Solution Manual

(1)

Financial Accounting

Valix and Peralta

Volume One - 2008 Edition

1

CHAPTER 1

Problem 1-1 Problem 1-2 Problem 1-3 Problem 1-4

1. D 1. A 1. C 1. A 2. C 2. A 2. D 2. C 3. D 3. D 3. D 3. A 4. D 4. B 4. A 4. A 5. C 5. D 5. D 5. D 6. C 6. B 6. A 7. B 7. D 7. D 8. C 8. C 8. B 9. D 9. C 9. D 10. A 10. D 10. D

1. A 1. A 1. D 1. B 2. A 2. A 2. D 2. B 3. A 3. C 3. C 3. C 4. D 4. A 4. A 4. C 5. D 5. A 5. A 5. A 6. D 6. A 6. C 6. B 7. B 7. B 7. D 7. D 8. D 8. C 8. D 8. D 9. C 9. A 9. B 9. A 10. D 10. B 10. D 10. B

1. D 1. A 1. C 1. E 2. D 2. B 2. B 2. D 3. C 3. D 3. D 3. B 4. B 4. B 4. A 4. C 5. C 5. A 5. F 5. G 6. D 6. E 6. H 7. C 7. J 7. I 8. A 8. G 8. F 9. D 9. H 9. J 10. A 10. I 10. A

(2)

2

Problem 1-13 Problem 1-14

1. Systematic and rational allocation 1. Materiality

as a matching process 2. Going concern

2. Comparability or consistency 3. Income recognition principle

3. Monetary unit 4. Accounting entity

4. Income recognition principle 5. Standard of adequate disclosure

5. Time period 6. Comparability

6. Going concern and cost principle 7. Matching principle

7. Accounting entity 8. Cost principle

8. Materiality 9. Reliability

9. Completeness or standard 10. Time period

of adequate disclosure 10. Conservatism or prudence

Problem 1-15

1. The cost of leasehold improvement should not be recorded as outright expense, but should be amortized as expense over the life of the improvement or life of the lease, whichever is shorter. This is in conformity with the systematic and rational allocation principle of expense recognition.

2. The fact that the customer has not been seen for a year is not a controlling factor to write off the account. If the account is doubtful of collection, an allowance should be set up. It is only when there is proof of uncollectibility that the account should be written off.

3. Advertising cost should be treated as outright expense, by reason of the uncertainty of the benefit that may be derived therefrom in the future, in conformity with “immediate recognition principle”.

4. The balance of the cash surrender value should not be charged to loss. In reality, this is conceived as a prospective receivable if and when the policy is canceled because of excessive premium in the early stage of policy. The CSV should be classified as noncurrent investment.

5. The cost of obsolete merchandise should not be included as part of inventory but charged to expense, as a conservative approach.

6. The excess payment represents goodwill which should not be amortized but subject to impairment. Conservatism dictates that goodwill should be recognized when paid for.

(3)

7. The depreciation is not dependent on the amount of profit generated during the year. Depreciation is an allocation of cost and therefore should be provided regardless of the level of earnings.

3

8. An entry should be made to recognize the inventory fire loss, and such loss should be treated as component of income.

9. Revenues and expenses of the canteen should be separated from the revenues and cost of regular business operations in order to present fairly the financial position and performance of the regular operations.

10. The increase in value of land and building should not be taken up in the accounts. The use of revalued amount is permitted only when the revaluation is made by independent and expert appraiser. The expected sales price of P5,000,000 is not necessarily the revalued amount of the land and building. Moreover, increase in value is not an income until the asset is sold.

Problem 1-16

1. Accrual assumption 6. Income recognition principle

2. Going concern assumption 7. Expense recognition principle

3. Asset recognition principle 8. Cause and effect association principle

4. Cost principle 9. Systematic and rational allocation principle

5. Liability recognition principle 10. Immediate recognition principle

Problem 1-17

1. Monetary unit assumption 6. Substance over form

2. Cost principle 7. Income recognition principle

3. Materiality 8. Comparability or consistency

4. Time period 9. Conservatism or prudence

5. Matching principle 10. Adequate disclosure or completeness

Problem 1-18

1. The cost of the asset should be the amount of cash paid. No income should be recognized when an asset is purchased at an amount less than its market value. Revenue arises from the act of selling and not from the act of buying.

2. The entry should be reversed because the pending lawsuit is a mere contingency. The contingent loss is simply disclosed. To be recognized in accordance with conservatism, the contingent loss must be both probable and measurable.

(4)

3. The new car should be charged against the president and debited to receivable from officer, because the car is for personal use.

4

4. The entry is incorrect because no revenue shall be recognized until a sale has taken place.

5. Purchased goodwill should be recorded as an asset. Under the new standard, goodwill is not amortized anymore but on each balance sheet date it should be assessed for impairment.

Problem 1-19 1. Accrual 2. Going concern 3. Accounting entity 4. Monetary unit 6. Time period

(5)

5

CHAPTER 2

Problem 2-1

Easy Company

Statement of Financial Position December 31, 2008

A S S E T S

Current assets: Note

Cash and cash equivalents 800,000

Accounts receivable 450,000

Inventories 900,000

Prepaid expenses (1) 200,000

Total current assets 2,350,000

Noncurrent assets:

Property, plant and equipment (2) 4,400,000

Long-term investments 950,000

Intangible asset (3) 800,000

Total noncurrent assets 6,150,000

Total assets 8,500,000

LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities:

Trade and other payables (4) 450,000

Note payable, short-term debt 200,000

Total current liabilities 650,000

Noncurrent liabilities:

Mortgage payable, due in 5 years 1,500,000

Note payable, long-term debt 500,000

Total noncurrent liabilities 2,000,000

Shareholders’ equity:

Share capital, P100 par 4,000,000

Share premium 500,000

Retained earnings 1,350,000

Total shareholders’ equity 5,850,000

(6)

Note 1 - Prepaid expenses

Office supplies 50,000

Prepaid rent 150,000

Total prepaid expenses 200,000

6

Note 2 - Property, plant and equipment

Property, plant and equipment 5,600,000

Accumulated depreciation (1,200,000)

Net book value 4,400,000

Note 3 - Intangible asset

Patent 800,000

Note 4 - Trade and other payables

Accounts payable 350,000

Accrued expenses 100,000

Total 450,000

Problem 2-2

Simple Company Statement of Financial Position

December 31, 2008 A S S E T S

Cash 420,000

Trading securities 250,000

Trade and other receivables (1) 620,000

Inventories (2) 1,250,000

Prepaid expenses (3) 20,000

(7)

Long-term investments (5) 2,000,000

Intangible assets (6) 300,000

7

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities: Note

Trade and other payables (7) 620,000

Serial bonds payable - current portion 500,000

Total current liabilities 1,120,000

Serial bonds payable - remaining portion 2,000,000

Share capital 5,000,000

Retained earnings 880,000

Total liabilities and shareholders’ equity 9,500,000

Note 1 - Trade and other receivables

Allowance for doubtful accounts ( 50,000)

Notes receivable 150,000 Claim receivable 20,000 Total 620,000 Note 2 - Inventories Finished goods 400,000 Goods in process 600,000 Raw materials 200,000 Factory supplies 50,000 Total 1,250,000

Note 3 - Prepaid expenses

(8)

Accum. Book

Cost depr. value

Land 1,500,000 - 1,500,000 Building 4,000,000 1,600,000 2,400,000 Machinery 2,000,000 1,300,000 700,000 Tools 40,000 - 40,000 Total 7,540,000 2,900,000 4,640,000

8

Note 5 - Long-term investments

Investment in bonds 1,500,000

Plant expansion fund 500,000

Total 2,000,000

Note 6 - Intangible assets

Franchise 200,000

Goodwill 100,000 Total 300,000

Accounts payable 300,000 Notes payable 100,000 Income tax payable 60,000 Advances from customers 100,000 Accrued expenses 30,000 Accrued interest on note payable 10,000 Employees income tax payable 20,000 Total 620,000

Problem 2-3

Exemplar Company Statement of Financial Position

December 31, 2008 A S S E T S

Cash and cash equivalents 500,000

(9)

Inventories 1,300,000

Prepaid expenses 70,000

Noncurrent assets:

Long-term investments (3) 1,310,000

Intangible assets (4) 3,350,000

Other noncurrent assets (5) 150,000

Total assets 12,900,000

9

LIABILITIES AND SHAREHOLDERS’ EQUITY Note

Current liabilities:

Trade and other payables (6) 1,000,000

Bonds payable 5,000,000

Premium on bonds payable 1,000,000

Share capital (7) 7,000,000

Reserves (8) 700,000

Retained earnings (deficit) (1,800,000)

Notes receivable 250,000

Accrued interest on notes receivable 10,000

Total 640,000

Accum. Book

Cost depr. value

(10)

Building 5,000,000 2,000,000 3,000,000

Equipment 1,000,000 200,000 800,000

Total 7,500,000 2,200,000 5,300,000

Note 3 - Long-term investments

Land held for speculation 500,000

Sinking fund 400,000

Preference share redemption fund 350,000

Cash surrender value 60,000

Total 1,310,000

Computer software 3,250,000

Lease rights 100,000

Total 3,350,000

10

Note 5 - Other noncurrent assets

Advances to officers, not collectible currently 100,000

Long-term refundable deposit 50,000

Total 150,000

Notes payable 300,000

Unearned rent income 40,000

SSS payable 10,000

Accrued salaries 100,000

Dividends payable 120,000

Withholding tax payable 30,000

Total 1,000,000

Note 7 – Share capital

Preference share capital 2,000,000

Ordinary share capital 5,000,000

Total 7,000,000

Note 8 - Reserves

Share premium – preference 500,000

Share premium – ordinary 200,000

Total 700,000

(11)

Relax Company

Statement of Financial Position December 31, 2008

A S S E T S

Cash 400,000

Trade accounts receivable (1) 750,000

Inventories 1,000,000

Noncurrent assets:

Investment in associate 1,300,000

Intangible assets (3) 350,000

11

LIABILITIES AND SHAREHOLDERS’ EQUITY Note

Mortgage note payable-current portion 400,000

Mortgage note payable, remaining position 1,600,000

Bank loan payable, due June 30, 2010 500,000

Share capital 3,000,000

Reserves (5) 1,400,000

Retained earnings 1,250,000

Note 1 - Trade accounts receivable

Net realizable value 750,000

(12)

Accum. Book Cost depr. value

Land 500,000 - 500,000

Building 5,000,000 2,000,000 3,000,000

Machinery 3,000,000 1,200,000 1,800,000

Equipment 400,000 100,000 300,000

Total 8,900,000 3,300,000 5,600,000

Trademark 150,000

Secret processes and formulas 200,000

Total 350,000

Income tax payable 50,000

Accrued expenses 60,000

Estimated liability for damages 140,000

Total 1,350,000

12

Additional paid in capital 300,000

Retained earnings appropriated for plant expansion 1,000,000

Retained earnings appropriated for contingencies 100,000

Total 1,400,000

Problem 2-5

Summa Company Statement of Financial Position

December 31, 2008 A S S E T S

Cash (1) 700,000

Bond sinking fund 2,000,000

Inventory 1,200,000

Noncurrent assets:

Investment property 700,000

(13)

LIABILITIES AND EQUITY Note

Bonds payable due June 30, 2009 2,000,000

Noncurrent liability:

Deferred tax liability 650,000

Equity: Share capital (6) 3,500,000 Reserves (7) 500,000 Retained earnings 2,700,000 Total equity 6,700,000

Total liabilities and equity 11,400,000

13

Note 1 - Cash

Cash on hand 50,000

Cash in bank 650,000

700,000

Notes receivable 200,000

Accrued interest receivable 30,000

Total 830,000

Accum. Book Cost depr. value

Land 1,000,000 - 1,000,000

Building 5,500,000 2,500,000 3,000,000

Furniture and equipment 2,400,000 900,000 1,500,000

Total 8,900,000 3,400,000 5,500,000

Note 4 - Intangible asset

(14)

Patent 370,000 Note 5 - Trade and other payables

Accounts payable 1,000,000

Accrued taxes 50,000

Other accrued liabilities 150,000

Total 2,050,000

Note 6 – Share capital

Authorized share capital, 50,000 shares, P100 par 5,000,000

Unissued share capital (2,000,000)

Issued share capital 3,000,000

Subscribed share capital, 10,000 shares 1,000,000

Subscription receivable ( 500,000) 500,000

Paid in capital 3,500,000

Retained earnings appropriated for contingencies 200,000

Total 500,000

14

Problem 2-6 (Functional method)

Karla Company Income Statement

Year ended December 31, 2008

Note

Net sales revenue (1) 7,700,000

Cost of sales (2) (5,000,000) Gross income 2,700,000 Other income (3) 400,000 Total income 3,100,000 Expenses: Selling expenses (4) 950,000 Administrative expenses (5) 800,000 Other expenses (6) 100,000 1,850,000

Income before tax 1,250,000

Income tax ( 250,000)

(15)

Note 1 – Net sales revenue

Gross sales 7,850,000

Sales returns and allowances ( 140,000)

Sales discounts ( 10,000)

Net sales revenue 7,700,000

Note 2 – Cost of sales

Inventory, January 1 1,000,000

Purchases 5,250,000

Freight in 500,000

Purchase returns and allowances ( 150,000)

Purchase discounts ( 100,000)

Net purchases 5,500,000

Goods available for sale 6,500,000

Inventory, December 31 (1,500,000)

Cost of sales 5,000,000

Note 3 – Other income

Rental income 250,000

Dividend revenue 150,000

Total other income 400,000

15

Note 4 – Selling expenses

Freight out 175,000

Salesmen’s commission 650,000

Depreciation – store equipment 125,000

Total selling expenses 950,000

Note 5 – Administrative expenses

Officers’ salaries 500,000

Depreciation – office equipment 300,000

Total administrative expenses 800,000

Note 6 – Other expenses

Loss on sale of equipment 50,000

Loss on sale of investment 50,000

(16)

Natural method

Karla Company Income Statement Year ended December 31, 2008

Note

Other income (2) 400,000 Total 8,100,000 Expenses: Increase in inventory (3) ( 500,000) Net purchases (4) 5,500,000 Freight out 175,000 Salesmen’s commission 650,000 Depreciation (5) 425,000 Officers’ salaries 500,000 Other expenses (6) 100,000 6,850,000

Income tax ( 250,000)

Net income 1,000,000

16

Gross sales 7,850,000

Sales discounts ( 10,000)

Rental income 250,000

Dividend revenue 150,000

Total other income 400,000

(17)

Inventory, December 31 1,500,000

Inventory, January 1 1,000,000

Increase in inventory 500,000

Note 4 – Net purchases

Purchases 5,250,000

Freight in 500,000

Purchase returns and allowances ( 150,000)

Purchase discounts ( 100,000)

Net purchases 5,500,000

Note 5 – Depreciation

Total 425,000

Note 6 – Other expenses

Loss on sale of equipment 50,000

Loss on sale of investment 50,000

Total 100,000

17

Problem 2-7

Masay Company

Statement of Cost of Goods Manufactured Year Ended December 31, 2008

Raw materials – January 1 200,000

Purchases 3,000,000

Raw materials available for use 3,200,000

Less: Raw materials – December 31 280,000

Raw materials used 2,920,000

Direct labor 950,000

Factory overhead:

Indirect labor 250,000

Superintendence 210,000

Light, heat and power 320,000

(18)

Repair and maintenance – machinery 50,000

Factory supplies used 110,000

Depreciation – machinery 60,000 1,120,000

Total manufacturing cost 4,990,000

Goods in process – January 1 240,000

Total Cost of goods in process 5,230,000

Less: Goods in process – December 31 170,000

Cost of goods manufactured 5,060,000

Cost of sales method

Masay Company Income Statement Year ended December 31, 2008

Note

Cost of goods sold (2) (5,120,000)

Gross income 2,330,000 Other income (3) 210,000 Total income 2,540,000 Expenses: Selling expenses (4) 830,000 Administrative expenses (5) 590,000 Other expense (6) 300,000 1,720,000

Income before tax 820,000

Income tax expense ( 320,000)

Net income 500,000

18

Sales 7,500,000

Note 2 – Cost of goods sold

Finished goods – January 1 360,000

Finished goods – December 31 ( 300,000)

(19)

Gain from expropriation 100,000

Interest income 10,000

Gain on sale of equipment 100,000

210,000

Sales salaries 400,000

Advertising 160,000

Delivery expenses 200,000

Total 830,000

Office salaries 150,000

Accounting and legal fees 150,000

Office expenses 250,000

Total 590,000

Note 6 – Other expense

Earthquake loss 300,000

19

Nature of expense method

Masay Company Income Statement Year Ended December 31, 2008

Note

Other income (2) 210,000

Total income 7,660,000

Expenses:

(20)

and goods in process (3) 130,000

Raw materials used (4) 2,920,000

Direct labor 950,000 Factory overhead (5) 1,120,000 Salaries (6) 550,000 Advertising 160,000 Depreciation (7) 110,000 Delivery expenses 200,000

Accounting and legal fees 150,000

Office expenses 250,000

Other expense (8) 300,000 6,840,000

Income before tax 820,000

Income tax expense ( _320,000)

Net income 500,000

Sales 7,500,000

Gain from expropriation 100,000

Gain on sale of equipment 100,000

210,000

Note 3 – Decrease in finished goods and goods in process

January 1 December 31 Decrease

Finished goods 360,000 300,000 60,000

Goods in process 240,000 170,000 70,000

Total 600,000 470,000 130,000

20

Note 4 – Raw materials used

Raw materials – January 1 200,000

Purchases 3,000,000

Raw materials available for use 3,200,000

Raw materials – December 31 280,000

Note 5 – Factory overhead

(21)

Superintendence 210,000

Light, heat and power 320,000

Rent – factory building 120,000

Repair and maintenance – machinery 50,000

Factory supplies used 110,000

Depreciation – machinery 60,000 Total 1,120,000 Note 6 – Salaries Sales salaries 400,000 Office salaries 150,000 Total 550,000 Note 7 – Depreciation

Total 110,000

Earthquake loss 300,000

Problem 2-8

Youth Company Income Statement Year ended December 31, 2008

Note

Gross income 2,970,000

Expenses:

Selling expenses (3) 690,000

Administrative expenses (4) 580,000

Other expense (5) 340,000 1,610,000

21

Sales 9,070,000

(22)

Beginning inventory 1,500,000

Purchases 5,750,000

Transportation in 150,000

Purchase discounts ( 100,000) 5,800,000

Ending inventory (1,400,000)

Cost of goods sold 5,900,000

Store supplies 80,000

Sales salaries 500,000

Total 690,000

Officers’ salaries 400,000

Depreciation – building 120,000

Office supplies 60,000

Total 580,000

Uninsured flood loss 340,000

22

Problem 2-9

Christian Company

(23)

Freight in 80,000

Total 1,680,000

Increase in raw materials ( 100,000)

Direct labor 1,480,000

Factory overhead:

Depreciation – machinery 50,000

Factory taxes 130,000

Factory supplies expense 120,000

Factory superintendence 480,000

Factory maintenance 150,000

Factory heat, light and power 220,000 1,750,000

Decrease in goods in process 90,000

Christian Company Income Statement Year Ended December 31, 2008

Note

Sales revenue 8,000,000

Gross income 2,900,000

Expenses:

Selling expenses (2) 800,000

Administrative expenses (3) 930,000 1,730,000

Decrease in finished goods 200,000

23

Sales salaries

(24)

Advertising 120,000 Delivery expense 160,000 Total 800,000

Office supplies expense

30,000 Office salaries 800,000 Doubtful accounts 100,000 Total 930,000 Problem 2-10 Ronald Company

Materials – January 1 1,120,000

Purchases 1,600,000

Freight on purchases 220,000

Purchase discounts ( 20,000) 1,800,000

Materials available for use 2,920,000

Less: Materials – December 31 1,560,000

Materials used 1,360,000

Direct labor 2,000,000

Factory overhead:

Heat, light and power 600,000

Repairs and maintenance 100,000

Other factory overhead 340,000

Factory supplies used (300,000 + 660,000 – 540,000) 420,000

Depreciation – factory building 280,000 2,100,000

Goods in process – January 1 360,000

Total cost of goods in process 5,820,000

Less: Goods in process – December 31 320,000

(25)

24

Ronald Company Income Statement Year Ended December 31, 2008

Note

Gross income 1,580,000 Other income (3) 160,000 Total income 1,740,000 Expenses: Selling expenses 200,000 Administrative expenses 340,000 540,000

Sales 7,120,000

Finished goods – January 1 420,000

Finished goods – December 31 ( 520,000)

(26)

25

Problem 2-11

Reliable Company Statement of Retained Earnings Year Ended December 31, 2008

Retained earnings – January 1 200,000

Prior period error – overdepreciation in 2007 100,000

Change in accounting policy from FIFO to weighted average

method – credit adjustment 150,000

Corrected beginning balance 450,000

Decrease in appropriation for treasury share 200,000

Total 1,950,000

Cash dividends paid to shareholders ( 500,000)

Current appropriation for contingencies ( 100,000)

Retained earnings – December 31 1,350,000

Problem 2-12

Loss from fire ( 50,000)

Goodwill impairment ( 250,000)

Loss on sale of equipment ( 200,000)

Gain on retirement of bonds payable 100,000

Gain on life insurance settlement 450,000

Adjusted net income 3,050,000

Gondola Company Statement of Retained Earnings Year ended December 31, 2008

Balance – January 1 2,600,000

Compensation of prior period not accrued ( 500,000)

Correction of prior period error – credit 400,000

Adjusted beginning balance 2,500,000

Net income – adjusted 3,050,000

Stock dividend ( 700,000)

Loss on retirement of preference share ( 350,000)

Appropriated for treasury share (1,000,000)

(27)

26

CHAPTER 3

Problem 3-1 Problem 3-2 1. D 6. D 1. D 6. D 2. A 7. B 2. D 7. D 3. A 8. C 3. C 8. B 4. C 9. C 4. A 9. D 5. B 10. A 5. C 10. B Problem 3-3 a. Undeposited collections 60,000

Cash in bank – PCIB 500,000

Cash in bank – PCIB (for payroll) 150,000

Cash in bank - PCIB (savings deposit) 100,000

Money market instrument – 90 days 2,000,000

Total cash and cash equivalents 2,810,000

b. Accounts receivable (15,000 + 25,000) 40,000

Cash in foreign bank 100,000

Advances to officers 30,000

Sinking fund cash 450,000

Trading securities 120,000

Bank overdraft 50,000

Cash 690,000

Problem 3-4

Adjusting entries on December 31, 2008

a. Cash 100,000 Accounts payable 100,000 b. Cash 50,000 Accounts payable 50,000 c. Accounts receivable 200,000 Cash 200,000 d. Accounts receivable (20,000 + 60,000 + 30,000) 110,000

(28)

Money market placement 1,000,000

Cash in closed bank 50,000

Advances to employee 30,000

Pension fund 400,000

Cash 1,590,000

27

Cash and cash equivalents:

Demand deposit (see below) 1,450,000

Time deposit – 30 days 500,000

Petty cash fund 10,000

Total 1,960,000

Demand deposit per book 1,500,000

Undelivered check 100,000

Postdated check delivered 50,000

Window dressing of collection ( 200,000)

Adjusted balance 1,450,000

Problem 3-5

1. Cash on hand 500,000

Postdated check (100,000)

Adjusted cash on hand 400,000

2. Petty cash fund 20,000

Unreplenished petty cash expenses ( 2,000)

Postdated employee check ( 3,000)

Adjusted petty cash 15,000

3. Security Bank current account 1,000,000

Postdated company check delivered 200,000

Adjusted balance 1,200,000

Security Bank current account 1,200,000

PNB current account No. 1 400,000

PNB current account No. 2 ( 50,000)

BSP Treasury bill – 60 days 3,000,000

Total cash and cash equivalents 4,965,000

*The BPI Time deposit of P2,000,000 is shown as noncurrent investment because it is restricted for land acquisition.

5. Accounts receivable 100,000

(29)

Expenses 2,000

Receivable from employee 3,000

Security Bank current account 200,000

28

Problem 3-6

NSF customer check ( 40,000)

Postdated customer check ( 60,000)

Adjusted on hand 400,000

2. Currency and coins 1,000

Check drawn payable to petty cashier 14,000

Adjusted petty cash 15,000

3. Cash in bank 2,000,000

Undelivered company check 100,000

Adjusted cash in bank 2,250,000

4. Accounts receivable (40,000 + 60,000) 100,000

Cash on hand 100,000

Advances to employees 3,000

Cash short or over 2,000

Cash in bank (100,000 + 150,000) 250,000

Problem 3-7

NSF customer check ( 35,000)

Postdated customer check ( 15,000)

Adjusted cash on hand 150,000

2. Petty cash fund:

Currency and coins 5,000

3. Philippine Bank current account 5,000,000

Undelivered company check 25,000

(30)

Philippine Bank current 5,070,000

Manila Bank current 4,000,000

Asia Bank time deposit 2,000,000

Total cash and cash equivalent 11,225,000

29

Cash on hand 50,000

Receivable from officer 2,000

Expenses 12,000

Petty cash 15,000

Philippine Bank current 70,000

City Bank current 100,000

Bank overdraft 100,000

Problem 3-8

Fluctuating Fund System Imprest Fund System

1. Petty cash fund 10,000 1. Petty cash fund 10,000

Cash in bank 10,000 Cash in bank 10,000

2. Postage 1,500 2. No entry

Supplies 5,500

Transportation 1,200

Miscellaneous expense 800

Cash in bank 14,000 Postage 1,500

Supplies 5,500

Cash in bank 14,000

Problem 3-9

(31)

2. Postage 1,500 2. No entry

Supplies 2,000

3. No entry

3. Transportation 1,000

Cash in bank 1,500 4. No entry

30

4. Supplies 1,000

Accounts payable 3,000 5. Postage 1,500

Petty cash fund 4,000 Supplies 3,000

5. Petty cash fund 9,000 Miscellaneous expense 500

Cash in bank 9,000 Accounts payable 3,000

Cash in bank 9,000

6. Postage 2,000

Supplies 3,000 6. No entry

Petty cash fund 9,000 7. Petty cash fund 10,000

Postage 2,000

7. Petty cash fund 19,000 Supplies 3,000

Cash in bank 19,000 Transportation 4,000

Cash in bank 19,000

Problem 3-10

May 2 Petty cash fund 10,000 May 2 Petty cash fund 10,000

Cash in bank 10,000 Cash in bank 10,000 29 Postage 1,000 29 Postage 1,000

Supplies 3,000 Supplies 3,000 Transportation 2,500 Transportation 2,500 Miscellaneous expense 1,500 Miscellaneous expense 1,500

Petty cash fund 8,000 Petty cash fund 8,000 Petty cash fund 8,000 Cash in bank 8,000

June 30 Supplies 2,000 June 30 Supplies 2,000 Accounts payable 1,000 Accounts payable 1,000 Transportation 1,000 Transportation 1,000

Petty cash fund 4,000 Petty cash fund 4,000 July 1 Petty cash fund 4,000

(32)

Supplies 2,000 Postage 1,000 Transportation 1,000 To reverse the adjustment made on June 30.

15 Petty cash fund 5,000 July 15 Supplies 1,500 Supplies 3,500 Postage 500

Postage 1,500 Transportation 500 Transportation 1,500 Miscellaneous expense 500

Miscellaneous expense 500 Petty cash fund 3,000 Cash in bank 12,000

Petty cash fund 12,000 Cash in bank 12,000

31

Problem 3-11

2008

Nov. 2 Petty cash fund 10,000

Cash in bank 10,000

30 Postage 2,000

Supplies 5,000

Cash in bank 17,000

Dec. 31 Postage 3,000

Supplies 4,000

Special deposit 2,000

2009

Jan. 1 Petty cash fund 9,000

Postage 3,000 Supplies 4,000 Special deposit 2,000 2 No entry 31 Postage 5,000 Supplies 6,000 Accounts payable 7,000

Cash in bank 19,000

Problem 3-12

Requirement 1

2008

Dec. 1 Petty cash fund 10,000

(33)

20 Selling expenses 5,000

Miscellaneous expenses 2,000

Equipment 2,000

Cash in bank 9,000

31 Receivable from employee 2,000

Selling expenses 1,500

Transportation 500

2009

Jan. 1 Petty cash fund 4,000

Receivable from employee 2,000

Selling expenses 1,500 Transportation 500

32

2009 Jan. 15 No entry 31 Selling expenses 2,000 Administrative expenses 2,000 Transportation 1,500 Purchases 1,200 Cash in bank 6,700 Requirement 2 Petty cash 10,000

Less: Petty cash expenses from December 21, 2008 to January 31, 2009:

Selling expenses (1,500 + 500) 2,000

Administrative expenses 2,000

Transportation (500 + 1,000) 1,500

Purchases 1,200 6,700

Petty cash before replenishment 3,300

Problem 3-13 Answer B Problem 3-14 Answer C

Problem 3-15 Answer A Problem 3-16 Answer A

Petty cash fund 50,000 Payroll account 2,500,000

Undeposited collections 1,100,000 Value added tax account 1,000,000

Cash in bank 2,500,000 Traveler’s check 300,000

Total 3,650,000 Money order 700,000

Total 4,540,000

Problem 3-17 Answer C

Checking account #101 1,750,000

(34)

Time deposit account 250,000

90-day Treasury bill 500,000

Total cash and cash equivalent 2,400,000

Problem 3-18 Answer B

Cash in First Bank 5,000,000

Change fund 50,000

Total 5,065,000

Problem 3-19 Answer B

Cash balance per book 6,000,000

Credit adjustment (1,600,000)

Adjusted cash balance 4,400,000

33

Note receivable 1,000,000 Accounts receivable (400,000 + 200,000) 600,000 Cash 1,600,000

Problem 3-20 Answer A Checkbook balance 8,000,000

Postdated customer check (2,000,000)

NSF check ( 500,000)

Undelivered company check 1,500,000

Adjusted balance 7,000,000 Problem 3-21 Answer A Cash on hand 2,400,000 Cash in bank 3,500,000 Petty cash 40,000 Saving deposit 2,000,000 Total deposit 7,940,000

Problem 3-22 Answer B Problem 3-23 Answer A Problem 3-24 Answer A

Problem 3-25 Answer A

Cash on hand and in bank 5,000,000

Time deposit 6,000,000

Saving deposit 1,000,000

Total 12,000,000

(35)

Currencies 4,000

Coins 1,000

Accommodation check 6,000

Total 11,000

Coins and currency 2,000

Replenishment check 4,000

Total 6,000

Total petty cash 10,000

Currency and coins ( 3,000)

Amount of replenishment 7,000

34

CHAPTER 4 Problem 4-1 1. D 6. C 11. C 2. A 7. D 12. B 3. B 8. C 13. A 4. C 9. A 14. C 5. C 10. B 15. C Problem 4-2

Balance per book 65,000

Add: CM for note collected 30,000

Total 95,000

Less: DM for service charge 2,000

Adjusted book balance 93,000

Balance per bank 108,000

Add: Deposit in transit 80,000

Total 188,000

Less: Outstanding checks:

No. 102 15,000

105 30,000

107 50,000 95,000

Adjusted bank balance 93,000

Adjusting entries:

(36)

Note receivable 30,000

2. Bank service charge 2,000

Cash in bank 2,000

Problem 4-3

Balance per book 110,000

Total 155,000

NSF check 10,000

Book error (52,000 – 25,000) 27,000 42,000

35

Balance per bank 135,000

Erroneous bank debit 8,000 68,000

Total 203,000

No. 770 20,000

775 30,000

777 40,000 90,000

1. Cash in bank 45,000

Bank service charge 5,000

Cash in bank 42,000

Problem 4-4

Balance per book 2,840,000

Total 3,110,000

(37)

Balance per bank 3,265,000

Total 3,715,000

No. 116 60,000

122 180,000

124 120,000

125 250,000 610,000

Adjusted bank balance 3,105,000

Bank service charge 10,000

Cash in bank 5,000

36

Problem 4-5

Balance per book 5,000,000

Add: Note collected by bank 2,150,000

Total 7,150,000

Less: Bank service charge 50,000

NSF check 500,000 550,000

Adjusted book balance 6,600,000

Deposit in transit 3,000,000

Total 7,450,000

Less: Outstanding checks 850,000

Note receivable 2,000,000

(38)

Problem 4-6

Book balance 1,405,000

Add: Collection of note 2,500,000

Interest on note 150,000

Book error on check no. 175 45,000 2,695,000

Total 4,100,000

Payment for light and water 245,000

NSF check 220,000 470,000

Bank balance 5,630,000

Total 6,380,000

Less: Bank error 1,100,000

Outstanding checks 1,650,000 2,750,000

37

Adjusting entries: 1. Cash in bank 2,695,000 Note receivable 2,500,000 Interest income 150,000 Accounts payable 45,000

Light and water 245,000

Problem 4-7

a. Balance per book – April 30 1,100,000

Credit memo for note collected 60,000

Outstanding checks: No. 1331 40,000 1332 30,000 1334 60,000 1335 10,000 140,000 Total 1,300,000

(39)

NSF check 25,000

Undeposited collections 270,000 300,000

Balance per bank – April 30 1,000,000

b. Adjusting entries:

Cash in bank 30,000

c. Balance per book – April 30 1,100,000

CM for note collected 60,000

Bank service charge ( 5,000)

NSF check ( 25,000)

Adjusted cash in bank 1,130,000

38

Problem 4-8

a. Balance per bank 3,500,000

Add: Undeposited collections 550,000

NSF check 50,000

DM for safety deposit 5,000

Unrecorded check 125,000 730,000

Total 4,230,000

Less: Checks outstanding 650,000

Overstatement of creditor’s check 270,000

Understatement of customer’s check 180,000 1,100,000

b. Adjusting entries:

(40)

c. Balance per book 3,130,000

Overstatement of creditor’s check 270,000

Understatement of customer’s check 180,000

Total 3,580,000

Less: NSF check 50,000

DM for safety box 5,000

Unrecorded check 125,000 180,000

Problem 4-9

Add: Proceeds of bank loan 940,000

Note collected by bank 435,000 1,375,000

Total 4,075,000

Less: Service charge 10,000

Customer’s check charged back 50,000 60,000

39

Incorrect deposit 90,000

Erroneous bank charge 150,000

Erroneous debit memo 200,000 915,000

Total 4,915,000

Erroneous bank credit 300,000 900,000

Interest expense (60,000 x 1/6) 10,000

Prepaid interest expense 50,000

Loan payable (940,000/94%) 1,000,000

(41)

Cash in bank 60,000

Problem 4-10

Balance per book (squeeze) 2,120,000

Proceeds of note collected 435,000 935,000

Total 3,055,000

NSF check 50,000 55,000

Balance per bank (squeeze) 3,070,000

Bank error (200,000 – 20,000) 180,000 630,000

Total 3,700,000

Less: Outstanding checks (750,000 – 50,000) 700,000

Bank service charge (5,000 + 15,000) 20,000

Accounts receivable 50,000 Loan payable 500,000 Notes receivable 400,000 Interest income 50,000

40

Problem 4-11

Total 5,516,000

Less: Understatement of check in payment of account

(200,000 – 20,000) 180,000

Petty cash fund 10,000 190,000

Erroneous bank charge 50,000

Deposit omitted from bank statement 150,000 500,000

Total 6,000,000

Less: Erroneous bank credit 130,000

Outstanding checks 544,000 674,000

(42)

Interest expense (84,000 x 2/12) 14,000

Prepaid interest expense 70,000

Supplies 2,000

Postage 1,000

Loan payable (516,000/86%) 600,000

Problem 4-12

Add: Overstatement of check number 765 20,000

Check number 555 stopped for payment 10,000 30,000

Total 1,330,000

NSF check 85,000 90,000

Total 1,475,000

Number 761 55,000

762 40,000

763 25,000

764 65,000

765 50,000 235,000

41

Miscellaneous income 10,000

Cash in bank 90,000

3. Receivable from cashier 40,000

Sales discounts 10,000

Problem 4-13

(43)

Add: Credit memo for note collected 300,000

Total 1,300,000

Less: NSF check 100,000

Service charge 4,000 104,000

Total 2,050,000

Bank reconciliation – July 31

Add: Credit memo for bank loan 500,000

Total 1,900,000

Add: Deposit in transit 1,100,000

Total 3,750,000

Less: Outstanding checks 1,851,000

b. Adjusting entries, July 31

Bank loan payable 500,000

42

Cash in bank 1,000

Computation of deposit in transit – July 31

Deposit in transit – June 30 400,000

Add: Deposits during July:

Book debits 4,000,000

Less: June credit memo for note collected 300,000 3,700,000

Total 4,100,000

Less: Deposits credited by bank during July:

Bank credits 3,500,000

Less: July credit memo for bank loan 500,000 3,000,000

(44)

Computation of outstanding checks – July 31

Outstanding checks, June 30 854,000

Add: Checks drawn by company during July:

Book credits 3,600,000

Less: June debit memos for

NSF check 100,000

Service charge 4,000 104,000 3,496,000

Total 4,350,000

Less: Checks paid by bank during July:

Bank debits 2,500,000

Less: July service charge 1,000 2,499,000

Outstanding checks, July 31 1,851,000

Problem 4-14

a. Reconciliation – October 31

Bank balance 400,000

Total 700,000

Reconciliation – November 30

Add: Understatement of collection from customer 90,000

Total 1,090,000

Less: Understatement of check disbursement 270,000

43

Bank balance 930,000

Check of Susan Company charged in error 200,000 390,000

Total 1,320,000

Deposit of Susan Company erroneously credited 100,000 500,000

b. Adjusting entries – November 30

(45)

2. Accounts payable 270,000

Computation of outstanding checks – October 31

Outstanding checks – October 31 (squeeze) 100,000

Add: Checks issued by depositor:

Book disbursements 1,800,000

Understatement of check paid 270,000 2,070,000

Total 2,170,000

Less: Checks paid by bank:

Bank disbursements 1,970,000

Check of Susan Company charged in error ( 200,000) 1,770,000

Outstanding checks – November 30 400,000

Computation of deposit in transit – November 30

Deposit in transit – October 31 300,000

Add: Cash receipts deposited during November:

Book receipts 2,200,000

Understatement of collection from customer 90,000 2,290,000

Total 2,590,000

Less: Deposits credited by bank during November:

Bank receipts 2,500,000

Deposit of Susan Company erroneously credited ( 100,000) 2,400,000

Deposit in transit – November 30 190,000

Problem 4-15

a. Reconciliation on July 1

44

Total 2,220,000

Reconciliation on July 31

Book balance 470,000

(46)

Total 1,970,000

Total 3,100,000

Check # 107 650,000

108 500,000 1,150,000

b. Adjusting entries on July 31

Note receivable 1,500,000

Cash in bank 20,000

Computation of deposit in transit – July 1

Deposit in transit – July 1 (squeeze) 500,000

Cash receipts per book 3,400,000

Total 3,900,000

Less: Deposits credited by bank 3,500,000

Deposit in transit – July 31 400,000

Computation of outstanding checks – July 1

Outstanding checks – July 1 (squeeze) 950,000

Checks drawn by depositor 4,200,000

Total 5,150,000

Less: Checks paid by bank 4,000,000

Outstanding checks – July 31 1,150,000

45

Problem 4-16

Balance per book – November 30 500,000

NSF check 50,000

Customer’s note erroneously recorded as cash receipt 100,000 160,000

(47)

Balance per bank – November 30 600,000

Total 720,000

Deposit in transit – October 31 45,000

Cash receipts deposited:

Book debits 710,000

October collections recorded in November ( 45,000)

Customer’s note recorded as cash receipt (100,000) 565,000

Total 610,000

Less: Deposits credited by bank:

Bank credits 500,000

Correction of bank error ( 10,000) 490,000

Deposit in transit – November 30 120,000

Outstanding checks – October 31 125,000

Checks issued by depositor:

Book credits 1,200,000

October bank service charge ( 5,000) 1,195,000

Total 1,320,000

Checks paid by bank:

Bank debits 1,000,000

November bank service charge ( 10,000)

November NSF check ( 50,000) 940,000

Outstanding checks – November 30 380,000

Adjusting entry:

46

Problem 4-17

March 31 Receipts Disbursements April 30

Book balance 200,000 800,000 720,000 280,000

Note collected by bank

March 60,000 ( 60,000)

April 100,000 100,000

(48)

March ( 8,000) ( 8,000) April 2,000 ( 2,000) NSF check March ( 20,000) ( 20,000) April 30,000 ( 30,000) Deposit in transit March 31 ( 80,000) 80,000 April 30 (220,000) (220,000) Outstanding checks March 31 178,000 178,000 April 30 (372,000) 372,000 Bank balance 330,000 700,000 530,000 500,000 Problem 4-18

July 31 Receipts Disbursements August 31

Bank balance 800,000 5,000,000 3,940,000 1,860,000

Book error on collection ( 180,000) ( 180,000)

Book error on payment ( 540,000) 540,000

Bank error on deposit ( 200,000) ( 200,000)

Bank error on payment ( 400,000) 400,000

NSF check:

July 100,000 100,000

August ( 50,000) 50,000

Note collected by bank:

July ( 200,000) 200,000 August ( 300,000) ( 300,000) Deposit in transit: July 600,000 ( 600,000) August 480,000 480,000 Outstanding checks: July ( 100,000) ( 100,000) August 650,000 ( 650,000) Book balance 1,200,000 4,400,000 3,600,000 2,000,000

47

Problem 4-19

Nov. 30 Receipts Disbursements Dec. 31

Book balance 2,032,000 2,568,000 1,440,000 3,160,000