chapter 1 caselette - accounting cycle
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exercisesTRANSCRIPT
Problem 1-1 Accounting Cycle
CHAPTER 1 - Accounting Process &Working Paper Preparation
Exercises: Indicate your answer by encircling the letter that contains your choice in each of the following questions.
1. One is using periodic inventory system. For the year, its total purchases amounted to P250,000. Its unsold merchandise at the end of the year has a cost of P5,000 which is 80% of its beginning inventory. Ones cost of sale is
a.P 250,000
b. P 251,250
c. P 249,000
d. P 248,750
2. Twos purchase per purchase invoice is P150,000. The purchase discount is 2/10, n/30. Freight is P500, FOB shipping point collect. The net purchase amounts under net method is
a.P P147,000
b. P 147,500
c. P 148,500
d. P 150,500
3. Using the information in Item 2, the amount paid by the buyer is
a.P P147,000
b. P 147,500
c. P 148,500
d. P 150,500
4. The purchase invoice shows the amount of P250,000, 2/10, 1/20, n/30; FOB destination collect, P200. If the account is paid 15 days after the invoice date, the net payment should be
a.P 245,000
b. P 247,500
c. P 247,300
d. P 244,800
5. Using the information in Item 4, the net purchase is
a.P 245,000
b. P 247,500
c. P 247,300
d. P 244,800
6. Three purchased merchandise for P5,000 and paid P200 for freight, FOB destination collect. The merchandise was sold at 120% of cost. The gross profit is
a.P 1,000
b. P 1,040
c. P 6,000
d. P 6,240
7. The total purchase is P1,176, net of 2% cash discount. Unsold portion of purchase is P176. The sale is at mark-up of 10%. The gross profit is
a.P 117.60
b. P 88.24
c. P 115.25
d. P 100.008. The term of a P300,000 purchase is 2/20, n/60, FOB shipping point prepaid, P300. If the account is paid on the 25th day from the invoice date, the total payment would be
a.P 294,000
b. P 299,700
c. P 294,300
d. P 300,3009. Four paid freight for P200 on its purchase on account from Five, FOB shipping point. The journal entry in both books of Four and Five would be
Books of Four
Books of Five
a.Freight-out
200
Freight-in
200
Cash
200 Accounts payable
200
b.Freight-in
200
No entry
Accounts receivable200
c.Freight-in
200
No entry
Cash
200
d.Freight-in
200
Freight-out
200
Cash
200 Accounts receivable200
10. Six sold merchandise at list price of P250,000; 10; 5; n/30. Part of the sale amounting to P10,000 was returned due to defect. The amount to be collected by Six is
a.P 205,200
b. P 203,750
c. P 204,000
d. P 195,200
11. Amar Company received P96,000 on April 1, 2002 for one years rent in advance and recorded the transaction with a credit to a nominal account. The December 31, 2002 adjusting entry is
a. Debit rent revenue and credit unearned rent revenue, P24,000.
b. Debit rent revenue and credit unearned rent revenue, P72,000.
c. Debit unearned rent revenue and credit rent revenue, P24,000.
d. Debit unearned rent revenue and credit rent revenue, P72,000.
12. Andoy Company paid P72,000 on June 1, 2002 for a two-year insurance policy and recorded the entire amount as insurance expense. The December 31, 2002 adjusting entry is
a. Debit insurance expense and credit prepaid insurance, P21,000.
b. Debit insurance expense and credit prepaid insurance, P51,000.
c. Debit prepaid insurance and credit insurance expense, P21,000.
d. Debit prepaid insurance and credit insurance expense, P51,000.
13. Antipuesto Company purchase equipment on November 1, 2002 and gave a 12-month, 9% note with a face value of P480,000. The December 31, 2002 adjusting entry is
a. Debit interest expense and credit interest payable, P7,200.
b. Debit interest expense and credit interest payable, P10,800.
c. Debit interest expense and credit cash, P7,200.
d. Debit interest expense and credit interest payable, P43,200.
14. On December 31, 2002, Asilo Companys bookkeeper made an adjusting entry debiting supplies expense and credit supplies inventory for P12,600. The supplies inventory accounts had a P15,300 debit balance on December 31, 2001. The December 31, 2002 balance sheet showed supplies inventory of P11,400. Only one purchase of supplies was made during the month, on account. The entry for that purchase was
a. Debit supplies inventory and credit cash, P8,700.
b. Debit supplies expense and credit accounts payable, P8,700.
c. Debit supplies inventory and credit accounts payable, P8,700.
d. Debit supplies inventory and credit accounts payable, P16,500.
15. Astillo Company loaned P300,000 to another company on December 1, 2002 and received a 3-month, 15%, interest-bearing note with a face value of P300,000. What adjusting entry should Astillo Company make on December 31, 2002?
a. Debit interest receivable and credit interest income, P7,500.
b. Debit cash and credit interest income, P3,750.
c. Debit interest receivable and credit interest income, P3,750.
d. Debit cash and credit interest receivable, P7,500.
.
16. The supplies inventory account balance at the beginning of the period was P66,000. Supplies totaling P128,250 were purchased during the period and debited to supplies inventory. A physical count shows P38,250 of supplies inventory at the end of the period. The year-end adjusting entry is
a. Debit supplies inventory and credit supplies expense, P90,000.
b. Debit supplies expense and credit supplies inventory, P128,250.
c. Debit supplies inventory and credit supplies expense, P156,000.
d. Debit supplies expense and credit supplies inventory, P156,000.
17. At the end of 2002, Avila Company made four adjusting entries for the following items: (1) depreciation expense, P35,000; (2) expired insurance, P2,200 (originally recorded as prepaid insurance); (3) interest payable, P9,000; and (4) rental revenue receivable, P10,000.
In the normal situation, to facilitate subsequent entries, the adjusting entry or entries that may be reversed is/are
a.Entry 1
c. Entries 3 and 4
b.Entry 4
d. Entries 2, 3, and 4
18. Bagaipo Company reported an allowance for doubtful accounts of P12,000 (credit) at December 31, 2002 before performing an aging of accounts receivable. As a result of the aging, Bagaipo Company determined that an estimated P20,000 of the December 31, 2002 accounts receivable would prove uncollectible. The adjusting entry at December 31, 2002 would be
a.Doubtful accounts expense
8,000
Allowance for doubtful accounts
8,000
b.Doubtful accounts expense
20,000
Accounts receivable
20,000
c.Allowance for doubtful accounts 8,000
Doubtful accounts expense 8,000
d.Doubtful accounts expense
8,000
Interest revenue
8,000
19. Assuming that the company does not reverse the adjusting entries, what should be made on April 1, 200 when the annual interest payment is received?
a. Debit cash and credit interest revenue, P9,375.
b. Debit cash and credit interest receivable, P28,125.
c. Debit cash, P37,500; credit interest receivable, P28,125; and interest revenue, P9,375.
d. Debit cash and credit interest revenue, P37,500.
20. Using the data of No. 19, but assuming that the company does reverse its adjusting entries, what entry should be made on April 1, 2003 when the annual interest payment is received?
a. Debit cash and credit interest revenue, P9,375.
b. Debit cash and credit interest receivable, P28,125.
c. Debit cash, P37,500; credit interest receivable, P28,125; and interest revenue, P9,375.
d. Debit cash and credit interest revenue, P37,500.
Answer:
1. b2. b3. a4. c5. b6. a7. d8. d9. c10. a
11.a12.d13.a14.c15.c16.d17.c18.a19.c20.d
Problem 1The following is the post-closing trial balance of Abagon Shop dated February 1, 2006:
Debit Credit
Cash120,000
Accounts Receivable280,000
Allowance for doubtful accounts 2,800
Unused shop supplies 800
Shop Equipment240,000
Accumulated depreciation - shop equipment 48,000
Accounts payable 88,800
Notes payable 100,000
Accrued interest payable 1,200
Abagon, Capital 400,000
Total 640,800 640,800
For the month of February, the following are the transactions of Abagon Shop.
1. Abagon withdrew P100,000 cash from the business for her personal use.
2. Paid P12,000 insurance premium.
3. Paid P24,000 rent.
4. Total service rendered to various customers, P140,000, 40% of total sales are on cash basis and the balance on open account.
5. Received promissory note from customer to replace P40,000 accounts receivable.
6. Collected in cash P164,000 of accounts receivable.
7. Paid the notes payable of P100,000 plus the P2,400 interest.
8. Purchased P2,400 shop supplies on cash basis.
9. Paid salaries, P24,000.
At the end of the month, the following information are available to effect adjustments.
a. The insurance in number 2 for P12,000 is applicable for six months starting February.
b. The rent of P24,000 paid in number 3 is for 3 months, starting February.
c. The note receivable is number 5 is earning 12% interest per year. The note is dated February 1, and is due on April 30.
d. Bad debts expense is estimated at 2% of accounts receivable balance.
e. The annual depreciation is P48,000.
f. The unused supplies balance is P1,000.
Questions1.Cash at end of February is:
a. P 103,200
b. P 85,200
c. P 75,200
d. P 72,800
2.Net Realizable value of Accounts Receivable at end of February is
a.P 156,800
b. P 157,200
c. P 196,800
d. P 197,200
3. Unused shop supplies at end of February is
a. P 1,800
b. P 1,000
c. P 800
d. P 200
4.Net book value of Shop Equipment at end of February is
a.P 188,000
b. P 189,000
c. P 184,000
d. P 144,000
5.Accounts Payable at end of February is
a.P 128,800
b. P 88,800
c. P 86,400
d. P 48,800
6.Notes Payable at end of February is
a.P 100,000
b. P 102,400
c. P 97,600
d. P 0
7. Abagon Capital, net of drawing at end of February is
a.P 398,600
b. P 397,400
c. P 397,800
d. P 388,600
8. Net income of the company at end of February is
a.P 98,600
b. P 97,400
c. P 97,800
d. P 88,600
9.Total Revenue of the company at end of February is
a. P 142,800
b. P 142,400
c. P 140,400
d. P 140,000
10.Total Expenses of the Company at end of February is
a. P 52,600
b. P 41,800
c. P 41,400
d. P 41,000
Solution1Abagon, drawing
100,000
Cash100,000
2Insurance expense12,000
Cash12,000
3Rent expense24,000
Cash 24,000
4Cash 56,000
Accounts receivable 84,000
Revenue
140,000
5Notes receivable
40,000
Accounts receivable40,000
6Cash164,000
Accounts receivable164,000
7Notes payable100,000
Interest expense
2,400
Cash102,400
8Supplies expense
2,400
Cash 2,400
9Salaries 24,000
Cash 24,000
Adjusting Entry:
aPrepaid Insurance10,000
Insurance expense10,000
bPrepaid rent16,000
Rent expense16,000
cInterest receivable400
Interest income400
(P40,000 x 12% x 1/12)
dBad debts400
Allowance for bad debts400
eDepreciation4,000
Accum. depreciation4,000
fUnused supplies1,000
Supplies expense1,000
Supplies expense800
Unused supplies800
gAccrued interest payable1,200
Interest expense1,200
To reverse the beg. accrued interest payable
TRIAL BALANCE ADJUSTMENTS INCOME STATEMENT BALANCE SHEET
CASH 75,200 75,200
ACCNTS RECEIV 160,000 160,000
ALLOW. FOR BD 2,800 400 3,200
NOTES RECEIV 40,000 40,000
UNUSED SUPPLIES 800 1,000 800 1,000
SHOP EQUIPMENT 240,000 240,000
ACCUM. DEPN 48,000 4,000 52,000
ACCOUNTS PAY 88,800 88,800
NOTES PAYABLE - -
ACC. INT. PAY 1,200 1,200 -
ABAGON, DRAWING 100,000 100,000
ABAGON, CAPITAL 400,000 400,000
REVENUE 140,000 140,000
INSURANCE EXP 12,000 10,000 2,000
RENT EXPENSE 24,000 16,000 8,000
SUPPLIES EXP 2,400 800 1,000 2,200
SALARIES 24,000 24,000
INTEREST EXP 2,400 _______ 1,200 1,200
680,800 680,800
PREPAID INS 10,000 10,000
PREPAID RENT 16,000 16,000
INTEREST RECEI 400 400
INTEREST INC 400 400
BAD DEBTS 400 400
DEPRECIATION 4,000 _______ 4,000 ________
33,800 33,800 41,800 140,400
NET INCOME 98,600 ________ _______ 98,600
140,400 140,400 642,600 642,600
Answer:
1. C2. A3. B4. A5. B5. D8. A9. A9. C10. B
Problem 2
The following selected transactions were completed during Year 1 of operations by Vicar Corporation:
a. Sold of its 20,000 shares of its own common stock, par P1 per share, for P15 per share and received cash in full.
b. Borrowed P100,000 cash on 12%, one-year note, interest payable at maturity on April 30, Year 2.
c. Purchased equipment for use in operating the business at a net cash cost of P164,000; paid in full.
d. Purchased merchandise for resale at cash cost of P140,000; paid cash. Assume a periodic inventory system; therefore, debit Purchases.
e. Purchased merchandise for resale on credit terms of 2/10, n/60. The merchandise will cost P9,800 if paid within 10 days; after 10 days, the payment will be P10,000. The company always takes the discount; therefore, such purchased are recorded at net of the discount.
f. Sold merchandise for P180,000; collected P165,000 cash, and the balance is due in one month.
g. Paid P30,000 cash for operating expenses.
h. Paid of the balance for the merchandise purchased in (e) within 10 days; the balance remains unpaid.
i. Collected 50% of the balance due on the sale in (f); the remaining balance is uncollected.
j. Paid cash for an insurance premium, P600; the premium was for two years coverage (debit Prepaid insurance).
k. Purchased a tract of land for a future building for company operations, P63,000 cash.
l. Paid damages to a customer who was injured on the company premises, P10,000 cash.
Questions
Using the unadjusted trial balance, answer the following:
1.Cash balance is:
a.P 157,550
b. P 157,400
c. P 157,250
d. P 149,900
2.Accounts receivable balance is:
a. P 15,000
b. P 10,000
c. P 7,700
d. P 7,500
3.Prepaid insurance balance is:
a.P 600
b. P 400
c. P 300
d. P 200
4.Land account balance is:
a.P 227,000
b. P 164,000
c. P 101,000
d. P 63,000
5.Equipment account balance is:
a.P 227,000
b. P 164,000
c. P 101,000
d. P 63,000
6.Accounts payable balance is:
a.P 2,650
b. P 2,500
c. P 2,450
d. P 2,150
7.Notes payable balance is:
a. P 112,000
b. P 109,000
c. P 100,000
d. P 88,000
8.Common stock balance is:
a.P 300,000
b. P 280,000
c. P 200,000
d. P 20,000
1. Premium on capital stock balance is:
a.P 300,000
b. P 280,000
c. P 200,000
d. P 20,000
2. Sales balance is:
a.P 180,000
b. P 160,000
c. P 100,000
d. P 80,000
3. Purchases balance is:
a.P 149,800
b. P 149,600
c. P 150,000
d. P 150,200
4. Operating expenses and other expenses is:
a. P 49,800
b. P 40,200
c. P 40,000
d. P 38,800
Solution
(a)Cash
300,000
Common stock
20,000
Premium on capital stock280,000
(b)Cash
100,000
Notes payable
100,000
(c) Equipment
164,000
Cash
164,000
(d)Purchases
140,000
Cash
140,000
(e)Purchases
9,800
Accounts payable
9,800
(f)Cash
165,000
Accounts receivable 15,000
Sales
180,000
(g)Operating expenses 30,000
Cash
30,000
(h)Purchase disc. lost 200
Accounts payable
200
Accounts payable 7,500
Cash
7,500
(i)Cash
7,500
Accounts receivable 7,500
(j)Prepaid insurance
600
Cash
600
(k)Land
63,000
Cash
63,000
(l)Loss on damages
10,000
Cash
10,000
Cash
157,400
Accounts receivable
7,500
Prepaid insurance
600
Land
63,000
Equipment
164,000
Accounts payable
2,500
Notes payable
100,000
Common stock
20,000
Premium on capital stock
280,000
Sales
180,000
Purchases
149,800
Operating expenses
30,000
Purchase disc. lost
200
Loss on damages
10,000
_______
Total
582,500
582,500ANSWER
1. b2. d3. a4. d5. b6. b7. c8. d9. b10. a11. a12. b
Problem 3
The post-closing trial balance of the general ledger of Wilson Corporation at December 31, 20I, reflected the following:
Account
Debit
Credit
Cash
27,000
Accounts receivable
21,000
Allowance for doubtful accounts
1,000
Inventory (perpetual inventory system)
35,000
Prepaid insurance (20 mos. remaining)
900
Equipment (20-year life, no salvage value)50,000
Accumulated depreciation
22,500
Accounts payable
7,500
Wages payable
-
Income taxes payable (for 20I)
4,000
Common stock, par P1
80,000
Retained earnings
18,900
Sales revenue
-
Cost of goods sold
-
Operating expenses
-
Income tax expense
-
Income summary
-_________
133,900133,900* Ending inventory, P45,000 (at 12/31/20J)
The following transactions occurred during 20J in the order given (use the number at the left to indicate the date):
1.Sales revenue at P30,000, of which P10,000 was on credit; cost provided by perpetual inventory record, P19,500.
2.Collected P17,000 on accounts receivable.
3.Paid income taxes payable (20I), P4,000.
4.Purchased merchandise, P40,000, of which P8,000 was on credit.
5.Paid accounts payable, P6,000.
6.Sales revenue of P72,000 (in cash); cost, P46,800.
7.Paid operating expenses, P19,000.
8.On January 1, 20J, sold and issued 1,000 shares of common stock, par P1, for P1,000 cash.
9.Purchased merchandise, P100,000, of which P27,000 was on credit.
10.Sales revenue of P98,000, of which P30,000 was on credit; cost P63,700.
11.Collected cash on accounts receivable, P26,000.
5. Paid cash on accounts payable, P28,000.
6. Paid various operating expenses in cash, P18,000.
Assume a bad debt rate of % of credit sales for the period and a 32% income tax rate. At December 31, 20J, accrued wages were P300. Use straight-line depreciation.
Questions
1.Cash at December 31, 20J is:
a.P 51,000
b. P 50,000
c. P 45,000
d. P 41,000
2.Accounts receivable at December 31, 20J is:
a. P 18,000
b. P 16,800
c. P 16,000
d. P 15,800
3.Inventory at December 31, 20J is:
a.P 64,500
b. P 45,000
c. P 35,000
d. P 32,500
4. Prepaid insurance at December 31, 20J is:
a.P 360.00
b. P 562.50
c. P 900
d. P 540
5.Equipment at December 31, 20J is:
a. P 95,000
b. P 60,000
c. P 50,900
d. P 50,000
6.Accumulated depreciation at December 31, 20J is:
a. P 30,000
b. P 25,000
c. P 22,500
d. P 20,000
7.Accounts payable at December 31, 20J is:
a. P 15,000
b. P 14,500
c. P 10,500
d. P 8,500
8.Income taxes payable at December 31, 20J is:
a.P 9,600
b. P 9,427
c. P 5,651
d. P 4,000
9.Retained earnings at December 31, 20J is:
a. P 39,300
b. P 38,933
c. P 30,909
d. P 27,400
10. Cost of goods sold at December 31, 20J is:
a. P 110,500
b. P 128,000
c. P 130,000
d. P 132,000
11. Net income before taxes at December 20J is:
a.P 30,000
b. P 29,460
c. P 17,660
d. P 12,500
Solution
(1)Cash
20,000
Accounts receivable10,000
Sales
30,000
Cost of sales
19,500
Inventory
19,500
(2)Cash
17,000
Accounts receivable17,000
(3)Income taxes payable 4,000
Cash
4,000
(4)Inventory
40,000
Cash
32,000
Accounts payable 8,000
(5)Accounts payable 6,000
Cash
6,000
(6)Cash
72,000
Sales
72,000
Cost of sales
46,800
Inventory
46,800
(7)Operating expenses19,000
Cash
19,000
(8)Cash
1,000
Common stock
1,000
(9)Inventory
100,000
Cash
73,000
Accounts payable27,000
(10)Cash
68,000
Accounts receivable30,000
Sales
98,000
Cost of sales
63,700
Inventory
63,700
(11)Cash
26,000
Accounts receivable26,000
(12)Accounts payable28,000
Cash
28,000
(13)Operating expenses18,000
Cash
18,000
Adjusting Entry:
(a)Operating expenses (ins. Exp)
540
Prepaid insurance
540
(P900 x 12/20)
(b)Operating expenses (depreciation)2,500
Accumulated depreciation
2,500
(c)Operating expenses (bad debts)
200
Allowance for bad debts
200
(d)Operating expenses
300
Wages payable
300
FINANCIAL STATEMENTS
Cash
51,000
Accounts receivable
18,000
Allowance for bad debts
(1,200)
Inventory
45,000
Prepaid insurance
360
Equipment
50,000
Accumulated depreciation (25,000)
Total Assets
138,160
Accounts payable
8,500
Wages payable
300
Income taxes payable
9,427
Common stock
81,000
Retained earnings 38,933
Total Liability/SHE 138,160Sales revenue
200,000
Cost of sales
130,000Gross profit
70,000
Operating expenses
40,540Income before taxes
29,460
Income taxes expense
9,427Net income
20,033
Retained earnings beg
18,900Retained earnings end
38,933Answer:
1. a2. b3. b4. a5. d6. b7. d8. b9. b10.c11.b
Problem 4
The account of PEQUIT COMPANY as at December 1, 2006 are listed below:
Cash
214,000
Accounts receivable
338,000
Marketable securities
426,000
Office supplies
31,000
Prepaid insurance
48,000
Land
370,000
Building
900,000
Accum. depreciation bldg
250,000
Equipment
800,000
Accum. depreciation equip.
200,000
Accounts payable
172,000
Mortgage payable
1,200,000
Capital
_______1,305,000
3,127,0003,127,000The following transactions occurred during the month of December 2006:
Dec. 1Settled the accounts payable of P115,000 less 2% discount.
3Collected the accounts receivable of P180,000 less 3% discount.
4Sold merchandise on account to PAPACOY SUPPLIES, P210,000. Terms: FOB destination, 3/10, n/30. PAPACOY SUPPLIES paid the freight for P3,000.
5Received returns from PAPACOY SUPPLIES, P25,000.
7Purchased merchandise from OSTIQUE PRODUCTS, P232,000. Terms: FOB shipping point, 2/10, n/30. PEQUIT COMPANY paid P2,000 for the transportation cost.
9Returned goods to OSTIQUE PRODUCTS, P12,000 acquired on December 7.
10Paid interest on mortgage payable, P8,000.
11Received payment from PAPACOY SUPPLIES for the amount due.
12Sold merchandise to OANI SHOPPERS, P330,000. Terms: FOB shipping point, 3/10, n/30.
18Received payment from OANI SHOPPERS from the December 12 sales.
19Sold merchandise to NAVALES SHOP, P242,000. Term: FOB shipping point, 3/10, n/30. PEQUIT COMPANY paid P5,000 for the freight.
20Paid P9,000 for representation expense.
29Received from NAVALES SHOP returned merchandise in the amount of P18,000 from the December 19 sales.
30The owner, Genevieve, withdraw merchandise for personal use. Cost P20,000; Selling price P30,000.
Additional information
1. Salaries in the amount of P73,000 have accrued on December 31.
2. Insurance coverage with premium of P2,000 has expired at month-end.
3. Depreciation on the building and on the equipment for the month amounted to P3,000 and P4,500, respectively.
4. Office supplies on hand at month-end amounted to P7,000.
5. A count of the inventory amounted to P453,000 on December 31, 2006.
Questions
1. Cash balance at December 31, 2006 is:
a.P 773,750
b. P 772,700
c. P 748,450
d. P 727,700
2. Accounts receivable at December 31, 2006 is:
a.P 412,000
b. P 405,000
c. P 387,000
d. P 362,000
3. Inventory at December 31, 2006 is:
a.P 625,700
b. P 453,000
c. P 426,000
d. P 212,000
4. Office supplies at December 31, 2006 is:
a.P 7,000
b. P 10,000
c. P 24,000
d. P 31,000
5. Net carrying value of Fixed Assets at December 31, 2006 is:
a.P 1,980,000
b. P 1,620,000c. P 1,612,500d. P 1,242,500
6. Total assets at December 31, 2006 is:
a.P 3,253,950
b. P 3,250,950c. P 3,203,950d. P 3,153,950
7. Accounts payable at December 31, 2006 is:
a.P 289,000
b. P 279,000
c. P 277,000
d. P 257,000
8. Accrued expenses at December 31, 2006 is:
a.P 97,000
b. P 73,000
c. P 24,000
d. P 9,000
9. Net sales at December 31, 2006 is:
a.P 782,000
b. P 718,950
c. P 718,240
d. P 718,150
10. Total purchases at December 31, 2006 is:
a.P 232,000
b. P 212,000
c. P 199,700
d. P 197,700
11. Operating expenses at December 31, 2006 is:
a.P 126,500
b. P 118,500
c. P 109,500
d. P 101,500
12. Net income at December 31, 2006 is:
a.P 482,800
b. P 426,950
c. P 419,040
d. P 418,950
13. Capital balance at December 1, 2006 is:
a.P 1,704,040
b. P 1,703,950c. P 1,305,000d. P 1,285,000
14. Capital balance at December 31, 2006 is:
a.P 1,704,040
b. P 1,703,950c. P 1,305,000d. P 1,285,000
15. Total liabilities and capital at December 31, 2006 is:
a.P 3,253,950
b. P 3,250,950c. P 3,203,950d. P 3,153,950
Solution
Dec 1Accounts payable
115,000
Dec 10Interest expense
8,000
Cash
112,700
Cash
8,000
Purchases (discount) 2,300
Dec 11Cash
176,450
Dec 3Cash
174,600
Sales (discount) 5,550
Sales (discount) 5,400
Accounts receivable182,000
Accounts receivable180,000
Dec 12Accounts receivable330,000
Dec 4Accounts receivable207,000
Sales
330,000
Transportation exp 3,000
Sales
210,000
Dec 18Cash
320,100
Sales (discount) 9.900
Dec 5Sales (returns)
25,000
Accounts receivable330,000
Accounts receivable25,000
Dec 19Accounts receivable247,000
Dec 7Purchases
232,000
Cash
5,000
Freight-in
2,000
Sales
242,000
Cash
2,000
Accounts payable
232,000
Dec 20Representation exp 9,000
Cash
9,000
Dec 9Accounts payable
12,000
Purchases (returns) 12,000
Dec 29 Sales (returns)
18,000
Accounts receivable 18,000
Dec 30Drawing
20,000
Purchases
20,000
Adjusting entry:
1. Salaries expense
73,000
Accrued salaries
73,000
2. Insurance expense
2,000
Prepaid insurance
2,000
3. Depreciation
7,500
Accum. Depn bldg
3,000
Accum. Depn equip
4,500
4. Supplies expense
24,000
Office supplies
24,000
5. Inventory BS
453,000
Inventory IS
453,000
ANSWER:
1. C2. C3. B4. A5. C6. A7. C8. B9. D10. C
11. A12. D13. C14. B15. A
Problem 5
The Righter Shoe Store Company prepares monthly financial statements for its bank. The November 30 and December 31, 2006, trial balances contained the following information:
Nov. 30 Dec. 31
Dr.
Cr. Dr. Cr.
Supplies
1,000
3,000
Prepaid insurance
6,000
4,250
Wages payable
10,000
15,000
Unearned rent revenue
2,000
1,000
The following information also is known:
a. The December income statement (accrual basis) reported P2,000 in supplies expense.
b. No insurance payments were made in December.
c. P10,000 was paid to employees during December for wages.
d. On November 1, 2006, a tenant paid Righter P3,000 in advance rent for the period November through January. Unearned revenue was credited.
Questions
1. What was the cost of supplies purchased during December?
a.P 1,000
b. P 2,000
c. P 3,000
d. P 4,000
2. What was the adjusting entry recorded at the end of December for prepaid insurance?
a.Prepaid insurance
4,250
Insurance expense
4,250
b.Insurance expense
4,250
Prepaid insurance
4,250
c.Insurance expense
1,750
Prepaid insurance
1,750
d.No adjusting entry
3. What was the adjusting entry recorded at the end of December for accrued wages?
a.Wages expense
15,000
Wages payable
15,000
b.Wages expense
10,000
Wages payable
10,000
c.Wages expense
5,000
Wages payable
5,000
d.No adjusting entry
4. What was the amount of rent revenue earned in December?
a.P 1,000
b. P 2,000
c. P 3,000
d. P 4,000
5. What adjusting entry was recorded at the end of December for unearned rent?
a.Unearned rent rev.
3,000
Rent revenue
3,000
b.Rent revenue
2,000
Unearned rent rev.
2,000
c.Unearned rent revenue1,000
Rent revenue
1,000
d.Unearned rent revenue2,000
Rent revenue
2,000
Solution1. D
Supplies on Hand
Beg. Bal 1,000Adjustment 2,000
Purchases 4,000 *
Ending bal. 3,000
* squeezed figure
2. C3. A4. A5. C
Problem 6The trial balance of ANN CO., prior to the closing of its account for the fiscal year ended September 30, 2006 follows:
Cash
P22,500
Accounts receivable
93,600
Allowance for doubtful accounts
P 3,190
Note receivable
15,500
Merchandise inventory, 9/30/02
56,890
Furniture and equipment
61,800
Accumulated depreciation
18,750
Goodwill
30,000
Accounts payable
53,600
Notes payable
10,000
Capital Stock
100,000
Retained Earnings
55,250
Sales
372,000
Sales return and allowances
4,760
Purchases
215,930
Purchase return and allowances
3,650
Advertising
9,610
Sales salaries
28,850
Commission expense
15,200
Miscellaneous expense
2,990
Rent expense
13,000
Office salaries
19,720
Light and Water
1,500
Insurance expense
1,080
Taxes and licenses
4,780
General expense
16,340
Interest expense
4,120
Interest income
910
Your examination of the companys account has the need for adjustments based on the following items:
a. The cash account included a customers check for P1,500 deposited on September 25, 2006 but returned by the bank on September 29, 2006 for lack of countersignature. No entry was made for the returned check.
b. Unrecorded bank charge for September 2006, P500
c. The allowance for doubtful accounts should be adjusted to 5% of the outstanding accounts receivable balance on September 30, 2006.
d. A physical inventory of merchandise taken at the end of the fiscal year 2006 amounted to P60,120.
e. Goods received on consignment, still unsold costing P2,000 were included in the physical inventory.
f. The merchandise inventory on September 30, were correctly stated.
g. Depreciation of furniture and equipment at 10% annually has not been recognized.
h. Accrued salesmens salaries not recorded P5,000
i. An insurance policy was taken on the inventory and equipment on March 1, 2006 with the annual insurance premium of P1,080 paid on that date.
j. Rent expense account considered of rent for the store and office space for thirteen months starting August 1, 2006.
Based on the aforementioned data, answer the following questions;
1. The adjusting entry on item A is
a. Cash
1,500
Accounts receivable
1,500
b. Accounts payable 1,500
Cash
1,500
c.Accounts receivable
1,500
Cash
1,500
d.No adjustment
2. The adjusting entry on item B is
a. Cash
500
Accounts receivable
500
b. Cash
500
General expenses
500
c.General Expenses
500
Cash
500
d.No adjustment
3.The adjusting entry on item C is
a. Accounts receivable
4,680
Allowance for Doubtful Accounts
4,680
b. Doubtful Accounts
1,565
Allowance for Doubtful Accounts
1,565
c.Allowance for Doubtful Accounts1,490
Doubtful Accounts
1,490
d.Doubtful Accounts
1,490
Allowance for Doubtful Accounts
1,490
4.The adjusting entry on item D is
a. Merchandise Inv.
60,120
Income Summary
60,120
b. Merchandise Inv.
60,120
Purchases
60,120
c.Income summary
60,120
Merchandise inventory
60,120
d.No adjustment
5.The adjusting entry on item E
a. Income summary
2,000
Merchandise Inv.
2,000
b. Sales
2,000
Merchandise Inv.
2,000
c.Merchandise inventory2,000
Income summary
2,000
d.No adjustment
6.The adjusting entry on item F is
a. Merchandise Inv.
56,890
Income summary
56,890
b. Merchandise Inv.
56,890
Purchases
56,890
c.Income summary
56,890
Merchandise inventory
56,890
d.No adjustment
7.The adjusting entry on item G is
a. Depreciation Exp. 6,180
Accumulated Depreciation
6,180
b. Accumulated Depreciation6,180
Furniture and Equipment
6,180
c.Accumulated depreciation6,180
Depreciation expense
6,180
d.No adjustment
8.The adjusting entry on item H is
a. Accrued Salaries Expense 5,000
Sales salaries
5,000
b. Accrued salaries exp. 5,000
Office salaries
5,000
c.Office salaries
5,000
Depreciation expense
5,000
d.Sales salaries
5,000
Accrued salaries expense
5,000
9.The adjusting entry on item I is
a. Insurance Exp. 630
Prepaid insurance
630
b. Prepaid insurance 630
insurance exp.
630
c.Insurance expense
450
Prepaid insurance
450
d.Prepaid insurance
450
Insurance expense
450
10.The adjusting entry on item J is
a. Rent expense
11,000
Prepaid rent
11,000
b. Prepaid rent
2,000
Rent expense
2,000
c.Prepaid rent
11,000
Rent expense
11,000
d.Rent expense
2,000
Prepaid rent
2,000
After making the adjustments compute the following:
11.Cash
a. P24,000
b. P21,000
c. P20,500
d. P20,000
12.Net realizable value of accounts receivable
a. P90,410
b. P90,345
c. P88,920
d. P88,845
13.Merchandise inventory, September 30, 2006
a. P60,120
b. P56,890
c. P62,120
d. P58,120
14.Furniture and Equipment, net of accumulated depreciation
a. P55,620
b. P36,870
c. P36.700
d. 36,890
15.Total assets, September 30, 2006
a. P262,785
b. P250,845
c. P223,850
d. P262,700
16.Cost of goods sold, September 30, 2006
a. P211,050
b. P210,050
c. P212,300
d. P212,280
17.Net income, September 30, 2006 (disregard tax effect)
a. P31,635
b. P31,625
c. P38,935
d. P38,115
18.Prepaid insurance
a. P630
b. P450
c. P1,080
d. P600
19.Prepaid rent
a. P11,000
b. P2,000
c. P13,000
d. P10,000
Answer:
1. C2. C3. B4. A5. A6. D7. A8. D9. D10. C
11. C12. B13. D14. B15. A16. A17. D18. B19. A
Problem 7Selected pre-adjustment account balances and adjusting information of NAPPY COMPANY for the year ended December 31, 2006, are as follows:
Retained earnings, January 1, 2006
440,670
Sales Salaries and Commissions
35,000
Advertising Expense
16,000
Legal Services
2,225
Insurance and Licenses
8,500
Travel Expense Sales Representative
4,560
Depreciation Expense
10,900
Interest Revenue
700
Utilities expense
6,400
Telephone and Postage Expense
1,475
Supplies inventory
2,180
Miscellaneous Selling Expense
2,200
Dividends
33,000
Dividend Revenue
7,150
Interest expense
4,520
Allowance for bad debts (Cr. Balance)
370
Officers Salaries Expense
36,600
Sales
495,200
Sales returns and allowances
11,200
Sales discounts
880
Gain on sales of assets
18,500
Inventory, January 1, 2006
89,700
Inventory, December 31, 2006
20,550
Purchases
173,000
Freight-in
5,525
Accounts Receivable, December 31, 2006
261,000
Shares of common stock outstanding
39,000
Adjusting information:
1. Cost of inventory in the possession of consignee as of December 31, 2006, was not included in the ending inventory balance, P33,600.
2. After preparing an analysis of aged accounts receivable, a decision was made to increase the allowance for bad debts to a percentage of the ending account receivable balance to 3%. Accounts totaling P7,480 were written off as uncollectible during the year.
3. Purchase returns and allowances amounting to 6% of purchases (not including freight-in) were not recorded at year-end.
4. Sales commission for the last day of the year had not been accrued. Total sales for the day, P3,600. Average sales commission as a percent of sales is 3%.
5. No accrual has been made for a freight bill received on January 3, 2007, for goods received on December 29, 2006, P800.
6. An advertising campaign for P1,818 was initiated November 1, 2006. This amount was recorded as prepaid advertising and should be amortized over a 6-month period. No amortization was recorded.
7. Freight charges paid on sold merchandise and not passed to the buyer were netted against sales. Freight charges on sales during 2006 is P4,200.
8. Interest earned but not accrued, P690.
9. Depreciation expense on a new forklift (estimated life is 10 years) purchased for P7,800 on March 1, 2006 had not been recognized. (Assume all equipment will have no salvage value and the SLM is used. Depreciation is calculated to the nearest month.)
10. A real account is debited upon the receipt of supplies. Supplies on hand at year-end is P1,600.
11. Income tax rate (on all items) is 32%.
Questions12. Net Sales is
a. P 499,200
b. P 489,300
c. P 488,500
d. P 487,320
13. Purchases net of returns and allowances is
a. P 165,200
b. P 164,000
c. P 162,620
d. P 161,200
14. Freight-in is
a.P 6,325
b. P 5,200
c. P 5,000
d. P 4,125
15. Inventory 12/31/02 is
a. P 54,700
b. P 54,150
c. P 53,600
d. P 52,200
16. Cost of sales is
a. P 265,440
b. P 205,350
c. P 204,495
d. P 114,795
17. Sales salaries and commission is
a. P 35,108
b. P 35,100
c. P 35,000
d. P 34,700
18. Advertising expense is
a. P 24,696
b. P 16,800
c. P 16,750
d. P 16,606
19. Depreciation expense is
a. P 14,600
b. P 12,500
c. P 12,000
d. P 11,550
20. Supplies expense is
a. P 670
b. P 580
c. P 560
d. P 480
21. Doubtful accounts expense is
a.P 7,500
b. P 7,460
c. P 7,300
d. P 7,200
22. Interest revenue is
a.P 1,540
b. P 1,390
c. P 1,300
d. P 1,290
23. Income tax expense is
a. P 58,554
b. P 54,605
c. P 53,722
d. P 53,693
24. Net income is
a. P 115,586
b. P 115,558
c. P 114,159
d. P 104,445
Solution Per book Adjustments Per Audit
Sales 495,200 4,200 499,400
Sales ret. And allow. (11,200) (11,200)
Sales discount (880) (880)
483,120 487,320
Cost of Sales
Beginning inventory 89,700 89,700
Purchases 173,000 173,000
Purch. Ret and allow. 10,380 (10,380)
Purch. Discount -
Freight-in 5,525 800 6,325
Total Goods Avail. For Sale 268,225 258,645
Ending inventory 20,550 33,600 54,150
247,675 204,495
Gross Profit 235,445 282,825
Interest revenue 700 690 1,390
Dividends revenue 7,150 7,150
Gain on sale of assets 18,500 18,500
Total Revenue 261,795 309,865
Sales Salaries and Commission 35,000 108 35,108
Advertising Expense 16,000 606 16,606
Legal services 2,225 2,225
Insurance and licenses 8,500 8,500
Travel expense 4,560 4,560
Depreciation expense 10,900 650 11,550
Utilities expense 6,400 6,400
Telephone and postage 1,475 1,475
Misc. selling expense 2,200 2,200
Officers' salaries 36,600 36,600
Interest expense 4,520 4,520
Bad debts 7,460 7,460
Transportation expense 4,200 4,200
Supplies expense 580 580
141,984
Income before tax 167,881
Income tax 53,721.92
Net Income 114,159
ANSWER:
1. D2. C3. A4. B5. C 6. A7. D8. D9. B10. B
11. B12. C13. C
Problem 8Presented below are unaudited balances of selected accounts of Baluyot Company as at December 31, 2006 its first year of operation. During the course of your audit of Baluyots books you obtained additional information affecting these accounts:
Debit Credit
Cash
500,000
Accounts receivable
1,300,000
Allowance for bad debts 8,000
Sales (net)
6,750,000
Accounts payable
600,000
Purchases (net)
4,350,000
Cars and trucks
1,200,000
Machinery and equipment 950,000
Accumulated depreciation
95,000
Additional information:
a. On December 31, 2006, Baluyot recorded and wrote check payments to creditors amounting to P300,000. A number of checks amounting to P150,000 were mailed on January 3, 2007.
b.On December 28, 2006, Baluyot purchased and received goods amounting to P100,000, terms 2/10, n/30. As a policy, Baluyot records purchases in accounts payable at net amounts. This particular invoice was recorded and paid on January 4, 2007.
c.On December 26, 2006, a supplier authorized Baluyot to return goods shipped and billed at P80,000 on December 3, 2006. The goods were returned on December 30, 2006. The suppliers credit memo was received and recorded on January 5, 2007.
d.Goods amounting to P50,000 were invoiced for the account of Palmes Company and recorded on January 2, 2007 with terms of net 60 days, FOB shipping point. The goods were shipped to Palmes on December 30, 2006.
e.The bank returned on December 29, 2006, a customer check for P5,000 marked No Sufficient Fund but no entry was made.
f.Baluyot estimates that allowance for uncollectible accounts should be one and one-half percent (1%) of the accounts receivable balance as of year-end. No provision has yet been made for 2006.
g.All the cars and trucks were acquired on May 1, 2006 at a total cost of P1,200,000. Baluyot estimates the useful life of the cars and trucks at five-years and depreciates these assets based on 150% declining balance. As a policy, depreciation is computed to the nearest month and rounded-off to the nearest peso. No depreciation has been recorded for cars and trucks as at December 31, 2006.
Questions1.The adjusted amount of Cash is:
a.P 650,000
b. P 645,000
c. P 500,000
d. P 495,000
2.The adjusted amount of Accounts Receivable is:
a.P 1,355,000
b. P 1,350,000c. P 1,305,000d. P 1,300,000
3.The adjusted amount of Sales net is:
a.P 6,840,000
b. P 6,800,000c. P 6,750,000d. P 6,700,000
4.The adjusted amount of Purchases net is:
a.P 4,448,000
b. P 4,368,000c. P 4,350,000d. P 4,270,000
5.The adjusted amount of Bad Debts Expense is:
a.P 36,325
b. P 28,325
c. P 20,325
d. P 12,325
6.The adjusted amount of 2006 Depreciation Expense Machinery and Equipment is:
a.P 95,550
b. P 95,500
c. P 95,417
d. P 95,000
7.The adjusted amount of Accounts payable is:
a.P 818,000
b. P 800,000
c. P 768,000
d. P 600,000
Solution
(a)Cash
150,000
Accounts payable
150,000
(b)Purchases
98,000
Accounts payable
98,000
(c)Accounts payable 80,000
Purchase returns
80,000
(d)Accounts receivable 50,000
Sales
50,000
(e)Accounts receivable 5,000
Cash
5,000
(f)Bad debts
28,325
Allowance for bad debts 28,325
(1,355,000 x 1% = P 20,325 + P8,000 debit balance of Allowance)
ANSWER:
1. B2. A3. B4. B5. B6. D7. C
Problem 9The trial balance of TRANQUILAN CORPORATION, prior to the closing of is accounts for the fiscal year-ended September 30, 2006 follows:
DEBIT
CREDIT
Cash
225,000
Accounts receivable
936,000
Allowance for doubtful accounts
31,900
Notes receivable
155,000
Merchandise inventory, Sept. 30, 2005
568,900
Furniture and Equipment
618,000
Acc. Depreciation Furniture & Equipment
187,500
Goodwill
300,000
Accounts payable
536,000
Notes payable
100,000
Capital stock
1,000,000
Retained earnings
552,500
Sales
3,728,200
Sales returns and allowances
47,600
Purchases
2,159,300
Purchase returns and allowances
36,500
Advertising
96,100
Sales salaries
288,500
Commission expense
152,000
Miscellaneous selling expenses
29,900
Rent expense
130,000
Office salaries
197,200
Light and water
15,000
Insurance expense
10,800
Taxes and licenses
47,800
Miscellaneous general expenses
163,400
Interest expense
41,200
Interest income
________ 9,100
6,181,700 6,181,700Your examination of the companys accounts had indicated the need for adjustments based on the following information:
1. The Cash account include a customers check for P15,000 deposited on September 25, 2006, but returned by the bank on September 29, 2006 for lack of countersignature. No entry was made by the company for the return of the check or for its redeposit on October 5, 2006.
2.The Allowance for Doubtful Accounts should be adjusted to 5% of the customers outstanding balances on September 30, 2006.
3.A physical inventory taken of the merchandise stock as of the end of the fiscal year amounted to P601,200.
4.A purchase of merchandise FOB shipping point, for which goods costing P40,000 were still in transit on September 30, 2006 was neither taken as a liability nor included in the inventory on that date.
5.Goods received on consignment, still unsold, were included in the inventory at the agreed selling price of P24,000.
6.The merchandise inventory at September 30, 2005 was correctly stated.
7.On July 1, 2006, equipment acquired on October 1, 2003 with a book value of P32,000 on September 30, 2005 was sold for P35,000 in cash. The sales proceeds were credited to the Furniture and Equipment account.
8.Depreciation for the fiscal year 2005-2006 has not been recorded. Depreciation rate being used is 10% annually.
9.An insurance policy was taken on the inventory and equipment on April 1, 2006 with the annual premium of P10,800 paid on that date.
10.Rent expense account consisted of rent paid for stock and office space for thirteen (13) months ending October 31, 2006.
11.The 120-day Note Payable of P100,000 bearing interest of 12% was discounted at the bank on September 1, 2006.
12.The Goodwill account was set-up by a credit to Retained Earnings under a resolution of the Board of Directors.
Questions1.Cash for the fiscal year-ended September 30, 2006 is:
a.P 195,000
b. P 210,000
c. P 225,000
d. P 240,000
2.Accounts receivable for the fiscal year-ended September 30, 2006 is:
a. P 906,000
b. P 921,000
c. P 951,000
d. P 936,000
3.Allowance for doubtful accounts for the fiscal year-ended September 30, 2006 is:
a. P 15,650
b. P 46,800
c. P 45,300
d. P 47,550
4.Merchandise inventory for the fiscal year-ended September 30, 2006 is:
a.P 617,200
b. P 641,200
c. P 677,200
d. P 561,200
5.Book value of the Furniture and Equipment for the fiscal year-ended September 30, 2006 is:
a. P 360,200
b. P 372,200
c. P 375,200
d. P 489,800
6.Goodwill for the fiscal year-ended September 30, 2006 is:
a.P 300,000
b. P 292,500
c. P 285,000
d. P 0
7.Accounts payable for the fiscal year-ended September 30, 2006 is:
a.P 496,000
b. P 536,000
c. P 552,000
d. P 576,000
8.Net income for the fiscal year-ended September 30, 2006 is:
a. P 326,750
b. P 332,750
c. P 346,750
d. P 347,750
9.Retained earnings for the fiscal year-ended September 30, 2006 is:
a. P 252,500
b. P 600,250
c. P 885,250
d. P 900,250
10.Insurance expense for the fiscal year-ended September 30, 2006 is:
a.P 5,400
b. P 9,200
c. P 10,800
d. P 16,200
Solution
1.Accounts Receivable15,000
Cash15,000
2.Doubtful Accounts Expense15,650
Allowance for doubtful accounts15,650
{5% x (936,000 + 15,000) = 47,550 - 31,900}
3.Merchandise Inventory601,200
Income Summary601,200
4.Purchases40,000
Merchandise Inventory40,000
Accounts Payable40,000
Income Summary40,000
5.Income Summary24,000
Merchandise Inventory24,000
6.Income Summary568,900
Merchandise Inventory568,900
7.Accumulated Depreciation Fur. & Eqpt.11,000
Gain on sale of equipment6,000
Furniture & Equipment5,000
Cost (P32,000 / 80%) P40,000
Less acc. depr. to date of sale11,000
(P40,000 x 10% x 2 + (40,000 x 10% x 9/12)
Book value P29,000
Selling price 35,000
Gain on sale of equipment P 6,000
8.Depreciation expense64,300
Acc. Depr. Fur. & Equip64,300
Depr. for year ended 9.30.03
On eqpt sold (40,000 x 10% x 9/12) P 3,000
On remaining eqpt. (613,000 x 10%) 61,300
P64,300
9.Prepaid Insurance5,400
Insurance expense5,400
10.Prepaid rent10,000
Rent expense10,000
11.Discount on notes payable3,000
Interest expense3,000
Total discount
(100,000 x 12% x 120/360)P4,000
Less portion applicable to year ended 9.30.1,000
Unamortized, 9.30.P3,000
12.Retained Earnings300,000
Goodwill300,000
TRANQUILAN CORPORATION
WORKING TRIAL BALANCE
September 30, 2003
Trial BalanceAdjustmentsIncome StatementBalance Sheet
DebitCreditDebitCreditDebitCreditDebitCredit
Cash225,00015,000210,000
AR936,00015,000951,000
All. for DA31,90015,65047,550
NR155,000155,000
MI568,900568,900617,200617,200*
F/E618,0005,000613,000
AD F/E.187,50011,00064,300240,800
Goodwill300,000300,000 -0-
AP536,00040,000576,000
NP100,000100,000
CS1,000,0001,000,000
RE552,500300,000252,500
Sales3,728,2003,728,200
Sales R& A47,60047,600
Purchases2,159,30040,0002,199,300
Purch R&A.36,50036,500
Adv96,10096,100
Sales sal288,500288,500
Com. exp152,000152,000
Misc.sell29,90029,900
Rent exp130,00010,000120,000
Office sal197,200197,200
Light & W15,00015,000
Ins. exp10,8005,4005,400
Tax & licen47,80047,800
Misc. Ge163,400163,400
Int. exp41,2003,00038,200
Int inc9,1009,100
6,181,7006,181,700
DA 15,65015,650
Gain 6,0006,000
Depren 64,30064,300
Pre ins5,4005,400
Pre rent10,00010,000
Disc on NP 3,0003,000
464,350464,3504,049,250 4,397,0002,564,6002,216,850
NET INC347,750347,750
4,397,0004,397,0002,564,6002,564,600
ANSWER:
1. B2. C3. D4. A5. B6. D7. D8. D9. B10. A
Problem 10Your audit client, Tortor Corporation, presents to you the unadjusted trial balance shown below, which was drawn from its general ledger as at June 30, 2006, the end of its fiscal year.
TORTOR CORPORATION
Unadjusted Trial Balance
June 30, 2006
Cash
721,800
Trading Securities
200,000
Accounts receivable
2,128,000
Inventory, June 30, 2005
5,194,300
Invest. in associates (Equity Method) 1,200,000
Equipment
1,621,000
Prepaid expenses
116,200
Goodwill
500,000
Accounts payable
2,426,400
Accrued expenses
152,600
Accrued interest payable
226,000
Allowance for bad debts
36,100
Allowance for depreciation
450,700
Loans payable
2,500,000
Capital stock
3,000,000
Additional paid-in capital
260,000
Retained earnings
1,808,800
Sales
21,602,000
Interest income
140,000
Purchases
13,928,000
Salaries and wages
3,250,000
Rent, light and water
750,000
Advertising
400,000
Supplies
300,000
Taxes
250,000
Miscellaneous expenses
1,793,300
Interest expense
250,000 _________
32,602,600 32,602,600
Your examination of the accounts disclosed the following information:
1. The cash account included an NSF check returned by the bank on June 30, 2006, but recorded as a cash reduction in July, 2006, P44,000, and a voucher for suppliers paid in cash on June 27, 2006 but not entered in the books, P26,500.
2. Marketable Securities which cost P200,000 have a market value of P210,000. Long-Term Investments have a market value of P1,250,000 as at balance sheet date.
3. The company has been providing an allowance for bad debts at 5% of the outstanding customers balances. Uncollectible accounts were charged off against the allowance during the year.
4. A physical inventory taken by management personnel of the merchandise stock at June 30, 2006 totaled P5,751,900. You were unable to observe the inventory-taking as your services were engaged only on July 15, 2006. Due to the condition of the accounting records and internal accounting controls, you were also unable to satisfy yourself as to the inventory.
5. Equipment no longer needed (cost, P150,000; accumulated depreciation, P45,000) was sold for P100,000 cash on June 29, 2006; the cash proceeds were credited to the Equipment account. Equipment is depreciated at 10% a year on a monthly basis computed at year-end.
6. Prepaid expenses included insurance premium of P30,000 paid on April 1, 2006 on a one-year fire insurance policy.
7. Salaries unpaid as of June 30, 2006, P13,000 were not taken up under accrued expenses.
8. The Goodwill account was set-up with a credit to Retained Earnings on the basis of a resolution of the Board of Directors.
9. A 10% cash dividend declared on June 15, 2006, payable on July 31, 2006, has not been recorded.
10. The Board of Directors approved a resolution on June 25, 2006 appropriating out of Retained Earnings the amount of P300,000 to meet possible future losses on inventories.
Questions1.Cash for the fiscal year-ended June 30, 2006 is:
a. P 633,800
b. P 651,300
c. P 677,800
d. P 695,300
2.Marketable securities for the fiscal year-ended June 30, 2006 is:
a. P 0
b. P 190,000
c. P 200,000
d. P 210,000
3.Accounts receivable for the fiscal year-ended June 30, 2006 is:
a.P 2,172,000
b. P 2,128,000c. P 2,100,000d. P 2,084,000
4. Allowance for doubtful accounts for the fiscal year-ended June 30, 2006 is:
a. P 72,500
b. P 104,200
c. P 106,400
d. P 108,600
5. Inventory for the fiscal year-ended June 30, 2006 is:
a.P 5,751,900
c. P 4,636,700
b. P 5,194,300
d. Cannot be determined.
6.Equipment for the fiscal year-ended June 30, 2006 is:
a. P 1,671,000
b. P 1,571,000c. P 1,621,000d. P 1,566,000
7.Accumulated depreciation for the fiscal year-ended June 30, 2006 is:
a. P 390,700
b. P 552,800
c. P 562,800
d. P 622,800
8.Retained earnings before net income for the fiscal year-ended June 30, 2006 is:
a.P 708,800
b. P 1,008,800c. P 1,308,800d. P 1,508,000
9.Retained earnings after net income for the fiscal year-ended June 30, 2006 is:
a. P 2,639,700
b. P 2,405,500c. P 1,840,500d. P 1,805,500
10.The auditor should issue a(an):
a.Unqualified Opinion
c. Qualified Opinion
b.Unqualified Opinion with explanatory paragraphd. Adverse Opinion
Solution
TORTOR CORPORATION
WORKING TRIAL BALANCE
June 30, 2006
Trial BalanceAdjustmentsIncome StatementBalance Sheet
DebitCreditDebitCreditDebitCreditDebitCredit
Cash721,80070,500651,300
TS200,00010,000210,000
AR2,128,00044,0002,172,000
Inven.5,194,3005,194,3005,751,9005,751,900
Invest. Ass.1,200,0001,200,000
Equip.1,621,00050,0001,571,000
Prepaid exp.116,2007,500108,700
Goodwill500,000500,000------------
AP2,426,4002,426,400
Acc. Exp.152,60013,000165,600
Acc. int. pay226,000226,000
Allow. For BD36,10072,500108,600
Acc. for depr.450,70060,000172,100562,800
Loans payable2,500,0002,500,000
Capital stock3,000,0003,000,000
APIC260,000260,000
RE1,808,800500,000
300,000
300,000708,800
Sales21,602,00021,602,000
Int. inc.140,000140,000
Purch.13,928,00013,928,000
Sal. & wages3,250,00013,0003,263,000
Rent, light 750,000750,000
Advertising400,000400,000
Supplies300,00026,500326,500
Taxes250,000250,000
Mis. exp.1,793,3001,793,300
Int. exp.250,000250,000
32,602,60032,602,600
Holding gain 10,00010,000
BD expense72,50072,500
Gain on sale10,00010,000
Dep exp172,100172,100
Ins. expense7,5007,500
Div. payable300,000300,000
RE-appro.300,000300,000
1,505,6001,505,60026,407,20027,513,90011,654,90010,558,200
NET INC.1,106,7001,106,700
27,513,90027,513,90011,664,90011,664,900
1.Accounts receivable44,000
Supplies26,500
Cash70,500
2.Trading Securities (Valuation Allow.)10,000
Holding gain - TS10,000
3.Bad debts expense72,500
Allowance for bad debts72,500
5% x (2,128,000 + 44,000) = 108,600 - 36,100
4.To be considered in the preparation of the audit report. Failure to observe the inventory taking results in a limitation in the scope of examination. Depending on the materiality of the amount of Inventory in relation to other accounts, the auditor will either issue a qualified opinion or disclaimer of opinion.
5.Allowance for depreciation60,000
Equipment50,000
Gain on sale of equipment10,000
Cost P150,000
Less acc. depr. (45,000+15,000) 60,000
Book value P 90,000
Selling price 100,000
Gain P 10,000
Depreciation expense172,100
Allowance for depreciation172,100
10% x (1,621,000 + 100,000)
6.Insurance expense7,500
Prepaid expenses(30,000 x 3/12)7,500
7.Salaries and wages13,000
Accrued expenses13,000
8.Retained earnings500,000
Goodwill500,000
9.Retained earnings300,000
Dividends payable (10% x P3,000,000)300,000
10.Retained earnings300,000
RE Appropriated for Possible Losses in Inv.300,000
ANSWER:
1. B2. C3. A4. D5. A6. B7. C8. A9. D10. C
Problem 11Erasmo Corporation was incorporated on December 1, 2005, and began operations one week later. Jesus is a nonpublic enterprise. Before closing the books for the fiscal year ended November 30, 2006, Erasmo Corporations controller prepared the following financial statements:
Balance Sheet
November 30, 2006ASSETS
Current Assets:
Cash
150,000.00
Marketable securities, at cost
60,000.00
Accounts receivable
450,000.00
Allowance for doubtful accounts
(59,000.00)
Inventories
430,000.00
Prepaid insurance
15,000.00
Total current assets
1,046,000.00
Property, plant and equipment
426,000.00
Accumulated depreciation
(40,000.00)
Research and developments
120,000.00
Total assets
1,552,000.00
LIABILITIES & STOCKHOLDERS EQUITY
Current Liabilities
Accounts payable & accrued expenses
592,000.00
Income tax payable
224,000.00
Total current liabilities
816,000.00
Stockholders Equity
Common stock, P10 par value
400,000.00
Retained earnings
336,000.00
Total stockholders Equity
736,000.00
Total liabilities & Stockholders Equity
1,552,000.00
Statement of Income
For the year ended November 30, 2006Net sales
2,950,000.00Cost & expenses:
Cost of sales
1,670,000.00
Selling and Administrative
650,000.00
Depreciation
40,000.00
Research and Development
30,000.00
2,390,000.00
Income before income taxes
560,000.00
Provision for income taxes
224,000.00Net income
336,000.00Erasmo is in the process of negotiating a loan for expansion purposes and the bank has requested audited financial statements. During the course of the audit, the following additional information was obtained:
1. The investment portfolio consist of short-term investments in marketable equity securities with a total market valuation of P55,000 as of November 30, 2006.
2. Based on aging of the accounts receivable as of November 30, 2006, it was estimated that P36,000 of the receivables will be uncollectible. There were no Bad Debt write-offs during the year.
3. Inventories at November 30, 2006, did not include work in process inventory costing P12,000 sent to an outside processor on November 29, 2006.
4. A P3,000 insurance premium paid on November 30, 2006, on a policy expiring one year later was charged insurance expense.
5. On June 1, 2006, a machine purchased for P24,000 was charged to repairs and maintenance. Erasmo depreciates machines of this type on the straight-line method over a five year life, with no salvage value, for financial and tax purposes.
6. Research and development costs of P150,000 were incurred in the development of a patent which Erasmo expects to be granted during the fiscal year ending November 30, 2003. Erasmo initiated a five year amortization of the P150,000 total cost during the fiscal year ended November 30, 2006.
7. During November 2006, a competitor company filed suit against Erasmo for patent infringement claiming P200,000 in damages. Erasmo Corporations legal counsel believes that an unfavorable outcome is probable. A reasonable estimate of the courts award to the plaintiff is P50,000.
8. The 40% effective tax rate was determined to be appropriate for calculating the provision for income taxes for the fiscal year ended November 30, 2006. Ignore computation of deferred income taxes.
Questions 1. In the income statement for the year ended November 30, 2006, Erasmo should report for the marketable securities
a. A realized loss of P5,000.
c. A realized gain of P5,000
b. An unrealized loss of P5,000.
d. An unrealized gain of P5,000
2. In the November 30, 2006, balance sheet, Erasmo should report in respect of the investment portfolio
Marketable Securities
Valuation Allowance
a. P55,000
P -0-
b. P55,000
P5,000
c. P60,000
P -0-
d. P60,000
P5,000
3. In the November 30, 2006, balance sheet, Erasmo should report the allowance for doubtful accounts at
a. P23,000
b. P36,000
c. P59,000
d. P69,000
4. Bad debts expense for the year ended November 30, 2006, is
a. P -0-
b. P23,000
c. P36,000
d. P59,000
5. Inventories at November 30, 2006, should be reported at
a. P418,000
b. P430,000
c. P442,000 d.P450,000
6. Cost of goods sold for the year ended November 30, 2006, reported as
a. P1,643,000 b. P1,645,000 c. P1,658,000
d. P1,670,00
7. Prepaid insurance at November 30, 2006, should be reported at
a. P -0-
b. P12,000
c.P15,000
d. P18,000
8. At November 30, 2006, property, plant and equipment should be reported at
a. P402,000
b. P426,000
c. P447,500
d. P450,000
9. Depreciation expense for the year ended November 30, 2006, should be
reported at
a. P16,000
b. P37,600
c. P40,000
d. P42,400
10. At November 30, 2006, accumulated depreciation should be reported at
a. P37,600
b. P40,000
c. P42,400
d. P44,800
11. In the November 30, 2006 balance sheet, research and development costs
should be reported at
a. P -0-
b. P120,000
c. P135,000
d. P150,000
12. Research and development expense for the year ended November 30, 2006 is
a. P -0-
b. P15,000
c. P30,000
d. P150,000
13. In the November 30, 2006 balance sheet, Erasmo should report an estimated
liability from lawsuit at
a. P -0-
b. P50,000
c. P100,000
d. P200,000
14. For the year ended November 30, 2006, which one of the following adjustments
increases the Unadjusted income, before income taxes of P560,000?
a. Pension expense
b. Work in process inventory at outside processor
c. Estimated loss from lawsuit
d. Research and development cost
15. For the year ended November 30, 2006, which of the following adjustments
decreases the unadjusted income, before income taxes, of P560,000?
a. Recognition of prepaid insurance
b. Reduction in allowance for doubtful accounts
c. Depreciation on machine purchased June 1,2006d. Recognition of research and development cost
Solution1.Unrealized holding loss5,000
Valuation allowance
5,000
2.Allowance for bad debts23,000
S & A Expense (Bad debts)23,000
3.Inventory
12,000
Cost of sales
12,000
4.Prepaid insurance
3,000
S & A Expense
3,000
5.Property and equipment24,000
S & A Expense
24,000
Depreciation
2,400
Accum. Depreciation
2,400
6.RD cost IS
120,000
RD cost BS
120,000
7.Est. loss on damages
50,000
Est. liab on damages
50,000
ANSWER:
1. B2. D3. B4. C5. C6. C7. D8. D9. D10. C
11. A12. D13. B14. B15. C
Problem 12In connection with your audit of the Eddie Vic Farms Corp., the accountant prepared the following balance sheet:
Eddie Vic Farms Corp.
Balance sheet
December 31, 2006
Assets
Cash
P 493,000
Marketable securities
630,000
Accounts receivable
540,000
Inventories
1,002,000
Total current assets
2,665,000
Land, buildings, and equipment
2,904,000
Total assets
P5,569,000
Liabilities and Stockholders Equity
Accounts payable
P 684,840
Estimated losses from future crop failures
670,000
Salaries payable
300,000
Total current liabilities
1,654,840
10% Bonds payable (due in 10 years)
1,050,000
Capital stock
900,000
Retained earnings
1,964,160
Total liabilities and stockholders equity P 5,569,000
Additional information:
a. Cash is held in a checking account and a savings account with balances of P130,700 and P362,300, respectively. The cash in the savings account will be used to support operations in the event of a crop failure.
b. The marketable securities represents the cost of treasury bills with a total market value of P600,000 at year-end.
c. A loan to the president for P360,000 that is to be repaid in quarterly installments of P30,000 is included in Accounts Receivable. The balance of accounts receivable are considered to be 95 percent collectible.
d. Inventories include:
Finished products
780,000
Supplies
39,000
Storage buildings (net of P60,960 depreciation)
183,000
Total
1,002,000
e.Land, buildings, and equipment includes 5 tractors that were purchased near the end of the year for P720,000 (shown net of a P600,000, 5-year loan used to buy the tractors). The balance of the account consists of land that was purchased for P2,400,000 and buildings that were purchased for P510,000 (shown net of depreciation of P126,000).
f.Included in Accounts Payable are P210,000 of deposits to suppliers for delivery of goods in February of the next year.
g.The company has 180,000 shares of P5 par common stock issued and outstanding. The common stock was originally sold for P7 per share, and the premium was included in Retained Earnings.
h.After reading a PAGASA report, the president believes that next year will be a bad crop year due to prolonged El Nino phenomenon and estimates the company will lose about P670,000. An appropriation of Retained Earnings has been made for this amount.
Questions
Based on the above and the result of your audit, determine the adjusted balances of the following as of December 31, 2006:
1. Cash
a.P 130,700
b. P 231,600
c. P 362,300
d. P 493,000
2. Accounts receivable
a.P 171,000
b. P 513,000
c. P 531,000
d. P 540,000
3. Current assets
a.P 2,443,000
b. P 2,233,000c. P 2,080,700d. P 2,050,700
4. Land, Buildings, and Equipment
a.P 3,873,960
b. P 3,687,000c. P 3,657,960d. P 3,087,000
5. Noncurrent assets
a.P 4,409,300
b. P 4,289,300c. P 4,047,000d. P 3,927,000
6. Total assets
a.P 6,642,300
b. P 6,490,000c. P 6,340,000d. P5,977,700
7. Current liabilities
a.P 1,194,840
b. P 1,654,840c. P 984,840
d. P 774,840
8. Total liabilities
a.P 3,514,840
b. P 2,844,840c. P 2,634,840d. P 2,424,840
9. Total retained earnings
a.P 2,265,160
b. P 2,235,160c. P 1,604,160d. P 1,595,160
10. Total stockholders equity
a.P 3,495,160
b. P 3,797,460c. P 3,429,160d. P 2,462,860
Solutiona.Cash restricted
362,300
Cash
362,300
b.Holding loss
30,000
Allowance for holding loss
30,000
c.Other receivable noncurrent360,000
Accounts receivable
360,000
Other receivable current120,000
Other receivable noncurrent120,000
Bad debts
9,000
Allowance for bad debts
9,000
(180,000 x 5%)
d.Supplies
39,000
Land, building & equipment183,000
Inventories
222,000
e.Land, building & equipment600,000
Long-term liability
600,000
f.Advances to suppliers
210,000
Accounts payable
210,000
g.OE: Retained earnings670,000
Est. liability
670,000
CE: Retained earnings
670,000
Retained earnings appropriated670,000
Adj: Estimated liability670,000
Retained earnings
670,000
Answer:
1. A2. A3. D4. B5. B
6. C7. A8. B9. B10. A
Problem 13M. Senajon hired an attorney to help her start SENAJON REPAIR SERVICE CORPORATION. On March 1, M. Senajon deposited P11,500 cash in bank account in the name of the corporation in exchange for 1,150 shares of P10 par value common stock. When he paid the attorneys bill of P700, the attorney advised her to hire an accountant to keep his records. M. Senajon was so busy that it was March 31 before she asked you to straighten out his records. Your task is to develop the financial statements on the March transactions.
After investing in her business and paying her attorney, M. Senajon borrowed P5,000 from the bank. She later paid P260, including interest of P60, on this loan. She also purchased a used pickup truck in the companys name, paying P2,500 down and financing P7,400. The first payment on the truck is due April 15. M. Senajon then rented an office and paid three months rent P900, in advance. Credit purchases of office equipment of P800 and repair tools of P500 must be paid by April 10.
In March,SENAJON REPAIR SERVICE CORPORATION completed repairs of P1,300, of which P400 were cash transactions. Of the credit transactions, P300 were collected during March. Wages of P450 were paid to employees. On March 31, the company received a P75 bill for the March utilities expense and a P50 check from a customer for work to be completed in April.
Questions
1. The Cash balance of SENAJON REPAIR SERVICE CORPORATION at March 31 is:
a. P12,390
b. P12,315
c. P12,440
d. P11,500
2. The Accounts Receivable balance of SENAJON REPAIR SERVICE CORPORATION at March 31 is:
a. P900
b. P800
c. P700
d. P600
3. The Total Current Assets of SENAJON REPAIR SERVICE CORPORATION at March 31 is:
a. P13,715
b. P13,565
c. P13,515
d. P13,640
4. The Total Non-current assets of SENAJON REPAIR SERVICE CORPORATION at March 31 is:
a. P11,900
b. P11,888
c. P11,388
d. P11,200
5. The Total Assets of SENAJON REPAIR SERVICE CORPORATION at March 31 is:
a. P25,528
b. P25,415
c. P24,840
d. P24,915
6. The Total Stockholders Equity of SENAJON REPAIR SEVICE CORPORATION at March 31 is:
a. P11,215
b. P11,903
c. P(85)
d. P(285)
7. The Total Liability of SENAJON REPAIR SERVICE CORPORATION at March 31 is:
a. P16,025
b. P14,725
c. P13,625
d. P6,225
8. The Total Liability and Stockholders Equity of SENAJON REPAIR SERVICE CORPORATION at March 31 is:
a. P25,528
b. P25,415
c. P24,840
d. P24,915
9. The Total Operating expenses and other expenses of SENAJON REPAIR SERVICE CORPORATION at March 31 is:
a. P1,585
b. P1,035
c. P1,015
d. P89710. The Net Income of SENAJON REPAIR SERVICE CORPORATION at March 31 is:
a. P415
b. P403
c. P(85)
d. P(285)
Solution
Cash
11,500
Common stock
11,500
Pre-operating cost700
Cash
700
Cash
5,000
Notes payable
5,000
Interest expense
60
Notes payable
200
Cash
260
Equipment
9,900
Cash
2,500
Notes payable
7,400
Rent expense
300
Prepaid rent
600
Cash
900
Equipment
800
AP others
800
Tools
500
Accrued expenses500
Cash
400
Accounts receivable900
Revenue
1,300
Cash
300
Accounts receivable300
Wages
450
Cash
450
Utilities
75
Accrued expenses75
Cash
50
Advances from customer50
Answer:
1. C2. D3. D4. D5. C6. A7. C8. C9. A10. D
Problem 14OMANDAC CORPORATION has just completed its third year of operations, December 31, 2006. The newly selected president was amazed, to say the least, when told that the companys books have never been in balance. In fact, he has learned that they are P14,800 out of balance. Consequently, he has decided to ask an independent CPA to get things straightened out. You are the lucky CPA! While getting an overview of the situation you learn that the bookkeeper journalize and posts all of the daily transactions, but the adjusting and closing entries are entered directly into the ledger accounts. A worksheet is not used. After recording the adjusting entries, the bookkeeper prepares an adjusted trial balance, which is then used to prepare the financial statements.
At your request the bookkeeper prepared the following post-closing trial balance following his usual procedures:
OMANDAC CORPORATION
Post-closing Trial Balance
December 31, 2006
Cash
17,800
Accounts receivable
55,000
Note receivable
6,000
Merchandise inventory (periodic system) 120,000
Prepaid insurance
2,400
Equipment
240,000
Land (future site)
40,000
Accounts payable
20,000
Income tax payable
10,000
Mortgage payable
100,000
Common stock, par P10 (20,000 shares outstanding) 320,000
Dividends declared and paid
4,000
Retained earnings
50,000
To balance
14,800_______
Total
500,000 500,000After spending considerable time digging into the records and files of the company, you discovered the following:
a. Estimates of bad debts expense that total P5,000 have been credited directly to Accounts Receivable.
b.Accrued interest expense of P4,000 was recorded, but the credit was omitted.
b. Depreciation expense, on a straight-line basis (no residual value), is P30,000 per year. Depreciation for 2001 and 2002 was credited directly to the asset account.
c. The 2006 ending inventory of P140,000 was not recorded; the beginning inventory was P120,000.
d. Prepaid insurance of P2,400 was for two full years, 2006 and 2007.
e. Depreciation was not recorded in 2006.
f. Accounts payable of P2,000 were paid, but the debit was not recorded.
g. The common stock account needs scrutiny.
Questions
1.Cash at December 31, 2006 is:
a. P 11,800
b. P 13,800
c. P 15,800
d. P 17,800
2.Accounts receivable at December 31, 2006 is:
a.P 65,000
b. P 60,000
c. P 55,000
d. P 50,000
3.Notes receivable at December 31, 2006 is:
a. P 10,000
b. P 8,000
c. P 6,000
d. P 0
4. Merchandise inventory at December 31, 2006 is:
a. P 260,000
b. P 140,000
c. P 120,000
d. P 110,000
5. Prepaid insurance at December 31, 2006 is:
a. P 2,400
b. P 1,800
c. P 1,200
d. P 0
6. Equipment at December 31, 2006 is:
a. P 210,000
b. P 240,000
c. P 270,000
d. P 300,000
7.Land (future site) at December 31, 2006 is:
a.P 40,000
b. P 30,000
c. P 20,000
d. P 0
8.Accounts payable at December 31, 2006 is:
a.P 22,000
b. P 20,000
c. P 18,000
d. P 16,000
9.Income taxes payable at December 31, 2006 is:
a.P 38,016
b. P 28,016
c. P 10,384
d. P 10,000
10. Mortgage payable at December 31, 2006 is:
a.P 100,000
b. P 95,000
c. P 90,000
d. P 80,000
11. Common stock at December 31, 2006 is:
a. P 320,000
b. P 200,000
c. P 180,000
d. P 120,000
25. Retained earnings at December 31, 2006 is:
a. P 50,000
b. P 35,200
c. P 18,000
d. P 24,000
Solution
Cash 17,800
Accounts receivable 60,000
Allowance for bad debts 5,000
Note receivable 6,000
Merchandise inventory 140,000
Prepaid insurance 1,200
Equipment 300,000
Accumulated depreciation 90,000
Land 40,000
Accounts payable 18,000
Interest payable 4,000
Income tax payable 10,000
Mortgage payable 100,000
Common stock 200,000
APIC 120,000
Retained earnings ________ 18,000 squeezed figure
565,000 565,000
Answer1. D2. C3. C4. B5. C6. A7. A8. C9. D10. A
11. B12. C
Problem 15Your new audit client, Capiz Company, prepared the trial balance below as of December 31, 2006. The company started its operations on January 1, 2005. Your examination resulted in the necessity of applying the adjusting entries indicated in the additional data below.
Capiz Company
TRIAL BALANCE
December 31, 2006
Debits
Credits
Cash
P510,000
Accounts receivable, net allowance of P20,000 600,000
Inventories, December 31, 2005
669,000
Land
660,000
Buildings
990,000
Accumulated depreciation, building
P19,800
Machinery
444,000
Accumulated depreciation, machinery
45,000
Sinking fund assets
75,000
Bond discounts
75,000
Treasury stock, common
105,000
Accounts payable
567,000
Accrued bond interest
11,250
First mortgage, 6% sinking fund bonds
679,500
Common stock
1,500,000
Premium on common stock
150,000
Stock donation
180,000
Retained earnings, December 31, 2005
222,450
Net sales
2,625,000
Purchases
850,500
Salaries and wages
507,000
Factory operating expenses
364,500
Administrative expenses
105,000
Bond interest
45,000 _________
P6,000,000 P6,000,000
Additional data are as follows:
(1) The 1,500,000 common stock was issued at a 10 percent premium to the owners of the land and buildings on December 31, 2004, the date of organization. Stock with a par value of P180,000 was donated back by the vendors. The following entry was made:
(Debit) Treasury stock
P180,000
(Credit) Stock donation
P180,000
The stock was donated because the proceeds from its subsequent sale were to be considered as an allowance on the purchase price of land and buildings in proportion to their values as first recorded. The treasury stock was sold in 2006 for P75,000, which was credited to treasury Stock.
(2) On December 31, 2006, a machine costing P15,000 when the business started was removed. The machine had been depreciated at 10 percent during the first year. The only entry made was one crediting the Machinery account with its sales price of P6,000.
(3) Depreciation is to be provided on the straight-line basis, as follows: buildings, 2 percent of cost; machinery, 10 percent of cost. Ignore salvage values.
(4) The first mortgage, 6% sinking fund bonds, par value P750,000 will mature in ten years from January 1, 2005, interest payable April 1 and October 1. The bonds were sold on January 1, 2005, at 90; the discount is to be amortized over the life of the bonds on straight-line basis.
(5) A sinking fund is built up on the straight-line basis, with a provision that each in