Acctg 205A Quiz NOV. 6,2020

CORDILLERA CAREER DEVELOPMENT COLLEGE
College of Accountancy
Buyagan, Poblacion, La Trinidad, Benguet
Acctg. 205A
Quiz- 1st Sem. SY 2020-2021
PROBLEM NO.1
The following were discovered during your audit of Blake Company’s financial statements
for the year ended December 31, 2020:
a. On December 24, 2020, Blake purchased an office equipment for P400,000, terms
2/5, n/15. No entry was made on the date of purchase. The same was paid on
December 31, 2020 and the accountant debited Office Equipment and credited cash
for P400,000.
b. Machine C, with a cash price of P128,000, was purchased on January 2, 2020. The
company paid P20,000 down and P10,000 for 12 months. The last payment was
made on December 30, 2020. Straight line depreciation, based on a five-year useful
life and no salvage value, was recorded at P28,000 for the year. Freight of P4,000 on
machine C was debited to the Freight in account.
c. Machine P with a cash selling price of P360,000 was acquired on April 1, 2020, in
exchange for P400,000 face amount of bonds payable selling at 94, and maturing on
April 1, 2030. The accountant recorded the acquisition by a debit to Machinery and a
credit to Bonds Payable for P400,000. Straight line depreciation was recorded based
on a five-year economic life and amounted to P54,000 for nine months. In the
computation of depreciation, residual value of P40,000 was used.
d. Machine A was acquired on January 22, 2020, in exchange for past due accounts
receivable of P140,000, on which an allowance of 20% was established at the end of
2019. The current fair value of the machine on January 22 was estimated at
P110,000. The machine was recorded by a debit to Machinery and a credit to
Accounts Receivable for P140,000. No depreciation was recorded on Machine A,
because it was not installed and never used in operations. On February 2, 2020,
Machine A was exchanged for 1,000 shares of the company’s outstanding capital
stock with market price of P105 per share. The Treasury Stock account was debited
for P140,000 with the corresponding credit to Machinery.
e. On December 29, 2020, the company exchanged 10,000 shares of Emong, Inc.
common stock, which Blake was holding as an investment, for an equipment from De
Leon Corporation. The common stock of Emong, Inc., which had been purchased by
Blake for P45 per share, had a quoted market value of P50 per share on the date of
exchange. The equipment had a market value of P470,000. The transaction was
recorded by a debit to Equipment and a credit to Investment in Emong, Inc.-Common
for P450,000.
f. On December 30, 2020, Machine M with a carrying amount of P120,000 (cost

P400,000) was exchanged for a similar asset with a fair value of P150,000. In
addition, Black paid P20,000 to acquire the new machine. The exchange, which
lacks commercial substance, was recorded by a debit to Machinery and a credit to
cash for P20,000.
g. Machine E was recorded at P102,000, which included the carrying amount of

P22,000 for an old machine accepted as a trade in, and cash of P80,000. The cash
price of Machine S was P90,000, and the trade in allowance was P10,000. This
transaction took place on December 31, 2020.
h. Ms. Beauty, the company’s president, donated land and building appraised at
P200,000 and P400,000, respectively, to the company to be used as plant site. The
company began operating the plant on September 30, 2020. The building is
estimated to have a useful life of 25 years. Since no money was involved, no journal
entry was made for the above transaction.
i. On July 1, 2019, the national government granted a parcel of land located in Baliuag,
Bulacan to Blake. On the date of grant, the land had a fair value of P2,000,000. The
grant required Blake to construct a cold storage building on the site. Blake finished
the construction of the building, which has an estimated useful life of 25 years, on
January 2, 2020. Blake appropriately recorded the cost of the building of P4,000,000
(which include direct materials, direct labor, and indirect cost and incremental
overhead) but failed to provide depreciation in 2020. Unaware of the accounting
procedures for government grants, the company did not reflect the grant on its books.
REQUIRED: As the external auditor for Blake Company, prepare the necessary adjusting entries on
December 31, 2020.
PROBLEM NO. 2
The Preservation Company has requested you to audit its financial statements for the
year 2020. During your audit, Preservation presented to you its balance sheet as of
December 31, 2019 containing the following capital section:
Preferred stock P10 par; 60,000 shares authorized

and issued, of which 6,000 are treasury shares
costing P90,000 and shown as an asset P600,000
Common stock, par value P4; 600,000 shares
authorized, of which 450,000 are issued and outstanding 1,800,000
Additional paid in capital (P5 per share on preferred stock
issued in 2015) 300,000
Allowance for doubtful accounts receivable 12,000
Reserve for depreciation 840,000
Reserve for fire insurance 198,000
Retained earnings 2,250,000
P6,000,000
Additional information:
1) Of the preferred stock, 3,000 shares were sold for P18 per share on August 30, 2020.
Perseverance credited the proceeds to the Preferred Stock account. The treasury
shares as of December 31, 2019 were acquired in one purchase in 2019.
2) The preferred stock carries an annual dividend of P1 per share. The dividend is
cumulative. As of December 31, 2019, unpaid cumulative dividends amounted to P5
per share. The entire accumulation was liquidated in June, 2020, by issuing to the
preferred stockholders 54,000 shares of common stock.
3) A cash dividend of P1 per share was declared on December 1, 2020 to preferred

stockholders of record December 15, 2020. The dividend is payable on January 15,
2021.
4) At December 31, 2020, the Allowance for Doubtful Accounts Receivable and Reserve
for Depreciation had balances of P25,000 and P1,050,000, respectively.
5) On March 1, 2020, the Reserve for Fire Insurance was increased by P60,000;
Retained Earnings was debited.
6) On December 31, 2020, the Reserve for Fire Insurance was decreased by P30,000,
which represents the carrying value of a machine destroyed by fire on that date.
Estimated fire cleanup costs of P6,000 does not appear on the records.
7) The December 31, 2019 Retained Earnings consists of the following:

Donated land from a stockholder (Market value on
date of donation) P450,000
Gains from treasury stock transactions 51,000
Earnings retained in business 1,749,000
P2,250,000
8) Net income for the year ended December 31, 2020 was P1,297,500 per company’s
records.
REQUIRED:
Based on the above and the result of your audit, determine the adjusted balances of the
following as of December 31, 2020. (Disregard tax implications)
1. Preferred stock
2. Common stock
3. Additional paid in capital
4. Appropriated retained earnings
5. Unappropriated retained earnings
6. Treasury stock
7. Total stockholders’ equity

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CORDILLERA CAREER DEVELOPMENT COLLEGE

f. On December 30, 2020, Machine M with a carrying amount of P120,000 (cost

g. Machine E was recorded at P102,000, which included the carrying amount of

Preferred stock P10 par; 60,000 shares authorized

3) A cash dividend of P1 per share was declared on December 1, 2020 to preferred

7) The December 31, 2019 Retained Earnings consists of the following:

3. Additional paid in capital

4. Appropriated retained earnings

5. Unappropriated retained earnings

7. Total stockholders’ equity

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