1ST LONG EXAM

Theories:
1. Nontrade receivables are classified as current assets only if they are reasonably expected to be realized
in cash
a. Within one year, the length of the operating cycle notwithstanding
b. Within one year or at the normal operating cycle whichever is longer
c. Within the normal operating cycle
d. Within one year or at the normal operating cycle whichever is shorter

2. When the direct write off method is used, the entry to write off a specific customer account would
a. Decrease both accounts receivable and net income
b. Increase both accounts receivable and net income
c. Have no effect on net income
d. Increase in net income

3. When the direct write off method of recognizing bad debts expense is used, the entries at the time of
collection of an account previously written off would
a. Increase the net realizable value of the accounts receivable
b. Decrease the net realizable value of the accounts receivable
c. Increase net income

4. Which of the following checks would not be classified as cash?

a. Traveler’s check
b. Manager’s check
c. Undelivered check
d. None of the above

5. When the allowance method of recognizing bad debts expense is used, the entry to record the write off
of a certain accounts would
a. Have no effect on accounts receivable account
b. Decrease allowance for bad debts
c. Decrease in net income
d. Decrease current asset

6. Investment in time deposit, money market instruments and treasury bills should be classified as follows:
I – if the term is three months or less, such investments are classified as cash equivalents and
therefore included in the caption “cash and cash equivalents”.
II – if the term is more than three months but within one year, such investments are classified as
short term or temporary investments and presented separately as current asset.
III – if the term is more than one year, such investments are classified as long term investments.
IV – if investments become due within one year from the end of the reporting period, they are
reclassified as temporary investments.
a. All of the statements are incorrect
b. All of the statements are correct
c. Only three of the statements are correct
d. Only two of the statements are correct
e. Only one of the statement is correct

7. In the bank reconcillition which of the following is incorrect?

a. Note receivable collected by bank in favor of the depositor and credited to the account of the
depositor must be added to the cash balance per ledger in preparing a bank reconciliation.
 b. Interest paid by the bank on account is added to the book balance
c. If the balance shown on entity’s bank statement is less than the adjusted cash balance there might
be a deposit in transit.
d. If the cash balance on entity’s record is less than the adjusted balance there might be a deposit
credited by the bank but not yet recorded by the entity.
e. Outstanding check would be added to the balance per bank statement to arrive at the correct
balance.

8. On January 1, 2019, an entity sold an equipment with a cost of P100,000 for P500,000. The buyer paid a
down of P150,000 and signed a noninterest bearing note for the remaining balance payable in equal
annual installment. In journalizing the sale of equipment, the journal entry will include the following
account title.
Debit Credit
a. Cash and Notes Receivable Equipment, Gain on sale of Equipment and
Unearned interest income
b. Cash and Notes Receivable Equipment
c. Cash and Notes Receivable Equipment and Unearned Interest Income
d. Cash and Notes Receivable Equipment and Gain on Sale of Equipment
e. None of the above

9. Cash set aside for a particular purpose (ex. Restricted) is

a. Recorded in off balance sheet records.
b. Still classified as current asset regardless of the purpose for its establishment
c. May be classified as current or noncurrent depending on the purpose for its establishment.
d. Immediately classified as non current

10. Which of the following receivables will be normally accounted as noncurrent asset?
a. Advances to affiliates
b. Advances to suppliers
c. Creditor’s account that may have debit balances as a result of overpayment or returns and
allowances
d. Claims receivables such as claims from insurance entity
e. None of the above
11. Bank reconciliations are prepared on a monthly basis to identify adjustments in the depositor’s records
and to identify errors. Adjustments should be recorded by the depositor for
a. Bank service charges, NSF checks, outstanding checks and deposit in transit
b. Book errors and bank errors
c. All items, except bank errors, outstanding checks and deposit in transit
d. Bank errors, outstanding checks and deposit in transits.

12. If the cash balance in an entity’s bank statement is less than the correct cash balance and neither the
entity nor the bank has made any errors, there must be
a. Deposit in transit
b. Bank charges not yet recorded by the entity
c. Outstanding checks
d. Deposits credited by the bank but not yet recorded by the entity.

13. All of the following can be classified as cash and cash equivalents, except
 a. A bank overdraft
b. Equity investments
c. Commercial papers held and due for repayment in 90 days
d. Redeemable preference shares acquired and due in 60 days

14. A deficiency in cash control that may conceal cash shortage by way of manipulating accounts receivable
by customers.
a. Window dressing c. Kiting
b. Lapping d. Defalcation

15. Which of method of estimating doubtful accounts fairly presents the net realizable value of accounts
receivable?
a. Percentage of sales method
b. Aging of accounts receivable method.
c. Percent of accounts receivable method
d. Direct write off method

16. The ABC Company’s ledger showed the balance in its cash account at December 31, 2019 of P68,225
which was determined to consist of the following:
 Petty Cash fund – P360
 Cash in Metrobank, per bank statement, with a check for P600 still outstanding – P33,675
 Notes receivable in the possession of a collecting agency – P2,500
 Undeposited receipts, including a postdated check for P1,050 and a traveler’s check for P1,000 –
P17,800
 Bond sinking fund – cash – P12,750
 IOU signed by employees – P495
 Paid vouchers, not yet recorded – P645
At what amount should “Cash on hand and in bank” be reported on ABC’s statement of financial
position?

17. The cash account of ABC Corp on December 31, 2019 has a balance of P127,600 and it consists of the
following:
 Bills and coins on hand – P52,780
 Petty cash including petty cash vouchers of P650 – P1,000
 Balance in savings account with a bank closed by the BSP – P36,000
 Customer’s check dated January 15, 2020 – P8,000
 Credit memo from suppliers for purchase returns – P6,500
 Postage stamps – P120
 Money order – P800
 IOU of an employee- P400
 Checking account balance in Bank of P.I. – P22,000
The correct cash balance on December 31, 2019 of ABC Corp is?

18. The following data pertain to ABC Corporation on December 31, 2019:
Current account at Metrobank P3,500,000 Current account at Allied P(250,000)
Bank
Payroll Account 250,000 Foreign bank (in pesos) 1,200,000
Savings deposit in a closed 375,000 Postage stamps 2,500
bank
 Employee’s post dated check 10,000 IOUs from employees 25,000
Credit memo from a vendor 50,000 Traveler’s check 125,000
for a purchase return
Money order 75,000 Petty cash fund (P10,000 in 25,000
currency and expense
receipts for P15,000
Pension fund 5,000,000 DAIF check of customer 37,500
Customers check dated 1/1/20 200,000 Time deposit – 30days 500,000
Money market placement (due 1,250,000 Treasury bills, due 3/31/20 500,000
on 6/30/20) (purchased 12/31/19)
Treasury bills, due 1/31/20 750,000
(purchased 2/1/19)
The cash and cash equivalents as of December 31, 2019 is?

19. On April 1, ABC Company established an imprest petty cash fund for P40,000 by writing a check drawn
against the checking account. On April 30, the fund contained the following: Currency and coins –
P12,000; receipts from office supplies – P16,000; Receipts for postage still unused – P8,000; receipts for
transportation – P2,400. On April 30, the entity wrote a check to replenish the fund, what is the amount
of the replenishment under the imprest fund system?
20. On April 1, ABC Company established an imprest petty cash fund system for P30,000 by writing a
check drawn against the checking account. On April 30, the fund contained the following: Currency and
coins – P9,000; receipts from office supplies – P12,000; Receipts for postage still unused – P6,000;
receipts for transportation – P1,800. On April 30 journal entry to replenish the fund, what amount should
be credited to Cash short and over?

21. The controller for ABC Company is attempting to determine the amount of cash to be reported on its
December 31, 2019, a statement of financial position. The following information is provided.
 Commercial savings account of P600,000 and a commercial checking account balance of
P900,000 are held at Financial Bank of Majimbo.
 Money market fund account held at XYZ Co. (a mutual fund organization permits ABC to write
check on this balance, P5,000,000.
 Travel advances of P180,000 for executive travel for the first quarter of next year (employee to
reimburse through salary deduction).
 A separate cash fund in the amount of P1,500,000 is restricted for the retirement of long term
debt.
 Petty cash fund of P1,000
 An IOU from XYZ, a company customer, in the amount of P190,000.
 A bank overdraft of P110,000 has occurred at one of the banks the company uses to deposit its
cash receipts. At the present time, the company has no deposits at this bank.
 The company has two certificates of deposit, each totalling P500,000. These CDs have a
maturity date of 120 days.
 ABC has received a check that is dated January 12, 2020, in the amount of P125,000.
 ABC has agreed to maintain a cash balance of P500,000 at all times at Financial Bank of
Majimbo to ensure future credit availability.
 ABC has purchased P2,100,000 of commercial paper of LMN Co. which is due in 60 days.
 Currency and coin on hand amounted to P7,700.
  Cash deposited in National Bank - $5,000 (Exchange rate when it was deposited $1- P45;
Exchange rate on December 31, 2019 - $1-P49)
Compute the cash and cash equivalents to be reported on ABC’s statement of financial position on
December 31, 2019?.

22. ABC Company closed the accounts on August 30, 2020. The entity provided the following transactions.
 June 2 – The entity established a petty cash fund amounting to P15,000.
 July 30 - The fund is replenished. The petty cash items includes the following: Currency and coins –
3,000 ; unreplenished petty cash vouchers – 9,750; IOUs from officers – 2,250
 August 28 – The fund was not replenished. The fund is composed of the following : Currency and coins
– 9,000; receipts and vouchers – 3,000; employees vales – 3,000
 September 15 – The fund is replenished and increased to P20,000. Currency and coins – 4,500; receipts
and vouchers – 6,500; employees vales – 3,000
Which of the following is correct?
a. Under the Imprest system, the balance of Petty Cash Fund on August 28 will be P9,000
b. Under the Fluctuating system, the balance of Petty Cash Fund on August 30, 2020 will be P9,000
c. Under the Imprest system, a credit to Cash amounting to P15,500 will be made on September 15,
2020
d. Under the Fluctuating system, a debit to Petty cash fund amounting to P15,500 will be made on
September 15, 2020
e. All statements are correct

23. The cashier of ABC Inc. prepared the following bank reconciliation:
Balance per Bank P28,375
Deposit in Transit:
12/30/2019 P4,500
12/31/2019 1,525 6,025
Outstanding Checks:
160 - 11/30/19 P2,200
214 – 12/26/19 675
219 – 12/27/19 850
225 – 12/29/19 2,500
228 – 12/31/19 7,225 (13,450)
Customer note collected by bank (3,000)
Check# 216, written on 12/27/19 for P270 was erroneously
charged by the bank as P720; bank was notified on 1/2/20 450
Book Balance P18,400
The adjusted cash balance as of December 31, 2019 is

24. The books of ABC Service Inc. disclosed a cash balance of P68,757 on June 30. The bank statement as
of June 30 showed a balance of P54,780. Additional information that might be useful in reconciling the
two balances follows:
 Check number 748 for P3,000 was originally recorded on the books as P4,500
 A customer’s note dated March 25 was discounted on April 12. The note was dishonored on June
29 (maturity date). The bank charged ABC’s account for P14,265, including a protest fee of P42.
 The deposit of June 24 was recorded on the books as P2,895, but it was actually a deposit of
P2,700.
 Outstanding checks totaled P9,885 as of June 30
 There were bank service charges for June of P210 not yet recorded on the books
  ABC’s accounts had been charged on June 26 for a customer’s NSF check for P1,296
 ABC properly deposited P600 on June 3 that was not recorded by the bank.
 Receipts of June 30 for P13,425 were recorded by the bank on July 2
 A bank memo stated that a customer’s note for P4,500 and interest of P165 had been collected on
June 27, and the bank charged a P36 collection fee.
What is the correct cash balance at June 30?

25. ABC Company provided the following data for the purpose of reconciling the cash balance per book
with the cash balance per bank statement on December 31: Balance per Bank Statement – P1,500,000;
Outstanding checks (including certified check of P100,000) – P500,000; Deposit in transit – P200,000;
December NSF check (of which P50,000 had been redeposited and cleared by December 27) –
P150,000; Erroneous credit to ABC account, representing proceeds of loan granted to another entity –
P300,000; Proceeds of note collected by bank for ABC, net of service charge of P20,000 – P750,000.
What is the unadjusted cash in bank as reported in the books of ABC on December 31?

26. On December 31,2019 the accounts receivable control of ABC Corp had a balance of P181,000. An
analysis of the accounts receivable account showed the following:
 Accounts known to be worthless – P2,500
 Advance payments to creditors on purchase orders – P10,000
 Advances to affiliated companies – P25,000
 Customer’s accounts reporting credit balance arising from sales return – P(15,000)
 Interest receivable on bonds – P10,000
 Other trade accounts receivable – unassigned – P50,000
 Subscriptions receivable for ordinary share capital due in 30 days – P55,000
 Trade accounts receivable – assigned – P15,000
 Trade installment receivable due 1-18 months (including unearned finance charges, P2,000) –
P22,000
 Trade receivables from officers, due currently – P1,500
 Trade accounts on which post dated checks are held (no entries were made on receipts of checks)
– P5,000
The correct amount of trade accounts receivable of ABC on December 31, 2019 is?

27. ABC Corp estimates uncollectible accounts at ½% of accounts receivable. The company reported
accounts receivable and allowance for uncollectible accounts of P471,000 and P1,650 respectively, at
December 31, 2018. During 2019, ABC’s credit sales and collections were P315,000 and P319,000
respectively, and P1,720 in accounts receivable were written off. The balance of ABC’s accounts
receivable to be presented in financial position on DECEMBER 31, 2019 is?

28. ABC Company had the following information relating to its accounts receivable:
 Accounts receivable, 12/31/2018 – P1,300,000
 Credit sales for 2019 – P5,400,000
 Collections from customers for 2019, excluding recovery – P4,750,000
 Accounts written off 9/30/2019 – P125,000
 Collection of accounts written off in prior year (customer credit was not reestablished) – P25,000
 Estimated uncollectible receivables per aging of receivables at 12/31/2019 – P165,000
On December 31, 2019, the amortized cost of accounts receivable is
 29. The unadjusted trial balance of ABC Company as at December 31, 2013 showed Accounts Receivable –
trade with a balance of P693, 000. Investigation revealed that it included amounts due from officers –
P75,000; claim pending against freight company – P9,000 and refund on insurance policy – P4,500.
According to the subsidiary ledger which have been thoroughly checked and rechecked, the trade
accounts receivable totaled P600,000 (composed of current accounts – P375,000; two-month accounts –
P120,000; and accounts three months or more – P105,000). Responsible officials have acknowledged
definite uncollectibility of three month accounts with balance totaling P22,500; they have expressed
doubt with respect to an additional P24,000 worth of accounts in the same category; and they consider
all other accounts collectible. At what net realizable value should the accounts receivable trade be
carried in the statement of financial position of the company as of December 31, 2013?

30. On June 9, ABC Corp sold merchandise with a list price of P5,000 to Paul on account. ABC allowed
trade discounts of 30% and 20%. Credit terms were 2/20, n/40 and the sale was made FOB shipping
point. ABC prepaid P200 of delivery costs for Paul as an accommodation. On June 25, ABC received
from XYZ a remittance in full payment amounting to:

31. The ABC Company uses the net price method of accounting for cash discounts. In one of its transactions
on December 15, ABC sold merchandised with a list price of P500,000 to a client who was given a trade
discount of 20% and 15%. Credit terms were 2/10, n/30. The goods were shipped FOB destination,
freight collect. On December 20, the client returned damaged goods originally billed at P60,000. Total
freight charges paid by the client amounted to P7,500. What is the net realizable value of this receivable
on December 31?

32. ABC Company provided the following transactions affecting accounts receivable during the current
year:
 Sales (cash and credit) – P2,950,000
 Cash collection, all took advantage of cash discount 4/10, n/30 – P1,512,000
 Cash received from cash customers – P1,050,000
 Accounts receivable written off – P25,000
 Sales return and allowances based on credit sales – 125,000
 Cash refund on sales return based on cash sales – 10,000
 Recoveries on account written off in prior years – 40,000
If the accounts receivable beginning is P475,000, how much is the gross accounts receivable?

33. The following information pertains to ABC Company’s accounts receivable at December 31, 2019.
Days Amount Estimated %
Outstanding Uncollectible
0 -60 P120,000 1%
61-120 90,000 2%
Over 120 100,000 6%
During 2019, ABC wrote off P7,000 in receivables and recovered P4,000 that had been written off in
prior years. ABC’s December 31, 2018 allowance for uncollectible accounts was P22,000. Under the aging
method, what amount of accounts receivable (NRV) should ABC report at December 31, 2019

34. At January 1, 2020, ABC had a credit balance of P260,000 in its allowance for uncollectible accounts.
Based on past experience, 4% of ABC credit sales have been uncollectible. During 2020, ABC wrote off
 P325,000 of uncollectible accounts. Credit sales for 2020 were P9,000,000. In its December 31, 2020
statement of financial position, what amount should ABC report as allowance for doubtful accounts?

35. ABC Company reported current receivables on December 31, 2020 which consisted of the following:
Trade accounts receivable – P930,000; Allowance for uncollectible accounts – P20,000; Claim against
shipper for goods lost in transit in November 2020 – P30,000; Selling price of unsold goods sent by
ABC on consignment at 130% of cost and not included in the ending inventory – P260,000; Security
deposit on lease of warehouse used for storing inventories – P300,000. What is the correct total of
current net receivables on December 31, 2020?

36. ABC Company had net sales of P8,000,000 during the current year. At year end, before adjusting
entries, the balances in selected accounts were accounts receivable P2,000,000 debit and allowance for
doubtful accounts P20,000 debit. The entity estimated that 5% of accounts receivable will prove to be
uncollectible. How much will be debited to doubtful accounts expense?

37. ABC has note receivable from sale of plant bearing interest at 12% per annum. The note is dated
September 1, 2018. The note is payable in 3 annual installments of P1,000,000 plus interest on the
unpaid balance every June 1. The initial principal and interest payment was made on September 1, 2019.
The interest income for 2019 is?

38. On January 1, 2019, ABC Co. sold a machine costing P500,000 with carrying amount of P120,000 on
the date of sale. ABC received as consideration for the sale, a P300,000 non-interest bearing note, due
January 1, 2022. There was no established exchanged price for the equipment and the note had no ready
market. The prevailing interest for a note of this type at January 1, 2019 was 12% and 13% on
December 31, 2019. In relation to this transaction, the TOTAL INCOME to be recognized in ABC’s
2019 profit or loss is? (PV FACTOR SHOULD BE FOUR DECIMAL PLACES, FINAL ANSWER
SHOULD BE WHOLE NUMBER)

39. On January 1, 2016 ABC Company sold equipment with a carrying amount of P4,800,000 in exchange
for P6,000,000 note due in January 1, 2020. (Present value factor must be rounded off to 4 decimal
places, all other answers must in whole number). The note is an interest bearing note, 10% compounded
annually and full payment of principal and interest will be on the maturity date. How much is the
accrued interest receivable on December 31, 2017?

40. On December 31, 2019 ABC Company sold machinery with a carrying amount of P3,200,000 in
exchange with P4,000,000 note with an annual payment starting December 31, 2020 until December 31,
2024. (Present value factor must be rounded off to 4 decimal places, all other answers must be in whole
number). The note is non-interest bearing note with a cash selling price of P3,450,000. How much is the
carrying amount of the note on December 31, 2021?

41. On December 31, 2019, ABC Company sold for P3,000,000 an old equipment having an original cost of
P5,400,000 and carrying amount of P2,400,000. The terms of the sale were P600,000 downpayment and
P1,200,000 payable starting December 31, 2019 up to December 31, 2022. The sale agreement made no
mention of interest. However, 9% would be a fair rate for this type of transaction. (Present Value factor
must in four decimal places, all other answers must be whole number). How much is the Unearned
Interest income on December 31, 2021?
 42. On January 1, 2020, ABC company sold a land costing P1,000,000 which had a carrying amount of
P700,000, receiving a P250,000 downpayment and as additional consideration, a P800,000 noninterest
bearing requiring four annual installment starting December 31, 2020. The prevailing interest rate is
6%. How much is the Gross profit on 2020? . (Present Value factor must in four decimal places, all other
answers must be whole number).

43. On January 1, 2020 ABC Company sold a building and received a consideration P1,000,000 cash and a
P4,000,000 noninterest bearing note due on January 1, 2023. There was no established exchange price
for the building and the note had no ready market. The interest rate is 5%. What amount of interest
revenue should be reported on 2021? (Present Value factor must in four decimal places, all other
answers must be whole number).

The following data pertaining to the cash transactions and bank account of ABC Company for the month of
May are available to you:
 The adjusted cash in bank balance on May 31 – P30,000
 Bank service charge for May – P109
 Debit memo for the cost of printed checks delivered by the bank – P125
 Outstanding checks, May 31 – P6,728
 Deposit of May 30 not recorded by bank until June 1 – P4,880
 Proceeds of a bank loan of May 30, net of interest of P300 - P5,700
 Proceeds from a customer’s promissory note, including interest of P100 – P8,100
 Check #2772 issued to a supplier entered in the accounting records at P2,100 but deducted in
the bank statement at an erroneous amount of – P1,200
 Stolen check lacking an authorized signature, deducted from ABC’s account by the bank in
error – P800
 Customer’s check returned by the bank marked NSF; no entry has been made in the
accounting records to record the returned check – P760
44. How much is the cash in bank as reported in the ledger?
45. Based on the information, how much is the cash in bank in the bank statement?

The information that follows is available from the general ledger, cash in bank – BPI and the bank statement of
CPA Company for the month of August 2019:
 Bank statement balance, August 31, P1,430,000
 NSF Checks in August, P25,000
 Note collected by the bank in August including interest of P2,500 – P62,500
 Outstanding checks at the beginning in August, P47,650, at the end of August – P68,450
 Bank service charges for July – P1,200; For August – P1,400
 Deposit in transit at the beginning of August – P27,000; at the end of August – P32,900
 Error committed by the company’s accountant in recording check #1 for P16,000 was recorded as
P1,600 and Check #20 for P1,250 was recorded as P12,500
 Error committed by the company’s accountant in recording deposits for BPI checking account of
P12,000 was recorded as deposit to its BDO checking account, and deposits for its BDO checking
account of P16,000 was recorded as deposits to its BPI checking account.
 Bank error in recording a disbursement by the Company for P28,000 was recorded against the
company’s account.
46. The unadjusted balance per book, cash in bank – BPI is
47. The adjusted cash in bank – BPI balance is P1,422,450
 At the beginning of current year. ABC Company showed the following account balances: Accounts
Receivable – P1,500,000; Allowance for Doubtful Accounts – P60,000. The following summary transactions
occurred during the current year:
Sales on account 2/10 n/30 P10,500,000
Collections from customers within the discount period 3,675,000
Collections from customers beyond the discount period 5,850,000
Accounts Receivable written off as worthless 45,000
Recovery of accounts written off not included in the above collections 15,000
Credit memo for sales return 95,000

48. How much is the Accounts Receivable, End (gross)?

49. If the company uses 2% of SALES as doubtful accounts, how much is the Accounts Receivable, End
(net)?
50. If the company uses the percentage of accounts receivable as doubtful accounts, how much is the
Accounts Receivable, End (Net)?