Problem 1
Ecleo Company TRIAL BALANCE December 31, 2003
Debit Credit
Petty Cash Fund P 3,000
Cash in Bank 38,700
Marketable Securities 300,000
Accounts Receivable 698,000
Allowance for Bad Debts P108,500
Accounts Receivable – Employees 14,200
Notes Receivable 45,000
Interest Receivable 5,100
Merchandise Inventory, 12/31/03 365,000
Office Supplies on Hand 15,000
Prepaid Insurance 90,000
Investment in Stock 1,500,000
Leasehold Improvements 180,000
Accumulated Depreciation – Leasehold
Improvements 72,000
Equipment 300,000
Accumulated Depreciation – Equipment 27,000
Delivery Van 510,000
Accumulated Depreciation – Delivery Van 170,000
Accounts Payable 864,000 Notes Payable 340,000 Interest Payable 5,000 Common Stock 3,000,000 Retained Earnings 1,128,500 Sales 6,000,000 Interest Income 13,000 Dividend Income 120,000 Repairs Expense 123,000 Postage Expense 15,200
Cost of Goods Sold 3,900,000
Rent Expense 96,000
Advertising Expense 55,000
Taxes and licenses 45,000
Salaries Expense 1,700,000
Utilities Expense 413,500
Commission Expense 264,000
Interest Expense 34,000
Miscellaneous Selling Expense 148,000
Miscellaneous General Expense 132,000
Cash Over or Short 8,300
Loss on Damages 850,000 ___________
P11,848,000 P11,848,000 Additional information:
1. An examination of the petty cash fund on the morning of January 2, 2004, discloses the following items in the petty cash drawer.
Coins and currency P 152.00
Postage stamps 29.00
An I.O.U. from Favila, an employee
for cash advance 400.00
Check payable to Ecleo from Yongco,
an employee, marked NSF 340.00
Vouchers for the following:
Stamps P 200.00
Computer repairs 1,843.50 2,043.50
2. The correct balance of the Cash in Bank account on November 1, 2003, was P40,000. Subsequent transactions during November and December relating to the records of Ecleo and Econg Bank are summarized below.
Ecleo Books Econg Bank Books
November deposits P73,600 P71,100
November checks 62,900 61,300
November service charge - 100
November 30 balance 50,700 49,700
December deposits 82,200 82,800
December checks 94,100 92,200
December service charge - 150
Note collected by bank
in December - 10,150
November service charge
recorded in December 100
-December 31 balance 38,700 50,300
3. An examination of the company’s allowance for bad debts reveals the following: Estimated Bad Debts Actual Bad Debts
2000 P111,000 P45,000
2001 130,000 68,000
2002 165,000 89,500
2003 No adjustment yet 95,000
In the past, the company has estimated that 3% of sales will be uncollectible. The company’s accountant has determined that the percentage used in estimating bad debts has been inappropriate. He would like to revise the estimate downward to 1.5%. The president of the company has stated that if the previous estimates of bad debt expense were incorrect, the financial statements should be restated using the more accurate estimate.
4. An examination of the company’s December 31, 2003, inventory revealed errors in its inventory-taking procedures that have caused inventories for the last 3 years to be incorrect, as follows:
December 31, 2001 Understated P160,000
December 31, 2002 Understated 210,000
December 31, 2003 Overstated 67,000 QUESTIONS:
1. What is the correct amount of petty cash for the balance sheet?
a. P87.50 b. P492.00 c. P152.00 d. P187.50
2. The petty cash shortage is
a. P35.50 b. P206.50 c. P0 d. P64.50
3. What is the total bank receipts (credits) in December?
a. P92,800 b. P81,250 c. P92,950 d. P82,800
4. What is the total bank disbursements (debits) in December?
a. P92,350 b. P92,200 c. P92,450 d. P61,400
5. What is the total book disbursements (credits) in December?
a. P94,200 b. P94,100 c. P94,350 d. P63,000
6. What is the total deposits in transit at November 30?
a. P0 b. P2,500 c. P1,900 d. P2,250
7. What is the total deposits in transit at December 31?
a. P2,250 b. P2,500 c. P1,900 d. P2,050
8. What is the total outstanding checks at November 30?
a. P0 b. P1,550 c. P1,700 d. P1,600
9. What is the total outstanding checks at December 31?
10. What is the correct cash in bank balance at November 30?
a. P49,700 b. P50,700 c. P48,600 d. P50,600
11. What is the correct cash in bank balance at December 31?
a. P49,200 b. P48,700 c. P48,550 d. P50,300
12. What is the correct book receipts in December?
a. P 92,350 b. P102,950 c. P91,400 d. P92,750
13. What is the correct bank disbursements in December?
a. P92,250 b. P94,150 c. P94,250 d. P94,350
14. What is the entry to record the bad debt expense for the year?
a. Bad Debt Expense 90,000
Allowance for Bad Debts 90,000
b. Allowance for Bad Debts 18,500
Bad Debt Expense 18,500
c. Bad Debt Expense 18,500
Allowance for Bad Debts 18,500
d. No adjusting entry.
15. What catch-up entry would be made to correct the inaccurate estimates for previous years?
a. Allowance for Bad Debts 203,500
Retained Earnings 203,500
b. Allowance for Bad Debts 18,500
Retained Earnings 18,500
c. Allowance for Bad Debts 203,500
Retained Earnings 185,000
Bad Debt Expense 18,500
d. No entry.
16. What is the adjusted balance of the allowance for bad debts at December 31, 2003?
a. P 18,500 b. P198,500 c. P90,000 d. P0
17. What is the effect of the inventory errors on the company’s income in 2001? a. P160,000 understatement c. P117,000 understatement b. P160,000 overstatement d. No effect
18. What is the effect of the inventory errors on the company’s income in 2002? a. P50,000 overstatement c. P210,000 understatement b. P50,000 understatement d. P210,000 overstatement 19. What is the effect of the inventory errors on the company’s income in 2003?
a. P67,000 understatement c. P277,000 overstatement b. P143,000 overstatement d. P277,000 understatement
20. What is the adjusting entry at December 31, 2003, to correct the inventory errors?
a. Cost of Sales 277,000
Retained Earnings 210,000
Merchandise Inventory, Ending 67,000
b. Cost of Sales 67,000
Merchandise Inventory, Ending 67,000
c. Cost of Sales 277,000
Merchandise Inventory, Ending 277,000
d. Retained Earnings 277,000
Cost of Sales 210,000
Merchandise Inventory, Ending 67,000
Problem 2
Resilience Corporation is selling audio and video appliances. The company's fiscal year ends on March 31. The following information relates the obligations of the company as of March 31, 2003:
Notes payable
Resilience has signed several long-term notes with financial institutions. The maturities of these notes are given below. The total unpaid interest for all of these notes amounts to P340,000 on March 31, 2003.
Due date Amount
April 31, 2003 P 600,000 July 31, 2003 900,000 September 1, 2003 450,000 February 1, 2004 450,000 April 1, 2004 - March 31, 2005 2,700,000 P5,100,000 Estimated warranties
Resilience has a one-year product warranty on some items. The estimated warranty liability on sales made during the 2001 - 2002 fiscal year and still outstanding as of March 31, 2002, amounted to P252,000.The warranty costs on sales made on April 1, 2002 to March 31, 2003, are estimated at P630,000. The actual warranty costs incurred during 2002 - 2003 fiscal year are as follows:
Warranty claims honored on 2001 - 2002 sales P252,000 Warranty claims honored on 2002 - 2003 sales 285,000
Total P537,000
Trade payable
Accounts payable for supplies, goods and services purchases on open account amount to P560,000 as of March 31, 2003.
Dividends
On March 10, 2003, Resilience board of directors declared a cash dividend of P9.30 per common share and a 10% common stock dividend. Both dividends were to be distributed on April 5, 2003 to common stockholders on record at the close of business on March 31, 2003. As of March 31, 2003, Resilience has 5 million, P2 par value, common shares issued and outstanding.
Bonds payable
Resilience issued P5,000,000, 12% bonds on October 1, 1997 at 96. The bonds will mature on October 1, 2007. Interest is paid semi-annually on October 1 and April 1. Resilience uses the straight line method to amortize bond discount.
Based on the foregoing information, determine the adjusted balances of the following as of March 31, 2003:
21. Estimated warranty payable
a. P262,000 b. P345,000 c. P630,000 d. P882,000
22. Unamortized bond discount
a. P110,000 b. P200,000 c. P100,000 d. P90,000
23. Bond interest payable
a. P0 b. P300,000 c. P150,000 d. P250,000
24. Total current liabilities
a. P6,445,000 b. P5,105,000 c. P5,445,000 d.
P3,815,000
25. Total non-current liabilities
a. P7,700,000 b. P7,590,000 c. P7,500,000 d. P7,610,000 Problem 3
The financial statements of Determination Company include the following:
December 31, 2002 December 31, 2003
Accounts receivable P900,000
Allowance for doubtful accounts 45,000
Sales P7,500,000
Among the cash collections was the recovery of P15,000 receivable from a customer whose account had been written off as worthless in 2002. During 2003, it was necessary to write-off uncollectible, customers' accounts at P75,000. On December 1, 2003, a customer settled his account by issuing a 12% six-month note for P300,000.
On December 31, 2003, the accounts receivable included P450,000 at past due accounts. After careful study, the management estimated that the probable loss on past due accounts is 20% and that in addition, 5% of the current accounts may prove uncollectible. QUESTIONS:
26. What is the balance of accounts receivable on December 31, 2003?
a. 1,500,000 b. 1,800,000 c. 1,485,000 d. 1,470,000
27. What is the balance of allowance for doubtful accounts before adjustment on December 31, 2003?
a. 15,000 debit b. 45,000 credit c. 30,000 debit d. 60,000 debit 28. How much is the required allowance for doubtful accounts on December 31, 2003?
a. 185,000 b. 90,000 c. 127,500 d. 142,500
29. How much increase in allowance for doubtful accounts is required on December 31, 2003?
a. 127,500 b. 157,500 c. 97,500 d. 142,500
30. The adjusting entry to record the doubtful accounts expense for 2003 is:
a. Doubtful accounts expense P127,500
Allowance for doubtful accounts P127,500
b. Retained earnings P142,500
Allowance for doubtful accounts P142,500
c. Doubtful accounts expense P 97,500
Allowance for doubtful accounts P 97,500
d. Doubtful accounts expense P157,500
Allowance for doubtful accounts P157,500
Items 31 through 36 are based on the following data.
The following accounts were included in the unadjusted trial balance of Charlotte Company as of December 31, 2003: Cash P 240,800 Accounts receivable 563,500 Merchandise inventory 1,512,500 Accounts payable 1,050,250 Accrued expenses 107,750
During your audit, you noted that Charlotte Company held its cash books open after year-end. In addition, your audit revealed the following:
1. Receipts for January 2004 of P163,650 were recorded in the December 2003 cash receipts book. The receipts of P90,025 represents cash sales and P73,625 represents collections from customers, net of 5% cash discounts.
2. Payments to suppliers made on January 2004 of P93,100, on which discounts of P3,100 were taken, were included in the December 2003 check register.
3. Merchandise inventory is valued at P1,512,500 prior to any adjustments. The following information has been found relating to certain inventory transactions.
a. Goods valued at P68,750 are on consignment with a customer. These goods are not included in the P1,512,500 inventory figure.
b. Goods costing P54,375 were received from a vendor on January 4, 2004. The related invoice was received and recorded on January 6, 2004. The goods were shipped on December 31, 2003, terms FOB shipping point.
c. Goods costing P159,375 were shipped on December 31, 2003, and were delivered to the customer on January 3, 2004. The terms of the invoice were FOB shipping point. The goods were included in the 2003 ending inventory even though the sale was recorded in 2003.
d. A P45,500 shipment of goods to a customer on December 30, terms FOB destination are not included in the year-end inventory. The goods cost P32,500 and were delivered to the customer on January 3, 2004. The sale was properly recorded in 2004.
e. The invoice for goods costing P43,750 was received and recorded as a purchase on December 31, 2003. The related goods, shipped FOB destination were received on January 4, 2004, and thus were not included in the physical inventory.
f. Goods valued at P153,200 are on consignment from a vendor. These goods are not included in the physical inventory.
Based on the above and the result of your audit, determine the adjusted balances of the following as of December 31, 2003. A B C D 31. Cash 240,800 170,250 167,150 173,350 32. Accounts receivable 641,000 727,150 637,125 563,500 33. Merchandise inventory 1,252,500 1,508,750 1,520,000 1,465,000 34. Accounts payable 1,143,250 1,197,725 1,150,875 1,153,975 35. Working capital 1,055,175 1,158,800 1,058,275 1,000,800 36. Current ratio 2.00 2.01 1.84 1.83 END
