PRACTICAL ACCOUNTING 1
PROBLEM NO. 1 – Computation of adjusted cash and cash equivalentsYou noted the following composition of “The Man of Words” Company’s “cash account” as of December 31, 2010 in connection with your audit:
Demand deposit account P 2,000,000 Time deposit 1,000,000 NSF check of customer 40,000 Money market placement (due June 30, 2011) 1,500,000
Savings deposit in a closed bank 100,000
IOU from employee 20,000
Pension fund 3,000,000 Petty cash fund 10,000 Customer’s check dated January 1, 2011 50,000 Customer’s check outstanding for 18 months 40,000 Total 7,760,000
Additional information follows:
Check of P200, 000 in payment of accounts payable was recorded on December 31, 2010 but mailed to suppliers on January 5, 2011.
Check of P100, 000 dated January 15, 2011 in payment of accounts payable was recorded and mailed on December 31, 2010.
The company uses the calendar year. The cash receipts journal was held open until January 5, 2011, during which time P400, 000 was collected and recorded on December 31, 2010.
QUESTION:
The cash and cash equivalents to be shown on the December 31, 2010 statement of financial position is 2,910,000
PROBLEM NO. 2 Proof of cash; Computation of adjusted balances
The accountant for the “The Enthusiast” Company assembled the following data: June 30 July 31 Cash account balance P 15,822 P39, 745 Bank statement balance 107,082 137, 817
Deposits in transit 8,201 12, 880
Outstanding checks 27,718 30, 112 Bank service charge 72 60 Customer’s check deposited July 10,
returned by bank on July, 16 marked NSF, and redeposit immediately; no entry made
on books for return or redeposit 8, 250 Collection by bank of company’s notes receivable 71, 815 80, 900 The bank statements of the company’s cash records show these totals:
Disbursements in July per bank statement P218, 373 Cash receipts in July per “The Enthusiast’s” books 236, 452 QUESTIONS:
Based on the application of the necessary audit procedures and appreciation of the above data, you are to provide the answers to the following:
1. Adjusted cash balance as of June 30? 87,565 2. Adjusted bank receipts for July? 245,537 3. Adjusted book disbursements for July? 212,517
4. Adjusted cash balance as of July 31? 120,585 5. Cash shortage as of July 31? 0
PROBLEM 3: “The Blur” Company provided the following information:
1/1/2013 12/31/2013
Current assets 240,000 ?
Property, plant and equipment 1,600,000 1,700,000
Current liabilities ? 130,000
Non-current liabilities 580,000 ?
All assets and liabilities of the entity are reported at year-end. Working Capital of P92, 000 remained unchanged from 2012 to 2013. Net income in 2013 was 64,000. No dividends were declared during 2013 and there were no other changes in owner’s equity.
What amount should be reported as noncurrent liabilities on December 31, 2013? 616,000
PROBLEM 4: “The Aqua Girl” Company provided the following account balances on December 31, 2013:
Accounts Payable 1,500,000
Bonds Payable, due 2014 2,500,000
Discount on Bonds Payable 300,000
Dividends Payable 800,000
Note Payable, due 2015 2,000,000
What total amount of current liabilities should be reported? 4,500,000
Problem 5: “The Entrepreneur” Company reported operating expenses in two categories, namely distribution and administrative. The adjusted trial balance at year-end included the following expense and loss accounts for current year:
Accounting and legal fees 1,200,000
Advertising 1,500,000
Freight Out 800,000
Interest 700,000
Loss on sale of long-term investment 300,000
Officers’ salaries 2,250,000
Rent for office space 2,200,000
Sales salaries and commissions 1,400,000
One half of the rented premises is occupied by the sales department. What amount should be reported as total distribution costs? 4,800,000
PROBLEM 6: “The Spelling Geek” Company provided the following information for the current year: Purchases 5,300,000 Purchase discounts 100,000 Beginning Inventory 1,600,000 Ending Inventory 2,150,000 Freight out 400,000
What is the cost of goods sold for the current year? 4,650,000
Problem 7: “The Confused” Company provided the following information for the current year:
Net accounts receivable at January 1 900,000
Net accounts receivable at December 31 1,000,000
Accounts receivable turnover 5 to 1
Inventory at January 1 1,100,000
Inventory at December 31 1,200,000
Inventory turnover 4 to 1
What is the gross margin for the current year? 150,000
Problem 8: “Ms. Knows All” company provided the following for the current year:
Net Income 3,500,000
Unrealized gain on derivative contract 250,000
Foreign currency translation adjustment – debit 50,000
Revaluation surplus 1,000,000
What is the comprehensive income for the current year? 4,700,000
Problem 9: “The Silhouette” company accounts for noncurrent assets using the cost model. On July 31, 2013, the entity classified a noncurrent asset as held for sale. At the date, the asset’s carrying amount was P1, 450,000. The fair value was estimated at 2,150,000 and the cost of disposal at 150,000. The asset was sold on January 31, 2014 for 2,120,000. At what amount should the asset be measured in the financial position on December 31, 2014? 1,450,000
Problem 10: On January 1, 2012, “The Quiz bowler” company acquired a machine at a cost of 2,000,000. The machine is depreciated on the straight line method over five years period with no residual value. Because of a bookkeeping error, no depreciation was recognized in 2012 financial statements. The oversight was discovered during the preparation of the 2013 financial statements. What is the depreciation expense on the machine for 2013? 400,000
Problem 11: On December 31, 2013, “Silent Intense” company had the following cash balances:
Cash in bank 1,800,000
Petty cash fund (all funds were reimbursed on 12/31/2013) 50,000
Time deposit (due February 1, 2014) 250,000
Cash in bank included P600, 000 of compensating balance against short-term borrowing arrangement on December 31, 2013. The compensating balance is legally restricted as to withdrawal. In the December 31, 2013 statement of financial position, what amount should be reported as cash and cash equivalents? 1,500,000
Problem 12: Accounts of the petty cash fund of “The Essayist” company showed its composition as follows:
Coins and currency 3,300
Paid vouchers:
Transportation 600
Gasoline 400
Office supplies 500
Postage stamps 300
Due from customers 1,200 3,000
Manager’s check returned by bank marked “NSF” 1,000
Check drawn by the entity to the order of petty cash custodian 2,700
What is the correct amount of petty cash fund for the statement presentation purposes? 6,000
Problem 13: On December 31, 2013, “The Ancient” company reported that the current receivables consisted of the following:
Trade accounts receivable 930,000
Allowance for uncollectible accounts (20,000)
Claim against shipper for goods lost in transit (November 2013) 30,000 Selling price of unsold goods sent by “The Ancient” on consignment at
130% of cost (not included in “The Ancient’s” ending inventory) 260,000 Security deposit on lease of warehouse used for storing some inventories 300,000
On December 31, 2013, what total amount should be reported as trade and other receivables under current assets? 940,000
Problem 14: The following transactions affecting the accounts receivable of “The Prehistoric Leader” company took place during year ended December 31, 2013:
Sales (cash and credit) 5,900,000
Cash received from credit customers, all of whom took advantage
Of the discount feature of the entity’s credit terms 4/10, n/30 3,024,000
Cash received from cash customers 2,100,000
Accounts receivable written off as worthless 50,000 Credit memorandum issued to credit customers for sales returns
and allowances 250,000
Cash refunds given to cash customers for sales return and allowances 20,000 Recoveries on accounts receivable written off as uncollectible in prior
period (not included in cash amount stated above) 80,000
The following balances were taken from the January 1, 2013 statement of financial position:
Accounts receivable 950,000
Allowance for doubtful accounts 100,000
The entity provided for uncollectible account losses by crediting allowance for doubtful accounts in the amount of P70, 000 for the current year.
1. What is the balance of accounts receivable on December 31, 2013? 1,300,000
Problem 15: “The Guitarist” company prepared an aging of accounts receivable on December 31, 2013 and determined that the net realizable value of the accounts receivable was P2, 500,000. Additional information is as follows:
Allowance for doubtful accounts on January 1 280,000
Accounts written off as uncollectible 230,000
Accounts receivable on December 31 2,700,000
Uncollectible accounts recovery 50,000
For the year ended December 31, 2013, what amount should be recognized as doubtful accounts expense? 100,000
Problem 16: “The Sinking Fund Master” company assigned P4, 000,000 of accounts receivable as collateral for a P2, 000,000 6% loan with a bank, the entity also paid a finance fee of 5% on the transaction upfront. What amount should be recorded as a gain or loss on the transfer of accounts receivable? 0
Problem 17: On July 1, 2013, “Subli Queen” company sold goods in exchange for P2, 000,000, 8 month, noninterest-bearing note receivable. At the time of sale, the market rate of interest was 12%. The entity discounted the note at 10% on September 1, 2013:
1. What is the cash received from discounting? 1,900,000 2. What is the loss on note receivable discounting? 100,000
Problem 18: “Bureche” company factored P6, 000,000 of accounts receivable to a finance entity on October1, 2013. Control was surrendered by “Bureche” company. The factor assessed fee of 3% and retained a holdback equal to 5% of the accounts receivable. In addition, the factor charged 15% interest computed on a weighted average time to maturity of the accounts receivable for 54 days.
1. What is the amount of cash initially received from the factoring? 5,386,850
2. If all accounts were collected, what is the cost of factoring the accounts receivable? 313,150
Problem 19: “The Voice” company is a dealer in equipment. On December 31, 2013, the entity sold equipment in exchange for a noninterest-bearing note requiring five annual payments of P500, 000. The first payment was made on December 31, 2014. The market interest for similar notes was 8%. The PV of 1 at 8% for five periods is 0.68, and the PV of an ordinary annuity of 1 at 8% for five periods is 3.99.
1. On December 31, 2013, what is the carrying amount of the note receivable? 1,995,000 2. What interest income should be reported for 2014? 159,600
3. What is the carrying amount of the note receivable on December 31, 2014? 1,654,600
Problem 20: On December 1, 2013, “Ms Basically” company gave “Call Center Agent” company a P200, 000, 12% loan. “Ms Basically” company paid proceeds of 194,000 after the deduction of a P6, 000 nonrefundable loan origination fee. Principal and interest are due in sixty monthly installments of P4, 450, beginning January 1, 2014. The repayments yield an effective interest rate of 12% at a present value of P200, 000 and 13.4% at a present Value of P194, 000.
1. What is the amount of interest income should be reported in 2013? 2,166.33
2. What amount should be reported as accrued interest receivable on December 31, 2013? 2,000
Problem 21: “The Mirrorer” company has a herd of 10 2-year old animals on January 1, 2013. One animal aged 2.5 years was purchased on July 1, 2013 for 108, and one animal was born on July 1, 2013. No animals were sold or disposed of during the year. The fair value less cost of disposal per unit is as follows:
2-year old animals on January1 100
2.5 –year old animal on July 1 108
New born animal on July 1 70
2-year old animal on December 31 105
2.5- year old animal on December 31 111
New born animal on December 31 72
3- year old animal on December 31 120
0.5- year old animal on December 31 80
1. What is the fair value of the biological assets on December 31, 2013? 1,400
2. What is the gain from change in fair value of biological assets that should be recognized in 2013? 292
3. What is the gain from change in fair value due to price change? 55
Problem 22: “The Selfie Queen” company estimated the cost of the physical inventory on March 31 for use in interim financial statement. The rate of markup on cost is 25%. The inventory on January 1 was P5, 500,000. During the period January 1 to March 31, the entity had purchases of P4, 300,000, purchase returns of P200, 000 and sales of 7,500,000. What is the estimated cost of inventory on March 31? 3,600,000
Problem 23: On January 1, 2013, “The Living Legend” company paid P18, 000,000 for 50,000 ordinary shares of, “Old” company which represent a 25% interest in the net assets of “Old” company. The acquisition cost is equal to the carrying amount of the net assets acquired. “The Living Legend” has the ability to exercise significant influence over “Old” company. “The Living Legend” received a dividend of P35 per share from “Old” in 2013. The investee reported net income of P9, 600,000 for the year ended December 31, 2013. On December 31, 2013, what amount should be reported as investment in associate? 18,650,000
Problem 24: ”Red Riding Hood” company started construction of a new office building on January 1, 2013, and moved into the finished building on July 1, 2014. Of the building’s P25, 000,000 total cost, P20, 000,000 was incurred in 2013 evenly through the year. The incremental borrowing rate was 12% throughout 2013, and the total amount of interest incurred was P1, 020,000. What amount should be reported as capitalized interest on December 31, 2013? 1,020,000
Problem 25: “CRESHeR” company provided the following information at year-end: 2014 2013
Building-cost 25,000,000 25,000,000
Accumulated depreciation-building 5,000,000 3,875,000
The entity did not acquire or dispose of any buildings during 2014. The straight line method of depreciation is used. The residual value is 10% of asset cost. What is the average useful life of the building? 20 yrs.
Problem 26: On July 1, 2013, “Clutch of Erudites” company, a calendar year corporation, purchased the rights to mine. The total purchase price was P16, 400,000, of which P2, 000,000 was allocable to the land. The estimated reserves were 1,800,000 tons. The entity expects to extract and sell 25,000 tons per month. The entity purchased new equipment on July 1, 2013. The equipment cost P7, 500,000 and had a useful life of 8 years. However, after all the resource is removed, the equipment will be of no use and will be sold for P300, 000.
1. What amount should be recorded as depletion for 2013? 1,200,000
2. What amount should be recorded as depreciation of the mining equipment for 2013? 600,000
PROBLEM 27: Cost of land, land improvements, & building
TFs Corporation was incorporated on January 2, 2014. The ff. items relate to the TFs’ property and equipment transactions:
Cost of land, which included an old apartment building
appraised at 300,000 P 3,000,000
Apartment building mortgage assumed, including
related interest due at the time of purchase 80,000
Delinquent property taxes assumed by TFs 30,000
Payments to tenants to vacate the apartment building 20,000
Costs of razing the apartment building 40,000
Proceeds from sale of salvaged materials 10,000
Architects fee for new building 60,000
Building permit for new construction 40,000
Fee for title search 25,000
Survey before construction of new building 20,000
Excavation before construction of new building 100,000
Payment to building contractor 10,000,000
Assessment by city for drainage project 15,000
Cost of grading and leveling 50,000
Temporary quarters for construction crew 80,000
Temporary building to house tools and materials 50,000 Cost of changes during construction to make new building more energy efficient 90,000 Interest cost on specific borrowing incurred during construction 360,000 Payment of medical bills of employees accidentally injured while
inspecting building construction 18,000
Cost of paving driveway and parking lot 60,000
Cost of installing lights in the parking lot 12,000
Premium for insurance on building during construction 30,000 Cost of open house party to celebrate opening of new building 50,000 Cost of windows broken by vandals distracted by the celebration 12,000 Questions:
Based on the above and the result of your audit, determine the ff: 1. Cost of Land 3,270,000
2. Cost of building 10,810,000
3. Cost of land improvements 72,000
4. Amount that should be expensed when incurred 80,000 5. Total depreciable property and equipment 10,882,000
Problem 28: “JPIA” company developed a new machine for manufacturing baseballs. Because the machine is considered very valuable, the entity had it patented. The following expenditures were incurred in developing and patenting the machine:
Purchase of special equipment to be used solely for development
of a new machine 1,800,000
Research salaries and fringe benefits for engineers and scientist 200,000
Cost of testing prototype 250,000
Legal cost for filing of patent 150,000
Fees paid to government patent office 50,000
Drawings required by patent office to be filed with patent application 40,000 1. What amount should be capitalized as cost of patent? 240,000
2. What amount of research and development cost should be expensed in the current year? 2,250,000
Problem 29: During 2013, “JMAP” company sold 500,000 boxes of cake mix under a new sales promotional program. Each box contained one coupon, which entitled the customer to a baking pan upon remittance of P40. The entity paid 50 per pan and P5 for handling and shipping and estimated that 80% of the coupons would be redeemed, even though only 300,000 had been processed during
2013. What amount should be reported as a liability for unredeemed coupons on December 31, 2013? 1,500,000
Problem 30: “JFINEX” company sells magazine subscriptions of one to three-year periods. Cash receipts from subscribers are credited to magazine subscriptions collected in advance, and this account had a balance of P2, 400,000 on December 31, 2013 before year-end adjustment. Outstanding subscriptions on December 31, 2013 expire as follows:
During 2014 600,000
During 2015 900,000
During 2016 400,000
On December 31, 2013, what amount should be reported as magazine subscriptions collected in advance? 1,900,000
Problem 31: The bonus agreement of “AFOAD” company provides that the general manager shall receive an annual bonus of 10% of the net income after bonus and tax. The income tax rate is 30%. The general manger received P280, 000 for the current year as bonus. What is the income before bonus and tax? 4,280,000
Problem 32: “JPMAP” company issued the 2013 financial statements on March 1, 2014. The following data are provided by the entity for the year ended December 31, 2013:
Amount owing to another entity for services rendered during December 2013 300,000 Estimated long service leave owing to employees in respect of past services 1,200,000 Estimated cost of relocating an employee from head office to a branch in another
City (employee will physically relocate in 2014) 100,000
Estimated cost of overhauling machine every 5 years (the machine is 5 years old
On December 31, 2013) 150,000
What amount should be recognized as provision on December 31, 2013? 1,200,000
Problem 33: “The Living Legend” company provided the following bank reconciliation on May 31:
Balance per bank statement 2,100,000
Deposits outstanding 300,000
Check outstanding ( 30,000)
Correct cash balance 2,370,000
Balance per book 2,372,000
Bank service charge ( 2,000)
Correct cash balance 2,370,000
June data are as follows:
Bank Book
Checks recorded 2,300,000 2,360,000
Deposits recorded 1,620,000 1,800,000
Collections by bank (P400, 000 note plus interest) 420,000 - NSF check returned with June 30 statement balances 10,000 -
Balances 1,830,000 1,810,000
1. What is the amount of check outstanding on June 30? 90,000 2. What is the amount of deposits in transit on June 30? 480,000 3. What is the adjusted cash in bank on June 30? 2,220,000
