PROBLEM NO.

You are engaged to examine the financial statements of the Napoleon Manufacturing Corp. for the year ended December 31,
2006. The following schedules for property, plant, and equipment and related accumulated depreciation accounts have been
prepared by your client. The opening balances agree with your prior year’s audit working papers.

Napoleon Manufacturing Co.

Analysis of Property, Plant, and Equipment and

Related Accumulated Depreciation Accounts

Year Ended December 31, 2006

Cost

Final Per books

12-31-05 Additions Retirement 12-31-06

Land P450,000 P100,000 P- P550,000

Buildings 2,400,000 350,000 - 2,750,000

Machinery & equipment 2,770,000 808,000 520,000 3,526,000

P5,620,000 P1,258,000 P520,000 P6,826,000

Accumulated Depreciation

Buildings P1,200,000 P103,000 P - P1,303,000

Machinery & equipment 546,500 313,600 - 860,100

P1,746,500 P416,600 P - P2,163,100

Further investigation revealed the following:

a. All equipment is depreciated on the straight-line basis (with no salvage value) based on the following estimated lives:
Buildings – 25 years, all other items 10 years.

b. The company entered into a lease contract for a derrick machine with annual rental of P100,000 payable in advance
every April 1. The parties to the contract stipulated that a 30-day written notice is required to cancel the lease.
Estimated useful life is 10 years. The derrick was recorded under machinery and equipment at P808,000 and P60,600,
applicable to the machine was included in the depreciation expense during the year.

c. The company finished construction of a new building wing in June 30. The useful life of the main building was not
prolonged. The lowest construction bid was P350,000 which was the amount recorded. Company personnel
constructed the building at a total cost of P330,000.

d. P100,000 was paid for the construction of a parking lot which was completed on July 1, 2006. The expenditure was
charged to land.
e. The P520,000 equipment under retirement column represent cash received on October 1, 2006 for a machinery
bought on October 1, 2002 for P960,000. The bookkeeper recorded depreciation expense of P72,000 on this machine in
2006.

f. 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, 2006. Since no money was involved,
the bookkeeper did not make any entry for the above transaction.

QUESTIONS:

Based on the above and the result of your audit, answer the following:

1. The carrying amount of the buildings on December 31, 2006 is

a. P1,820,250 b. P1,827,400 c. P1,816,250 d. P1,447,000

2. The carrying amount of the land on December 31, 2006 is

a. P650,000 b. P750,000 c. P450,000 d. P545,000

3. The loss on the disposal of the machinery sold for P520,000 is

a. P56,000 b. P152,000 c. P80,000 d. P0

4. The carrying amount of the property, plant and equipment as of December 31, 2006 is
a. P3,860,750 b. P3,755,750 c. P3,955,750 d. P3,312,900

5. In auditing plant assets and accumulated depreciation for proper valuation, the auditor should do the following,
except
a. Physically inspect major plant assets additions.
b. Recalculate depreciation expense on a test basis.
c. Vouch repairs and maintenance expense on a test basis.
d. Vouch major additions by reference to underlying documentation.

PROBLEM NO 2 – Proof of cash

You are able to obtain the following information in connection with your audit for the Cash account of the Syria Company as of
December 31, 2015:

November 30 December 31
a Balance per book P480,000 P420,000
b Undeposited collections 244,000 300,000
c Outstanding checks 150,000 120,000
d The bank statement for the month of December showed total credits of P240,000
e DAIF checks are recorded as a reduction of cash receipts. DAIF checks which are later redeposited are then recorded
as regular receipts. Data regarding DAIF checks are as follows:
1 Returned by the bank in Nov. and recorded by the company in Dec., P10,000.
2 Returned by the bank in Dec. and recorded by the company in Dec., P25,000.
3 Returned by the bank in Dec. and recorded by the company in Jan., P29,000.
f Check of Syria Company amounting to P90,000 was charged to the company’s account by the bank in error on
December 31.
g A bank memo stated that the company’s account was credited for the net proceeds of a customer’s note for P106,000.
h The company has hypothecated its accounts receivable with the bank under an agreement wherby the bank lends the
company 80% of the hypothecated accounts receivable. The company performs accounting and collection of the
accounts. Adjustments of the loan are made from daily sales reports and deposits.
i The bank credits the company accounts and increases the amount of the for 80% of the reported sales. The loan
agreement states specifically that the sales report must be accepted by the bank before the company is credited. Sales
 reports are forwarded by the company to the bank on the first day following the date of sale. The bank allocates each
deposit 80% to the payment of the loan, and 20% to the company account. Thus, only 80% of each day’s sales and
20% of each collection deposits are entered on the bank statement. The company accountant records the
hypothecation of new accounts receivables (80% of sales) as a debit to Cash and a credit to the bank loan as of the
date of the sales. One hundred percent of the collection on accounts receivables is recorded as cash receipts: 80% of
the collection is recorded in the disbursements book as a payment on the loan. In connection with the hypothecation,
the following facts were determined:

 Included in the undeposited collections is cash from the hypothecation of accounts receivable. Sales were P
180,000 on November 30, and P200,000 at December 31. The balance was made up from collections which were
entered on the books in the manner indicated above.
 Collections on accounts receivable deposited in December, other than deposits in transit, totalled P725,000.
j Interest on the bank loan for the month of December charged by the bank nut not recorded in the books, amounted to
P38,000.

REQUIRED:
Determine the following:

1 Unadjusted balance per books as of November 30

2 Unadjusted book receipts for December
3 Unadjusted book disbursements for December
4 Unadjusted balance per books as of December 31

PROBLEM NO. 4
Shown below is the bank reconciliation for Marikina Company for November 2006:

Balance per bank, Nov. 30, 2006 P150,000

Add: Deposits in transit 24,000

Total 174,000

Less: Outstanding checks P28,000

Bank credit recorded in error 10,000 38,000

Cash balance per books, Nov. 30, 2006 P136,000

The bank statement for December 2006 contains the following data:

Total deposits P110,000

Total charges, including an NSF check of P8,000 and a

service charge of P400 96,000

All outstanding checks on November 30, 2006, including the bank credit, were cleared in the bank 1n December 2006.

There were outstanding checks of P30,000 and deposits in transit of P38,000 on December 31, 2006.

Questions:

Based on the above and the result of your audit, answer the following:

1. How much is the cash balance per bank on December 31, 2006?
a. P154,000 c. P164,000
 b. P150,000 d. P172,400

2. How much is the December receipts per books?

a. P124,000 c. P110,000
b. P 96,000 d. P148,000

3. How much is the December disbursements per books?

a. P96,000 c. P89,600
b. P79,600 d. P98,000

4. How much is the cash balance per books on December 31, 2006?
a. P150,000 c. P180,400
b. P170,400 d. P162,000

5. The adjusted cash in bank balance as of December 31, 2006 is

a. P141,600 c. P172,000
b. P162,000 d. P196,000

PROBLEM NO. 5

In connection with your examination of the financial statements of Nagbukel, Inc. for the year ended December 31, 2006, you
were able to obtain certain information during your audit of the accounts receivable and related accounts.

The December 31, 2006 balance in the Accounts Receivable control accounts is P788,000.

The only entries in the Doubtful Accounts Expense account were:

 A credit for P1,296 on December 2, 2006 because Company A remitted in full for the accounts charged off on October
31, 2006; and
 A debit on December 31 for the amount of the credit to the Allowance for Doubtful Accounts.

The Allowance for Doubtful Accounts schedule is follows:

Debit Credit Balance

January 1, 2006 P14,632

October 31, 2006

Uncollectible accounts:
Company A – P1,296
Company B – P3,280
Company C – P2,256 P6,032 8,600

December 31, 2006 P39,400 P48,000

An aging schedule of the accounts receivable as of December 31, 2006 is presented below:

Amount to which the Allowance is to

Net debit be adjusted after adjustments and
Age balance corrections have been made

0 to 1 month P372,960 1 percent

1 to 3 months 307,280 2 percent

3 to 6 months 88,720 3 percent

Over 6 months 24,000 Definitely uncollectible, P4,000;

P8,000 is considered 50%
 uncollectible; the remainder is
estimated to be 80% collectible.

There is a credit balance in one account receivable (0 to 1 month) of P8,000; it represents an advance on a sales contract. Also,
there is a credit balance in one of the 1 to 3 months account receivable of P2,000 for which merchandise will be accepted by
the customer.

The ledger accounts have not been closed as of December 31, 2006. The Accounts Receivable control account is not in
agreement with the subsidiary ledger. The difference cannot be located, and you decided to adjust the control account to the
sum of the subsidiaries after corrections are made.

QUESTIONS:

Based on the above and the result of your audit, answer the following:

1. How much is the adjusted balance of Accounts Receivable as of December 31, 2006?
a. P794,000 c. P798,960
b. P793,200 d. P802,960

2. How much is the adjusted balance of the Allowance for Doubtful Accounts as of December 31, 2006?
a. P63,552 c. P18,937
b. P23,057 d. P19,057

3. How much is the net adjustment to the Allowance for Doubtful Accounts?
a. P24,493 debit c. P28,943 debit
b. P15,552 credit d. P29,063 debit

4. How much is the Doubtful Accounts expense for the year 2006?
a. P13,961 b. P18,411 c. P58,456 d. P13,841

5. How much is the net adjustment to the Doubtful Accounts expense account?
a. P20,352 debit c. P24,143 credit
b. P24,263 credit d. P19,693 credit

PROBLEM NO. 6

The following accounts were included in the unadjusted trial balance of Bani Company as of December 31, 2006:

Cash P 481,600

Accounts receivable 1,127,000

Inventory 3,025,000

Accounts payable 2,100,500

Accrued expenses 215,500

During your audit, you noted that Bani held its cash books open after year-end. In addition, your audit revealed the following:

1. Receipts for January 2007 of P327,300 were recorded in the December 2006 cash receipts book. The receipts of P180,050
represent cash sales and P147,250 represent collections from customers, net of 5% cash discounts.

2. Accounts payable of P186,200 was paid in January 2007. The payments, on which discounts of P6,200 were taken, were
included in the December 2006 check register.
3. Merchandise inventory is valued at P3,025,000 prior to any adjustments. The following information has been found
relating to certain inventory transactions.

a. Goods valued at P137,500 are on consignment with a customer. These goods are not included in the inventory figure.

b. Goods costing P108,750 were received from a vendor on January 4, 2007. The related invoice was received and
recorded on January 6, 2007. The goods were shipped on December 31, 2006, terms FOB shipping point.

c. Goods costing P318,750 were shipped on December 31, 2006, and were delivered to the customer on January 3, 2007.
The terms of the invoice were FOB shipping point. The goods were included in the 2006 ending inventory even
though the sale was recorded in 2006.

d. A P91,000 shipment of goods to a customer on December 30, terms FOB destination are not included in the year-end
inventory. The goods cost P65,000 and were delivered to the customer on January 3, 2007. The sale was properly
recorded in 2007.

e. The invoice for goods costing P87,500 was received and recorded as a purchase on December 31, 2006. The related
goods, shipped FOB destination were received on January 4, 2007, and thus were not included in the physical
inventory.

f. Goods valued at P306,400 are on consignment from a vendor. These goods are not included in the physical inventory.

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. P481,600 c. P334,300
b. P340,500 d. P346,700

2. Accounts receivable
a. P1,454,300 c. P1,127,000
b. P1,282,000 d. P1,274,250

3. Inventory
a. P3,017,500 c. P2,930,000
b. P3,040,000 d. P2,505,000

4. Accounts payable
a. P2,395,450 c. P2,286,500
b. P2,307,950 d. P2,301,750

5. Current ratio
a. P2.00 c. P1.84
b. P1.83 d. P2.01

PROBLEM NO. 7
Balungao Company engaged you to examine its books and records for the fiscal year ended June 30, 2006. The company’s
accountant has furnished you not only the copy of trial balance as of June 30, 2006 but also the copy of company’s balance
sheet and income statement as at said date. The following data appears in the cost of goods sold section of the income
statement:

Inventory, July 1, 2005 P 500,000

Add Purchases 3,600,000

Total goods available for sale 4,100,000

Less Inventory, June 30, 2006 700,000

Cost of goods sold P3,400,000

The beginning and ending inventories of the year were ascertained thru physical count except that no reconciling items were
considered. Even though the books have been closed, your working paper trial balance show all account with activity during
the year. All purchases are FOB shipping point. The company is on a periodic inventory basis.

In your examination of inventory cut-offs at the beginning and end of the year, you took note of the following:

July 1, 2005

a. June invoices totaling to P130,000 were entered in the voucher register in June. The corresponding goods not received
until July.
b. Invoices totaling P54,000 were entered in the voucher register in July but the goods received during June.

June 30, 2006

c. Invoices with an aggregate value of P186,000 were entered in the voucher register in July, and the goods were received in
July. The invoices, however, were date June.
d. June invoices totaling P74,000 were entered in the voucher register in June but the goods were not received until July.
e. Invoices totaling P108,000 (the corresponding goods for which were received in June) were entered the voucher register,
July.
f. Sales on account in the total amount of P176,000 were made on June 30 and the goods delivered at that time. Book entries
relating to the sales were made in June.

QUESTIONS:

Based on the above and the result of your cut-off tests, answer the following:

1. How much is the adjusted Inventory as of July 1, 2005?

a. P500,000 c. P576,000
b. P630,000 d. P370,000

2. How much is the adjusted Purchases for the fiscal year ended June 30, 2006?
a. P3,840,000 c. P3,894,000
b. P3,600,000 d. P3,914,000

3. How much is the adjusted Inventory as of June 30, 2006?

a. P784,000 c. P892,000
b. P500,000 d. P960,000

4. How much is the adjusted Cost of Goods Sold for the fiscal year ended June 30, 2006?
a. P3,316,000 c. P3,510,000
b. P3,970,000 d. P3,564,000

5. The necessary compound adjusting journal entry as of June 30, 2006 would include a net adjustment to Retained Earnings
of
a. P130,000 c. P76,000
b. P184,000 d. P54,000

PROBLEM NO. 8
In connection with your audit of Cuyapo Company’s financial statements for the year 2006, you noted the following
transactions affecting the property and equipment items of the company:

Jan. 1 Purchased real property for P5,026,000, which included a charge of P146,000 representing property tax for
2006 that had been prepaid by the vendor; 20% of the purchase price is deemed applicable to land and the
balance to buildings. A mortgage of P3,000,000 was assumed by Cuyapo on the purchase. Cash was paid for
 the balance.

Jan. 15 Previous owners had failed to take care of normal maintenance and repair requirements on the buildings,
necessitating current reconditioning at a cost of P236,800.

Feb. 15 Demolished garages in the rear of the building, P36,000 being recovered on the lumber salvage. The
company proceeded to construct a warehouse. The cost of such warehouse was P540,800, which was
P90,000 less than the average bids made on the construction by independent contractors. Upon completion
of construction, city inspectors ordered extensive modifications to the building as a result of failure on the
part of the company to comply with building safety code. Such modifications, which could have been
avoided, cost P76,800.

Mar. 1 The company exchanged its own stock with a fair value of P320,000 (par P24,000) for a patent and a new
equipment. The equipment has a fair value of P200,000.

Apr. 1 The new machinery for the new building arrived. In addition, a new franchise was acquired from the
manufacturer of the machinery. Payment was made by issuing bonds with a face value of P400,000 and by
paying cash of P144,000. The value of the franchise is set at P160,000, while the machine’s fair value is
P360,000.

May 1 The company contracted for parking lots and waiting sheds at a cost P360,000 and P76,800, respectively.
The work was completed and paid for on June 1.

Dec. 31 The business was closed to permit taking the year-end inventory. During this time, required redecorating
and repairs were completed at a cost of P60,000.

QUESTIONS:

Based on the above and the result of your audit, determine the cost of the following:

1. Land
a. P 940,000 c. P 976,000
b. P1,005,200 d. P1,052,800

2. Buildings
a. P4,645,600 c. P4,762,400
b. P5,005,600 d. P4,681,600

3. Machinery and equipment

a. P360,000 c. P576,615
b. P560,000 d. P659,692

4. Land improvements
a. P360,000 c. P436,800
b. P 76,800 d. P 0

5. Total property, plant and equipment

a. P6,764,400 c. P6,718,092
b. P6,731,200 d. P6,618,400

PROBLEM NO. 9

You noted the following items relative to the company’s Intangible assets in connection with your audit of the Paete
Corporation’s financial statements for the year 2006.
 On January 1, 2006, Paete signed an agreement to operate as franchisee of Clear Copy Service, Inc. for an initial franchise of
P680,000. Of this amount, P200,000 was paid when the agreement was signed and the balance was payable in four annual
payments of P120,000 each, beginning January 1, 2007. The agreement provides that the down payment is not refundable
and no future services are required of the franchisor. The implicit rate for loan of this type is 14%. The agreement also
provides the 5% of the revenue from the franchise must be paid to the franchisor annually. Paete’s revenue from the
franchise for 2006 was P8,000,000. Paete estimates that the useful life of the franchise to be ten years.

 Paete incurred P624,000 of experimental and development costs in its laboratory to develop a patent which was granted
on January 2, 2006. Legal fees and another costs associated with the registration of the patent totaled P131,200. Paete
estimates that the useful life of the patent will be eight years.

 A trademark was purchased from Tsek Company for P320,000 on July 1, 2003. Expenditures for successful litigation in
defense of the trademark totaling P80,000 were paid on July 1, 2006. Paete estimates that the trademark’s useful life will
be indefinite.

QUESTIONS:

Based on the above and the result of your audit, determine the following: (Round off present value factors to 4 decimal places)

1. Total expenses related to franchise in 2006

a. P503,914 c. P448,950
b. P535,200 d. P454,964

2. Carrying amount of franchise as of December 31, 2006

a. P549,644 c. P538,733
b. P494,680 d. P612,000

3. Carrying amount of patent as of December 31, 2006

a. P131,200 c. P124,640
b. P114,800 d. P123,482

4. Carrying amount of trademark as of December 31, 2006

a. P320,000 c. P304,000
b. P288,000 d. P400,000

5. Carrying amount of intangible assets as of December 31, 2006

a. P1,046,800 c. P1,009,480
b. P 984,444 d. P 929,480

PROBLEM NO. 10

Your audit client, Argao, Inc., is a public enterprise whose shares are traded in the over-the-counter market. At December 31,
2005, Argao had 3,000,000 authorized shares of P10 par value common stock, of which 1,000,000 shares were issued and
outstanding. The stockholders’ equity accounts at December 31, 2005 had a following balances.

Common stock P10,000,000

Additional paid-in capital 3,750,000
Retained earnings 3,250,000

Transactions during 2006 and other information relating to the stockholders’ equity accounts were as follows:

 On January 2, 2006, Argao issued at P54 per share, 50,000 shares of P50 par value, 9% cumulative convertible preferred
stock. Each share of preferred stock is convertible into two shares of common stock. Argao had 300,000 authorized
shares of preferred stock. The preferred stock has a liquidation value equal to its par value.

 On February 1, 2006, Argao reacquired 10,000 shares of its common stock for P16 per share.

 On April 30, 2006, Argao sold 250,000 shares (previously unissued) of P10 par value common stock to the public at P17
 per share.

 On June 15, 2006, Argao declared a cash dividend of P1 per share of common stock, payable on July 15, 2006, to
stockholders of record on July 1, 2006.

 On November 10, 2006, Argao sold 5,000 shares of treasury stock for P21 per share.

 On December 15, 2006, Argao declared the yearly cash dividend on preferred stock, payable on January 15, 2007, to
stockholders of record on December 31, 2006.

 On January 20, 2007, before the books were closed for 2006, Argao became aware that the ending inventories at December
31, 2005 were understated by P150,000 (after tax effect on 2005 net income was P90,000). The appropriate correction
entry was recorded the same day.

 After correcting the beginning inventory, net income for 2006 was P2,250,00.

QUESTIONS:

Based on the above and the result of your audit, determine the following as of December 31, 2006:

1. Additional paid-in capital

a. P5,700,000 c. P5,500,000
b. P5,525,000 d. P5,725,000

2. Unappropriated retained earnings

a. P4,125,000 c. P4,045,000
b. P4,035,000 d. P3,955,000

3. Treasury stock
a. P160,000 c. P55,000
b. P 80,000 d. P50,000

4. Total stockholders’ equity

a. P22,190,000 c. P24,690,000
b. P24,770,000 d. P24,840,000

5. Book value per share of common stock

a. P17.89 c. P17.71
b. P17.82 d. P15.41
ANSWER KEY

PROBLEM 1

1 P 1,816, 250
2 P 650, 000
3 P 56, 000
4 P 3, 955, 750
5 A

PROBLEM 2

Syria Company
Proof of Cash - Bank to Book Method
For the month of December, 2012

December
Nov. 30 Receipts Disb Dec. 31
Unadjusted bank balances 480,000 240,000 300,000 420,000

Undeposited collections:

November 30 100,000 (100,000)

December 31 140,000 140,000

Outstanding checks:

November 30 (150,000) (150,000)

December 31 120,000 (120,000)

DAIF checks:
Returned in Nov.,
recorded in Dec. 10,000 (10,000)
Returned and
recorded in Dec. (25,000) (25,000)

Returned in Dec., recorded in Jan. (29,000) 29,000

Erroneous bank debit (90,000) 90,000

Unrecorded bank
collection in Dec. (106,000) (106,000)
Anticipated loan proceeds from AR
hypothecation
Nov. 30 sales
(P180,000 x 80%) 144,000 (144,000)

Dec. 31 sales (P200,000 x 80%) 160,000 160,000

Deposits with loan payment (P725,000 x
80%) 580,000 580,000

Anticipated loan payment from undeposited collections

Nov. 30 (P100,000 x
80%) (80,000) (80,000)
 Dec. 31 (P140,000 x
80%) 112,000 (112,000)

Interest charge for bank loan in Dec. (38,000) 38,000

Unadjusted book balances 504,000 735,000 700,000 539,000

Syria Company
Proof of Cash - Adjusted Balance Method
For the month of December, 2012

December
Nov. 30 Receipts Disb Dec. 31
Unadjusted bank balances 480,000 240,000 300,000 420,000

Undeposited collections:

November 30 100,000 (100,000)

December 31 140,000 140,000

Outstanding checks:

November 30 (150,000) (150,000)

December 31 120,000 (120,000)

Erroneous bank debit (90,000) 90,000

Deposits with loan payment (P725,000 x
80%) 580,000 580,000
Adjusted bank balances 430,000 860,000 760,000 530,000
Unadjusted book balances 504,000 735,000 700,000 539,000

DAIF checks:
Returned in Nov.,
recorded in Dec. (10,000) 10,000
Returned and
recorded in Dec. 25,000 25,000

Returned in Dec., recorded in Jan. 29,000 (29,000)

Unrecorded bank
collection in Dec. 106,000 106,000
Anticipated loan proceeds from AR
hypothecation
Nov. 30 sales
(P180,000 x 80%) (144,000) 144,000

Dec. 31 sales (P200,000 x 80%) (160,000) (160,000)

Anticipated loan payment from undeposited collections

Nov. 30 (P100,000 x
80%) 80,000 80,000
Dec. 31 (P140,000 x
80%) (112,000) 112,000

Interest charge for bank loan in Dec. 38,000 (38,000)

Adjusted book balances 430,000 860,000 760,000 530,000
PROBLEM 4
Suggested Solution:
Dec. disb. cleared through the bank 49,600

Question No. 1 Add outstanding checks, Dec. 31 30,000

December disbursements per books P79,600

Balance per bank, Nov. 30, 2006 P150,000

Add: Total deposits per bank statement 110,000 Question No. 4

Total 260,000

Less: Total charges per bank statement 96,000 Balance per books, Nov. 30, 2006 P136,000

Balance per bank, Dec. 31, 2006 P164,000 Add December receipts per books 124,000

Total 260,000

Question No. 2 Less December disbursements per books 79,600

Balance per books, Dec. 31, 2006 P180,400

Total deposits per bank statement P110,000

Less deposits in transit, Nov. 30 24,000

Dec. receipts cleared through the bank 86,000 Question No. 5

Add deposits in transit, Dec. 31 38,000

December receipts per books P124,000 Balance per bank statement, 12/31/06 P164,000

Deposits in transit 38,000

Question No. 3 Outstanding checks ( 30,000)

Adjusted bank balance, 12/31/06 P172,000

Total charges per bank statement P96,000

Less: Outstanding checks, Nov. 30 P28,000 Balance per books, 12/31/06 P180,400

Correction of erroneous bank credit 10,000 NSF check ( 8,000)

December NSF check 8,000 Bank service charges ( 400)

December bank service charge 400 46,400 Adjusted book balance, 12/31/06 P172,000
 Account Adjusted Required
classification balance Rate Allowance

Answers: 1) C; 2) A; 3) B; 4) C; 5) C 0 to 1 month P380,960 1% P 3,809.60

PROBLEM 5 1 to 3 months 309,280 2% 6,185.60

Suggested Solution: 3 to 6 months 88,720 3% 2,661.60

Over 6 months 20,000 P8,000 – 50% 4,000.00

Question No. 1
P12,000 – 20% 2,400.00

P19,056.80
GL SL 0 to 1 1 to 3 3 to 6 Over 6

Unadjusted balances 788,000 792,960 372,960 307,280 88,720 24,000

Question No. 3
Add (deduct):

Understatement of
Balance per books P48,000
accounts written
off (P6,832- (800)
Add (deduct) adjustments:
P6,032)
AJE No. 1 P1,296
Definitely
uncollectible (4,000) (4,000) (4,000) AJE No. 2 ( 800)
accounts
AJE No. 3 (4,000)
Advances from
customers 8,000 8,000 8,000 AJE No. 4 (25,439) (28,943)

Accounts w/ credit Required allowance (See No. 2) P19,057

balances 2,000 2,000 2,000
Adjusting entries affecting Allowance for Doubtful Accounts and Doubtful Accounts
Unlocated difference 5,760
Expense
Adjusted balances 798,960 798,960 380,960 309,280 88,720 20,000
1) Doubtful account expense P1,296
Allowance for doubtful accounts P1,296
To correct entry made in recording recovery of account written off

2) Allowance for doubtful accounts P800

Accounts receivable P 800
To correct understatement of accounts written off
Question No. 2
3) Allowance for doubtful accounts P4,000
Accounts receivable P4,000
To write off definitely uncollectible accounts
 4) Allowance for doubtful accounts P25,439 Adjusted balances P334,300 P1,282,000 P3,017,500 P2,307,950
Doubtful account expense P25,439
To adjust allowance to required balance
Adjusting entries:

Questions No. 4 & 5 1) Accounts receivable (P147,250/.95) P155,000

Sales 180,050
Cash P327,300
Sales discount (P147,250/.95 x .05) 7,750
Balance per books (P39,400-P1,296) P38,104
2) Cash P180,000
Add (deduct) adjustments: Purchase discount 6,200
Accounts payable P186,200
AJE No. 1 P1,296
3.a) Inventory P137,500
AJE No. 4 (25,439) (24,143) (5 Cost of sales P137,500
)
3.b) Inventory P108,750
Doubtful accounts expense per audit P13,961 (4 Accounts payable P108,750
)

3.c) Cost of sales P318,750

Answers: 1) C; 2) D; 3) C; 4) A, 5) C Inventory P318,750

PROBLEM 6 3.d) Inventory P 65,000

Suggested Solution: Cost of sales P 65,000

Questions No. 1 to 4 3.e) Accounts payable P 87,500

Cost of sales P 87,500
Accounts Accounts
Cash Receivable Inventory Payable 3.f) No adjusting entry

Unadjusted balances P481,600 P1,127,000 P3,025,000 P2,100,500

Question No. 5
Add (deduct):

AJE No. 1 (327,300) 155,000 - -

Current assets
AJE No. 2 180,000 - - 186,200
Cash P 334,300
AJE No. 3.a - - 137,500 -
Accounts receivable 1,282,000
AJE No. 3.b - - 108,750 108,750
Inventory 3,017,500 P4,633,800
AJE No. 3.c - - (318,750) -
Divide by current liabilities
AJE No. 3.d - - 65,000 -
Accounts payable 2,307,950
AJE No. 3.e - - - (87,500)
Accrued expenses 215,500 2,523,450
 Total goods available for sale 4,470,000

Current ratio 1.84 Less Inventory, June 30, 2006 960,000

Cost of goods sold P3,510,000

Answers: 1) C; 2) B; 3) A; 4) B, 5) C

PROBLEM NO. 7 Question No. 5

Suggested Solution:
Compound adjusting entry:
Questions No. 1 to 3
Inventory, 7/1/05 P130,000
Purchases 240,000
Inventory, 6/30/06 260,000
Retained earnings (P130,000 - P54,000) P76,000
Inventory Inventory
Vouchers payable (P186,000 + P108,000) 294,000
7/1/05 Purchases 6/30/06 Cost of sales 260,000
Unadjusted balances P500,000 P3,600,000 P700,000
Answers: 1) B; 2) A; 3) D; 4) C, 5) C
Add (deduct) adj.:

Item a 130,000 - - PROBLEM NO. 8

Suggested Solution:
Item b - (54,000) -

Item c - 186,000 186,000 Question No. 1

Item d - - 74,000

Item e - - Total contract price P5,026,000

Item f - 108,000 - Less property taxes for 2006 146,000

Net adjustments 130,000 240,000 260,000 Adjusted cost of land and building 4,880,000

Percentage applicable to land 20%

Adjusted balances P630,000 P3,840,000 P960,000 Cost of Land P 976,000

Question No. 4 Question No. 2

Inventory, July 1, 2005 P 630,000 Cost allocated to building (P4,880,000 x 80%) P3,904,000

Add Purchases 3,840,000 Reconditioning costs prior to use 236,800

 Salvage proceeds from demolition of garages (36,000)

Construction cost of warehouse 540,800

Answers: 1) C; 2) A; 3) B; 4) C, 5) D
Cost of Buildings P4,645,600 PROBLEM NO. 9

Suggested Solution:
Notes:
1) The savings on construction of P90,000 should be ignored.
2) The modification costs of P76,800 and the redecorating and repair costs of
Question No. 1
P60,000 should be expensed.

Question No. 3
Down payment P200,000

Add PV of installment payments (P120,000 x 2.9137) 349,644

Fair value of equipment acquired on Mar. 1 P200,000 Cost of franchise 549,644
Fair value of machine acquired on Apr. 1 360,000 Divide by useful life 10
Cost of Machinery and equipment P560,000 Amortization of franchise 54,964

Periodic franchise fee (P8,000,000 x 5%) 400,000

Question No. 4 Imputed interest expense (P349,644 x 14%) 48,950

Total expenses related to franchise in 2006 P503,914

Parking lots P360,000

Waiting sheds 76,800 Question No. 2

Cost of Land improvements P436,800

Cost of franchise (see no. 1) P549,644

Question No. 5 Less amortization in 2006 (see no. 1) 54,964

Carrying amount of franchise, 12/31/06 P494,680

Land P 976,000

Buildings 4,645,600

Machinery and equipment 560,000

Question No. 3
Land improvements 436,800

Total cost of property, plant and equipment P6,618,400

 Cost of patent P131,200

Less amortization in 2006 (P131,200/8) 16,400

Carrying amount of patent, 12/31/06 P114,800

Question No. 4

Carrying amount of trademark, 12/31/06 P320,000

Notes: 1) Cost of defending the trademark should be expensed.

2) PAS 38 par. 107 states that an intangible asset with an indefinite useful life
shall not be amortized.

Question No. 5

Franchise (see no. 2) P494,680

Patent (see no. 3) 114,800

Trademark (see no. 4) 320,000

Carrying amount of intangible assets, 12/31/06 P929,480

Answers: 1) A; 2) B; 3) B; 4) A, 5) D
PROBLEM NO. 10 Treasury stock (5,000 shares x P16) P 80,000
APIC - from treasury stock transactions 25,000
Suggested Solution:
12/15 Retained earnings (2,500,000 x 9%) P 225,000
Dividends payable - preferred P225,000
Questions No. 1 to 4
12/31 Inventory, 1/1/06 P 150,000
Retained earnings P 90,000
Income tax payable 60,000
Preferred stock P 2,500,000

Common stock 12,500,000 12/31 Income summary P2,250,000

Retained earnings P2,250,000
Additional paid in capital 5,725,000 (1)
12/31 Retained earnings P 80,000
Retained earnings: Retained earnings - appropriated (cost of TS) P 80,000

Appropriated P 80,000
Question No. 5
Unappropriated 4,045,000 4,125,000 (2)

Treasury stock ( 80,000) (3)

Total stockholders' equity (see no. 4) P24,770,000
Total SHE, 12/31/06 P24,770,000 (4)
Less liquidation value of preferred stock 2,500,000

Common stockholders' equity 22,270,000

Prepare T-accounts for each component of the stockholders’ equity. Place the balances
as of January 1, 2006, journalize the transactions affecting the SHE accounts, post the Divide by common shares outstanding 1,245,000
entries to the affected accounts, then extract the balances.
Book value per share of common stock P 17.89
Journal entries affecting the stockholders equity accounts during 2006:

1/2 Cash (50,000 shares x P54) P2,700,000 Answers: 1) D; 2) C; 3) B; 4) B, 5) A

Preferred stock (50,000 shares x P50) P2,500,000
APIC - excess over par of preferred stock 200,000

2/1 Treasury stock (10,000 x P16) P 160,000

Cash P 160,000

4/30 Cash (250,000 shares x P17) P4,250,000

Common stock (250,000 shares x P10) P2,500,000
APIC - excess over par of common stock 1,750,000

6/15 Retained earnings P1,240,000*

Dividends payable - common P1,240,000

* [(1,000,000 + 250,000 – 10,000) x P1]

11/10 Cash (5,000 shares x P21) P 105,000