,000

C.A. 9,630,900 9,690,299 9,756,232 9,829,418 9,910,654 10,000,000

Deposits in transit, July 31

1,000,000

Cash receipts per books in July

9,400,000

Requirement No. 2 Total disbursements per bank statement in June

7,000,000

July NSF check

(140,000)

July service charge

(10,000)

Outstanding checks, June 30 Outstanding checks, July 31

(900,000) 600,000

Cash disbursements per books in July

6,550,000

Requirement No. 3 Balance per books, June 30, 2007

2,500,000

July receipts per books (see no. 21)

9,400,000

July disbursements per books (see no. 22)

(6,550,000)

Balance per books, July 31, 2007

5,350,000

Requirement No. 4 Balance per bank statement, July 31 (P3M+P9M-P7M)

5,000,000

Deposits in transit, July 31

1,000,000

Outstanding checks, July 31

(600,000)

Adjusted bank balance, July 31

5,400,000

Balance per books, July 31 Note collected by bank in July

5,350,000 200,000

NSF check

(140,000)

Bank service charges

(10,000)

Adjusted book balance, July 31 PROBLEM NO.14 –Three-dated bank reconciliation

5,400,000

The client, Noel Corporation, obtained bank statements for November 30 and December 31, 2015 and reconciled the balanced. You obtained directly the statements of January 12,2016 and obtained the necessary confirmation. You have found that there are no errors in addition or subtraction in the client’s books. Balance, bank statement

11/30/15 P344,420

12/31/15 P275,020

Balance, company records Deposits in transits Outstanding checks

271,260 35,000 88,240

226,010 ? ?

Receipts, cash records Credits, bank statement Disbursements, cash records Charges, bank statement

12/1-31/15 P963,230 941,010 1,008,480 1,010,410

1/1-12/16 P292,500 321,490 177,570 230,180

The following information also was obtained: a) Check no. 804 for P340 cleared by the bank in December as P1,340. This was found in proving the bank statement. The bank made the correction on January 8, 2016. b) A note of P20,000, sent to the bank for collection on November 15,2015, was collected and credited to the account on November 28, 2015, net of a collection fee of P80. The note was recorded in the cash receipts on December 21, 2015, at which date the collection fee was entered as a disbursement. c) The client records returned checks in red in the cash receipts journal. The checks listed in the table were returned by the bank. Amount P3,270 P6,730

Co. A Co. B

Returned 12/6/15 12/27/15

Recorded No entries 1/3/16

Redeposited 12/8/15 1/15/16

d) Two payroll checks for employee’s vactions totalling P5,500 were drawn on January 3, 2016, and cleared the bank on January 8,2016. Those checks were not entered in the clients records because semi-monthly payroll summaries are entered only on the 15th and the last day of each month. REQUIRED: 1. Compute for the following: a. Deposits in transit as of December 31, 2015 b. Outstanding checks as of December 31,2015 c. Deposits in transits as of January 12, 2016 d. Outstanding checks as of January 12,2016 2. Prepare a 4-column bank reconciliation for the month of December 2015 and for the period January 1 to 12, 2016 using the adjusted balance method.

SOLUTION: Requirement 1.a Deposits in transit, Nov. 30 Add collections in December: December book receipts Customers' note collected by bank in Nov. Total Less deposits credited by the bank in December: December bank receipts

35,000

963,230 (20,000)

943,230 978,230

941,010

NSF check redeposited (Customer A)

(3,270)

Deposits in transit, Dec. 31

40,490

Requirement 1.b Outstanding checks, Nov. 30 Add checks issued in December:

88,240

December book disbursements

1,008,480

Collection fee for note collected in Nov.

(80)

Total Less checks paid by the bank in December:

1,008,400 1,096,640

December bank disbursements

1,010,410

Bank error in check payment (P1,340 - P340) NSF check - Customer

(1,000)

A

937,740

(3,270) NSF check - Customer

B

(6,730)

Outstanding checks, Dec. 31

999,410 97,230

Requirement 1.c Deposits in transit, Dec. 31 (see Requirement 1.a) Add collections, Jan. 1-12: Jan. 1-12 book receipts NSF check - Customer B

40,490

292,500 6,730

Total Less deposits credited by the bank, Jan. 1-12:

299,230 339,720

Jan. 1-12 bank receipts

321,490

Correction of error in check payment in Dec.

(1,000)

Deposits in transit, Jan. 12

320,490 19,230

Requirement 1.d Outstanding checks, Dec. 31 (see Requirement 1.b) Add checks issued, Jan. 1-12:

97,230

Jan. 1-12 book disbursements

177,570

Unrecorded payroll checks

5,500

Total

183,070 280,300

Less checks paid by the bank, Jan. 1-12:

230,180

Outstanding checks, Jan. 12

50,120

Unadjusted bank balances Deposits in transit: eginning of period

Nov. 30

December Receipts Disb

Dec. 31

January 1-12 Receipts Disb

Jan. 12

344,420

941,010

275,020

321,490

366,330

35,000

(35,000)

End of period Outstanding checks: (88,240)

230,180

(40,490)

40,490

Beginning of period End of period Bank error in payment

1,010,410

40,490

19,230

(88,240)

19,230

(97,230)

97,230

(97,230)

(1,000)

1,000

(1,000)

50,120

(50,120)

check

NSF check redeposited (Customer A)

(3,270)

(3,270)

Adjusted bank balances

291,180

943,230

1,015,130

219,280

299,230

183,070

335,440

Unadjusted book balances 271,260 Note collected by bank in Nov. 19,920

963,230

1,008,480

226,010

292,500

177,570

340,940

(20,000)

(80) (6,730)

6,730 5,500

(5,500)

183,070

335,440

NSF check not redeposited (Customer B)

6,730

Unrecorded payroll in Jan. Adjusted book balances

291,180

943,230

1,015,130

219,280

299,230