CHAPTER 1 Caselette - Accounting Cycle

CHAPTER 1 - Accounting Process &Working Paper Preparation Exercises: Indicate your answer by encircling the letter that contains your choice in each of the following questions. 1. One is using periodic inventory system. For the year, its total purchases amounted to P250,000. Its unsold merchandise at the end of the year has a cost of P5,000 which is 80% of its beginning inventory. One’s cost of sale is a. P 250,000 b. P 251,250 c. P 249,000 d. P 248,750 2. Two’s purchase per purchase invoice is P150,000. The purchase discount is 2/10, n/30. Freight is P500, FOB shipping point collect. The net purchase amounts under net method is a. P P147,000 b. P 147,500 c. P 148,500 d. P 150,500 3. Using the information in Item 2, the amount paid by the buyer is a. P P147,000 b. P 147,500 c. P 148,500 d. P 150,500 4. The purchase invoice shows the amount of P250,000, 2/10, 1/20, n/30; FOB destination collect, P200. If the account is paid 15 days after the invoice date, the net payment should be a. P 245,000 b. P 247,500 c. P 247,300 d. P 244,800 5. Using the information in Item 4, the net purchase is a. P 245,000 b. P 247,500 c. P 247,300 d. P 244,800 6. Three purchased merchandise for P5,000 and paid P200 for freight, FOB destination collect. The merchandise was sold at 120% of cost. The gross profit is a. P 1,000 b. P 1,040 c. P 6,000 d. P 6,240 7. The total purchase is P1,176, net of 2% cash discount. Unsold portion of purchase is P176. The sale is at mark-up of 10%. The gross profit is a. P 117.60 b. P 88.24 c. P 115.25 d. P 100.00 8. The term of a P300,000 purchase is 2/20, n/60, FOB shipping point prepaid, P300. If the account is paid on the 25th day from the invoice date, the total payment would be a. P 294,000 b. P 299,700 c. P 294,300 d. P 300,300 9. Four paid freight for P200 on its purchase on account from Five, FOB shipping point. The journal entry in both books of Four and Five would be Books of Four Books of Five a. Freight-out 200 Freight-in 200 Cash 200 Accounts payable 200 b. Freight-in 200 No entry Accounts receivable 200 c. Freight-in 200 No entry Cash 200 d. Freight-in 200 Freight-out 200 Cash 200 Accounts receivable 200 1 10. Six sold merchandise at list price of P250,000; 10; 5; n/30. Part of the sale amounting to P10,000 was returned due to defect. The amount to be collected by Six is a. P 205,200 b. P 203,750 c. P 204,000 d. P 195,200 11. Amar Company received P96,000 on April 1, 2002 for one year’s rent in advance and recorded the transaction with a credit to a nominal account. The December 31, 2002 adjusting entry is a. Debit rent revenue and credit unearned rent revenue, P24,000. b. Debit rent revenue and credit unearned rent revenue, P72,000. c. Debit unearned rent revenue and credit rent revenue, P24,000. d. Debit unearned rent revenue and credit rent revenue, P72,000. 12. Andoy Company paid P72,000 on June 1, 2002 for a two-year insurance policy and recorded the entire amount as insurance expense. The December 31, 2002 adjusting entry is a. Debit insurance expense and credit prepaid insurance, P21,000. b. Debit insurance expense and credit prepaid insurance, P51,000. c. Debit prepaid insurance and credit insurance expense, P21,000. d. Debit prepaid insurance and credit insurance expense, P51,000. 13. Antipuesto Company purchase equipment on November 1, 2002 and gave a 12-month, 9% note with a face value of P480,000. The December 31, 2002 adjusting entry is a. Debit interest expense and credit interest payable, P7,200. b. Debit interest expense and credit interest payable, P10,800. c. Debit interest expense and credit cash, P7,200. d. Debit interest expense and credit interest payable, P43,200. 14. On December 31, 2002, Asilo Company’s bookkeeper made an adjusting entry debiting supplies expense and credit supplies inventory for P12,600. The supplies inventory accounts had a P15,300 debit balance on December 31, 2001. The December 31, 2002 balance sheet showed supplies inventory of P11,400. Only one purchase of supplies was made during the month, on account. The entry for that purchase was a. Debit supplies inventory and credit cash, P8,700. b. Debit supplies expense and credit accounts payable, P8,700. c. Debit supplies inventory and credit accounts payable, P8,700. d. Debit supplies inventory and credit accounts payable, P16,500. 15. Astillo Company loaned P300,000 to another company on December 1, 2002 and received a 3-month, 15%, interest-bearing note with a face value of P300,000. What adjusting entry should Astillo Company make on December 31, 2002? a. Debit interest receivable and credit interest income, P7,500. b. Debit cash and credit interest income, P3,750. c. Debit interest receivable and credit interest income, P3,750. d. Debit cash and credit interest receivable, P7,500. . 16. The supplies inventory account balance at the beginning of the period was P66,000. Supplies totaling P128,250 were purchased during the period and debited to supplies inventory. A physical count shows P38,250 of supplies inventory at the end of the period. The year-end adjusting entry is a. Debit supplies inventory and credit supplies expense, P90,000. b. Debit supplies expense and credit supplies inventory, P128,250. c. Debit supplies inventory and credit supplies expense, P156,000. d. Debit supplies expense and credit supplies inventory, P156,000. 2 17. At the end of 2002, Avila Company made four adjusting entries for the following items: (1) depreciation expense, P35,000; (2) expired insurance, P2,200 (originally recorded as prepaid insurance); (3) interest payable, P9,000; and (4) rental revenue receivable, P10,000. In the normal situation, to facilitate subsequent entries, the adjusting entry or entries that may be reversed is/are a. Entry 1 c. Entries 3 and 4 b. Entry 4 d. Entries 2, 3, and 4 18. Bagaipo Company reported an allowance for doubtful accounts of P12,000 (credit) at December 31, 2002 before performing an aging of accounts receivable. As a result of the aging, Bagaipo Company determined that an estimated P20,000 of the December 31, 2002 accounts receivable would prove uncollectible. The adjusting entry at December 31, 2002 would be a. Doubtful accounts expense 8,000 Allowance for doubtful accounts 8,000 b. Doubtful accounts expense 20,000 Accounts receivable 20,000 c. Allowance for doubtful accounts 8,000 Doubtful accounts expense 8,000 d. Doubtful accounts expense 8,000 Interest revenue 8,000 19. Assuming that the company does not reverse the adjusting entries, what should be made on April 1, 200 when the annual interest payment is received? a. Debit cash and credit interest revenue, P9,375. b. Debit cash and credit interest receivable, P28,125. c. Debit cash, P37,500; credit interest receivable, P28,125; and interest revenue, P9,375. d. Debit cash and credit interest revenue, P37,500. 20. Using the data of No. 19, but assuming that the company does reverse its adjusting entries, what entry should be made on April 1, 2003 when the annual interest payment is received? a. Debit cash and credit interest revenue, P9,375. b. Debit cash and credit interest receivable, P28,125. c. Debit cash, P37,500; credit interest receivable, P28,125; and interest revenue, P9,375. d. Debit cash and credit interest revenue, P37,500. Answer: 1. b 2. b 11.a 12.d 3. a 13.a 4. c 14.c 5. b 15.c 6. a 16.d 7. d 17.c 8. d 18.a 9. c 19.c 10. a 20.d 3 Problem 1 The following is the post-closing trial balance of Abagon Shop dated February 1, 2006: Cash Accounts Receivable Allowance for doubtful accounts Unused shop supplies Shop Equipment Accumulated depreciation - shop equipment Accounts payable Notes payable Accrued interest payable Abagon, Capital Total Debit 120,000 280,000 Credit 2,800 800 240,000 48,000 640,800 88,800 100,000 1,200 400,000 640,800 For the month of February, the following are the transactions of Abagon Shop. 1. 2. 3. 4. 5. 6. 7. 8. 9. Abagon withdrew P100,000 cash from the business for her personal use. Paid P12,000 insurance premium. Paid P24,000 rent. Total service rendered to various customers, P140,000, 40% of total sales are on cash basis and the balance on open account. Received promissory note from customer to replace P40,000 accounts receivable. Collected in cash P164,000 of accounts receivable. Paid the notes payable of P100,000 plus the P2,400 interest. Purchased P2,400 shop supplies on cash basis. Paid salaries, P24,000. At the end of the month, the following information are available to effect adjustments. a. The insurance in number 2 for P12,000 is applicable for six months starting February. b. The rent of P24,000 paid in number 3 is for 3 months, starting February. c. The note receivable is number 5 is earning 12% interest per year. The note is dated February 1, and is due on April 30. d. Bad debts expense is estimated at 2% of accounts receivable balance. e. The annual depreciation is P48,000. f. The unused supplies balance is P1,000. Questions 1. Cash at end of February is: a. P 103,200 b. P 85,200 c. P 75,200 2. Net Realizable value of Accounts Receivable at end of February is a. P 156,800 b. P 157,200 c. P 196,800 3. Unused shop supplies at end of February is a. P 1,800 b. P 1,000 c. P 800 4. Net book value of Shop Equipment at end of February is a. P 188,000 b. P 189,000 c. P 184,000 4 d. P 72,800 d. P 197,200 d. P 200 d. P 144,000 5. Accounts Payable at end of February is a. P 128,800 b. P 88,800 c. P 86,400 d. P 48,800 6. Notes Payable at end of February is a. P 100,000 b. P 102,400 c. P 97,600 d. P 0 7. Abagon Capital, net of drawing at end of February is a. P 398,600 b. P 397,400 c. P 397,800 8. Net income of the company at end of February is a. P 98,600 b. P 97,400 c. P 97,800 d. P 388,600 d. P 88,600 9. Total Revenue of the company at end of February is a. P 142,800 b. P 142,400 c. P 140,400 d. P 140,000 10. Total Expenses of the Company at end of February is a. P 52,600 b. P 41,800 c. P 41,400 d. P 41,000 Solution 1 Abagon, drawing Cash 2 Insurance expense Cash 3 Rent expense Cash 4 Cash Accounts receivable Revenue 5 Notes receivable Accounts receivable 6 Cash Accounts receivable 7 Notes payable Interest expense Cash 8 Supplies expense Cash 9 Salaries Cash 100,000 12,000 24,000 56,000 84,000 40,000 164,000 100,000 12,000 24,000 140,000 40,000 164,000 100,000 2,400 2,400 24,000 102,400 2,400 24,000 Adjusting Entry: a b c d e f g Prepaid Insurance Insurance expense Prepaid rent Rent expense Interest receivable Interest income (P40,000 x 12% x 1/12) Bad debts Allowance for bad debts Depreciation Accum. depreciation Unused supplies Supplies expense Supplies expense Unused supplies Accrued interest payable Interest expense To reverse the beg. accrued interest payable 10,000 16,000 400 10,000 16,000 400 400 4,000 1,000 800 1,200 400 4,000 1,000 800 1,200 5 A 9. par P1 per share.000 cash on 12%.00 0 800 1.800 1.000 ALLOW.000 800 1.00 0 NOTES RECEIV UNUSED SUPPLIES SHOP EQUIPMENT 40.200 - 100.000 RENT EXPENSE 24. for P15 per share and received cash in full.000 2.400 642.80 33. B 4.20 0 160.200 1.600 98.000. A 9.400 _______ 680. b.000 REVENUE 140.600 642. B 5. B Problem 2 The following selected transactions were completed during Year 1 of operations by Vicar Corporation: a.000 ACCOUNTS PAY 88.000 88.200 10. PAY 1. D 8. A 5.400 400.200 40. DRAWING 1. INT.200 24.400 Answer: 1. Year 2.000 52.000 INSURANCE EXP 12.000 ACCUM.800 680. Borrowed P100. C 2. FOR BD SALARIES INCOME STATEMENT 3.000 140.000 2.800 - ACC.000 800 10. CAPITAL 400. interest payable at maturity on April 30.000 100.000 240.000 240. C ________ 140.000 shares of its own common stock.000 41.600 140.80 0 0 4.600 10.00 0 PREPAID INS PREPAID RENT INTEREST RECEI 10. one-year note.000 _______ 33.800 NOTES PAYABLE 4.000 ABAGON.000 1. Purchased equipment for use in operating the business at a net cash cost of P164. c.20 0 CASH ACCNTS RECEIV 160. A BALANCE SHEET 75.TRIAL BALANCE ADJUSTMENTS 75.000 2.400 ________ _______ 140.000 INTEREST EXP 24. 6 .000 16.000 SUPPLIES EXP 2.800 NET INCOME 98.00 0 400 400 INTEREST INC 400 BAD DEBTS 400 400 DEPRECIATION 400 4.000 8. paid in full.200 ABAGON.800 400 3.00 0 16. Sold of its 20.000 2. DEPN 48.00 0 16. 650 b. P 149.800 if paid within 10 days. Land account balance is: a. P 164. the premium was for two years’ coverage (debit Prepaid insurance). P600. f. the balance remains unpaid. and the balance is due in one month.000 b. P 2. P63. P 157. P 227. Sold merchandise for P180.000 cash for operating expenses. periodic inventory system. therefore. The merchandise will cost P9. P 10.000 cash. Common stock balance is: 7 . Equipment account balance is: a. P 112. therefore.d. Assume a Paid P30.000 8. Paid damages to a customer who was injured on the company premises. Paid ¾ of the balance for the merchandise purchased in (e) within 10 days. P 600 b. j. P 157. e. Purchased merchandise for resale on credit terms of 2/10. Collected 50% of the balance due on the sale in (f). Questions Using the unadjusted trial balance.000.900 2. n/60.150 7.000 cash. Accounts receivable balance is: a. answer the following: 1.550 b.500 c. P 157. Purchased a tract of land for a future building for company operations. P 88. P 63. P 300 d. Paid cash for an insurance premium.000 d.000 b. P 7.000 c. l.450 d.700 d. P 400 c. Accounts payable balance is: a. such purchased are recorded at net of the discount.000 c. Prepaid insurance balance is: a. P 200 4.000 d. P 2. P 7.000 c. P 101. debit Purchases.000 cash.250 d.000 c.000 d.500 3.000 6.000. the payment will be P10. P 15. P 101. P 2. collected P165.000. Purchased merchandise for resale at cash cost of P140.400 c. k. P 2. the remaining balance is uncollected. P 100. i. Cash balance is: a.000 b. g. P 164. P 109. Notes payable balance is: a.000 5. after 10 days. P 227. h. paid cash. P10. The company always takes the discount.000 b. P 63. 200 Solution (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) (k) (l) Cash 300.000 b.000 180. P 80.000 Notes payable 100.000 200 10. Premium on capital stock balance is: a.000 d.800 4.000 Common stock 20.400 7.800 2.000 280.800 Accounts payable 9.500 Cash 7. Purchases balance is: a.000 Cash Accounts receivable Prepaid insurance Land Equipment Accounts payable Notes payable Common stock Premium on capital stock Sales Purchases Operating expenses Purchase disc.000 c.000 Cash 63.000 1.500 Accounts receivable 7.000 d. P 160.600 c. P 180. a . P 40.000 d. b 8 3. P 149.000 d.000 Purchases 140. P 300. lost 200 Accounts payable 200 Accounts payable 7.000 Operating expenses 30. d 11.500 100. P 150. P 20.500 4. d 5.000 149.000 164. Operating expenses and other expenses is: a. P 200.000 3.000 Cash 30. P 40.000 Cash 100. P 280. P 20.000 Accounts receivable 15.000 Loss on damages 10. P 49.000 Cash 140.000 b.000 Purchase disc. a 12. d 9.800 30.000 d.a.000 b. P 280. P 200. b _______ 582.000 20. P 149.500 Cash 7.500 Prepaid insurance 600 Cash 600 Land 63.000 582.000 Purchases 9. b 7.000 Sales 180.200 c.800 Cash 165.000 Cash 10. P 38.000 Premium on capital stock 280.000 2. Sales balance is: a.800 b. a 157. P 300.500 6. b 10. P 150. lost Loss on damages Total ANSWER 1. P 100. b 2. c 8.500 600 63.000 Cash 164.000 c.000 b.000 c.000 Equipment 164. Purchased merchandise.000.000 on accounts receivable. P 50. Sales revenue of P98.000.000.000 cash.900 * Ending inventory. Assume a bad debt rate of ½% of credit sales for the period and a 32% income tax rate. P19. Sales revenue of P72.000 c. par P1. 10. Collected P17. Paid operating expenses.000 18. Paid accounts payable.500 7. P26.000 22. P 41.000 shares of common stock.700. cost P63.000. no salvage value) 50. P46.000 (at 12/31/20J) Credit 1. P 51.000. P18.000 Accounts receivable 21. 20J is: a. of which P27. P4.000 Prepaid insurance (20 mos. P45. 6. Paid income taxes payable (20I). 2.800.000 d. sold and issued 1. P 45. 20J.000 Allowance for doubtful accounts Inventory (perpetual inventory system) 35. remaining) 900 Equipment (20-year life. P100. of which P10. Collected cash on accounts receivable. accrued wages were P300. 6. of which P30.000 (in cash). for P1. Paid cash on accounts payable. 20I. 20J. 9.000. 4. 5. 5. of which P8. 8.000.000 Accumulated depreciation Accounts payable Wages payable Income taxes payable (for 20I) Common stock.000.000 was on credit. P28. par P1 Retained earnings Sales revenue Cost of goods sold Operating expenses Income tax expense Income summary -___ 133. Sales revenue at P30.000 9 . 3. P19. P40. At December 31. Use straight-line depreciation. 11.Problem 3 The post-closing trial balance of the general ledger of Wilson Corporation at December 31. Questions 1.500. Paid various operating expenses in cash. On January 1.000. Cash at December 31.000 was on credit.000 was on credit. 7. Purchased merchandise.000 b. cost provided by perpetual inventory record.900 The following transactions occurred during 20J in the order given (use the number at the left to indicate the date): 1.900 - ______ 133.000 was on credit. cost.500 4. reflected the following: Account Debit Cash 27.000 80.000. P6. 000 d.000 Cash (6) Cash 72.000 Accounts receivable 10. Accounts receivable at December 31. P 9. P 45. P 20. Income taxes payable at December 31.000 c.500 8.000 72.660 Solution (1) Cash 20.000 19. 20J is: a.000 c. 20J is: a. P 39.000 Sales Cost of sales 19. P 60.600 b.000 b. P 18.651 d.909 d.000 d. P 15.000 b.000 (5) Accounts payable 6.00 b.500 Inventory (2) Cash 17. P 38.000 Cash Accounts payable 27.000 d. P 16. Prepaid insurance at December 31. P 4.000 c.000 Cash Accounts payable 8.000 (10) Cash 68. P 562.50 c.000 6.800 Inventory (7) Operating expenses 19.900 d.000 Accounts receivable (3) Income taxes payable 4. Net income before taxes at December 20J is: a.000 46. P 16.000 Common stock (9) Inventory 100. P 30. P 30.000 7. P 10. P 17. P 360.000 Sales Cost of sales 46. P 27.500 17. 20J is: a. P 5.500 8. P 30.500 b. Inventory at December 31. P 15.000 d.000 Cash (4) Inventory 40.500 d. P 132. P 110.000 32. Retained earnings at December 31. P 32. P 14. P 900 5.000 b.500 b. P 29. P 12. P 25. P c.000 4.000 6.500 d.000 Sales 10 30.000 73. P 540 c. P 128.500 .000 98.2.000 b. Cost of goods sold at December 31. P 130. 20J is: a. Equipment at December 31.000 Accounts receivable 30. P 9.500 4. 20J is: a. 20J is: a. P 22.800 c. 20J is: a.000 11. Accounts payable at December 31. P 35.000 Cash (8) Cash 1.800 19.400 10.000 b. P 50. 20J is: a.460 c.933 c.000 1. P 64. P 50.427 c.800 3. 20J is: a. Accumulated depreciation at December 31.000 9.300 b.000 d. P 95. d 6.427 20.000 426.000 360 50. depreciation – equip. b 9. b 3.c 11.700 26.000 38.000 70.000 Cash Operating expenses 18.000 40.000 200. 2006 are listed below: Cash Accounts receivable Marketable securities Office supplies Prepaid insurance Land Building Accum.900 38.000 250.700 Inventory Cash 26.000 31. b 7. a 2.000 Adjusting Entry: (a) Operating expenses (ins.160 Sales revenue Cost of sales Gross profit Operating expenses Income before taxes Income taxes expense Net income Retained earnings – beg Retained earnings – end Answer: 1.500 Accumulated depreciation (c) Operating expenses (bad debts) Allowance for bad debts (d) Operating expenses Wages payable FINANCIAL STATEMENTS Cash Accounts receivable Allowance for bad debts Inventory Prepaid insurance Equipment Accumulated depreciation Total Assets 51.b Problem 4 The account of PEQUIT COMPANY as at December 1.500 200 300 200 300 200.000) 138.000 338. b 540 540 2.200) 45.933 4.540 29. 214. b 10.000 28.033 18.460 9.000 (1.000 18.160 Accounts payable Wages payable Income taxes payable Common stock Retained earnings Total Liability/SHE 8.000 900. a 5.000 48.000 370.000 11 .427 81.000 18. d 8.(11) (12) (13) Cost of sales 63. depreciation – bldg Equipment Accum.933 138. Exp) Prepaid insurance (P900 x 12/20) (b) Operating expenses (depreciation) 2.000 (25.000 800.500 300 9.000 Accounts receivable Accounts payable 28.000 Cash 63.000 130. 500 . P 362. n/30.000 d.000.450 d. 3/10.500. Cost – P20. P 412. Genevieve. P 1. Paid P9. P 31.000 The following transactions occurred during the month of December 2006: Dec. Terms: FOB shipping point. 1 3 4 5 7 9 10 11 12 18 19 20 29 30 Settled the accounts payable of P115. Term: FOB shipping point. Salaries in the amount of P73.127. 2/10.242.000. P25.000 c.000. Selling price – P30.000. Additional information 1. 2006 is: a.000 b.000. n/30. 3/10. Sold merchandise on account to PAPACOY SUPPLIES.000 b. Inventory at December 31.127. P12.000 1. P 772.305. P 387. P 748.000 d. Office supplies on hand at month-end amounted to P7.000. 2006 is: a. Sold merchandise to OANI SHOPPERS. 2006 is: a. Paid interest on mortgage payable. P 727.000 acquired on December 7.000 4. 12 Net carrying value of Fixed Assets at December 31. P 426. P 7. Purchased merchandise from OSTIQUE PRODUCTS.000 c.000 from the December 19 sales.000 less 3% discount. Questions 1. P232. Office supplies at December 31.000 for representation expense. P 453. 2006. A count of the inventory amounted to P453. Terms: FOB shipping point.000 has expired at month-end.000 1. n/30.980.000 3. 4. P 212. Received returns from PAPACOY SUPPLIES.000. 5.000 c.750 b. P 1.000 for the freight.000 for the transportation cost. withdraw merchandise for personal use. 2006 is: a.612.000. P 773.500 d. respectively. Returned goods to OSTIQUE PRODUCTS. P8. P 10. P 625. P 24. 3/10. Insurance coverage with premium of P2.700 c. Sold merchandise to NAVALES SHOP.000 and P4. PEQUIT COMPANY paid P5. P 405. 2006 is: a.000 d. Collected the accounts receivable of P180.000.200.700 b. P 1. The owner. Terms: FOB destination.000 2. PAPACOY SUPPLIES paid the freight for P3.000 b.000 c.000 172. 3.000 less 2% discount. Received from NAVALES SHOP returned merchandise in the amount of P18. 2.620.000 have accrued on December 31. Depreciation on the building and on the equipment for the month amounted to P3. P210. P 1. Received payment from PAPACOY SUPPLIES for the amount due. PEQUIT COMPANY paid P2. P330. Received payment from OANI SHOPPERS from the December 12 sales. 5. n/30.000 3. Cash balance at December 31.000 on December 31.000.Accounts payable Mortgage payable Capital _______ 3.700 Accounts receivable at December 31. P242. P 118.040 b. P 718. Net sales at December 31. P 1.000 c. 2006 is: a.400 Accounts receivable 180.000 8. P 419. P 1. P 97. Accounts payable at December 31. P 277.950 c.900 Accounts receivable 330.253. P 482. P 3.500 c.000 13 . 2006 is: a.000 242.000 b.950 13. P 9. P 1.950 b.800 b.000 8.153.703. P 257.950 c.305.950 c.240 d.250.704. P 3. P 3.000 210.000 Dec 5 Sales (returns) 25.000 14.500 12.000 b.950 c. P 109. P 232.950 b. Operating expenses at December 31. P 3.950 c.000 b.703.700 Purchases (discount) 2.000 Cash 112. Capital balance at December 1.203. P 73.300 Cash 174.000 Dec 20 Representation exp Cash 9.000 d.000 3.285.950 15.000 Dec 9 Accounts payable 12.000 320.250.700 11. P 718.000 b.150 10.000 Dec 18 Cash 330. 2006 is: a. 2006 is: a. 2006 is: a. P 126. Capital balance at December 31.000 Accounts receivable 25.950 d.153. P 3.000 d.000 Dec 11 Cash 176. P 289.000 Dec 29Sales (returns) 18.000 Accounts payable 232.040 b.000 Total liabilities and capital at December 31.203. 2006 is: a.000 5.500 b. P 1. P 3. Net income at December 31. P 782. Solution Dec 1 Dec 3 Dec 4 Accounts payable 115. 2006 is: a.950 d. 2006 is: a.253. P 3. P 197.040 d.100 Sales (discount) 9. P 1.6. 2006 is: a.550 Accounts receivable 182.000 d. P 24. P 1. P 1. 2006 is: a.704.450 Sales (discount) 5.000 Dec 19 Accounts receivable Cash Sales 247. P 3.600 Sales (discount) 5.000 Accounts receivable 18. Accrued expenses at December 31. Total purchases at December 31. P 718. P 199.000 d. P 426.000 Purchases (returns) 12.500 d. P 212.000 Dec 10 Interest expense Cash 8. P 1.000 Cash 2. Total assets at December 31.000 9.000 Accounts receivable Transportation exp Sales 207.000 Dec 7 Purchases 232.000 9. P 101. P 418.000 Freight-in 2.305. P 279.950 7.700 d.950 c.000 Dec 12 Accounts receivable Sales 330.000 c.285.000 c. 31 Dr.Dec 30 Drawing Purchases 20. A 7. Questions 1.000 3.750 Prepaid insurance 1. P 4.000 20. C 11. 14 What was the cost of supplies purchased during December? b. B 9. Dep’n – bldg Accum. On November 1.500 24.250 Insurance expense 4. c.000 in advance rent for the period November through January. The December income statement (accrual basis) reported P2. B 13. a. P 1.000 ANSWER: 1. C 8.000 453.000 The following information also is known: a. 2006. P 3. No adjusting entry . Unearned revenue was credited. 15. 2006. 10.250 Cr. P 2. No insurance payments were made in December. Insurance expense 4. d.000 2.250 b. Dep’n – equip 7. Inventory – BS Inventory – IS 453. trial balances contained the following information: Supplies Prepaid insurance Wages payable Unearned rent revenue Nov.000 2.750 d.000 6. Depreciation Accum. D 3.000 4. 3. P10. b. C 15. C Problem 5 The Righter Shoe Store Company prepares monthly financial statements for its bank.000 in supplies expense.000 4.000 4. 30 Dr. 1. C 2. Insurance expense Prepaid insurance 2.000 Dec. D 10.250 c. A 6.000 3.000 2.000 5. A 12.500 2.000 Cr. C 73.000 4. Salaries expense Accrued salaries 73.000 was paid to employees during December for wages. Insurance expense 1. A 14.250 Prepaid insurance 4. The November 30 and December 31. Supplies expense Office supplies 24.000 What was the adjusting entry recorded at the end of December for prepaid insurance? a.000 d. a tenant paid Righter P3.000 Adjusting entry: 1. B 5.000 1. Prepaid insurance 4.000 c. Unearned rent revenue 1.000 c. P 4.000 Rent revenue 3.800 30. 3.250 372.000 b.000 Rent revenue 1. A 4.600 10.500 93.000 * Ending bal.190 18.000 Wages payable 15. 2..600 15. What was the amount of rent revenue earned in December? b.890 61.750 53.000 5. What was the adjusting entry recorded at the end of December for accrued wages? a.650 15 . Bal Purchases 2.760 215.000 c. 2006 follows: Cash Accounts receivable Allowance for doubtful accounts Note receivable Merchandise inventory. P 2. P 3. Unearned rent rev.000 4.000 d.500 56. Unearned rent revenue 2.000 3.000 Rent revenue 2. C Beg. prior to the closing of its account for the fiscal year ended September 30.000 Problem 6 The trial balance of ANN CO.000 d.000 Wages payable 10.000 Solution 1. a.000 55.000 Wages payable 5.000 d.000 c. C 3.000 b.000 Unearned rent rev.000 3. D Supplies on Hand 1.000 100. * squeezed figure 2.3. P 1. Wages expense 10.000 Adjustment 4. Wages expense 5. A 5. No adjusting entry 4. Wages expense 15. 9/30/02 Furniture and equipment Accumulated depreciation Goodwill Accounts payable Notes payable Capital Stock Retained Earnings Sales Sales return and allowances Purchases Purchase return and allowances P22.000 What adjusting entry was recorded at the end of December for unearned rent? a.930 P 3. Rent revenue 2. 16 The adjusting entry on item A is Cash 1.080 4. The merchandise inventory on September 30. Accounts payable 1. e. An insurance policy was taken on the inventory and equipment on March 1. Goods received on consignment. h.720 1. d. j.990 13.120.000 were included in the physical inventory. .500 Cash 1. answer the following questions. A physical inventory of merchandise taken at the end of the fiscal year 2006 amounted to P60. P500 c. 2006 but returned by the bank on September 29. 2006.850 15.780 16.500 deposited on September 25. Rent expense account considered of rent for the store and office space for thirteen months starting August 1.340 4. Accrued salesmen’s salaries not recorded P5.080 paid on that date. Based on the aforementioned data. No entry was made for the returned check. g.200 2. Depreciation of furniture and equipment at 10% annually has not been recognized.500 Cash 1. Accounts receivable 1. 2006 for lack of countersignature. b.500 a. Unrecorded bank charge for September 2006. were correctly stated.500 Accounts receivable 1. f.500 c. 2006 with the annual insurance premium of P1. The allowance for doubtful accounts should be adjusted to 5% of the outstanding accounts receivable balance on September 30.500 1.120 910 Your examination of the company’s account has the need for adjustments based on the following items: a.500 b. The cash account included a customer’s check for P1. 2006. still unsold costing P2.000 i.000 19.Advertising Sales salaries Commission expense Miscellaneous expense Rent expense Office salaries Light and Water Insurance expense Taxes and licenses General expense Interest expense Interest income 9. 1.610 28. 120 60.120 Income Summary b. Income summary 56.000 6. 6. Allowance for Doubtful Accounts 1. Merchandise Inv.d.000 2.490 Doubtful Accounts 1. The adjusting entry on item D is a. The adjusting entry on item G is a. No adjustment 7.890 Merchandise inventory d.890 Purchases c. Merchandise Inv.890 56.000 2.000 56. No adjustment a. Income summary Merchandise Inv. No adjustment 60. b.120 Merchandise inventory d. The adjusting entry on item C is a. The adjusting entry on item F is a. Accounts receivable 4. Merchandise inventory Income summary d. 500 500 500 500 3.890 56.180 17 .120 2. Merchandise Inv.120 Purchases c.000 2.890 6.890 Income summary b. The adjusting entry on item B is Cash Accounts receivable b. c. The adjusting entry on item E a. Accumulated Depreciation 6. General Expenses 500 Cash d.180 Accumulated Depreciation b.565 Allowance for Doubtful Accounts 1. Cash 500 General expenses c. Doubtful Accounts 1. 60. Doubtful Accounts 1. 56.000 2. No adjustment 2. No adjustment 5.490 4.180 Furniture and Equipment 2. 60.680 b.180 6.565 c. Income summary 60.490 Allowance for Doubtful Accounts 1.680 Allowance for Doubtful Accounts 4. Merchandise Inv. 56.120 60. Sales Merchandise Inv. Depreciation Exp.490 d. net of accumulated depreciation a. 2006 a. Total assets.000 630 630 450 450 11.500 d. P250.000 After making the adjustments compute the following: 11.000 Office salaries c. P90. P20. P58.000 b. P24. Prepaid insurance 630 insurance exp.870 c. September 30.000 Rent expense c.345 c.c.845 13. Rent expense 11. No adjustment 6. September 30. Prepaid insurance 450 Insurance expense 10.000 2. The adjusting entry on item H is a. Furniture and Equipment.890 c. Net realizable value of accounts receivable a.000 Prepaid rent 6. P90. P88. P88. Accumulated depreciation Depreciation expense d. 2006 a.050 c. Accrued salaries exp.700 d. Insurance expense 450 Prepaid insurance d. P36. Cash a.000 5. Office salaries 5.920 d.180 5. Prepaid rent 11.300 d.180 8.000 2. P210. P20. P60. Merchandise inventory.890 15.000 12.000 c. P212. Accrued Salaries Expense 5. Prepaid rent 2.850 d.700 16.000 5.785 b. 5. P21. P223. P62. P262.120 b.000 11. P36.620 b. c.050 b. Insurance Exp. 36.000 Sales salaries b. P211.845 c.120 d.000 Rent expense d.000 Prepaid rent b.000 5. September 30. The adjusting entry on item J is a. P262. Cost of goods sold.280 18 .120 14. Sales salaries 5. 630 Prepaid insurance b.000 Depreciation expense d. P212. 2006 a.410 b. P56. Rent expense 2.000 Accrued salaries expense 9. P55. The adjusting entry on item I is a. 2006 Sales Salaries and Commissions Advertising Expense Legal Services Insurance and Licenses Travel Expense – Sales Representative Depreciation Expense Interest Revenue Utilities expense Telephone and Postage Expense Supplies inventory Miscellaneous Selling Expense Dividends Dividend Revenue Interest expense Allowance for bad debts (Cr.525 261.400 1. D 8. D 18.625 c.115 18.000 7. P31. D 19.000 Answer: 1. C 2.000 39. December 31. 2006 Shares of common stock outstanding 440. C 12. A 6.635 b. P600 19. P33.520 370 36. A 15. Cost of inventory in the possession of consignee as of December 31.900 700 6. B 9. P630 b.000 16. Net income.000 b. P31.700 20. B 3.500 89.500 4. 2006 Purchases Freight-in Accounts Receivable.670 35.000 Adjusting information: 1. A 7. B 13. December 31. P38.000 5. January 1. A 17.180 2. was not included in the ending inventory balance.17. P2. 2006 Inventory.200 880 18. A 14.000 2.200 33. P450 c.600 495.225 8. A 10. P13. P1. D 4.475 2.080 d.560 10. 2006 (disregard tax effect) a. C Problem 7 Selected pre-adjustment account balances and adjusting information of NAPPY COMPANY for the year ended December 31. Balance) Officers’ Salaries Expense Sales Sales returns and allowances Sales discounts Gain on sales of assets Inventory.935 d. 2006. Prepaid rent a.000 c. 19 . P11. are as follows: Retained earnings.000 d. 2006. January 1.150 4. C 11.600. P10. P38. Prepaid insurance a. September 30. D 16. B 5.550 173.200 11. 440 c. No amortization was recorded. P 488.500 d.600. P 489.600.000 d. 6. Interest earned but not accrued. Inventory – 12/31/02 is a. No accrual has been made for a freight bill received on January 3. Freight-in is a. Total sales for the day. P3. Net Sales is a. P 4. Supplies on hand at year-end is P1.795 6. P 54. This amount was recorded as “prepaid advertising” and should be amortized over a 6-month period. Advertising expense is a. 9. 5.600 d. P 161. for goods received on December 29. Sales commission for the last day of the year had not been accrued.200. P 35. Cost of sales is a. Freight charges on sales during 2006 is P4. P 35. Income tax rate (on all items) is 32%. P 499. a decision was made to increase the allowance for bad debts to a percentage of the ending account receivable balance to 3%. P 5.325 c.818 was initiated November 1. Average sales commission as a percent of sales is 3%. P800.700 7.200 c.800 . Accounts totaling P7.320 2.200 5. P 165. A “real” account is debited upon the receipt of supplies. P 16. P 204. Purchase returns and allowances amounting to 6% of purchases (not including freightin) were not recorded at year-end. Freight charges paid on sold merchandise and not passed to the buyer were netted against sales. 2006 had not been recognized. P 24. 8.200 b. P 164.150 c.750 d.125 4.000 c. 7. Sales salaries and commission is a. P 34.2. P690.350 b. An advertising campaign for P1. P 487. P 5.108 b.620 d. 3. P 6.480 were written off as uncollectible during the year. P 35. Questions 1.000 d. P 162. 11. P 53. After preparing an analysis of aged accounts receivable.100 c.) 10. 4.700 b. 2006.300 b. (Assume all equipment will have no salvage value and the SLM is used.200 b. 2006. P 205.696 c. P 16. Depreciation is calculated to the nearest month. Purchases net of returns and allowances is a.800 on March 1. P 114. 2007. P 16.606 20 b.200 3.495 d. P 54. P 52. P 265. Depreciation expense on a new forklift (estimated life is 10 years) purchased for P7. 120 487.108 Advertising Expense 16.693 13. P 12. P 670 c.290 12.200 Sales ret. Supplies expense is a.380 Purch. P 114. P 53.700 Cost of Sales Beginning inventory Purchases 173. P 480 10.675 204.390 c. P 115. P 560 d.225 Insurance and licenses 8.865 Sales Salaries and Commission 35. P 58.500 18. P 14. 10.000 173.606 Legal services 2.500 261.150 247. P 11. P 1.550 6.200) (11.900 6.540 b.560 Depreciation expense Utilities expense 10.000 108 35.445 282.700 89.605 c. Ret and allow.8.500 c.150 18.225 20. P 1.159 d. Net income is a.795 309.400 4.200 499.554 b. P 7. And allow.300 d. P 12. Interest revenue is a. Doubtful accounts expense is a.600 54.560 650 11.225 2. P 115.445 b.550 9.000 d.400 483.460 c. P 7.495 235.320 89. P 53.000 606 16. P 1.000 Purch.400 21 .200 11. P 104. (11.600 b.500 8. P 1. Discount Freight-in Total Goods Avail.390 7.825 700 690 1.586 b.150 7. Income tax expense is a. P 7.558 c.300 d. P 580 Solution Per book Adjust ments Per Audit Sales 495.380) - 5.500 b.500 Travel expense 4.645 33.200) (880) (880) Sales discount 4.550 258. P 7.325 268.525 800 6. P 54.722 d. Depreciation expense is a. For Sale Ending inventory Gross Profit Interest revenue Dividends revenue Gain on sale of assets Total Revenue (10. A 13.000.881 Income tax 53.200.000 were mailed on January 3. 2006. On December 31.92 Net Income 114. d.520 4.520 Bad debts 7. During the course of your audit of Baluyot’s books you obtained additional information affecting these accounts: Cash Accounts receivable Allowance for bad debts Sales (net) Accounts payable Purchases (net) Cars and trucks Machinery and equipment Accumulated depreciation Debit 500.600 36. 2006.000 Credit 6.475 1. The goods were shipped to Palmes on December 30.000 95. C 6.000 Additional information: a. n/30.600 Interest expense 4. D 9. 2006.000 1.000 8. On December 26. 22 .Telephone and postage 1. The supplier’s credit memo was received and recorded on January 5.200 Supplies expense 580 580 141. Goods amounting to P50. 2007. c. D 2.475 Misc. C 4.000 on December 3.000 950. 2006 – its first year of operation. B 5. 2006. B 10. 2007. A number of checks amounting to P150. Baluyot purchased and received goods amounting to P100. Baluyot recorded and wrote check payments to creditors amounting to P300. selling expense 2. a supplier authorized Baluyot to return goods shipped and billed at P80.159 ANSWER: 1.000 1. 2006.460 Transportation expense 4.750.200 2. Baluyot records purchases in accounts payable at net amounts.000 600. b. B Problem 8 Presented below are unaudited balances of selected accounts of Baluyot Company as at December 31.000.000 were invoiced for the account of Palmes Company and recorded on January 2. As a policy. On December 28. A 7. This particular invoice was recorded and paid on January 4.200 4. C 11. 2007 with terms of net 60 days. C 3.460 7.984 Income before tax 167.000 4. 2006. The goods were returned on December 30. B 12.721. D 8. terms 2/10. 2007.300.200 Officers' salaries 36.350. FOB shipping point. 325 (1. All the cars and trucks were acquired on May 1. A 3.000 Solution (a) Cash 150.e. The adjusted amount of Accounts payable is: a.000 b. The adjusted amount of Bad Debts Expense is: a.000 4. P 1. P 4.350.000 d.000 b.000 d. P 500.355. P 495.000 (f) Bad debts 28.000 2.200.000 7.448. P 818.000 Cash 5. 2006.000 Sales 50. P 95. P 28.000 b. The bank returned on December 29.000 d.270.000 c.000.417 d. P 768. Baluyot estimates the useful life of the cars and trucks at five-years and depreciates these assets based on 150% declining balance. B 5. P 1.325 6.305. D 7.325 c. B 6.000 d. f. P 6.000 Accounts payable 98. P 36.000 c. P 1. 2006 at a total cost of P1. B 2. C Problem 9 The trial balance of TRANQUILAN CORPORATION.000 b. The adjusted amount of Sales – net is: a. P 650.000 Accounts payable 150.000 (d) Accounts receivable 50. P 6.300. No depreciation has been recorded for cars and trucks as at December 31. The adjusted amount of Purchases – net is: a.355.000 (e) Accounts receivable 5. g.000 debit balance of Allowance) ANSWER: 1. a customer check for P5. P 20.000 marked “No Sufficient Fund” but no entry was made.500 c. P 6.325 b. The adjusted amount of 2006 Depreciation Expense – Machinery and Equipment is: a. P 645.000 x 1½% = P 20. B 4.840.800. The adjusted amount of Cash is: a.000 Purchase returns 80. depreciation is computed to the nearest month and rounded-off to the nearest peso.550 b.000 3. prior to the closing of is accounts for the fiscal year-ended September 30. P 800.350. The adjusted amount of Accounts Receivable is: a.000 (c) Accounts payable 80.000 5. P 95. P 95.000 c.000 c.000 b. P 4.368. P 1. P 6.000 (b) Purchases 98.000 d. P 4. 2006 follows: DEBIT CREDIT 23 . As a policy. Questions 1. P 4. 2006. No provision has yet been made for 2006.325 Allowance for bad debts 28. Baluyot estimates that allowance for uncollectible accounts should be one and one-half percent (1½%) of the accounts receivable balance as of year-end. P 12. P 95.325 d.700.750.000 c.325 + P8. P 600. 2006. 3.000 47. The Cash account include a customers’ check for P15.000 10.200 ________ 6. 24 . 2006 was neither taken as a liability nor included in the inventory on that date. Depreciation – Furniture & Equipment Goodwill Accounts payable Notes payable Capital stock Retained earnings Sales Sales returns and allowances Purchases Purchase returns and allowances Advertising Sales salaries Commission expense Miscellaneous selling expenses Rent expense Office salaries Light and water Insurance expense Taxes and licenses Miscellaneous general expenses Interest expense Interest income 225. The merchandise inventory at September 30. 6. still unsold. 2006 for lack of countersignature. A physical inventory taken of the merchandise stock as of the end of the fiscal year amounted to P601.000 29. for which goods costing P40.900 618.200 36.200. were included in the inventory at the agreed selling price of P24.181.200 15.000 were still in transit on September 30. 2005 was correctly stated.100 288.500 536.300 96. The Allowance for Doubtful Accounts should be adjusted to 5% of the customers’ outstanding balances on September 30.181. 2006.000 568.900 187.100 6.700 31.700 Your examination of the company’s accounts had indicated the need for adjustments based on the following information: 1.500 9. 5.900 130.800 47. 2006.000 1. 4.000 197. No entry was made by the company for the return of the check or for its redeposit on October 5. Goods received on consignment.000 552.000 300. 30.400 41.Cash Accounts receivable Allowance for doubtful accounts Notes receivable Merchandise inventory.159.000 155. 2005 Furniture and Equipment Acc. Sept.728.000.600 2.000 deposited on September 25. but returned by the bank on September 29.500 3.500 152.000 100.000 936. A purchase of merchandise FOB shipping point.000. 2.800 163. 800 c. Book value of the Furniture and Equipment for the fiscal year-ended September 30. P 561. P 46. 2006 is: a.250 c.800 d.500 b. Merchandise inventory for the fiscal year-ended September 30. 2006 is: a.750 d. Depreciation rate 9.000 d. P 936. 11. 2006. Net income for the fiscal year-ended September 30. P 300.300 d.200 c. P 900.250 d. P 45. Rent expense account consisted of rent paid for stock and office space for thirteen (13) months ending October 31. 2006 with the annual premium of P10. P 10.000 on September 30. On July 1.000 d. 2003 with a book value of P32. P 210. The Goodwill account was set-up by a credit to Retained Earnings under a resolution of the Board of Directors.000 in cash. P 285. P 47. P 576. 2006 is: a. equipment acquired on October 1. P 677. The sales proceeds were credited to the Furniture and Equipment account.200 c.800 6. P 0 7. 2005 was sold for P35. P 375.500 c.200 d. P 346.000 c. 2006 is: a. P 225. 2006. 2006.400 b. P 326. Goodwill for the fiscal year-ended September 30. P 372.750 9. Retained earnings for the fiscal year-ended September 30. 2006 is: a.200 b.200 5.000 b.000 8.250 10.800 paid on that date.000 d. 2006 is: a. P 921. P 885. P 332. 8.000 bearing interest of 12% was discounted at the bank on September 1.000 c.000 c. P 360. P 240. Insurance expense for the fiscal year-ended September 30. P 489.000 d.200 d.550 4. P 951. 2006 is: a. P 195. Allowance for doubtful accounts for the fiscal year-ended September 30. P 536.200 Solution 25 . 2006 is: a.000 2. 12. An insurance policy was taken on the inventory and equipment on April 1. P 252. P 9.000 b.750 b. 2006 is: a.000 b. P 600. P 16. P 641. Accounts payable for the fiscal year-ended September 30. P 15. Questions 1.000 b. P 496. Accounts receivable for the fiscal year-ended September 30. 2006 is: a.200 c. P 552.650 b.000 3.200 b. P 292. P 617. The 120-day Note Payable of P100. Cash for the fiscal year-ended September 30. P 5. 10. P 347.750 c.7. P 906. Depreciation for the fiscal year 2005-2006 has not been recorded. being used is 10% annually. 000 11.650 3. depr. 2003 26 .000 x 10%) 9.000 + 15.000 / 80%) Less acc.03 On eqpt sold (40. to date of sale (P40. Depr.900 7.000 x 10% x 9/12) Book value Selling price Gain on sale of equipment 8. 5.200 Purchases Merchandise Inventory Accounts Payable Income Summary 40.000 5.31.000 P3.000 300. – Fur.000 P4.30.000 40.000 x 10% x 2 + (40. & Eqpt. Prepaid Insurance Insurance expense 10.000 64. Unamortized.000 300. 15.900} 15. 15.550 .200 40.000 40. Prepaid rent Rent expense 11.300 5. Income Summary Merchandise Inventory 568.300 Depr. & Equip 6.000 x 12% x 120/360) Less portion applicable to year ended 9.000 P 3. 12.000 P29. Retained Earnings Goodwill 568.000 Cost (P32. 9. 601.400 5.300 P64. Gain on sale of equipment Furniture & Equipment 4.000 2.650 Merchandise Inventory Income Summary 601. Accounts Receivable Cash 15. Doubtful Accounts Expense Allowance for doubtful accounts {5% x (936.000 61. Accumulated Depreciation – Fur.000 24.000 P 6.000 x 10% x 9/12) On remaining eqpt.000 10. Discount on notes payable Interest expense Total discount (100.30.900 11.000 Income Summary Merchandise Inventory 24. for year ended 9. (613.000 35.000 6.300 64.1.30.000 1.000) = 47.000 3.000 TRANQUILAN CORPORATION WORKING TRIAL BALANCE September 30.000 P40.000 3.400 10.000 Depreciation expense Acc. 000 Equipment 1.000 29.000 252.000 27 .200* 613.000 4. for DA NR MI F/E AD– F/E.800 -0576. D 7.000 5.000 Accounts receivable 2.000 64.049.Cash AR All. in associates (Equity Method) 1. Adv Sales sal Com.000 5.800 47.200.194.000 568.400 10. B 2.300 36.000 100.200 9.000 1.000 3.100 6.199.000 Credit 15.550 155.000 464. exp Int inc Trial Balance Debit Credit 225.000 Prepaid expenses 116.000 536.728.800 Trading Securities 200.500 9.250 347.159.000 2.564.300 40.200 300.000 5.500 152.200 47. exp Misc.900 47. the end of its fiscal year.400 47.000 31.000 936.700 Debit Adjustments 15.300 5.000 47.650 64.00 0 4.000 197.000 568.600 347.000 187.400 38.200 36.397.400 10.000 29.200 Goodwill 500.000 15.000 552.181.000 3.000 951.400 41. D 8.000 64. Goodwill AP NP CS RE Sales Sales R& A Purchases Purch R&A.600 2.000 100.397.900 120.200 15. which was drawn from its general ledger as at June 30. 2005 5. June 30.800 163. 2006. B Balance Sheet Debit Credit 210.000.621.100 6.500 3. Ge Int.300 Invest.500 3. presents to you the unadjusted trial balance shown below.900 155.000 10.100 288.000 240.350 6. A 5.000 15.564.100 288.000 10.500 96. D 617. D 9.128.728.181.000 197.400 3.650 11. A Problem 10 Your audit client.000 617.200 15.900 130.000 96.000 DA Gain Depren Pre ins Pre rent Disc on NP ANSWER: 1. TORTOR CORPORATION Unadjusted Trial Balance June 30.397.300 300.600 2.650 464.300 NET INC 3. 2006 Cash 721.000. B 6.sell Rent exp Office sal Light & W Ins.900 618.750 4.750 2.700 6.000 5.216. C Income Statement Debit Credit 4.000 Inventory.600 10.200 15.500 152.564.000 1.850 2.600 2. exp Tax & licen Misc.000 40.500 300. Tortor Corporation.800 163.350 4. 800 21. 2006 totaled P5.900. P150.500. 2. 2006 on a one-year fire insurance policy.000.808.000 32.100 450.000 1. but recorded as a cash reduction in July. P26.000 3.000 140.000 300.000 cash on June 29. 2006.602.751.250.602. accumulated depreciation. P45.Accounts payable Accrued expenses Accrued interest payable Allowance for bad debts Allowance for depreciation Loans payable Capital stock Additional paid-in capital Retained earnings Sales Interest income Purchases Salaries and wages Rent. 2006.426. You were unable to observe the inventory-taking as your services were engaged only on July 15.000.000 750. 8. the cash proceeds were credited to the Equipment account.000 have a market value of P210.000 250. Uncollectible accounts were charged off against the allowance during the year. The company has been providing an allowance for bad debts at 5% of the outstanding customers’ balances.000) was sold for P100.000 _________ 32.250. 2006.928.000 260.600 2.000.000 were not taken up under accrued expenses.600 226.602. and a voucher for suppliers paid in cash on June 27. P44. 2006 but not entered in the books. 2006. Equipment is depreciated at 10% a year on a monthly basis computed at year-end. 6. 4.600 Your examination of the accounts disclosed the following information: 1.000.000 as at balance sheet date. 3.000 1. 7.700 2.000 36. The cash account included an NSF check returned by the bank on June 30.000 400. 2006. Marketable Securities which cost P200.000 3. P13. LongTerm Investments have a market value of P1. The Goodwill account was set-up with a credit to Retained Earnings on the basis of a resolution of the Board of Directors.300 250.400 152. Equipment no longer needed (cost. light and water Advertising Supplies Taxes Miscellaneous expenses Interest expense 13. 5. Salaries unpaid as of June 30.793. Prepaid expenses included insurance premium of P30.000 paid on April 1. 28 . Due to the condition of the accounting records and internal accounting controls.500. A physical inventory taken by management personnel of the merchandise stock at June 30. you were also unable to satisfy yourself as to the inventory. 2006.000 108. P 2.308.000 2.800 c. 2006 is: a.571. P 1. P 562.200 Adjustments Debit Credit 70. Unqualified Opinion with explanatory paragraph c. 2006 is: a. Ass.000 b.000 1.800 8.300 1. has not been recorded.172. 2006 is: a.000 5. Qualified Opinion d.200. P 2.000 9.194. P 2.9.500 10.405. A 10% cash dividend declared on June 15. 2006 is: a. 2006. P 1.300 5.300 210.751. Questions 1.700 b. P 200. 2006 is: a. 10. P 2. 2006 appropriating out of Retained Earnings the amount of P300. P 0 b. P 1.084.636. P 1.000 5.000 50.508.900 1. P 1.500 d.500 10. P 72. P 2. P 651.000 4.000 7. Adverse Opinion Solution TORTOR CORPORATION WORKING TRIAL BALANCE June 30. 2006 is: a. Unqualified Opinion b.008.172. P 622.800 d. P 106.000 1. 2006 is: a.700 b.700 b.500 b.000 c.194.000 to meet possible future losses on inventories.000 d. P 210.900 c. P 104. Prepaid exp. Equip.000 7. 2006 Cash TS AR Inven.000 c.805. P 2.621. P 4.751. Invest. 2006 is: a. P 390.571. The auditor should issue a(an): a. The Board of Directors approved a resolution on June 25.000 d. P 190. P 677. Allowance for doubtful accounts for the fiscal year-ended June 30.500 Income Statement Debit Credit 5.000 116. P 5.639.671.700 29 .800 c. Marketable securities for the fiscal year-ended June 30.000 3. P 1.300 2.300 c. 6.000 d. P 695.900 Balance Sheet Debit Credit 651.000 b.621. 2006 is: a.500 c. Trial Balance Debit Credit 721.100.300 d.840.800 d.600 5. Accumulated depreciation for the fiscal year-ended June 30.000 44. payable on July 31. P 1. P 552. P 1.128. P 108. Cash for the fiscal year-ended June 30. Inventory for the fiscal year-ended June 30.751. P 708.128.000 2.800 200.000 c. P 633.800 d. Retained earnings after net income for the fiscal year-ended June 30.400 d. Cannot be determined.200 c. P 1. P 5.200. Equipment for the fiscal year-ended June 30. Accounts receivable for the fiscal year-ended June 30. Retained earnings before net income for the fiscal year-ended June 30.566.800 b.800 b.194. 000 260.000 400.000 1. Acc.600 226.000 + 44. 5.000 32.000.100 562.700 13.700 27.500 1.000 32. 500.664. Holding gain BD expense Gain on sale Dep exp Ins.000 3.000 750.000 13. int.600 500. exp.000 750.000 3. Sal.000 26. & wages Rent.000 2.000 50.600 226. light … Advertising Supplies Taxes Mis.602.600 10. for depr.602.250.000 500.000 172.793.505.500 10.100 7.000 13.800 3. Allowance for depreciation Equipment Gain on sale of equipment Cost 708.000 260.900 27.928.513.300 250.654. For BD Acc.TS Bad debts expense Allowance for bad debts 5% x (2.000 250.000 300. 1.500 10.000 1.407. inc.900 11.600 172.505.106.000 450. Exp.000 10.600 NET INC.700 11.Goodwill AP Acc. 4.000 21. expense Div.000 300.000 72.000 300.000 108. pay Allow.500 2.602. Failure to observe the inventory taking results in a limitation in the scope of examination. ------------ 44.900 70.000 1. the auditor will either issue a qualified opinion or disclaimer of opinion.900 11.000 10.100 7.36. Loans payable Capital stock APIC RE Sales Int.928.263.000 300.500.000 2.600 .500 10.000 400.513.000 60.500 10.400 165.600 2. Purch.100 72.500 10.426.000) = 108.808.128.000 172. Depending on the materiality of the amount of Inventory in relation to other accounts.000 3.) Holding gain . Int.000 26.000 36.800 13.000.602.000 72.426.200 1.900 300.400 152.000 140.500.000 2.000 72.500 300.000 326.793.513. exp.000 1.800 21.106.900 .000 72.000 300.200 1.100 To be considered in the preparation of the audit report.000 140.500 60. 30 Accounts receivable Supplies Cash Trading Securities (Valuation Allow.300 250.500 250.664.500 26. payable RE-appro. 3.558.000 27. 000) 10.000. 2006. C Problem 11 Erasmo Corporation was incorporated on December 1.00 816.00 224.00 426.000 500. 2006 ASSETS Current Assets: Cash Marketable securities.552. D 5. A 4.000 Depreciation expense Allowance for depreciation 10% x (1. C 3.00 15.100 7.000 9.000. Salaries and wages Accrued expenses 8. P10 par value Retained earnings Total stockholders’ Equity 592.P150. Retained earnings Goodwill 9.000.00 1.000) 60.000 x 3/12) 7.000 300. A 6. (45.621.00 736.000 500. Retained earnings RE Appropriated for Possible Losses in Inv.00) 120.500 13. 2005. Jesus is a nonpublic enterprise.00 LIABILITIES & STOCKHOLDERS’ EQUITY Current Liabilities Accounts payable & accrued expenses Income tax payable Total current liabilities Stockholders’ Equity Common stock.000.000) 6. Erasmo Corporation’s controller prepared the following financial statements: Balance Sheet November 30.000.000.000 + 100.000.000.000.000 300.000 Less acc. at cost Accounts receivable Allowance for doubtful accounts Inventories Prepaid insurance Total current assets Property.000.00 450. ANSWER: 1. D 10.000. and began operations one week later.000.00 (40. Retained earnings Dividends payable (10% x P3. Insurance expense Prepaid expenses (30. depr.000.000 Book value P 90.00 (59.00 336.046.000 Gain P 10. B 172.000 13.000 7.500 7.100 172.000.000. Before closing the books for the fiscal year ended November 30.00 60.000.00 400.00 1.000+15.00) 430. B 2. A 300.00 31 . C 8.000 Selling price 100.000.000 300.000. plant and equipment Accumulated depreciation Research and developments Total assets 150. Erasmo depreciates machines of this type on the straight-line method over a five year life. a competitor company filed suit against Erasmo for patent infringement claiming P200. Erasmo initiated a five year amortization of the P150.00 2.00 30.00 Statement of Income For the year ended November 30. 2006. 2006.000.000 in damages.000. 2006 Net sales Cost & expenses: Cost of sales Selling and Administrative Depreciation Research and Development Income before income taxes Provision for income taxes Net income 2.000. Questions 32 . There were no Bad Debt write-offs during the year. with no salvage value. 2006. During November 2006. a machine purchased for P24.00 560. During the course of the audit. 7.Total liabilities & Stockholders’ Equity 1.000. the following additional information was obtained: 1. A reasonable estimate of the court’s award to the plaintiff is P50. 2006.00 650. 2006. The 40% effective tax rate was determined to be appropriate for calculating the provision for income taxes for the fiscal year ended November 30.000. 6. Research and development costs of P150. Based on aging of the accounts receivable as of November 30.000. 4.000 sent to an outside processor on November 29.000 as of November 30. 2003. for financial and tax purposes. 2006.552.000. 2.950.000.00 40.000 were incurred in the development of a patent which Erasmo expects to be granted during the fiscal year ending November 30.00 Erasmo is in the process of negotiating a loan for expansion purposes and the bank has requested audited financial statements. 8.00 336.670.000. Ignore computation of deferred income taxes. 2006. Inventories at November 30. 2006. A P3. Erasmo Corporation’s legal counsel believes that an unfavorable outcome is probable.000. On June 1.000 insurance premium paid on November 30. it was estimated that P36. The investment portfolio consist of short-term investments in marketable equity securities with a total market valuation of P55.000. 5.000 total cost during the fiscal year ended November 30.00 1. on a policy expiring one year later was charged insurance expense.000 of the receivables will be uncollectible.00 224.000 was charged to repairs and maintenance. 3. did not include work in process inventory costing P12.390. Erasmo should report for the marketable securities a.000 c.000 2. Erasmo should report the allowance for doubtful accounts at a.000 c.000 c. P402. P16. P55. P36. P150. plant and equipment should be reported at a. 2006.000 P -0b.000 P5.000 c. should be reported at a.643. P120. is a. P12. P1.1.000 b. P37.000. P42. P430. research and development costs should be reported at a. At November 30.000 c. P -0b.658.400 10. accumulated depreciation should be reported at a.000? a.670. which one of the following adjustments increases the Unadjusted income.645.000 d. P1. P450. An unrealized loss of P5.000 c.600 b.000 P -0d.000 d. 2006 balance sheet. P200.P450. P42. 2006. A realized loss of P5.000 6.000 4. 2006. P150. P23.000 d. P135. P69. P30.000 P5. In the November 30. c. P40. P44. balance sheet. 2006 balance sheet. P59.000 d. 2006. Pension expense 33 . Erasmo should report in respect of the investment portfolio Marketable Securities Valuation Allowance a.000 c.000 c. reported as a. 2006. P100. 2006.000 b. should be reported at a. 2006. For the year ended November 30. P50. before income taxes of P560.000 5. 2006.000 c.000 d. d. P442.000 12. Bad debts expense for the year ended November 30. should be reported at a.800 11. P426.000 b. 2006 is a. In the November 30.000 3. property. balance sheet.000 14. At November 30. P37.000 d. P55.00 7. P447. P23.000 13. 2006.000 d.000.500 d. P -0b. P18. P60.400 d. Depreciation expense for the year ended November 30.000 c. Prepaid insurance at November 30. P40. 2006. P36.000 b. Erasmo should report an estimated liability from lawsuit at a. Inventories at November 30. P418. P -0b. Cost of goods sold for the year ended November 30. P60. In the income statement for the year ended November 30. P1.000 9. A realized gain of P5.000 d. P15. P -0b. Research and development expense for the year ended November 30.000 d.600 c.000 c. P1.P15.000 8. An unrealized gain of P5. P59.000 b. In the November 30.000 b. In the November 30. 2006. P -0b. 000 Retained earnings 1. C Problem 12 In connection with your audit of the Eddie Vic Farms Corp. C 13.964. Depreciation RD cost – IS 120. Reduction in allowance for doubtful accounts c. Unrealized holding loss 5.000 Cost of sales Prepaid insurance 3. 3.840 10% Bonds payable (due in 10 years) 1.665. D 8.000 3.654. buildings.000 Accounts receivable 540. Recognition of research and development cost Solution 1. A 12. liab on damages ANSWER: 1. 2006 Assets Cash P 493.000 RD cost – BS Est. D 10.000 Inventories 1.000 Total assets P5. 4.. Recognition of prepaid insurance b.000 Est. the accountant prepared the following balance sheet: Eddie Vic Farms Corp.400 120. of P560. C 14.000 24.000 50.050.160 Total liabilities and stockholder’s equity P 5.400 Accum.000 Salaries payable 300.000? a.000 S & A Expense (Bad debts) Inventory 12. before income taxes. D 3.000 Total current assets 2. B 6.000 Valuation allowance Allowance for bad debts 23. B 11.000 S & A Expense Property and equipment 24.000 2. 2006. 2. Depreciation on machine purchased June 1. loss on damages 50. 5.b.000 Total current liabilities 1.002.000 7. Work in process inventory at outside processor c. D 4.569.000 Land. C 5.000 Marketable securities 630.000 34 .904. B 2. B 5. and equipment 2.000 12.840 Estimated losses from future crop failures 670. which of the following adjustments decreases the unadjusted income.2006 d. C 15. D 9. Estimated loss from lawsuit d.000 Capital stock 900.569.000 S & A Expense Depreciation 2. 6. Balance sheet December 31. Research and development cost 15.000 23.000 Liabilities and Stockholders’ Equity Accounts payable P 684. For the year ended November 30. 7. 000. respectively. Accounts receivable a. and the premium was included in “Retained Earnings. The common stock was originally sold for P7 per share.657.000. P 231.960 b.000 (shown net of a P600. P 2. P 493. P 531.050. P 171. An appropriation of Retained Earnings has been made for this amount. P 2.443. d.000 4.087. P 513. P 3. “Land. the president believes that next year will be a bad crop year due to prolonged “El Nino” phenomenon and estimates the company will lose about P670.700 b. Buildings. f. b.687.000 b. c.000 2. 5-year loan used to buy the tractors). P 3. P 540.000 that is to be repaid in quarterly installments of P30. 2006: 1. P 3.960 d.000 c.000 c. and Equipment a. The company has 180. A loan to the president for P360. The balance of the account consists of land that was purchased for P2.700 Land.000 at year-end.300 d.000 b. Inventories include: Finished products Supplies Storage buildings (net of P60. P 2.000 183.700 and P362.300. Questions Based on the above and the result of your audit. Cash is held in a checking account and a savings account with balances of P130.000 3. Cash a. g. The marketable securities represents the cost of treasury bills with a total market value of P600.000 d. buildings. P 2.000 (shown net of depreciation of P126. The balance of accounts receivable are considered to be 95 percent collectible.000 c.400.000 of deposits to suppliers for delivery of goods in February of the next year. Current assets a.600 c.700 d.000 1. 35 . P 3.002.000 shares of P5 par common stock issued and outstanding.” h. Included in “Accounts Payable” are P210. P 130.Additional information: a.000 is included in “Accounts Receivable”.000). The cash in the savings account will be used to support operations in the event of a crop failure. P 362.233.000 39.080.000 e. and equipment” includes 5 tractors that were purchased near the end of the year for P720. After reading a PAGASA report.873.960 depreciation) Total 780. determine the adjusted balances of the following as of December 31.000 and buildings that were purchased for P510. 700 7.500 down and financing P7.000 Answer: 1. P 4. Land. D 4.000 Allowance for bad debts 9. Total retained earnings a. Total assets a. She also purchased a used pickup truck in the company’s name.840 d. Advances to suppliers 210.000 (180.840 d. A Problem 13 M. The 36 . P 1. P 6.840 9.160 c. Senajon was so busy that it was March 31 before she asked you to straighten out his records.000 Land.000 Accounts receivable 360.429. P 3.300 b. P 3.160 10. P 2. Total liabilities a.5. M.340.000 from the bank. Senajon deposited P11.000 Retained earnings – appropriated 670.400.595.000 Long-term liability 600.642.000 x 5%) d.604.490. on this loan. P5. P 4. P 2. Other receivable – noncurrent 360. P 2.634. Cash – restricted 362.300 b.150 shares of P10 par value common stock. Total stockholders’ equity a. M. P 1. liability 670. P 984. Holding loss 30.977. P 2.300 Cash 362. B 9.514.840 b.000 Allowance for holding loss 30.500 cash in bank account in the name of the corporation in exchange for 1.160 d.409.840 b.462. paying P2. P 2.160 d. P 4.194.000 Other receivable – noncurrent 120.424. Senajon hired an attorney to help her start SENAJON REPAIR SERVICE CORPORATION.160 b. P 1.000 d.860 Solution a.797. Noncurrent assets a. B 10.300 c. A 2.000 f. When he paid the attorney’s bill of P700. B 6.840 8.654. P 2.000 CE: Retained earnings 670.000 Adj: Estimated liability 670.000 Accounts payable 210. building & equipment 600. P 1. building & equipment 183. She later paid P260.265.844.000 e. A 8.000 Other receivable – current 120.000 Inventories 222.000 d.000 Est. P 3. the attorney advised her to hire an accountant to keep his records. P 6.000 Retained earnings 670.000 Bad debts 9. B 5.495.300 b. A 3.000 c. Senajon borrowed P5. P 6. C 7. Current liabilities a.160 b.000 c.235. P 3.047.927.289. P 3. P 774. OE: Retained earnings 670.840 c. Supplies 39. including interest of P60.840 c. After investing in her business and paying her attorney. Your task is to develop the financial statements on the March transactions.460 c.000 6. M.000 g. On March 1. P11. P11. P1. Senajon then rented an office and paid three months’ rent P900. P13. On March 31. P6.888 c.640 4. P24.225 8. P24. Of the credit transactions.725 c. P25. P(85) d. M.388 d. P800 c.903 c. P25. P11. P25. The Total Stockholders’ Equity of SENAJON REPAIR SEVICE CORPORATION at March 31 is: a.715 b. Wages of P450 were paid to employees.585 b.025 b.500 700 5. The Total Liability of SENAJON REPAIR SERVICE CORPORATION at March 31 is: a. P11. P(285) Solution Cash Common stock Pre-operating cost Cash Cash Notes payable Interest expense Notes payable 11.200 5.SENAJON REPAIR SERVICE CORPORATION completed repairs of P1. P12. P13.565 c. P24. P(85) d.528 b.915 6. P300 were collected during March.528 b.900 b.415 c. P12. P403 c. The Total Current Assets of SENAJON REPAIR SERVICE CORPORATION at March 31 is: a. P13. P13. The Total Operating expenses and other expenses of SENAJON REPAIR SERVICE CORPORATION at March 31 is: a. Questions 1. The Total Non-current assets of SENAJON REPAIR SERVICE CORPORATION at March 31 is: a.035 c. The Accounts Receivable balance of SENAJON REPAIR SERVICE CORPORATION at March 31 is: a. The Net Income of SENAJON REPAIR SERVICE CORPORATION at March 31 is: a.300.840 d.500 700 5. In March. P1. P16.415 c. P24. P13. The Total Liability and Stockholders’ Equity of SENAJON REPAIR SERVICE CORPORATION at March 31 is: a. P600 3. P900 b.515 d. The Cash balance of SENAJON REPAIR SERVICE CORPORATION at March 31 is: a.015 d. P12.215 b.625 d.840 d.440 d. Credit purchases of office equipment of P800 and repair tools of P500 must be paid by April 10. P1. P25. P11. P700 d.390 b.915 9. P897 10. The Total Assets of SENAJON REPAIR SERVICE CORPORATION at March 31 is: a. P11. P14. the company received a P75 bill for the March utilities expense and a P50 check from a customer for work to be completed in April.000 60 200 11.315 c.000 37 . P11.first payment on the truck is due April 15. P(285) 7.500 2. in advance. of which P400 were cash transactions. P415 b. 000 100. D 4.000 38 20.000 Note receivable 6. D 260 2. which is then used to prepare the financial statements. A 7. he has decided to ask an independent CPA to “get things straightened out. A worksheet is not used. when told that the “company’s books have never been in balance.500 7.000 Retained earnings To balance 14. C 6.800 Accounts receivable 55. C 2. he has learned that they are P14. C 9.400 Equipment 240. The newly selected president was amazed. D Problem 14 OMANDAC CORPORATION has just completed its third year of operations. but the adjusting and closing entries are entered directly into the ledger accounts.800 Total 500.300 300 450 75 50 5.000 shares outstanding) Dividends declared and paid 4.000 . At your request the bookkeeper prepared the following post-closing trial balance following his usual procedures: OMANDAC CORPORATION Post-closing Trial Balance December 31.400 900 800 500 1. 2006 Cash 17.000 Accounts payable Income tax payable Mortgage payable Common stock. the bookkeeper prepares an adjusted trial balance. 2006.000 10. to say the least. C 8. December 31.” You are the lucky CPA! While getting an overview of the situation you learn that the bookkeeper journalize and posts all of the daily transactions. Consequently. After recording the adjusting entries.000 Prepaid insurance 2. A 10.000 320.000 Merchandise inventory (periodic system) 120.900 Cash Notes payable Rent expense 300 Prepaid rent 600 Cash Equipment 800 AP – others Tools 500 Accrued expenses Cash 400 Accounts receivable 900 Revenue Cash 300 Accounts receivable Wages 450 Cash Utilities 75 Accrued expenses Cash 50 Advances from customer Answer: 1.800 out of balance.” In fact. D 3. par P10 (20.Cash Equipment 9.000 50.000 Land (future site) 40.000 _______ 500. 000 was not recorded.000 d.000 5. P 13.400 b. P 110. P 8. P 95. The 2006 ending inventory of P140. P 260.000 9. Cash at December 31. P 60. P 11. P 240. P 140. e. Income taxes payable at December 31. 2006 is: a. f.000 b. P 120.000 was recorded.384 d.000 c.000 d. P 90. P 2.000 10. Depreciation was not recorded in 2006.000 39 . P 1. 2006 is: a.800 2. P 1. P 0 4. Accrued interest expense of P4.000 c. P 16. The common stock account needs scrutiny.000 7. Accounts receivable at December 31. Depreciation for 2001 and 2002 was credited directly to the asset account. Questions 1. 2006 is: a.000 c. but the credit was omitted. P 38. but the debit was not recorded.200 d. P 80.000 Merchandise inventory at December 31.000 c. Notes receivable at December 31. is P30.016 b. Equipment at December 31. Mortgage payable at December 31. P 270. the beginning inventory was P120. P 100. P 28.800 c.000 c.000 3. P 10.000 c. 2006 is: a. Prepaid insurance of P2. Depreciation expense.000 d. P 55. P 18. P 0 6.000 d. Accounts payable at December 31. P 0 8.400 was for two full years.800 b.000 b. P 30. Land (future site) at December 31. 2006 is: a. P 210. 2006 is: a. P 10.000 per year.000.000 were paid. b.000 b.000 b. P 17.800 c. 2006 is: a. 2006 is: a. P 20. P 15.000 b. 2006 and 2007. P 50. P 65. P 40.016 c. P 6.000 b. c. b. Estimates of bad debts expense that total P5.000 b. you discovered the following: a.800 d. Accounts payable of P2. P 20. on a straight-line basis (no residual value).000 d. P 22.000 d. g. P 10. c. d.000 have been credited directly to Accounts Receivable.After spending considerable time digging into the records and files of the company. 2006 is: a. Prepaid insurance at December 31. 2006 is: a. P 300.000 d. P 50.000 600.000 Income tax payable 10. P 120.200 Equipment 300.000 Retained earnings Answer 1. 2005.000 b.000 Common stock 200. building Machinery Accumulated depreciation. C 9. Common stock at December 31. machinery Sinking fund assets Bond discounts Treasury stock.000 105.000 Interest payable 4. common 40 Debits P510. B 12.000 660.000 Solution Cash 17.000 . 2006 Cash Accounts receivable. prepared the trial balance below as of December 31.11.000 990.000 Prepaid insurance 1.000 669. Your examination resulted in the necessity of applying the adjusting entries indicated in the additional data below.000 5.000 14. B ________ 18. P 320. Capiz Company TRIAL BALANCE December 31.800 45.000 Land 40. P 180.000 444.000 Mortgage payable 100. D 10.000 Accumulated depreciation 90. P 200.000 75.000 565. 2005 Land Buildings Accumulated depreciation. net allowance of P20. C 11.000 d.000 Merchandise inventory 140. December 31.200 c. C 3. A squeezed figure 8. 2006 is: a. Retained earnings at December 31.000 c.000 APIC 120. P 18.000 565. P 35. P 24. Capiz Company. C 6.000 b.000 75.000 Credits P19.000 d. D 2.000 Accounts payable 18.000 Note receivable 6. The company started its operations on January 1. 2006.800 Accounts receivable 60. 2006 is: a.000 Allowance for bad debts 5. A 7.000 Inventories. A Problem 15 Your new audit client. C 4. 2006. the date of organization. with a provision that each installment after the first shall be decreased y the amount of the annual 6 percent interest.250 679.000 common stock was issued at a 10 percent premium to the owners of the land and buildings on December 31.000 364. (6) The trustee of the sinking fund reported an addition of P4. Questions 41 .450 2.000 150. (2) On December 31.500 105. December 31.000 _________ P6.000 Additional data are as follows: (1) The 1.500 interest to the fund on December 31. were P525. The machine had been depreciated at 10 percent during the first year.000 45. 6% sinking fund bonds. at 90. the discount is to be amortized over the life of the bonds on straight-line basis.000 850. a machine costing P15. Ignore salvage values.000. 2005. interest payable April 1 and October 1.000. Stock with a par value of P180.000 222. (3) Depreciation is to be provided on the straight-line basis. 6% sinking fund bonds Common stock Premium on common stock Stock donation Retained earnings.000.500. The bonds were sold on January 1. 2005 Net sales Purchases Salaries and wages Factory operating expenses Administrative expenses Bond interest 567. 2006. 6% Sinking Fund Bonds account.000 will mature in ten years from January 1. par value P750. The treasury stock was sold in 2006 for P75. The following entry was made: (Debit) Treasury stock (Credit) Stock donation P180. 2005. The only entry made was one crediting the Machinery account with its sales price of P6. 2006. which interest is to be added to the fund.000.000 was donated back by the vendors.500 1. 2004. 10 percent of cost.000 11.000 when the business started was removed.000 P180. (4) The first mortgage.625. as follows: buildings.500 507. which was credited to treasury Stock. but that the amount was charged in error o the firs Mortgage.000 The stock was donated because the proceeds from its subsequent sale were to be considered as an allowance on the purchase price of land and buildings in proportion to their values as first recorded. machinery. 2 percent of cost. (5) A sinking fund is built up on the straight-line basis.500.000 P6. (7) Inventories at December 31. The audit disclosed that the proper installment to the sinking fund was paid by the company on December 31.000.Accounts payable Accrued bond interest First mortgage. this had not been recorded by the company.000 180. 2006. P945.000 loss b.000 CE: Cash 6.000 Treasury stock 75. How much was the gain or loss on sale of machinery on December 31.000 b.500 gain 6. P6. P105.000 5.000 d.000 Machinery 6. you are to provide the answers to the following: 1.000 3. P1.000 b. P354. P399. P905. The correct net book value of the machinery as of December 31. P 907. P7. P0 2. P0 b. P1.395.500 c. Dep’n: mach 3. 2006 was a. OE: Cash 6. P345. P180.320. P630.000 CE: Cash 75. Dep’n 3.000 b.000 Solution 1. P950. a. P75. P75.000 2. P588.000 d.000 Adj: Accum. P63. P154. The correct balance of Treasury Stock as of December 31.000 42 . P0 d. 2006 was: a.000 --------------------------------------------------------OE: Cash 75.000 Loss on sale 6. 2006 was: a.000 c.000 Accum.000 d.500 c. 2006 was a.000 4. P1.500.000 7.000 10.000 CE: Memo entry Adj: Stock donation 180.900 c. 2006 was: a. P79. 2006 was a.500 loss d.000 Treasury stock 180.000 9.500 8. P62. OE: Treasury stock 180.000 gain c. P180. The adjusted net book value of the Building as of December 31.000 b.400 d. P7.000 d. P348.000 b.000 c.000 c. The correct amount of total depreciation expense for 2006 was a. P690.400 d.000 Stock donation 180.000 b.000 d.200 b. P735.000 Building 45. P75. The adjusted net carrying amount of 6% sinking fund bonds as of December 31.000 c. P63. P6. The correct balance of Land account as of December 31.000 d. P150.650. P675. 2006? a. P1.000 Building 45.000 b.400 c. P679.Based on the above and the result of your audit.000 c. P648.000 Land 30.000 Land 30. P105. The correct balance of sinking fund assets as of December 31. 2006 was P660. The correct balance of Common Stock as of December 31.000 Machinery 15. The correct balance of stock donation as of December 31.000 Adj: Treasury stock 75. 2006 was: a. dep’n . Dep’n – Mach 45.Loss on sale 6.000 x 2% = 18. 2006. Discount on bonds 75.000 = 945. engaged in the sale of rechargeable lamps. 2006 submitted by their account is subject to the adjustments you noted in your audit. C 8. A 9. Prepare the audit adjustments required in the problems. Depreciation 63.500 – 2003 5. 43 .900 Accum. C 7. 1 Included in the Cash account is a customer’s check for P1. OE: Sinking fund bond 70.100 deposited on September 30. Dep’n – bldg 900 Retained earnings 900 4. D 4.500 Interest expense 7.bldg 18. On November 20.500 Cash 70. Sinking fund 4.000/10 yrs = P7. 2006 to 5% of outstanding balance as of date.500 Cash 70. Further analysis of the customer’s accounts disclosed the need for setting up an allowance as at September 30.500 6.000 P 75. C Problem 16 Instructions: 1. B 5. Assume no other issues.500 Sinking fund bond 70. B 2. Post the net adjustment at the Working Balance Sheet (WBS) and Working Profit and Loss (WPL).000 x 10% = 45.500 – 2002 7.500 Interest income 4. A 6.000 3. Compute the final balances of each account on your WBS and WPL. B 10.000 Machinery 9.000 + 6. Audit finding No.000 – 45.000 ** 990. 2006 but returned by the bank on September 30. 2 The debit balance of P1.000 Retained earnings 7.900 * 444.000 * Accum.900 Accum.000 – 15. proceed to the questionnaires and transfer all answers to the final answer sheet. A 3. Based on your review of the records you have found out that the company’s financial statements at the end of its fiscal year September 30.500 Answer: 1.500 CE: Sinking fund 70.500 Adj: Sinking fund 70. No entry was made by the company for the return nor the redeposit of the check.000 Sinking fund bonds 75. 4. 3. Audit finding No. The check was redeposited on October 3. Its rented store and office is located in Davao City. 2.500 Discount on bonds 15. except those discussed on the problem. 2006 for insufficiency of drawer’s funds. 2006 you have substantially completed your fieldwork relative to your audit of RUCHELL Corporation.500 in the allowance for bad debts resulted from write-offs of uncollectible accounts in excess of the beginning balance of the allowance. 2006 and paid the annual of P1. 4 A physical inventory taken of the merchandise on September 30. 2006 from J. 2006 amounted to P41. 44 . were recorded as sales for P4.200. and a book value of P2. 2005 for P20. Audit finding No.000 and a credit to Investments in A Co. bearing 12% interest was discounted with the bank on August 15. 2003. 2006.000 dated July 1. Audit finding No.500..400 at September 30. This was not included in the physical inventory.900 which included 40% gross profit on cost.700 representing rent for 13 months ending on October 31. Audit finding No. 6 Furniture and equipment costing P3. interest due on maturity date (assume 30 days per month). 5 Notes receivable included a 120-day 8% for P9. Audit finding No.Audit finding No. This was recorded as a debit balance to Cash. The sales price was credited to Furniture and Equipment. Audit finding No. 14 Patents were acquired by purchase on September 30. It has as estimated useful life of 4 years. 2005. Audit finding No.000 cash on October 1.200. were not taken up as accrued expense. 9 The company paid P11. P5. Estimated life of the furniture and equipment is 10 years. Interest expense was debited. Audit finding No. Ramos.000. Audit finding No. P5. 2006. 15 An analysis of the investment account shows that on September 2006 25 shares were sold for P200 per share.000 acquired on October 1. 12 Goodwill account was set-up with a credit to Retained Earnings on the basis of a resolution of the Board of Directors.000. 10 The 120-day note payable of P6. 11 The excess of P110 issue price over the 100 par value upon sale of 200 shares was credited to retained earnings. Audit finding No. still unsold as at the end of the month. 3 Goods shipped out on consignment basis in September 2006. 13 Office salaries unpaid as of September 30. 8 A one-year insurance policy was taken by the company on June 30. Audit finding No. 2006. was sold for P2. Audit finding No. P1.000. Audit finding No. 7 Depreciation for the fiscal year has not been recorded. 2006. Audit finding No.000 damages.000 57.680 10. The discount of P20 was credited to Sales discounts instead of purchase discounts. asking for a P100.750 171.200 1. This has not been taken up in the books. 2006. RUCHELL Corporation Working Balance Sheet September 30. 2006 was not recorded in the books.000 for Taxes on September 29. Co. Audit finding No. 21 A payment to supplier within the discount period was made on June 20. –100 shares Interest Receivable Prepayments TOTAL Land Furniture & Equipment Accumulated Depreciation TOTAL Goodwill PER BOOK AUDIT ADJUSTMENT FINAL BALANCES 10. 17 A payment of P1. 2006 Current Cash Marketable Securities Account Receivable – trade Allowance for doubtful accounts Notes Receivable Inventories Investment in A.000 1.Audit finding No. Audit finding No.850 (12. 2006. 21. 20 Marketable Securities which cost P15. 2006 RUCHELL Company declared a 10% stock dividend distributable on October 21.000.000. Audit finding No.500 25.170) 38.500 dr.950 50.000 has a market value of P16.500 15. 2006 a Land was donated by a stockholder. The lawyers of the company believe that it is remote that the case of the customer will prosper in court.500 39. 22 RUCHELL Corporation has a pending lawsuit from a customer.000. 18 On September 30. 16 A repayment of non-interest bearing note payable for P5.000 was erroneously debited to Advertising.000 45 . Audit finding No. The market value per share is P120 at the time of declaration. The appraised value of the land at present is P50. Audit finding No. 19 On September 30. The stockholder bought the Land in 1998 for P26. end Gross Profit Advertising Doubtful Accounts Salesman’s Salaries Miscellaneous Selling expenses Rent expense Insurance expense Light and water Taxes Office salaries Miscellaneous office expense Loss on sale Amortization of Intangibles Interest Expense Other Income Net Income Questions 46 269.000 30.440 .700) ( 1. E 35.000 99.970) (41.500) 181. beg.000 75.420 31.360 ( 3.510) ( 3.940) (11.650) ( 1. 2006 PER AUDIT FINAL BOOKS ADJUSTMENT BALANCES Sales Sales returns Sales discounts Net sales Cost of sales Inventory.060) 430 30.330) ( 1.810 ( 1.630 RUCHELL CORPORATION Working Profit and Loss Year Ended September 30.160 39.210 240.000 240. Purchases Purchase returns Purchase discounts Inventory. P100 Additional paid in capital Stock dividend distributable Donated capital Retained Earnings Total Liab. & S.500 189.630 Liabilities Accounts payable Accrued expenses Notes payable Stockholders’ equity Capital Stock.Patents TOTAL Total Assets 20.700) 266.560) ( 4.200) ( 300) ( 1.470 ( 7.210) (21.690 84.950) ( 1.700) ( 1. 000 d. P274.000 d. P10. P2.400 3. P10.000 c.800 c.000 d.400 c. Accounts receivable – trade a. P6.300 c.670 4.360 c. P53.100 13. P4. P4. P50. Allowance for doubtful accounts a.085 d. Depreciation a. 90 Inventories a.980 b. P5. P2. 40. P2.360 b.115 c.000 b. Sales a.200 b. P0 d. P180 5.400 b.000 d. P57. Cash a. P36. P189.910 d. P60 b. P58. P5.600 d. P22. 0 16.670 c. P57.000 d. p2. P3.000 6.700 c.850 b.000 d.980 b.500 b. P62.850 9. P 9. P35. c. P60. Interest expense a.910 15. P5.420 b. Interest Receivable a. P4. P269.710 c.030 b. P4. P77.810 b. P73. 47 . P4.200 Patents a.000 12.000 17. P5.060 c. P3. Accounts payable a.000 7. P240 d. Furniture and Equipment a.000 c. P2.860 d. P45. P8. P10. P4. P2.850 c. P6.500 2. Capital Stock a. P41.160 14.000 18. P2. P46. P75.500 b. Doubtful accounts a. P34.420 c. P15. P1. Purchases a.085 b. P1. P32. P180. P260. Office salaries a. P187. P0 b.650 8.988 11.985 10. P6. P50. P4. P200.170 d.000 c.850 c. P0 b. P610 c. P400 d.130 b.285 c. Prepayments a. Other Income P430 b.090 d. Goodwill a. P264. P4.1.050 d. P2.850 d.530 d. A 19. P5. P0 b. Land a.000 d.19. P22. P1.210 d. C 15. B 1. C 30.210 22. D 24. P25. Light and Power a. P24.650 b.200 d. C 16. P1. net of any allowance for decline a. P7.000 d.P200. P1.000 c. P50. P1. Donated Capital b.000 b.000 d. A 20. P0 b. C 22.500 Inventory Inventory 41. P1.500 29. p26. P0 d. P24.000 c. P16. B 17. Marketable securities. RUCHELL Company should record stock dividend payable at a. P200 20.000 10. C 7. P300 21. P300 d.850 c. RUCHELL Company should recognize liability from damages for a. Sales discount a.000 b.720 c.000 b.000 d. P3. B 13.000 . For BD Finding 3 Sales 4. P1.500 39. P500 23. B 8. A 29.900 3. B 2. C 21.500 b. D 18. A 12.100 Cash Finding 2 Bad debts 4. a.100 4. B 11. P25. P1.170 4. P500 c. A 10. P100. P0 d. C 3.970 24.300 c. B 25. Capital Stock d. P21. Other Income 27. P14. The appropriate account to be credited for the donation is a.500 48 5.000 b.510 c. B 9.000 Goodwill 900 900 150 2.000 d. Taxes a. C 27. Advertising a. B 4. P9. B 14. P7. Salesman’s salaries a.170 Allow. A Finding 8 Prepayments 900 Insurance expense Finding 9 Prepayments 900 Rent expense Finding 10 Prepayment 150 Interest expense Finding 11 Retained earnings 2. Investment in a Co. P0 28.000 30. P26. P5.500 6.000 c.500 COS Finding 4 COS 39. A 23.900 Accounts receivable Inventory 3. A Entries: Finding 1 Accounts receivable 1.000 26.000 APIC Finding 12 Retained earnings 10. A 26.000 Answer: 1. P20. P0 b.210 c.000 c. P2. C 28. P2.500 b. Additional Paid in Capital a. P2.500 25. P50. P15. P5.000 c. Retained Earnings c.680 b.000 d. 0 0 50.500.000.0 0) 15.00 1.400.200.105.630.00 (2.00 1.500 180 Finding 13 Office salaries 1.00 5.00 Prepayments 1.00 Land Furniture & Equipment 1.00 5.000 Finding 20 No adjustment 1.000 Cash Finding 21 Sales discount 20 Purchase discount 5.000 Patents 180 1.255.00 7.000.0 0 Accounts payable Accrued expenses 4.085 5.900.000. Co.500.085 Finding 18 Retained earnings Stock div.00 39.000.850.000 20 WORKING PAPER Per books Per audit Cash 10.0 0) Goodwill 10.0 0 180.00 3.000.00 Patents 20.170.0 0 39.00 (12.000.500.0 0 5.850.500.0 0 4.200.000.0 0 50.00 50.000 1.0 0 7.200 Accrued expenses Finding 14 Amortization 5.420. distr.400.000. .00 26.100.100 shares 25.00 Allow.0 0 45.500 50.00 Notes payable 8.00 180.000.500 1.700.0 0 10.000.500.00 Inventories Interest receivable 2.000.670.00 (17.00 Additional paid in capital - Stock dividend distributable - 45.000.00 Marketable securities 15.500.000.00 Accounts receivable .000.000.0 0 - Capital stock.0 0 75.trade 57.200.0 0 1.000.500.00 3.000 50.200 5.085.500.00 267.00 35.0 0 31.000 5.000.000 7. P100 53.000 Finding 17 Taxes 1.000 9.00 - Accumulated depreciation 50.750.000.for bd .0 0 35.00 24.debit balance Notes receivable Investment in A.00 240.00 75.0 0 1.100.000.170.500.0 0) 21.950.500.0 0 1.00 3.00 15.0 0 21.COS Finding 5 Interest receivable Interest income Finding 6 No adjustments Finding 7 Depreciation AD Finding 15 Loss on sale Investment Finding 16 Note payable Advertising 41.00 49 .420.000 5. APIC Finding 19 Land Donated capital 1. 00 Retained beginning Dividends Retained end *** COS 50 68.0 0) (300.000.690.000.200.950.070.715.950.240.0 0) (3.00 267.00 (3.330.000.0 0) (11.810.060.0 0) 20.170.500.0 0) Loss on sale - Depreciation - Amortization of intangibles Income from operations - Interest expense 34.0 0 4.630.0 0 5.00 (1.680.00 180.00 99.085.00 5.Donated capital Retained earnings 99.910.770.00 84.00 ) (300.00 (2.00 50.085.0 0) (1.510.0 0 1.00 1.440.105.0 0) (5.00 (9.0 0) (4.0 0 900.0 0) (5.0 0) (4.485.0 0 68.910.800.700.0 0 - 181.00 261.210.00 ) (1.00 900.0 0) 20.0 0 20.0 0) Net income 30.00 240.0 0 9.160.485.000.720.0 0 Sales Sales discounts 269.940.560.000.00 176.000.530.0 0 264.900.0 0) (21.000.000.0 0 1.0 0) (300.00 Sales returns Cost of sales *** Gross profit Other income TOTAL 50.0 0 84.0 0) 186.0 0 56.00 (4.00 610.0 0) (21.00 68.210.00 39.0 0) (1.500.0 0) (1.105.00 430.500.510.00 12.170.00 Operating expenses Advertising Doubtful accounts Salesmen's salaries Miscellaneous selling expenses Rent expenses Insurance expense Light and water Taxes Office salaries Miscellaneous office expenses (7.00 ) (2.00 .105.000.00 85.900.170.0 0 150.0 0) (10.650.000.00 41.625.0 0) (1.0 0 3.0 0 4.00 85.0 0 5.0 0 186.0 0) (1.0 0) 24.500.0 0) (1.210.0 0) (1.940.200.700.470.770.650.0 0) (1.560.210.00 (1.000.0 0) Net sales 266. 00 189.0 0) COS 181.190.690.beg.500.700.500.end 223.0 0) (1.00 51 .00 (3. Purchases Purchase returns Purchase discounts TGAS 39.00 (41.0 0) Inventory .970.360.Inventory . 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