APPLIED
AUDITING
With Comprehensive
Review of Philippine Financial
Reporting Standards (PFRSs)
A guide in applying auditing procedures to specific
accounts of the financial statements.
TEACHERS MANUAL
2016
Edition
By
DARRELL JOE O. ASUNCION, MBA, CPA
MARK ALYSON B. NGINA, CMA, CPA
RAYMUND FRANCIS A. ESCALA, MBA, CPA
Dear fellow teacher,
This “Teacher’s Manual” should be used solely by the
teacher and for classroom purposes only. This manual
should NOT be reproduced either manually (e.g.,
printing or photocopy) or electronically (e.g., copying or
uploading in the net) without our written consent (or the
publisher’s written authorization).
If you have comments, queries or suggestions, please do
not hesitate to contact us at:
Telephone: 074-2441894
Mobile No.: Darrell Joe O. Asuncion – 0923-424-8286
Mark Alyson B. Ngina – 0915-510-7281
Raymund Francis A. Escala – 0917-715-1226
Email ad:
[email protected].
Thanks and God bless.
Sincerely,
Darrell Joe O. Asuncion, MBA, CPA
Mark Alyson B. Ngina, CMA, CPA
Raymund Francis A. Escala, MBA, CPA
Table of Contents
CHAPTER 5: CASH TO ACCRUAL... 4
CHAPTER 6: CORRECTION OF ERRORS...19
CHAPTER 8: CASH AND CASH EQUIVALENTS ...29
CHAPTER 10: LOANS AND RECEIVABLES ...52
CHAPTER 12: INVENTORIES ...86
CHAPTER 14: INTRODUCTION TO FINANCIAL ASSET AND INVESTMENT
IN EQUITY SECURITIES ...117
CHAPTER 15: INVESTMENT IN DEBT SECURITIES ...133
CHAPTER 16 INVESTMENT IN ASSOCIATE...142
CHAPTER 18 PROPERTY, PLANT AND EQUIPMENT...157
CHAPTER 19 WASTING ASSETS...183
CHAPTER 20 INVESTMENT PROPERTY ...189
CHAPTER 22 INTANGIBLE ASSETS ...195
CHAPTER 23 REVALUATION, IMPAIRMENT AND NONCURRENT ASSET
HELD FOR SALE ...208
CHAPTER 25 INTRODUCTION TO LIABILITIES...225
CHAPTER 26 FINANCIAL LIABILITIES AND DEBT RESTRUCTURING..239
CHAPTER 27 LEASE ...259
CHAPTER 29 SHAREHOLDERS’ EQUITY...285
CHAPTER 30 BOOK VALUE AND EARNINGS PER SHARE ...308
CHAPTER 32 STATEMENT OF FINANCIAL POSITION AND
COMPREHENSIVE INCOME...320
Chapter 5: Cash to Accrual
CHAPTER 5: CASH TO ACCRUAL
PROBLEM 5-1 (Computation of Sales under cash basis)
Accounts receivable/Notes receivable trade/Advances from customers Beg. balance – AR 200,000 180,000 Balance end - AR Beg. balance – NR 240,000 170,000 Balance end - NR Balance end - Advances 40,000 55,000 Beg. balance - Advances Sales on account 600,000 4,000 Sales ret. and allowance
Recoveries - 2,000 Sales discounts
666,000 Collectionsrecoveries including 3,000 Write-off
Total 1,080,000 1,080,000
Suggested answer: A
PROBLEM 5-2 Computation of Bad Debts Allowance for bad debts
Ending balance 40,000 25,000 Beginning balance
Write-off 8,000 21,000 Bad debts expense
2,000 Recoveries
Total 48,000 48,000
Suggested answer: C
PROBLEM 5-3 (Computation of Purchases)
Accounts Payable / Notes Payable / Advances to Suppliers
Payments 800,000 200,000 Beg. balance - AP
Purchase ret. and allow. 6,000 400,000 Beg. balance - NP Purchase discount 3,000 68,000 Balance end - Advances Beg. balance - Advances 50,000 651,000 Purchases (gross)
Balance end – AP 250,000
Balance end – NP 210,000
Total 1,319,000 1,319,000
Chapter 5: Cash to Accrual
PROBLEM 5-4 Computation of Cost of Sales
Accounts Payable (AP) / Notes Payable (NP)
Payments 800,000 200,000 Beg. balance - AP
Purchase ret. and allow. 6,000 - Beg. balance - NP Purchase discount 3,000 859,000 Purchases (gross)
Balance end - AP 250,000
Balance end - NP
-Total 1,059,000 1,059,000
Merchandise Inventory
Beginning balance 400,000 210,000 Ending balance Net purchases 860,000 1,050,000 Cost of sales
Total 1,260,000 1,260,000
Computation of the net purchases:
Gross purchases on account 859,000
Add cash purchases 10,000
Total 869,000
Less: Purchase returns and allowances 6,000
Purchase discount 3,000
Net purchases 860,000
Suggested answer: B
PROBLEM 5-5 (Computation of Income Other Than Sales) Rent Receivable/Unearned rent income Beg. Balance - Rent
Receivable 200,000 250,000 Balance end - RentReceivable Balance end - Unearned
rent income 30,000 90,000 Beg. Balance – Unearnedrent income Rent Income (squeeze) 770,000 660,000 Collections
Total 1,000,000 1,000,000
Suggested answer: B
PROBLEM 5-6 (Computation of Expenses in General) Prepaid Rent/Rent payable Beg. Balance - Prepaid
Salaries 200,000 250,000 Balance end - PrepaidRent
Balance end - Accrued
Salaries 65,000 80,000 Beg. Balance – Rentpayable
Payments 850,000 785,000 Rent Expense
Chapter 5: Cash to Accrual Suggested answer: C
PROBLEM 5-7 (Computation of Cost of Machine Acquired and Sold) Question No. 1
Carrying amount of equipment sold 25,000
Add: Accumulated depreciation 15,000
Cost 40,000
Question No. 2
Equipment
Beg. Balance 100,000 120,000 Balance end
Cost of PPE acquired
(squeeze) 60,000 40,000 Cost of PPE disposed
Total 160,000 160,000
Accumulated depreciation
Balance end 18,000 15,000 Beg. Balance
Accumulated depreciation
of PPE disposed 15,000 18,000 Depreciation expense
Total 33,000 33,000 SUMMARY OF ANSWERS: 1. D 2. A PROBLEM 5-8 Question No. 1 Prepaid Insurance
Beg. Balance 7,500 6,000 Balance end
Payments 41,500 43,000 Expenses (squeeze)
Total 49,000 49,000
Question No. 2
Interest Receivable
Beg. Balance 14,500 3,700 Balance end
Income (squeeze) 112,700 123,500 Collections
Chapter 5: Cash to Accrual Question No. 3
Salaries payable
Balance end 61,500 53,000 Beg. Balance
Payments 481,000 489,500 Expenses
Total 542,500 542,500
Question No. 4
Accounts receivable trade
Beg. Balance 415,000 550,000 Balance end
Sales 1,980,000 1,845,000 Collections (squeeze)
Total 2,395,000 2,395,000
Question No. 5
Accounts receivable trade
Beg. Balance 415,000 550,000 Balance end
Sales 1,980,000 1,820,000 Collections (squeeze)
25,000 Write-off
Total 2,395,000 2,395,000
Question No. 6
Accounts receivable trade
Beg. Balance 415,000 550,000 Balance end
Sales 1,980,000 1,840,000 Collections (squeeze)
Recoveries 20,000 25,000 Write-off Total 2,415,000 2,415,000 SUMMARY OF ANSWERS: 1. C 2. B 3. C 4. A 5. A 6. B PROBLEM 5-9 Question No. 1
Accounts/Notes receivable trade
Decrease in A/R 100,000 100,000 Increase in N/R Sales on account 4,260,000 10,000 Write-off
(squeeze) 4,200,000 Collections
30,000 Sales discounts 20,000 Sales ret. and allow.
Chapter 5: Cash to Accrual Question No. 2
Accounts payable
Cash paid to creditors 2,800,000 200,000 Decrease in Accounts payable
Purchase discounts 40,000 2,650,000 Gross purchases
(squeeze)
Purchase returns 10,000
Total 2,850,000 2,850,000
Question No. 3
Merchandise inventory
Decrease in Inventory 25,000 40,000 Purchase discounts Gross purchases 2,650,000 10,000 Purchase returns
2,625,000 Cost of sales (squeeze)
Total 2,675,000 2,675,000
Question No. 4
Rental receivable/Unearned Rent Income
Rental revenue
(squeeze) 454,000 14,000 Increasereceivable in Rental 40,000 Decrease in Unearned
rental
400,000 Collections from tenants
Total 454,000 454,000
Question No. 5
Prepaid interest/Interest Payable Decrease in Prepaid
interest 5,500 114,000 Interest(squeeze) expense
Increase in Interest payable 8,500 Interest paid 100,000 Total 114,000 114,000 SUMMARY OF ANSWERS: 1. D 2. D 3. A 4. A 5. D
Chapter 5: Cash to Accrual PROBLEM 5-10
Question No. 1
Accounts Receivable/Notes receivable trade Beg. Balance – A/R 200,000 250,000 Bal. end – A/R Beg. Balance – N/R 300,000 100,000 Bal. end – N/R Sales on account 1,000,000 20,000 Sales ret. and allow.
(squeeze) 10,000 Sales discount
1,120,000 Collections
Total 1,500,000 1,500,000
Question No. 2
Accounts payable/Notes payable
Balance end – A/P 25,000 50,000 Beg. Balance – A/P Balance end – N/P 75,000 100,000 Beg. Balance – N/P Purchase returns and
allow 40,000 650,000 Gross(squeeze) purchases
Purchase discount 10,000
Payments 650,000
Total 800,000 800,000
Gross purchases 650,000
Less: Purchase ret and allow 40,000
Purchase discounts 10,000 50,000
Net Purchases 600,000
Question No. 3
Sales 1,000,000
Less: Sales ret and allow 20,000
Sales discounts 10,000 30,000
Net Sales 970,000
Less: Cost of Sales
Merchandise inventory beg. 200,000
Add: Net Purchases
Purchases 600,000
Add: Freight-in
-Gross Purchases 650,000
Less: Purch. Ret and allow 40,000
Purchase discounts 10,000 600,000
Total goods available for sale 800,000
Less: Merchandise inventory, end 100,000 700,000
Chapter 5: Cash to Accrual Question No. 4
Prepaid/Accrued Salaries Beg. Balance -Prepaid
Salaries 100,000 125,000 Balance end - PrepaidSalaries Balance end - Accrued
Salaries 50,000 75,000 Beg. Balance - AccruedSalaries
Payments 350,000 300,000 Salaries expense
(squeeze)
Total 500,000 500,000
Question No. 5
Accrued rent/Unearned rent Beg. Balance - Accrued
rent 70,000 40,000 Balance end - Accruedrent
Balance end - Unearned
rent 40,000 80,000 Beg. Balance - Unearnedrent
Rent income (squeeze) 490,000 300,000 Collection of rent
Total 600,000 600,000
SUMMARY OF ANSWERS:
1. A 2. B 3. C 4. B 5. B
PROBLEM 5-11 Question No. 1
Accounts receivable trade
Beg. Balance 200,000 300,000 Balance end
Recoveries 8,000 20,000 Sales discounts
Sales (squeeze) 1,570,000 1,408,000 Collections including recoveries
(1,498,000-80,000+20,00-30,000) 50,000 Accounts written-off
Total 1,778,000 1,778,000
Sales 1,570,000
Less: Sales discount 20,000
Net Sales 1,550,000
Question No. 2
Accounts payable trade
Payment (1,210,000- 150,000 Beg. Balance
20,000+30,000) 1,210,000 1,170,000 Purchases (squeeze) Purchase ret. and allow. 10,000
Chapter 5: Cash to Accrual
Total 1,320,000 1,320,000
Purchases 1,170,000
Less: Purchases discount 10,000
Net Purchases 1,160,000
Question No. 3
Merchandise inventory
Beg. Balance 380,000 330,000 Balance end
Net Purchases
(1,170,000-10,000) 1,160,000 1,210,000 Cost of Sales (squeeze)
Total 1,540,000 1,540,000
Question No. 4
Rent Receivable
Beg. Balance 70,000 80,000 Balance end
Rent income (squeeze) 130,000 120,000 Collections
Total 200,000 200,000
Question No. 5
Allowance for Doubtful accounts Accounts written off 50,000 20,000 Beg. Balance
Balance end 30,000 52,000 Doubtful account
expense(squeeze) 8,000 Recoveries Total 80,000 80,000 SUMMARY OF ANSWERS: 1. B 2. B 3. B 4. A 5. A PROBLEM 5-12 Comprehensive Question No. 1
Accounts receivable trade
Beg. Balance 500,000 750,000 Balance end
Professional fees
(squeeze) 5,250,000 5,000,000 Collections
Chapter 5: Cash to Accrual Question No. 2
Professional Fees (See No. 1) 5,250,000
Less: Rent expense (1.2M +100,000) 1,300,000 Supplies expense
(800,000+300,000-250,000) 850,000
Other operating expense 750,000
Interest expense (1M x 12% x 9/12) 90,000 Depreciation expense (2,500,000/10) 250,000 3,240,000 Net income 2,010,000 Question No. 3 Cash 1,500,000 Accounts Receivable 750,000 Supplies 250,000
Total Current Assets 2,500,000
Question No. 4
Furniture and fixtures 2,500,000
Less: Accumulated Depreciation
(125,000 + 250,000) 375,000
Total Noncurrent Assets 2,125,000
Question No. 5
Total current assets (See No. 3) 2,500,000 Total noncurrent assets (See No. 4) 2,125,000
Total Assets 4,625,000
Question No. 6
Notes Payable 1,000,000
Accrued rent 100,000
Accrued interest on notes payable
(1,000,000 x 12% x 9/12) 90,000
Total Current Liabilities 1,190,000
Question No. 7
Total assets (See No. 5) 4,625,000
Less: Total liabilities (See No. 6) – all are
current 1,190,000
Total Owner’s Equity 3,435,000
SUMMARY OF ANSWERS:
Chapter 5: Cash to Accrual PROBLEM 5-13
Question No. 1
Accounts receivable trade
Beg. Balance 124,000 146,000 Balance end
Sales on account 13,000 Sales discount
(squeeze) 1,535,000 1,500,000 Collections
Total 1,659,000 1,659,000
Sales on account 1,535,000
Add: Cash sales 160,000
Total sales 1,695,000
Question No. 2
Gross sales (see No. 1) 1,695,000
Less: Sales discount 13,000
Net sales 1,682,000
Question No. 3
Accounts Payable
Payments 1,206,000 382,000 Beg. Balance
Balance end 410,000 1,234,000 Purchases (squeeze)
Total 1,616,000 1,616,000
Purchases on account 1,234,000
Add: Cash purchases 120,000
Total Purchases 1,354,000
Question No. 4
Merchandise Inventory
Beg. Balance 186,000 190,000 Balance end
Net purchases 1,354,000 1,350,000 Cost of sales (squeeze)
Total 1,540,000 1,540,000
Question No. 5
Prepaid G&A/Accrued G&A Beg. Balance - Prepaid
Interest 9,600 8,400 Balance end - PrepaidInterest
Balance end – Accrued
Interest 9,000 7,000 Beg. Balance – AccruedInterest
Payments 204,000 207,200 Expenses
Chapter 5: Cash to Accrual Question No. 6
General and administrative expense (see No. 5) 207,200
Depreciation expense 84,000
Warranty expense 6,400
Total operating expense 297,600
Question No. 7
Selling price of land 20,000
Less: Book value of land 16,000
Gain on sale of land 4,000
Question No. 8
Selling Price 12,000
Less Book value
Cost 25,000
Less: Accumulated depreciation 16,000 9,000
Gain on sale of warehouse equipment 3,000
Question No. 9
Selling Price 42,000
Less: Book value
Cost 48,000
Less: Accumulated depreciation 20,000 28,000
Gain on sale of boiler 14,000
Question No. 10
Net Sales 1,682,000
Less: Cost of Sales 1,350,000
Gross Profit 332,000
Less: Operating expenses 297,600
Gain on sale (14,000+3,000+4,000) 21,000 Net income 55,400 SUMMARY OF ANSWERS: 1. B 2. C 3. D 4. A 5. B 6. A 7. A 8. C 9. B 10. A PROBLEM 5-14 Comprehensive Question No. 1
Accounts receivable trade
Beg. Balance 150,000 200,000 Balance end
Sales (squeeze) 800,000 10,000 Sales returns
740,000 Collections
Chapter 5: Cash to Accrual Question No. 2
Sales on account 800,000
Add: Cash sales 100,000
Total sales 900,000
Less: Sales returns and allowances 10,000
Net sales 890,000
Less: Cost of sales (squeeze) 390,000
Gross profit (200,000/40%) 500,000
Merchandise inventory
Beg. Balance 190,000 220,000 Balance end
Net Purchases (squeeze) 420,000 390,000 Cost of Sales
Total 610,000 610,000
Question No. 3
Accounts Payable trade
Payments (squeeze) 470,000 230,000 Beg. Balance - Accounts payable
Purchase returns and
allowances 8,000 428,000 Gross(420,000+8,000)purchases Balance end – Accounts
payable 180,000
Total 658,000 658,000
Question No. 4
Total payment of Accounts payable and admin expenses 518,000
Less: Payment of Accounts payable 470,000
Payment of admin expenses 48,000
Question No. 5
Payment of admin expenses 48,000
Divided by: Percentage of cash expenses to total admin
expense 80%
Total admin expenses 60,000
Add: Selling expenses 200,000
Total selling and administrative expense 260,000 Question No. 6
Total administrative expenses 60,000
Less: Payment of administrative expense 48,000
Non-cash administrative expenses 12,000
Less: Depreciation for building
Chapter 5: Cash to Accrual
Depreciation for furniture and fixtures 3,000
Divided by: Number of months used over 12 months 6/12
Annual depreciation 6,000
Divided by: Depreciation rate 10%
Cost of Furniture and Fixtures (no residual value) 60,000 SUMMARY OF ANSWERS: 1. A 2. A 3. B 4. A 5. C 6. A PROBLEM 5-15 Question No. 1 Cash Receipts: From customers 360,000
From issue of ordinary shares 100,000
From bank loan 100,000 560,000
Cash disbursements: Purchase of inventory 300,000 Rent 15,000 Salaries 30,000 Utilities 5,000 Insurance 3,000
Purchase of equipment and furniture 40,000 393,000
Cash 167,000
Question Nos. 2 and 3 Current assets
Cash 167,000
Inventories 100,000
Prepaid rent (1,000 x 3) 3,000
Total current assets (No. 2) 270,000
Noncurrent assets
Property, plant and equipment 40,000
Less accumulated depreciation 4,000 36,000
Total assets (No. 3) 306,000
Question No. 4
Accounts payable 20,000
Utilities payable 1,000
Loans payable 100,000
Interest on loans payable (100,000 x 12% x 9/12) 9,000
Chapter 5: Cash to Accrual Question No. 5
Ordinary shares 100,000
Retained earnings (net income) 176,000
Shareholders’ equity 176,000
SUMMARY OF ANSWERS:
1. B 2. B 3. A 4. D 5. A
PROBLEM 5-16 Question No. 1
Notes receivable – December 31 210,000
Accounts receivable – December 31 950,000
Collection of notes and accounts 2,950,000
Note receivable discounted 200,000
Total 4,310,000
Less: Notes receivable – January 1 200,000
Accounts receivable – January 1 740,000 940,000
Sales on account 3,370,000
Question No. 2
Notes payable – December 31 580,000
Less: Note payable – bank 300,000
Notes payable – trade 280,000
Accounts payable – December 31 750,000
Payment of notes and accounts 2,100,000
Total 3,130,000
Less: Notes payable – January 1 750,000
Accounts payable – January 1 600,000 1,350,000
Purchases on account 1,780,000
Question No. 3
Equipment – January 1 1,000,000
Add: Acquisition 280,000
Total 1,280,000
Less: Equipment – December 31 1,200,000
Depreciation 80,000
Question No. 4
Interest accrued on note issued to bank (300,000 x 12% x 10/12) 30,000
Interest expense 30,000
Question No. 5 Volks Company Income Statement
Chapter 5: Cash to Accrual
Sales 3,370,000
Cost of sales:
Inventory – January 1 1,600,000
Purchases 1,780,000
Goods available for sale 3,380,000
Less: Inventory – December 31 1,500,000 1,880,000
Gross income 1,490,000
Expenses:
*Expenses 820,000
Depreciation 80,000
**Loss on sale of investment 50,000
***Loss on note receivable discounted 10,000
Interest expense 30,000 990,000
Net income 500,000
*Expenses paid 790,000
Add: Prepaid expenses – January 1 120,000
Accrued expenses – December 31 50,000
Total 960,000
Less: Prepaid expenses – December 31 100,000
Accrued expenses – January 1 40,000 140,000
Expenses 820,000
**Sales price 250,000
Less: Cost of investment sold 300,000
Loss on sale of investment ( 50,000)
***Loss on note receivable discounted (200,000 – 190,000) 10,000 OR
Retained earnings – December 31 600,000
Add: Dividends 400,000
Total 1,000,000
Less: Retained earnings – January 1 500,000
Net income 500,000
SUMMARY OF ANSWERS:
Chapter 6: Correction of Errors
CHAPTER 6: CORRECTION OF ERRORS
PROBLEM 6-1 Income Statement and SFP Errors Questions Nos. 1-62016 2017
Net
income g capitalWorkin
RE, end of the
year incomeNet g capitalWorkin
RE, end of the year Unadjusted balances 200,000 180,000 200,000 160,000 260,000 360,000 1 - - - -2 - - - -Adjusted balances 200,000 180,000 200,000 160,000 260,000 360,000 Questions No. 7
Assuming errors were discovered in 2016
ADJUSTING ENTRIES Debit Credit
1) Miscellaneous income 25,000
Rent income 25,000
2) Notes payable 28,000
Accounts payable 28,000
Assuming errors were discovered in 2017
ADJUSTING ENTRIES Debit Credit
1) No entry 2) No entry
Assuming errors were discovered in 2018
ADJUSTING ENTRIES Debit Credit
1) No entry 2) No entry
SUMMARY OF ANSWERS:
Chapter 6: Correction of Errors
PROBLEM 6-2 Counterbalancing Errors Questions Nos. 1-6
2016 2017
Net
income g capitalWorkin R/E incomeNet g capitalWorkin R/E Unadjusted balances 200,000 180,000 200,000 160,000 260,000 360,000 1 (15,000) (15,000) (15,000) 15,000 -2 20,000 20,000 20,000 (20,000) -3 6,000 6,000 6,000 (6,000) -4 (7,500) (7,500) (7,500) 7,500 -Adjusted balances 203,500 183,500 203,500 156,500 260,000 360,000 Question No. 7
A. Errors were discovered in 2016
ADJUSTING ENTRIES Debit Credit
1) Interest expense 15,000 Interest payable 15,000 2) Interest receivable 20,000 Interest income 20,000 3) Prepaid insurance 6,000 Insurance expense 6,000 4) Rent revenue 7,500
Unearned rent revenue 7,500
B. Errors were discovered in 2017
Assuming errors are discovered when the cash flows related to the transactions were processed and books are still open
ADJUSTING ENTRIES Debit Credit
1) Retained earnings 15,000 Interest expense 15,000 2) Interest income 20,000 Retained earnings 20,000 3) Insurance expense 6,000 Retained earnings 6,000 4) Retained earnings 7,500 Rent revenue 7,500
When books are already closed, no necessary adjusting entries to be made.
C. Errors were discovered in 2018
No necessary adjusting entries to be made. SUMMARY OF ANSWERS:
Chapter 6: Correction of Errors
PROBLEM 6-3 Counterbalancing Errors Questions Nos. 1-6
2015 2016
Net
income g capitalWorkin R/E, end incomeNet g capitalWorkin R/E, end Unadjusted balances 200,000 180,000 200,000 160,000 260,000 360,000 1 (60,000) (60,000) (60,000) 60,000 - -2 80,000 80,000 80,000 (80,000) - -3 (20,000) (20,000) (20,000) 20,000 - -Adjusted balances 200,000 180,000 200,000 160,000 260,000 360,000 Question No. 7
A. Errors were discovered in 2016
ADJUSTING ENTRIES Debit Credit
1) Purchases 60,000 Accounts payable 60,000 2) Accounts receivable 80,000 Sales 80,000 3) Cost of sales 20,000 Inventory 20,000
B. Errors were discovered in 2017
Assuming errors are discovered when the cash flows related to the transactions were processed and books are still open
ADJUSTING ENTRIES Debit Credit
1) Retained earnings 60,000 Purchases 60,000 2) Sales 80,000 Retained earnings 80,000 3) Retained earnings 20,000 Inventory, beginning 20,000
If books are already closed, no necessary adjusting entries to be made. C. Errors were discovered in 2018
No necessary adjusting entries to be made. SUMMARY OF ANSWERS:
Chapter 6: Correction of Errors
PROBLEM 6-4 Noncounterbalancing Errors Questions Nos. 1-6
2016 2017
Net
income g capitalWorkin
RE, end of the
year incomeNet g capitalWorkin
RE, end of the year Unadjusted balances 200,000 180,000 200,000 160,000 260,000 360,000 1. (30,000) (30,000) (30,000) (6,000) (36,000) (36,000) 2. 20,000 20,000 20,000 10,000 30,000 30,000 3. 12,000 - 12,000 - - 12,000 4. 150,000 - 150,000 (50,000) - 100,000 5. (12,000) - (12,000) - - (12,000) 6. (15,000) - (15,000) 5,000 - (10,000) Adjusted balances 325,000 170,000 325,000 119,000 254,000 444,000 Question No. 7
A. Errors were discovered in 2016
ADJUSTING ENTRIES Debit Credit
1) Insurance expense 30,000
Prepaid insurance 30,000
2) Unearned rent income 20,000
Rent income 20,000 3) Accumulated depreciation 12,000 Depreciation expense 12,000 4) Building improvements 200,000 Repairs expense 200,000 Depreciation expense 50,000 Accumulated depreciation 50,000 5) Other income 20,000 Accumulated depreciation 48,000 Gain on sale 8,000 Building 60,000 6) Repairs expense 20,000 Building 20,000 Accumulated depreciation 5,000 Depreciation expense 5,000
B. Errors were discovered in 2017
ADJUSTING ENTRIES Debit Credit
1) Retained earnings 30,000
Insurance expense 6,000
Chapter 6: Correction of Errors
2) Unearned rent income 30,000
Retained earnings 20,000 Rent income 10,000 3) Accumulated depreciation 12,000 Retained earnings 12,000 4) Building improvements 200,000 Retained earnings 200,000 Depreciation expense 50,000 Retained earnings 50,000 Accumulated depreciation 100,000 5) Retained earnings 12,000 Accumulated depreciation 48,000 Building 60,000 6) Retained earnings 20,000 Building 20,000 Accumulated depreciation 10,000 Retained earnings 5,000 Depreciation expense 5,000
C. Errors were discovered in 2018
ADJUSTING ENTRIES Debit Credit
1) Retained earnings 36,000
Prepaid insurance 36,000
2) Unearned rent income 30,000
Retained earnings 30,000 3) Accumulated depreciation 12,000 Retained earnings 12,000 4) Building improvements 200,000 Retained earnings 200,000 Depreciation expense 50,000 Retained earnings 100,000 Accumulated depreciation 150,000 5) Retained earnings 12,000 Accumulated depreciation 48,000 Building 60,000 6) Retained earnings 20,000 Building 20,000 Accumulated depreciation 10,000 Retained earnings 10,000
Chapter 6: Correction of Errors SUMMARY OF ANSWERS: 1. E 2. E 3. E 4. E 5. A 6. D PROBLEM 6-5 Comprehensive Questions Nos. 1-3 Effects of error in
Net income Working Capital
2015 2016
1) MI over, NI over 10,000 (10,000)
MI under, NI under (8,000) (8,000)
2) Purchases over, NI under (20,000) 20,000
(40,000) (40,000)
3) Sales over, NI over 20,000 (20,000)
70,000 70,000 4) Expenses over, NI under (80,000)
Depreciation exp under, NI over 20,000
5) Other income over 20,000
*Loss under, NI over 5,000
Adjustment (45,000) 32,000 22,000
Computation of loss:
Selling Price 20,000
Less: Book value
Cost 40,000
Less: Accumulated depreciation 15,000 25,000
Loss on sale (5,000)
Questions No. 4
Effect of errors to Retained Earnings in 2016
Understatement to 2015 net income 45,000
Overstatement to 2016 net income 32,000
Net understatement to 2016 retained earnings 13,000 Questions No. 5
ADJUSTING ENTRIES Debit Credit
1) Retained earnings, beg 10,000
Merchandise inventory, beg 10,000
Merchandise inventory, end 8,000
Cost of Sales 8,000
2) Purchases 20,000
Retained earnings 20,000
Advances supplier 40,000
Purchases 40,000
3) Retained earnings, beg 20,000
Chapter 6: Correction of Errors Sales 70,000 Advances customers 70,000 4) Depreciation expense 20,000 Improvements 100,000 Accumulated depreciation 40,000 Retained earnings 80,000 5) Accumulated depreciation 15,000
Retained earnings, beg 25,000
Equipment 40,000 SUMMARY OF ANSWERS: 1. A 2. A 3. A 4. A 5. C PROBLEM 6-6 Comprehensive Questions Nos. 1-5 2015 2016 12/31/2016 Net
Income g capitalWorkin IncomeNet g capitalWorkin R/E Ending Inventory 2015 understated, NI understated (6,000) (6,000) 6,000 - -Ending Inventory 2016 overstated, NI overstated 10,000 10,000 10,000 Depreciation exp. 2015 overstated, NI understated (11,000) - - - (11,000) Depreciation exp. 2016 overstated, NI understated (7,000) - (7,000) Accrued expense understated, NI overstated 2015 4,500 4,500 (4,500) - -Accrued expense understated, NI overstated 2016 7,500 7,500 7,500 Prepaid expense understated, NI understated 2015 (5,000) (5,000) 5,000 - -Prepaid expense understated, NI understated 2016 (12,000) (12,000) (12,000) Accrued revenues understated, NI understated 2016 (3,000) (3,000) (3,000) Deferred revenues understated, NI overstated 2015 1,200 1,200 (1,200) -
-Chapter 6: Correction of Errors SUMMARY OF ANSWERS:
1. D 2. D 3. A 4. A 5. C
PROBLEM 6-7
Questions Nos. 1, 2 and 4
2014 2015 2016
Unadjusted balances 3,000,000 (1,000,000) 3,500,000 1 Overstatement of ending inventory - 2014 (120,000) 120,000
2 Understatement of ending inventory -2016 210,000
3 Understatement of accrued expense - 2014 (40,000) 40,000
4 Overstatement of accrued exp. 90,000
5 Understatement of Depreciation Expense (180,000)
6 Overstatement of Depreciation Expense 30,000
7 Overstatement of Purchases
2014 30,000 (30,000)
2015 40,000 (40,000)
8 Overstatement of other income Correct gain 20,000
Less: Per record 5,000 (15,000)
Adjusted balances 2,870,000 (1,025,000) 3,790,000
Computation of correct gain:
Selling Price 20,000
Less: Book value
Cost 40,000
Less: Accumulated depreciation 25,000 15,000
Loss on sale 5,000
Questions Nos. 3 and 5 Adjusted net income (loss):
2014 2,870,000
2015 (1,025,000)
Total RE, 12/31/2015 1,845,000 No. 3
Adjusted net income 2016 3,790,000
Total RE, 12/31/2016 5,635,000 No. 5
SUMMARY OF ANSWERS:
Chapter 6: Correction of Errors PROBLEM 6-8
Question No. 1
Unadjusted beginning balance (Cr) 70,000 Add: Share premium credited to RE 40,000
Unadjusted RE (Dr) 143,200
Unadjusted Net loss (C) 253,200
Question No. 2
Unadjusted net loss (253,200)
Sales over, NI over (20,000 x 140%) (28,000)
EI under, NI over 20,000
Gain under, NI under 1,000
Repairs expense over, NI under 20,000
Depreciation Expense building under, NI over
(5% x 500,000) (25,000)
Depreciation Expense eqpmt under, NI over (20,100)
Bad debts exp under, NI over (2,600)
Adjusted net loss (C) (287,900)
Computation of gain
Net Selling Price 9,000
Less: Carrying amount (10,000-(10,000 x 10% x 2) 8,000
Gain on sale 1,000
Computation of depreciation expense equipment: Beg. Balance of the eqpmt. Net of asset disposed
(201,000-10,000) 191,000 x 10% 19,100
Asset disposed 10,000 x 10% x 6/12 500
Asset acquired 20,000 x 10% x 3/12 500
Depreciation expense 20,100
The unadjusted beg. Balance of the equipment is computed as follows:
Unadjusted balance end 192,000
Add: Amount credited for asset disposed 9,000
Unadjusted balance beg 201,000
The adjusted balance end of the equipment is
Unadjusted balance beg 201,000
Add: Asset acquired 20,000
Total 221,000
Less: cost of asset disposed 10,000
Adjusted balance end 211,000
Computation of bad debts
Required allowance (240,000-28,000) x 5% 10,600
Less: Allowance for BD unadjusted 8,000
Chapter 6: Correction of Errors Question No. 3
ASSETS
Cash 35,000
Accounts Receivable (240,000-28,000) 212,000
Less: Allowance for Bad Debts 10,600 201,400
Advances to employees 4,800 Interest Receivable 3,000 Prepaid expenses 16,200 Merchandise inventory (180,000 +20,000) 200,000 Land 200,000 Building 500,000
Less: Accumulated Depreciation
(150,000+25,000) 175,000 325,000
Equipment 211,000
Less: Accumulated Depreciation
(59,200+20,100-2,000) 77,300 133,700
Utility deposits 15,000
Other Assets 6,000
Total assets (D) 1,140,100
Question No. 4 and 5 LIABILITIES AND CAPITAL
Accounts payable 260,000
Advances from customer 10,000
Interest payable 18,000
Accrued expense 30,000
Mortgage Payable, current portion 100,000
Total current (A) 418,000
MP, noncurrent portion 500,000
Total liabilities 918,000
Ordinary shares 400,000
Share Premium 40,000
Retained earnings (deficit)
Beg. Balance 70,000
Less: Adjusted net loss (287,900) (217,900) 222,100
Total liabilities and SHE 1,140,100
SUMMARY OF ANSWERS:
Chapter 8: Cash and Cash Equivalents
CHAPTER 8: CASH AND CASH EQUIVALENTS
PROBLEM 8-1 Cash and Cash Equivalents
Traveler’s check 50,000
Postal money order 30,000
Petty cash fund 4,000
Treasury bills, due 3/31/2017 (purchased 12/31/2016) 200,000
Current account at Metrobank 2,000,000
Payroll account 500,000
Treasury warrants 300,000
Total cash and cash equivalents 3,084,000 Suggested answer: A
PROBLEM 8-2 Cash and Cash Equivalents
Reported cash and cash equivalents 6,325,000 Certificate of deposits with maturity of 120 days (500,000)
Postdated check (125,000)
Compensating balance – legally restricted (500,000) Adjusted cash and cash equivalents P5,200,000 Suggested answer: C
PROBLEM 8-3 Cash and Cash Equivalents
Bills and coins on hand P 52,780
Traveler’s check 22,400
Petty cash excluding paid cash vouchers of P1,650 350
Money order 800
Checking Account Balance in Bank of Philippine Island 22,000
Total P 98,330
Suggested answer: D
PROBLEM 8-4 Cash and Cash Equivalents
Cash on hand P 80,000
Checking account No. 143 - BPI 200,000 Checking account No. 155 - BPI (30,000) *Securities classified as cash equivalents 3,600,000 Checking account No. 155 - BPI P 3,850,000
Chapter 8: Cash and Cash Equivalents
*Breakdown of securities classified as cash equivalents
Securities: AcquiredDate MaturityDate Amount
120-day Certificate of Deposit 12/10/2016 01/31/2017 P 600,000 BSP-Treasury Bills (No.2) 10/31/2016 01/20/2017 1,000,000 Money Market Funds 11/21/2016 02/10/2017 2,000,000
Suggested answer: A
PROBLEM 8-5 Cash and Cash Equivalents
Bank cheque account P 58,400
Bank savings account (collectible immediately) 23,440
Cash 10,000
Treasury bonds – maturing in 2 months 8,500 Cash and cash equivalents P 100,340 Suggested answer: B
PROBLEM 8-6 Cash and Cash Equivalents
Petty cash fund (70,000-15,000-5,000) 50,000 Current account – Metro Bank (4,000,000+100,000) 4,100,000 Cash and cash equivalents P4,150,000 Suggested answer: C
PROBLEM 8-7 Effective Interest Rate Question No. 1
Let X = Principal amount of the loan
Principal X
Less: Compensating balance 5%X Add: Current balance 50,000 Amount needed P3,375,000 X-.05X+50,000 = 3,375,000 .95X = 3,375,000-50,000 .95X/.95 = 3,325,000/.95 X = 3,500,000 Question No. 2
Annual interest payment (3,500,000 x 12%) 420,000 Interest income on the loan proceeds in the
compensating balance [3.5M-3,375,000) x 4%] 5,000
Chapter 8: Cash and Cash Equivalents
Divide by loan proceeds (3,500,000-175,000) 3,375,000 Effective interest rate 12.30% Suggested answers:
1. C 2. C
PROBLEM 8-8 Petty Cash Fund Requirement No. 1
Currencies 3,000
Coins 450
A check drawn by the company payable to the order
of the petty cash custodian, representing her salary 3,800
Adjusted Petty Cash Fund 7,250
Requirement No. 2 Petty cash Accounted:
Currencies 3,000
Coins 450
Petty cash vouchers:
Transportation 650 Office supplies 160 Repair of computer 400 Loans to employees 600 Miscellaneous expenses 240 Postage 200
A check drawn by the company payable to the order of the petty cash custodian, representing her
salary 3,800
An employee’s check returned by the bank because
of insufficient funds 1,200
A piece of paper with names of several employees together with a contribution for a wedding gift for an employee. Attached to the sheet of paper is a
currency of 500 11,200
Less: Petty Cash Accountabilities
PCF imprest balance 10,000
A piece of paper with names of several employees together with a contribution for a wedding gift for an employee. Attached to the sheet of paper
is a currency of 500 10,500
Chapter 8: Cash and Cash Equivalents
Requirement No. 3: Adjusting Entries Debit Credit
1) Transportation expense 650 Office supplies expense 160
Repairs expense 400
Advances to employees 600 Miscellaneous expense 240
Postage 200
Petty Cash fund 2,250
2) Unused stamps 50
Postage 50
3) Petty cash fund 700
Miscellaneous Income 700
4) Advances to employees 1,200
Petty cash fund 1,200
PROBLEM 8-9 Petty Cash Fund
Cash Accounted For
Currency 2,585.00
Checks 17,600.00
Unreplenished Vouchers 425.00
IOUs 150.00 20,760.00
Cash Accountability
Petty Cash Fund 5,000.00
Collections from customer -check 6,500.00
Cash collections 12,150.00 23,650.00
Cash Overage (Shortage) (2,890.00)
Quantity Denomination Total
50 1 50.00 60 0.25 15.00 3 500 1,500.00 5 100 500.00 20 20 400.00 12 10 120.00
Total currencies and coins 2,585.00 Checks:
Al 5,000
Rex 6,100
Zev, customer 6,500
Chapter 8: Cash and Cash Equivalents Unreplenished vouchers: Transporation 65 Office supplies 70 Xerox fees 80 Postage 150 Newspaper 10 Freight charges 50 Total 425 IOUs Rhad 50 Andrix 100 TOtal 150 Cash collections 143 4,000.00 144 5,100.00 145 3,050.00 Total 12,150.00
PROBLEM 8-10 Bank Reconciliation
Bank Book
Unadjusted balances P126,300 P123,310 Outstanding check, net of certified checks (12,300) -Deposit in transit (Undeposited collections) 7,850 -Book error – disbursement for utilities - 360 Note charged by the bank, including interest - (6,500)
Bank service charge - (240)
Erroneous bank credit (5,670)
-NSF check - ( 750)
Adjusted balance P116,180 P116,180
The following are the adjusting entries to be recorded in the company’s books. Note that only book reconciling items are recorded.
ADJUSTING ENTRIES Debit Credit
1) Cash 360
Utilities expense 360
2) Notes payable 6,000 Interest expense 500
Cash 6,500
3) Bank service charge 240
Chapter 8: Cash and Cash Equivalents
4) Accounts receivable 750
Cash 750
PROBLEM 8-11 Bank Reconciliation
Oct. 31 Receipts Disb Nov. 30
Unadjusted bank bal 18,005 17,709 25,620 10,094
Erroneous bank credit (500) (500)
DIT: October 1,790 (1,790)
November 3,600 3,600
OC: October (6,681) (6,681)
Nov. (760+1,868) 2,628 (2,628)
13,114 19,019 21,567 10,566
Unadjusted book bal 11,534 18,269 21,575 8,228
Credit memo Oct. 1,600 1,600
Nov. 750 750 NSF-Nov 665 (665) BSC: Oct (20) (20) Nov 22 (22) 35 (35) Check No. 148 overstated disbursement (1,000) 1,000 Check No. 150 understated disbursement 270 (270) 13,114 19,019 21,567 10,566 SUMMARY OF ANSWERS: 1. B 2. A 3. B 4. D 5. A
PROBLEM 8-12 Deposit in Transit
Deposit in transit, beg P 50,000 Add: Book debits for the month P 400,000
Less: CM recorded this month 5,000 Error – check received (Jan) 36,000 Error – check issued (Jan) 27,000
Add: Error – check received (Feb) 16,000 348,000
Total 398,000
Less: Bank debits for this month P 360,000 Less: CM for this month 6,000 Erroneous bank credit - Feb 2,500
Erroneous bank charge - Jan 1,000 350,500 Deposit in transit, end P 47,500
Chapter 8: Cash and Cash Equivalents
Suggested answer: A
PROBLEM 8-13 Outstanding Checks
Outstanding checks, beg (squeeze) P 12,880
Add: Book credits for the month P 85,800 Less: Error in recording 1,800
Service charge recorded 30 83,970
Total 96,850
Less: Bank debits for this month P 97,650 Less: NSF check returned 2,300
DM for this month 3,000 92,350 Outstanding checks, end P 4,500
Suggested answer: A
PROBLEM 8-14 Proof of Cash Question No. 1
Deposit in transit, Jan. 31 9,000
Add Deposit made by the company
Book receipts 150,000
Credit Memo-Jan 31 (10,000)
Book errors last month corrected this month: Understatement of CR
Overstatement of CD Book errors this month:
Overstatement of CR
Add: Understatement of CR 140,000
Total 149,000
Less: Deposit acknowledged by the bank
Bank receipts 157,700
Credit Memo-Feb. 28 (15,000)
Bank errors last month corrected this month: Understatement of CR
Erroneous bank charge-Jan. 31 (3,200)
Bank errors this month: Add: Overstatement of CR
Erroneous bank credit-Feb. 28 (4,000) 135,500
Deposit in transit, Feb. 28 13,500
Question No. 2
Outstanding checks, Jan. 31 3,000
Add: Checks issued by the company this month
Book disbursements 80,000
Chapter 8: Cash and Cash Equivalents
NSF check (2,000)
Book errors last month corrected this month:
Understatement of CD last month (1,500) Overstatement of CR
Book errors this month: Overstatement of CD
Understatement of CD this month 600 77,100
Total 80,100
Less: Checks paid by the bank this month
Bank disbursements 87,800
Debit Memo this month
NSF check (3,000)
Error last month corrected this month
Erroneous bank credit-last month (6,000) Understatement of CD
Bank errors this month: Add: Understatement of CD
Erroneous bank charge-this month (1,400) 77,400
Outstanding checks, Feb. 28 2,700
Question Nos 4 to 6
Note to professor: The question in number 5 and 6 should be in February, instead of January.
Jan. 31 Receipts Disb Feb. 28 Unadjusted balances-books 200,000 150,000 80,000 270,000 Credit Memo-January 10,000 (10,000) - -Credit Memo-February - 15,000 - 15,000 NSF check-January (2,000) - (2,000) -NSF check-February - - 3,000 (3,000) Understatement of cash disbursements-January (1,500) - (1,500) -Understatement of cash disbursements-February - - 600 (600) Adjusted balances 206,500 155,000 80,100 281,400
Jan. 31 Receipts Disb Feb. 28 Unadjusted balances-bank 203,300 157,700 87,800 273,200
Deposit in transit-January 9,000 (9,000) -
-Deposit in transit-February - 13,500 - 13,500
Outstanding checks-January (3,000) - (3,000)
-Outstanding checks-February - - 2,700 (2,700)
Erroneous bank credit-January (6,000) - (6,000)
-Erroneous bank credit-February - (4,000) - (4,000)
Erroneous bank charge-January 3,200 (3,200) -
Chapter 8: Cash and Cash Equivalents
Adjusted balances 206,500 155,000 80,100 281,400
SUMMARY OF ANSWERS:
1. A 2. B 3. B 4. A 5. A 6. B 7. B
PROBLEM 8-15 Proof of Cash Question No. 1
Outstanding checks, beg. 50,000 Add: Checks issued 1,250,000
Total 1,300,000
Less: Checks paid by the bank 1,100,000 Outstanding checks, end 200,000
Question No. 2
Deposits in transit, beg 150,000 Add: Deposits made 900,000
Total 1,050,000
Less: Deposits acknowledged by the
bank 800,000
Deposits in transit, end 250,000
31-May Receipts Disb. 30-Jun
Unadjusted bal-bank 1,300,000 *1,095,000 **1,205,000 1,190,000 Deposit in transit-May 31 150,000 (150,000) -June 30 250,000 250,000 Outstanding checks-May 31 (50,000) (50,000) -June 30 200,000 (200,000)
Erroneous bank credit (30,000) (30,000)
Erroneous bank charge 20,000 (20,000)
Adjusted balances 1,390,000 1,175,000 1,325,000 1,240,000
*(800,000+20,000+275,000)
Chapter 8: Cash and Cash Equivalents
31-May Receipts Disb. 30-Jun
Unadjusted bal-book 1,095,000 ***1,200,000 1,250,000 1,045,000 Bank service
charge-May 31 (5,000) (5,000)
-June 30 25,000 (25,000)
CM for collection-May
31 300,000 (300,000)
-June 30 275,000 275,000
NSF checks for June 30 50,000 (50,000)
Adjusted balances 1,390,000 1,175,000 1,325,000 1,240,000
***(900,000+300,000)
SUMMARY OF ANSWERS:
1. A 2. B 3. A 4. A 5. A
PROBLEM 8-16 Proof of Cash Question No. 2
Outstanding checks, beg. 150,000 Add Checks issued
Book disb. 1,500,000 Less DM last mo 110,000
Error last mo. C T M
Under of CD
-Over of CR - 1,390,000
Total 1,540,000
Less checks issued
Bank disb. 1,300,000 less DM this mo 75,000
Error last mo. C T M
Under of CD
-Erroneous B Cr-LM 45,000
Erroneous B CH-TM 30,000 1,150,000 Outstanding checks, end 390,000 Deposits in transit, beg 200,000 Add deposits made
Book receipts 1,300,000 Less: CM last month 125,000
Error last mo. C T M
Under of CR (21K-12K) 9,000
Over of CD 1,166,000
Chapter 8: Cash and Cash Equivalents
Less: Deposits acknowledged by the bank Bank receipts 1400000 Less: CM this month 150,000
Error last mo. C T M Under of CR
Erroneous B CH-LM 20,000
Erroneous B Cr-TM 17,000 1,213,000 Deposits in transit, end 153,000
BANK 31-May Receipts Disb. 30-Jun
Unadjusted bal-bank 1,250,000 1,400,000 1,300,000 1,350,000 Deposit in transit-May 31 200,000 (200,000)
-June 30 153,000 153,000
Outstanding checks-May 31 (150,000) (150,000)
-June 30 390,000 (390,000)
Erroneous bank credit-May
31 (45,000) (45,000)
-June 30 (17,000) (17,000)
Erroneous bank
charge-May 31 20,000 (20,000)
-June 30 (30,000) 30,000
Adjusted balances 1,275,000 1,316,000 1,465,000 1,126,000
BOOK 31-May Receipts Disb. 30-Jun
Unadjusted bal-book 1,251,000 1,300,000 1,500,000 1,051,000 NSF-May 31 (110,000) (110,000) -June 30 75,000 (75,000) CM for collection-May 31 125,000 (125,000) -June 30 150,000 150,000 Under of CR-May 9,000 (9,000) Adjusted balances 1,275,000 1,316,000 1,465,000 1,126,000 SUMMARY OF ANSWERS: 1. C 2. D 3. C 4. D 5. A 6. D
PROBLEM 8-17 Proof of Cash Question No. 1
Beg. Bal., 7/1 P 128,384
Add: Cash receipts for July 1,364,858 Cash receipts for Aug. 1,839,744
Total P3,332,986
Less: Cash disbursement for July 1,330,882 Cash disbursement for Aug. 1,712,892 Bank reconciliation item 750
Chapter 8: Cash and Cash Equivalents
Question No. 2
Outstanding check, Aug. 31 P 67,122 Add: Checks paid by the bank
Bank debits except serv. charge P1,702,830 Less: Erroneous bank charge 1,166
DM on Interest on note 4,950 1,696,714
Total P1,763,836
Less: Checks issued by the company
this August 1,712,892
Outstanding check, July 31 P 50,944 Questions No 3 to 5
BANK 31-Jul Receipts Disb. Aug. 31
Unadjusted balances 180,250 1,830,752 *1,702,918 308,084 Outstanding checks July 31 ( 50,944) ( 50,944) August 31 67,122 ( 67,122) Deposit in transit July 31 32,844 ( 32,844) August 31 41,836 41,836
Erroneous bank charge - - ( 1,166) 1,166
Adjusted Balances 162,150 1,839,744 1,717,930 283,964 (*1,702,830 + 88)
BOOK 31-Jul Receipts Disb. Aug. 31
Unadjusted balances P162,360 P1,839,744 **P1,713,642 P288,462 Error in recording check
no. 216 taken up as P1,930 but should be
P1,390 (1,930-1,390) 540 540
DM for int. on note 4,950 ( 4,950)
Bank service charge
July 31 ( 52) ( 52) August 31 88 ( 88) NSF for July 31 ( 698) - ( 698) -Adjusted balances P162,150 P1,839,744 P1,717,930 P283,964 **(1,712,892+750) SUMMARY OF ANSWERS: 1. A 2. C 3. A 4. B 5. A
Chapter 8: Cash and Cash Equivalents
PROBLEM 8-18 Proof of Cash Question No 1 Outstanding check Check Nos. 144 P 1,500 149 8,000 150 12,000 Total P 21,500
Alternatively, it may also be computed as follows:
Outstanding check, beg P 7,000
Add: Checks issued 75,000
Total P 82,000
Less: Checks paid by the bank
Bank Debits P 113,000
Less: DM for this month
NSF checks (10,000+40,000) 50,000 Bank service charge 2,000
Error Correction 500 60,500 Outstanding checks, end P 21,500 Question No 2
Unadjusted rec. per bank P 171,500 Deposit in transit:
November 30 (11,000)
December 31 20,000
Error correction (500)
NSF check, no entry on the books when returned
and redeposited ( 40,000)
Adjusted balance P 140,000
Question No 3
Unadjusted disbursement, per bank P 113,000 Outstanding checks
November 30 (7,000)
December 31 21,500
Error correction (500)
NSF check, no entry on the
books on the returned and redeposit ( 40,000)
Adjusted balance P 87,000
Question No 4
Unadjusted bank bal. P 127,500 Deposit in transit
November 30
December 31 20,000
Chapter 8: Cash and Cash Equivalents
November 30
December 31 ( 21,500)
Adjusted bal. P126,000
Question No 5
Zero, adjusted bank and book balance on December 31 is the same. PROOF OF CASH
Nov. 30 Receipts Disb. Dec. 31 Unadjusted bank balance 69,000 171,500 113,000 *127,500 Deposit in transit November 30 11,000 (11,000) December 31 *20,000 20,000 Outstanding checks November 30 (7,000) (7,000) December 31 21,500 (21,500) Error correction (500) (500)
NSF check, no entry on the books on the return and
redeposit (40,000) (40,000)
Adjusted bal. 73,000 140,000 87,000 126,000
* (69,000+171,500-113,000) ** (18,000+2,000)
Nov. 30 Receipts Disb. Dec. 31 Unadjusted book balance 66,000 113,800 85,000 94,800 Credit memo for note
collected
November 30 8,800 (8,800)
December 31 35,000 35,000
Bank service charge
November 30 (1,800) (1,800)
December 31 2,000 (2,000)
Adjusted bal. 73,000 140,000 87,000 126,000
SUMMARY OF ANSWERS:
Chapter 8: Cash and Cash Equivalents PROBLEM 8-19 Proof of Cash Question No. 1
Beg. Balance, Nov. 30 P 50,900
Add: Total Collections from customers on Dec. 165,000 November bank coll. for customer note 8,000
Total 223,900
Less: Checks drawn for December 98,000
Bank service charges – November 100
Unadjusted cash balance, Dec. 31 P 125,800
Question Nos. 2-5
December
Nov. 30 Receipts Disb. Dec. 31
BANK 90,800 171,272 99,072 163,000
Unadjusted bank balance
NSF check, no entry on the books
for return and redeposit ( 472) ( 472)
Erroneous bank charge in
December ( 1,500) 1,500
Undeposited collection
November 30 5,000 ( 5,000)
December 31 8,000 8,000
Bank service charge charged to
another client 150 ( 150) Outstanding check Nov. 30 ( 5,000) ( 5,000) Dec. 31 7,700 ( 7,700) Adjusted balances 90,800 173,800 99,950 164,650 BOOK Unadjusted balance 50,900 173,000 98,100 125,800
NSF check recorded as reduction of cash receipts returned in December but also recorded in
December 1,800 1,800
Error in recording check No. 7159 entered as P30,000 but should be
3,000 27,000 27,000
Cancellation of check No. 7767 5,000 5,000
Bank service charge
Nov. 30 ( 100) ( 100)
Dec. 31 150 ( 150)
Bank collection for customer's note: Nov. 30 8,000 (8,000) Dec. 31 7,000 7,000 Adjusted balances 90,800 173,800 99,950 164,650 SUMMARY OF ANSWERS: 1. B 2. D 3. D 4. B 5. B
Chapter 8: Cash and Cash Equivalents
PROBLEM 8-20 Proof of Cash Question No. 1
Outstanding checks, beg (squeeze) P 8,000
Add: Checks issued this month
Book disbursements P 148,000
Less: DM recorded this month 2,500 145,500
Total 153,500
Less: Bank disbursements P 150,000 Add: Paid out in currency 2,000 Less: NSF redeposited 3,000
DM for this month 1,500 147,500 Outstanding checks, end P 6,000
Question Nos. 2 to 5
BANK Sept. 30 Receipts Disb. Oct. 31
Unadj. balance - bank 100,000 200,000 150,000 150,000 Undeposited collections: September 30 5,000 (5,000) October 31 7,000 7,000 Outstanding checks: September 30 (8,000) (8,000) October 31 6,000 (6,000)
Paid out in currency 2,000 2,000
Adjusted balances 97,000 201,000 147,000 151,000
BOOK Sept. 30 Receipts Disb. Oct. 31
Unadj. balance - book 91,500 196,000 148,000 139,500
Customer’s notes collected:
September 30 8,000 (8,000)
October 31 13,000 13,000
Bank service charge:
September 30 (2,500) (2,500)
October 31 1,500 1,500
Adjusted balances 97,000 201,000 147,000 151,000
SUMMARY OF ANSWERS:
Chapter 8: Cash and Cash Equivalents
PROBLEM 8-21 Proof of Cash Question No. 1
Account No. 143: Bank Book
Unadjusted balances P1,000,000 P1,099,400
Deposit in transit *80,000
Misplaced check ( 20,000)
Outstanding check (**60,000)
Undelivered check 15,000
Note charged by the bank - ( 74,400)
Adjusted balance P1,020,000 P1,020,000
*(100,000 - 20,000, Misplaced check) **(75,000 - 15,000, Undelivered check)
Question No. 2
Total Outstanding checks:
Account No.143 P 60,000 *Account No.144 1,860,000 Total outstanding check P 1,920,000
*Outstanding check for Account No. 144 is computed as follows: Outstanding checks, beg P 250,000 Add: Checks issued this month
Book Credits P3,500,000
Less: BSC November 10,000 3,490,000
Total P 3,740,000
Less: Checks paid by the bank
Bank Debits P2,000,000 Less: BSC December 20,000
NSF check 100,000 1,880,000 Outstanding checks, end P1,860,000
Question Nos. 3 to 4
December
Nov. 30 Receipts Disb. Dec. 31 Unadjusted bank balance 2,200,000 1,000,000 2,000,000 1,200,000 Deposit in transit: November 30 90,000 (90,000) December 31 **240,000 240,000 Outstanding check: November 30 (250,000) (250,000) December 31 1,860,000 (1,860,000)
Erroneous bank charge
-November 20,000 (20,000)
Chapter 8: Cash and Cash Equivalents
Unadjusted book
balance 1,980,000 1,420,000 3,500,000 (100,000)
Bank service charge:
November 30 (10,000) (10,000)
December 31 20,000 (20,000)
Unrecorded collections
-November 30 90,000 (90,000)
Uncollected customer's note already recorded
as cash receipt (200,000) (200,000)
NSF - December 31 100,000 (100,000)
Adjusted balances 2,060,000 1,130,000 3,610,000 (420,000)
**Deposit in transit, beg P 90,000 Add: Deposit made by the co. this month
Book Debits P1,420,000 Less: Unrecorded collection 90,000 Customer’s note recorded as
cash receipts 200,000 1,130,000
Total P1,220,000
Less: Deposits acknowledged by the bank
Bank Credits P1,000,000
Less: Erroneous bank charge 20,000 980,000 Outstanding checks, end P 240,000
Question No. 5 Adjusted balances:
Account No. 143 P1,020,000 Account No. 144 ( 420,000) Total adjusted balances P 600,000 SUMMARY OF ANSWERS:
1. A 2. A 3. B 4. B 5. C
PROBLEM 8-22 Proof of Cash Question No. 1
RCBC Account Book Bank
Unadjusted balance P 165,000 P 125,000 Credit memo for note collected 6,000
Bank service charge (1,000)
Deposit in transit 60,000
Outstanding checks (25,000+20,000) (45,000) Unrecorded disbursement ( 30,000) -Adjusted balance P 140,000 P 140,000
Chapter 8: Cash and Cash Equivalents
Question Nos. 2-3
Equitable PCI Bank Book Bank Unadjusted bal. (squeeze) P 62,000 P 93,000 Credit memo for note coll. 10,000
Bank service charge ( 2,000) Deposit in transit (15,000+20,000+50,000*) 85,000
Outstanding checks ( 28,000)
Unrecorded transfer (30,000+50,000*) 80,000 -Adjusted balance P 150,000 P150,000
*fund transfer No. 4 (Included both as unrecorded transfer and deposit in transit)
Question No. 4
Outstanding checks:
RCBC Account (25,000+20,000) P 45,000 Equitable PCI Bank 28,000 Total outstanding checks P 73,000 Question No. 5
Fund transfer No. 2 is recorded in the disbursing bank during December while it was only recorded in the disbursing book in January. This is an unrecorded disbursement for fund transfer.
SUMMARY OF ANSWERS:
1. A 2. A 3. B 4. B 5. B
PROBLEM 8-23 Proof of Cash
BOOK Jan. 31 Receipts Disb Feb. 28
Unadjusted balances-books 200,000 150,000 80,000 270,000
Credit Memo-January 9,000 (9,000) -
-Credit Memo-February - 13,000 - 13,000
BSC check-January (100) - (100)
-BSC check-February - - 150 (150)
Check of the company issued in January was mutilated and returned by the payee. A replacement check was issued. Both checks were entered in the Check register but no entry was made to cancel the mutilated check, P700.
700 - - 700
The company issued a stop payment order to the bank in February for check issued in February which was not
-Chapter 8: Cash and Cash Equivalents received by the payee. A new check was written and recorded in the Check register in
February. The old check was written off by a journal entry also in February, P1,200.
Adjusted balances 209,600 152,800 78,850 283,550
BANK Jan. 31 Receipts Disb Feb. 28
Unadjusted balances-bank 206,600 159,000 88,650 276,950
Deposit in transit-January 10,000 (10,000) -
-Deposit in transit-February - 11,000 - 11,000
Outstanding checks-January (4,200) - (4,200)
-Outstanding checks-February - - 1,800 (1,800)
Erroneous bank credit-January (6,000) - (6,000)
-Erroneous bank credit-February - (4,000) - (4,000)
Erroneous bank charge-January 3,200 (3,200) -
-Erroneous bank
charge-February - - (1,400) 1,400
Adjusted balances 209,600 152,800 78,850 283,550
SUMMARY OF ANSWERS:
1. D 2. C 3. C 4. A 5. E
Note to the professor: The question in #5 should be adjusted cash in balance on February 28. The answer would have been letter C.
PROBLEM 8-24 Computation of Cash Shortage Question No. 1
Unadjusted bank bal. P 225,400 Less: Outstanding checks (8,434+4,300+
6,524+ 9,551.50+4,577+5,961) (39,347.50) Add: Undeposited receipts 35,000 Adjusted bank balance P221,052.50
Question No. 2
Unadjusted book bal. P242,310.50 Credit memo for notes collection 30,000
Credit memo for int. 900
Balance (cash accountability) P273,210.50
Question No. 3
Adjusted bank bal. (Cash accounted) P221,052.50 Less: Cash in bank bal. (cash accountability) 273,210.50
Chapter 8: Cash and Cash Equivalents
Shortage (P52,158.00)
SUMMARY OF ANSWERS:
1. B 2. D 3. B
PROBLEM 8-25 Computation of Cash Shortage Question No. 1
Unadjusted bank bal. P 42,400 Outstanding checks ( 11,500) Undeposited collections 5,000 Adjusted bank balance P 35,900 Question No. 2
Unadjusted book bal. P 46,500 Credit memo proceeds clean draft 900 Debit memo for bank service charge ( 100) Balance (cash accountability) P 47,300 Question No. 3
Adjusted bank bal. (Cash accounted) P 35,900 Cash in bank bal. (cash accountability) 47,300 Shortage as of June 30 (P11,400)
Question No. 4
Additional cash shortage from July 1-15
July collection per duplicate O.R. P 18,800 Less: collections in July that were deposited
in July
Collection per duplicate slips P 11,000
Less :Undeposited collection, June 30 5,000 6,000 Cash that should be on hand on July 15 P 12,800 Less: Actual cash on hand on July 15 4,800 Cash shortage from July 1-15 P 8,000 Question No. 5
Understatement of cash in bank per books (46,500-45,600) P 900 Overstatement of cash in bank per bank (44,000-42,400) 1,600 Understatement of outstanding checks (11,500-3600) 7,900
Overstatement of undeposited collections (5,100-5,000) 100 Non-recording of credit memo-proceeds of clean draft 900 Cash shortage as of June 30 P11,400 SUMMARY OF ANSWERS:
Chapter 8: Cash and Cash Equivalents
PROBLEM 8-26 Computation of Cash Shortage Question No. 1
Deposit in transit, unadjusted bal. P 350,500 Less: customer's Post-dated check 100,000 Adjusted Deposit in transit P 250,500 Question No. 2
Outstanding checks, unadjusted balance P 493,500 Less: Unreleased check ( 29,500) Company's post-dated check ( 74,420) Adjusted Outstanding checks P 389,580 Question No. 3
Unadjusted bal. per bank P 700,000 Add: Deposit in transit (No. 1) 250,500 Less: Outstanding checks (No. 2) (389,580) Erroneous bank credit ( 60,000) Adjusted cash in bank bal. P 500,920 Question No. 4
Unadjusted bal. per books P 587,000 Add: Credit memo for note coll. 30,000
Unreleased check 29,500
Company's post-dated check 74,420
Total P 720,920
Less: Customer's post-dated check (100,000) Cash in bank per books bal. P 620,920 Less: Adjusted cash in bank balance 500,920
Cash shortage (P120,000)
Question No. 5
Unadjusted bal. per books P587,000 Less: Adjusted cash in bank balance 500,920
Net adjustments P 86,080
SUMMARY OF ANSWERS:
1. B 2. D 3. B 4. C 5. A
PROBLEM 8-27 Computation of Cash Shortage Question No. 1
Purchases (squeeze) P 81,160 Less: Merchandise inventory, end 23,480 Cost of Sales (80,752/140%) P 57,680
Chapter 8: Cash and Cash Equivalents
Purchases P 81,160
Less: Accounts payable, end 11,571 Total payment of Accounts payable P 69,589 Question No. 2
Sales on account P 80,752 Less: Accounts receivable, end 21,345 Collection to customers P 59,407 Question No. 3
Receipts:
Proceeds of issuance of stocks P 80,000 Collection from customers 59,407
Loan proceeds 28,000 P 167,407 Disbursements:
Payment of real property P 50,000 Payment of furniture and equipment
(7,250-1,500) 5,750
Payment of AP 69,589
Payment of operating expenses 15,189 140,528 Cash accountability P 26,879 Question No. 4
Unadjusted bank bal. P 6,582
Outstanding checks ( 463)
Undeposited collections 1,285 Adjusted cash in bank bal. P 7,404 Question No. 5
Adjusted cash in bank bal. P 7,404 Less Cash accountability 26,879
Cash shortage (P19,475)
SUMMARY OF ANSWERS:
Chapter 10: Loans and Receivables
52
CHAPTER 10: LOANS AND RECEIVABLES
PROBLEM 10-1 Trade and other receivablesTrade
Receivables Trade and otherreceivables NoncurrentAsset
1 277,000 277,000 -2 150,000 150,000 -3 - 10,000 -4 - 30,000 -5 - - 110,000 6 - 15,000 -7 70,000 70,000 -8 - 80,000 220,000 9 100,000 100,000 -Adjusted bal. 597,000 1. C 732,000 2. C 330,000 PROBLEM 10-2 Different Freight terms
Question No. 1
FOB Destination, freight prepaid
Invoice price of merchandise sold 300,000
Less: Invoice price of merchandise returned
-Net invoice price 300,000
Less: Sales discount (300,000 x 2%) 6,000
Collection before freight 294,000
Less: Freight payment - FOB Destination, freight collect -Add: Freight payment - FOB shipping point, freight prepaid
-Total Net Cash Collection (B) 294,000
Question No. 2
FOB Destination, freight collect
Invoice price of merchandise sold 300,000
Less: Invoice price of merchandise returned
-Net invoice price 300,000
Less: Sales discount (300,000 x 2%) 6,000
Net Payment before freight 294,000
Less: Freight payment - FOB Destination, freight collect 5,000 Add: Freight payment - FOB shipping point, freight prepaid
-Total Net Cash Collection (A) 289,000
Question No. 3
FOB Shipping point, freight prepaid
Invoice price of merchandise sold 300,000
Less: Invoice price of merchandise returned
-Net invoice price 300,000
Chapter 10: Loans and Receivables
Net Receipt before freight 294,000
Less: Freight payment - FOB Destination, freight collect -Add: Freight payment - FOB shipping point, freight prepaid 5,000
Total Net Cash Collection (C) 299,000
Question No. 4
FOB Shipping point, freight prepaid
Invoice price of merchandise sold 300,000
Less: Invoice price of merchandise returned
-Net invoice price 300,000
Less: Sales discount (300,000 x 2%) 6,000
Collection before freight 294,000
Less: Freight payment - FOB Destination, freight collect -Add: Freight payment - FOB shipping point, freight prepaid
-Total Net Cash Collection (B) 294,000
SUMMARY OF ANSWERS:
1. B 2. A 3. C 4. B
PROBLEM 10-3 Gross method and Net method
List price P 100,000
Less: Trade discounts
15%: (100,000 x 15%) 15,000
20%: (100,000 – 15,000) x 20% 17,000 32,000
Invoice price, gross of discount (C) 68,000
Less: Sales discount (68,000 x 3%) 2,040
Invoice price, net of discount (D) P 65,960
SUMMARY OF ANSWERS:
1. C 2. D
PROBLEM 10-4 Computation of Percentage of Bad Debts Expense
Note to professor: All the year in the questions should be 2017 instead of
2016.
CASE 1
Credit Sales Accounts written off Recoveries 2013 ₱ 1,500,000 ₱ 20,000 ₱ 15,000 2014 2,000,000 40,000 20,000 2015 3,500,000 270,000 15,000 7,000,000 330,000 50,000 2016 2,000,000 65,000 30,000 9,000,000 395,000 80,000 2017 3,000,000 85,000 40,000
