1.

The following information is available for Kerr Company for 2004:

Freight-in                                                  ₱  60,000
Purchase returns                                         150,000
Selling expenses                                          300,000
Ending inventory                                        520,000

The cost of goods sold is equal to 300% of selling expenses.  What is the cost of goods available for
sale?
a. ₱900,000. c. ₱1,330,000.
b. ₱1,480,000. d. ₱1,420,000.

Use the following information for the next two questions:

Queen Co. records purchases at net amounts. On May 5 Queen purchased merchandise on account,
₱32,000, terms 2/10, n/30. Queen returned ₱2,000 of the May 5 purchase and received credit on
account. At May 31 the balance had not been paid.

2. The amount to be recorded as a purchase return is

a. ₱1,800. b. ₱2,040. c. ₱2,000. d. ₱1,960.

3. By how much should the account payable be adjusted on May 31?

a. ₱0. b. ₱680. c. ₱640. d. ₱600.

Use the following information for the next two questions:

The following information was available from the inventory records of Moen Company for January:
                                 Units               Unit Cost Total Cost
Balance at January 1              3,000                  ₱9.77 ₱29,310
Purchases:
January 6                  2,000                  10.30 20,600
January 26                2,700                  10.71 28,917

Sales:
January 7                (2,500)
January 31              (3,200)
Balance at January 31            2,000

4. Assuming that Moen does not maintain perpetual inventory records, what should be the
inventory at January 31, using the weighted-average inventory method, rounded to the
nearest peso?
a. ₱21,010. b. ₱20,474. c. ₱20,520. d. ₱20,720.

5. Assuming that Moen maintains perpetual inventory records, what should be the inventory
at January 31, using the moving-average inventory method, rounded to the nearest peso?
a. ₱21,010. b. ₱20,474. c. ₱20,520. d. ₱20,720.

6. James Co. has the following data related to an item of inventory:

Inventory, March 1          200 units @ ₱4.20
Purchase, March 7         700 units @ ₱4.40
Purchase, March 16       140 units @ ₱4.50
Inventory, March 31        300 units

The value assigned to cost of goods sold if James uses FIFO is

a. ₱1,334. b. ₱1,280. c. ₱3,270. d. ₱3,216.
Use the following information for the next two questions:
Transactions for the month of June were:
Purchases  Sales 
June 1 1,200 @ June
(balance) ₱3.20  2 900 @ ₱5.50 
3 3,300 @ 3.10  6 2,400 @ 5.50 
7 1,800 @ 3.30  9 1,500 @ 5.50 
15 2,700 @ 3.40  10 600 @ 6.00 
22 750 @ 3.50  18 2,100 @ 6.00 
25 450 @ 6.00

7. Assuming that perpetual inventory records are kept in pesos, the ending inventory on a
FIFO basis is
a. ₱5,700. b. ₱5,760. c. ₱6,195. d. ₱6,300.

8. Assuming that perpetual inventory records are kept in units only, the ending inventory on
an average-cost basis, rounded to the nearest dollar, is
a. ₱5,940. b. ₱5,868. c. ₱5,910. d. ₱5,985.

9. The following information applied to Flynn, Inc. for 2004:

Merchandise purchased for resale            ₱400,000
Freight-in                                               16,000
Freight-out                                               10,000
Purchase returns                                     4,000

Flynn's 2004 inventoriable cost was

a. ₱400,000. b. ₱406,000. c. ₱412,000. d. ₱422,000.

10. Tysen Retailers purchased merchandise with a list price of ₱90,000, subject to trade discounts
of 20% and 10%, with no cash discounts allowable. Tysen should record the cost of this
merchandise as
a. ₱63,000. b. ₱64,800. c. ₱70,200. d. ₱90,000.

“If you think education is expensive, try ignorance.” —Robert Orben

- END -

SOLUTIONS 
1. D ₱520,000 + (3 × ₱300,000) = ₱1,420,000.

2. D ₱2,000 – (₱2,000 × .02) = ₱1,960.

3. D (₱32,000 – ₱2,000) × .02 = ₱600.

4. B (₱29,310 + ₱20,600 + ₱28,917) ÷ (3,000 + 2,000 + 2,700) = ₱10.237/unit

₱10.237 × 2,000 = ₱20,474.

5. D.Avg. on 1/6 ₱49,910 ÷ 5,000 = ₱9.982/unit

1/26 ₱53,872 ÷ 5,200 = ₱10.36/unit
₱10.36 × 2,000 = ₱20,720.
 6. D  200 + 700 + 140 – 300 = 740 units
    (200 × ₱4.20) + (540 × ₱4.40) = ₱3,216.

7. C

EI (in units) = 1,200 + 3,300 + 1,800 + 2,700 + 750 – 900 – 2,400 – 1,500 – 600 – 2,100 – 450 = 1,800

Unit Total
  Units  cost cost
Ending inventory  1,800
From June 22
purchase  (750) @3.50 2,625
balance  1,050
From June 15
purchase  (1,050) @3.40 3,570
As allocated  - 6,195

8. B 

Unit
  Units  cost Total cost
June 1                                  
(balance) 1,200          3.20  3,840 
                               
3 3,300          3.10  10,230 
                                 
7 1,800          3.30  5,940 
                                 
15 2,700          3.40  9,180 
                                   
22 750          3.50  2,625 
                               
TGAS  9,750    31,815 

TGAS (in units) = 1,200 + 3,300 + 1,800 + 2,700 + 750 = 9,750 units

Average cost = ₱31,815 ÷ 9,750 units = ₱3.26

Ending inventory (pesos) = 1,800 units x ₱3.26 = ₱5,868

9. C ₱400,000 + ₱16,000 – ₱4,000 = ₱412,000.

10. B ₱90,000 × .8 × .9 = ₱64,800

Use the following information for the next two questions:

 Jason Co. assigned ₱1,000,000 of accounts receivable to Easy Finance Co. as security for a loan of
₱840,000. Easy charged a 2% commission on the amount of the loan; the interest rate on the note was
10%. During the first month, Jason collected ₱220,000 on the assigned accounts after deducting ₱760
of discounts. Jason accepted returns worth ₱2,700 and wrote off assigned accounts totaling ₱7,400.

1. The amount of cash Jason received from Easy at the time of the transfer was
a. ₱756,000. c. ₱823,200.
b. ₱820,000. d. ₱840,000.

2. Entries during the first month would include a

a. debit to Cash of ₱220,760.
b. debit to Bad Debt Expense of ₱7,400.
c. debit to Allowance for Doubtful Accounts of ₱7,400.
d. debit to Accounts Receivable of ₱230,860.

Use the following information for the next two questions:

On February 1, 2004, Norton Company factored receivables with a carrying amount of ₱500,000 to
Koch Company. Koch Company assessed a finance charge of 3% of the receivables and retains 5% of
the receivables. Relative to this transaction, you are to determine the amount of loss on sale to be
reported in the income statement of Norton Company for February.

3. Assume that Norton factors the receivables on a without recourse basis. The loss to be
reported is
a. ₱0. c. ₱25,000.
b. ₱15,000. d. ₱40,000.

4. Assume that Norton factors the receivables on a with recourse basis. The recourse obligation
has a fair value of ₱2,500.  The loss to be reported is
a. ₱15,000. c. ₱25,000.
b. ₱17,500. d. ₱42,500.

5. On September 1, Riva Co. assigns specific receivables totaling ₱750,000 to Pacific Bank as
collateral on a ₱625,000, 12 percent note. Riva Co. will continue to collect the assigned
accounts receivable. Pacific also assesses a 2 percent service charge on the total accounts
receivable assigned. Riva Co. is to make monthly payments to Pacific with cash collected on
assigned accounts receivable. Collections of assigned accounts during September totaled
₱260,000 less cash discounts of ₱3,500. What were the proceeds from the assignment of
Riva's accounts receivable on September 1?
a. ₱610,000
b. ₱612,500
c. ₱625,000
d ₱735,000
.

6. On September 1, Riva Co. assigns specific receivables totaling ₱750,000 to Pacific Bank as
collateral on a ₱625,000, 12 percent note. Riva Co. will continue to collect the assigned
accounts receivable. Pacific also assesses a 2 percent service charge on the total accounts
receivable assigned. Riva Co. is to make monthly payments to Pacific with cash collected on
assigned accounts receivable. Collections of assigned accounts during September totaled
 ₱260,000 less cash discounts of ₱3,500. What amount is owed to Pacific by Riva Co. for
September collections plus accrued interest on the note to September 30?
a. ₱260,000
b. ₱262,750
c. ₱264,000
d ₱266,250
.

7. Simpson Company held a ₱6,000, 3-month, 15 percent note. One month before maturity, it
discounted the note at 10 percent at a local bank. Approximately how much net income did
Simpson earn on the note?
a. ₱173
b. ₱52
c. ₱225
d ₱60
.

8. If a 3-month non-interest-bearing note receivable of ₱10,000 is discounted at a bank at 10

percent, how much cash is received?
a. ₱10
b. ₱1,010
c. ₱999
d. ₱9,750

9. On January 1, Parent Company gave Kids, Inc. a ₱5,000, 2-month, 6 percent note in payment
of its account. One month later, Kids discounted the note at the bank at 8 percent. The cash
that Kids received from the bank was (rounded to the nearest dollar)
a. ₱4,960. c. ₱5,016.
b. ₱5,010. d. ₱5,022.

10. On June 1, Clinton Corporation accepted a customer's ₱10,000, 9 percent, 3 month note. On
July 1, the note was discounted at a bank at a rate of 12 percent. How much cash did Clinton
receive from the bank on the discounted note?
a. ₱9,800.00 c. ₱10,020.50
b. ₱9,942.50 d. ₱10,250.00

“Bear in mind that our Lord’s patience means salvation, just as our dear brother Paul also
wrote you with the wisdom that God gave him.” (2 Peter 3:15)
- END -
SOLUTIONS 
1. C ₱840,000 – ₱16,800 = ₱823,200.

2. C

3. B ₱500,000 × .03 = ₱15,000.

4. B (₱500,000 × .03) + ₱2,500 = ₱17,500.

5. A [625,000 – (750,000 x 2%)] = 610,000

 6. B (260,000 – 3,500) + (625,000 x 12% x 1/12) = 262,750

7. A 
MV = 6,000 + (6,000 x 15% x 3/12) = 6,225
D = 6,225 x 10% x 1/12 = 51.88
NP = 6,225 – 51.88 = 6,173.12
Net interest = 6,173.12 net proceeds less 6,000 face amount = 173.12

8. D
MV = 10,000 + (10,000 x 0% x 3/12) = 10,000
D = 10,000 x 10% x 3/12 = 250
NP = 10,000 – 250 = 9,750

9. C
MV = 5,000 + (5,000 x 6% x 2/12) = 5,050
D = 5,050 x 8% x 1/12 = 33.67
NP = 5,050 – 33.67 = 5,016.33

10. C
MV = 10,000 + (10,000 x 9% x 3/12) = 10,225
D = 10,225 x 12% x 2/12 = 204.50
NP = 10,225 – 204.50 = 10,020.50

1. An entity sells goods either on cash basis or on 6-month installment basis. On January 1,
20x1, goods with cash price of ₱50,000 were sold at an installment price of ₱75,000. Which of the
following statements is correct?
a. Net receivable of ₱75,000 is recognized on the date of sale.
b. Net receivable of ₱50,000 is recognized upon full payment of the total price.
c. The ₱20,000 difference between the cash price and installment price is recognized as interest
income on the date of sale.
d. Net receivable of ₱50,000 is recognized on the date of sale.

2. An entity sells goods for ₱150,000 to a customer who was granted a special credit period of 1
year. The entity normally sells the goods for ₱120,000 with a credit period of one month or
with a ₱10,000 discount for outright payment in cash. How much is the initial measurement
of the receivable?
a. 150,000
b. 120,000
c. 130,000
d. 110,000 

Use the following information for the next two questions:

On January 1, 20x1, ABC Co. sold a transportation equipment with a historical cost of ₱1,000,000 and
accumulated depreciation of ₱300,000 in exchange for cash of ₱100,000 and a noninterest-bearing
note receivable of ₱800,000 due on January 1, 20x4. The prevailing rate of interest for this type of
note is 12%.

3. How much is the interest income in 20x1?

a. 68,331  
b. 76,532 
c. 85,714
d. 96,000  
 4. How much is the carrying amount of the receivable on December 31, 20x2?
a. 800,000
b. 569,424
c. 637,755        
d. 714,286 

Use the following information for the next three questions:

On January 1, 20x1, ABC Co. sold transportation equipment with a historical cost of ₱20,000,000 and
accumulated depreciation of ₱7,000,000 in exchange for cash of ₱500,000 and a noninterest-bearing
note receivable of ₱8,000,000 due in 4 equal annual installments starting on December 31, 20x1 and
every December 31 thereafter. The prevailing rate of interest for this type of note is 12%.

5. How much is the interest income in 20x1?

a. 728,946  
b. 678,334
c. 728,964  
d. 704,236

6. How much is the current portion of the receivable on December 31, 20x1?
a. 1,271,036
b. 1,423,560
c. 3,380,102
d. 1,594,388  

7. How much is the carrying amount of the receivable on December 31, 20x2?
a. 4,803,663
b. 3,380,102
c. 6,074,699      
d. 6,000,000 

Use the following information for the next three questions:

On January 1, 20x1, ABC Co. sold transportation equipment with a historical cost of ₱12,000,000 and
accumulated depreciation of ₱7,000,000 in exchange for cash of ₱100,000 and a noninterest-bearing
note receivable of ₱4,000,000 due in 4 equal annual installments starting on January 1, 20x1 and
every January 1 thereafter. The prevailing rate of interest for this type of note is 12%.

8. How much is the interest income in 20x1?

a. 408,230  
b. 278,334
c. 328,964  
d. 288,220

9. How much is the carrying amount of the receivable on December 31, 20x1?
a. 1,690,510
b. 892,857
c. 2,690,051
d. 1,594,388  
 10. How much is the carrying amount of the receivable on January 1, 20x3?
a. 892,857
b. 3,380,102
c. 6,074,699      
d. 6,000,000 

Use the following information for the next two questions:

On January 1, 20x1, ABC Co. sold machinery with historical cost of ₱3,000,000 and accumulated
depreciation of ₱900,000 in exchange for a 3-year, ₱2,100,000 noninterest-bearing note receivable due
in equal semi-annual payments every July 1 and December 31 starting on July 1, 20x1. The
prevailing rate of interest for this type of note is 10%.

11. How much is the interest income in 20x1?

a. 88,825  
b. 177,649
c. 128,964  
d. 164,591

12. How much is the carrying amount of the receivable on December 31, 20x1?
a. 1,241,083
b. 982,378
c. 1,690,051
d. 1,594,388  

13. On January 1, 20x1, ABC Co. sold machinery costing ₱3,000,000 with accumulated
depreciation of ₱1,100,000 in exchange for a 3-year, ₱900,000 noninterest-bearing note
receivable due as follows: 
Date Amount of installment
December 31, 20x1             400,000 
December 31, 20x2             300,000  
December 31, 20x3             200,000 
Total               900,000

The prevailing rate of interest for this type of note is 10%. How much is the carrying amount of
the receivable on December 31, 20x1?
a. 467,354
b. 438,016
c. 376,345
d. 428,346 

Use the following information for the next two questions:

On January 1, 20x1, ABC Co. sold inventory costing ₱1,800,000 with a list price of ₱2,200,000 and a
cash price of ₱2,000,000 in exchange for a ₱2,400,000 noninterest-bearing note due on December 31,
20x3.

14. How much is the initial measurement of the receivable?

a. 1,800,000
b. 2,200,000
c. 2,000,000
d. 2,400,000 
15. How much is the carrying amount of the receivable on December 31, 20x1?
a. 2,125,390
b. 2,135,341
c. 2,098,343
d. 2,000,000 

“Not only so, but we also glory in our sufferings, because we know that suffering produces
perseverance;” (Romans 5:3)

-END-
SOLUTIONS 
1. D
2. D
Solution:
     
Normal selling price with credit period of one month
120,000 
Discount for cash on delivery       (10,000)
     
Cash price equivalent of the goods sold
110,000 

3. A 
Solution:
Initial measurement: 800,000 x PV of 1 @12%, n=3 = 569,424

Subsequent measurement:
Interest Unearned Present
Date income  interest  value 
1/1/x1 230,576 569,424
12/31/x1 68,331 162,245 637,755
12/31/x2 76,531 85,714 714,286
12/31/x3 85,714 - 800,000

4. D (See solution above)

4. C 
Solution:
Initial measurement: (8M ÷ 4) x PV ordinary annuity of 1 @12%, n=4 = 6,074,699

Subsequent measurement:
Collection Interest Amortizatio Present
Date
s income n value
1/1/20x1 6,074,699
12/31/20x
2,000,000 728,964 1,271,036 4,803,663
1
12/31/20x
2,000,000 576,440 1,423,560 3,380,102
2
12/31/20x
2,000,000 405,612 1,594,388 1,785,714
3
12/31/20x
2,000,000 214,286 1,785,714 0
4

6. B (See solution above)

6. B (See solutions above)

8. D (See solutions below)

8. C 
Solutions:
Initial measurement: (4M ÷ 4) x PV annuity due of 1 @12%, n=4 = 3,401,831

Subsequent measurement:
Collection Interest Amortizatio Present
Date
s income n value
Jan. 1,
3,401,831
20x1
Jan. 1,
1,000,000 - 1,000,000 2,401,831
20x1
Jan. 1,
1,000,000 288,220 711,780 1,690,051
20x2
Jan. 1,
1,000,000 202,806 797,194 892,857
20x3
Jan. 1,
1,000,000 107,143 892,857 0
20x4

The carrying amount of the notes receivable as of December 31, 20x1 is determined as follows:
Carrying amount of notes receivable - Jan. 1, 20x2 1,690,051
Add back: Collection on Jan. 1, 20x2 1,000,000
Carrying amount of notes receivable - Dec. 31, 2,690,05
20x1 1

10. A (See solution above)

11. D 
Solution:
Initial measurement: (2.1M ÷ 6) x PV ordinary annuity of 1 @5%, n=6 = 1,776,492

Subsequent measurement:
Collection Interest Amortizatio Present
Date
s income n value
Jan. 1, 20x1 1,776,492
July 1, 20x1 350,000 88,825 261,175 1,515,317
Dec. 31,
350,000 75,766 274,234 1,241,083
20x1
July 1, 20x2 350,000 62,054 287,946 953,137
Dec. 31,
350,000 47,657 302,343 650,794
20x2
July 1, 20x3 350,000 32,540 317,460 333,333
Dec. 31,
350,000 16,667 333,333 0
20x3

Interest income in 20x1 = (88,825 + 75,766) = 164,591

12. A (See solution above)

13. B
Solution:
Initial measurement:
Collection PV of P1 @ 10%, n= 1 to Present
Date
s 3 value
Dec. 31,
400,000 0.90909 363,636
20x1
Dec. 31,
300,000 0.82645 247,935
20x2
Dec. 31,
200,000 0.75131 150,262
20x3
Totals 900,000   761,833

Subsequent measurement:
Collection Interest Amortizatio Present
Date
s income n value
Jan. 1, 20x1 761,833
Dec. 31, 400,000 76,183 323,817 438,016
 20x1
Dec. 31,
300,000 43,802 256,198 181,818
20x2
Dec. 31,
200,000 18,182 181,818 0
20x3

14. C – equal to cash price equivalent.

14. A 
Solution:
First trial: (at 10%)
Future cash flows x PV factor at x% = PV of note
 2,400,000 x PV of P1 @ 10%, n=3 = 2,000,000
 (2,400,000 x 0.751315) = 1,803,156  is not equal to 2,000,000
We need a substantially higher amount of present value. Therefore, we need to decrease substantially
the interest rate. Let’s try 6%.

Second trial: (at 6%)

Future cash flows x PV factor at x%  = PV of note
 2,400,000 x PV factor at 6%, n=3  = 2,000,000
 (2,400,000 x 0.839619) = 2,015,086  is not equal to 2,000,000
We need a slightly lower amount of present value. Therefore, we need to increase slightly the interest
rate. Let’s try 7%.

Third trial: (at 7%)

Future cash flows x PV factor at x% = PV of note
 2,400,000 x PV factor at 7%, n=3 = 2,000,000
 (2,400,000 x 0.816298) = 1,959,115 is not equal to 2,000,000

In here, we need to perform interpolation. Looking at the values derived above, we can reasonably
expect that the effective interest rate is a rate between 6% and 7%.

To perform the interpolation, we will use the following formula:

x%   
- 6%
7%   
- 6%
                                   
Where: x% again is the effective interest rate.

The formula was derived based on our expectation that the effective interest rate is somewhere between
6% and 7%.Notice that the lower rate appears in both the numerator and denominator of the formula
while x% appears in the numerator.

Let us substitute the amounts of present values computed earlier on the formula.
2,000,00 2,015,08
0 - 6 (15,086) 0.269
= =
1,959,11 2,015,08 5
5 - 6 (55,970)

The amount computed is added to 6% to derive the effective interest rate. The effective interest rate is
6.2695% (6% + .2695%).

If other methods or tools were used, such as a financial calculator or spreadsheet application, the exact
rate is 6.265856927%. 

The amortization table using 6.2695% as the effective interest rate is presented below.
Interest Unearned Present
Date
income interest value
Jan. 1, 20x1 400,000 2,000,000
Dec. 31,
125,390 274,610 2,125,390
20x1
Dec. 31,
133,251 141,359 2,258,641
20x2
Dec. 31,
141,606 -247 2,400,247
20x3
Notice that there is still a slight difference of ₱247. However, if this is deemed immaterial, we can regard
the computed rate as the effective interest rate.

1. At January 1, 20x1, Judy Co. had a credit balance of ₱260,000 in its allowance for
uncollectible accounts. Based on past experience, 2% of Judy 's credit sales have been
uncollectible. During 20x1, Judy wrote off ₱325,000 of uncollectible accounts. Credit sales for
20x1 were ₱9,000,000. In its December 31, 20x1, balance sheet, what amount should Judy report
as allowance for uncollectible accounts?
a. 115,000
b. 180,000
c. 245,000
d. 440,000

2. On the December 31, 20x6, balance sheet of Esther Co., the current receivables consisted of
the following:

Trade accounts receivable  93,000

Allowance for uncollectible accounts  (2,000)
Claim against shipper for goods lost in transit (November
20x6)  3,000
Selling price of unsold goods sent by Esther on consignment at 
  130% of cost (not included in Esther's ending inventory)  26,000
Security deposit on lease of warehouse used for storing some 
  inventories  30,000
150,00
Total 
0

At December 31, 20x6, the correct total of Esther's current net receivables was
a. 94,000
b. 120,000
c. 124,000
d. 150,000

3. The following information is from the records of Prosser, Inc. for the year ended December
31, 2002.

Allowance for Doubtful Accounts, January 1, ₱    6,000 (cr)

2002 ..
Sales, 2002 ....................................... 2,920,00
0
Sales Returns and Allowances, 2002 ................ 32,000

If the basis for estimating bad debts is 1 percent of net sales, the correct amount of doubtful accounts
expense for 2002 is
a. ₱22,800.
b. ₱23,200.
c. ₱28,880.
d. ₱34,880.

4. An analysis and aging of the accounts receivable of Shriner Company at December 31

revealed the following data:
 Accounts Receivable .................................. ₱450,000
Allowance for Doubtful Accounts (before 25,000 (cr)
adjustment) ..
Required ending balance of allowance ............... 32,000 (cr)

The net realizable value of the accounts receivable at December 31 should be

a. ₱450,000.
b. ₱443,000.
c. ₱425,000.
d. ₱418,000.

5. Maple Company provides for doubtful accounts expense at the rate of 3 percent of credit
sales. The following data are available for last year:

Allowance for Doubtful Accounts, January ₱  (cr)

1 ........ 54,000
Accounts written off as uncollectible during the
  year ............................................   60,000
Collection of accounts written off in prior years .
(customer credit was re-established) .............. 15,000
Credit sales, year-ended December 31 .............. 3,000,000

The allowance for doubtful accounts balance at December 31, after adjusting entries, should be
a. ₱45,000.
b. ₱84,000.
c. ₱90,000.
d. ₱99,000.

6. Based on the aging of its accounts receivable at December 31, Pribob Company determined
that the net realizable value of the receivables at that date is ₱760,000. Additional
information is as follows:
Accounts Receivable at December 31 ................ ₱880,000
Allowance for Doubtful Accounts at January 128,000 (cr)
1 ......
Accounts written off as uncollectible during the
  year ............................................ 88,000

Pribob's doubtful accounts expense for the year ended December (31 is
a. ₱80,000.
b. ₱96,000.
c. ₱120,000.
d. ₱160,000.

7. Based on its past collection experience, Ace Company provides for bad debts at the rate of 2
percent of net credit sales. On January 1, 2002, the allowance for doubtful accounts credit
balance was ₱10,000. During 2002, Ace wrote off ₱18,000 of uncollectible receivables and
recovered ₱5,000 on accounts written off in prior years. If net credit sales for 1999 totaled
₱1,000,000, the doubtful accounts expense for 2002 should be
a. ₱17,000.
b. ₱20,000.
c. ₱23,000.
d. ₱35,000.
 8. Richards Company uses the allowance method of accounting for bad debts. The following
summary schedule was prepared from an aging of accounts receivable outstanding on
December 31 of the current year.

No. of Days Probability

Outstanding Amount of Collection
0-30 days ₱500,000 .98
31-60 days 200,000 .90
Over 60 100,000 .80
days

The following additional information is available for the current year:

Net credit sales for the year .................. ₱4,000,00

0
Allowance for Doubtful Accounts:
Balance, January 1 .............................       45,000 (cr)
Balance before adjustment, December         2,000 (dr)
31 .........

If Richards determines bad debt expense using 1.5 percent of net credit sales, the net realizable value
of accounts receivable on the December 31 balance sheet will be
a. ₱738,000.
b. ₱740,000.
c. ₱742,000.
d. ₱750,000.

9. Gekko, Inc. reported the following balances (after adjustment) at the end of 2002 and 2001.
12/31/200 12/31/200
2 1
Total accounts ₱105,000 ₱96,000
receivable .................
Net accounts receivable ................... 102,000 94,500

During 2002, Gekko wrote off customer accounts totaling ₱3,200 and collected ₱800 on accounts
written off in previous years. Gekko's doubtful accounts expense for the year ending December 31,
2002 is
a. ₱1,500.
b. ₱2,400.
c. ₱3,000.
d. ₱3,900.

10. Gray Company had an accounts receivable balance of ₱50,000 on December 31, 2001, and
₱75,000 on December 31, 2002. The company wrote off ₱20,000 of accounts receivable during
2002, and collected ₱3,000 on an account written off in 2000. Sales for the year 2002 totaled
₱620,000. All sales were on account. The amount collected from customers on accounts
receivable during 2002, including recoveries, was
a. ₱575,000.
b. ₱578,000.
c. ₱600,000.
d. ₱595,000.
 “For the Lord gives wisdom; from his mouth come knowledge and understanding.” (Proverbs 2:6)
- END -

SOLUTIONS:
1. A (260K + (2% x 9M) – 325K = 115K

2. A (93,000 – 2,000 + 3,000) = 94,000

3. C (2,920,000 – 32,000) x 1% = 28,880

4. D (450,000 – 32,000) = 418,000 

5. D [54,000 – 60,000 + 15,000 + (3,000,000 x 3%)] = 99,000

6. A 
Allowance for doubtful accounts
128,000 beg.
Bad debts expense
Write-offs 88,000 80,000 (squeeze)
- Recoveries
end. 120,000 a

a
(880,000 – 760,000) = 120,000

7. B (1,000,000 x 2%) = 20,000

8. C 
Allowance for doubtful
accounts
Dec. 31
(unadjusted) 2,000
Write-offs - 60,000 Bad debts (4M x 1.5%)
- Recoveries
end. 58,000

(500,000 + 200,000 + 100,000) = 800,000 – 58,000 = 742,000

9. D 
Allowance for doubtful
accounts
1,500 beg. (96K - 94.5K)
Bad debts
Write-offs 3,200 3,900 (squeeze)
800 Recoveries
end. (105K -
102K) 3,000

10. B 
Accounts
receivable
beg. 50,000
Sales on account 620,000 578,00 Collections, including
 0 recoveries
Recoveries 3,000 20,000 Write-offs
75,000 end.

1. Entity A is preparing its November 30, 20x1 bank reconciliation statement. The following
information was determined:

 Cash balance per accounting books, Nov. 30, 20x1 ₱600,000

 Cash balance per bank statement, Nov. 30, 20x1 ₱860,000 
 Credit memo ₱380,000
 Debit memo ₱  60,000
 Deposits in transit ₱100,000
 Outstanding checks ₱  40,000

Requirement: Prepare the bank reconciliation.

2. Entity A is preparing its February 28, 20x1 bank reconciliation statement. The following
information was determined:
 Cash balance per accounting books, Feb. 28, 20x1 ₱260,000
 Cash balance per bank statement, Feb. 28, 20x1 ₱205,000 

When investigating the difference, the accountant determined the following:

a. A customer deposited ₱30,000 to Entity A’s bank account as payment for an account
receivable. This is not yet recorded in the books of accounts.
b. A ₱102,500 check deposited by Entity A during the month is not yet credited to Entity A’s
account.
c. A check drawn in the amount of ₱22,500 is not yet presented to the bank for payment.
d. The bank returned a check deposit amounting to ₱5,000 because of insufficiency in the funds
of the drawer. The check was received from a customer as payment for accounts receivable.

Requirements: 
a. Prepare the bank reconciliation.
b. Prepare the adjusting (reconciling) entries.

“Blessed are the merciful, for they will be shown mercy.” (Matthew 5:7)

- END –
SOLUTIONS 

1.

Bal. per books, end. ₱600,000 Bal. per bank, end. ₱860,000
Add: CM 380,000 Add: DIT 100,000
Less: DM (60,000) Less: OC (40,000)
Add/Less: Book
- Add/Less: Bank errors -
errors
 ₱920,00 ₱920,00
Adjusted balance Adjusted balance
0 0

2.

Requirement (a): Bank reconciliation

Bal. per books, end. ₱260,000 Bal. per bank,  end. ₱205,000
Add: CM 30,000 Add: DIT 102,500
Less: DM (5,000) Less: OC (22,500)
Add/Less: Book
Add/Less: Bank errors
errors
₱285,00 ₱285,00
Adjusted balance Adjusted balance
0 0

Requirement (b): Adjusting (Reconciling) entries

AJE Cash  30,000

(c)       Accounts receivable 30,000
to record the collection of accounts receivable 
AJE Accounts receivable 5,000
(d)       Cash 5,000
to revert the NSF check back to accounts
receivable

1. Entity A is preparing its March 31, 20x1 bank reconciliation. The following information was
determined:
a. The cash balance per books is ₱280,000 while the cash balance per bank statement is
₱320,000.
b. Credit memo – ₱20,000
c. Debit memo – ₱15,000
d. Deposits in transit – ₱75,000
e. Outstanding checks – ₱25,000
f. The disbursements per books are overstated by ₱45,000.
g. The bank debits are understated by ₱40,000.
Requirement: Prepare the bank reconciliation.

2. Data concerning the cash records of Arones Company for the months of November and
December 20x1 are shown below:
         November 30       December 31
Book balance   11,200                                 ?
Book debits               63,800
Book credits             56,400
Bank balance 30,000                       40,800
Bank debits                           ?
Bank credits                        54,600
Notes collected by bank                         4,500                             6,000    
Bank service charge                                                     40                   200 
NSF checks              1,760                 2,800
Overstatement of check in payment
    of salaries               3,800                 2,400
Deposit in transit             12,000                                22,500
Outstanding checks                           19,500                                35,700
Deposit of 123 Corporation erroneously
   credited to ABC Co.’s account            4,800                 3,600

Requirement: Prepare the proof of cash.

 “So do not fear, for I am with you; do not be dismayed, for I am your God. I will strengthen you and
help you; I will uphold you with my righteous right hand.” (Isaiah 41:10)

- END –
SOLUTIONS 

1.

Bal. per books, end. 280,000 Bal. per bank, end. 320,000
Add: CM 20,000 Add: DIT 75,000
(15,000
Less: DM  Less: OC (25,000)
)
Add/Less: Book
Add/Less: Bank errors:
errors:
Understatement 45,000 Overstatement (40,000)
Adjusted balance 330,000 Adjusted balance 330,000

2.

Per books:
Nov. Disbursement
  30 Receipts s Dec. 31
Balance per books 11,200      63,800    56,400  18,600 
Note collected by
 bank:
    November 4,500      (4,500)
    December   6,000    6,000 
Bank service charges
    November     (40)         (40)
    December   200    (200)
NSF checks:
    November (1,760)         (1,760)
    December 2,800  (2,800)
Book errors:
    November 3,800  (3,800)
    December     (2,400) 2,400 
   
Adjusted balances 17,700  61,500      55,200  24,000 

Per bank:
Disbursement
  Nov. 30 Receipts s Dec. 31
Balance per bank 30,000      54,600      43,800  40,800 
Deposits in transit
    November 12,000      (12,000)
    December     22,500  22,500 
Outstanding
checks
    November (19,500)     (19,500)
    December     35,700  (35,700)
Bank errors:
    November (4,800)     (4,800)
    December   (3,600) (3,600)
   
Adjusted balances 17,700  61,500      55,200  24,000 

7. On December 31, 2009, West Company had the following cash balances:

Cash in banks P1,800,000

Petty cash funds (all funds were reimbursed on 12/31/09)       50,000

Cash in banks includes P600,000 of compensating balances against short-term borrowing

arrangements at December 31, 2009. The compensating balances are not legally restricted as to
withdrawal by West. In the current assets section of West's December 31, 2009, balance sheet
(statement of financial position), what total amount should be reported as cash?
a. P1,200,000
b. P1,250,000
c. P1,800,000
d. P1,850,000

8. Trans Co. had the following balances at December 31, 2009:

Cash in checking account           P   35,000

Cash in money market account   75,000
Treasury bill, purchased 11/1/2009, maturing 1/31/2010 350,000
Treasury bill, purchased 12/1/2009, maturing 3/31/2010 400,000
Tran’s policy is to treat as cash equivalents all highly liquid investments with a maturity of three
months or less when purchased. What amount should Trans report as cash and cash equivalents in
its December 31, 2009, balance sheet (statement of financial position)?
a. P110,000
b. P385,000
c. P460,000
d. P860,000

9. The cash balance of CAPSIZE OVERTURN Co. comprises the following:

Cash on hand       300,000
Cash in bank – savings – BPI     600,000
Cash in bank – current – BPI   (240,000)
Cash in bank – deposit in escrow – Metrobank       300,000
Cash in bank – current – Metrobank   ( 60,000)
Cash in bank – current – BDO     ( 90,000)
Total    810,000

Additional information:
 Cash on hand includes undeposited collections of P60,000.
 The cash in bank – savings maintained at BPI includes a P150,000 compensating balance
which is not restricted.

What amount of cash is reported in the financial statements?

a. 660,000    
b. 810,000
c. 900,000  
d. 960,000

10. As of December 31, 20x1, the petty cash fund of TUMULT COMMOTION Co. with a general
leger balance of P15,000 comprises the following:
Coins and currencies               P 2,550
Petty cash vouchers:
Gasoline for delivery equipment   P3,000
Medical supplies for employees       2,040     5,040
IOU’s:
Advances to employees       2,220
A sheet of paper with names of several employees
   together with contribution to bereaved employee,
   attached is a currency of                                                     2,400
Checks:
Check drawn to the order of the petty cash custodian     3,000
Personal check drawn by the petty cash custodian             2,400

The entry to record the replenishment of the petty cash fund includes
a. A debit to cash short/overage account of P2,190 and a credit to cash on hand of P9,450.
b. A credit to cash short/overage account of P810 and a credit to cash of P12,450. 
c. A debit to cash short/overage account of P810 and a credit to petty cash fund of P12,450.
d. A debit to cash short/overage account of P2,190 and a credit to cash in bank of P9,450.

“There is a time for everything, and a season for every activity under the heavens;” (Ecclesiastes
3:1)
 - END –
SOLUTIONS:
7. D (1,800,000 + 50,000) = 1,850,000
8. C (35,000 + 75,000 + 350,000) = 460,000
9. A (300,000 + 600,000 – 240,000) = 660,000
10. D (2,550 + 5,040 + 2,220 + 3,000) = 12,810 per count – 15,000 accountability = (2,190) shortage

1. An entity’s unadjusted trial balance does not equal. The following information was
determined:
 The debit posting for a sale on account was omitted. 5,000
 The balance of Prepaid assets was listed as a credit instead of 34,000
debit
 The balance of Office expense was listed as Rent expense 16,000
 Accounts payable was listed as a debit instead of credit 4,000

How much is the difference between the total debits and total credits in the trial balance?
a. 65,000 b. 81,000   c. 30,000 d. 34,000 

A
Solution:
        Trial
balance
Dr. Cr.
Corresponding credit of the debit to accounts
Debit to accounts receivable omitted 5,000 5,000 receivable

Corresponding credit of the debit to Prepaid

Prepaid assets omitted and listed as credit 34,000 34,000 assets

34,000 Prepaid assets listed as a credit

Corresponding debit of the credit to
Accounts payable 4,000 4,000 Accounts payable omitted and listed as debit

Accounts payable listed as debit 4,000

Total Debits 8,000 73,000 Total Credits
Difference, excess of total credits over
65,000 total debits

1. Theta prepares its financial statements for the year to 30 April each year. The company pays
rent for its premises quarterly in advance on 1 January, 1 April, 1 July and 1 October each year.
The annual rent was ₱84,000 per year until 30 June 2000. It was increased from that date to
₱96,000 per year. What rent expense and end of year prepayment should be included in the
financial statements for the year ended 30 April 2001?
        Expense              Prepayment
a. 93,000   8,000
b. 93,000 16,000
c. 94,000   8,000
d. 94,000 16,000

D
Solution:
 Fiscal year period: May 1, 2000 to April 30, 2001
 Change in annual rent: June 30, 2000
 Rent expense:
o May 1, 2000 to June 30, 2000: 84,000 x 2/12 = 14,000
 o July 1, 2000 to April 30, 2001: 96,000 x 10/12 = 80,000
o Total rent expense = (14,000 + 80,000) = 94,000

 Prepaid rent:
o Last payment date: April 1, 2001
o Amount paid: 96,000 ÷ 4 quarters = 24,000
Unexpired portion as of April 30, 2001 = 24,000 x 2/3 = 16,000

1. On October 1, 20x1, the warehouse of ABC Co. and all inventories contained therein were
damaged by flood. Off-site back up of data base shows the following information:

Inventory, Jan. 1           10,000

Accounts payable, Jan. 1             3,000
Accounts payable, Sept. 30                       2,000
Payments to suppliers                     50,000
Freight-in                       500
Purchase returns               500
Sales from Jan. to Sept.            80,000
Sales returns                    5,000
Sales discounts                    2,000
Gross profit rate based on sales                                30%

Additional information:
Goods in transit as of October 1, 20x1 amounted to ₱1,000, cost of goods out on consignment is
₱1,200, and materials damaged by flood can be sold at a salvage value of ₱1,800. How much is the
inventory loss due to the flood?
a. 3,000 c. 4,400
b. 2,500 d. 4,900

2. On October 1, 20x1, the warehouse of ABC Co. and all inventories contained therein were
razed by fire. Off-site back up of data base shows the following information:
Inventory, Jan. 1   20,000
Net purchases 190,000
Net sales from Jan. to Sept.        240,000
Gross profit rate based on cost                         25%

Twenty percent of the inventory contained in the warehouse has been salvaged from the fire while
half is partially damaged and can be sold as scrap at thirty percent of its cost. How much is the
inventory loss due to the fire?
a. 18,000 c. 9,000
b. 5,400 d. 11,700

Use the following information for the next two questions:

Presented below is information pertaining to ABC Co.:
Cost Retail
Inventory, January 1 21,750 35,000
138,25
Purchases 200,750
0
Freight-In 5,000 -
Purchase discounts 1,250 -
Purchase returns 13,000 21,500
Departmental Transfers-In (Debit)                                                2,500 3,750
Departmental Transfers-Out
2,000 3,000
(Credit)                                                                                                 
 Markups                                                                                                   15,000
Markup cancellations                                                                                 5,000
Markdowns                                                                                                30,000
Markdown cancellations                                                                            7,500
Abnormal spoilage (theft and casualty loss) 12,500 17,500
Sales                                                                                                      109,500
Sales returns 6,250
Sales discounts                                                                                         2,500
Employee discounts                                                                   1,250
Normal spoilage (shrinkage and breakages)                                                                           500

3. How much is the ending inventory under the Average cost method?
a. 60,750
b. 60,000
c. 61,050
d. 62,400

4. How much is the ending inventory under the FIFO cost method?
a. 60,750
b. 60,000
c. 61,050
d. 62,400

SOLUTIONS:
1. A
Solution:
Accounts
  payable 
3,000 Beginning balance 
Payments to suppliers  50,000 49,000 Net purchases (squeeze) 
Ending balance  2,000

The computed “Gross purchases” is extended to the “Inventory” T-account as follows:

Inventory 
Beginning
balance  10,000
Net purchases  49,000
Freight-in  500 52,500 Cost of goods sold * 
7,000 End. bal. (squeeze) 

*“Cost of goods sold” is computed as follows: 

Gross sales  80,000
Sales returns  (5,000)
Net sales  75,000
Multiply by: Cost ratio (100% - 20% GPR based on
sales)  70%
Cost of goods sold  52,500

Inventory, Sept. 30 (see T-account

above) 7,000
Goods in transit (1,000)
Goods out on consignment                (1,200)
Salvage value (1,800)
Inventory loss due to flood                    3,000
 2. D
Solution:
  Inventory  
Jan. 1 20,000  
Net purchases 190,000 192,000 COGS (240K x 100/125)
  18,000 Sept. 30 (squeeze)
       
Inventory, Sept. 30       18,000 
Salvaged (20% x 18,000)         (3,600)
Partially damaged (50% x 18,000 x 30%)         (2,700)
Loss from fire       11,700 

3. B
Solution:
Cost Retail
Inventory, January 1 21,750 35,000
Net purchases (a) 129,000 179,250
Departmental transfers-in (debit)                                         2,500 3,750
Departmental transfers-out (credit)                                                                                                 (2,000) (3,000)
Net markups (15,000 – 5,000) 10,000
Net markdowns (30,000 – 7,500) (22,500)
(12,500
Abnormal spoilage (theft and casualty loss)  (17,500)
)
Total goods available for sale  138,750 185,000
Net sales (b) (105,000)
Ending inventory at retail 80,000

(a) 
Cost Retail
Purchases 138,250 200,750
Freight-In 5,000 -
Purchase
(1,250) -
discounts
(13,000
Purchase returns (21,500)
)
Net purchases 129,000 179,250

The Average cost ratio is computed as follows:

Total goods avail. for sale at cost
Cost ratio             (Average cost
= Total goods avail. for sale at sales price or at
method)
retail
       
      Average cost ratio      =    (138,750 ÷ 185,000) = 75%  

(b) Net sales is computed as follows:

     
Sales
109,500 
Sales returns         (6,250)
Employee
        1,250 
discounts
Normal spoilage             500 
   
Net sales
105,000 

The ending inventory at cost is estimated under the Average cost method as follows:
Ending inventory at retail (or at selling price)     80,000
Multiply by: Average cost ratio         75%
Ending inventory at cost     60,000

4. D
Solution:
Based on the solutions from the previous problem, the cost ratio under the FIFO cost method is computed
as follows:
(d) The FIFO cost ratio is computed as follows:
TGAS at cost less beg. inventory at cost 
Cost ratio                 (FIFO cost
= TGAS at retail less beg. inventory at
method)
retail 
  FIFO cost ratio       =   [(138,750 – 21,750) ÷ (185,000 – 35,000)] 
                                  = 78%  

The ending inventory at cost is estimated under the FIFO cost method as follows:
Ending inventory at retail     80,000
Multiply by: FIFO cost ratio         78%
Ending inventory at cost     62,400